10-K

QuickLinks -- Click here to rapidly navigate through this document

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

/x/
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended April 30, 2001

OR

/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                to               

Commission file number 0-12448

FLOW INTERNATIONAL CORPORATION

WASHINGTON
(State or other jurisdiction
of incorporation or organization) 91-1104842
(I.R.S. Employer
Identification No.)

23500 - 64th Avenue South
Kent, Washington 98032
(253) 850-3500

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act:
Common Stock $.01 Par Value
Preferred Stock Purchase Rights

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes /x/  No / /

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of the Form 10-K or any amendment to this Form 10-K.  / /

The aggregate market value of the voting stock held by non affiliates of the registrant based upon the closing price reported by the National Association of Securities Dealers' Automated Quotation System ("NASDAQ") as of June 18, 2001, was $192,000,000. The number of shares of common stock outstanding as of June 18, 2001, was 15,188,992 shares.

Documents Incorporated By Reference

Part I:	None
Part II:	None
Part III:	All Items—See Registrant's definitive proxy statement which involves the election of directors and which will be filed with the Commission within 120 days after the close of the fiscal year.
Item 10	Directors and Executive Officers of the Registrant
Item 11	Executive Compensation
Item 12	Security Ownership of Certain Beneficial Owners and Management
Item 13	Certain Relationships and Related Transactions
Part IV:	None
Item 14	Exhibits, Financial Statement schedules, and Reports on Form 8-K

2

PART I

Item 1.  Business

    Flow International Corporation ("Flow" or the "Company") designs, develops, manufactures, markets, and services ultrahigh-pressure ("UHP") products including both standard and specialized waterjet cutting and cleaning systems, the Fresher Under Pressure® food safety technology and isostatic and flexform press systems. Flow provides technologically-advanced, environmentally-sound solutions to the manufacturing, industrial, marine cleaning and food markets. The Company's UHP systems pressurize water from 40,000 to over 100,000 pounds per square inch (psi) and this high pressure water is the core of the Company's product line. The Company's primary product line is waterjet cutting. Utilizing pressures from 50,000 to 87,000 psi, the thin stream of water traveling at three times the speed of sound or more, can cut both metallic and nonmetallic materials in many industry segments, including the aerospace, automotive, disposable products, food, glass, job shop, sign, metal cutting, marble, tile and other stone cutting, and paper industries. The Company manufactures a product line, utilizing 40,000 to 50,000 psi, for use in industrial cleaning, surface preparation, construction, nuclear decontamination, and petro-chemical and oil field applications. Flow manufactures the entire UHP system which includes the pump, as well as the robotic articulation equipment and may also include assembly, pick and place and load/unload operations. The March 1999 acquisition of Flow Pressure Systems ("Pressure Systems") from Asea Brown Boveri AB ("ABB") increased the Company's product offering with the addition of patented UHP isostatic and flexform pressure vessel technology used primarily in the aerospace, automotive, medical and food industries.

    The Company has also developed a food safety technology trademarked "Fresher Under Pressure". By exposing foods to pressures from 50,000 psi to over 100,000 psi for a short time, typically 30 seconds to slightly more than 2 minutes, UHP achieves the effects of pasteurization without heat. Not only are spoilage microorganisms destroyed, the process also destroys harmful pathogens such as E. coli, listeria and salmonella, thus increasing shelf life while ensuring a safe, healthy product. Unlike thermal treatment (pasteurization) or irradiation, UHP technology does not destroy or alter the nutritional qualities, taste, texture and color of the food. The Company can UHP process both pumpable and non-pumpable foods. For pumpable foods, Flow utilizes a patented technology which features a "continuous flow" concept whereby pumpable foods such as juices, salsas, guacamole, liquid eggs and salad dressings are pumped into the pressure chambers, pressurized and then pumped into the next stage of the process, such as bottling and packaging. This continuous flow process is fully automated and requires just a single operator. For non-pumpable foods, such as meats, seafood, vegetables and fruits, the Company utilizes its patented large wire-wound pressure vessel batch technology. Flow is the world leader in both the continuous feed and batch UHP food processing technology. Revenues associated with this technology were $14.7 million during fiscal 2001, a more than doubling of the $7.2 million recognized in fiscal 2000.

    The Company was formed in 1974, incorporated in 1980, and completed its initial public offering in March 1983. In 1991, the Company's founder retired, and Ronald W. Tarrant was appointed President and Chief Executive Officer. His focus was to pursue a strategic plan which encompassed three major initiatives; build customer partnerships, constant new product introductions and a strategic market and technology focus. Since 1991, the Company has grown as a result of continued new product development, expanded marketing strategies and certain strategic acquisitions.

    Over the past several years, the Company has completed a number of strategic acquisitions which have provided robotics and software capabilities, as well as new geographic markets and product technology. These acquisitions have positioned Flow as the only provider of turnkey systems utilizing UHP technology. These acquisitions include Flow Automation; Flow Robotics; Flow Japan; Foracon Maschinen und Anlagenbau GmbH & CO.KG ("Foracon"); CIS Robotics Inc. ("CIS") and Robot Simulations Limited ("Flow Software Technologies Ltd.").

3

    In March 1999, the Company purchased the stock of Pressure Systems from ABB and acquired a 51% voting interest in a related U.S. joint venture, Flow Autoclave Systems Inc. ("Flow Autoclave"). Pressure Systems is the world's leading supplier of large, bulk UHP systems to the food industry and the world leader in isostatic and flexform press systems for the aerospace and automotive industries. Flow Autoclave exclusively markets and provides design and installation services for the Pressure Systems product in the United States.

    In September 1999, the Company purchased certain assets of Spearhead Automated Systems, Inc. ("Flow Robotic Systems"). Flow Robotic Systems manufactures advanced cutting, trimming and tooling equipment for the automotive, marine and systems related industries.

Products and Services

    The Company provides UHP systems and related products and services to target markets across a wide variety of industries. The Company divides its revenues into three primary categories of product; "UHP Systems", "Consumable Parts and Services" and "Fresher Under Pressure Food Systems".

UHP Systems

    The Company offers a variety of UHP products, including waterjet cutting systems, waterjet cleaning systems, food safety systems and isostatic and flexform presses, as well as accessories and the related robotic articulation equipment. UHP pumps, intensifier and direct-drive, are the core components of the Company's technology. An intensifier pump pressurizes water to in excess of 100,000 psi and forces it through a small nozzle, generating a high-velocity stream of water to perform the cutting process. In order to cut metallic and other hard materials, an abrasive substance, usually garnet, is added to the waterjet stream creating an abrasivejet. Abrasivejets cut without heat, cause no metallurgical changes, and leave a high-quality edge that usually requires no secondary operation. The Company's unique and patented direct-drive pressure-compensated pumps pressurize water to in excess of 50,000 psi utilizing triplex piston technology.

    A UHP system consists of an ultrahigh-pressure intensifier or direct drive pump, one or more waterjet cutting or cleaning heads with the necessary robotics, motion control and automation systems. The Company has placed UHP waterjet cutting systems worldwide, in its target markets of aerospace, automotive, disposable products, food, glass, job shop, sign, metal cutting, marble, tile and other stone cutting and paper industries. These cutting systems may also combine waterjet applications with other processes such as pick and place operations, inspection, assembly, and other automated processes. The Company's waterjet systems are also used in industrial cleaning applications such as paint removal, surface preparation, factory and industrial cleaning, ship hull preparation, oil field services and heat exchanger cleaning.

    The Company's cutting and cleaning products are considered productivity enhancing tools and can be cost justified over traditional methods. The Company's sales will be affected by worldwide economic changes, however the Company should continue to gain market share in the machine cutting tool market even in "down" economies due to the cost savings and productivity enhancements generated by waterjet technology.

    UHP systems also include isostatic and flexform presses which are used to form and shape metal composite parts. Flow holds the dominant position in the world market for press systems. This technology is used primarily by the automotive and aerospace markets for the purposes of cost effectively producing prototype parts, as well as very high strength parts such as those used in high performance engines. Systems sales accounted for 67% of fiscal 2001 revenues.

4

Consumable Parts and Services

    Flow sells various tools and accessories which incorporate waterjet technology, as well as aftermarket consumable parts and service for its products. Consumables primarily represent parts used by the pump and cutting head during operation. Many of these parts are proprietary in nature. Sales of consumable parts and service accounted for 26% of fiscal 2001 revenues.

Fresher Under Pressure Food Systems

    In fiscal 1999 the Company began selling its food safety technology, Fresher Under Pressure. Revenues associated with this technology more than doubled in fiscal 2001 from fiscal 2000. Management anticipates Fresher Under Pressure revenue will continue to double each year for the next several years. Fresher Under Pressure sales accounted for 7% of fiscal 2001 revenues.

Marketing and Sales

    The Company markets and sells its products worldwide through its headquarters in Kent, Washington (a suburb of Seattle) and through subsidiaries, divisions and joint ventures in Columbus, Ohio; Wixom, Michigan; Jeffersonville, Indiana; Lafayette, Louisiana; Birmingham, England; Bretten and Darmstadt, Germany; Buenos Aires, Argentina; Burlington and Windsor, Canada; Hsinchu, Taiwan; Sao Paulo, Brazil; Milan, Italy; Madrid, Spain; Nagoya and Tokyo, Japan and Västerås, Sweden. The Company sells directly to customers in North and South America, Europe, and Asia, and has distributors or agents in most other countries.

    No customer accounted for 10% or more of the Company's revenues during any of the three years ended April 30, 2001.

    Marketing efforts are focused on various target industries, applications and markets. To enhance the effectiveness of sales efforts, the marketing staff and sales force gather detailed information on the applications and requirements in targeted market segments. This information is used to develop standardized and customized solutions using UHP and robotics technologies. The Company provides turnkey systems, including system design, specification, hardware and software integration, equipment testing and simulation, installation, start-up services, technical training and service.

    The Company's marketing techniques utilize both a telemarketing program, as well as the internet, to identify and qualify sales leads, thus increasing the efficiency of the direct sales staff. Market responses to these activities are carefully screened to identify new areas of interest and new potential applications in our target markets. The Company also attends trade shows for targeted market segments and advertises in selected industry publications.

Patents

    The Company holds a large number of UHP technology and related systems patents. While the Company believes the patents it uses are valid, it does not consider its business dependent on patent protection. In addition, the Company has over the years developed non-patented proprietary expertise and know-how in waterjet applications, and in the manufacture of these systems, which sets it technologically ahead.

    The Company believes the patents it holds and has in process, along with the proprietary application and manufacturing know-how, act as a barrier to entry into the markets it serves.

Backlog

    At April 30, 2001, the Company's backlog was $83 million compared to the prior year end backlog of $43 million. Approximately one half of the backlog related to Fresher Under Pressure. The nature of

5

the Company's business is that most products, exclusive of the isostatic presses produced at Pressure Systems and Fresher Under Pressure, can be shipped within a four to ten week period and thus backlog and the changes in the Company's backlog are not necessarily indicative of comparable variations in sales or earnings. The April 30, 2001, backlog represented 40% of fiscal 2001 sales. The unit sales price for most of the Company's products and services is relatively high (typically ranging from tens of thousands to millions of dollars) and individual orders can involve the delivery of several hundred thousand dollars of products or services at one time. Furthermore, some items in backlog can be shipped more quickly than others, and some have higher profit margins than others.

Competition—Cutting and Cleaning

    The major competitors for UHP waterjet cutting and cleaning systems are conventional cutting and cleaning methods. These methods include lasers, saws, knives, shears, plasma, routers, drills and abrasive cleaning techniques. A UHP waterjet cutting system has many advantages over conventional cutting systems, including no generation of heat or airborne dust, easy adaptability to complex cutting programs, versatility in the different types of product that can be cut, cutting speed and the ability to leave clean-cut edges. These factors, in addition to elimination of secondary processing in most circumstances, enhance manufacturing productivity.

    Waterjet cleaning offers many advantages over other cleaning methods, such as the ability to remove difficult coatings or deposits from a surface without damaging underlying material. A UHP waterjet system is an environmentally-friendly answer to many difficult cleaning applications and can often be justified solely on the basis of hazardous material containment or reduction of secondary operations in the cleaning process. The many advantages of a waterjet over traditional cutting and cleaning methods have positioned it in the market as a productivity-enhancing tool.

    The Company also competes with other waterjet cutting and cleaning equipment manufacturers in the United States, Europe and Asia. The Company's robotics technology provides a competitive advantage as the only total solution supplier of complete waterjet cutting and cleaning systems. Although independent market information is not generally available, based upon data assembled from internal and external sources, Company management believes it is the largest manufacturer of UHP waterjet cutting systems in the world.

Competition—Food

    Pasteurization is the primary method used to help ensure that food is safe to eat. Fresher Under Pressure represents a break-through technology which destroys harmful pathogens such as E. coli bacteria, as well as the spoilage microorganisms, thus increasing shelf life while ensuring a safe, healthy product. There are several other companies throughout the world which are trying to develop a similar UHP processing technology. These companies have had little commercial success, and management believes the Company's patents and know-how make it the world leader in this technology. Currently Flow's equipment is the only equipment being used in any significant commercial applications. In addition, Flow has a very strong backlog of food safety equipment. There are also other technologies being developed for food safety, including irradiation and ultra-violet light. Of the alternative technologies, irradiation is the most developed. The primary target market for irradiation is the raw meat industry, while Fresher Under Pressure is targeting the prepared meat market, i.e., sliced deli meats, hot dogs, etc., as well as the premium food market, such as fresh juices.

    Overall, the Company believes that its competitive position is enhanced by:

•

Technically advanced, proprietary products that provide excellent reliability, low operating costs, and user-friendly features;



•

A strong application-oriented, problem-solving marketing and sales approach;

6

•

An active research and development program that allows it to maintain technological leadership;



•

The ability to provide complete turnkey systems;



•

A strong position in key markets, such as in the U.S., Canada, Japan, southeast Asia and Europe;



•

Strong OEM customer ties, and



•

Efficient production facilities.

Research and Engineering

    The Company has spent between 8% and 9% of revenues in research and engineering during each of the three years ended April 30, 2001. Research and engineering expenses were $18.2 million in 2001, $14.7 million in 2000, and $12.4 million in 1999. The Company will continue a high level of research and engineering spending to maintain its technological leadership position through development of new products and applications as well as enhancing its current product line.

Employees

    As of April 30, 2001, the Company employed 1,014 full time and 12 part time personnel. There are no material collective bargaining agreements to which the Company is a party.

Foreign and Domestic Operations

    See Note 16 of Notes to Consolidated Financial Statements for information regarding foreign and domestic operations.

Safe Harbor Statement

    Statements in this report that are not strictly historical are "forward looking" statements which should be considered as subject to the many uncertainties that exist in the Company's operations and business environment. Significant factors which may affect future Company performance include the following:

    The Company's growth depends, in part, on the successful development of improvements to its equipment and on the introduction of new products and technologies. Improvements in competing technologies could affect the Company's ability to market its products.

    The Company's financial performance could be affected if a change in overall economic conditions results in a decrease in the purchase of capital goods by its customers. Changes in the mix of products sold by the Company can also affect the gross margin achieved.

    The success of Fresher Under Pressure will be dependent on consumer and industry acceptance of the technology, as well as the Company's ability to conform the technology to any food and beverage regulations.

Item 2.  Properties

    The Company's headquarters and primary manufacturing facilities are located in two leased facilities in Kent, Washington. The Company also manufactures product in Wixom, Michigan; Jeffersonville, Indiana; Bretten and Darmstadt, Germany; Burlington, Canada; Hsinchu, Taiwan and Västerås, Sweden. The Company sells products through all of these locations, in addition to offices located in Columbus, Ohio; Lafayette, Louisiana; Birmingham, England; Buenos Aires, Argentina; Milan, Italy; Madrid, Spain; Nagoya and Tokyo, Japan; Sao Paulo, Brazil and Windsor, Canada.

7

    All facilities of the Company are leased with the exception of a manufacturing facility in Jeffersonville, Indiana.

    The Company believes that its facilities are suitable for its current operations and that expansion in the near term will not require additional space. The Company is currently in the process of consolidating the Darmstadt facility into the Bretten facility. This consolidation is expected to be completed by December 2001. During fiscal 2001 the Company consolidated two Michigan facilities into a single new facility in Wixom, Michigan. The Company considers that its primary manufacturing facility in Kent will be adequate to meet production requirements for the next three to five years.

Item 3.  Legal Proceedings

    The Company is party to various legal actions incident to the normal operation of its business, none of which is believed to be material to the financial position and results of operations of the Company. See Notes 1 and 14 of Notes to Consolidated Financial Statements for a description of the Company's product liability claims.

Item 4.  Submission of Matters to a Vote of Security Holders

    None

8

PART II

Item 5.  Market for the Registrant's Common Stock and Related Stockholder Matters.

    See page 10

Item 6.  Selected Financial Data.

    See page 10

Item 7.  Management's Discussion and Analysis of Financial Condition and Results of Operations.

    See pages 11 through 16

Item 7a.  Quantitative and Qualitative Disclosures About Market Risk.

    See page 16

Item 8.  Financial Statements and Supplementary Data.

    See pages 18 through 45

Item 9.  Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

    None.

9

Item 5.  Market for the Registrant's Common Stock and Related Stockholder Matters

    The principal market for Flow International Corporation's ("Flow" or the "Company") common stock is the over-the-counter market. The Company's stock is traded on the NASDAQ National Market under the symbol "FLOW". The range of high and low sales prices for the Company's common stock for the last two fiscal years is set forth in the following table.

	Fiscal Year 2001				Fiscal Year 2000
	High		Low		High		Low
First Quarter	$	11.50	$	10.00	$	11.88	$	9.75
Second Quarter		13.00		9.88		11.97		9.94
Third Quarter		12.56		10.12		12.44		10.00
Fourth Quarter		12.50		9.16		12.88		10.25

    There were 1,060 shareholders of record as of June 18, 2001.

    The Company has not paid dividends to common shareholders in the past. The Board of Directors intends to retain future earnings to finance development and expansion of the Company's business and does not expect to declare dividends to common shareholders in the near future.

Item 6.  Selected Financial Data

		Year Ended April 30,
In thousands, except per share amounts)
		2001		2000		1999		1998*		1997*
Income Statement Data:
	Revenue	$	207,193	$	195,556	$	149,297	$	159,482	$	168,193
	Income Before Cumulative Effect of Change in Principle		5,037		6,477		6,722		4,803		725
	Net Income		2,385		6,477		6,722		4,803		725
	Basic Earnings Per Share Before Change in Accounting Principle		0.34		0.44		0.46		0.33		0.05
	Basic Earnings Per Share		0.16		0.44		0.46		0.33		0.05
	Diluted Earnings Per Share Before Change in Accounting Principle		0.33		0.43		0.45		0.32		0.05
	Diluted Earnings Per Share		0.16		0.43		0.45		0.32		0.05
Balance Sheet Data:
	Working Capital	$	91,098	$	87,552	$	79,993	$	59,863	$	68,126
	Total Assets		208,869		197,041		179,152		121,181		133,466
	Short-Term Debt		8,464		9,216		4,604		6,905		1,730
	Long-Term Obligations		85,652		70,397		64,614		32,076		53,569
	Shareholders' Equity		67,663		66,669		64,022		61,195		56,753

*

These years included the results of operations and related restructuring provisions associated with certain business units disposed of during fiscal 1998.

10

Item 7.  Management's Discussion and Analysis of Financial Condition and Results of Operations

Results of Operations

    The Company provides ultrahigh-pressure ("UHP") systems and related products and services to a wide variety of industries. Waterjet cutting is recognized as a better alternative to traditional cutting methods such as lasers, saws or plasma. It is faster, has greater versatility in the types of products it can cut and eliminates the need for secondary processing operations. The Company divides its UHP revenues into three primary categories of product, "UHP Systems", "Consumable Parts and Services" and "Fresher Under Pressure Food Systems":

CONSOLIDATED REVENUES BY MAJOR PRODUCT CATEGORIES

	Year Ended April 30,
(In thousands)
	2001		%	2000		%	1999		%
UHP Systems	$	138,433	67	$	132,697	68	$	95,135	64
Consumable Parts and Services		54,085	26		55,708	28		54,162	36
Fresher Under Pressure Food Systems		14,675	7		7,151	4
Total Revenues	$	207,193	100	$	195,556	100	$	149,297	100

Fiscal 2001 Compared to Fiscal 2000

    Revenues for the year ended April 30, 2001 were $207.2 million, an increase of $11.6 million (6%) over the prior year period. Fresher Under Pressure food safety revenues totaled $14.7 million, a doubling of the fiscal 2000 Fresher Under Pressure revenues of $7.2 million. Excluding Fresher Under Pressure, revenues increased $4.2 million (2%), which was comprised of a 17% growth in domestic revenues, offset in part by a 14% decline in international sales. Both domestic and international sales include the patented wire wound isostatic and flexform presses manufactured by Flow Pressure Systems Västerås AB ("Pressure Systems"). Excluding these revenues, as well as Fresher Under Pressure, domestic sales increased 28% as compared to the overall United States machine cutting tool market which declined 2% for the 12 months ended March 31, 2001, according to The Association for Manufacturing Technology ("AMT"). Consistent with historical performance, waterjet technology continues to gain market share due to its advantages over traditional cutting technologies, even in a down market. These advantages, as well as continued product development, should allow the Company to continue to gain market share, however growth will be affected by the performance of the broader machine tool market.

    Our worldwide isostatic press business decreased $12.7 million (29%) to $30.5 million. However, the current fiscal year total is more reflective of a normal business level as the prior year included a $14 million Ford press, the single largest press ever sold. Press backlog at April 30, 2001 totaled $26 million.

    During fiscal 2001 the Company adopted Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial Statements," which provides guidance on the recognition, presentation, and disclosure of revenue in financial statements filed with the SEC. SAB 101 outlines the criteria that must be met to recognize revenue and provides guidance for disclosures related to revenue recognition policies. Under SAB 101, revenue recognition is delayed until after installation of the Company's standard UHP systems. Prior to SAB 101 adoption, the Company recognized revenue for standard systems upon shipment. Standard systems sales represent approximately one third of the Company's consolidated revenues. The remaining consolidated revenue represents either consumable parts sales for which revenue is recognized upon shipment, or special systems for which revenue is recognized under the percentage of completion method. The impact of the SAB 101 adoption as

11

described in Note 2 to the consolidated financial statements was not significant to consolidated current year revenues.

    The Company's revenues can be segregated into three primary categories, systems sales, consumables sales and Fresher Under Pressure. Systems are generally comprised of a pump along with the robotics or articulation used to move the cutting or cleaning head. Systems are further broken down between standard systems such as the Bengal®, Integrated Flying Bridge, A-Series, Waterjet Machining Center®, standard automotive systems, and special or custom designed systems used primarily in the aerospace and automotive markets, as well as isostatic press systems. Systems sales in fiscal 2001 were $138.4 million, an increase of $5.7 million (4%) over the prior year. Excluding isostatic presses, systems revenues increased $19.2 million (21%). Consumables are primarily parts used by the pump and cutting head during operation. Consumable parts and services revenues decreased $1.6 million (3%) to $54.1 million in fiscal 2001. The slowdown in the consumable sales growth reflects a decrease in the worldwide machine tool market, as well as success of the Company's goal of providing lower operating costs through longer life parts.

    Fiscal 2001 revenues included $14.7 million related to food safety or "Fresher Under Pressure", a doubling of the $7.2 million recognized in fiscal 2000. By exposing foods to pressures from 50,000 psi to over 100,000 psi for a short time, typically 30 seconds to slightly more than 2 minutes, UHP achieves the effects of pasteurization without heat. Not only are spoilage microorganisms destroyed, the process also destroys harmful pathogens such as E. coli, listeria, and salmonella, thus increasing shelf life while ensuring a safe, healthy product. Unlike thermal treatment (pasteurization), UHP technology does not destroy or alter the nutritional qualities, taste, texture and color of the food. The Company can UHP process both pumpable and non-pumpable foods. For pumpable foods, Flow utilizes a technology which features a "continuous flow" concept whereby pumpable foods such as juice, salsas, guacamole, liquid eggs and salad dressings are pumped into the pressure chambers, pressurized and then pumped into the next stage of the process, such as bottling. This continuous flow process is fully automated and requires just a single operator. For non-pumpable foods, such as meats, seafood, vegetables and fruits, the Company utilizes its patented large wire-wound pressure vessel batch technology. This makes Flow the only supplier of complete UHP systems to the food industry. The Company anticipates leasing the continuous flow systems and selling the batch systems. The leases have a fixed monthly charge plus a per gallon or per pound usage fee. Lease revenue is recognized monthly based on throughput. Revenue for the batch systems is recognized on the percentage of completion method. Management anticipates Fresher Under Pressure revenues will double each year for the next several years.

    European revenues of $43.3 million decreased $10.9 million (20%) compared to the prior year and represented 21% of fiscal 2001 revenues. The majority of this decrease, $8.4 million, represents a decline in sales of isostatic and flexform presses. The remainder of the decrease was exchange rate related as the Euro continued to weaken against the U.S. dollar during the year. Asian revenues increased 13% to $18.6 million and accounted for 9% of consolidated revenues. Sales in the remainder of the world, primarily Canada, Mexico and South America, decreased 19% to $14.6 million. The Company typically sells its products at higher prices outside the United States due to the costs of servicing these markets.

    Gross profit for the year ended April 30, 2001 increased $7.2 million (9%). Gross profit expressed as a percentage of revenue was 41% in fiscal 2001 as compared to 40% in fiscal 2000. In general, gross margin rates on systems sales are less than 45% and on consumables sales are in excess of 50%. On average, standard systems carry higher margins than the custom engineered systems, which include the isostatic pressure vessels manufactured by Pressure Systems. As such, the gross margin percentage varies depending on the revenue mix between systems, both standard and special, and consumables sales. Systems sales, including Fresher Under Pressure, represented 74% of fiscal 2001 revenues, up from 72% in the prior year, and consumables sales represented 26% of fiscal 2001 revenues, down from 28% in the prior year. The increase in current year gross margin was a function of the shift in

12

revenue towards a greater percentage of standard system sales, as isostatic press systems revenues decreased.

    Operating expenses increased $8.3 million (13%) as compared to the prior year. Expressed as a percentage of revenues, total operating expenses increased to 34% in fiscal 2001 from 32% in fiscal 2000. Marketing expenses of $33 million increased $4 million (14%) as compared to the prior year, and expressed as a percentage of revenues, increased to 16% from 15% in the prior year. The current year increase includes expenses associated with additional Fresher Under Pressure marketing activity, as well as the IMTS trade show which is held every two years. Research and engineering expenses in fiscal 2001 increased $3.5 million (24%) to $18.2 million as compared to the prior year. As a percentage of revenues, research and engineering expenses were 9% in fiscal 2001 as compared to 8% in fiscal 2000. Approximately one half of this increase is continued development of the Fresher Under Pressure technology and the other half is advancement of the waterjet cutting technology. Management will continue to aggressively pursue technological advances through increased research and engineering spending to maintain the Company's technological superiority. General and administrative expenses of $19.9 million increased $823,000 (4%) for the year as compared to the prior year. Expressed as a percentage of revenues however, general and administrative expenses were comparable to the prior year at 10%.

    Operating income can vary significantly for domestic and foreign operations, but is primarily the result of product mix variations and volume from year to year. The domestic machine tool market experienced weakness in fiscal 2001 and the U.S. dollar continued to gain strength over the European currencies.

    Net interest expense of $7 million increased $2 million (41%) in fiscal 2001 compared to fiscal 2000. The increase in interest expense is due to higher average debt levels associated with the additional financing related to the development of the Fresher Under Pressure program. Average debt outstanding increased $12.4 million (17%) during fiscal 2001 compared to the prior year. This increase in debt was solely related to the Fresher Under Pressure technology, from both asset additions as well as its operating loss. During fiscal 2001, other expense, net, totaled $613,000 compared to other expense, net, of $2 million in fiscal 2000. This reduction is due in part to the decrease in the minority interest for majority owned joint ventures.

    Fiscal 2001 income tax expense was 30% of income before tax as compared to 28% in the previous year. The income tax rates were lower than the statutory rates in both the current and prior year due primarily to lower foreign tax rates and benefits from the foreign sales corporation. Additionally, the Company regularly evaluates the likelihood of utilizing its deferred tax assets and adjusts the valuation allowance thereon based on an evaluation of both positive and negative evidence related to these deferred tax assets.

    The weighted average number of shares outstanding used for the calculation of Basic and Diluted earnings per share is 14,828,000 and 15,109,000, respectively, for fiscal 2001 and 14,716,000 and 15,127,000, respectively, for fiscal 2000.

    The effect of the adoption of SAB 101 during fiscal 2001 is shown as a cumulative effect of change in accounting principle, net of tax. Included in the consolidated results of operations is the performance of the Fresher Under Pressure technology, and the performance of the non-food business, cutting, cleaning and isostatic presses. Management has used estimates to determine the allocable costs of the consolidated operations to the Fresher Under Pressure results of operations. Based on these estimates, Fresher Under Pressure lost $9.4 million or $.62 per share in fiscal 2001 and the non-food operations generated net income of $11.8 million or $.78 per share. Management anticipates Fresher Under Pressure will breakeven in the fourth quarter of fiscal 2002. On a consolidated basis, the Company recorded fiscal 2001 net income of $2.4 million, or $.16 Basic and $.16 Diluted earnings per share as compared to $6.5 million, or $.44 Basic and $.43 Diluted earnings per share in fiscal 2000

13

Fiscal 2000 Compared to Fiscal 1999

    Revenues for the year ended April 30, 2000 were $195.6 million, an increase of $46.3 million (31%) over the prior year period. This growth was the result of recent acquisitions, as well as revenues generated from Fresher Under Pressure. The Company acquired Pressure Systems in March 1999 and Spearhead Automated Systems ("Flow Robotic Systems") in September 1999. Excluding acquisitions and $7.2 million from Fresher Under Pressure, revenues decreased 3% both domestically and internationally; however, this performance was better than the overall machine cutting tool market. The United States machine cutting tool market declined 14% for the 12 months ended April 30, 2000 according to the AMT. Flow's UHP technology continued to gain market share in spite of a decreasing market. Systems sales in fiscal 2000 were $139.8 million, an increase of $44.7 million (47%) over the prior year. Excluding acquisitions and Fresher Under Pressure, systems revenues were down slightly. Consumable parts and services revenues increased $1.5 million (3%) to $55.7 million in fiscal 2000. The slowdown in the consumable sales growth reflects a decrease in the worldwide machine tool market.

    Total domestic revenues increased 42% to $110.3 million and represented 57% of fiscal 2000 sales. European revenues posted a 28% gain to $53.9 million and represented 28% of total revenues. Asian revenues increased 11% to $16.5 million and accounted for 8% of consolidated revenues. Sales in the remainder of the world, primarily Canada, Mexico and South America, decreased 4% to $13.3 million. Growth in both the domestic and European markets resulted from recent acquisitions. The Company did not significantly raise prices during fiscal 2000.

    Gross profit for the year ended April 30, 2000 increased $13.6 million (21%). Gross profit expressed as a percentage of revenue was 40% in fiscal 2000 as compared to 44% in fiscal 1999. The gross margin percentage varies depending on the revenue mix between systems, both standard and special, and consumables sales. Systems sales represented 72% of fiscal 2000 revenues, up from 64% in the prior year, and consumables sales represented 28% of fiscal 2000 revenues, down from 36% in the prior year. The decrease in current year gross margin was a function of the shift in revenue towards a greater percentage of systems sales, as well as the inclusion of the isostatic press systems in fiscal 2000.

    Excluding Pressure Systems and Flow Robotic Systems, operating expenses increased $395,000 (1%) as compared to the prior year. Expressed as a percentage of revenues, total operating expenses decreased to 32% in fiscal 2000 from 35% in fiscal 1999. Marketing expenses of $29 million increased $4.2 million (17%) as compared to the prior year, and expressed as a percentage of revenues, decreased to 15% from 17% in the prior year. Research and engineering expenses in fiscal 2000 increased $2.3 million (18%) to $14.7 million as compared to the prior year. As a percentage of revenues, research and engineering expenses were 8% in both fiscal 2000 and fiscal 1999. General and administrative expenses of $19.1 million increased $4.2 million (28%) for the year as compared to the prior year. Expressed as a percentage of revenues however, general and administrative expenses were comparable to the prior year at 10%.

    Net interest expense of $5 million increased $1.8 million (57%) in fiscal 2000 compared to fiscal 1999. The increase in interest expense is due to higher debt levels associated with the purchase of Pressure Systems and Flow Robotic Systems, as well as additional financing related to the development of the Fresher Under Pressure program, and increased interest rates. During fiscal 2000, other expense, net, totaled $2 million compared to other expense, net, of $587,000 in fiscal 1999. This change is due to the increase in the minority interest for majority owned joint ventures.

    For both fiscal 2000 and fiscal 1999, the provision for income taxes was 28% of income before tax. The income tax rates were lower than the statutory rates in both the current and prior years due primarily to lower foreign tax rates and benefits from the foreign sales corporation.

    The weighted average number of shares outstanding used for the calculation of Basic and Diluted earnings per share is 14,716,000 and 15,127,000, respectively, for fiscal 2000 and 14,730,000 and 15,059,000, respectively, for fiscal 1999.

14

    The Company recorded fiscal 2000 net income of $6.5 million, or $.44 Basic and $.43 Diluted earnings per share as compared to $6.7 million, or $.46 Basic and $.45 Diluted earnings per share in fiscal 1999.

Liquidity and Capital Resources

    The Company used $5.3 million in cash from operations during fiscal 2001 as compared to providing $1.8 million in fiscal 2000. The Fresher Under Pressure business accounted for the cash usage from operations. At April 30, 2001, the Company had $22.7 million in inventory and fixed assets associated with Fresher Under Pressure, compared to $14.4 million last year, an increase in assets of $8.3 million. Total debt at April 30, 2001 was $94.1 million, an increase of $14.5 million (18%) from April 30, 2000. Subsequent to April 30, 2001, the Company signed and funded a $35 million subordinated debt agreement with The John Hancock Life Insurance Company ("Hancock"). The agreement requires semi-annual interest only payments of 13% and two equal principal payments due on April 30, 2007 and April 30, 2008. In addition, the Company issued to Hancock warrants for 859,523 shares of Flow common stock exercisable at $.01 per share. Management believes that the available credit facilities and working capital generated by operations will provide sufficient resources to meet its operating and capital requirements for the next 12 months. The Company's Credit Agreement and private placement require the Company to comply with certain financial covenants. The covenants were amended as a result of the Hancock subordinated debt issuance. As of April 30, 2001, the Company was in compliance with all such covenants, as amended.

    See Note 9 of Notes to Consolidated Financial Statements for a schedule of long-term debt maturities. Long-term debt obligations are expected to be met from working capital provided by operations and, as necessary, by other indebtedness.

    Capital spending plans currently provide for outlays of approximately $7 million to $11 million in fiscal 2002. Of this amount, approximately $4 million to $6 million relates to the manufacture of the continuous feed Fresher Under Pressure assets. The timing of these continuous feed asset additions will be determined by market demand. It is expected that funds necessary for these expenditures will be generated internally and through available credit facilities.

    The Company had also indicated that it is exploring the potential public offering of up to 20% of Fresher Under Pressure. Proceeds would be used to retire existing debt, as well as provide working capital for operations.

    Gross receivables of $64 million at April 30, 2001 decreased $9 million (12%) from April 30, 2000. This decrease includes collection of several large receivables, in addition to a reduction in unbilled revenues which have been offset with customer deposits. Days' sales outstanding in gross accounts receivable is negatively impacted by the traditionally longer payment cycle outside the United States. Additionally, longer payment terms are sometimes negotiated on large system orders. Management does not believe these timing issues will present a material adverse impact on the Company's short-term liquidity requirements.

    Inventory of $56.8 million at April 30, 2001 represents an increase of $11.9 million (26%) compared to April 30, 2000. Included in these totals is an increase in work in process of $9.9 million, with the majority of this increase related to Fresher Under Pressure production.

Recently Issued Accounting Pronouncements

    Statement of Financial Accounting Standards No. 133 ("FAS 133"), "Accounting for Derivative Instruments and Hedging Activities", is effective beginning in fiscal 2002. FAS 133 standardizes the accounting for derivative instruments by requiring that an entity recognize those items as assets or

15

liabilities in the financial statements and measure them at fair value. The Company plans to adopt FAS 133 without a material impact on the financial condition or results of operations.

    Statement of Financial Accounting Standards No. 142 ("FAS 142"), "Goodwill and Other Intangible Assets", is effective beginning in fiscal 2003, with early adoption permitted. FAS 142 states that goodwill should not be amortized, but rather analyzed using an impairment-only approach. The Company is currently reviewing the requirements of FAS 142 and assessing its impact on the Company's financial statements. The Company has not made a decision regarding the period of adoption.

    The Company has adopted SAB 101. As described in Note 2 to the consolidated financial statements, SAB 101 provides guidance on the recognition, presentation, and disclosure of revenue in financial statements filed with the SEC and outlines the criteria that must be met to recognize revenue and provides guidance for disclosures related to revenue recognition policies. Under SAB 101, revenue recognition is delayed until after installation of the Company's standard systems. Prior to SAB 101 adoption, the Company recognized revenue for standard systems upon shipment. Standard systems sales represent approximately one third of the Company's consolidated revenues. The remaining consolidated revenue represents either consumable parts sales for which revenue is recognized upon shipment, or special systems for which revenue is recognized under the percentage of completion method. Revenues from equipment on lease are recognized as rental income in the period earned.

Item 7a.  Quantitative and Qualitative Disclosures About Market Risk:

    Market risk exists in the Company's financial instruments related to an increase in interest rates, adverse changes in foreign exchange rates relative to the U.S. dollar, as well as financial risk management and derivatives. These exposures are related to the daily operations of the Company.

    Interest Rate Exposure—At April 30, 2001, the Company had $94.1 million in interest bearing debt. Of this amount, $13.2 million was fixed rate debt with interest rates ranging from 4.75% to 7.25% per annum. The remaining debt of $80.9 million was variable with $50 million of this total bearing a rate of LIBOR + 3% or 7.43% at April 30, 2001. The majority of the remaining floating rate debt was at prime, 7.5%. See Note 9 to the Consolidated Financial Statements for additional contractual information on the Company's debt obligations. Market risk is estimated as the potential for interest rates to increase 10% on the variable rate debt. A 10% increase in interest rates would result in an approximate additional annual charge to the Company's pretax profits and cash flow of $600,000. At April 30, 2001 the Company had no derivative instruments to offset the risk of interest rate changes. The Company may choose to use derivative instruments, such as interest rate swaps, to manage the risk associated with interest rate changes.

    Foreign Currency Exchange Rate Risk—The Company transacts business in various foreign currencies, primarily the Canadian dollar, the German mark, the Japanese yen, the New Taiwan dollar, and the Swedish crown. The assets and liabilities of its foreign operations, with functional currencies other than the U.S. dollar, are translated into U.S. dollars at exchange rates in effect at the balance sheet date. Income and expense items are translated at the average exchange rates prevailing during the period. Aggregate transaction gains and losses included in the determination of net income have not been material. Based on the Company's overall currency rate exposure at April 30, 2001, a near-term 10% appreciation or depreciation of the U.S. dollar would not have a significant effect on the Company's financial position, results of operations and cash flows over the next fiscal year. At April 30, 2001, the Company had several forward exchange contracts to offset the risk of foreign currency exchange rate changes. The Company may continue to use derivative instruments, such as forward exchange rate contracts, to manage the risk associated with foreign currency exchange rate changes.

16

MANAGEMENT'S STATEMENT OF RESPONSIBILITY

    Management is responsible for the fair and accurate presentation of information in this Form 10-K. The consolidated financial statements and related notes have been prepared in accordance with accounting principles generally accepted in the United States of America. Financial and operating information comes from Company records and other sources. Certain amounts are, of necessity, based on judgment and estimation.

    We believe that adequate accounting systems and financial controls are maintained to ensure that the Company's records are free from material misstatement and to protect the Company's assets from loss or unauthorized use. In addition, the Audit Committee of the Board of Directors periodically meets with PricewaterhouseCoopers LLP, the Company's independent accountants, and management to review the work of each, to discuss financial reporting matters, and to review auditing and internal control procedures.

/s/ STEPHEN D. REICHENBACH Stephen D. Reichenbach
Executive Vice President, Treasurer
and Chief Financial Officer

17

Item 8.  Financial Statements and Supplementary Data

    The following consolidated financial statements are filed as a part of this report:

Index to Consolidated Financial Statements	Page in This Report
Report of Independent Accountants	19
Consolidated Balance Sheets at April 30, 2001 and 2000	20
Consolidated Statements of Income for each of the three years in the period ended April 30, 2001	21
Consolidated Statements of Cash Flows for each of the three years in the period ended April 30, 2001	22
Consolidated Statements of Shareholders' Equity for each of the three years in the period ended April 30, 2001	24
Notes to Consolidated Financial Statements	25
Financial Statement Schedule
Schedule VIII Valuation and Qualifying Accounts	45

    All other schedules are omitted because they are not applicable.

18

REPORT OF INDEPENDENT ACCOUNTANTS

     To the Board of Directors and Shareholders of
Flow International Corporation

    In our opinion, the consolidated financial statements and related schedule listed in the accompanying index present fairly, in all material respects, the financial position of Flow International Corporation and its subsidiaries at April 30, 2001 and 2000, and the results of their operations and their cash flows for each of the three years in the period ended April 30, 2001, in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the accompanying index presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedule are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above.

As described in Note 2 to the consolidated financial statements, effective May 1, 2000, the Company changed its method of recognizing revenue for certain transactions.

/s/ PricewaterhouseCoopers LLP

Seattle, Washington
June 5, 2001

19

FLOW INTERNATIONAL CORPORATION

CONSOLIDATED BALANCE SHEETS

(In thousands, except share amounts)

		April 30,
		2001			2000
ASSETS:
Current Assets:
	Cash	$	6,808		$	6,383
	Receivables, net		63,104			72,052
	Inventories, net		56,800			44,909
	Deferred Income Taxes		1,882			1,900
	Other Current Assets		8,607			5,963
Total Current Assets			137,201			131,207
Property and Equipment, net			15,935			16,406
Equipment Held for Lease, net			5,438			4,618
Intangible Assets, net of accumulated amortization of $12,306 and $10,306, respectively			36,505			39,364
Deferred Income Taxes			3,173			572
Other Assets			10,617			4,874
		$	208,869		$	197,041
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current Liabilities:
	Notes Payable	$	3,929		$	5,290
	Current Portion of Long-Term Obligations		4,535			3,926
	Accounts Payable		15,242			15,648
	Accrued Payroll and Related Liabilities		6,422			5,948
	Other Accrued Taxes		722			523
	Deferred Revenue		3,843			2,476
	Other Accrued Liabilities		11,410			9,844
Total Current Liabilities			46,103			43,655
Long-Term Obligations, net of Current Portion			85,652			70,397
Customer Prepayments			7,411			14,483
Commitments and Contingencies (Note 14)
Minority Interest			2,040			1,837
Shareholders' Equity:
	Series A 8% Convertible Preferred Stock—$.01 par value, 1,000,000 shares authorized, none issued
	Common Stock—$.01 par value, 20,000,000 shares authorized, 15,103,078 shares outstanding at April 30, 2001 14,736,081 shares outstanding at April 30, 2000		151			147
	Capital in Excess of Par		44,115			41,041
	Retained Earnings		36,899			34,514
	Accumulated Other Comprehensive Loss		(13,502	)		(9,033	)
Total Shareholders' Equity			67,663			66,669
		$	208,869		$	197,041

The accompanying notes are an integral part of these consolidated financial statements.

20

FLOW INTERNATIONAL CORPORATION

CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except per share amounts)

			Year Ended April 30,
			2001			2000			1999
Revenue			$	207,193		$	195,556		$	149,297
Cost of Sales				121,215			116,728			84,066
Gross Profit				85,978			78,828			65,231
Expenses:
	Marketing			33,022			28,998			24,847
	Research and Engineering			18,172			14,684			12,396
	General and Administrative			19,929			19,106			14,888
				71,123			62,788			52,131
Operating Income				14,855			16,040			13,100
Interest Expense, net				(7,047	)		(4,998	)		(3,177	)
Other Expense, net				(613	)		(2,047	)		(587	)
Income Before Provision for Income Taxes				7,195			8,995			9,336
Provision for Income Taxes				2,158			2,518			2,614
Income Before Cumulative Effect of Change in Accounting Principle				5,037			6,477			6,722
Cumulative Effect of Change in Accounting Principle, Net of Tax				(2,652	)		—			—
Net Income			$	2,385		$	6,477		$	6,722
Earnings Per Share
	Basic
		Income Before Cumulative Effect of Change in Accounting Principle	$	.34		$	.44		$	.46
		Cumulative Effect of Change in Accounting Principle, Net of Tax		.18			—			—
		Net Income	$	.16		$	.44		$	.46
	Diluted
		Income Before Cumulative Effect of Change in Accounting Principle	$	.33		$	.43		$	.45
		Cumulative Effect of Change in Accounting Principle, Net of Tax		.17			—			—
		Net Income	$	.16		$	.43		$	.45

The accompanying notes are an integral part of these consolidated financial statements.

21

FLOW INTERNATIONAL CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

				Year Ended April 30,
				2001			2000			1999
Cash Flows from Operating Activities:
	Net Income			$	2,385		$	6,477		$	6,722
	Adjustments to Reconcile Net Income to Cash Provided by Operating Activities:
		Cumulative Effect of Change in Accounting Principle			2,652
		Depreciation and Amortization			7,945			7,295			4,882
		Deferred Income Taxes			(2,106	)		290			1,327
		Minority Interest			203			723			56
		Provision for losses on trade accounts receivable			576			469			373
		Provision for slow moving and obsolete inventory			371			387			365
		Tax effect of exercised stock options			461			145			218
		Stock Compensation			245			319
		(Increase) Decrease in Operating Assets and Liabilities, net of effects of business combinations:
			Receivables		(1,284	)		(14,691	)		(4,201	)
			Inventories		(6,624	)		3,127			(5,072	)
			Other Current Assets		(2,644	)		(1,041	)		3,798
			Accounts Payable		(406	)		(3,795	)		4,423
			Accrued Payroll and Related Liabilities		474			(853	)		1,168
			Deferred Revenue		1,367			(412	)		2,786
			Customer Prepayments		(7,072	)		5,552			1,009
			Other Accrued Liabilities		2,654			(740	)		(14,668	)
			Other Long-Term Assets		(4,503	)		(1,412	)		(304	)
	Cash (used) provided by operating activities				(5,306	)		1,840			2,882
Cash Flows from Investing Activities:
	Expenditures for property and equipment				(5,778	)		(6,569	)		(8,200	)
	Payment for business combinations, net of cash acquired							(4,499	)		(13,564	)
	Other				(1,013	)		(151	)		(44	)
	Cash used by investing activities				(6,791	)		(11,219	)		(21,808	)
Cash Flows from Financing Activities:
	Borrowings under line of credit agreements, net				16,451			13,337			33,594
	Payments of long-term obligations				(1,948	)		(3,953	)		(3,357	)
	Common stock repurchased										(3,266	)
	Proceeds from issuance of common stock				2,372			317			948
	Cash provided by financing activities				16,875			9,701			27,919
Effect of exchange rate changes					(4,353	)		(4,342	)		(1,596	)
Increase (decrease) in cash and cash equivalents					425			(4,020	)		7,397
Cash and cash equivalents at beginning of period					6,383			10,403			3,006
Cash and cash equivalents at end of period				$	6,808		$	6,383		$	10,403

22

Supplemental disclosures of cash flow information
Cash paid during the year for
	Interest	$	6,906	$	4,844		$	3,175
	ncome Taxes		3,080		1,882			569
Supplemental schedule of non-cash investing and financing activities
Business Combinations
	Fair value of assets acquired (Note 2)		—	$	6,039		$	43,703
	Net Cash paid, stock issued and notes assumed for assets acquired		—		(4,499	)		(13,564	)
	Liabilities assumed		—	$	1,540		$	30,139

The accompanying notes are an integral part of these consolidated financial statements.

23

FLOW INTERNATIONAL CORPORATION

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

(In thousands)

		Common Stock
													Accumulated Other Comprehensive Loss
		Shares		Par Value			Capital In Excess of Par			Retained Earnings						Total Shareholders' Equity
Balances, April 30, 1998		14,847		$	148		$	39,925		$	23,749		$	(2,627	)	$	61,195
Components of Comprehensive Income:
	Net Income										6,722						6,722
	Unrealized Loss on Equity Securities Available for Sale, Net of Tax													(199	)		(199	)
	Cumulative Translation Adjustment													(1,596	)		(1,596	)
Total Comprehensive Income																	4,927
Exercise of Stock Options		155			2			946									948
Repurchase of Common Stock		(336	)		(3	)		(829	)		(2,434	)					(3,266	)
Other								218									218
Balances, April 30, 1999		14,666			147			40,260			28,037			(4,422	)	$	64,022
Components of Comprehensive Income:
	Net Income										6,477						6,477
	Unrealized Loss on Equity Securities Available for Sale, Net of Tax													(269	)		(269	)
	Cumulative Translation Adjustment													(4,342	)		(4,342	)
Total Comprehensive Income																	1,866
Exercise of Stock Options		70						317									317
Other								464									464
Balances, April 30, 2000		14,736			147			41,041			34,514			(9,033	)	$	66,669
Components of Comprehensive Income:
	Net Income										2,385						2,385
	Unrealized Loss on Equity Securities Available for Sale, Net of Tax													(116	)		(116	)
	Cumulative Translation Adjustment													(4,353	)		(4,353	)
Total Comprehensive Loss																	(2,084	)
Exercise of Stock Options		367			4			2,368									2,372
Other								706									706
Balances, April 30, 2001		15,103		$	151		$	44,115		$	36,899		$	(13,502	)	$	67,663

The accompanying notes are an integral part of these consolidated financial statements.

24

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the three years ended April 30, 2001

(All tabular dollar amounts in thousands, except per share amounts)

Note 1—Summary of Significant Accounting Policies:

Principles of Consolidation

    The Consolidated Financial Statements include Flow International Corporation ("Flow" or the "Company"), and its wholly-owned subsidiaries, Flow Europe GmbH ("Flow Europe"), Foracon Maschinen und Anlagenbau GmbH & CO.KG ("Foracon"), Flow Asia Corporation ("Flow Asia"), Flow Automation Inc. ("Flow Automation"), Flow Japan Corporation ("Flow Japan"), Flow Software Technologies Ltd. ("Flow Software"), Flow Pressure Systems Västerås AB ("Pressure Systems"), Flow Holdings GmbH (SAGL) Limited Liability Company ("Flow Switzerland"), HydroDynamic Cutting Services, Spearhead Automated Systems ("Flow Robotic Systems"), and a 50% owned joint venture, Flow Autoclave Inc. ("Flow Autoclave"). All significant intercompany transactions have been eliminated.

Operations

    The Company develops and manufactures ultrahigh-pressure ("UHP") waterjet cutting, cleaning and specialized robotic systems for the manufacturing, industrial and marine cleaning markets, as well as food safety systems for a wide variety of food products. The Company provides products to a wide variety of industries, including the automotive, aerospace, disposable products, food processing, job shop, marble, tile and other stone cutting, and paper industries. In addition, the Company provides isostatic presses to the automotive and aerospace industries and UHP processing equipment for food safety known as "Fresher Under Pressure"®. Equipment is designed, developed, and manufactured at the Company's principal facilities in Kent, Washington, and at manufacturing facilities in Bretten and Darmstadt Germany; Burlington, Canada; Hsinchu, Taiwan; Jeffersonville, Indiana; Wixom, Michigan and Västerås, Sweden. The Company markets its products to customers worldwide through its principal offices in Kent and its subsidiaries in Brazil, Canada, Germany, Italy, Japan, Spain, Sweden, Switzerland, Taiwan, and the United Kingdom.

Revenue Recognition

    Revenues are recognized in accordance with Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial Statements," for standard UHP systems. Prior to SAB 101 adoption, the Company recognized revenue for standard systems upon shipment (Note 2). For consumables and products that do not require installation, revenues are recognized at the time of shipment. For non-standard and long lead time systems, as well as the Fresher Under Pressure technology, revenues are recognized on the percentage of completion, measured by the cost to cost method. Revenues from equipment on lease are recognized as rental income in the period earned.

Shipping Revenues and Expenses

    The Company implemented Emerging Issues Task Force Issue No. 00-10 "Accounting for Shipping and Handling Fees and Costs" (EITF 00-10) in the fourth quarter of fiscal 2001. EITF 00-10 required the Company to include the amounts billed to customers for shipping and handling in revenue. Prior to adoption of EITF 00-10, the Company had included these amounts in Cost of Goods Sold. The restatement of prior years financial statements resulted in an increase in revenue and cost of goods sold by $1.4 million, $1.5 million and $1.1 million in the fiscal years ended April 30, 2001, 2000 and 1999, respectively. Gross margin was unaffected by the adoption of EITF 00-10.

25

Cash Equivalents

    For the purposes of the Consolidated Statements of Cash Flows, the Company considers short-term investments with original or remaining maturities from the date of purchase of three months or less, if any, to be cash equivalents. The Company's cash consists of demand deposits in large financial institutions. At times, balances may exceed federally insured limits.

Inventories

    Inventories are stated at the lower of cost, determined by using the first-in, first-out method, or market. Costs included in inventories consist of materials, labor and manufacturing overhead, which are related to the purchase or production of inventories.

Property and Equipment

    Property and equipment are stated at cost. Additions, leasehold improvements and major replacements are capitalized. When assets are sold, retired or otherwise disposed of, the cost and accumulated depreciation are removed from the accounts and any resulting gain or loss is reflected in the statement of income. Depreciation for financial reporting purposes is provided using the straight-line method over the estimated useful lives of the assets, which range from three to eleven years for machinery and equipment; three to nine years for furniture and fixtures and 19 years for buildings. Leasehold improvements are amortized over the related lease term, or the life of the asset, whichever is shorter. Expenditures for maintenance and repairs are charged to expense as incurred.

Equipment Held for Lease

    Equipment Held for Lease is stated at cost and represents the Fresher Under Pressure equipment held for lease to food producers. When assets are sold, retired or otherwise disposed of, the cost and accumulated depreciation are removed from the accounts and any resulting gain or loss is reflected in the statement of income. Depreciation for financial reporting purposes is provided using the straight-line method over the estimated useful lives of the assets, which is five years.

Intangible Assets

    Intangible assets consisting primarily of acquired technology, patents, non-compete agreements and goodwill are amortized on a straight-line basis over fifteen years.

Impairment of Long-Lived Assets

    The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate the carrying amounts of assets may not be recoverable. The carrying value of long-lived assets are assessed for impairment by evaluating operating performance and future undiscounted cash flows of the underlying assets. Adjustments are made if the sum of the expected future net cash flows is less than carrying value. Accordingly, actual results could vary significantly from such estimates.

26

Fair Value of Financial Instruments

    The carrying amount of all financial instruments on the balance sheet as of April 30, 2001 and 2000 approximates fair value with the exception of the Company's investment in Phenix Composites, Incorporated ("Phenix") (see Note 5). The carrying value of long-term obligations and notes payable approximates fair value because interest rates reflect current market conditions or are based on discounted cash flow analyses. The carrying value of the Company's investment in common stock of Western Garnet International Ltd. ("Western Garnet") is at fair value based on the current market price of the common stock.

Concentration of Credit Risk

    In countries or industries where the Company is exposed to material credit risk, sufficient collateral, including cash deposits and/or letters of credit, is required prior to the completion of a transaction. The Company does not believe there is a material credit risk beyond that provided for in the financial statements in the ordinary course of business. The Company makes use of foreign exchange contracts to cover some transactions denominated in foreign currencies, and does not believe there is an associated material credit or financial statement risk.

Warranty Liability

    Products are warranted to be free from material defects for a period of one year from the date of shipment. Warranty obligations are limited to the repair or replacement of products. The Company's warranty accrual is reviewed quarterly by management for adequacy based upon recent shipments and historical warranty expense. Credit is issued for product returns upon receipt of the returned goods, or, if material, at the time of notification and approval.

Product Liability

    The Company is obligated under terms of its product liability insurance contracts to pay all costs up to deductible amounts. Included in general and administrative expenses are insurance, investigation and legal defense costs. Legal settlements, if any, are included in other expense.

Income Taxes

    The Company accounts for income taxes under the asset and liability method, which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities. If it is more likely than not that some portion of a deferred tax asset will not be realized, a valuation allowance is recorded.

Minority Interests in Joint Ventures

    The Company includes income or expense associated with the minority interest in joint ventures as part of Other Expense, net in the accompanying Consolidated Statements of Income.

27

Foreign Currency Translation

    The functional currency of Flow Asia is the New Taiwan dollar; of Flow Automation, the Canadian dollar; of Flow Europe and Foracon, the German mark; of Flow Japan, the Japanese yen, and of Pressure Systems, the Swedish crown. All assets and liabilities of these foreign subsidiaries are translated at year-end rates. Income and expense accounts of the foreign subsidiaries are translated at the average rates in effect during the year. Adjustments resulting from the translation of Flow Asia, Flow Automation, Flow Europe, Foracon, Flow Japan, and Pressure Systems financial statements are recorded in the accumulated other comprehensive loss account in the shareholders' equity section of the accompanying Consolidated Balance Sheets.

    The Company uses forward exchange contracts to hedge certain firm purchase and sale commitments and the related receivables and payables, including certain intercompany foreign currency transactions. Hedged transactions are denominated primarily in the Swedish crown. Gains and losses related to hedges of firmly committed transactions and the related receivables are deferred and are recognized in income or as adjustments of carrying amounts when the offsetting gains and losses are recognized on the hedged transactions. The realized and unrealized gains or losses on forward contracts were insignificant. The total notional amount of the forward exchange contracts is $37.4 million and these expire at various times through August 2002.

    The estimated fair values of derivatives used to hedge the Company's risks will fluctuate over time. The fair value of the forward exchange contracts is estimated by obtaining quoted exchange rates.

    For the years ended April 30, 2001, 2000 and 1999 a net foreign exchange gain of $675,000, a loss of $110,000 and a loss of $104,000, respectively, is included in Other Expense, net, in the accompanying Consolidated Statements of Income.

Basic and Diluted Earnings Per Share

    Basic earnings per share represents net income available to common shareholders divided by the weighted average number of shares outstanding during the period. Diluted earnings per share represents net income available to common shareholders divided by the weighted average number of shares outstanding including the potentially dilutive impact of stock options. Common stock options are converted using the treasury stock method.

28

    The following table sets forth the computation of Basic and Diluted earnings per share for the years ended April 30, 2001, 2000 and 1999:

		Year Ended April 30,
		2001		2000		1999
Numerator:
	Net income	$	2,385	$	6,477	$	6,722
Denominator:
	Denominator for basic earnings per share—weighted average shares		14,828		14,716		14,730
	Dilutive potential common shares from employee stock options		281		411		329
	Denominator for diluted earnings per share—weighted average shares and assumed conversions		15,109		15,127		15,059
Basic earnings per share		$	.16	$	.44	$	.46
Diluted earnings per share		$	.16	$	.43	$	.45

Use of Estimates

    The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates that are susceptible to significant change in the near term are the percentage of completion estimates and the adequacy of the allowance for obsolete inventory, warranty obligations and doubtful accounts receivable.

Reclassifications

    Certain fiscal 2000 and 1999 amounts have been reclassified to conform with the 2001 presentation. These reclassifications had no effect on previously reported net income or cash flows.

Segments

    The Company is required to report information about operating segments both annually as well as condensed data quarterly. Operating segments are determined based upon the manner in which internal financial information is produced and evaluated by the chief operating decision maker. Additionally, certain geographical information is required regardless of how internal financial information is generated. Based on the reporting structure of the Company and how information is evaluated, management believes the Company operates within geographic segments only.

29

Recently Issued Accounting Pronouncements

    Statement of Financial Accounting Standards No. 133 ("FAS 133"), "Accounting for Derivative Instruments and Hedging Activities", is effective beginning in fiscal 2002. FAS 133 standardizes the accounting for derivative instruments by requiring that an entity recognize those items as assets or liabilities in the financial statements and measure them at fair value. The Company plans to adopt FAS 133 without a material impact on the financial condition or results of operations.

    Statement of Financial Accounting Standards No. 142 ("FAS 142"), "Goodwill and Other Intangible Assets", is effective beginning in fiscal 2003, with early adoption permitted. FAS 142 states that goodwill should not be amortized, but rather analyzed using an impairment-only approach. The Company is currently reviewing the requirements of FAS 142 and assessing its impact on the Company's financial statements. The Company has not made a decision regarding the period of adoption.

Note 2—SAB 101 "Revenue Recognition" Implementation:

    During the third quarter of fiscal 2001, the Company adopted SAB 101 which provides guidance on the recognition, presentation, and disclosure of revenue in financial statements filed with the SEC. SAB 101 outlines the criteria that must be met to recognize revenue and provides guidance for disclosures related to revenue recognition policies. Under SAB 101, revenue recognition is delayed until after installation of the Company's standard UHP systems. Prior to SAB 101 adoption, the Company recognized revenue for standard systems upon shipment. Standard systems sales represent approximately one third of the Company's consolidated revenues. The remaining consolidated revenue represents either consumable parts sales for which revenue is recognized upon shipment, or special systems for which revenue is recognized under the percentage of completion, measured by the cost to cost method. The effect of this change in policy is quantified as a Cumulative Effect of Change in Accounting Principle, net of tax in the current fiscal year. Pro forma amounts for the periods beginning before May 1, 2000 have not been presented as the effect of the change in accounting principle could not be reasonably determined.

30

    The following table shows the effects of the change in policy for the first two interim periods during fiscal year 2001:

	First Quarter Ended July 31, 2000					Second Quarter Ended October 31, 2000
	As Previously Reported		As Restated			As Previously Reported		As Restated
Revenues	$	50,427	$	58,792		$	48,682	$	44,176
Gross Margin		21,419		23,163			22,206		21,400
Income Before Cumulative Effect of Change in Accounting Principle		1,479		2,700			1,769		1,204
Cumulative Effect of Change In Accounting Principle, net of tax		—		(2,652	)		—		—
Net Income	$	1,479	$	48		$	1,769	$	1,204
Amounts Per Diluted Share:
Income Before Cumulative Effect of Change in Accounting Principle	$	.10	$	.18		$	.12	$	.08
Cumulative Effect of Change In Accounting Principle, net of tax		—		(.18	)		—		—
Net Income	$	.10	$	.00		$	.12	$	.08

31

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the three years ended April 30, 2001

(All tabular dollar amounts in thousands, except per share amounts)

Note 3—Business Combinations:

    In September 1999, the Company purchased substantially all of the assets and selected liabilities of Flow Robotic Systems for $4.5 million. Flow Robotic Systems manufactures advanced cutting, trimming and tooling equipment for the automotive and related industries. The difference between the net fair market value of assets acquired and consideration given totaled $2.8 million and has been recorded as an intangible asset. Operating results have been included in the Consolidated Financial Statements from the date of acquisition based upon the purchase method of accounting.

    In March 1999, the Company acquired all of the stock of Pressure Systems from Asea Brown Boveri AB ("ABB"). In addition, the Company purchased a 50% ownership in Flow Autoclave from an ABB subsidiary. Pressure Systems manufactures pressure vessels used in batch UHP food processing, a complementary product to the Company's continuous flow food processing technology, as well as isostatic and flexform presses for the Company's core markets of aerospace and automotive. Flow Autoclave is the domestic distributor for the Pressure Systems product. Total cash consideration for the above two acquisitions was $22.8 million. The difference between the net fair market value of assets acquired and consideration given totaled $21.1 million and has been recorded as an intangible asset. During fiscal 2000, a pre-acquisition contingency related to the valuation of work in process inventory at Pressure Systems was resolved. This resulted in an additional $2.7 million of goodwill being recorded. Operating results have been included in the Consolidated Financial Statements from the date of acquisition based upon the purchase method of accounting.

    Except as reported in Note 4, unaudited pro forma results are not presented as they are not materially different from the results reported in the Consolidated Financial Statements.

Note 4—Pro Forma Financial Information (Unaudited):

    Pressure Systems was a small subsidiary of ABB. Consistent with ABB policy, Pressure Systems was subject to various intercompany charges, many of which will not be recurring in the future. These charges are included in the pro forma financial information below.

    If Pressure Systems had been acquired at the beginning of the year ended April 30, 1999, the results of operations for the year ended April 30, 1999 of the Company would be adjusted as follows on a pro forma basis. Total revenues would have been $170.3. Net income would have been $4.8 million. Basic and diluted earnings per share would have been $.33 and $.32, respectively. The adjustments to net income for the year include additional interest expense of $1.1 million and additional goodwill amortization of $1.3 million. The pro forma consolidated financial information is presented for information purposes only, does not take into account savings that may have been realized from the combination of the Company and Pressure Systems, and is not indicative of the actual consolidated financial position or results of operations in the future.

Note 5—Related Party Transactions:

    In August 1992, the Company entered into a stock purchase agreement with Phenix and contributed cash and certain equipment valued at cost. The book value of the investment is $484,000 at April 30, 2001 and 2000 and is being accounted for under the cost method. Currently, the Company's Chairman, President and Chief Executive Officer is a member of the board of directors of Phenix.

    The Company owns 369,791 shares or 2.7% of Western Garnet for which it paid $1.5 million. Western Garnet is publicly traded on the Toronto stock exchange. This investment was made to secure

32

a long-term relationship with the Company's supplier of its high quality garnet. Garnet is sold by the Company as a consumable used in abrasivejet cutting. The Company classifies this investment as available-for-sale under Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities". Based on year end closing stock price of Western Garnet, the Company recorded a tax-effected unrealized loss of $925,000 and $809,000 for the fiscal years 2001 and 2000, respectively, which is reflected in Accumulated Other Comprehensive Loss of the accompanying Consolidated Balance Sheets. Currently, the Company's Chairman, President and Chief Executive Officer is a member of the board of directors of Western Garnet.

Note 6—Receivables:

    Receivables consist of the following:

	April 30,
	2001			2000
Trade Accounts Receivable	$	49,415		$	44,200
Unbilled Revenues		14,555			28,751
		63,970			72,951
Less: Allowance for Doubtful Accounts		(866	)		(899	)
	$	63,104		$	72,052

Note 7—Inventories:

    Inventories consist of the following:

	April 30
	2001			2000
Raw Materials and Parts	$	27,134		$	28,828
Work in Process		17,393			7,501
Finished Goods		14,177			10,483
		58,704			46,812
Less: Provision for Slow-Moving and Obsolete Inventory		(1,904	)		(1,903	)
	$	56,800		$	44,909

33

Note 8—Property and Equipment, and Equipment Held for Lease:

    Property and Equipment are as follows:

		April 30,
		2001			2000
Land and Buildings		$	300		$	300
Machinery and Equipment			29,156			28,880
Furniture and Fixtures			2,881			2,644
Leasehold Improvements			8,004			8,269
Construction in Progress			4,640			2,988
			44,981			43,081
Less:
	Accumulated Depreciation and Amortization		(29,046	)		(26,675	)
		$	15,935		$	16,406

    Equipment Held for Lease is as follows:

		April 30,
		2001			2000
Equipment Held for Lease		$	5,958		$	4,826
Less:
	Accumulated Depreciation and Amortization		(520	)		(208	)
		$	5,438		$	4,618

    For the years ended April 30, 2001, 2000 and 1999, the Company capitalized interest of $385,000, $371,000 and $0, respectively.

Note 9—Long-Term Obligations and Notes Payable:

    Long-term obligations are as follows:

	April 30
	2001			2000
Flow Line of Credit	$	76,955		$	53,758
Private Debt Placement		10,714			12,857
Term Loans Payable		2,518			7,708
		90,187			74,323
Less: Current Portion		(4,535	)		(3,926	)
	$	85,652		$	70,397

34

    Current notes payable are as follows:

	April 30,
	2001		2000
Flow Automation Notes Payable			$	463
Pressure Systems Notes Payable	$	3,929		4,827
	$	3,929	$	5,290

    In December 2000, the Company renegotiated its Credit Agreement. The Company's Credit Agreement provides for a revolving line of credit of up to $80 million, with several financial institutions, which expires on September 30, 2003. The amount that can be borrowed is limited based on certain debt covenant restrictions. Interest rates under the Credit Agreement are at the bank's prime rate or are linked to LIBOR, at the Company's option. The funded debt ratio determines the LIBOR based interest rate. The Company has borrowed $77 million under the Credit Agreement as of April 30, 2001, of which $26.5 million carries an interest rate of prime and the remainder carries an interest rate of LIBOR + 3%. Prime at April 30, 2001 was 7.5% and LIBOR was 4.43%. The Company pays 0.1% as an unused commitment fee. As of April 30, 2001, the Company had $3 million of available domestic unused line of credit.

    The Private Debt Placement is a 10-year note with seven equal principal payments beginning in September 1999. The Company pays interest semi-annually at a fixed rate of 7.2%. The Credit Agreement and Private Debt Placement are collateralized by a general lien on all of the Company's assets. The Company is required to comply with certain covenants relating to the Credit Agreement and Private Debt Placement, including restrictions on dividends and transactions with affiliates, limitations on additional indebtedness, and maintenance of tangible net worth, working capital, fixed charge coverage, funded debt and debt service ratios. The covenants were amended as of April 30, 2001. As of April 30, 2001, the Company was in compliance with all such covenants, as amended.

    Included in Term Loans Payable is a German mark denominated loan of $2.4 million. The Company's principal bank has issued a $6.5 million standby letter of credit to the Company's German bank, to secure a credit facility for use by Flow Europe. Principal and interest are payable monthly at a rate of 4.75% through fiscal 2003. At April 30, 2001, Flow Europe had an unused $4.1 million credit facility.

    Current Notes Payable include:

    The $900,000 Canadian dollar Flow Automation credit facility which is collateralized by trade accounts receivable and inventory, and is denominated in Canadian dollars at an interest rate of Canadian prime (6.75% at April 30, 2001) plus 0.5%. As of April 30, 2001, Flow Automation had no outstanding borrowings against this facility.

    A 50 million Swedish crown Pressure Systems line of credit which is collateralized by trade accounts receivable and inventory, at an interest rate of Swedish prime (4.1% at April 30, 2001) plus 0.75%. As of April 30, 2001, Pressure Systems has approximately $973,000 in unused credit facilities.

35

    Principal payments under long-term obligations for the next five years and thereafter are as follows: $4,535,000 in 2002, $2,705,000 in 2003, $78,663,000 in 2004, $2,143,000 in 2005, and $2,141,000 in 2006.

    Subsequent to April 30, 2001, the Company signed a $35 million subordinated debt agreement with The John Hancock Life Insurance Company ("Hancock"). The agreement requires semi-annual interest only payments at 13% and two equal principle payments due on April 30, 2007, and April 30, 2008. In addition the Company issued to Hancock 859,523 warrants in Flow common stock at $.01 per share.

Note 10—Income Taxes:

    The components of consolidated income before income taxes and the provision for income taxes are as follows:

		Year Ended April 30,
		2001		2000		1999
Income Before Income Taxes:
	Domestic	$	2,365	$	540	$	5,753
	Foreign		4,830		8,455		3,583
	Total	$	7,195	$	8,995	$	9,336

    The provision (benefit) for income taxes comprises:

		Year Ended April 30,
		2001			2000		1999
Current:
	Domestic	$	1,154		$	137	$	443
	State and Local		339			96		255
	Foreign		2,771			1,995		589
	Total		4,264			2,228		1,287
Deferred			(2,106	)		290		1,327
Total		$	2,158		$	2,518	$	2,614

36

    Net deferred tax assets (liabilities) comprise the following:

			April 30, 2001			April 30, 2000
Current:
	Accounts receivable allowances		$	156		$	148
	Inventory capitalization			223			169
	Obsolete inventory			388			295
	Vacation accrual			377			350
	Net operating loss carryover			117			117
	Business tax credits			219			219
	Foreign tax credits			75			148
	AMT credits			168			168
	All other			234			434
		Subtotal		1,957			2,048
	Valuation allowance			(75	)		(148	)
Total Current Deferred Taxes				1,882			1,900
Long-term:
	Fixed assets			580			354
	Net operating loss carryover			2,133			1,061
	State and foreign taxes			(566	)		(995	)
	AMT credits			511			496
	Unrealized loss			477			—
	All other			656			(46	)
		Subtotal		3,791			870
	Valuation allowance			(618	)		(298	)
Total Long-Term Deferred Taxes				3,173			572
Total Net Deferred Taxes				5,055			2,472

37

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the three years ended April 30, 2001

(All tabular dollar amounts in thousands, except per share amounts)

Note 10—Income Taxes: (Continued)

    A reconciliation of income taxes at the federal statutory rate to the provision for income taxes is as follows:

	Year Ended April 30,
	2001		2000		1999
Income taxes at federal statutory rate	34.0	%	34.0	%		34.0	%
Foreign sales corporation benefit	(3.0	)	(2.5	)		(2.6	)
Foreign tax rate differences	(4.4	)	(5.6	)		(0.4	)
Change in valuation allowances	3.4		(10.5	)		(4.5	)
Changes to net operating losses	(5.1	)	9.1			(0.4	)
State and local tax rate differences	3.1		0.7			1.8
Non deductible meals	1.5		1.1			1.1
Other	0.5		1.7			(1.0	)
Income tax provision	30.0	%	28.0	%	$	28.0	%

    As of April 30, 2001, the Company had approximately $1.4 million of domestic net operating loss carryforwards to offset certain earnings for federal income tax purposes, of which the entire amount was currently available. This net operating loss carryforward expires in fiscal 2003. Net operating loss carryforwards in foreign jurisdictions amount to $4 million and do not expire.

    Due to current and estimated expected future earnings, the Company expects to utilize some but not all of its foreign net operating loss carryforwards. Therefore, the foreign valuation allowance associated with the net operating loss carryforward was increased by a net tax affected amount of $320,000 in fiscal 2001. The valuation allowance was reduced by $73,000 for foreign tax credits.

    Provision has not been made for U.S. income taxes or foreign withholding taxes on $21 million of undistributed earnings of foreign subsidiaries. Those earnings have been and will continue to be reinvested. These earnings could become subject to additional tax if they were remitted as dividends, if foreign earnings were loaned to the Company or a U.S. affiliate, or if the Company should sell its stock in the subsidiaries.

Note 11—Stock Options:

    The Company has stock options outstanding under various option plans described as follows:

    1984 Restated Stock Option Plan (the "1984 Restated Plan").  Approved by the Company's shareholders in September 1984 and subsequently amended and restated, the 1984 Restated Plan provides for grants to employees and contractors to purchase a maximum of 1,800,000 shares of the Company's common stock. The 1984 Restated Plan allows for the grant of either incentive or nonqualified stock options.

    1987 Stock Option Plan for Nonemployee Directors (the "1987 Nonemployee Directors Plan").  Approved by the Company's shareholders in September 1987, the 1987 Nonemployee Directors Plan, as subsequently amended, provides for the automatic grant of nonqualified options for 10,000 shares of

38

Company common stock to a nonemployee director when initially elected or appointed, and currently, the issuance of 10,000 options annually thereafter during the term of directorship.

    1991 Stock Option Plan (the "1991 SO Plan").  The 1991 SO Plan was adopted in October 1991 and amended in August 1993. Incentive and nonqualified stock options up to 700,000 shares may be issued under this plan.

    1995 Long-Term Incentive Plan (the "1995 LTI Plan").  The 1995 LTI Plan was adopted in August 1995. In fiscal 2000, the 1995 LTI Plan was amended to increase the number of shares available for grant to 3,350,000 shares.

    All options become exercisable upon a change in control of the Company. Options have a two-year vesting schedule, and are generally granted with an exercise price equal to the fair market value of the Company's common stock on the date of grant. The maximum term of options is 10 years from the date of grant. During late fiscal 1999 and early fiscal 2000, the Board of Directors of the Company approved options for 272,171 shares which were priced at fair market value on the dates of Board approval, subject however to shareholder approval of a planned increase in the shares available under the 1995 LTI Plan. The grant date for these options occurred at the August 1999 shareholder meeting. Based upon the difference in fair market value between the Board of Directors approval date and grant date, compensation expense of $245,000 and $319,000 was recorded during fiscal 2001 and 2000, respectively. No compensation expense was recorded during fiscal 1999. The following chart summarizes the status of the options at April 30, 2001:

	1984 Restated Plan	1987 Nonemployee Directors Plan	1991 SO Plan and 1995 LTI Plan	Total
Number of options outstanding	5,000	520,000	2,401,326	2,926,326
Number of options vested	5,000	520,000	1,399,236	1,924,236
Average exercise price per share of options outstanding	$5.50	$9.51	$9.38	$9.40

    The Company has adopted the disclosure only provisions of Financial Accounting Standards No. 123 ("FAS 123"), "Accounting for Stock Based Compensation". Pro forma information regarding the net income or loss as calculated under FAS 123 has been determined as if the Company had accounted for its employee stock options under the fair value method. If the Company had elected to recognize compensation costs based on the fair value at the date of grant for awards in fiscal 2001,

39

2000, and 1999, consistent with the provisions of FAS 123, the Company's net income and earnings per Basic and Diluted share would have been reduced to the following pro forma amounts:

		Year Ended April 30:
		2001			2000		1999
Net Income (Loss):
	As reported	$	2,385		$	6,477	$	6,722
	Pro forma	($	107	)	$	3,943	$	5,034
Earnings (Loss) Per Share—Basic:
	As reported	$	0.16		$	0.44	$	0.46
	Pro forma	($	0.01	)	$	0.27	$	0.34
Earnings (Loss) Per Share—Diluted:
	As reported	$	0.16		$	0.43	$	0.45
	Pro forma	($	0.01	)	$	0.26	$	0.33

    Such pro forma disclosures may not be representative of future compensation cost because options vest over two years and additional grants are made each year.

    The weighted-average fair values at the date of grant for options granted in fiscal 2001, 2000 and 1999 were estimated using the Black-Scholes option-pricing model, based on the following assumptions: (i) no expected dividend yields for fiscal years 2001, 2000 and 1999; (ii) expected volatility rates of 47.0%, 47.4% and 47.9% for fiscal 2001, 2000 and 1999, respectively; and (iii) expected lives of six years for fiscal 2001, 2000 and 1999. The risk-free interest rate applied to fiscal 2001, 2000 and 1999 was 5.6%, 6.7% and 6.0%, respectively.

    The following table summarizes information about stock options outstanding at April 30, 2001:

Range of Exercise Prices		Number Outstanding at April 30, 2001	Weighted- Average Remaining Contractual Life	Weighted- Average Exercise Price		Number Exercisable at April 30, 2001	Weighted- Average Exercise Price
$1.25—$4.99		30,000	0.49 years	$	3.44	30,000	$	3.44
$5.00—$7.99		397,400	2.29 years		5.94	397,400		5.94
$8.00—$12.25		2,498,926	6.51 years		10.02	1,496,836		9.71
	Total:	2,926,326	5.89 years	$	9.40	1,924,236	$	8.85

40

    The following table rolls forward the stock option activity for the years ended April 30:

	2001				2000				1999
	Shares		Weighted- Average Exercise Price		Shares		Weighted- Average Exercise Price		Shares		Weighted- Average Exercise Price
Outstanding—beginning of year	2,856,083		$	8.75	2,069,794		$	8.10	1,903,593		$	7.64
Granted during the year:	595,690			10.94	892,202			9.89	380,100			9.59
Exercised during the year:	(366,847	)		6.47	(70,530	)		4.48	(155,242	)		6.12
Forfeited during the year:	(158,600	)		10.08	(35,383	)		9.94	(58,657	)		8.07
Outstanding, end of year	2,926,326		$	9.40	2,856,083		$	8.75	2,069,794		$	8.10
Exercisable, end of year	1,924,236		$	8.85	1,953,549		$	8.23	1,463,794		$	7.39
Weighted Average fair value of options granted during each period:			$	5.77			$	6.16			$	4.26

Note 12—Voluntary Pension and Salary Deferral Plan:

    The Company has a 401(k) savings plan in which employees may contribute a percentage of their compensation. The Company makes contributions based on employee contributions and length of employee service. Company contributions and expenses under the plan for the years ended April 30, 2001, 2000, and 1999 were $826,000, $758,000, and $753,000, respectively.

Note 13—Preferred Share Rights Purchase Plan:

    The Board of Directors of the Company has adopted a Preferred Share Rights Purchase Plan under which a Preferred Share Purchase Right (a "Right") is attached to each share of Company common stock. The Rights will be exercisable only if a person or group acquires 10% or more of the Company's common stock or announces a tender offer, the consummation of which would result in ownership by a person or group of 10% or more of the common stock. Each Right entitles shareholders to buy one one-hundredth of a share of Series B Junior Participating Preferred Stock (the "Series B Preferred Shares") of the Company at a price of $45. If the Company is acquired in a merger or other business combination transaction, each Right will entitle its holder to purchase a number of the acquiring company's common shares having a value equal to twice the exercise price of the Right. If a person or group acquires 10% or more of the Company's outstanding common stock, each Right will entitle its holder (other than such person or members of such group) to receive, upon exercise, a number of the Company's common shares having a value equal to two times the exercise price of the Right. Following the acquisition by a person or group of 10% or more of the Company's common stock and prior to an acquisition of 50% or more of such common stock, the Board of Directors may exchange each Right (other than Rights owned by such person or group) for one share of common stock or for one one-hundredth of a Series B Preferred Share. Prior to the acquisition by a person or group of 10% of the Company's common stock, the Rights are redeemable, at the option of the Board, for $.0001 per Right. The Rights expire on September 1, 2009. The Rights do not have voting or

41

dividend rights, and until they become exercisable, have no dilutive effect on the earnings of the Company.

Note 14—Commitments and Contingencies:

    The Company rents certain facilities and equipment under agreements treated for financial reporting purposes as operating leases. The majority of leases currently in effect are renewable for periods of two to five years. Rent expense under these leases was approximately $4.8 million, $4.8 million, and $3.4 million for the years ended April 30, 2001, 2000 and 1999, respectively.

    Future minimum rents payable under operating leases for years ending April 30 are as follows:

Year Ending April 30,
2002	$	4,273
2003		2,645
2004		2,130
2005		1,441
2006		946
Thereafter		2,425
	$	13,860

    The Company has been subject to product liability claims primarily through Spider, its former subsidiary that was sold in September 1997. To minimize the financial impact of product liability risks and adverse judgments, product liability insurance has been purchased in amounts and under terms considered acceptable to management.

    At any point in time covered by these financial statements, there are outstanding product liability claims against the Company, and incidents are known to management that may result in future claims. Management, in conjunction with defense counsel, periodically reviews the likelihood that such product claims and incidents will result in adverse judgments, the estimated amount of such judgments and costs of defense, and accrues liabilities as appropriate.

    Recoveries, if any, may be realized from indemnitors, codefendants, insurers or insurance guaranty funds. Management, based on estimates provided by the Company's legal counsel on such claims, believes its insurance coverage is adequate.

42

Note 15—Selected Quarterly Financial Data (unaudited):

Fiscal 2001 Quarters		First		Second		Third		Fourth		Total
Revenue		$	58,792	$	44,176	$	50,351	$	53,874	$	207,193
Gross Profit			23,163		21,400		20,617		20,798		85,978
Net Income			48		1,204		563		570		2,385
Earnings Per share:
	Basic		.00		.08		.04		.04		.16
	Diluted		.00		.08		.04		.04		.16

Fiscal 2001 Quarters		First		Second		Third		Fourth		Total
Revenue		$	41,572	$	46,821	$	51,198	$	55,965	$	195,556
Gross Profit			17,134		18,575		20,328		22,791		78,828
Net Income			1,300		1,462		1,463		2,252		6,477
Earnings Per share:
	Basic		.09		.10		.10		.15		.44
	Diluted*		.09		.10		.10		.15		.43

*

The total of the four quarters does not equal the year due to rounding.

43

Note 16—Foreign Operations:

		United States		Europe		Asia		Other Foreign		Adjustments & Eliminations			Consolidated
Fiscal 2001
Revenues:
	Customers(1)	$	125,095	$	43,508	$	18,588	$	20,002	$	—		$	207,193
	Inter-area(2)		25,861		21,908		2,388		1,102		(51,259	)
Total revenues		$	150,956	$	65,416	$	20,976	$	21,104	$	(51,259	)	$	207,193
Long-Lived Assets		$	32,312	$	26,161	$	1,236	$	8,598				$	68,307
Fiscal 2000
Revenues:
	Customers(1)	$	102,603	$	54,626	$	16,490	$	21,837	$	—		$	195,556
	Inter-area(2)		23,128		21,797		1,187		1,622		(47,734	)
Total revenues		$	125,731	$	76,423	$	17,677	$	23,459	$	(47,734	)	$	195,556
Long-Lived Assets		$	26,719	$	28,604	$	1,793	$	9,187				$	66,303
Fiscal 1999
Revenues:
	Customers(1)	$	75,146	$	42,534	$	14,877	$	16,740	$	—		$	149,297
	Inter-area(2)		22,917		—		1,793		1,441		(26,151	)
Total revenues		$	98,063	$	42,534	$	16,670	$	18,181	$	(26,151	)	$	149,297
Long-Lived Assets		$	21,095	$	26,120	$	1,870	$	8,855				$	57,940

(1)

U.S. sales to unaffiliated customers in foreign countries were $6.8 million, $5.7 million and $4 million in fiscal 2001, 2000, and 1999, respectively.

(2)

Inter-area sales to affiliates represent products that were transferred between geographic areas at negotiated prices. These amounts have been eliminated in the consolidation.

44

FLOW INTERNATIONAL CORPORATION
SCHEDULE VIII
VALUATION AND QUALIFYING ACCOUNTS
(In Thousands)

				Additions
Classification		Balance at Beginning of Period		Charged to Costs and Expenses		Charged to Other Accounts			Deductions*			Balance at End of Period
Year Ended April 30:
Allowance for Doubtful Accounts
	2001	$	899	$	576	$	40		$	(649	)	$	866
	2000		766		469		31			(367	)		899
	1999		669		373		(22	)		(254	)		766
Provision for Slow-Moving and Obsolete Inventory
	2001	$	1,903	$	371	$	(69	)	$	(301	)	$	1,904
	2000		2,314		387		(45	)		(753	)		1,903
	1999		2,527		365		328			(906	)		2,314

*

Write-offs of uncollectible accounts and disposal of obsolete inventory.

45

PART III

Item 10.  Directors and Executive Officers of the Registrant.

    Information regarding directors and executive officers of the registrant is incorporated herein by reference from the Company's Proxy Statement.

Item 11.  Executive Compensation.

    Information regarding executive compensation is incorporated herein by reference from the Company's Proxy Statement.

Item 12.  Security Ownership of Certain Beneficial Owners and Management.

    Information regarding security ownership of certain beneficial owners and management is incorporated herein by reference from the Company's Proxy Statement.

Item 13.  Certain Relationships and Related Transactions.

    Information regarding certain relationships and related transactions is incorporated herein by reference from the Company's Proxy Statement.

46

PART IV

Item 14.  Exhibits, Financial Statement Schedules, and Reports on Form 8-K

(a)

The following documents are filed as a part of this report:

1.

Consolidated Financial Statements.

See Item 8 of Part II for a list of the Financial Statements filed as part of this report.

2.

Financial Statement Schedules.

See Item 8 of Part II for a list of the Financial Statement Schedules filed as part of this report.

3.

Exhibits. See subparagraph (c) below.

(b)

Reports on Form 8-K—

    None.

(c)

Exhibits.

47

Exhibit Number
3.1	Articles of Incorporation, filed with the state of Washington October 1, 1998. (Incorporated by reference to Exhibit 3.1 to the registrant's Annual Report on Form 10-K for the year ended April 30, 1999.)
3.2	By-Laws of Flow International Corporation. (Incorporated by reference to Exhibit 3.1 to the registrant's Annual Report on Form 10-K for the year ended April 30, 1999.)
4.1	Certificate of Designation of Series B Junior Participating Preferred Stock. (Incorporated by reference to Exhibit 4.5 to the registrant's Annual Report on Form 10-K for the year ended April 30, 1990.)
4.2	Amended and Restated Rights Agreement dated as of September 1, 1999, between Flow International Corporation and ChaseMellon Shareholder Services, L.L.C. (Incorporated by reference to Exhibit 4.1 to the registrant's Current Report on Form 8-K dated September 1, 1999.)
4.3	Warrant to Purchase Shares of Common Stock of Flow International Corporation. (Incorporated by reference to the registrant's Current Report on Form 8-K dated June 12, 2001.)
10.1	Flow International Corporation 1987 Stock Option Plan for Nonemployee Directors, as amended. (Incorporated by reference to Exhibit 10.5 to the registrant's Annual Report on Form 10-K for the year ended April 30, 1994.)
10.2	Flow International Corporation 1995 Long-Term Incentive Plan. (Incorporated by reference to Exhibit 10.2 to the registrant's Annual Report on Form 10-K for the year ended April 30, 2000.)
10.3	Flow International Corporation Voluntary Pension and Salary Deferral Plan and Trust Agreement, as amended and restated effective January 1, 1999. (Incorporated by reference to Exhibit 10.3 to the registrant's Annual Report on Form 10-K for the year ended April 30, 2000.)
10.4	Lease dated September 24, 1991, between Flow International and Birtcher LP/LC Partnership, together with Addendum to Lease. (Incorporated by reference to Exhibit 10.25 to the registrant's Annual Report on Form 10-K for the year ended April 30, 1992.)
10.5	Amended and Restated Credit agreement amount Flow International Corporation, as borrower, Bank of America National Trust and Savings Association d/b/a SeaFirst Bank and U.S. Bank, National Association, as lenders, and Bank of America National Trust and Savings Association d/b/a SeaFirst Bank as agent for lenders dated December 29, 2000.
10.6	Amendment Number One to Amended and Restated Credit Agreement dated February 28, 2001 among Bank of America, N.A., U.S. Bank National Association, Keybank National Association, Bank of America, N.A., as agent for the lenders, and Flow International Corporation.
10.7	Amendment Number Two to Amended and Restated Credit Agreement dated May 30, 2001 among Bank of America, N.A., U.S. Bank National Association, Keybank National Association, Bank of America, N.A., as agent for the lenders, and Flow International Corporation.
10.8	Note purchase agreement dated September 1, 1995. (Incorporated by reference to Exhibit 10.2 to the registrant's Quarterly Report on Form 10-Q for the period ended October 31, 1995.)

48

10.9	First amendment to Note Purchase Agreement dated July 16, 1997. (Incorporated by reference to Exhibit 10.17 to the registrant's Annual Report on Form 10-K for the year ended April 30, 1997.)
10.10	Second Amendment to Note Purchase Agreement dated as of April 30, 2000 between Flow International Corporation and Connecticut General Life Insurance Company and Life Insurance Company of North America. (Incorporated by reference to Exhibit 10.13 to the registrant's Annual Report on Form 10-K for the year ended April 30, 2000.)
10.11	Amendment to Note Purchase Agreement dated as of January 1, 2001 between Flow International Corporation and Connecticut General Life Insurance Company and Life Insurance Company of North America.
10.12	Fourth Amendment to Note Purchase Agreement dated as of April 30, 2001 between Flow International Corporation and Connecticut General Life Insurance Company and Life Insurance Company of North America.
10.13	Note Purchase Agreement dated as of April 30, 2001. (Incorporated by reference to Exhibit 4.1 to the registrant's Current Report on Form 8-K dated June 12, 2001.)
10.14	Form of Change in Control Agreement. (Incorporated by reference to Exhibit 10.17 to the registrant's Annual Report on Form 10-K for the year ended April 30, 1996.)
21.1	Subsidiaries of the Registrant.
23.1	Consent of Independent Accountants

49

SIGNATURES

    Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	FLOW INTERNATIONAL CORPORATION
July 23, 2001	/s/ RONALD W. TARRANT Ronald W. Tarrant Chairman, President and Chief Executive Officer

    Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities on this 23rd day of July, 2001

Signature	Title
/s/ RONALD W. TARRANT Ronald W. Tarrant	Chairman, President and Chief Executive Officer (Principal Executive Officer)
/s/ STEPHEN D. REICHENBACH Stephen D. Reichenbach	Executive Vice President, Chief Financial Officer (Principal Financial Officer & Principal Accounting Officer)
/s/ RONALD D. BARBARO Ronald D. Barbaro	Director
/s/ DANIEL J. EVANS Daniel J. Evans	Director
/s/ KATHRYN L. MUNRO Kathryn L. Munro	Director
/s/ ARLEN I. PRENTICE Arlen I. Prentice	Director
/s/ J. MICHAEL RIBAUDO J. Michael Ribaudo	Director
/s/ KENNETH M. ROBERTS Kenneth M. Roberts	Director
/s/ SANDRA F. ROREM Sandra F. Rorem	Director
/s/ DEAN D. THORNTON Dean D. Thornton	Director

50

QuickLinks

PART I
PART II
MANAGEMENT'S STATEMENT OF RESPONSIBILITY
REPORT OF INDEPENDENT ACCOUNTANTS
FLOW INTERNATIONAL CORPORATION CONSOLIDATED BALANCE SHEETS (In thousands, except share amounts)
FLOW INTERNATIONAL CORPORATION CONSOLIDATED STATEMENTS OF INCOME (In thousands, except per share amounts)
FLOW INTERNATIONAL CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands)
FLOW INTERNATIONAL CORPORATION CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (In thousands)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the three years ended April 30, 2001 (All tabular dollar amounts in thousands, except per share amounts)
FLOW INTERNATIONAL CORPORATION SCHEDULE VIII VALUATION AND QUALIFYING ACCOUNTS (In Thousands)
PART III
PART IV
SIGNATURES

EX-10.5

QuickLinks -- Click here to rapidly navigate through this document

AMENDED AND RESTATED CREDIT AGREEMENT

Among

FLOW INTERNATIONAL CORPORATION

as Borrower,

and

BANK OF AMERICA, N.A.
and
U.S. BANK NATIONAL ASSOCIATION
and
KEYBANK NATIONAL ASSOCIATION
as Lenders,

and

BANK OF AMERICA, N.A.

as Agent for Lenders

December 29, 2000

TABLE OF CONTENTS

			Page
ARTICLE 1 DEFINITIONS			1
	Section 1.1 Certain Defined Terms		1
	Section 1.2 General Principles Applicable to Definitions		10
	Section 1.3 Accounting Terms		10
ARTICLE 2 THE LOANS			10
	Section 2.1 Amounts and Terms of Commitments		10
		(a)  The Revolving Credit	10
		(b)  The Sweepline Credit	10
		(c)  The Multi-Currency Credit	11
	Section 2.2 Manner of Borrowing		11
		(a)  Revolving Loans	11
		(b)  Sweepline Loans	11
		(c)  Multi-Currency Loans	11
	Section 2.3 Utilization of Multi-Currency Commitment in Offshore Currencies		12
	Section 2.4 Currency Exchange Fluctuations		12
	Section 2.5 Agent's Right to Fund Loans		13
	Section 2.6 Repayment of Principal		13
		(a)  Revolving Loans	13
		(b)  Sweepline Loans	13
		(c)  Multi-Currency Loans	13
	Section 2.7 Interest on Loans		13
		(a)  General Provisions	13
		(b)  Selection of Alternative Rates	14
		(c)  Applicable Days For Computation of Interest and Fees	15
		(d)  Unavailable LIBOR Rate	15
		(e)  Compensation for Increased Costs	15
	Section 2.8 Prepayments		16
	Section 2.9 Notes		16
	Section 2.10 Manner of Payments		17
	Section 2.11 Fees		18
		(a)  KeyBank Commitment Fee	18
		(b)  Unused Portion Fee	18
	Section 2.12 Sharing of Payments, Etc.		18
	Section 2.13 Application of Payments		18
ARTICLE 3 LETTERS OF CREDIT			19
	Section 3.1 Letters of Credit		19
	Section 3.2 Manner of Requesting Letters of Credit		19
	Section 3.3 Indemnification; Increased Costs		20
	Section 3.4 Payment by Borrower		20
ARTICLE 4 CONDITIONS			21
	Section 4.1 Conditions to Effectiveness of Agreement		21
		(a)  New Loan Documents	21
		(b)  Assignment and Assumption Agreement	21
		(c)  Payment of Fees	21
	Section 4.2 Conditions to All Loans and Issuances of Letters of Credit		21

i

		(a)  Prior Conditions	21
		(b)  Notice of Borrowing	21
		(c)  No Default	21
		(d)  Other Information	21
	Section 4.3 Conditions to Certain Loans and Issuances of Letters of Credit		21
		(a)  Prior Conditions	21
		(b)  Borrower Authority	21
		(c)  Legal Opinion	22
ARTICLE 5 REPRESENTATIONS AND WARRANTIES			22
	Section 5.1 Corporate Existence and Power		22
	Section 5.2 Corporate Authorization		22
	Section 5.3 Government Approvals, Etc.		22
	Section 5.4 Binding Obligations, Etc.		22
	Section 5.5 Litigation		22
	Section 5.6 Lien Priority		22
	Section 5.7 Financial Condition		23
	Section 5.8 Title and Liens		23
	Section 5.9 Taxes		23
	Section 5.10 Laws, Orders, Other Agreements		23
	Section 5.11 Federal Reserve Regulations		24
	Section 5.12 ERISA		24
	Section 5.13 Security Offerings		24
	Section 5.14 Investment Company; Public Utility Holding Company		24
	Section 5.15 Representations as a Whole		24
ARTICLE 6 AFFIRMATIVE COVENANTS			25
	Section 6.1 Use of Proceeds		25
	Section 6.2 Preservation of Corporate Existence, Etc.		25
	Section 6.3 Visitation Rights		25
	Section 6.4 Keeping of Books and Records		25
	Section 6.5 Maintenance of Property, Etc.		25
	Section 6.6 Compliance with Laws, Etc.		25
	Section 6.7 Other Obligations		25
	Section 6.8 Insurance		25
	Section 6.9 Financial Information		25
		(a)  Annual Audited Financial Statements	26
		(b)  Quarterly Unaudited Financial Statements	26
		(c)  Annual Financial Projections	26
		(d)  Accounts Receivable Summary	26
		(e)  SEC Filings	26
		(f)  Compliance Certificates	26
		(g)  Other	26
	Section 6.10 Notification		26
	Section 6.11 Additional Payments; Additional Acts		27
	Section 6.12 Fixed Charge Coverage Ratio		27
	Section 6.13 Funded Debt Ratio		27
	Section 6.14 Minimum Net Worth		28
	Section 6.15 Debt to Tangible Net Worth Ratio		28
	Section 6.16 Guaranties and Security Agreements from Subsidiaries		28

ii

	Section 6.17 Senior Funded Debt Ratio		28
	Section 6.18 Update of Collateral		28
ARTICLE 7 NEGATIVE COVENANTS			29
	Section 7.1 Dividends, Purchase of Stock, Etc.		29
	Section 7.2 Liquidation, Merger, Sale of Assets		29
	Section 7.3 Indebtedness		29
	Section 7.4 Guaranties, Etc.		29
	Section 7.5 Liens		30
	Section 7.6 Investments		30
	Section 7.7 Operations		30
	Section 7.8 ERISA Compliance		30
	Section 7.9 Senior Unsecured Debt		31
ARTICLE 8 EVENTS OF DEFAULT			31
	Section 8.1 Events of Default		31
		(a)  Payment Default	31
		(b)  Breach of Warranty	31
		(c)  Breach of Certain Covenants	31
		(d)  Breach of Other Covenant	31
		(e)  Cross-default	31
		(f)  Voluntary Bankruptcy, Etc.	31
		(g)  Involuntary Bankruptcy, Etc.	32
		(h)  Insolvency, Etc.	32
		(i)  Judgment	32
		(j)  Government Approvals	32
		(k)  Other Government Action	32
		(l)  ERISA	32
		(m)  Note Agreement Default	33
	Section 8.2 Consequences of Default		33
ARTICLE 9 AGENT			33
	Section 9.1 Authorization and Action		33
	Section 9.2 Duties and Obligations		34
	Section 9.3 Dealings Between Bank of America and Borrower		35
	Section 9.4 Lender Credit Decision		35
	Section 9.5 Indemnification		35
	Section 9.6 Successor Agent		35
ARTICLE 10 LETTER OF CREDIT RISK PARTICIPATIONS			36
	Section 10.1 Sale of Risk Participations		36
	Section 10.2 Notice to Lenders		36
	Section 10.3 Payment Obligations		36
		(a)  Reimbursements to Agent	36
		(b)  Payments to Lenders	36
		(c)  Reimbursements to Lenders	37
ARTICLE 11 MISCELLANEOUS			37
	Section 11.1 No Waiver; Remedies Cumulative		37
	Section 11.2 Governing Law		37

iii

	Section 11.3 Mandatory Arbitration		37
	Section 11.4 Consent to Jurisdiction; Waiver of Immunities		38
	Section 11.5 Notices		38
	Section 11.6 Assignment and Participations		39
	Section 11.7 Severability		39
	Section 11.8 Survival		39
	Section 11.9 Executed in Counterparts		39
	Section 11.10 Entire Agreement; Amendment, Etc.		39
	Section 11.11 Headings		39
	Section 11.12 Oral Agreements Not Enforceable		39
	Section 11.13 Reaffirmation of Loan Documents		39
SCHEDULES
		Schedule 1—Prepayment Fees
		Schedule 2—Litigation
		Schedule 3—Subsidiaries
		Schedule 4—Existing Guaranties
		Schedule 5—Liens
EXHIBITS
		Exhibit A-1—Revolving Loan Note (Bank of America)
		Exhibit A-2—Revolving Loan Note (U.S. Bank)
		Exhibit A-3—Revolving Loan Note (KeyBank)
		Exhibit B—Sweepline Loan Note
		Exhibit C—Multi-Currency Loan Note
		Exhibit D—Legal Opinion

iv

AMENDED AND RESTATED CREDIT AGREEMENT

    THIS AMENDED AND RESTATED CREDIT AGREEMENT (the "Agreement") is made as of the 29th day of December, 2000, by and among BANK OF AMERICA, N.A., a national banking association ("Bank of America"), U.S. BANK NATIONAL ASSOCIATION, a national banking association ("U.S. Bank"), KEYBANK NATIONAL ASSOCIATION, a national banking association ("KeyBank") (each individually a "Lender" and collectively the "Lenders"), BANK OF AMERICA, N.A., as agent for Lenders (the "Agent") and FLOW INTERNATIONAL CORPORATION, a Washington corporation (the "Borrower").

    WHEREAS, the Borrower, Bank of America, U.S. Bank (the "Original Lenders"), and Agent are parties to that certain Credit Agreement dated as of August 31, 1998, as amended by that certain Amendment Number One to Credit Agreement dated as of March 26, 1999, by that certain Amendment Number Two to Credit Agreement dated as of June 21, 1999, by that certain Amendment Number Three to Credit Agreement dated as of September 2, 1999, by that certain Amendment Number Four to Credit Agreement dated as of April 28, 2000, by that certain Amendment Number Five to Credit Agreement dated as of June 1, 2000, and by that certain Amendment Number Six to Credit Agreement dated as of October 31, 2000 (the "Original Agreement"); and

    WHEREAS, the parties wish to add KeyBank as a Lender through an Assignment and Assumption Agreement dated as of January 4, 2001; and

    WHEREAS, the parties wish to increase the Total Revolving Commitment (as defined below) to $80,000,000; and

    WHEREAS, the parties wish further to amend and restate the Original Agreement;

    NOW, THEREFORE, in consideration of the mutual agreements, provisions and covenants contained herein, the parties agree as follows:

ARTICLE 1
DEFINITIONS

Section 1.1 Certain Defined Terms. As used in this Agreement, the following terms have the following meanings:

    "Acquisition" means any transaction or series of related transactions for the purpose of or resulting, directly or indirectly, in (a) the acquisition of all or substantially all of the assets of a person, or of any business or division of a person, (b) the acquisition of in excess of 50% of the capital stock, partnership interests, membership interests or equity of any person, or otherwise causing any person to become a Subsidiary, or (c) a merger or consolidation or any other combination with another person (other than a person that is a Subsidiary) provided that Borrower or the Subsidiary is the surviving entity.

    "Agent" means Bank of America, N.A. and any successor agent selected pursuant to Section 9.6 hereof.

    "Agreed Alternative Currency" shall have the meaning given in Section 2.3.

    "Applicable Currency" means, as to any particular payment or Multi-Currency Loan, Dollars or the Offshore Currency in which it is denominated or is payable.

    "Applicable Interest Period" means, with respect to any Loan accruing interest at the LIBOR Rate or the Multi-Currency Rate, the period commencing on the first date Borrower elects to have such rate apply to such Loan and ending one, two, three or six months thereafter as specified in the Interest Rate Notice given in respect of such Loan (or as otherwise determined in accordance with the terms of this Agreement) provided, that in no event may the Applicable Interest Period for any Revolving Loan

1

extend beyond the Revolving Maturity Date and in no event may the Applicable Interest Period for any Multi-Currency Loan extend beyond the Multi-Currency Maturity Date.

    "Applicable Interest Rate" means for each Loan, the Base Rate or LIBOR Rate, or in the case of a Multi-Currency Loan, the Multi-Currency Rate, as designated by Borrower in an Interest Rate Notice given with respect to such Loan (or portion thereof) or as otherwise determined pursuant to Section 2.7(b).

    "Applicable Percentage" means on any date, the rate per annum that is determined by reference to the following matrix or subclause (ii) below:

Pricing Level	Applicable Percentage with respect to the LIBOR Rate or Multi-Currency Rate	Applicable Percentage with respect to the Base Rate	Applicable Percentage with respect to the Unused Portion
I	1.00%	0%	10 basis points
II	1.25%	0%	10 basis points
III	1.50%	0%	25 basis points
IV	2.50%	0%	37.5 basis points
V	3.00%	.15%	37.5 basis points

     (i) Subject to the limitations and exceptions set forth below, the Applicable Percentage shall be adjusted on January 2, 2001 based on the financial statements for the fiscal quarter ending October 31, 2000, and thereafter shall be adjusted forty-five (45) days after the end of each of the first three fiscal quarters in each of Borrower's fiscal years and ninety (90) days after the end of each fiscal year of Borrower.

    In the event that any of the financial statements or quarterly compliance certificates required to be delivered pursuant to Section 6.9 are not delivered when due, then (aa) if such financial statements and certificates are delivered after the date such financial statements and certificates were required to be delivered (without giving effect to any applicable cure period) and the Applicable Percentage increases from that previously in effect as a result of the delivery of such financial statements, then the Applicable Percentage during the period from the date upon which such financial statements were required to be delivered (without giving effect to any applicable cure period) until the date upon which they actually are delivered shall, except as otherwise provided in clause (cc) below, be the Applicable Percentage as so increased; (bb) if such financial statements and certificates are delivered after the date such financial statements and certificates are required to be delivered (without giving effect to any applicable cure period) and the Applicable Percentage decreases from that previously in effect as a result of the delivery of such financial statements, then such decrease in the Applicable Percentage shall not become effective until the date upon which the financial statements and certificates actually were delivered; and (cc) if such financial statements and certificates are not delivered prior to the expiration of the applicable cure period, then, effective upon such expiration, for the period from the date upon which such financial statements and certificates were required to be delivered (after the expiration of the applicable cure period) until two (2) Business Days following the date upon which they actually are delivered, the Applicable Percentage shall be 2.50% (250 basis points).

    (ii) Notwithstanding the foregoing to the contrary and without limiting any other rights which the Agent or Lenders may have under any Loan Document or applicable law in respect thereof, at any time that Borrower is in default of its obligations under either Section 6.13 or 6.17 of this Agreement, the Applicable Percentage will be 5.00%. Notwithstanding the foregoing to the contrary, at all times that the Applicable Percentage is greater than 3.00%, the Applicable Percentage with respect to the unused fee will be 37.5 basis points.

2

    "Bank of America" means Bank of America, N.A., a national banking association, in its capacity as Lender under this Agreement and the Supplemental Credit Agreement, and any Successor.

    "Base Rate" means the sum of (i) the prime rate and (ii) the Applicable Percentage. (The "prime rate" is a rate set by Bank of America based upon various factors including Bank of America's costs and desired return, general economic conditions and other factors, and is used as a reference point for pricing some loans, which may be priced at, above, or below such announced rate.) Any change in the prime rate announced by Bank of America shall take effect at the opening of business on the day specified in the public announcement of such change.

    "Base Rate Loan" means any Loan or payment made by Agent under Letters of Credit that bears interest based on the Base Rate.

    "Borrower" means Flow International Corporation, a Washington corporation and any Successor.

    "Business Day" means any day other than Saturday, Sunday or another day on which commercial banks are authorized or obligated to close in Seattle, Washington, and, with respect to any disbursements and payments in and calculations pertaining to any Multi-Currency Loan, a day on which commercial banks are open for foreign exchange business in London, England, and on which dealings in the relevant Offshore Currency are carried on in the applicable offshore foreign exchange interbank market in which disbursement of or payment in such Offshore Currency will be made or received hereunder.

    "Cash Flow" has the meaning given in Section 6.12.

    "Code" means the Internal Revenue Code of 1986, as amended from time to time.

    "Collateral" means the personal property described by item or type in the Security Agreement or otherwise subject at any time to a lien granted by Borrower to secure its obligations under the Loan Documents.

    "Commitment" shall mean, with respect to each Lender, (a) its obligation to extend Revolving Loans under this Agreement; or (b) its obligation to purchase Letter of Credit Risk Participations pursuant to Article 10 hereof; (c) with respect to Bank of America only, its obligation to extend Sweepline Loans and Multi-Currency Loans; and (d), with respect to Agent, its obligation to issue Letters of Credit under this Agreement.

    "Computation Date" has the meaning specified in subsection 2.3(a).

    "Controlled Group" means all members of a controlled group of corporations and all trades or businesses (whether or not incorporated) under common control which, together with Borrower, are treated as a single employer under Section 414(b) or 414(c) of the Code.

    "Debt" has the meaning given in Section 6.15.

    "Default" means any event which but for the passage of time or the giving of notice or both would be an Event of Default.

    "Dollars", "dollars" and "$" each mean lawful money of the United States.

    "Dollar Equivalent" means, at any time, (a) as to any amount denominated in Dollars, the amount thereof at such time, and (b) as to any amount denominated in an Offshore Currency, the equivalent amount in Dollars as determined by Agent at such time on the basis of the Spot Rate for the purchase of Dollars with such Offshore Currency on the most recent Computation Date provided for in subsection 2.3(a).

    "Domestic Subsidiary" means a Subsidiary of Borrower incorporated and organized under the laws of any state of the United States and the District of Columbia.

3

    "EBITDA" has the meaning given in Section 6.13.

    "Environmental Laws" means all federal, state or local laws, statutes, common law duties, rules, regulations, ordinances and codes, together with all administrative orders, directed duties, requests, licenses, authorizations and permits of, and agreements with, any Governmental Authorities, in each case relating to environmental, health, safety and land use matters; including the Comprehensive Environmental Response, Compensation and Liability Act of 1980 ("CERCLA"), the Clean Air Act, the Federal Water Pollution Control Act of 1972, the Solid Waste Disposal Act, the Federal Resource Conservation and Recovery Act, the Toxic Substances Control Act, the Emergency Planning and Community Right-to-Know Act, and any applicable state law.

    "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time.

    "Event of Default" has the meaning given in Section 8.1.

    "Federal Funds Rate" means, for any period, a fluctuating interest rate per annum equal for each day during such period to the weighted average of the rates on overnight federal funds transactions with members of the Federal Reserve System arranged by federal funds brokers, as published for such day (or, if such day is not a Business Day, for the next preceding Business Day) by the Federal Reserve Bank of New York, or, if such rate is not so published for any day which is a Business Day, the average of the quotations for such day on transactions received by Agent from three federal funds brokers of recognized standing selected by Agent.

    "Fee Letter" means the letter between Borrower and KeyBank of even date herewith under which Borrower agrees to pay certain fees to KeyBank related to this Agreement.

    "Fixed Charges" shall have the meaning given in Section 6.12.

    "Fixed Charge Coverage Ratio" shall have the meaning given in Section 6.12.

    "Funded Debt" shall mean all interest bearing liabilities of Borrower, including capitalized lease obligations.

    "Funded Debt Ratio" shall have the meaning given in Section 6.13.

    "FX Trading Office" means the Foreign Exchange Trading Center of Bank of America located at 800 Fifth Avenue, Floor 34, Seattle, WA 98104, or such other equivalent office of Bank of America as Bank of America may designate from time to time.

    "GAAP" shall have the meaning given in Section 1.3.

    "Government Approval" means an approval, permit, license, authorization, certificate, or consent of any Governmental Authority.

    "Governmental Authority" means the government of the United States or any State or any foreign country or any political subdivision of any thereof or any branch, department, agency, instrumentality, court, tribunal or regulatory authority which constitutes a part or exercises any sovereign power of any of the foregoing.

    "Guarantor" shall have the meaning given in Section 6.16.

    "Indebtedness" means for any person (a) all items of indebtedness or liability (except capital, surplus, deferred credits and reserves, as such) which would be included in determining total liabilities as shown on the liability side of a balance sheet as of the date as of which indebtedness is determined, (b) indebtedness secured by any Lien, whether or not such indebtedness shall have been assumed, (c) any other indebtedness or liability for borrowed money or for the deferred purchase price of property or services for which such person is directly or contingently liable as obligor, guarantor, or

4

otherwise, or in respect of which such person otherwise assures a creditor against loss, (d) any other obligations of such person under leases which shall have been or should be recorded as capital leases, and (e) guarantees or other contingent obligations, including, without limitation, any obligations under any Swap Documents.

    "Intercreditor Agreement" means that certain Intercreditor Agreement dated as of August 31, 1998 (as may be amended) by and among Borrower, Lenders, Agent and Private Lenders.

    "Interest Rate Notice" shall have the meaning given in Section 2.7(b).

    "KeyBank" means KeyBank National Association, a national banking association, in its capacity as Lender under this agreement, and any Successor.

    "Letter of Credit" means any commercial or standby letter of credit issued by Agent pursuant to the terms of Article 3 hereof.

    "Letter of Credit Risk Participation" with respect to each Lender, means a risk participation purchased by such Lender pursuant to Article 10 hereof with respect to a Letter of Credit (including risk participations deemed purchased from Agent by Bank of America in its capacity as Lender).

    "Letter of Credit Usage" means, as of any date of determination, the sum of (i) the aggregate face amount of all outstanding unmatured Letters of Credit plus (ii) the aggregate amount of all payments made by Agent under Letters of Credit and not yet reimbursed by Borrower pursuant to Section 3.4.

    "LIBOR Loan" means any Loan or portion thereof bearing interest at the LIBOR Rate.

    "LIBOR Rate" shall mean, with respect to any LIBOR Loan for any Applicable Interest Period, an interest rate per annum equal to the sum of: (a) the Applicable Percentage and (b) the product of (i) the Euro-dollar Rate in effect for such Applicable Interest Period and (ii) the Euro-dollar Reserves in effect on the first day of such Applicable Interest Period.

    As used herein the "Euro-dollar Rate" will be determined by reference to that rate (rounded upward to the next 1/16th of one percent) appearing on the display designated as "Page 3750" on the Telerate Service (or on such other page on that service or such other service designated by the British Banker's Association for the display of that Association's Interest Settlement Rates for U.S. Dollar deposits) as of 11:00 a.m. (London time) on the day which is two (2) London Banking Days prior to the first date of the proposed Applicable Interest Period. If there are no applicable quotes available through Telerate Service, then the LIBOR Rate shall be deemed unavailable as provided in Section 2.7(d) hereof.

5

    As used herein, the term "Euro-dollar Reserves" means a fraction (expressed as a decimal), the numerator of which is the number one and the denominator of which is the number one minus the aggregate of the maximum reserve percentages (including, without limitation, any special, supplemental, marginal or emergency reserves) expressed as a decimal established by the Board of Governors of the Federal Reserve System or any other banking authority to which Agent is subject for Eurocurrency Liability (as defined in Regulation D of such Board of Governors). It is agreed that for purposes hereof, each LIBOR Loan shall be deemed to constitute a Eurocurrency Liability and to be subject to the reserve requirements of Regulation D, without benefit of credit or proration, exemptions or offsets which might otherwise be available to any Lender from time to time under such Regulation D. Euro-dollar Reserves shall be adjusted automatically on and as of the effective date of any change in any reserve percentage and shall apply to Applicable Interest Periods commencing after the effective date of such change.

    "Lien" means, for any person, any security interest, pledge, mortgage, charge, assignment, hypothecation, encumbrance, attachment, garnishment, execution or other voluntary or involuntary lien upon or affecting the revenues of such person or any real or personal property in which such person has or hereafter acquires any interest, except (a) liens for Taxes which are not delinquent or which remain payable without penalty or the validity or amount of which is being contested in good faith by appropriate proceedings upon stay of execution of the enforcement thereof; (b) liens imposed by law (such as mechanics' liens) incurred in good faith in the ordinary course of business which are not delinquent or which remain payable without penalty or the validity or amount of which is being contested in good faith by appropriate proceedings upon stay of execution of the enforcement thereof with, in the case of liens on property of Borrower, provision having been made to the satisfaction of Agent for the payment thereof in the event the contest is determined adversely to Borrower; and (c) deposits or pledges under worker's compensation, unemployment insurance, social security or other similar laws or made to secure the performance of bids, tenders, contracts (except for repayment of borrowed money), or leases, or to secure statutory obligations or surety or appeal bonds or to secure indemnity, performance, customs or other similar bonds given in the ordinary course of business.

    "Loan Documents" means this Agreement, the Notes, the Letters of Credit, the Reimbursement Agreements, the Security Agreement, the UCC Financing Statements, and all other certificates, instruments and other documents executed by or on behalf of Borrower in connection with this Agreement or the transactions contemplated hereby.

    "Loans" means the Revolving Loans, the Sweepline Loans, and the Multi-Currency Loans.

    "London Banking Day" means any day which is a day on which commercial banks are open for business (including dealings in foreign exchange and foreign currency deposits) in London, England.

    "Majority Lenders" means at any time either (i) any Lender whose Total Pro Rata Share is greater than seventy-five percent (75%), and (ii) any group of Lenders the sum of whose respective Total Pro Rata Shares is greater than seventy-five percent (75%).

    "Minimum Net Worth" has the meaning given in Section 6.14.

    "Multi-Currency Bank" means Bank of America.

    "Multi-Currency Commitment" has the meaning specified in Section 2.1(c).

    "Multi-Currency Loan" means any Loan denominated in an Offshore Currency accruing interest at the Multi-Currency Rate.

    "Multi-Currency Maturity Date" means September 30, 2003.

    "Multi-Currency Rate" means (i) the Applicable Percentage, plus (ii) the per annum rate for the currency advanced, calculated on a basis of actual number of days elapsed over a year of 365/366 days

6

as to Canadian Dollars and British Pounds Sterling, and on the basis of actual number of days elapsed over a year of 360 days as to all other currencies, determined by Agent to be the applicable borrowing rate for such currency in an amount and for the Applicable Interest Period of the requested Multi-Currency Loan, as determined between 6:30 a.m. and 7:00 a.m. (Seattle time) on the day which is (a) two (2) Business Days prior to the date of such Multi-Currency Loan as to all currencies other than Canadian Dollars, and (b) one (1) Business Day prior to the date of such Multi-Currency Loan as to Canadian Dollars; which rate shall be a rate within .125% of the index rate appearing on the Reuters service display designated "(SWIFT Currency Code)F=" for such currency between 6:30 a.m. and 7:00 a.m. (Seattle time) on the same date.

    "New Loan Documents" means this Agreement, the Notes, and the Fee Letter.

    "Notes" has the meaning given in Section 2.9.

    "Note Agreement" means that certain note purchase agreement by and among Borrower and Private Lenders dated as of September 1, 1995, as amended from time to time, pursuant to which Borrower has issued and Private Lenders have purchased Fifteen Million Dollars ($15,000,000) of Borrower's 7.20% Senior Notes due 2005.

    "Notice of Borrowing" means a written or oral request for a Loan from Borrower delivered to Agent in the manner, at the time, and containing the information required under Section 2.2.

    "Officer's Certificate" means a certificate executed and delivered on behalf of Borrower by its Chairman, President or Chief Financial Officer.

    "Offshore Currency" means at any time British Pounds Sterling, French Francs, Deutsche Mark, Japanese Yen or any other Agreed Alternative Currency.

    "PBGC" means the Pension Benefit Guaranty Corporation or any entity succeeding to any or all of its functions under ERISA.

    "Pension Plan" means an "employee pension benefit plan" (as such term is defined in ERISA) from time to time maintained by Borrower or a member of the Controlled Group.

    "Plan" shall mean, at any time, an employee pension benefit plan which is covered by Title IV of ERISA or subject to the minimum funding standards under Section 412 of the Code and is either (a) maintained by Borrower or any member of the Controlled Group for employees of Borrower or any member of the Controlled Group or (b) maintained pursuant to a collective bargaining agreement or any other arrangement under which more than one employer makes contributions and to which Borrower or any member of the Controlled Group is then making or accruing an obligation to make contributions or has within the preceding five (5) plan years made contributions.

    "Pricing Level" means a pricing level determined from the following matrix:

Pricing Level	Senior Funded Debt Ratio as of the end of the previous fiscal quarter
I	Less than 2.00:1
II	Equal to or greater than 2.00:1 and less than 2.50:1
III	Equal to or greater than 2.50:1 and less than 3.00:1
IV	Equal to or greater than 3.00:1 and less than 3.50:1
V	Equal to or greater than 3.50:1

7

    "Private Lenders" means Connecticut General Life Insurance Company and Life Insurance Company of North America, and their successors and assigns.

    "Pro Rata Share" has the meaning given in Section 2.1.

    "Reimbursement Agreement" has the meaning given in Section 3.2.

    "Revolving Commitment Period" has the meaning given in Section 2.1.

    "Revolving Commitment" has the meaning given in Section 2.1.

    "Revolving Loans" has the meaning given in Section 2.1.

    "Revolving Maturity Date" means September 30, 2003.

    "Security Agreement" means that certain Security Agreement dated as of August 31, 1998 executed by Borrower in favor of Bank of America as collateral agent for Lenders and certain other noteholders.

    "Senior Funded Debt" means, as of the end of any fiscal quarter, the sum of Funded Debt less Senior Unsecured Debt and less Subordinated Debt, each as of the end of such fiscal quarter.

    "Senior Funded Debt Ratio" shall have the meaning given in Section 6.17.

    "Senior Unsecured Debt" means Indebtedness for borrowed monies incurred by Borrower, which Indebtedness (a) is evidenced by loan agreement(s), promissory note(s) or other documents and instruments in each case in form and substance reasonably satisfactory to Lenders, (b) is wholly unsecured, (c) is owing to one or more financial institutions, and (d) does not have a final maturity date for the repayment of principal on or before April 30, 2005.

    "Spot Rate" for a currency means the rate quoted by Bank of America as the spot rate for the purchase by Bank of America of such currency with another currency through its FX Trading Office at approximately 8:00 a.m. (Seattle time) on the date two Business Days prior to the date as of which the foreign exchange computation is made.

    "Subordinated Debt" means all Indebtedness of Borrower where the terms of the instrument or agreement creating or evidencing such Indebtedness has been approved in writing by Lenders and Agent and provides that such Indebtedness is subordinated in right of payment to the Indebtedness of Borrower to Lenders hereunder and unsecured (and therefore subordinated in lien priority).

    "Subsidiary" shall mean any person, corporation, association or other business entity directly or indirectly controlled by Borrower. For the purposes of this definition, "controlled by" shall mean the possession, directly or indirectly of the power to direct or cause the direction of the management and policies of such Subsidiary, whether through the ownership of voting securities, by contract or otherwise.

    "Successor" means, for any corporation or banking association, any successor by merger or consolidation, or by acquisition of substantially all of the assets of the predecessor.

    "Supplemental Commitment" means, at any time, the maximum amount of credit that Bank of America is then committed to extend under the Supplemental Credit Agreement (including any principal amount then outstanding thereunder).

    "Supplemental Credit Agreement" means the agreement between Borrower and Bank of America under which Bank of America may extend credit to Borrower up to a maximum principal amount at any time outstanding of Three Million Dollars ($3,000,000) repayable in foreign currencies or the Dollar equivalent.

    "Swap Documents" means any agreement between Borrower and any Lender, whether or not in writing, relating to any transaction that is a rate swap, basis swap, forward rate transaction, commodity

8

swap, commodity option, equity or equity index swap or option, bond, note or bill option, interest rate option, forward foreign exchange transaction, cap, collar or floor transaction, currency swap, cross-currency rate swap, swap option, currency option or any other, similar transaction (including any option to enter into any of the foregoing) or any combination of the foregoing, and, unless the context otherwise clearly requires, any master agreement relating to or governing any or all of the foregoing.

    "Sweepline Bank" means Bank of America.

    "Sweepline Commitment" has the meaning specified in subsection 2.1(b).

    "Sweepline Loan" has the meaning specified in subsection 2.1(b).

    "Sweepline Maturity Date" means September 30, 2003.

    "Tangible Net Worth" means the total assets less total liabilities excluding, however, from the determination of total assets: (a) intangible assets, (such as goodwill, patents, trademarks, copyrights, franchises and deferred taxes, including unamortized debt discount and research and development costs); (b) cash held in a sinking fund or other similar fund established for the purpose of redemption or other retirement of capital stock; (c) reserves for depreciation, depletion, obsolescences, or amortization of properties and other reserves or appropriations of retained earnings which have been established in connection with Borrower's business; (d) any revaluation or other write-up in book value of assets subsequent to the fiscal year of Borrower last ended as of August 31, 1998; and, for clarification purposes, excluding from total liabilities, minority interests; and (e) cumulative translation adjustment.

    "Tax" means, for any person, any tax, assessment, duty, levy, impost or other charge imposed by any Governmental Authority on such person or on any property, revenue, income, or franchise of such person and any interest or penalty with respect to any of the foregoing.

    "Total Pro Rata Share" means a fraction whose numerator (a) with respect to Bank of America, is the sum of Bank of America's Commitment and the Supplemental Commitment, (b) with respect to U.S. Bank, is U.S. Bank's Commitment, and (c) with respect to KeyBank, is KeyBank's Commitment, and whose denominator is the sum of all Lenders' Commitments and the Supplemental Commitment.

    "Total Revolving Commitment" means $80,000,000.

    "Total Utilization" shall mean, as of any date of determination, the sum of (i) the aggregate principal amount of all outstanding Revolving Loans; plus (ii) the Letter of Credit Usage.

    "UCC Financing Statements" means those Uniform Commercial Code financing statements satisfactory in form and substance to Agent, naming Agent as secured party, executed by Borrower as debtor in form acceptable for filing with the appropriate Governmental Authority in each of the States set forth in Schedule 1 to the Security Agreement hereto for purposes of perfection of security interests under the Uniform Commercial Code and identifying by item or type the Collateral described in the Security Agreement.

9

    "Unfunded Vested Liabilities" means, with respect to any Plan at any time, the amount (if any) by which (a) the present value of all vested nonforfeitable benefits under such Plan exceeds (b) the fair market value of all Plan assets allocable to such benefits, all determined as of the then most recent evaluation date for such Plan, but only to the extent that such excess represents a potential liability of Borrower or any member of the Controlled Group to the PBGC or the Plan under Title IV of ERISA.

    "Unused Portion" means Total Revolving Commitment less Total Utilization.

    "U.S. Bank" means U.S. Bank National Association, a national banking association, in its capacity as Lender, and any Successor.

Section 1.2 General Principles Applicable to Definitions. Definitions given herein shall be equally applicable to both singular and plural forms of the terms therein defined and references herein to "he" or "it" shall be applicable to persons whether masculine, feminine or neuter. References herein to any document including, but without limitation, this Agreement shall be deemed a reference to such document as it now exists, and as, from time to time hereafter, the same may be amended. References herein to a "person" or "persons" shall be deemed to be references to an individual, corporation, partnership, limited liability company, trust, unincorporated association, joint venture, joint-stock company, government (including political subdivisions), Governmental Authority or agency or any other entity. References herein to any section, subsection, schedule or exhibit shall, unless otherwise indicated, be deemed a reference to sections and subsections within and schedules and exhibits to this Agreement.

Section 1.3 Accounting Terms. Except as otherwise provided herein, accounting terms not specifically defined shall be construed, and all accounting procedures shall be performed, in accordance with generally accepted United States accounting principles consistently applied ("GAAP") and as in effect on the date of application.

ARTICLE 2
THE LOANS

Section 2.1 Amounts and Terms of Commitments.

(a) The Revolving Credit. Subject to the terms and conditions of this Agreement, each Lender hereby severally agrees to make loans ("Revolving Loans") to Borrower from time to time on Business Days until the Revolving Maturity Date (the "Revolving Commitment Period") in amounts equal to such Lender's pro rata share (as set forth below) of each requested loan; provided that, after giving effect to any requested loan (i) the aggregate of all Revolving Loans from such Lender will not exceed at any one time outstanding the sum set forth opposite its name below (such Lender's "Revolving Commitment"), and (ii) the Total Utilization will not exceed the Total Revolving Commitment then in effect. The Revolving Loans described in this Section 2.1(a) constitute a revolving credit and within the amount and time specified, Borrower may pay, prepay and reborrow.

Lender	Revolving Commitment		Pro Rata Share
Bank of America	$	35,000,000	43.75%
U.S. Bank	$	25,000,000	31.25%
KeyBank	$	20,000,000	25.00%
Total Revolving Commitment	$	80,000,000	100.00%

(b) The Sweepline Credit. Subject to the terms and conditions of this Agreement, the Sweepline Bank hereby severally agrees to make loans (each such loan, a "Sweepline Loan") to Borrower from time to time on Business Days until the Sweepline Maturity Date to cover

10

overdrafts on any of Borrower's checking accounts with the Sweepline Bank in an aggregate principal amount at any one time outstanding not to exceed Five Million Dollars ($5,000,000) (the "Sweepline Commitment"). Within the foregoing limits, the Sweepline Loans described in this Section 2.1(b) constitute a revolving credit and within the amount and time specified, Borrower may pay, prepay and reborrow.

(c) The Multi-Currency Credit. Subject to the terms and conditions of this Agreement, the Multi-Currency Bank hereby severally agrees to make revolving loans denominated in Offshore Currency (the "Multi-Currency Loans") to Borrower from time to time on Business Days until the Multi-Currency Maturity Date; provided that, after giving effect to any such requested loan, the aggregate of all Multi-Currency Loans shall not exceed Five Million Dollars ($5,000,000) (the "Multi-Currency Commitment"). No more than five (5) Multi-Currency Loans may be outstanding at any one time. The Multi-Currency Loans described in this Section 2.1(c) constitute a revolving credit and within the amount and time specified, Borrower may pay, prepay and reborrow.

Section 2.2 Manner of Borrowing. 

(a) Revolving Loans. For each requested Revolving Loan, Borrower shall deliver to Agent a Notice of Borrowing specifying the date of the requested borrowing and the amount thereof. Borrower may give an oral Notice of Borrowing on the same day it wishes the Revolving Loan to be made, provided that said Notice of Borrowing is received by Agent no later than 11:00 a.m. (Seattle time) on the date of the requested borrowing, provided further that if Borrower shall simultaneously elect to have interest accrue on a Revolving Loan at the LIBOR Rate by giving an Interest Rate notice in respect of such borrowing, the Notice of Borrowing shall be given prior to 11:00 a.m. (Seattle time) on a Business Day that is at least two (2) Business Days prior to the requested date of borrowing. Requests for borrowing, or confirmations thereof, received after the designated hour will be deemed received on the next succeeding Business Day. Each such Notice of Borrowing shall be irrevocable and shall be deemed to constitute a representation and warranty by Borrower that as of the date of such notice the statements set forth in Article 5 hereof are true and correct and that no Default or Event of Default has occurred and is continuing. On receipt of a Notice of Borrowing, Agent shall promptly notify each Lender by telephone, telex or telefax of the date of the requested borrowing and the amount thereof. Each Lender shall before 1:00 p.m. (Seattle time) on the date of the requested borrowing, pay such Lender's Pro Rata Share of the aggregate principal amount of the requested borrowing in immediately available funds to Agent at its Commercial Loan Processing Center, Seattle, Washington. Upon fulfillment to Agent's satisfaction of the applicable conditions set forth in Article 4, and after receipt by Agent of such funds, Agent will promptly make such funds available to Borrower by depositing them to the ordinary checking account maintained by Borrower at Agent's Commercial Accounts Service Center.

(b) Sweepline Loans. An overdraft of any of Borrower's checking accounts with the Sweepline Bank shall be deemed to be an irrevocable request to the Sweepline Bank to disburse to Borrower a Sweepline Loan in the amount of such overdraft. The Sweepline Bank will promptly notify Agent (by telephone or in writing) that the Sweepline Bank has made or intends to make the requested Sweepline Loan to Borrower. Each Sweepline Loan shall be deemed to have been made immediately upon the occurrence of the overdraft giving rise to such Loan.

(c) Multi-Currency Loans For each requested Multi-Currency Loan, Borrower shall deliver to Agent a written or oral (confirmed in writing by facsimile that same day) Notice of Borrowing (which notice must be received by Agent prior to 11:00 a.m. (Seattle time)) three (3) Business Days prior to the requested borrowing date specifying (i) the date of the requested borrowing, (ii) the amount thereof, (iii) the duration of the Applicable Interest Period applicable to such Loans, and (iv) the Applicable Currency. Requests for borrowing, or confirmations thereof,

11

received after the designated hour will be deemed received on the next succeeding Business Day. Each such Notice of Borrowing shall be irrevocable and shall be deemed to constitute a representation and warranty by Borrower that as of the date of such notice the statements set forth in Article 5 hereof are true and correct and that no Default or Event of Default has occurred and is continuing. Each Multi-Currency Loan requested by Borrower under this Section 2.2 shall be in an amount of not less than $500,000 and an integral multiple of $100,000. The Dollar Equivalent amount of any borrowing in an Offshore Currency will be determined by Agent for such borrowing on the Computation Date therefor in accordance with Section 2.3. On receipt of a Notice of Borrowing, Agent shall promptly notify the Multi-Currency Bank by telephone, telex or telefax of the date of the requested borrowing and the amount thereof. The Multi-Currency Bank shall before 1:00 p.m. (Seattle time) on the date of the requested borrowing, pay the principal amount of the requested borrowing in immediately available funds to Agent at its Commercial Loan Processing Center, Seattle, Washington. Upon fulfillment to Agent's satisfaction of the applicable conditions set forth in Article 4, and after receipt by Agent of such funds, Agent will promptly make such funds available to Borrower by depositing them to the ordinary checking account maintained by Borrower at Agent's Commercial Accounts Service Center.

Section 2.3 Utilization of Multi-Currency Commitment in Offshore Currencies.

(a) Agent will determine the Dollar Equivalent amount with respect to any (i) borrowing comprised of Multi-Currency Loans as of the requested date of borrowing, (ii) outstanding Multi-Currency Loans as of the last Business Day of each month, and as of the last Business Day of any Applicable Interest Period, and (iii) outstanding Multi-Currency Loans as of any redenomination date pursuant to this Section 2.3 (each such date, a "Computation Date").

(b) In the case of a proposed borrowing comprised of Multi-Currency Loans, the Multi-Currency Bank shall be under no obligation to make Multi-Currency Loans in the requested Offshore Currency as part of such borrowing if Agent has received notice from the Multi-Currency Bank by 5:00 p.m. (Seattle time) three (3) Business Days prior to the day of such borrowing that the Multi-Currency Bank cannot provide Loans in the requested Offshore Currency, in which event Agent will give notice to Borrower no later than 9:00 a.m. (Seattle time) on the second Business Day prior to the requested date of such borrowing that the borrowing in the requested Offshore Currency is not then available, and notice thereof also will be given promptly by Agent to the Multi-Currency Bank. If Agent shall have so notified Borrower that any such borrowing in a requested Offshore Currency is not then available, the borrowing requested in the Notice of Borrowing shall not occur and Agent will promptly so notify the Multi-Currency Bank.

(c) Borrower shall be entitled to request that Multi-Currency Loans hereunder also be permitted to be made in any other lawful currency constituting a eurocurrency (other than Dollars), in addition to the eurocurrencies specified in the definition of "Offshore Currency" herein, that in the opinion of the Multi-Currency Bank is at such time freely traded in the offshore interbank foreign exchange markets and is freely transferable and freely convertible into Dollars (an "Agreed Alternative Currency"). Borrower shall deliver to Agent any request for designation of an Agreed Alternate Currency in accordance with Section 11.5, to be received by Agent not later than 11:00 a.m. (Seattle time) at least five (5) Business Days in advance of the date of any borrowing hereunder proposed to be made in such Agreed Alternate Currency. Upon receipt of any such request Agent will promptly notify the Multi-Currency Bank thereof, which will use its best efforts to respond to such request within two Business Days of receipt thereof. The Multi-Currency Bank may grant or accept such request in its sole discretion. Agent will promptly notify Borrower of the acceptance or rejection of any such request.

Section 2.4 Currency Exchange Fluctuations. If on any Computation Date Agent shall have determined that the aggregate Dollar Equivalent principal amount of all Multi-Currency Loans then

12

outstanding exceeds the Multi-Currency Commitment by more than Five Hundred Thousand Dollars ($500,000) due to a change in applicable rates of exchange between Dollars and Offshore Currencies, then Agent shall give notice to Borrower that a prepayment is required under this Section, and Borrower agrees thereupon to make prepayments of Multi-Currency Loans such that, after giving effect to such prepayment the aggregate Dollar Equivalent amount of all Multi-Currency Loans does not exceed the Multi-Currency Commitment.

Section 2.5 Agent's Right to Fund Loans. Unless Agent shall have received notice from a Lender prior to 12:00 Noon (Seattle time) on the date of any requested borrowing that such Lender will not make available to Agent its share of the requested borrowing, Agent may assume that such Lender has made such funds available to Agent on the date such Loan is to be made in accordance with Section 2.2 hereof and Agent may, in reliance upon such assumption, make available to Borrower on such date a corresponding amount. If and to the extent that such Lender shall not have so made such portion available to Agent, such Lender and Borrower jointly and severally agree to pay to Agent forthwith on demand such corresponding amount, together with interest thereon for each day from the date such amount is made available to Borrower until the date such amount is repaid to Agent, at (a) in the case of Borrower, the Base Rate and (b) in the case of such Lender, the Federal Funds Rate. Any such repayment by Borrower shall be without prejudice to any rights it may have against Lender that has failed to make available its funds for any requested borrowing.

Section 2.6 Repayment of Principal.

(a) Revolving Loans.

    (1) Borrower shall repay to Lenders from time to time such amounts of principal as may be necessary to ensure that at all times, the sum of the then outstanding principal balance of all Revolving Loans and Letter of Credit Usage is equal to or less than the Total Revolving Commitment.

    (2) Borrower shall repay the principal amount of the Revolving Loans on or before the Revolving Maturity Date.

(b) Sweepline Loans. Borrower shall repay the principal amount of the Sweepline Loans on or before the Sweepline Maturity Date.

(c) Multi-Currency Loans. Borrower shall repay the principal amount of the Multi-Currency Loans on or before the Multi-Currency Maturity Date.

Section 2.7 Interest on Loans.

(a) General Provisions. Borrower agrees to pay to Lenders interest on the unpaid principal amount of each Loan from the date of such Loan until such Loan shall be due and payable, (i) in the case of Revolving Loans, at a per annum rate equal to the Applicable Interest Rate in effect from time to time with respect to such Revolving Loan (or respective portions thereof), (ii) in the case of Sweepline Loans, at a per annum rate equal to the Base Rate, and (iii) in the case of Multi-Currency Loans, at a per annum rate equal to the Multi-Currency Rate. If default shall occur in the payment when due of any Loan (whether at maturity, upon acceleration or otherwise), interest shall accrue at a per annum rate equal to three percentage points (3%) above the Base Rate (changing as the Base Rate changes). Accrued but unpaid interest on each LIBOR Loan shall be paid in arrears on the last day of the Applicable Interest Period, and, for each LIBOR Loan having an Applicable Interest Period longer than three months, at the end of each three (3) month period during such Applicable Interest Period. Accrued but unpaid interest on each Base Rate Loan shall be paid in arrears on the first Business Day of each calendar month, and at the applicable maturity date. Accrued but unpaid interest on each Multi-Currency Loan shall be paid in arrears on the last day of the Applicable Interest Period and for each Multi-Currency Loan

13

having an Applicable Interest Period longer than three (3) months, on each date which falls three (3) months after the beginning of such Applicable Interest Period. Notwithstanding the foregoing, accrued interest on any Loan shall be payable on demand after the occurrence of an Event of Default.

(b) Selection of Alternative Rates.

    (1) Borrower, subject to the requirements of this Section 2.7(b), may elect on any Business Day to have interest accrue on any Revolving Loan or any portion thereof at the LIBOR Rate for an Applicable Interest Period. Such notice (herein, an "Interest Rate Notice") shall be given on a Business Day that is at least two (2) Business Days' prior to the requested date of borrowing and shall be deemed delivered when communicated to Agent (in the case of an oral notice, which must be confirmed in writing on the same day) or when received by Agent (in the case of written notice), except that an Interest Rate Notice communicated to or received by Agent after 11:00 a.m. (Seattle time) on any Business Day, shall be deemed to have been delivered or received on the immediately succeeding Business Day. Such Interest Rate Notice shall identify, subject to the conditions of this Section 2.7(b), the portions of the Revolving Loan to accrue interest at the LIBOR Rate and the Applicable Interest Period which Borrower selects. Any such Interest Rate Notice shall be irrevocable and shall constitute a representation and warranty by Borrower that as of the date of such Interest Rate Notice, the statements set forth in Article 5 are true and correct and that no Default or Event of Default has occurred and is continuing.

    (2) Borrower's right to select the LIBOR Rate to apply to a Revolving Loan or any portion thereof shall be subject to the following conditions: (i) the aggregate of all Revolving Loans or portions thereof to accrue interest at a particular LIBOR Rate for the same Applicable Interest Period shall be an integral multiple of $100,000 and not less than $1,000,000; (ii) the LIBOR Rate may not be selected for any Revolving Loan or portion thereof which is already accruing interest at the LIBOR Rate unless such selection is only to become effective at the maturity of the Applicable Interest Period then in effect; (iii) Borrower shall not have selected more than five (5) different Applicable Interest Periods to be applicable to all or portions of the Revolving Loans; (iv) the LIBOR Rate shall not be unavailable pursuant to Section 2.7(d) hereof; (v) no Default or Event of Default shall have occurred and be continuing; and (vi) if Borrower elects to have some portion (but less than all) of the Revolving Loans accrue interest at the LIBOR Rate, Borrower shall select a portion of each Lender's outstanding Revolving Loans to accrue interest at such rate in proportion to such Lender's Pro Rata Share.

    (3) In the absence of an effective request and acceptance thereof for the application of a LIBOR Rate, the Revolving Loans or remaining portions thereof shall accrue interest at the Base Rate. Any Interest Rate Notice which specifies a LIBOR Rate but fails to identify an Applicable Interest Period shall be deemed to be a request for the designated LIBOR Rate for an Applicable Interest Period of one (1) month.

    (4) The Interest Rate Notice may be given with and contained in any Notice of Borrowing.

    (5) If Borrower delivers an Interest Rate Notice with any Notice of Borrowing for a Loan and Borrower thereafter declines to take such Loan or a condition precedent to the making of such Loan is not satisfied or waived, Borrower shall indemnify Agent and each Lender for all losses and any costs which Agent or any Lender may sustain as a consequence thereof including, without limitation, the costs of re-employment of funds at rates lower than the cost to Lenders of such funds. A certificate from Agent or any Lender setting forth the amount due to it pursuant to this subparagraph (b)(5) and the basis for, and the calculation

14

of, such amount shall be conclusive evidence of the amount due to it hereunder. Payment of the amount owed shall be due within fifteen (15) days after Borrower's receipt of such certificate.

(c) Applicable Days For Computation of Interest and Fees. Computations of interest and fees described in Sections 2.7 and 2.11 shall be made on the basis of a year of 360 days, for the actual number of days (including the first day but excluding the last day) occurring in the period for which such interest or fees are payable. Notwithstanding the foregoing, Letter of Credit fees are controlled by subsection 3.2(b).

(d) Unavailable LIBOR Rate. If any Lender determines that for any reason, fair and adequate means do not exist for establishing a particular LIBOR Rate or that a LIBOR Rate will not adequately and fairly reflect the cost to it of making or maintaining the principal amount of a particular LIBOR Loan or that accruing interest on any LIBOR Loan has become unlawful or is contrary to any internal policies (of general application), such Lender may give notice of that fact to Agent and Borrower and such determination shall be conclusive and binding absent manifest error. After such notice has been given and until such Lender notifies Borrower and Agent that the circumstances giving rise to such notice no longer exist, the interest rate or rates so identified in such notice shall no longer be available. Any subsequent request by Borrower to have interest accrue at such a LIBOR Rate shall be deemed to be a request for interest to accrue at the Base Rate. If the circumstances giving rise to the notice described herein no longer exist, Lender who had previously given notice of the unavailability of rate(s) shall notify Agent and Borrower in writing of that fact, and Borrower shall then once again become entitled to request that such LIBOR Rates apply to the Loans in accordance with Section 2.7(b) hereof.

(e) Compensation for Increased Costs. In the event that after August 31, 1998, any change occurs in any applicable law, regulation, treaty or directive or interpretation thereof by any authority charged with the administration or interpretation thereof, or any condition is imposed by any authority after such date or any change occurs in any condition imposed by any authority on or prior to such date which:

    (1) subjects any Lender to any Tax (other than any Tax measured by such Lender's net or gross income), or changes the basis of taxation of any payments to any Lender on account of principal of or interest on any LIBOR Loan, the Notes (to the extent the Notes evidence a LIBOR Loan) or fees in respect of such Lender's obligation to make LIBOR Loans or other amounts payable with respect to its LIBOR Loans; or

    (2) imposes, modifies or determines applicable any reserve, deposit or similar requirements against any assets held by, deposits with or for the account of, or loans or commitments by, any office of any Lender in connection with its LIBOR Loans to the extent the amount of which is in excess of, or was not applicable at the time of computation of, the amounts provided for in the definition of such LIBOR Rate; or

    (3) affects the amount of capital required or expected to be maintained by banks generally or corporations controlling banks and any Lender determines that the amount by which it or any corporation controlling it is required or expected to maintain or increase its capital is increased by, or based upon, the existence of this Agreement or of any Lender's Loans or Commitments hereunder;

    (4) imposes upon any Lender any other condition with respect to its LIBOR Loans or its obligation to make LIBOR Loans;

which, as a result thereof, (i) increases the cost to any Lender of making or maintaining its Loans or its Commitments hereunder, or (ii) reduces the net amount of any payment received by any Lender in respect of its LIBOR Loans (whether of principal, interest, commitment fees or otherwise), or

15

(iii) requires any Lender to make any payment on or calculated by reference to the gross amount of any sum received by it in respect of its LIBOR Loans, in each case by an amount which any such Lender in its sole judgment deems material, then and in any such case Borrower shall pay to Agent for the account of such Lender on demand such amount or amounts as will compensate such Lender for any increased cost, deduction or payment actually incurred or made by such Lender, provided, however, Borrower shall not be obligated for amounts hereunder unless, promptly after learning thereof any such Lender shall have advised Borrower of the subjection, change, requirement or other condition forming the basis for such Lender's request for additional payment hereunder. If Borrower is advised of any such subjection, change, requirement or other condition prior to the expiration of an Applicable Interest Period for any LIBOR Loan, Borrower may elect to prepay the LIBOR Loan without penalty or premium if such prepayment would reduce or eliminate the amounts which Borrower would otherwise be obligated to pay any Lender under the terms of this Section 2.7(e). The demand for payment by any Lender shall be delivered to both Agent and Borrower and shall state the subjection or change which occurred or the reserve or deposit requirements or other conditions which have been imposed upon such Lender or the request, direction or requirement with which it has complied, together with the date thereof, the amount of such cost, reduction or payment and the manner in which such amount has been calculated. The statement of any Lender as to the additional amounts payable pursuant to this Section 2.7(e) shall be conclusive evidence of the amounts due hereunder absent manifest error.

    The protection of this Section 2.7(e) shall be available to each Lender regardless of any possible contention of invalidity or inapplicability of the relevant law, regulation, treaty, directive, condition or interpretation thereof. In the event that Borrower pays any Lender the amount necessary to compensate such Lender for any charge, deduction or payment incurred or made by such Lender as provided in this Section 2.7(e), and such charge, deduction or payment or any part thereof is subsequently returned to such Lender as a result of the final determination of the invalidity or inapplicability of the relevant law, regulation, treaty, directive or condition, then such Lender shall remit to Borrower the amount paid by Borrower which has actually been returned to such Lender (together with any interest actually paid to such Lender on such returned amount), less such Lender's costs and expenses incurred in connection with such governmental regulation or any challenge made by such Lender with respect to its validity or applicability.

Section 2.8 Prepayments. Base Rate Loans may be repaid at any time without penalty or premium. All prepayments of LIBOR Loans shall be in a minimum amount of $100,000 and in incriments of $100,000. Except as provided in Section 2.7(e), if a LIBOR Loan or Multi-Currency Loan is paid prior to the end of the Applicable Interest Period, a fee computed in the manner set out in Schedule 1 hereto shall be assessed and paid at the time of such payment. Such fee shall be calculated by Agent and such calculation shall be binding evidence of the amount due hereunder absent a showing by Borrower of manifest error. Except as provided in Section 2.7(e), such fee shall apply in all circumstances where a LIBOR Loan or Multi-Currency Loan is paid prior to the end of the Applicable Interest Period, regardless of whether such payment is voluntary, mandatory (including, without limitation, payments required pursuant to Section 2.4 or 2.6(a)(1) or the result of Agent's or any Lender's collection efforts. Notice of prepayments shall be given to the Agent by 9:00 am Seattle time (i) as to Base Rate Loans, on the day of prepayment, and (ii) as to LIBOR Loans, two London Banking Days prior to the day of prepayment.

Section 2.9 Notes. The Revolving Loans shall be evidenced by promissory notes of Borrower substantially in the forms attached hereto as Exhibits A-1, A-2, and A-3. The Sweepline Loans shall evidenced by a promissory note of Borrower substantially in the form attached hereto as Exhibit B. The Multi-Currency Loans shall be evidenced by a promissory note of Borrower substantially in the forms attached hereto as Exhibits C. The promissory notes referred to herein are collectively referred to as the "Notes." Each Lender is hereby authorized to record the date and amount of Loans it makes and

16

the date and amount of each payment of principal and interest thereon on a schedule annexed to and constituting part of the appropriate Note. Any such recordation by a Lender shall constitute prima facie evidence of the accuracy of the information so recorded; provided, however, that the failure to make any such recordation or any error in any such recordation shall not affect the obligations of Borrower hereunder or under the Notes.

Section 2.10 Manner of Payments.

(a) All payments and prepayments of principal and interest on any Loan and all other amounts payable hereunder by Borrower to Agent or any Lender shall be made by paying the same in Dollars and in immediately available funds to Agent at its Commercial Loan Processing Center, Seattle, Washington not later than 12:00 Noon (Seattle time) on the date on which such payment or prepayment shall become due.

(b) Borrower hereby authorizes Agent and each Lender, if and to the extent any payment is not promptly made pursuant to this Agreement or any other Loan Document, to charge from time to time against any or all of the accounts of Borrower with Agent or any Lender or any affiliate of any Lender any amount due hereunder or under such other Loan Document.

(c) Whenever any payment hereunder or under any other Loan Document shall be stated to be due would otherwise occur on a day other than a Business Day, such payment shall be made on the next succeeding Business Day. In the case of a LIBOR Loan or a Multi-Currency Loan, whenever the last day of any Applicable Interest Period would otherwise occur on a day other than a Business Day, the last day of such Applicable Interest Period shall occur, on the next succeeding Business Day and such extension of time shall in such case be included in the computation and payment of interest, unless, such extension would cause the last date of such Applicable Interest Period to occur in the next following calendar month, in which case the last day of such Applicable Interest Period shall occur, on the next preceding Business Day.

17

(d) Unless Borrower has notified Agent prior to the date any payment to be made by it is due, that it does not intend to remit such payment, Agent may, in its sole and absolute discretion, assume that borrower has timely remitted such payment and may, in its sole and absolute discretion and in reliance thereon, make available such payment to the Lender entitled thereto. If such payment was not in fact remitted to Agent in immediately available fund, then each Lender shall forthwith on demand repay to Agent the amount of such assumed payment made available to such Lender, together with interest thereon in respect of each day from and including the date such amount was made available by Agent to such Lender to the date such amount is repaid to Agent at the Federal Funds Rate.

Section 2.11 Fees. In addition to certain fees described in Section 3.2(b), Borrower shall pay the following fees:

(a) KeyBank Commitment Fee. Immediately upon the execution and delivery of this Agreement, Borrower shall pay to KeyBank the fees referred to in the Fee Letter.

(b) Unused Portion Fee. Borrower shall pay to Agent for the account of Lenders in accordance with their Pro Rata Shares an annual commitment fee in an amount equal to the product of (i) the Applicable Percentage and (ii) the Unused Portion. Such fee shall accrue until the Revolving Maturity Date, be payable quarterly in arrears on the last Business Day of the quarter and shall be deemed fully earned when due and non-refundable, in whole or in part, when paid.

(c) Agent's Fee. Immediately upon the execution and delivery of this Agreement and on each September 30 thereafter through and including the September 30 immediately preceding the Revolving Maturity Date, Borrower shall pay Agent, for its own account, an annual Agent's fee of Ten Thousand Dollars ($10,000). Such fee shall be deemed fully earned when due and non-refundable, in whole or in part, when paid.

Section 2.12 Sharing of Payments, Etc. If any Lender shall obtain any payment in respect of Borrower's obligations under the Loan Documents (whether voluntary or involuntary, through the exercise of any right of setoff or otherwise)(other than payments in respect of the Sweepline Loans, the Multi- Currency Loans, or the Supplemental Commitment) in excess of the amount it would have received if all payments had been made directly to Agent and apportioned in accordance with the terms hereof, such Lender shall hold such excess payment in trust for Agent and Lenders and shall forthwith remit the same to Agent for Lenders' accounts as herein provided.

Section 2.13 Application of Payments. Any payment by Borrower hereunder shall be applied first, against fees, expenses and indemnities due hereunder, second, against interest then due in respect of any Loan, third, against amounts due under Section 3.4 hereof, and thereafter, ratably against amounts owing under any Swap Documents and Loan principal. After the applicable maturity date for any Loan, payments to be applied to loan principal shall be applied first to principal installments then due and thereafter to principal installments in the inverse order of maturity. Agent shall distribute any payment by Borrower in respect of Revolving Loans in accordance with each Lender's Pro Rata Share. Any payment by Borrower to Agent in respect of Sweepline Loans and Multi-Currency Loans shall be solely for the benefit of the Sweepline Bank and the Multi-Currency Bank, as the case may be. Any payment by Borrower to Bank of America or Agent in respect of amounts owing under the Supplemental Credit Agreement shall be solely for the benefit of Bank of America. After any of the Loans become due (by maturity, upon acceleration or otherwise), any amounts recovered from Borrower, including, without limitation, through realization on any Collateral, shall be applied, and distributed by Agent to Lenders, in accordance with each Lender's Total Pro Rata Share.

18

ARTICLE 3
LETTERS OF CREDIT

Section 3.1 Letters of Credit. Borrower may request that Agent issue letters of credit for Borrower's account in accordance with the terms and conditions of this Article 3.

Section 3.2 Manner of Requesting Letters of Credit.

(a) From time to time, Borrower may request that Agent issue standby or commercial letter of credit for Borrower's account or extend or renew any existing Letters of Credit. Such request will be made by delivering a written request or making an oral request (confirmed in writing by facsimile that same day) for the issuance, extension or renewal of such a letter of credit to Agent not later than 9:00 a.m. (Seattle time) on the date a new letter of credit is to be issued or an existing letter of credit is scheduled to expire, provided that, any request given orally shall be confirmed by Borrower in a writing delivered to Agent not later than 10:00 a.m. (Seattle time) on the date such oral request is made. Each such request shall be deemed to constitute a representation and warranty by Borrower that as of the date of such request, statements set forth in Article 5 hereof are true and correct and that no Default or Event of Default has occurred and is continuing. Each such request shall specify the face amount of the requested Letter of Credit, the proposed date of expiration, the name of the intended beneficiary thereof, and whether such Letter of Credit is a standby or commercial letter of credit or an extension or renewal thereof.

(b) Borrower shall pay to Agent for the account of Lenders a letter of credit fee (i) with respect to any standby Letters of Credit, equal to .75% (75 basis points) per annum of the amount available to be drawn on the outstanding standby Letters of Credit, which fee shall not be less than Two Hundred Fifty Dollars ($250), (ii) with respect to commercial Letters of Credit, equal to .375% (37.5 basis points) of the face value of each commercial Letter of Credit, which fee shall not be less than One Hundred Twenty Five Dollars ($125), and (iii) such other letter of credit fees. Computations of interest and fees described in this section shall be made on the basis of a year of 365 days, for the actual number of days (including the first day but excluding the last day) occurring in the period for which such interest or fees are payable.

(c) Each letter of credit requested hereunder shall (i) be in a face amount such that after issuance of such letter of credit (A) the Total Utilization will not exceed the Total Revolving Commitment, and (B) the Letter of Credit Usage would not exceed $20,000,000; and (ii) have an expiration date not later than the Revolving Maturity Date.

(d) At the request of Agent, Borrower shall execute a letter of credit application and reimbursement agreement, in the standard form then used by Agent, in respect of each Letter of Credit requested hereunder. The letter of credit applications and reimbursement agreements now in effect with respect to each existing Letter of Credit shall remain in full force and effect except that, if such existing Letter of Credit is extended or renewed, Agent may, at its option, require Borrower to execute a new letter of credit application and reimbursement agreement (all reimbursement agreements relating to any of the Letters of Credit shall, as such agreements may be amended from time to time, be collectively referred to herein as the "Reimbursement Agreements").

(e) Subject to the satisfaction of the conditions precedent set forth in Article 4 and Borrower's compliance with the terms of this Section 3.2, Agent shall issue and deliver its letter of credit to Borrower or to the designated beneficiary at such address as Borrower may specify. New Letters of Credit and extensions or renewals of any existing Letters of Credit shall contain terms and conditions customarily included in Agent's letters of credit and shall otherwise be in a form acceptable to Agent.

19

(f)  Letters of Credit issued hereunder, upon the request of Borrower in accordance with subsection (a) above, may be denominated in an Offshore Currency; provided that (i) upon the issuance of each Letter of Credit requested in an Offshore Currency hereunder, the Dollar Equivalent of Letter of Credit Usage, calculated at any time, shall not exceed Twenty Million Dollars ($20,000,000), and (ii) should Agent determine at any time that the Dollar Equivalent of Total Utilization exceeds the Dollar Equivalent of Total Revolving Commitment, then Borrower shall repay to Lenders such amounts of principal as may be necessary to ensure that the Dollar Equivalent of Total Utilization is equal to or less than the Dollar Equivalent of Total Revolving Commitment.

(g) In the event of any conflict between the terms of any Reimbursement Agreement and the terms of this Agreement, the terms of this Agreement shall control, unless Agent has otherwise agreed in a writing.

Section 3.3 Indemnification; Increased Costs. Borrower agrees to indemnify Agent and any Lender on demand for any and all additional costs, expenses, or damages incurred by such Agent or Lender, directly or indirectly, arising out of the issuance of any Letter of Credit or the purchase of any Letter of Credit Risk Participation, including, without limitation, any costs of maintaining reserves in respect thereof and any premium rates imposed by the Federal Deposit Insurance Corporation in connection therewith. A certificate as to such additional amounts submitted to Borrower by Agent or such Lender shall be final, conclusive, and binding, absent manifest error.

    If at any time after the date hereof the introduction of or any change in applicable law, rule, or regulation or in the interpretation or the administration thereof by any Governmental Authority charged with the interpretation or administration thereof, or compliance by Agent or Lender with any requests directed by any such Governmental Authority (whether or not having the force of law) shall, with respect to any Letter of Credit or Letter of Credit Risk Participation subject Agent or such Lender to any Tax or impose, modify, or deem applicable any reserve, special deposit, or similar requirements against assets of, deposits with or for the account of, credit extended by Agent or such Lender or shall impose on Agent or such Lender any other conditions affecting the Letters of Credit or Letter of Credit Risk Participations and the result of any of the foregoing is to increase the cost to Agent or such Lender of issuing a Letter of Credit or holding a Letter of Credit Risk Participation or to reduce the amount of any sum received or receivable by Agent or such Lender hereunder with respect to the Letters of Credit or Letter of Credit Risk Participations, then, upon demand by Agent or such Lender, Borrower shall pay to Agent or such Lender such additional amount or amounts as will compensate Agent or such Lender for such increased cost or reduction. A certificate submitted to Borrower by Agent or such Lender setting forth the basis for the determination of such additional amount or amounts shall be final, conclusive, and binding, absent manifest error.

    Borrower agrees to indemnify and hold Agent and each Lender (an "Indemnitee") harmless from and against any and all (a) Taxes (exclusive of Taxes measured by net income and gross receipts) and other fees payable in connection with Letters of Credit, Letter of Credit Risk Participations or the provisions of this Agreement relating thereto, and (b) any and all actions, claims, damages, losses, liabilities, fines, penalties, costs, and expenses of every nature, including reasonable attorney's fees, suffered or incurred by the Indemnitee otherwise arising out of or relating to this Article 3, any Letter of Credit, or any Letter of Credit Risk Participations; provided, however, said indemnification shall not apply to the extent that any such action, claim, damage, loss, liability, fine, penalty, cost, or expense arises out of or is based solely upon the Indemnitee's willful misconduct or negligence.

Section 3.4 Payment by Borrower. Borrower agrees to fully reimburse Agent for all amounts paid by Agent under any Letter of Credit and to pay interest thereon at the Base Rate then applicable to Revolving Loans from the date Agent makes such payment until the date of any demand for reimbursement by Agent. Such payment shall be made in immediately available funds at Agent's

20

Commercial Loan Processing Center not later than 11:00 a.m. (Seattle time) on the date Borrower is first notified by Agent that Agent has made payment under the Letter of Credit; provided, that, if Agent so elects pursuant to the terms of Section 9.2, following the occurrence of an Event of Default, the face amount of each Letter of Credit shall become immediately due and payable. If Borrower shall default in its obligations to reimburse Agent or make any other payment required hereunder, interest shall accrue on the unpaid amount thereof at a per annum rate equal to three percentage (3%) points above the Base Rate changing as such Base Rate changes from the date such amount becomes due and payable until payment in full by Borrower. Interest on such unpaid amounts shall be calculated on the basis of a year of 360 days and shall be payable on demand.

ARTICLE 4
CONDITIONS

Section 4.1 Conditions to Effectiveness of Agreement. This Agreement shall become effective upon the fulfillment of all of the following:

(a) New Loan Documents. Agent shall have received the New Loan Documents, each been duly executed and delivered by Borrower.

(b) Assignment and Assumption Agreement. Agent shall have received a duly executed Assignment and Assumption Agreement between Bank of America and KeyBank dated as of January 2, 2001.

(c) Payment of Fees. All fees which are due and payable shall have been paid in full.

Section 4.2 Conditions to All Loans and Issuances of Letters of Credit. The obligation of each Lender to make any Loan hereunder and the obligation of Agent to issue any Letter of Credit, are subject to fulfillment of the following conditions:

(a) Prior Conditions. All of the conditions set forth in Section 4.1 shall have been satisfied.

(b) Notice of Borrowing. In respect of any Loan, Agent shall have received the Notice of Borrowing in respect of such Loan; and, in respect of any Letter of Credit, Agent shall have received from Borrower a request therefor complying with the requirements of Section 3.2.

(c) No Default. At the date of the requested Loan or issuance of requested Letter of Credit, no Default or Event of Default shall have occurred and be continuing or will have occurred as the result of the making of the Loan or issuing the Letter of Credit; and the representations and warranties of Borrower in Article 5 shall be true on and as of such date with the same force and effect as if made on and as of such date.

(d) Other Information. Agent and each Lender shall have received such other statements, opinions, certificates, documents and information as it may reasonably request in order to satisfy itself that the foregoing conditions have been fulfilled.

Section 4.3 Conditions to Certain Loans and Issuances of Letters of Credit. The obligation of each Lender to make the first Loan hereunder and the obligation of Agent to issue the first Letter of Credit hereunder, in either case, that would cause the Total Utilization to exceed Seventy Million Dollars ($70,000,000), are subject to fulfillment of the following conditions:

(a) Prior Conditions. All of the conditions set forth in Sections 4.1 and 4.2 shall have been satisfied.

(b) Borrower Authority. Agent shall have received in form and substance satisfactory to it (i) a copy of a resolution adopted by the Board of Directors of Borrower authorizing the execution, delivery and performance of this Agreement and the other New Loan Documents certified by the Secretary of Borrower; (ii) evidence of the authority and specimen signatures of

21

the persons who have signed this Agreement and the other New Loan Documents; (iii) a Certificate of Good Standing dated as of a recent date issued by the Secretary of State of Washington in respect of Borrower; and (iv) such other evidence of corporate authority as Agent shall reasonably require.

(c) Legal Opinion. Agent on behalf of each Lender shall have received the legal opinion of John S. Leness, as General Counsel to Borrower, substantially in the form attached hereto as Exhibit D and dated on or about the date hereof.

ARTICLE 5
REPRESENTATIONS AND WARRANTIES

    Borrower represents and warrants to Agent and Lenders as follows:

Section 5.1 Corporate Existence and Power. Borrower is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Washington. Borrower is duly qualified to do business in each other jurisdiction where the nature of its activities or the ownership of its properties requires such qualification, except to the extent that failure to be so qualified does not have a material adverse effect on its business, operations or financial condition. Borrower has full corporate power, authority and legal right to carry on its business as presently conducted, to own and operate its properties and assets, and to execute, deliver and perform the Loan Documents to which it is a party.

Section 5.2 Corporate Authorization. The execution, delivery and performance by Borrower of the Loan Documents and any borrowing thereunder and the request for the issuance of any Letter of Credit thereunder, have been duly authorized by all necessary corporate action of Borrower, and do not require any shareholder approval or the approval or consent of any trustee or the holders of any Indebtedness of Borrower except such as have been obtained (certified copies thereof having been delivered to Agent), do not contravene any law, regulation, rule or order binding on it or its Articles of Incorporation or Bylaws and do not contravene the provisions of or constitute a default under any indenture, mortgage, contract or other agreement or instrument to which Borrower is a party or by which Borrower, or any of its properties, may be bound or affected.

Section 5.3 Government Approvals, Etc. No Government Approval or filing or registration with any Governmental Authority is required for the making and performance by Borrower of the Loan Documents to which it is a party or in connection with any of the transactions contemplated hereby or thereby, except such as have been heretofore obtained and are in full force and effect (certified copies thereof having been delivered to Agent).

Section 5.4 Binding Obligations, Etc. This Agreement has been duly executed and delivered by Borrower and constitutes, and the other Loan Documents when duly executed and delivered by Borrower will constitute, the legal, valid and binding obligations of Borrower enforceable against Borrower in accordance with their respective terms except as such enforceability may be limited by applicable bankruptcy, insolvency, or similar laws affecting the enforcement of creditors' rights generally or by the exercise of judicial discretion in accordance with general principles of equity.

Section 5.5 Litigation. There are no actions, proceedings, investigations, or claims against or affecting Borrower now pending before any court, arbitrator or Governmental Authority (nor to the knowledge of Borrower has any thereof been threatened nor does any basis exist therefor) which might reasonably be determined adversely to Borrower and which, if determined adversely, would be likely to have a material adverse effect on the financial condition or operations of Borrower or to impair Agent's lien on the Collateral or Borrower's rights therein, except as described on Schedule 2 hereto.

Section 5.6 Lien Priority. On the date any Loan is made or any Letter of Credit is issued hereunder, the Security Agreement will constitute a valid and perfected lien of first priority (subject only to the Lien of the Private Lenders) in and to all Collateral (other than patents, copyrights and

22

trademarks not identified on Schedule 1 of the Security Agreement, as such Schedule may be modified or supplemented from time to time) and will be enforceable against all third parties in all jurisdictions as security for all obligations of Borrower to Agent and Lenders hereunder and under the other Loan Documents.

Section 5.7 Financial Condition. The consolidated balance sheet of Borrower and its Subsidiaries as at April 30, 1998, and the related statements of income and retained earnings of Borrower and its Subsidiaries for the fiscal year then ended, copies of which have been furnished to Lenders, fairly present the consolidated financial condition of Borrower and its Subsidiaries as at such date, including all material contingent liabilities, and the consolidated results of operations of Borrower for the period then ended, all in accordance with GAAP. Neither Borrower nor its Subsidiaries had on such date any material contingent liabilities, unusual forward or long-term commitments or unrealized or anticipated losses from any unfavorable commitments, except as referred to or reflected or provided for in that balance sheet and in the notes to those financial statements and since that date there has been no material adverse change in the financial condition or operations of Borrower or its Subsidiaries.

Section 5.8 Title and Liens. Borrower has good and marketable title to each of the properties and assets reflected in its balance sheet referred to in Section 5.7 hereof (except such as have been since sold or otherwise disposed of in the ordinary course of business). No assets or revenues of Borrower are subject to any Lien except as permitted by this Agreement. All properties of Borrower and its use thereof comply in all material respects with applicable zoning and use restrictions and with applicable laws and regulations relating to the environment.

Section 5.9 Taxes. Borrower has filed all tax returns and reports required of it, has paid all Taxes which are shown to be due and payable on such returns and reports, and has provided adequate reserves for payment of any Tax whose payment is being contested. The charges, accruals and reserves on the books of Borrower in respect of Taxes for all fiscal periods to date are accurate in all material respects and there are no material questions or disputes between Borrower and any Governmental Authority with respect to any Taxes except as disclosed in the balance sheet referred to in Section 5.7 or otherwise disclosed to Agent in writing prior to the date of this Agreement.

Section 5.10 Laws, Orders, Other Agreements. Neither Borrower nor any of its Subsidiaries is in violation of or subject to any contingent liability on account of any laws, statutes, rules, regulations and orders of any Governmental Authority. Neither Borrower or any of its Subsidiaries is in material breach of or default under any material agreement to which it is a party or which is binding on it or any of its assets.

23

Section 5.11 Federal Reserve Regulations. Borrower is not engaged principally or as one of its important activities in the business of extending credit for the purpose of purchasing or carrying any margin stock (within the meaning of Federal Reserve Regulation U), and no part of the proceeds of any Loan or Letter of Credit will be used to purchase or carry any such margin stock or to extend credit to others for the purpose of purchasing or carrying any such margin stock or for any other purpose that violates the applicable provisions of any Federal Reserve Regulation. Borrower will furnish to any Lender on request a statement conforming with the requirements of Regulation U.

Section 5.12 ERISA.

(a) The present value of all benefits vested under all Pension Plans did not, as of the most recent valuation date of such Pension Plans, exceed the value of the assets of the Pension Plans allocable to such vested benefits by an amount which would represent a potential material liability of Borrower or affect materially the ability of Borrower to perform this Agreement or the other Loan Documents.

(b) No Plan or trust created thereunder, or any trustee or administrator thereof, has engaged in a "prohibited transaction" (as such term is defined in Section 406 or Section 2003(a) of ERISA) which could subject such Plan or any other Plan, any trust created thereunder, or any trustee or administrator thereof, or any party dealing with any Plan or any such trust to any material tax or penalty on prohibited transactions imposed by Section 502 or Section 2003(a) of ERISA.

(c) No Pension Plan or trust has been terminated, and there have been no "reportable events" as that term is defined in Section 4043 of ERISA since the effective date of ERISA.

(d) No Pension Plan or trust created thereunder has incurred any "accumulated funding deficiency" (as such term is defined in Section 302 of ERISA) whether or not waived, since the effective date of ERISA.

(e) The required allocations and contributions to Pension Plans will not violate Section 415 of the Code in any material respect.

Section 5.13 Security Offerings. Neither Borrower nor anyone acting on its behalf has directly or indirectly offered any Note or similar instrument or security for sale to any person or solicited from any person any offer to buy any such instrument or security or approached or negotiated with any person concerning any such instrument or security in any manner which would violate any applicable state or federal securities laws, including without limitation, the Securities Act of 1933, as amended.

Section 5.14 Investment Company; Public Utility Holding Company. Borrower is not (a) an "investment company" or a company "controlled" by an investment company within the meaning of the Investment Company Act of 1940, as amended; or (b) a "holding company" or a "subsidiary company" of a "holding company" or an "affiliate" of either a "holding company" or a "subsidiary company" within the meaning of the Public Utility Holding Company Act of 1935, as amended.

Section 5.15 Representations as a Whole. This Agreement, the other Loan Documents, the financial statements referred to in Section 5.7, and all other instruments, documents, certificates and statements furnished to Agent and Lenders by Borrower, taken as a whole, do not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements contained herein or therein not misleading. Without limiting the foregoing, each of the representations and warranties made by Borrower in the other Loan Documents is true and correct on and as of the date when made, as of August 31, 1998, and on and as of each date this representation is deemed made hereunder with the same force and effect as if made on and as of such dates.

24

ARTICLE 6
AFFIRMATIVE COVENANTS

    So long as Agent or any Lender shall have any Commitment hereunder or there shall be any outstanding Letters of Credit and until payment in full of each Loan and performance of all other obligations of Borrower under this Agreement and the other Loan Documents, Borrower agrees to do all of the following unless Agent shall otherwise consent in writing.

Section 6.1 Use of Proceeds. The proceeds of the Loans and the Letters of Credit will be used only for working capital, other general corporate purposes, and for Acquisitions permitted under Section 7.2 and 7.4.

Section 6.2 Preservation of Corporate Existence, Etc. Borrower will, and will cause the Subsidiaries to, preserve and maintain their corporate existence, rights, franchises and privileges in the jurisdictions of their incorporation and will, and will cause the Subsidiaries to, qualify and remain qualified as foreign corporations in each jurisdiction where qualification is necessary or advisable in view of their business and operations or the ownership of their properties.

Section 6.3 Visitation Rights. At any reasonable time, and from time to time, Borrower will, and will cause each Subsidiary to, permit Agent and Lenders to examine and make copies of and abstracts from the records and books of account of and to visit the properties of Borrower and to discuss the affairs, finances and accounts of Borrower with any of its officers or directors.

Section 6.4 Keeping of Books and Records. Borrower will keep adequate records and books of account in which complete entries will be made, in accordance with GAAP, reflecting all financial transactions of Borrower.

Section 6.5 Maintenance of Property, Etc. Borrower will maintain and preserve and will cause each Subsidiary to maintain and preserve all of their respective properties in reasonably good working order and condition, ordinary wear and tear excepted, and will from time to time make all needed repairs, renewals and replacements so that the efficiency of such properties shall be fully maintained and preserved.

Section 6.6 Compliance with Laws, Etc. Borrower will comply and will cause each Subsidiary to comply in all material respects with all laws, regulations, rules, and orders of Governmental Authorities applicable to Borrower or any Subsidiary or to their respective operations or property, except any thereof whose validity is being contested in good faith by appropriate proceedings upon stay of execution of the enforcement thereof.

Section 6.7 Other Obligations. Borrower will pay and discharge and cause each Subsidiary to pay and discharge before the same shall become delinquent all material Indebtedness, Taxes and other obligations for which Borrower or any Subsidiary is liable or to which their income or property is subject and all claims for labor and materials or supplies which, if unpaid, might become by law a Lien upon assets of Borrower or any Subsidiary, except any thereof whose validity or amount is being contested in good faith by Borrower or the Subsidiary in appropriate proceedings with provision having been made to the satisfaction of Agent for the payment thereof in the event the contest is determined adversely to Borrower or such Subsidiary. In the event any charge is being contested by Borrower or its Subsidiaries as allowed above, Borrower or its Subsidiaries shall establish adequate reserves against possible liability therefor.

Section 6.8 Insurance. Without limitation on the insurance required by the Security Agreement to be maintained on the Collateral, Borrower will keep in force and will cause each Subsidiary to keep in force upon all of their respective properties and operations policies of insurance carried with responsible companies in such amounts and covering all such risks as shall be customary in the industry

25

and reasonably satisfactory to Agent. Borrower will on request furnish to Agent certificates of insurance or copies of policies evidencing such coverage.

Section 6.9 Financial Information. Borrower will deliver to Agent in sufficient copies for distribution to Agent and each Lender:

(a) Annual Audited Financial Statements. As soon as available and in any event within ninety (90) days after the end of each fiscal year of Borrower, the consolidated balance sheet of Borrower and its Subsidiaries as of the end of such fiscal year and the related consolidated statements of income and the consolidated statement of retained earnings and statement of cash flows of Borrower and its Subsidiaries for such year, accompanied by (i) the audit report thereon by independent certified public accountants selected by Borrower and reasonably satisfactory to Agent (which reports shall be prepared in accordance with GAAP and shall not be qualified by reason of restricted or limited examination of any material portion of the records of Borrower or any Subsidiary and shall contain no disclaimer of opinion or adverse opinion except such as Agent in its sole discretion determines to be immaterial) and (ii) an Officer's Certificate of Borrower certifying that as of the close of such year no Event of Default or Default had occurred and was continuing;

(b) Quarterly Unaudited Financial Statements. As soon as available and in any event within forty-five (45) days after the end of each of the first three fiscal quarters of Borrower, the unaudited consolidated balance sheet of Borrower as of the end of such fiscal quarter and the unaudited consolidated statement of income and consolidated statement of cash flows of Borrower for the fiscal year to the end of such fiscal quarter, unless the same has been provided in the form of Borrower's Form 10Q; accompanied by an Officer's Certificate of Borrower certifying that (i) such reports have been prepared in accordance with GAAP consistently applied and results of operation of Borrower as at the end of and for such fiscal quarter and that since the previous fiscal year-end report referred to in clause (a) there has been no material adverse change in the financial condition of Borrower and that (ii) as of the close of such fiscal quarter no Event of Default or Default had occurred and was continuing;

(c) Annual Financial Projections. As soon as available, but not later than ninety (90) days after the end of each fiscal year, a copy of Borrower's annual financial projections;

(d) Accounts Receivable Summary. As soon as available, but not later than forty-five (45) days after the end of each fiscal quarter an accounts receivable aging summary;

(e) SEC Filings. Promptly, copies of all financial statements and reports that Borrower sends to its shareholders, and copies of all financial statements and regular, periodical or special reports (including Forms 10K, 10Q and 8K) that Borrower or any Subsidiary may make to, or file with, the SEC; and

(f)  Compliance Certificates. Within ninety (90) days after the close of each fiscal year of Borrower and within forty-five (45) days after the close of each of Borrower's fiscal quarters (other than the fourth fiscal quarter), an officer's certificate signed by the chief financial officer of Borrower stating that to the best of the signer's knowledge and belief after due inquiry no Default or Event of Default had occurred and was continuing and setting forth calculations evidencing compliance with Sections 6.12, 6.13, 6.14, 6.15, and 6.17 hereof;

(g) Other. All other statements, reports and other information as Agent or any Lender may reasonably request concerning the Collateral or the financial condition and business affairs of Borrower.

Section 6.10 Notification. Promptly after learning thereof, Borrower shall notify Agent of (a) any action, proceeding, investigation or claim against or affecting Borrower or any Subsidiaries instituted

26

before any court, arbitrator or Governmental Authority or, to Borrower's knowledge, threatened to be instituted, which might reasonably be determined adversely to Borrower and which, if determined adversely, would be likely to have a material adverse effect on the financial condition or operations of Borrower, or to impair Agent's or Lenders' lien on Collateral or Borrower's rights therein, or to result in a judgment or order against Borrower for more than $500,000 in excess of insurance coverage or, when combined with all other pending or threatened claims, more than $500,000 in excess of insurance coverage; (b) any substantial dispute between Borrower or any Subsidiaries and any Governmental Authority; (c) any labor controversy which has resulted in or, to Borrower's knowledge, threatens to result in a strike which would materially affect the business operations of Borrower or any Subsidiary; (d) if Borrower or any member of the Controlled Group gives or is required to give notice to the PBGC of any "reportable event" (as defined in subsections (b)(1),(2),(5) or (6) of Section 4043 of ERISA) with respect to any Plan (or the Internal Revenue Service gives notice to the PBGC of any "reportable event" as defined in subsection (c)(2) of Section 4043 of ERISA and Borrower obtains knowledge thereof) which might constitute grounds for a termination of such Plan under Title IV of ERISA, or knows that the plan administrator of any Plan has given or is required to give notice of any such reportable event, a copy of the notice of such reportable event given or required to be given to the PBGC; and (e) the occurrence of any Event of Default or Default. In the case of the occurrence of an Event of Default or Default, Borrower will deliver to Agent an Officer's Certificate specifying the nature thereof, the period of existence thereof, and what action Borrower proposes to take with respect thereto.

Section 6.11 Additional Payments; Additional Acts. From time to time, Borrower will (a) pay or reimburse Agent and Lenders on request for all Taxes (other than Taxes imposed on the net or gross income of Agent or Lenders) imposed on any Loan Document or payment and for all reasonable expenses, including legal fees, incurred by Agent or any Lender in connection with the preparation of the Loan Documents or the making or administration of the Loans, or the issuance of any Letter of Credit; (b) pay or reimburse Agent and any Lender for all reasonable expenses, including legal fees, incurred by Agent or any Lender in connection with the enforcement by judicial proceedings or otherwise of any of the rights of Agent or any Lender under the Loan Documents (including the enforcement or protection of Agent's or any Lender's rights in any bankruptcy or any insolvency proceeding); (c) obtain and promptly furnish to Agent evidence of all such Government Approvals as may be required to enable Borrower to comply with its obligations under the Loan Documents and to continue in business as conducted without material interruption or interference; and (d) execute and deliver all such instruments (such as Uniform Commercial Code continuation statements) and perform all such other acts as Agent or any Lender may reasonably request to carry out the transactions contemplated by the Loan Documents and to maintain the continuous perfection and priority of Agent's lien on all Collateral.

Section 6.12 Fixed Charge Coverage Ratio. For any four consecutive fiscal quarters, Borrower shall maintain, on a consolidated basis, a Fixed Charge Coverage Ratio of at least 1.50 to 1. "Fixed Charge Coverage Ratio" shall mean the quotient obtained by dividing (a) the sum of Cash Flow by (b) the sum of Fixed Charges. "Cash Flow" shall mean Borrower's net income after taxes, plus interest expense, depreciation and amortization, and less the aggregate amount of any dividends issued. "Fixed Charges" shall mean Borrower's interest expense, plus its current portion of any long-term debt.

Section 6.13 Funded Debt Ratio. As of the end of each fiscal quarter, Borrower shall maintain, on a consolidated basis, a Funded Debt Ratio of not more than 4.25 to 1. As used herein "Funded Debt Ratio" shall mean as of the end of any fiscal quarter, the quotient obtained by dividing (a) the Funded Debt as of the end of such fiscal quarter by (b) the EBITDA for such quarter and the three immediately preceding fiscal quarters, plus, in the event that Borrower has acquired any Subsidiaries during such fiscal quarter or during the immediately preceding three fiscal quarters, the EBITDA of such Subsidiaries from the first day of the immediately preceding three fiscal quarters through the date

27

of acquisition of each Subsidiary. "EBITDA" shall mean pre-tax net income (or pre-tax net loss), plus, the sum of (i) interest expense, (ii) depreciation expense, (iii) depletion expense, and (iv) amortization expense.

Section 6.14 Minimum Net Worth. Borrower shall maintain, on a consolidated basis, as at the end of each fiscal quarter, a Tangible Net Worth equal to or greater than the then applicable Minimum Net Worth. "Minimum Net Worth" shall mean $27,800,000, plus cumulative quarterly increases equal to fifty percent (50%) of Borrower's net income for all fiscal quarters ending on or after July 31, 1999, excluding any adjustments thereto for losses, plus all amounts contributed to Borrower as equity at any time after September 1, 1999.

Section 6.15 Debt to Tangible Net Worth Ratio. Borrower shall maintain, on a consolidated basis, a ratio of Debt to Tangible Net Worth of not more than (a) 3.70 to 1 as at the fiscal quarters ending April 30, 2000, July 31, 2000, October 31, 2000 and January 31, 2001; (b) 3.10 to 1 as at the fiscal quarters ending April 30, 2001, July 31, 2001, October 31, 2001 and January 31, 2002; and (c) 2.60 to 1 as at the fiscal quarters ending April 30, 2002 and thereafter. As used herein, "Debt" shall mean, on a consolidated basis, all liabilities of Borrower as determined and computed in accordance with GAAP other than Senior Unsecured Debt, Subordinated Debt, and for clarification purposes only, minority interests.

Section 6.16 Guaranties and Security Agreements from Subsidiaries. After any entity becomes a Domestic Subsidiary of Borrower, other than those Subsidiaries set forth on Schedule 3 hereto, and unless Agent and the Majority Lenders provide prior written consent to the contrary, such Domestic Subsidiary shall execute and deliver to Agent, promptly upon Agent's request, (a) a guaranty agreement, unconditionally guarantying Borrower's obligations under the Loan Documents, (b) a security agreement granting Agent for its benefit and the ratable benefit of Lenders', a first priority and exclusive security interest in all personal property of such Domestic Subsidiary, (c) a copy of a resolution adopted by the Board of Directors of such Domestic Subsidiary authorizing the execution, delivery, and performance of the guaranty and security agreement, and (d) such other documents and agreements as Agent may reasonably request. All of the foregoing documents shall be in form and substance satisfactory to Agent. Each such Domestic Subsidiary shall be referred to herein as a "Guarantor."

Section 6.17 Senior Funded Debt Ratio. Borrower shall maintain, on a consolidated basis, a Senior Funded Debt Ratio of not more than (a) 4.00 to 1 as at the fiscal quarters ending April 30, 2000 and July 31, 2000; (b) 3.75 to 1 as at the fiscal quarters ending October 31, 2000; (c) 3.50 to 1 as at the fiscal quarters ending January 31, 2001; (d) 3.25 to 1 as at the fiscal quarters ending April 30, 2001 and July 31, 2001; and (e) 3.00 to 1 as at the fiscal quarters ending October 31, 2001 and thereafter. As used herein, "Senior Funded Debt Ratio" shall mean, as of the end of any fiscal quarter, the quotient obtained by dividing (A) Senior Funded Debt as of the end of such fiscal quarter by (B) the EBITDA for such quarter and the three immediately preceding fiscal quarters, plus, in the event that Borrower has acquired any Subsidiaries during such fiscal quarter or during the immediately preceding three fiscal quarters, the EBITDA of such Subsidiaries from the first day of the immediately preceding three fiscal quarters through the date of acquisition of each Subsidiary. "EBITDA" shall mean pre-tax net income (or pre-tax net loss), plus, the sum of (i) interest expense, (ii) depreciation expense, (iii) depletion expense, and (iv) amortization expense.

Section 6.18 Update of Collateral. From time to time, Agent may request that Borrower supplement Schedule 1 of the Security Agreement to include: (i) any new patent, patent applications, trademarks or trademark applications acquired by Borrower after the date hereof; and/or (ii) any copyrights in which Borrower then has any interest. Borrower shall promptly and fully comply with any such request and, if requested by Agent, Borrower shall sign such new security agreements or documents, and shall take such other actions, as Agent may reasonably request to create and perfect a

28

security interest in favor of Bank of America in its capacity as agent under the Security Agreement and to establish and ensure the first priority of such security interest.

ARTICLE 7
NEGATIVE COVENANTS

    So long as Agent or any Lender shall have any Commitment hereunder or there shall be any outstanding Letters of Credit and until payment in full of each Loan and performance of all other obligations of Borrower under this Agreement and the other Loan Documents, Borrower agrees that it will not do any of the following unless Agent shall otherwise consent in writing, such consent not to be unreasonably withheld.

Section 7.1 Dividends, Purchase of Stock, Etc. During the continuance of any Default or Event of Default, or if such payment or distribution would result in a Default or Event of Default, Borrower shall not, and shall cause each Subsidiary to not, (a) declare or pay any dividend (except dividends payable in its capital stock) on any shares of any class of its capital stock or (b) apply any assets to the purchase, redemption or other retirement of, or set aside any sum for the payment of any dividends on or for the purchase, redemption or other retirement of, or make any other distribution by reduction of capital or otherwise in respect of, any shares of any class of capital stock of Borrower.

Section 7.2 Liquidation, Merger, Sale of Assets. Neither Borrower nor any Guarantor shall liquidate, dissolve or enter into any consolidation, joint venture, partnership or other combination or sell, lease, or dispose of (including through transfers to any Subsidiary that has not executed a guaranty and security agreement pursuant to Section 6.16) all or any substantial portion of its business or assets or of any Collateral (excepting sales of goods in the ordinary course of business). Neither Borrower nor any Guarantor shall merge with any other person except that the Borrower or Guarantor may merge with another person engaged in business similar or related to Borrower's provided that (a) such a merger is an Acquisition, (b) prior to such Acquisition, no Default or Event of Default has occurred nor is continuing and such Acquisition shall not cause a Default or an Event of Default hereunder, (c) ten (10) days prior to such Acquisition, Borrower provides to Agent and each Lender written notice of such Acquisition and evidence that such Acquisition complies with the terms and conditions contained herein, and (d) the amount of such Acquisition, together with the amount of all other acquisitions consummated within the twelve (12) consecutive months (including all other Acquisitions by merger or otherwise as permitted under this Section 7.2 and Section 7.4 hereof), does not exceed $10,000,000.

Section 7.3 Indebtedness. Neither Borrower nor any Guarantor shall create, incur or become liable for any Indebtedness except (a) the Loans and Indebtedness hereunder in respect of the Letters of Credit and Swap Documents, (b) existing Indebtedness reflected on the balance sheets referred to in Section 5.7, (c) current accounts payable or accrued or other current liabilities incurred by Borrower or Guarantor in the ordinary course of business, (d) indebtedness for the deferred purchase price, or for obligations under leases, of real and personal property used by Borrower or Guarantor in its business, (e) Indebtedness incurred in respect of any Acquisition permitted under Section 7.2 or 7.4, which, in the aggregate, measured on any rolling twelve (12) month period, does not exceed Five Million Dollars ($5,000,000), (f) Senior Unsecured Debt and Subordinated Debt which when taken together do not exceed, in the aggregate, at any one time outstanding, Twenty-Five Million Dollars ($25,000,000), and (g) any amounts owing under the Supplemental Credit Agreement.

Section 7.4 Guaranties, Etc. Except for the guaranties set forth on Schedule 4 hereto, neither Borrower nor any Guarantor shall assume, guaranty, endorse or otherwise become directly or contingently liable for, or obligated to purchase, pay or provide funds for payment of, any obligation or Indebtedness of any other person, other than by endorsement of negotiable instruments for deposit or collection or by similar transactions in the ordinary course of business.

29

Section 7.5 Liens. Neither Borrower nor any Guarantor shall create, assume or suffer to exist any Lien except (a) liens pursuant to the Security Agreement, (b) existing Liens reflected in the balance sheet referred to in Section 5.7, (c) Liens described on Schedule 5 hereto, and (d) with respect to any Guarantor, liens pursuant to the security agreements required under Section 6.16.

Section 7.6 Investments. Borrower shall not make any loan or advance to any person or purchase or otherwise acquire the capital stock, assets or obligations of, or any interest in, any person, except (a) commercial bank time deposits maturing within one year, (b) marketable general obligations of the United States or a State or marketable obligations fully guaranteed by the United States, (c) short-term commercial paper with the highest rating of a generally recognized rating service, (d) the Acquisition of Spearhead Automated Systems, Inc., or (e) an Acquisition of another person engaged in business similar or related to Borrower's provided that (i) prior to such Acquisition, no Default or Event of Default has occurred nor is continuing and such Acquisition shall not cause a Default or an Event of Default hereunder, (ii) ten (10) days prior to such Acquisition, Borrower provides to Agent and each Lender written notice of such Acquisition and evidence that such Acquisition complies with the terms and conditions contained herein, and (iii) the amount of such Acquisition, together with the amount of all other acquisitions consummated within the twelve (12) consecutive months (including any Acquisitions by merger as permitted under Section 7.2 hereof), does not exceed $10,000,000.

Section 7.7 Operations. Borrower shall not engage in any activity which is substantially different from or unrelated to the present business activities or products of Borrower.

Section 7.8 ERISA Compliance. Neither Borrower nor any member of the Controlled Group nor any Plan will:

(a) engage in any "prohibited transaction" (as such term is defined in Section 406 or Section 2003(a) of ERISA) which could result in a material liability to Borrower;

(b) incur any "accumulated funding deficiency" (as such term is defined in Section 302 of ERISA) whether or not waived which could result in a material liability to Borrower;

(c) terminate any Pension Plan in a manner which could result in a material liability to Borrower or could result in the imposition of a material Lien on any property of Borrower or any member of the Controlled Group pursuant to Section 4068 of ERISA; or

(d) violate state or federal securities laws applicable to any Plan in any material respect.

30

Section 7.9 Senior Unsecured Debt. Borrower shall maintain no funds on deposit with, shall not acquire any certificates of deposit or other financial instruments from, nor hold any Indebtedness owing to Borrower by, any Senior Unsecured Bank unless such Senior Unsecured Bank shall first have executed a written agreement in favor of Lenders (in form and substance acceptable to Lenders) subordinating or waiving its rights to set-off or to assert any "bankers lien." Borrower shall comply at all times with all terms and conditions set forth in any document or instrument evidencing any Senior Unsecured Debt and shall take all other actions as may be necessary to ensure that at all times (before or after the expiration of any applicable grace periods), no Senior Unsecured Bank shall have the right to accelerate the maturity of any installment of the Senior Unsecured Debt.

ARTICLE 8
EVENTS OF DEFAULT

Section 8.1 Events of Default. The occurrence of any of the following events shall constitute an "Event of Default" hereunder.

(a) Payment Default. Borrower shall fail to pay for a period of three (3) Business Days when due any amount of principal of or interest on any Loan or any other amount payable by it hereunder including, without limitation, amounts due in respect of Letters of Credit; or

(b) Breach of Warranty. Any representation or warranty made (or deemed made pursuant to Section 2.2 or 3.2 hereof) by Borrower under or in connection with this Agreement or any Loan Document shall prove to have been incorrect in any material respect when made; or

(c) Breach of Certain Covenants. Borrower shall have failed to comply with Sections 6.2, 6.8, 6.10(e), 6.12, 6.13, 6.14, 6.15, 6.17, any provision of Article 7 of this Agreement, or, to the extent that it relates to the obtaining and maintaining of insurance or delivery of evidence of same, Section 11 of the Security Agreement; or

(d) Breach of Other Covenant. Borrower shall fail to perform or observe any other material covenant, obligation or term of any Loan Document executed by it and such failure shall remain unremedied for thirty (30) days after written notice thereof shall have been given to Borrower by Agent; or

(e) Cross-default. Borrower shall fail (i) to pay when due (whether by scheduled maturity, required prepayment, acceleration, demand or otherwise) any amounts owing under any Swap Document, Indebtedness which in the aggregate exceeds One Hundred Thousand Dollars ($100,000) or any interest or premium thereon and such failure shall continue after the applicable grace period, if any, specified in the agreement or instrument relating to such Indebtedness, or (ii) to perform any term or covenant on its part to be performed under any Swap Document or any agreement or instrument relating to any such Indebtedness and required to be performed and such failure shall continue after the applicable grace period, if any, specified in such Swap Document, agreement or instrument, if the effect of such failure to perform is to accelerate or to permit the acceleration of the maturity of any obligations under the Swap Document or of such Indebtedness, or (iii) any amounts owing under any Swap Document or such Indebtedness shall be declared to be due and payable or required to be prepaid (other than by regularly scheduled required prepayment) prior to the stated maturity thereof; or

(f)  Voluntary Bankruptcy, Etc. Without the prior written consent of Agent and Lenders, Borrower or any Subsidiary shall: (i) file a petition seeking relief for itself under Title 11 of the United States Code, as now constituted or hereafter amended, or file an answer consenting to, admitting the material allegations of or otherwise not controverting, or fail timely to controvert a petition filed against it seeking relief under Title 11 of the United State Code, as now constituted or hereafter amended; or (ii) file such petition or answer with respect to relief under the

31

provisions of any other now existing or future applicable bankruptcy, insolvency, or other similar law of the United States of America or any State thereof or of any other country or jurisdiction providing for the reorganization, winding-up or liquidation of corporations or an arrangement, composition, extension or adjustment with creditors; or

(g) Involuntary Bankruptcy, Etc. An order for relief shall be entered against Borrower or any Subsidiary under Title 11 of the United States Code, as now constituted or hereafter amended, which order is not stayed; or upon the entry of an order, judgment or decree by operation of law or by a court having jurisdiction in the premises which is not stayed adjudging it a bankrupt or insolvent under, or ordering relief against it under, or approving as properly filed a petition seeking relief against it under the provisions of any other now existing or future applicable bankruptcy, insolvency or other similar law of the United States of America or any State thereof or of any other country or jurisdiction providing for the reorganization, winding-up or liquidation of corporations or any arrangement, composition, extension or adjustment with creditors; or appointing a receiver, liquidator, assignee, sequestrator, trustee or custodian of Borrower, or any Subsidiary or of any substantial part of its or their property, or ordering the reorganization, winding-up or liquidation of its or their affairs; or upon the expiration of sixty (60) days after the filing of any involuntary petition against it seeking any of the relief specified in Section 8.1(f) or this Section 8.1(g) without the petition being dismissed prior to that time; or

(h) Insolvency, Etc. Borrower or any Subsidiary shall (i) make a general assignment for the benefit of its creditors or (ii) consent to the appointment of or taking possession by a receiver, liquidator, assignee, trustee, or custodian of all or a substantial part of the property of Borrower or any Subsidiary, as the case may be, or (iii) admit its insolvency or inability to pay its debts generally as they become due, or (iv) fail generally to pay its debts as they become due, or (v) take any action (or suffer any action to be taken by its directors or shareholders) looking to the dissolution or liquidation of Borrower or any Subsidiary, as the case may be; or

(i)  Judgment. A final judgment or order for the payment of money in excess of Five Hundred Thousand Dollars ($500,000) in excess of insurance coverage or which impairs the lien on Collateral or rights of Borrower therein in any material respect, shall be rendered against Borrower and such judgment or order shall continue unsatisfied and in effect for a period of ten (10) consecutive days following entry, or all or substantially all of the assets of Borrower are attached, seized, subject to writ or warrant or are levied on or come into the possession or control of a receiver, trustee, custodian or assignee for the benefit of creditors; or

(j)  Government Approvals. Any Government Approval or registration or filing with any Governmental Authority now or hereafter required in connection with the performance by Borrower of its obligations set forth in the Loan Documents shall be revoked, withdrawn or withheld or shall fail to remain in full force and effect unless in the reasonable opinion of Agent such revocation, withdrawal or withholding would not be likely to have a material adverse affect on the ability of Borrower to perform its obligations under the Loan Documents; or

(k) Other Government Action. Borrower is enjoined or restrained or in any way prevented by order of a court or other Governmental Authority from conducting all or a substantial part of its business affairs or operations; or

(l)  ERISA. Borrower or any member of the Controlled Group shall fail to pay when due an amount or amounts aggregating in excess of One Million Dollars ($1,000,000) which it shall have become liable to pay to the PBGC or to a Plan under Section 515 of ERISA or Title IV of ERISA; or notice of intent to terminate a Plan or Plans (other than a multi-employer plan, as defined in Section 4001(3) of ERISA, having aggregate Unfunded Vested Liabilities in excess of One Million Dollars ($1,000,000) shall be filed under Title IV of ERISA by Borrower, any member of the Controlled Group, any plan administrator or any combination of the foregoing; or the

32

PBGC shall institute proceedings under Title IV of ERISA to terminate any Plan or Plans which could result in any liability of Borrower in excess of One Million Dollars ($1,000,000); or

(m) Note Agreement Default. The occurrence of an "Event of Default" or "Default" under the Note Agreement, as such terms are defined therein.

Section 8.2 Consequences of Default. If an Event of Default described in Section 8.1(f) or 8.1(g) shall occur and be continuing, then in any such case, the Commitments shall be immediately terminated and, if any Loans or Letters of Credit shall have been made or issued, the principal of and interest on the Loans, the face amounts of all issued and outstanding Letters of Credit, and all other sums payable by Borrower under the Loan Documents shall become immediately due and payable all without notice or demand of any kind.

    If any other Event of Default shall occur and be continuing, then in any such case and at any time thereafter so long as any such Event of Default shall be continuing, (i) Agent shall at the request, or may with the consent, of the Majority Lenders immediately terminate the Commitments, and, if any Revolving Loans or Letters of Credit shall have been made or issued, Agent shall at the request, or may with the consent, of the Majority Lenders declare the principal of and the interest on the Revolving Loans, the face amounts of all issued and outstanding Letters of Credit, and all other sums payable by Borrower under the Loan Documents with respect to such Revolving Loans and Letters of Credit immediately due, whereupon the same shall become immediately due and payable all without protest, presentment, notice or demand, all of which Borrower expressly waives, and (ii) Agent shall at the request, or may with the consent, of the Sweepline Bank or Multi-Currency Bank, terminate the Sweepline Commitment and the Multi-Currency Commitment, as applicable, and declare the principal of and the interest on the Sweepline Loans and the Multi-Currency Loans, and all other sums payable by Borrower under the Loan Documents with respect to such Sweepline Loans and Multi-Currency Loans immediately due, whereupon the same shall become immediately due and payable all without protest, presentment, notice or demand, all of which Borrower expressly waives.

    Regardless of whether Borrower's obligations to repay the Loans and Letters of Credit have been accelerated pursuant to the preceding sentences, Agent shall at the request, or may with the consent, of the Majority Lenders realize on any or all of the Collateral by exercising any remedies provided in any Security Document or otherwise provided by law. Amounts paid or received hereunder in respect of issued and outstanding Letters of Credit which exceed amounts paid by Agent under such Letters of Credit shall be held (and applied) as cash collateral to secure the performance of all obligations of Borrower owing to Agent and Lenders hereunder and under the other Loan Documents. Agent and Lenders may exercise or pursue any remedy or cause of action permitted by this Agreement, the Notes, and any other Loan Document or applicable law. The rights and remedies provided by law, this Agreement, the Notes and the other Loan Documents are cumulative and non exclusive, and the exercise or partial exercise of any right, power or remedy hereunder shall not preclude any other or further exercise thereof or the exercise of any other right, power or remedy.

ARTICLE 9
AGENT

Section 9.1 Authorization and Action. Each Lender hereby appoints and authorizes Agent to take such action as agent on its behalf and to exercise such powers under this Agreement as are delegated to Agent by the terms hereof, together with such powers as are reasonably incidental thereto. Agent shall have no duties or responsibilities except those expressly set forth in this Agreement. The duties of Agent shall be mechanical and administrative in nature; Agent shall not have by reason of this Agreement a fiduciary relationship in respect of any Lender; and nothing in this Agreement or the other Loan Documents, expressed or implied, is intended to or shall be so construed as to impose upon Agent any obligations in respect of this Agreement or the other Loan Documents except as expressly

33

set forth herein. As to any matters not expressly provided for by this Agreement, including enforcement or collection of the Loans and Letters of Credit, Agent shall not be required to exercise any discretion or take any action, but shall be required to act or to refrain from acting (and shall be fully protected in so acting or refraining) upon the instructions of the Majority Lenders, and such instructions shall be binding upon all Lenders, provided that Agent shall not be required to take any action which exposes Agent to personal liability or which is contrary to the Loan Documents or applicable law and provided, further, that without the consent of all Lenders, Agent shall not change or modify any Lender's Commitment, the definition of "Majority Lenders", the timing or rates of interest payments, the timing or amounts of principal payments due in respect of Loans and Letters of Credit, and provided, further, that the terms of Section 2.5, Article 3, this Article 9 and Article 10 shall not be amended without the prior written consent of Agent (acting for its own account). In the absence of instructions from the Majority Lenders, Agent shall have authority (but no obligation), in its sole discretion, to take or not to take any action, unless this Agreement specifically requires the consent of Lenders or the consent of the Majority Lenders and any such action or failure to act shall be binding on all Lenders. Each Lender and each holder of any Note shall execute and deliver such additional instruments, including powers of attorney in favor of Agent, as may be necessary or desirable to enable Agent to exercise its powers hereunder.

Section 9.2 Duties and Obligations.

(a) Neither Agent nor any of its directors, officers, agents or employees shall be liable for any action taken or omitted to be taken by it or any of them under or in connection with this Agreement or any other Loan Document except for its or their own gross negligence or willful misconduct. Without limiting the generality of the foregoing, Agent (i) may treat each Lender which is a party hereto as the party entitled to receive payments hereunder until Agent receives written notice of the assignment of such Lender's interest herein signed by such Lender and made in accordance with the terms hereof and a written agreement of the assignee that it is bound hereby to the same extent as it would have been had it been an original party hereto, in each case in form satisfactory to Agent; (ii) may consult with legal counsel (including counsel for Borrower), independent public accountants and other experts selected by it and shall not be liable for any action taken or omitted to be taken in good faith by it in accordance with the advice of such experts; (iii) makes no warranty or representation to any Lender and shall not be responsible to any Lender for any statements, warranties or representations made in or in connection with this Agreement, any other Loan Document, or in any instrument or document furnished pursuant hereto or thereto; (iv) shall not have any duty to ascertain or to inquire as to the performance of any of the terms, covenants, or conditions of the Loan Documents, or of any instrument or document furnished pursuant thereto on the part of Borrower or as to the use of the proceeds of any Loan; (v) shall not be responsible to any Lender for the due execution, legality, validity, enforceability, genuineness, effectiveness, or value of this Agreement, of any other Loan Document, or of any instrument or document furnished pursuant hereto or thereto; and (vi) shall incur no liability under or in respect to this Agreement or any other Loan Document by acting upon any oral or written notice, consent, certificate or other instrument or writing (which may be by telex, facsimile transmission, telegram or cable) believed by it to be genuine and signed, sent or made by the proper party or parties or by acting upon any representation or warranty of Borrower made or deemed to be made in this Agreement or any other Loan Document. Agent may execute any of its duties under this Agreement or any other Loan Document by or through agents, employees or attorneys-in-fact and shall be entitled to advice of counsel concerning all matters pertaining to such duties. Agent shall not be responsible for the negligence or misconduct of any agent or attorney-in-fact that it selects with reasonable care.

34

(b) Agent will promptly transmit to each Lender copies of all documents received from Borrower pursuant to the requirements of this Agreement other than documents which by the terms of this Agreement, Borrower is obligated to deliver directly to Lenders.

(c) Each Lender or its assignee shall furnish to Agent in a timely fashion such documentation (including, but not by way of limitation, IRS Forms Nos. W-8, 1001 and 4224) as may be reasonably requested by Agent to establish such Lender's status for tax withholding purposes.

(d) Agent shall not be deemed to have knowledge or notice of the occurrence of any Default or Event of Default under any of the Loan Documents unless Agent has received written notice from a Lender or Borrower referring to one or more of the Loan Documents, describing such Default or Event of Default and stating that such notice is a "notice of default." In the event that Agent receives such a notice, Agent shall promptly notify each of Lenders.

Section 9.3 Dealings Between Bank of America and Borrower. With respect to its Commitment, the Loans made by it, and the Letters of Credit issued by it, Bank of America shall have the same rights and powers under this Agreement and the other Loan Documents as any other Lender and may exercise the same as though it were not Agent, and the term "Lender" as used herein and in the other Loan Documents shall unless otherwise expressly indicated include Bank of America in its individual capacity. Bank of America may accept deposits from, lend money to, act and generally engage in any kind of business with Borrower and any person which may do business with Borrower, all as if Bank of America were not Agent hereunder and without any duty to account therefor to Lenders.

Section 9.4 Lender Credit Decision. Each Lender acknowledges that it has, independently and without reliance upon Agent or the other Lenders and based upon such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement and the other Loan Documents. Each Lender also acknowledges that it will, independently and without reliance upon Agent or the other Lenders and based upon such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement and the other Loan Documents.

Section 9.5 Indemnification. Each Lender agrees to indemnify Agent (to the extent not reimbursed by Borrower) ratably, in the same proportion as its Pro Rata Share, from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever which may be imposed on, incurred by or asserted against Agent in any way relating to or arising out of this Agreement or any other Loan Document or any action taken or omitted by Agent under this Agreement or any other Loan Document, except any such as result from Agent's gross negligence or willful misconduct. Without limiting the foregoing, each Lender agrees to reimburse Agent promptly on demand ratably, in the same proportion as its Pro Rata Share, for any out-of-pocket expenses, including legal fees, incurred by Agent in connection with the administration or enforcement or preservation of any rights under any Loan Document (to the extent that Agent is not reimbursed for such expenses by Borrower).

Section 9.6 Successor Agent. Agent may give written notice of resignation at any time to Lenders and may be removed at any time with cause by the Majority Lenders. If Agent shall have resigned or been removed in accordance with the terms of this Section 9.6, the Majority Lenders shall have the right to appoint a successor Agent. If no successor Agent shall have been so appointed by Lenders and shall have accepted such appointment within thirty (30) days after the retiring Agent's giving of notice of resignation or the Majority Lenders' removal of the retiring Agent, then the retiring Agent may on behalf of Lenders, appoint a successor Agent, which shall be one of Lenders or a bank organized under the laws of the United States or of any state thereof, or any affiliate of such bank, and having a combined capital and surplus of at least Five Hundred Million Dollars ($500,000,000). Upon the acceptance of any appointment as Agent hereunder by a successor Agent, such successor Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the

35

retiring Agent, and the retiring Agent shall be discharged from its duties and obligations under this Agreement. Until the acceptance by such a successor Agent, the retiring Agent shall continue as "Agent" hereunder. After any retiring Agent's resignation or removal hereunder as Agent shall become effective, the provisions of this Agreement shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Agent under this Agreement. Any person into which Agent may be merged or converted or with which it may be consolidated or any person resulting from any merger, conversion or consolidation to which it shall be a party or any person to which Agent may sell or transfer all or substantially all of its agency relationships shall be the successor to Agent hereunder without the execution or filing of any paper or further act, anything herein to the contrary notwithstanding.

ARTICLE 10
LETTER OF CREDIT RISK PARTICIPATIONS

Section 10.1 Sale of Risk Participations. Agent agrees to sell to Lenders, and upon issuance of any Letter of Credit hereunder each Lender shall be deemed to have unconditionally and irrevocably purchased from Agent, an undivided risk participation in such Letter of Credit in proportion to such Lender's Pro Rata Share.

Section 10.2 Notice to Lenders. Via telephone, telex, or facsimile, Agent will promptly advise each Lender of each Letter of Credit issued hereunder. Agent shall not have any duty to ascertain or to inquire as to the accuracy of the information furnished by Borrower, or accuracy of the representations and warranties made by Borrower in any request for the issuance of such Letter of Credit nor shall Agent have any duty to confirm that all conditions precedent to the issuance of such Letter of Credit have been fully satisfied.

Section 10.3 Payment Obligations.

(a) Reimbursements to Agent. In the event Borrower fails to pay any amount due under Section 3.4 by 12:00 noon (Seattle time) on the date Agent shall make demand for payment thereof, Lenders shall each, upon receipt of notice from Agent of such failure, pay to Agent their Pro Rata Share of such amount, provided, however, if Borrower pays a portion but less than all of the amount due under Section 3.4, Lenders shall each pay Agent only their respective Pro Rata Shares of the difference between the amount due under Section 3.4 and the amount paid by Borrower on account thereof. Each and every payment to be made by Lenders to Agent under this Section 10.3(a) shall be made by federal wire transfer in immediately available funds. If any Lender receives notice from Agent by 1:30 p.m. (Seattle time) on any Business Day of its obligation to make payments under this subsection, then such Lender shall make such payment no later than 2:00 p.m. (Seattle time) on the day such notice is received. If any Lender receives such notice after 1:30 p.m. (Seattle time) on any Business Day, then such Lender shall make such payment by no later than 1:00 p.m. (Seattle time) on the next succeeding Business Day. If any Lender fails to make such payment by the date and time required, its obligation shall bear interest from and including the date when such payment was due until paid at the per annum rate equal to the Federal Funds Rate.

(b) Payments to Lenders. Agent shall immediately remit to Lenders, via federal wire transfer of funds, such Lender's Pro Rata Share of:

    (1) the letter of credit fee paid by Borrower pursuant to Section 3.2(b) hereof, provided, however, that Agent may retain for its own account and as a fee for its services hereunder certain letter of credit transaction fees calculated in accordance with Agent's normal and customary practices; and

36

    (2) any amounts (other than fees and expense reimbursements) received from or for the account of Borrower in respect of any Letter of Credit, provided, however, Agent shall not remit to any Lender any amounts received from or for the account of Borrower in respect of a Letter of Credit unless, prior to Agent's receipt of such funds, such Lender has paid its Pro Rata Share of such amounts pursuant to Section 10.3(a). In the event Agent is required to refund any amount which is paid to it or received by it from or for the account of Borrower, then Lenders, to the extent they shall have previously received their share of such amount, agree to repay to Agent their respective Pro Rata Share of such amount.

(c) Reimbursements to Lenders. Borrower agrees to reimburse any Lender for amounts paid by such Lender to Agent pursuant to Section 10.3(a). Any amounts received from or for the account of Borrower by any Lender in respect of the aforesaid reimbursement obligation shall reduce Borrower's payment obligation to Agent under Section 3.4. Any amounts received from or for the account of Borrower by Agent in satisfaction of its obligations under Section 3.4 shall reduce pro tanto Borrower's reimbursement obligation to Lenders under this Section 10.3(c).

ARTICLE 11
MISCELLANEOUS

Section 11.1 No Waiver; Remedies Cumulative. No failure by Agent or any Lender to exercise, and no delay in exercising, any right, power or remedy under this Agreement or any other Loan Document shall operate as a waiver thereof, nor shall any single or partial exercise of any right, power or remedy under this Agreement or any other Loan Document preclude any other or further exercise thereof or the exercise of any other right, power, or remedy. The exercise of any right, power, or remedy shall in no event constitute a cure or waiver of any Event of Default this Agreement or any other Loan Document or prejudice the rights of Agent or Lenders in the exercise of any right hereunder or thereunder. The rights and remedies provided herein and therein are cumulative and not exclusive of any right or remedy provided by law.

Section 11.2 Governing Law. This Agreement and the other Loan Documents shall be governed by and construed in accordance with the laws of the State of Washington, U.S.A.

Section 11.3 Mandatory Arbitration.

(a) At the written request of either all of Lenders or Borrower, any controversy or claim between Lenders and Borrower, arising from or relating to this Agreement or any of the other Loan Documents, or arising from an alleged tort, shall be settled by arbitration in Seattle, Washington. The United States Arbitration Act shall apply even though this Agreement is otherwise governed by Washington law. The proceedings shall be administered by the American Arbitration Association under its commercial rules of arbitration. Any controversy over whether an issue is arbitrable shall be determined by the arbitrator(s). Judgment upon the arbitration award may be entered in any court having jurisdiction over the parties. The institution and maintenance of an action for judicial relief or pursuit of an ancillary or provisional remedy shall not constitute a waiver of the right of either party, including the plaintiff, to submit the controversy or claim to arbitration if such action for judicial relief is contested. For purposes of the application of the statute of limitations, laches or other time bar, the filing of an arbitration pursuant to this subsection is the equivalent of the filing of a lawsuit, and any claim or controversy which may be arbitrated under this subsection is subject to any applicable statute of limitations, laches or other time bar. The arbitrator(s) will have the authority to decide whether any such claim or controversy is barred by the statute of limitations, laches or other time bar and, if so, to dismiss the arbitration on that basis. The parties consent to the joinder of any guarantor, hypothecator, or other party having an interest relating to the claim or controversy being arbitrated in any proceedings under this Section.

37

(b) No provision of this subsection shall limit the right of Borrower, Agent or Lenders to exercise self-help remedies such as setoff, foreclosure, retention or sale of any collateral, or obtaining any ancillary, provisional, or interim remedies from a court of competent jurisdiction before, after, or during the pendency of any arbitration proceeding. The exercise of any such remedy does not waive the right of either party to request arbitration.

Section 11.4 Consent to Jurisdiction; Waiver of Immunities. Borrower, Agent and Lenders hereby irrevocably submit to the nonexclusive jurisdiction of any state or federal court sitting in Seattle, King County, Washington, in any action or proceeding brought to enforce or otherwise arising out of or relating to any Loan Document and irrevocably waive to the fullest extent permitted by law any objection which they may now or hereafter have to the laying of venue in any such action or proceeding in any such forum, and hereby further irrevocably waive any claim that any such forum is an inconvenient forum. Borrower agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in any other jurisdiction by suit on the judgment or in any other manner provided by law. Nothing in this Section 11.4 shall impair the right of any party to request or demand arbitration under Section 11.3 or the right of Agent or a Lender or the holder of any Note to bring any action or proceeding against Borrower or its property in the courts of any other jurisdiction, and Borrower irrevocably submits to the nonexclusive jurisdiction of the appropriate courts of the jurisdiction in which Borrower is incorporated or sitting and any place where property or an office of Borrower is located.

Section 11.5 Notices. All notices and other communications provided for in any Loan Document shall be in writing or (unless otherwise specified) by telex, telefax or cable and shall be mailed (with first class postage prepaid) or sent or delivered to each party at the address or telefax number set forth under its name on the signature page hereof, or at such other address as shall be designated by such party in a written notice to each other party. Except as otherwise specified all notices sent by mail, if duly given, shall be effective three (3) Business Days after deposit into the mails, all notices sent by a nationally recognized overnight courier service, if duly given, shall be effective one (1) Business Day after delivery to such courier service, and all other notices and communications if duly given or made shall be effective upon receipt. Neither Agent nor any Lender shall incur any liability to Borrower for actions taken in reliance on any telephonic notice referred to in this Agreement which Agent believes in good faith to have been given by a duly authorized officer or other person authorized to borrow or give such telephonic notice hereunder on behalf of Borrower.

38

Section 11.6 Assignment and Participations. This Agreement shall be binding upon and inure to the benefit of the parties and their respective Successors and assigns, except that Borrower may not assign or otherwise transfer all or any part of its rights or obligations hereunder without the prior written consent of Agent and the Majority Lenders, and any such assignment or transfer purported to be made without such consent shall be ineffective. Lenders may at any time assign or otherwise transfer all or any part of their respective interests under the Loan Documents (including assignments for security and sales of participations), but only with the prior written consent of Agent and Majority Lenders, and to the extent of such assignment, the assignee shall have the same rights and benefits against Borrower and otherwise under the Loan Documents (including the right of setoff) as if such assignee were a Lender.

Section 11.7 Severability. Any provision of this Agreement or any other Loan Document which is prohibited or unenforceable in any jurisdiction shall as to such jurisdiction be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof or affecting the validity or enforceability of such provision in any other jurisdiction. To the extent permitted by applicable law, the parties waive any provision of law which renders any provision hereof prohibited or unenforceable in any respect.

Section 11.8 Survival. The representations, warranties and indemnities of Borrower in favor of Agent and Lenders shall survive indefinitely and, without limiting the foregoing, shall survive the execution and delivery of this Agreement and the other Loan Documents, the making of any Loans, the issuance of any Letters of Credit the expiration of the Commitments and the repayment of all amounts due under the Loan Documents.

Section 11.9 Executed in Counterparts. The Loan Documents may be executed in any number of counterparts and by different parties in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement.

Section 11.10 Entire Agreement; Amendment, Etc. This Agreement together with the schedules and exhibits hereto comprise the entire agreement of the parties and may not be amended or modified except by written agreement of Borrower and Agent executed in conformance with the terms hereof. No provision of this Agreement may be waived except in writing and then only in the specific instance and for the specific purpose for which given.

Section 11.11 Headings. The headings of the various provisions of this Agreement are for convenience of reference only, do not constitute a part hereof, and shall not affect the meaning or construction of any provision hereof.

Section 11.12 Oral Agreements Not Enforceable.

ORAL AGREEMENTS OR ORAL COMMITMENTS TO LOAN MONEY, EXTEND CREDIT, OR TO FORBEAR FROM ENFORCING REPAYMENT OF A DEBT ARE NOT ENFORCEABLE UNDER WASHINGTON LAW.

Section 11.13 Reaffirmation of Loan Documents. Borrower hereby reaffirms all of its obligations under the Security Agreement and acknowledges and agrees that: (i) the Security Agreement, in additional to all other obligations purported to be secured thereby, secures all amounts now or hereafter owing under this Agreement as amended hereby and as amended from time to time hereafter; and (ii) as of the date hereof, Borrower has no defenses to the enforcement of any of the Loan Documents.

39

    IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective officers or agents thereunto duly authorized as of the date first above written.

BORROWER:	FLOW INTERNATIONAL CORPORATION
	By
		Its

Address:	23500 64th Avenue South Kent, WA 98032 Attn: Stephen D. Reichenbach, Chief Financial Officer
Telefax:	(253) 813-3311

LENDERS:	BANK OF AMERICA, N.A.
	By
		Its Senior Vice President

Address:	Bank of America Tower WA1-501-35-01 800 Fifth Avenue, Floor 35 Seattle, WA 98104 Attn: William P. Stivers, Senior Vice President
Telefax:	(206) 450-5709

U.S. BANK NATIONAL ASSOCIATION
By
	Its

Address:	WWC513 10800 N.E. Eighth Street, Suite 1000 Bellevue, WA 98004 Attn: Alan Forney, Vice President
Telefax:	(425) 450-5709

KEYBANK NATIONAL ASSOCIATION
By
	Its

Address:	WA-31-10-4674 700 Fifth Avenue, 46th Floor Seattle, WA 98111 Attn: Jason R. Gill, Vice President
Telefax:	(206) 684-6247

40

AGENT:	BANK OF AMERICA, N.A.
	By
		Its Vice President

Address:	Commercial Agency Management Bank of America Tower WA1-501-37-20 800 Fifth Avenue, Floor 37 Seattle, WA 98104 Attn: Ken Puro, Vice President
Telefax:	(206) 358-0971

41

SCHEDULE 1

PREPAYMENT FEES

    The amount of the fee to be paid pursuant to Section 2.8 shall depend on the following:

(1)

The amount by which interest rates have changed between the Reference Date and the Prepayment Date. As used herein, "Reference Date" shall mean the first day of an Applicable Interest Period. As used herein, "Prepayment Date" shall mean the date Borrower either voluntarily or involuntarily prepays a LIBOR Loan. Certain U.S. Treasury rates are used as a benchmark to measure changes in interest rate levels.



(a)

A "prime rate" equal to the average interest rate yield at the Reference Date for U.S. Government Securities having maturities equivalent to that of the applicable LIBOR Loan will be determined in the manner described below for determining applicable rates but will be established as of the Reference Date for the Applicable Interest Period. This rate represents interest rate levels at the time a Revolving Loan is made or its interest rate fixed.



(b)

An "applicable rate," determined as described below, represents interest rate levels as of the Prepayment Date.

(2)

The amount of principal prepaid.



(3)

A payment fee factor (see "payment fee factor schedule" below). This factor represents the economic loss to Agent and Lenders resulting from a one dollar payment if rates were to drop by one percent from the time the rate was fixed.

42

CALCULATION OF PAYMENT FEE

    If the prime rate is lower than or equal to the applicable rate, there is no payment fee.

    If the applicable rate is lower than the prime rate, the payment fee shall be equal to the difference between the prime rate and the applicable rate (expressed as a decimal), multiplied by the appropriate factor from the payment fee factor schedule, multiplied by the principal amount of the LIBOR Loan which is prepaid.

Example:

A LIBOR Loan with principal of $1,000,000 is fully prepaid with 4 months remaining prior to the end of the Applicable Interest Period. A prime rate of 10% was assigned to the LIBOR Loan when the rate was fixed. The applicable rate (as determined by current 4-month U.S. Treasury rates) is 8.5%. Rates are therefore judged to have dropped by 1.5% since the rate was fixed, and a payment fee applies.

A payment fee factor of .41 is determined from the tables below, and the payment fee is computed as follows:

Payment Fee = (.10-.085) × (.41) × ($1,000,000) = $6,150.00

APPLICABLE RATES

    The applicable rate is equal to the average interest rate yield at the time of prepayment for U.S. Government Securities having maturities equivalent to the remaining portion of the Applicable Interest Period.

    The applicable rate shall be determined from the Federal Reserve Statistical Release (Publication H.15(519)) in the "This Week" (most recent week) column under the heading U.S. Government Securities—Treasury Bills—Secondary Market, interpolated to the nearest month.

    Rates listed in the Federal Reserve Statistical Release for maturities of less than one year are on a discount rate basis, and these rates shall be converted to a coupon equivalent basis, based upon a 360-day year. The Statistical Release published on Monday shall be used for calculation of payment fees payable on the following Tuesday through the following Monday, with appropriate adjustment if the day of publication changes.

PAYMENT FEE FACTOR SCHEDULES

	Months Remaining in the Applicable Interest Period for LIBOR Loans(1)
	0	1	2	3	4	5	6	7	8	9	10	11	12
Factors	0	.10	.20	.31	.41	.51	.61	.71	.81	.91	1.01	1.11	1.21

⁽¹⁾

If the remaining Applicable Interest Period or time prior to scheduled maturity is between any two time periods in the above schedules, interpolate between the corresponding factors.

    Agent and Lenders are not required to actually reinvest the paid principal in any U.S. Government Treasury obligations as a condition to receiving a payment fee as calculated above.

43

SCHEDULE 2

LITIGATION

    In addition to a number of product liability matters, all of which involve insured losses, the following contractual dispute is pending:

Barbara Wildner, Robert Wildner, Ark Systems, Inc. and R.J. Wildner Contracting, Inc. v. Flow International Corporation, Spider Staging Corp., Ark Systems Products, Inc., Nancy A. Donaue, William Keadle & Michael McNutt; In the United States District Court for the Western District of Pennsylvania, Civil Action N. 97-15J.

44

SCHEDULE 3

SUBSIDIARIES

Subsidiary	Place of Incorporation or Organization
Flow International Sales Corporation	Guam
Flow Europe, GmbH	Germany
Flow Asia Corporation	Taiwan
Flow Asia International Corporation	Mauritius
Flow Japan Corporation	Japan
Foracon Maschinen und Anlagenbau
GmbH & CO.KG	Germany
CEM-FLOW	France
CIS Acquisition Corporation	Michigan
Robotic Simulations Limited	United Kingdom
Hydrodynamic Cutting Services	Louisiana
Flow Automation Systems Corporation	Ontario
Rampart Waterblast Incorporated	Florida
Spider Staging Corporation	Washington
Power Climber Incorporated	California
Astro Hoist Incorporated	California
Power Operated Staging Incorporated	California
Suspended Scaffold Systems Incorporated	California
Scaffold Climber Incorporated	California
Flow Holdings BVBA	Belgium
Flow Access BVBA	Belgium
Spider Staging Corporation	Canada
Flow Autoclave Systems, Inc.	Delaware

45

SCHEDULE 4

EXISTING GUARANTIES

The following are loans that Borrower guarantees:

1.

Loan from U.S. Bank to Ronald W. Tarrant in the principal amount of $253,940.30.

2.

Loan from U.S. Bank to R.B. Lawrence in the principal amount of $84,643.40.

3.

Loan from U.S. Bank to John S. Leness in the principal amount of $183,405.81.

4.

Loan from U.S. Bank to Stephen D. Reichenbach in the principal amount of $183,405.81.

46

SCHEDULE 5

LIENS

    The following liens, as amended, continued or assigned:

    1.  UCC-1 filed on November 29, 1993 with the Washington Department of Licensing against Borrower as debtor by U.S. Bancorp Leasing & Financial as secured party under Filing No. 933330352 covering certain leased equipment comprised of one new HX3-68-16 EMC Manufactured Harmonex 3 and related equipment and attachments described therein subject to that certain Lease Agreement dated February 26, 1993.

    2.  UCC-1 filed on January 5, 1994 with the Washington Department of Licensing against Borrower as debtor by U.S. Bancorp Leasing & Financial as secured party under Filing No. 940050161 covering certain leased equipment.

    3.  UCC-1 filed on September 15, 1994 with the Washington Department of Licensing against Borrower as debtor by U.S. Bancorp Leasing & Financial as secured party under Filing No. 942580397 covering certain leased equipment comprised of one new okuma MC-40VB vertical machining center and related controls and attachments described therein subject to that certain Lease Agreement dated February 26, 1993.

    4.  UCC-1 filed on October 28, 1996 with the Washington Department of Licensing against Borrower as debtor by Panasonic Communications, assigned to Sanwa Leasing Corp., as secured party under Filing No. 963020308 covering certain leased equipment comprised of copy machines.

    5.  UCC-1 filed on April 25, 1997 with the Washington Department of Licensing against Borrower as debtor by Panasonic Communications, assigned to Sanwa Leasing Corp., as secured party under Filing No. 971150301 covering certain leased equipment comprised of fax machines.

    6.  UCC-1 filed on May 19, 1997 with the Washington Department of Licensing against Borrower as debtor by Panasonic Communications, assigned to Sanwa Leasing Corp., as secured party under Filing No. 971390206 covering certain leased equipment comprised of copy machines.

    7.  UCC-1 filed on May 27, 1997 with the Washington Department of Licensing against Borrower as debtor by Panasonic Communications, assigned to Sanwa Leasing, as secured party under Filing No. 971470302 covering certain leased equipment comprised of a fax machine.

    8.  UCC-1 filed on July 10, 1997 with the Washington Department of Licensing against Borrower as debtor by PCL Leasing Corporation, assigned to U.S. Bank of Washington, as secured party, under Filing No. 971910496 covering certain leased equipment comprised of Compaq computer systems.

    9.  UCC-1 filed on July 10, 1997 with the Washington Department of Licensing against Borrower as debtor by PCL Leasing Corporation, assigned to U.S. Bank of Washington, as secured party, under Filing No. 971910497 covering certain leased equipment comprised of IBM computer systems.

    10. UCC-1 filed on August 25, 1997 with the Washington Department of Licensing against Borrower as debtor by Panasonic Communications, assigned to Sanwa Leasing Corp., as secured party under Filing No. 972370362 covering certain leased equipment comprised of a copy machine.

    11. UCC-1 filed on March 23, 1998 with the Washington Department of Licensing against Borrower as debtor by Panasonic Communications, assigned to Sanwa Leasing Corp., as secured party under Filing No. 980820100 covering certain leased equipment comprised of a fax machine.

47

EXHIBIT A-1
(to Amended and Restated Credit Agreement)

REVOLVING LOAN NOTE
(U.S. Bank National Association)

$25,000,000	December 29, 2001
	Seattle, Washington

    FOR VALUE RECEIVED, the undersigned, FLOW INTERNATIONAL CORPORATION, a Washington corporation, and any Successor ("Borrower"), hereby promises to pay to the order of U.S. BANK NATIONAL ASSOCIATION ("Lender") the unpaid principal balance of all Revolving Loans evidenced by this Note in a maximum principal amount not to exceed Twenty-Five Million Dollars ($25,000,000) at any one time outstanding, together with interest thereon from the date advanced until paid as hereinafter provided. This Note is one of the Notes issued by Borrower pursuant to that certain Amended and Restated Credit Agreement made as of December 29, 2000, by BANK OF AMERICA, N.A., U.S. BANK NATIONAL ASSOCIATION, and KEYBANK NATIONAL ASSOCIATION, as lenders, BANK OF AMERICA, N.A., as Agent for the lenders, and Borrower (as the same may be amended, modified or restated from time to time, the "Credit Agreement"). This Note amends and restates that certain Revolving Loan Note dated as of August 31, 1998 in the amount of $25,000,000 executed by Borrower in favor of Lender. Capitalized terms not otherwise defined in this Note shall have the meanings set forth in the Credit Agreement.

    Borrower further agrees as follows:

    1.  This Note evidences a revolving line of credit to Borrower from Lender and, subject to the terms and conditions of the Credit Agreement, Borrower may borrow, repay and reborrow up to the maximum principal amount hereof at any time on or before the Revolving Maturity Date.

    2.  On the Revolving Maturity Date, Borrower shall repay the entire outstanding principal balance of the Revolving Loans.

    3.  Interest shall accrue on the unpaid principal balance of all Revolving Loans evidenced by this Note from the date advanced until due at the Applicable Interest Rate as determined and as provided pursuant to Section 2.7 of the Credit Agreement, and if default shall occur in the payment when due of principal under this Note, from maturity until it is paid in full at a per annum rate equal to three percent (3%) above the Base Rate (changing as the Base Rate changes). Computations of interest shall be made on the basis of a year of three hundred sixty (360) days, for the actual number of days (including the first day but excluding the last day) occurring in the period for which such interest is payable. Interest shall be payable in arrears on the first Business Day of each calendar month, at maturity and at such other times as are specified in the Credit Agreement.

    4.  The unpaid principal balance shall be the total amount advanced hereunder, less the amount of the principal payments made hereon. This Note is given to avoid the execution of an individual note for each Revolving Loan by Lender to Borrower.

    5.  All payments and prepayments of principal and interest on this Note shall be made to Agent at its Commercial Loan Processing Center, in Dollars, as provided in Section 2.10 of the Credit Agreement.

    6.  Each maker, surety, guarantor and endorser of this Note expressly waives all notices, demands for payment, presentations for payment, notices of intention to accelerate the maturity, protest and notice of protest as to this Note.

    7.  In the event this Note is placed in the hands of an attorney for collection, or suit is brought on the same, or the same is collected through bankruptcy or other judicial proceedings, then Borrower

1

agrees and promises to pay reasonable attorney's fees and collection costs, including all out-of-pocket expenses incurred by Lender.

    8.  Moneys received from or for the account of Borrower or from any collateral shall be applied in accordance with the terms of the Credit Agreement.

    9.  This Note has been executed and delivered in and shall be governed by and construed in accordance with the laws of the State of Washington, U.S.A.

    10. Upon the occurrence of an Event of Default, the entire remaining unpaid balance of the principal and interest of the loans evidenced hereby may, at the option of the Majority Lenders (or as otherwise provided in the Credit Agreement), be declared to be immediately due and payable.

    11. This Note is subject to the terms of the Credit Agreement and is secured by the Collateral granted pursuant to the Security Agreement.

FLOW INTERNATIONAL CORPORATION
By
	Its

2

EXHIBIT A-2
(to Amended and Restated Credit Agreement)

REVOLVING LOAN NOTE
(Bank of America, N.A.)

$35,000,000	December 29, 2000
	Seattle, Washington

    FOR VALUE RECEIVED, the undersigned, FLOW INTERNATIONAL CORPORATION, a Washington corporation, and any Successor ("Borrower"), hereby promises to pay to the order of BANK OF AMERICA, N.A. ("Lender") the unpaid principal balance of all Revolving Loans evidenced by this Note in a maximum principal amount not to exceed Thirty-Five Million Dollars ($35,000,000) at any one time outstanding, together with interest thereon from the date advanced until paid as hereinafter provided. This Note is one of the Notes issued by Borrower pursuant to that certain Amended and Restated Credit Agreement made as of December 29, 2000, by BANK OF AMERICA, N.A., U.S. BANK NATIONAL ASSOCIATION, and KEYBANK NATIONAL ASSOCIATION, as lenders, BANK OF AMERICA, N.A., as Agent for the lenders, and Borrower (as the same may be amended, modified or restated from time to time, the "Credit Agreement"). This Note amends and restates that certain Revolving Loan Note dated as of August 31, 1998 in the amount of $45,000,000 executed by Borrower in favor of Lender. Capitalized terms not otherwise defined in this Note shall have the meanings set forth in the Credit Agreement.

    Borrower further agrees as follows:

    1.  This Note evidences a revolving line of credit to Borrower from Lender and, subject to the terms and conditions of the Credit Agreement, Borrower may borrow, repay and reborrow up to the maximum principal amount hereof at any time on or before the Revolving Maturity Date.

    2.  On the Revolving Maturity Date, Borrower shall repay the entire outstanding principal balance of the Revolving Loans.

    3.  Interest shall accrue on the unpaid principal balance of all Revolving Loans evidenced by this Note from the date advanced until due at the Applicable Interest Rate as determined and as provided pursuant to Section 2.7 of the Credit Agreement, and if default shall occur in the payment when due of principal under this Note, from maturity until it is paid in full at a per annum rate equal to three percent (3%) above the Base Rate (changing as the Base Rate changes). Computations of interest shall be made on the basis of a year of three hundred sixty (360) days, for the actual number of days (including the first day but excluding the last day) occurring in the period for which such interest is payable. Interest shall be payable in arrears on the first Business Day of each calendar month, at maturity and at such other times as are specified in the Credit Agreement.

    4.  The unpaid principal balance shall be the total amount advanced hereunder, less the amount of the principal payments made hereon. This Note is given to avoid the execution of an individual note for each Revolving Loan by Lender to Borrower.

    5.  All payments and prepayments of principal and interest on this Note shall be made to Agent at its Commercial Loan Processing Center, in Dollars, as provided in Section 2.10 of the Credit Agreement.

    6.  Each maker, surety, guarantor and endorser of this Note expressly waives all notices, demands for payment, presentations for payment, notices of intention to accelerate the maturity, protest and notice of protest as to this Note.

    7.  In the event this Note is placed in the hands of an attorney for collection, or suit is brought on the same, or the same is collected through bankruptcy or other judicial proceedings, then Borrower

1

agrees and promises to pay reasonable attorney's fees and collection costs, including all out-of-pocket expenses incurred by Lender.

    8.  Moneys received from or for the account of Borrower or from any collateral shall be applied in accordance with the terms of the Credit Agreement.

    9.  This Note has been executed and delivered in and shall be governed by and construed in accordance with the laws of the State of Washington, U.S.A.

    10. Upon the occurrence of an Event of Default, the entire remaining unpaid balance of the principal and interest of the loans evidenced hereby may, at the option of the Majority Lenders (or as otherwise provided in the Credit Agreement), be declared to be immediately due and payable.

    11. This Note is subject to the terms of the Credit Agreement and is secured by the Collateral granted pursuant to the Security Agreement.

FLOW INTERNATIONAL CORPORATION
By
	Its

2

EXHIBIT A-3
(to Amended and Restated Credit Agreement)

REVOLVING LOAN NOTE
(KeyBank National Association)

$20,000,000	December 29, 2000
	Seattle, Washington

    FOR VALUE RECEIVED, the undersigned, FLOW INTERNATIONAL CORPORATION, a Washington corporation, and any Successor ("Borrower"), hereby promises to pay to the order of KEYBANK NATIONAL ASSOCIATION ("Lender") the unpaid principal balance of all Revolving Loans evidenced by this Note in a maximum principal amount not to exceed Twenty Million Dollars ($20,000,000) at any one time outstanding, together with interest thereon from the date advanced until paid as hereinafter provided. This Note is one of the Notes issued by Borrower pursuant to that certain Amended and Restated Credit Agreement made as of December 29, 2000, by BANK OF AMERICA N.A., and U.S. BANK NATIONAL ASSOCIATION, as lenders, BANK OF AMERICA N.A., as Agent for the lenders, and Borrower (as the same may be amended, modified or restated from time to time, the "Credit Agreement"). Capitalized terms not otherwise defined in this Note shall have the meanings set forth in the Credit Agreement.

    Borrower further agrees as follows:

    1.  This Note evidences a revolving line of credit to Borrower from Lender and, subject to the terms and conditions of the Credit Agreement, Borrower may borrow, repay and reborrow up to the maximum principal amount hereof at any time on or before the Revolving Maturity Date.

    2.  On the Revolving Maturity Date, Borrower shall repay the entire outstanding principal balance of the Revolving Loans.

    3.  Interest shall accrue on the unpaid principal balance of all Revolving Loans evidenced by this Note from the date advanced until due at the Applicable Interest Rate as determined and as provided pursuant to Section 2.7 of the Credit Agreement, and if default shall occur in the payment when due of principal under this Note, from maturity until it is paid in full at a per annum rate equal to three percent (3%) above the Base Rate (changing as the Base Rate changes). Computations of interest shall be made on the basis of a year of three hundred sixty (360) days, for the actual number of days (including the first day but excluding the last day) occurring in the period for which such interest is payable. Interest shall be payable in arrears on the first Business Day of each calendar month, at maturity and at such other times as are specified in the Credit Agreement.

    4.  The unpaid principal balance shall be the total amount advanced hereunder, less the amount of the principal payments made hereon. This Note is given to avoid the execution of an individual note for each Revolving Loan by Lender to Borrower.

    5.  All payments and prepayments of principal and interest on this Note shall be made to Agent at its Commercial Loan Processing Center, in Dollars, as provided in Section 2.10 of the Credit Agreement.

    6.  Each maker, surety, guarantor and endorser of this Note expressly waives all notices, demands for payment, presentations for payment, notices of intention to accelerate the maturity, protest and notice of protest as to this Note.

    7.  In the event this Note is placed in the hands of an attorney for collection, or suit is brought on the same, or the same is collected through bankruptcy or other judicial proceedings, then Borrower agrees and promises to pay reasonable attorney's fees and collection costs, including all out-of-pocket expenses incurred by Lender.

1

    8.  Moneys received from or for the account of Borrower or from any collateral shall be applied in accordance with the terms of the Credit Agreement.

    9.  This Note has been executed and delivered in and shall be governed by and construed in accordance with the laws of the State of Washington, U.S.A.

    10. Upon the occurrence of an Event of Default, the entire remaining unpaid balance of the principal and interest of the loans evidenced hereby may, at the option of the Majority Lenders (or as otherwise provided in the Credit Agreement), be declared to be immediately due and payable.

    11. This Note is subject to the terms of the Credit Agreement and is secured by the Collateral granted pursuant to the Security Agreement.

FLOW INTERNATIONAL CORPORATION
By
	Its

2

EXHIBIT B
(to Amended and Restated Credit Agreement)

MULTI-CURRENCY LOAN NOTE
(Bank of America, N.A.)

$5,000,000	December 29, 2000
	Seattle, Washington

    FOR VALUE RECEIVED, the undersigned, FLOW INTERNATIONAL CORPORATION, a Washington corporation, and any Successor ("Borrower"), hereby promises to pay to the order of BANK OF AMERICA, N.A., ("Lender") the unpaid principal balance of all Multi-Currency Loans evidenced by this Note in a maximum principal amount not to exceed Five Million Dollars ($5,000,000) at any one time outstanding, together with interest thereon from the date advanced until paid as hereinafter provided. This Note is one of the Notes issued by Borrower pursuant to that certain Amended and Restated Credit Agreement made as of December 29, 2000, by BANK OF AMERICA, N.A., U.S. BANK NATIONAL ASSOCIATION, and KEYBANK NATIONAL ASSOCIATION, as lenders, BANK OF AMERICA, N.A., as Agent for the lenders, and Borrower (as the same may be amended, modified or restated from time to time, the "Credit Agreement"). This Note amends and restates that certain Multi-Currency Loan Note dated as of August 31, 1998 in the amount of $5,000,000 executed by Borrower in favor of Lender. Capitalized terms not otherwise defined in this Note shall have the meanings set forth in the Credit Agreement.

    Borrower further agrees as follows:

    1.  This Note evidences a revolving line of credit to Borrower from Lender and, subject to the terms and conditions of the Credit Agreement, Borrower may borrow, repay and reborrow up to the maximum principal amount hereof at any time on or before the Multi-Currency Maturity Date.

    2.  On the Multi-Currency Maturity Date, Borrower shall repay the entire outstanding principal balance of the Multi-Currency Loans.

    3.  Interest shall accrue on the unpaid principal balance of all Multi-Currency Loans evidenced by this Note from the date advanced until due at the Multi-Currency Rate as provided pursuant to Section 2.7 of the Credit Agreement, and if default shall occur in the payment when due of principal under this Note, from maturity until it is paid in full at a per annum rate equal to three percent (3%) above the Base Rate (changing as the Base Rate changes). Computations of interest shall be made on the basis of a year of three hundred sixty (360) days, for the actual number of days (including the first day but excluding the last day) occurring in the period for which such interest is payable. Interest shall be payable in arrears on the first Business Day of each calendar month, at maturity and at such other times as are specified in the Credit Agreement.

    4.  The unpaid principal balance shall be the total amount advanced hereunder, less the amount of the principal payments made hereon. This Note is given to avoid the execution of an individual note for each Multi-Currency Loan by Lender to Borrower.

    5.  All payments and prepayments of principal and interest on this Note shall be made to Agent at its Commercial Loan Processing Center, in Dollars, as provided in Section 2.10 of the Credit Agreement.

    6.  Each maker, surety, guarantor and endorser of this Note expressly waives all notices, demands for payment, presentations for payment, notices of intention to accelerate the maturity, protest and notice of protest as to this Note.

    7.  In the event this Note is placed in the hands of an attorney for collection, or suit is brought on the same, or the same is collected through bankruptcy or other judicial proceedings, then Borrower

1

agrees and promises to pay reasonable attorney's fees and collection costs, including all out-of-pocket expenses incurred by Lender.

    8.  Moneys received from or for the account of Borrower or from any collateral shall be applied in accordance with the terms of the Credit Agreement.

    9.  This Note has been executed and delivered in and shall be governed by and construed in accordance with the laws of the State of Washington, U.S.A.

    10. Upon the occurrence of an Event of Default, the entire remaining unpaid balance of the principal and interest of the loans evidenced hereby may, at the option of the Majority Lenders (or as otherwise provided in the Credit Agreement), be declared to be immediately due and payable.

    11. This Note is subject to the terms of the Credit Agreement and is secured by the Collateral granted pursuant to the Security Agreement.

FLOW INTERNATIONAL CORPORATION
By
	Its

2

EXHIBIT C
(to Amended and Restated Credit Agreement)

SWEEPLINE LOAN NOTE
(Bank of America, N.A.)

$5,000,000	December 29, 2000
	Seattle, Washington

    FOR VALUE RECEIVED, the undersigned, FLOW INTERNATIONAL CORPORATION, a Washington corporation, and any Successor (the "Borrower"), hereby promises to pay to the order of BANK OF AMERICA, N.A. ("Lender") the unpaid principal balance of all Sweepline Loans evidenced by this Note in a maximum principal amount not to exceed Five Million Dollars ($5,000,000) at any one time outstanding, together with interest thereon from the date advanced until paid as hereinafter provided. This Note is one of the Notes issued by Borrower pursuant to that certain Amended and Restated Credit Agreement made as of December 29, 2000, by BANK OF AMERICA, N.A., U.S. BANK NATIONAL ASSOCIATION, and KEYBANK NATIONAL ASSOCIATION, as lenders, BANK OF AMERICA, N.A., as Agent for the lenders, and Borrower (as the same may be amended, modified or restated from time to time, the "Credit Agreement"). This Note amends and restates that certain Sweepline Loan Note dated as of August 31, 1998 in the amount of $5,000,000 executed by Borrower in favor of Lender. Capitalized terms not otherwise defined in this Note shall have the meanings set forth in the Credit Agreement.

    Borrower further agrees as follows:

    1.  This Note evidences a revolving line of credit to Borrower from Lender and, subject to the terms and conditions of the Credit Agreement, Borrower may borrow, repay and reborrow up to the maximum principal amount hereof at any time on or before the Sweepline Maturity Date.

    2.  On the Sweepline Maturity Date, Borrower shall repay the entire outstanding principal balance of the Sweepline Loans.

    3.  Interest shall accrue on the unpaid principal balance of all Sweepline Loans evidenced by this Note from the date advanced until due at the Base Rate as provided pursuant to Section 2.7 of the Credit Agreement, and if default shall occur in the payment when due of principal under this Note, from maturity until it is paid in full at a per annum rate equal to three percent (3%) above the Base Rate (changing as the Base Rate changes). Computations of interest shall be made on the basis of a year of three hundred sixty (360) days, for the actual number of days (including the first day but excluding the last day) occurring in the period for which such interest is payable. Interest shall be payable in arrears on the first Business Day of each calendar month and at maturity.

    4.  The unpaid principal balance shall be the total amount advanced hereunder, less the amount of the principal payments made hereon. This Note is given to avoid the execution of an individual note for each Sweepline Loan by Lender to Borrower.

    5.  All payments and prepayments of principal and interest on this Note shall be made to Agent at its Commercial Loan Processing Center, in Dollars, as provided in Section 2.10 of the Credit Agreement.

    6.  Each maker, surety, guarantor and endorser of this Note expressly waives all notices, demands for payment, presentations for payment, notices of intention to accelerate the maturity, protest and notice of protest as to this Note.

    7.  In the event this Note is placed in the hands of an attorney for collection, or suit is brought on the same, or the same is collected through bankruptcy or other judicial proceedings, then Borrower

1

agrees and promises to pay reasonable attorney's fees and collection costs, including all out-of-pocket expenses incurred by Lender.

    8.  Moneys received from or for the account of Borrower or from any collateral shall be applied in accordance with the terms of the Credit Agreement.

    9.  This Note has been executed and delivered in and shall be governed by and construed in accordance with the laws of the State of Washington, U.S.A.

    10. Upon the occurrence of an Event of Default, the entire remaining unpaid balance of the principal and interest of the loans evidenced hereby may, at the option of the Majority Lenders (or as otherwise provided in the Credit Agreement), be declared to be immediately due and payable.

    11. This Note is subject to the terms of the Credit Agreement and is secured by the Collateral granted pursuant to the Security Agreement.

FLOW INTERNATIONAL CORPORATION
By
	Its

2

QuickLinks

TABLE OF CONTENTS
AMENDED AND RESTATED CREDIT AGREEMENT
ARTICLE 1 DEFINITIONS
ARTICLE 2 THE LOANS
ARTICLE 3 LETTERS OF CREDIT
ARTICLE 4 CONDITIONS
ARTICLE 5 REPRESENTATIONS AND WARRANTIES
ARTICLE 6 AFFIRMATIVE COVENANTS
ARTICLE 7 NEGATIVE COVENANTS
ARTICLE 8 EVENTS OF DEFAULT
ARTICLE 9 AGENT
ARTICLE 10 LETTER OF CREDIT RISK PARTICIPATIONS
ARTICLE 11 MISCELLANEOUS
SCHEDULE 1 PREPAYMENT FEES
CALCULATION OF PAYMENT FEE
APPLICABLE RATES
PAYMENT FEE FACTOR SCHEDULES
SCHEDULE 2 LITIGATION
SCHEDULE 3 SUBSIDIARIES
SCHEDULE 4 EXISTING GUARANTIES
SCHEDULE 5 LIENS
EXHIBIT A-1 (to Amended and Restated Credit Agreement) REVOLVING LOAN NOTE (U.S. Bank National Association)
EXHIBIT A-2 (to Amended and Restated Credit Agreement) REVOLVING LOAN NOTE (Bank of America, N.A.)
EXHIBIT A-3 (to Amended and Restated Credit Agreement) REVOLVING LOAN NOTE (KeyBank National Association)
EXHIBIT B (to Amended and Restated Credit Agreement) MULTI-CURRENCY LOAN NOTE (Bank of America, N.A.)
EXHIBIT C (to Amended and Restated Credit Agreement) SWEEPLINE LOAN NOTE (Bank of America, N.A.)

EX-10.6

QuickLinks -- Click here to rapidly navigate through this document

AMENDMENT NUMBER ONE
TO
AMENDED AND RESTATED CREDIT AGREEMENT

    THIS AMENDMENT NUMBER ONE TO AMENDED AND RESTATED CREDIT AGREEMENT (this "Amendment") is made as of February 28, 2001, by and among BANK OF AMERICA, N.A., a national banking association, U.S. BANK NATIONAL ASSOCIATION, a national banking association, KEYBANK NATIONAL ASSOCIATION, a national banking association (the "Lenders"), BANK OF AMERICA, N.A., as agent for the Lenders (the "Agent"); and FLOW INTERNATIONAL CORPORATION, a Washington corporation ("Borrower").

RECITALS

A. Lenders, Agent and Borrower are parties to that certain Amended and Restated Credit Agreement dated as of December 29, 2001 (the "Credit Agreement").

B. Borrower has requested that Lenders and Agent amend a certain financial covenant under the Credit Agreement for the fiscal quarter ending January 31, 2001, pursuant to the terms and subject to the conditions set forth herein.

    NOW, THEREFORE, the parties hereto agree as follows:

AGREEMENT

    1.  Definitions. Capitalized terms not otherwise defined in this Amendment shall have the meaning set forth in the Credit Agreement.

    2.  Amendment to Section 6.17(c). Section 6.17(c) is hereby deleted and replaced with the following:

    (c) 3.90 to 1 as at the fiscal quarter ending January 31, 2001;

    3.  Conditions to Effectiveness. This Amendment shall become effective when Borrower, Agent and each Lender have executed and delivered counterparts hereof to Agent.

    4.  Representations and Warranties. Borrower hereby represents and warrants to the Lenders and Agent that each of the representations and warranties set forth in Article 5 of the Credit Agreement is true and correct in each case as if made on and as of the date of this Amendment and Borrower expressly agrees that it shall be an additional Event of Default under the Credit Agreement if any representation or warranty made hereunder shall prove to have been incorrect in any material respect when made.

    5.  No Further Amendment. Except as expressly modified by the terms of this Amendment, all of the terms and conditions of the Credit Agreement and the other Loan Documents shall remain in full force and effect and the parties hereto expressly reaffirm and ratify their respective obligations thereunder.

    6.  Governing Law. This Amendment shall be governed by and construed in accordance with the laws of the State of Washington.

    7.  Counterparts. This Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original, and all of which taken together shall constitute one and the same agreement.

1

    8.  Oral Agreements Not Enforceable.

ORAL AGREEMENTS OR ORAL COMMITMENTS TO LOAN MONEY, EXTEND CREDIT, OR TO FORBEAR FROM ENFORCING REPAYMENT OF A DEBT ARE NOT ENFORCEABLE UNDER WASHINGTON LAW.

    IN WITNESS WHEREOF, the parties hereto have executed this Amendment Number One to Amended and Restated Credit Agreement as of the date first above written.

BORROWER:	FLOW INTERNATIONAL CORPORATION
	By:
		Name Stephen D. Reichenbach Title:  Chief Financial Officer
LENDERS:	BANK OF AMERICA, N.A.
	By:
		Name: William P. Stivers Title:  Senior Vice President
	U.S. BANK NATIONAL ASSOCIATION
	By:
		Name: Allan Forney Title:   Vice President
	KEYBANK NATIONAL ASSOCIATION
	By
		Name: Jason R. Gill Title:  Vice President
AGENT:	BANK OF AMERICA, N.A.
	By:
		Name: Ken Puro Title:  Vice President

2

QuickLinks

AMENDMENT NUMBER ONE TO AMENDED AND RESTATED CREDIT AGREEMENT
RECITALS
AGREEMENT

EX-10.7

QuickLinks -- Click here to rapidly navigate through this document

AMENDMENT NUMBER TWO
TO
AMENDED AND RESTATED CREDIT AGREEMENT

    THIS AMENDMENT NUMBER TWO TO AMENDED AND RESTATED CREDIT AGREEMENT (the "Amendment") is made as of May 30, 2001, by and among BANK OF AMERICA, N.A., a national banking association, U.S. BANK NATIONAL ASSOCIATION, a national banking association, KEYBANK NATIONAL ASSOCIATION, a national banking association (the "Lenders"), BANK OF AMERICA, N.A., as agent for the Lenders (the "Agent"); and FLOW INTERNATIONAL CORPORATION, a Washington corporation ("Borrower").

RECITALS

    A.  Lenders, Agent and Borrower are parties to that certain Amended and Restated Credit Agreement dated as of December 29, 2000, as amended by that certain First Amendment to the Amended and Restated Credit Agreement dated as of February 28, 2001 (the "Credit Agreement").

    B.  Borrower intends to enter into the sale of senior subordinated notes with detachable warrants that would be subordinated to the Senior Funded Debt under the Credit Agreement.

    NOW, THEREFORE, the parties hereto agree as follows:

AGREEMENT

    1.  Definitions. Capitalized terms not otherwise defined in this Amendment shall have the meaning set forth in the Credit Agreement.

    2.  Amendment to definition of "Applicable Percentage". Section 1.1 is hereby amended by deleting the matrix in the definition of "Applicable Percentage" and replacing it with the following:

Pricing Level	Applicable Percentage with respect to the LIBOR Rate or Multi-Currency Rate	Applicable Percentage with respect to the Unused Portion
I	1.30%	25 basis points
II	1.40%	25 basis points
III	1.50%	25 basis points
IV	2.50%	37.5 basis points

    3.  Amendment to definition of "Base Rate". The definition of Base Rate is hereby deleted entirely and replaced with the following:

"Base Rate" means the prime rate. (The "prime rate" is a rate set by Bank of America based upon various factors including Bank of America's costs and desired return, general economic conditions and other factors, and is used as a reference point for pricing some loans, which may be priced at, above, or below such announced rate.) Any change in the prime rate announced by Bank of America shall take effect at the opening of business on the day specified in the public announcement of such change.

1

    4.  Amendment to definition of "Pricing Level". Section 1.1 is hereby amended by deleting the matrix in the definition of "Pricing Level" and replacing it with the following:

Pricing Level	Senior Funded Debt Ratio as of the end of the previous fiscal quarter
I	Less than 1.00:1
II	Equal to or greater than 1.00:1 and less than 2.00:1
III	Equal to or greater than 2.00:1 and less than 3.00:1
IV	Equal to or greater than 3.00:1

    5.  Amendment to definition of "Senior Funded Debt". Section 1.1 is hereby amended by deleting the definition of "Senior Funded Debt" entirely and replacing it with the following:

"Senior Funded Debt" means, (i) for the fiscal quarter ending as at April 30, 2001, the sum of Funded Debt less thirty-five million dollars ($35,000,000.00); and (ii) for any fiscal quarter ending as at July 31, 2001 and thereafter, the sum of Funded Debt less the unpaid principal amount of the Senior Subordinated Notes, each as of the end of such fiscal quarter.

    6.  Addition of definition of "Senior Subordinated Notes". Section 1.1 is hereby amended by adding the definition of "Senior Subordinated Notes as follows:

"Senior Subordinated Notes" means the "Notes" issued in connection with, and as defined in, the Subordinated Note Purchase Agreement, as approved by the Lenders and Agent.

    7.  Deletion of definition of "Senior Unsecured Debt". Section 1.1 is hereby amended by deleting the definition of "Senior Unsecured Debt".

    8.  Deletion of definition of "Subordinated Debt". Section 1.1 is hereby amended by deleting the definition of "Subordinated Debt".

    9.  Addition of definition of "Subordinated Note Purchase Agreement". Section 1.1 is hereby amended by adding the following definition:

"Subordinated Note Purchase Agreement" means, collectively, the agreements providing for the purchase of an aggregate principal amount of $35,000,000 of the Borrower's 13% Senior Subordinated Notes due April 30, 2008 and Warrants to Purchase Common Stock between Borrower and the Purchasers identified therein.

    10. Amendment to Section 6.13. Section 6.13 is hereby amended by deleting the first sentence and replacing it with the following:

As of the end of each fiscal quarter, Borrower shall maintain, on a consolidated basis, a Funded Debt Ratio of not more than 4.50 to 1.

    11. Amendment to Section 6.14. Section 6.14 is hereby amended by deleting the last sentence and replacing it with the following:

"Minimum Net Worth" shall mean $27,800,000, plus cumulative quarterly increases equal to fifty percent (50%) of Borrower's net income for all fiscal quarters ending on or after July 31, 1999, excluding any adjustments thereto for losses, plus all amounts contributed to Borrower as outside capital investments at any time after September 1, 1999.

2

    12. Amendment to Section 6.15. Section 6.15 is hereby amended by deleting the last sentence and replacing it with the following:

As used herein, "Debt" shall mean, on a consolidated basis, all liabilities of Borrower as determined and computed in accordance with GAAP other than the Senior Subordinated Notes, and for clarification purposes only, minority interests.

    13. Amendment to Section 6.17. Section 6.17 is hereby amended by deleting subclauses (d) and (e) entirely and replacing them with the following:

(d)  3.50 to 1 as at the fiscal quarters ending April 30, 2001, July 31, 2001 and October 30, 2001; (e) 3.25 to 1 as at the fiscal quarters ending January 31, 2002 and April 30, 2002; and (f) 3.00 to 1 as at the fiscal quarters ending July 31, 2002 and thereafter.

    14. Amendment to Section 7.3(f). Section 7.3(f) is hereby deleted entirely and replaced with the following:

(f)  Senior Subordinated Notes, the principal of which when taken together does not exceed, in the aggregate, at any one time outstanding, Thirty-Five Million Dollars ($35,000,000), and

    15. Amendment to Section 7.4. Section 7.4 is hereby deleted entirely and replaced with the following:

Except for the guaranties set forth on Schedule 4 hereto or the fully subordinated guaranties delivered pursuant to Section 9.10 of the Subordinated Note Purchase Agreement or as set forth on Schedule 10.5 of the Subordinated Note Purchase Agreement, neither Borrower nor any Guarantor shall assume, guaranty, endorse or otherwise become directly or contingently liable for, or obligated to purchase, pay or provide funds for payment of, any obligation or Indebtedness of any other person, other than by endorsement of negotiable instruments for deposit or collection or by similar transactions in the ordinary course of business.

    16. Amendment to Section 7.9. Section 7.9 is hereby amended by deleting it entirely and replacing it with the following:

Section 7.9 Senior Subordinated Notes. Borrower shall maintain no funds on deposit with, shall not acquire any certificates of deposit or other financial instruments from, nor hold any Indebtedness owing to Borrower by, any holder of any Senior Subordinated Note unless such holder shall first have executed a written agreement in favor of Lenders (in form and substance acceptable to Lenders) subordinating or waiving its rights to set-off or to assert any "bankers lien."

    17. Amendment to Section 8.1. Section 8.1 is hereby amended by adding the following as a new subsection (n):

(n)  Prepayment of Principal Default. Borrower shall pay any portion of the principal of the Senior Subordinated Notes before April 30, 2004.

    18. Amendment Fee to Bank of America and U.S. Bank. Borrower shall pay to Agent for the benefit of Bank of America, a fee in the amount of 10 basis points of such Lender's Pro Rata Share of the Total Revolving Commitment and Borrower shall pay to Agent for the benefit of U.S. Bank, a fee in the amount of 10 basis points of such Lender's Pro Rata Share of the Total Revolving Commitment (such fees being collectively referred to as the "Amendment Fee"). KeyBank shall not be entitled to any portion of the Amendment Fee. Borrower's obligation to pay the Amendment Fee under this Section 18 shall constitute an amount payable under the Credit Agreement for the purpose of Section 8.1(a) thereof.

3

    19. Conditions to Effectiveness. This Amendment shall become effective when: (i) Borrower has paid the Amendment Fee to Agent; (ii) Borrower, Agent and each Lender have executed and delivered counterparts hereof to Agent; and (iii) Borrower has executed and delivered the Subordinated Note Purchase Agreement and the Note Indebtedness (as defined therein) has been fully disbursed to Borrower and the net proceeds thereof have been applied to reduce the principal amount of the Senior Funded Debt.

    20. Representations and Warranties. Borrower hereby represents and warrants to the Lenders and Agent that each of the representations and warranties set forth in Article 5 of the Credit Agreement is true and correct in each case as if made on and as of the date of this Amendment and Borrower expressly agrees that it shall be an additional Event of Default under the Credit Agreement if any representation or warranty made hereunder shall prove to have been incorrect in any material respect when made.

    21. Amendments to Other Loan Documents. The parties hereto agree that the Security Agreement covers, and the term "Collateral" (as defined therein) shall include, without limitation, letter of credit rights, deposit accounts and promissory notes as such terms are defined in the Washington State Uniform Commercial Code, as amended from time to time (the "UCC"). Parties hereto further agree terms used in the Security Agreement that are defined in the UCC shall be defined as set forth in the UCC.

    22. No Further Amendment. Except as expressly modified by the terms of this Amendment, all of the terms and conditions of the Credit Agreement and the other Loan Documents shall remain in full force and effect and the parties hereto expressly reaffirm and ratify their respective obligations thereunder.

    23. Governing Law. This Amendment shall be governed by and construed in accordance with the laws of the State of Washington.

    24. Counterparts. This Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original, and all of which taken together shall constitute one and the same agreement.

    25. Oral Agreements Not Enforceable.

ORAL AGREEMENTS OR ORAL COMMITMENTS TO LOAN MONEY, EXTEND CREDIT, OR TO FORBEAR FROM ENFORCING REPAYMENT OF A DEBT ARE NOT ENFORCEABLE UNDER WASHINGTON LAW.

4

IN WITNESS WHEREOF, the parties hereto have executed this Amendment Number One to Amended and Restated Credit Agreement as of the date first above written.

BORROWER:	FLOW INTERNATIONAL CORPORATION
	By:
		Name: Stephen D. Reichenbach Title:  Chief Financial Officer
LENDERS:	BANK OF AMERICA, N.A.
	By:
		Name: William P. Stivers Title:  Senior Vice President
	U.S. BANK NATIONAL ASSOCIATION
	By:
		Name: Allan Forney Title:   Vice President
	KEYBANK NATIONAL ASSOCIATION
	By
		Name: Jason R. Gill Title:  Vice President
AGENT:	BANK OF AMERICA, N.A.
	By:
		Name: Ken Puro Title:  Vice President

5

QuickLinks

AMENDMENT NUMBER TWO TO AMENDED AND RESTATED CREDIT AGREEMENT
RECITALS
AGREEMENT

EX-10.11

QuickLinks -- Click here to rapidly navigate through this document

AMENDMENT
TO NOTE PURCHASE AGREEMENT

    This AMENDMENT TO NOTE PURCHASE AGREEMENT (this "Amendment"), dated as of January 1, 2001, is made by and between Flow International Corporation (the "Company"), and each of CONNECTICUT GENERAL LIFE INSURANCE COMPANY and LIFE INSURANCE COMPANY OF NORTH AMERICA (the "Holders").

BACKGROUND

    A.  Pursuant to the Note Purchase Agreement (the "Note Agreement"), dated as of September 1, 1995, between the Company and the Holders the Company issued and the Holders purchased Fifteen Million Dollars ($15,000,000) in aggregate principal amount of the Company's 7.20% Notes due 2005 (the "Notes").

    B.  The Company has requested that the Holders amend one of the Company's obligations under the Note Agreement.

    C.  The Company and the Holders desire to enter into this Amendment to effectuate the above-mentioned amendment.

NOW, THEREFORE, in order to induce the Holders to amend the Note Agreement as set forth below and in consideration of other good and valuable consideration (the receipt and sufficiency of which are hereby acknowledged) the Company and the Holders agree as follows:

1.

Definitions.

All capitalized terms used, but not specifically defined, in this Amendment have the respective meanings assigned to them in the Note Agreement.

2.

Effective Date.

The provisions of Section 3 shall be effective as of date first above written when all of the following conditions precedent have been satisfied:

(a)

Consenting Parties—the undersigned Holders and the Company shall have duly authorized, executed and delivered this Amendment; and



(b)

No Defaults—no Default or Event of Default exists after giving effect to the amendment set forth in Section 3.

3.

Amendment to Section 11.8 of the Note Agreement.

Section 11.8 of the Note Agreement shall be amended and restated in its entirety as follows:

"11.8 Minimum Fixed Charges Coverage.

    The Company will not, at any time, permit the Fixed Charges Coverage Ratio to be less than 2.00 to 1; provided, however, for the fiscal quarter ending January 31, 2001, the Company will not permit the Fixed Charges Coverage Ratio to be less than 1.9 to 1."

4.

Effect of Agreement.

Except as expressly provided in this Amendment, the Note Agreement and all documents and instruments executed in connection with, or contemplated by, the Note Agreement shall remain in full force and effect, without modification or amendment. This Amendment shall be binding upon, and shall inure to the benefit of, the successors and assigns of the parties hereto and the holders from time to time of the Notes.

5.

Duplicate Originals: Execution in Counterpart.

Two or more duplicate originals of this Amendment may be signed by the parties, each of which shall be an original but all of which together shall constitute one and the same

instrument. This Amendment may be executed in one or more counterparts and shall be effective when at least one counterpart shall have been executed by each party to this Amendment, and each set of counterparts which, collectively, show execution by each such party to this Amendment shall constitute one duplicate original.

6.

Governing Law.

This Amendment shall be governed by, and construed and enforced in accordance with, internal Washington law.

IN WITNESS WHEREOF, the undersigned have each caused this Amendment to Note Purchase Agreement to be duly executed and delivered by their respective, duly authorized officers as of the date first above written.

COMPANY:

Flow International Corporation
By:
	Name:
	Title:

HOLDERS:
CONNECTICUT GENERAL LIFE INSURANCE COMPANY*
By: CIGNA Investments, Inc.
	By:
		Name: Title:
LIFE INSURANCE COMPANY OF NORTH AMERICA*
By: CIGNA Investments, Inc.
	By:
		Name: Title:

*

The entity signing this agreement is either a holder of a Note referred to herein or the beneficial holder of such Note registered in the name of the nominee of such beneficial holder.

Signature page to Amendment to Note Purchase Agreement dated as of January 1, 2001 by and between Flow International Corporation and Connecticut General Life Insurance Company and Life Insurance Company of North America.

QuickLinks

AMENDMENT TO NOTE PURCHASE AGREEMENT
BACKGROUND

EX-10.12

QuickLinks -- Click here to rapidly navigate through this document

FOURTH AMENDMENT TO
NOTE PURCHASE AGREEMENT

    This FOURTH AMENDMENT TO NOTE PURCHASE AGREEMENT (this "Amendment"), dated as of April 30, 2001 is made by and between FLOW INTERNATIONAL CORPORATION, a Delaware corporation (the "Company"), and each of CONNECTICUT GENERAL LIFE INSURANCE COMPANY and LIFE INSURANCE COMPANY OF NORTH AMERICA (the "Holders").

BACKGROUND

    A.  Pursuant to the Note Purchase Agreement (as amended prior to the date hereof, the "Existing Note Agreement;" and, after giving effect to this Amendment, the "Note Agreement"), dated as of September 1, 1995, between the Company and each of the Holders, the Company issued and the Holders purchased Fifteen Million Dollars ($15,000,000) in aggregate principal amount of the Company's 7.20% Notes due September 26, 2005 (the "Notes").

    B.  In connection with the issuance by the Company of subordinated notes and warrants and the amendment of certain bank credit documents, it is necessary to amend the Existing Note Agreement to make changes to certain existing provisions thereof and to add certain additional provisions thereto.

    C.  The Company and the Holders desire to enter into this Amendment to effectuate the above-mentioned amendments.

NOW, THEREFORE, in order to induce the Holders to grant the amendments specified below and in consideration of other good and valuable consideration (the receipt and sufficiency of which are hereby acknowledged) the Company and the Holders agree as follows:

1.

Definitions.

All capitalized terms used, but not specifically defined, in this Amendment have the respective meanings assigned to them in the Existing Note Agreement as amended hereby.

2.

Effective Date.

The provisions of Section 4 shall take effect as of April 30, 2001 provided that the following conditions precedent have been satisfied:

(a)

Consenting Parties—Holders holding not less than sixty-six and two-thirds percent (66²/3%) in aggregate principal amount of the Notes then outstanding (exclusive of Notes then owned by any one or more of the Company, any Subsidiaries and any affiliates) and the Company shall have duly authorized, executed and delivered this Amendment;



(b)

No Defaults—no Default or Event of Default exists after giving effect to the amendments set forth in Section 4, as of the date hereof and as of the date of the closing of the purchase and sale of the Company's 13% Subordinated Notes due 2008;



(c)

Subordinated Notes—the Holders shall have approved the issuance and the terms of, and the covenants and other agreements applicable to, the 13% Subordinated Notes due 2008 to be issued by the Company, including the subordination of such Subordinated Notes to the Notes on terms and conditions acceptable to the Holders, which approval shall be evidenced by the Holders' execution and delivery of this Amendment to the Company; and



(d)

Payment of Fees and Expenses—the Company shall have paid the legal fees and disbursements of the Holders' in-house legal department allocable to this Amendment.

1

3.

False or Misleading Information.

The amendments set forth in Section 4 shall terminate and shall be null and void and of no force and effect if any written materials furnished in connection with this Amendment shall have been false or misleading in any material respect when made.

4.

Amendments.

(a)

Section 8.1(g). Section 8.1(g) of the Existing Note Agreement shall be amended and restated in its entirety as follows:

    (g) Delivery of Notices to Bank Agent and to Subordinated Noteholders; Delivery of Addresses—(i) to the extent not otherwise required to be delivered to the holders of the Notes pursuant to the provisions of this Section 8.1 (x) contemporaneously with the delivery to the Bank Agent, copies of all notices, reports and financial information delivered to the Bank Agent in accordance with the terms of the Bank Credit Agreement and (y) contemporaneously with the delivery to the holders of the Subordinated Notes, copies of all notices, reports and financial information delivered to the holders of the Subordinated Notes in accordance with the terms of the Subordinated Note Purchase Agreement; (ii) notice of any default under the Bank Credit Agreement or the Subordinated Note Purchase Agreement; and (iii) concurrently with the delivery of any notice pursuant to the preceding clause (ii) and from time to time in the event of any changes thereto, the names and addresses of the holders of indebtedness under the Bank Credit Agreement and the holders of the notes issued pursuant to the Subordinated Note Purchase Agreement, and the name and address of any agent acting on their behalf.

(b)

Section 9.2A. The following new Section 9.2A is added to the Existing Note Agreement:

9.2A. Prepayment Upon Change of Control.

    In the event that any Change of Control shall occur or the Company shall have knowledge of any proposed Change of Control that is likely to occur, the Company will give written notice (the "Company Notice") of such fact in the manner provided in Section 19 hereof to the holders of the Notes. The Company Notice shall be delivered promptly upon receipt of such knowledge by the Company and, in the case of a Change of Control of which the Company had no prior knowledge, no later than five Business Days following the occurrence of any Change of Control. The Company Notice shall (1) describe the facts and circumstances of such Change of Control in reasonable detail, (2) make reference to this Section 9.2A and the right of the holders of the Notes to require prepayment of the Notes on the terms and conditions provided for in this Section 9.2A, (3) offer in writing to prepay all, but not less than all, of the outstanding Notes, together with accrued interest to the date of prepayment, plus a prepayment charge equal to the applicable Make-Whole Amount, and (4) specify a date for such prepayment (the "Change of Control Prepayment Date"), which Change of Control Prepayment Date shall be not more than 45 days nor less than 20 days following the date of such Company Notice (subject to deferral as provided in this Section 9.2A). Each holder of the then outstanding Notes shall have the right to accept such offer and require prepayment of the Notes held by such holder in full by written notice to the Company (a "Noteholder Notice") given not later than 15 days after receipt of the Company Notice. The Company shall on the Change of Control Prepayment Date prepay in full all of the Notes held by holders which have so accepted such offer of prepayment; provided that the obligation of the Company to prepay the Notes pursuant to the requirement of this Section 9.2A is subject to the occurrence of the Change of Control giving rise to such notice of optional prepayment. In the event that such Change of Control does not occur on the date specified for prepayment, the prepayment shall be deferred until and shall be made on the date on which such Change of Control actually occurs. The prepayment price of the Notes payable upon the occurrence of any Change of Control shall be an amount equal to 100% of the outstanding principal amount of the Notes so to be prepaid and accrued interest thereon to the date of such prepayment, plus a

2

prepayment charge equal to the applicable Make-Whole Amount. In no event will the Company take any action to consummate or finalize a Change of Control unless contemporaneously with such action the Company prepays all Notes required to be prepaid pursuant to this Section 9.2A.

    For purposes of this Section 9.2A:

    "Acquiring Person" means a "person" or "group of persons" within the meaning of Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended.

    "Change of Control" means the earliest to occur of: (a) the date a tender offer or exchange offer results in an Acquiring Person, directly or indirectly, beneficially owning more than 50% of the Voting Stock of the Company then outstanding, or (b) the date an Acquiring Person becomes, directly or indirectly, the beneficial owner of more than 50% of the Voting Stock of the Company then outstanding, or (c) the date of a merger between the Company and any other Person, a consolidation of the Company with any other Person or an acquisition of any other Person by the Company, if immediately after such event, the Acquiring Person shall hold more than 50% of the Voting Stock of the Company outstanding immediately after giving effect to such merger, consolidation or acquisition, or (d) the replacement (other than solely by reason of retirement, death or disability) of more than 50% of the members of the Board of Directors of the Company over a 12-month period from the directors who constituted such Board of Directors at the beginning of such period and such replacement shall not have been approved by a vote of at least a majority of the Board of Directors of the Company then still in office who either were members of such Board of Directors at the beginning of such 12-month period or whose election as members of the Board of Directors was so previously approved.

    "Voting Stock" means Securities of any class or classes, the holders of which are ordinarily in the absence of contingencies, entitled to elect a majority of the corporate directors (or Persons performing similar functions).

(c)

Section 9.3: Section 9.3 of the Existing Note Agreement is hereby amended and restated in full as follows:

    In the case of each partial prepayment of the Notes pursuant to Section 9.2, the principal amount of the Notes to be prepaid shall be allocated among all of the Notes at the time outstanding in proportion, as nearly as practicable, to the respective unpaid principal amounts thereof not theretofore called for prepayment. All partial prepayments made pursuant to Section 9.2A shall be applied only to the Notes of the holders who have elected to participate in such prepayment.

(d)

Section 11.3(a)(ii). Section 11.3(a)(ii) of the Existing Note Agreement is hereby amended and restated in full as follows:

(ii)(A) at any time during the fiscal year ending April 30, 2002, Consolidated Debt does not exceed 65% of Consolidated Total Capitalization and (B) at any time thereafter, Consolidated Debt does not exceed 60% of Consolidated Total Capitalization.

(e)

Section 11.5. Section 11.5 of the Existing Note Agreement is hereby amended by the addition of the following subsection (c) thereto:

    (c) Prepayment of Subordinated Notes. The Company shall not prepay any of the Subordinated Notes pursuant to Section 8.2 or 8.3 of the Subordinated Note Purchase Agreement until the Notes have been paid in full or provision therefor has been made satisfactory to the holders of the Notes; provided, that, if any or all of the Holders of the Notes elect not to be prepaid in connection with an offer made by the Company pursuant to Section 9.2A, the Company shall be permitted to prepay the Subordinated Notes to the extent

3

that the holders thereof have elected to be prepaid pursuant to Section 8.3 of the Subordinated Note Purchase Agreement.

(f)

Section 11.8. Section 11.8 of the Note Agreement shall be amended and restated in its entirety as follows:

11.8 Minimum Fixed Charges Coverage.

    The Company will not, at any time, permit the Fixed Charges Coverage Ratio to be less than 1.80 to 1.

(g)

Section 11.13. The following new Section 11.13 is hereby added to the Existing Note Purchase Agreement:

11.13 Amendments to Subordinated Note Purchase Agreement.

    Without the consent of the Required Holders, the Company shall not amend, waive or otherwise modify (i) the terms of Section 8 of the Subordinated Note Purchase Agreement to permit or require the Subordinated Notes to be paid or prepaid, in whole or in part, prior to the dates set forth in the Subordinated Note Purchase Agreement as of the date of original execution thereof, (ii) the terms of the Subordinated Notes to cause the maturity thereof to be less than 366 days after the maturity date of the Notes, or (iii) the terms of Section 11 of the Subordinated Note Purchase Agreement as in effect on the date of the original execution thereof.

(h)

Definitions—Existing. The following definitions in Schedule B are hereby amended and restated as set forth in full below:

"Bank" means Bank of America, National Trust and Savings Association, doing business as Seafirst Bank.

"Bank Credit Agreement" means that certain Amended and Restated Credit Agreement dated as of December 29, 2000 among the Company and the Bank, as Bank Agent and Lender, U.S. Bank National Association and Keybank National Association, as amended by the First Amendment dated as of February 28, 2001, and the Second Amendment dated as of May 6, 2001, as the same may be further amended, modified or supplemented in accordance with the terms hereof.

"Intercreditor Agreement" means that certain Intercreditor Agreement dated as of August 31, 1998 among the Company, the Bank Agent, the Bank Lenders, and the holders of the Notes, as amended from time to time in accordance with the provisions thereof, which Intercreditor Agreement replaced the Intercreditor Agreement dated as of September 26, 1995 by and among the Company the holders of the Notes and U.S Bank National Association, individually and as collateral agent.

"Security Agreement" means that certain Security Agreement dated as of August 31, 1998, by the Company in favor of the Bank Agent as agent for itself, the other Bank Lenders and the holders of the Notes, as amended from time to time in accordance with the provisions thereof, which Security Agreement replaced the Security Agreement dated as of September 26, 1995 by and among the Company, the holders of the Notes and U.S. Bank National Association.

(i)

Definitions—New. Schedule B shall be amended by adding, in the correct alphabetical order, the following definitions to the list of definitions:

"Acquiring Person" is defined in Section 9.2A.

"Change of Control" is defined in Section 9.2A.

4

"Change of Control Prepayment Date" is defined in Section 9.2A.

"Company Notice" is defined in Section 9.2A.

"Noteholder Notice" is defined in Section 9.2A.

"Subordinated Notes" means the 13% Subordinated Notes due 2008 issued by the Company pursuant to the Subordinated Note Purchase Agreement.

"Subordinated Note Purchase Agreement" means the Subordinated Note Purchase Agreement dated as of April 30, 2001 between the Company and each of the purchasers of the Subordinated Notes and Warrants (as defined therein) issued pursuant thereto, as amended from time to time to the extent permitted by the provisions hereof.

"Voting Stock" is defined in Section 9.2A.

6.

Effect of Agreement.

Except as expressly provided in this Amendment, the Note Agreement and all documents and instruments executed in connection with, or contemplated by, the Note Agreement shall remain in full force and effect, without modification or amendment. This Amendment shall be binding upon, and shall inure to the benefit of, the successors and assigns of the parties hereto and the holders from time to time of the Notes.

7.

Duplicate Originals: Execution in Counterpart.

Two or more duplicate originals of this Amendment may be signed by the parties, each of which shall be an original but all of which together shall constitute one and the same instrument. This Amendment may be executed in one or more counterparts and shall be effective when at least one counterpart shall have been executed by each party to this Amendment, and each set of counterparts which, collectively, show execution by each such party to this Amendment shall constitute one duplicate original.

8.

Governing Law.

This Amendment shall be governed by, and construed and enforced in accordance with, internal Connecticut law.

5

IN WITNESS WHEREOF, the undersigned have each caused this Third Amendment to Note Purchase Agreement to be duly executed and delivered by their respective, duly authorized officers as of the date first above written.

COMPANY:
FLOW INTERNATIONAL CORPORATION
By:
	Name:
	Title:

HOLDERS:
CONNECTICUT GENERAL LIFE INSURANCE COMPANY*
By: CIGNA Investments, Inc.
	By:
		Name: Stephen A. Osborn Title: Managing Director
LIFE INSURANCE COMPANY OF NORTH AMERICA*
By: CIGNA Investments, Inc.
	By:
		Name: Stephen A. Osborn Title: Managing Director

*

The entity signing this agreement is either a holder of a Note referred to herein or the beneficial holder of such Note registered in the name of the nominee of such beneficial holder.

Signature page to Fourth Amendment to Note Purchase Agreement dated as of April 30, 2001 by and between FLOW INTERNATIONAL CORPORATION, and each of CONNECTICUT GENERAL LIFE INSURANCE COMPANY and LIFE INSURANCE COMPANY OF NORTH AMERICA.

6

QuickLinks

FOURTH AMENDMENT TO NOTE PURCHASE AGREEMENT
BACKGROUND

EX-21.1

QuickLinks -- Click here to rapidly navigate through this document

SUBSIDIARIES OF
FLOW INTERNATIONAL CORPORATION

Subsidiary	State or other Jurisdiction of Incorporation or Organization
CIS Acquisition Corporation	Michigan
Flow Asia Corporation	Taiwan
Flow Asia International Corporation	Mauritius
Flow Autoclave Systems, Inc.	Delaware
Flow Automation Systems Corporation	Ontario
Flow Europe, GmbH	Germany
Flow Holdings GmbH (SAGL) Limited Liability Company	Switzerland
Flow International Sales Corporation	Guam
Flow Pressure Systems Vasteras AB	Sweden
Foracon Maschinen und Anlagenbau GmbH & CO.KG	Germany
Hydrodynamic Cutting Services	Louisiana
Robotic Simulations Limited	United Kingdom
Flow Japan Corporation	Japan
CEM-FLOW	France

QuickLinks

SUBSIDIARIES OF FLOW INTERNATIONAL CORPORATION

EX-23.1

QuickLinks -- Click here to rapidly navigate through this document

Exhibit 23.1

CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the incorporation by reference in the Registration Statements on Form S-3 (No. 33-57100) and Form S-8 (No. 33-40397 and No. 33-44776) of Flow International Corporation of our report dated June 5, 2001 relating to the financial statements and financial statement schedules, which appears in this Form 10-K.

PricewaterhouseCoopers LLP

Seattle, Washington
July 26, 2001

QuickLinks

CONSENT OF INDEPENDENT ACCOUNTANTS