-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, EoatmnRDcigU9mJqzLmWe6Z0VlvPfksA06D8dpranq8AZSb24rsmgfJcWB8bh5Lq cma0RXZmaYWKDYKGrR8sQQ== 0000950130-95-001085.txt : 19950609 0000950130-95-001085.hdr.sgml : 19950609 ACCESSION NUMBER: 0000950130-95-001085 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19950430 FILED AS OF DATE: 19950608 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: VARITY CORP CENTRAL INDEX KEY: 0000063118 STANDARD INDUSTRIAL CLASSIFICATION: FARM MACHINERY & EQUIPMENT [3523] IRS NUMBER: 223091314 STATE OF INCORPORATION: DE FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-05190 FILM NUMBER: 95545709 BUSINESS ADDRESS: STREET 1: 672 DELAWARE AVE CITY: BUFFALO STATE: NY ZIP: 14209 BUSINESS PHONE: 7168888000 FORMER COMPANY: FORMER CONFORMED NAME: MASSEY FERGUSON LTD DATE OF NAME CHANGE: 19600201 10-Q 1 QUARTERLY REPORT ON FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended APRIL 30, 1995 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: 1-5190 VARITY CORPORATION (Exact name of registrant as specified in its charter) DELAWARE 22-3091314 - ------------------------------ ------------------------------- (State or other jurisdiction (IRS Employer of Incorporation) Identification No.) 672 DELAWARE AVENUE, BUFFALO, NEW YORK 14209 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Telephone number including area code: (716) 888-8000 ________________________________________________________________________________ (Former name, former address and former fiscal year, if changed since last report) 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 . --- --- THE NUMBER OF SHARES OF COMMON STOCK OUTSTANDING AS OF MAY 15, 1995 WAS 40,796,930 SHARES. ================================================================================ Exhibit index appears on page 15. VARITY CORPORATION QUARTERLY REPORT ON FORM 10-Q TABLE OF CONTENTS PART I. FINANCIAL INFORMATION: Page Item 1. Financial Statements Consolidated Statements of Operations .................. 3 Consolidated Balance Sheets ............................ 4 Consolidated Statements of Cash Flows .................. 5 Notes to Consolidated Financial Statements ............. 6 Item 2. Management's Discussion and Analysis ................... 9 PART II. OTHER INFORMATION: Item 1. - Legal Proceedings.................................. 13 Item 2. - Changes in Registered Securities .................. 13 Item 3. - Defaults upon Senior Securities ................... 13 Item 4. - Submission of Matters to a Vote of Security Holders 13 Item 5. - Other Information ................................. 13 Item 6.(a) - Exhibits .......................................... 13 Item 6.(b) - Reports on Form 8-K ............................... 13 SIGNATURES....................................................... 14 UNLESS OTHERWISE INDICATED REFERENCES TO "COMPANY" MEAN VARITY CORPORATION AND ITS SUBSIDIARIES AND REFERENCES TO "FISCAL" MEAN THE COMPANY'S YEAR ENDED JANUARY 31 (E.G. FISCAL 1995 REPRESENTS THE PERIOD FEBRUARY 1, 1995 TO JANUARY 31, 1996). Page 2 Part I. FINANCIAL INFORMATION Item 1. Financial Statements VARITY CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS THREE MONTHS ENDED APRIL 30, (Unaudited) (Dollars in millions except per share amounts)
1995 1994 ---------------- ---------------- Total sales and revenues $ 595.3 $ 494.1 ---------------- ---------------- Expenses: Cost of goods sold 486.0 406.8 Marketing, general and administration 42.4 36.8 Engineering and product development 23.4 20.3 Interest, net 5.0 5.8 Exchange gains (0.1) (1.5) Other income (0.2) (0.8) ---------------- ---------------- 556.5 467.4 ---------------- ---------------- Income before income taxes, earnings of associated companies and discontinued operations 38.8 26.7 Income tax provision (8.9) (4.6) ---------------- ---------------- Income before earnings of associated companies and discontinued operations 29.9 22.1 Equity in earnings of associated companies 3.8 3.4 ---------------- ---------------- Income before discontinued operations 33.7 25.5 Earnings from discontinued operations (Note 2) 0.5 3.9 ---------------- ---------------- Net income $ 34.2 $ 29.4 ================ ================ Income attributable to common stockholders $ 33.6 $ 28.8 Earnings per common share: Before discontinued operations $ 0.80 $ 0.56 Discontinued operations 0.01 0.09 ---------------- ---------------- Net income $ 0.81 $ 0.65 ================ ================
See accompanying Notes to Consolidated Financial Statements. Page 3 VARITY CORPORATION CONSOLIDATED BALANCE SHEETS (Unaudited) (Dollars in millions)
April 30, January 31, 1995 1995 ------------------- --------------------- Assets Current assets: Cash and cash equivalents $ 136.5 $ 147.0 Marketable securities 42.4 42.7 Receivables 370.1 358.7 Inventories (Note 3 (a)) 157.6 146.0 Prepaid expenses and other 20.3 19.9 Net assets of discontinued operation (Note 2) 21.6 20.2 ------------------- --------------------- Total current assets 748.5 734.5 Investments in associated and other companies 108.9 103.1 Fixed assets, net (Note 3 (b)) 627.6 613.2 Other assets and intangibles 361.1 361.7 ------------------- --------------------- $ 1,846.1 $ 1,812.5 =================== ===================== Liabilities Current liabilities: Notes payable $ 6.6 $ 3.0 Current portion of long-term debt 2.1 2.3 Accounts payable and accrued liabilities (Note 3 (c)) 554.5 541.3 ------------------- --------------------- Total current liabilities 563.2 546.6 ------------------- --------------------- Non-current liabilities: Long-term debt 163.5 163.4 Other long-term liabilities 324.1 318.8 ------------------- --------------------- Total non-current liabilities 487.6 482.2 ------------------- --------------------- Stockholders' equity (Note 4): Preferred stock 6.8 6.8 Common stock 638.5 638.4 Contributed surplus 656.3 656.3 Deficit (385.4) (419.0) Foreign currency translation adjustment (3.6) (10.7) Pension liability adjustment (1.6) (1.6) Unrealized losses on marketable securities (0.9) (1.8) Less treasury stock at cost (114.8) (84.7) ------------------- --------------------- Total stockholders' equity 795.3 783.7 ------------------- --------------------- $ 1,846.1 $ 1,812.5 =================== =====================
See accompanying Notes to Consolidated Financial Statements. Page 4 VARITY CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS THREE MONTHS ENDED APRIL 30, (Unaudited) (Dollars in millions)
1995 1994 ---------------- ---------------- Cash flows from operating activities: Net income $ 34.2 $ 29.4 Adjustments to reconcile net income to cash provided by operating activities: Depreciation and amortization 23.1 17.8 Gain on sales of fixed assets (0.1) (0.7) Deferred income taxes 5.5 1.1 Equity in earnings of associated companies in excess of dividends received (3.7) (3.3) Changes in: Receivables (7.6) (11.8) Inventories (9.3) (10.5) Prepaid expenses and other (1.2) 0.5 Accounts payable and accrued liabilities 9.1 13.8 Other long-term liabilities (3.6) (8.3) Net assets of discontinued operation (0.6) 27.5 ---------------- ---------------- Cash provided by operating activities 45.8 55.5 ---------------- ---------------- Cash flows from investing activities: Purchases of marketable securities (9.5) (8.0) Proceeds from sales of marketable securities 10.7 8.8 Additions to fixed assets (33.7) (52.4) Proceeds from sales of fixed assets 4.1 3.0 Proceeds from sales of businesses - 23.2 Additions to other assets and intangibles (1.3) (3.5) Other (0.9) - ---------------- ---------------- Cash used by investing activities (30.6) (28.9) ---------------- ---------------- Cash flows from financing activities: Proceeds from bank borrowings 14.2 19.6 Repayments of bank borrowings (10.7) (30.9) Proceeds from long-term debt 0.1 49.0 Repayments of long-term debt (1.6) (57.0) Repurchases of common stock (30.1) - Dividends paid (0.6) (0.6) Other 0.1 0.2 ---------------- ---------------- Cash used by financing activities (28.6) (19.7) ---------------- ---------------- Effect of foreign currency translation on cash and cash equivalents 2.9 0.6 ---------------- ---------------- Increase (decrease) in cash and cash equivalents during the year (10.5) 7.5 Cash and cash equivalents at beginning of year 147.0 51.2 ---------------- ---------------- Cash and cash equivalents at end of year $ 136.5 $ 58.7 ================ ================
See accompanying Notes to Consolidated Financial Statements. Page 5 VARITY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Three Months Ended April 30, 1995 and 1994 (Unaudited) (Dollars in millions unless otherwise stated) 1. BASIS OF PRESENTATION The accompanying unaudited consolidated financial statements have been prepared by management and in the opinion of management contain all adjustments, consisting of normal recurring adjustments, necessary to present fairly the financial position of the Company as of April 30, 1995 and January 31, 1995, and the results of its operations and cash flows for the three months ended April 30, 1995 and 1994. The consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's Form 10-K for the fiscal year ended January 31, 1995. Results for interim periods are not necessarily indicative of those to be expected for the year. 2. DISCONTINUED OPERATIONS During the quarter ended April 30, 1995, the Company determined to discontinue its Pacoma components operations (Pacoma). Pacoma manufactures hydraulic cylinders and hydraulic valves and to a lesser degree allied equipment, primarily for producers of construction machines. Such operations have historically been referred to as the Company's 'other' segment. The Company's plan is to sell Pacoma and is working actively to effect such a sale. Although the ultimate gain or loss on disposal cannot be quantified currently, the Company estimates that the disposal, including the results of Pacoma's operations until the sale is completed, will not result in a loss. As a result of the aforementioned plan, the other segment has been presented as a discontinued operation in the accompanying financial statements. Prior year financial statements have been restated to conform to the current year presentation. The operating results of the discontinued Pacoma operation are as follows:
Three Months Ended April 30, ------------------ 1995 1994 ------ ------ Sales and revenues $17.8 $11.7 ===== ===== Income (loss) before income taxes $ .5 $ (.5) Income tax provision - - ----- ----- Net income (loss) $ .5 $ (.5) ===== =====
Page 6 A summary of the assets and liabilities of the discontinued operation is as follows:
April 30, January 31, 1995 1995 --------- ----------- Current assets $22.2 $19.4 Noncurrent assets 12.5 11.8 ----- ----- 34.7 31.2 ----- ----- Current liabilities 11.3 9.2 Noncurrent liabilities 1.8 1.8 ----- ----- 13.1 11.0 ----- ----- Net assets of discontinued operation $21.6 $20.2 ===== =====
Additionally, pursuant to a plan to dispose of its farm equipment segment, during the second quarter of fiscal 1994, the Company completed the sale of its worldwide Massey Ferguson farm machinery business. The transaction excluded cash, indebtedness and certain liabilities, primarily pertaining to pension and retiree medical benefits for all former North American Massey Ferguson employees, for which the Company continued to be responsible. Subsequent to the sale, the Company settled its pension benefit obligation related to former Massey Ferguson employees in North America through the purchase of annuity contracts. As a result of the aforementioned plan, the farm equipment segment has been presented as a discontinued operation in the accompanying financial statements. The operating results of the discontinued Massey Ferguson operation are as follows:
Three Months Ended April 30, 1994 ------------------ Sales and revenues $253.1 ====== Income before income taxes $ 5.0 Income tax provision (.6) ------ Net income $ 4.4 ======
3. OTHER INFORMATION (a) Inventories The major classes of inventory are as follows:
April 30, January 31, 1995 1995 --------- ----------- Raw material $ 54.9 $ 52.3 Work in process 39.7 36.5 Finished goods 63.0 57.2 ------ ------ $157.6 $146.0 ====== ====== (b) Fixed assets, net
Fixed assets are stated net of accumulated depreciation and amortization (April 30, 1995 - $ 338.2 million and January 31, 1995 - $325.8 million). Page 7 (c) Accounts payable and accrued liabilities A summary of accounts payable and accrued liabilities follows:
April 30, January 31, 1995 1995 --------- ----------- Accounts payable $308.0 $286.2 Accrued liabilities 246.5 255.1 ------ ------ $554.5 $541.3 ====== ======
(d) Supplementary Cash Flows Information Cash payments by the Company for interest during the three months ended April 30, 1995 and 1994 were $.8 million and $1.6 million, respectively. Cash payments for income taxes during the three months ended April 30, 1995 and 1994 were $1.8 million and $.7 million, respectively. 4. STOCKHOLDERS' EQUITY The following table summarizes changes in stockholders' equity that occurred during the three months ended April 30, 1995:
Thousands of shares outstanding Equity (Dollars in millions) ------------------ --------------------------------------------------------------------------------------------- Unrealized Trans- Pension gains Total Class II Class II Contri- lation liability (losses) on stock- preferred Common preferred Common buted adjust- adjust- marketable Treasury holders' stock stock stock stock surplus Deficit ment ment securities stock equity - ------------------------------------------------------------------------------------------------------------------------------------ Balance, January 31, 1995 2,001 41,661 $6.8 $638.4 $656.3 $(419.0) $(10.7) $(1.6) $(1.8) $ (84.7) $783.7 Exercise of stock options 6 0.1 0.1 Repurchases of common stock (871) (30.1) (30.1) Foreign currency translation adjustment 7.1 7.1 Dividends on Class II preferred stock (.6) (.6) Unrealized gains on marketable securities .9 .9 Net income 34.2 34.2 - ------------------------------------------------------------------------------------------------------------------------------------ Balance, April 30, 1995 2,001 40,796 $6.8 $638.5 $656.3 $(385.4) $ (3.6) $(1.6) $(0.9) $(114.8) $795.3 ====================================================================================================================================
As of April 30, 1995 options to purchase 2.2 million shares of common stock were outstanding. Earnings per common share are based upon weighted average shares of common stock and common stock equivalents outstanding of 41,382,000 and 44,509,000 for the three months ended April 30, 1995 and 1994 respectively. Fully diluted per share amounts are not shown on the accompanying consolidated statements of operations as no significant dilution exists. The terms of the Company's Class II preferred stock and certain debt agreements restrict the payment of dividends on certain of the Company's common stock, as described in Note 14 to the consolidated financial statements for the fiscal year ended January 31, 1995. Page 8 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION OVERVIEW During the quarter ended April 30, 1995, the Company determined to discontinue its Pacoma components operations (Pacoma). Pacoma manufactures hydraulic cylinders and hydraulic valves and to a lesser degree allied equipment, primarily for producers of construction machines. Such operations have historically been referred to as the Company's 'other' segment. The Company's plan is to sell Pacoma and is working actively to effect such a sale. Although the ultimate gain or loss on disposal cannot be quantified currently, the Company estimates that the disposal, including the results of Pacoma's operations until the sale is completed, will not result in a loss. As a result of the aforementioned plan, the other segment has been presented as a discontinued operation in the accompanying financial statements. Prior year financial statements have been restated to conform to the current year presentation. In addition, in June 1994, the Company, pursuant to a plan to dispose of its farm equipment segment, completed the sale of its worldwide Massey Ferguson farm machinery business. As a result of the plan and subsequent sale, the farm equipment segment has been presented as a discontinued operation in the accompanying financial statements. For the three months ended April 30, 1995, the Company earned $33.7 million ($.80 per share) before the aforementioned discontinued operations on sales and revenues of $595.3 million, compared with income of $25.5 million ($.56 per share) on sales and revenues of $494.1 million for the comparable period in the prior year. Fiscal 1994 sales did not include $21 million of intercompany sales from the engines segment to the discontinued farm equipment operation for which sales to this same customer are reflected as third party sales in fiscal 1995. Earnings from discontinued operations were $.5 million ($.01 per share) for the three months ended April 30, 1995, as compared to $3.9 million ($.09 per share) in the comparable period for fiscal 1994, which included $4.4 million of earnings from the discontinued farm equipment segment for which no similar amount exists in fiscal 1995.
SEGMENT OPERATING REVIEW (Dollars in millions) Three Months Ended April 30, --------------------- % 1995 1994 Change ---- ---- ------ Sales and revenues: Automotive products: Brake Systems $ 321 $ 295 9 Heavy Duty Brakes 34 46 (26) Eliminations (1) (6) - ----- ----- 354 335 6 Engines 241 180 34 Intercompany sales to discontinued farm equipment operation - (21) - ----- ----- Total $ 595 $ 494 20 ===== ===== Operating income: Automotive products: Brake Systems $ 32 $ 26 23 Heavy Duty Brakes - 1 - ----- ----- 32 27 19 Engines 20 13 54 ----- ----- Total $ 52 $ 40 30 ===== =====
Page 9 AUTOMOTIVE PRODUCTS United States automobile and light truck demand during the first quarter of fiscal 1995 declined as measured by a 6% decrease in vehicle sales over the comparable fiscal 1994 period. North American industry production of these vehicles, however, which incorporate Kelsey-Hayes' products and influences the Company's automotive products segment, increased 2% during the same period, as dealers moderately increased inventories in anticipation of stronger spring sales. Within Varity's automotive products segment, Kelsey-Hayes brake systems benefitted from secular anti-lock braking systems (ABS) growth and its strategic position as a supplier of ABS and foundation (conventional) brakes for several stronger selling light trucks, vans and sport utility vehicles. As a result, Kelsey-Hayes brake systems recorded sales of $321 million in the quarter ended April 30, 1995, an increase of 9% over fiscal 1994. Kelsey-Hayes brake systems segment operating income in the first quarter increased by 23% to $32 million from $26 million in the first quarter of the prior year. Earnings improved over the prior year's same period as a direct result of increased sales and the continued focus on implementing cost reductions and productivity improvements. The automotive products segment also includes sales of products for the heavy and medium duty truck and trailer market by Dayton Walther, a wholly-owned subsidiary of the Company. Sales of this unit declined $12 million to $34 million primarily as a result of the cessation of an unprofitable light-duty contract which was completed in the fourth quarter of fiscal 1994. Operating profits declined $1 million from the prior year's first quarter, although the current quarter's results improved as compared to losses of $2 million in each of the immediately prior three quarters in fiscal 1994. ENGINES Demand for diesel engines in the major market sectors in which the Company's Perkins engines segment participates (agricultural, construction, industrial and power generation) improved during the first quarter of fiscal 1995 as manufacturers that incorporate such equipment in their products experienced an increase in demand, particularly in the United States and Europe. For Perkins, this was particularly apparent in the European agricultural sector and the United States and United Kingdom construction markets, all of which experienced higher sales, reflecting both increased sales to certain existing accounts in connection with new engine applications and an expanding customer base. In addition, during the second quarter of fiscal 1994, Perkins acquired Dorman Diesels Limited (Dorman), a manufacturer of diesel and natural gas powered engines in the 1,000 to 2,500 horsepower range, designed primarily for the power generation sector, which added approximately $18 million of incremental sales in the first quarter of fiscal 1995. As a result, total engines segment sales increased 34% to $241 million in the quarter ended April 30, 1995 as compared with the prior year's same period. Operating income in the current quarter for the engines segment increased 54% to $20 million reflecting the benefit of higher sales and on-going success with margin improvement and cost control programs, despite an increase of $6 million in engineering and product development expenditures in the current quarter compared to fiscal 1994. Dorman contributed $2 million of operating profit in fiscal 1995. NON-SEGMENT OPERATING REVIEW Interest expense declined $.8 million to $5.0 million for the three months ended April 30, 1995, principally due to lower average debt outstanding in the current quarter as compared to the same period of fiscal 1994. Income taxes increased to $8.9 million for the three months ended April 30, 1995, as the Company's effective tax rate increased to 23%, as subsequent to the sale of Massey Ferguson, certain foreign income is no longer sheltered against farm equipment losses within the same taxing jurisdiction. Page 10 FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES Liquidity during the current quarter was provided from ongoing operations and existing cash reserves. Cash provided from operations during the first three months of fiscal 1995 amounted to $45.8 million. Short-term notes payable increased $3.6 million to $6.6 million at April 30, 1995 as a result of normal operational funding activity. Long-term debt outstanding at April 30, 1995 (including current maturities) amounted to $165.6 million, virtually the same as the amount at January 31, 1995. Unused long-term and short-term lines of credit at April 30, 1995 were $141.3 million and $100.4 million, respectively. Management believes that Varity's improved financial condition and operating results will continue to improve its access to credit markets and that its credit facilities and cash flow from operations will continue to be sufficient to meet its operating needs. Certain of the Company's loan agreements provide for financial covenants relating to such matters as the maintenance of specified financial ratios and minimum net worth. Certain loan agreements also contain cross-default provisions. At April 30, 1995, the Company and each of its subsidiaries were in compliance with their financial covenants. Management expects that the Company and each of its subsidiaries will remain in compliance during the period ending April 30, 1996. Receivables increased $11.4 million to $370.1 million at April 30, 1995 from $358.7 million at January 31, 1995, primarily due to differing foreign exchange rates. Inventories of raw materials, work-in-process and finished products increased $11.6 million to $157.6 million at April 30, 1995 from $146.0 million at January 31, 1995, primarily due to the routine adjustments in manufacturing schedules in response to higher customer demand and to a lesser extent fluctuations associated with foreign exchange. Accounts payable and accrued liabilities increased $13.2 million during the first three months of fiscal 1995 due to normal disbursement activity and fluctuations associated with foreign exchange. Net fixed assets increased $14.4 million to $627.6 million at April 30, 1995 due to capital additions exceeding depreciation and disposals. Capital expenditures for the first three months of fiscal 1995 were $33.7 million compared to $52.4 million last year, and depreciation and amortization were $23.1 million and $17.8 million, respectively, for the same periods. Capital expenditures for fiscal 1995 should approximate $175 million. These expenditures will be mainly for normal equipment replacements and operating improvements related to reducing costs and increasing output. Other long-term liabilities increased by $5.3 million to $324.1 million at April 30, 1995 from $318.8 million at January 31, 1995, primarily due to fluctuations associated with foreign exchange. Stockholders' equity increased by $11.6 million to $795.3 million at April 30, 1995. The increase resulted primarily from net income of $34.2 million and a favorable change in the cumulative foreign currency translation adjustment of $7.1 million, partially offset by repurchases of 871,000 shares of common stock amounting to $30.1 million and preferred dividends paid of $.6 million. The Company has ongoing short-term cash requirements for working capital, capital expenditures, dividends, interest and debt payments. The Company believes that its cash requirements will be met through internally and externally generated sources, existing cash balances and utilization of available borrowing facilities. Page 11 As a result of the Company's actions over the past three years to reduce debt and increase operating efficiencies, the Company's financial position and liquidity have improved markedly. The Company believes these actions have improved its access to capital markets and will better posture the Company to finance investment in and expansion of the growth areas of its businesses. In order to maintain financial flexibility the Company has filed with the Securities and Exchange Commission a registration statement covering $100 million of debt securities of the Company and Kelsey-Hayes but which has not yet become effective; the Company has no immediate plans to make an offering under such registration statement. During the next five years the Company believes that its cash requirements for working capital, capital expenditures, dividends, interest and debt repayments will continue to be met through internally and externally generated sources and utilization of available borrowing sources. The Company, primarily through its automotive products segment, is involved in a limited number of remedial actions under various federal and state laws and regulations relating to the environment which impose liability on parties to clean up, or contribute to the cost of cleaning up, sites on which their hazardous wastes or materials were disposed or released. The Company believes that it has made adequate provision for costs associated with known remediation efforts in accordance with generally accepted accounting principles and does not anticipate the future cash requirements of such efforts to be significant. The Company has made no provision for any unasserted claims as it is not possible to estimate the potential size of such future claims, if any. OUTLOOK The Company continues to believe that its automotive products segment is positioned to increase sales and margins in fiscal 1995, even if North American light vehicle production is flat, as a result of secular ABS penetration and as actions taken to relieve capacity constraints and enhance productivity continue to provide positive returns. Continued improvements in manufacturing processes, in addition to an expanding customer base arising from strategic alliances developed in prior years, have positioned its Perkins engines segment to benefit further as the European economy improves, despite anticipated increases in new product research and development expenditures in fiscal 1995. Page 12 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS MASSEY COMBINES CORPORATION In the case Howe et al. v. Varity Corporation and Massey-Ferguson Inc. (United States District Court, Southern District of Iowa), plaintiffs, purporting to represent a class of former salaried employees and retirees of Massey-Ferguson Inc. (MF Inc.), commenced an action in October 1988 alleging that the defendant corporations sought to avoid their contractual obligations to provide health and insurance benefits and employment termination allowances by transferring the plaintiffs to Massey Combines Corporation (MCC), a Canadian corporation, in 1986, which subsequently entered receivership in 1988. The action asserts violations of the Employee Retirement Income Security Act of 1974, breach of fiduciary duty, breach of contract, promissory estoppel, wrongful interference with protected rights and fraudulent misrepresentation. Plaintiffs' motion for a preliminary injunction requiring extension of benefits to retirees and disabled persons pending trial was granted by the lower court but reversed by the appellate court as to retirees. The plaintiffs seek to compel reinstatement of benefits, compensatory damages, punitive damages and the costs of action. The jury on September 23, 1991 awarded two subclasses of former employees of MCC and ten individuals formerly employed by MF Inc., $9.8 million in compensatory damages and $36 million in punitive damages against Varity and MF Inc. On March 26, 1993, the court struck completely the punitive damage award and reduced the compensatory damage award to $8.3 million. Upon appeal, on September 29, 1994, the circuit court upheld the district court's denial of punitive damages. In place of the $8.3 million award, the court ordered the Company to reinstate the plaintiffs' medical benefits and awarded them approximately $800,000 in damages for the period during which they were not covered. On March 24, 1995, the Supreme Court of the United States granted the Company's petition for a writ of certiorari to review the decision of the Court of Appeals with respect to recovery by the retiree plaintiffs. ITEM 2. CHANGES IN REGISTERED SECURITIES None. ITEM 3. DEFAULTS UPON SENIOR SECURITIES None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. ITEM 5. OTHER INFORMATION None. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits: Exhibit 10 - Material contracts Exhibit 11 - Earnings per share computations Exhibit 27 - Financial Data Schedule (b) Reports on Form 8-K: None Page 13 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. VARITY CORPORATION /s/ N.D. Arnold /s/ Kevin C. Shanahan ___________________________________ _______________________________________ N.D. Arnold Kevin C. Shanahan Senior Vice President and Vice President, Investor Relations and Chief Financial Officer Acting Vice President, Controller (Principal Financial Officer) (Principal Accounting Officer) June 5, 1995 Page 14 VARITY CORPORATION INDEX TO EXHIBITS Exhibit Number - ------ 10.0 MATERIAL CONTRACTS 10.1 LOAN AGREEMENTS (h) - Facility Agreement dated April 13, 1995 among Perkins Limited and others, and Lloyds Bank Plc, as agent. (i) Guarantee Agreement dated April 13, 1995. (i) - Facility Agreement dated April 13, 1995 among Perkins Group Limited and others, and Lloyds Bank Plc. (i) Guarantee dated April 13, 1995. 11. PRIMARY EARNINGS PER SHARE COMPUTATIONS FOR THREE MONTHS ENDED APRIL 30, 1995 AND 1994 27. FINANCIAL DATA SCHEDULE 27.1 Three months ended April 30, 1995 27.2 Year ended January 31, 1995 (Restated) Page 15 EX-10.1(H) 2 FACILITY AGREEMENT WITH PERKINS LIMITED EXHIBIT 10.1(h) PERKINS LIMITED as principal borrower PERKINS GROUP LIMITED as covenantor LLOYDS BANK PLC Capital Markets Group as agent and OTHERS __________________________________________________ Amendment and Restatement Dated 13th April 1995 of (Pounds)50,000,000 Revolving Credit Facility Agreement dated 30 September 1993 __________________________________________________ Clifford Chance London CONTENTS
Clause Page No. Part 1 INTERPRETATION 1. Interpretation . . . . . . . . . . . . . . . . . Part 2 THE FACILITY 2. The Facility . . . . . . . . . . . . . . . . . . 3. Purpose. . . . . . . . . . . . . . . . . . . . . 4. Conditions Precedent . . . . . . . . . . . . . . 5. Nature of Banks' Obligations . . . . . . . . . . 6. Additional Borrowers and Nature of Borrowers' . Obligations . . . . . . . . . . . . . . . . . . Part 3 UTILISATION OF THE FACILITY 7. Utilisation of the Facility. . . . . . . . . . . Part 4 INTEREST 8. Interest . . . . . . . . . . . . . . . . . . . . 9. Market Disruption and Alternative Interest Rates Part 5 REPAYMENT, PREPAYMENT AND CANCELLATION 10. Repayment and Prepayment . . . . . . . . . . . . 11. Cancellation . . . . . . . . . . . . . . . . . . 12. [Intentionally Deleted]. . . . . . . . . . . . . Part 6 CHANGES IN CIRCUMSTANCES 13. Taxes. . . . . . . . . . . . . . . . . . . . . . 14. Tax Receipts . . . . . . . . . . . . . . . . . . 15. Increased Costs. . . . . . . . . . . . . . . . . 16. Illegality and Mitigation. . . . . . . . . . . .
Part 7 REPRESENTATIONS, COVENANTS AND EVENTS OF DEFAULT 17. Representations. . . . . . . . . . . . . . . . . 18. Financial Information. . . . . . . . . . . . . . 19. Financial Condition. . . . . . . . . . . . . . . 20. Covenants. . . . . . . . . . . . . . . . . . . . 21. Events of Default. . . . . . . . . . . . . . . . Part 8 GUARANTEE 22. Guarantee. . . . . . . . . . . . . . . . . . . . 23. Preservation of Rights . . . . . . . . . . . . . Part 9 DEFAULT INTEREST AND INDEMNITY 24. Default Interest and Indemnity . . . . . . . . . Part 10 PAYMENTS 25. Currency of Account and Payment. . . . . . . . . 26. Payments . . . . . . . . . . . . . . . . . . . . 27. Set-Off. . . . . . . . . . . . . . . . . . . . . 28. Redistribution of Payments . . . . . . . . . . . Part 11 FEES, COSTS AND EXPENSES 29. Fees . . . . . . . . . . . . . . . . . . . . . . 30. Costs and Expenses . . . . . . . . . . . . . . . Part 12 AGENCY PROVISIONS 31. The Agent and the Banks. . . . . . . . . . . . . 32. Further Agency Provisions/Syndicate Meetings . . Part 13 ASSIGNMENTS AND TRANSFERS 33. Benefit of Agreement . . . . . . . . . . . . . . 34. Assignments and Transfers by the Obligors. . . .
35. Assignments and Transfers by Banks . . . . . . . 36. Disclosure of Information. . . . . . . . . . . . Part 14 MISCELLANEOUS 37. Calculations and Evidence of Debt. . . . . . . . 38. Remedies and Waivers . . . . . . . . . . . . . . 39. Partial Invalidity . . . . . . . . . . . . . . . 40. Notices. . . . . . . . . . . . . . . . . . . . . Part 15 LAW AND JURISDICTION 41. Law. . . . . . . . . . . . . . . . . . . . . . . 42. Jurisdiction . . . . . . . . . . . . . . . . . . 43. Counterparts . . . . . . . . . . . . . . . . . . THE FIRST SCHEDULE The Original Borrowers . . . . . . . . . . . . . . . . . . THE SECOND SCHEDULE The Banks. . . . . . . . . . . . . . . . . . . . . . . . . THE THIRD SCHEDULE Form of Transfer Certificate . . . . . . . . . . . . . . . THE FOURTH SCHEDULE Condition Precedent Documents. . . . . . . . . . . . . . . THE FIFTH SCHEDULE Notice of Drawdown . . . . . . . . . . . . . . . . . . . . THE SIXTH SCHEDULE Associated Costs Rate. . . . . . . . . . . . . . . . . . . THE SEVENTH SCHEDULE . . . . . . . . . . . . . . . . . . . THE EIGHTH SCHEDULE Form of Supplemental Agreement for Additional Borrowers. .
THIS AGREEMENT, made between the original parties thereto on 30 September 1993, is amended and restated this 13th day of April 1995 with the intention that such amendment and restatement shall take effect on and from the Effective Date (as hereinafter defined) BETWEEN (1) PERKINS LIMITED (the "Principal Borrower"); (2) THE BORROWERS named in the First Schedule (the "Original Borrowers"); (3) PERKINS GROUP LIMITED (the "Covenantor"); (4) LLOYDS BANK PLC, Capital Markets Group (the "Agent"); and (5) THE FINANCIAL INSTITUTIONS named in the Second Schedule (the "Banks"). NOW IT IS HEREBY AGREED as follows: Part 1 INTERPRETATION 1. Interpretation 1.1 In this Agreement and subject to Clause 43 hereof: "Additional Borrower" means any subsidiary of the Covenantor which becomes a Borrower pursuant to Clause 6.1 and the execution of a Supplemental Agreement; "Adjustment Amount" shall have the meaning given to it at Clause 19.2; "Advance" means, save as otherwise provided herein, an advance made or to be made by the Banks hereunder; "Approved Insurer" means NCM Credit Insurance Limited, Trade Indemnity PLC or such other insurer as the Principal Borrower shall select and the Banks approve (such approval not to be unreasonably withheld or delayed); "Associated Costs Rate" means, in relation to any Advance or unpaid sum, the rate determined in accordance with the Sixth Schedule; "Available Commitment" means, in relation to a Bank at any time and save as otherwise provided herein, its Commitment at such time less the aggregate of its portions of the Advances which are then outstanding and not due for repayment, adjusted so as to take into account any reduction in any Commitment pursuant to the terms hereof, Provided that such amount shall not be less than zero; "Available Facility" means, at any time, the aggregate amount of the Available Commitments at such time; "Bilateral Facility Agreement" means an agreement made by way of a letter dated 30 September 1993 from the Bilateral Lender to the Covenantor as amended, varied, supplemented or novated from time to time; "Bilateral Lender" means Lloyds Bank Plc in its capacity as a lender to the Group pursuant to the terms of the Bilateral Facility Agreement; "Borrowers" means the Principal Borrower, the Original Borrowers and any Additional Borrower and "Borrower" means any of them; "Borrowing Base Amount" means at any time the aggregate of the amounts equal to 80% of the Eligible Receivables Amount and 45% of the Eligible Inventory Amount, each as set out in the most recent Borrowing Base Certificate; "Borrowing Base Certificate" means a certificate delivered by the Covenantor to the Agent in accordance with the provisions of Clause 18.3; "Commitment" means, in relation to a Bank and save as otherwise provided herein, the amount set opposite its name in the First Schedule as reduced from time to time in accordance with the terms hereof; "Consolidated Published Net Worth" shall have the meaning given to it in Clause 19.2 "Credit Insurance" means at any time a policy of insurance cover (including any such policy of insurance cover which takes the form of a guarantee) issued by an Approved Insurer in respect of any Receivables, the currency, amount and terms of such insurance cover being acceptable to the Banks in all respects; "Effective Date" means the date on or before 30 April 1995 (or such other date as the Principal Borrower and the Banks shall agree in writing) on which each party has executed this Agreement and the Agent has received all the documents listed in the Fourth Schedule, each in form and substance satisfactory to it; "Eligible Inventory" shall mean, as at any date, all Inventory: (a) that is owned by (and in the possession or under the control of) any Obligor as at such date; (b) that is located within the United Kingdom; (c) that is new and unused, or is re-manufactured, and is otherwise in good condition; (d) that meets all standards imposed by any governmental agency or department or division thereof having regulatory authority over such Inventory, its use or sale; (e) that is either currently usable or currently saleable in the normal course of such Obligor's business; and (f) that is not subject to any encumbrance (other than an encumbrance referred to at paragraph (iv) of the definition of Permitted Encumbrance); "Eligible Inventory Amount" means the aggregate value (determined at the lower of cost price or market value in accordance with accounting principles generally accepted in the United Kingdom, save that cost price shall be determined on a first-in-first-out basis) of all Eligible Inventory for any period for which a Borrowing Base Certificate is delivered and as set out in such Borrowing Base Certificate; "Eligible Letter of Credit" means an irrevocable letter of credit or bank guarantee issued or confirmed by a bank or financial institution which (i) is and remains an institution from whom the Bank of England will purchase accepted bills as set out in any notice published for that purpose by the Bank of England from time to time or (ii) is and remains a branch or representative office of an institution referred to in (i) and such branch or representative office is situated in an OECD country or (iii) has been granted and retains a credit rating of AA (or higher) by Standard & Poor's Ratings Group or (iv) is a Bank as at the date hereof; "Eligible Receivables" shall mean, as at any date, all Receivables at such date payable to any Obligor other than the following (determined without duplication): (a) any Receivable: (i) that at the date of issuance of the invoice therefor, was payable more than 180 days after the original due date of the original invoice therefor; or (ii) where the original due date of the original invoice therefor has been extended for more than 90 days; or (iii) where, notwithstanding paragraphs (i) and (ii), such Receivable is, in any event, payable more than 270 days after the original due date of the original invoice therefor; or (iv) where, notwithstanding paragraphs (i), (ii) and (iii), such Receivable was not covered by Credit Insurance at the date of issuance of the invoice therefor and is payable more than 120 days after the due date of the original invoice therefor; (b) any Receivable payable to such Obligor by any other member of the Varity Group; (c) any claim on a third party funded by an Approved Insurer; (d) any Receivable payable by any account debtor (i) that has taken an action, or has become the subject of any proceeding, case or order for relief or (ii) that does not have a satisfactory credit standing (in the reasonable determination of an Instructing Group and specified in a notice from the Agent to the Principal Borrower); (e) all Receivables payable by any account debtor if more than 25% of the aggregate amount of the Receivables payable by such account debtor remain unpaid more than 180 days after the original due date of the original invoice therefor; (f) any Receivable representing an obligation for goods sold on consignment, approval or a sale-or-return basis or subject to any other repurchase or return arrangement; (g) any Receivable that is subject to any encumbrance (other than an encumbrance referred to at paragraph (iv) of the definition of Permitted Encumbrance); and (h) any Receivable which is the subject of any invoice discounting, factoring or receivables purchase arrangement or any other arrangement whatsoever which results in any part of the legal or beneficial title to such Receivable vesting in a person other than an Obligor, Provided that no Receivable shall be excluded from the definition of "Eligible Receivables" by virtue of: (1) any of the foregoing paragraphs (a), (d)(ii) or (e) to the extent that (A) such Receivable is supported by an Eligible Letter of Credit or (B) the customer from whom such Receivable is due is a ministry, office or department of Her Majesty's government; or (2) any of the foregoing paragraphs (a), (d) or (e) to the extent that such Receivable is the subject of Credit Insurance; "Eligible Receivable Amount" means the aggregate amount of Eligible Receivables for any period for which a Borrowing Base Certificate is delivered and as set out in such Borrowing Base Certificate; "Eligible Receivable Company" means at any time, a company which is a member of the Group and which (i) is incorporated in England and Wales and (ii) generates Eligible Receivables either on its own behalf or on behalf of any other member of the Group or, any such company which generates Receivables which would be Eligible Receivables but for the fact that, at the time such Receivables are generated, such company is not an Obligor; "Event of Default" means any of those events specified in Clause 21.1; "Facility" means the sterling revolving credit facility granted to the Borrowers in this Agreement; "Facility Documents" means this Agreement, the Varity Guarantee, the Subordination Agreement, any Supplemental Agreement and any other agreement, deed, notice or certificate entered into or given by an Obligor pursuant to the terms hereof or thereof or otherwise in connection herewith or therewith; "Facility Office" means, in relation to the Agent or any Bank, the office in the United Kingdom identified with its signature below (or, in the case of a Transferee, at the end of the Transfer Certificate to which it is a party as Transferee) or such other office in the United Kingdom as it may from time to time select; "Final Maturity Date" means 30 September, 1998; "Financial Indebtedness" shall have the meaning given to it at Clause 19.2; "Financial Indebtedness Amount" means at any time, and subject always to Clause 19.2(vii), an amount equal to the aggregate Financial Indebtedness of the Group as set out in the most recent Borrowing Base Certificate Provided Always that, for the purposes of this definition only, "Financial Indebtedness" in this context shall not include any indebtedness incurred by a member of the Group incorporated outside England or Wales unless such indebtedness is guaranteed by a member of the Group which is incorporated within England and Wales; "GPAT" has the meaning given to it at Clause 19.2; "Group" means the Covenantor and its subsidiaries for the time being other than Varity GmbH and its wholly owned subsidiaries as at the date hereof; "Guarantees" means the Varity Guarantee and the guarantees granted hereunder by each of the Guarantors; "Guarantors" means the Covenantor and each of the Borrowers in their capacity as guarantors pursuant to Part 8 of this Agreement (but, for the avoidance of doubt and unless otherwise stated, does not include the Principal Guarantor); "Interest Service Costs" shall have the meaning given to it at Clause 19.2; "Instructing Group" means: (i) whilst no Advances are outstanding hereunder, a Bank or group of Banks whose Commitments amount (or, if each Bank's Commitment has been reduced to zero, did immediately before such reduction to zero, amount) in aggregate to more than fifty per cent. of the Total Commitments; or (ii) whilst at least one Advance is outstanding hereunder, a Bank or group of Banks to whom in aggregate more than fifty per cent of the Loan is owed; "Inventory" shall mean readily marketable materials, including raw materials, stocks and spares and work-in-progress (but excluding factory supplies), of a type manufactured, finished or consumed by an Obligor in the ordinary course of its business as presently conducted; "LIBOR" means, in relation to any Advance or unpaid sum, the rate per annum determined by the Agent to be equal to the arithmetic mean (rounded upwards, if not already so rounded, to the nearest four decimal places) of the rates (as notified to the Agent) at which each of the Reference Banks was offering to prime banks in the London Interbank Market deposits in sterling and for the specified period at or about 11.00 a.m. on the Quotation Date for such period and, for the purposes of this definition, "specified period" means the Term of such Advance or, as the case may be, the period in respect of which LIBOR falls to be determined in relation to such unpaid sum; "Loan" means the aggregate principal amount for the time being outstanding hereunder; "Margin" means 0.5 per cent. per annum Provided Always that the margin will increase or decrease in accordance with the following matrix with effect from the fifth day after receipt of notification by the Agent from the Guarantor pursuant to Clause 9(iv) of the Varity Guarantee that the rating issued by Standard and Poor's Ratings Group in respect of the Principal Guarantor has been altered: Standard and Poor's Ratings Margin A+ and higher 0.35 per cent. A 0.40 per cent. A- 0.45 per cent. BBB+ 0.50 per cent. BBB 0.55 per cent. BBB- 0.60 per cent. BB+ 0.70 per cent. and thereafter without limit an increase of 0.10 per cent. per annum for each subsequent decrement in rating; "Material Subsidiary" means a subsidiary of the Covenantor incorporated in England and Wales (i) the book value of whose total gross assets is 5 per cent. or more of the consolidated book value of the total gross assets of the Group or (ii) the profits of which exceeds 5 per cent. of the profits of the Group as a whole or (iii) the turnover of which exceeds 5 per cent. of the turnover of the Group; Provided Always that the subsidiary of the Covenantor which is to be established as a vehicle for the joint venture between Perkins Group Limited and Ishikawajima Shibaura Machinery Co., Ltd., shall not, for the purposes of this Agreement, be a Material Subsidiary; "Minimum Amount" shall have the meaning given to it at Clause 19.2; "New Advance" has the meaning given to it at Clause 10.1; "Notice of Drawdown" means a notice substantially in the form set out in the Fifth Schedule; "Obligors" means the Borrowers, the Covenantor and the Guarantors save in the case of Clauses 21, 31 and the Fourth Schedule only where "Obligors" shall mean the Borrowers, the Covenantor, the Guarantors and the Principal Guarantor; "Original Financial Statements" means: (i) in relation to each Borrower, its audited financial statements for its financial year ended 31 January, 1994; and (ii) in relation to the Covenantor: (a) its audited financial statements for its financial year ended 31 January, 1994; and (b) its pro forma consolidated financial statements for its financial year ended 31 January, 1993 reviewed by KPMG Peat Marwick McLintock; "PBIT" shall have the meaning given to it at Clause 19.2; "Permitted Encumbrance" means (i) any security interest created with the prior written consent of an Instructing Group; (ii) any security interest existing at the date hereof and granted by any Obligor or Material Subsidiary in respect of the Group's, or any member of the Group's, obligations under: (a) a 1,600,000 Singapore dollar term loan facility and 100,000 Singapore dollar overdraft facility granted by Development Bank of Singapore to Perkins Engines (Far East) Pte. Ltd.; and (b) a 300,000 Danish kroner overdraft facility granted by Den Danske Bank to A/S Perkins Engines Denmark; (iii) any liens arising by operation of law and in the ordinary course of business and securing obligations not more than thirty days old; and (iv) any rights by way of reservation or retention of title which are required by the supplier of any property to any member of the Group in the normal course of such supplier's business; (v) in the case of (a) any asset acquired by any member of the Group after the date hereof or (b) any asset owned by any company which is acquired by any member of the Group after the date hereof, any encumbrance subsisting over such asset at the date of acquisition on condition that the principal amount secured by any such encumbrance (being, in the case of a fluctuating bank facility, the maximum available amount of such facility at the date of such acquisition) shall not be increased beyond the amount secured thereby at the date of such acquisition or the date such company becomes a member of the Group (other than by reason solely of any currency fluctuations); (vi) any encumbrances over any asset acquired by any member of the Group, as security only for Financial Indebtedness not prohibited pursuant to the terms of this Agreement which is incurred solely to finance, all or part of the cost of the acquisition, development, redevelopment, modification or improvement of that asset; (vii) encumbrances arising out of judgments or awards of courts or arbitral tribunals which are being contested in good faith and with respect to which an appeal or proceedings for review has been instituted and encumbrances in respect of the costs of court proceedings any damages which may be incurred by any party thereto; and (viii) any encumbrance securing indebtedness incurred to refinance other indebtedness permitted to be secured by any encumbrances permitted under paragraphs (i) to (vii) above provided that the replacement encumbrance does not cover any assets other than the original assets subject to the original encumbrance and that the aggregate principal amount secured thereby is not increased; Provided Always that in respect of the encumbrances referred to in paragraphs (v), (vi), (vii) and (viii) above, the amount secured thereby shall not at any time exceed an amount equal to 15% of the Consolidated Published Net Worth and the relevant encumbrance shall be fully and unconditionally discharged within six months from the date of its creation (or if arising as a result of any acquisition, six months from the date of the acquisition) Provided Always that such time period of six months may (with the prior written consent of the Banks (not to be unreasonably withheld)) be extended by a further period of up to six months; "Permitted Disposal" means: (a) a disposal of any asset which is made at arm's length and for a fair market value where the proceeds of such disposal are within six months used to purchase equivalent assets; (b) a disposal from one Obligor to any other Obligor or a disposal from a non- Obligor to any other member of the Group; and (c) a disposal of cash or any marketable securities which are held for the purposes of investment only; "Potential Event of Default" means any event which would be reasonably likely to become (with the passage of time, the giving of notice, the making of any determination hereunder or any combination thereof) an Event of Default; "Principal Guarantor" means Varity Corporation; "Proportion" means, in relation to a Bank: (i) whilst no Advances are outstanding hereunder, the proportion borne by its Commitment to the Total Commitments (or, if the Total Commitments are then zero, by its Commitment to the Total Commitments immediately prior to their reduction to zero); or (ii) whilst at least one Advance is outstanding hereunder, the proportion borne by its share of the Loan to the Loan; "Published Net Worth" of any company means at any time the aggregate of the amounts paid up or credited as paid up on the issued share capital of that company and the aggregate amount of capital and reserves of that company including but not limited to: (a) any amount credited to the share premium account; (b) any capital redemption reserve; (c) any balance standing to the credit of the profit and loss account of that company; and (d) any amounts shown in respect of goodwill or other intangible assets of that company; but deducting (insofar as not already taken into account): (e) any debit balance on the profit and loss account of that company; (f) any amounts in respect of loans made by that company to any other person after 31 January, 1993 other than those disclosed to the Agent on or prior to the date hereof; (g) any deferred taxation not provided for which should have been provided for under accounting principles generally accepted in the United Kingdom; (h) any bad debts not provided for; (i) any minority interests; and (j) any amounts arising from a revaluation of assets made at any time after 31 January, 1993, other than a revaluation made by an independent third party valuer, (no amount to be included or excluded more than once) all as determined from the most recent financial statements of that company and making such adjustments in respect of (a) to (j) above as may be appropriate; (k) in respect of any variation in the amount of any paid up share capital or reserves after the date of such financial statements; and (l) in respect of any distribution declared, recommended or made by that company out of profits earned up to and including the date of such financial statements; "Qualifying Bank" means a bank which is recognised by the Inland Revenue as a bank carrying a bona fide banking business in the United Kingdom for the purposes of sections 78 and 349 of the Income and Corporation Taxes Act 1988 and which takes all interest or acceptance commission received by it under this Agreement into account as a trading receipt of such business; "Quotation Date" means, in relation to any period for which an interest rate is to be determined hereunder, the day on which quotations would ordinarily be given by prime banks in the London Interbank Market for deposits in sterling for delivery on the first day of that period Provided that, if for any such period quotations would ordinarily be given on more than one date, the Quotation Date for that period shall be the last of those dates; "Receivable" shall mean, at any date, the unpaid portion of the obligation, as stated on the respective invoice, of a customer of any member of the Group in respect of Inventory and services sold and shipped or provided by such member of the Group to such customer, net of any credits, rebates or offsets owed to such customer (and for purposes hereof, a credit or rebate paid by cheque or draft of a member of the Group shall be deemed to be outstanding until such cheque or draft shall have been debited to the account of such member of the Group on which such cheque or draft was drawn); "Reference Banks" means the principal London offices of Lloyds Bank Plc, The Governor and Company of the Bank of Scotland and Berliner Handels-und Frankfurter Bank or such other bank or banks as may from time to time be agreed between the Principal Borrower and an Instructing Group; "Repayment Date" means, in relation to any Advance, the last day of the Term thereof; "Specified Date" means, in respect of any Borrowing Base Certificate, the last day of the Varity Calendar month in respect of which the information set out in such Borrowing Base Certificate relates; "Subordination Agreement" means a subordination agreement made on the date of this Agreement between, inter alia, the Obligors, the Bilateral Lender and the Agent; "Supplemental Agreement" means an agreement substantially in the form of that set out in the Eighth Schedule; "Tax" means any tax, levy, impost, duty or other charge of a similar nature imposed in the United Kingdom or in the United States of America (including, without limitation, those imposed by state or federal authority) (including, without limitation, any penalty or interest payable in connection with any failure to pay or any delay in paying any of the same); "Tax Change" means, in relation to the tax position of any party to this Agreement, the introduction of, suspension, withdrawal or cancellation of, or change in, or change in the official interpretation, administration or application of, any law or regulation having the force of the law or any practice or concession of any relevant taxing or fiscal authority in any jurisdiction with which the party has a connection, occurring after the date of this Agreement or the amendment, withdrawal, suspension, cancellation or termination of any applicable tax treaty with respect to that party occurring after the date of this Agreement; "Term" means, save as otherwise provided herein, in relation to any Advance, the period for which such Advance is borrowed as specified in the Notice of Drawdown relating thereto; "Total Commitments" means the aggregate for the time being of the Banks' Commitments; "Transfer Certificate" means a certificate substantially in the form set out in the Third Schedule signed by a Bank and a Transferee whereby: (i) such Bank seeks to procure the transfer to such Transferee of all of such Bank's rights and obligations hereunder upon and subject to the terms and conditions set out in Clause 35; and (ii) such Transferee undertakes to perform the obligations it will assume as a result of delivery of such certificate to the Agent as is contemplated in Clause 35.3; "Transfer Date" means, in relation to any Transfer Certificate, the date for the making of the transfer as specified in the schedule to such Transfer Certificate; "Transferee" means a bank or other financial institution to which a Bank seeks to transfer all or part of such Bank's rights and obligations hereunder; "Varity Calendar" means, in relation to any financial year of the Principal Guarantor, the card headed "Varity Calendar Fiscal" (followed by the year in which that financial year ends) produced by the Principal Guarantor and showing the four quarters and twelve "monthly" reporting periods into which that financial year is divided by the Principal Guarantor for accounting purposes; "Varity Guarantee" means the guarantee dated 30 September 1993 (as amended, varied, supplemented, novated or restated from time to time) and given by the Principal Guarantor in favour of the Agent and the Banks; "Varity Europe" means Varity Europe Limited; and "Varity Group" means Varity Corporation and its subsidiaries and subsidiary undertakings (as that latter term is defined in s258 of the Companies Act 1985) for the time being. 1.2 Any reference in this Agreement to: the "Agent" or any "Bank" shall be construed so as to include its and any subsequent successors, Transferees and permitted assigns in accordance with their respective interests; a "business day" shall be construed as a reference to a day (other than a Saturday or Sunday) on which banks are generally open for business in London; a "Clause" shall, subject to any contrary indication, be construed as a reference to a clause hereof; "control" shall be construed as a reference to control within the meaning of Section 840 of the Income and Corporation Taxes Act 1988; an "encumbrance" shall be construed as a reference to a mortgage, charge, pledge, lien or other encumbrance securing any obligation of any person or any other type of preferential arrangement (including, without limitation, title transfer and retention arrangements) having a similar effect except rights of combination or consolidation of accounts or set off held by banks or financial institutions in relation to bank accounts placed at such bank or financial institution; "financial quarter" means a period of about 3 months ending on (or within 7 days before or after) the last day of January, April, July or October, the precise duration of any quarter to be determined in accordance with the Varity Calendar for the financial year during which such quarter falls; a "financial year" is to be a financial period for which statutory accounts are made up, whether or not a full year; a "holding company" of a company or corporation shall be construed as a reference to any company or corporation of which the first-mentioned company or corporation is a subsidiary; "indebtedness" shall be construed so as to include any obligation (whether incurred as principal or as surety) for the payment or repayment of money, whether present or future, actual or contingent; a "month" is a reference to a period starting on one day in a calendar month and ending on the numerically corresponding day in the next succeeding calendar month save that, where any such period would otherwise end on a day which is not a business day, it shall end on the next succeeding business day, unless that day falls in the calendar month succeeding that in which it would otherwise have ended, in which case it shall end on the immediately preceding business day Provided that, if a period starts on the last business day in a calendar month or if there is no numerically corresponding day in the month in which that period ends, that period shall end on the last business day in that later month (and references to "months" shall be construed accordingly); a "Part" shall, subject to any contrary indication, be construed as a reference to a part hereof; a "person" shall be construed as a reference to any person, firm, company, corporation, government, state or agency of a state or any association or partnership (whether or not having separate legal personality) of two or more of the foregoing; "sterling amount" shall be construed as (i) in relation to an amount denominated in sterling, the amount thereof; and (ii) in relation to an amount denominated in any other currency the sterling equivalent of such amount; "sterling equivalent" means on a given date and in relation to an amount denominated in any one currency (the "foreign currency") the amount of sterling which could be purchased with such amount of foreign currency at the spot rate of exchange quoted by the Agent at or about 10.00 am on such date for the purchase of sterling with the foreign currency for delivery two business days thereafter; a "Schedule" shall, subject to any contrary indication, be construed as a reference to a schedule hereto; "subsidiary" of a person means any other person which is a "subsidiary" of such person as defined in Section 736 of the Companies Act 1985; "VAT" shall be construed as a reference to value added tax including any similar tax which may be imposed in place thereof from time to time; a "wholly-owned subsidiary" of a company or corporation shall be construed as a reference to any company or corporation which has no other members except that other company or corporation and that other company's or corporation's wholly- owned subsidiaries or persons acting on behalf of that other company or corporation or its wholly-owned subsidiaries; and the "winding-up", "dissolution" or "administration" of a company or corporation shall be construed so as to include any equivalent or analogous proceedings under the law of the jurisdiction in which such company or corporation is incorporated or any jurisdiction in which such company or corporation carries on business including the seeking of liquidation, winding-up, reorganisation, dissolution, administration, arrangement, adjustment, protection or relief of debtors. 1.3 "(Pounds)" and "sterling" denote lawful currency of the United Kingdom and "$" and "dollars" denote lawful currency of the United States of America. 1.4 Save where the contrary is indicated, any reference in this Agreement to: (i) this Agreement or any other agreement or document shall be construed as a reference to this Agreement or, as the case may be, such other agreement or document as the same may have been, or may from time to time be, amended, varied, novated or supplemented; (ii) a statute shall be construed as a reference to such statute as the same may have been, or may from time to time be, amended or re-enacted; (iii)a time of day shall be construed as a reference to London time; and (iv) "this Agreement", "hereunder" or "the date hereof" shall be construed as being a reference to this amended and restated agreement and the date upon which this amended and restated agreement is executed. 1.5 Clause, Part and Schedule headings are for ease of reference only. Part 2 THE FACILITY 2. The Facility The Banks grant to the Borrowers, upon the terms and subject to the conditions hereof, a sterling revolving credit facility in an initial aggregate amount of (Pounds)50,000,000. 3. Purpose 3.1 The Facility is intended for general corporate purposes of each of the Borrowers in respect of its business existing at the date hereof including, without limitation, in the case of the Principal Borrower the making of an inter-company loan to Varity Europe and accordingly, each Borrower shall apply all amounts raised by it hereunder in or towards satisfaction of such purposes but not in such manner as may contravene the provisions of Section 151 of the Companies Act 1985 or any equivalent legislative provision in any other jurisdiction. 3.2 Without prejudice to the obligations of the Borrowers under Clause 3.1, neither the Agent nor the Banks nor any of them shall be obliged to concern themselves with the application of amounts raised by the Borrowers hereunder. 4. Conditions Precedent Save as the Banks may otherwise agree, no Borrower may deliver any Notice of Drawdown hereunder unless the Agent has confirmed to the Principal Borrower and the Banks that it has received all of the documents listed in the Fourth Schedule and that each is, in form and substance, satisfactory to the Agent. 5. Nature of Banks' Obligations 5.1 The obligations of each Bank hereunder are several. 5.2 The failure by a Bank to perform its obligations hereunder shall not affect the obligations of any Obligor towards any other party hereto nor shall any other party be liable for the failure by such Bank to perform its obligations hereunder. 6. Additional Borrowers and Nature of Borrowers' Obligations 6.1 Upon the delivery to the Agent of any Supplemental Agreement pursuant to Clause 20.2 and subject to the Agent having confirmed to the Material Subsidiary or Eligible Receivable Company party to such Supplemental Agreement that it has received, in form and substance satisfactory to it, all the conditions precedent specified therein this Agreement shall thenceforth be read and construed as if each Material Subsidiary or Eligible Receivable Company which is party to such Supplemental Agreement were a party hereto having all the rights and obligations of a Borrower and all references in any Facility Document to "Borrowers", and "Additional Borrowers" shall be treated as including a reference to any such Material Subsidiary or Eligible Receivable Company which has become a party hereto in the manner contemplated above. For avoidance of doubt any Material Subsidiary or Eligible Receivable Company which becomes a Borrower under this Agreement pursuant to this Clause 6.1 shall, in accordance with the definition of Guarantor at Clause 1.1, and the provisions of Clause 22, also become a Guarantor hereunder. 6.2 The obligations of the Borrowers hereunder are joint and several. Part 3 UTILISATION OF THE FACILITY 7. Utilisation of the Facility 7.1 Save as otherwise provided herein, an Advance will be made by the Banks to a Borrower if: (i) not more than ten but in any event no later than 10.30 a.m. one business day before the proposed date for the making of such Advance, the Agent has received from that Borrower a Notice of Drawdown therefor, receipt of which shall oblige such Borrower to borrow the amount therein requested on the date therein stated upon the terms and subject to the conditions contained herein; (ii) the proposed date for the making of such Advance is a business day falling one month or more before the Final Maturity Date; (iii) the proposed date for the making of such Advance is not less than five business days after the date upon which the previous Advance (if any) was made hereunder; (iv) the proposed amount of such Advance is (a) an amount or integral multiple of (Pounds)1,000,000 which is less than the amount of the Available Facility or (b) equal to the amount of the Available Facility; (v) the proposed amount and Term of such Advance will not result in the Loan exceeding the Total Commitments at any time during the Term of any Advance; (vi) the proposed Term of such Advance is a period of one, two or three months (or such other period as the Agent (upon the instructions of an Instructing Group) and the Principal Borrower may agree) ending on or before the Final Maturity Date; (vii) the making of the proposed Advance will not (a) cause the portion of the Loan borrowed by the Principal Borrower to exceed the Consolidated Published Net Worth or (b) cause the portion of the Loan borrowed by any other Borrower to exceed that Borrower's Published Net Worth as set out in the relevant Original Financial Statements or in the financial statements delivered pursuant to Clause 18.1, whichever are the most recent and in either case as such Consolidated Published Net Worth or such Published Net Worth may be adjusted by the Principal Borrower, in consultation with the Agent acting on the instructions of an Instructing Group, to take account of any changes in circumstances which occur after the date of such financial statements; (viii) the making of the proposed Advance will not result in, at any time, more than ten Advances being outstanding hereunder; (ix) the making of the proposed Advance will not result in the Financial Indebtedness Amount exceeding the Borrowing Base Amount; (x) neither of the events mentioned in Clause 9 shall have occurred; and (xi) either: (a) no Event of Default or, where the amount of the New Advance is more than the amount of the Old Advance (as defined in Clause 10.1), no Potential Event of Default, has occurred and is continuing; and (b) the representations set out in Clause 17.1 (except paragraphs (ii), (iii) and (vii)) are true on and as of the proposed date for the making of such Advance, or each of the Banks agrees (notwithstanding any matter mentioned at (a) or (b) above) to participate in the making of such Advance. 7.2 Each Bank will participate through its Facility Office in each Advance made pursuant to Clause 7.1 in the proportion borne by its Available Commitment to the Available Facility immediately prior to the making of that Advance. 7.3 If a Bank's Commitment is reduced in accordance with the terms hereof after the Agent has received the Notice of Drawdown for an Advance, then the amount of that Advance shall be reduced accordingly. 7.4 The Agent shall, no later than 3.00 p.m. one business day before the proposed date for the making of any Advance, notify each Bank by telex or facsimile of its Proportion of the aggregate principal amount of the Advance and the Term thereof (or, in the case of the application of Clause 10.1(c), its Proportion of the amount by which the New Advance exceeds the Old Advance (as those terms are defined in Clause 10.1)). Part 4 INTEREST 8. Interest 8.1 On the Repayment Date relating to each Advance the Borrowers shall pay accrued interest on that Advance Provided Always that if, pursuant to Clause 7.1(vi), the Agent and Principal Borrower agree that in respect of any Advance the Term thereof may extend beyond a period of three months, the Borrowers shall pay accrued interest on that Advance on the last day of every three month period during which such Advance is outstanding and on the Repayment Date thereof. 8.2 The rate of interest applicable to an Advance from time to time during its Term shall be the rate per annum which is the sum of the Margin, the Associated Costs Rate in respect thereof at such time and LIBOR on the Quotation Date therefor. 9. Market Disruption and Alternative Interest Rates If, in relation to any Advance: (i) the Agent determines that at or about 11.00 a.m. on the Quotation Date for the Term in respect of such Advance none or only one of the Reference Banks was offering to prime banks in the London Interbank Market deposits in sterling for the proposed duration of such Term; or (ii) before 1.00pm in London on the Quotation Date for such Term the Agent has been notified by a Bank or each of a group of Banks to whom in aggregate fifty per cent. or more of the Loan is (or, if an Advance were then made, would be) owed that the rate at which such deposits were being so offered does not accurately reflect the cost to it of obtaining such deposits, then, notwithstanding the provisions of Clause 7 and 8: (a) the Agent shall notify the other parties hereto of such event; (b) such Advance shall be made but the Term of such Advance shall be one month and the rate of interest applicable to each Bank's portion of such Advance shall be the sum from time to time of the Margin, the Associated Costs Rate in respect thereof at such time and the rate per annum notified to the Agent by such Bank to be that which expresses as a percentage rate per annum the cost to such Bank of funding from whatever sources it may reasonably select such Advance for such Term; and (c) if the Agent so requires, within five days of such notification the Agent and the Principal Borrower shall enter into negotiations with a view to agreeing a substitute basis for determining the rates of interest which may be applicable to Advances in the future and any such substitute basis that is agreed shall take effect in accordance with its terms and be binding on each party hereto Provided that the Agent may not agree any such substitute basis without the prior consent of each Bank. Part 5 REPAYMENT, PREPAYMENT AND CANCELLATION 10. Repayment and Prepayment 10.1 Each Borrower shall repay each Advance made to it in full on the Repayment Date relating thereto (each such obligation being hereafter referred to as an "obligation to repay"), Provided Always that if: (i) no later than 10.30 a.m. one business day before such Repayment Date, the Agent has received a Notice of Drawdown in accordance with Clause 7.1(i); and (ii) paragraphs (ii) to (xi) of Clause 7.1 have been complied with, THEN (a) if the amount of the Advance requested in the Notice of Drawdown (the "New Advance") is equal to the amount of the Advance(s) to be repaid on such Repayment Date (the "Old Advance") there shall be no transmission of funds and each Borrower and each Bank shall be deemed to have fulfilled (i) its obligations to repay (in the case of each Borrower) and (ii) its obligations under Clauses 7.2 and 26.1 (in the case of each Bank); (b) if the amount of the New Advance is less than the amount of the Old Advance, each Bank shall be deemed to have fulfilled its obligations under Clauses 7.2 and 26.1, and each Borrower shall be deemed to have fulfilled its obligations to repay to the extent of the amount of the New Advance, but shall repay an amount equal to the amount by which the Old Advance exceeds the New Advance; and (c) if the amount of the New Advance is more than the amount of the Old Advance, each Borrower shall be deemed to have fulfilled its obligations to repay and each Bank shall be deemed to have fulfilled its obligations under Clauses 7.2 and 26.1 to the extent of the amount of the Old Advance, but shall pay an amount equal to its Proportion of the amount by which the New Advance exceeds the Old Advance. 10.2 The Borrowers shall not repay or prepay all or any part of any Advance outstanding hereunder except at the times and in the manner expressly provided herein but, subject to the terms and conditions hereof, shall be entitled to reborrow any amount so repaid or prepaid. 10.3 If at any time it is unlawful for any Obligor or the Principal Guarantor to fulfil any of its obligations hereunder or under any of the Facility Documents to which it is a party or remain a party hereto or thereto, then the Principal Borrower shall promptly notify the Agent and the Agent shall, on behalf of the Banks, negotiate with the Principal Borrower or the Principal Guarantor, as the case may be, to mitigate the effects of such illegality. If, on the earlier of the date being the latest date permitted by the relevant law, or thirty days after notification as aforesaid to the Agent, no resolution has been reached as to how such mitigation may be achieved and the Agent notifies the Principal Borrower of the same, each Borrower shall immediately prepay all amounts outstanding hereunder 10.4 If, at any time, the Financial Indebtedness Amount exceeds (or, it is anticipated by the Principal Borrower that, upon delivery of the next succeeding Borrowing Base Certificate, it will exceed) the Borrowing Base Amount at such time, the Principal Borrower shall, or shall procure that any other member of the Group shall, immediately (but in any event within 3 business days of becoming aware of such excess) prepay such amount of its Financial Indebtedness, as will result in the Financial Indebtedness Amount being equal to or less than the Borrowing Base Amount. For the purposes of determining compliance with this Clause 10.4 the Financial Indebtedness Amount shall, after any prepayment made pursuant to this Clause 10.4, be adjusted so as to take into account such prepayment. 11. Cancellation 11.1 The Principal Borrower may, by giving to the Agent not less than thirty days' prior notice to that effect, cancel the whole or any part (being an amount or integral multiple of (Pounds)1,000,000) of the Total Commitments Provided always that such cancellation shall not cause the Loan to exceed the Total Commitments. Any such cancellation shall reduce the Commitment of each Bank rateably. 11.2 Any notice of cancellation given by the Principal Borrower pursuant to Clause 11.1 shall be irrevocable and shall specify the date upon which such cancellation is to be made and the amount of such cancellation. 11.3 If any Bank claims indemnification from any of the Borrowers under Clause 13.2 or Clause 15.1, or either of the events referred to in Clause 9 have occurred the Principal Borrower may, within thirty days thereafter and by not less than seven days' prior notice to the Agent (which notice shall be irrevocable), cancel such Bank's Commitment or, in the case of the occurrence of the events referred to in Clause 9, the Total Commitments, whereupon such Bank shall cease to be obliged to participate in further Advances and its Commitment shall be reduced to zero. 12. [Intentionally Deleted] Part 6 CHANGES IN CIRCUMSTANCES 13. Taxes 13.1 All payments to be made by any of the Obligors to any person hereunder shall be made free and clear of and without deduction for or on account of Tax unless such Obligor is required to make such a payment subject to the deduction or withholding of Tax, in which case the sum payable by such Obligor in respect of which such deduction or withholding is required to be made shall be increased to the extent necessary to ensure that, after the making of the required deduction or withholding, such person receives and retains (free from any liability in respect of any such deduction or withholding) a net sum equal to the sum which it would have received and so retained had no such deduction or withholding been made or required to be made. 13.2 Without prejudice to the provisions of Clause 13.1, if any person or the Agent on its behalf is required to make any payment on account of Tax (not being a Tax imposed on the net income of that Bank or any of its branches) or otherwise on or in relation to any sum received or receivable hereunder by such person or the Agent on its behalf (including, without limitation, any sum received or receivable under this Clause 13) or any liability in respect of any such payment is asserted, imposed, levied or assessed against such person or the Agent on its behalf, the Principal Borrower shall, upon demand of the Agent, promptly indemnify such person against such payment or liability, together with any interest, penalties and expenses payable or incurred in connection therewith save for such interest, penalties or expenses as may be incurred solely by reason of the negligence or default of such person. 13.3 A Bank intending to make a claim pursuant to Clause 13.2 shall notify the Agent of the event by reason of which it is entitled to do so, whereupon the Agent shall notify the Principal Borrower thereof Provided that nothing herein shall require such Bank to disclose any confidential information relating to the organisation of its affairs. 13.4 If: (a) at the date of this Agreement a Bank is not a Qualifying Bank; or (b) a Bank ceases to be a Qualifying Bank, then no Obligor who is tax resident in the United Kingdom will be liable to pay to the Bank under Clause 13 any amount in respect of Taxes levied or imposed by the United Kingdom or any taxing authority of or in the United Kingdom in excess of the amount it would have been obliged to pay if a Bank had been a Qualifying Bank. 13.5 Each Bank warrants to the Obligor that it is a Qualifying Bank. That warranty will be deemed to be repeated by each Bank on the due date of each payment of interest to the Bank on an Advance made to a Borrower who is a tax resident in the United Kingdom unless that Bank is not able to make it on that date as a result of any Tax Change. If at any time after it becomes a party to this Agreement, a Bank is aware that it is or will become, unable to make that warranty (for whatever reason) it will promptly notify the Principal Borrower. 13.6 (a) If an Obligor makes a payment under Clause 13.2 for the account of a Bank and that Bank has received or been granted a credit against, or relief or remission or repayment of, any Tax paid or payable by it (a "Tax Credit") which, in the opinion of that Bank, is attributable to that payment or the corresponding payment under this Agreement that Bank will, to the extent that it considers it can do so without prejudice to the retention of the amount of such credit, relief, remission or repayment, pay to the Obligor concerned such amount as, in the opinion of the Bank, is attributable to such payments and which that Bank considers will leave the Bank (after such payment) in no better or worse position than it would have been if the Obligor concerned had not been required to make any deduction or withholding. (b) Nothing in this Clause 13.6 will interfere with the right of a Bank to arrange its tax affairs in whatever manner it thinks fit and without limiting the foregoing a Bank will not be under any obligation to claim a Tax Credit or to claim a Tax Credit in priority to any other claims, relief, credit or deduction available to it. A Bank will not be obliged to disclose any information relating to its tax affairs or any computations in respect thereof to any Obligor or any other person. 14. Tax Receipts 14.1 If, at any time, any of the Obligors is required by law to make any deduction or withholding from any sum payable by it hereunder (or if thereafter there is any change in the rates at which or the manner in which such deductions or withholdings are calculated), such Obligor shall promptly notify the Agent. 14.2 If any of the Obligors makes any payment hereunder in respect of which it is required to make any deduction or withholding, it shall pay the full amount required to be deducted or withheld to the relevant taxation or other authority within the time allowed for such payment under applicable law and shall deliver to the Agent for each Bank, within thirty days after it has made such payment to the applicable authority, an original receipt (or a certified copy thereof) issued by such authority evidencing the payment to such authority of all amounts so required to be deducted or withheld in respect of that Bank's share of such payment. 15. Increased Costs 15.1 If, by reason of (i) any change in law or in its interpretation or administration and/or (ii) compliance with any request from or requirement of any central bank (other than, save in the case of (e) below, the requirements of the Bank of England reflected in the Associated Costs Rate) or other fiscal, monetary or other authority (including, without limitation, a request or requirement which affects the manner in which a Bank or any holding company of such Bank is required to or does maintain capital resources having regard to such Bank's obligations hereunder and to amounts owing to it hereunder): (a) a Bank incurs a cost as a result of such Bank's having entered into and/or performing its obligations under this Agreement and/or assuming or maintaining a commitment under this Agreement and/or making one or more advances hereunder not being a cost compensated for by the operation of Clause 13 or which would have been compensated for but for the operation of the other provisions of Clause 13 or a cost arising as a result of a breach by a Bank of any fiscal, monetary or capital adequacy limit imposed on it by law or any relevant regulatory authority; (b) a Bank is unable to obtain the rate of return on its overall capital which it would have been able to obtain but for such Bank's having entered into and/or performing its obligations and/or assuming or maintaining a commitment under this Agreement; (c) there is any increase in the cost to a Bank of funding or maintaining all or any of the advances comprised in a class of advances formed by or including the advances made or to be made by such Bank hereunder; (d) a Bank becomes liable to make any payment on account of Tax or otherwise not being a Tax imposed on the overall net income of a Bank (or any branch of a Bank) on or calculated by reference to the amount of the advances made or to be made by such Bank hereunder and/or to any sum received or receivable by it hereunder; or (e) the Associated Costs Rate, as calculated hereunder, does not represent the cost to a Bank of complying with the requirements of the Bank of England in relation to its funding or maintaining of advances hereunder, then the Principal Borrower shall, from time to time on demand of the Agent (such demand having been made within twelve months of the relevant Bank becoming aware of the circumstances giving rise to such costs and the possible results thereof), promptly pay to the Agent for the account of that Bank amounts sufficient to indemnify that Bank against, as the case may be, (1) such cost, (2) such reduction in such rate of return (or such proportion of such reduction as is, in the opinion of that Bank, attributable to its obligations hereunder), (3) such increased cost (or such proportion of such increased cost as is, in the opinion of that Bank, attributable to its funding or maintaining advances hereunder), (4) such liability or (5) such portion of such cost as is not represented by the Associated Costs Rate. 15.2 A Bank intending to make a claim pursuant to Clause 15.1 shall notify the Agent of the event by reason of which it is entitled to do so, whereupon the Agent shall notify the Principal Borrower thereof Provided that nothing herein shall require such Bank to disclose any confidential information relating to the organisation of its affairs. 16. Illegality and Mitigation 16.1 If, at any time, it is unlawful for a Bank to make, fund or allow to remain outstanding all or any of the advances made or to be made by it hereunder, then that Bank shall, promptly after becoming aware of the same, deliver to the Principal Borrower through the Agent a certificate to that effect and: (i) such Bank shall not thereafter be obliged to make Advances hereunder and the amount of its Commitment shall be immediately reduced to zero; and (ii) if the Agent on behalf of such Bank so requires, the Principal Borrower shall on such date as the Agent shall have specified repay, or procure repayment by the relevant Borrowers of, such Bank's share of any outstanding Advances together with accrued interest thereon and all other amounts owing to such Bank hereunder. 16.2 If, in respect of any Bank, circumstances arise which would or would upon the giving of notice result in: (i) the reduction of its Available Commitment to zero pursuant to Clause 16.1; (ii) the prepayment of its portion of the Loan pursuant to Clause 16.1; (iii) an increase in the amount of any payment to be made to it for its account pursuant to Clause 13.1; or (iv) a claim for indemnification pursuant to Clause 13.2 or 15.1, then, without in any way limiting, reducing or otherwise qualifying the Borrowers' obligations under any of the Clauses referred to in sub-paragraphs (i), (ii), (iii) and (iv) above, such Bank shall, promptly upon its Facility Office becoming aware of the same and the possible results thereof, notify the Agent thereof and, in consultation with the Agent and the Principal Borrower, take such steps as the Bank in its bona fide opinion considers appropriate to mitigate the effects of such circumstances including the transfer of its Facility Office to another jurisdiction or the transfer of its rights and obligations hereunder to another financial institution willing to participate in the Facility Provided that such Bank shall be under no obligation to take any such steps if, in the bona fide opinion of such Bank, such steps would or might have an adverse effect upon its business, operations or financial condition. Part 7 REPRESENTATIONS, COVENANTS AND EVENTS OF DEFAULT 17. Representations 17.1 Each of the Obligors represents that subject to any qualification in any legal opinion delivered pursuant to the Fourth Schedule or pursuant to any Supplemental Agreement: (i) it is a corporation duly organised under the laws of England and Wales with power to enter into each of the Facility Documents to which it is a party and to exercise its rights and perform its obligations thereunder and all corporate and other action required to authorise its execution of each such Facility Document and its performance of its obligations thereunder has been duly taken; (ii) under the laws of its jurisdiction of incorporation in force at the date hereof, it will not be required to make any deduction or withholding from any payment it may make hereunder; (iii) under the laws of its jurisdiction of incorporation in force at the date hereof, the claims of the Agent and the Banks against such Obligor under each of the Facility Documents to which it is a party will rank at least pari passu with the claims of any unsecured creditors save those whose claims are preferred solely by any bankruptcy, insolvency, liquidation or other laws of general application; (iv) in any proceedings taken in its jurisdiction of incorporation in relation to each of the Facility Documents to which it is a party, it will not be entitled to claim for itself or any of its assets immunity from suit, execution, attachment or other legal process; (v) all acts, conditions and things required to be done, fulfilled and performed in order (a) to enable it lawfully to enter into, exercise its rights under and perform and comply with the obligations expressed to be assumed by it in each of the Facility Documents to which it is a party and, (b) to ensure that the obligations expressed to be assumed by it in each such Facility Document are legal, valid and binding; (vi) under the laws of its jurisdiction of incorporation in force at the date hereof, it is not necessary that any of the Facility Documents be filed, recorded or enrolled with any court or other authority in such jurisdiction or that any registration or similar Tax be paid on or in relation to any such Facility Document; and (vii) the obligations expressed to be assumed by it in each of the Facility Documents to which it is expressed to be a party are legal and valid obligations binding on it in accordance with the terms thereof. 17.2 The Covenantor further represents that: (i) no Obligor or Material Subsidiary has taken any corporate action nor have any other steps been taken or legal proceedings been started or (to the best of its knowledge and belief) threatened against any Obligor or Material Subsidiary for its winding-up, dissolution, administration or re-organisation or for the appointment of a receiver, administrator, administrative receiver, trustee or similar officer of it or of any or all of its assets or revenues other than such steps or proceedings which (a) have been notified to the Agent prior to making this representation (b) are being contested in good faith or (c) are frivolous or vexatious; (ii) no Obligor or Material Subsidiary is in breach of or in default under any agreement to which it is a party or which is binding on it or any of its assets to an extent or in a manner which would be reasonably likely to have a material adverse effect on the business or financial condition of any Obligor or Material Subsidiary; (iii) other than as disclosed to the Agent prior to making this representation, no action or administrative proceeding of or before any court or agency which would be reasonably likely to have a material adverse effect on the business or financial condition of any Obligor or Material Subsidiary has been started or to the best of its knowledge threatened; (iv) save as disclosed to the Agent prior to the date hereof, the Original Financial Statements of each Borrower and the Covenantor were prepared in accordance with accounting principles generally accepted in the United Kingdom and consistently applied and give (in conjunction with the notes thereto) a true and fair view of the financial condition of each Borrower or, as the case may be, the Group at the date as of which they were prepared and the results of each Borrower's or, as the case may be, the Group's, operations during the financial year then ended; (v) save as disclosed to the Agent prior to the date hereof, since publication of the Original Financial Statements of each of the Borrowers and the Covenantor, there has been no material adverse change in the business or financial condition of any of the Borrowers or, as the case may be, any member of the Group; (vi) neither any Obligor or Material Subsidiary had, as at the date as of which the Original Financial Statements of the Covenantor or, as the case may be, each Borrower were prepared, any material losses or liabilities (contingent or otherwise) which were not disclosed thereby (or by the notes thereto) or reserved against therein nor were there at that date any unrealised or anticipated losses of the Covenantor or, as the case may be, any member of the Group, arising from commitments entered into by it which were not so disclosed or reserved against; (vii) all information supplied by any member of the Group to the Agent or the Banks in connection herewith was true, complete and accurate in all material respects as at the date on which it was provided and it is not aware of any material facts or circumstances which would cause such information to be misleading to the Agent or any of the Banks; (viii) save as permitted by Clause 20.3(i), no encumbrance exists over all or any of the present or future revenues or assets of any Obligor or Material Subsidiary; (ix) the execution by each Obligor of each Facility Document to which it is a party and such Obligor's exercise of its rights and performance of its obligations hereunder or thereunder will not result in the existence of nor oblige any member of the Group to create any encumbrance over all or any of its present or future revenues or assets; (x) the execution by each Obligor of each Facility Document to which it is a party and such Obligor's exercise of its rights and performance of its obligations thereunder do not and will not: (a) conflict with any material agreement, mortgage, bond or other instrument or treaty to which such Obligor is a party or which is binding upon it or any of its assets; (b) conflict with such Obligor's constitutive documents and rules and regulations; or (c) conflict with any applicable law, regulation or official or judicial order; (xi) the execution by each Obligor of each Facility Document to which it is a party constitutes, and such Obligor's exercise of its rights and performance of its obligations thereunder will constitute, private and commercial acts done and performed for private and commercial purposes; (xii) the Principal Borrower is a wholly-owned subsidiary of the Covenantor; (xiii) each member of the Group which is a Material Subsidiary or an Eligible Receivable Company as at the date of this Agreement is an Obligor under this Agreement; and (xiv) save as notified to the Agent pursuant to Clause 20.4, it is the current policy of each Eligible Receivable Company to effect and maintain Credit Insurance in respect of at least seventy five per cent. of the Receivables capable of being insured under the Credit Insurance existing from time to time. 18. Financial Information 18.1 Each of the Borrowers and the Covenantor shall: (i) as soon as the same become available, but in any event within 150 days after the end of each of its financial years, deliver to the Agent in sufficient copies for the Banks its financial statements (and, in the case of the Covenantor, the consolidated financial statements of the Group) for such financial year; (ii) in the case of the Covenantor only, no later than 45 days after the end of each of its financial quarters, deliver to the Agent in sufficient copies for the Banks, the consolidated financial statements of the Group for such period, each of which such statements shall be in a form agreed between the Covenantor and the Agent and shall include: (a) an aged debtors analysis for such quarter relating to the existing Eligible Receivables; and (b) in the case of the Covenantor, confirmation of those members of the Group which have become Material Subsidiaries or Eligible Receivable Companies either since the date of this Agreement (in respect of the first such confirmation) or since the immediately preceding such confirmation; (iii) from time to time on the request of the Agent, acting on the instructions of the Instructing Group, furnish the Agent with such information about the business and financial condition of itself and/or in the case of the Covenantor, the Group as the Agent may reasonably require; (iv) in the case of the Principal Borrower, within 45 days of the end of each of its financial quarters (beginning with the financial quarter during which this Agreement is signed) deliver to the Agent a certificate signed by the Finance Director of the Principal Borrower confirming that: (a) no Event of Default has occurred during such financial quarter; and (b) the Covenantor is in compliance with Clause 19.1 as at the end of such financial quarter; and (v) in the case of the Covenantor, within 120 days after the end of each of its financial years (or at such other time as the Agent and the Covenantor shall agree but in any event no more than once in each of the Covenantor's financial years) and at such time and at such location as the Covenantor and Agent shall agree, make a formal presentation to the Banks which shall include, without limitation and to a level of detail to be agreed with the Agent prior thereto: (a) a review of business for the past year; (b) an analysis of sales both retrospective and prospective; (c) marketing strategy both retrospective and prospective; (d) the impact of product lines and anticipated mix of production; (e) a technological impact analysis; (f) the Group's on going relationship with its Approved Insurers and any changes in the Credit Insurance policies; and (g) an analysis of business unit performance; and (vi) in the case of the Covenantor, as soon as practicable and in any event not less than 30 days before the beginning of each of its financial years, deliver to the Agent sufficient copies to the Agent and each Bank of the Varity Calendar for that financial year. 18.2 The Covenantor shall ensure that: (i) each set of financial statements delivered by it or by the Borrowers pursuant to Clause 18.1 is prepared in accordance with accounting principles generally accepted in the United Kingdom from time to time and consistently applied, and in respect of the consolidated statements of the Covenantor that they are prepared on the same basis and in accordance with the same accounting principles (consistently applied) as the audited financial statements of the Borrowers from which they are composed; (ii) the Principal Borrower and the Agent (acting on the instructions of an Instructing Group) shall negotiate in good faith with a view to agreeing such adjustments and/or amendments to the definitions contained in Clause 19.2 and/or to the ratios contained in Clause 19.1 which may be necessary or desirable in the event of any change in the accounting principles or policies applied by the Covenantor or any member of the Group consequent upon: (a) any change in applicable law; or (b) any court order in respect of the Covenantor or such member; or (c) any change in the, or new, accounting or financial reporting standards issued by the Accounting Standards Board or by any other prescribed body empowered to issue statements of accounting practice from time to time; or (d) any change in generally accepted accounting principles in England or in the jurisdiction in which such member is incorporated. If the Agent and the Principal Borrower cannot agree what adjustment and/or amendment is appropriate then the Principal Borrower shall procure that each set of financial statements delivered pursuant to the terms hereof shall be prepared on the same basis as the financial statements delivered immediately prior thereto. (iii) each set of unaudited financial statements delivered by it pursuant to Clause 18.1 is certified by a duly authorised officer of the Covenantor or the relevant Borrower, as the case may be, as giving a true and fair view of its financial condition (or, in the case of the consolidated financial statements of the Covenantor, the financial condition of the Group) as at the end of the period to which those financial statements relate and of the results of its (or, as the case may be, the Group's) operations during such period; and (iv) each set of financial statements delivered by it pursuant to paragraph (i) of Clause 18.1 has been audited by auditors of international repute reasonably acceptable to the Agent it being agreed that as at the date hereof the current auditors of each Obligor are acceptable, other than the consolidated financial statements of the Group, which may, only for so long as such financial statements remain unaudited, be delivered to the Agent in an unaudited form. 18.3 The Covenantor shall within 10 business days of the end of each Varity Calendar month deliver to the Agent a certificate substantially in the form of that set out in the Seventh Schedule, or in such other form as the Agent may from time to time to time reasonably require. Each Borrowing Base Certificate shall be certified by a duly authorised officer of the Covenantor to contain calculations true and accurate in all material respects of the amounts set out therein as at the Specified Date. 18.4 Representatives of each of the Agent and the Banks, or any of them, may prior to the occurrence of an Event of Default, not more than four times in any financial year (but after the occurrence of an Event of Default which is continuing, at any time) upon giving 24 hours notice enter during normal business hours any premises which are occupied at any time by any Obligor, Eligible Receivable Company or Material Subsidiary or in which any Obligor, Eligible Receivable Company or Material Subsidiary carries on business for the time being and shall be entitled to inspect such documents or information in respect of Receivables, Inventory, Eligible Receivable or Eligible Inventory as they, or any of them, may reasonably request. Each such Obligor shall provide on request (and in the case of each such Eligible Receivable Company or Material Subsidiary which is not also a Borrower, the Principal Borrower shall procure that that Eligible Receivable Company or Material Subsidiary shall provide) the Agent and the Banks, or any of them, with copies of such documents or information as aforementioned. 19. Financial Condition 19.1 The Covenantor shall ensure that the financial condition of the Group, as evidenced by the Covenantor's then most recent quarterly financial statements delivered pursuant to Clause 18.1 (as may be adjusted by the Covenantor in consultation with the Agent, acting on the instructions of an Instructing Group, to take account of any changes in circumstances which occur after the date as of which such quarterly financial statements were prepared), shall be such that: (i) the ratio of Financial Indebtedness of the Group to Consolidated Published Net Worth shall not be more than 0.80:1; (ii) Consolidated Published Net Worth shall not be less than the Minimum Amount for that financial quarter; and (iii) the ratio of PBIT to Interest Service Costs for the immediately preceding 12 month period shall not be less than 3.0:1. 19.2 In this Clause 19: (i) "Adjustment Amount" means in respect of any financial quarter, an amount equal to 25% of the amount of GPAT as set out in the financial statements for that financial quarter; (ii) "Consolidated Published Net Worth" means at any time the aggregate of the amounts paid up or credited as paid up on the issued share capital of the Covenantor and the aggregate amount of capital and reserves of the Group including but not limited to: (a) any amount credited to the share premium account; (b) any capital redemption reserve; (c) any balance standing to the credit of the profit and loss account of the Group; (d) any amounts shown in respect of goodwill or other intangible assets of the Group; (e) reserves on consolidation, but deducting (insofar as not already taken into account): (f) any debit balance on the consolidated profit and loss account of the Group; (g) any amounts in respect of loans made by any member of the Group to any person not a member of the Group after 31 January 1993 other than those disclosed to the Agent on or prior to the date hereof; (h) any deferred taxation not provided for which should have been provided for under accounting principles generally accepted in the United Kingdom; (i) any bad debts not provided for; (j) any minority interests; and (k) any amounts arising from a revaluation of assets made at any time after 31 January 1993 (or in the case of assets of a company which becomes a member of the Group after that date, the date on which that company becomes a member of the Group), other than a revaluation made by an independent third party valuer, (no amount to be included or excluded more than once) all as determined from the most recent consolidated financial statements of the Group and making such adjustments in respect of (a) to (k) above as may be appropriate; (l) in respect of any variation in the amount of any paid up share capital or reserves after the date of such consolidated financial statements; (m) in respect of any distribution declared, recommended or made by the Covenantor or any of its subsidiaries out of profits earned up to and including the date of such consolidated financial statements; and (n) to deduct the assets and liabilities of any companies which, since the date of the most recent consolidated financial statements of the Group, have ceased to be members of the Group and to include the assets and liabilities of any companies which have, since such date, become members of the Group. (iii) "Minimum Amount" means: (a) for the financial quarter ending 31 January 1995, (Pounds)110,000,000; and (b) for each successive financial quarter, the aggregate of the Minimum Amount for the immediately preceding financial quarter and the Adjustment Amount for that successive financial quarter; but shall not at any time be less than (Pounds)110,000,000 (iv) "PBIT" means for any period for which it is being tested, the profits from the ordinary activities of the Group for such period after such profits are converted from any foreign currency into sterling and after adding or deducting any gains or losses made as a result of such conversion but before deduction of: (a) Interest Service Costs paid or payable for such period; (b) taxation paid or payable during such period; (c) depreciation and amortisation for such period; and (d) exceptional items for such period, each as disclosed by the most recent consolidated financial statements of the Group; and (v) "GPAT" means, for any period for which it is being tested, the profits of the ordinary activities of the Group after such profits are converted from any foreign currency into sterling and after deducting any taxation paid or payable during such period; (vi) "Interest Service Costs" means an amount equal to the aggregate amount of all obligations of the Group in respect of interest payments (including without limitation the amount of (a) any discounts on commercial bills (b) any interest element in any leasing or hire purchase payments (c) any capitalised interest or (d) any payments analogous to or having the same commercial effect as interest payments or discounts) in respect of any period for which it is being tested in relation to any Financial Indebtedness and all costs, charges and expenses incurred in effecting, servicing and maintaining such Financial Indebtedness in such financial year after taking into account the effect of any interest rate or currency swap, cap, collar or floor arrangements; and (vii) "Financial Indebtedness" means in respect of the Group, or any person, any indebtedness incurred in respect of: (a) moneys borrowed; (b) any debenture, bond, note, loan stock or other security; (c) acceptance credits; (d) the acquisition cost of property or assets or services (excluding stock in trade for which payment is due within twelve months or less from the date of invoice) to the extent payable more than 180 days after the time of acquisition or possession thereof by the party liable where such deferred payment was arranged primarily as a method of raising finance or financing such acquisition; (e) rental payments under leases which are accounted for as finance leases as that term is described in statement 21 of the Statements of Standard Accounting Practice for the United Kingdom (whether in respect of land, machinery, equipment or otherwise) entered into primarily as a method of raising finance or financing the acquisition of the property or asset leased but excluding any interest element thereof and excluding, for the avoidance of doubt, rental payments under any operating leases; (f) amounts raised under any other transaction, off balance sheet or otherwise, having the commercial effect of a borrowing and effected primarily as a method of raising finance; (g) any bills of exchange (other than cheques) or promissory notes on which such person is liable as drawer (but only if the relevant bill is not beneficially owned by such person), acceptor, issuer, endorser or otherwise; (h) any indebtedness factored or discounted by such person to another person to the extent there is recourse to such first person in respect thereof; (i) any fixed or minimum premium payable on redemption or repayment of any debenture, share capital or other moneys borrowed falling to be taken into account; and (j) without double counting, any guarantee or other assurance of indebtedness falling within paragraphs (a) to (i) above of any person, However: (i) indebtedness owed by one member of the Group to another member of the Group will not be taken into account as Financial Indebtedness; (ii) indebtedness owed to trade creditors in the ordinary course of business or net indebtedness incurred in relation to forward foreign exchange contracts entered into for bona fide commercial purposes will not be taken into account as Financial Indebtedness; and (iii) indebtedness incurred by a member of the Group for the purpose of repaying the whole or any part of the Financial Indebtedness of any member of the Group and so to be applied within one month of being so incurred will during that period be excluded from the Financial Indebtedness of the Group for the purposes of Clause 19 except to the extent so applied. 19.3 All expressions used in the definitions in this Clause 19 which are not otherwise defined herein shall be construed in accordance with generally accepted accounting principles in the United Kingdom (as used in the Group's most recent audited annual consolidated financial statements). 20. Covenants 20.1 The Covenantor shall: (i) ensure that each of the Obligors shall obtain, comply in all material respects with the terms of and do all that is necessary to maintain in full force and effect all authorisations, approvals, licences and consents required in or by the laws and regulations of its jurisdiction of incorporation to enable it lawfully to enter into and perform its obligations under each Facility Document to which it is a party or to ensure the legality, validity or enforceability in its jurisdiction of incorporation of such Facility Document; (ii) ensure that each of the Obligors shall promptly inform the Agent of the occurrence of any Event of Default of which that Obligor is aware and, upon receipt of a written request to that effect from the Agent, confirm to the Agent that, save as previously notified to the Agent or as notified in such confirmation, no Event of Default has occurred; (iii) procure that each of the Obligors shall ensure that at all times the claims of the Agent and the Banks against it under each Facility Document to which it is a party rank at least pari passu with the claims of any unsecured creditors save those whose claims are preferred by any bankruptcy, insolvency, liquidation or other laws of general application; and (iv) ensure that each of the Obligors maintains Credit Insurance. 20.2 The Principal Borrower shall, within 21 days of the receipt by the Agent of the written confirmation referred to at Clause 18.1(ii)(b) showing a member of the Group incorporated in England and Wales to have become either a Material Subsidiary or an Eligible Receivable Company, procure that such Material Subsidiary or Eligible Receivable Company becomes an Additional Borrower by delivering to the Agent, a Supplemental Agreement duly executed by such Material Subsidiary or Eligible Receivable Company together with such documents as the Agent may from time to time require to be delivered as conditions precedent under such Supplemental Agreement. 20.3 The Covenantor shall ensure that no Obligor or Material Subsidiary shall, without the prior written consent of an Instructing Group: (i) create or permit to subsist any encumbrance (other than a Permitted Encumbrance) over all or any of its present or future revenues or assets; (ii) give any guarantee or indemnity (except in the ordinary course of business or as required hereby) to or for the benefit of any person or otherwise voluntarily assume any liability, whether actual or contingent, in respect of any obligation of any other person for an amount exceeding at any one time (Pounds)5,000,000; (iii) (other than Permitted Disposals and disregarding disposals in the ordinary course of trading) sell, lease, transfer or otherwise dispose of, by one or more transactions or series of transactions (whether related or not), the whole or any part of its revenues or its assets the aggregate book value of which during the term of the Facility is more than ten per cent. of the gross assets of the Group as set out in the most recent consolidated financial statements delivered pursuant to Clause 18.1; and (iv) enter into any new business unrelated to that in which it is engaged as at the date of this Agreement (the consent of an Instructing Group, in respect of this paragraph only, not to be unnecessarily withheld). 20.4 The Principal Borrower shall not effect any change to its policy regarding the maintenance of Credit Insurance (as referred to in Clause 17.2(xiv)) unless it has, at least thirty days prior to effecting such change, notified the Agent and, within such thirty day period, obtained an Instructing Group's approval thereof (such approval not to be unreasonably withheld or delayed). 21. Events of Default 21.1 If: (i) any Obligor fails to pay any sum due from it hereunder at the time, in the currency and in the manner specified herein or, if such a failure to pay is due solely to a technical or other manifest error in any banking or payment system or an administrative error of any Obligor, such sum is not paid within 3 business days of the date it was otherwise due; or (ii) any representation or statement made by any of the Obligors in any Facility Document or in any notice or other document, certificate or statement delivered by it pursuant thereto or in connection therewith is or proves to have been incorrect or misleading in any material respect when made and, if, in the opinion of an Instructing Group, the misleading or incorrect nature of such representation is capable of being remedied, and is not so remedied within 30 days after notice thereof has been given to such Obligor; or (iii) (a) any Obligor fails duly to perform or comply with any of the obligations expressed to be assumed by it in Clauses 18, 19 or 20, or, (b) the Principal Guarantor fails duly to perform or comply with any of the obligations expressed to be assumed by it in Clauses 8 and 9 of the Varity Guarantee and, in respect of the obligations expressed to be assumed by the Covenantor in Clause 20.1(i) and (iii) or, as the case may be, by the Principal Guarantor in Clause 9(i) and of the Varity Guarantee, if, in the opinion of an Instructing Group, such failure is capable of remedy, it is not so remedied within 30 days after notice thereof has been given to the Covenantor or, as the case may be, the Principal Guarantor; or (iv) any of the Obligors fails duly to perform or comply with any other obligation expressed to be assumed by it in any of the Facility Documents to which it is a party and such failure is not remedied within 30 days after the Agent has given notice thereof to such Obligor; or (v) any Financial Indebtedness of any Obligor or any Material Subsidiary is not paid when due, any Financial Indebtedness of any Obligor or Material Subsidiary is declared to be or otherwise becomes due and payable prior to its specified maturity or any Financial Indebtedness of any Obligor or Material Subsidiary becomes due and payable prior to its specified maturity as a consequence of a default under, or breach or repudiation of the terms governing, such Financial Indebtedness Provided Always that the provisions of this paragraph (v) shall not apply to any Financial Indebtedness which is, in aggregate less than (Pounds)1,000,000 (in the case of a Material Subsidiary or Obligor other than the Principal Guarantor) or $20,000,000 (in the case of the Principal Guarantor) or any Financial Indebtedness which is being disputed in good faith Provided Always that reserves exist to meet in full such disputed Financial Indebtedness; or (vi) any Obligor is unable to pay its debts as they fall due, commences negotiations with any one or more of its creditors with a view to the general readjustment or rescheduling of its indebtedness or makes a general assignment for the benefit of or a composition with its creditors other than for a solvent winding up or reconstruction on terms approved by an Instructing Group, such approval not to be unreasonably withheld; or (vii) any Obligor takes any corporate action or other steps are taken or legal proceedings are started for its winding-up, dissolution, administration or re-organisation or for the appointment of a receiver, administrator, administrative receiver, trustee or similar officer of it or of any material part or all of its revenues and assets other than for a solvent winding up or reconstruction on terms approved by an Instructing Group, such approval not to be unreasonably withheld; or (viii) any execution or distress is levied against, or an encumbrancer takes possession of the whole or any material part of, the property, undertaking or assets of any Obligor or Material Subsidiary; or (ix) the Principal Borrower ceases to be under the control of the Principal Guarantor; or (x) the Covenantor ceases to be under the control of the Principal Guarantor; or (xi) any person or group (within the meaning of Section 13(d)(3) of the United States Securities Exchange Act of 1934 (other than a person or group to which an Instructing Group has consented) acquires control of the Principal Guarantor; or (xii) any of the Obligors repudiates any Facility Document to which it is a party or does or causes to be done any act or thing evidencing an intention to repudiate such Facility Document; or (xiii) any Obligor or where applicable, the Principal Guarantor, is in breach of any of its obligations under the Varity Guarantee, the guarantees given pursuant to the terms of Part 8 hereof or any other agreement or document executed pursuant to or in connection with this Facility Document, or any such document or agreement ceases to remain in full force and effect; (xiv) an Event of Default occurs under the Bilateral Facility Agreement; (xv) in the reasonable opinion of an Instructing Group there is a material adverse change in the financial condition of any Obligor or Material Subsidiary which might reasonably be expected, in the opinion of an Instructing Group, to adversely affect the ability of any Obligor to comply with its obligations under any of the Facility Documents to which it is a party; and (xvi) a New Advance is made at any time during which a Potential Event of Default is outstanding and ten business days after such New Advance has been made a Potential Event of Default remains outstanding, then, and in any such case and at any time thereafter, provided such Event of Default is continuing, the Agent may (and, if so instructed by an Instructing Group, shall) by written notice to the Borrowers: (a) declare the Advances to be immediately due and payable (whereupon the same shall become so payable together with accrued interest thereon and any other sums then owed by the Borrowers hereunder) or declare the Advances to be due and payable on demand of the Agent; and/or (b) declare that the Facility shall be cancelled, whereupon the same shall be cancelled and the Commitment of each Bank shall be reduced to zero. 21.2 If, pursuant to Clause 21.1, the Agent declares the Advances to be due and payable on demand of the Agent, then, and at any time thereafter, the Agent, if so instructed by an Instructing Group, shall by written notice to the Borrowers call for repayment of the Advances on such date as it may specify in such notice (whereupon the same shall become due and payable on such date together with accrued interest thereon and any other sums then owed by the Borrowers hereunder) or withdraw its declaration with effect from such date as it may specify in such notice. 21.3 If, pursuant to Clause 21.1(a), the Agent declares the Advances to be due and payable on demand, the Term in respect of any such Advance shall, if the Agent subsequently demands payment before the scheduled Repayment Date in respect of such Advance, be deemed (except for the purposes of Clause 24.4) to be of such length that it ends on the date that such demand is made. Part 8 GUARANTEE 22. Guarantee 22.1 Each Guarantor hereby irrevocably and unconditionally: (i) guarantees to the Agent and the Banks the due and punctual observance and performance of all the terms, conditions and covenants on the part of each Borrower contained in each Facility Document and agrees to pay to the Agent from time to time on demand any and every sum or sums of money which any of the Borrowers shall at any time be liable to pay to the Agent and the Banks or any of them under or pursuant to any of the Facility Documents and which shall not have been paid at the time such demand is made; and (ii) agrees as a primary obligation to indemnify the Agent and the Banks from time to time on demand by the Agent from and against any loss incurred by the Agent and the Banks or any of them as a result of any of the obligations of any of the Borrowers under or pursuant to any of the Facility Documents being or becoming void, voidable, unenforceable or ineffective as against any of the Borrowers for any reason whatsoever, whether or not known to the Agent and the Banks or any of them or any other person, the amount of such loss being the amount which the person or persons suffering it would otherwise have been entitled to recover from such Borrower, Provided Always that no Guarantor shall be construed as giving a guarantee or indemnity in respect of its own obligations as a Borrower. 23. Preservation of Rights 23.1 The obligations of each Guarantor herein contained shall be in addition to and independent of every other security which the Agent and the Banks or any of them may at any time hold in respect of any of the Borrowers' obligations hereunder. 23.2 The obligations of each Guarantor herein contained shall constitute and be continuing obligations notwithstanding any settlement of account or other matter or thing whatsoever, and in particular but without limitation, shall not be considered satisfied by any intermediate payment or satisfaction of all or any of the obligations of any Borrower under any Facility Document and shall continue in full force and effect until final payment in full of all amounts owing by each Borrower hereunder and total satisfaction of all the Borrowers' actual and contingent obligations hereunder. 23.3 Neither the obligations of any Guarantor herein contained nor the rights, powers and remedies conferred in respect of such Guarantor upon the Agent and the Banks or any of them by this Agreement or by law shall be discharged, impaired or otherwise affected by: (i) the winding-up, dissolution, administration or re-organisation of any Borrower or any other person or any change in its status, function, control or ownership; (ii) any of the obligations of any Borrower or any other person under any Facility Document or under any other security taken in respect of any of its obligations thereunder being or becoming illegal, invalid, unenforceable or ineffective in any respect; (iii) time or other indulgence being granted or agreed to be granted to any Borrower or any other person in respect of its obligations under any Facility Document or under any such other security; (iv) any amendment to, or any variation, waiver or release of, any obligation of any Borrower or any other person under any Facility Document or under any such other security; (v) any failure to take, or fully to take, any security contemplated hereby or otherwise agreed to be taken in respect of any Borrower's, or any other person's, obligations under any Facility Document; (vi) any failure to realise or fully to realise the value of, or any release, discharge, exchange or substitution of, any security taken in respect of any Borrower's or, any other person's, obligations under any Facility Document; or (vii) any other act, event or omission which, but for this Clause 23.3, might operate to discharge, impair or otherwise affect any of the obligations of any of the Guarantors herein contained or any of the rights, powers or remedies conferred upon the Agent and the Banks or any of them by any of the Facility Documents or by law. 23.4 Any settlement or discharge between any of the Guarantors and the Agent and the Banks or any of them shall be conditional upon no security or payment to the Agent and the Banks or any of them by any Borrower, or any Guarantor or any other person on behalf of any Borrower or, as the case may be, any Guarantor being avoided or reduced by virtue of any provisions or enactments relating to bankruptcy, insolvency, liquidation or similar laws of general application for the time being in force and, if any such security or payment is so avoided or reduced, the Agent and the Banks shall each be entitled to recover the value or amount of such security or payment from such Guarantor or Borrower subsequently as if such settlement or discharge had not occurred. 23.5 Neither the Agent and the Banks nor any of them shall be obliged before exercising any of the rights, powers or remedies conferred upon them in respect of any Guarantor by this Agreement or by law: (i) to make any demand of any Borrower; (ii) to take any action or obtain judgment in any court against any Borrower; (iii) to make or file any claim or proof in a winding-up or dissolution of any Borrower; or (iv) to enforce or seek to enforce any other security taken in respect of any of the obligations of any Borrower hereunder. 23.6 Each Guarantor agrees that, so long as any amounts are or may be owed by any Borrower hereunder or any Obligor is under any actual or contingent obligations hereunder, no Guarantor shall exercise any rights which it may at any time have by reason of performance by it of its obligations hereunder: (i) to be indemnified by any Borrower; and/or (ii) to claim any contribution from any other guarantor of any Borrower's obligations hereunder; and/or (iii) to take the benefit (in whole or in part and whether by way of subrogation or otherwise) of any rights of the Agent and the Banks hereunder or of any other security taken pursuant to, or in connection with, any of the Facility Documents by all or any of the Agent and the Banks. 23.7 Each Guarantor agrees that: (i) its liabilities, obligations and agreements contained in this agreement shall bind it and each other Guarantor jointly and each of them severally; (ii) it shall not be discharged from its obligations hereunder by reason of: (a) the guarantee and indemnity contained herein being or becoming invalid or unenforceable in relation to any Guarantor; or (b) the liability of any Guarantor hereunder ceasing for any cause whatsoever including, without limitation, by reason of any release or discharge of such Guarantor by the Agent and the Banks or any of them or otherwise; (iii) the Agent and the Banks or any of them may enforce their rights hereunder and shall be entitled to proceed against any or all of the Guarantors in such manner, order and at such times as the Agent and the Banks or any of them may choose in their absolute discretion and neither the Agent nor the Banks shall be obliged to make any claim against any Guarantor or Borrower; Part 9 DEFAULT INTEREST AND INDEMNITY 24. Default Interest and Indemnity 24.1 If any sum due and payable by any of the Obligors hereunder is not paid on the due date therefor (and for the purposes hereof "due date" shall not include any applicable grace period) in accordance with the provisions of Clause 26 or if any sum due and payable by any of the Obligors under any judgment of any court in connection herewith is not paid on the date of such judgment, the period beginning on such due date or, as the case may be, the date of such judgment and ending on the date upon which the obligation of such Obligor to pay such sum (the balance thereof for the time being unpaid being herein referred to as an "unpaid sum") is discharged shall be divided into successive periods, each of which (other than the first) shall start on the last day of the preceding such period and the duration of each of which shall (except as otherwise provided in this Clause 24) be selected by the Agent. 24.2 During each such period relating thereto as is mentioned in Clause 24.1 an unpaid sum shall bear interest at the rate per annum which is the sum from time to time of one per cent., the Margin, the Associated Costs Rate in respect thereof at such time and LIBOR on the Quotation Date therefor Provided that: (i) if, for any such period, LIBOR cannot be determined, the rate of interest applicable to each Bank's portion of such unpaid sum shall be the sum from time to time of one per cent., the Margin, the Associated Costs Rate in respect thereof at such time and the rate per annum notified to the Agent by such Bank before the last day of such period to be that which expresses as a percentage rate per annum the cost to such Bank of funding from whatever sources it may reasonably select its portion of such unpaid sum for such period; and (ii) if such unpaid sum is all or part of an Advance which became due and payable on a day other than the last day of the Term thereof, the first such period applicable thereto shall be of a duration equal to the unexpired portion of that Term and the rate of interest applicable thereto from time to time during such period shall be that which exceeds by one per cent. the rate which would have been applicable to it had it not so fallen due. 24.3 Any interest which shall have accrued under Clause 24.2 in respect of an unpaid sum shall be due and payable and shall be paid by the Obligor owing such unpaid sum at the end of the period by reference to which it is calculated or on such other date or dates as the Agent may specify by written notice to such Obligor. 24.4 If any Bank or the Agent on its behalf receives or recovers all or any part of such Bank's share of an Advance otherwise than on the last day of the Term thereof, the relevant Borrower shall pay to the Agent on demand for account of such Bank an amount equal to the amount (if any) by which (i) the additional interest which would have been payable on the amount so received or recovered had it been received or recovered on the last day of the Term thereof exceeds (ii) the amount of interest which in the opinion of the Agent would have been payable to the Agent on the last day of the Term thereof in respect of a sterling deposit equal to the amount so received or recovered placed by it with a prime bank in London for a period starting on the third business day following the date of such receipt or recovery and ending on the last day of the Term thereof. 24.5 Each Borrower undertakes to indemnify: (i) each of the Agent and the Banks against any reasonable cost, claim, loss, expense (including legal fees) or liability together with any VAT thereon, which any of them may sustain or incur as a consequence of the occurrence of any Event of Default or any default by any Borrower in the performance of any of the obligations expressed to be assumed by it in any of the Facility Documents; and (ii) each Bank against any loss it may suffer as a result of its funding its portion of an Advance requested hereunder but not made by reason of the operation of any one or more of the provisions hereof. 24.6 Any unpaid sum shall (for the purposes of this Clause 24, Clause 15.1 and the Fifth Schedule) be treated as an advance and accordingly in this Clause 24 and the Sixth Schedule the term "Advance" includes any unpaid sum and "Term", in relation to an unpaid sum, includes each such period relating thereto as is mentioned in Clause 24.1. Part 10 PAYMENTS 25. Currency of Account and Payment 25.1 Sterling is the currency of account and payment for each and every sum at any time due from any of the Obligors hereunder Provided that: (i) each payment in respect of costs and expenses shall be made in the currency in which the same were incurred; and (ii) each payment pursuant to Clause 13.2 or Clause 15.1 shall be made in the currency specified by the party claiming thereunder. 25.2 If any sum due from any of the Obligors under any Facility Document or any order or judgment given or made in relation hereto has to be converted from the currency (the "first currency") in which the same is payable hereunder or under such order or judgment into another currency (the "second currency") for the purpose of (i) making or filing a claim or proof against such Obligor, (ii) obtaining an order or judgment in any court or other tribunal or (iii) enforcing any order or judgment given or made in relation hereto, such Borrower shall indemnify and hold harmless each of the persons to whom such sum is due from and against any loss suffered as a result of any discrepancy between (a) the rate of exchange used for such purpose to convert the sum in question from the first currency into the second currency and (b) the rate or rates of exchange at which such person may in the ordinary course of business purchase the first currency with the second currency upon receipt of a sum paid to it in satisfaction, in whole or in part, of any such order, judgment, claim or proof and such Borrower shall further indemnify and hold harmless each such person in respect of any costs or expenses incurred by such person in entering into and effecting the purchase contract referred to in (b). 26. Payments 26.1 On each date on which this Agreement requires an amount denominated in sterling to be paid by any of the Obligors or any of the Banks hereunder, such Obligor or, as the case may be, such Bank shall make the same available to the Agent by payment in sterling and in immediately available, freely transferable, cleared funds to the Agent's account number 0002727 with Lloyds Bank Plc, Treasury Division, Faryners House, 25 Monument Street, London, EC3R 8BQ, Sort Code 30-15-57 (or such other account or bank as the Agent may have specified for this purpose). 26.2 If, at any time, it shall become impracticable (by reason of any action of any governmental authority or any change in law, exchange control regulations or any similar event) for any of the Obligors to make any payments hereunder in the manner specified in Clause 26.1, then such Obligor may agree with each or any of the Banks alternative arrangements for the payment direct to such Bank of amounts due to such Bank hereunder Provided that, in the absence of any such agreement with any Bank, such Obligor shall be obliged to make all payments due to such Bank in the manner specified herein. Upon reaching such agreement such Obligor and such Bank shall immediately notify the Agent thereof and shall thereafter promptly notify the Agent of all payments made direct to such Bank. 26.3 Save as otherwise provided herein, each payment received by the Agent for the account of another person pursuant to Clause 26.1 shall: (i) in the case of a payment received for the account of a Borrower, be made available by the Agent to such Borrower by application: (a) first, in or towards payment the same day of any amount then due from such Borrower hereunder to the person from whom the amount was so received; and (b) secondly, in or towards payment the same day to the account of such Borrower with such Bank in London as such Borrower shall have previously notified to the Agent for this purpose; and (ii) in the case of any other payment, be made available by the Agent to the person for whose account such payment was received (in the case of a Bank, for the account of the Facility Office) for value the same day by transfer to such account of such person with such bank in London as such person shall have previously notified to the Agent. 26.4 All payments required to be made by any of the Obligors hereunder shall be calculated without reference to any set-off or counterclaim and shall be made free and clear of and without any deduction for or on account of any set-off or counterclaim. 26.5 All moneys received, recovered or realised by a Bank by virtue of Clause 22 may, in that Bank's discretion, be credited to a suspense or impersonal account and may be held in such account for so long as such Bank thinks fit pending the application from time to time (as such Bank may think fit) of such moneys in or towards the payment and discharge of any amounts owing by any of the Obligors to such Bank hereunder. 26.6 Where a sum is to be paid hereunder to the Agent for account of another person, the Agent shall not be obliged to make the same available to that other person until it has been able to establish to its satisfaction that it has actually received such sum, but if it does so and it proves to be the case that it had not actually received such sum, then the person to whom such sum was so made available shall on request refund the same to the Agent together with an amount sufficient to indemnify the Agent against any cost or loss it may have suffered or incurred by reason of its having paid out such sum prior to its having received such sum. 27. Set-Off Each of the Obligors authorises each Bank to apply any credit balance to which such Obligor is entitled on any account of such Obligor with that Bank in satisfaction of any sum due and payable from such Obligor to such Bank hereunder but unpaid; for this purpose, each Bank is authorised to purchase with the moneys standing to the credit of any such account such other currencies as may be necessary to effect such application. No Bank shall be obliged to exercise any right given to it by this Clause 27. 28. Redistribution of Payments 28.1 If, at any time, the proportion which any Bank (a "Recovering Bank") has received or recovered (whether by payment, the exercise of a right of set-off or combination of accounts or otherwise) in respect of its portion of any payment (a "relevant payment") to be made under this Agreement by any Obligor for account of such Recovering Bank and one or more other Banks is greater (the portion of such receipt or recovery giving rise to such excess proportion being herein called an "excess amount") than the proportion thereof so received or recovered by the Bank or Banks so receiving or recovering the smallest proportion thereof, then: (i) such Recovering Bank shall promptly pay to the Agent an amount equal to such excess amount; (ii) there shall thereupon fall due from such Obligor to such Recovering Bank an amount equal to the amount paid out by such Recovering Bank pursuant to paragraph (i) above, the amount so due being, for the purposes hereof, treated as if it were an unpaid part of such Recovering Bank's portion of such relevant payment; and (iii) the Agent shall treat the amount received by it from such Recovering Bank pursuant to paragraph (i) above as if such amount had been received by it from such Obligor in respect of such relevant payment and shall pay the same to the persons entitled thereto (including such Recovering Bank) pro rata to their respective entitlements thereto, Provided that to the extent that any excess amount is attributable to a payment to a Bank pursuant to Clause 26.3(i)(a) such portion of such excess amount as is so attributable shall not be required to be shared pursuant hereto. Provided further that, on condition that such Bank shall have previously consulted with the other Banks, if any Bank shall commence an action or proceeding in any court to enforce its rights and as a result thereof, or in connection therewith, shall receive any excess amount, such Bank shall not be required to share any portion of such excess amount with a Bank that has a legal right to, but does not, join such action or proceeding or commence and diligently prosecute a separate action or proceeding to enforce its right in another court. 28.2 If any sum (a "relevant sum") received or recovered by a Recovering Bank in respect of any amount owing to it by any Obligor becomes repayable and is repaid by such Recovering Bank, then: (i) each Bank which has received a share of such relevant sum by reason of the implementation of Clause 28.1 shall, upon request of the Agent, pay to the Agent for account of such Recovering Bank an amount equal to its share of such relevant sum; and (ii) there shall thereupon fall due from such Obligor to each such Bank an amount equal to the amount paid out by it pursuant to paragraph (i) above, the amount so due being, for the purposes hereof, treated as if it were the sum payable to such Bank against which such Bank's share of such relevant sum was applied. Part 11 FEES, COSTS AND EXPENSES 29. Fees 29.1 The Principal Borrower shall pay to the Agent for account of each Bank a commitment commission on the amount of such Bank's Available Commitment from day to day during the period beginning on the date hereof and ending on the Final Maturity Date, such commitment commission to be calculated at a percentage rate per annum equal to 50% of the applicable Margin from time to time and payable in arrear on the last day of each successive period of three months which ends during such period and on the Final Maturity Date. 29.2 The Principal Borrower shall pay to the Agent for its own account the agency and arrangement fees specified in the letter of even date herewith from the Agent to the Principal Borrower at the times, and in the amounts, specified in such letter. 30. Costs and Expenses 30.1 The Principal Borrower shall, from time to time on demand of the Agent, reimburse the Agent for all reasonable costs and expenses (including legal fees) together with any VAT thereon incurred by it in connection with the negotiation, preparation and execution of the Facility Documents and the completion of the transactions herein contemplated. 30.2 The Principal Borrower shall, from time to time on demand of the Agent, reimburse the Agent and the Banks for all reasonable costs and expenses (including legal fees) together with any VAT thereon incurred in or in connection with the preservation and/or enforcement of any of the rights of the Agent and the Banks under any of the Facility Documents. 30.3 The Principal Borrower shall pay all stamp, registration and other Taxes to which any Facility Document or any judgment given in connection therewith is or at any time may be subject and shall, from time to time on demand of the Agent, indemnify the Agent and the Banks against any reasonable liabilities, costs, claims and expenses resulting from any failure to pay or any delay in paying any such Tax. 30.4 The Principal Borrower shall, from time to time on demand of the Agent, reimburse the Agent for its own account at such reasonable daily and/or hourly rates as the Agent shall from time to time determine, acting reasonably, for the cost of utilising its management time and/or other resources in connection with taking all such steps or other action which the Agent may deem appropriate, which the Banks or an Instructing Group, as the case may be, require or which an Obligor requests in connection with: (i) the granting or proposed granting of any waiver or consent hereunder (other than any consent or waiver which may be required at the instigation, or due solely to any act or omission, of the Agent, the Banks or any of them); (ii) any amendment or proposed amendment hereto (other than any amendment or proposed amendment which may be requested at the instigation, or due solely to any act or omission, of the Agent, the Banks or any of them); (iii) any breach by an Obligor of its obligations hereunder or any investigation instigated by the Agent in the reasonable belief that such a breach may have occurred; (iv) the occurrence of any event which is or may become an Event of Default or Potential Event of Default; or (v) the preservation and/or enforcement of any of the rights of the Agent and the Banks hereunder and under any of the Facility Documents. 30.5 If the Principal Borrower fails to perform any of its obligations under this Clause 30, each Bank shall, in its Proportion, indemnify each of the Agent against any loss incurred by any of them as a result of such failure and the Principal Borrower shall forthwith reimburse each Bank for any payment made by it pursuant to this Clause 30.5. Part 12 AGENCY PROVISIONS 31. The Agent and the Banks 31.1 Each Bank hereby appoints the Agent to act as its agent in connection herewith and hereby acknowledges that the Agent will act as its Agent in connection with the Guarantees, and authorises the Agent to exercise such rights, powers, authorities and discretions as are specifically delegated to the Agent by the terms hereof together with all such rights, powers, authorities and discretions as are reasonably incidental thereto. 31.2 The Agent may: (i) assume that: (a) any representation made by any of the Obligors in connection with any of the Facility Documents is true; (b) no Event of Default or Potential Event of Default has occurred; (c) no Obligor is in breach of or default under its obligations under any of the Facility Documents; and (d) any right, power, authority or discretion vested herein upon an Instructing Group, the Banks or any other person or group of persons has not been exercised, unless it has, in its capacity as agent for the Banks, received notice to the contrary from any other party hereto; (ii) assume that the Facility Office of each Bank is that identified with its signature below (or, in the case of a Transferee, at the end of the Transfer Certificate to which it is a party as Transferee) until it has received from such Bank a notice designating some other office of such Bank to replace its Facility Office and act upon any such notice until the same is superseded by a further such notice; (iii) engage and pay for the advice or services of any lawyers, accountants, surveyors or other experts whose advice or services may to it seem necessary, expedient or desirable and rely upon any advice so obtained; (iv) rely as to any matters of fact which might reasonably be expected to be within the knowledge of any of the Obligors upon a certificate signed by or on behalf of such Obligor; (v) rely upon any communication or document believed by it to be genuine; (vi) refrain from exercising any right, power or discretion vested in it as agent hereunder unless and until instructed by an Instructing Group as to whether or not such right, power or discretion is to be exercised and, if it is to be exercised, as to the manner in which it should be exercised; (vii) refrain from acting in accordance with any instructions of an Instructing Group to begin any legal action or proceeding arising out of or in connection with any of the Facility Documents until it shall have received such security as it may require (whether by way of payment in advance or otherwise) for all costs, claims, losses, expenses (including legal fees) and liabilities together with any VAT thereon which it will or may expend or incur in complying with such instructions; (viii) act as agent or trustee or in a fiduciary or other capacity on behalf of any other group of banks or financial institutions providing facilities to any member or members of the Group or any associated company of any such member without regard to the effect of exercising or omitting to exercise its rights, discretions, powers and duties in such capacity on the interests of the Banks, and act or omit to act in such capacity as freely in all respects as if the Agent had not been appointed to act as agent or trustee for the Banks; (ix) subscribe for, hold or become beneficially entitled to, and dispose of, shares or securities, or options or other rights to and interests in shares or securities in any member or members of the Group or any associated company of any such member (and, in each case, may do so without liability to account); and (x) subject to the proviso hereto and unless the express provisions of this Agreement provide otherwise, if authorised by an Instructing Group (or to the extent expressly authorised by the other provisions hereof) amend or vary the terms of or waive breaches of or defaults under, or otherwise excuse performance of any provision of, release any security in respect of or grant consents under any of the Facility Documents. Any amendment, variation, waiver, excusal of performance, release or consent so authorised and which is effected by the Agent shall be binding on all the parties hereto and the Agent shall be under no liability whatsoever in respect thereof. However, nothing herein shall be taken to authorise except with the prior consent of all the Banks: (a) the extension of any Repayment Date or the Final Maturity Date; (b) any variation of the definition of Instructing Group in Clause 1.1; (c) any change in any rate at which interest is payable hereunder; (d) any extension of the date for, or alteration in the amount or currency of, any payment of principal, interest, fee, commission or any other amount payable hereunder; (e) any waiver under or variation or amendment to Clause 19; (f) any increase in any Bank's commitment; or (g) any variation of Clause 28 or this Clause 31. 31.3 The Agent shall: (i) promptly inform each Bank of the contents of any notice or document received by it in its capacity as Agent from any of the Obligors hereunder; (ii) promptly notify each Bank of the occurrence of any Event of Default or any default by any of the Obligors in the due performance of or compliance with its obligations under any Facility Document of which the Agent has notice from any other party hereto; (iii) save as otherwise provided herein, act as agent hereunder in accordance with any instructions given to it by an Instructing Group, which instructions shall be binding on all of the Banks; and (iv) if so instructed by an Instructing Group, refrain from exercising any right, power or discretion vested in it as agent hereunder. 31.4 Notwithstanding anything to the contrary expressed or implied herein, the Agent shall not: (i) be bound to account to any Bank for any sum or the profit element of any sum received by it for its own account; (ii) be bound to disclose to any other person any information relating to any member of the Group if such disclosure would or might in its opinion constitute a breach of any law or regulation or be otherwise actionable at the suit of any person; or (iii) be under any obligations other than those for which express provision is made herein. 31.5 Each Bank shall, in its Proportion, from time to time on demand by the Agent, indemnify the Agent, against any and all costs, claims, losses, expenses (including legal fees) and liabilities together with any VAT thereon which the Agent may incur, otherwise than by reason of its own gross negligence or wilful misconduct, in acting in its capacity as agent hereunder. 31.6 The Agent shall not accept any responsibility for the accuracy and/or completeness of any information supplied by any of the Obligors in connection herewith or for the legality, validity, effectiveness, adequacy or enforceability of any Facility Document and the Agent shall not be under any liability as a result of taking or omitting to take any action in relation to any Facility Document save in the case of negligence or wilful misconduct. 31.7 Each of the Banks agrees that it will not assert or seek to assert against any director, officer or employee of the Agent any claim it might have against it in respect of the matters referred to in Clause 31.6. 31.8 The Agent may accept deposits from, lend money to and generally engage in any kind of banking or other business with any member of the Group. 31.9 The Agent may resign its appointment hereunder at any time without assigning any reason therefor by giving not less than thirty days' prior written notice to that effect to each of the other parties hereto Provided that no such resignation shall be effective until a successor for the Agent is appointed in accordance with the succeeding provisions of this Clause 31. 31.10If the Agent gives notice of its resignation pursuant to Clause 31.9, then any reputable and experienced bank or other financial institution may be appointed as a successor to the Agent by an Instructing Group during the period of such notice but, if no such successor is so appointed, the Agent may appoint such a successor itself. 31.11If a successor to the Agent is appointed under the provisions of Clause 31.10, then (i) the retiring Agent shall be discharged from any further obligation hereunder but shall remain entitled to the benefit of the provisions of this Clause 31 and (ii) its successor and each of the other parties hereto shall have the same rights and obligations amongst themselves as they would have had if such successor had been a party hereto. 31.12It is understood and agreed by each Bank that it has itself been, and will continue to be, solely responsible for making its own independent appraisal of and investigations into the financial condition, creditworthiness, condition, affairs, status and nature of each member of the Group and, accordingly, each Bank warrants to the Agent that it has not relied on and will not hereafter rely on the Agent; (i) to check or enquire on its behalf into the adequacy, accuracy or completeness of any information provided by any of the Obligors in connection with any Facility Document or the transactions herein contemplated (whether or not such information has been or is hereafter circulated to such Bank by the Agent; or (ii) to assess or keep under review on its behalf the financial condition, creditworthiness, condition, affairs, status or nature of any member of the Group. 32. Further Agency Provisions/Syndicate Meetings 32.1 (i) In acting as Agent for the Banks, the Capital Markets Group of Lloyds Bank Plc shall be treated as a separate entity from any other of the divisions of the Agent or its subsidiaries, and without detracting from the generality of the foregoing, in the event that any of the Agent's divisions (including its Capital Markets Group) or similar units or subsidiaries should act for any member of the Group in any capacity whether as bankers or otherwise in relation to any other matter, any information given by such member of the Group to any of such divisions, units or subsidiaries shall be treated as confidential and the Agent shall as between itself and the Banks not be obliged to disclose the same to any Bank or any other person. (ii) Notwithstanding anything to the contrary expressed or implied herein and without prejudice to the generality of the foregoing, the Agent shall as between itself and the Banks not be obliged to disclose to any Bank or other person any information supplied by any member of the Group to it in its capacity as Agent for the Banks which is identified by such member of the Group at the time of supply as being confidential and supplied solely for the purpose of evaluating in consultation with the Agent whether any waiver or amendment might be required to any of the provisions contained herein Provided that nothing in this Clause 32.1(ii) shall apply to any information supplied by an Obligor pursuant to Clause 19. (iii) For the purposes of this Agreement, the Agent shall be deemed not to have any actual knowledge or actual notice of the contents of any information obtained by it or supplied to it by or on behalf of any member of the Group other than the contents of information obtained by or supplied to it as Agent for the Banks under this Agreement and which information the Agent is not obliged to keep confidential pursuant to Clause 32.1(ii). 32.2 The Agent may at any time in its own discretion convene a meeting of the Banks. 32.3 If requested by any Bank, the Agent shall (except where other authority is required for the same by the express provisions of this Agreement) at any time convene a meeting of the Banks. 32.4 Whenever the Agent is to convene any such meeting it shall forthwith give notice in writing to the Banks of the day, time and place thereof and the nature of the business to be transacted thereat. Part 13 ASSIGNMENTS AND TRANSFERS 33. Benefit of Agreement This Agreement shall be binding upon and enure to the benefit of each party hereto and its or any subsequent successors, Transferees and assigns. 34. Assignments and Transfers by the Obligors No Obligor shall be entitled to assign or transfer all or any of its rights, benefits and obligations hereunder. 35. Assignments and Transfers by Banks 35.1 Any Bank may, at any time, assign all but not part of its rights and benefits hereunder or transfer in accordance with Clause 35.3 all of its rights, benefits and obligations subject to the consent of the Principal Borrower and the Principal Guarantor which such consent shall not be unreasonably withheld. 35.2 If any Bank assigns all of its rights and benefits hereunder in accordance with Clause 35.1, then, unless and until the assignee has agreed with the Agent and the other Banks that it shall be under the same obligations towards each of them as it would have been under if it had been an original party hereto as a Bank, the Agent and the other Banks shall not be obliged to recognise such assignee as having the rights against each of them which it would have had if it had been such a party hereto. 35.3 If any Bank wishes to transfer all of its rights, benefits and/or obligations hereunder as contemplated in Clause 35.1, then such transfer may be effected by the delivery to the Agent of a duly completed and duly executed Transfer Certificate in which event, on the later of the Transfer Date specified in such Transfer Certificate and the fifth business day after (or such earlier business day endorsed by the Agent on such Transfer Certificate falling on or after) the date of delivery of such Transfer Certificate to the Agent: (i) to the extent that in such Transfer Certificate the Bank party thereto seeks to transfer its rights, benefits and obligations hereunder, each of the Obligors and such Bank shall be released from further obligations towards one another hereunder and their respective rights against one another shall be cancelled (such rights, benefits and obligations being referred to in this Clause 35.3 as "discharged rights and obligations"); (ii) each of the Obligors and the Transferee party thereto shall assume obligations towards one another and/or acquire rights against one another which differ from such discharged rights and obligations only insofar as such Obligor and such Transferee have assumed and/or acquired the same in place of such Obligor and such Bank; and (iii) the Agent, such Transferee and the other Banks shall acquire the same rights and benefits and assume the same obligations between themselves as they would have acquired and assumed had such Transferee been an original party hereto as a Bank with the rights, benefits and/or obligations acquired or assumed by it as a result of such transfer. 35.4 On the date upon which a transfer takes effect pursuant to Clause 35.3, the Transferee in respect of such transfer shall pay to the Agent for its own account a transfer fee of (Pounds)750. If any Transferee fails to pay any transfer fee payable by it hereunder on the due date therefor, the Agent may at any time deduct an amount equal to such fee from any moneys from time to time held by the Agent for the account of such Transferee. 36. Disclosure of Information Any Bank may disclose to any actual or potential assignee or Transferee or to any person who may otherwise enter into contractual relations with such Bank in relation to this Agreement such information about the Obligors and the Group as such Bank shall consider appropriate. Provided that no information (other than the terms of the Facility Documents and any publicly available information) shall be disclosed without the prior consent of both the Principal Borrower and the Principal Guarantor which such consent, in each case, shall not be unreasonably withheld or delayed. Part 14 MISCELLANEOUS 37. Calculations and Evidence of Debt 37.1 Interest and commitment commission shall accrue from day to day and shall be calculated on the basis of a year of 365 days (or, if market practice differs, in accordance with market practice) and the actual number of days elapsed. 37.2 If on any occasion a Reference Bank or Bank fails to supply the Agent with a quotation required of it under the foregoing provisions of this Agreement, the rate for which such quotation was required shall be determined from those quotations which are supplied to the Agent. 37.3 Each Bank shall maintain in accordance with its usual practice accounts evidencing the amounts from time to time lent by and owing to it hereunder. 37.4 The Agent shall maintain a record of (i) the amount of any Advance made or arising hereunder and each Bank's share therein, (ii) the amount of all principal, interest and other sums due or to become due from either of the Obligors to any of the Banks hereunder and each Bank's share therein and (iii) the amount of any sum received or recovered by the Agent hereunder and each Bank's share therein. 37.5 In any legal action or proceeding arising out of or in connection with this Agreement, the entries made in the accounts maintained pursuant to Clauses 37.3 and 37.4 shall be prima facie evidence of the existence and amounts of the obligations of the Obligors therein recorded. 37.6 A certificate of a Bank as to (i) the amount by which a sum payable to it hereunder is to be increased under Clause 13.1 or (ii) the amount for the time being required to indemnify it against any such cost, payment or liability as is mentioned in Clause 13.2 or 15.1 shall, in the absence of manifest error, be conclusive for the purposes of this Agreement. 37.7 A certificate of the Agent as to the amount at any time due from an Obligor hereunder or the amount which, but for any of the obligations of an Obligor hereunder being or becoming void, voidable, unenforceable or ineffective, at any time would have been due from an Obligor hereunder shall, in the absence of manifest error, be prima facie evidence for the purposes of Part 8. 38. Remedies and Waivers No failure to exercise, nor any delay in exercising, on the part of the Agent and the Banks or any of them, any right or remedy hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any right or remedy prevent any further or other exercise thereof or the exercise of any other right or remedy. The rights and remedies herein provided are cumulative and not exclusive of any rights or remedies provided by law. 39. Partial Invalidity If, at any time, any provision hereof is or becomes illegal, invalid or unenforceable in any respect under the law of any jurisdiction, neither the legality, validity or enforceability of the remaining provisions hereof nor the legality, validity or enforceability of such provision under the law of any other jurisdiction shall in any way be affected or impaired thereby. 40. Notices 40.1 Each communication to be made hereunder shall be made in writing but, unless otherwise stated, may be made by facsimile (followed by a confirmation copy to be sent by post within one week thereafter) or letter. 40.2 Any communication or document to be made or delivered by one person to another pursuant to this Agreement shall (unless that other person has by fifteen days' written notice to the Agent specified another address) be made or delivered to that other person at the address identified with its signature below (or, in the case of a Transferee, at the end of the Transfer Certificate to which it is a party as Transferee) and, in the case of any communication made by facsimile, shall be deemed to have been made or delivered on receipt (if received during business hours, or on the next succeeding business day, if received out of business hours) and in such case may be relied or acted upon immediately notwithstanding the provisions of Clause 40.1 or, in the case of any communication made by letter, when left at that address or (as the case may be) ten days after being deposited in the post postage prepaid in an envelope addressed to it at that address Provided that any communication or document to be made or delivered to the Agent or any Obligor shall be effective only if the same is expressly marked for the attention of the department or officer identified with the Agent's or such Obligor's signature below (or such other department or officer as the Agent or the Obligor shall from time to time specify in writing for this purpose). Part 15 LAW AND JURISDICTION 41. Law This Agreement shall be governed by, and shall be construed in accordance with, English law. 42. Jurisdiction 42.1 Each of the parties hereto irrevocably agrees for the benefit of each of the Agent and the Banks that the courts of England shall have jurisdiction to hear and determine any suit, action or proceeding, and to settle any disputes, which may arise out of or in connection with this Agreement and, for such purposes, irrevocably submits to the jurisdiction of such courts. 42.2 Each of the Obligors irrevocably waives any objection which it might now or hereafter have to the courts referred to in Clause 42.1 being nominated as the forum to hear and determine any suit, action or proceeding, and to settle any disputes, which may arise out of or in connection with this Agreement and agrees not to claim that any such court is not a convenient or appropriate forum. 42.3 The submission to the jurisdiction of the courts referred to in Clause 42.1 shall not (and shall not be construed so as to) limit the right of the Agent and the Banks or any of them to take proceedings against any of the Obligors in any other court of competent jurisdiction nor shall the taking of proceedings in any one or more jurisdictions preclude the taking of proceedings in any other jurisdiction (whether concurrently or not) if and to the extent permitted by applicable law. 43. Counterparts This Agreement may be executed in any number of counterparts and by different parties hereto on separate counterparts, each of which, when executed and delivered, shall constitute an original, but all the counterparts together shall constitute one and the same instrument. AS WITNESS the hands of the duly authorised representatives of the parties hereto the day and year first before written. THE FIRST SCHEDULE The Original Borrowers PERKINS ENGINES (PETERBOROUGH) LIMITED PERKINS POWER SALES & SERVICE LIMITED PERKINS COMPACT ENGINES LIMITED PERKINS TECHNOLOGY LIMITED PERKINS ENGINES GROUP LIMITED PERKINS ENGINES (SHREWSBURY) LIMITED (formerly Eastfield No.1 Limited) PERKINS ENGINES (STAFFORD) LIMITED (formerly Dorman Diesels Limited) PERKINS INTERNATIONAL LIMITED PERKINS PARTS LIMITED THE SECOND SCHEDULE The Banks Bank Commitment ((Pounds)) Berliner Handels-und Frankfurter Bank 10,000,000 Creditanstalt-Bankverein 10,000,000 The Governor and Company of the Bank of Scotland 10,000,000 Lloyds Bank Plc 10,000,000 Standard Chartered Bank 10,000,000 THE THIRD SCHEDULE Form of Transfer Certificate To: [ ] TRANSFER CERTIFICATE relating to the agreement (as from time to time amended, varied, novated or supplemented, the "Facility Agreement") dated [ ], 199[ ] whereby a (Pounds)[ ] revolving credit facility was made available to [ ] as principal borrower under the guarantee of [ ] as principal guarantor by a group of banks on whose behalf [ ] acted as agent in connection therewith. 1. Terms defined in the Facility Agreement shall, subject to any contrary indication, have the same meanings herein. The terms Bank and Transferee are defined in the schedule hereto. 2. The Bank (i) confirms that the details in the schedule hereto under the heading "Bank's Commitment" or "Advance(s)" accurately summarises its Commitment and/or, as the case may be, its participation in, and the Term and Repayment Date of, one or more existing Advances and (ii) requests the Transferee to accept and procure the transfer to the Transferee of, as the case may be, its Commitment and/or its participation in such Advance(s) by counter-signing and delivering this Transfer Certificate to the Agent at its address for the service of notices specified in the Facility Agreement. 3. The Transferee hereby requests the Agent to accept this Transfer Certificate as being delivered to the Agent pursuant to and for the purposes of Clause 35.3 of the Facility Agreement so as to take effect in accordance with the terms thereof on the Transfer Date or on such later date as may be determined in accordance with the terms thereof. 4. The Transferee confirms that it has received a copy of the Facility Agreement together with such other information as it has required in connection with this transaction and that it has not relied and will not hereafter rely on the Bank to check or enquire on its behalf into the legality, validity, effectiveness, adequacy, accuracy or completeness of any such information and further agrees that it has not relied and will not rely on the Bank to assess or keep under review on its behalf the financial condition, creditworthiness, condition, affairs, status or nature of the Borrowers, the Covenantor or the Principal Guarantor. 5. The Transferee hereby undertakes with the Bank and each of the other parties to the Facility Agreement that it will perform in accordance with their terms all those obligations which by the terms of the Facility Agreement will be assumed by it after delivery of this Transfer Certificate to the Agent and satisfaction of the conditions (if any) subject to which this Transfer Certificate is expressed to take effect. 6. The Bank makes no representation or warranty and assumes no responsibility with respect to the legality, validity, effectiveness, adequacy or enforceability of the Facility Agreement or any document relating thereto and assumes no responsibility for the financial condition of the Borrower or the Principal Guarantor or for the performance and observance by the Borrowers, the Covenantor or the Principal Guarantor of any of its obligations under the Facility Agreement or any document relating thereto and any and all such conditions and warranties, whether express or implied by law or otherwise, are hereby excluded. 7. The Bank hereby gives notice that nothing herein or in the Facility Agreement (or any document relating thereto) shall oblige the Bank to (i) accept a re- transfer from the Transferee of the whole or any part of its rights, benefits and/or obligations under the Facility Agreement transferred pursuant hereto or (ii) support any losses directly or indirectly sustained or incurred by the Transferee for any reason whatsoever including, without limitation, the non- performance by the Principal Guarantor under the Varity Guarantee or by the Borrowers, the Covenantor or any other party to the Facility Agreement (or any document relating thereto) of its obligations under any such document. The Transferee hereby acknowledges the absence of any such obligation as is referred to in (i) or (ii) above. 8. This Transfer Certificate and the rights and obligations of the parties hereunder shall be governed by and construed in accordance with English law. THE SCHEDULE 1. Bank: 2. Transferee: 3. Transfer Date: 4. Bank's Commitment: 5. Advance(s): Amount of Term and Bank's Participation Repayment Date [Transferor Bank] [Transferee Bank] By: By: Date: Date: Administrative Details of Transferee Address: Contact Name: Account for Payments: Telex: Telephone: THE FOURTH SCHEDULE Condition Precedent Documents 1. In relation to each of the Obligors: (i) a copy, certified a true copy by a duly authorised officer of such Obligor, of the memorandum and articles of association, or appropriate constitutive documents of such Obligor or, alternatively, a certificate given by a duly authorised officer of such Obligor stating that the Memorandum and Articles of Association, or appropriate constitutive documents, of such Obligor have not been changed or amended since they were last delivered to the Agent; (ii) a copy, certified a true copy by a duly authorised officer of such Obligor, of a Board Resolution of such Obligor approving the execution, delivery and performance of each Facility Document to which such Obligor is a party and the terms and conditions hereof and authorising a named person or persons to sign such Facility Document and any documents to be delivered by such Obligor pursuant hereto; and (iii) a certificate of a duly authorised officer of such Obligor setting out the names and signatures of the persons authorised to sign, on behalf of such Obligor, each Facility Document to which such Obligor is a party and any documents to be delivered by such Obligor pursuant hereto. 2. A copy, certified a true copy by or on behalf of the Principal Borrower, of each such law, decree, consent, licence, approval, registration or declaration as is, in the opinion of counsel to the Banks, necessary to render each Facility Document legal, valid, binding and enforceable, in each Obligor's jurisdiction of incorporation and to enable each of the Obligors to perform its obligations hereunder. 3. An opinion of (i) Clifford Chance, solicitors to the Agent; and (ii) Cahill, Gordon and Reindel, U.S. counsel to the Principal Guarantor, in substantially the form distributed to the Banks prior to the execution hereof. 4. Evidence that the Principal Borrower has agreed to act as the agent of the Principal Guarantor for the service of process in England. 5. The Varity Guarantee duly executed. 6. The Subordination Agreement duly executed. 7. Evidence satisfactory to the Agent that all indebtedness of any Obligor is unsecured (other than by a Permitted Encumbrance). THE FIFTH SCHEDULE Notice of Drawdown From:[ ] To: Lloyds Bank Plc Capital Markets Group St. Georges House P.O. Box 787 6-8 Eastcheap London EC3M 1LL Dated: Dear Sirs, 1. We refer to the agreement (as from time to time amended, varied, novated or supplemented, the "Facility Agreement") dated [ ], 199[ ] and made between Perkins Limited as principal borrower, Perkins Group Limited as covenantor, Lloyds Bank Plc, Capital Markets Group as agent and the financial institutions named therein as banks. Terms defined in the Facility Agreement shall have the same meaning in this notice. 2. We hereby give you notice that, pursuant to the Facility Agreement and upon the terms and subject to the conditions contained therein, we wish an Advance to be made to us as follows: (i) Amount: (ii) Drawdown Date: (iii) Term: *[3. We confirm that, at the date hereof, the representations set out in Clause 17.1 (except paragraphs (ii), (iii) and (vii)) of the Facility Agreement are true and no Event of Default or Potential Event of Default has occurred.] *[4. The proceeds of this drawdown should be credited to [insert account details].] Yours faithfully ............................. for and on behalf of [ ] *Insert only if amount of New Advance exceeds amount of Old Advance (as referred to in Clause 10.1 of the Facility Agreement). THE SIXTH SCHEDULE Associated Costs Rate 1. For the purposes of this Agreement, the cost of compliance with existing requirements of the Bank of England in respect of Advances denominated in sterling will be calculated by the Agent in relation to each Advance on the basis of rates to be supplied by each of the Reference Banks by reference to the circumstances existing on the first day of the Term in respect of such Advance and, if such Term exceeds three months, at three calendar monthly intervals from the first day of such Term during its duration in accordance with the following formula: AB + C(B - E) + D(B - F) per cent. per annum ------------------------ 100 - (A + D) Where: A is the percentage of eligible liabilities which such Reference Bank is from time to time required to maintain as an interest free cash deposit with the Bank of England to comply with cash ratio requirements. B is the percentage rate per annum at which sterling deposits are offered by such Reference Bank, in accordance with its normal practice, for a period equal to (i) the Term (or, as the case may be, remainder of such Term) in respect of the relevant Advance or (ii) three months, whichever is the shorter, to a leading bank in the London Interbank Market at or about 11.00 a.m. in a sum approximately equal to the amount of such Advance. C is the percentage of eligible liabilities which such Reference Bank is from time to time required by the Bank of England to maintain as secured money with members of the London Discount Market Association ("LDMA") and/or as secured call money with money brokers and gilt edged market makers. D is the percentage of eligible liabilities which such Reference Bank is required from time to time to maintain as interest bearing special deposits with the Bank of England. E is the percentage rate per annum at which members of the LDMA are offered sterling deposits in a sum approximately equal to the amount of the relevant Advance as a callable fixture from such Reference Bank for such period as determined in accordance with B above at or about 11.00 a.m. F is the percentage rate per annum payable by the Bank of England to such Reference Bank on interest bearing special deposits. 2. For the purposes of this Schedule "eligible liabilities" and "special deposits" shall bear the meanings ascribed to them from time to time by the Bank of England. 3. The percentages used in A, C and D above shall be those required to be maintained on the first day of the relevant period as determined in accordance with B above. 4. In application of the above formula, A, B, C, D, E and F will be included in the formula as figures and not as percentages e.g. if A is 0.5 per cent. and B is 12 per cent., AB will be calculated as 0.5 x 12 and not as 0.5 per cent. x 12 per cent. 5. Calculations will be made on the basis of a 365 day year (or, if market practice differs, in accordance with market practice). 6. A negative result obtained by subtracting E from B or F from B shall be taken as zero. 7. The arithmetic mean of the resulting figures for each Reference Bank shall be calculated and shall then be rounded upwards, if not already such a multiple, to the nearest whole multiple of one-thirty-second of one per cent. per annum. 8. Additional amounts calculated in accordance with this Schedule are payable on the last day of the Term to which they relate. 9. The determination of the Associated Costs Rate in relation to any period shall, in the absence of manifest error, be conclusive and binding on all of the parties hereto. 10. The Agent may from time to time, after consultation with the Borrower and the Banks, determine and notify to all the parties hereto any amendments or variations which are required to be made to the formula set out above in order to comply with any requirements from time to time imposed by the Bank of England in relation to Advances denominated in sterling (including without limitation, any requirements relating to sterling primary liquidity) and, any such determination shall, in the absence of manifest error, be conclusive and binding on all the parties hereto. THE SEVENTH SCHEDULE PERKINS GROUP LIMITED Varity Calendar month ended __________ 199[ ] Reference is made to the Facility Agreement dated 30 September 1993 as amended and restated on [ ] April 1995 (as modified and supplemented and in effect from time to time, the "Amended and Restated Facility Agreement") between, inter alia, Perkins Limited as principal borrower, Perkins Group Limited as covenantor, Lloyds Bank Plc as agent and the financial institutions named therein. Terms used, but not defined, herein and in the annexure hereto have the respective meanings given to them in the Amended and Restated Facility Agreement. This certificate is delivered with respect to the Varity Calendar month identified above and the last day of such Varity Calendar month is therefore the Specified Date. Pursuant to Clause 18.3 of the Amended and Restated Facility Agreement the undersigned, [insert name], hereby certifies that the annexure hereto is a true and accurate calculation (in all material respects) of the Borrowing Base Amount as at the Specified Date, determined in accordance with the requirements of the Amended and Restated Facility Agreement. All Inventory covered by this certificate has been produced in compliance with all applicable laws. IN WITNESS WHEREOF, the undersigned, in his capacity as ___________________ of Perkins Group Limited, has caused this certificate to be delivered on behalf of Perkins Group Limited this _____ day of ________________ 199[ ] _____________________________ Name: Annexure PERKINS GROUP LIMITED Varity Calendar Month ended 199[ ] RECEIVABLES A.Aggregate amount* of all Receivables payable to any Obligor (Pounds) ___________________ B.Aggregate amount* of all Receivables referred to in item (A) above that do not constitute Eligible Receivables as a result of paragraphs (a) through (j) of the definition of Eligible Receivables(Pounds) ___________________ C.Aggregate amount* of all otherwise ineligible Receivables included in Eligible Receivables as a result of the proviso to the definition of Eligible Receivables (Pounds) ___________________ D.Aggregate amount* of all Eligible Receivables (item (A) minus item (B) plus item (C)) (Pounds) ___________________ E.80% of item (D) (Pounds) ___________________ INVENTORY F.Aggregate value (valued at the lower of cost price or market value in accordance with UK Gaap, except that cost price shall be determined on a first-in-first-out basis) of all Inventory (Pounds) ___________________ G.Aggregate value of all Inventory referred to in item (F) above that does not constitute Eligible Inventory as a result of paragraphs (a) through (f) of the definition of Eligible Inventory(Pounds) ___________________ H.Aggregate amount of all Eligible Inventory (item (F) minus item (G)) (Pounds) ___________________ I.45% of item (H) (Pounds) ___________________ *In each case, reference to an "amount" of Receivables means the sterling amount, if the Receivables are denominated in sterling or, if the Receivables are denominated in another currency, the sterling equivalent thereof (as defined in the Clause 1.2) as at the date of the certificate unless a foreign exchange contract has been entered into in respect of such amount in which case the sterling equivalent shall be the sterling amount to be realized from such foreign exchange contract. BORROWING BASE AMOUNT J.Borrowing Base Amount equals the sum of item (E) plus item (I) (Pounds) ___________________ FINANCIAL INDEBTEDNESS CAPACITY ("Ca") K.Financial Indebtedness Amount as at the Specified Date (Pounds) ___________________ J - K = Ca** (Pounds) ___________________ **If Ca is a positive number, a Notice of Drawdown may (subject to Clause 4 of the Restated and Amended Facility Agreement) be submitted provided always that the Financial Indebtedness Amount if calculated after the making of the Advance requested in such Notice of Drawdown would not result in a breach of Clause 7.1(ix). If Ca is a negative number, no Notice of Drawdown may be submitted until the Principal Borrower has complied with the provisions of Clause 10.4. THE EIGHTH SCHEDULE Form of Supplemental Agreement for Additional Borrowers THIS SUPPLEMENTAL AGREEMENT is made on the day of , 19 BETWEEN (1) PERKINS LIMITED (the "Principal Borrower"); (2) [Material Subsidiary(ies) Eligible Receivable Company[ies]] (the "Material Subsidiaries"/"Eligible Receivable Company(ies)"); and (3) LLOYDS BANK Plc on behalf of itself and on behalf of the parties party to the Agreement defined therein as Agent and Banks (the "Agent"). WHEREAS (A) By an agreement [together with the supplemental agreements referred to in (B) below,] the "Agreement") dated [ ] and made between (1) the Principal Borrower, (2) Other parties more specifically defined therein, (3) Lloyds Bank Plc as Agent and (4) the financial institutions referred to therein. [(B) The agreement referred to in (A) above has been supplemented by the following agreements:- [List Supplemental Agreements]] [(B)/(C)]Pursuant to Clause [6] of the Agreement the Material Subsidiary(ies)/Eligible Receivable Company[ies] is/are to become Additional Borrower(s) under the Facility. NOW IT IS HEREBY AGREED as follows:- 1. Interpretation Save as otherwise defined herein, terms defined in the Agreement shall bear the same meaning herein including the Recitals hereto. 2. Additional Borrower(s) With effect from the date that the Agent confirms to the Principal Borrower that it has received, in form and substance satisfactory to it [in relation to each Material Subsidiary/Eligible Receivable Company[ies]], each of the conditions precedent specified in Clause 3, the Agreement shall henceforth be read and construed as if [the/each] Material Subsidiary/Eligible Receivable Company[ies] were party to the Agreement having all the rights and obligations of an Additional Borrower and a Borrower under the Facility. Accordingly all references in any Facility Document to (a) any "Additional Borrower" or "Borrower" shall be treated as including a reference to [the/such] Material Subsidiary/Eligible Receivable Company[ies] and (b) the Agreement shall be treated as a reference to the Agreement as supplemented by this Agreement to the intent that this Agreement and the Agreement shall be read and construed together as one single agreement. 3. Conditions Precedent The following are the conditions precedent referred to in Clause 2 which are required to be delivered to the Agent in relation to [the/each] Material Subsidiary/Eligible Receivable Company[ies]: (a) [other conditions precedent required pursuant to Clause [ ] and [ ] Schedule of the Agreement]; (b) [Legal Opinion]; and (c) [Accession to Subordination Agreement] 4. Representations [The/Each] Material Subsidiary/Eligible Receivable Company[ies] hereby represents and warrants in respect of itself as if the representations set out in Clause [ ] of the Agreement were set out in full in this Agreement. 5. Counterparts This Agreement may be signed in counterparts, all of which taken together shall constitute a single agreement. 6. Law This Agreement shall be governed by, and construed in accordance with, English law. [7. Jurisdiction] [ * ] AS WITNESS the hands of the duly authorised representatives of the parties hereto the day and year first before written. [INSERT EXECUTION PAGES] EXECUTION PAGES The Principal Borrower PERKINS LIMITED By: /s/ E.M. Thompson Address: Eastfield Peterborough PE1 5NA Officer and department to whom notices to be addressed:Company Secretary The Borrowers PERKINS ENGINES (PETERBOROUGH) LIMITED By: /s/ E.M. Thompson Address: Eastfield Peterborough PE1 5NA Officer and department to whom notices to be addressed:Company Secretary PERKINS POWER SALES & SERVICE LIMITED By: /s/ E.M. Thompson Address: Eastfield Peterborough PE1 5NA Officer and department to whom notices to be addressed:Company Secretary PERKINS COMPACT ENGINES LIMITED By: /s/ E.M. Thompson Address: Eastfield Peterborough PE1 5NA Officer and department to whom notices to be addressed:Company Secretary PERKINS TECHNOLOGY LIMITED By: /s/ E.M. Thompson Address: Eastfield Peterborough PE1 5NA Officer and department to whom notices to be addressed:Company Secretary PERKINS ENGINES GROUP LIMITED By: /s/ E.M. Thompson Address: Eastfield Peterborough PE1 5NA Officer and department to whom notices to be addressed:Company Secretary PERKINS ENGINES (SHREWSBURY) LIMITED By: /s/ E.M. Thompson Address: Eastfield Peterborough PE1 5NA Officer and department to whom notices to be addressed:Company Secretary PERKINS ENGINES (STAFFORD) LIMITED By: /s/ E.M. Thompson Address: Eastfield Peterborough PE1 5NA Officer and department to whom notices to be addressed:Company Secretary PERKINS INTERNATIONAL LIMITED By: /s/ E.M. Thompson Address: Eastfield Peterborough PE1 5NA Officer and department to whom notices to be addressed:Company Secretary PERKINS PARTS LIMITED By: /s/ E.M. Thompson Address: Eastfield Peterborough PE1 5NA Officer and department to whom notices to be addressed:Company Secretary The Covenantor PERKINS GROUP LIMITED By: /s/ E.M. Thompson Address: Eastfield Peterborough PE1 5NA Officer and department to whom notices to be addressed:Company Secretary The Agent LLOYDS BANK PLC, Capital Markets Group By: /s/ L. Tinsley Address: Bank House Wine Street Bristol, BS1 2AN Officer and department to whom notices to be addressed:Loans Administration The Banks LLOYDS BANK PLC By: /s/ S.W. Baker Address: St. George's House P.O. Box 787 6-8 Eastcheap London EC3M 1LL Officer and department to whom notices to be addressed:S.W. Baker, Corporate Banking BERLINER HANDELS-UND FRANKFURTER BANK By: /s/ M. Buggy Address: 61 Queen Street London EC4R 1AE Officer and department to whom notices to be addressed:Peter Frankl/Margaret Buggy, Trade & Commodity Finance CREDITANSTALT-BANKVEREIN By: /s/ M. Bowles Address: 125 London Wall London EC2Y 5DD Officer and department to whom notices to be addressed:S. Pearce/M. Sammon THE GOVERNOR AND COMPANY OF THE BANK OF SCOTLAND By: /s/ J. Drummond Address: Orchard Brae House 30 Queensferry Road Edinburgh EH4 2UG Officer and department to whom notices to be addressed:Ian McKinney/Fiona Ross, Bank of Scotland, International Division STANDARD CHARTERED BANK By: /s/ P. Hodges Address: 37 Gracechurch Street London EC3V 0BX Officer and department to whom notices to be addressed:Peter Hodges EX-10.1(H)(I) 3 VARITY CORP AS GUARANTOR CLIFFORD CHANCE EXHIBIT 10.1(h)(i) VARITY CORPORATION as Guarantor ____________________________ GUARANTEE ____________________________ Clifford Chance London CONTENTS
Clause No. Page No. 1. Interpretation . . . . . . . . . . . . . . . . . . . . . . . 2. Guarantee. . . . . . . . . . . . . . . . . . . . . . . . . . 3. Preservation of Rights . . . . . . . . . . . . . . . . . . . 4. Conditions of Enforcement. . . . . . . . . . . . . . . . . . 5. Non-Competition. . . . . . . . . . . . . . . . . . . . . . . 6. Certificates . . . . . . . . . . . . . . . . . . . . . . . . 7. Representations. . . . . . . . . . . . . . . . . . . . . . . 8. Financial Information. . . . . . . . . . . . . . . . . . . . 9. Covenants. . . . . . . . . . . . . . . . . . . . . . . . . . 10. Payment Free of Deduction. . . . . . . . . . . . . . . . . . 11. Payments . . . . . . . . . . . . . . . . . . . . . . . . . . 12. Currency . . . . . . . . . . . . . . . . . . . . . . . . . . 13. The Agent's Discretion . . . . . . . . . . . . . . . . . . . 14. Provisions Severable . . . . . . . . . . . . . . . . . . . . 15. Counterparts . . . . . . . . . . . . . . . . . . . . . . . . 16. Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . 17. Benefit of Guarantee . . . . . . . . . . . . . . . . . . . . 18. Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19. Jurisdiction . . . . . . . . . . . . . . . . . . . . . . . . 20. Delivery . . . . . . . . . . . . . . . . . . . . . . . . . .
THIS GUARANTEE made between the original parties thereto on 30 September 1993, is amended and restated this 13th day of April 1995 with the intention that such amendment and restatement shall take effect on and from the Effective Date. BY: VARITY CORPORATION (the "Guarantor"), IN FAVOUR OF: the Agent and the Banks (as each is defined in the Facility Agreement, each a "Beneficiary" and together the "Beneficiaries"). RECITALS (A) Perkins Limited as Principal Borrower, Perkins Group Limited as Covenantor, certain of the Covenantor's subsidiaries, Lloyds Bank Plc as Agent and certain financial institutions named therein as Banks, are party to a facility agreement (as amended, varied, supplemented, novated or restated from time to time, the "Facility Agreement") dated 30 September 1993 and amended and restated the date hereof pursuant to the terms of which the Banks have agreed to make available to the Borrowers a secured revolving credit facility in an amount of (Pounds)50,000,000. (B) It is a condition precedent under the Facility Agreement that the Guarantor provide a guarantee in the form set out hereunder. NOW THIS DEED OF GUARANTEE WITNESSETH as follows: 1. Interpretation 1.1 Terms defined or to which an interpretation is ascribed in the Facility Agreement shall, unless otherwise defined herein, bear the same meaning herein (including in the Recitals hereto). 1.2 In this Guarantee: "Guaranteed Obligations" means, in respect of the Borrowers, all monies which now are due or hereafter may be or become due and owing by the Borrowers, in any capacity, to the Beneficiaries (or any of them) under or pursuant to any of the Facility Documents and all other liabilities, actual or contingent, now existing or hereafter incurred by any of the Borrowers in any capacity under or pursuant to any of the Facility Documents; "Original Financial Statements" means the audited consolidated financial statements of the Guarantor for its financial year ended 31 January, 1994; "SEC" means the United States Securities and Exchange Commission. 1.3 The provisions of Clauses 1.4 and 1.5 of the Facility Agreement shall apply to this Guarantee mutatis mutandis. 1.4 Any reference in this Guarantee to a "U.S. business day" shall be constituted as a reference to a day (other than a Saturday or Sunday) on which banks are generally open for business in New York. 2. Guarantee The Guarantor hereby unconditionally and irrevocably: (i) guarantees to each of the Beneficiaries from time to time the due and punctual observance and performance of all the Guaranteed Obligations and, but without prejudice to the generality of the foregoing, agrees unconditionally to pay to the Agent for the account of the Beneficiaries from time to time on demand by the Agent any and every sum or sums of money which any or all of the Borrowers shall be liable at any time to pay to the Beneficiaries or any of them at the time such demand is made pursuant to any of the Facility Documents and which have not been so paid by such Borrower or Borrowers ; and (ii) agrees, as a primary obligation, from time to time on demand by the Agent, to (a) indemnify and hold harmless each Beneficiary for and against any loss incurred by such Beneficiary and (b) to pay to each Beneficiary the amount of any loss suffered or incurred by such Beneficiary as a result of any of the obligations of any of the Borrowers under or pursuant to any of the Facility Documents being or becoming void, voidable, unenforceable or ineffective as against any of the Borrowers for any reason whatsoever, whether or not known to the Beneficiaries or any of them or to any other person, the amount of such loss being the amount which the person or persons suffering it would otherwise have been entitled to recover from such Borrower. 3. Preservation of Rights 3.1 The obligations of the Guarantor herein contained shall be in addition to and independent of every other security which the Beneficiaries, or any of them, may at any time hold in respect of any of the Guaranteed Obligations. 3.2 The obligations of the Guarantor herein contained shall constitute and be continuing obligations notwithstanding any settlement of account or other matter or thing whatsoever, and in particular but without limitation, shall not be considered satisfied by any intermediate payment or satisfaction of all or any of the Guaranteed Obligations and shall continue in full force and effect until final payment in full of all amounts owing by each Borrower under the Facility Documents and total satisfaction of all the Borrowers' actual and contingent obligations thereunder. 3.3 Neither the obligations of the Guarantor herein contained nor the rights, powers and remedies conferred in respect of the Guarantor upon the Beneficiaries or any of them by this Guarantee or by law shall be discharged, impaired or otherwise affected by: (i) the winding-up, dissolution, administration or re-organisation of any Obligor or any other person or any change in its status, function, control or ownership; (ii) any of the obligations of any Obligor or any other person under any Facility Document or under any other security taken in respect of any of its obligations thereunder being or becoming illegal, invalid, unenforceable or ineffective in any respect; (iii) time or other indulgence being granted or agreed to be granted to any Obligor or any other person in respect of its obligations under any Facility Document or under any such other security; (iv) any amendment to, or any variation, waiver or release of, any obligation of any Obligor or any other person under any Facility Document or under any such other security; (v) any failure to take, or fully to take, any security contemplated hereby or otherwise agreed to be taken in respect of any Obligor's, or any other person's, obligations under any Facility Document; (vi) any failure to realise or fully to realise the value of, or any release, discharge, exchange or substitution of, any security taken in respect of any Obligor's or, any other person's, obligations under any Facility Document; or (vii) any other act, event or omission which, but for this Clause 3.3, might operate to discharge, impair or otherwise affect any of the obligations of the Guarantor herein contained or any of the rights, powers or remedies conferred upon the Beneficiaries or any of them by any of the Facility Documents or by law. 3.4 Any settlement or discharge between the Guarantor, the Beneficiaries or any of them shall be conditional upon no security or payment to the Beneficiaries or any of them by any Obligor or any other person on behalf of any Obligor, being avoided or reduced by virtue of any provisions or enactments relating to bankruptcy, insolvency, liquidation or similar laws of general application for the time being in force and, if any such security or payment is so avoided or reduced, the Beneficiaries shall be entitled to recover the value or amount of such security or payment from the Guarantor subsequently as if such settlement or discharge had not occurred. 4. Conditions of Enforcement 4.1 No Beneficiary shall be obliged before exercising any of the rights, powers or remedies conferred upon it by this Guarantee or by law: (i) to make any demand of any Obligor; (ii) to take any action or obtain judgment in any court against any Obligor; (iii) to make or file any claim or proof in a winding-up or dissolution of any Obligor; or (iv) to enforce or seek to enforce any other security taken in respect of any of the obligations of any Obligor hereunder. 5. Non-Competition 5.1 The Guarantor agrees that, so long as any amounts are or may be owed by any Obligor under the Facility Documents or under the Bilateral Facility Agreement or any Obligor or the Bilateral Lender is under any actual or contingent obligations thereunder, the Guarantor shall not exercise any rights which it may at any time have by reason of performance by it of its obligations hereunder: (i) to be indemnified by any Obligor; and/or (ii) to claim any contribution from any other guarantor of the Guaranteed Obligations; and/or (iii) to take the benefit (in whole or in part and whether by way of subrogation or otherwise) of any rights of the Beneficiaries against any Obligor or of any other security taken pursuant to, or in connection with, any of the Guaranteed Obligations by all or any of the Beneficiaries. 6. Certificates A certificate of the Agent of the amount at any time due and payable from the Borrowers under the Facility Documents or the amount which, but for any obligations of the Borrowers under the Facility Documents being or becoming void, voidable, unenforceable or ineffective, at any time would have been due and payable from the Borrowers under the Facility Documents shall be prima facie evidence in any legal action or proceeding arising out of or in connection herewith. 7. Representations 7.1 The Guarantor represents that subject to any qualification in any legal opinion delivered pursuant to the Fourth Schedule of the Facility Agreement: (i) it is a corporation duly organised under the laws of its jurisdiction of incorporation with power to enter into this Guarantee and to exercise its rights and perform its obligations hereunder and all corporate and other action required to authorise its execution of this Guarantee and its performance of its obligations hereunder has been duly taken; (ii) under the laws of its jurisdiction of incorporation in force at the date hereof, it will not be required to make any deduction or withholding from any payment it may make hereunder; (iii) under the laws of its jurisdiction of incorporation in force at the date hereof, the claims of the Beneficiaries under this Guarantee will rank at least pari passu with the claims of any unsecured creditors save those whose claims are preferred solely by any bankruptcy, insolvency, liquidation or other laws of general application; (iv) in any proceedings taken in its jurisdiction of incorporation in relation to this Guarantee, it will not be entitled to claim for itself or any of its assets immunity from suit, execution, attachment or other legal process; (v) all acts, conditions and things required to be done, fulfilled and performed in order (a) to enable it lawfully to enter into, exercise its rights under and perform and comply with the obligations expressed to be assumed by it in this Guarantee and, (b) to ensure that the obligations expressed to be assumed by it in this Guarantee are legal, valid and binding; (vi) under the laws of its jurisdiction of incorporation in force at the date hereof, it is not necessary that this Guarantee be filed, recorded or enrolled with any court or other authority in such jurisdiction other than as may be required by the SEC (or similar state authority) or that any registration or similar tax be paid on or in relation to this Guarantee; and (vii) the obligations expressed to be assumed by it in this Guarantee are legal and valid obligations binding on it in accordance with the terms thereof. 7.2 The Guarantor further represents that: (i) it has not taken any corporate action nor have any other steps been taken or legal proceedings been started or (to the best of its knowledge and belief) threatened against it for its winding-up, dissolution, administration or re-organisation or for the appointment of a receiver, administrator, administrative receiver, trustee or similar officer of it or of any or all of its assets or revenues (including any equivalent or analogous proceedings under the law of the jurisdiction in which it is incorporated or carries on business) other than such steps or proceedings which (a) have been notified to the Agent prior to making this representation (b) are being contested in good faith or (c) are frivolous or vexatious; (ii) it is not in breach of or in default under any agreement to which it is a party or which is binding on it or any of its assets to an extent or in a manner which would be reasonably likely to have a material adverse effect on its business or financial condition; (iii) other than as disclosed to the Agent prior to making this representation, no action or administrative proceeding of or before any court or agency which would be reasonably likely to have a material adverse effect on its business or financial condition has been started or to the best of its knowledge threatened; (iv) its Original Financial Statements were prepared in accordance with accounting principles generally accepted in the United States and consistently applied and presents (in conjunction with the notes thereto) fairly, in all material respects, its financial condition at the date as of which they were prepared and the results of its operations during the financial year then ended; (v) since publication of its Original Financial Statements there has been no material adverse change in its business or financial condition; (vi) as at the date as of which its Original Financial Statements were prepared, it had no material losses or liabilities (contingent or otherwise) which were not disclosed thereby (or by the notes thereto) or reserved against therein, or which have been otherwise disclosed, nor were there at that date any unrealised or anticipated losses arising from commitments entered into by it which were not so disclosed or reserved against; (vii) all information supplied by it in connection herewith, and by Varity Europe in connection with the Facility Agreement, was true, complete and accurate in all material respects as at the date on which it was provided and the Guarantor is not aware of any material facts or circumstances which would cause such information to be misleading to any of the Beneficiaries; (viii) its execution of this Guarantee and its exercise of its rights and performance of its obligations thereunder will not result in the existence of nor oblige it to create any encumbrance over all or any of its present or future revenues or assets; (ix) its execution of this Guarantee and its exercise of its rights and performance of its obligations hereunder do not and will not: (a) conflict with any material agreement, mortgage, bond or other instrument or treaty to which it is a party or which is binding upon it or any of its assets; (b) conflict with its constitutive documents and rules and regulations; or (c) conflict with any applicable law, regulation or official or judicial order; (x) its execution of this Guarantee and its exercise of its rights and performance of its obligations hereunder will constitute, private and commercial acts done and performed for private and commercial purposes; and (xi) the Covenantor is under the control (as that term is construed for the purposes of the Facility Agreement) of the Guarantor. 8. Financial Information 8.1 The Guarantor shall: (i) as soon as the same become available, but in any event within 150 days after the end of each of its financial years, deliver to the Agent in sufficient copies for the Beneficiaries its financial statements for such financial year including a copy of the completed form 10-K filed by it with the SEC for such financial year; (ii) no later than 60 days after the end of its financial quarter, deliver to the Agent in sufficient copies for the Beneficiaries a copy of the completed form 10-Q, including its financial statements for such period, filed by it with the SEC for such financial quarter; and (iii) prior to the occurrence of an Event of Default, no more than once in any financial year, but thereafter at any time, on the request of the Agent, acting on the instructions of an Instructing Group, furnish the Agent with such information about the business and financial condition of itself as the Agent may reasonably require; 8.2 The Guarantor shall ensure that (i) each set of financial statements delivered by it pursuant to Clause 8.1 is prepared in accordance with accounting principles generally accepted in the United States from time to time and consistently applied; (ii) each set of unaudited financial statements delivered by it pursuant to Clause 8.1(ii)(a) is certified by one of its duly authorised officers as presenting fairly, in all material respects, its financial condition as at the end of the period to which those financial statements relate and of the results of its operations during such period; and (iii) each set of financial statements delivered by it pursuant to Clause 8.1(i) has been audited by auditors of international repute reasonably acceptable to the Agent, it being agreed that as at the date hereof the Guarantor's current auditors are acceptable. 9. Covenants The Guarantor shall: (i) obtain, comply in all material respects with the terms of and do all that is necessary to maintain in full force and effect all authorisations, approvals, licences and consents required in or by the laws and regulations of its jurisdiction of incorporation to enable it lawfully to enter into and perform its obligations under this Guarantee to which it is a party or to ensure the legality, validity or enforceability in its jurisdiction of incorporation of this Guarantee; (ii) as soon as it becomes aware, promptly inform the Agent of the occurrence of any Event of Default which relates to this Guarantee or arises as a result of any of the acts or omissions of the Principal Guarantor; (iii) ensure that at all times the claims of the Agent and the Beneficiaries against it under this Guarantee rank at least pari passu with the claims of any unsecured creditors save those whose claims are preferred by any bankruptcy, insolvency, liquidation or other laws of general application; and (iv) as soon as practicable, but in any event within five days of Standard & Poor's Ratings Group amending its rating of the Principal Guarantor (either upwards or downwards), notify the Agent in writing of such amendment. 10. Payment Free of Deduction All payments to be made to any Beneficiary under this Guarantee shall be made free and clear of and without deduction for or on account of Tax (not being a tax imposed upon the net income of any Beneficiary or any of its branches) unless the Guarantor is required to make such payment subject to the deduction or withholding of Tax, in which case the sum payable by the Guarantor in respect of which such deduction or withholding is required to be made shall be increased to the extent necessary to ensure that, after the making of such deduction or withholding, the person on account of whose liability to Tax such deduction or withholding has been made receives and retains (free from any liability in respect of any such deduction or withholding) a net sum equal to the sum which it would have received and so retained had no such deduction or withholding been made or required to be made. 11. Payments 11.1 All payments by the Guarantor under or pursuant to this Guarantee shall be made to the Beneficiaries in the currency in which the relevant part of the Guaranteed Obligations is denominated or, if different, is payable and in such funds to such account with such bank by such time and in such other manner as the Agent may direct from time to time. 11.2 Subject to the provisions of Clause 10, all payments under or pursuant to this Guarantee shall be made without set-off or counterclaim. 11.3 All sums received by the Beneficiaries pursuant to this Guarantee shall be dealt with in accordance with the Facility Agreement. 12. Currency If any sum due from the Guarantor under this Guarantee or any order or judgment given or made in relation hereto has to be converted from the currency (the "first currency") in which the same is payable hereunder or under such order or judgment into another currency (the "second currency"), for the purposes of (i) making or filing a claim or proof against the Guarantor (ii) obtaining an order or judgment in any court or other tribunal (iii) enforcing any order or judgment given or made in relation hereto or (iv) applying the same in satisfaction of any of the Guaranteed Obligations, the Guarantor shall as a separate and independent obligation, on demand of the Agent, indemnify and hold harmless each of the persons to whom such sum is due from and against any loss suffered as a result of any discrepancy between (a) the rate of exchange used for such purpose to convert the sum in question from the first currency into the second currency and (b) the rate or rates of exchange at which such person may in the ordinary course of business purchase the first currency with the second currency upon receipt of a sum paid to it in satisfaction, in whole or in part, of such order, judgment, claim or proof or for application in satisfaction of the Guaranteed Obligations. 13. The Agent's Discretion Any liability or power which may be exercised or any determination which may be made hereunder by the Agent may, subject to the terms and conditions of the Facility Agreement, be exercised or made in its or his absolute and unfettered discretion without any obligation to give reasons therefor. 14. Provisions Severable Each of the provisions contained in this Guarantee shall be severable and distinct from one another and if any one or more of such provisions is now or hereafter becomes invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining such provisions shall not in any way be affected, prejudiced or impaired thereby. 15. Counterparts This Guarantee may be executed in any number of counterparts, all of which when taken together and delivered to the Agent shall constitute one and the same instrument. 16. Notices 16.1 Each communication to be made hereunder shall be made in writing but, unless otherwise stated, may be made by facsimile (followed by a confirmation copy to be sent by post within one week thereafter) or letter. 16.2 Any communication or document to be made or delivered by one person to another pursuant to this Guarantee shall (unless that other person has by fifteen days' written notice to the Agent specified another address or facsimile number) be made or delivered to that other person at the address or telex or facsimile number identified with its execution below and, in the case of any communication made by facsimile shall be deemed to have been made or delivered on receipt (if received during business hours on a U.S. business day, or on the next succeeding U.S. business day, if received out of business hours) and in such case may be relied or acted upon immediately notwithstanding the provisions of Clause 16.1) or (in the case of any communication made by letter) when left at that address or (as the case may be) ten days after being deposited in the post postage prepaid in an envelope addressed to it at that address; Provided Always that any communication or document to be made or delivered shall be effective only if the same is expressly marked for the attention of the department or officer identified with either the Agent's or the Guarantor's signature below (or such other department or officer as the Agent or the Guarantor shall from time to time specify in writing for this purpose). 17. Benefit of Guarantee 17.1 Each Beneficiary shall have a full and unfettered right to assign the whole or any part of the benefit of this Guarantee subject to the terms of the Facility Agreement and the words "Beneficiary" and "Agent" and "Beneficiary's" and "Agent's" and the expressions "it" and "its" (used in the context of the Beneficiary and the Agent) wherever used herein shall be deemed to include such Beneficiary's and Agent's assignees and other successors, whether immediate or derivative who shall be entitled to enforce and proceed upon this Guarantee in the same manner as if named herein. Each Beneficiary shall be entitled to impart any information it considers appropriate concerning the Guarantor to any actual or potential assignee of the Beneficiary or to any person who may otherwise enter into contractual relations with the Beneficiary in relation to this Guarantee Provided that no information (other than the terms of the Facility Documents and any publicly available information) shall be disclosed without the prior consent of the Guarantor such consent not to be unreasonably withheld or delayed. 17.2 The Guarantor may not assign or transfer all or any part of its rights, benefits or obligations under this Guarantee. 18. Law This Guarantee shall be governed by, and construed in accordance with, English law. 19. Jurisdiction 19.1 The Guarantor irrevocably agrees for the benefit of each of the Beneficiaries that the courts of England shall have jurisdiction to hear and determine any suit, action or proceeding, and to settle any disputes, which may arise out of or in connection with this Guarantee and, for such purposes, irrevocably submits to the jurisdiction of such courts. 19.2 The Guarantor irrevocably agrees for the benefit of each of the Beneficiaries that the courts of the United States of America located in the borough of Manhattan, in the City of New York shall have jurisdiction to hear and determine any suit, action or proceeding, and to settle any disputes, which may arise out of or in connection with this Guarantee and, for such purposes, irrevocably admits to the jurisdiction of such courts. 19.3 The Guarantor irrevocably waives any objection which it might now or hereafter have to the courts referred to in Clause 19.1 and 19.2 being nominated as the forum to hear and determine any suit, action or proceeding, and to settle any disputes, which may arise out of or in connection with this Guarantee and agrees not to claim that any such court is not a convenient or appropriate forum. 19.4 The Guarantor agrees that the process by which any suit, action or proceeding is begun may be served on it by being delivered in connection with any suit, action or proceeding in England, to the registered office of the Principal Borrower or its principal place of business for the time being. If the appointment of the person mentioned in this Clause 19.4 ceases to be effective, the Guarantor shall immediately appoint a further person in England to accept service of process on its behalf in England and, failing such appointment within 15 days, the Agent shall be entitled to appoint such a person by notice to the Guarantor. Nothing contained herein shall affect the right to serve process in any other manner permitted by law. 19.5 The submission to the jurisdiction of the courts referred to in Clause 19.1 and 19.2 shall not (and shall not be construed so as to) limit the right of the Agent, the Beneficiaries or any of them to take proceedings against the Guarantor in any other court of competent jurisdiction nor shall the taking of proceedings in any one or more jurisdictions preclude the taking of proceedings in any other jurisdiction (whether concurrently or not) if and to the extent permitted by applicable law. 20. Delivery This Guarantee is intended to be and is hereby delivered on the date first above written. IN WITNESS whereof this Guarantee has been executed as a Deed by the Guarantor and has been signed by or on behalf of the Beneficiaries and is intended to be and is hereby delivered on the day and year first before written. EXECUTION PAGES THE GUARANTOR EXECUTED AS A DEED under SEAL ) /s/ F.J. Chapman by VARITY CORPORATION ) -------------------- acting by F. Chapman ) Authorised Signatory ------------- ) _______________________ ) in the presence of: Signature of Witness: /s/ S.M. Stewart Name of Witness: S.M. Stewart Address: 200 Aldersgate St. London, EC4 Occupation: Solicitor Address of Varity Corporation:World Headquarters 672 Delaware Avenue Buffalo New York 14209 U.S.A. Facsimile No of Varity Corporation:(+716) 888 8010 Officer and department to whom notices to be addressed: THE BENEFICIARIES LLOYDS BANK PLC By: /s/ S.W. Baker Address: St. George's House 6 Eastcheap London EC3M 1LL Attention: S.W. Baker, Corporate Banking BERLINER HANDELS - und FRANKFURTER BANK By: /s/ M. Buggy Address: 61 Queen Street London EC4R 1AE Attention: Peter Frankl/Margaret Buggy, Trade & Commodity Finance CREDITANSTALT-BANKVEREIN By: /s/ M. Bowles Address: 125 London Wall London EC2Y 5DD Attention: S. Pearce/M. Sammon THE GOVERNOR AND COMPANY OF THE BANK OF SCOTLAND By: /s/ J. Drummond Address: Orchard Brae House 30 Queensferry Road Edinburgh EH4 2UG Attention: Ian McKinney/Fiona Ross, Bank of Scotland, International Division STANDARD CHARTERED BANK By: /s/ P. Hodges Address: 37 Gracechurch Street London EC3V 0BX Attention: Peter Hodges EX-10.1(I) 4 FACILITY AGREEMENT WITH PERKINS LIMITED EXHIBIT 10.1(i) The Directors Perkins Group Limited Eastfield Peterborough PE1 5NA 13th April 1995 Dear Sirs Perkins Group Facilities This letter, made between the original parties thereto on 30th September 1993, is amended and restated as at the date set out above with the intention that such amendment and restatement shall take effect on and from the Effective Date (as hereafter defined). We, Lloyds Bank Plc ("Lloyds") are pleased to offer the under-mentioned facilities (the "Group Facilities") to Perkins Group Limited and other companies in the Perkins Group listed in Annex 1 to this letter (together the "Companies" and individually a "Company") upon and subject to the terms and conditions of this letter: (a)a sterling overdraft facility linked to Lloyds Base Rate (the "Overdraft Facility"); (b)a sterling revolving loan facility linked to London Interbank offered rate (the "Money Market Facility"); (c)a sterling revolving acceptance facility (the "Acceptance Credit Facility"); (d)a foreign exchange contract facility (the "Forex Facility"); (e)a bond, guarantee and indemnity facility (the "Guarantee Facility"); (f)a negotiations and documentary credit facility (the "Documentary Credit Facility"); (g)a daylight facility (the "Daylight Facility"); (h)a CHAPS facility (the "CHAPS Facility"); (i)an open credit facility (the "Credit Facility"); and (j)a BACS facility (the "BACS Facility"). In addition, we, Lloyds, are pleased to offer a Cashpoint cash facility to Perkins Engines (Shrewsbury) Limited (the "Shrewsbury Cash Facility") upon and subject to the terms and conditions contained in this letter. 1.Definitions "Acceleration Notice"has the meaning assigned by the Master Agreement; "Acceptance Date"means the date of the signed acceptance of this letter by the Companies. If such dates differ, the latest date shall apply; "Acceptance Commission"means acceptance commission in respect of the Acceptance Credit Facility calculated at fifty basis points (0.50%) of the face amount of the relevant Bill and for the Tenor thereof; "Act"means the Companies Act 1985 as modified or amended by the provisions of the Companies Act 1989; "Additional Cost"means the cost from time to time, expressed in annual percentage terms, of compliance with the regulations, requirements and requests of the Bank of England, calculated in accordance with Annex 2 to this letter; "Adjustment Amount"means in respect of any financial quarter, an amount equal to 25% of the amount of GPAT as set out in the financial statements for that financial quarter; "Advances"means an advance in sterling or an Optional Currency made or to be made by Lloyds to a Company hereunder; "Approved Insurer"means NCM Credit Insurance Limited, Trade Indemnity PLC or such other insurer as Perkins shall select and Lloyds approve (such approval not to be unreasonably withheld or delayed); "BACS"means Bankers Automated Clearing Systems Limited; "BACS Facilities"means the facility described in Clause 4(j) below; "Bill"means a bill of exchange (in sterling) drawn by any Company and accepted by Lloyds; "Borrowing Base Amount" means at any time the aggregate of the amounts equal to 80% of the Eligible Receivables Amount and 45% of the Eligible Inventory Amount, each as set out in the most recent Borrowing Base Certificate; "Borrowing Base Certificate" means a certificate delivered by Perkins to Lloyds in accordance with the provisions of clause 11A.(b)(iii) "Business Day" means a day other than a Saturday or a Sunday on which banks and foreign exchange markets are open in London and (where relevant) in the principal financial centre (as determined by Lloyds) of the relevant Optional Currencies; "Club Facility" means a facility or facilities evidenced by a facility agreement of 30th September 1993 as amended and restated by an agreement of even date herewith made between Perkins Limited (1) the Original Borrowers as defined therein (2) Perkins (3) Lloyds, Capital Markets Group as Agent (4) and the Banks as defined therein (5) and as further amended, varied, supplemented or novated from time to time (the "Club Facility Agreement"); "Consolidated Published Net Worth" means at any time the aggregate of the amounts paid up or credited as paid up on the issued share capital of Perkins and the aggregate amount of capital and reserves of the Perkins Group including but not limited to: (i)any amount credited to the share premium account; (ii)any capital redemption reserve; (iii)any balance standing to the credit of the profit and loss account of the Perkins Group; (iv)any amounts shown in respect of goodwill or other intangible assets of the Group; and (v)reserves on consolidation; but deducting (in so far as not already taken into account): (vi)any debit balance on the consolidated profit and loss account of the Perkins Group; (vii)any amounts in respect of loans made by any member of the Perkins Group to any person not a member of the Perkins Group after 31st January 1993 other than those disclosed to Lloyds on or prior to the date hereof; (viii)any bad debts not provided for; (ix)any minority interests; (x)any deferred taxation not provided for which should have been provided for under accounting principles generally accepted in the United Kingdom; and (xi)any amounts arising from a revaluation of assets on a basis acceptable to Lloyds made at any time after 31st January 1993 (or in the case of assets of a company which becomes a member of the Perkins Group after that date, the date on which that company becomes a member of the Perkins Group), other than a revaluation made by an independent third party valuer; (no amount to be included or excluded more than once) all as determined from the most recent consolidated financial statements of the Perkins Group and making such adjustments in respect of (i) to (xi) above as may be appropriate: (xii)in respect of any variation in the amount of any paid up share capital or reserves after the date of such consolidated financial statements; (xiii)in respect of any distribution declared, recommended or made by Perkins or any of its subsidiaries out of profits earned up to and including the date of such consolidated financial statements; and (xiv)to deduct the assets and liabilities of any companies which, since the date of the most recent consolidated financial statements of the Perkins Group, have ceased to be members of the Perkins Group and to include the assets and liabilities of any companies which have, since such date, become members of the Perkins Group. "Credit Insurance"means at any time a policy of insurance cover (including any such policy of insurance cover which takes the form of a guarantee) issued by an Approved Insurer in respect of any Receivables, the currency, amount and terms of such insurance cover being acceptable to Lloyds in all respects; "Current Accounts"means the sterling and Optional Currency current account(s) of the Companies or any of them with Lloyds; "Delivery Risk"means the aggregate value in Sterling on any one Settlement Date of: (i)the aggregate sterling amounts or the Equivalent Amount of all balances standing to the debit of the Companies on the Forex Accounts maintained by Lloyds for such Settlement Date; and (ii)the aggregate sterling amounts or the Equivalent Amount of all sums payable by the Companies to Lloyds under Forex Facility Contracts for such Settlement Date. "ECU"means the European Currency Unit; "Effective Date"means the date on or before 30th April 1995 or such later date as Lloyds may agree on which each Company has accepted the terms of this letter and Lloyds has received all the documents listed in clause 9 below, each in form and substance satisfactory to it; "Eligible Inventory"shall mean, as at any date, all Inventory: (a)that is owned by (and in the possession or under the control of) any Company as at such date; (b)that is located within the United Kingdom; (c)that is new and unused or is re-manufactured and is otherwise in good condition; (d)that meets all standards imposed by any governmental agency or department or division thereof having regulatory authority over such Inventory, its use or sale; (e)that is currently usable or currently saleable in the normal course of such Company's business; and (f)that is not subject to any encumbrance (other than an encumbrance referred to at paragraph (iv) of the definition of Permitted Encumbrance); "Eligible Inventory Amount" means the aggregate value determined at the lower of cost price or market value in accordance with accounting principles generally accepted in the United Kingdom, save that cost price shall be determined on a first-in-first-out basis) of all Eligible Inventory for any period for which a Borrowing Base Certificate is delivered and as set out in such Borrowing Base Certificate; "Eligible Letter of Credit" means an irrevocable letter of credit or bank guarantee issued by a bank or financial institution which (i) is an authorised institution pursuant to the provisions of the Banking Act 1987 or (ii) is a branch or representative office of an institution referred to in (i) and such branch or representative office is situated in an OECD country or (iii) has been granted a credit rating of AA (or higher) by Standard & Poor's Ratings Group or (iv) is Berliner Handels-und Frankfurter Bank; "Eligible Receivables"shall mean, as at any date, all Receivables at such date payable to any Company or Guarantor Company other than the following (determined without duplication): (a)any Receivable: (i)that at the date of issuance of the invoice therefor, was payable more than 180 days after the original due date of the original invoice therefor; or (ii)where the original due date of the original invoice therefor has been extended for more than 90 days; or (iii)where, notwithstanding paragraphs (i) and (ii), such Receivable is, in any event, payable more than 270 days after the original due date of the original invoice therefor; or (iv)where, notwithstanding paragraphs (i), (ii) and (iii), such Receivable was not covered by Credit Insurance at the date of issue of the invoice therefor, and is payable more than 120 days after the due date of the original invoice therefor; (b)any Receivable payable to any Company or Guarantor Company by any member of the Varity Group; (c)any claim on a third party funded by an Approved Insurer; (d)any Receivable payable by any account debtor that has taken an action, or has become the subject of any proceeding, case or order for relief; (e)all Receivables payable by any account debtor if more than 25% of the aggregate amount of the Receivables payable by such account debtor remain unpaid more than 180 days after the original due date of the original invoice therefor; (f)any Receivable representing an obligation for goods sold on consignment, approval or a sale-or-return basis or subject to any other repurchase or return arrangement; and (g)any Receivable that is subject to any encumbrance (other than an encumbrance referred to at paragraph (iv) of the definition of Permitted Encumbrance); and (h)any Receivable which is the subject of any invoice discounting factoring or receivables purchase arrangement or any other arrangement whatsoever which results in any part of the legal or beneficial title to such Receivable vesting in a person other than a Company or Guarantor Company Provided that no Receivable shall be excluded from the definition of "Eligible Receivables" by virtue of: (1)any of the foregoing paragraphs (a), (d), (e), (f) or (g) to the extent that (A) such Receivable is supported by an Eligible Letter of Credit or (B) the customer from whom such Receivable is due is a ministry, office or department of Her Majesty's government; (2)any of the foregoing paragraphs (a), (d) or (e) to the extent that such Receivable is the subject of Credit Insurance; "Eligible Receivable Amount" means the aggregate amount of Receivables for any period for which a Borrowing Base Certificate is delivered and as set out in such Borrowing Base Certificate; "Eligible Receivable Company" means at any time, a company which is a member of the Perkins Group and which (i) is incorporated in England and Wales, and (ii) generates Eligible Receivables either on its own behalf or on behalf of any other member of the Group or, for the purposes of the covenants contained in Clause 11A(b)(ii)(bb) and Clause 11C only, any such company which generates Receivables which would be Eligible Receivables but for the fact that, at the time such Receivables are generated, such company is not a Company or a Guarantor Company as defined herein; "Equivalent Amount"means the sterling equivalent of the relevant amount of an Optional Currency as conclusively determined by Lloyds, in the absence of manifest error, on the basis of its spot buying rate for such Optional Currency against sterling on or about 11.00 am two Business Days prior to the day any such calculation falls to be made; "Event of Default"means an event described in clause 12 hereof; "Expiry Date"means the 30th November 1995 (or if such date is not a Business Day, the preceeding Business Day); "Facilities"means together the Group Facilities and the Individual Facilities; "Financial Indebtedness"means any indebtedness of any person incurred in respect of: (i)moneys borrowed; (ii)any debenture, bond, note, loan stock or other security; (iii)acceptance credits; (iv)the acquisition cost of property or assets or services (excluding stock in trade for which payment is due within twelve months or less from the date of invoice) to the extent payable more than 180 days after the time of acquisition or possession thereof by the party liable where such deferred payment was arranged primarily as a method of raising finance or financing such acquisition; (v)rental payments under leases which are accounted for as finance leases as that term is described in statement 21 of the Statements of Standard Accounting Practice for the United Kingdom (whether in respect of land, machinery, equipment or otherwise) entered into primarily as a method of raising finance or financing the acquisition of the property or asset leased but excluding any interest element thereof and excluding, for the avoidance of doubt, rental payments under any operating leases; (vi)amounts raised under any other transaction, off balance sheet or otherwise, having the commercial effect of a borrowing and effected primarily as a method of raising finance; (vii)any bills of exchange (other than cheques) or promissory notes on which such person is liable as drawer (but only if the relevant bill is not beneficially owned by such person) acceptor, issuer, endorser or otherwise; (viii)any indebtedness factored or discounted by such person to another person to the extent there is recourse to such person in respect thereof; (ix)any fixed or minimum premium payable on redemption or repayment of any debenture, share capital or other monies borrowed falling to be taken into account; and (x)without double counting any guarantee or other assurance of indebtedness falling within paragraphs (i) to (ix) above of any person, However: (a)indebtedness owed by one member of the Perkins Group to another member of the Perkins Group will not be taken into account as Financial Indebtedness; (b)indebtedness owed to trade creditors in the ordinary course of business or net indebtedness incurred in relation to forward foreign exchange contracts entered into for bona fide commercial purposes will not be taken into account as Financial Indebtedness; and (c)indebtedness incurred by a member of the Perkins Group for the purpose of repaying the whole or any part of the Financial Indebtedness of any member of the Perkins Group and so to be applied within one month of being so incurred will during that period be excluded from the Financial Indebtedness of the Perkins Group for the purposes of clause 11 except to the extent so applied hereunder; "Financial Indebtedness Amount" means at any time an amount equal to the aggregate Financial Indebtedness of the UK Group as set out in the most recent Borrowing Base Certificate; "Forex Accounts"means the accounts to be maintained by Lloyds and the Companies pursuant to clause 2 of the Master Agreement; "Forex Exposure" means an amount in sterling at any particular time equal to the aggregate of (i)all the sterling sums required then or at any time thereafter to be paid by or to Lloyds under Forex Facility Contracts entered into under the Forex Facility; and (ii)the Equivalent Amount of all sums required then or at any time thereafter to be paid by or to Lloyds under Forex Facility Contracts entered into under the Forex Facility (such calculations to be on the basis that no further Forex Facility Contracts are entered into); "Forex Facility Contract" means a forward foreign exchange contract between Lloyds and any of the Companies pursuant to the Forex Facility; "GPAT"means for any period for which it is being tested, the profits of the ordinary activities of the Perkins Group, after such profits are converted from any foreign currency into sterling and after deducting any taxation paid or payable during that period; "Guarantee"means the omnibus guarantee referred to in clause 9(b)(i) hereof; "Guarantor Companies"means the Companies listed in Annex 3 to this letter; "Interest Period"means in respect of a drawing under the Money Market Facility, the period for which such drawing is made being one, two, three or six months or at any time such other period not exceeding 12 months as may then be agreed between Lloyds and Perkins; "Interest Service Costs"means an amount equal to the aggregate amount of all obligations of the Perkins Group in respect of interest payments (including without limitation the amount of (a) any discounts on commercial bills (b) any interest element in any leasing or hire purchase payments (c) any capitalised interest or (d) any payments analogous to or having the same commercial effect as interest payments or discounts) in respect of any period for which it is being tested in relation to any Financial Indebtedness and all costs, charges and expenses incurred in effecting, servicing and maintaining such Financial Indebtedness in such financial year after taking into account the effect of any interest rate or currency swap, cap, collar or floor arrangements; "Inventory"means readily marketable materials, including raw materials, stocks and spares and work-in-progress (but excluding factory supplies), of a type manufactured, finished or consumed by a Company in the ordinary course of its business as presently conducted; "Master Agreement"means an agreement in the form of the draft agreement set out in Annex 4 hereto and duly signed by each of the Companies; "Material Subsidiary"means a subsidiary of Perkins or Perkins Limited incorporated in England and Wales (i) the book value of whose total gross assets is 5 per cent or more of the total gross assets of the Perkins Group or (ii) the profits of which exceeds 5 per cent of the profits of the Perkins Group as a whole or (iii) the turnover which exceeds 5 per cent of the turnover of the Perkins Group or (iv) which acts as an agent disclosed or otherwise for any Company described in (i), (ii) or (iii) above Provided Always that the subsidiary of Perkins which is to be established as a vehicle for the joint venture between Perkins Group Limited and Ishikawajima Shibaura Machinery Co. Limited shall not, for the purposes of this letter, be a Material Subsidiary; "Minimum Amount"means: (i)for the financial quarter ending 31st January 1995, (Pounds)110,000,000; and (ii)for each successive financial quarter, the aggregate of (Pounds)110,000,000 and the Adjustment Amount for that financial quarter; "Notification Date"means in respect of a drawing hereunder in an Optional Currency, the date falling two Business Days prior to the date of drawing, in respect of any other drawing or of a request for Lloyds to accept a Bill, the date on which such drawing or acceptance is required and in the case of a request for Lloyds to issue a bond, guarantee or indemnity pursuant to the Guarantee Facility the date falling three Business Days prior to the date of such issue; "Offered Rate"means in relation to a drawing under the Money Market Facility, the rate offered to Lloyds as determined by Lloyds in the London interbank market at or about 11.00 am (or such later time as may be agreed between Lloyds and the Companies in respect of a particular drawing and Interest Period) on the relevant Notification Date for deposits in the amount and currency of the drawing for the term of the relevant Interest Period; "Optional Currency"means any major currency, other than sterling, as agreed between Lloyds and the Companies and which in Lloyd's opinion is readily available to Lloyds at the time of any drawing on deposits in the London interbank market in the amount required for the relevant Interest Period; "Original Financial Statements: means: (i)in relation to each Company (other than Perkins and the companies referred to in (iii) below) its audited financial statements for its financial year ended 31st January 1994; (ii)in relation to Perkins: (a)its audited financial statements for its financial year ended 31st January 1994; and (b)its pro forma consolidated financial statements for its financial year ended 31st January 1993 reviewed by KPMG Peat Marwick McLintock; (iii)in relation to Dorman Diesels Limited and Perkins Engines (Stafford) Limited their audited financial statements for their financial year ended 31st March 1994; "PBIT"means for any period for which it is being tested, the profits from the ordinary activities of the Perkins Group for such period after such profits are converted from any foreign currency into sterling and after adding or deducting any gains or losses made as a result of such conversion but before deduction of: (a)Interest Service Costs paid or payable for such period; (b)taxation paid or payable during such period; (c)depreciation and amortisation for such period; and (d)exceptional items for such period, each as disclosed by the most recent consolidated financial statements of the Perkins Group; "Perkins"means Perkins Group Limited; "Perkins Group" means Perkins and the Companies and any other company which may at any time become a Subsidiary or associated company (within the meaning of Section 416 of the Income and Corporation Taxes Act 1988) of Perkins or any such company, save for: (i)Varity Gmbh (ii)Pacoma Hydraulik Gmbh (iii)Vermoegensverwaltung Gmbh (iv)Perkins Motoren Gmbh "Permitted Encumbrance"means: (i)any security interest created with the prior written consent of Lloyds; (ii)any security interest existing at the date hereof granted by a Company or a Material Subsidiary in respect of the Perkins Group's or any member of the Perkins Group's obligations under: (a)a 1,600,000 Singapore dollar term loan facility and 100,000 Singapore dollar overdraft facility granted by Development Bank of Singapore to Perkins Engines (Far East) Pte Ltd; and (b)a 300,000 Danish kroner overdraft facility granted by Den Danske Bank to A/S Perkins Engines Denmark; (iii)any liens arising by operation of law and in the ordinary course of business and securing obligations not more than thirty days old; (iv)any rights by way of reservation or retention of title which are required by the supplier of property to any member of the Perkins Group in the normal course of such suppliers business; and (v)in the case of (a) any asset acquired by any of the Perkins Group after the date hereof; or (b) any asset owned by any Company which is acquired by any member of the Perkins Group after the date hereof, any encumbrance subsisting over such asset at the date of acquisition on condition that the principal amount secured by any such encumbrance (being, in the case of a fluctuating bank facility, the maximum available amount of such facility at the date of such acquisition) shall not be increased beyond the amount secured thereby at the date of such acquisition or the date such company becomes a member of the Perkins Group (other than by reason solely of any currency fluctuations); (vi)any encumbrances over any asset acquired by any member of the Perkins Group, as security only for Financial Indebtedness not prohibited pursuant to the terms of this letter which is incurred solely to finance all or part of the cost of the acquisition, development, redevelopment, modification or improvement of that asset; (vii)encumbrances arising out of judgments or awards of courts or arbitral tribunals which are being contested in good faith and with respect to which an appeal or proceedings for review has been instituted and encumbrances in respect of the costs of court proceedings or in respect of any damages which may be incurred by any party thereto; and (viii)any encumbrance securing indebtedness to refinance other indebtedness permitted to be secured by any encumbrances permitted under paragraphs (i) to (vii) above provided that such replacement encumbrance does not cover any assets other than the original assets subject to the original encumbrance and that the aggregate principal amount secured thereby is not increased; PROVIDED ALWAYS that in respect of the encumbrances referred to in paragraphs (v), (vi), (vii) and (viii) above, the amount secured thereby shall not at any time exceed an amount equal to 15% of the Published Net Worth and the relevant encumbrance shall be fully and unconditionally discharged within six months from the date of its creation (or if arising as a result of any acquisition six months from the date of acquisition) Provided Always that such time period of six months may (with the prior consent of Lloyds not to be unreasonably withheld) be extended for a further period of up to six months; "Permitted Disposal"means: (a)a disposal of any asset which is made at arm's length and for a fair market value where the proceeds of such disposal are within six months of such disposal used to purchase equivalent assets (b)a disposal from one Company to any other Company or a disposal from a Company to any other member of a Perkins Group; and (c)a disposal of cash or any marketable securities which are held for the purposes of investment only; "Potential Event of Default" any event which, with the giving of notice or lapse of time, or the fulfilment of any other condition, would constitute an Event of Default; "Primary Licence Agreement"means the licence agreement dated 29th January 1991 made between VEL (formerly known as Varity Holdings Limited) (1) and Perkins Engine Group Limited ("PEG") (2) as varied by an agreement of 30th September 1993 made between VEL (1) Perkins Limited (2) and PEG (3); "Published Net Worth"of any company means at any time the aggregate of amounts paid up or credited as paid up on the issued share capital of that company and the aggregate amount of capital and reserves of that company including but not limited to: (i)any amount credited to the share premium account; (ii)any capital redemption reserve; (iii)any balance standing to the credit of the profit and loss account of that company; (iv)any amounts shown in respect of goodwill or other intangible assets of that company; (v)reserves on consolidation; but deducting (insofar as not already taken into account); (vi)any debit balance on the profit and loss account of that company; (vii)any amounts in respect of loans made by that company to any other person after 31st January 1993 other than those disclosed to Lloyds on or prior to the date hereof; (viii)any deferred taxation not provided for which should have been provided for under accounting principles generally accepted in the United Kingdom; (ix)any bad debts not provided for; (x)any minority interests in subsidiaries; and (xi)any amounts arising from a revaluation of assets made at any time after 31st January 1993 other than a revaluation made by an independent third party valuer, (no amount to be included or excluded more than once) all as determined from the most recent financial statements of that company and making such adjustments in respect of (i) to (xi) above as may be appropriate; (xii)in respect of any variation in the amount of any paid up share capital or reserves after the date of such financial statements; and (xiii)in respect of any distribution declared, recommended or made by that company out of profits earned up to and including the date of such financial statements; "Receivable"shall mean, at any date, the unpaid portion of the obligation, as stated on the relevant invoice, of a customer of any member of the Perkins Group in respect of Inventory and services sold and shipped or provided by such member of the Perkins Group to such customer, net of any credits, rebates or offsets owed to such customer (and for the purposes of this letter, a credit or rebate paid by cheque or draft of a member of the Perkins Group shall be deemed to be outstanding until such cheque or draft shall have been debited to the account of such member of the Perkins Group on which such cheque or draft was drawn); "Settlement Date"means for each Forex Facility Contract (or any related replaced payment obligation under clause 3 of the Master Agreement) the date agreed under such Forex Facility Contract as the date of delivery of the currencies bought and sold thereunder; "Specified Date"means, in respect of any Borrowing Base Certificate, the last day of the Varity Calendar month to which the information set out in the Borrowing Base Certificate relates; "Subordination Agreement"means an agreement of even date herewith made between Lloyds as Agent in respect of the Club Facility (1), Lloyds (2) and all companies within the UK Group at the date thereof (save for any such company in liquidation at such date) (3) pursuant to which, inter alia, the obligations of the companies or any of them in the UK Group to any other company in the UK Group from time to time will be subordinated to the obligations of such companies to Lloyds Capital Markets Group, as Agent pursuant to the Club Facilities, and Lloyds; "Subsidiary"has the meaning ascribed to it in section 736 of the Act; "Tenor"means, in relation to any Bill, the period from the date on which it is accepted until its maturity; "Total Outstandings"means at any particular time the aggregate of all sterling drawings, the then Equivalent Amount of all Optional Currency drawings, the face value of accepted Bills, and the face value of any bonds, guarantees, indemnities and letters of credit outstanding at such time under the Overdraft Facility, the Money Market Facility, the Acceptance Credit Facility and all other Group Facilities; "UK Group"means Perkins and all Subsidiaries of Perkins or any associated company of Perkins or any such Subsidiary (within the meaning of Section 416 of the Income and Corporation Taxes Act 1988) whose place of incorporation is in the United Kingdom; "Varity Calendar"means in relation to any financial year of Varity Corporation the Card headed "Varity Corporation Calendar Fiscal" (followed by the year in which that financial year ends) produced by Varity Corporation and showing the four quarters and twelve "monthly" reporting periods into which that financial year is divided by Varity Corporation for accounting purposes; "Varity Corporation"means Varity Corporation a corporation incorporated under the laws of the State of Delaware with its principal office at 672 Delaware Avenue, Buffalo, New York 14209, United States of America; "Varity Corporation Guarantee" means the guarantee to be entered into by Varity Corporation referred to in clause 9(a)(viii)(cc) hereof; "Varity Group"means Varity Corporation and its subsidiaries and subsidiary undertakings (as that latter term is defined in section 258 of the Companies Act 1985) for the time being; "VEL"means Varity Europe Limited company registration number 504025 whose registered office is at 9A Upper Belgrave Street, London SW1X 8BD. Words denoting the singular number only shall include the plural and vice versa. 2.Purpose The Facilities are to be used for the general corporate purposes of the Companies or any one or more of them. PART A GROUP FACILITIES 3. Amount and availability (a)Subject to the terms hereof the Group Facilities shall remain available until and may be utilised on any Business Day prior to the Expiry Date. (b)Subject to clause 3(a) above, the Total Outstandings shall not exceed (Pounds)94,430,000 gross and (Pounds)84,430,000 net and further: (i)the aggregate amount outstanding under the Overdraft Facility shall not exceed (Pounds)25,000,000 gross and (Pounds)15,000,000 net; (ii)the aggregate amount outstanding under the Money Market Facility and the face value of accepted Bills under the Acceptance Credit Facility shall not exceed (Pounds)20,000,000; (iii)the aggregate amount of bonds, guarantees and indemnities issued and outstanding at any one time under the Guarantee Facility and (if issued in accordance with Clause 4(e) below) the aggregate amount outstanding at any one time in respect of cheques and bills of exchange shall not exceed (Pounds)12,800,000 PROVIDED ALWAYS THAT the aggregate amount of such bonds, guarantees and indemnities issued and outstanding for a period of more than one year shall not exceed (Pounds)11,300,000 and the aggregate amount of such bonds, guarantees and indemnities issued and outstanding for a period of less than one year shall not exceed the greater of (i) (Pounds)1,500,000 and (ii) (Pounds)12,800,000 less the aggregate amount of such bonds, guarantees and indemnities issued and outstanding at any time for a period of more than one year. (iv)the gross aggregate amount outstanding under the Forex Facility shall not exceed (Pounds)70,000,000, Lloyds' delivery risk on any Settlement Date thereunder shall not exeed (Pounds)8,500,000 and the exposure on a "marked to market" basis shall not exceed (Pounds)7,500,000 in accordance with Clause 4(d) below; (v)the aggregate amount outstanding under the Documentary Credit Facility will not exceed (Pounds)3,300,000; (vi)the aggregate amount outstanding under the CHAPS Facility will not exceed (Pounds)3,500,000; (vii)the aggregate amount outstanding under the Daylight Facilities will not exceed (Pounds)10,000,000; (viii)the aggregate amount outstanding under the Credit Facility will not exceed (Pounds)480,000; and (ix)the aggregate amount outstanding under the BACS Facilities will not exceed (Pounds)3,350,000. For the purpose of this sub-clause (b) a "net" amount shall be calculated at any time by deducting from the aggregate of all debit balances on the Current Accounts the aggregate amount of all sterling balances standing to the credit of the accounts of any of the Companies with Lloyds. (c)The proceeds of each drawing in sterling under the Money Market Facility will be credited to the Current Account of the respective Company unless prior to the date of payment of such proceeds and in respect of those particular proceeds Lloyds shall have received written notice from such Company to the contrary. The proceeds of all other drawings shall be credited to such account as the respective Company shall from time to time advise Lloyds by written notice prior to 12 noon on the relevant Notification Date. Each Company hereby authorises Lloyds to debit its aforementioned respective sterling or Optional Currency Current Accounts with the amount of all sterling or Optional Currency payments, whether of principal, interest or otherwise, from time to time due under this letter. Each Company hereby undertakes to ensure that there will be sufficient cleared funds available on that account or sufficient availability under the Overdraft Facility by 12 noon on any relevant date to cover all such payments falling due on that date. (d)All moneys from time to time outstanding under the Facilities hereunder shall be repaid by the respective Borrower in the currency in which they are outstanding on or before the repayment date relating to such Facility and in any event on the Expiry Date. No Interest Period selected under the Money Market Facility shall continue after the Expiry Date. Any amount of the Facilities unutilised on the Expiry Date shall be cancelled forthwith. 4. Terms of operation (a)The Overdraft Facility Subject to the terms and conditions of this letter the Companies may overdraw their respective sterling accounts with Lloyds, City Office branch from time to time. Notwithstanding any other provision of this letter, the Overdraft Facility shall subject to the terms of this agreement, be repaid in full on the Expiry Date. Interest will be charged on the cleared daily balance outstanding in respect of any such sterling accounts at 1% per annum over Lloyds' Base Rate from time to time. Interest will be debited to the relevant account of the respective Company with Lloyds on such quarterly dates in each year as Lloyds may from time to time require and on the date upon which the Overdraft Facility ceases to be available. Subject to the terms of this letter, the Companies may overdraw their respective accounts with Lloyds, City International branch in Optional Currencies. Interest will be charged on the cleared daily balance outstanding in respect of any such accounts at 1% per annum over Lloyds' short term offered rate from time to time for the relevant currency(ies). Interest will be debited to the relevant account of the respective Company with Lloyds on such quarterly dates in each year as Lloyds may from time to time require and on the date on which the Overdraft Facility ceases to be available. (b)The Money Market Facility Each Company may make drawings from time to time hereunder in sterling and may request drawings in Optional Currencies, subject to receipt by Lloyds of notice from such Company by 10.00 am on the Notification Date therefor specifying the amount, currency and the term of the Interest Period required. Lloyds shall not be obliged to accede to a request for a drawing by any Company in an Optional Currency and upon refusal of any such request Lloyds shall use reasonable endeavours to but shall not be obliged to provide any reason or explanation for such refusal. The amount or Equivalent Amount of each drawing shall be at least (Pounds)250,000. Each drawing shall be in one currency only and shall be repaid in the currency advanced on the last day of its Interest Period or, if earlier, on the Expiry Date. Any drawing so repaid may be redrawn subject to the provisions contained in this letter. Each drawing shall bear interest at 0.5% per annum above the Offered Rate except that in respect of drawings denominated in sterling that rate shall be increased by an amount which Lloyds shall determine from time to time to be necessary to compensate Lloyds for the cost or loss to it of complying with any existing monetary control or prudential requirements of the Bank of England. Such additional cost shall until further notice by Lloyds be calculated in accordance with the formula set out in Annex 2 to this letter. The respective Company shall pay interest on each drawing in arrears in the currency of the drawing on the last day of its Interest Period and where such period exceeds 3 months at 3 monthly intervals from the first day thereof. If in relation to any drawing under the Money Market Facility Lloyds is unable to make any determination of the interest rate applicable thereto pursuant to the previous paragraph, the interest rate applicable to such drawing shall be calculated by reference instead to the rate per annum which is the cost to Lloyds of funding such drawing from whatever sources it may select at its option provided that, if Lloyds is unable to obtain the required funds from any source, it shall not be obliged to make available such drawing to the respective Company. In circumstances where Lloyds is unable to make a determination of the interest rate it shall notify the relevant Company and detail the cost of funding the relevant drawing where funds are available from a source or sources it shall have selected and the relevant Company shall have the option whether or not to make such drawing. (c)The Acceptance Credit Facility (aa)Notices requesting utilisations under this clause shall state: (i)the face value of each Bill the Company proposes to forward to Lloyds pursuant to the relevant Notice; (ii)the maturity date of each such Bill; (iii)instructions in relation to each such Bill as to whether Lloyds shall return such Bills to the relevant Company, deliver it to the relevant Company's order or, if the market permits, discount it on the relevant Company's behalf in the London Discount Market. (bb)Notices requesting utilisations under this clause shall be accompanied by the relevant Company forwarding to Lloyds Bills in respect of underlying trade activities drawn by the Company on Lloyds, with a maturity date before the Expiry Date and being 30, 60, 90 or 120 days after acceptance (or such other period agreed by Lloyds) (provided that if any such date would not be a Business Day then such maturity date shall be the immediately preceding Business Day), or such other maturity date as may be agreed between Lloyds and the relevant Company, payable to Lloyds' order and endorsed in blank by the relevant Company. (cc)Each Bill forwarded to Lloyds pursuant to a utilisation under the terms contained in this clause 4(c) shall be delivered to Lloyds no later than 12 noon (London time) on the day specified in the relevant notice as the day on which such utilisation is to be made available to the relevant Company. (dd)Each Bill shall be drawn in sterling and the face amount of each Bill shall not be less than (Pounds)250,000 nor more than (Pounds)1,000,000 and shall be claused in such manner as to comply with the Bank of England's requirements current at the time for sterling bills of exchange eligible for rediscount at the Bank of England. Upon Lloyds receiving Bills so drawn (and subject to clause 3) Lloyds shall accept them and, in accordance with instructions given by the relevant Company with the relevant Company's request therefore, either (i) return them to the relevant Company, (ii) deliver them to the relevant Company's order or (iii) if the market permits, discount them on the relevant Company's behalf in the London Discount Market. In the event of Lloyds arranging the discounting of the Bills, the net proceeds thereof (that is to say the face amounts of the Bills less discount charges and acceptance commission) will be disbursed in accordance with instructions given to Lloyds at the time of the relevant Company forwarding the Bills to Lloyds. (ff)Lloyds shall charge the relevant Company an acceptance commission at a rate of one half of one per cent (0.50%) per annum of the face amount of each Bill accepted by Lloyds and calculated on the Tenor of the Bill and on the basis of a 365-day year. Such commission will be payable at the time of acceptance of such Bill and may, in the event Lloyds discount such Bill pursuant hereto, be deducted from the proceeds thereof. In other cases, it shall be paid by the relevant Company at the time the relevant Company provides a notice requesting such utilisation. (d)The Forex Facility (aa)(i)Forex Facility Contracts may be entered into by Lloyds, and any of the Companies only for the purpose of hedging a foreign exchange risk arising in the normal course of business of the Companies. (ii)The Forex Facility will be available to cover spot and forward exchange operations up to 365 days. (iii)Subject as mentioned in (gg) and (hh) below, quotations will be offered by Lloyds under the Forex Facility until the Expiry Date. (bb)Lloyds shall only be obliged to enter into a Forex Facility Contract if: (i)on any day that contract would not result in the exposure of Lloyds on a "marked to market" basis exceeding (Pounds)7,500,000; or (ii)that contract would not result in Lloyds' Forex Exposure exceeding (Pounds)70,000,000; or (iii)that contract would not result in Lloyds' Delivery Risk on any Settlement Date exceeding (Pounds)8,500,000. For the purpose of this sub-clause (bb) "marked to market" shall mean that Lloyds shall make a calculation in relation to all Forex Facility Contracts at any time outstanding, together with any proposed Forex Facility Contracts to be entered into by the Companies, as if all such Forex Facility Contracts had at that time been required to be terminated under the terms of the Master Agreement. Each such calculation shall give rise to a hypothetical termination payment required to be paid to or by Lloyds or any of the Companies in respect of each outstanding or proposed Forex Facility Contract. The amounts of such hypothetical termination payments shall themselves be netted against each other to produce a net hypothetical payment to be paid to or from the Companies. The amount of such net hypothetical payment required to be paid by the Companies to Lloyds shall be taken to calculate Lloyds' exposure referred to in sub-clause 4(d)(bb)(i) above. If according to Lloyds' calculations made on any day any of the limits referred to in this sub-clause (bb) are exceeded the relevant Companies shall on the day on which notice is given in writing by Lloyds to that effect make a payment to Lloyds or take such other action necessary to eliminate or accommodate (which shall include with the agreement of Lloyds any re-allocation of the Facilities) such excess. (cc)Subject: (i)to availability of the relevant currency/ies; and (ii)as provided by clauses (gg) and (hh) below, quotations for transactions under the Forex Facility will be offered to the Companies by Lloyds' Exchange Dealers at its offices at Faryners House, 25 Monument Street, London EC3R 8BQ upon telephone request. (dd)Forex Facility Contracts concluded over the telephone shall be confirmed by the relevant Company in writing as soon as practicable, in conformity with clause 4.1 of the Master Agreement. (ee)Any instructions or other communications concerning the Forex Facility (including, without limitation, oral acceptances of quotations) which are received by Lloyds over the telephone and purport to be given on behalf of any of the Companies by one of the duly authorised signatories and are believed in good faith, at the time of being given by the official of Lloyds receiving the same to have been given on behalf of any such Company shall bind the relevant Company even if it shall subsequently be proved that the same were not in fact given on the relevant Company's behalf by any such signatory. (ff)All Forex Facility Contracts will incorporate the terms of the Master Agreement. (gg)Lloyds will not be under obligation to give a quotation for delivery on any date if the consequence of Lloyds entering into a Forex Facility Contract on the basis of such a quotation would be (a) to cause Lloyds' exposure calculated on a marked to market basis to exceed the amount of (Pounds)7,500,000 as set out in clause (bb)(i) above or (b) to cause Lloyds' Forex Exposure to exceed the amount stated in sub clause (bb)(ii) above or (c) to cause the Lloyds' Delivery Risk for that date to exceed the amount stated in sub-clause (bb)(iii) above. (hh)Lloyds will not be under any obligation to give any quotation under the Forex Facility if there shall have occurred in relation to any of the Companies, and be continuing, any such event as is described in Schedule 1 to the Master Agreement or any Event of Default hereunder. (ii)The Forex Facility shall terminate (in addition to the occurrence of an Event of Default hereunder) (but without prejudice to contractual obligations incurred thereunder by any of the Companies or Lloyds under the Forex Facility at any earlier time) immediately upon: (A)Lloyds or any of the Companies giving an Acceleration Notice under clause 5.02 of the Master Agreement; or (B)Any of the Companies being affected by any such event as is described in Schedule 2 to the Master Agreement. (jj)All payments by Lloyds or any of the Companies shall be made in freely transferable and immediately payable funds by such hour (local time) in the appropriate place of payment and to such agent as the payee shall direct, free and clear of any set-off, counterclaim, restriction, condition, tax, charge, withholding or deduction whatsoever. (kk)Unless satisfied and discharged as provided by clauses 3 and 5 of the Master Agreement, the respective obligations of Lloyds, and the Companies under each Forex Facility Contract shall be obligations which shall only be satisfied by the payment of the full amount of the currency bought or sold by it thereunder. Each Company shall on demand indemnify Lloyds in full against any costs liabilities losses or expenses incurred by Lloyds in operating the Forex Facility or arising out of the fulfilment by Lloyds of any obligation under any Forex Facility Contract. (ll)The following provisions of the Master Agreement, namely (a) clause 8 (assignment), (b) clause 9 (partial invalidity), (c) clause 11 (notices) (d) clause 12 (currency indemnity) and (e) clause 13 (waivers) shall (except where the context otherwise requires) apply to this agreement and to each Forex Facility Contract, as if set out in this letter but adjusted as appropriate to refer to this letter and each Forex Facility Contract. (mm)Subject to clause 13 of the Master Agreement (as incorporated by reference herein), time shall be of the essence of the obligations under all Forex Facility Contracts and the Forex Facility. (nn)For so long as this letter remains in full force and effect, Lloyds agrees with the Companies that it will not exercise any of its rights under the Master Agreement following the occurrence of a Schedule 1 Event or a Schedule 2 Event (as each is defined in the Master Agreement) save in any case where such Schedule 1 Event or Schedule 2 Event is equivalent to, or not materially different from, an Event of Default under this Letter. (e)The Guarantee Facility Subject to the terms and conditions of this agreement bonds, guarantees and indemnities may be issued in sterling and (subject to sub-clause (ii) below) Optional Currency(ies) in favour of third parties in accordance with the following terms and conditions: (i)The relevant Company shall notify Lloyds on the Notification Date applicable to the Guarantee Facility of the relevant Company's request for the issue of a bond, guarantee or indemnity, as the case may be, such notification to contain details of: the type of instrument required to be issued (whether bond, guarantee or indemnity); of the amount (or limit) of the bond, guarantee or indemnity which shall not exceed (Pounds)12,800,000 or the Equivalent Amount; the period for which the said bond, guarantee or indemnity will be required; the identity of the person or company to whom the bond, guarantee or indemnity is required to be issued and the expiry date of the bond, guarantee or indemnity to be provided; (ii)Lloyds shall use reasonable endeavours to but shall not be obliged to accede to any request for the issue of a bond, guarantee or indemnity in an Optional Currency and upon refusal of any such request Lloyds shall not be obliged to provide any reason or explanation for such refusal; (iii)Each Company hereby agrees that if Lloyds is required by another bank or financial institution providing facilities to the Companies immediately prior to the date of acceptance of this letter, to provide an indemnity or cash cover for any bond, guarantee or indemnity previously issued by such bank or financial institution (together referred to as "Issued Bonds") the indemnity or provision of cash cover given by Lloyds for any Issued Bonds shall be deemed to be a utilisation of the Guarantee Facility on the terms set out in this clause 4(e) and the aggregate maximum liability of Lloyds under all Issued Bonds shall be taken into account in the calculation of the Facility limit referred to in clause 3(b)(iii) and Group Total Outstandings. (iv)Each Company hereby jointly and severally irrevocably agrees and undertakes with Lloyds to indemnify Lloyds against all costs, claims, charges and expenses whatsoever that may be incurred by Lloyds as a result of issuing any bond, guarantee or indemnity pursuant to the terms of this agreement and further jointly and severally irrevocably undertakes to pay to Lloyds on demand all monies which Lloyds may at any time claim under the terms of this indemnity; (v)Any bond, guarantee or indemnity issued by Lloyds hereunder will be payable by Lloyds forthwith on demand being made on Lloyds by any beneficiary of any such bond, guarantee or indemnity and Lloyds will be entitled to be fully indemnified in accordance with the provisions of clause (iv) above in respect of such payment notwithstanding that such payment may not at the time of any such demand be properly due to such beneficiary and notwithstanding that the relevant Company may at any time dispute the validity of any such bond or payment; (vi)The relevant Company shall pay to Lloyds in respect of each bond, guarantee or indemnity issued by Lloyds hereunder such commission as Lloyds shall from time to time agree with the Company or, in the absence of any such agreement, such commission as is payable in accordance with Lloyds' standard terms and conditions; (vii)Any bond, guarantee or indemnity issued by Lloyds hereunder shall be issued in Lloyds' relevant standard form with any amendments agreed between Lloyds and the relevant Company. (viii)The Companies hereby jointly and severally irrevocably undertake to enter into any further or supplemental indemnity which Lloyds requires in connection with the issue of any particular bond, guarantee or indemnity in addition to the indemnity contained in (ii) above. Any Company or Companies may, with the prior written agreement of Lloyds and subject to such conditions as Lloyds may impose acting reasonably utilise any part of the Guarantee Facility not utilised for the provision of bonds, guarantees or indemnities hereunder, to cover the negotiation by Lloyds of cheques and bills of exchange payable abroad with recourse to any such Company or Companies. The gross aggregate amount outstanding in respect of such cheques and bills of exchange issued pursuant to the Guarantee Facility will not exceed the maximum aggregate amount, when aggregated with any bond, guarantees or indemnities, permitted to be outstanding in respect of the Guarantee Facility. The amount outstanding in respect of such cheques or bills of exchange will be the aggregate amount of the proceeds paid to any such Company or Companies for which the right of recourse still exists at any one time. (f)The Documentary Credit Facility Subject to the terms and conditions of this agreement, letters of credit may be issued in sterling and (subject to sub-clause (ii) below) Optional Currency(ies) in favour of third parties in accordance with the following terms and conditions: (i)The relevant Company shall notify Lloyds on the Notification Date applicable to the Documentary Credit Facility of the relevant Company's request for the issue of a letter of credit, such notification to contain details of: the amount (or limit) of the Letter of Credit (which shall not exceed (Pounds)3,300,000 or the Equivalent Amount); the period for which the said Letter of Credit will be required; the identity of the person or company to whom the Letter of Credit is required to be issued and the expiry date of the Letter of Credit to be provided; (ii)Lloyds shall use reasonable endeavours to but shall not be obliged to accede to any request for the issue of a Letter of Credit in an Optional Currency and upon refusal of any such request Lloyds shall not be obliged to provide any reason or explanation for such refusal; (iii)Each Company hereby jointly and severally irrevocably agrees and undertakes with Lloyds to indemnify Lloyds against all costs, claims, charges and expenses whatsoever that may be incurred by Lloyds as a result of issuing any Letter of Credit pursuant to the terms of this agreement and further jointly and severally irrevocably undertakes to pay to Lloyds on demand all monies which Lloyds may at any time claim under the terms of this indemnity; (iv)Any Letter of Credit issued by Lloyds hereunder will be payable by Lloyds forthwith on demand being made on Lloyds by any beneficiary of any such Letter of Credit and Lloyds will be entitled to be fully indemnified in accordance with the provisions of clause (iii) above in respect of such payment notwithstanding that such payment may not at the time of any such demand be properly due to such beneficiary and notwithstanding that the relevant Company may at any time dispute the validity of any such demand or payment, save in the case of Lloyds' gross negligence or wilful default; (v)The relevant Company shall pay to Lloyds in respect of each Letter of Credit issued by Lloyds hereunder such commission as Lloyds shall from time to time agree with the Company or, in the absence of any such agreement, such commission as is payable in accordance with Lloyds' standard terms and conditions; (vi)Any Letter of Credit issued by Lloyds hereunder shall be issued in Lloyds' relevant standard form with any amendments agreed between Lloyds and the relevant Company. (vii)The Companies hereby jointly and severally irrevocably undertake to enter into any further or supplemental indemnity which Lloyds requires in connection with the issue of any particular Letter of Credit in addition to the indemnity contained in (iii) above. Any Company or Companies may, with the prior written agreement of Lloyds and subject to such conditions as Lloyds may impose at its entire discretion utilise any part of the Documentary Credit Facility not utilised for the provision of letters of credit hereunder, to cover the negotiation by Lloyds of cheques and bills of exchange payable abroad with recourse to any such Company or Companies. The gross aggregate amount outstanding in respect of such cheques and bills of exchange issued pursuant to the Documentary Credit Facility will not exceed the maximum aggregate amount, when aggregated with any letters of credit, permitted to be outstanding in respect of the Documentary Credit Facility. The amount outstanding in respect of such cheques or bills of exchange will be the aggregate amount of the proceeds paid to any such Company or Companies for which the right of recourse still exists at any one time. (g)The Daylight Facility This facility will cover payments out made by any of the Companies on and from any account to a maximum of the aggregate limit set out in sub-clause 3(b)(vii) above and only to the extent that any outstandings in respect of any such payments made are repaid by the relevant Company or Companies in full on or before the close of business on the same day as the day on which such payments are made. (h)The CHAPS Facility This facility will cover sterling payment instructions telephoned by any Company to agents of Lloyds in order for such payments to be made by automated means under the CHAPS system. The maximum aggregate limit set out in sub-clause 3(b)(vi) above is the maximum total value of such instructions for payment on any one day. (i)The Credit Facility This facility will cover arrangements to cash any Company's cheques at other banks or branches of Lloyds other than City Office. The maximum aggregate limit set out in sub-clause 3(b)(viii) above is the maximum total value of cheques that may at any one time have been cashed but not yet forwarded to Lloyds' City Office for payment. (j)The BACS Facility This facility will cover computerised sterling payment instructions that may be delivered direct by any of the Companies to Bankers Automated Clearing Systems Limited. The maximum aggregate limit set out in sub-clause 3(b)(ix) above is the maximum total value of such instructions that may be given at any one time and the maximum total value that may be processed on any one day pursuant to such instructions. PART B THE INDIVIDUAL FACILITIES 5.Amount and Availability Subject to the terms hereof, Lloyds will at its sole discretion make cash available to Perkins Engines (Shrewsbury) Limited up to a maximum aggregate amount of (Pounds)20,000 (the "Shrewsbury Cash Facility") on any Business Day prior to the Expiry Date. 6.Terms of Operation This facility will cover the provision of cash to Perkins Engines (Shrewsbury) Limited for the purpose of filling or replenishing an automated cash dispensing machine or machines agreed between Perkins Engines (Shrewsbury) Limited and Lloyds. The aggregate limit detailed in clause 5 above is the maximum total amount of cash that may be made available to Perkins Engines (Shrewsbury) Limited from time to time for such purpose. PART C TERMS APPLICABLE TO FACILITIES (GROUP AND INDIVIDUAL) 7.Restrictions on Availability (a)Nothing contained in Clauses 4 to 6 above shall require Lloyds to make available any Group or Individual Facility or any part thereof which, on the terms of any notice or request requesting a utilisation of any such Group or Individual Facility by any Company: (i)will be due to be cancelled, or mature, or be repaid, as the case may be, at any date falling after the Expiry Date; (ii)will result in the Borrowing Base Amount exceeding the Financial Indebtedness Amount; (b)Nothing contained in Clauses 4 to 6 above shall require Lloyds to make available any Group or Individual Facility, or any part thereof where: (i)an Event of Default or, where the amounts outstanding under the Facility will be greater, as a result of such utilisation than the amounts outstanding under the Facility prior to such utilisation, Potential Event of Default, has occurred and is continuing; or (ii)the representations set out in Clause 10 are untrue on and as of the proposed date for any such utilisation. 8. Additional costs (a)If the application of or introduction of or any change in any applicable law, regulation, requirement, directive or any change in the interpretation thereof by any governmental, fiscal, monetary or other authority charged with the administration thereof or by any self-regulating organisation or court of competent jurisdiction (in any case whether or not having the force of law) shall subject Lloyds to any tax, duty or other charge with respect hereto or change the basis of taxation on any amounts payable to Lloyds hereunder (except in respect of tax on the overall net income of Lloyds or where such tax, duty or other charge is compensated for by the payment of any Additional Cost or by the operation of clause 15 of this Agreement) or impose, modify or deem applicable requirements in respect of any liquid asset, special or other deposit or prudential or cash ratio or other requirements against, or the allocation by Lloyds of capital in support of, any assets or liabilities or contingent liabilities of, deposits with or for the account of, or advances or commitments made by Lloyds, and this shall increase the cost to Lloyds of maintaining the Facilities or any of them or shall reduce the amount of principal or interest receivable by Lloyds or shall otherwise reduce the return to Lloyds hereunder by an amount which Lloyds deems material, then the Companies shall pay Lloyds jointly and/or severally upon demand such additional amounts as are necessary to compensate Lloyds against such increased cost or reduction. (b)If, circumstances arise which would or would upon the giving of notice result in a claim for indemnification pursuant to clause 8(a) above, then, without in any way limiting, reducing or otherwise qualifying the rights of Lloyds or any Company's obligations under such clause, Lloyds shall promptly upon becoming aware of the same notify the relevant Company thereof and, in consultation with such Company and to the extent that it can do so without prejudice to its own position, take reasonable steps to mitigate such effects on such Company of such circumstances Provided That Lloyds shall be under no obligation to take any such action if, in the bona fide opinion of Lloyds, to do so would have an adverse effect upon its business, operations or financial condition or be contrary to its policies. (c)All legal, valuation and other costs and expenses including any stamp and other duties and registration fees on a full indemnity basis and value added tax thereon incurred by Lloyds in connection with the preparation, negotiation, documentation, enforcement, administration and preservation of its rights under the Facilities shall be payable by the Companies jointly and/or severally on demand. 9. Conditions Precedent, guarantees and subordination (a)The obligations of Lloyds hereunder shall not come into effect unless and until it has received in form and substance satisfactory to it in respect of each of the Companies (i)an up to date copy of the certificate of incorporation and memorandum and articles of association of the Company, certified as a true copy by the Company Secretary or a certificate, signed by the Company Secretary, certifying that there has been no change in the memorandum and articles of the Company since the date on which the memorandum and articles of such Company were last produced to Lloyds; (ii)certified copies of the resolutions of the board of directors of the Company approving and authorising acceptance, execution and delivery of this letter and also in the case of the board resolutions nominating the person(s) authorised to sign this letter on its behalf, and the person(s) authorised to give and confirm notices of drawing and other communications required hereunder, together with their duly authenticated specimen signatures; (iii)such confirmation as Lloyds may reasonably require that all the obligations of the lenders under the Club Facility (as amended and restated on the date of this letter) have come into effect and all conditions precedent to the coming into effect of such obligations have been satisfied, save for the condition that the obligations hereunder shall have become effective; (iv)such legal opinion as Lloyds may reasonably require as to the validity and enforceability of the Varity Corporation Guarantee; (v)in respect of Varity Corporation an unlimited all monies guarantee from Varity Corporation in respect of the obligations of the Companies hereunder; (vi)the Subordination Agreement, duly executed by all the parties thereto. (b)All amounts owing to Lloyds under or pursuant to the Facilities shall at all times continue to be further secured by: (i)an unlimited all moneys omnibus guarantee in a form acceptable to Lloyds from each Guarantor Company in respect of the obligations hereunder of all other Companies; and (ii)the Master Agreement duly executed by the Companies. 10.Representations & Warranties (a)Each of the Companies hereby represents and warrants to Lloyds for its own part that: (i)it is duly incorporated and validly existing under the laws of England and Wales and has the power and as necessary corporate authorisations to enter into and perform its obligations hereunder and has complied with all material statutory and other legal requirements relative to its business; (ii)all action necessary to authorise its execution of this letter and the security documents required pursuant to the terms of this letter and its performance of its respective obligations hereunder and thereunder has been duly taken and neither such execution nor such performance will constitute or result in any material breach of any agreement, law, requirement or regulation; (iii)on execution of this letter the obligations expressed to be assumed by it constitute valid and binding obligations enforceable in accordance with their respective terms; (iv)the obligations assumed hereunder or pursuant to the Guarantee rank and will rank pari passu with all other existing and future unsecured and unsubordinated obligations (including contingent obligations) of the Company (save in respect of creditors preferred by law); (v)no material litigation, administrative or judicial proceedings are current, or to its knowledge presently pending or threatened against it or any of its Material Subsidiaries which if adversely determined is likely to have a material adverse effect on the business or financial condition of the Company; (vi)there has been no material adverse change in the business or financial condition of it or any of its Material Subsidiaries since the publication of the Original Financial Statement; (vii)no Event of Default has occurred and is continuing; and (viii)save as notified to Lloyds pursuant to clause 11E, each Eligible Receivable Company effects and maintains Credit Insurance in respect of at least 75% of its total receivables (excluding from the calcuation of total receivables for the purposes of this sub-clause Eligible Receivables supported by an Eligible Letter of Credit and Eligible Receivables where the customer from whom such Receivable is due is a ministry, office or department of Her Majesty's government) from time to time; (b)Each Company shall make the representations and warranties on the date hereof and shall be deemed to repeat the representations and warranties set out in clause 10(a) hereof on each day on which any Facility is utilised hereunder with reference to the facts and circumstances then existing. 11.Undertakings of the Companies A.From the Acceptance Date and for as long as Lloyds is under any obligation to make any of the Facilities available or for as long as any moneys or liabilities are due, owing or incurred to Lloyds hereunder each Company (a)shall not, and Perkins shall procure that no Material Subsidiary shall, without the prior written consent of Lloyds (i)materially change the nature of its business to that which is unrelated to the business as now conducted and which shall include, for the avoidance of doubt but without limitation, any change to its policy regarding the maintenance of credit insurance acceptable to Lloyds in respect of the sale of goods and the provision of services (and Lloyds hereby confirms that the current credit insurance is acceptable and agrees that if at any time Lloyds is dissatisfied with the credit insurance Lloyds shall consult with Perkins Limited and Perkins Limited shall take out such replacement insurance as Lloyds and Perkins Limited shall agree); (ii)save for Permitted Encumbrances, create or permit to subsist or arise any mortgage, charge, pledge or lien or other security interest or encumbrance (other than a lien arising solely by operation of law in the ordinary course of business) over any of its or such Material Subsidiary's present or future undertaking, property, revenue or assets; (iii)enter into or permit to subsist any transaction which, in legal terms, is not secured indebtedness but which in Lloyds' opinion acting reasonably has an economic or financial effect similar to that of secured indebtedness; (iv)save for Permitted Disposals, part with, sell, transfer, lease or otherwise dispose of (or attempt or agree to do any such thing) the whole or any material part of its or such Material Subsidiary's undertaking, property, revenue or assets (either by a single transaction or a number of transactions whether related or not) Provided that consent shall not be required for the sale or other disposal of its undertaking property revenue or assets referred to in this sub-clause where the aggregate book value during any financial year of such sales or other disposals does not exceed more than five per cent of its Published Net Worth; or (v)other than in the ordinary course of its business, give any guarantee or indemnity or any other form of undertaking or warranty to or for the benefit of, or lend any moneys to, any person Provided that the aggregate amount of any liability actual or contingent under such guarantees, indemnities, undertakings or warranties shall not at any time exceed (Pounds)5,000,000 and Provided Further that such liabilities shall be reported in the Company's account; and (b)shall supply to Lloyds: (i)as soon as practicable (and in any event within 150 days after the close of each of its financial years) copies of its financial statements (and in the case of Perkins the pro forma consolidated financial statements of the Perkins Group) and the accounts of such of its Material Subsidiaries as Lloyds may from time to time require for that financial year; (ii)in the case of Perkins only as soon as practicable (and in any event within 45 days after the end of each of its financial quarter as referred to in the Varity Calendar) the consolidated financial statements of the Perkins Group which statements shall be in form, substance and content satisfactory to Lloyds, such statements to include: (aa)an aged debtors analysis for such quarter relating to the existing Eligible Receivables; and (bb)in the case of Perkins, confirmation of those members of the Perkins Group which have become Material Subsidiaries or Eligible Receivable Companies either since the date of this letter (in respect of the first such confirmation) or since the immediately preceding such confirmation; (iii)in the case of Perkins within ten Business Days of the end of each Varity Calendar month deliver to Lloyds a Borrowing Base Certificate substantially in the form set out in Annex 4 or in such other form as Lloyds may from time to time reasonably require. Each Borrowing Base Certificate shall be certified by a duly authorised officer of Perkins to contain true and accurate calculations in all material respects of the amounts set out therein as at the Specified Date; and (iv)promptly on request, such other information regarding the financial condition of the Companies or any of their Material Subsidiary's as Lloyds may reasonably require; (c)shall ensure that the financial condition of the Perkins Group as evidenced by the most recent financial statements delivered pursuant to clause 11.A.(b) shall be such that: (i)the Consolidated Published Net Worth of the Perkins Group is equal to or in excess of the Minimum Amount for the relevant financial quarter; (ii)the ratio of the Financial Indebtedness to the Consolidated Published Net Worth is not more than 0.8:1; (iii)the ratio of PBIT to Interest Service Costs for the immediately preceding 12 month period is not less than 3:1. (d)shall ensure that: (i)each set of financial statements delivered by it pursuant to clause 11.A.(b) is prepared in accordance with accounting principles generally accepted in the United Kingdom from time to time and consistently applied, and in respect of the consolidated statements of Perkins that they are prepared on the same basis and in accordance with the same accounting principles (consistently applied) as the audited financial statements of the Companies from which they are composed; (ii)each set of unaudited financial statements delivered by it pursuant to clause 11.A.(b) is certified by a duly authorised officer of the Company as giving a true and fair view of its financial condition (or, in the case of financial statements of Perkins, the financial condition of the Perkins Group) as at the end of the period to which those financial statements relate and of the results of its (or, as the case may be, the Perkins Group) operations during such period; and (iii)each set of financial statements delivered by it pursuant to paragraph (i) of clause 11.A.(b) has been audited by auditors reasonably acceptable to Lloyds it being agreed that as the date hereof the current auditors of each Company are acceptable, other than the consolidated financial statements of the Perkins Group, which may, only for so long as such financial statements remain unaudited, be delivered to Lloyds in an unaudited form. (e)shall comply at all times with the covenants set out in sub-clause (c) above for so long as any Facilities are outstanding hereunder. (f) shall permit Lloyds, or any of its agents that Lloyds may require prior to the occurrence of an Event of Default up to four times in any one year, to enter upon any premises upon 24 hours notice and after the occurrence of such an Event of Default at any time without such notice and in either case within business hours to inspect any records as Lloyds or such agents shall require in order to assess: (i)prior to the occurence of an Event of Default the state of the Eligible Receivables or Inventory of any such Company; and (ii)following the occurrence of an Event of Default, any such matter as Lloyds shall require. (g)shall, immediately upon becoming aware of the same give Lloyds written notice of the occurrence of any Event of Default or any event or circumstance which, with the giving of notice and/or the passing of time, could become an Event of Default. B.Perkins and Lloyds shall negotiate in good faith with a view to agreeing such adjustments and/or amendments to the definitions contained in this clause 11 and/or to the ratios contained in this clause 11 which may be necessary or desirable in the event of any change in the accounting principles or policies applied by Perkins or any member of the Perkins Group consequent upon: (a)any change in applicable law; or (b)any court order in respect of Perkins or such member; or (c)any change in the, or new, accounting or financial reporting standards issued by the Accounting Standards Board or by any other prescribed body empowered to issue statements of accounting practice from time to time; or (d)any change in generally accepted accounting principles in England or in the jurisdiction in which such member is incorporated. If Perkins and Lloyds cannot agree what adjustment and/or amendment is appropriate then Perkins shall procure that each set of financial statements delivered pursuant to the terms hereof shall be prepared on the same basis as the financial statements delivered immediately prior thereto. C.Perkins Limited shall, within 21 days of receipt by Lloyds of the written confirmation referred to in clause 11A(b)(ii) showing a member of the Perkins Group incorporated in England and Wales to have become either a Material Subsidiary or an Eligible Receivable Company procure: (i)that such Material Subsidiary or Eligible Receivable Company becomes a Company for the purposes of this letter and a Guarantor Company by delivering to Lloyds a supplemental agreement (or agreements) duly executed by such Material Subsidiary or Eligible Receivable Company together with such documents as Lloyds may from time to time require to be delivered as conditions precedent under such supplemental agreements; and (ii)that Varity Corporation issue a guarantee in substantially the same form as the Varity Corporation Guarantee in respect of the obligations of such Material Subsidiary or Eligible Receivable Company as a Company. D.If, at any time, the Financial Indebtedness Amount exceeds (or it is anticipated by Perkins that, upon delivery of the next Succeeding Borrowing Base Certificate, it will exceed) the Borrowing Base Amount at such time, Perkins shall, or shall procure that it or any other Company shall, immediately repay or pre-pay (as the case may be) such part of such Financial Indebtedness Amount as will result in the Financial Indebtedness Amount being equal to or less than the Borrowing Base Amount. For the purposes of determining compliance with this Clause 11D the Financial Indebtedness Amount shall, after any prepayment made pursuant to this Clause 11D, be adjusted so as to take into account such payment. E.Perkins Limited shall notify Lloyds in writing at least thirty days prior to any Eligible Receivable Company effecting any change to its policy regarding the maintenance of Credit Insurance and shall not change such policy (or permit such policy to be changed) without the consent of Lloyds, such consent not to be unreasonably withheld. 12. Events of Default In the event that: (a)a Company fails to pay any sum due hereunder on its due date or if such failure to pay is due solely to a technical or other manifest error in any banking or payment system or any administrative error of any Company, such sum is not paid within three business days of the date it was otherwise due; (b)a Company defaults in the due performance or observance of any obligation accepted or undertaking given by it to Lloyds or any representation warranty or statement made or deemed made by a Company herein or pursuant hereto proves to be incorrect or misleading in any material respect and if in the opinion of Lloyds is capable of remedy, and is not so remedied within 14 days of notice thereof being given to such Company; (c)any other Financial Indebtedness of any Company or Guarantor or Material Subsidiary becomes due prior to the stated due date for payment thereof or any Company defaults in the payment when due of any Financial Indebtedness or defaults in paying on the due date any sum payable by it under any guarantee, indemnity or similar undertaking given by it or steps are taken to enforce any security for any of its liabilities, present or future Provided Always that the provisions of this sub-clause (c) shall not apply to any Financial Indebtedness of Varity Corporation which is in aggregate less than US$20,000,000 or any Financial Indebtedness of any Company which is, in aggregate less than (Pounds)1,000,000 or any Financial Indebtedness which is being disputed in good faith Provided Always reserves exist to meet in full such disputed Financial Indebtedness; (d)an event of default occurs under the terms of the Club Facility; (e)an encumbrancer takes possession or a receiver or similar official is appointed of any of the assets or undertaking of any Company or a petition is presented for the making of an administration order or any judgment made against any Company is not paid out, stayed or discharged within 14 days; (f)an order is made or an effective resolution is passed for the winding up of any Company (other than for a solvent winding up or reconstruction on terms approved by Lloyds, such approval not to be unreasonably withheld) or any Company is or becomes insolvent or stops or threatens to stop payment of its debts generally or is deemed unable to pay its debts (within the meaning of section 123 of the Insolvency Act 1986) or the directors of any Company become obliged to convene a meeting pursuant to section 142 of the Companies Act 1985 or any Company makes or seeks to make any arrangement or composition with its creditors (whether under Part I of the Insolvency Act 1986 or otherwise); (g)any Company or, where applicable, Varity Corporation, is in breach of any of its obligations under the Varity Corporation Guarantee, the guarantee referred to in Clause 9(b)(i) above or the Master Agreement referred to in Clause 9(b)(ii) above or any other agreement or document executed pursuant to or in connection with this letter or any such document or agreement ceases to remain in full force and effect; (h)save in respect of a solvent winding up or reconstruction on terms approved by Lloyds, such approval not to be unreasonably withheld, any Company ceases or threatens to cease to carry on its business in the normal course or fails to maintain or breaches any material franchise, licence or right necessary to conduct its business or breaches any legislation relating to its business in any material respect, which in the reasonable opinion of Lloyds might have a material adverse effect on its security, including without limitation any applicable environmental protection laws and where such failure or breach in the opinion of Lloyds if capable of remedy, is not remedied within 14 days of notice thereof being given to such Company; (i)Perkins or Perkins Limited ceases to be under the control of Varity Corporation within the meaning of Section 840 of the Income and Corporation Taxes Act 1988; (j)any of the above events contained in sub-clause (e) and (f) mutatis mutandis occur or proceedings analogous or equivalent thereto arise in relation to Varity Corporation (including but without limitation any proceedings commenced under Chapter 11 of the Bankruptcy Reform Act 1978); (k)VEL varies, cancels or revokes the Primary Licence Agreement or VEL, Perkins Limited or PEG give notice terminating or otherwise terminate the Primary Licence Agreement; (l)VEL breaches the agreement referred to in clause 6(a)(viii) of the letter dated 30th September 1993 (as if such letter had, for the purposes of this reference, not been amended and re-stated); or (m)in the reasonable opinion of Lloyds there is a material adverse change in the financial condition of any Company, Guarantor or Material Subsidiary which might reasonably be expected in the opinion of Lloyds to adversely affect the ability of any Company or Guarantor to perform its obligations hereunder, then Lloyds shall have the right at any time or times thereafter to declare its commitments hereunder cancelled (including for the avoidance of doubt any commitment it may at such time have to make any Facility or part thereof available following a request for the same by any Company) and/or all amounts then outstanding hereunder payable on demand (where such amounts are not already payable on demand under the terms hereof), whereupon such commitments shall be so cancelled and/or such outstandings shall be so payable, and/or to declare the Facilities immediately due and payable, whereupon each Company shall pay to Lloyds all amounts payable hereunder including, but not limited to: (i) the total principal amount outstanding and attributable to it under the Overdraft Facility, the Money Market Facility, the Daylight Facility, the CHAPS Facility, the BACS Facilities and the Shrewsbury Cash Facility in the currency(ies) advanced together (where applicable) with accrued interest thereon; (ii)an amount sufficient to provide immediate cash cover (being the aggregate face amounts of any or all Bills outstanding) for all Bills then made available under the Acceptance Credit Facility. (iii)an amount sufficient to indemnify Lloyds under the Forex Facility for any costs which Lloyds incurs by covering through a foreign exchange market chosen by it the effects on Lloyds' foreign exchange position resulting from the cancellation of any Forex Facility Contracts; (iv)an amount to be deposited in an account(s) in the name of Lloyds, representing the aggregate principal amount of all amounts which Lloyds may be or become liable to pay under any bond, guarantee or indemnity issued by Lloyds under the Guarantee Facility and all letters of credit or other documentary credits then made available under the Documentary Credit Facility and the Credit Facility, with the intent that such deposit(s) shall be held by Lloyds as security for such Company's obligations or contingent obligations as the case may be, to reimburse Lloyds in respect of amounts paid by it under any such bond, guarantee, indemnity, letter of credit or other documentary credit; Interest will be allowed on the amount(s) deposited at Lloyds' appropriate bid rates(s) from time to time. Each Company hereby undertakes and agrees at Lloyds' first request to complete such documentation and do such other things as Lloyds shall require in order to perfect the aforesaid security. Lloyds shall, if it deems appropriate, give Acceleration Notices under clause 5.2 of the Master Agreement. If any amount owing by a Company is not paid when due hereunder (including under this clause) that Company shall pay to Lloyds on demand interest on such sum (whether before or after judgment) at 1% per annum above the rate or rates of interest from time to time payable by the companies to Lloyds pursuant to clause 4 hereof, or, if Lloyds shall so determine, the cost to Lloyds as certified by Lloyds of funding such sum on the London interbank market for such period or consecutive periods as Lloyds in its sole discretion may select, in either respect, running from the date of such default to the date of receipt of such sum in full by Lloyds. Interest, if unpaid, shall be added to the sum in default on the last day of each such period or at 3 monthly intervals whichever is more frequent. 13.Indemnities The Companies shall jointly and severally indemnify Lloyds, without prejudice to any of Lloyds' other rights hereunder, against any loss or expense as certified by Lloyds including legal expenses on a full indemnity basis any loss arising from the funding by Lloyds of the Facilities which Lloyds may incur or sustain as a consequence of (a) the occurrence of any Event of Default or any failure by such Company to pay any sum demanded by Lloyds as a result thereof, (b) any repayment of any drawing or part thereof being made otherwise than on the last day of its Interest Period, or (c) any amount payable to Lloyds hereunder in one currency being converted into another currency, whether pursuant to any judgment or order or otherwise. 14. Notices (a)Each communication to be made hereunder shall be made in writing but, unless otherwise stated, may be made by facsimile (followed by a confirmation copy to be sent by post within one week thereafter) or letter. (b)Any communication or document to be made or delivered by one person to another pursuant to this Agreement shall (unless that other person has by fifteen days' written notice to Lloyds specified another address) be made or delivered to that other person at the address identified herein and, in the case of any communication made by facsimile, shall be deemed to have been made or delivered on receipt (if received during business hours, or on the next succeeding business day, if received out of business hours) and in such case may be relied or acted upon immediately notwithstanding the provisions of clause 14(a) or, in the case of any communication made by letter, when left at that address or (as the case may be) two days after being deposited in the post by letter, when left at that address or (as the case may be) two days after being deposited in the post postage prepaid in an envelope addressed to it at that address. 15.Payments (a)All payments due from the Companies (or any of them) hereunder shall be made free and clear of any set-off, counterclaim, restriction or condition whatsoever, and without any deduction in respect or taxes, levies, fees, duties, imposts, charges or withholdings of any nature now or hereafter imposed. In the event that any Company is compelled to make any such deduction, as aforesaid, it will pay Lloyds in the same manner and by the same time such additional amounts as may be necessary in order that the actual amounts received by Lloyds shall equal the amounts which would have been received if no deduction had been made. In such event such Company shall provide Lloyds within thirty days of the date of such payment with a certificate evidencing the payment of such tax or other deduction. (b)If a Company makes a payment under clause 15(a) for the account of Lloyds and Lloyds, in its sole opinion, determines in good faith that it has received or been granted a credit against or relief or remission for, or repayment of, any tax paid or payable by it in respect of or calculated with reference to the deduction or withholding or other matter giving rise to such payment, Lloyds shall, to the extent that it can do so without prejudice to the retention of the amount of such credit, relief, remission or repayment, pay to such Company the amount as Lloyds shall, in its sole opinion, have determined to be attributable to the deduction or withholding or other matter which will leave Lloyds (after such payment) in no better or worse position than it would have been in if such Company had not been required to make such deduction or withholding. Nothing herein contained shall interfere with the right of Lloyds to arrange its tax affairs in whatever manner it thinks fit or oblige Lloyds to disclose any information relating to its tax affairs or any computations in respect thereof or require Lloyds to do anything that would prejudice its ability to benefit from any other credits, or reliefs or remissions for, or repayments to which is may be entitled. (c)Each sum due from the Companies (or any of them) hereunder in a currency other than sterling shall be paid in freely transferable and same day funds to such bank account in the relevant financial centre as Lloyds shall from time to time require by such hour local time as may be necessary to ensure payment for value the due date. 16.Miscellaneous (a)No failure or delay on the part of Lloyds to exercise its rights shall operate as a waiver thereof nor shall any single exercise or any partial exercise or waiver of any such right exclude any other or further exercise thereof. (b)Without prejudice to Lloyds' rights under any set-off arrangements Lloyds may at any time whether before or after any demand hereunder for payment without notice to the Companies apply any moneys standing to the credit of the Companies, or any one of them, on any account and whether denominated in sterling or in any other currency in or towards satisfaction of any liabilities of the Companies, or any one of them, under this letter. (c)If the due date for any payment or the last day of any Interest Period would otherwise fall on a non-Business Day, the effective date shall be the next succeeding Business Day. (d)This letter shall be binding upon and shall inure to the benefit of Lloyds and the Companies and their respective successors and assigns, provided that Lloyds may only assign any of its rights or transfer any of its obligations hereunder with the prior written consent of Perkins, such consent not to be unreasonably withheld or delayed and that no Company may assign any of its rights or transfer any of its obligations hereunder without the prior written consent of Lloyds such consent not to be unreasonably withheld or delayed. (e)All calculations in respect of interest (including commitment interest) due to Lloyds under the Facilities shall be on the basis of the actual number of days elapsed and a 360 day year in the case of any Optional Currency other than sterling and a 365 day year in the case of sterling. (f)In this letter reference to any statutory provision shall be deemed to mean and to include a reference to any modification or re-enactment thereof for the time being in force. (g)This letter shall be governed by and construed in accordance with English law. 17. Period of Offer The offer of the Facilities is open for acceptance by returning the attached duplicate of this letter with the acknowledgement duly signed by authorised officers of each Company to be received by Lloyds not later than 13th April 1995 failing which the offer will lapse. 18.Counterparts This letter may be accepted in any number of counterparts and by different parties hereto on separate counterparts, each of which, when signed, shall constitute an original but all the counterparts together shall constitute one and the same letter. Yours faithfully For and on behalf of Lloyds Bank Plc /s/ S.W. Baker .................... We hereby acknowledge and accept the terms of your offer dated 13th April 1995 of which this is a duplicate and agree all the terms and conditions therein contained. Dated this 13th day of April 1995 Pursuant to a resolution of the Board dated 11th April 1995 /s/ E.M. Thompson .................................. For and on behalf of Perkins Group Limited We hereby acknowledge and accept the terms of your offer dated 13th April 1995 of which this is a duplicate and agree all the terms and conditions therein contained. For and on behalf of: Perkins Group Limited ...................... /s/ E.M. Thompson Perkins Engines Group Limited ...................... /s/ E.M. Thompson Perkins Limited ...................... /s/ E.M. Thompson Perkins Engines (Shrewsbury) Limited ...................... /s/ E.M. Thompson Perkins Technology Limited ...................... /s/ E.M. Thompson Perkins Compact Engines Limited ...................... /s/ E.M. Thompson Perkins Engines Limited ...................... /s/ E.M. Thompson Perkins Engines (Peterborough) Limited ...................... /s/ E.M. Thompson Perkins Power Sales and Service Limited ..................... /s/ E.M. Thompson Dorman Diesels Limited ....................... /s/ E.M. Thompson Perkins Engines (Stafford) Limited ........................ /s/ E.M. Thompson ANNEX 1 THE COMPANIES Company Name Company Number Registered Office - ------------ -------------- ----------------- Perkins Group Limited 2388892 Eastfield Peterborough PE1 5NA Perkins Engines Group 771951 Eastfield Limited Peterborough PE1 5NA Perkins Limited 624567 Eastfield Peterborough PE1 5NA Perkins Engines 1757837 Eastfield (Shrewsbury) Limited Peterborough PE1 5NA Perkins Technology 2388841 Eastfield Limited Peterborough PE1 5NA Perkins Compact 2388839 Eastfield Engines Limited Peterborough PE1 5NA Perkins Engines Limited 2388858 Eastfield Peterborough PE1 5NA Perkins Engines 2388848 Eastfield (Peterborough) Limited Peterborough PE1 5NA Perkins Power Sales 2388859 Eastfield and Service Limited Peterborough PE1 5NA Dorman Diesels Limited 1253490 Eastfield Peterborough PE1 5NA Perkins Engines 2010016 Eastfield (Stafford) Limited Peterborough PE1 5NA F Perkins Limited 265987 Eastfield Peterborough PE1 5NA Perkins International 3026612 Eastfield Limited Peterborough PE1 5NA Perkins Parts Limited 3026611 Eastfield Peterborough PE1 5NA ANNEX 2 Additional costs requirements The cost of compliance with existing requirements from the Bank of England for the purpose of clause 3(b) of this letter will be calculated save where stated below in relation to each Interest Period by reference to the circumstances existing on the first day of each Interest Period and in the case of an Interest Period longer than 3 months at 3 monthly intervals from the commencement of the Interest Period in accordance with the following formula: A B + C (B - E) + D (B - F) per cent per annum --------------------------- 100 - (A + D) Where: A is the percentage of eligible liabilities which Lloyds is from time to time required to maintain as an interest-free cash deposit with the Bank of England to comply with cash ratio requirements. B is the percentage rate per annum at which sterling deposits are offered to Lloyds for the relevant Interest Period (or remainder thereof) or 3 months whichever is the shorter in the London interbank market at or about 11.00am for an amount equivalent to, or comparable with (in the judgment of Lloyds) the relevant drawing. C is the percentage of eligible liabilities which Lloyds is from time to time required by the Bank of England to maintain as secured money with members of the London Discount Market Association ("LDMA") and/or as secured call money with money brokers and gilt-edged market makers recognised by the Bank of England. D is the percentage of eligible liabilities which Lloyds is required from time to time to maintain as interest-bearing special deposits with the Bank of England. E is the percentage rate per annum at which members of the LDMA bid for sterling deposits of an amount equivalent to, or comparable with (in the judgment of Lloyds) the relevant drawing as a callable fixture from Lloyds for the relevant Interest Period (or remainder thereof) or 3 months whichever is the shorter at or about 11.00am or, if lower, B. F is the percentage rate per annum payable by the Bank of England to Lloyds on interest-bearing special deposits or, if lower, B. 1.The percentages used in A, C and D above shall be those required to be maintained on the first day of each Interest Period and in the case of an Interest Period longer than 3 months, on the first day of each 3 monthly interval from the commencement of the Interest Period. 2.In the application of the above formula, A, B, C, D, E and F will be included in the formula as figures and not as percentages eg if A = 0.5% and B = 12%, AB will be calculated as 0.5 x 12 and not as 0.5% x 12%. 3.Calculations will be made on the basis of a 365 day year. 4.If the resulting figure is positive and 1/32% per annum or more then the rate of additional interest payable under clause 3(a) of this letter shall be rounded if necessary to the nearest whole multiple of 1/16% per annum. 5.If the resulting figure before rounding is less than 1/32% per annum then no additional interest will be payable. 6.All sums due are payable to Lloyds without deduction on the last day of each Interest Period and, additionally, in the case of an Interest Period in excess of 3 months, at 3 monthly intervals from the start of such Interest Period. If there is any change in the requirements of the Bank of England or any central bank or other fiscal monetary or other authority clause 8(a) of this letter will apply and it may become necessary to cease to use the above formula. ANNEX 3 The Guarantor Companies Company Name Company Number Registered Office - ------------ -------------- ----------------- Varity Corporation Perkins Group Limited 2388892 Eastfield Peterborough PE1 5NA Perkins Engines Group 771951 Eastfield Limited Peterborough PE1 5NA Perkins Limited 624567 Eastfield Peterborough PE1 5NA Perkins Engines 1757837 Eastfield (Shrewsbury) Limited Peterborough PE1 5NA Perkins Technology 2388841 Eastfield Limited Peterborough PE1 5NA Perkins Compact 2388839 Eastfield Engines Limited Peterborough PE1 5NA Perkins Engines Limited 2388858 Eastfield Peterborough PE1 5NA Perkins Engines 2388848 Eastfield (Peterborough) Limited Peterborough PE1 5NA Perkins Power Sales 2388859 Eastfield and Service Limited Peterborough PE1 5NA 5NA Perkins Engines 2010016 Eastfield (Stafford) Limited Peterborough PE1 5NA Dorman Diesels Limited 1253490 Eastfield Peterborough PE1 5NA F Perkins Limited 265987 Eastfield Peterborough PE1 5NA Perkins International 3026612 Eastfield Limited Peterborough PE1 5NA Perkins Parts Limited 3026611 Eastfield Peterborough PE1 5NA Annex 4 Perkins Group Limited Varity Calendar month ended 199[ ] Reference is made to the Facility Letter dated 30th September 1993 as amended and restated on [ ] April 1995 (as modified and supplemented and in effect from time to time the "Amended and Restated Facility Letter") addressed by Lloyds Bank Plc to Perkins Group Limited and others. Terms used, but not defined, herein and in the annexure hereto have the respective meanings given to them in the Amended and Restated Facility Letter. This certificate is delivered with respect to the calendar month identified above and the last day of such calendar month is therefore the Specified Date. Pursuant to Clause 11A(b)(iii) of the Amended and Restated Facility Letter the undersigned, in all material respects [ ], hereby certifies that the annexure hereto is a true and accurate calculation of the Borrowing Base Amount as at the Specified Date determined in accordance with the requirements of the Amended and Restated Facility Letter. All Inventory covered by this certificate has been produced in compliance with all applicable laws. IN WITNESS WHEREOF, the undersigned, in his capacity as [ ] of Perkins Group Limited, has caused this certificate to be delivered on behalf of Perkins Group Limited this day of 199[ ] Name Annexure PERKINS GROUP LIMITED Varity Calendar Month ended 199[ ] RECEIVABLES A.Aggregate amount of all Receivables payable to any obligor (Pounds) B.Aggregate amount of all Receivables referred to in item (A) above that do not constitute Eligible Receivables as a result of paragraphs (a) through (g) of the definition of Eligible Receivables (Pounds) C.Aggregate amount of all otherwise ineligible Receivables included in Eligible Receivables as a result of the proviso to the definition of Eligible Receivables (Pounds) D.Aggregate amount of all Eligible Receivables (item (A) minus item (B) plus item (C)) (Pounds) E.80% of item (D) (Pounds) INVENTORY F.Aggregate value (valued at the lower of cost price or market value in accordance with UK Gaap, except that cost price shall be determined on a first-in-first-out basis) of all Inventory (Pounds) G.Aggregate value of all Inventory referred to in item (F) above that does not constitute Eligible Inventory as a result of paragraphs (a) through (f) of the definition of Eligible Inventory (Pounds) H.Aggregate amount of all Eligible Inventory (item (F) minus item (G)) (Pounds) I.45% of item (H) (Pounds) BORROWING BASE CERTIFICATE J.Borrowing Base Amount equals the sum of item (E) plus item (I) (Pounds) FINANCIAL INDEBTEDNESS CAPACITY ("Ca") K.Financial Indebtedness Amount as at the Specified Date (Pounds) J - K = Ca (Pounds) Notes: Note 1: In each case, reference to an "amount" of Receivables means, for the purposes of this annexure, the Sterling amount if the Receivables are denominated in sterling or, if the Receivables are denominated in another currency, the sterling equivalent thereof as at the date of the certificate unless a foreign exchange contract has been entered into in respect of such amount in which case the sterling equivalent shall be the sterling amount to be realised from such foreign exchange contract. Note 2: If Ca is a positive number, a notice of drawdown may (subject to the terms of the Amended and Restated Facility Letter) be submitted Provided Always that the Financial Indebtedness Amount if calculated after the making of the Advance requested in such notice of drawdown would not result in a breach of Clause 7 hereof and Provided Further that even where Ca is a positive number, no such notice may be submitted if, pursuant to Clause 11D, Perkins anticipates that on delivery of the next succeeding Borrowing Base Certificate, Ca will be a negative number until Perkins has complied with the provisions of Clause 11D. ANNEX 5 The Master Agreement DATE 1995 (1)LLOYDS BANK PLC (2)PERKINS LIMITED MASTER AGREEMENT relating to forward foreign exchange contracts providing for netting by novation and for acceleration of payment in certain events CAMERON MARKBY HEWITT Sceptre Court 40 Tower Hill London EC3N 4BB Tel: 071-702 2345 Fax: 071-702 2303 Telex: 925779 (PAM/6828e) AN AGREEMENT made the day of 199 BETWEEN the following parties (hereinafter together referred to as the "Parties" and each individually as a "Party"), namely (1)PERKINS LIMITED incorporated in England and Wales with Registered Number 624567 (hereinafter referred to as the "Customer") of the one part and (2)LLOYDS BANK Plc incorporated in England and Wales with Registered Number 2065 (hereinafter referred to as the "Bank") of the other part WHEREAS the Parties have agreed that their respective obligations under certain Forward Foreign Exchange Contracts (as hereinafter defined) shall as hereinafter provided be satisfied and discharged and replaced by such new obligations as are herein described and that such new obligations and the obligations of the Parties under certain other contracts may in certain circumstances and shall in others be accelerated as hereinafter provided. NOW IT IS HEREBY AGREED by and between the Parties as hereinafter set forth: Interpretation 1.1The headings to the clauses hereof and the Schedules hereto shall not affect the construction of this Agreement. 1.2References in this Agreement to statutes or regulations made under statutes shall extend to such statutes or regulations as from time to time hereafter modified or re-enacted. 1.3References in this Agreement to numbered clauses and Schedules are to be construed as references to clauses of and Schedules to this Agreement. 1.4References in this Agreement to a time of day are references to the time of day in London. 1.5In this Agreement, save where inconsistent with the context or subject matter, the following expressions shall have the following meanings, that is to say: "Acceleration Date" means the date on which a Party receives and Acceleration Notice or is affected by a Schedule 2 Event. "Acceleration Notice" means a notice given under clause 5.2. "Acceleration Time" means either the time when the Affected Party receives an Acceleration Notice or the time when a Schedule 2 Event takes place. "Affected Party" means the Party to which a particular Schedule 1 Event or a Schedule 2 Event applies. "Business Day" means a day on which banks and the foreign exchange market are open for dealings in foreign exchange in London and, in any case where a Currency other than Sterling is required to be converted (whether actually or notionally) or paid, in the principal financial centre of the Currency concerned. In the case of European Currency Units Business Day means a day on which banks and the foreign exchange markets are open for dealings in foreign exchange in London and which is not an ECU non-settlement holiday (howsoever described). "CLSB Bank" means a bank which is a member of the Committee of London and Scottish Banks (or any successor organisation). "Currency" includes units of account (such as but not limited to European Currency Units) and Sterling. "Forex Accounts" means the accounts to be maintained by the Parties under clause 2. "Forward Foreign Exchange Contract" means a contract between the parties under which one Party agrees to buy from or sell to the other Party an amount of one Currency in exchange for an amount of another Currency and both such amounts are to be paid or delivered on the same date, such date being fixed at the time such contract is entered into, save that none of the following shall be treated as a "Forward Foreign Exchange Contract" for the purposes hereto: (a)a contract under which the Settlement Date is the date of entry into such contract or the next following Business Day, (b)a contract entered into at a time when a Party has notice that a meeting of the creditors of the other Party has been summoned under section 98 of the Insolvency Act 1986 or that a petition for the winding up of the other Party is pending, (c)a contract made by either party by, from or through an office or branch outside England and Wales, (d)a contract which arises by virtue of or pursuant to the exercise of a contractual option granted by one Party to the other Party for the delivery of an amount of one Currency against an amount of another Currency following the exercise of such option. "Gross Forex Contract" means a contract which either: (a)is a Forward Foreign Exchange Contract which at the material time has not become a Novated Forex Contract or (b)would be a Forward Foreign Exchange Contract but for the fact that the Settlement Date is the date of entry into such contract or the next following Business Day. "Insolvency Rate" means the rate of interest from time to time prescribed by regulations made under the Insolvency Act 1986 for the purpose of proof in the winding up of an English company. "Novated Forex Contract" means a Forward Foreign Exchange Contract the obligations under which have been satisfied and discharged in accordance with clause 3.1, 3.2 or 3.4 and replaced by obligations under clause 3.3. "Post-Agreement Contract" means a Forward Foreign Exchange Contract entered into after the execution hereof. "Pre-Agreement Contract" means a Forward Foreign Exchange Contract entered into before the execution hereof and having a Settlement Date after the day referred to in clause 2.2. "Reference Bank" means (in a case where the Bank is the Affected Party) such CLSB Bank as the Customer shall select or (in a case where the Customer is the Affected Party) the Bank. "Relevant Debt" means indebtedness incurred (other than interest accrued but not yet payable) in respect of (i) borrowed money, (ii) any bond, note, loan stock, debenture, debenture stock or similar instrument, (iii) acceptance credit facilities, (iv) the price of acquiring any goods to the extent that the payment thereof is deferred for more than six months after delivery of such goods, (v) leases (other than in respect of land and buildings) entered into primarily as a method of raising finance or of financing the acquisition of the asset leased (but excluding financing charges or notional amounts of interest thereunder) (vi) guarantees and other assurances against financial loss in respect of the indebtedness (within categories (i) to (v) (inclusive) above) of any person. "Relevant Finance Contract" means any contract between the Parties under which Relevant Debt is or may become payable. "Relevant Petition" means a petition to a court of competent jurisdiction in the United Kingdom to wind up, liquidate or dissolve either of the Parties. "Schedule 1 Event" means any event specified in Schedule 1. "Schedule 2 Event" means any event specified in Schedule 2. "Settlement Date" means for each Forward Foreign Exchange Contract and the related replaced payment obligation under clause 3 and for each Gross Forex Contract, the date agreed under such Forward Foreign Exchange Contract or Gross Forex Contract as the date of delivery or payment of the Currencies bought and sold thereunder. "Sterling" means lawful currency of the United Kingdom. "this Agreement" means this agreement and the Schedules hereto and includes the same as from time to time modified by agreement between the Parties. "Unaffected Party" means the Party which is not the Affected Party in relation to a particular Schedule 1 Event or a Schedule 2 Event. "Working Day" means a day on which Banks in London are open for the transaction of all normal classes of business transacted in Sterling. Accounting Records 2.1The Bank shall maintain separate accounts (being the "Forex Accounts" hereinbefore defined) in its books in the name of the Customer for each Settlement Date and in respect of each Currency bought or sold by the Bank under Forward Foreign Exchange Contracts. 2.2Before 10.00 am on the seventh day after the date hereof, the Bank shall write up the Forex Accounts relative to all Forward Foreign Exchange Contracts entered into prior to the execution hereof and having a Settlement Date after that day (being the "Pre-Agreement Contracts" as hereinbefore defined). 2.3Following its entry into a Forward Foreign Exchange Contract after the execution hereof (being a "Post-Agreement Contract" as hereinbefore defined) the Bank shall make entries in the Forex Accounts in respect thereof. Such entries shall be made as soon as practicable after the entry into the relevant Forward Foreign Exchange Contract and in any event by 10.00 am on the second Working Day following the date of entry into such contract. 2.4Such writing up and making of entries as are required under clauses 2.2 and 2.3 shall consist of: (a)a credit entry in that one of the Forex Accounts for the relevant Currency and the relevant Settlement Date for the amount of Currency sold by the Bank under the Relevant Forward Foreign Exchange Contract (b)a debit entry in that one of the Forex Accounts for the relevant Currency and the relevant Settlement Date for the amount of Currency bought by the Bank under the relevant Forward Foreign Exchange Contract and (c)where such credit entry or debit entry is the first or only entry in a Forex Account for a particular Settlement Date and Currency, the entry of the credit or debit amount as a credit, or as the case may be, debit balance and (d)where the entry is the second or subsequent entry in the particular Forex Account, the recording of the running debit or credit balance on such Forex Account. 2.5The Bank may make alterations to the Forex Accounts maintained by it in order to correct any error observed by it, and shall make such alterations in order to correct any error drawn to its attention by the Customer. 2.6The Customer shall also maintain, write up and make entries in Forex Accounts in its books in accordance with the provisions of clauses 2.1 to 2.5 (inclusive) (but in their application to the Forex Accounts to be maintained by the Customer substituting "Customer" for "Bank" and "Bank" for "Customer" wherever they appear). 2.7The Forex Accounts maintained by each Party may be written up manually or by any mechanical means or on an electronic database as the Party concerned sees fit. 2.8Each Party is to be at liberty to maintain in respect of Forward Foreign Exchange Contracts such other records or accounts apart from the Forex Accounts as it may consider appropriate for the purposes of risk management, measuring Currency Exposure, compliance with regulatory requirements or any other purpose whatsoever. The obligations of the Parties under this Agreement shall not be affected or varied by any such other records or accounts being maintained on a basis which is inconsistent with the terms of this Agreement. 2.9References herein to entries made in or balances on the Forex Accounts are, in any case where the same have been incorrectly maintained or written up, references to the entries which should have been made therein and the balances which should have appeared thereon if they had been correctly maintained or written up in accordance with clauses 2.1 to 2.6 (inclusive). 2.10If there shall be any failure or delay on the part of a Party in writing up the Forex Accounts or in making entries therein (that is to say within the time allowed under any relevant provision of clauses 2.1 to 2.6 inclusive), references herein to the balances on Forex Accounts at any particular time shall be construed as references to the balances which would, but for such failure or delay, have appeared thereon at the relevant time. 2.11Each Party may at any time by notice in writing require the other Party to supply it with information as to the balance in a specified Currency for a specified Settlement Date shown by the Forex Accounts maintained by the other Party. The other Party shall comply with such requirement as soon as reasonably practicable and in any event before close of business on the Working Day next following the date on which it receives such notice. 2.12Each Party hereby confirms to the other that it has the capacity (including, without limitation and where appropriate, the requisite computer programmes and capacity) to maintain Forex Accounts in accordance with the foregoing provisions of this clause, and undertakes that it will ensure that it will retain such capacity for so long as may be requisite for it to maintain the Forex Accounts in compliance with this Agreement. Discharge of Forward Foreign Exchange Contracts and their Novation under this Agreement 3.1If at the time referred to in clause 2.2 no Relevant Petition shall have been presented, each Party's obligations in respect of each of the Pre-Agreement Contracts shall by virtue of this agreement, automatically and without the need for further action of any kind by the Parties or either of them, be satisfied and discharged and replaced by the obligation to make payment on the Settlement Date of such Pre-Agreement Contract of the amount (if any) to be paid by that Party in accordance with clause 3.3 to the intent that this clause 3.1 shall be read in the light of clause 3.5. 3.2If at any time by which in accordance with clause 2.3 entries should have been made in the Forex Accounts in respect of a particular Post-Agreement Contract no Relevant Petition shall have been presented, each Party's obligations in respect of that Post-Agreement Contract shall by virtue of this Agreement, automatically and without the need for further action of any kind by the Parties or either of them, be satisfied and discharged and replaced by the obligation to make payment on the Settlement Date of such Post-Agreement Contract of the amounts (if any) to be paid by that Party in accordance with clause 3.3 to the intent that this clause 3.2 shall be read in the light of clause 3.5. 3.3On each Settlement Date: (a)the respective amounts of the balances (if any) then standing to the credit of the Customer in the Forex Accounts maintained by the Bank for that Settlement Date in each Currency shall be paid by the Bank to the Customer in the respective Currencies in which they are denominated, and (b)the respective amounts of the balances (if any) then standing to the debit of the Customer in the Forex Accounts maintained by the Bank for that Settlement Date in each Currency shall be paid by the Customer to the Bank in the respective Currencies in which they are denominated. 3.4If by reason of the presentation of a Relevant Petition the respective obligations of the Parties under the Pre-Agreement Contracts or any Post- Agreement Contract shall not have been discharged, satisfied and replaced as provided by clause 3.1 or, as the case may be, clause 3.2 or this clause 3.4 and such Relevant Petition shall subsequently be dismissed or withdrawn, such obligations shall by virtue of this agreement, so long as no further Relevant Petition shall have been presented, at the time of such dismissal or withdrawal automatically and without the need for further action of any kind by the parties or either of them, be satisfied and discharged and replaced by the respective obligations of the Parties to make payment on the Settlement Date of each Pre- Agreement Contract or, as the case may be, Post-Agreement Contract of the amounts (if any) to be paid by them in accordance with clause 3.3 to the intent that this clause 3.4 shall be read in the light of clause 3.5. 3.5It is the intention of the parties that, following each such satisfaction, discharge and replacement of obligations as are referred to in clauses 3.1, 3.2 and 3.4, the original rights and obligations of the Parties under the relevant Pre-Agreement Contracts and Post-Agreement Contracts shall have been replaced by a series of rights and obligations of the Parties (constituting one contract) to make and receive payments in accordance with clause 3.3, on the various Settlement Dates occurring after such time, and so that such series of rights and obligations may subsequently be affected by any further satisfactions, discharges and replacements of obligations as aforesaid. Confirmations 4.1The Parties shall be obliged to send each other confirmations in respect of each Novated Forex Contract to reflect the relevant debit and credit entries and the running debit or credit balances on each Forex Account affected by such Novated Forex Contract. 4.2The rights and obligations of the Parties hereunder (other than under clause 4.1) shall not be affected or prejudiced by reason of either Party omitting to send any such confirmation as is referred to in clause 4.1 or by reason of any confirmation made in respect of a Novated Forex Contract being in terms which are inconsistent with or disregard the provisions of this Agreement. Acceleration 5.1The occurrence of a Schedule 1 Event or a Schedule 2 Event shall not of itself constitute a breach of this Agreement or of any Gross Forex Contract on the part of the Affected Party. 5.2If a Schedule 1 Event shall occur at a time when no Schedule 2 Event has already occurred the Unaffected Party may at any time thereafter give notice in writing (being an "Acceleration Notice" as hereinbefore defined) to the Affected Party to the effect that it is implementing the arrangements for acceleration made under this clause 5, whereupon the payment obligations of each of the Parties subsisting and not yet performed at the time of the Affected Party's receipt of the Acceleration Notice and arising under: (a)clause 3; or (b)any Gross Forex Contract shall by virtue of the provisions of this clause and the giving of the Acceleration Notice, automatically and without the need for further action by either Party, be required to be satisfied forthwith. Such satisfaction shall be effected by one Party making a Sterling payment to the other Party (subject as provided by paragraph 6 in Schedule 3) of an amount calculated in accordance with Schedule 3. 5.3If a Schedule 2 Event shall occur at a time when no Acceleration Notice has been previously given the payment obligations of each of the Parties subsisting and not yet performed at the moment of its occurrence and arising under: (a)clause 3; or (b)any Gross Forex Contract shall at such moment and by virtue of the provisions of this clause, automatically and without the need for any action by either Party be required to be satisfied forthwith. Such satisfaction shall be effected by one Party making a Sterling payment to the other Party (subject as provided by paragraph 6 in Schedule 3) of an amount calculated in accordance with Schedule 3. 5.4The amount required to be paid pursuant to clause 5.2 or 5.3 shall be determined by the Unaffected Party, with where requisite the aid of a report from the Reference Bank (which shall act as an expert and not as an arbitrator) under Schedule 3. The written certificate of the Unaffected Party as to that amount and the Party by which it is payable shall be regarded in the absence of manifest error as being conclusive. 5.5Such amount shall be due on demand at any time after the delivery of the Unaffected Party's said written certificate to the Affected Party and paid in Sterling in immediately available cleared funds no later than close of business in London on the date of such demand and if not paid when becoming due by virtue of such demand shall carry interest for the period from and including the date of demand down to and including the date of payment at a fluctuating rate (as well after as before any demand or judgement) equal to two per cent per annum in excess of the Bank's Base Rate in force on the date of such demand and adjusting for upward or downward fluctuations in such Base Rate thereafter. 5.6In case (notwithstanding the statement in clause 5.1) any court of competent jurisdiction shall adjudge an amount payable by virtue of this clause 5 to be damages or other compensation for breach of contract, the Parties hereby record that such amount is and is intended to be a genuine pre-estimate of the loss which would otherwise be suffered as a result of the occurrence of a Schedule 1 Event or a Schedule 2 Event and not as a penalty. The Party receiving payment of such amount will not in any event be entitled to recover damages in respect of actual loss in excess of such mount. Termination 6.1Either Party may terminate this Agreement by at least 42 days' written notice to the other Party specifying the date on which such termination is to take place. In addition, the Parties may agree such a date in writing. 6.2No Forward Foreign Exchange Contract or Gross Forex Contract entered into on the date so specified or agreed on any subsequent date shall be subject to the provisions of this Agreement, but this Agreement shall continue on and after such date in respect of all Forward Foreign Exchange Contracts and Gross Forex Contracts entered into prior to such date and all obligations accrued under clauses 3, 5 or 12.3 prior to such date or arising under or in respect of contracts entered into prior to such date. Terms of Gross Forex Contracts 7.1Every contract between the Parties in existence at the time of execution hereof and which at such time is a Gross Forex Contract shall be and is hereby varied by the incorporation therein of the provisions of this Agreement. 7.2Every contract between the Parties entered into at a time after the execution hereof and prior to the termination date specified or agreed in accordance with clause 6.1 and which at such time is a Gross Forex Contract shall be deemed to incorporate the provisions of this Agreement and shall be performed and construed accordingly. Assignment 8.1Neither Party shall without the prior written consent of the other Party, assign, transfer, charge or mortgage the whole or any part of the benefit of this Agreement. For the purposes of this clause the expression "charge or mortgage" extends to the creation or grant of any security interest of whatsoever kind. Partial Invalidity 9.1If any provision of this Agreement is or at any future time becomes illegal, unenforceable or void under the law of any jurisdiction, the legality, enforceability and effectiveness of the remaining such provisions shall not thereby be affected or impaired. 9.2If such illegality, unenforceability or voidness arises under the law of one jurisdiction, the legality, enforceability and effectiveness of the provision or provisions affected thereby in that jurisdiction shall not be reason thereof be affected or impaired in any other jurisdiction. Law and Jurisdiction 10.1This Agreement is governed by and shall be construed in accordance with English law. 10.2The Customer hereby agrees for the exclusive benefit of the Bank to submit to the jurisdiction of the English courts in any dispute arising hereout but such agreement shall not prejudice the rights of the Bank to commence or undertake legal proceedings in any other jurisdiction. Notices 11.1Without prejudice to any agreement from time to time in force between the Parties concerning transmission of messages by or between their respective computer installations, any notice, demand, message or other communication between the Parties for the purposes of or in connection with this Agreement shall be given by telex or otherwise in writing and sent to the telex number or delivered at the address of the intended recipient Party (being the number of a telex machine or an address located within the United Kingdom) from time to time specified by the intended recipient Party in writing to the sending Party. 11.2In addition, every such notice, message, demand or other communication shall be marked for the attention of any officer, branch or department of the intended recipient Party from time to time specified by it in writing to the sending Party. 11.3The Parties are deemed at the time of the execution hereof to have specified the following respective telex numbers, addresses and markings for the purposes of this clause: The Bank The Customer Telex No and 888001 32501 Answerback: Loydfx C PERKENG Address: Faryners House Eastfield 25 Monument Street Peterborough London EC3R 8BQ PE1 5NA Marking: For the attention of For the attention of Corporate Treasury FTAO Director Services Legal Services 11.4Every such notice, demand, message or other communication sent by telex, and (if so required) marked as so specified, shall be deemed duly received at the time of sending if the intended recipient's telex number (as so specified) and answerback appear at the head and foot of the hard (or paper) copy produced by the sender's machine. Every such notice, demand, message or other communication delivered at the address so specified and marked as so specified shall be deemed duly received at the time of such delivery. Currency Indemnity 12.1The sole Currency of account and payment of the obligations under clause 3.3 is the Currency in which the relevant balance is stated in the Forex Accounts. The sole Currency of account and payment of the obligations under clause 5 is Sterling. 12.2Any amount recovered or received by either Party in a Currency (the "other Currency") other than the Currency of account (whether as a result of any court order, distribution in a winding up, enforcement of security, application of any deposit or otherwise howsoever) in respect of any amount payable hereunder by the other Party shall only constitute a discharge to the extent of the amount or notional amount in the Currency of account which the recipient Party is or would be able to purchase with the amount of the other Currency received by it on the date of such receipt or on the next following Business Day. 12.3If such amount or notional amount in the Currency of account falls short of the amount due in the Currency of account, the other Party shall indemnify the recipient Party against the loss represented by such shortfall. If the recipient Party actually incurred costs in employing the amount of the Currency received in making a purchase of an amount of the Currency of account, the other Party shall indemnify the recipient Party against such costs in full and in the Currency in which the same were incurred. The provisions of clause 12.2 and this clause shall apply, mutatis mutandis, to payments received under the indemnities contained in this clause. 12.4The provisions of clause 12.3 constitute an obligation separate and independent from all other obligations under this Agreement and give rise to an independent cause of action continuing in full force and effect in spite of any judgment, claim or proof whatsoever. No evidence of actual loss will be required to be adduced by the Party seeking to assert a claim under such provisions. Waiver 13.1No delay or forbearance in the exercise of any right hereunder (including but not limited to the right to give an Acceleration Notice) shall, without an express written agreement to that effect, constitute a waiver or evidence an agreement not to enforce such right. 13.2Without prejudice to the generality of the foregoing, no agreement by one of the Parties not to treat the occurrence of an event as a Schedule 1 Event shall preclude a Party from treating a continuation or re-occurrence thereof or the occurrence of any other event as a Schedule 1 Event. AS WITNESS the hands of duly authorised officers or other duly authorised agents of each of the parties the day and year first above stated. SCHEDULE 1 (The Schedule 1 Events) 1.A Party failing to make any payment under this Agreement or a Gross Forex Contract when due and such failure continuing (as regards the whole or any part of the payment in question) at close of business on the third Business Day next following the date on which the other Party gives notice to the first-mentioned Party requiring it to make such payment: PROVIDED that if the Party which has failed to make the payment is able to demonstrate that its sole reason for such failure is either: (i)a prohibition imposed by or under applicable law or regulation made thereunder (other than a prohibition imposed by or under the Insolvency Act 1986 or any regulation made thereunder, or by or under any law of any jurisdiction outside England and Wales and Scotland relating to insolvency, winding up, liquidation, receivership, administration or protection from the claims of creditors or any regulation made under such law) and in force at such close of business, or (ii)the impossibility of making such payment, such failure to make the payment shall not be a Schedule 1 Event unless and until such prohibition of law or regulation or impossibility is removed and the failure to pay continues for three Business Days after such removal (or, if later, after the giving of such notice by the other Party). 2.A default occurring on the part of either Party in the performance or discharge of any of its obligations (other than payment obligations) under this Agreement and either: (a)such default being incapable of remedy, or (b)the Party in default failing to remedy its default within thirty days of receiving notice in writing from the other Party requesting it to remedy such default. 3.Any Relevant Finance Contract (apart from this Agreement) terminating, or the obligations of either Party thereunder being terminated, suspended or discharged prior to the date on which such contract or obligations would otherwise have terminated or been discharged, and such termination, suspension or discharge being a consequence of a default or an event of default (howsoever in either case described) of or affecting one of the Parties and, where applicable, the expiry of any grace period or the expiry of any notice, in relation to such default or event of default. 4.Any Relevant Debt of either Party: (a)not being paid or otherwise discharged when due or within an applicable grace period, or (b)becoming due for payment or other discharge before the date on which it would otherwise have become so due by reason of a default or event of default (howsoever in either case described), and the other Party delivering to the first-mentioned Party a certificate in writing that in the opinion of the other Party reasonably held such event reflects or evidences a material adverse change in the financial condition of the first-mentioned Party. 5.A Party being or becoming insolvent (within the meaning of Section 123 of the Insolvency Act 1986); or stopping or suspending or threatening to stop or suspend payment of the whole or any substantial part of its debts; or beginning negotiations or commencing any proceeding with a view to the readjustment, rescheduling or deferral of the whole or any part of its indebtedness which (if such readjustment, rescheduling or deferral did not take place) it would or might be unable to pay when due; or making a general assignment or an arrangement or composition with or for the benefit of its creditors. A Party shall, without prejudice to the generality of the foregoing provisions of this paragraph 5 be deemed to have commenced such a proceeding as is above mentioned if its Directors shall make any proposal for a voluntary arrangement under Part I of the Insolvency Act 1986 or if it or its Directors shall present a petition for an administration order in respect of it under Part II of such Act. 6.The whole or any part of the undertaking, property and assets of a Party (following and as a result of any failure to pay rent or any taxation or following and as a result of a judgment of any Court or tribunal which is, or by virtue of the lapse of any time for lodging an appeal becomes, final) suffering or being subject to the levying, enforcement or suing out of any distress, attachment, execution or other legal process and such distress, attachment, execution or other legal process not being discharged or stayed, withdrawn or suspended within sixty days of its inception, and the other Party delivering to the first-mentioned Party a certificate in writing that in the option of the other Party reasonably held, such occurrence reflects or evidences a material adverse change in the financial condition of the first-mentioned Party. 7.The security constituted by any mortgage, charge (fixed or floating), pledge, lien or other security interest of any kind on or over part or all of the undertaking, property and assets of either Party becoming enforceable and any step (including the appointment of a receiver or receivers and manager or other similar officer) being taken, whether in consequence of or under any judicial proceeding or not, to enforce such security and the other Party delivering to the first-mentioned Party a certificate in writing to the effect that in the opinion of the other Party reasonably held such occurrence reflects or evidences a material adverse change in the financial condition of the first-mentioned Party. 8.A Party: (a)ceasing or threatening to cease to carry on all or any substantial part of its business or operations, or (b)consolidating or amalgamating with another entity, or merging into another entity, or transferring all or any substantial part of its undertaking, property and assets to another entity unless (i) (in the case referred to at (a) above) the same is done in the course of, or in preparation for and is followed by, an amalgamation, reconstruction, reorganisation, merger or transfer of all or a substantial part of such Party's undertaking, property and assets with or to another entity, (ii) (in both cases referred to at (a) and (b) above) such Party will continue to be subject to all its obligations under this Agreement or a resulting, surviving or transferee entity will assume (whether by operation of law or pursuant to an agreement to be entered into without delay and into terms reasonably satisfactory to the other Party) all the obligations of the first- mentioned Party under this Agreement and (iii) (in any case referred to at (i) and (ii) above where another entity or a resulting, surviving or transferee entity is involved) the other entity or the resulting, surviving or transferee entity is regarded by the other Party as being at least as creditworthy as the first-mentioned Party. 9.An administration order being made in respect of a Party under Part II of the Insolvency Act 1986 or an order being made in respect of a Party in any jurisdiction outside England and Wales, Scotland (and, if the said Act shall have been extended there, outside Northern Ireland) having analogous or equivalent effect. 10.A winding up petition being presented in a court of competent jurisdiction in respect of a Party and the same not being dismissed or struck out within ten Working Days of its presentation. 11.A meeting of either Party's creditors being summoned under section 98 of the Insolvency Act 1986. 12.A petition being presented for an administration order in respect of a Party under Part II of the Insolvency Act 1986 (other than in circumstances where the presentation of such petition is clearly frivolous or vexatious) and the other Party delivering to the first-mentioned Party a certificate in writing that in the opinion of the other Party reasonably held such event reflects or evidences a material change in the financial condition of the first-mentioned Party. 13.Either Party summoning a meeting of its members to consider and if thought fit, to pass a resolution for voluntary winding up as defined by section 84(2) of the Insolvency Act 1986 except for the purpose of and followed by an amalgamation, reconstruction or reorganisation whereunder a resulting, surviving or transferee entity, which the other Party regards as being as creditworthy as the first-mentioned Party, will assume (whether by operation of law or pursuant to an agreement to be entered into without delay and in terms reasonably satisfactory to the other Party) all obligations of the first-mentioned Party under this Agreement. 14.There being in force or taking place in any jurisdiction outside England and Wales or Scotland any proceedings or steps having an effect analogous to that obtaining under paragraph 5, 10, 11, 12 or 13 above. SCHEDULE 2 (The Schedule 2 Events) 1.An order being made by a court of competent jurisdiction in any part of the United Kingdom for the liquidation or winding up of either Party. 2.An effective resolution being passed for the winding up of either Party, other than a resolution for a voluntary winding up (as defined by section 84(2) of the Insolvency Act 1986) for the purposes of and followed by such an amalgamation, reconstruction or reorganisation as is referred to in paragraph 13 of Schedule 1. SCHEDULE 3 (The amount of the payment to be made under clause 5.2 or, as the case may be, 5.3) 1.For the purposes of this Schedule the Sterling equivalent of any sum denominated in another Currency is to be determined by the application of the rate of exchange at which at or about 11.00 a.m. on the Acceleration Date (or, if it was not a Business Day for a payment in that other Currency, the next following such Business Day) the Reference Bank could have bought that other Currency in the foreign exchange market for Sterling for delivery on the relevant Settlement Date or (if later) the second such Business Day after the Acceleration Date. 2.For the purposes of this Schedule the discounted amount of any sum denominated or notionally converted into Sterling and payable on a Settlement Date after the Acceleration Date shall be calculated - (a)(where the Affected Party is in liquidation other than for the purposes of a members' voluntary winding up) by applying the Insolvency Rate over the period from and including the Acceleration Date down to and including such Settlement Date and compounding at monthly intervals after the Acceleration Date or (if compounding at such intervals is not permitted for the purposes of proof in the winding up of an insolvent company) compounding at such intervals as is so permitted, and (b)(in any other case) by applying the Market Rate (as below defined) over the period from and including the Acceleration Date down to and including such Settlement Date and compounding as often as required by the contract, or notional contract, by which the Market Rate is set. For the purposes of (b) above the "Market Rate" is the best rate of interest at which the Unaffected Party could on the Acceleration Date (or if that is not a Working Day, the next following Working Day), without providing any security or guarantee or paying any premium or suffering any discount, have borrowed from a bank in London a Sterling sum equal or comparable to the sum to be discounted and for the period mentioned at (b) above. 3.For the purposes of this Schedule the "Relevant Amount" in respect of any Gross Forex Contract is an amount in Sterling to be determined as follows - (1)Where both Currencies are Currencies other than Sterling, calculate the difference between the discounted amounts of the Sterling equivalents of the amounts of Currency which the Parties agreed to deliver or sell thereunder. (2)Where only one Currency is Sterling and the Settlement Date falls after the Acceleration Date, calculate the difference between the discounted amount of the sum in Sterling which one Party agreed to deliver or sell thereunder and the discounted amount of the Sterling equivalent of the amount in another Currency which the other Party agreed to deliver or sell thereunder. (3)Where both Currencies are Currencies other than Sterling and the Settlement Date is the Acceleration Date or an earlier date calculate the difference between the Sterling equivalent of the amounts of currency which the Parties agreed to deliver or sell thereunder. (4)Where only one Currency is Sterling and the Settlement Date is the Acceleration Date or an earlier date, calculate the difference between the amount of Sterling which one Party agreed to deliver or sell thereunder and the Sterling equivalent of the amount of another Currency which the other Party agreed to deliver or sell thereunder. The difference resulting from the calculation at (1), (2), (3) or (4) above is the Relevant Amount which for the purposes of the following paragraphs of this Schedule shall be deemed payable by that Party to which the greater amount (whether a Sterling equivalent, a discounted amount or an actual amount of Sterling) was attributable under the calculation. 4.In order to determine the amount of any payment under or pursuant to clause 5.2 or, as the case may be, clause 5.3 there shall be determined in respect of each Party the aggregate denominated in Sterling of (1)the discounted amount of - (a)each Sterling balance; and (b)the Sterling equivalent of each non-Sterling balance which, in each case, the Party in question was immediately prior to the Acceleration Time under prospective obligation to pay as provided by clause 3.3 to the other Party on a Settlement Date falling after the Acceleration Date; and (2)the amounts of - (a)each Sterling balance; and (b)the Sterling equivalent of each non-Sterling balance which in each case the Party in question was under obligation as provided by clause 3.3 to pay to the other Party on the Acceleration Date or on an earlier date but which, in either such case, remains unpaid; and (3)all Relevant Amounts deemed payable by the Party in question under paragraph 3 of this Schedule. 5.If the aggregate so determined in respect of one Party shall be greater than the aggregate so determined in respect of the other Party, the payment to be made pursuant to clause 5.2 or, as the case may be, clause 5.3 shall be made by the former Party to the latter Party and shall be in Sterling, and the amount of such payment shall be equal to the amount of the difference between such aggregates. 6.If the aggregates so determined shall be equal in amount no payment shall be made pursuant to clause 5.2 or, as the case may be, clause 5.3. SIGNED by ....................) ..............................) for and on behalf of) LLOYDS BANK PLC ) SIGNED by ....................) ..............................) for and on behalf of) PERKINS LIMITED ) EX-10.1(I)(I) 5 VARITY CORP AS GUARANTOR LLOYDS BANK PLC EXHIBIT 10.1(i)(i) DATED 13th April 1995 (1)VARITY CORPORATION as Guarantor (2) LLOYDS BANK PLC GUARANTEE CAMERON MARKBY HEWITT Sceptre Court 40 Tower Hill London EC3N 4BB Tel: 071-702 2345 Fax: 071-702 2303 Telex: 925779 (Ref: JJC/X2244/7102) (Doc Id: 1317R/(R.4-5)) THIS GUARANTEE is made the 13th day of April 1995 BETWEEN: (1)VARITY CORPORATION a corporation incorporated under the laws of the State of Delaware with its principal office at 672 Delaware Avenue, Buffalo, New York 14209, USA (the "Guarantor"); and (2)LLOYDS BANK PLC whose registered office is at 71 Lombard Street London EC3P 3BS (the "Bank"). RECITALS: (A)Perkins Group Limited and those companies listed in Annex 1 to the Facility Agreement (as defined below) (together referred to as "the Companies" and individually a "Company") and the Bank, are party to the Facility Agreement dated the date hereof pursuant to the terms of which the Bank has agreed to make available to the Companies certain facilities as are more particularly described therein. (B)It is a condition precedent under the Facility Agreement that the Guarantor provide a guarantee in the form set out hereunder. NOW THIS DEED OF GUARANTEE WITNESSETH as follows: 1.Interpretation 1.1Terms defined or to which an interpretation is ascribed in the Facility Agreement shall, unless otherwise defined herein, bear the same meaning herein (including in the Recitals hereto). 1.2In this guarantee: "Guaranteed Obligations"means, in respect of the Companies: all monies and liabilities (whether certain or contingent) which now are due or hereafter may be or become due and owing by the Companies or any of them in any capacity to the Bank under or pursuant to the Facility Documents and all other liabilities, actual or contingent, now existing or hereafter incurred by any of the Companies in any capacity under or pursuant to the Facility Documents; "Facility Agreement"means an amended and re-stated facility letter dated the 13th day of April 1995 (being an amendment and re-statement of a facility letter dated 30th September 1993 addressed by the Bank to Perkins Group Limited (or if that agreement is varied, amended, supplemented or novated, that agreement as from time to time so varied, amended, supplemented or novated and any document which varies, amends, supplements, novates, extends, replaces or supercedes the facility agreement); "Facility Documents"means the Facility Agreement, the Security Documents and any other agreement, deed, notice or certificate entered into or given by a Company or Companies at any time pursuant to the terms of the Facility Agreement or the Security Documents; "Original Financial Statements" means the audited consolidated financial statements of the Guarantor for its financial year ended 31st January 1994; "SEC"means the Securities and Exchange Commission; "Security Documents"means the Guarantee (as defined in the Facility Agreement) and any and all other documents from time to time creating, evidencing or entered into as security for, or guaranteeing the obligations of any Company under the Facility Agreement or the Guarantee (as therein defined) and any document entered into pursuant to the Facility Agreement or the Guarantee (as therein defined), including without limitation any notices of assignments and acknowledgements thereof. 1.3Any reference in this guarantee to a "U.S. business day" shall be constituted as a reference to a day (other than a Saturday or Sunday) on which banks are generally open for business in New York. 2.Guarantee The Guarantor hereby unconditionally and irrevocably: (a)guarantees to the Bank the due and punctual observance and performance of all the Guaranteed Obligations and, but without prejudice to the generality of the foregoing, agrees unconditionally to pay to the Bank from time to time on demand by the Bank any and every sum or sums of money which any or all of the Companies shall be liable at any time to pay to the Bank at the time such demand is made and which have not been so paid by such Company or Companies; and (b)agrees, as a primary obligation, from time to time on demand by the Bank to (i) indemnify and hold harmless the Bank for and against any loss incurred by the Bank and (ii) to pay to the Bank the amount of any loss suffered or incurred by the Bank as a result of any of the obligations of any of the Guaranteed Obligations being or becoming void, voidable, unenforceable or ineffective as against any of the Companies for any reason whatsoever, whether or not known to the Bank or to any other person, the amount of such loss being the amount which the Bank would otherwise have been entitled to recover from such Company. 3.Preservation of Rights 3.1The obligations of the Guarantor herein contained shall be in addition to and independent of every other security which the Bank may at any time hold in respect of any of the Guaranteed Obligations. 3.2The obligations of the Guarantor herein contained shall constitute and be continuing obligations notwithstanding any settlement of account or other matter or thing whatsoever, and in particular but without limitation, shall not be considered satisfied by any intermediate payment or satisfaction of all or any of the Guaranteed Obligations and shall continue in full force and effect until final payment in full of all amounts owing by each Company to the Bank and total satisfaction of all the Companies actual and contingent obligations to the Bank. 3.3Neither the obligations of the Guarantor herein contained nor the rights, powers and remedies conferred in respect of the Guarantor upon the Bank by this guarantee or by law shall be discharged, impaired or otherwise affected by: (a)the winding-up, dissolution, administration or re-organisation of any Company or any other person or any change in its status, function, control or ownership; (b)any of the obligations of any Company to the Bank being or becoming illegal, invalid, unenforceable or ineffective in any respect at any time; (c)time or other indulgence being granted or agreed to be granted to any Company or any other person in respect of its obligations to the Bank at any time; (d)any amendment to, or any variation, waiver or release of, any obligation of any Company at any time; (e)any failure to take, or fully to take, any security contemplated hereby or otherwise agreed to be taken in respect of any Company's or any other person's obligations to the Bank at any time; (f)any failure to realise or fully to realise the value of, or any release, discharge, exchange or substitution of, any security taken in respect of any Company's or, any other person's obligations to the Bank at any time; or (g)any other act, event or omission which, but for this Clause 3.3, might operate to discharge, impair or otherwise affect any of the obligations of the Guarantor herein contained or any of the rights, powers or remedies conferred upon the Bank. 3.4Any settlement or discharge between the Guarantor and the Bank shall be conditional upon no security or payment to the Bank by any Company or any other person on behalf of any Company, being avoided or reduced by virtue of any provisions or enactments relating to bankrupcty, insolvency, liquidation or similar laws of general application for the time being in force and, if any such security or payment is so avoided or reduced, the Bank shall be entitled to recover the value or amount of such security or payment from the Guarantor subsequently as if such settlement or discharge had not occurred. 4.Conditions of Enforcement 4.1The Bank shall not be obliged before exercising any of the rights, powers or remedies conferred upon it by this guarantee or by law: (a)to make any demand of any Company; (b)to take any action or obtain judgment in any court against any Company; (c)to make or file any claim or proof in a winding-up or dissolution of any Company; or (d)to enforce or seek to enforce any other security taken in respect of any of the obligations of any Company hereunder. 5.Non-Competition The Guarantor agrees that, so long as any amounts are or may be owed by any Company to the Bank or any Company is under any actual or contingent obligation to the Bank, the Guarantor shall not exercise any rights which it may at any time have by reason of performance by it of its obligations hereunder: (a)to be indemnified by any Company; and/or (b)to claim any contribution from any other guarantor of the Guaranteed Obligations; and/or (c)to take the benefit (in whole or in part and whether by way of subrogation or otherwise) of any rights of the Bank against any Company or of any other security taken pursuant to, or in connection with, any of the Guaranteed Obligations by the Bank. 6.Certificates A certificate of the Bank of the amount at any time due and payable from the Companies or any of them to the Bank or the amount which, but for any obligations of the Companies or any of them to the Bank being or becoming void, voidable, unenforceable or ineffective, at any time would have been due and payable from the Companies to the Bank shall be prima facie evidence in any legal action or proceeding arising out of or in connection herewith. 7.Representations 7.1The Guarantor represents that subject to any qualification in any legal opinion delivered pursuant to Clause 9(a)(vi) of the Facility Agreement: (a)it is a corporation duly organised under the laws of its jurisdiction of incorporation with power to enter into this guarantee and to exercise its rights and perform its obligations hereunder and all corporate and other action required to authorise its execution of this guarantee and its performance of its obligations hereunder has been duly taken; (b)under the laws of its jurisdiction of incorporation in force at the date hereof, it will not be required to make any deduction or withholding from any payment it may make hereunder; (c)under the laws of its jurisdiction of incorporation in force at the date hereof, the claims of the Bank under this guarantee will rank at least pari passu with the claims of any unsecured creditors save those whose claims are preferred solely by any bankruptcy, insolvency, liquidation or other laws of general application; (d)in any proceedings taken in its jurisdiction of incorporation in relation to this guarantee, it will not be entitled to claim for itself or any of its assets immunity from suit, execution, attachment or other legal process; (e)all acts, conditions and things required to be done, fulfilled and performed in order (i) to enable it lawfully to enter into, exercise its rights under and perform and comply with the obligations expressed to be assumed by it in this guarantee and, (ii) to ensure that the obligations expressed to be assumed by it in this guarantee are legal, valid and binding; (f)under the laws of its jurisdiction of incorporation in force at the date hereof, it is not necessary that this guarantee be filed, recorded or enrolled with any court or other authority in such jurisdiction other than as may be required by the SEC (or similar state authority) or that any registration or similar tax be paid in or in relation to this guarantee; and (g)the obligations expressed to be assumed by it in this guarantee are legal and valid obligations binding on it in accordance with the terms thereof. 7.2The Guarantor further represents that: (a)it has not taken corporate action nor have any other steps been taken or legal proceedings been started or (to the best of its knowledge and belief) threatened against it for its winding-up, dissolution, administration or re-organisation or for the appointment of a receiver, administrator, administrative receiver, trustee or similar officer of it or of any or all of its assets or revenues (including any equivalent or analogous proceedings under the law of the jurisdiction in which it is incorporated or carries on business) other than such steps or proceedings which (i) have been notified to the Bank prior to making this representation (ii) are being contested in good faith or (iii) are frivolous or vexatious; (b)it is not in breach of or in default under any agreement to which it is a party or which is binding on it or any of its assets to an extent or in a manner which would be reasonably likely to have a material adverse effect on its business or financial condition; (c)other than as disclosed to the Bank prior to making this representation, no action or administrative proceeding of or before any court or agency which would be reasonably likely to have a material adverse effect on its business or financial condition has been started or to the best of its knowledge threatened; (d)its Original Financial Statements were prepared in accordance with accounting principles generally accepted in the United States and consistently applied and give (in conjunction with the notes thereto) a true and fair view of its financial condition at the date as of which they were prepared and the results of its operations during the financial year then ended; (e)since publication of its Original Financial Statements there has been no material adverse change in its business or financial condition; (f)as at the date of which its Original Financial Statements were prepared, it had no material losses or liabilities (contingent or otherwise) which were not disclosed thereby (or by the notes thereto) or reserved against therein nor were there at that date any unrealised or anticipated losses arising from commitments entered into by it which were not so disclosed or reserved against; (g)all information supplied by it in connection herewith, and by Varity Europe Limited in connection with the Facility Agreement, was true, complete and accurate in all material respects as at the date on which it was provided by and the Guarantor is not aware of any material facts or circumstances which would cause such information to be misleading to the Bank; (h)its execution of this guarantee and its exercise of its rights and performance of its obligations hereunder will not result in the existence of nor oblige it to create any encumbrance over all or any of its present or future revenues or assets; (i)its execution of this guarantee and its exercise of its rights and performance of its obligations hereunder do not and will not: (i)conflict with any material agreement, mortgage, bond or other instrument or treaty to which it is a party or which is beinding upon it or any of its assets; (ii)conflict with its constitutive documents and rules and regulations; or (iii)conflict with any applicable law, regulation or official or judicial order; (j)its execution of this guarantee and its exercise of its rights and performance of its obligations hereunder will constitute, private and commercial acts done and performed for private and commercial purposes; and (k)Perkins Group Limited is under the control (as that term is construed for the purposes of the Facility Agreement) of the Guarantor. 8.Financial Information 8.1The Guarantor shall: (a)as soon as the same become available, but in any event within 150 days after the end of each of its financial years, deliver to the Bank its financial statements for such financial year including a copy of the completed form 10-K delivered by it to the SEC for such financial year; (b)no later than: (i)45 days after the end of each of its financial quarters, deliver to the Bank its financial statements for such period; (ii)60 days after the end of its financial quarter, deliver to the Bank a copy of the completed form 10-Q delivered by it to the SEC for such financial quarter; (c)from time to time on the request of the Bank, furnish the Bank with such information about the business and financial condition of itself as the Bank may reasonably require. 8.2The Guarantor shall ensure that: (a)each set of financial statements delivered by it pursuant to Clause 8.1 is prepared in accordance with accounting principles generally accepted in the United States from time to time and consistently applied; (b)each set of unaudited financial statements delivered by it pursuant to Clause 8.1(b)(i) is certified by one of its duly authorised officers as giving a true and fair view of its financial condition as at the end of the period to which those financial statements relate and of the results of its operations during such period; and (c)each set of financial statement delivered by it pursuant to Clause 8.1(a) has been audited by auditors of international repute reasonably acceptable to the Bank, it being agreed that as at the date hereof the Guarantor's current auditors are acceptable. 9.Covenants 9.1The Guarantor shall: (a)obtain, comply in all material respects with the terms of and do all that is necessary to maintain in full force and effect all authorisations, approvals, licences and consents required in or by the laws and regulations of its jurisdiction of incorporation to enable it lawfully to enter into and perform its obligations under this guarantee or to ensure the legality, validity or enforceability in its jurisdiction of incorporation of this guarantee; and (b)promptly inform the Bank of the occurrence of any Event of Default which relates to this guarantee or arises as a result of any of the acts or omissions of the Guarantor; (c)ensure that at all times the claims of the Bank against it under this guarantee rank at least pari passu with the claims of any unsecured creditors save those whose claims are preferred by any bankruptcy, insolvency, liquidation or other laws of general application. 10.Payment Free of Deduction All payments to be made to the Bank under this guarantee shall be made free and clear of and without deduction for or on account of Tax (not being a tax imposed upon the net income of the Bank or any of its branches) unless the Guarantor is required to make such payment subject to the deduction or withholding of Tax, in which case the sum payable by the Guarantor in respect of which such deduction or withholding is required to be made shall be increased to the extent necessary to ensure that, after the making of such deduction or withholding, the person on account of whose liability to Tax such deduction or withholding has been made receives and retains (free from any liability in respect of any such deduction or withholding) a net sum equal to the sum which it would have received and so retained had no such deduction or withholding been made or required to be made. 11.Payments 11.1All payments by the Guarantor under or pursuant to this guarantee shall be made to the Bank in the currency in which the relevant part of the Guaranteed Obligations is denominated or, if different, is payable and in such funds to such account with such bank by such time and in such other manner as the Bank may direct from time to time. 11.2Subject to the provision of Clause 10, all payments under or pursuant to this guarantee shall be made without set-off or counterclaim. 12.Currency If any sum due from the Guarantor under this guarantee or any order or judgment given or made in relation hereto has to be converted from the currency (the "first currency") in which the same is payable hereunder or under such order or judgment into another currency (the "second currency"), for the purposes of (i) making or filing a claim or proof against the Guarantor, (ii) obtaining an order or judgment in any court or other tribunal, (iii) enforcing any order or judgment given or made in relation hereto or (iv) applying the same in satisfaction of any of the Guaranteed Obligations, the Guarantor shall as a separate and independent obligation, on demand of the Bank, indemnify and hold harmless each of the persons to whom such sum is due from and against any loss suffered as a result of any discrepancy between (a) the rate of exchange used for such purpose to convert the sum in question from the first currency into the second currency and (b) the rate or rates of exchange at which such person may in the ordinary course of business purchase the first currency with the second currency upon receipt of a sum paid to it in satisfaction in whole or in part, of such order, judgment, claim or proof or for application in satisfaction of the Guaranteed Obligations. 13.The Bank's Discretion Any liability or power which may be exercised or any determination which may be made hereunder by the Bank may be exercised or made in its absolute and unfettered discretion without any obligation to give reasons therefor. 14.Provisions Severable Each of the provisions contained in this guarantee shall be severable and distinct from one another and if any one or more of such provisions is now or hereafter becomes invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining such provisions shall not in any way be affected, prejudiced or impaired thereby. 15.Counterparts This guarantee may be executed in any number of counterparts, all of which when taken together and delivered to the Bank shall constitute one and the same instrument. 16.Notices 16.1Each communication to be made hereunder shall be made in writing but, unless otherwise stated, may be made by facsimile (followed by a confirmation copy to be sent by post within one week thereafter) or letter. 16.2Any communication or document to be made or delivered by one person to another pursuant to this guarantee shall (unless that other person has by fifteen days' written notice to the Bank another address or facsimile number) be made or delivered to that other person at the address or telex or facsimile number identified with its execution below and, in the case of any communication made by facsimile shall be deemed to have been made or delivered on receipt (if received during business hours on a U.S. business day or on the next succeeding U.S. Business day, if received out of business hours) and in such case may be relied or acted upon immediately notwithstanding the provisions of Clause 16.1) or (in the case of any communication made by letter) when left at that address or (as the case may be) ten days after being deposited in the post postage prepaid in an envelope addressed to it at that address; Provided Always that any communication or document to be made or delivered shall be effective only if the same is expressly marked for the attention of the department or officer identified with either the Bank's or the Guarantor's signature below (or such other department or officer as the Bank or the Guarantor shall from time to time specify in writing for this purpose). 17.Benefit of Guarantee 17.1The Bank shall have a full and unfettered right to assign the whole or any part of the benefit of this guarantee and the words the "Bank" and the "Bank's" and the expressions "it" and "its" (used in the context of the Bank) wherever used herein shall be deemed to include the Bank's assignees and other successors, whether immediate or derivative who shall be entitled to enforce and proceed upon this guarantee in the same manner as if named herein. The Bank shall be entitled to impart any information it considers appropriate concerning the Guarantor to any actual or potential assignee of the Bank or to any person who may otherwise enter into contactual relations with the Bank in relation to this guarantee Provided that no information (other than the terms of the Facility Agreement, the Security Documents and any publicly available information) shall be disclosed without the prior consent of the Guarantor such consent not to be unreasonably withheld or delayed. 17.2The Guarantor may not assign or transfer all or any part of its rights, benefits or obligations under this guarantee. 18.Law This guarantee shall be governed by, and construed in accordance with, English law. 19.Jurisdiction 19.1The Guarantor irrevocably agrees for the benefit of the Bank that the courts of England shall have jurisdiction to hear and determine any suit, action or proceeding, and to settle any disputes, which may arise out of or in connection with this guarantee and, for such purposes, irrevocably submits to the jurisdiction of such courts. 19.2The Guarantor irrevocably agrees for the benefit of the Bank that the courts of the United States of America in the borough of Manhatten in the City of New York shall have jurisdiction to hear and determine any suit, action or proceeding, and to settle any disputes, which may arise out of or in connection with this guarantee and, for such purposes, irrevocably admits to the jurisdiction of such courts. 19.3The Guarantor irrevocably waives any objection which it might now or hereafter have to the courts referred to in Clause 19.1 and 19.2 being nominated as the forum to hear and determine any suit, action or proceeding, and to settle any disputes, which may arise out of or in connection with this guarantee and agrees not to claim that any such court is not a convenient or appropriate forum. 19.4The Guarantor agrees that the process by which any suit, action or proceeding is begun may be served on it by being delivered in connection with any suit, action or proceeding in England, to the registered office of Perkins Group Limited or its principal place of business for the time being. If the appointment of the person mentioned in this Clause 19.4 ceases to be effective, the Guarantor shall immediately appoint a further person in England to accept service of process on its behalf in England and, failing such appointment within 15 days, the Bank shall be entitled to appoint such a person by notice to the Guarantor. Nothing contained herein shall affect the right to serve process in any other manner permitted by law. 19.5The submission to the jurisdiction of the courts referred to in Clause 19.1 and 19.2 shall not (and shall not be construed so as to) limit the right of the Bank to take proceedings against the Guarantor in any other court of competent jurisdiction nor shall the taking of proceedings in any one or more jurisdictions preclude the taking of proceedings in any other jurisdiction (whether concurrently or not) if and to the extent permitted by applicable law. 20.Delivery This guarantee is intended to be and is hereby delivered on the date first above-written. IN WITNESS whereof the Guarantor has caused this guarantee to be signed by its duly authorised officers under its corporate seal this 13th day of April, 1995. VARITY CORPORATION By: /s/ F.J. Chapman By: SEAL ATTESTED BY: EX-11 6 PRIMARY EARNINGS PER SHARE COMPUTATIONS EXHIBIT 11 VARITY CORPORATION PRIMARY EARNINGS PER SHARE COMPUTATIONS (Dollars in millions except per share amounts)
Three months ended April 30, ------------------------------ 1995 1994 -------------- -------------- Income before discontinued operations................ $ 33.7 $ 25.5 Preferred stock dividend entitlements................ (.6) (.6) ------- ------- Income attributable to common stockholders before discontinued operations (A)........................ 33.1 24.9 Earnings from discontinued operations (B)............ .5 3.9 ------- ------- Net income attributable to common stockholders (C)... $ 33.6 $ 28.8 ======= ======= Weighted average shares of common stock outstanding during the period (in thousands)................... 40,977 43,962 Common stock equivalents: Common stock options............................... 405 536 Long-term incentive plans.......................... - 11 ------- ------- Primary weighted average shares of common stock outstanding during the period (D).................. 41,382 44,509 ======= ======= Primary income per share of common stock: Before discontinued operations (A/D)............... $ .80 $ .56 Discontinued operations (B/D)...................... .01 .09 ------- ------- Net income (C/D)................................... $ .81 $ .65 ======= =======
Note: Fully diluted earnings per share computations are not presented as no significant dilution exists. EX-27.1 7 FINANCIAL DATA SCHEDULE
5 1,000,000 3-MOS JAN-31-1996 FEB-01-1995 APR-30-1995 137 42 370 0 158 749 966 338 1846 563 164 524 0 7 264 1846 595 595 486 486 65 0 5 39 9 34 1 0 0 34 .81 0
EX-27.2 8 FINANCIAL DATA SCHEDULE
5 1,000,000 12-MOS JAN-31-1995 FEB-01-1994 JAN-31-1995 147 43 359 0 146 735 939 326 1813 547 163 554 0 7 223 1813 2213 2213 1809 1809 254 0 22 128 24 118 27 0 0 145 3.24 3.24
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