-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, Irc0Z9A3XmJJcGqZsHK6fyHAbIZdUnSGmQC23dm8zdNDC68KEIc9Bz53hbrh2EPQ ydNAqHvVPc1eG0x54CqevA== 0000950146-94-000174.txt : 19941005 0000950146-94-000174.hdr.sgml : 19941005 ACCESSION NUMBER: 0000950146-94-000174 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 19940630 FILED AS OF DATE: 19940926 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: WATTS INDUSTRIES INC CENTRAL INDEX KEY: 0000795403 STANDARD INDUSTRIAL CLASSIFICATION: 3490 IRS NUMBER: 042916536 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-14787 FILM NUMBER: 94550213 BUSINESS ADDRESS: STREET 1: 815 CHESTNUT ST CITY: NORTH ANDOVER STATE: MA ZIP: 01845 BUSINESS PHONE: 5086881811 MAIL ADDRESS: STREET 2: 815 CHESTNUT STREET CITY: NORTH ANDOVER STATE: MA ZIP: 01845 10-K 1 WATTS INDUSTRIES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K ___ /XX/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended June 30, 1994 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 0-14787 _________________ WATTS INDUSTRIES, INC. (Exact name of registrant as specified in its charter) Delaware 04-2916536 (State of incorporation) (I.R.S. Employer Identification No.) 815 Chestnut Street North Andover, Massachusetts 01845 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (508) 688-1811 ________________ Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Class A Common Stock, par value $.10 per share (Title of class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No __ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] The aggregate market value of the voting stock of the registrant held by non-affiliates of the registrant on September 2, 1994 was $431,500,109. The number of shares of the registrant's Class A Common Stock, par value $.10 per share, outstanding on September 2, 1994 was 18,013,522 and the number of shares of the registrant's Class B Common Stock, par value $.10 per share, outstanding on September 2, 1994 was 11,472,470. Documents Incorporated by Reference Portions of the following documents are incorporated by reference into the Parts of this Report on Form 10-K indicated below: (1) The Annual Report to Stockholders for fiscal year ended June 30, 1994 (Part II). (2) The Company's definitive proxy statement dated September 14, 1994 for the Annual Meeting of Stockholders to be held on October 18, 1994 (Part III). PART I Item 1. BUSINESS. General Watts Industries, Inc., (as further defined below),("the Company") designs, manufactures and sells an extensive line of valves for the plumbing and heating and water quality, municipal water, steam, and industrial and oil and gas markets. Watts has focused on the valve industry since its inception in 1874, when it was founded to design and produce steam regulators for New England textile mills. The Company is a leading manufacturer and supplier of water service and water quality valve products, which account for over one-half of its sales. The Company's growth strategy emphasizes internal development of new valve products and entry into new markets for specialized valves and related products through diversification of its existing business and strategic acquisitions in related business areas, both domestically and abroad. The Company's product lines include (1) safety relief valves, regulators, ball valves and flow control valves for water service primarily in residential and commercial environments, and metal and plastic water supply/drainage products including valves, tubular brass products, faucets, drains, and sink strainers for residential construction, home repair and remodeling, and specialty bronze valves and fittings used in underground water service connections; (2) backflow preventers for preventing contamination of potable water caused by reverse flow within water supply lines; (3) American Water Works Association (AWWA) butterfly valves for use in water distribution, water treatment and waste water management; (4) steam regulators and control devices for industrial HVAC and naval/marine applications; (5) ball valves, pneumatic and electric actuators, relief valves, check valves and butterfly valves for industrial applications; and (6) valves for the oil and gas industry. Within a majority of the specific markets in which it participates, the Company believes it has the broadest product line in terms of the distinct designs, sizes and configurations of its valves. Products representing a majority of the Company's sales have been approved under regulatory standards incorporated into state and municipal plumbing and heating, building and fire protection codes. The Company operates its own automated foundries for casting bronze and iron component parts and has extensive facilities for machining bronze, brass, iron and steel components and assembling them into finished valves. The Company has its principal manufacturing plants, warehouses, product development facilities or sales offices in 20 locations in the United States, 4 locations in Canada, 12 locations in Europe, and 1 location in Asia through a 60% controlling interest in a joint venture located in the People's Republic of China. These domestic and foreign operations employ approximately 4,850 people, including 864 employees in the Company's joint venture located in the People's Republic of China. The Company was incorporated in Delaware in 1985. The Company maintains its principal executive offices at 815 Chestnut Street, North Andover, Massachusetts 01845 and its telephone number is (508) 688-1811. Unless the context otherwise requires or indicates, references to the "Company" and "Watts" include the Company's predecessors and subsidiaries. The Company's principal subsidiaries include: - Watts Regulator Co. of North Andover, Massachusetts, a manufacturer of pressure regulators, temperature and pressure relief valves, backflow preventers, flow control valves, pneumatic and electric actuators, ball valves, and butterfly valves; - KF Industries, Inc. of Oklahoma City, Oklahoma, a manufacturer of high pressure floating and trunnion ball valves, check valves, and needle valves for the oil and gas industry; - Jameco Industries, Inc. of Wyandanch, New York, a manufacturer of metal and plastic water supply products, including valves, tubular products, and sink strainers; - Henry Pratt Company of Aurora, Illinois, a manufacturer of AWWA butterfly valves and other valve products for use in water distribution, water treatment, waste water management, fire protection and power generation; - Leslie Controls, Inc. of Tampa, Florida, a manufacturer of control valves, instrumentation, regulators, water heaters and whistles for the naval, marine and industrial steam markets; - Circle Seal Controls, Inc. of Corona, California, a manufacturer of relief valves, pressure regulators, check valves, pressure gauges and other valve products for industrial, commercial aviation and aerospace/military applications; - Spence Engineering Company, Inc. of Walden, New York, a manufacturer of steam regulators and control devices; - James Jones Company of El Monte, California, a manufacturer of specialty bronze valves and fittings used in underground water service connections, and bronze fire hydrants; - Watts Automatic Control Valve, Inc. of Houston, Texas, a manufacturer of automatic control valves; - Nicholson Steam Trap, Inc. of Walden, New York, a manufacturer of low pressure steam condensate traps; - R.G. Laurence Company, Inc. of Tampa, Florida, a manufacturer of products for the gas turbine industry; - Watts Industries (Canada) Inc. of Woodbridge, Ontario, Canada, a manufacturer of various water service and water quality valves, traps, drains and other specialty products for the commercial and industrial construction markets; - Intermes, S.p.A. of Caldaro and Trento, Italy, a manufacturer of plumbing and heating valves and controls with distribution facilities in Italy, Germany, France, Austria, Switzerland, Belgium, and Spain; - MTR GmbH of Gemmrigheim, Germany, a distributor of plumbing and heating valves and controls; - Edward Barber Ltd. of Tottenham, England, a manufacturer of valves, meter boxes and accessories for the municipal water market; - Watts Ocean B.V. of Eerbeek, Holland, which assembles and distributes water quality valves and manufactures check valves, double cage pinch valves, automatic control valves and other valve systems; - Watts SFR S.A. of Fressenneville, France, a manufacturer of speciality relief valves, water pressure reducing valves and other speciality valves for the water safety and flow control markets in France and other European countries; and - Tianjin Tanggu Watts Valve Company Limited of Tianjin, People's Republic of China, a manufacturer of butterfly, globe and check valves for the water distribution and industrial markets in China and Southeast Asia. All information appearing in this Item 1 is as of September 2, 1994, except as otherwise specified. Recent Acquisitions On June 27, 1994, a wholly owned subsidiary of the Company formed Tianjin Tanggu Watts Valve Company Limited ("Tanggu Watts"), a Chinese joint venture located in Tianjin, People's Republic of China, with Tianjin Tanggu Valve Plant, a manufacturer of butterfly valves and other valve products that are sold primarily to the water distribution and industrial markets in China and exported to other parts of the world. Tanggu Watts commenced business operations in August 1994. Tianjin Tanggu Valve Plant's 1993 calendar year sales were approximately $8,000,000. The Company owns a 60% controlling interest in Tanggu Watts. On July 28, 1994, a wholly owned subsidiary of the Company acquired Jameco Industries, Inc. located in Wyandanch, New York. Jameco manufactures metal and plastic water supply products including valves, tubular products and sink strainers that are sold primarily to the residential construction and do-it-yourself, home repair and remodeling markets in the United States and overseas. The sales of Jameco for the 12-month period ended June 30, 1994 were approximately $56,000,000 with the majority of its sales concentrated in the United States. Products The Company classifies its valve products into four categories: (1) Plumbing and Heating and Water Quality, (2) Municipal Water, (3) Steam, and (4) Industrial and Oil and Gas. The Company serves a wide range of end users through the manufacture of valve products of many designs, sizes and configurations. Plumbing and Heating and Water Quality. Water plumbing and heating valves and water supply/drainage products include a broad line of safety relief valves, regulators, ball valves, control valves, tubular brass products, sink strainers, faucets and drains used for water service in residential, industrial, commercial, and institutional applications. Watts has developed automatic temperature and pressure relief valves and pressure-only relief valves used for protection against overtemperature and excessive pressure build-up in water heaters, boilers and other pressure vessels. These products must meet stringent requirements under municipal and state regulatory codes ("code requirements"). See "Code Compliance." Watts has also developed self-contained water-pressure regulators, which reduce and control supply pressure in commercial and residential water systems. These regulators, which conserve water and protect appliances and other equipment from excessive water pressure, are also subject to stringent code requirements. The Company's plumbing and heating valves also include bronze ball valves used in a wide range of applications for controlling the flow of water within pipe lines. The Company manufactures and sells a large number of specialty water service products including hydronic heating control products, vacuum relief valves, hot and cold water mixing valves, strainers, traps, drains, dielectric unions, water hammer shock arrestors, washing machine Duo-Cloz shut-off valves, flow switches, pilot operated regulators, and thermostatic controls. Jameco Industries, acquired by the Company in July 1994, manufactures valves, sink strainers, drains, and tubular brass products and imports for resale, vitreous china and faucets for the residential construction and do-it-yourself, home repair and remodeling markets. Many of these products are distributed in the United States through retail warehouse chain stores that sell to the do-it-yourself market. Water quality valves include backflow preventers for preventing contamination of potable water caused by reverse flow within water supply lines. Customers include municipal water works and industrial, residential, institutional, irrigation and other end users having water supply lines. The patented Watts No. 909 reduced pressure zone backflow preventer line has been recognized within the industry and by certain regulatory bodies as an important technical advance because of its improved ability to prevent the reverse flow of contaminated water during severe conditions of backsiphonage or backpressure in potable water supply systems. The Company's other water quality valves include atmospheric and continuous pressure anti-siphon vacuum breakers, double check valves for residential and commercial service, boiler feed and vending machine backflow preventers and hose connection and wall and yard hydrant vacuum breakers. Most of the Company's Water Quality Valve products are subject to code requirements. See "Code Compliance." Municipal Water. Municipal water valves include valves used to manage and control the delivery of water from the source of supply to its point of use. Watts Automatic Control Valve manufactures valves used in municipal water systems to control flow and deliver water at a constant pressure. James Jones Company manufactures fire hydrants, underground service valves and fittings used for applications between water mains and meters. Henry Pratt Company manufactures large size AWWA butterfly valves as well as ball, plug and check valves used in water distribution, water treatment, and waste water markets. Tanggu Watts manufactures large butterfly valves used in municipal water distribution. Edward Barber Ltd. manufactures valves, meter boxes and accessories for the European municipal water market. Steam. The Company's steam valves include pilot operated steam temperature and pressure regulators manufactured and marketed principally by Spence Engineering Company, Inc. These specialty valves are marketed primarily to institutional, industrial and utility customers. The Company's line of control valves, instrumentation, regulators, water heaters and whistles for the naval, marine and industrial steam markets is manufactured and sold by Leslie Controls, Inc. The Company's line of low pressure steam condensate traps is manufactured and sold by Nicholson Steam Trap, Inc. Industrial and Oil and Gas. The Company's industrial products include an extensive line of ball valves and butterfly valves primarily for industrial process applications, as well as pneumatic and electric actuators which open, close and modulate valves. By offering a broad range of ball, seat, seal, stem and handle choices, Watts is able to customize ball valves for particularly demanding service applications. Relief, check and regulator valves for aerospace, marine, military, cryogenic, and other specialized applications are manufactured by Circle Seal Controls, Inc. The Company's oil and gas valves include high pressure floating and trunnion ball valves, check valves, and needle valves manufactured by KF Industries, Inc. These specialty valves are marketed primarily to oil field supply distributors. During fiscal 1994, the Company's oil and gas business increased its international export sales as a result of a strong international market in gas transmission pipeline projects. The Company believes that its oil and gas business, including the fiscal 1994 sales to gas transmission pipeline projects, is affected by cyclical variations in industry conditions to a greater extent than its other business operations. Acquisitions An important element of the Company's growth strategy is to make strategic acquisitions of companies and product lines in related business areas. The Company's acquisition strategy has been focused in the valve industry and has involved (i) acquiring additional valve products which can be sold through the Company's own distribution network and which can benefit from the Company's manufacturing expertise and financial support; (ii) entering new markets or extending existing markets for specialized valves; and (iii) seeking to acquire foreign companies to penetrate new markets. The Company began implementing its acquisition strategy in 1984 and through September 2, 1994 had completed 28 acquisitions of varying sizes. After it makes an acquisition, the Company participates actively with the management of the acquired business in implementing operating strategies with the objective of enhancing the sales, productivity and operating results. The Company's present acquisition activities began in September 1984 with the purchase of Spence Engineering Company, Inc. of Walden, New York, a manufacturer of steam regulators and control valves. Since then, the Company has also acquired (i) James Jones Company of El Monte, California, a manufacturer of specialty bronze valves and fittings used in underground water service connections (acquired in December 1986); (ii) Ocean B.V., a Netherlands-based producer of check valves and related products for the European market (acquired in December 1987); (iii) KF Industries, Inc. of Oklahoma City, Oklahoma, a manufacturer of high pressure floating and trunnion ball valves and needle valves for the oil and gas industry (acquired in July 1988); (iv) Leslie Controls, Inc. of Tampa, Florida, a manufacturer of control valves, instrumentation, regulators, water heaters and whistles for the naval, marine and industrial steam markets (acquired in July 1989); (v) Nicholson Steam Trap, Inc. of Wilkes-Barre, Pennsylvania, a manufacturer of low pressure condensate traps (acquired in July 1989); (vi) Circle Seal Controls, Inc. of Corona, California, a manufacturer of relief valves, pressure regulators, check valves and other valve products for industrial, commercial aviation and aerospace/military applications (acquired in September 1990); (vii) Watts SFR S.A. of Fressenneville, France, a manufacturer of specialty relief valves, water pressure reducing valves and other specialty valves for the water safety and flow control markets in France and other European countries (acquired in January 1991); (viii) Henry Pratt Company of Aurora, Illinois, a manufacturer of AWWA butterfly valves and other valve products (acquired in September 1991); (ix) Intermes, S.p.A. of Caldaro, Italy, a manufacturer of plumbing and heating valves and controls (acquired in November 1992); (x) Edward Barber Ltd. of Tottenham, England, a manufacturer of valves, meter boxes and accessories for the municipal water market (acquired in May 1993); (xi) Ancon Products, Inc. of Scarborough, Ontario, Canada, a manufacturer of drains and other specialty products (acquired in July 1993); (xii) Tianjin Tanggu Watts Valve Company Limited, a joint venture company formed with Tianjin Tanggu Valve Plant in Tianjin, People's Republic of China, a manufacturer of butterfly, globe and check valves for the water distribution and industrial markets (formed in June 1994); (xiii) Jameco Industries, Inc. of Wyandanch, New York, a manufacturer of metal and plastic water supply products (acquired in July 1994); and (xiv) other smaller companies and product lines. Businesses and product lines acquired from September 1984 through June 30, 1994 collectively, excluding revenues from Jameco Industries, Inc. and Tianjin Tanggu Watts Valve Company Limited, represented more than 60% of the Company's revenues during the fiscal year ended June 30, 1994. Code Compliance Products representing a majority of the Company's sales are subject to regulatory standards and code enforcement which typically require that these products meet stringent performance criteria. Standards are established by such industry test and certification organizations as the American Society of Mechanical Engineers (A.S.M.E.), the American Gas Association (A.G.A.), the American Society of Sanitary Engineers (A.S.S.E.), the University of Southern California (U.S.C.) Foundation for Cross-Connection Control, the International Association of Plumbing and Mechanical Officials (I.A.P.M.O.), Underwriters Laboratories (UL), Factory Mutual (F.M.), American Water Works Association (A.W.W.A.), and the American Petroleum Institute (A.P.I.). These standards are incorporated into state and municipal plumbing and heating, building and fire protection codes. The Company also meets the criteria of the Canadian Standards Association (C.S.A.). The Company also has agency approvals in each of the major European markets in which it participates. These approvals include KIWA in the Netherlands, DVGW in Germany, WRC in the United Kingdom, AFNOR in France, SVGW in Switzerland, UNI in Italy, and ANSEAU in Belgium. The Company has consistently advocated the development and enforcement of performance and safety standards. The Company maintains quality control and testing procedures at each of its manufacturing facilities in order to produce products in compliance with code requirements. Additionally, a majority of the Company's manufacturing subsidiaries have either acquired or are working to acquire ISO 9000, 9001, or 9002 approval. Marketing and Distribution The Company relies primarily on commissioned representative organizations to market its product lines. These organizations, which accounted for approximately 63% of the Company's net sales in the fiscal year ended June 30, 1994, sell primarily to plumbing and heating wholesalers and industrial, steam, and oil and gas distributors for resale to end users. The Company also sells products directly to certain large original equipment manufacturers (OEM's) and private label accounts. OEM's and private label accounts represented approximately 11% of the Company's total sales in the fiscal year ended June 30, 1994. The Company maintains distinct channels of distribution for marketing water service valves, underground service valves, AWWA valves, steam valves, industrial valves, and oil and gas valves in the United States and abroad. Plumbing and Heating and Water Quality Water Service Valves and Products. The Company's water service distribution network for the United States, which distributes water plumbing and heating, water safety and flow control and water quality valves, consists of 84 commissioned representative organizations which sell to over 6,000 plumbing and heating wholesalers. The Company maintains consigned inventories of water service products at many representatives' locations, and each representative carries the entire line of the Company's water service products. Sales of the Company's products generally account for more than one-half of its commissioned representative organizations' total commission income. Jameco Industries, Inc., acquired in July 1994, distributes its products in the United States through retail warehouse chain stores that sell to the do-it-yourself, home repair and remodeling markets. The Company intends to introduce some of its other product lines to this distribution channel. The Company distributes water service valves in Canada through both direct sales personnel and commissioned representative organizations. Municipal Underground Service Valves. The Company markets its underground service valves under the James JonesTM trademark through three direct salesmen, 35 commissioned representatives and 500 water works distributors. AWWA Valves. The Company markets its AWWA butterfly valves as well as ball plug and check valves through the Henry Pratt Company. Henry Pratt has 31 commissioned representatives which sell to distributors as well as a field sales force with 7 offices in the U.S. Additionally, on large construction projects the Company sells directly to end users. Steam Steam Valves. The Company markets its steam valves under the SpenceR trademark through 45 commissioned representative organizations, whose personnel are trained in the sale and technical support of sophisticated steam products. Leslie Controls, Inc. markets its control valves and instrumentation, regulators and waterheaters for the naval, marine and industrial steam markets through 68 commissioned representative organizations. Industrial and Oil and Gas Industrial Valves. The Company's industrial sales organization markets its products through 60 commissioned representative organizations who sell to over 300 industrial distributors. Industrial distributors carry their own inventories and provide local sales and inventory support services to their customers. Oil and Gas Valves. The Company markets its oil and gas valves under the KFTM trademark through 57 commissioned representative organizations and through direct sales personnel. The Company has sales offices in Singapore and Southampton, England for sales to the oil and gas markets in Asia and Europe/Middle East, respectively. The Company's agreements with its commissioned representative organizations typically provide for territorial exclusivity, the payment of percentage commissions and termination by either party on 30 days' notice. No commissioned representative organization, wholesaler or distributor in any of the Company's market areas accounted for as much as 10% of the Company's total net sales in fiscal 1994. The Company maintains an internal staff of sales personnel organized by product line to support the efforts of its commissioned representative organizations. The Company also conducts technical and product application seminars for its customers directly and in cooperation with its commissioned representative organizations. The Company estimates that a substantial portion of its sales are attributable to the normal replacement and repair of valves and systems employing valves. The Company's foreign sales, including exports, in fiscal 1994, 1993, and 1992 were 29%, 23%, and 18%, respectively. The Company's foreign sales other than Canadian sales consist predominantly of sales of plumbing and heating valves, water quality, and municipal water valves in Western Europe. Such sales increased in 1994 as compared to 1993 principally as a result of the inclusion of net sales of Intermes, S.p.A., acquired in November 1992, Edward Barber Company, acquired in May 1993, Ancon Products, Inc., acquired in July 1993, and Enpoco Canada, Ltd., acquired in November 1993. Increased unit shipments of certain product lines also contributed to the Company's increase in foreign sales. Export sales from the United States in the oil and gas market increased because of a strong international market in gas transmission pipeline projects. The increase in export sales in the oil and gas market for fiscal 1994 may not be reflective of future export sales in the oil and gas market because of the cyclical nature of capital intensive projects such as gas transmission pipeline projects. The Company believes that its acquisitions of Intermes, Edward Barber Company, Ocean B.V. in 1987, and the operating subsidiaries of Watts Industries France S.A. in 1991 have strengthened its manufacturing capability and broadened its distribution network in Western Europe. See Note 12 of Notes to Consolidated Financial Statements incorporated by reference in Item 8 for certain information regarding the Company's foreign operations. Tanggu Watts, the Company's joint venture which commenced operations in August 1994, manufactures butterfly, globe and check valves for the water distribution and industrial markets in the People's Republic of China and for export sales to those markets in the United States, Europe, Australia and Southeast Asia. The Company relies predominantly on exclusive distributorship arrangements to distribute its water segment products in foreign countries other than Canada and Europe. The Company established a Singapore sales office in fiscal 1993 and a Southampton, England sales office in fiscal 1994 to service the oil and gas markets in Southeast Asia and Europe/Middle East, respectively. Production The Company has a fully integrated and highly automated manufacturing capability. The Company's machining operations feature over 300 computer-controlled machine tools, high-speed chucking machines and automatic screw machines. The Company's foundry equipment includes metal pouring systems and automatic core making, mold making and pouring capabilities. See "Properties" below. The Company has invested heavily in recent years to expand its manufacturing base and to ensure the availability of the most efficient and productive equipment. Capital expenditures were $19,928,000, $25,798,000, and $18,054,000 for fiscal 1994, 1993, and 1992, respectively. Depreciation and amortization for such periods were $22,393,000, $20,560,000, and $17,630,000, respectively. Two significant raw materials used in the Company's production processes are bronze ingot and brass rod. While the Company historically has not experienced significant difficulties in obtaining these commodities in quantities sufficient for its operations, there have been significant changes in their prices. The Company's gross profit margins are adversely affected to the extent that the selling prices of its products do not increase proportionately with increases in the costs of bronze ingot and brass rod. Any significant unanticipated increase or decrease in the prices of these commodities could materially affect the Company's results of operations. As the sales volume and the diversity of materials used in the Company's production processes have grown, the impact from changes in the cost of these two raw materials has somewhat diminished. In an effort to reduce the effects of such fluctuations, the Company maintains an active materials management program, although no assurances can be given that this will protect the Company from changes in the prices for bronze ingot and brass rod. Product Engineering The Company believes that new product development and product engineering are important to success in the valve industry and that the Company's position in the industry is attributable in significant part to its ability to develop new products and to adapt and enhance existing products. The Company employs over 275 engineers and technicians who engage primarily in these activities. Competition The domestic and international markets for valves are intensely competitive and include companies possessing substantially greater financial, marketing and other resources than the Company. Management considers product reputation, price, effectiveness of distribution and breadth of product line to be the primary competitive factors. Backlog The Company does not believe that its backlog at any point in time is indicative of future operating results. Backlog was $87,938,000 at June 30, 1994 and $77,275,000 at June 30, 1993. Patents and Trademarks The Company owns certain patents and trademarks that it considers to be of importance, including the U.S. patent for its No. 909 backflow preventer, which expires on December 30, 1997. The Company has also secured patents for a backflow prevention device in several foreign countries, including Canada, Germany, France, Italy and Japan. With respect to its trademarks, the Company has adopted and in some cases registered various trademarks, in the United States and certain foreign countries. The principal trademarks of the Company include WATTS(R), WATTS REGULATOR & Design(R), SPENCE(R), HALE(R), LESLIE(R), PRATT(R), OCEAN(TM), JAMES JONES(TM), KF(TM), TARAS(TM), CONTROMATICS(TM), NICHOLSON(TM), FLIPPEN(TM), CIRCLE SEAL(R) and Seal Design(R), and JAMECO and Design(TM). The U.S. registrations of these trademarks have either a ten or twenty year term, depending upon whether or not the registration was issued prior to the effective date of the 1988 amendments to the Trademark Act of 1946, and are renewable if still used in commerce for additional ten year terms. The Company does not believe that its business as a whole is dependent on any one or more patents or trademarks or on patent or trademark protection generally. Employees At September 2, 1994, the Company had approximately 4,850 employees, of whom nearly 3,200 were engaged in production and the balance in management, sales, engineering and administration. The majority of the Company's employees are not covered by a collective bargaining agreement. Employees covered by collective bargaining agreements include 60 employees of Spence Engineering Company, Inc., 103 employees of James Jones Company, 133 employees of Henry Pratt Company, and 290 employees of Jameco Industries, Inc. The Company believes that its employee relations are excellent. Product Liability and Environmental Matters The Company, like other worldwide manufacturing companies, is subject to a variety of potential liabilities connected with its business operations, including potential liabilities and expenses associated with possible product defects or failures and compliance with environmental laws. The Company maintains product liability and other insurance coverage which it believes to be generally in accordance with industry practices. Nonetheless, such insurance coverage may not be adequate to protect the Company fully against substantial damage claims which may arise from product defects and failures. Certain of the Company's operations generate solid and hazardous wastes, which are disposed of elsewhere by arrangement with the owners or operators of disposal sites or with transporters of such waste. The Company's foundry and other operations are subject to various federal, state and local laws and regulations relating to environmental quality. Compliance with these laws and regulations requires the Company to incur expenses and monitor its operations on an on-going basis. The Company cannot predict the effect of future requirements on its capital expenditures, earnings or competitive position due to any changes in either federal, state or local environmental laws, regulations or ordinances. The Company is currently a party to or otherwise involved with various administrative or legal proceedings under federal, state or local environmental laws or regulations involving a number of sites, in some cases as a participant in a group of potentially responsible parties. Four of these sites, the Sharkey and Combe Landfills in New Jersey, the San Gabriel Valley/El Monte, California water basin site, and the Jack's Creek/Sitkin Smelting Superfund Site in Pennsylvania are listed on the National Priorities List. With respect to the Sharkey Landfill, the Company has been allocated .75% of the remediation costs, an amount which is not material to the Company. Based on recent developments, the Company elected not to enter into the de minimis settlement proposal and has instead decided to participate in the remediation as a participating party. No allocations have been made to date with respect to the Combe Landfill and San Gabriel Valley sites. With respect to the Jack's Creek Site, the final volumetric ranking allocated a .30446% share of the total weight to the Company, which the Company believes should entitle it to participate as a de minimis party. In addition to the foregoing, the Solvent Recovery Service of New England site and the Old Southington landfill site, both in Connecticut, are on the National Priorities List but, with respect thereto, the Company has resort to indemnification from third parties and based on currently available information, the Company believes it will be entitled to participate in a de minimis capacity. With respect to the Combe Landfill, the Company is one of approximately 30 potentially responsible parties. The Company and all other PRP's recently received a Supplemental Directive from the New Jersey Department of Environmental Protection & Energy seeking to recover approximately $9 million in the aggregate for the operation, maintenance, and monitoring of the implemented remedial action taken to date in connection with the Combe Landfill North site. Given the number of parties involved in most environmental sites, the multiplicity of possible solutions, the evolving technology and the years of remedial activity required, it is difficult to estimate with certainty the total cost of remediation, the timing and extent of remedial actions which may be required, and the amount of liability, if any, of the Company alone and in relation to other responsible parties. Based on facts presently known to it, the Company does not believe that the outcome of these proceedings will have a material adverse effect on its financial condition, however, with respect to the San Gabriel Valley/El Monte, California, site, the Company is currently unable to estimate the potential exposure because the process of determining the causes and extent of contamination, the cost of remediation and the method to allocate the cost among those ultimately determined to be responsible is in a very early stage. The Company has established balance sheet accruals which it currently believes are adequate in light of the probable and estimable exposure of pending and threatened environmental litigation and proceedings of which it has knowledge. With respect to certain of these matters, the Company has resort either to some degree of insurance coverage or indemnifications from third parties which are expected to defray to some extent the effect thereof. With respect to insurance, coverage of some of these claims has been disputed by the carriers based on standard reservations and, therefore, recovery is questionable, a factor which has been considered in the Company's evaluation of these matters. Although difficult to quantify based on the complexity of the issues and the limitation on available information, the Company believes that its accruals for the estimated costs associated with such matters adequately provide for the Company's estimated foreseeable liability for these sites, however, given the nature and scope of the Company's manufacturing operations, there can be no assurance that the Company will not become subject to other environmental proceedings and liabilities in the future which may be material to the Company. Item 2. PROPERTIES. The Company's manufacturing operations include six casting foundries. Castings from these foundries and other components are machined and assembled into finished valves at 24 manufacturing facilities. The Company maintains finished goods inventory at 29 facilities and ships customers' and commissioned representative organizations' orders from these locations. The Company's properties at September 2, 1994 were as follows:
Approximate Location Square Feet Use - - --------------------------------------------------------------------- Domestic: Franklin, NH 300,000 Machine shop, assembly, testing, warehousing and administration Approximate Location Square Feet Use - - --------------------------------------------------------------------- Franklin, NH 45,000 Bronze sand casting foundry Wyandanch, NY 196,000 Machine shop, assembly, testing, warehousing, and administration Dixon, IL 167,000 Machine shop, assembly, testing and warehousing Tampa, FL 150,000 Machine shop, assembly, testing, warehousing and administration Oklahoma City, OK 150,000 Machine shop, assembly, testing, warehousing and administration Aurora, IL 134,000 Machine shop, assembly, testing, warehousing and administration Spindale, NC 124,000 Machine shop, assembly, testing and warehousing Spindale, NC 36,000 Bronze sand casting foundry Houston, TX 122,000 Machine shop, assembly, testing, warehousing and administration Corona, CA 95,000 Machine shop, assembly, testing, warehousing, repair and administration Walden, NY 78,000 Machine shop, assembly, testing, warehousing and administration Chesnee, SC 70,000 Machine shop, assembly and testing El Monte, CA 57,000 Bronze sand casting foundry, machine shop, assembly, testing, warehousing and administration North Andover, MA 45,000 Corporate headquarters, administration and engineering Approximate Location Square Feet Use - - --------------------------------------------------------------------- Canaan, NH 32,000 Machine shop, assembly and testing Milford, NH 30,000 Machine shop, assembly and testing Fairfield, NJ 16,000 Service and repair Cerritos, CA 13,000 Service, repair and warehousing West Babylon, NY 8,000 Warehousing Canada: Scarborough, Ontario, 56,000 Assembly, warehousing and administration Woodbridge, Ontario, 55,000 Machine shop, assembly, testing, warehousing and administration Burlington, Ontario, 30,000 Machine shop, assembly, testing, warehousing and administration Montreal, Quebec 28,000 Machine shop, assembly, testing, warehousing and administration Europe: Trento, Italy 182,000 Machine shop, assembly, testing, warehousing and administration Caldaro, Italy 106,000 Machine shop, assembly, testing, warehousing and administration Fressenneville, France 93,000 Machine shop, assembly, testing, warehousing, bronze foundry and administration Eerbeek, The 55,000 Machine shop, assembly, Netherlands testing, warehousing and administration Tottenham, England 40,000 Machine shop, assembly, testing, warehousing and administration Approximate Location Square Feet Use - - --------------------------------------------------------------------- Gemmrigheim, Germany 21,000 Warehousing, administration Willesden, England 20,000 Bronze sand casting foundry Barcelona, Spain 16,000 Machine shop, assembly, testing, warehousing and administration Milan, Italy 16,000 Warehousing, administration Lustenau, Austria 12,000 Warehousing, administration Aartrijke, Belgium 5,000 Warehousing, administration Paris, France 2,000 Warehousing, administration Asia: Tianjin, People's 246,000 Machine shop, assembly, Republic of China testing, warehousing, iron foundry and administration
All of these facilities and the related real estate are owned by the Company, except the service centers in Fairfield, New Jersey and Cerritos, California, and the properties in West Babylon, New York; Paris, France; Barcelona, Spain; Aartrijke, Belgium; and Scarborough and Montreal, Canada. The buildings and facilities located in Tianjin, People's Republic of China are leased by Tianjin Tanggu Watts Valve Company Limited under a 30-year lease agreement. All other lease terms expire before 1997. Certain of these facilities are subject to mortgages and collateral assignments under loan agreements with long- term lenders. In general, the Company believes that its properties, including machinery, tools and equipment, are in good condition, well maintained, adequate and suitable for their intended uses. The Company believes that the manufacturing facilities are currently operating at a level that management considers normal capacity. This utilization is subject to change as a result of increases or decreases in sales. All information appearing in this Item 2 is as of September 2, 1994, except as otherwise specified. Item 3. LEGAL PROCEEDINGS. Item 3(a). The Company is from time to time involved in various legal and administrative procedures. See "Business-Product Liability and Environmental Matters". Item 3(b). None. Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. There were no matters submitted during the fourth quarter of the fiscal year covered by this report to a vote of security holders through solicitation of proxies or otherwise. PART II Item 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. Market Information The Class A Common Stock of the Company has been traded in the over-the-counter market and reported on the National Market System of the National Association of Securities Dealers Automated Quotation ("NASDAQ") System since its initial public offering in August 1986. The following tabulation sets forth the high and low sales prices of the Company's Class A Common Stock on the over-the-counter market as reported by the National Market System of NASDAQ for the periods indicated:
Market Prices ________________________________________ Fiscal Year Ended Fiscal Year Ended June 30, 1994 June 30, 1993 Fiscal Quarters High Low High Low First $22 1/16 $17 1/8 $24 1/2 $22 Second 25 1/4 21 1/4 25 1/8 22 Third 28 5/8 23 1/2 24 1/4 19 1/2 Fourth 27 22 1/4 20 5/8 17 11/16
There is no established public trading market for the Class B Common Stock of the Company, which is held exclusively by members of the Horne family and management. The principal holders of such stock are subject to restrictions on transfer with respect to their shares. Each share of Class B Common Stock of the Company is convertible into one share of Class A Common Stock. All share prices shown reflect a two-for-one stock split of the Company's Common Stock effected by means of a stock dividend payable on March 15, 1994 (the "Stock Split"). Holders The number of record holders of the Company's Class A Common Stock as of September 2, 1994 was 295. The Company believes that the number of beneficial shareholders of the Company's Class A Common Stock was in excess of 4,500 as of September 2, 1994. The number of record holders of the Company's Class B Common Stock as of September 2, 1994 was 11. Each share of Class B Common Stock is entitled to ten votes per share and each share of Class A Common Stock is entitled to one vote per share. As of September 2, 1994, shares of Class B Common Stock representing approximately 77.0% of the Company's outstanding voting power were held under a voting trust for which Timothy P. Horne, Chairman of the Board, President and Chief Executive Officer of the Company, and Frederic B. Horne, Corporate Vice President of the Company, serve as trustees. The voting trust requires concurrence of the two trustees with respect to votes involving the election of Directors of the Company and gives Timothy P. Horne the ultimate ability to vote shares held in the voting trust in connection with other matters submitted to shareholders. See Item 12. Dividends The following tabulation sets forth the cash dividends paid by the Company for the periods indicated:
Fiscal Quarter Fiscal Year _______________________________________ Ended June 30 First Second Third Fourth Total 1993 .035 .035 .045 .045 .16 1994 .045 .045 .055 .055 .20
Aggregate common stock dividend payments for fiscal 1994, 1993, and 1992 were $5,884,000, $4,785,000, and $3,637,000, respectively. While the Company presently intends to continue to pay cash dividends, payment of future dividends necessarily depends upon the Board of Directors' assessment of the Company's earnings, financial condition, capital requirements and other factors. All cash dividends shown reflect the Stock Split. Item 6. SELECTED FINANCIAL DATA. The following items included in the Fifteen Year Financial Summary on pages 26 and 27 of the Annual Report to Stockholders for the fiscal year ended June 30, 1994 are incorporated herein by reference: Operating Data - Net sales - Net earnings Investment Data - Total assets - Capital employed: Total debt Per Share Data - Net earnings - Fully diluted - Common cash dividends Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. The information set forth in "Management's Discussion and Analysis of Financial Condition and Results of Operations" on pages 22 through 25 of the Annual Report to Stockholders for the fiscal year ended June 30, 1994 is incorporated herein by reference. Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. The consolidated financial statements of the Company set forth on pages 10 through 21 of the Annual Report to Stockholders for the fiscal year ended June 30, 1994 are incorporated herein by reference. Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. PART III Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. The information appearing under the caption "Information as to Nominees for Director" in the registrant's definitive proxy statement dated September 14, 1994 relating to the Annual Meeting of Stockholders to be held on October 18, 1994 is incorporated herein by reference. The executive officers of the Company are as follows:
Name Position Age Timothy P. Horne Chairman of the Board, President 56 and Chief Executive Officer and Director David A. Bloss, Sr. Executive Vice President and 44 Director Frederic B. Horne Corporate Vice President and 44 Director Kenneth J. McAvoy Vice President of Finance, Chief 54 Financial Officer, Treasurer, Executive Vice President of European Operations, Secretary and Director Robert T. McLaurin Corporate Vice President of 63 Asian Operations Michael O. Fifer Vice President of Corporate 37 Development William C. McCartney Corporate Controller 40 Suzanne M. Zabitchuck Corporate Counsel and 39 Assistant Secretary
Timothy P. Horne joined the Company in September 1959 and has been a Director since 1962. Mr. Horne served as the Company's President from 1976 to 1978 and as President and Chief Executive Officer from 1978 to April 1986. In April 1986, Mr. Horne became the Company's Chairman of the Board and Chief Executive Officer. Mr. Horne became the Company's President in January 1994. David A. Bloss, Sr., joined the Company as Executive Vice President in July 1993 and has been a Director since January 1994. Prior to joining the Company, Mr. Bloss was for five years associated with the Norton Company, a manufacturer of abrasives and cutting tools, serving most recently as President of the Superabrasives Division. He also spent seven years with Cooper Industries. Frederic B. Horne, brother of Timothy P. Horne, has been Corporate Vice President of the Company since August 1987 and a Director since 1980. Mr. Horne served as the Company's Vice President and General Manager from 1978 to August 1987. He joined the Company in 1973. Kenneth J. McAvoy has been Vice President of Finance since 1984 and Chief Financial Officer and Treasurer since June 1986, and has been been a Director since January 1994. Mr. McAvoy was also appointed Executive Vice President of European Operations in January 1994. Mr. McAvoy has also served as Secretary or Clerk since January 1985. He joined the Company in 1981 as Corporate Controller. Robert T. McLaurin was appointed Corporate Vice President of Asian Operations in August 1994. He served as the Senior Vice President of Manufacturing of Watts Regulator Co. from 1983 to August 1994. He joined Watts Regulator Company as Vice President of Manufacturing in 1978. Michael O. Fifer joined the Company in May 1994 and was appointed the Company's Vice President, Corporate Development. Prior to joining the Company, Mr. Fifer was Associate Director of Corporate Development with Dynatech Corp., a diversified high-tech manufacturer, from 1991 to April 1994. Mr. Fifer also served as President of PYSB, Inc., a manufacturer of resin-composite transportation products from 1990 to 1991. William C. McCartney has been Corporate Controller of the Company since April 1988. He joined the Company in 1985 as Controller. Prior to that time he was for four years subsidiary Controller for Gould Electronics, Inc., a manufacturer of factory automation equipment. Suzanne M. Zabitchuck has been Corporate Counsel of the Company since joining the Company in December 1992. Ms. Zabitchuck was appointed Assistant Secretary in August 1993. Prior to joining the Company, she was associated with The Stride Rite Corporation, a shoe manufacturer, serving most recently as Associate General Counsel and Clerk. Item 11. EXECUTIVE COMPENSATION. The information appearing under the caption "Compensation Arrangements" in the registrant's definitive proxy statement dated September 14, 1994 relating to the Annual Meeting of Stockholders to be held on October 18, 1994 is incorporated herein by reference. Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. The information appearing under the caption "Principal and Management Stockholders" in the registrant's definitive proxy statement dated September 14, 1994 relating to the Annual Meeting of Stockholders to be held on October 18, 1994 is incorporated herein by reference. Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. The information appearing under the caption "Compensation Arrangements-Certain Transactions" in the registrant's definitive proxy statement dated September 14, 1994 relating to the Annual Meeting of Stockholders to be held on October 18, 1994 is incorporated herein by reference. PART IV Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K. (a)(1) Financial Statements The response to this portion of Item 14 is submitted as a separate section of this Annual Report. (a)(2) Schedules The response to this portion of Item 14 is submitted as a separate section of this Annual Report. (a)(3) Exhibits Exhibits 10.1 - 10.6, 10.8 and 10.24 constitute all of the management contracts and compensation plans and arrangements of the Company required to be filed as exhibits to this Annual Report.
Exhibit No. Description 3.1 Restated Certificate of Incorporation, as amended.(1) 3.2 Amended and Restated By-Laws. (2) 9.1 Horne Family Voting Trust Agreement-1991 dated as of October 31, 1991. (3) 10.1 Employment Agreement dated as of May 1, 1993 between the Registrant and Timothy P. Horne. (13) 10.2 Supplemental Compensation Agreement dated as of May 1, 1993 between the Registrant and Timothy P. Horne. (13) 10.3 Deferred Compensation Agreement between the Registrant and Timothy P. Horne, as amended. (5) 10.4 1986 Incentive Stock Option Plan, as amended, including form of Option Agreement. (4) 10.5 1989 Nonqualified Stock Option Plan, including form of Option Agreement. (4) 10.6 Retirement Plan for Salaried Employees, as amended. (6) 10.7 Registration Rights Agreement dated as of July 25, 1986. (7) 10.8 Executive Incentive Bonus Plan. (13) 10.9 Indenture dated as of December 1, 1991 between the Registrant and The First National Bank of Boston, as Trustee, including form of 8-3/8% Note Due 2003. (10) 10.10 Loan Agreement and Mortgage among The Industrial Development Authority of the State of New Hampshire, Watts Regulator Co. and Arlington Trust Company dated as of August 1, 1985. (5) 10.11 Amendment Agreement relating to Watts Regulator Co. (Canaan and Franklin, New Hampshire, facilities) financing dated as of December 31, 1985. (5) 10.12 Sale Agreement between Village of Walden Industrial Development Agency and Spence Engineering Company, Inc. dated as of June 1, 1994. * 10.13 Letter of Credit, Reimbursement and Guaranty Agreement dated June 1, 1994 by and among the Registrant, Spence Engineering Company, Inc. and First Union National Bank of North Carolina. * 10.14 Trust Indenture from Village of Walden Industrial Development Agency to the First National Bank of Boston, as Trustee, dated as of June 1, 1994. * 10.15 Loan Agreement between Hillsborough County Industrial Development Authority and Leslie Controls, Inc. dated as of July 1, 1994. * 10.16 Letter of Credit, Reimbursement and Guaranty Agreement dated July 1, 1994 by and among the Registrant, Leslie Controls, Inc. and First Union National Bank of North Carolina. * 10.17 Trust Indenture from Hillsborough County Industrial Development Authority to the First National Bank of Boston, as Trustee, dated as of July 1, 1994.* 10.18 Bond Purchase Agreement among The Rutherford County Industrial Facilities and Pollution Control Financing Authority, Northwestern Bank and Regtrol, Inc. dated as of October 1, 1984. (5) 10.19 Loan Agreement between The Rutherford County Industrial Facilities and Pollution Control Financing Authority and Regtrol, Inc. dated as of October 1, 1984. (5) 10.20 Agreement as to Financial Covenants between Northwestern Bank and Watts Regulator Co. dated as of October 1, 1984. (5) 10.21 Guaranty Agreement from Watts Regulator Co. to Northwestern Bank dated as of October 1, 1984. (5) 10.22 Amendment Agreement relating to Regtrol, Inc. financing dated as of January 1, 1986. (5) 10.23 Amended and Restated Stock Restriction Agreement dated as of October 30, 1991. (3) 10.24 Watts Industries, Inc. 1991 Non-Employee Directors' Nonqualified Stock Option Plan. (9) 10.25 Letters of Credit relating to retrospective paid loss insurance programs. (13) 10.26 Form of Master Agreement, dated as of April 15, 1986, relating to interest rate swap transaction and forms of related Rate Swap Agreements. (7) 10.27 Form of Stock Restriction Agreement for management stockholders. (7) 10.28 Revolving Credit Agreement dated December 23, 1987 between Nederlandse Creditbank NV and Watts Regulator (Nederland) B.V. and related Guaranty of Watts Industries, Inc. and Watts Regulator Co. dated December 14, 1987. (8) 10.29 Loan Agreement dated September 1987 with, and related Mortgage to, N.V. Sallandsche Bank. (8) 10.30 Agreement and Plan of Merger dated as of August 22, 1991 relating to the acquisition by the Registrant of Henry Pratt Company. (11) 10.31 Agreement of the sale of shares of Intermes, S.p.A., RIAF Holding A.G. and the participations in Multiscope Due S.R.L. dated as of November 6, 1992. (12) 10.32 Revolving Credit Agreement dated August 30, 1994 between and among Watts Investment Company, certain financial institutions, the First National Bank of Boston, as Agent, and the Registrant, as Guarantor. * 11 Statement Regarding Computation of Earnings per Common Share. + 13 1994 Annual Report to Stockholders. * (This Report, except for those portions thereof which are expressly incorporated by reference into this Report on Form 10-K, is not to be deemed "filed" with the Securities and Exchange Commission.) 21 Subsidiaries. * 23.1 Consent of Ernst & Young, Independent Auditors. + 23.2 Consent of Deloitte & Touche, Independent Auditors. + 27 Financial Data Schedule. * (1) Incorporated by reference to the relevant exhibit to the Registrant's Registration Statement on Form S-3 (No. 33-43983) filed with the Securities and Exchange Commission on November 15, 1991. (2) Incorporated by reference to the relevant exhibit to the Registrant's Current Report on Form 8-K filed with the Securities and Exchange Commission on May 15, 1992. (3) Incorporated by reference to the relevant exhibit to the Registrant's Current Report on Form 8-K filed with the Securities and Exchange Commission on November 14, 1991. (4) Incorporated by reference to the relevant exhibit to the Registrant's Annual Report on Form 10-K filed with the Securities and Exchange Commission on September 28, 1989. (5) Incorporated by reference to the relevant exhibit to the Registrant's Registration Statement on Form S-1 (No. 33-6515) filed with the Securities and Exchange Commission on June 17, 1986. (6) Incorporated by reference to the relevant exhibit to the Registrant's Registration Statement on Form S-1 (No. 33-6515) filed with the Securities and Exchange Commission as part of the First Amendment to such Registration Statement on July 30, 1986. (7) Incorporated by reference to the relevant exhibit to the Registrant's Registration Statement on Form S-1 (No. 33-6515) filed with the Securities and Exchange Commission as part of the Second Amendment to such Registration Statement on August 21, 1986. (8) Incorporated by reference to the relevant exhibit to the Registrant's Registration Statement on Form S-1 (No. 33-27101) filed with the Securities and Exchange Commission on February 16, 1989. (9) Incorporated by reference to the relevant exhibit to the Registrant's Amendment No. 1 to Form 10-K for fiscal 1992 filed with the Securities nd Exchange Commission on March 11, 1993. (10) Incorporated by reference to the relevant exhibit to the Registrant's Annual Report on Form 10-K filed with the Securities and Exchange Commission on September 16, 1992. (11) Incorporated by reference to Exhibit 10.33 to the Registrant's Annual Report on Form 10-K filed with the Securities and Exchange Commission on September 24, 1991. (12) Incorporated by reference to the relevant exhibit to the Registrant's Amendment No. 2 to Form 8-K dated November 6, 1992 filed with the Securities and Exchange Commission on February 22, 1993. (13) Incorporated by reference to the relevant exhibit to the Registrant's Annual Report on Form 10-K filed with the Securities and Exchange Commission on September 24, 1993. * Filed herewith. + Filed herewith as a separate section of this report. (b) Reports on Form 8-K. The Registrant did not file any reports on Form 8-K during the last quarter of the period covered by this Annual Report. (c) Exhibits. The response to this portion of Item 14 is submitted as a separate section of this Annual Report. (d) Financial Statement Schedules. The response to this portion of Item 14 is submitted as a separate section of this Annual Report.
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. WATTS INDUSTRIES, INC. /S/ Timothy P. Horne By: --------------------------- Timothy P. Horne Chairman of the Board, President, and Chief Executive Officer DATED: September 23, 1994 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 and on the dates indicated.
Signature Title Date /S/ Timothy P. Horne - - -------------------- Chairman of the Board, September 23, 1994 Timothy P. Horne President and Chief Executive Officer (Principal Executive Officer) and Director /S/ Kenneth J. McAvoy - - -------------------- Vice President of Finance September 23, 1994 Kenneth J. McAvoy and Treasurer (Principal Financial and Accounting Officer), Secretary, and Director /S/ David A. Bloss, Sr. - - --------------------- Executive Vice President and September 23, 1994 David A. Bloss, Sr. Director /S/ Frederic B. Horne - - --------------------- Corporate Vice President and September 23, 1994 Frederic B. Horne Director /S/ Noah T. Herndon - - --------------------- Director September 23, 1994 Noah T. Herndon /S/ Wendy E. Lane - - --------------------- Director September 23, 1994 Wendy E. Lane /S/ Gordon W. Moran - - --------------------- Director September 23, 1994 Gordon W. Moran /S/ Daniel J. Murphy, III - - --------------------- Director September 23, 1994 Daniel J. Murphy, III
ANNUAL REPORT ON FORM 10-K ITEM 14(a)(1) and (2), (c) and (d) LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES CERTAIN EXHIBITS FINANCIAL STATEMENT SCHEDULES YEAR ENDED JUNE 30, 1994 WATTS INDUSTRIES, INC. NORTH ANDOVER, MASSACHUSETTS FORM 10-K--ITEM 14(a)(1) AND (2) WATTS INDUSTRIES, INC. AND SUBSIDIARIES LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES The following consolidated financial statements of Watts Industries, Inc. and subsidiaries, included in the annual report of the registrant to its shareholders for the year ended June 30, 1994, are incorporated by reference in Item 8: Consolidated balance sheets--June 30, 1994 and 1993 Statements of consolidated earnings--Years ended June 30, 1994, 1993 and 1992 Statements of consolidated stockholders' equity--Years ended June 30, 1994, 1993 and 1992 Statements of consolidated cash flows--Years ended June 30, 1994, 1993 and 1992 Notes to consolidated financial statements--June 30, 1994 The following consolidated financial statement schedules of Watts Industries, Inc. and subsidiaries are included in Item 14(d): Schedule I--Marketable Securities--Other Investments Schedule II--Amounts Receivable from Related Parties and Underwriters, Promoters and Employees Other than Related Parties Schedule V--Property, Plant and Equipment Schedule VI--Accumulated Depreciation, Depletion and Amortization of Property, Plant and Equipment Schedule VIII--Valuation and Qualifying Accounts Schedule X--Supplementary Income Statement Information All other schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are not required under the related instructions or are inapplicable and, therefore, have been omitted. Supplemental Reports of Independent Auditors Schedule I-Marketable Securities--Other Investments Watts Industries, Inc. and Subsidiaries June 30, 1994 (Dollar amounts in thousands)
Column A Column B Column C Column D Column E Amount at Which Number of Each Portfolio of Shares or Units- Equity Security Principal Market Value Issues and Each Amounts of of Each Issue at Other Security Bonds and Cost of Each Balance Sheet Issue Carried in Name of Issuer and Title of Each Issue Notes Issue Date the Balance Sheet Maturity Date/ Municipal Bonds Rate Putable Date Atlantic Highlands NJ 7.20% 1/01/06 $ 55 $ 58 $ 57 $ 57 Colorado Hsg Fin Put 4.00 8/01/94 565 573 566 566 Duplin Cnty Ctf Partn 2.75 8/01/94 250 250 250 250 Hillsborough Cnty Fl Util 4.70 8/01/94 875 892 877 877 Indiana St Toll 9.40 7/01/05 1,000 1,083 1,076 1,076 Maricopa County Ariz Sch Dist 3.38 7/29/17 1,500 1,511 1,501 1,501 Massachusetts Whsl 13.00 7/01/18 300 335 322 322 Metropolitan Trans Auth 9.88 7/01/15 125 129 128 128 Michigan St Bldg Auth Rev 3.00 4/01/99 1,865 1,874 1,872 1,872 New York City Mun Water Fin A 9.25 6/15/15 500 543 540 540 New York City Ut Series B 10.88 11/15/14 125 138 143 143 New York St Energy Resh 3.00 12/01/14 500 501 501 501 New York St Med Care Facs 9.75 1/15/25 340 372 359 359 New York St Power Auth Rev 10.38 1/01/16 355 392 369 369 Phoenix Ariz Civic Put 7.00 7/01/27 100 104 100 100 Pueblo County Colo 5.00 12/01/94 100 101 101 101 Puerto Rico Hsg Bk & Fin AG 7.13 12/01/04 100 107 105 105 Santa Ana Calif Cnty Redev 2.75 9/01/94 520 520 520 520 Student Loan Funding Put 3.70 12/01/01 1,500 1,505 1,500 1,500 Triborough Bridge & Tunnel NY 6.45 1/01/95 200 208 204 204 Triborough Bridge & Tunnel NY 9.00 1/01/11 200 216 215 215 Total Municipal Bonds 11,412 11,306 11,306
Schedule I-Marketable Securities--Other Investments (continued) Watts Industries, Inc. and Subsidiaries June 30, 1994 (Dollar amounts in thousands)
Column A Column B Column C Column D Column E Amount at Which Number of Each Portfolio of Shares or Units- Equity Security Principal Market Value Issues and Each Amounts of of Each Issue at Other Security Bonds and Cost of Each Balance Sheet Issue Carried in Name of Issuer and Title of Each Issue Notes Issue Date the Balance Sheet Maturity Date/ U.S. Government Obligations Rate Putable Date U.S. Treasury Note 3.88% 2/28/95 $ 2,000 $ 2,006 $ 2,006 $ 2,006 U.S. Treasury Note 3.88 3/31/95 1,000 1,004 1,004 1,004 Total U.S. Government Obligations 3,010 3,010 3,010 Corporate Obligations AMEX Credit Corp 5.95% 1/27/95 1,000 1,027 1,010 1,010 American General Corp 9.50 12/15/94 1,000 1,076 1,017 1,017 Atlantic Richfield Co 8.65 3/31/95 1,000 1,068 1,034 1,034 Beneficial Corp 9.55 5/26/95 1,000 1,076 1,047 1,047 Commercial Credit Group 6.95 10/01/94 1,000 1,040 1,007 1,007 Dillard Dept Stores 9.63 5/15/95 1,000 1,083 1,047 1,047 First Chicago Corp 8.88 9/15/94 1,000 1,065 1,010 1,010 Ford Motor Credit Co 9.75 11/04/94 1,000 1,081 1,019 1,019 General Electric Co 5.88 12/01/94 1,000 1,024 1,007 1,007 JP Morgan and Co Inc 8.88 8/01/94 1,000 533 502 502 Pactel Capital 8.95 6/20/95 1,000 1,068 1,044 1,044 Pennsylvania Electric Co Resources GTD 8.50 11/01/94 1,000 1,064 1,015 1,015 Philip Morris Cos Inc 9.10 11/14/95 1,000 1,039 1,036 1,036 Total Corporate Obligations 13,244 12,795 12,795
Schedule I-Marketable Securities--Other Investments (continued) Watts Industries, Inc. and Subsidiaries June 30, 1994 (Dollar amounts in thousands)
Column A Column B Column C Column D Column E Amount at Which Number of Each Portfolio of Shares or Units- Equity Security Principal Market Value Issues and Each Amounts of of Each Issue Other Security Bonds and Cost of Each at Balance Issue Carried in Name of Issuer and Title of Each Issue Notes Issue Sheet Date the Balance Sheet Maturity Date/ Commercial Paper Rate Putable Date Associates Corp of NA 4.30% 7/06/94 $ 255 $ 254 $ 254 $ 254 Florida Power and Light 4.24 7/15/94 4,991 4,991 4,991 4,991 Household Fin Corp 4.20 7/06/94 100 100 100 100 Pennsylvania Power and Light 4.24 7/15/94 1,497 1,497 1,497 1,497 Total Commercial Paper 6,842 6,842 6,842 Money Market and Mutual Funds (In thousands) Units Alliance Capital Reserves 30 30 30 30 Laurel Funds Inc Govt MMII 12,860 12,860 12,860 12,860 Laurel Funds Inc Prime II 76 76 76 76 First Union Treasury MMF 341 341 341 341 Lehman Prime MMF 7,058 7,058 7,058 7,058 Lehman Govt Obligations MMF 4,348 4,348 4,348 4,348 Merrill Lynch Institutional MMF 103 103 103 103 Total Money Market and Mutual Funds 24,816 24,816 24,816 Total short-term investments $59,324 $58,769 $58,769
Schedule II-Amounts Receivable from Related Parties and Underwriters, Promoters and Employees Other than Related Parties Watts Industries, Inc. and Subsidiaries (Dollar amounts in thousands)
Column A Column B Column C Column D Column E Deductions Balance at End of Period Balance at Beginning of Name of Debtor Period Additions Amounts Collected Amounts Written Off Current Not Current Year ended June 30, 1994: Charles W. Grigg, Noninterest-bearing note receivable due upon sale of certain common stock of Company $222 $185 $407 (1) Year ended June 30, 1993: Charles W. Grigg, Noninterest-bearing note receivable, due upon sale of certain common stock of Company 120 102 $222 Year ended June 30, 1992: Charles W. Grigg, Noninterest-bearing note receivable, due upon sale of certain common stock of Company 120 $120 (1) Amount collected represents the sale of 7,200 shares of Class A Common Stock to the Company at $48.50 per share and a cash remittance of $57,800.
Schedule V-Property, Plant and Equipment Watts Industries, Inc. and Subsidiaries (Dollar amounts in thousands)
Column A Column B Column C Column D Column E Column F Balance at Beginning Other Changes--Add Balance at End of Classification of Period Additions at Cost(2) Retirements (Deduct)--Describe(1) Period Year ended June 30, 1994: Land $ 11,247 $ 34 $ (18) $ 11,263 Buildings and improvements 59,951 2,250 78 62,279 Machinery and equipment 142,384 10,050(4) $9,070 6,288 149,652 Construction in progress (5) 4,665 8,657 (6,141) 7,181 Totals $218,247 $20,991 $9,070 $ 207 $230,375 Year ended June 30, 1993: Land $ 8,114 $ 1,842 $ 1,291 $ 11,247 Buildings and improvements 38,494 17,342(4) 4,115 59,951 Machinery and equipment 121,258 13,727(4) $2,374 9,773 142,384 Construction in progress (5) 6,674 14,319(4) (16,328) 4,665 Totals $174,540 $47,230 $2,374 $ (1,149) $218,247 Year ended June 30, 1992: Land $ 7,899 $ 256 $ 25 $ (16) $ 8,114 Buildings and improvements 34,556 3,676 358 620 38,494 Machinery and equipment 100,969 18,244(4) 656 2,701 121,258 Construction in progress (5) 1,625 7,205(4) (2,156) 6,674 Totals $145,049 $29,381 $1,039 $ 1,149 $174,540 (1) Adjustment due to the effect of exchange ate changes on translating property, plant and equipment of foreign subsidiaries in accordance with FASB Statement No. 52, "Foreign Currency Translation." (2) Includes $1,063,000 in 1994, $21,432,000 in 1993 and $11,327,000 in 1992 of assets of acquired businesses. (3) The annual provisions for depreciation have been computed using the straight-line method in accordance with the following range of percentages: Buildings and improvements 2.5% to 10% Machinery and equipment 6.7% to 33.3% (4) Includes acquisition cost of machinery and assembly centers in: Year Location 1994 Ontario, Canada 1993 Caldero and Trento, Italy and Tottonham, England 1992 Dixon and Aurora, Illinois (5) Certain capital projects are recorded in construction in progress and allocated to machinery and equipment and buildings and improvements when placed into service.
Schedule VI-Accumulated Depreciation, Depletion and Amortization of Property, Plant and Equipment Watts Industries, Inc. and Subsidiaries (Dollar amounts in thousands)
Column A Column B Column C Column D Column E Column F Additions Charged Balance at Beginning to Cost and Other Changes--Add Balance at End of Description of Period Expenses Retirements (Deduct)--Describe(1) Period Year ended June 30, 1994: Buildings and improvements $ 7,555 $ 914 $ 9 $ 8,478 Machinery and equipment 76,431 17,789 $8,660 88 85,648 Totals $83,986 $18,703 $8,660 $ 97 $ 94,126 Year ended June 30, 1993: Buildings and improvements $ 6,406 $ 1,192 $ (43) $ 7,555 Machinery and equipment 62,761 15,679 $1,571 (438) 76,431 Totals $69,167 $16,871 $1,571 $(481) $83,986 Year ended June 30, 1992: Buildings and improvements $ 5,689 $ 723 $ 25 $ 19 $ 6,406 Machinery and equipment 49,051 13,977 442 175 62,761 Totals $54,740 $14,700 $ 467 $ 194 $69,167 (1) Adjustment due to the effect of exchange rate changes on translating property, plant and equipment of foreign subsidiaries in accordance with FASB Statement No. 52, "Foreign Currency Translation."
Schedule VIII-Valuation and Qualifying Accounts Watts Industries, Inc. and Subsidiaries (Dollar amounts in thousands)
Column A Column B Column C Column D Column E Deductions Balance at Beginning of Charged to Costs Charged to Other Deductions-- Balance at End of Description Period and Expenses Accounts--Describe Describe(1) Period Year ended June 30, 1994: Deducted from asset account: Allowance for doubtful accounts $3,565 $1,726 $137 (2) $ 940 $4,488 Year ended June 30, 1993: Deducted from asset account: Allowance for doubtful accounts $2,586 $1,460 $808 (2) $1,289 $3,565 Year ended June 30, 1992: Deducted from asset account: Allowance for doubtful accounts $1,642 $1,393 $264 (2) $ 713 $2,586 (1) Uncollectible accounts written off, net of recoveries. (2) Balance acquired in connection with acquisition of Ancon, Inc. in 1994, Intermes in 1993 and Henry Pratt Company and Contromatics, Inc. in 1992.
Schedule X-Supplementary Income Statement Information Watts Industries, Inc. and Subsidiaries (Amounts in thousands)
Column A Column B Item Charged to Costs and Expenses Fiscal year ended June 30 1994 1993 1992 ---- ---- ---- Maintenance and repairs $5,400 $5,265 $5,541 Depreciation and amortization of intangible assets (1) Taxes, other than payroll and income taxes (1) Royalties (1) Advertising costs (1) (1) Amounts for these expenses are not presented as such amounts are less than 1% of total sales and revenues.
Exhibit 11 Computation of Net Earnings Per Common Share Watts Industries, Inc. (Amounts in thousands, except per share information)
Fiscal year ended June 30 1994 1993 1992 Primary Average shares outstanding: Class A Common Stock, par value $.10 17,969 18,404 16,516 Class B Common Stock, par value $.10 11,488 11,490 11,512 Net effect of dilutive stock options--based upon treasury stock method using average market price 217 196 298 Total 29,674 30,090 28,326 Earnings before cumulative effect of change in accounting $41,010 $30,406 $36,625 Cumulative effect of change in accounting (3,132) Net earnings $41,010 $27,274 $36,625 Earnings per Common Share: Earnings before cumulative effect of change in accounting $ 1.38 $ 1.01 $ 1.29 Cumulative effect of change in accounting (.10) Net earnings $ 1.38 $ .91 $ 1.29
Exhibit 11 Computation of Net Earnings Per Common Share (continued) Watts Industries, Inc. (Amounts in thousands, except per share information)
Fiscal year ended June 30 1994 1993 1992 Fully Diluted Average shares outstanding: Class A Common Stock, par value $.10 17,969 18,404 16,516 Class B Common Stock, par value $.10 11,488 11,490 11,512 Net effect of dilutive stock options--based upon treasury stock method using ending market price, if higher than average market price 260 204 298 Assumed conversion of 7 3/4% convertible subordinated debentures 1,754 Total 29,717 30,098 30,080 Earnings before cumulative effect of change in accounting $41,010 $30,406 $36,625 Cumulative effect of change in accounting (3,132) Add 7 3/4% convertible subordinated debentures interest, net of income tax effect 1,459 $41,010 $27,274 $38,084 Earnings per Common Share: Earnings before cumulative effect of change in accounting $ 1.38 $ 1.01 $ 1.27 Cumulative effect of change in accounting (.10) Net earnings $ 1.38 $ .91 $ 1.27 All share and per share information have been restated for all periods presented above to reflect the stock split effected in March 1994 as discussed in Note 7 to the Consolidated Financial Statements.
Exhibit 23.1--Consent of Independent Auditors We consent to the incorporation by reference in this Annual Report (Form 10-K) of Watts Industries, Inc. of our report dated August 5, 1994, included in the 1994 Annual Report to Shareholders of Watts Industries, Inc. Our audits also included the financial statements schedules of Watts Industries, Inc. listed in Item 14(a). These schedules are the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. We did not audit the financial statements of Watts Industries Europe B.V., a consolidated subsidiary, which statements reflect total assets of $107,729,000 and $100,219,000 at June 30, 1994 and 1993 and total revenues of $79,709,000 and $57,645,000 for the years then ended. We have been furnished with the report of Deloitte & Touche with respect to Schedules V, VI, VIII and X of Watts Industries Europe B.V. In our opinion, based on our audits and the report of other auditors, the financial statement schedules referred to above, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly in all material respects the information set therein. We also consent to the incorporation by reference in the Registration Statements (Post-Effective Amendment No. 1 to Form S-8 No. 33-30377) pertaining to the 1986 Incentive Stock Option Plan and (Form S-8 No. 33-37926) pertaining to the Nonqualified Stock Option Plan of Watts Industries, Inc. and in the related Prospectuses of our report dated August 5, 1994, with respect to the consolidated financial statements incorporated herein by reference, and our report included in the preceding paragraph with respect to the financial statement schedules included in this Annual Report (Form 10-K) of Watts Industries, Inc. ERNST & YOUNG Boston, Massachusetts September 19, 1994 Independent Auditor's Report Board of Directors Watts Industries Europe B.V. We have audited the accompanying financial statements including the consolidated/combined financial statements of Watts Industries Europe B.V. at Eerbeek for the fiscal years ended June 30, 1994 and 1993 (not separately presented herein) expressed in Dutch Guilders. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the Netherlands and the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatements. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated/combined financial statements referred to above present fairly, in all material respects, the consolidated/combined financial position of Watts Industries Europe B.V. at June 30, 1994 and 1993 and the results of their operations in the fiscal years then ended in conformity with generally accepted accounting principles in The Netherlands. Generally accepted accounting principles in The Netherlands vary in certain significant respects from generally accepted accounting principles in the United States. The application of the latter would have affected the determination of consolidated/combined net earnings in the years ended June 30, 1994 and 1993 and the determination of stockholders' equity at June 30, 1994 and 1993 to the extent summarized in Note G. Leiden, The Netherlands, August 5, 1994 Deloitte & Touche Registeraccountants (signature) P.C. Spaargaren RA Report of Independent Auditors Board of Directors Watts Industries, Inc. We have audited the financial statements including the consolidated/combined financial statements of Watts Industries Europe B.V., a wholly owned subsidiary of Watts Industries, Inc., as of June 30, 1994 and 1993 and for the years then ended and have issued our report thereon dated August 5, 1994. Our audits also included financial statement schedules V, VI, VIII and X of Watts Industries Europe B.V. (not presented separately herein) which are included in the related schedules of Watts Industries, Inc. in Form 10-K. These financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, the financial statement schedules of Watts Industries Europe B.V. referred to above, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein. Leiden, The Netherlands, August 5, 1994 Deloitte & Touche Registeraccountants (signature) P.C. Spaargaren RA Exhibit 23.2-- Consent of Independent Auditors We consent to the incorporation by reference in the Registration Statements (Post-Effective Amendment No. 1 to Form S-8 No. 33-30377) pertaining to the 1986 Incentive Stock Option Plan and Form S-8 (No. 33-37926) pertaining to the Nonqualified Stock Option Plan of Watts Industries Inc. and in the related Prospectuses of our report dated August 5, 1994, with respect to the consolidated combined financial statements of Watts Industries Europe B.V. (not included herein) and our report dated August 5, 1994, with repect to the financial statement schedules of Watts Industries Europe B.V. (not included herein). Leiden, The Netherlands, September 19, 1994 Deloitte & Touche Registeraccountants (signature) P.C. Spaargaren RA EXHIBIT INDEX Listed and indexed below are all Exhibits filed as part of this Report. Certain Exhibits are incorporated by reference to documents previously filed by the Company with the Securities and Exchange Commission pursuant to Rule 12b-32 under the Securities Exchange Act of 1934, as amended.
Exhibit No. Description 3.1 Restated Certificate of Incorporation, as amended.(1) 3.2 Amended and Restated By-Laws. (2) 9.1 Horne Family Voting Trust Agreement-1991 dated as of October 31, 1991. (3) 10.1 Employment Agreement dated as of May 1, 1993 between the Registrant and Timothy P. Horne. (13) 10.2 Supplemental Compensation Agreement dated as of May 1, 1993 between the Registrant and Timothy P. Horne. (13) 10.3 Deferred Compensation Agreement between the Registrant and Timothy P. Horne, as amended. (5) 10.4 1986 Incentive Stock Option Plan, as amended, including form of Option Agreement. (4) 10.5 1989 Nonqualified Stock Option Plan, including form of Option Agreement. (4) 10.6 Retirement Plan for Salaried Employees, as amended. (6) 10.7 Registration Rights Agreement dated as of July 25, 1986. (7) 10.8 Executive Incentive Bonus Plan. (13) 10.9 Indenture dated as of December 1, 1991 between the Registrant and The First National Bank of Boston, as Trustee, including form of 8-3/8% Note Due 2003. (10) 10.10 Loan Agreement and Mortgage among The Industrial Development Authority of the State of New Hampshire, Watts Regulator Co. and Arlington Trust Company dated as of August 1, 1985. (5) 10.11 Amendment Agreement relating to Watts Regulator Co. (Canaan and Franklin, New Hampshire, facilities) financing dated as of December 31, 1985. (5) 10.12 Sale Agreement between Village of Walden Industrial Development Agency and Spence Engineering Company, Inc. dated as of June 1, 1994. * 10.13 Letter of Credit, Reimbursement and Guaranty Agreement dated June 1, 1994 by and among the Registrant, Spence Engineering Company, Inc. and First Union National Bank of North Carolina. * 10.14 Trust Indenture from Village of Walden Industrial Development Agency to the First National Bank of Boston, as Trustee, dated as of June 1, 1994. * 10.15 Loan Agreement between Hillsborough County Industrial Development Authority and Leslie Controls, Inc. dated as of July 1, 1994. * 10.16 Letter of Credit, Reimbursement and Guaranty Agreement dated July 1, 1994 by and among the Registrant, Leslie Controls, Inc. and First Union National Bank of North Carolina. * 10.17 Trust Indenture from Hillsborough County Industrial Development Authority to the First National Bank of Boston, as Trustee, dated as of July 1, 1994.* 10.18 Bond Purchase Agreement among The Rutherford County Industrial Facilities and Pollution Control Financing Authority, Northwestern Bank and Regtrol, Inc. dated as of October 1, 1984. (5) 10.19 Loan Agreement between The Rutherford County Industrial Facilities and Pollution Control Financing Authority and Regtrol, Inc. dated as of October 1, 1984. (5) 10.20 Agreement as to Financial Covenants between Northwestern Bank and Watts Regulator Co. dated as of October 1, 1984. (5) 10.21 Guaranty Agreement from Watts Regulator Co. to Northwestern Bank dated as of October 1, 1984. (5) 10.22 Amendment Agreement relating to Regtrol, Inc. financing dated as of January 1, 1986. (5) 10.23 Amended and Restated Stock Restriction Agreement dated as of October 30, 1991. (3) 10.24 Watts Industries, Inc. 1991 Non-Employee Directors' Nonqualified Stock Option Plan. (9) 10.25 Letters of Credit relating to retrospective paid loss insurance programs. (13) 10.26 Form of Master Agreement, dated as of April 15, 1986, relating to interest rate swap transaction and forms of related Rate Swap Agreements. (7) 10.27 Form of Stock Restriction Agreement for management stockholders. (7) 10.28 Revolving Credit Agreement dated December 23, 1987 between Nederlandse Creditbank NV and Watts Regulator (Nederland) B.V. and related Guaranty of Watts Industries, Inc. and Watts Regulator Co. dated December 14, 1987. (8) 10.29 Loan Agreement dated September 1987 with, and related Mortgage to, N.V. Sallandsche Bank. (8) 10.30 Agreement and Plan of Merger dated as of August 22, 1991 relating to the acquisition by the Registrant of Henry Pratt Company. (11) 10.31 Agreement of the sale of shares of Intermes, S.p.A., RIAF Holding A.G. and the participations in Multiscope Due S.R.L. dated as of November 6, 1992. (12) 10.32 Revolving Credit Agreement dated August 30, 1994 between and among Watts Investment Company, certain financial institutions, The First National Bank of Boston, as Agent, and the Registrant, as Guarantor. * 11 Statement Regarding Computation of Earnings per Common Share. + 13 1994 Annual Report to Stockholders. * (This Report, except for those portions thereof which are expressly incorporated by reference into this Report on Form 10-K, is not to be deemed "filed" with the Securities and Exchange Commission.) 21 Subsidiaries. * 23.1 Consent of Ernst & Young, Independent Auditors. + 23.2 Consent of Deloitte & Touche, Independent Auditors. + 27 Financial Data Schedule. * (1) Incorporated by reference to the relevant exhibit to the Registrant's Registration Statement on Form S-3 (No. 33-43983) filed with the Securities and Exchange Commission on November 15, 1991. (2) Incorporated by reference to the relevant exhibit to the Registrant's Current Report on Form 8-K filed with the Securities and Exchange Commission on May 15, 1992. (3) Incorporated by reference to the relevant exhibit to the Registrant's Current Report on Form 8-K filed with the Securities and Exchange Commission on November 14, 1991. (4) Incorporated by reference to the relevant exhibit to the Registrant's Annual Report on Form 10-K filed with the Securities and Exchange Commission on September 28, 1989. (5) Incorporated by reference to the relevant exhibit to the Registrant's Registration Statement on Form S-1 (No. 33-6515) filed with the Securities and Exchange Commission on June 17, 1986. (6) Incorporated by reference to the relevant exhibit to the Registrant's Registration Statement on Form S-1 (No. 33-6515) filed with the Securities and Exchange Commission as part of the First Amendment to such Registration Statement on July 30, 1986. (7) Incorporated by reference to the relevant exhibit to the Registrant's Registration Statement on Form S-1 (No. 33-6515) filed with the Securities and Exchange Commission as part of the Second Amendment to such Registration Statement on August 21, 1986. (8) Incorporated by reference to the relevant exhibit to the Registrant's Registration Statement on Form S-1 (No. 33-27101) filed with the Securities and Exchange Commission on February 16, 1989. (9) Incorporated by reference to the relevant exhibit to the Registrant's Amendment No. 1 to Form 10-K for fiscal 1992 filed with the Securities nd Exchange Commission on March 11, 1993. (10) Incorporated by reference to the relevant exhibit to the Registrant's Annual Report on Form 10-K filed with the Securities and Exchange Commission on September 16, 1992. (11) Incorporated by reference to Exhibit 10.33 to the Registrant's Annual Report on Form 10-K filed with the Securities and Exchange Commission on September 24, 1991. (12) Incorporated by reference to the relevant exhibit to the Registrant's Amendment No. 2 to Form 8-K dated November 6, 1992 filed with the Securities and Exchange Commission on February 22, 1993. (13) Incorporated by reference to the relevant exhibit to the Registrant's Annual Report on Form 10-K filed with the Securities and Exchange Commission on September 24, 1993. * Filed herewith. + Filed herewith as a separate section of this report.
EX-10.12 2 SALE AGREEMENT between VILLAGE OF WALDEN INDUSTRIAL DEVELOPMENT AGENCY and SPENCE ENGINEERING COMPANY, INC. relating to the $7,500,000 Village of Walden Industrial Development Agency Industrial Development Revenue Refunding Bonds (Spence Engineering Company Project), Series 1994 __________________________________________________________ NOTE: CERTAIN RIGHTS OF THE VILLAGE OF WALDEN INDUSTRIAL DEVELOPMENT AGENCY UNDER THIS SALE AGREEMENT HAVE BEEN ASSIGNED TO, AND ARE SUBJECT TO A SECURITY INTEREST IN FAVOR OF, THE FIRST NATIONAL BANK OF BOSTON, TRUSTEE FOR THE OWNERS OF THE BONDS UNDER A TRUST INDENTURE OF EVEN DATE HEREWITH, AS AMENDED OR SUPPLEMENTED FROM TIME TO TIME. INFORMATION CONCERNING SUCH SECURITY INTEREST MAY BE OBTAINED FROM THE TRUSTEE AT 150 ROYALL STREET, CANTON, MASSACHUSETTS. __________________________________________________________ DATED AS OF JUNE 1, 1994 TABLE OF CONTENTS Page Parties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Recitals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 ARTICLE I DEFINITIONS AND RULES OF CONSTRUCTION . . . . . . . . . . . . 2 Section 1.1. Definitions. . . . . . . . . . . . . . . . . . . . . 2 Section 1.2. Rules of Construction. . . . . . . . . . . . . . . . 7 ARTICLE II REPRESENTATIONS . . . . . . . . . . . . . . . . . . . . . . . 8 Section 2.1. Representations by the Issuer. . . . . . . . . . . . 8 Section 2.2. Representations, Warranties and Covenants by the Company. . . . . . . . . . . . . . . . . . . . . . . 10 ARTICLE III CONSENT TO ASSIGNMENT. . . . . . . . . . . . . . . . 13 Section 3.1. Company Consent to Assignment of Agreement and Execution of Indenture . . . . . . . . . . . . . . . 13 ARTICLE IV ISSUANCE OF THE BONDS . . . . . . . . . . . . . . . . . . . . 14 Section 4.1. Agreement to Issue the Bonds . . . . . . . . . . . . 14 Section 4.2. No Third Party Beneficiary . . . . . . . . . . . . . 14 ARTICLE V CONVEYANCE OF PROJECT TO ISSUER; SALE OF PROJECT TO COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Section 5.1. Agreement to Convey to Issuer. . . . . . . . . . . . 14 Section 5.2. Purchase and Sale of Facility. . . . . . . . . . . . 14 Section 5.4. Payment of Purchase Price. . . . . . . . . . . . . . 15 Section 5.5. No Set-Off . . . . . . . . . . . . . . . . . . . . . 15 Section 5.6. Prepayments. . . . . . . . . . . . . . . . . . . . . 15 Section 5.7. Credits Against the Note . . . . . . . . . . . . . . 15 Section 5.8. Letter of Credit and Reimbursement Agreement . . . . 16 ARTICLE VI OPERATION; TAXES AND UTILITY CHARGES; INSURANCE AND EMINENT DOMAIN . . . . . . . . . . . . 16 Section 6.1. Operation of the Project by the Company. . . . . . . 16 Section 6.2. Taxes and Utility Charges. . . . . . . . . . . . . . 16 Section 6.3. Insurance. . . . . . . . . . . . . . . . . . . . . . 17 Section 6.4. Eminent Domain . . . . . . . . . . . . . . . . . . . 17 Section 6.5. Application of Net Proceeds of Insurance and Eminent Domain . . . . . . . . . . . . . . . . . . . 17 Section 6.6. Parties to Give Notice . . . . . . . . . . . . . . . 18 Section 6.7. No Exemption from Taxes. . . . . . . . . . . . . . . 18 ARTICLE VII SPECIAL COVENANTS. . . . . . . . . . . . . . . . . . 19 Section 7.1. Access to the Project and Inspection . . . . . . . . 19 Section 7.2. Further Assurances and Corrective Instruments. . . . 19 Section 7.3. Tax and Arbitrage Covenants; Notice of Event of Taxability . . . . . . . . . . . . . . . . . . . . . 20 Section 7.4. Recording and Filing; Other Instruments. . . . . . . 21 Section 7.5. Administrative Expenses. . . . . . . . . . . . . . . 22 Section 7.6. Indemnity Against Claims . . . . . . . . . . . . . . 22 Section 7.7. Release and Indemnification. . . . . . . . . . . . . 22 Section 7.8. Additional Information . . . . . . . . . . . . . . . 23 Section 7.9. Default Certificates . . . . . . . . . . . . . . . . 23 Section 7.10. Observe Laws . . . . . . . . . . . . . . . . . . . . 23 Section 7.11. Election . . . . . . . . . . . . . . . . . . . . . . 23 Section 7.12. No Warranty of Condition of Suitability by the Issuer. . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 ARTICLE VIII ASSIGNMENT, LEASING AND SELLING. . . . . . . . . . . 24 Section 8.1. Assignment of this Sale Agreement or Lease or Sale of the Project by the Company . . . . . . . . . 24 Section 8.2. Restrictions on Transfer of the Issuer's Rights. . . 25 Section 8.3. Assignment by the Issuer . . . . . . . . . . . . . . 25 Section 8.4. Merger of Issuer . . . . . . . . . . . . . . . . . . 25 ARTICLE IX EVENTS OF DEFAULT AND REMEDIES. . . . . . . . . . . . . . . . 26 Section 9.1. Events of Default Defined. . . . . . . . . . . . . . 26 Section 9.2. Remedies on Default. . . . . . . . . . . . . . . . . 27 Section 9.3. Application of Amounts Realized in Enforcement of Remedies . . . . . . . . . . . . . . . . . . . . . . 27 Section 9.4. No Remedy Exclusive. . . . . . . . . . . . . . . . . 28 Section 9.5. Agreement to Pay Attorneys' Fees and Expenses. . . . 28 Section 9.6. Correlative Waivers. . . . . . . . . . . . . . . . . 28 ARTICLE X PREPAYMENTS . . . . . . . . . . . . . . . . . . . . . . . . . 28 Section 10.1. Optional Prepayments . . . . . . . . . . . . . . . . 28 Section 10.2. Mandatory Prepayments. . . . . . . . . . . . . . . . 29 Section 10.3. Other Mandatory Prepayments. . . . . . . . . . . . . 29 ARTICLE XI REBATE PROVISIONS . . . . . . . . . . . . . . . . . . . . . . 30 Section 11.1. Creation of the Rebate Fund. . . . . . . . . . . . . 30 ARTICLE XII MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . 30 Section 12.1. References to the Bonds Ineffective After Bonds Paid . . . . . . . . . . . . . . . . . . . . . . . . 30 Section 12.2. No Implied Waiver. . . . . . . . . . . . . . . . . . 30 Section 12.3. Issuer Representative. . . . . . . . . . . . . . . . 30 Section 12.4. Company Representative . . . . . . . . . . . . . . . 31 Section 12.5. Notices. . . . . . . . . . . . . . . . . . . . . . . 31 Section 12.6. If Payment or Performance Date Is Other Than a Business Day . . . . . . . . . . . . . . . . . . . . 32 Section 12.7. Binding Effect . . . . . . . . . . . . . . . . . . . 32 Section 12.8. Severability . . . . . . . . . . . . . . . . . . . . 32 Section 12.9. Amendments, Changes and Modifications. . . . . . . . 32 Section 12.10. Execution in Counterparts. . . . . . . . . . . . . . 32 Section 12.11. Applicable Law . . . . . . . . . . . . . . . . . . . 32 Section 12.12. No Charge Against Issuer Credit. . . . . . . . . . . 33 Section 12.13. Issuer Not Liable. . . . . . . . . . . . . . . . . . 33 Section 12.14. Expenses . . . . . . . . . . . . . . . . . . . . . . 33 Section 12.15. Amounts Remaining with the Trustee . . . . . . . . . 33 Execution by the Issuer. . . . . . . . . . . . . . . . . . . . . . . . . 35 Execution by the Company . . . . . . . . . . . . . . . . . . . . . . . . 35 Exhibit A Promissory Note Exhibit B The Project _______________________ SALE AGREEMENT _______________________ This SALE AGREEMENT, dated as of June 1, 1994, between the VILLAGE OF WALDEN INDUSTRIAL DEVELOPMENT AGENCY (the "Issuer"), a corporate governmental agency, constituting a public benefit corporation created and existing under the Constitution and laws of the State of New York (the "State"), and SPENCE ENGINEERING COMPANY, INC. (the "Company"), a corporation organized and existing under the laws of the State of Delaware. W I T N E S S E T H: WHEREAS, Title 1 of Article 18-A of the General Municipal Law of the State of New York (the "Act") was duly enacted into law as Chapter 1030 of the Laws of 1969 of the State; and WHEREAS, the Act authorizes the creation of industrial development agencies for the benefit of the several counties, cities, villages and towns in the State and empowers such agencies, among other things, to promote, develop, encourage and assist in the acquiring, constructing, reconstructing, improving, maintaining, equipping and furnishing of industrial, manufacturing, warehousing, commercial, research and recreation facilities, and thereby advance the job opportunities, health, general prosperity and economic welfare of the people of the State; and WHEREAS, the Act further authorizes each agency to sell any or all of its facilities on such terms and conditions as it deems advisable, to issue its bonds for the purpose of carrying out any of its corporate purposes and, as security for the payment of the principal and redemption price of, and interest on, any such bonds so issued and any agreements made in connection therewith, to pledge the revenues and receipts from its facilities or from the sale thereof; and WHEREAS, pursuant to and in accordance with the provisions of the Act, Chapter 632 of the Laws of 1977 of the State, constituting Section 925-a of the General Municipal Law of the State, as amended (collectively with the Enabling Act, the "Act"), created the Issuer; and WHEREAS, the Issuer is authorized and empowered to enter into this Sale Agreement by the provisions of the Act; and WHEREAS, the Issuer has heretofore indicated its willingness to issue industrial revenue bonds under the Act for the purpose of refunding in whole the outstanding principal amount of the Issuer's Industrial Development Revenue Bonds (Spence Engineering Company Project), Series 1984 in the original aggregate principal amount of $7,500,000 (the "Prior Bonds"), the proceeds of which were used to finance, in whole or in part, the cost of acquiring, constructing and installing a certain project in the Village of Walden, New York (the "Project") owned and operated by the Company and located in Orange County; and WHEREAS, the Issuer has deemed issuance of the Bonds to refund the Prior Bonds to be expedient; and WHEREAS, to obtain funds for such purposes the Issuer will issue and sell its Industrial Development Revenue Refunding Bonds, Series 1994 in the aggregate principal amount of $7,500,000 dated as of June 1, 1994 (the "Bonds"), under and pursuant to the Act, to be secured by and contain such terms and provisions as are set forth in that certain Trust Indenture (the "Indenture") dated as of June 1, 1994 between the Issuer and The First National Bank of Boston, Boston, Massachusetts, as Trustee (the "Trustee"), and the proceeds from the sale of the Bonds shall be deposited with the Trustee and disbursed in the manner and for the purposes set forth herein and in the Indenture, all as more fully provided herein and therein; and NOW, THEREFORE, in consideration of the respective representations and agreements contained herein, the parties hereto, recognizing that under the Act, this Sale Agreement shall not be a debt of the State or of the municipality and neither the State nor the municipality shall be liable thereon and the Bonds shall be special obligations of the Issuer payable solely from revenues derived under the provisions of this Sale Agreement, the Note and from the Credit Facility Issuer under a Credit Facility (each as hereinafter defined) or derived from the exercise of the rights of the Issuer thereunder, agree as follows: ARTICLE I DEFINITIONS AND RULES OF CONSTRUCTION Section 1.1. Definitions. In addition to words and terms elsewhere defined in this Sale Agreement or in the Indenture, the following words and terms shall have the following meanings: "Act" shall mean all applicable provisions of the Constitution and laws of the State of New York, including without limitation Chapter 1030 of the Laws of 1969 of the State, constituting Title 1 of Article 18-A of the General Municipal Law of the State, as amended from time to time, together with Chapter 632 of the Laws of 1977 of the State, constituting Section 925-a of the General Municipal Law of the State, as amended from time to time. "Administrative Expenses" shall mean the amounts payable pursuant to Section 7.5 hereof by the Company to or for the account of the Issuer to provide for payment of reasonable costs and expenses incurred by the Issuer. "Affiliate" shall mean, with respect to any Person, any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such Person. For the purposes of this definition, "control", when used with respect to a Person, means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise, and the terms "controlling" and "controlled" have meanings correlative to the foregoing. "Bond" or "Bonds" shall mean the Village of Walden Industrial Development Agency Industrial Development Revenue Refunding Bonds (Spence Engineering Company Project), Series 1994, authorized to be issued pursuant to the Bond Resolution in accordance with the Indenture in the aggregate principal amount of $7,500,000, including such Bonds issued in replacement for mutilated, destroyed, lost or stolen Bonds pursuant to Section 210 of the Indenture. "Bond Documents" shall mean collectively the Indenture, the Bonds, this Sale Agreement, the Note, the Letter of Credit Documents, the Tender Agency Agreement and the Remarketing Agreement. "Bond Resolution" shall mean the resolution adopted by the Issuer on June 13, 1994 authorizing the execution and delivery of the Issuer Documents and the issuance of the Bonds by the Issuer. "Closing Date" means the date of the issuance and delivery of the Bonds. "Code" means the Internal Revenue Code of 1986, as amended, including, when appropriate, the statutory predecessor of the Code, and all applicable regulations (whether proposed, temporary or final) under that Code and the statutory predecessor of the Code, and any official rulings and judicial determinations under the foregoing applicable to the Bonds. "Company" shall mean Spence Engineering Company, Inc., a Delaware corporation, and its successors or assigns and any surviving, resulting or transferee corporation or other entity. "Company Representative" shall mean any one of the persons at the time designated to act on behalf of the Company by written certificate furnished to the Issuer and the Trustee containing the specimen signatures of such persons and signed on behalf of the Company by the President or any duly authorized Vice President of the Company. "Consistent Basis" shall mean, in reference to the application of Generally Accepted Accounting Principles, that the accounting principles observed in the period referred to are comparable in all material respects to those applied in the preceding period, except as to any changes consented to by the Credit Facility Issuer. "Counsel" shall mean an attorney or firm of attorneys acceptable to the Trustee, and may, but need not, be counsel to the Issuer or the Company. "Credit Facility" shall mean the Letter of Credit or any Alternate Credit Facility delivered to the Trustee pursuant to Article VI of the Indenture. "Credit Facility Issuer" shall mean the Bank with respect to the Letter of Credit and if applicable the institution issuing any Alternate Credit Facility. "Determination of Taxability" shall be defined as and shall be deemed to have occurred on the first to occur of the following: (i) on the date when the Company files any statement, supplemental statement or other tax schedule, return or document (whether pursuant to Treasury Regulations Section 1.103-10(b)(2)(vi), as the same may be amended or supplemented, or otherwise) which discloses that an Event of Taxability shall have in fact occurred; (ii) on the date when any Bondholder or former Bondholder notifies the Company or the Trustee that it has received an approving written opinion of Bond Counsel to the effect that an Event of Taxability shall have occurred unless, within one hundred eighty (180) days after receipt by the Company of such notification from the Trustee, any Bondholder or any former Bondholder, the Company shall obtain and deliver to the Trustee a favorable ruling or determination letter issued to or on behalf of the Company by the Commissioner or any District Director of Internal Revenue (or any other government official exercising the same or a substantially similar function from time to time) to the effect that, after taking into consideration such facts as form the basis for the opinion that an Event of Taxability has occurred, an Event of Taxability shall not have occurred; (iii) on the date when the Company shall be advised in writing by the Commissioner or any District Director of Internal Revenue (or any other government official or agent exercising the same or a substantially similar function from time to time) that, based upon filings of the Company, or upon any review or audit of the Company, or upon any other ground whatsoever, an Event of Taxability shall have occurred; (iv) on the date when the Company shall receive notice in writing from any Bondholder or former Bondholder, or from the Trustee, that the Internal Revenue Service (or any other government agency exercising the same or a substantially similar function from time to time) has assessed as includable in the gross income of any Bondholder or former Bondholder the interest on such Bondholder's or former Bondholder's Bond due to the occurrence of an Event of Taxability; provided, however, no Determination of Taxability shall be deemed to have occurred under subparagraph (iii) or (iv) hereof unless the Company has been afforded the opportunity, at its expense, to contest any such assessment or unfavorable ruling and, further, no Determination of Taxability shall be deemed to have occurred until such contest, if made, has been finally determined. "Eminent Domain" shall mean the taking of title to, or the temporary use of, the Project or any part thereof pursuant to eminent domain or condemnation proceedings, or any voluntary conveyance of any part of the Project during the pendency of, or as a result of a threat of, such proceedings. "Event of Default" or "Default" shall have the meaning set forth in Section 9.1 hereof. "Event of Taxability" shall mean a change in law or fact or the interpretation thereof, or the occurrence or existence of any fact, event or circumstance (including, without limitation, the issuance of obligations or the incurring of capital expenditures in excess of those permitted by Section 103(b)(6)(D) of the 1954 Code, or the taking of any action by the Company, or the failure to take any action by the Company, or the making by the Company of misrepresentation herein or in any certificate required to be given in connection with the issuance, sale or delivery of the Bonds) which has the effect of causing the interest paid or payable on any Bond to become includable in the gross income of any Bondholder or former Bondholder of any Bond other than a Bondholder or former Bondholder who is or was a "substantial user" or "related person" as such terms are used in Section 147(a) of the Code. "Financing Statements" means any and all financing statements (including continuation statements) filed for record from time to time to perfect the security interests created or assigned hereby or by the Indenture. "Generally Accepted Accounting Principles" shall mean those principles of accounting set forth in pronouncements of the Financial Accounting Standards Board and its predecessors or pronouncements of the American Institute of Certified Public Accountants or those principles of accounting which have other substantial authoritative support and are applicable in the circumstances as of the date of application, as such principles are from time to time supplemented and amended. "Indenture" shall mean the Trust Indenture of even date herewith by and between the Issuer and the Trustee, together with any amendments or supplements thereof permitted thereby. "Issuer" shall mean Village of Walden Industrial Development Agency and its successors and assigns. "Issuer Documents" shall mean collectively the Indenture and this Sale Agreement. "Issuer Representative" shall mean any one of the persons at the time designated to act on behalf of the Issuer by written certificate furnished to the Company and the Trustee containing the specimen signatures of such persons and signed on behalf of the Issuer by the Chairman. "Letter of Credit Documents" shall mean the Letter of Credit, the Reimbursement Agreement and the Pledge Agreement. "Net Proceeds" means the proceeds received by the Issuer from the sale of the Bonds including all earnings and profits thereon but excluding any proceeds deposited in a reasonably required reserve or replacement fund. When used with respect to any insurance proceeds or award resulting from, or other amount received in connection with, Eminent Domain, the term "Net Proceeds" shall mean the gross proceeds from such proceeds, award or other amount, less all expenses (including attorneys' fees) incurred in the realization thereof. "1954 Code" shall mean the Internal Revenue Code of 1954, as amended through August 15, 1986, and all applicable regulations (whether proposed, temporary or final) thereunder and any official rulings and determinations under the foregoing applicable to the Bonds or the Prior Bonds. "Note" shall mean the promissory note given by the Company pursuant to Section 5.4 of this Sale Agreement, substantially in the form of Exhibit "A" attached hereto. "Overdue Rate" shall mean the Prime Rate plus two percent, or the maximum contract rate permitted by law, whichever is lower. "Payment of the Bonds" shall mean payment of (i) the principal of and interest on the Bonds in accordance with their terms whether through payment at maturity, upon acceleration or prepayment, (ii) all amounts due as Administrative Expenses or otherwise, and (iii) any and all other liabilities and obligations arising under the Indenture and this Sale Agreement, in any case, in such a manner that all such amounts due and owing with respect to the Bonds shall have been paid. "Permitted Encumbrances" shall mean, as of any particular time, liens for ad valorem and special assessments, if any, which are not then delinquent or which are being contested in good faith. "Person" shall mean an individual, partnership, corporation, trust, unincorporated organization, association, joint venture, joint-stock company, or a government or agency or political subdivision thereof. "Prime Rate" shall mean that rate of interest per annum announced by First Union National Bank of North Carolina at its principal office in Charlotte, North Carolina, from time to time to be its prime rate. "Project" shall mean the land or buildings and other improvements thereon, and all machinery, equipment, apparatus, office furnishings and other property financed in whole or in part with the proceeds of the Prior Bonds, including any substitutions therefor and any repairs, renewals and replacements thereof from time to time, including the real property described in Exhibit "B" attached hereto and by this reference made a part hereof. "Rebate Fund" means the Fund of that name created pursuant to Section 504 of the Indenture and described in Section 11.1 hereof. "Regulations" shall mean the applicable Treasury Regulations under Sections 103 and 141 through 150 of the Code whether at the time proposed, temporary, final or otherwise. "Reimbursement Agreement" shall mean the Letter of Credit, Reimbursement and Guaranty Agreement of even date herewith by and among the Company, Watts Industries, Inc. as guarantor, and the Bank, and any supplements or amendments thereto. "Related Person" means "related person" within the meaning of Section 103(b)(6)(C) of the 1954 Code by reference to Sections 267, 707(b) and 1563(a) of the 1954 Code, except that fifty percent is substituted for eighty percent in Section 1563(a). "Sale Agreement" shall mean this Sale Agreement and any amendments and supplements thereto permitted by the Indenture. "Security interest" or "security interests" shall refer to the security interests created in the Indenture and shall have the meaning set forth in the U.C.C. "State" shall mean the State of New York. "Tax Regulatory Certificate" shall mean the certificate of the Company, dated the date of delivery of the Bonds, setting forth certain facts, estimates and circumstances with respect to the Bonds. "Trustee" shall mean the banking institution at the time serving as Trustee under the Indenture. Section 1.2. Rules of Construction. (a) Words of masculine gender shall be deemed and construed to include correlative words of the feminine and neuter genders, and words of the neuter gender shall be deemed and construed to include correlative words of the masculine and feminine genders. (b) The table of contents, captions and headings in this Sale Agreement are for convenience only and in no way define, limit or describe the scope or intent of any provisions or Sections of this Sale Agreement. (c) All references herein to particular Articles or Sections are references to Articles or Sections of this Sale Agreement unless some other reference is established. (d) All accounting terms not specifically defined herein shall be construed in accordance with Generally Accepted Accounting Principles applied on a Consistent Basis. (e) All references herein to the Company shall be deemed to refer to each of the Persons if more than one are described by such term and any agreement, obligation, duty or liability of the Company shall be a joint and several agreement, obligation, duty or liability of each of the Persons so described by such term. (f) Any terms not defined herein but defined in any of the other Bond Documents shall have the same meaning herein. ARTICLE II REPRESENTATIONS Section 2.1. Representations by the Issuer. The Issuer makes the following representations as the basis for the undertakings on its part herein contained: (a) Organization and Authority. The Issuer is a corporate governmental agency, constituting a public benefit corporation of the State of New York created and existing under the Constitution and laws of the State of New York. The Issuer has all requisite power and authority under the Act to (i) adopt the Bond Resolution, (ii) issue the Bonds, (iii) use the proceeds thereof to refund the Prior Bonds, and (iv) enter into, and perform its obligations under the Issuer Documents; and has deemed the issuance of the Bonds to refund the Prior Bonds to be expedient. (b) Pending Litigation. There are no actions, suits, proceedings, inquiries or investigations pending, or to the knowledge of the Issuer threatened, against or affecting the Issuer in any court or before any governmental authority or arbitration board or tribunal, which involve the possibility of materially and adversely affecting the transactions contemplated by the Issuer Documents or which, in any way, would adversely affect the validity or enforceability of the Bonds, the Issuer Documents or any agreement or instrument to which the Issuer is a party and which is used or contemplated for use in the consummation of the transactions contemplated hereby or thereby or the ability of the Issuer to perform its respective obligations hereunder and thereunder. (c) Agreements Are Legal and Authorized. The adoption of the Bond Resolution, the issuance and sale of the Bonds and the execution and delivery by the Issuer of the Issuer Documents and the compliance by the Issuer with all of the provisions of each thereof and of the Bonds (i) are within the purposes, powers and authority of the Issuer, (ii) have been done in full compliance with the provisions of the Act, are legal and will not conflict with or constitute on the part of the Issuer a violation of or a breach of or default under, or result in the creation of any lien, charge or encumbrance upon any property of the Issuer (other than as contemplated by this Sale Agreement and the Indenture) under the provisions of, any charter instrument, by-law, indenture, mortgage, deed of trust, note agreement or other agreement or instrument to which the Issuer is a party or by which the Issuer is bound, or any license, judgment, decree, law, statute, order, rule or regulation of any court or governmental agency or body having jurisdiction over the Issuer or any of its activities or properties, and (iii) have been duly authorized by all necessary corporate action on the part of the Issuer. (d) Governmental Consents. Neither the nature of the Issuer nor any of its activities or properties, nor any relationship between the Issuer and any other person, nor any circumstance in connection with the offer, issue, sale or delivery of any of the Bonds is such as to require the consent, approval or authorization of, or the filing, registration or qualification with, any governmental authority on the part of the Issuer in connection with the execution, delivery and performance of the Issuer Documents or the offer, issue, sale or delivery of the Bonds, other than those already obtained, which include (i) the compliance with the information reporting requirements contained in Section 149(e) of the Code, (ii) the public approval of the issuance of the Bonds contained in Section 147(f) of the Code, and (iii) the filing of Financing Statements perfecting the security interests created under the Indenture; provided, however, no representation is made herein as to compliance with the securities or "blue sky" laws of any jurisdiction. (e) No Defaults. No event has occurred and no condition exists with respect to the Issuer which would constitute an Event of Default as defined in this Sale Agreement or the Indenture or which, with the lapse of time or with the giving of notice or both, would become an Event of Default under this Sale Agreement or the Indenture. The Issuer is not in default under the Act or under any charter instrument or by-law. (f) No Prior Pledge. Neither this Sale Agreement nor any of the revenues pledged under the Indenture have been pledged or hypothecated in any manner or for any purpose other than as provided in the Indenture as security for the payment of the Bonds. (g) Nature and Location of Project. The refinancing of the costs of the Project is in furtherance of the public purpose intended to be served by the Act and is specifically authorized by the Act. The Project is located wholly within the geographic limits of the Issuer. (h) Public Hearing and Approval. A public hearing was duly held by the Issuer on June 13, 1994, upon reasonable public notice, at which hearing members of the public were afforded reasonable opportunity to be heard on all matters pertaining to the location and nature of the Project and the refinancing thereof and to the issuance of the Bonds. On June 13, 1994, after the above mentioned public hearing, the issuance of the Bonds was approved by the Issuer. (i) Due Authorization. By the Bond Resolution the Issuer has authorized the issuance and sale of the Bonds to provide funds for refunding, by payment and redemption, the Prior Bonds, and authorized and approved the Issuer's execution, delivery and performance of the Issuer Documents, the endorsement of the Note and the other instruments contemplated hereby to be executed and delivered by the Issuer, which Bond Resolution has not been amended, modified or rescinded and continues to be in full force and effect. (j) Limited Obligations. Notwithstanding anything herein contained to the contrary, any obligation the Issuer may hereby incur for the payment of money shall not be a debt of the State or of the Village of Walden and neither the State nor the Village of Walden shall be liable thereon and the Bonds shall be special obligations of the Issuer payable solely from (i) the revenues hereunder and under the Note, (ii) revenues derived from the sale of the Bonds, and (iii) amounts on deposit from time to time in the Bond Fund, subject to the provisions of this Sale Agreement and the Indenture permitting the application thereof for the purposes and on the terms and conditions set forth herein and therein. (k) Issuance of Bonds. To accomplish the foregoing, the Issuer proposes to issue $7,500,000 in aggregate principal amount of its Bonds immediately following the execution and delivery of this Sale Agreement. The date, denominations, interest rate, maturity date, redemption provisions and other pertinent provisions with respect to the Bonds are set forth in the Indenture (particularly Articles II and III thereof). (l) Validity of Issuer Documents. When duly executed and delivered on behalf of the Issuer, and assuming the due authorization, execution and delivery by the Company of this Sale Agreement, and the due authorization, execution and delivery by the Trustee of the Indenture, each of the Issuer Documents shall constitute a valid and binding obligation of the Issuer enforceable in accordance with its terms. (m) Representations and Other Written Statements. Neither the representations of the Issuer contained in this Sale Agreement or the Indenture nor any written statement relating to the Issuer furnished to the original purchasers of the Bonds by or on behalf of the Issuer in connection with the transactions contemplated hereby, contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements contained herein and therein not misleading. Section 2.2. Representations, Warranties and Covenants by the Company. The Company makes the following representations as the basis for the undertakings on its part herein contained: (a) Corporate Organization and Power. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and is qualified to do business and is in good standing under the laws of the State. (b) Pending Litigation. There are no proceedings pending, or to the knowledge of the Company threatened against or affecting the Company in any court or before any governmental authority or arbitration board or tribunal which are likely to have a material adverse effect on the ability of the Company to perform its obligations under this Sale Agreement and the Bond Documents to which it is a party. (c) Agreements Are Legal and Authorized. The execution and delivery by the Company of this Sale Agreement, the Note and the Bond Documents to which it is a party and the compliance by the Company with all of the provisions hereof (and thereof) (i) are within the corporate power of the Company, (ii) after giving effect to the redemption of the Prior Bonds will not conflict with or result in any breach of any of the provisions of, or constitute a default under any agreement, charter document, by-law or other instrument to which the Company is a party or by which it may be bound, and (iii) have been duly authorized by all necessary corporate action on the part of the Company. (d) No Defaults. No event has occurred and no condition exists with respect to the Company that would constitute an Event of Default under this Sale Agreement, the Note, the Bond Documents to which it is a party or the Indenture or which, with the lapse of time or with the giving of notice or both, would become an Event of Default under this Sale Agreement, the Note, the Indenture or the Bond Documents to which it is a party. (e) Nature and Location of Project. The Project has been completed in accordance with the Project Summary (described in Exhibit "B" attached hereto and made a part hereof), constitutes a "project" within the meaning of the Act and is located wholly within the geographic limits of the Issuer. (f) Ownership and Operation of Project. The Company presently intends to operate the Project as a manufacturing facility from the date hereof to the expiration or sooner termination of this Agreement as provided herein, and as a "project" within the meaning of the Act. (g) Removal of Facility. The providing of the Project by the Issuer and the sale thereof by the Issuer to the Company either (i) will not result in the removal of a plant, facility or other commercial activity of the Company from one area of the State to another area of the State nor result in the abandonment of one or more plants or facilities of the Company located within the State, or (ii) is reasonably necessary to discourage the Company from removing such other plant or facility to a location outside the State or (iii) is reasonably necessary to preserve the Company's competitive position in its industry. (h) Disclosure Documents. Except as reflected or referenced in the Private Placement Memorandum dated June 17, 1994 relating to the Bonds, including the documents incorporated therein by reference (the "Private Placement Memorandum"), there have been no changes in the assets or liabilities or financial condition of the Company, other than changes in the ordinary course of business, which in the aggregate are materially adverse with respect to the Company's ability to perform its obligations under this Sale Agreement or the Bond Documents to which it is a party. There were no material liabilities, contingent or otherwise, of the Company which were not reflected or referenced in the Private Placement Memorandum, and the Company has not entered into any commitments or contracts since the date of the Private Placement Memorandum which are not reflected or referenced in the Private Placement Memorandum, other than in the ordinary and normal course of its business, which might, in light of any fact or condition presently known to the Company, have a materially adverse effect upon the financial condition, operations or business of the Company or its ability to perform its obligations hereunder or thereunder. (i) Issuance of Private Activity Bonds. The Company has not caused or will not cause the issuance of "private activity" bonds (as defined in the Code) or of "industrial development bonds" (as defined in the 1954 Code) on its behalf in any jurisdiction of the United States during the 30-day period commencing 15 days prior to the issuance of the Bonds. (j) Use of Proceeds of Bonds. The Company shall not permit the proceeds of the Bonds to be used in any manner, nor shall it make any expenditures with respect to the Project or perform or permit any act, which would cause the Bonds to fail to meet the requirements of Section 147(b) of the Code. (k) No Further Approval. No authorization, approval, consent, permit or license of any regulatory body or authority, not already obtained, is required on the part of the Company for the valid and lawful execution and delivery of this Sale Agreement and the Note. (l) Other Events. To the best knowledge of the Company, no event has occurred which, with the lapse of time or the giving of notice or both, would give any creditor of the Company the right to accelerate the maturity of any of such party's outstanding indebtedness for money borrowed. (m) Certificates and Documents. The certificates and all other documents delivered and to be delivered by the Company in connection with the transactions contemplated by this Agreement and the Note and the other Bond Documents to which it is a party as of their respective dates, taken as a whole, do not and will not include any untrue statement of a material fact or omit to state a material fact necessary to make the statements herein and therein, in the light of the circumstances under which they are or will be made, not misleading. The certificates and all other documents delivered and to be delivered by the Company or its representatives in connection with the transactions contemplated by this Agreement and the Note and the Bond Documents to which it is a party are or will be on the dates on which they are or will be delivered true and complete in all material respects. (n) Use of Proceeds. All of the proceeds of the sale of the Bonds will be applied to redeem the principal of the Prior Bonds on the Redemption Date. None of the proceeds of the sale of the Bonds will be applied to pay issuance costs of the Bonds or to pay costs of the refunding. Investment earnings on money on deposit in the Redemption Fund may be used to pay interest on the Bonds on the Redemption Date. The Company and the Issuer have made arrangements with the Trustee to give the notice of such redemption as required under the Indenture. (o) Matters Relating to Tax Exemption. The Company will not take or omit to take any action which would impair the exclusion of the interest on the Bonds from the gross income of the recipients thereof for federal income tax purposes, and will comply with all of its covenants and agreements contained in the Tax Regulatory Certificate. (p) Certain Arbitrage Matters. After the expiration of any applicable temporary period under Section 148(d)(3) of the Code, at no time during any bond year will the aggregate amount of gross proceeds of the Bonds invested in higher yielding investments (within the meaning of Section 148(b) of the Code) exceed one hundred fifty percent (150%) of the debt service on the Bonds for such bond year and the aggregate amount of gross proceeds of the Bonds invested in higher yielding investments, if any, will be promptly and appropriately reduced as the amount of outstanding Bonds are reduced, provided however that the foregoing shall not require the sale or disposition of any investments in higher yielding investments if such sale or disposition would result in a loss which exceeds the amount which would be paid to the United States pursuant to Section 703 of the Indenture (but for such sale or disposition) at the time of such sale or disposition if a payment under Section 703 of the Indenture were due at such time. At no time will any funds constituting gross proceeds of the Bonds be used in a manner as to constitute failure of compliance with Section 148 of the Code. The terms "bond year", "gross proceeds", "higher yielding investments", "yield", and "debt service" have the meanings assigned to them for purposes of Section 148 of the Code. (q) Tax Regulatory Certificate. The Company's Tax Regulatory Certificate executed and delivered by the Company concurrently with the issuance and delivery of the Bonds is true, accurate and complete in all material respects as of the date on which executed and delivered. ARTICLE III CONSENT TO ASSIGNMENT Section 3.1. Company Consent to Assignment of Agreement and Execution of Indenture. The Company understands that the Issuer, as security for the payment of the principal of, and the interest on, the Bonds, will assign and pledge to, and create a security interest in favor of, the Trustee pursuant to the Indenture in, certain of its rights, title and interest in and to this Agreement including all Pledged Revenues, reserving, however, its rights (a) pursuant to this Agreement providing that notices, approvals, consents, requests and other communications be given to the Issuer, (b) to reimbursement and payment of costs and expenses under this Agreement, and (c) to indemnification and to exemption from liability, both individual and corporate, as provided under this Sale Agreement, and the Company hereby agrees and consents to such assignment and pledge. The Company acknowledges that it has received a copy of the Indenture and consents to the execution of the same by the Issuer. ARTICLE IV ISSUANCE OF THE BONDS Section 4.1. Agreement to Issue the Bonds. To provide funds for redemption of the Prior Bonds, the Issuer agrees that it will authorize, validate, sell, issue and deliver the Bonds in the aggregate principal amount of $7,500,000 in the manner set forth in the Indenture and cause the proceeds of the Bonds to be applied as provided in the Indenture. Section 4.2. No Third Party Beneficiary. It is specifically agreed between the parties executing this Sale Agreement that it is not intended by any of the provisions of any part of this Sale Agreement to create in the public or any member thereof, other than as may be expressly provided herein or as contemplated in the Indenture, a third party beneficiary hereunder, or to authorize anyone not a party to this Sale Agreement to maintain a suit for personal injuries or property damage pursuant to the terms or provisions of this Sale Agreement. The duties, obligations, and responsibilities of the parties to this Sale Agreement with respect to third parties shall remain as imposed by law. ARTICLE V CONVEYANCE OF PROJECT TO ISSUER; SALE OF PROJECT TO COMPANY Section 5.1. Agreement to Convey to Issuer. The Company has conveyed, or has caused to be conveyed, or will convey, or will cause to be conveyed, to the Issuer all of the Company's interest in the Project. Section 5.2. Purchase and Sale of Facility. The Issuer hereby or agrees to sell the Project to the Company on or after the Closing Date, upon the terms and conditions of this Agreement and the Company agrees to purchase the same upon tender. Section 5.3. Vesting of Title in Company. (a) On or after the Closing Date, the Issuer shall convey title to the Project to the Company, subject to such liens as existed when the Project was acquired by the Issuer. (b) The Issuer shall, at the sole expense of the Company, execute, deliver, and record or file such instruments, and shall take such other action as may be deemed necessary or appropriate by the Company to evidence or confirm such title. Section 5.4. Payment of Purchase Price. The Company shall pay the purchase price of the Project sold hereunder by delivering the Note to the Issuer and making payments in accordance with the terms thereof. Upon the execution hereof the Company will execute and deliver the Note, in the form attached as Exhibit "A" hereto, and the Issuer will endorse the Note without recourse to the order of, and pledge the Note and assign this Sale Agreement and the Note to, the Trustee, as the assignee of the Issuer under the Indenture, contemporaneously with the issuance of the Bonds. Section 5.5. No Set-Off. The obligation of the Company to make the payments required by the Note shall be absolute and unconditional. The Company will pay without abatement, diminution or deduction (whether for taxes or otherwise) all such amounts regardless of any cause or circumstance whatsoever including, without limitation, any defense, set-off, recoupment or counterclaim that the Company may have or assert against the Issuer, the Trustee, any Bondholder or any other person. Section 5.6. Prepayments. The Company may prepay all or any part of the purchase price of the Project, as evidenced by the Note, as provided in Section 701 of the Indenture with respect to prepayment of the Bonds. Except as provided in this Section 5.6 and in Sections 10.1, 10.2 and 10.3 hereof, the Company shall not be entitled to prepay the Note or cause the Bonds to be prepaid. The Company shall prepay all of the amounts it is required to prepay as provided in Sections 10.2 and 10.3 hereof. Section 5.7. Credits Against the Note. To the extent that principal of or interest on the Bonds shall be paid, there shall be credited against the unpaid principal of or interest on the Note, as the case may be, an amount equal to the principal of or interest on the Bonds so paid. If the principal of and interest on and other amounts payable under the Bonds shall have been paid sufficiently that Payment of the Bonds shall have occurred, then the Note, ipso facto, shall be deemed to have been paid in full, the Company's obligations thereon shall be discharged (with the exception of the obligation of the Company to make certain payments which may subsequently arise as a result of a Determination of Taxability which shall survive notwithstanding Payment of the Bonds), and the Note shall be cancelled and surrendered to the Company. Section 5.8. Letter of Credit and Reimbursement Agreement. As a further condition to the Issuer's sale of the Project to the Company, the Company shall: (a) cause the Letter of Credit to be issued and delivered to the Trustee as security for the Bonds. Until the Conversion Date, the Company shall cause a Credit Facility meeting the requirements of Section 603 of the Indenture to be maintained with the Trustee; and (b) enter into the Reimbursement Agreement with the Bank in form and substance satisfactory to the Bank and execute and deliver the other Letter of Credit Documents required by the Bank. ARTICLE VI OPERATION; TAXES AND UTILITY CHARGES; INSURANCE AND EMINENT DOMAIN Section 6.1. Operation of the Project by the Company. (a) The Company shall pay or cause to be paid all costs and expenses of operation and maintenance of the Project. (b) The Company may, at its own expense, make from time to time any additions, modifications or improvements to the Project that it may deem desirable for its business purposes. Section 6.2. Taxes and Utility Charges. (a) The Company shall pay as the same respectively become due, (1) all taxes, assessments, levies, claims and charges of any kind whatsoever that may at any time be lawfully assessed or levied against or with respect to the Project (including, without limiting the generality of the foregoing, any tax upon or with respect to the income or profits of the Issuer from the Project and that, if not paid, would become a charge on the payments to be made under this Sale Agreement or the Note prior to or on a parity with the charge thereon created by the Indenture and including ad valorem, sales and excise taxes, assessments and charges upon the Company's interest in the Project), (2) all utility and other charges incurred in the operation, maintenance, use, occupancy and upkeep of the Project and (3) all assessments and charges lawfully made by any governmental body for public improvements that may be secured by a lien on any portion of the Project. (b) The Company may, at its expense, contest in good faith any such levy, tax, assessment, claim or other charge. The Issuer and the Trustee, at the expense of the Company, will cooperate fully in any such permitted contest. (c) The Company shall furnish the Issuer and the Trustee, upon request, with proof of payment of any taxes, governmental charges, utility charges, insurance premiums or other charges required to be paid by the Company under this Sale Agreement. Section 6.3. Insurance. Until Payment of the Bonds shall be made, the Company will keep the Project properly and continuously insured against such risks as are customarily insured against by businesses of like size and type engaged in the same or similar manufacturing operations (other than business interruption insurance). Section 6.4. Eminent Domain. Unless the Company shall have prepaid the Note pursuant to the provisions of Article X hereof, in the event that title to, or the temporary use of, the Project, or any part thereof shall be taken by Eminent Domain, the Company shall be obligated to continue to make the payments required to be made pursuant to the Note and the Net Proceeds received as a result of such Eminent Domain shall be applied as provided in Section 6.5(b) hereof. Section 6.5. Application of Net Proceeds of Insurance and Eminent Domain. (a) The Net Proceeds of the insurance carried with respect to the Project shall be applied by the Company toward extinguishment of the defect or claim or satisfaction of the liability with respect to which such insurance proceeds may be paid. (b) The Net Proceeds of the insurance carried with respect to the Project (excluding the Net Proceeds of any business interruption insurance, which shall be paid to the Company), and the Net Proceeds resulting from Eminent Domain, except as hereinafter provided, shall be paid to the Trustee and applied as follows: (1) If the amount of the Net Proceeds does not exceed $500,000, the Net Proceeds shall be paid to the Company and shall be applied to the repair, replacement, renewal or improvement of the Project or at the Company's election paid to the Trustee and applied as provided in (2)(B) below. (2) If the amount of the Net Proceeds exceeds $500,000, the Net Proceeds shall be paid to and held by the Trustee as a special trust fund and invested in accordance with Section 602 of the Indenture and the provisions of Article XI hereof pending receipt of written instructions from the Company. At the option of the Company, to be exercised within the period of ninety (90) days from the receipt by the Trustee of such Net Proceeds, the Company shall advise the Trustee that (A) the Company will use the Net Proceeds for the repair, replacement, renewal or improvement of the Project (such funds to be delivered by the Trustee to the Company), or (B) the Net Proceeds shall be applied to the prepayment of the Bonds as provided in Article X hereof. If the Company does not advise the Trustee within said period of ninety (90) days that it elects to proceed under clause (A) to use such Net Proceeds for the repair, replacement, renewal or improvement of the Project, such Net Proceeds shall be applied to the repayment of the Bonds pursuant to Article X hereof. Any prepayment pursuant to the preceding sentence shall be effected on the next Interest Payment Date not less than thirty (30) days after the expiration of said period of ninety (90) days without an election by the Company. Notwithstanding the foregoing, so long as a Credit Facility is in effect, in the event of any inconsistency between the terms contained in this Agreement and those contained in the Reimbursement Agreement, the provisions of the Reimbursement Agreement should be deemed to control in accordance with its terms. (c) The Company agrees that if it shall elect to use the moneys paid to the Trustee pursuant to subsection (b)(2) of this Section 6.5 for the repair, replacement, renewal or improvement of the Project, it will restore the Project, or cause the same to be done, to a condition substantially equivalent to its condition prior to the occurrence of the event to which the Net Proceeds were attributable. To the extent that the Net Proceeds are not sufficient to restore or replace the Project, the Company shall use its own funds to restore or replace the Project. Any balance remaining after any such application of such Net Proceeds shall be paid to the Company. The Company shall be entitled to the Net Proceeds of any insurance or resulting from Eminent Domain relating to property of the Company not included in the Project and not providing security for the Note or this Sale Agreement. Section 6.6. Parties to Give Notice. In case of any material damage to or destruction of all or any part of the Project, the Company shall give prompt notice thereof to the Issuer, the Credit Facility Issuer and the Trustee. In case of a taking or proposed taking of all or any part of the Project or any right therein by Eminent Domain, the Company shall give prompt notice thereof to the Issuer, the Credit Facility Issuer and the Trustee. Each such notice shall describe generally the nature and extent of such damage, destruction, taking loss, proceeding or negotiations. Section 6.7. No Exemption from Taxes. It is recognized that under the provisions of the Act the Issuer is required to pay no taxes or assessments upon any of the property acquired by it or under its jurisdiction or control or supervision or upon its activities. If for any reason the Project shall be deemed to be the property of the Issuer or in the jurisdiction, control or supervision of the Issuer and thereby exempt from the payment of real property taxes, then the Company and the Issuer agree, that the Company shall be required to make payments in lieu of land taxes to the school district or school districts, city, town, county, village and other political units wherein the Project is located having taxing powers (such political units being hereinafter collectively referred to as "Taxing Entities") in such amounts as would result from taxes levied on the Project by the respective Taxing Entities if the Project were privately owned by the Company and not the Issuer, but with appropriate reductions similar to the tax exemptions, if any, which would be afforded to the Company if it were the owner of the Project. It is agreed that the Issuer, in cooperation with the Company, (i) shall cause the Project to be valued for purposes of determining the amounts due hereunder as if owned by the Company as aforesaid by the appropriate officer or officers of any of the respective Taxing Entities as may from time to time be charged with responsibility for making such valuations; (ii) shall cause to be appropriately applied to the valuation or valuations so determined the respective tax rate or rates of such Taxing Entities that would be applicable to the Project if so privately owned; (iii) shall cause the respective appropriate officer or officers of such Taxing Entities charged with the duty of levying and collecting such taxes to submit to the Company, when the respective levels are made for purposes of such taxes upon property privately owned as aforesaid, a statement specifying the amount and due date or dates of such taxes which the respective Taxing Entities would receive if such property were so privately owned by the Company and not by the Issuer; and (iv) shall file with the appropriate officer or officers any accounts or tax returns furnished to the Issuer by the Company for the purpose of such filing. If required to make payments in lieu of land taxes under Taxing Entities when due all such payments in lieu of land taxes with respect to the Project required by this Agreement to be paid to the respective Taxing Entities, subject in each case to the Company's right to (i) obtain exemptions (and discounts, if any) which would be afforded to a private owner of the Project, (ii) contest valuations of the Project made for the purpose of determining such payments therefrom and (iii) to seek to obtain a refund of any such payments made. In the event the Company should fail to make any such payments in lieu of taxes, the amount or amounts so in default shall continue as an obligation of the Company until fully paid and the Company agrees to pay the same, together with interest thereon at the same rate per annum as if such amounts were delinquent taxes. ARTICLE VII SPECIAL COVENANTS Section 7.1. Access to the Project and Inspection. The Trustee and the Issuer shall have the right, at all reasonable times upon the furnishing of reasonable notice to the Company under the circumstances, to enter upon the Project Site and to examine and inspect the Project. Section 7.2. Further Assurances and Corrective Instruments. Subject to the provisions of the Indenture, the Issuer and the Company agree that they will, from time to time, execute, acknowledge and deliver, or cause to be executed, acknowledged and delivered, such supplements and amendments hereto and such further instruments as may reasonably be required for correcting any inadequate or incorrect description of the Project, and for carrying out the intention or facilitating the performance of this Sale Agreement. Section 7.3. Tax and Arbitrage Covenants; Notice of Event of Taxability. (a) Notwithstanding any other provision hereof, the Company covenants and agrees that it shall at all times do and perform all acts and things necessary or desirable and within its reasonable control in order to assure that interest paid on the Bonds shall, for the purpose of federal income taxation, not be included in gross income of the recipients thereof, except in the event that such recipient is a "substantial user" or "related person" within the meaning of Section 103(b) of the 1954 Code or Section 147(a) of the Code. (b) Neither the Company nor the Issuer shall take any action or fail to take any action, and the Company covenants that it will not approve the Trustee's taking any action or failing to take any action or making any investment or use of the proceeds of the Bonds, if such action, use or failure would adversely affect the tax-exempt status of the interest on the Bonds under Section 103 of the Code or cause any of the Bonds to be an "arbitrage bond" within the meaning of Section 148 of the Code and the Treasury Regulations as the same may be applicable to the Bonds at the time of such action, investment or use. (c) The Company shall give prompt written notice to the Issuer and the Trustee of the filing by the Company of any statement, tax schedule, return or document with the Internal Revenue Service which discloses that an Event of Taxability shall have occurred and its receipt of any written advice from the Internal Revenue Service that an Event of Taxability shall have occurred. (d) The Company acknowledges that it has examined, executed and delivered the Tax Regulatory Certificate and its terms relating to compliance with the Code and shall comply with the covenants, instructions and guidelines contained in the Tax Regulatory Certificate. The Company's obligation to make any payments of Rebate Amounts (as defined in the Tax Regulatory Certificate) required by the Tax Regulatory Certificate and to prepare and furnish to the Issuer and the Trustee the statements and forms described therein shall survive payment in full of the Bonds notwithstanding any provision of this Sale Agreement to the contrary. (e) The Company and the Issuer will furnish accurate information necessary to enable Bond Counsel to make any certifications which might be required under the Regulations. (f) Whenever the Issuer shall be required to file, deliver or execute, or produce any reports, notices or other documents under the Code or the Regulations while the Bonds are outstanding, the Company shall furnish or cause the proper person to furnish in due time to the Issuer, through the attorney for the Issuer, the completed form of such report, notice or other required document together with (a) a certification by the Company or other proper person required to provide information that such document is accurate, and (b) if requested by the Issuer or if otherwise required herein or in the Indenture, an opinion of Bond Counsel addressed to the Issuer that the report or other document is not in violation of any provision of law or of the Issuer Documents or other documents constituting a part of the transcript of proceedings relating to the issuance of the Bonds and that such report, notice or other required document meets the legal requirements for such filing, delivery or execution. In the event of the failure or refusal of the Company or other proper person to comply with this provision, the Company agrees to pay the statement for attorney's fees and administrative time presented by the Issuer for filing, delivering or executing such report or documents, such statement to be paid within 30 days after written notice to the Company by the Issuer. In order to insure that interest on the Bonds is not and will not become subject to federal income taxes as a result of failure of the Bonds to satisfy the requirement of Section 149(e) of the Code, the Company covenants with the Issuer and the Trustee that it will, on or before the date of issuance of the Bonds supply to the Issuer and the Trustee all information required under Internal Revenue Service Form 8038, Information Return for Private Activity Bond Issues (Form 8038), including without limitation the following: (a) the date of issue, the amount of lendable proceeds of the issue, and the stated interest rate, term and face amount of each obligation which is part of the issue; (b) the name of the applicable elected representative who approved the issue, or a description of the voter referendum by which the issue was approved; and (c) a description of any property to be financed from the proceeds of the issue. The Company further covenants that on or before the due date thereof, it will cause Form 8038 to be completed, executed and filed with the appropriate office of the Internal Revenue Service. Section 7.4. Recording and Filing; Other Instruments. (a) The Company covenants that it will, at its expense, cause Counsel in the State to take all steps as are reasonably necessary to render an opinion to the Issuer and the Trustee not earlier than sixty (60) nor later than thirty (30) days prior to each anniversary date occurring at five-year intervals after the issuance of the Bonds to the effect that all financing statements, continuation statements, notices and other instruments required by applicable law have been recorded or filed or re-recorded or re-filed in such manner and in such places required by law in order fully to preserve and protect the rights of the Trustee in the granting by the Issuer of certain rights of the Issuer, pursuant to the Indenture, under this Sale Agreement and the Note. (b) The Company and the Issuer shall execute and deliver all instruments and shall furnish all information and evidence deemed necessary or advisable by such Counsel to enable him to render the opinion referred to in subsection (a) of this Section. The Company shall file and re-file and record and re-record or cause to be filed and re-filed and recorded and re-recorded all instruments required to be filed and re-filed and recorded or re-recorded pursuant to the opinion of such Counsel and shall continue or cause to be continued the liens of such instruments for so long as the Bonds shall be outstanding, except as otherwise required by this Agreement. Section 7.5. Administrative Expenses. The Company shall pay to or for the account of the Issuer within thirty (30) days after notice thereof all reasonable costs and expenses incurred by the Issuer in connection with the financing and administration of the Project, including, without limitation, the costs of administering this Sale Agreement and the fees and expenses of the Trustee, attorneys, consultants and others. Section 7.6. Indemnity Against Claims. (a) The Company will pay and discharge and will indemnify and hold harmless the Issuer and the Trustee from (1) any lien or charge upon amounts payable hereunder by the Company to the Issuer, and (2) any taxes, assessments, impositions and other charges in respect of the Project. (b) If any claim of any such lien or charge upon payments, or any such taxes, assessments, impositions or other charges, are sought to be imposed, the Issuer or the Trustee, as the case may be, will give prompt notice to the Company, and the Company shall have the sole right and duty to assume, and shall assume, the defense thereof, with full power to litigate, compromise or settle the same in its sole discretion. Section 7.7. Release and Indemnification. The Company shall at all times protect and hold the Issuer and its members, officers, employees and agents harmless against any claims or liability resulting from any loss or damage to property or any injury to or death of any person that may be occasioned by any cause whatsoever pertaining to the Project or the use thereof, including without limitation any lease thereof or assignment of its interest in this Agreement, such indemnification to include reasonable expenses and attorneys' fees incurred by the Issuer and its members, officers, employees and agents in connection therewith, provided that such indemnity shall be effective only to the extent of any loss that may be sustained by the Issuer, its members, officers, employees and agents in excess of the Net Proceeds received by it or them from any insurance carrier with respect to such loss and provided further that the benefits of this Section 7.7 shall not inure to any person other than the Issuer and its members, officers, employees and agents. In case any action or proceeding is brought against the Issuer or any of its members, officers, employees or agents by reason of any such claim, the affected party shall notify the Company and the Company shall resist or defend such action or proceeding and control the conduct thereof. The Issuer and its members, officers, employees and agents shall cooperate and join with the Company at the expense of the Company as may be required in connection with any such action or proceeding. Section 7.8. Additional Information. The Issuer and the Trustee are authorized to provide information concerning the outstanding principal amount and payment history of, and other information pertaining to, the Bonds or the Note to any agency or regulatory authority of the State requesting such information. Section 7.9. Default Certificates. The Company shall deliver to the Trustee forthwith, upon obtaining knowledge of any Event of Default hereunder or under the Note, the Indenture, or the Reimbursement Agreement, a certificate of the Company specifying the nature and period of existence thereof and what action the Company proposes to take with respect thereto. Section 7.10. Observe Laws. The Company shall observe all applicable laws, regulations and other valid requirements of any regulatory authority with respect to its operations at the Project. Section 7.11. Election. The Issuer hereby elects to have the provisions of Sections 144(a)(4) of the Code apply to the Bonds. In support of this election, the Issuer states as follows: (a) The name of the Issuer is the Village of Walden Industrial Development Agency and its address is 8 Scofield Street, Walden, NY 12586. (b) The principal user of the Project will be: Spence Engineering Company, Inc. Employer Identification Number: 22-2564130 (c) The Bonds are in the principal amount of $7,500,000, and are to be issued on June 17, 1994. Except for the Prior Bonds (which will be paid in full and redeemed on the date of issuance of the Bonds), there are no outstanding prior issues the proceeds of which have been or are to be used primarily with respect to facilities located or to be located in the County, the principal users of which is or will be the Company or any Related Persons. (d) There were no "Section 103(b)(6)(d) capital expenditures by the Issuer," as that term is defined in the Regulations, which were paid or incurred during the three (3) years preceding the date of issuance of the Prior Bonds to facilities located in Orange County the principal user of which is or will be the Company or any Related Person, except as described in the Tax Regulatory Certificate of the Company. (e) Except for the Bonds and the Prior Bonds, there is no outstanding issue of qualified small issue bonds (as that term is used in Section 141(e)(1)(D) of the Code) issued on behalf of the Company, the proceeds of which have been or will be issued primarily with respect to: (1) Any facility located in whole or in part in the County; or (2) Any "contiguous or integrated facility" (within the meaning of Section 1.103-10(b)(2)(ii)(e) of the Regulations) with respect to any facility located in whole or in part in the County. Section 7.12. No Warranty of Condition of Suitability by the Issuer. THE ISSUER MAKES NO WARRANTY, EITHER EXPRESS OR IMPLIED, AS TO THE CONDITION, TITLE, DESIGN, OPERATION, MERCHANTABILITY OR FITNESS OF THE PROJECT OR THAT IT IS OR WILL BE SUITABLE FOR THE COMPANY'S PURPOSES OR NEEDS. ARTICLE VIII ASSIGNMENT, LEASING AND SELLING Section 8.1. Assignment of this Sale Agreement or Lease or Sale of the Project by the Company. With the prior written consent of the Credit Facility Issuer and the Issuer, the rights of the Company under this Sale Agreement may be assigned, and the Project may be leased or sold as a whole or in part, without the necessity of obtaining the consent of the Issuer or the Trustee, subject, however, to the following conditions: (a) without the prior written consent of the Credit Facility Issuer and the Issuer, no assignment, transfer, sale or lease shall relieve the Company from primary liability for any of its obligations hereunder, and if any such assignment, transfer, sale or lease occurs, the Company shall continue to remain primarily liable for the payments specified herein and in the Note and for performance and observance of the other agreements on its part herein provided to be performed and observed by it; and the Company shall also provide the Trustee with an approving opinion of Bond Counsel to the effect that such assignment, transfer, sale or lease will not adversely affect the status of interest on the Bonds for federal tax purposes. (b) the assignee, lessee or purchaser shall assume the obligations of the Company hereunder to the extent of the interest assigned, leased or sold; and (c) the Company shall, within thirty (30) days after the delivery thereof, furnish or cause to be furnished to the Issuer and to the Trustee a true and complete copy of each such assignment, instrument of transfer, lease or sale agreement, as the case may be, together with any instrument of assumption. Section 8.2. Restrictions on Transfer of the Issuer's Rights. Except for the assignment made pursuant to the Indenture of certain of its rights under this Sale Agreement and its pledge of the Note, endorsed without recourse to the order of the Trustee, to the Trustee as security pursuant to the Indenture, the Issuer will not during the term of this Sale Agreement sell, assign, transfer or convey any of its interests in this Sale Agreement or the Note. Section 8.3. Assignment by the Issuer. It is understood, agreed and acknowledged that the Issuer, as security for payment of the principal of and interest on the Bonds, will grant to the Trustee pursuant to the Indenture, inter alia, certain of its right, title and interest in and to this Sale Agreement (reserving certain of its rights, as more particularly described in the Indenture) and will pledge the Note, endorsed as aforesaid, to the Trustee as security, and the Company hereby assents to such assignment and pledge. Section 8.4. Merger of Issuer. (a) Nothing contained in this Agreement shall prevent the consolidation of the Issuer with, or merger of the Issuer into, or transfer of title to the Project to, any other political subdivision, provided that: (1) the tax-exempt status of the interest on the Bonds shall not be adversely affected thereby, and (2) upon such consolidation, merger or transfer, the due and punctual performance and observance of all the agreements and conditions of this Sale Agreement to be kept and performed by the Issuer shall be expressly assumed in writing by the political subdivision resulting from such consolidation or surviving such merger or to which such merger was made. (b) Within thirty (30) days after the consummation of any such consolidation, merger or transfer of title, the Issuer shall give notice thereof, in reasonable detail to the Company and the Trustee. The Issuer promptly shall furnish such additional information with respect to any such transaction as the Company or the Trustee reasonably may request. ARTICLE IX EVENTS OF DEFAULT AND REMEDIES Section 9.1. Events of Default Defined. The term "Event of Default" or "Default" shall mean any one or more of the following events: (a) the failure by the Company to pay or cause to be paid when due any payment of principal of or interest on or other amount payable under the Note. (b) the failure of the Issuer to pay or cause to be paid when due any payment of principal of or interest on or other amount payable under the Bonds. (c) the failure of the Company to perform any of its obligations under Section 7.3 hereof. (d) the occurrence of an "Event of Default" or "event of default" under any of the other Bond Documents. (e) any representation or warranty of the Company contained in Section 2.2 hereof, in Article XI hereof or in any document, instrument or certificate delivered pursuant hereto or to the Indenture or in connection with the issuance and sale of the Bonds shall be false, misleading or incomplete in any material respect on the date as of which made. (f) failure by the Company to observe or perform any covenant, condition or agreement on the part of the Company under the Note or this Sale Agreement, other than as referred to in the preceding paragraphs of this Section 9.1, for a period of thirty (30) days after written notice, specifying such failure and requesting that it be remedied, is given to the Company by the Issuer or the Trustee. (g) the commencement against the Company of an involuntary case under the federal bankruptcy laws, as now constituted or hereafter amended, or any other applicable federal or state bankruptcy, insolvency or other similar law, or of any action or proceeding for the appointment of a receiver, liquidator, assignee, custodian, trustee, sequestrator (or similar official) of the Company or for any substantial part of its property, or for the winding-up or liquidation of its affairs and the continuance of any such case, action, or proceeding unstayed and in effect for a period of thirty (30) consecutive days. (h) the commencement by the Company of a voluntary case under the federal bankruptcy laws, as now constituted or hereafter amended, or any other applicable federal or state bankruptcy, insolvency or other similar law, or the consent by it to, or its acquiescence in the appointment of or taking possession by a receiver, liquidator, assignee, trustee, custodian, sequestrator (or other similar official) of the Company or of any substantial part of its property, or the making by it of or the consent by it to any assignment for the benefit of creditors, or the failure of the Company generally to pay its debts as such debts become due, or the taking of any action by the Company in furtherance of any of the foregoing. Section 9.2. Remedies on Default. (a) If Payment of the Bonds shall not have been made, whenever any Event of Default referred to in Section 9.1 hereof shall have happened and shall not have been waived: (1) The Issuer may, by written notice, declare all installments of principal repayable pursuant to the Note for the remainder of the term thereof to be immediately due and payable, whereupon the same, together with accrued interest thereon as provided for in the Note, shall become immediately due and payable without presentment, demand, protest or any other notice whatsoever, all of which are hereby expressly waived by the Company; provided, however, all such amounts shall automatically be and become immediately due and payable without notice upon the occurrence of any event described in Section 9.1(g) or 9.1(h) hereof, which notice the Company hereby expressly waives. (2) The Issuer may take whatever other action at law or in equity may appear necessary or desirable to collect the amounts payable pursuant to the Note then due and thereafter to become due, or to enforce the performance and observance of any obligation, agreement or covenant of the Company under this Sale Agreement or under any of the other Bond Documents. (b) In the enforcement of the remedies provided in this Section 9.2, the Issuer may treat all reasonable expenses of enforcement including, without limitation, legal, accounting and advertising fees and expenses, as additional amounts payable by the Company then due and owing and the Company agrees to pay such additional amounts upon demand. Section 9.3. Application of Amounts Realized in Enforcement of Remedies. Any amounts collected pursuant to action taken under Section 9.2 hereof shall be paid to the Trustee and applied to the payment of, first, any costs, expenses and fees incurred by the Issuer and the Trustee as a result of taking such action; second, to the extent permitted by law, any interest which shall have accrued on any overdue interest and any accrued interest on any overdue principal of the Bonds at the rate set forth in the Bonds; third, any overdue interest on the Bonds; fourth, any overdue principal of the Bonds; fifth, the outstanding principal balance of the Bonds. If Payment of the Bonds shall have been made, any remaining moneys shall be applied in accordance with Section 911(b) of the Indenture. Section 9.4. No Remedy Exclusive. No remedy herein conferred upon or reserved to the Issuer is intended to be exclusive of any other available remedy or remedies, but each and every such remedy shall be cumulative and shall be in addition to every other remedy given under this Sale Agreement or now or hereafter existing at law or in equity or by statute. No delay or omission to exercise any right or power accruing upon the occurrence of an Event of Default shall impair any such right or power or shall be construed to be a waiver thereof, but any such right and power may be exercised from time to time and as often as may be deemed expedient. Section 9.5. Agreement to Pay Attorneys' Fees and Expenses. In connection with any Event of Default, if the Issuer or the Trustee employs attorneys or incurs other expenses for the collection of amounts payable hereunder or for the enforcement of the performance or observance of any covenants or agreements on the part of the Company herein contained, the Company agrees that it will on demand therefor pay to the Issuer or the Trustee the reasonable fees of such attorneys and such other reasonable expenses so incurred by the Issuer or the Trustee. Section 9.6. Correlative Waivers. If an event of default under Section 901 of the Indenture shall be cured or waived and any remedial action by the Trustee rescinded, any correlative default under this Sale Agreement shall be deemed to have been cured or waived. ARTICLE X PREPAYMENTS Section 10.1. Optional Prepayments. (a) The Company is hereby granted, and shall have, the option to prepay the unpaid principal of the Note in whole or in part in accordance with and as set forth in Section 701 of the Indenture with respect to the prepayment of the Bonds; provided, all prepayments shall be made in immediately available funds and with interest accrued to the date of prepayment and that any prepayment of the Note in part shall be applied to unpaid installments of principal in inverse order of maturity. Any prepayment pursuant to this subsection (a) shall be made by the Company taking, or causing the Issuer to take, the actions required (1) for Payment of the Bonds, in the case of prepayment of the Note in whole, or (2) to effect prepayment of less than all of the Bonds according to their terms in the case of a partial prepayment of the Note. (b) In the event of damage, destruction or condemnation of the Project or any part thereof, the Company may, at its option, pursuant to Section 6.5 hereof and without penalty or premium, prepay the Note in whole or in part; provided that any such prepayment shall be made in immediately available funds with the interest accrued to the date of whole or partial prepayment. Any prepayment pursuant to this subsection (b) shall be made by the Company taking, or causing the Issuer to take, the actions required for the full or partial prepayment of the Bond as provided for in subsection (a) hereof. (c) To exercise the option granted in subsection (a) or (b) of this Section 10.1, the Company shall give written notice to the Issuer and the Trustee which shall specify therein (1) the date of the intended prepayment of the Note, which shall not be less than thirty (30) nor more than sixty (60) days from the date the notice is mailed and (2) the principal amount of the Note to be prepaid. When given, such notice shall be irrevocable by the Company. Section 10.2. Mandatory Prepayments. (a) In the event of a Determination of Taxability, the Company shall, (1) on a date selected by the Company not more than one hundred eighty (180) days following the date of the Determination of Taxability, prepay the entire unpaid principal balance of the Note in full and interest thereon, without premium, as provided therein. Immediately upon the occurrence of a Determination of Taxability, the Company shall notify the Issuer and the Trustee of the date selected for payment pursuant to this Section 10.2. (b) In the event any Credit Facility is not renewed and an Alternate Credit Facility has not been provided in accordance with Section 603 of the Indenture, the Company shall on or before the Interest Payment Date occurring closest to but not after fifteen (15) days prior to the expiration date of the then current Credit Facility, prepay the entire unpaid principal balance of the Note in full. The Company shall promptly notify the Issuer and the Trustee of the date selected for such payment. Section 10.3. Other Mandatory Prepayments. The amounts required to be applied to the prepayment of the Note by Sections 5.6 and 6.5 hereof shall be applied by the Company to prepay, together with accrued interest, all or a portion of the unpaid principal of the Note. Such prepayment shall be made by the Company taking, or causing the Issuer to take, the actions required (a) for payment of the Bonds, whether by redemption prior to the maturity or by payment at maturity, or (b) to effect the purchase, redemption or payment at maturity of less than all of the installments of principal of the Bonds in inverse order of their maturities. ARTICLE XI REBATE PROVISIONS Section 11.1. Creation of the Rebate Fund. (a) The Issuer shall create and establish with the Trustee a special trust fund in the name of the Issuer to be designated by the Trustee and which is referred to herein as the Rebate Fund (the "Rebate Fund"), which shall be held, invested, expended and accounted for in accordance with this Sale Agreement. (b) Moneys in the Rebate Fund shall be held in trust by the Trustee and, subject to Section 7.3 hereof, shall be held for the benefit of the United States as contemplated under the provisions of this Sale Agreement and shall not be considered to be held for the benefit of the Issuer, the Company, the Trustee or the owners of the Bonds. ARTICLE XII MISCELLANEOUS Section 12.1. References to the Bonds Ineffective After Bonds Paid. Upon Payment of the Bonds, all references in this Sale Agreement to the Bonds shall be ineffective and the Issuer and any owner of the Bonds shall not thereafter have any rights hereunder, excepting reporting and payment of rebate payments under Section 7.3 hereof and rights of the Issuer to indemnification and payment of expenses contained, without limitation, in Sections 7.5, 7.6 and 7.7 hereof. Section 12.2. No Implied Waiver. In the event any agreement contained in the Note or this Sale Agreement should be breached by either party and thereafter waived by the other party, such waiver shall be limited to the particular breach so waived and shall not be deemed to waive any other breach thereunder or hereunder. Neither any failure nor any delay on the part of the Trustee to exercise any right, power or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right, power or privilege preclude any other or further exercise thereof, or the exercise of any other right, power or privilege. Section 12.3. Issuer Representative. Whenever under the provisions of this Sale Agreement the approval of the Issuer is required or the Issuer is required to take some action at the request of the Company, such approval shall be made or such action shall be taken by the Issuer Representative; and the Company, the Trustee and the Bondholders shall be authorized to rely on any such approval or action. Section 12.4. Company Representative. Whenever under the provisions of this Sale Agreement the approval of the Company is required or the Company is required to take some action at the request of the Issuer, such approval shall be made or such action shall be taken by the Company Representative; and the Issuer, the Trustee and the Bondholders shall be authorized to act on any such approval or action. Section 12.5. Notices. (a) All notices, certificates or other communications hereunder shall be sufficiently given and shall be deemed given when delivered by hand delivery or mailed by first class, postage prepaid, registered or certified mail, or sent by nationally-recognized overnight courier addressed as follows: (1) if to the Issuer: Walden Industrial Development Agency 8 Scofield Street Walden, NY 12586 (Attention: Chairman); with a copy to: Richard J. Drake Drake, Sommers, Loeb, Tarshis & Catania, P.C. One Corwin Court P.O. Box 1479 Newburgh, NY 12550 (2) if to the Company: Spence Engineering Company, Inc. c/o Watts Industries, Inc. 815 Chestnut Street North Andover, MA 01845 (Attention: William C. McCartney, Corporate Controller) and with a copy to: John R. LeClaire, P.C. Goodwin, Procter & Hoar Exchange Place Boston, MA 02109 (3) if to the Trustee: The First National Bank of Boston 150 Royall Street, Mail Stop 45-02-15 Canton, Massachusetts 02021 Attn: Corporate Trust Division (b) The Issuer, the Company or the Trustee may, by notice given hereunder, designate from time to time any further or different addresses to which subsequent notices, certificates or other communications shall be sent. Section 12.6. If Payment or Performance Date Is Other Than a Business Day. If the specified or last date for the making of any payment, the performance of any act or the exercising of any right, as provided in this Sale Agreement, shall be a day other than a Business Day, such payment may be made or act performed or right exercised on the next succeeding Business Day; provided that interest shall accrue during any such period during which payment shall not occur. Section 12.7. Binding Effect. This Sale Agreement shall inure to the benefit of and shall be binding upon the Issuer, the Company and their respective successors and assigns, subject to the provisions of Section 8.3 hereof. Section 12.8. Severability. In the event any provision of this Sale Agreement or the Note shall be held invalid or unenforceable by any court of competent jurisdiction, such holding shall not invalidate or render unenforceable any other provision hereof or thereof. Section 12.9. Amendments, Changes and Modifications. Subsequent to the issuance of the Bonds and prior to Payment of the Bonds, this Sale Agreement and the other Bond Documents, may not be effectively amended, changed, modified, altered or terminated except in accordance with the Indenture. Section 12.10. Execution in Counterparts. This Sale Agreement may be executed in several counterparts, each of which shall be an original and all of which shall constitute but one and the same instrument, and no one counterpart of which need be executed by all parties. Section 12.11. Applicable Law. This Sale Agreement shall be governed by and construed in accordance with the laws of the State. Section 12.12. No Charge Against Issuer Credit. No provision hereof shall be construed to impose a charge against the general credit of the Issuer or any personal or pecuniary liability upon any member, official, employee or agent of the Issuer. Section 12.13. Issuer Not Liable. Notwithstanding any other provision of this Sale Agreement (a) the Issuer shall not be liable to the Company, the Trustee, any Bondholder or any other Person for any failure of the Issuer to take action under this Sale Agreement, and (b) except with respect to any action for specific performance or any action in the nature of a prohibitory or mandatory injunction, neither the Issuer nor any officer or member of the Issuer nor any other official, employee or agent of the Issuer shall be liable to the Company, the Trustee, any Bondholder or any other Person for any action taken by the Issuer or by any of its officers, servants, agents or employees or for any failure to take action under this Sale Agreement or the Indenture except for the Issuers willful misconduct. In acting under this Sale Agreement, or in refraining from acting under this Sale Agreement, the Issuer may conclusively rely on the advice of its counsel. Section 12.14. Expenses. The Company agrees to pay all reasonable fees and expenses incurred in connection with the preparation, execution, delivery, modification, waiver, and amendment of this Sale Agreement, the other Bond Documents and related documents, and the fees and expenses of bond counsel, counsel for the Issuer and counsel for the Trustee. The Company also agrees to pay to the Trustee, as and when the same become due, its reasonable fees for services rendered and its expenses incurred as Trustee, including the reasonable fees of its counsel, and such other amounts as the Company herein assumes or agrees to pay, including costs or expenses necessary to cancel and discharge the Indenture. The Company also agrees to pay all expenses incurred by the Trustee or the Issuer in collection of any indebtedness incurred hereunder in the event of default by the Company, including reasonable attorneys fees. Section 12.15. Amounts Remaining with the Trustee. Any amounts remaining in the Bond Fund or otherwise in trust with the Trustee under the Indenture or this Sale Agreement shall, after Payment of the Bonds and all Administrative Expenses in accordance with this Sale Agreement, be disbursed by the Trustee in accordance with the provisions of the Indenture or otherwise as may be required by law. IN WITNESS WHEREOF, the Issuer and the Company have caused this Sale Agreement to be executed in their respective legal names by their duly authorized representatives all as of the date first above written. SPENCE ENGINEERING COMPANY, INC. By /s/ William C. McCartney Its: Assistant Treasurer VILLAGE OF WALDEN INDUSTRIAL DEVELOPMENT AGENCY By /s/ Mathew R. Steichen Its: Chairman Attest: By /s/ John Bruce Seguin Its: Secretary EX-10.13 3 LETTER OF CREDIT, REIMBURSEMENT AND GUARANTY AGREEMENT Dated as of June 1, 1994 TABLE OF CONTENTS Pages ARTICLE I DEFINITIONS . . . . . . . . . . . . . . . . . . . . 3 ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE GUARANTOR . . . . . . . . . . . . . . . . 10 2.1. Incorporation . . . . . . . . . . . . . . 10 2.2. Power and Authority; No Conflicts; Enforceability. . . . . . . . . . . . . . 10 2.3. Financial Condition . . . . . . . . . . . 11 2.4. Title to Property and Assets. . . . . . . 11 2.5. Litigation. . . . . . . . . . . . . . . . 11 2.6. Taxes . . . . . . . . . . . . . . . . . . 11 2.7. Trademarks, Franchises and Licenses . . . 12 2.8. No Default. . . . . . . . . . . . . . . . 12 2.9. Governmental Authority. . . . . . . . . . 12 2.10. ERISA Requirements. . . . . . . . . . . . 12 2.11. Pollution and Environmental Control; Hazardous Substances. . . . . . . . . . . 12 2.12. Capital Structure . . . . . . . . . . . . 13 2.13. Solvent Financial Condition . . . . . . . 13 2.14 Restrictions. . . . . . . . . . . . . . . 13 2.15. Full Disclosure . . . . . . . . . . . . . 13 2.16. Labor Relations . . . . . . . . . . . . . 14 2.17. Compliance with Laws. . . . . . . . . . . 14 2.18 Brokers . . . . . . . . . . . . . . . . . 14 2.19 Trade Relations . . . . . . . . . . . . . 14 2.20 Investment Company Act. . . . . . . . . . 14 2.21. Survival of Representations and Warranties. . . . . . . . . . . . . . . . 14 ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE BORROWER. . . . . . . . . . . . . . . . . 15 3.1. Incorporation . . . . . . . . . . . . . . 15 3.2. Power and Authority . . . . . . . . . . . 15 3.3. Governmental Authority. . . . . . . . . . 15 3.4. Project Site. . . . . . . . . . . . . . . 16 3.5. Survival of Representatives and Warranties. . . . . . . . . . . . . . 16 ARTICLE IV TERMS OF LETTER OF CREDIT, REIMBURSEMENT, OTHER PAYMENTS AND GUARANTY . . . . . . . 17 4.1. Letter of Credit. . . . . . . . . . . . . 17 4.2. Reimbursement and Other Payments. . . . . 17 4.3. Tender Advances . . . . . . . . . . . . . 17 4.4. Commission and Fee. . . . . . . . . . . . 19 4.5. Increased Costs . . . . . . . . . . . . . 19 4.6. Computation . . . . . . . . . . . . . . . 20 4.7. Payment Procedure . . . . . . . . . . . . 20 4.8. Business Days . . . . . . . . . . . . . . 20 4.9. Reimbursement of Expenses . . . . . . . . 20 4.10. Expiration Date . . . . . . . . . . . . . 20 4.11. Guaranty. . . . . . . . . . . . . . . . . 20 4.12. Obligations Absolute. . . . . . . . . . . 22 4.13. Waiver of Guarantor's Rights. . . . . . . 23 ARTICLE V SECURITY; INSURANCE . . . . . . . . . . . . . . . . 24 5.1. Security. . . . . . . . . . . . . . . . . 24 5.2. Casualty and Liability Insurance Required. . . . . . . . . . . . . . . . . 24 5.3. Notice of Casualty or Taking. . . . . . . 24 ARTICLE VI AFFIRMATIVE COVENANTS . . . . . . . . . . . . . . . 25 6.1. Financial Reports and Other Data and Information . . . . . . . . . . . . . 25 6.2. Books, Records and Inspections. . . . . . 26 6.3. Maintenance of Property, Insurance. . . . 27 6.4. Corporate Franchises. . . . . . . . . . . 27 6.5. Compliance with Statutes, etc.. . . . . . 27 6.6. ERISA . . . . . . . . . . . . . . . . . . 27 6.7. Performance of Obligations. . . . . . . . 28 6.8. Taxes and Liens . . . . . . . . . . . . . 28 6.9. Payment of Obligations. . . . . . . . . . 29 6.10. Environmental Matters . . . . . . . . . . 29 ARTICLE VII NEGATIVE COVENANTS. . . . . . . . . . . . . . . . . 30 7.1. Negative Pledge; Liens. . . . . . . . . . 30 7.2. Consolidation or Merger . . . . . . . . . 31 7.3. Sale of Assets, Dissolution, Etc. . . . . 31 7.4. Loans and Investments . . . . . . . . . . 31 7.5. Consolidated Total Liabilities to Consolidated Tangible Net Worth . . . . . 32 7.6. Coverage Ratio. . . . . . . . . . . . . . 32 7.7. Current Ratio . . . . . . . . . . . . . . 32 7.8. Consolidated Net Worth. . . . . . . . . . 32 ARTICLE VIII CONDITIONS TO ISSUANCE OF LETTER OF CREDIT. . . . . . . . . . . . . . . . . . 33 8.1. Conditions of Issuance. . . . . . . . . . 33 8.2. Additional Conditions Precedent to Issuance of the Letter of Credit. . . . . 34 8.3. Conditions Precedent to Each Tender Advance. . . . . . . . . . . . . . 35 ARTICLE IX DEFAULT . . . . . . . . . . . . . . . . . . . . 36 9.1. Events of Default . . . . . . . . . . . . 36 9.2. No Remedy Exclusive . . . . . . . . . . . 38 ARTICLE X MISCELLANEOUS . . . . . . . . . . . . . . . . . . . 39 10.1. Indemnification . . . . . . . . . . . . . 39 10.2. Transfer of Letter of Credit. . . . . . . 40 10.3. Reduction of Letter of Credit . . . . . . 40 10.4. Liability of the Bank . . . . . . . . . . 40 10.5. Successors and Assigns. . . . . . . . . . 41 10.6. Notices . . . . . . . . . . . . . . . . . 41 10.7. Amendment . . . . . . . . . . . . . . . . 42 10.8. Effect of Delay and Waivers . . . . . . . 42 10.9. Counterparts. . . . . . . . . . . . . . . 42 10.10. Severability. . . . . . . . . . . . . . . 42 10.11. Cost of Collection. . . . . . . . . . . . 42 10.12. Set Off . . . . . . . . . . . . . . . . . 42 10.13. Governing Law . . . . . . . . . . . . . . 43 10.14. References. . . . . . . . . . . . . . . . 43 10.15. Consent to Jurisdiction, Venue. . . . . . 43 EXHIBIT A Form of Letter of Credit EXHIBIT B Representations of the Guarantor; Representations of the Borrower EXHIBIT C Liens EXHIBIT D Insurance EXHIBIT E Opinion of Counsel to the Borrower and the Guarantor EXHIBIT F Opinion of Bond Counsel LETTER OF CREDIT, REIMBURSEMENT and GUARANTY AGREEMENT THIS AGREEMENT, dated as of June 1, 1994 by and among SPENCE ENGINEERING COMPANY, INC., a Delaware corporation ("the Borrower"), WATTS INDUSTRIES, INC., a Delaware corporation ("the Guarantor"), and THE FIRST UNION NATIONAL BANK OF NORTH CAROLINA, a national banking association organized and existing under the laws of the United States with its principal offices located in Charlotte, North Carolina (the "Bank"); W I T N E S S E T H: WHEREAS, arrangements have been made pursuant to a Trust Indenture of even date herewith (the "Indenture") between the Village of Walden Industrial Development Agency (the "Issuer") and The First National Bank of Boston, Boston, Massachusetts (the "Trustee") for the issuance and sale by the Issuer of its Industrial Development Revenue Refunding Bonds (Spence Engineering Company, Inc. Project), Series 1994 in the original aggregate principal amount of $7,500,000 (the "Bonds"); and WHEREAS, the Bonds have been issued for the purpose of refunding in whole the outstanding principal amount of the Issuer's Industrial Development Revenue Refunding Bonds (Spence Engineering Company Project), Series 1984 in the original aggregate principal amount of $7,500,000 (the "Prior Bonds"), the proceeds of which were used to finance, in whole or in part, the cost of acquiring, constructing and installing a certain project in the Village of Walden, New York (the "Project") owned and operated by the Company and located in Orange County; and WHEREAS, in order to enhance the marketability of the Bonds, the Borrower has requested the Bank to issue an irrevocable direct pay letter of credit in the form attached hereto as Exhibit A (such letter of credit or any successor or substitute letter of credit issued by the Bank herein individually and collectively called the "Letter of Credit") in an aggregate amount not exceeding $7,875,000, of which (a) $7,500,000 shall support the payment of principal or portion of the purchase price corresponding to principal of the Bonds and (b) $375,000 shall support the payment of up to 120 days' interest or portion of the purchase price corresponding to interest on the Bonds at an assumed interest rate of 15% per annum; and WHEREAS, as a condition precedent to the issuance of the Letter of Credit, the Bank has requested and the Guarantor has agreed to unconditionally guarantee the obligations of the Borrower hereunder as hereinafter provided; NOW, THEREFORE, in consideration of the premises and other good and valuable consideration, including the covenants, terms and conditions hereinafter appearing, and to induce the Bank to issue the Letter of Credit, the Borrower and the Guarantor do hereby covenant and agree with the Bank as follows: ARTICLE I Definitions All words and terms defined in Article I of the Sale Agreement shall have the same meanings in this Agreement, unless otherwise specifically defined herein. The terms defined in this Article I have, for all purposes of this Agreement, the meanings specified hereinabove or in this Article, unless defined elsewhere herein or the context clearly requires otherwise. 1.1. "Affiliate" means any person, corporation, association or other business entity which directly or indirectly controls, or is controlled by, or is under common control with the Borrower or the Guarantor. 1.2. "Agreement" shall mean this Letter of Credit, Reimbursement and Guaranty Agreement, as the same may from time to time be amended, modified or supplemented in accordance with the terms hereof. 1.3. "Alternate Credit Facility" means any irrevocable direct pay letter of credit, insurance policy or similar credit enhancement or support facility for the benefit of the Trustee, the terms of which Alternate Credit Facility shall in all respects material to the registered owners of the Bonds be the same (except for the term set forth in such Alternate Credit Facility) as those of the Letter of Credit. 1.4. "Bankruptcy Code" means 11 U.S.C. (section) 101 et seq., as amended. 1.5. "Bondholder" or "Bondholders" means the initial and any future registered owners of the Bond or Bonds as registered on the books and records of the Bond Registrar pursuant to Section 204 of the Indenture. 1.6. "Bond Documents" means, collectively, the Sale Agreement, the Note, the Remarketing Agreement, the Tender Agency Agreement, the Indenture, the Security Instruments and the Bonds, as the same may be amended, modified or supplemented from time to time in accordance with their respective terms. 1.7. "Borrower" means Spence Engineering Company, Inc., a Delaware corporation. 1.8. "Cash and Cash Equivalents" means as to any Person at a particular date, the aggregate amount of all items categorized as "cash" and "cash equivalents" on the balance sheet of such Person, as determined in accordance with GAAP. 1.09. "Consistent Basis" means, in reference to the application of GAAP, that the accounting principles observed in the period referred to are comparable in all material respects to those applied in the preceding period, except as to any changes consented to by the Bank. 1.10. "Consolidated Net Income" means the consolidated gross revenues of the Guarantor and the Borrower and the Subsidiaries of each for such period less all expenses and other proper charges for such period (including taxes on or measured by income) determined in accordance with GAAP. 1.11. "Consolidated Net Worth" of the Guarantor and the Borrower and the Subsidiaries of each shall mean at any time as of which the amount thereof is to be determined, the sum of the Net Worth of such Persons. 1.12. "Consolidated Subsidiaries" means the Subsidiaries of the Guarantor included in the audited consolidated financial statements of the Guarantor from time to time. 1.13. "Consolidated Tangible Net Worth" of the Guarantor and the Borrower and the Subsidiaries of each shall mean at any time as of which the amount thereof is to be determined, the Consolidated Net Worth less, the sum of the following (without duplication of deductions in respect of items already deducted in arriving at surplus and retained earnings): (a) all reserves, except legal reserves and other contingency reserves (i.e., reserves not allocated to specific purposes and not deducted from assets), which are properly treated as appropriations of surplus or retained earnings; (b) the book value of all assets which would be treated as intangibles under GAAP including, without limitation, capitalized expenses, goodwill, trademarks, trade names, franchises, copyrights, patents and unamortized debt discount and expense; and (c) any treasury stock. 1.14. "Consolidated Total Liabilities" means the sum of the Total Liabilities of the Guarantor and the Borrower and the Subsidiaries of each at any time as of which the amount thereof is to be determined. 1.15. "Consultant" means any third-party architect or engineer satisfactory to the Bank. 1.16. "Current Assets" means Cash and Cash Equivalents and all other assets or resources of a Person which are expected to be realized in cash, sold in the ordinary course of business, or consumed within one year, all determined in accordance with GAAP. 1.17. "Current Liabilities" means the amount of all liabilities of a Person which by their terms are payable within one year (including all indebtedness payable on demand or maturing not more than one year from the date of computation and the current portion of long-term debt), all determined in accordance with GAAP. 1.18. "Default" means an event or condition the occurrence of which would, with the lapse of time or the giving of notice, or both, become an Event of Default. 1.19. "Distribution" means in respect of any corporation means and includes: (i) the payment of any dividends or other distributions on capital stock of the corporation (except distributions in such stock) and (ii) the redemption or acquisition of its Securities unless made contemporaneously from the net proceeds of the sale of its Securities. 1.20. "Environmental Laws" means all federal, state and local laws, rules, regulations, ordinances, programs, permits, guidances, orders and consent decrees relating to health, safety and environmental matters, including, but not limited to, the Resource Conservation and Recovery Act; the Comprehensive Environmental Response, Compensation and Liability Act of 1980; the Toxic Substances Control Act, as amended; the Clean Water Act; the River and Harbor Act; the Water Pollution Control Act; the Marine Protection Research and Sanctuaries Act; the Deep-Water Port Act; the Safe Drinking Water Act; the Superfund Amendments and Reauthorization Act of 1986; the Federal Insecticide, Fungicide and Rodenticide Act; the Mineral Lands and Leasing Act; the Surface Mining Control and Reclamation Act; state and federal superlien and environmental cleanup programs and laws; and U.S. Department of Transportation regulations. 1.21. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended, including any rules and regulations promulgated thereunder. 1.22. "ERISA Affiliate" means a Person under common control with the Guarantor within the meaning of Section 414(c) of the Internal Revenue Code of 1986, as amended, or Section 4001(b) of ERISA. 1.23. "Event of Default" means an Event of Default as defined in Section 9.1 hereof. 1.24. "Expiration Date" means June 17, 1997, the expiration date of the Letter of Credit, as such date may be extended in accordance with the terms of Section 4.10 hereof. 1.25. "GAAP" means those principles of accounting set forth in pronouncements of the Financial Accounting Standards Board and its predecessors or pronouncements of the American Institute of Certified Public Accountants or those principles of accounting which have other substantial authoritative support and are applicable in the circumstances as of the date of application, as such principles are from time to time supplemented or amended. 1.26. "Guarantor" means Watts Industries, Inc., a Delaware corporation. 1.27. "Indebtedness" means with respect to any Person, all indebtedness of such Person for borrowed money, all indebtedness of such Person for the acquisition of property other than purchase of products and merchandise in the ordinary course of business, indebtedness secured by and any lien, pledge or other encumbrance on the property of such Person whether or not such indebtedness is assumed, all liability of such Person by way of endorsements (other than for collection or deposit in the ordinary course of business); all guarantees of Indebtedness of any other Person by such Person (including any agreement, contingent or otherwise, to purchase any obligation representing such Indebtedness or property constituting security therefor, or to advance or supply funds for such purpose or to maintain working capital or other balance sheet or income statement condition, or any other arrangement in substance effecting any of the foregoing); all leases and other items which in accordance with GAAP are classified as liabilities on a balance sheet; provided that in no event shall the term Indebtedness include capital stock, surplus and retained earnings, minority interests in the common stock of subsidiaries, reserves for deferred income taxes and investment credits, other deferred credits and reserves, and deferred compensation obligations. 1.28. "Lien" means any interest in Property securing an obligation owed to, or a claim by, a Person other than the owner of the Property, whether such interest is based on the common law, statute or contract, and including, but not limited to, the security interest, security title or lien arising from a security agreement, mortgage, deed of trust, deed to secure debt, encumbrance, pledge, conditional sale or trust receipt or a lease, consignment or bailment for security purposes. For the purpose of this Agreement, the Borrower or the Guarantor, respectively, shall be deemed to be the owner of any Property which it has acquired or holds subject to a conditional sale agreement or other arrangement pursuant to which title to the Property has been retained by or vested in some other Person for security purposes. 1.29. "Material Adverse Effect" means a material adverse effect on the business, operations or financial condition of the Guarantor and its Subsidiaries or if applicable, such other Person, taken as a whole. 1.30. "Money Borrowed" as applied to Indebtedness, means (i) Indebtedness for borrowed money; (ii) Indebtedness, whether or not in any such case the same was for borrowed money, (A) which is represented by notes payable or drafts accepted that evidence extensions of credit, (B) which constitutes obligations evidenced by bonds, debentures, notes or similar instruments, or (C) upon which interest charges are customarily paid (other than accounts payable) or that was issued or assumed as full or partial payment for Property; (iii) Indebtedness that constitutes a Capitalized Lease Obligation; and (iv) Indebtedness under any guaranty of obligations that would constitute Indebtedness for Money Borrowed under clauses (i) through (iii) hereof. 1.31. "Net Worth" means the amount of issued and outstanding share capital, plus the amount of additional paid-in capital, retained earnings (or, in the case of a deficit, minus the amount of such deficit), determined in accordance with GAAP. 1.32. "Obligations" means all loans and all other advances, debts, liabilities, obligations, covenants and duties owing, arising, due or payable from the Borrower to the Bank of any kind or nature, present or future, whether or not evidenced by any note, guaranty or other instrument, whether arising under this Agreement or any of the other Bond Documents or Security Instruments or otherwise, whether direct or indirect (including those acquired by assignment), absolute or contingent, primary or secondary, due or to become due, now existing or hereafter arising and however acquired. The term includes, without limitation, all interest, charges, expenses, fees, attorney's fees and any other sums chargeable to the Borrower under any of the Bond Documents or Security Instruments. 1.33. "Officer's Certificate" means the Certificate of the Chief Financial Officer or the Controller of the Borrower or the Guarantor, as the case shall be, as approved by the Bank. 1.34. "Other Agreements" means any and all agreements, instruments and documents (other than this Agreement and the Security Instruments), heretofore, now or hereafter executed by the Borrower or the Guarantor or the Subsidiaries of either or any of them and delivered to the Bank in respect to the transactions contemplated by this Agreement. 1.35. "Permitted Encumbrances" means and includes: (a) liens for taxes and assessments not delinquent or which are being contested in good faith by appropriate proceedings and against which adequate reserves have been provided for on the books of the Guarantor or the Borrower, as applicable; (b) worker's, mechanic's and materialmen's liens and similar liens incurred in the ordinary course of business remaining undischarged or unstayed for not longer than 60 days following Borrower's notice of the attachment thereof; (c) attachments remaining undischarged or unstayed for not longer than 60 days from the making thereof; (d) liens in respect of final judgments or awards remaining undischarged or unstayed for not longer than 60 days from the making thereof; (e) liens in respect of pledges or deposits under worker's compensation laws, liens to secure customs bonds, unemployment insurance or similar legislation and in respect of pledges or deposits to secure bids, tenders, contracts (other than contracts for the payment of money), leases or statutory obligations, or in connection with surety, appeal and similar bonds incidental to the conduct of litigation; (f) any other liens, easements, encumbrances, rights of way and clouds on title included within the term "Permitted Encumbrances" as defined in the Deed to Secure Debt and Security Agreement. 1.36. "Person" means an individual, partnership, corporation, trust, joint venture, unincorporated organization, association, or a government, or agency or political subdivision or instrumentality thereof. 1.37. "Plan" means a pension plan (other than a multiemployer pension plan as defined in Section 3(37) of ERISA) that is subject to Title IV of ERISA. 1.38. "Pledge Agreement" means the Pledge Agreement of even date herewith from the Borrower to the Bank. 1.39. "Prime Rate" means the interest rate publicly announced from time to time by the Bank to be its prime rate, which may not necessarily be its best lending rate. In the event the Bank shall abolish or abandon the practice of announcing its Prime Rate or should the same be unascertainable, the Bank shall designate a comparable reference rate which shall be deemed to be the Prime Rate under this Agreement. 1.40. "Private Placement Memorandum" means the Private Placement Memorandum dated June 17, 1994 relating to the Bonds. 1.41. "Prohibited Transaction" means any transaction set forth in Section 406 of ERISA or Section 4975 of the Internal Revenue Code of 1986, as amended from time to time. 1.42. "Project" means the manufacturing facility acquired, constructed and installed with the proceeds of the Prior Bonds, owned and operated by the Borrower in the Village of Walden, New York. 1.43. "Property" means any interest in any kind of property or asset, whether real, personal or mixed, or tangible or intangible. 1.44. "Reportable Event" means any of the events set forth in Section 4043(b) of ERISA other than those events for which the obligation to notify the Pension Benefit Guaranty Corporation ("PBGC") has been waived under 29 C.F.R. Part 2615. 1.45. "Security" means shall have the same meaning as in Section 2(1) of the Securities Act of 1933, as amended. 1.46. "Security Instruments" means, collectively, the Pledge Agreement and any and all Other Agreements. 1.47. "Solvent" means as to any Person, such Person (i) owns Property whose fair saleable value is greater than the amount required to pay all of such Person's Indebtedness (including contingent debts), (ii) is able to pay all of its Indebtedness as such Indebtedness matures and (iii) has capital sufficient to carry on its business and transactions and all business and transactions in which it is about to engage. 1.48. "Subsidiary" or "Subsidiaries" means, as to any Person, any corporation whether organized and existing under the laws of any state of the United States, including the District of Columbia and Puerto Rico, or under the laws of any foreign country, of which more than 50% of voting stock at any time is owned or controlled directly or indirectly by the Borrower or the Guarantor, as applicable. 1.49. "Tender Advance" has the meaning assigned to that term in Section 4.3 of this Agreement. 1.50. "Tender Draft" has the meaning assigned to that term in the Letter of Credit. 1.51. "Termination Date" means the last day a drawing is available under the Letter of Credit. 1.52. "Trustee" means any Person or group of Persons at the time serving as corporate fiduciary under the Indenture. 1.53. "Uniform Customs and Practice" shall mean the Uniform Customs and Practice for Documentary Credits, 1993 Revision, ICC Publication No. 500. ARTICLE II Representations and Warranties of the Guarantor The Guarantor represents and warrants to the Bank (which representations and warranties shall survive the delivery of the documents mentioned herein and the issuance of the Letter of Credit) that: 2.1. Incorporation. Each of the Guarantor and its Consolidated Subsidiaries is a corporation, partnership or joint venture, respectively, duly organized, existing and in good standing under the laws of its respective jurisdiction, except where the failure to be in good standing would not have a Material Adverse Effect and has the corporate or other power to own its respective properties and to carry on its respective business as now or at such future time being conducted, and is duly qualified as a foreign corporation or otherwise to do business in every jurisdiction in which the failure to be so qualified would have a Material Adverse Effect. On the date of the execution and delivery of this Agreement, the Guarantor has the respective Consolidated Subsidiaries shown on Exhibit B hereto, and no other Subsidiaries. 2.2. Power and Authority; No Conflicts; Enforceability. It is duly authorized under all applicable provisions of law to execute, deliver and perform this Agreement and the Other Agreements to which it is a party, and all corporate action on its part required for the lawful execution, delivery and performance hereof and thereof has been duly taken; and this Agreement and the Other Agreements to which it is a party, upon the due execution and delivery hereof, will be the valid, binding and legal obligation of the Guarantor enforceable in accordance with their respective terms, subject to bankruptcy, insolvency, reorganization, moratorium, or similar laws affecting creditors' rights generally and to general principles of equity. Neither the execution of this Agreement, nor the fulfillment of or compliance with the respective provisions and terms hereof, will (A) conflict with, or result in a breach of the terms, conditions or provisions of, or constitute a violation of or default under any applicable law, regulation, judgment, writ, order or decree to which the Guarantor or any Consolidated Subsidiary or any of their respective properties are subject, or the charter or bylaws of the Guarantor or any Consolidated Subsidiary, or any agreement or instrument to which the Guarantor or any Consolidated Subsidiary is now a party and (b) create any lien, charge or encumbrance upon any of the property or assets of the Guarantor or any Consolidated Subsidiary pursuant to the terms of any agreement or instrument to which the Guarantor or any Subsidiary is a party or by which they, or any of them, or any of their respective properties, are bound except pursuant to the Security Instruments. 2.3. Financial Condition. The consolidated balance sheet of the Guarantor and its Consolidated Subsidiaries for the fiscal year ended as of June 30, 1993 [and the fiscal quarters ended September 30, 1993, December 31, 1993 and March 31, 1994], and the related consolidated statements of income and retained earnings and changes in financial position for the period then ended, copies of which have been furnished to the Bank, are correct, complete and fairly present the financial condition of the Guarantor and its Consolidated Subsidiaries in all material respects as at the respective date of said balance sheets, and the results of its respective operations for each such period. The Guarantor and its Consolidated Subsidiaries do not have any material direct or contingent liabilities as of the date of this Agreement which are not provided for or reflected in the balance sheets dated March 31, 1994, or referred to in notes thereto or set forth in Exhibit B hereto. There has been no material adverse change in the business, properties or condition, financial or otherwise, of the Guarantor and its Consolidated Subsidiaries since March 31, 1994. 2.4. Title to Property and Assets. It has good and marketable title to its Property, including the properties and assets reflected in the financial statements and notes thereto described in Section 2.3 hereof, except for such assets as have been disposed of since the date of said financial statements in the ordinary course of business or as are no longer useful in the conduct of its business, and all such properties and assets are free and clear of all material Liens, mortgages, pledges, encumbrances or charges of any kind except Liens reflected in the financial statements or Exhibit B hereto or permitted under Section 7.2 hereof. 2.5. Litigation. There are no pending or, to the best of its knowledge, threatened material actions, suits or proceedings before any court, arbitrator or governmental or administrative body or agency which may materially adversely affect the properties, business or condition, financial or otherwise, of the Guarantor and its Consolidated Subsidiaries on a consolidated basis, except as disclosed in the financial statements and notes thereto described in Section 2.3 hereof or Exhibit B hereto. 2.6. Taxes. It has filed all material tax returns required to be filed by it and all material taxes due with respect thereto have been paid, and except as described in Exhibit B hereto, no controversy in respect of a material amount of additional taxes, state, federal or foreign, of the Guarantor is pending, or, to the knowledge of the Guarantor, threatened. The federal income taxes of the Guarantor have been examined and reported on or closed by applicable statutes for all fiscal years to and including the fiscal year ending June 30, 1990, and adequate reserves have been established for the payment of all such taxes for periods ended subsequent to June 30, 1990. 2.7. Trademarks, Franchises and Licenses. It owns, possesses, or has the right to use all necessary material patents, licenses, franchises, trademarks, trademark rights, trade names, trade name rights and copyrights to conduct business as now conducted, without known conflict with any patent, license, franchise, trademark, trade name, or copyright of any other Persons. 2.8. No Default. It is not in default in the performance, observance or fulfillment of any of its material obligations, covenants or conditions contained in any agreement or instrument to which it is a party or by which it may be bound, the effect of which default would allow any Person to cause such obligation under the agreement or instrument to become due prior to its stated maturity. 2.9. Governmental Authority. It has received the written approval of all federal, state, local and foreign governmental authorities, if any, necessary to carry out the terms of this Agreement, and no further governmental consents or approvals are required in the making or performance of this Agreement by it. 2.10. ERISA Requirements. It has not incurred any material liability to the PBGC established under ERISA (or any successor thereto under ERISA) in connection with any Plan established or maintained by it or by any Person under common control with it (within the meaning of Section 414(c) of the Internal Revenue Code of 1986, as amended (the "Code"), or of Section 4001(b) of ERISA), or in which its employees are entitled to participate. No such Plan has incurred any material accumulated funding deficiency within the meaning of ERISA. No Reportable Event in connection with any such Plan has occurred or is continuing. 2.11. Pollution and Environmental Control; Hazardous Substances. It has obtained all permits, licenses and other authorizations which are required under any Environmental Laws, except to the extent that failure to have obtained any such permit, license or authorization will not have a Material Adverse Effect, and is in material compliance with, all federal, state, and local Environmental Laws and regulations relating, without limitation, to pollution, reclamation or protection of the environment, including laws relating to emissions, discharges, releases or threatened releases of pollutants, contaminants or hazardous or toxic materials or wastes into air, water, or land, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport, or handling of pollutants, contaminants or hazardous or toxic substances, materials or wastes the failure to comply with which would have a Material Adverse Effect. Neither any Guarantor, nor to Guarantor's knowledge any previous owner of the Project Site, has disposed of any hazardous substances on any portion of the Project Site. As used in this subparagraph, "hazardous substances" shall have the meaning set forth in the Comprehensive Environmental Response, Compensation, and Liability Act, 42 U.S.C. (section) 6901, et. seq., and the regulations adopted pursuant to such act. 2.12. Capital Structure. Exhibit B attached hereto and made a part hereof states the correct name of each of the Consolidated Subsidiaries of the Guarantor, the jurisdiction of organization or incorporation and the percentage of its voting stock owned by the Guarantor. The Guarantor has good title to all of the shares it purports to own of the stock of each Consolidated Subsidiary, free and clear in each case of any Lien other than Permitted Liens. All such shares have been duly issued and are fully paid and non-assessable. 2.13. Solvent Financial Condition. It is now, and after giving effect to the transactions contemplated hereby, will be Solvent. 2.14. Restrictions. It is not a party or subject to any contract, agreement, or charter or other corporate restriction, which Guarantor believes materially and adversely affects its business or the use or ownership of any of its Properties. The Guarantor is not a party or subject to any contract or agreement which restricts its right or ability to incur Indebtedness, other than as set forth on Exhibit B attached hereto, none of which prohibit the execution of or compliance with this Agreement by the Guarantor. 2.15. Full Disclosure. The Financial Statements referred to in Section 2.3 above, do not, nor does this Agreement or the Bond Documents or any Other Agreement or written statement of the Guarantor to the Bank (including, without limitation, the Guarantor's filings, if any, with the Securities and Exchange Commission), taken as a whole, contain any untrue statement of a material fact or omit a material fact necessary to make the statements contained therein or herein not misleading. There is no fact which the Guarantor has failed to disclose to the Bank in writing which materially affects adversely or, so far as the Guarantor can now foresee, will materially affect adversely the Properties, business, prospects, profits, or condition (financial or otherwise) of the Guarantor or any of its Consolidated Subsidiaries or the ability of the Guarantor or the Borrower to perform this Agreement or the Bond Documents. 2.16. Labor Relations. Except as described on Exhibit B attached hereto and made a part hereof, there are no material grievances, disputes or controversies with any union or any other organization of the Guarantor's employees, or threats of strikes, work stoppages or any asserted pending demands for collective bargaining by any union or organization which could have a Material Adverse Effect. 2.17. Compliance With Laws. It has duly complied in all material respects with, and its Properties, business operations and leaseholds are in compliance in all material respects with, the provisions of all federal, state and local laws, rules and regulations applicable to the Guarantor, its Properties or the conduct of its business, including, without limitation, OSHA and all Environmental Laws, the failure to comply with which would have a Material Adverse Effect. 2.18. Brokers. There are no claims for brokerage commissions, finder's fees or investment banking fees in connection with the transactions contemplated by this Agreement, except for fees owed to the Bank and its affiliates. 2.19. Trade Relations. There exists no actual or threatened termination, cancellation or limitation of, or any modification or change in, the business relationship between the Guarantor and any customer or any group of customers whose purchases individually or in the aggregate are material to the business of the Guarantor, or with any material supplier, and there exists no present condition or state of facts or circumstances which would materially affect adversely the Guarantor or prevent the Guarantor from conducting such business after the consummation of the transaction contemplated by this Agreement in substantially the same manner in which it has heretofore been conducted. 2.20. Investment Company Act. The Guarantor is not an "investment company" or a company "controlled" by an "investment company", within the meaning of the Investment Company Act of 1940, as amended. 2.21. Survival of Representations and Warranties. It covenants, warrants and represents to the Bank that all representations and warranties of the Guarantor contained in this Agreement or any of the Bond Documents or Other Agreements shall be true at the time of its execution of this Agreement and, the Bond Documents or Other Agreements, and shall survive the execution, delivery and acceptance thereof by the Bank and the parties thereto and the closing of the transactions described therein or related thereto. ARTICLE III Representations and Warranties of the Borrower The Borrower represents and warrants to the Bank (which representations and warranties shall survive the delivery of the documents mentioned herein and the issuance of the Letter of Credit) that: 3.1. Incorporation. It is a corporation duly incorporated, existing and in good standing under the laws of the State of its incorporation, and has the corporate or other power to own its Property and to carry on its business as now being conducted. 3.2. Power and Authority. It is duly authorized under all applicable provisions of law to execute, deliver and perform this Agreement and the Bond Documents, and all action, corporate or otherwise, as applicable, on its part required for the lawful execution, delivery and performance hereof has been duly taken; and this Agreement and the Bond Documents, upon the due execution and delivery hereof, will be its valid and binding obligation enforceable in accordance with their respective terms, subject to bankruptcy, insolvency, reorganization, moratorium, or similar laws affecting creditors' rights generally and to general principles of equity. Neither the execution of this Agreement nor the Bond Documents, nor the fulfillment of or compliance with their respective provisions and terms, will (a) conflict with, or result in a breach of the terms, conditions or provisions of, or constitute a violation of or default under any applicable law, regulation, judgment, writ, order or decree to which it or any of its properties is subject, or its charter or by-laws, or any agreement or instrument to which it or any of its Subsidiaries is now a party or by which it or any of its Subsidiaries or any of their respective properties is bound or affected, or (b) create any lien, charge or encumbrance upon any of its or any of its Subsidiaries' property or assets pursuant to the terms of any agreement or instrument to which it or any of its Subsidiaries is a party or by which it or any of its Subsidiaries or any of their respective properties is bound except pursuant to the Security Instruments. 3.3. Governmental Authority. It has received the written approval of all federal, state, local and foreign governmental authorities, if any, necessary to carry out the terms of this Agreement, and no further governmental consents or approvals are required in the making or performance of this Agreement and the Bond Documents. 3.4. Project Site. The operation of the Project complies in all material respects with presently existing zoning and other land use restrictions affecting the Project Site, including without limitation, any restrictive covenants. 3.5. Survival of Representations and Warranties. It covenants, warrants and represents to the Bank that all representations and warranties of contained in this Agreement or any of the Bond Documents shall be true at the time of its execution of this Agreement and the Bond Documents, and shall survive the execution, delivery and acceptance thereof by the Bank and the parties thereto and the closing of the transactions described therein or related thereto. ARTICLE IV Terms of Letter of Credit, Reimbursement, Other Payments and Guaranty 4.1. Letter of Credit. The Bank agrees, on the terms and conditions hereinafter set forth, to issue and deliver the Letter of Credit in favor of the Trustee in substantially the form of Exhibit A attached hereto upon fulfillment of the applicable conditions set forth in Article VIII hereof. The Bank agrees that any and all payments under the Letter of Credit will be made with the Bank's own funds. 4.2. Reimbursement and Other Payments. The Borrower shall pay to the Bank: (a) on or before 3:00 P.M., EST, but after the honoring of a draw by the Bank, on the date that any amount is drawn under the Letter of Credit, a sum equal to such amount so drawn under the Letter of Credit; (b) on demand, interest on any and all amounts remaining unpaid by the Borrower when due hereunder from the date such amounts become due until payment thereof in full, at a fluctuating interest rate per annum equal at all times to the lesser of (i) the Prime Rate plus two percent (2%) or (ii) the highest lawful rate permitted by applicable law; (c) on demand, any and all reasonable expenses incurred by the Bank in enforcing any rights under this Agreement and the Bond Documents; and (d) on demand all charges, commissions, costs and expenses set forth in Sections 4.4, 4.5 and 4.9 hereof. 4.3. Tender Advances. (a) If the Bank shall make any payment of that portion of the purchase price corresponding to principal and interest of the Bonds drawn under the Letter of Credit pursuant to a Tender Draft and the conditions set forth in Section 8.3 all have been fulfilled, such payment shall constitute a tender advance made by the Bank to the Borrower on the date and in the amount of such payment (a "Tender Advance"); provided that if the conditions of said Section 8.3 have not been fulfilled, the amount so drawn pursuant to the Tender Draft shall be payable in accordance with the terms of Section 4.2(a) above. Notwithstanding any other provision hereof, the Borrower shall repay the unpaid amount of each Tender Advance, together with all unpaid interest thereon on the earlier to occur of (i) such date as Bonds purchased pursuant to a Tender Draft are resold as provided in paragraph 4.3(d) hereof, (ii) on the date 366 days following the date of such Tender Advance, or (iii) the Termination Date. The Borrower may prepay the outstanding amount of any Tender Advance in whole or in part, together with accrued interest to the date of such prepayment on the date such amount is prepaid. The Borrower shall notify the Bank prior to 11:00 A.M., EST on the date of such prepayment of the amount to be prepaid. (b) The Borrower shall pay interest on the unpaid amount of each Tender Advance from the date of such Tender Advance until such amount is paid in full, payable monthly, in arrears, on the first day of each month during the term of each Tender Advance and on the date such amount is paid in full, at a fluctuating interest rate per annum in effect from time to time equal to the Prime Rate, provided that the unpaid amount of any Tender Advance which is not paid when due shall bear interest at the lesser of the Prime Rate plus two percent (2%) or the highest rate permitted by applicable law, payable on demand and on the date such amount is paid in full. (c) Pursuant to the Pledge Agreement the Borrower has agreed that, in accordance with the terms of the Indenture, Bonds purchased with proceeds of any Tender Draft shall be delivered by the Tender Agent to the Bank or its designee to be held by the Bank or its designee in pledge as collateral securing the Borrower's payment obligations to the Bank hereunder. Bonds so delivered to the Bank or its designee shall be registered in the name of the Bank, or its designee, as pledgee of the Borrower, as provided for in Section 3 of the Pledge Agreement. (d) Prior to or simultaneously with the resale of Pledged Bonds, the Borrower shall prepay or cause the Tender Agent to prepay as provided below the then outstanding Tender Advances (in the order in which they were made) by paying to the Bank an amount equal to the sum of (a) the amounts advanced by the Bank pursuant to the corresponding Tender Drafts relating to such Bonds, plus (b) the aggregate amount of accrued and unpaid interest on such Tender Advances. Such payment shall be applied by the Bank in reimbursement of such drawings (and as prepayment of Tender Advances resulting from such drawings in the manner described below), and, upon receipt by the Bank of a certificate completed and signed by the Trustee in substantially the form of Annex F to the Letter of Credit, the Borrower irrevocably authorizes the Bank to rely on such certificate and to reinstate the Letter of Credit in accordance therewith. Funds held by the Tender Agent as a result of sales of the Pledged Bonds by the Remarketing Agent shall be paid to the Bank by the Tender Agent to be applied to the amounts owing by the Borrower to the Bank pursuant to this paragraph (d). Upon payment to the Bank of the amount of such Tender Advance to be prepaid, together with accrued interest on such Tender Advance to the date of such prepayment on the amount to be prepaid, the principal amount outstanding of Tender Advances shall be reduced by the amount of such prepayment and interest shall cease to accrue on the amount prepaid. 4.4. Commission and Fee. (a) The Borrower shall pay to the Bank a commission at the rate of one-half of one percent per annum on the undrawn amount available to be drawn under the Letter of Credit (computed on the date that such commission is payable) from and including the date of issuance of the Letter of Credit until the Termination Date, payable (i) as to the year in which the Letter of Credit is issued, on such date of issuance, and (ii) thereafter payable annually in advance in full on the first day of each anniversary of the issuance of the Letter of Credit. If the Letter of Credit is terminated or if there is a drawing under the Letter of Credit to pay the principal of the Bonds during the year preceding such anniversary date, the Bank will refund to the Borrower the applicable unused portion of the commission calculated on a pro rata basis. (b) The Borrower shall pay to the Bank, upon each drawing under the Letter of Credit in accordance with its terms, a fee of $150 per drawing. (c) The Borrower shall pay to the Bank, upon transfer of the Letter of Credit in accordance with its terms, a transfer fee of $1,000. 4.5. Increased Costs. In the event of any change in any existing or future law, regulation, ruling or interpretation thereof affecting the Bank which shall either (a) impose, modify or make applicable any reserve, special deposit, capital requirement, assessment or similar requirement against the Letter of Credit or (b) impose on the Bank any other condition regarding the Letter of Credit, and the result of any event referred to in clause (a) or (b) above shall be to increase the cost (including a reasonable allocation of resources) or decrease the yield to the Bank of issuing or maintaining the Letter of Credit (which increase in cost shall be the result of the Bank's reasonable allocation of the aggregate of such cost increases or yield decreases resulting from such events), then, upon demand by the Bank, the Borrower shall immediately pay to the Bank, from time to time as specified by the Bank, additional amounts which shall be sufficient to compensate the Bank for such increased cost or decreased yield. A statement of charges submitted by the Bank, shall be conclusive, absent manifest error, as to the amount owed. 4.6. Computation. All payments of interest, commission and other charges under this Agreement shall be computed on the per annum basis, based upon a year of 365 (or 366, as the case may be) days, and calculated for the actual number of days elapsed. 4.7. Payment Procedure. All payments made by the Borrower under this Agreement shall be made to the Bank in lawful currency of the United States of America and in immediately available funds at the Bank's offices described at the beginning of this Agreement before 12:00 Noon, EST on the date when due, except for payments made in accordance with the terms of Section 4.2(a). 4.8. Business Days. If the date for any payment hereunder falls on a day which is not a Business Day, then for all purposes of this Agreement the same shall be deemed to have fallen on the next succeeding Business Day, and such extension of time shall in such case be included in the computation of payments of interest or commission, as the case may be. 4.9. Reimbursement of Expenses. The Borrower will pay all reasonable legal fees (computed without regard to any statutory presumption) incurred by the Bank in connection with the preparation, execution and delivery of this Agreement, the Letter of Credit, the Bond Documents, and all transactions contemplated hereby and thereby (including any amendments hereto or thereto or consents or waivers hereunder or thereunder) and will also pay all fees, charges or taxes for the recording or filing of Security Instruments. The Borrower will also pay for all reasonable legal expenses of the Bank in connection with the administration of the Letter of Credit, this Agreement and the Bond Documents. The Borrower will, upon request, promptly reimburse the Bank for all amounts expended, advanced or incurred by the Bank to collect or satisfy any obligation of the Borrower under this Agreement or any of the Bond Documents, or to enforce the rights of the Bank under this Agreement or any of the Bond Documents, which amounts will include, without limitation, all court costs, reasonable attorneys' fees, fees of auditors and accountants and investigation expenses incurred by the Bank in connection with any such matters. 4.10. Expiration Date. The Letter of Credit will expire on its stated Expiration Date, unless the Bank notifies the Borrower in writing at least 120 days prior to the Expiration Date that the Bank will extend such applicable Expiration Date for an additional one-year period from the then applicable Expiration Date. 4.11. Guaranty. (a) the Guarantor hereby absolutely and unconditionally guarantees, the full and timely payment when due, whether at stated maturity, by acceleration or otherwise, of all obligations of the Borrower now or hereafter existing under this Agreement or any of the Security Instruments, whether for principal, interest, fees, expenses or otherwise. The Guarantor further agrees to pay any and all expenses (including without limitation reasonable attorneys' fees and expenses) incurred by the Bank in enforcing or protecting its rights against the Guarantor under this Agreement or any of the Security Instruments. (b) This is a guaranty of payment and not of collection, and the Guarantor expressly waives any right to require that any action be brought against the Borrower or any other guarantor or to require that resort be had to any security, whether held by or available to the Bank or to any other guaranty. If the Borrower shall default in payment of the principal, interest, or fees on or any other amount payable hereunder when and as the same shall become due, whether by acceleration, call for prepayment, or otherwise, or upon the occurrence of any other Event of Default hereunder, the Guarantor, upon demand by the Bank or its successors or assigns, will promptly and fully make such payments. All payments by the Guarantor shall be made in immediately available coin or currency of the United States of America which on the respective dates of payment thereof is legal tender for the payment of public and private debts. Each default in payment of the principal, interest, fees or any other amount payable hereunder, or the occurrence of any other Event of Default hereunder, shall give rise to a separate cause of action hereunder, and separate suits may be brought hereunder as each cause of action arises. The Bank, or its successors or assigns, in its sole discretion, shall have the right to proceed first and directly against the Guarantor and its successors and assigns. (c) The Guarantor hereby waives promptness, diligence, notice of acceptance and any other notice with respect to any of the obligations of the Borrower under this Agreement or any requirement that the Bank protect, secure, perfect or insure any security interest or lien or any property subject hereto or to the Security Instruments or exhaust any right or take any action against the Borrower or any other Person. (d) The Guarantor will not exercise any rights that it may acquire by way of subrogation under this Agreement, by any payment made hereunder or otherwise, until all the obligations of the Borrower shall have been paid or performed in full. If any amount shall be paid to the Guarantor on account of such subrogation rights at any time when all the obligations of the Borrower hereunder shall not have been paid or performed in full, such amount shall be held in trust for the benefit of the Bank and shall forthwith be paid to the Bank to be credited and applied upon the obligations of the Borrower hereunder, whether matured or unmatured, in accordance with the terms hereof. (e) This guaranty shall continue to be effective or be reinstated, as the case may be, if at any time any payment of any of the obligations of the Borrower hereunder is rescinded or is otherwise returned by the Bank upon the insolvency, bankruptcy or reorganization of the Borrower or otherwise, all as though such payment had not been made. 4.12. Obligations Absolute. The obligations of each of the Borrower and the Guarantor under this Agreement shall be absolute, unconditional and irrevocable, and shall be paid strictly in accordance with the terms of this Agreement, under all circumstances whatsoever, including, without limitation, the following circumstances: (a) any lack of validity or enforceability of the Letter of Credit, the Bonds, any of the other Bond Documents, any of the Security Instruments or any other agreement or instrument related thereto; (b) any amendment or waiver of or any consent to departure from the terms of the Letter of Credit, the Bonds, any of the other Bond Documents, any of the Security Instruments or any other agreement or instrument related thereto; (c) the existence of any claim, setoff, defense or other right which any of the Borrower, the Guarantor or the Issuer may have at any time against the Trustee, any beneficiary or any transferee of the Letter of Credit (or any Person for whom the Trustee, any such beneficiary or any such transferee may be acting), the Bank or any other Person, whether in connection with this Agreement, the other Security Instruments, the Letter of Credit, the Bond Documents, the Project or any unrelated transaction; (d) any statement, draft or other document presented under the Letter of Credit proving to be forged, fraudulent, invalid or insufficient in any respect, or any statement therein being untrue or inaccurate in any respect whatsoever; (e) the surrender, exchange or impairment of any security for the performance or observance of any of the terms of this Agreement; or (f) any other circumstance which might otherwise constitute a defense available to, or a discharge of, the Borrower or a Guarantor, except subject to the qualification that obligations may be reinstated upon bankruptcy, notwithstanding payment in full of the Borrower's obligations to the Bank. Notwithstanding the absolute obligations of the Borrower and the Guarantor as provided above, the Bank shall be liable to the Borrower and the Guarantor as provided in Section 10.4 hereof. 4.13. Waiver of Guarantor's Rights. The Guarantor hereby waives to the fullest extent possible as and against the Borrower and its assets any and all rights, whether at law, in equity, by agreement or otherwise, to subrogation, indemnity, reimbursement, contribution, or any other similar claim, cause of action or remedy that otherwise would arise out of the Guarantor's performance of its obligations to the Bank under this Agreement. The preceding waiver is intended by both the Guarantor and the Bank to be for the benefit of the Borrower, and the waiver shall be enforceable by the Borrower or any of its successors or assigns as an absolute defense to any action by the Guarantor against the Borrower or its assets which arises out of the Guarantor's having made any payment to the Bank with respect to any of the Borrower's liabilities guaranteed hereunder. ARTICLE V Security; Insurance 5.1. Security. As security for the full and timely payment and performance by the Borrower and the Guarantor of their respective obligations hereunder, the Borrower shall on the date hereof deliver the Pledge Agreement to the Bank. 5.2. Casualty and Liability Insurance Required. The Borrower will keep the Project and its Properties continuously insured against such risks as are customarily insured against by businesses of like size and type engaged in the same or similar operations (other than business interruption insurance) including, without limiting the generality of any other covenant contained herein or in the Bond Documents, casualty insurance and general comprehensive liability insurance against claims for bodily injury, death or property damage; provided, however, that the insurance so required may be provided by blanket policies now or hereafter maintained by the Borrower or the Guarantor. 5.3. Notice of Casualty or Taking. In case of any material damage to or destruction of all or any part of the Project, the Borrower shall give prompt notice thereof to the Bank. In case of a taking or proposed taking of all or any material part of the Project or any right therein by Eminent Domain, the Borrower shall give prompt notice thereof to the Bank. Each such notice shall describe generally the nature and extent of such damage, destruction, taking, loss, proceeding or negotiations. ARTICLE VI Affirmative Covenants Until all the Obligations to be performed and paid shall have been performed and paid in full, and for so long as the Letter of Credit shall be outstanding, unless the Bank shall otherwise consent in writing, the Borrower and the Guarantor will perform and observe all covenants and agreements contained on its respective part in this Article VI. 6.1. Financial Reports and Other Data and Information. (a) Quarterly Statements. Within forty-five (45) days after the end of each fiscal quarter, a balance sheet of the Guarantor and its Consolidated Subsidiaries at the end of that period and an income statement for that period and for the portion of the fiscal year ending with such period on a consolidated and consolidating basis, setting forth in comparative form the figures for the same period of the preceding fiscal year, and certified by the Chief Financial Officer or Controller of the Guarantor as complete and correct in all material respects and prepared in accordance with GAAP, except without footnotes and subject to normal year-end audit adjustments. (b) Annual Statements. Within ninety (90) days after the end of each fiscal year, a detailed audited financial report of the Guarantor and its Consolidated Subsidiaries on a consolidated and consolidating basis, containing a balance sheet at the end of that period and an income statement and statement of cash flows for that period, setting forth in comparative form the figures for the preceding fiscal year, and containing an unqualified opinion of independent certified public accountants acceptable to the Bank that the financial statements were prepared in accordance with GAAP, and that the examination in connection with the financial statements was made in accordance with generally accepted auditing standards and accordingly included tests of the accounting records and other auditing procedures that were considered necessary in the circumstances. (c) SEC and Other Reports; Orders, Judgments, Etc. Promptly upon its becoming available, one copy of each regular or periodic report, registration statement or prospectus filed by the Guarantor with any securities exchange or the Securities and Exchange Commission or any successor agency, and of any material order, judgment, decree, decision or ruling issued by any governmental authority in any proceeding to which the Guarantor is a party; (d) Accountants' Statements. Within the period provided in paragraph (b) above, a letter of the accountants who render the opinion on the financial statements, stating that they reviewed this Agreement and that in performing the examination necessary to render an opinion on the annual financial statements they obtained no knowledge of any such Default or Event of Default resulting from the Guarantor's failure to observe the financial ratios under Sections 7.5 through 7.8, or, if the accountants have knowledge of a Default or Event of Default, a statement specifying to the best of their knowledge the nature and period of existence of the Default or Event of Default; (e) Certificates. At the time of the delivery of the financial statements provided for in Section 6.1(a) and (b), an Officers' Certificate of the Guarantor to the effect that to the best of his knowledge, no Default or Event of Default has occurred and is continuing; (f) Notice of Default or Litigation. Promptly, and in any event within three Business Days after the Chief Financial Officer or Controller of the Guarantor obtains knowledge thereof, notice of (1) the occurrence of any event which constitutes a Default or Event of Default, (2) any litigation or governmental proceeding pending against the Guarantor which is likely to materially and adversely affect the business, operations, property, assets, condition (financial or otherwise) or prospects of the Guarantor and its Subsidiaries on a consolidated basis; (g) Environmental Matters. Promptly upon obtaining knowledge thereof, notice of any facts or circumstances known to the Borrower that the Guarantor reasonably believes is likely to form the basis for the assertion of any material claim against the Guarantor relating to environmental matters including, but not limited to, any claim arising from past or present environmental practices asserted under CERCLA, RCRA, or any other federal, state or local environmental statute; (h) Other Information. From time to time, such other information or documents (financial or otherwise) as the Bank may reasonably request. 6.2. Books, Records and Inspections. The Borrower and the Guarantor will keep proper books of record and account in which full, true and correct entries in conformity with GAAP and all requirements of law shall be made of all dealings and transactions in relation to their businesses and activities. The Borrower and the Guarantor will permit officers and designated representatives of the Bank to visit and inspect, under guidance of officers of the Borrower and the Guarantor as applicable, any of the properties of the Borrower and the Guarantor and to examine the books of account of the Borrower and the Guarantor and discuss the affairs, finances and accounts of the Borrower and the Guarantor with, and be advised as to the same by, its and their officers, as applicable, all at such reasonable times and intervals and to such reasonable extent as the Bank may request. 6.3. Maintenance of Property, Insurance. Exhibit D sets forth a true and complete listing of all material insurance maintained by the Guarantor and the Borrower as of the date hereof, with the amounts insured on the date hereof set forth therein. Each of the Borrower and the Guarantor shall (i) keep all property useful and necessary in their business in good working order and condition, except for property which has become obsolete or is no longer useful, (ii) maintain with financially sound and reputable insurance companies insurance which provides substantially the same (or greater) coverage and, as to the Borrower, against at least such risks as are described in Exhibit D, and (iii) furnish to the Bank, upon written request, full information as to the insurance carried. 6.4. Corporate Franchises. The Borrower and the Guarantor will do or cause to be done, all things necessary to preserve and keep in full force and effect their existence and their material rights, franchises, licenses and patents; provided, however, that nothing in this Section 6.4 shall prevent the withdrawal by the Borrower or the Guarantor of any qualification as a foreign corporation in any jurisdiction where such withdrawal could not have a material adverse effect on the business, operations, property, assets, condition (financial or otherwise) or prospects of the Borrower or the Guarantor and nothing in this Section 6.4 shall prevent the merger of the Borrower into the Guarantor or into a Consolidated Subsidiary of the Guarantor. 6.5. Compliance with Statutes, etc. The Borrower and the Guarantor will comply with all applicable statutes, regulations and orders of, and all applicable restrictions imposed by, all governmental bodies, domestic or foreign, in respect of the conduct of their businesses and their ownership of property (including applicable statutes, regulations, orders and restrictions relating to environmental standards and controls), except such noncompliances as could not, in the aggregate, have a material adverse effect on the business, operations, property, assets, condition (financial or otherwise) or prospects of the Borrower and the Guarantor or of the Borrower and the Guarantor taken as a whole. 6.6. ERISA. As soon as possible and in any event within 10 days after the Borrower or the Guarantor knows that a Reportable Event has occurred with respect to a Plan established or maintained by the Borrower, the Guarantor or any ERISA Affiliate, that a material accumulated funding deficiency has been incurred or an application is to be or has been made to the Secretary of the Treasury for a waiver or modification of the minimum funding standard (including any required installment payments) or an extension of any amortization period under Section 412 of the Code with respect to such a Plan, that a Plan has been or will be terminated, reorganized, petitioned or declared insolvent under Title IV of ERISA in a manner that has a Material Adverse Effect, that such a Plan has an Unfunded Current Liability within the meaning of Title IV of ERISA giving rise to a lien under ERISA, that proceedings will be or have been instituted to terminate such a Plan under circumstances that will have a Material Adverse Effect, or that the Borrower or the Guarantor or an ERISA Affiliate will incur any material liability to or on account of such a Plan under Section 4062, 4063 or 4064, or which is a multiemployer plan under Section 515, 4201 or 4203 of ERISA, the Borrower and the Guarantor will deliver to the Bank a certificate of a financial officer thereof, setting forth details as to such occurrence and action, if any, which the Borrower, the Guarantor or ERISA Affiliate is required or proposes to take, together with any notices required or proposed to be given to or filed with or by the Borrower, the Guarantor, the ERISA Affiliate, the PBGC, a Plan participant or the Plan administrator with respect thereto. The Borrower and the Guarantor will deliver to the Bank a complete copy of the annual report (Form 5500) of each Plan required to be filed with the Internal Revenue Service or the PBGC, given to Plan participants or received by either the Borrower or the Guarantor. 6.7. Performance of Obligations. The Borrower and the Guarantor will perform all of their obligations under the terms of each mortgage, indenture, security agreement and other agreement by which they are bound, except such non-performances as could not in the aggregate, have a material adverse effect on the business, operations, property, assets, condition (financial or otherwise) or prospects of the Borrower and the Guarantor or of the Borrower and the Guarantor taken as a whole. 6.8. Taxes and Liens. The Borrower and the Guarantor will promptly pay, or cause to be paid, all material taxes, assessments or other governmental charges which may lawfully be levied or assessed upon the income or profits of Borrower or the Guarantor or upon any Property, real, personal or mixed, belonging to Borrower or the Guarantor, or upon any part thereof, and also any lawful claims for labor, material and supplies which, if unpaid, might become a lien or charge against any such property; provided, however, neither Borrower nor the Guarantor shall be required to pay any such tax, assessment, charge, levy or claim so long as the validity thereof shall be actively contested in good faith by proper proceedings and, against which the Borrower or the Guarantor, as the case may be, shall have established reserves which are in amounts satisfactory to the Borrower's or the Guarantor's, as the case may be, independent certified public accountants. 6.9. Payment of Obligations. The Borrower and the Guarantor will pay, when due, all its material obligations and liabilities, except where the same (other than Indebtedness) are being contested in good faith by appropriate proceedings diligently prosecuted and appropriate reserves for the accrual of same are maintained and, in the case of judgments, enforcement thereof has been stayed pending such contest. 6.10. Environmental Matters. The Borrower and the Guarantor will obtain and maintain all licenses, permits, and approvals required in connection with the Project with respect to Hazardous Materials (which shall mean all materials defined as "hazardous substances," "hazardous waste" or "solid waste" in the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, the Resource Conservation and Recovery Act or any similar environmental statute) and the Borrower or the Guarantor, as applicable, will remain in full compliance with such licenses, permits and approvals, except to the extent that failure to so comply would not have a Material Adverse Effect. The Borrower and the Guarantor will give the Bank copies of any citations, orders, notices or other communications received with respect to violations or alleged violations of any environmental laws in connection with the Project if such violation or alleged violation is likely to have a Material Adverse Effect. The Borrower and the Guarantor shall indemnify and hold the Bank and its directors, officers, shareholders and employees harmless from and against any and all damages, penalties, fines, claims, liens, suits, liabilities, costs (including clean-up costs) judgments and expenses (including attorneys', consultants' or experts' fees and expenses) of every kind and nature suffered by or asserted against the Bank as a direct or indirect result of any warranty or representation made by the Borrower and the Guarantor in this Section 6.11 being false or untrue in any material respect or any requirement under any environmental law, which requires the elimination or removal of any Hazardous Materials at the Project Site by the Bank, the Borrower, the Guarantor or any transferee of the Borrower, the Guarantor or the Bank, except to the extent that any such damages, penalties, fines, claims, liens, suits, liabilities, costs, judgments, or expenses result directly or indirectly from the actions of the Bank or any of its directors, officers, shareholders or employees. ARTICLE VII Negative Covenants Until all the Obligations to be performed and paid shall have been performed and paid in full, and for so long as the Letter of Credit shall be outstanding, unless the Bank shall otherwise consent in writing, the Borrower and the Guarantor covenant and agree as follows: 7.1. Negative Pledge; Liens. The Borrower and the Guarantor will not create, incur, assume or suffer to exist any Lien upon or with respect to any property or assets (real or personal, tangible or intangible) constituting the Project or sell any such property or assets subject to an understanding or agreement, contingent or otherwise, to repurchase such property or assets (including sales of accounts receivable with recourse to the Borrower or any of the Guarantor), or assign any right to receive income or permit the filing of any financing statement under the Uniform Commercial Code of any state or any other similar notice of Lien under any similar recording or notice statute; provided that the provisions of this Section 7.1 shall not prevent the creation, incurrence, assumption or existence of: (i) Liens in favor of the Bank; (ii) Liens for taxes not yet due, or Liens for taxes being contested in good faith and by appropriate proceedings for which adequate reserves have been established; (iii) Except as hereinafter set forth, Liens in respect of property or assets of the Borrower or the Guarantor imposed by law, which were incurred in the ordinary course of business, such as carriers', warehousemen's and mechanics' liens and other similar Liens arising in the ordinary course of business, not to exceed $10,000,000 in the aggregate, and (x) which do not in the aggregate materially detract from the value of such property or assets or materially impair the use thereof in the operation of the business of the Borrower or the Guarantor or (y) which are being contested in good faith by appropriate proceedings, which proceedings have the effect of preventing the forfeiture or sale of the property or assets subject to any such Lien; (iv) Liens in existence on the date hereof which are listed, and the property subject thereto described in Exhibit C, with an indication therein that such Liens are "Permitted Liens" hereunder, provided that if in Exhibit C any Lien is listed as being a Permitted Lien only for a designated time period, such Lien shall cease to be a Permitted Lien after the expiration of such time period; (v) Permitted Encumbrances; (vi) Liens created pursuant to the Security Instruments; and (vii) Utility deposits and pledges or deposits in connection with worker's compensation, unemployment insurance and other social security legislation; 7.2. Consolidation or Merger. The Guarantor will not enter into any transaction of merger or consolidation, except for mergers in which the Guarantor is the surviving entity. 7.3. Sale of Assets, Dissolution, Etc. Subject to Section 7.2 hereof, the Guarantor will not (a) transfer, sell, assign, lease or otherwise dispose of properties or assets including notes, franchises or contract rights, or any stock (valued at book value) or any Indebtedness of any Subsidiary in any fiscal year which taken together have an aggregate book value in excess of thirty percent (30%) of Consolidated Net Worth, except in the ordinary course of business, or (b) change the nature of its business, or wind up, liquidate or dissolve, or agree to do any of the foregoing. 7.4. Loans and Investments. The Guarantor will not make or permit to remain outstanding any loan or advance to, or own, purchase or acquire any stock or securities of, or any interest in, or make any capital contribution to or investment in, any other Person, except that the Guarantor or any Subsidiary may (i) make or permit to remain outstanding loans, advances and capital contributions to and investments in, and acquire any stock or securities of any wholly-owned Subsidiary; (ii) own, purchase or acquire (a) Government Obligations (as defined in the Indenture), (b) deposit accounts with and certificates of deposit of commercial banks with a capital and surplus in excess of Fifty Million Dollars ($50,000,000), (c) banker's acceptances drawn on or accepted by commercial banks with a capital and surplus in excess of Fifty Million Dollars ($50,000,000), (d) repurchase agreements secured by obligations of the type specified in (a) above due not more than one year from the date of acquisition thereof, and (e) commercial paper rated A-2 or better by Moody's and variable rate preferred stock rated A or better by Standard & Poor's; (iii) acquire any amount of stock or securities of, or any interest in, or make any capital contribution to or investment in, any other Person in connection with an acquisition of more than 50% of the voting stock of or other controlling interest in such Person provided the acquired Person becomes a Subsidiary of the Guarantor included in the Guarantor's balance sheet as a Consolidated Subsidiary; (iv) make loans and advances to employees of the Guarantor and its Subsidiaries in the ordinary course of business; and (v) make or permit to remain outstanding other loans and advances to, and purchase and acquire stock and securities of, and make capital contributions to or investments in other Persons (including without limitation Persons which are not Subsidiaries of the Guarantor), in an aggregate amount not to exceed forty percent (40%) of Consolidated Net Worth. 7.5. Consolidated Total Liabilities to Consolidated Tangible Net Worth. The Guarantor will not at any time permit the ratio of its Consolidated Total Liabilities to its Consolidated Tangible Net Worth to be greater than 1.25 to 1.0. 7.6. Coverage Ratio. The Guarantor will not at any time permit the ratio of EBIT for any period of four consecutive fiscal quarters to Interest Expense, for the same period, to be less than 2.50 to 1.0. 7.7. Current Ratio. The Guarantor will not permit the ratio of Consolidated Current Assets to Consolidated Current Liabilities, at any time, to be less than 2.50 to 1.0. 7.8. Consolidated Net Worth. The Guarantor will not permit Consolidated Net Worth to be less than $250,000,000 at December 31, 1993 or such higher amount as hereinafter set forth. The Consolidated Net Worth of the Guarantor shall increase quarterly, beginning with the fiscal quarter ended December 31, 1993, by an amount equal to 50% of the Consolidated Net Income (if positive) of the Guarantor for such fiscal quarter. ARTICLE VIII Conditions to Issuance of Letter of Credit 8.1. Conditions of Issuance. On or prior to the date of issuance of the Letter of Credit, the Borrower and the Guarantor shall have furnished to the Bank, in form satisfactory to the Bank, the following: (a) two executed counterparts of this Agreement and executed counterparts of each of the Security Instruments; (b) executed counterparts of each of the Bond Documents (except for the Bonds, as to which a specimen copy may be furnished); (c) evidence of compliance with the insurance requirements contained in Article VI hereof; (d) an opinion dated the date hereof addressed to, and in form and substance acceptable to, the Bank from the Issuer's counsel, as to such matters as the Bank may require; (e) opinion(s) of counsel for the Borrower and the Guarantor dated the date hereof addressed to, and substantially in the form attached hereto as Exhibit E and otherwise in form and substance acceptable to, the Bank; (f) certificates of the Borrower and the Guarantor, as applicable, including references to (i) Articles of Incorporation, By-laws and other charter documents as applicable, (ii) resolutions of the Board of Directors, authorizing the execution, delivery and performance of the appropriate Bond Documents, this Agreement and the Security Instruments to which the Borrower or the Guarantor, as the case may be, is a party, (iii) incumbency and specimen signatures of officers, and (iv) such other matters as the Bank may require; (g) (a) copies of the Articles of Incorporation, By- laws or other charter documents, as applicable, of the Guarantor, certified as true and correct by an authorized officer as of the date of issuance of the Bonds; and (b) as to any corporations, certificates dated no earlier than 20 days prior to the date of issuance of the Bonds of the Secretary of State of the applicable states as to the good standing of the Borrower and the Guarantor; (h) an opinion of Bond Counsel, in substantially the form of Exhibit F hereto in form and substance satisfactory to the Bank and its counsel, and as to such other matters as the Bank may reasonably request; (i) copies of all governmental approvals required in connection with this transaction, including the resolution of the Issuer authorizing the authentication and issuance of the Bonds; (j) evidence of payment to the Bank of the commission pursuant to Section 4.4 of this Agreement; (k) such other documents, instruments and certifications as the Bank may reasonably require. 8.2 Additional Conditions Precedent to Issuance of the Letter of Credit. (a) The obligation of the Bank to issue the Letter of Credit shall be subject to the further conditions precedent that on the date of issuance the following statements shall be true and the Bank shall have received a certificate signed by the Chief Financial Officer or Controller of the Borrower and by the Guarantor, dated the date of issuance, stating that: (i) The representations and warranties contained in Article II and Article III of this Agreement, Section 5 of the Pledge Agreement Section 2.2 of the Sale Agreement are correct on and as of the date of issuance of the Letter of Credit as though made on and as of such date; and (ii) No event has occurred or would result from the issuance of the Letter of Credit, which constitutes an Event of Default or would constitute an Event of Default but for the requirement that notice be given or time elapse or both; and (b) there shall have been no introduction of or change in, or in the interpretation of, any law or regulation that would make it unlawful or unduly burdensome for the Bank to issue the Letter of Credit, no outbreak or escalation of hostilities or other calamity or crisis, no suspension of or material limitation on trading on the New York Stock Exchange or any other national securities exchange, no declaration of a general banking moratorium by United States or North Carolina banking authorities, and no establishment of any new restrictions on transactions in securities or on banks materially affecting the free market for securities or the extension of credit by banks. 8.3. Conditions Precedent to Each Tender Advance. Each payment made by the Bank under the Letter of Credit pursuant to a Tender Draft shall constitute a Tender Advance hereunder only if on the date of such payment no event has occurred or would result from such Tender Advance, which constitutes an Event of Default or would constitute an Event of Default but for the requirement that notice be given or time elapse or both. Unless the Borrower or the Guarantor shall have previously advised the Bank in writing or the Bank has actual knowledge that the above statement is no longer true, the Borrower and the Guarantor shall be deemed to have represented and warranted, on the date of payment by the Bank under the Letter of Credit pursuant to a Tender Draft, that on the date of such payment the above statement is true and correct. ARTICLE IX Default 9.1. Events of Default. Each of the following shall constitute an Event of Default under this Agreement, whereupon all obligations, whether then owing or contingently owing, will, at the option of the Bank or its successors or assigns, immediately become due and payable by the Borrower without presentation, demand, protest or notice of any kind, all of which are hereby expressly waived, and the Borrower will pay the reasonable attorneys' fees incurred by the Bank, or its successors or assigns, in connection with such Event of Default: (a) Failure of the Borrower or the Guarantor to pay within five (5) days of the date when due any payment of principal, interest, commission, charge or expense referred to in Article IV hereof; or (b) The occurrence of an "Event of Default" under any of the Security Instruments or any of the Bond Documents; or (c) If the Borrower or the Guarantor default in the payment of principal when due, whether by acceleration or otherwise, or interest on any other Indebtedness in excess of $15 million beyond any period of grace provided with respect thereto, or in the performance of any other agreement, term or condition contained in any agreement under which any such obligation is created, if the effect of such default is to cause, or permit the holder or holders of such obligation (or a trustee for such holder or holders) to cause, such obligation to become due prior to its stated maturity; or (d) If any representation, warranty, certification or statement made by the Borrower or the Guarantor herein, or in any writing furnished by or on behalf of the Borrower or any of the Guarantor in connection with the loan by the Issuer under the Sale Agreement or pursuant to this Agreement, or any of the Security Instruments shall have been false, misleading or incomplete in any material respect on the date as of which made; or (e) If the Borrower or the Guarantor default in the performance or observance of any agreement or covenant contained in Article VII hereof; or (f) If the Borrower or the Guarantor default in the performance or observance of any other agreement, covenant, term or condition contained herein, and such default shall not have been remedied thirty (30) days after written notice thereof shall have been received by it from the Bank; or (g) The Borrower or the Guarantor shall make an assignment for the benefit of creditors, file a petition in bankruptcy, have entered against or in favor of it an order for relief under the Federal Bankruptcy Code or similar law of any foreign jurisdiction, generally fail to pay its debts as they come due (either as to number or amount), admit in writing its inability to pay its debts generally as they mature, make a voluntary assignment for the benefit of creditors, commence any voluntary assignment for the benefit of creditors, commence any proceeding relating to it under any reorganization, arrangement, readjustment of debt, dissolution or liquidation law or statute of any jurisdiction, whether now or hereafter in effect, or by any act, indicate its consent to, approval of or acquiescence in any such proceeding for the appointment of any receiver of, or trustee or custodian (as defined in the Federal Bankruptcy Code) for itself, or any substantial part of its property, or a trustee or a receiver shall be appointed for the Borrower or for a substantial part of the property of the Borrower or the Guarantor and such appointment remains in effect for more than sixty (60) days, or a petition in bankruptcy or for reorganization shall be filed against the Borrower or the Guarantor and such petition shall not be dismissed within sixty (60) days after such filing; (h) If a final judgment, which with other outstanding final judgments against the Borrower or the Guarantor exceeds an aggregate of Eight Million Dollars ($8,000,000), in excess of insurance, shall be rendered against the Borrower or the Guarantor and if within 30 days after entry thereof such judgment shall not have been discharged or execution thereof stayed pending appeal, or if within 30 days after the expiration of any such stay such judgment shall not have been discharged; then at any time thereafter, the Bank may (a) pursuant to Section 902 of the Indenture, advise the Trustee that an Event of Default has occurred and instruct the Trustee to declare the principal of all Bonds then outstanding and interest thereon to be immediately due and payable, and (b) proceed hereunder, and under the Security Instruments and, to the extent therein provided, under the Bond Documents, in such order as it may elect and the Bank shall have no obligation to proceed against any Person or exhaust any other remedy or remedies which it may have and without resorting to any other security, whether held by or available to the Bank. 9.2. No Remedy Exclusive. No remedy herein conferred upon or reserved to the Bank is intended to be exclusive of any other available remedy or remedies, but each and every such remedy shall be cumulative and shall be in addition to every other remedy given hereunder and the Security Instruments or now or hereafter existing at law or in equity or by statute. ARTICLE X Miscellaneous 10.1. Indemnification. (a) Each of the Borrower and the Guarantor, jointly and severally, hereby indemnifies and holds the Bank harmless from and against any and all claims, damages, losses, liabilities, costs or expenses whatsoever which the Bank may incur (or which may be claimed against the Bank by any Person) (i) by reason of or in connection with the execution and delivery or transfer of, or payment or failure to pay under, the Letter of Credit, provided that the Borrower and the Guarantor shall not be required to indemnify the Bank for any claims, damages, losses, liabilities, costs or expenses to the extent, but only to the extent, caused by (a) the gross negligence or willful misconduct of the Bank in connection with paying drafts presented under the Letter of Credit or (b) the Bank's willful failure to pay under the Letter of Credit (other than in connection with a court order) after the presentation to it by the Trustee or a successor corporate fiduciary under the Indenture of a sight draft and certificate strictly complying with the terms and conditions of the Letter of Credit or (c) any other failure of the Bank to conform to the Uniform Customs and Practice; or (ii) by reason of or in connection with the execution, delivery or performance of any of this Agreement, the Security Instruments or any transaction contemplated by any thereof. (b) Each of the Borrower and the Guarantor, jointly and severally, hereby indemnifies and holds the Bank harmless from and against any and all damages, penalties, fines, claims, liens, suits, liabilities, costs (including clean-up costs), judgments and expenses (including attorneys', consultants' or experts' fees and expenses) of every kind and nature suffered by or asserted against the Bank as a direct or indirect result of any warranty or representation made by the Borrower and the Guarantor in Sections 2.11 hereof, respectively, being false or untrue in any material respect or any requirement under any law, regulation or ordinance, local, state, or federal, which requires the elimination or removal of any hazardous materials, substances, wastes or other environmentally regulated substances at the Project Site, except to the extent that any such damages, penalties, fines, claims, liens, suits, liabilities, costs, judgments or expenses result directly or indirectly from the actions of the Bank or any of its directors, officers, shareholders or employees. The Borrower's and the Guarantor's obligations hereunder to the Bank shall not be limited to any extent by the term of this Agreement, and, as to any act or occurrence prior to the termination of this Agreement which gives rise to liability hereunder, shall continue, survive and remain in full force and effect notwithstanding the termination of the Bank's obligations hereunder. Anything herein to the contrary notwithstanding, nothing in this Section 10.1 is intended or shall be construed to limit the Borrower's reimbursement obligation or the Guarantor's guaranty obligation contained in Article IV hereof. Without prejudice to the survival of any other obligation of the Borrower or the Guarantor, the indemnities and obligations of the Borrower and the Guarantor contained in this Section 10.1 shall survive the payment in full of amounts payable pursuant to Article IV and the Termination Date. 10.2. Transfer of Letter of Credit. The Letter of Credit may be transferred and assigned in accordance with the terms of the Letter of Credit. 10.3. Reduction of Letter of Credit. (a) The Letter of Credit is subject to reduction pursuant to its terms. (b) If the amount available to be drawn under the Letter of Credit shall be permanently reduced in accordance with the terms thereof, then the Bank shall have the right to require the Trustee to surrender the Letter of Credit to the Bank and to issue on such date, in substitution for such outstanding Letter of Credit, a substitute irrevocable letter of credit, substantially in the form of the Letter of Credit but with such changes therein as shall be appropriate to give effect to such reduction, dated such date, for the amount to which the amount available to be drawn under the Letter of Credit shall have been reduced. 10.4. Liability of the Bank. Neither the Bank nor any of its officers, directors, employees, agents or consultants shall be liable or responsible for: (a) the use which may be made of the Letter of Credit or for any acts or omissions of the Trustee or any beneficiary or transferee in connection therewith; (b) the validity, sufficiency or genuineness of documents, or of any endorsement(s) thereon, even if such documents should in fact prove to be in any or all respects invalid, insufficient, inaccurate, fraudulent or forged; (c) payment by the Bank against presentation of documents which do not comply with the terms of the Letter of Credit, including failure of any documents to bear any reference or adequate reference to the Letter of Credit; or (d) any other circumstances whatsoever in any way related to the making or failure to make payment under the Letter of Credit; except only that the Borrower and the Guarantor shall have a claim against the Bank, and the Bank shall be liable to the Borrower and the Guarantor, to the extent but only to the extent, of any direct, as opposed to consequential, damages suffered by the Borrower or the Guarantor which were caused by (i) the gross negligence or willful misconduct of the Bank in determining whether documents presented under the Letter of Credit complied with the terms of the Letter of Credit or (ii) wrongful failure of the Bank to pay under the Letter of Credit after the presentation to it by the Trustee or a successor trustee under the Indenture of a sight draft and certificate strictly complying with the terms and conditions of the Letter of Credit or (iii) any other failure of the Bank to conform to the requirements of the Uniform Customs and Practice. In furtherance and not in limitation of the foregoing, the Bank may accept documents that appear on their face to be in order, without responsibility for further investigation, regardless of any notice or information to the contrary. 10.5. Successors and Assigns. This Agreement shall be binding upon the Borrower, the Guarantor and the Bank, their respective successors and assigns and all rights against the Borrower or the Guarantor arising under this Agreement shall be for the sole benefit of the Bank, its successors and assigns, all of whom shall be entitled to enforce performance and observance of this Agreement to the same extent as if they were parties hereto. 10.6. Notices. All notices, requests and demands to or upon the respective parties hereto shall be deemed to have been given or made when hand delivered or mailed first class, certified or registered mail, postage prepaid, or by overnight courier service, addressed as follows or to such other address as the parties hereto shall have been notified pursuant to this Section 10.6: The Bank: The First Union National Bank of North Carolina Two First Union Center, 7th Floor Charlotte, North Carolina 28288-0742 Attention: International Operations with a copy to: The First Union National Bank of North Carolina One First Union Plaza, 19th Floor Charlotte, North Carolina 28288 Attention: Capital Markets The Borrower: Spence Engineering Company, Inc. c/o Watts Regulator Co. 815 Chestnut Street North Andover, Massachusetts 01845 Attention: Corporate Controller The Guarantor: Watts Industries, Inc. Route 114 and Chestnut Street North Andover, MA 01845 except in cases where it is expressly herein provided that such notice, request or demand is not effective until received by the party to whom it is addressed, in which event said notice, request or demand shall be effective only upon receipt by the addressee. 10.7 Amendment. This Agreement may be amended, modified or discharged only upon an agreement in writing of the Borrower, the Guarantor and the Bank. 10.8. Effect of Delay and Waivers. No delay or omission to exercise any right or power accruing upon any default, omission or failure of performance hereunder shall impair any such right or power or shall be construed to be a waiver thereof, but any such right and power may be exercised from time to time and as often as may be deemed expedient. In order to entitle the Bank to exercise any remedy now or hereafter existing at law or in equity or by statute, it shall not be necessary to give any notice, other than such notice as may be herein expressly required. In the event any provision contained in this Agreement should be breached by any party and thereafter waived by the other party so empowered to act, such waiver shall be limited to the particular breach hereunder. No waiver, amendment, release or modification of this Agreement shall be established by conduct, custom or course of dealing, but solely by an instrument in writing duly executed by the parties thereunto duly authorized by this Agreement. 10.9. Counterparts. This Agreement may be executed simultaneously in several counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 10.10. Severability. The invalidity or unenforceability of any one or more phrases, sentences, clauses or Sections contained in this Agreement shall not affect the validity or enforceability of the remaining portions of this Agreement, or any part thereof. 10.11. Cost of Collection. Each of the Borrower and the Guarantor shall be liable for the payment of all reasonable fees and expenses, including reasonable attorneys' fees (computed without regard to any statutory presumption), incurred in connection with the enforcement of this Agreement. 10.12. Set Off. Upon the occurrence of an Event of Default hereunder, the Bank is hereby authorized, without notice to the Borrower or the Guarantor, to set off, appropriate and apply any and all monies, securities and other properties of the Borrower or the Guarantor hereafter held or received by or in transit to the Bank from or for the Borrower or the Guarantor, against the obligations of the Borrower or the Guarantor irrespective of whether the Bank shall have made any demand hereunder or any other Credit Security Instrument under and although such obligations may be contingent or unmatured. 10.13. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New York. The Guarantor hereby acknowledge that the Letter of Credit shall be governed by and construed in accordance with Uniform Customs and Practice. 10.14. References. The words "herein", "hereof", "hereunder" and other words of similar import when used in this Agreement refer to this Agreement as a whole, and not to any particular article, section or subsection. 10.15. Consent to Jurisdiction, Venue. In the event that any action, suit or other proceeding is brought against the Borrower or the Guarantor by or on behalf of the Bank to enforce the observance or performance of any of the provisions of this Agreement or of any of the Security Instruments, including without limitation the collection of any amounts owing thereunder, each of the Borrower and the Guarantor hereby (i) irrevocably consents to the exercise of jurisdiction over the Borrower and the Guarantor and to the extent permitted by applicable laws, their property, by the United States District Court, Southern District of North Carolina, and by Supreme Court of North Carolina or the State Court and (ii) irrevocably waives any objection it might now or hereafter have or assert to the venue of any such proceeding in any court described in clause (i) above. IN WITNESS WHEREOF, the Borrower, the Guarantor and the Bank have caused this Agreement to be executed in their respective names, as a sealed instrument all as of the date first above written. THE BORROWER: SPENCE ENGINEERING COMPANY, INC. By: /s/ William C. McCartney ------------------------- Title: Assistant Treasurer THE GUARANTOR: WATTS INDUSTRIES, INC. By: /s/ Kenneth J. McAvoy ----------------------- Title: Vice President of Finance THE BANK: THE FIRST UNION NATIONAL BANK OF NORTH CAROLINA By: /s/ Douglas Shaw -------------------------- Title: AVP ATTEST: /s/ (Signature) _______________________ Title: Ass't Sec'ty (Corporate Seal) EX-10.14 4 TRUST INDENTURE VILLAGE OF WALDEN INDUSTRIAL DEVELOPMENT AGENCY and THE FIRST NATIONAL BANK OF BOSTON, as Trustee securing the $7,500,000 Village of Walden Industrial Development Agency Industrial Development Revenue Refunding Bonds (Spence Engineering Company Project), Series 1994 DATED AS OF JUNE 1, 1994 TABLE OF CONTENTS Page Parties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Recitals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Forms: Form of Bond. . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Form of Bondholder's Optional Retention Notice. . . . . . . . . . . 17 ARTICLE I DEFINITIONS AND RULES OF CONSTRUCTION . . . . . . . . . . . . 18 Section 101. Definitions . . . . . . . . . . . . . . . . . . . . . 18 Section 102. Rules of Construction . . . . . . . . . . . . . . . . 27 ARTICLE II THE BONDS . . . . . . . . . . . . . . . . . . . . . . . . . . 28 Section 201. Amount, Terms, and Issuance of the Bonds. . . . . . . 28 Section 202. Designation, Denominations, Maturity Date and Interest Rates of the Bonds . . . . . . . . . . . . . 29 Section 203. Optional Tender Provisions of the Bonds . . . . . . . 32 Section 204. Registered Bonds Required; Bond Registrar and Bond Register. . . . . . . . . . . . . . . . . . . . . . . 33 Section 205. Transfer and Exchange . . . . . . . . . . . . . . . . 34 Section 206. Execution . . . . . . . . . . . . . . . . . . . . . . 35 Section 207. Authentication; Authenticating Agent. . . . . . . . . 35 Section 208. Payment of Principal and Interest; Interest Rights Preserved . . . . . . . . . . . . . . . . . . . . . . 36 Section 209. Persons Deemed Owners . . . . . . . . . . . . . . . . 37 Section 210. Mutilated, Destroyed, Lost, Stolen or Undelivered Bonds . . . . . . . . . . . . . . . . . . . . . . . . 37 Section 211. Temporary Bonds . . . . . . . . . . . . . . . . . . . 38 Section 212. Cancellation of Surrendered Bonds . . . . . . . . . . 38 Section 213. Conditions of Issuance. . . . . . . . . . . . . . . . 38 ARTICLE III PURCHASE AND REMARKETING OF TENDERED BONDS. . . . . . 40 Section 301. Remarketing of Tendered Bonds . . . . . . . . . . . . 40 Section 302. Purchase of Bonds Delivered to the Tender Agent . . . 41 Section 303. Delivery of Purchased Bonds . . . . . . . . . . . . . 42 Section 304. Delivery of the Proceeds of the Sale of Remarketed Bonds . . . . . . . . . . . . . . . . . . . . . . . . 43 Section 305. No Remarketing After Certain Events . . . . . . . . . 43 ARTICLE IV REFUNDING OF PRIOR BONDS. . . . . . . . . . . . . . . . . . . 43 Section 401. Refunding of Prior Bonds. . . . . . . . . . . . . . . 43 ARTICLE V REVENUES AND APPLICATION THEREOF. . . . . . . . . . . . . . . 44 Section 501. Revenues to be Paid Over to Trustee . . . . . . . . . 44 Section 502. The Bond Fund . . . . . . . . . . . . . . . . . . . . 44 Section 503. Revenues to Be Held for All Bondholders; Certain Exceptions. . . . . . . . . . . . . . . . . . . . . . 46 Section 504. Rebate Fund . . . . . . . . . . . . . . . . . . . . . 46 ARTICLE VI DEPOSITARIES OF MONEYS, SECURITY FOR DEPOSITS AND INVESTMENT OF FUNDS; THE CREDIT FACILITY. . . . . . . . . . . 46 Section 601. Security for Deposits.. . . . . . . . . . . . . . . . 46 Section 602. Investment of Moneys. . . . . . . . . . . . . . . . . 47 Section 603. The Credit Facility . . . . . . . . . . . . . . . . . 47 ARTICLE VII REDEMPTION OR PURCHASE OF THE BONDS . . . . . . . . . 50 Section 701. Redemption or Purchase Dates and Prices . . . . . . . 50 Section 702. Company to Direct Optional Redemption . . . . . . . . 52 Section 703. Selection of Bonds to be Called for Redemption. . . . 52 Section 704. Notice of Redemption or Purchase. . . . . . . . . . . 53 Section 705. Bonds Redeemed or Purchased in Part . . . . . . . . . 54 ARTICLE VIII PARTICULAR COVENANTS AND PROVISIONS . . . . . . . . . 54 Section 801. Covenant to Pay the Bonds; Bonds Limited Obligations of the Issuer . . . . . . . . . . . . . . 54 Section 802. Covenants to Perform Obligations Under this Indenture . . . . . . . . . . . . . . . . . . . . . . 54 Section 803. Covenant to Perform Obligations Under the Sale Agreement . . . . . . . . . . . . . . . . . . . . . . 55 Section 804. Trustee May Enforce the Issuer's Rights Under the Sale Agreement. . . . . . . . . . . . . . . . . . . . 55 Section 805. Covenant Against Arbitrage. . . . . . . . . . . . . . 56 Section 806. Inspection of the Bond Register . . . . . . . . . . . 56 Section 807. Priority of Pledge and Security Interest. . . . . . . 56 Section 808. Insurance and Condemnation Proceeds . . . . . . . . . 56 ARTICLE IX DEFAULT AND REMEDIES. . . . . . . . . . . . . . . . . . . . . 56 Section 901. Defaults. . . . . . . . . . . . . . . . . . . . . . . 56 Section 902. Acceleration and Annulment Thereof. . . . . . . . . . 57 Section 903. Other Remedies. . . . . . . . . . . . . . . . . . . . 58 Section 904. Legal Proceedings by the Trustee. . . . . . . . . . . 59 Section 905. Discontinuance of Proceedings by the Trustee. . . . . 59 Section 906. Credit Facility Issuer or Bondholders May Direct Proceedings . . . . . . . . . . . . . . . . . . . . . 59 Section 907. Limitations on Actions by the Bondholders . . . . . . 60 Section 908. Trustee May Enforce Rights Without Possession of the Bonds . . . . . . . . . . . . . . . . . . . . . . 60 Section 909. Remedies Not Exclusive. . . . . . . . . . . . . . . . 60 Section 910. Delays and Omissions Not to Impair Rights . . . . . . 61 Section 911. Application of Moneys in the Event of Default . . . . 61 Section 912. Trustee and Bondholders Entitled to All Remedies Under the Act . . . . . . . . . . . . . . . . . . . . 61 Section 913. Trustee May File Claim in Bankruptcy. . . . . . . . . 62 Section 914. Receiver. . . . . . . . . . . . . . . . . . . . . . . 63 ARTICLE X CONCERNING THE TRUSTEE. . . . . . . . . . . . . . . . . . . . 63 Section 1001. Acceptance of the Trusts. . . . . . . . . . . . . . . 63 Section 1002. Trustee to Give Notice. . . . . . . . . . . . . . . . 64 Section 1003. Trustee Entitled to Indemnity . . . . . . . . . . . . 65 Section 1004. Trustee Not Responsible for Insurance, Taxes, Execution of this Indenture, Acts of the Issuer or Application of the Moneys Applied in Accordance with this Indenture . . . . . . . . . . . . . . . . . 66 Section 1005. Compensation. . . . . . . . . . . . . . . . . . . . . 67 Section 1006. Trustee to Preserve Records . . . . . . . . . . . . . 67 Section 1007. Trustee May Be a Bondholder . . . . . . . . . . . . . 67 Section 1008. Trustee Not Responsible for Recitals. . . . . . . . . 67 Section 1009. No Trustee Responsibility for Recording or Filing . . 68 Section 1010. Trustee May Require Information . . . . . . . . . . . 68 Section 1011. Trustee May Rely on Certificates. . . . . . . . . . . 68 Section 1012. Trustee Bond. . . . . . . . . . . . . . . . . . . . . 68 Section 1013. Segregation of Funds; Interests . . . . . . . . . . . 68 Section 1014. Qualification of the Trustee. . . . . . . . . . . . . 69 Section 1015. Resignation and Removal of the Trustee. . . . . . . . 69 Section 1016. Successor Trustee . . . . . . . . . . . . . . . . . . 70 Section 1017. Co-Trustee. . . . . . . . . . . . . . . . . . . . . . 71 Section 1018. Notice to Moody's or S&P. . . . . . . . . . . . . . . 71 Section 1019. Filing of Certain Continuation Statements . . . . . . 72 ARTICLE XI EXECUTION OF INSTRUMENTS BY THE BONDHOLDERS AND PROOF OF OWNERSHIP OF THE BONDS . . . . . . . . . . . . . 72 Section 1101. Execution of Instruments by the Bondholders and Proof of Ownership of the Bonds . . . . . . . . . . . 72 Section 1102. Preservation of Information . . . . . . . . . . . . . 73 ARTICLE XII THE REMARKETING AGENT; THE TENDER AGENT; THE PLACEMENT AGENT . . . . . . . . . . . . . . 73 Section 1201. The Remarketing Agent . . . . . . . . . . . . . . . . 73 Section 1202. The Tender Agent. . . . . . . . . . . . . . . . . . . 74 Section 1203. The Placement Agent . . . . . . . . . . . . . . . . . 75 Section 1204. Notices . . . . . . . . . . . . . . . . . . . . . . . 75 ARTICLE XIII AMENDMENTS AND SUPPLEMENTS. . . . . . . . . . . . . . 75 Section 1301. Amendments and Supplements Without the Bondholders' Consent. . . . . . . . . . . . . . . . . 75 Section 1302. Amendments With the Bondholders' and the Credit Facility Issuer's Consent . . . . . . . . . . . . . . 76 Section 1303. Supplemental Indentures Affecting the Rights of the Credit Facility Issuer. . . . . . . . . . . . . . 77 Section 1304. Amendment of the Sale Agreement . . . . . . . . . . . 77 Section 1305. Amendment of the Sale Agreement Requiring the Consent of the Credit Facility Issuer . . . . . . . . 78 Section 1306. Amendment of the Credit Facility. . . . . . . . . . . 78 Section 1307. Trustee Authorized to Join in Amendments and Supplements; Reliance on Counsel. . . . . . . . . . . 78 ARTICLE XIV DEFEASANCE; OTHER PAYMENTS. . . . . . . . . . . . . . 79 Section 1401. Defeasance. . . . . . . . . . . . . . . . . . . . . . 79 Section 1402. Deposit of Funds for Payment of the Bonds . . . . . . 80 Section 1403. Effect of Purchase of the Bonds . . . . . . . . . . . 81 ARTICLE XV MISCELLANEOUS PROVISIONS. . . . . . . . . . . . . . . . . . . 81 Section 1501. Covenants of the Issuer to Bind its Successors. . . . 81 Section 1502. Notices . . . . . . . . . . . . . . . . . . . . . . . 81 Section 1503. Trustee as the Paying Agent and the Bond Registrar. . 83 Section 1504. Rights Under this Indenture . . . . . . . . . . . . . 83 Section 1505. Form of Certificates and Opinions . . . . . . . . . . 83 Section 1506. Severability. . . . . . . . . . . . . . . . . . . . . 83 Section 1507. Covenants of the Issuer Not Covenants of Officials Individually. . . . . . . . . . . . . . . . . . . . . 83 Section 1508. State Law Governs . . . . . . . . . . . . . . . . . . 84 Section 1509. Payments Due on Days Other Than Business Days . . . . 84 Section 1510. Execution in Counterparts . . . . . . . . . . . . . . 84 Execution by the Issuer. . . . . . . . . . . . . . . . . . . . . . . . . 85 Execution by the Trustee . . . . . . . . . . . . . . . . . . . . . . . . 85 Exhibit A Form of Bondholder's Optional Tender Notice . . . . . . . . . 86 Exhibit B Notice of Conversion. . . . . . . . . . . . . . . . . . . . . 88 _________________________ TRUST INDENTURE _________________________ This TRUST INDENTURE, dated as of June 1, 1994, between Village of Walden Industrial Development Agency (the "Issuer"), a body corporate and politic of the State of New York, and The First National Bank of Boston, a national banking association, having its principal office in Boston, Massachusetts (in its capacity as trustee to be hereinafter referred to as the "Trustee"). W I T N E S S E T H: WHEREAS, the Issuer intends to (a) issue and sell its variable rate industrial revenue refunding bonds in the aggregate principal amount of $7,500,000 (the "Bonds"); (b) pursuant to a Sale Agreement (the "Sale Agreement") of even date herewith, use the proceeds of the Bonds to refund the Issuer's $7,500,000 Village of Walden Industrial Development Agency (Spence Engineering Company Project), Series 1984 Bonds (the "Prior Bonds"); (c) to sell the Project (as defined in the Sale Agreement) to the Company; and (d) secure the repayment of the Bonds by (1) the assignment contained herein from the Issuer to the Trustee, pursuant to which the Issuer assigns to the Trustee for the benefit of the Bondholders (hereinafter defined) certain of its rights under the Sale Agreement, endorses without recourse to the order of, and pledges and assigns to, the Trustee, the Note of even date herewith issued by the Company pursuant to the Sale Agreement (the "Note"), and (2) the delivery to the Trustee of an irrevocable direct pay letter of credit dated the date of issuance of the Bonds in the amount of $7,875,000, issued by First Union National Bank of North Carolina; WHEREAS, as security for the payment of the Bonds, the Issuer has agreed to assign and pledge to the Trustee all right, title and interest of the Issuer in (a) the Sale Agreement (except certain rights reserved by the Issuer under the terms of this Indenture), (b) the "Pledged Revenues" (hereinafter defined), and (c) all amounts on deposit from time to time in the "Bond Fund" (hereinafter defined), but excluding any amounts on deposit in the "Rebate Account" (hereinafter defined); and WHEREAS, the Company and First Union National Bank of North Carolina, a national banking association (the "Bank") have entered into a Letter of Credit and Reimbursement and Guaranty Agreement, dated as of June 1, 1994 (the "Reimbursement Agreement") pursuant to which the Bank has agreed to issue its irrevocable direct-pay letter of credit, dated the date of the delivery of the Bonds (the "Letter of Credit"), in favor of the Trustee, for the account of the Company obligating the Bank to pay the Trustee upon draws made by the Trustee in accordance with the terms thereof, up to (i) an amount equal to the aggregate principal amount of the Bonds then Outstanding (as hereinafter defined) to be used by the Trustee (a) to pay the principal of such Bonds whether at maturity, upon redemption, acceleration or otherwise, and (b) to pay the portion of the purchase price equal to the principal amount of any such Bonds delivered to the Tender Agent (hereinafter defined) for purchase, plus (ii) an amount equal to up to one hundred twenty (120) days' accrued interest on the Bonds at the maximum interest rate of fifteen percent (15%) per annum, to be used by the Trustee to pay accrued interest on the Bonds and to pay the portion of the purchase price of tendered Bonds equal to the accrued interest, if any, on any such Bonds; and WHEREAS, all things necessary to make the Bonds, when authenticated by the Trustee and issued and delivered as provided in this Indenture, the legal, valid, binding and enforceable limited obligations of the Issuer, according to the import thereof, and to create a valid assignment and pledge of the Pledged Revenues to the payment of the principal of, and the redemption premium (if any) and the interest on, the Bonds and a valid assignment of certain of the rights, title and interest of the Issuer in the Sale Agreement and the Note, have been done and performed, and the execution, issuance and delivery of the Bonds, subject to the terms hereof, have in all respects been authorized; and WHEREAS, the Trustee has accepted the trusts created by this Indenture and in evidence thereof has joined in the execution hereof; and WHEREAS, the Issuer has determined that the Bonds to be issued hereunder shall be substantially in the following form, with such variations, omissions and insertions as are required or permitted by this Indenture: [Form of Bond] CUSIP _________ THE PRINCIPAL OF, REDEMPTION PREMIUM, IF ANY, AND INTEREST ON THIS BOND ARE SPECIAL OBLIGATIONS OF THE ISSUER PAYABLE SOLELY FROM THE SOURCES AND SPECIAL FUNDS PLEDGED FOR THEIR BENEFIT PURSUANT TO THE INDENTURE. THIS BOND SHALL NOT CONSTITUTE A DEBT OF THE STATE OF NEW YORK OR ANY POLITICAL SUBDIVISION THEREOF OR THE ISSUER WITHIN THE MEANING OF ANY PROVISION OF THE CONSTITUTION OR LAWS OF THE STATE AND SHALL NOT CONSTITUTE OR GIVE RISE TO A PECUNIARY LIABILITY OF THE STATE OR ANY POLITICAL SUBDIVISION THEREOF OR THE ISSUER OR A CHARGE AGAINST THE GENERAL CREDIT OR TAXING POWERS OF ANY OF THEM. THIS BOND MAY BE TENDERED FOR PURCHASE AS DESCRIBED HEREIN. DELIVERY OF AN OPTIONAL TENDER NOTICE WITH RESPECT TO THIS BOND CONSTITUTES AN IRREVOCABLE OFFER TO SELL THIS BOND ON THE DATE SPECIFIED THEREIN AND IS BINDING ON SUBSEQUENT OWNERS OF THIS BOND. IN THE EVENT THE OWNER OF THIS BOND FAILS TO DELIVER THIS BOND TO THE TENDER AGENT ON THE SPECIFIED DATE, THE OWNER HEREOF SHALL THEREAFTER BE ENTITLED ONLY TO PAYMENT OF THE PURCHASE PRICE AND NOT TO THE BENEFITS OF THE INDENTURE. THIS BOND ALSO IS SUBJECT TO MANDATORY TENDER AND PURCHASE AS DESCRIBED HEREIN. VILLAGE OF WALDEN INDUSTRIAL DEVELOPMENT AGENCY INDUSTRIAL DEVELOPMENT REVENUE REFUNDING BOND (SPENCE ENGINEERING COMPANY PROJECT), SERIES 1994 No. R-_________ Registered Owner: __________________________ Principal Amount: __________________________ Maturity Date: First Business Day of December, 2006 Initial Interest Rate: 2.75% Interest Payment Dates: The first Business Day of each March, June, September and December, commencing the first Business Day of September, 1994, the Conversion Date (hereinafter defined) and the Maturity Date. Original Delivery Date: _________________ VILLAGE OF WALDEN INDUSTRIAL DEVELOPMENT AGENCY (herein called the "Issuer"), a corporate governmental agency, constituting a public benefit corporation created and existing under the constitution and laws of the State of New York (herein called the "State"), for value received, hereby promises to pay (but only from the sources hereinafter mentioned) to the Registered Owner set forth above, or registered assigns, the Principal Amount set forth above on the Maturity Date set forth above and to pay (but only from the sources hereinafter mentioned) interest thereon from the Interest Payment Date immediately preceding the Date of Authentication endorsed hereon, unless this Bond is authenticated on an Interest Payment Date in which event it will bear interest from such date or unless it is authenticated prior to the first Business Day of September, 1994, in which event it will bear interest from the Date of Authentication, payable on each Interest Payment Date, until payment of said principal sum has been made or provided for, at the rate or rates per annum set forth below. Principal and interest and premium, if any, will be paid in any coin or currency of the United States of America which, at the time of payment, is legal tender for the payment of public and private debts. Interest will be paid by check mailed on the Interest Payment Date to the person in whose name this Bond is registered at the close of business on the Regular Record Date (as hereinafter defined) immediately preceding such Interest Payment Date; provided, however, that while the Bonds (as hereinafter defined) bear interest at the Variable Rate (as hereinafter defined) interest will also be payable by wire transfer to the account at a member bank of the Federal Reserve System of any registered owner of Bonds in the aggregate principal amount of One Million Dollars ($1,000,000) or more at the written request (identifying such account by number) of such owner received by the Trustee (as hereinafter defined) on or before the Regular Record Date. While the Bonds bear interest at the Variable Rate (as hereinafter defined), the Regular Record Date will be the close of business on the Business Day immediately preceding each Interest Payment Date. While the Bonds bear interest at the Fixed Rate (as hereinafter defined), the Regular Record Date will be the fifteenth (15th) day of the calendar month immediately preceding each Interest Payment Date. Any such interest not so punctually paid or duly provided for will forthwith cease to be payable to the owner on such Regular Record Date, and may be paid to the person in whose name this Bond is registered at the close of business on a Special Record Date (as defined in the Indenture (hereinafter defined)) for the payment of such defaulted interest to be fixed by the Trustee, or may be paid at any time in any other lawful manner, all as more fully provided in the Indenture. Principal and redemption price will be paid upon surrender of this Bond at the principal corporate trust office of The First National Bank of Boston, as Trustee (said banking institution and any successor trustee or co-trustee under the Indenture being herein called the "Trustee"), in the Town of Canton, Massachusetts. Payment of the purchase price of Bonds purchased as described herein will be paid, upon surrender of such Bonds, at the office of The First National Bank of Boston, in the Town of Canton, Massachusetts (in such capacity, herein called the "Tender Agent"). This Bond is issued under and pursuant to the Constitution and laws of the State of New York (the "State"), particularly an act of the Village of Walden of the State of New York, including without limitation Chapter 1030 of the Laws of 1969 of the State, constituting Title 1 of Article 18-A of the General Municipal Law of the State, as amended from time to time, together with Chapter 632 of the Laws of 1977 of the State, constituting Section 925-a of the General Municipal Law of the State, as amended from time to time, as amended (the "Act"), and under and pursuant to a resolution duly adopted by the Issuer on June 13, 1994. This Bond and the issue of which it is a part and the purchase price thereof, the premium, if any, and interest thereon are limited obligations of the Issuer payable by the Issuer solely from the revenues and receipts derived from the Sale Agreement (as hereinafter defined), including payments received under the Note (as hereinafter defined), which revenues and receipts have been pledged and assigned to the Trustee to secure payment thereof and from amounts received pursuant to the Credit Facility (as hereinafter defined). This Bond and the interest hereon will not constitute an indebtedness or a charge against the general credit or taxing powers of the Issuer within the meaning of any constitutional provision or statutory limitation and shall never constitute nor give rise to any pecuniary liability of the Issuer, but will be a limited obligation of the Issuer payable solely from the revenues and other funds pledged therefor and will not be payable from any assets or funds of the Issuer other than the revenues and other funds pledged therefor, and neither the faith and credit nor the taxing power of the State or any political subdivision or any agency thereof is pledged to the payment of the principal of or the interest on this Bond. This Bond is one of the Bonds of a duly authorized issue of variable rate industrial revenue bonds of the Issuer in the aggregate original principal amount of $7,500,000 and designated "Village of Walden Industrial Development Agency Industrial Development Revenue Refunding Bonds (Spence Engineering Company Project), Series 1994" (the "Bonds"). The Bonds are being issued for the purpose of refunding in whole the outstanding principal amount of the Village of Walden Industrial Development Agency Industrial Development Revenue Bonds (Spence Engineering Company Project) Series 1984 in the original aggregate principal amount of $7,500,000 (the "Prior Bonds"), the proceeds of which were used to finance, in whole or in part, the cost of acquiring, constructing and installing a certain project in Walden, New York owned and operated by the Company (the "Project"). This Bond is issued under and pursuant to a Trust Indenture dated as of June 1, 1994 (said Trust Indenture, together with all such supplements and amendments thereto as therein permitted, being herein called the "Indenture"), by and between the Issuer and The First National Bank of Boston, as trustee (said banking institution and any successor trustee or co-trustee under the Indenture being herein called the "Trustee"). An executed counterpart of the Indenture is on file at the principal corporate trust office of the Trustee. Reference is hereby made to the Indenture for the provisions, among others, with respect to the custody and application of the proceeds of the Bonds; the collection and disposition of revenues; a description of the funds charged with and pledged to the payment of the principal of and interest on and any other amounts payable under the Bonds; the nature and extent of the security; the terms and conditions under which the Bonds are or may be issued; and the rights, duties and obligations of the Issuer and of the Trustee and the rights of the owners of the Bonds, and, by the acceptance of this Bond, the owner hereof assents to all of the provisions of the Indenture. The Issuer has entered into a Sale Agreement dated as of June 1, 1994 (herein called the "Sale Agreement"), with Spence Engineering Company, Inc., a Delaware corporation (herein called the "Company"), under which the Issuer has agreed to sell Company the project as described in the Sale Agreement, and in consideration and as evidence of the sale, the Company has agreed to issue its promissory note (herein called the "Note") in the principal amount, payable in installments, bearing interest at a rate or rates and payable at times corresponding to the principal amount of, installments of principal of, interest rates on and due dates of the Bonds. The Sale Agreement also provides for the payment by the Company of certain fees and expenses of the Issuer and the Trustee, and the Sale Agreement further obligates the Company (a) to pay the cost of maintaining the Project in good repair in all material respects and keeping the same properly insured and (b) to maintain a Credit Facility (as hereinafter defined) during the period of time the Bonds bear interest at the Variable Rate (herein called the "Variable Rate Period"). As security for the payment of the Bonds, all right, title and interest of the Issuer in (a) the Sale Agreement (except certain rights reserved by the Issuer under the terms of the Indenture), together with the Sale Agreement, (b) the Pledged Revenues, and (c) all amounts on deposit from time to time in the Bond Fund (defined in the Indenture), but excluding any amounts on deposit in the "Rebate Account" (defined in the Indenture), have been assigned to the Trustee under the Indenture and pledged to the payment of the principal of, and the redemption premium (if any) and the interest on, the Bonds. The Issuer shall not be vested with any interest in the Project by virtue of the issuance of the Bonds, and the Project shall not otherwise constitute any part of the security for the payment of the Bonds. Reference to the Indenture is hereby made for a description of the aforesaid Bond Fund which is charged with, and pledged to, the payment of the principal of, and the redemption premium (if any) and the interest on, the Bonds, the nature and extent of the security, the rights, duties and obligations of the Issuer, the Company and the Trustee, the rights of the owners of the Bonds, the terms and conditions under and upon the occurrence of which the Indenture and the Sale Agreement may be modified and the terms and conditions under and upon the occurrence of which the lien of the Indenture may be defeased as to this Bond prior to the maturity or redemption date hereof, to all of the provisions of which the owner hereof, by the acceptance of this Bond, assents. Credit Facility. The Company has entered into a Letter of Credit, Reimbursement and Guaranty Agreement dated as of June 1, 1994 (herein called the "Reimbursement Agreement") by and among the Company, Watts Industries, Inc, as guarantor and First Union National Bank of North Carolina (in such capacity, herein called the "Bank"). Pursuant to the Reimbursement Agreement, the Company has caused a Letter of Credit issued by the Bank (herein called the "Letter of Credit"; such Letter of Credit and any extensions or renewals thereof or any amendment thereto and any Alternate Credit Facility (as hereinafter defined) referred to herein as the "Credit Facility"), to be delivered to the Trustee. The Trustee will be entitled under the Letter of Credit to draw up to an amount of $7,875,000, of which (a) $7,500,000 will be available for the payment of principal or that portion of the purchase price corresponding to principal of the Bonds and (b) 375,000 will support the payment of up to one hundred twenty (120) days' interest or that portion of the purchase price corresponding to interest on the Bonds at a maximum rate of fifteen percent (15%) per annum. Subject to the provisions of the Indenture, the Company is required during the Variable Rate Period to provide an alternate credit facility with terms and provisions substantially the same as those of the Letter of Credit (an "Alternate Credit Facility") prior to the termination of Letter of Credit. During the Variable Rate Period unless the Letter of Credit or the then current Alternate Credit Facility is replaced prior to its expiration in accordance with the terms of the Indenture, this Bond will become subject to mandatory redemption as provided in the Indenture. Source of Funds. The principal of, premium, if any, and interest on the Bonds are payable solely from payments on the Note, under the Sale Agreement and from any other moneys held by the Trustee under the Indenture for such purpose, including, with respect to principal and interest only, moneys drawn by the Trustee under the Letter of Credit or Alternate Credit Facility for the benefit of the Bondholders (the Bank as the issuer of the Letter of Credit and the institution issuing any Alternate Credit Facility are herein called the "Credit Facility Issuer"). Except as otherwise specified in the Indenture, this Bond is entitled to the benefits of the Indenture equally and ratably both as to principal (and redemption and purchase price) and interest with all other Bonds issued under the Indenture. INTEREST RATES Initial Interest Rate. The Bonds will bear interest from the Original Delivery Date to June 22, 1994 at the Initial Interest Rate. Variable Rate. After June 22, 1994, prior to (and including) the Conversion Date (hereinafter defined), the Bonds will bear interest at a rate equal to a floating rate established as hereinafter provided (herein called the "Variable Rate"). The Variable Rate will be equal to the rate of interest certified to the Trustee by First Union National Bank of North Carolina as remarketing agent for the Bonds (herein, with its successors in such capacity, called the "Remarketing Agent") on and as of each Wednesday (or the next succeeding Business Day (as defined in the Indenture) if such Wednesday is not a Business Day) (herein called the "Determination Date") as the minimum rate of interest necessary, in the judgment of the Remarketing Agent taking into account market conditions prevailing on the Determination Date, to enable the Remarketing Agent to arrange for the sale of all of the Bonds on the Determination Date in the secondary market at a price equal to the principal amount thereof (plus interest accrued to the date of settlement). If the Remarketing Agent fails to certify such rate, the Variable Rate for the next Calculation Period or Periods (hereinafter defined) until thereafter certified by the Remarketing Agent will remain the same as that most recently established and certified by the Remarketing Agent. In the event the Remarketing Agent fails to certify such rate for four (4) consecutive Calculation Periods, the rate for each Calculation Period thereafter (if none is certified by the Remarketing Agent) will be ninety percent (90%) of the yield for United States Treasury bills maturing approximately thirty (30) days after the Determination Date as published by The Wall Street Journal on such Determination Date (or, if The Wall Street Journal is no longer published, then any reasonably equivalent financial publication selected by the Remarketing Agent) (or the next preceding Business Day on which The Wall Street Journal is published if not published on the Determination Date). For purposes hereof, "Calculation Period" shall mean the period from and including the day following the Determination Date of each week (even if not a Business Day) to and including the following Determination Date; provided that if during the Variable Period the Determination Date at the end of such Calculation Period is a Regular Record Date, such Calculation Period will extend until the Business Day following such Determination Date. If, for any reason, the Variable Rate is not determined as described above or is held to be invalid or unenforceable by a court of competent jurisdiction for any period, the interest rate for each such period will be equal to eight percent (8.00%) per annum. Notwithstanding anything to the contrary contained herein or in the Indenture, the Variable Rate will not be a rate of interest in excess of fifteen percent (15.00%) per annum. Interest prior to the Conversion Date (hereinafter defined) will be computed on the basis of a three hundred sixty-five (365) or three hundred sixty-six (366) day year, as applicable, for the number of days actually elapsed, and will be payable on each Interest Payment Date. Fixed Rate. (a) The interest rate on this Bond will be converted to the Fixed Rate upon an election by the Company pursuant to the Indenture to convert the rate of interest on all Bonds then outstanding from the Variable Rate to the Fixed Rate upon satisfaction of certain conditions and notice given by the Company and by the Trustee in accordance with the requirements of the Indenture, and the Bonds shall be subject to mandatory tender for purchase by the owners thereof on the Conversion Date, which shall be an Interest Payment Date. On and after the Conversion Date the owners of the Bonds will not be entitled to tender Bonds for purchase. On or before the Conversion Date, the Placement Agent will determine the Fixed Rate in the manner described in subsection (c) below, and will promptly notify the Company and the Trustee of the Fixed Rate. (b) At least twenty (20) but not more than thirty (30) days prior to the Conversion Date, a notice will be mailed by the Trustee to each registered owner of Bonds stating, among other things, (1) the Conversion Date, (2) the name and address of the placement agent which has agreed to use its best efforts to arrange for the sale of any Bonds to be tendered or deemed tendered for purchase on the Conversion Date (herein called the "Placement Agent"), (3) that after the seventeenth (17th) day preceding the Conversion Date, the owner will not be entitled to deliver an Optional Tender Notice and that after the tenth (10th) day preceding the Conversion Date, the owner will not be entitled to tender this Bond for purchase as described below, (4) that this Bond will be deemed tendered for purchase on the Conversion Date, (5) that in order to receive payment of the purchase price of any Bond which is deemed to have been tendered, the registered owner of such Bond must deliver such Bond to the office of the Tender Agent before 10 a.m. Eastern time on the Conversion Date, and (6) that interest on any Bond will be payable only to (but not including) the Conversion Date. Any Bonds not so tendered on the Conversion Date ("Undelivered Bonds"), for which there has been irrevocably deposited in trust with the Trustee an amount of moneys sufficient to pay the purchase price of the Undelivered Bonds, shall be deemed to have been tendered and purchased at the purchase price. IN THE EVENT OF A FAILURE BY AN OWNER OF BONDS TO TENDER ITS BONDS ON OR PRIOR TO THE CONVERSION DATE, SAID OWNER SHALL NOT BE ENTITLED TO ANY PAYMENT (INCLUDING ANY INTEREST TO ACCRUE SUBSEQUENT TO THE CONVERSION DATE) OTHER THAN THE PURCHASE PRICE FOR SUCH UNTENDERED BONDS, AND ANY UNTENDERED BONDS SHALL NO LONGER BE ENTITLED TO THE BENEFITS OF THE INDENTURE, EXCEPT FOR THE PURPOSE OF PAYMENT OF THE PURCHASE PRICE THEREFOR. (c) Upon the Conversion Date stated in such notice, the Fixed Rate to be borne by the Bonds for the period beginning on the Conversion Date and ending on the Maturity Date or prior redemption of the Bonds (the "Fixed Rate"), will be the interest rate per annum which, in the sole judgment of the Placement Agent, taking into account prevailing financial market conditions, would be the minimum interest rate required to sell such Bonds on the Conversion Date at a price equal to 100% of the principal amount thereof. The Fixed Rate shall be determined by the Placement Agent on or before the Conversion Date, and the Placement Agent shall notify the Trustee and the Company thereof by telephone or such other manner as may be appropriate by not later than 2:00 p.m., Eastern time on such date, which notice shall be promptly confirmed in writing. (d) If, for any reason, the Fixed Rate is held to be invalid or unenforceable by a court of competent jurisdiction, the Fixed Rate will be eight percent (8.00%) per annum. Notwithstanding anything to the contrary contained herein or in the Indenture, the Fixed Rate will not be a rate of interest in excess of fifteen percent (15.00%) per annum. (e) The Fixed Rate will be computed on the basis of a three hundred sixty (360)-day year, computed for the actual number of days elapsed, and will be payable on each Interest Payment Date after the Conversion Date until the principal of, and premium, if any, and interest on the Bonds shall have been paid in full. Interest Rate Determination Binding. The determination of the interest rate on the Bonds by the Remarketing Agent or Placement Agent, as appropriate, in accordance with the terms of the Indenture will be conclusive and binding upon the registered owners of the Bonds, the Issuer, the Company, the Trustee, the Remarketing Agent, the Placement Agent, the Tender Agent and the Credit Facility Issuer. REDEMPTION OF BONDS Optional Redemption. (a) While the Bonds bear interest at the Variable Rate, the Bonds will be subject to redemption upon the written direction of the Issuer, given at the request of the Company, on any Interest Payment Date and on the Conversion Date, in whole or in part, at a redemption price equal to one hundred percent (100%) of the principal amount thereof without premium plus interest accrued to the redemption date. (b) While the Bonds bear interest at the Fixed Rate, the Bonds will be subject to redemption upon the written direction of the Issuer, given at the request of the Company, in whole or in part, on any Interest Payment Date occurring on or after the dates set forth below, at the redemption prices (with a premium expressed as a percentage of principal amount to be redeemed) set forth below plus interest accrued to the redemption date as follows: Commencement of Redemption Period Redemption Price The Business Day four 103%, declining by 1/2% on each (4) years from the succeeding anniversary of the first Conversion Date day of the redemption period until reaching 100% and thereafter at 100% (c) The Bonds will be subject to redemption upon the written direction of the Issuer, given at the request of the Company, at any time in whole or in part at a redemption price equal to one hundred percent (100%) of the principal amount thereof plus interest accrued to the redemption date in the event of damage, destruction or condemnation of the Project, all as more fully described in Section 701(b) of the Indenture. Mandatory Redemption. (a) The Bonds will be subject to mandatory redemption in whole on any date at a redemption price equal to one hundred percent (100%) of the principal amount thereof plus accrued interest to the redemption date within one hundred eighty (180) days after receipt by the Trustee of a written notice of a Determination of Taxability (as defined in the Sale Agreement). (b) During the Variable Rate Period, the Bonds will be subject to mandatory redemption in whole on the Interest Payment Date occurring closest to but not after fifteen (15) days prior to the date of expiration of the then current Credit Facility unless prior to such date an Alternate Credit Facility has been provided in accordance with the Indenture, at a redemption price or purchase price equal to one hundred percent (100%) of the principal amount thereof, without premium, plus interest accrued to the redemption date. Notice of Redemption and Selection of Bonds. Any notice of redemption, identifying the Bonds or portions thereof to be redeemed, will be given not more than sixty (60) days and not less than twenty (20) days prior to the redemption date, by mailing a copy of the redemption notice by first class mail to the owner of each Bond to be redeemed in whole or in part at the address shown on the Bond Register maintained by the Bond Registrar. Notice of optional redemption may be conditioned upon the deposit of moneys with the Trustee before the date fixed for redemption and such notice will be of no effect unless such moneys are so deposited. All Bonds so called for redemption, including Bonds purchased by the Company as provided in the Indenture but not yet surrendered for payment of the purchase price, will cease to bear interest on the specified redemption date provided funds for their redemption price and any accrued interest payable on the specified redemption date are on deposit at the principal place of payment at that time. If less than all the Bonds are to be redeemed, the particular Bonds to be called for redemption will be selected in the following order of priority: first, Bonds pledged to the Credit Facility Issuer; second, Bonds owned by the Company and third, Bonds selected by any random or other method determined by the Trustee in its sole discretion. Mandatory Purchase Upon Conversion to Fixed Rate. The Bonds will be subject to mandatory purchase in whole (and not in part) on the Conversion Date at a purchase price equal to one hundred percent (100%) of the principal amount thereof plus interest accrued thereon to the date of purchase. THE OWNER OF THIS BOND, BY ACCEPTANCE HEREOF, AGREES TO THE MANDATORY PURCHASE OF THIS BOND AS PROVIDED IN THE INDENTURE, AND AGREES THAT THIS BOND WILL BE PURCHASED ON THE DATE SPECIFIED UPON DEPOSIT WITH THE TRUSTEE OF AN AMOUNT SUFFICIENT TO PAY THE PURCHASE PRICE HEREOF. THE OWNER OF THIS BOND ALSO UNDERSTANDS AND AGREES THAT IN THE EVENT THE OWNER FAILS TO DELIVER THIS BOND, PROPERLY ENDORSED FOR TRANSFER, TO THE TRUSTEE ON THE DATE SPECIFIED, INTEREST WILL CEASE TO ACCRUE HEREON ON SUCH SPECIFIED DATE AND THE OWNER HEREOF WILL THEREAFTER BE ENTITLED ONLY TO PAYMENT OF THE PURCHASE PRICE AND NOT TO THE BENEFIT OF THE INDENTURE. Purchase at Option of the Owner During Variable Rate Period. While the Bonds bear interest at the Variable Rate, any Bond or portion thereof in an authorized denomination will be purchased on the demand of the owner thereof, on any Business Day at a purchase price equal to one hundred percent (100%) of the principal amount thereof plus interest accrued to the date of purchase upon delivery to the Tender Agent of an Optional Tender Notice in the form attached hereto as Exhibit A (herein called the "Optional Tender Notice") specifying the date on which such Bond will be purchased, which date will be a Business Day not prior to the seventh (7th) day after the date of delivery of the Optional Tender Notice. To receive payment of the purchase price, the owner will be required to deliver such Bond to the Tender Agent, accompanied by an executed form of assignment and any other instruments of transfer satisfactory to the Trustee, not less than five (5) days prior to the purchase date specified in such notice as provided in the Indenture; provided, however, that any owner which is an investment company registered pursuant to the Investment Company Act of 1940 may deliver such Bond to the Tender Agent at or prior to 10:00 a.m. on the date of purchase. No purchase of Bonds at the option of the owner thereof or on the Conversion Date will be deemed to be a payment or redemption of the Bonds or any portion thereof. Notwithstanding the foregoing, no owner will have a right to tender its Bond(s) for purchase as described in this paragraph following acceleration of the payment of the Bonds pursuant to the terms of the Indenture or after the Conversion Date. THE OWNER OF THIS BOND, BY ACCEPTANCE HEREOF, AGREES THAT DELIVERY OF THE WRITTEN NOTICE DESCRIBED IN THE PRECEDING PARAGRAPH BY THE OWNER CONSTITUTES AN IRREVOCABLE OFFER TO SELL THIS BOND ON THE DATE SPECIFIED, AND THAT THIS BOND WILL BE PURCHASED ON SUCH DATE UPON DEPOSIT WITH THE TENDER AGENT OF AN AMOUNT SUFFICIENT TO PAY THE PURCHASE PRICE HEREOF. THE OWNER OF THIS BOND ALSO UNDERSTANDS AND AGREES THAT IN THE EVENT THE OWNER FAILS TO DELIVER THIS BOND, PROPERLY ENDORSED FOR TRANSFER, TO THE TENDER AGENT ON THE DATE SPECIFIED IN THE NOTICE, THIS BOND WILL BE HELD BY THE OWNER AS AGENT FOR THE COMPANY, INTEREST WILL CEASE TO ACCRUE HEREON AS OF THE DATE SPECIFIED IN THE NOTICE AND THE OWNER HEREOF WILL THEREAFTER BE ENTITLED ONLY TO PAYMENT OF THE PURCHASE PRICE AND NOT TO THE BENEFITS OF THE INDENTURE AND THE ISSUER WILL, TO THE EXTENT PERMITTED BY LAW, EXECUTE AND THE TRUSTEE WILL AUTHENTICATE AND DELIVER A SUBSTITUTE BOND IN LIEU OF THE UNDELIVERED BOND. Tender Agent. The Issuer has appointed The First National Bank of Boston as Tender Agent. The Tender Agent may be changed at any time by the Company with the consent of the Trustee. Authorized Denominations. Subject to the provisions of the Indenture, the Bonds are issuable as registered Bonds in the denomination of One Hundred Thousand Dollars ($100,000) or any integral multiple of $5,000 in excess thereof; provided that if less than $100,000 in principal amount of Bonds is Outstanding, one Bond shall be issued in such smaller denomination; and provided further, that subsequent to the initial issuance of the Bonds, replacement or substitution Bonds or Bonds issued in exchange in accordance with the provisions of Section 205 of the Indenture may be issued in denominations of $5,000 or integral multiples thereof. Subject to the limitations provided in the Indenture and upon payment of any tax or governmental charge, if any, Bonds may be exchanged for a like aggregate principal amount of Bonds of other authorized denominations. Transfer. This Bond is transferable by the registered owner hereof or his duly authorized attorney at the principal corporate trust office of The First National Bank of Boston, as Bond Registrar, in Canton, Massachusetts, in compliance with the terms and conditions set forth in the Indenture and upon surrender of this Bond, provided that transfers in connection with the remarketing hereof will be made at the corporate trust office of the Trustee in Canton, Massachusetts, accompanied by a duly executed instrument of transfer in form satisfactory to the Bond Registrar, subject to such reasonable regulations as the Issuer, the Bond Registrar or the Trustee may prescribe and upon payment of any tax or other governmental charge incident to such transfer, PROVIDED THAT IF MONEYS FOR THE PURCHASE OF THIS BOND HAVE BEEN PROVIDED PURSUANT TO A DRAW UNDER THE CREDIT FACILITY, THIS BOND IS NOT TRANSFERABLE TO ANYONE OTHER THAN THE COMPANY OR ITS ASSIGNEE OR PLEDGEE. Upon any such transfer, the Trustee shall cause a new Bond or Bonds registered in the name of the transferee or transferees in denominations authorized by the Indenture and in the same aggregate principal amount as the principal amount of this Bond (and of the same maturity and bearing interest at the same rate) will be issued to the transferee. Except as set forth in this Bond and as otherwise provided in the Indenture, the person in whose name this Bond is registered will be deemed the owner hereof for all purposes, and the Issuer, the Bond Registrar and the Trustee will not be affected by any notice to the contrary. The owner of this Bond will have no right to enforce the provisions of the Indenture or to institute action to enforce the covenants therein, or to take any action with respect to any Event of Default under the Indenture or to institute, appear in or defend any suit or other proceeding with respect thereto, except as provided in the Indenture. In certain events, on the conditions, in the manner and with the effect set forth in the Indenture, the principal of this Bond may become or may be declared due and payable before the stated maturity hereof, together with the interest accrued hereon. Modifications or alterations of the Sale Agreement and the Indenture and any supplement or amendment thereto may be made only to the extent and in the circumstances permitted by the Indenture and may be made in certain cases without the consent of the owners of the Bonds. Anything herein or in the Indenture to the contrary notwithstanding, the obligations of the Issuer hereunder will be subject to the limitation that payment of interest to the owner of this Bond will not be required to the extent that receipt of any such payment by the owner of this Bond would be contrary to the provisions of law applicable to such Bond which limits the maximum rate of interest which may be charged or collected by such owner. In any case where the date of maturity of interest on or principal of the Bonds or the date fixed for redemption of the Bonds shall be in the city of payment a day other than a Business Day, then payment of interest or principal need not be made on such date but may be made on the next succeeding Business Day with the same force and effect as if made on the date of maturity or the date fixed for redemption, provided that interest will accrue for the period of any such extension. This Bond will be governed by and construed in accordance with the laws of the State of New York. All acts, conditions and things required to happen, exist and be performed precedent to and in the issuance of this Bond and the execution of the Indenture have happened, exist and have been performed as so required. IN WITNESS WHEREOF, the Issuer has caused this Bond to be executed with the manual or facsimile signature of the Chairman or Vice Chairman of the Issuer, its official seal to be impressed or imprinted hereon and the same to be attested by the manual or facsimile signature of the Secretary or Assistant Secretary of the Issuer, all as of __________ ___, 1994. Village of Walden Industrial Development Agency By: Chairman (Seal) Attest: By: Secretary * * * * * CERTIFICATE OF AUTHENTICATION This Bond is one of the Bonds of the series designated therein and issued under the provisions of the within-mentioned Indenture. The First National Bank of Boston, as Trustee By: Its: Authorized Signatory Date of Authentication: __________ ___, 1994 * * * * * [FORM OF ASSIGNMENT TO APPEAR ON REVERSE OF BOND] FORM OF ASSIGNMENT FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE the within bond of the _______________________________ and does hereby constitute and appoint _________________ ______________ attorney to transfer the said bond on the books of the within named Issuer, with full power of substitution in the premises. Dated: In the presence of: Bondholder Signature Guaranteed: [End of Form of Bond] ; and NOW, THEREFORE, in consideration of the premises, of the acceptance by the Trustee of the trusts hereby created, and of the purchase and acceptance of the Bonds by the Bondholders, and also for and in consideration of the sum of One Dollar to the Issuer in hand paid by the Trustee at or before the execution and delivery of this Indenture, the receipt of which is hereby acknowledged, and for the purpose of fixing and declaring the terms and conditions upon which the Bonds are to be issued, delivered, secured and accepted by the Bondholders and any and all other persons who shall from time to time be or become owners thereof, and in order to secure the payment of the Bonds at any time issued and outstanding hereunder and the interest thereon according to their tenor, purport and effect, and in order to secure the performance and observance of all the covenants, agreements and conditions therein and herein contained; THE ISSUER DOES HEREBY PLEDGE AND ASSIGN, and grant a security interest unto the Trustee and its successors and assigns for the benefit of the owners of the Bonds all right, title and interest of the Issuer presently owned or hereafter acquired in and to the following (collectively, the "Trust Estate"): (a) The Sale Agreement (as the same may from time to time be supplemented or amended), including, but not limited to, all payments or installment purchase obligations due and to become due under the Note and the Sale Agreement whether made at their respective due dates or as prepayments permitted or required by the Sale Agreement together with full power and authority, in the name of the Issuer or otherwise, to demand, receive, enforce, collect or receipt for any or all of the foregoing, to endorse or execute any checks or other instruments or orders, to file any claims and to take any action which the Trustee may deem necessary or advisable in connection therewith, and the Issuer hereby irrevocably appoints the Trustee attorney-in-fact of the Issuer for such purposes, which appointment is coupled with an interest and is irrevocable; provided, however, that the Issuer shall continue to have all the rights, together with the Trustee, contained in the following sections of the Sale Agreement: (i) Section 7.1 (pertaining to the Issuer's right of access to the Project (as defined in the Sale Agreement)); (ii) Section 7.3 (pertaining to the Issuer's right to receive payment for certain costs and expenses); (iii) Section 7.6 (pertaining to the Issuer's right to certain indemnities); (iv) Section 7.7 (pertaining to the Issuer's right to release and indemnification); (v) Section 7.8 (pertaining to the Issuer's right to receive certain information); (vi) Section 8.1 (pertaining to the Issuer's right to consent or withhold consent to assignment of rights of the Company under the Sale Agreement or lease or sale of the Project); (vii) Sections 9.3 and 9.5 (pertaining to the Issuer's right to reimbursement of expenses incurred upon a default); (viii) Sections 10.1(c), 10.2 and 10.3 (pertaining to the Issuer's right to notice of prepayments and rights upon the occurrence of certain events; (ix) Section 12.5 (pertaining to the Issuer's right to receive notices); and (x) Sections 12.12, 12.13 and 12.14 (pertaining to the limitations on the liability of the Issuer). (b) The Note of even date herewith of the Company to the Issuer in the original principal amount of $7,500,000 evidencing the Company's obligation to pay the purchase price pursuant to the Sale Agreement, together with interest thereon and other amounts with respect thereto, as provided for in the Sale Agreement, the Issuer having on this date endorsed, pledged and assigned the Note without recourse to the order of, and delivered the same to, the Trustee as security for the obligations of the Issuer to the Trustee hereinafter referred to. (c) All money or securities at any time on deposit in, in transit to or credited to any account or Fund created hereunder, including without limitation the Bond Fund but excluding the Rebate Fund; (d) Revenues (as hereinafter defined); and it is so mutually agreed and covenanted by and between the parties hereto for the equal and proportionate benefit and security of the Bondholders without preference, priority or distinction as to lien or otherwise, except as hereinafter provided, of any one Bond over any other Bond, by reason of priority in the issue, sale or negotiation thereof or otherwise, for the benefit of the Bondholders and as security for the fulfillment of the obligations of the Issuer hereunder; TO HAVE AND TO HOLD the same forever, subject, however, to the exceptions, reservations and matters therein and herein recited but IN TRUST, nevertheless, for the benefit and security of the owners from time to time of the Bonds delivered hereunder and issued by the Issuer and outstanding or, to the extent set forth herein, for the benefit of the Credit Facility Issuer, so long as a Credit Facility is in place in respect of the Bonds; PROVIDED, HOWEVER, that if, after the right, title and interest of the Trustee in and to the Trust Estate pledged and assigned to it under this Indenture shall have ceased, terminated and become void in accordance with Article XIV hereof, the principal of and interest on the Bonds and any other obligations arising hereunder shall have been paid to the Bondholders or shall have been paid by the Company pursuant to Article XIV hereof, then, this Indenture and all covenants, agreements and other obligations of the Issuer hereunder shall cease, terminate and be void, and thereupon the Trustee shall cancel and discharge this Indenture and execute and deliver to the Issuer and the Company such instruments in writing as shall be required to evidence the discharge hereof; otherwise, this Indenture shall be and remain in full force and effect. THIS INDENTURE FURTHER WITNESSETH, and it is expressly declared, that the Bonds issued and secured hereunder are to be issued and delivered and the trust estate and other revenues and funds herein pledged and assigned are to be dealt with and disposed of under, upon and subject to the terms, conditions, stipulations, covenants, agreements, trusts, uses and purposes as hereinafter expressed, and the Issuer has agreed and covenanted, and does hereby agree and covenant, with the Trustee and with the owners of said Bonds, as follows, that is to say: ARTICLE I DEFINITIONS AND RULES OF CONSTRUCTION Section 101. Definitions. All words and terms defined in Article I of the Sale Agreement shall have the same meanings in this Indenture, unless otherwise specifically defined herein. In addition, the following words and terms as used in this Indenture shall have the following meanings unless some other meaning is plainly intended: "Act" shall mean all applicable provisions of the Constitution and laws of the State of New York, including without limitation Chapter 1030 of the Laws of 1969 of the State, constituting Title 1 of Article 18-A of the General Municipal Law of the State, as amended from time to time, together with Chapter 632 of the Laws of 1977 of the State, constituting Section 925-a of the General Municipal Law of the State, as amended from time to time. "Alternate Credit Facility" shall mean an irrevocable direct pay letter of credit, insurance policy or similar credit enhancement or support facility for the benefit of the Trustee, the terms of which Alternate Credit Facility shall, in all respects material to the Bondholders, be the same (except for the term of such Alternate Credit Facility) as the Credit Facility that is replaced by such Alternate Credit Facility as set forth in Section 603 hereof. "Authenticating Agent" shall mean the Trustee and any agent so appointed pursuant to Section 207 hereof. "Available Moneys" shall mean: (a) any moneys which have been paid to the Trustee by the Company and which have been on deposit with the Trustee for at least three hundred sixty-seven (367) days during and prior to which no Event of Bankruptcy shall have occurred, and the proceeds from the investment of such moneys after such moneys have become Available Moneys, and (b) moneys on deposit with the Trustee representing proceeds from the resale by the Remarketing Agent of Bonds to persons other than the Issuer or the Company as described in Article III hereof, which, in each case, were at all times since their deposit with the Trustee held in a separate and segregated account or accounts or sub-account or sub-accounts in which no moneys were which were not Available Moneys were at any time held, and the proceeds from the investment thereof, and (c) moneys drawn under a Credit Facility which in each case were at all times since their deposit with the Trustee held in a separate and segregated account or accounts or sub-account or sub-accounts in which no moneys (other than those drawn under a Credit Facility) were at any time held. "Bank" shall mean First Union National Bank of North Carolina as the issuer of the Letter of Credit, and its successors and assigns. "Bank Account" shall mean the account of that name established in the Bond Purchase Fund pursuant to Section 302 hereof. "Bond" or "Bonds" shall mean any bond or bonds authenticated and delivered under this Indenture. "Bond Counsel" shall mean an attorney-at-law or a firm of attorneys of nationally recognized standing in matters pertaining to the tax-exempt nature of interest on bonds issued by states and their political subdivisions, duly admitted to the practice of law before the highest court of any state of the United States of America and approved by the Issuer. "Bond Fund" shall mean the trust fund so designated which is established pursuant to Section 502(a) hereof. "Bond Purchase Fund" shall mean the trust fund so designated which is established pursuant to Section 302 hereof. "Bond Register" shall have the meaning provided in Section 204 hereof. "Bond Registrar" shall mean the Bond Registrar as designated in Section 204 hereof. "Bondholder" or "Bondholders" or "owner" or "owners" shall mean the initial owner or owners and any future owner or owners of the Bond or Bonds as registered on the books and records of the Bond Registrar pursuant to Section 204 hereof. "Business Day" shall mean a day upon which banks in the State and in the States of Massachusetts and North Carolina are open for the transaction of business of the nature required pursuant to the Sale Agreement and this Indenture. "Calculation Period" shall mean the period from and including the day following the Determination Date of each week (even if not a Business Day) to and including the following Determination Date; provided, that if the Determination Date at the end of a Calculation Period is a Regular Record Date, such Calculation Period will extend until the Business Day following such Determination Date. "Company" shall mean Spence Engineering Company, Inc., a Delaware corporation, and its successor or assigns and any surviving, resulting or transferee corporation or other entity. "Conversion Date" shall mean that Business Day elected by the Company in accordance with Section 202(e) of the Indenture as the effective date of conversion of the interest rate on the Bonds from the Variable Rate to the Fixed Rate, which date shall be an Interest Payment Date. "Counsel" shall mean an attorney or firm of attorneys acceptable to the Trustee (who may, but need not be, counsel to the Issuer or the Company). "Credit Facility" shall mean the Letter of Credit or any Alternate Credit Facility delivered to the Trustee pursuant to Article VI hereof. "Credit Facility Account" shall mean the account of that name established in the Bond Fund pursuant to Section 502 hereof. "Credit Facility Issuer" shall mean the Bank with respect to the Letter of Credit and the institution issuing any Alternate Credit Facility. "Defaulted Interest" has the meaning provided in Section 208 hereof. "Determination Date" shall mean Wednesday of each week or if Wednesday is not a Business Day then the next succeeding Business Day. "Event of Bankruptcy" shall mean a petition by or against the Company or the Issuer under any bankruptcy act or under any similar act which may be enacted which shall have been filed (other than bankruptcy proceedings instituted by the Company or the Issuer against third parties) unless such petition shall have been dismissed and such dismissal shall be final and not subject to appeal. "Event of Default" shall mean any of the events specified in Section 901 hereof to be an Event of Default. "Fixed Rate" shall mean the fixed annual rate of interest on the bonds determined by the Placement Agent pursuant to Section 202(e) hereof. If, for any reason, the Fixed Rate is held to be invalid or unenforceable by a court of competent jurisdiction, the Fixed Rate shall be equal to eight percent (8.00%) per annum. The Fixed Rate shall in no event exceed fifteen percent (15.00%). "Fixed Rate Period" shall mean the period during which the Fixed Rate is in effect, which shall be the period beginning on the Conversion Date and ending on the Maturity Date. "Governmental Obligations" shall mean: (i) direct obligations of the United States of America for the full and timely payment of which the full faith and credit of the United States of America is pledged, (ii) obligations issued by a Person controlled or supervised by and acting as an instrumentality of the United States of America, the full and timely payment of which is unconditionally guaranteed as a full faith and credit obligation of the United States of America, and (iii) securities or receipts evidencing ownership interests in obligations or specified portions (such as principal or interest) of obligations described in clause (i) or (ii) above the full and timely payment of which securities, receipts or obligations is unconditionally guaranteed by the United States of America, which obligations, securities or receipts are not subject to redemption prior to maturity at less than par at the option of anyone other than the holder thereof. "Indenture" shall mean this Indenture as amended or supplemented at the time in question. "Initial Interest Rate" shall mean the initial rate of interest of 2.75% per annum on the Bonds. "Initial Rate Period" shall mean from and including the Original Delivery Date to and including June 22, 1994. "Interest Payment Date" shall mean the first Business Day of each March, June, September and December commencing on the first Business Day of September, 1994, and ending on the Maturity Date of the Bonds. "Investment Obligations" shall mean: (a) any Government Obligations; (b) any bonds or other obligations of the United States of America which as to principal and interest constitute direct obligations of the United States of America, or any obligations of subsidiary corporations of the United States of America fully guaranteed as to payment by the United States of America; (c) obligations of the Federal Land Bank; (d) obligations of the Federal Home Loan Bank; (e) obligations of the Federal Intermediate Credit Bank; (f) bonds or obligations issued by any public housing agency or municipal corporation in the United States of America, which such bonds or obligations are fully secured as to the payment of both principal and interest by a pledge of annual contributions under an annual contributions contract or contracts with the United States government, or project notes issued by any public housing agency, urban renewal agency, or municipal corporation in the United States of America which are fully secured as to payment of both principal and interest by a requisition, loan, or payment agreement with the United States government; (g) interest-bearing savings accounts (including that of the Trustee), interest-bearing certificates of deposit or interest-bearing time deposits or any other investments constituting direct obligations of any bank which has deposits insured by the Federal Deposit Insurance Corporation; provided that such accounts, certificates of deposits, time deposits, or investments are either (a) insured by the Federal Deposit Insurance Corporation, or (b) secured by the deposit with any national or state bank located within the State of any Government Obligation; (h) short term obligations of corporations organized under the laws of any state with assets exceeding $500,000,000 if (i) such obligations are rated within the two (2) highest categories established by Moody's and S&P and which mature no later than one hundred eighty (180) days from the date of purchase and (ii) the purchases do not exceed ten (10%) percent of such corporation's outstanding obligations; (i) money market mutual funds registered under the Investment Company Act of 1940, as amended, provided that the portfolio of any such money market fund is limited to Government Obligations and to agreements to purchase Government Obligations; and (j) repurchase agreements with respect to obligations included in subsections (a) through (i) above and any other investments to the extent at the time permitted by then applicable law for the investment of public funds. "Issuer" shall mean the Village of Walden Industrial Development Agency, a corporate governmental agency, constituting a public benefit corporation and existing pursuant to the constitution and laws of the State including the Act. "Letter of Credit" shall mean the irrevocable direct pay letter of credit dated June 17, 1994, in the amount of $7,875,000, issued by the Bank, including any extensions thereof. "Sale Agreement" shall mean the Sale Agreement of even date herewith between the Issuer and the Company and any amendments or supplements thereof permitted by this Indenture. "Majority of the Bondholders" shall mean the owners of a majority of the aggregate principal amount of the Outstanding Bonds. "Maturity Date" shall mean the first Business Day of December, 2006. "Moody's" shall mean Moody's Investors Service, Inc. a Delaware corporation, its successors and assigns, and, if such corporation shall be dissolved or liquidated or shall no longer perform the functions of a securities rating agency, "Moody's" shall be deemed to refer to any other nationally recognized securities rating agency designated by the Trustee, with the consent of the Company and the Credit Facility Issuer. "Note" shall mean the promissory note given by the Company pursuant the provisions of the Sale Agreement, substantially in the form attached thereto. "Optional Tender Notice" shall mean a notice from the owner of a Bond to the Tender Agent in the form attached to the Bond as Exhibit A. "Original Delivery Date" shall mean June 17, 1994. "Outstanding" in connection with Bonds shall mean, as of the time in question, all Bonds authenticated and delivered under the Indenture, except: (i) Bonds theretofore canceled or required to be cancelled under Section 212 hereof; (ii) Bonds which are deemed to have been paid in accordance with Article XIV hereof; and (iii) Bonds in substitution for which other Bonds have been authenticated and delivered pursuant to Article II hereof. In determining whether the owners of a requisite aggregate principal amount of Bonds Outstanding have concurred in any request, demand, authorization, direction, notice, consent or waiver under the provisions hereof, Bonds which are held by or on behalf of the Company (unless all of the outstanding Bonds are then owned by the Company) or an Affiliate of the Company (as defined below) shall be disregarded for the purpose of any such determination. For the purpose of this paragraph, an "Affiliate" of any specified entity shall mean any other entity directly or indirectly controlling or controlled by or under direct or indirect common control with such specified entity and "control", when used with respect to any specific entity, shall mean the power to direct the management and policies of such entity, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. "Payments Account" shall mean the account of that name established in the Bond Fund pursuant to Section 502 hereof. "Placement Agent" shall mean the securities dealer, bank or trust company which is designated by the Company with the consent of the Credit Facility Issuer and which will agree to establish the Preliminary Fixed Rate and to use its best efforts to arrange for the sale of Tendered Bonds on the Conversion Date, all as more particularly described in Section 202(e) hereof. "Pledge Agreement" shall mean the Pledge Agreement of even date herewith by the Company to the Bank, and any amendments or supplements thereof. "Pledged Revenues" means and shall include the payments required to be made by the Company under the Sale Agreement except payments to be made to the Trustee for services rendered as Trustee under the Indenture and as Bond Registrar and paying agent for the Bonds and except for expenses, indemnification and other payments required to be made pursuant to Sections 7.5 and 7.6 of the Sale Agreement. "Principal Office" of the Trustee or Bond Registrar shall mean the office at which, at the time in question, its corporate trust business is principally conducted. "Prior Bonds" means the $7,500,000 Village of Walden Industrial Development Agency (Spence Engineering Company Project), Series 1984 bonds. "Prior Trustee" means First Union National Bank, as trustee under a Trust Indenture dated as of December 1, 1984 between Village of Walden Industrial Development Agency and First Union National Bank. "Private Placement Memorandum" shall mean the Private Placement Memorandum dated June 17, 1994, relating to the Bonds. "Regular Record Date" shall mean: (i) in respect of any Interest Payment Date during the Variable Rate Period, the close of business on the Business Day immediately preceding each such Interest Payment Date, and (ii) in respect of any Interest Payment Date during the Fixed Rate Period, the fifteenth (15th) day (whether or not a Business Day) of the calendar month immediately preceding each such Interest Payment Date. "Reimbursement Agreement" shall mean the Letter of Credit, Reimbursement and Guaranty Agreement of even date herewith by and among the Company, Watts Industries, Inc., as guarantor, the Company, and the Bank, as the same may be amended from time to time and filed with the Trustee, and any agreement of the Company with a Credit Facility Issuer setting forth the obligations of the Company to such Credit Facility Issuer arising out of any payments under a Credit Facility and which provides that it shall be deemed to be a Reimbursement Agreement for the purpose of this Indenture. "Remarketing Account" shall mean the account of that name established in the Bond Purchase Fund pursuant to Section 302 hereof. "Remarketing Agent" shall mean First Union National Bank of North Carolina and its successors as provided in Section 1201 hereof. "Remarketing Agreement" shall mean the Remarketing Agreement of even date herewith between the Company and the Remarketing Agent and any amendments and supplements thereof. "Requisite Bondholders" shall mean the owners of more than two-thirds (2/3rds) in aggregate principal amount of the Outstanding Bonds. "Responsible Officer" when used with respect to the Trustee shall mean the chairman or vice-chairman of the board of directors, the chairman or vice-chairman of the executive committee of the board of directors, the president, any vice president, the secretary, any assistant secretary, the treasurer, any assistant treasurer, the cashier, any assistant cashier, any trust officer or assistant trust officer, the controller and any assistant controller or any other officer of the Trustee customarily performing functions similar to those performed by any of the above designated officers of banking institutions with trust powers and also shall mean, with respect to a particular corporate trust matter, any other officer to whom such matter is referred because of his knowledge of and familiarity with the particular subject. "Revenues" shall mean: (i) all amounts payable to the Trustee with respect to the principal or redemption price of, or interest on the Bonds (a) by the Company under the Note, and (b) by the Credit Facility Issuer under a Credit Facility, and (ii) investment income with respect to any moneys held by the Trustee in the Bond Fund. "Security interest" or security interests" refers to the security interests created herein and in the Security Instruments and shall have the meaning set forth in the Uniform Commercial Code. "S&P" shall mean Standard & Poor's Corporation, a New York corporation, its successors and assigns, and, if such corporation shall be dissolved or liquidated or shall no longer perform the functions of a securities rating agency, "S&P" shall be deemed to refer to any other nationally recognized securities rating agency designated by the Trustee, with the consent of the Company and the Credit Facility Issuer. "Special Record Date" shall mean for purpose of payment of Defaulted Interest on the Bonds, the date fixed by the Trustee pursuant to Section 208 hereof. "State" shall mean the State of New York. "Subsidiary" shall mean any corporation, association or other business entity of which more than fifty percent (50%) of the issued and outstanding stock or equivalent thereof having ordinary voting power is, at the time at which any determination is being made, owned or controlled by the Company or by one or more Subsidiaries or other affiliates of the Company. "Tender Agent" shall mean The First National Bank of Boston and its successors as provided in Section 1202 hereof. "Tender Agency Agreement" shall mean the Tender Agency Agreement of even date herewith among the Company, the Trustee and the Tender Agent. "Tendered Bonds" shall mean those Bonds tendered or deemed tendered by the owners for purchase pursuant to an Optional Tender Notice or on the Conversion Date. "Trustee" shall mean The First National Bank of Boston and its successor in the trust hereunder. "Undelivered Bond" shall mean: (i) any Bond for which an Optional Tender Notice has been given pursuant to Section 203 hereof and which has not been delivered to the Tender Agent on the date specified for purchase and (ii) any Bond which has not been delivered to the Trustee for redemption or purchase on any mandatory redemption or purchase date or the Conversion Date; provided that in either case the Trustee has on hand and available on such date funds sufficient to purchase or redeem said Bond. "Variable Rate" shall mean a variable interest rate established after the Initial Rate Period as the rate of interest determined by the Remarketing Agent on and as of each Determination Date as the minimum rate of interest necessary, in the judgment of the Remarketing Agent, taking into account market conditions prevailing on the Determination Date, to enable the Remarketing Agent to arrange for the sale of all of the Bonds on the Determination Date in the secondary market at a price equal to the principal amount thereof (plus interest accrued to the date of settlement). If the Remarketing Agent fails to certify such rate, the Variable Rate for the next succeeding Calculation Period or Periods until thereafter certified by the Remarketing Agent shall remain the same as that most recently established and certified by the Remarketing Agent until thereafter certified by the Remarketing Agent or adjusted as set forth in the next succeeding sentence. In the event the Remarketing Agent fails to certify such rate for four (4) consecutive Calculation Periods, such rate for each Calculation Period thereafter (if none is certified by the Remarketing Agent) shall be ninety percent (90%) of the yield for United States Treasury bills maturing approximately thirty (30) days after the Determination Date for such Calculation Period as published by The Wall Street Journal on such Determination Date (or the next Business Day on which The Wall Street Journal is published if not published on the Determination Date) (or, if The Wall Street Journal is no longer published, then any reasonably equivalent financial publication selected by the Remarketing Agent); provided that if during the Variable Period the Determination Date at the end of each such Calculation Period is a Regular Record Date, such Calculation Period will extend until the Business Day following such Determination Date. A Bondholder may request the Variable Rate in effect from time to time with respect to the Bonds from the Trustee or the Remarketing Agent. If, for any reason, the Variable Rate is not determined as described above or is held to be invalid or unenforceable by a court of competent jurisdiction for any period, the interest rate for each such period shall be equal to eight percent (8.00%) per annum. The Variable Rate shall not be a rate in excess of fifteen percent (15.00%) per annum. "Variable Rate Period" shall mean that period during which a Variable Rate is in effect on the Bonds. "Variable Rate Purchase Date" shall mean while the Bonds bear interest at the Variable Rate, any Business Day (prior to and including the date which is the tenth day preceding the Conversion Date) on which the Bonds may be tendered for purchase at the option of the owner thereof in accordance with Section 203 hereof. Section 102. Rules of Construction. (a) Words of the masculine gender shall be deemed and construed to include correlative words of the feminine and neuter genders. Unless the context shall otherwise indicate, the words "Bond, "owner", "Bondholder", "Bondholder of Record" and "person" shall include the plural as well as the singular number; the word "person" shall include any individual, corporation, partnership, joint venture, association, joint-stock company, trust, unincorporated organization or government or any agency or political subdivision thereof; and the word "Bondholder" when used herein with respect to the Bonds shall mean the registered owner of any of the Bonds. (b) Words importing the redemption or calling for redemption of the Bonds shall not be deemed to refer to or connote payment of Bonds at their stated maturity. (c) The Table of Contents, captions and headings in this Indenture are for convenience only and in no way limit the scope or intent of any provision or section of this Indenture. (d) All references herein to particular articles or sections are references to articles or sections of this Indenture unless some other reference is indicated. (e) All references herein to the Code or the 1954 Code or any particular provision or section thereof shall be deemed to refer to any successor, or successor provision or section, thereof, as the case may be. (f) All references herein to time shall be Charlotte, North Carolina time. ARTICLE II THE BONDS Section 201. Amount, Terms, and Issuance of the Bonds. (a) The Bonds shall be limited to $7,500,000 in aggregate principal amount and shall contain substantially the terms recited in the form of Bond above and as set forth in this Indenture. No Bonds may be issued under this Indenture except in accordance with this Article II. No additional bonds shall be issued under this Indenture. (b) The Issuer may cause a copy of the text of the opinion of Bond Counsel delivered in connection with the issuance of the Bonds to be printed on any of the Bonds. The Bonds may bear such endorsement or legend satisfactory to the Trustee as may be required to conform to usage or law with respect thereto, including the imposition of CUSIP or other identifying numbers. (c) Upon satisfaction of the conditions set forth in Section 213 hereof, the Issuer shall issue the Bonds, and the Trustee shall, at the Issuer's request, authenticate the Bonds and deliver them as specified in the request. Section 202. Designation, Denominations, Maturity Date and Interest Rates of the Bonds. (a) Designation, Denominations, Maturity Date. The Bonds shall be designated "$7,500,000 Village of Walden Industrial Development Agency Industrial Development Revenue Refunding Bonds (Spence Engineering Company Project), Series 1994." The Bonds shall be issuable as fully registered Bonds in the denominations of $100,000 or any integral multiple of $5,000 in excess thereof; provided that if less than One Hundred Thousand Dollars ($100,000) principal amount of Bonds is outstanding one Bond shall be issued in such smaller denomination; and provided further, that subsequent to the initial issuance of the Bonds, replacement or substitution Bonds or Bonds issued in exchange in accordance with the provisions of Section 205 hereof may be issued in denominations of $5,000 and integral multiples thereof. All Bonds shall bear the date of their authentication, shall bear interest from the most recent date to which interest has been paid or duly provided for, or, if authenticated on an Interest Payment Date, from that date, or, if no interest has been paid or duly provided for, from the date of authentication, and shall mature, subject to prior redemption as provided in Article VII hereof, on the first Business Day of December, 2006. The Bonds shall be numbered from "1" consecutively upwards prefixed by the letter "R". (b) Interest Rates. The Bonds shall bear interest at the applicable rate provided below. On each Interest Payment Date, interest accrued through the day immediately preceding such Interest Payment Date shall be payable. While the Bonds bear interest at a Variable Rate interest on the Bonds shall be computed on the basis of a year of three hundred sixty-five (365) or three hundred sixty-six (366) days, as applicable, for the number of days actually elapsed. From and including the Conversion Date, and thereafter, interest on the Bonds shall be computed on the basis of a three hundred sixty (360) day year for the number of days actually elapsed. (c) Initial Interest Rate. For the Initial Rate Period, the Bonds shall bear interest at the Initial Interest Rate. (d) Variable Rate. Following the Initial Rate Period and until the Conversion Date, the Bonds shall bear interest at the Variable Rate. During the Variable Rate Period, the Remarketing Agent shall determine the interest rate for the Bonds on each Determination Date. The Remarketing Agent shall give notice by telephone, telecopier, telex, telegram or other telecommunication device, and upon request shall confirm in writing, on the Determination Date to the Trustee and the Company of the interest rate to be in effect for the following Calculation Period. The determination of the Variable Rate by the Remarketing Agent shall be conclusive and binding upon the Bondholders, the Issuer, the Company, the Trustee, the Tender Agent and the Remarketing Agent. Any owner may request the Variable Rate in effect from time to time with respect to the Bonds from the Trustee or the Remarketing Agent. (e) Fixed Rate; Conversion to Fixed Rate. (1) The Company has a one-time option to convert the interest rate payable on the Bonds from the Variable Rate to the Fixed Rate effective on an Interest Payment Date following compliance by the Company with the provisions of this Section 202(e). The Bonds shall be subject to mandatory tender for purchase by the Owners thereof on the Conversion Date. To exercise the option to convert, the Company shall deliver or mail by first class mail (i) a notice to the Trustee and the Credit Facility Issuer with respect to the determination of the Company to convert the interest rate on the Bonds from the Variable Rate to the Fixed Rate, which notice shall be delivered to the Trustee at least thirty (30) but not more than forty-five (45) days prior to the Conversion Date, and (ii) the opinion of Bonds Counsel described in Section 202(f) hereof. The Trustee shall then deliver or mail by first class mail a notice in substantially the form attached hereto as Exhibit B at least twenty (20) days but not more than thirty (30) days prior to the Conversion Date to the Owner of each Bond at the address shown on the registration books of the Issuer. Any notice given by the Trustee as provided in this Section shall be conclusively presumed to have been duly given, whether or not the Owner receives the notice. Failure to mail any such notice, or the mailing of defective notice, to any Owner, shall not affect the proceeding for purchase as to any Owner to whom proper notice is mailed. Said notice shall state, among other things, (1) the Conversion Date, (2) the name and address of the placement agent which has agreed to use its best efforts to arrange for the sale of any bonds to be tendered or deemed tendered for purchase on the Conversion Date (herein called the "Placement Agent"), (3) that after the seventeenth (17th) day preceeding the Conversion Date, the owner will not be entitled to deliver an Optional Tender Notice and that after tenth (10th) day preceding the Conversion Date, the owner will not be entitled to tender this Bond for purchase as described below, (4) that this Bond will be deemed tendered for purchase on the Conversion Date, (5) that in order to receive payment of the purchase price of any Bond which is deemed to have been tendered, the registered owner of such Bond must deliver such Bond to the office of the Tender Agent before 10 a.m. Eastern time on the Conversion Date specifying such address, and (6) that interest on any Bond will be payable only to (but not including) the Conversion Date. As described above, Owners of Bonds shall be required to tender their Bonds on the Conversion Date to the Tender Agent for purchase at the purchase price, and any such Bonds not so tendered on the Conversion Date ("Undelivered Bonds"), for which there has been irrevocably deposited in trust with the Trustee an amount of moneys sufficient to pay the Purchase Price of the Untendered Bonds, shall be deemed to have been tendered and purchased pursuant to this Section 202(e). IN THE EVENT OF A FAILURE BY AN OWNER OF BONDS TO TENDER ITS BONDS ON OR PRIOR TO THE CONVERSION DATE, SAID OWNER SHALL NOT BE ENTITLED TO ANY PAYMENT (INCLUDING ANY INTEREST TO ACCRUE SUBSEQUENT TO THE CONVERSION DATE) OTHER THAN THE PURCHASE PRICE FOR SUCH UNTENDERED BONDS, AND ANY UNTENDERED BONDS SHALL NO LONGER BE ENTITLED TO THE BENEFITS OF THIS INDENTURE, EXCEPT FOR THE PURPOSE OF PAYMENT OF THE PURCHASE PRICE THEREFOR. (2) On or before the proposed Conversion Date, the Placement Agent shall determine the Fixed Rate as of such date in the manner described in subsection (4) below and shall notify the Trustee and the Company of the Fixed Rate by telephone, telecopier, telex, telegram or other telecommunication device and upon request, shall confirm such notice in writing. (3) Any owner of Bonds to be converted to a Fixed Rate shall be deemed to have tendered its Bonds to the Tender Agent. Said owner shall not be entitled to any payment (including any interest to accrue subsequently to the Conversion Date) other than the purchase price for such Bonds which shall be equal to the unpaid principal amount of such Bonds, and any such Bonds shall no longer be entitled to the benefits of this Indenture, except for the purpose of payment of the purchase price therefor and interest payable on the Conversion Date. Payment of the purchase price of any such Bonds shall be made only upon the presentment and surrender of such Bonds to the Tender Agent. Upon request, the Trustee shall provide the Tender Agent with the address set forth on the Bond Register for such owner. The Trustee shall notify the Bond Registrar of all Bonds with respect to which the Trustee has not received Optional Retention Notices, which Bonds shall be deemed to be tendered for purchase on the Conversion Date. In the case of any Bond deemed tendered, the Issuer shall cause to be executed, and the Trustee shall authenticate and deliver to the new owner as provided in Section 301 hereof a new Bond of like date and tenor in lieu of and in substitution for such Bond deemed to be tendered. (4) On or before the Conversion Date, the Fixed Rate shall be the interest rate per annum which, in the sole judgment of the Placement Agent, taking into account prevailing financial market conditions, would be the minimum interest rate required to sell such Bonds on the Conversion Date at a price equal to the 100% of the principal amount thereof. The Fixed Rate shall be determined by the Placement Agent on or before the Conversion Date, and the Placement Agent shall notify the Trustee and the Company thereof by telephone or such other manner as may be appropriate by not later than 2:00 p.m., Eastern time, on the Conversion Date, which notice shall be promptly confirmed in writing. (f) Condition to Conversion; Additional Notices. (1) As a condition to the giving of notice as provided in Section 202(e) above, the Company shall provide the Trustee with an opinion of Bond Counsel to the effect that the proposed conversion of the interest rate on the Bonds will not cause the interest on the Bonds to be includable in the gross income of the owners thereof for federal income tax purposes. (2) The delivery by the Company to the Trustee of a letter from Bond Counsel confirming the opinion required prior to the notification described above on such Conversion Date is a condition precedent to any such Conversion. In the event that the Company fails to deliver to the Trustee the letter of Bond Counsel referred to in the preceding sentence, such Conversion shall not take effect, and the Bonds shall continue to bear interest at the Variable Rate. (3) The Trustee shall provide the Tender Agent with a copy of any notice delivered to the owners of the Bonds pursuant to Section 202 hereof. Section 203. Optional Tender Provisions of the Bonds. (a) While the Bonds bear interest at the Variable Rate, any Bond or portion thereof in an authorized denomination (other than a Bond registered in the name of the Company) shall be purchased on the demand of the owner thereof, on any Business Day at a purchase price equal to one hundred percent (100%) of the principal amount thereof plus interest accrued to the date of purchase, if the owner of such Bond delivers to the Tender Agent at its address filed with the Trustee an Optional Tender Notice at least seven (7) days prior to the Variable Rate Purchase Date specified in such Notice. (b) Any Optional Tender Notice delivered pursuant to the preceding subsection shall automatically constitute: (1) an irrevocable offer to sell such bond on the Variable Rate Purchase Date at a price equal to one hundred percent (100%) of the principal amount of such Bond plus interest accrued to the Variable Rate Purchase Date; and (2) an irrevocable authorization and instruction to the Bond Registrar to effect transfer of such Bond to the purchaser thereof on the Variable Rate Purchase Date. No purchase of Bonds pursuant to the provisions of this Section 203 shall be deemed a redemption thereof. (c) Any owner who delivers an Optional Tender Notice pursuant to this Section 203 shall deliver such Bond to the Tender Agent, at its address filed with the Trustee, not less than five (5) days prior to the Variable Rate Purchase Date specified in the aforesaid Optional Tender Notice; provided, however, that any Bond owner which is an investment company registered under the Investment Company Act of 1940 may deliver Bonds owned by it to the Tender Agent at its address filed with the Trustee, at or prior to 10:00 a.m. on the Variable Rate Purchase Date. All Bonds delivered to the Tender Agent pursuant to this Section 203 must be duly endorsed for transfer in blank in form satisfactory to the Trustee. (d) If a Bondholder who gives the Optional Tender Notice shall fail to deliver the Bond or Bonds identified in the Optional Tender Notice to the Tender Agent at or prior to 10:00 a.m. on the Variable Rate Purchase Date, such Undelivered Bond shall be purchased and shall cease to accrue interest on such Variable Rate Purchase Date and the owner thereof shall thereafter be entitled only to payment of the purchase price therefor and not to the benefits of this Indenture, and the Issuer, to the extent permitted by law, shall execute and the Trustee or the Authenticating Agent shall authenticate and deliver a substitute Bond or Bonds in lieu of the Undelivered Bond and the Bond Registrar shall register such Bond in the name of the purchaser or purchasers thereof pursuant to Section 205 hereof. The Tender Agent shall notify the Trustee and the Bond Registrar of any Undelivered Bonds. The Trustee shall (1) notify the Remarketing Agent of such Undelivered Bond and (2) place a stop transfer against such Undelivered Bonds until the Undelivered Bonds are properly delivered to the Tender Agent. Payment of the purchase price of any such Undelivered Bonds shall be made only upon the presentment and surrender of such Bonds to the Tender Agent. Upon notice of such delivery, the Bond Registrar shall make any necessary adjustment to the Bond Register. (e) Notwithstanding anything to the contrary contained herein, the rights of the owners to tender Bonds pursuant to this Section 203 shall cease immediately and without further notice from and including the date payment of the Bonds is accelerated following an Event of Default pursuant to Article IX hereof. Section 204. Registered Bonds Required; Bond Registrar and Bond Register. (a) All Bonds shall be issued in fully registered form. The Bonds shall be registered upon original issuance and upon subsequent transfer or exchange as provided in this Indenture. (b) The Issuer shall designate one or more persons to act as "Bond Registrar" for the Bonds, provided that the Bond Registrar appointed for the Bonds shall be either the Trustee or a person which would meet the requirements for qualification as a successor trustee imposed by Section 1014 hereof. The Issuer hereby appoints The First National Bank of Boston as its Bond Registrar in respect of the Bonds. Any person other than the Trustee undertaking to act as Bond Registrar shall first execute a written agreement, in form satisfactory to the Trustee, to perform the duties of a Bond Registrar under this Indenture, which agreement shall be filed with the Trustee and the Tender Agent. (c) The Bond Registrar shall act as registrar and transfer agent for the Bonds. There shall be kept at an office of the Bond Registrar a register (herein sometimes referred to as the "Bond Register") in which, subject to such reasonable regulations as the Issuer, the Trustee or the Bond Registrar may prescribe, there shall be provisions for the registration of the Bonds and for the registration of transfers of the Bonds. The Issuer shall cause the Bond Registrar to designate, by a written notification to the Trustee, a specific office location (which may be changed from time to time, upon similar notification) at which the Bond Register is kept. In the absence of a specific designation by the Bond Registrar, the principal corporate trust office of the Trustee in Canton, Massachusetts shall be deemed such office in respect of the Bonds for which the Trustee is acting as Bond Registrar. Section 205. Transfer and Exchange. (a) Upon surrender for transfer of any Bond at the office of the Bond Registrar, the Issuer shall execute and the Trustee or its Authenticating Agent shall authenticate and deliver in the name of the transferee or transferees, one or more new fully registered Bonds of authorized denomination for the aggregate principal amount which the new owner is entitled to receive; provided that if moneys for the purchase of such Bond have been provided pursuant to a draw under the Credit Facility, such Bond shall not be transferable to any one other than the Company or its assignee or pledgee. Except for transfers in connection with the purchase of Bonds pursuant to Section 203 hereof and the remarketing thereof pursuant to Article III, which shall be effected at the office of the Tender Agent in Canton, Massachusetts, Bonds shall be surrendered for transfer at the principal corporate trust office of the Trustee in Canton, Massachusetts. Also, the Issuer shall execute and the Trustee or its Authenticating Agent shall authenticate and deliver Bonds in lieu of Undelivered Bonds. (b) Bonds may be exchanged for other Bonds of any other authorized denomination, of a like aggregate principal amount, upon surrender of the Bonds to be exchanged at the principal corporate trust office of the Bond Registrar or Trustee; provided, however, that in connection with the purchase of Bonds tendered for purchase and the remarketing thereof pursuant to Article III hereof, Bonds may be exchanged at the principal office of the Tender Agent, or any office of any agent designated by, the Trustee. Whenever any Bonds are so surrendered for exchange, the Issuer shall execute, and the Trustee or its Authenticating Agent shall authenticate and deliver, the Bonds which the Bondholder making the exchange is entitled to receive. (c) All Bonds presented for transfer, exchange, redemption or payment (if so required by the Issuer, the Bond Registrar or the Trustee) shall be accompanied by a written instrument or instruments of transfer or authorization for exchange, in form satisfactory to the Bond Registrar, which may include a signature guarantee, duly executed by the owner or by his attorney duly authorized in writing. (d) No service charge shall be made to a Bondholder for any exchange or transfer of Bonds, but the Issuer or the Bond Registrar may require payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto. (e) Except in connection with the purchase of Bonds pursuant to Section 203 hereof and the remarketing thereof pursuant to Article III hereof, neither the Issuer nor any Bond Registrar on behalf of the Issuer shall be required to issue, transfer or exchange any Bond selected for redemption in whole or in part. (f) New Bonds delivered upon transfer or exchange shall be valid obligations of the Issuer, evidencing the same debt as the Bond surrendered, shall be secured by this Indenture and shall be entitled to all of the security and benefits hereof to the same extent as the Bonds surrendered; Section 206. Execution. (a) The Bonds shall be executed by the manual or facsimile signature of the Chairman, the seal of the Issuer shall be affixed, imprinted, lithographed or reproduced thereon and the same shall be attested by the manual or facsimile signature of the Clerk. (b) Bonds executed as above provided may be issued and shall, upon request of the Issuer, be authenticated by the Trustee or the Authenticating Agent, notwithstanding that any officer signing such Bonds or whose facsimile signature appears thereon shall have ceased to hold office at the time of issuance or authentication or shall not have held office at the date of the Bond. Section 207. Authentication; Authenticating Agent. (a) No Bond shall be valid for any purpose until the Trustee's Certificate of Authentication thereon shall have been duly executed as provided in this Indenture, and such authentication shall be conclusive proof that such Bond has been duly authenticated and delivered under this Indenture and that the owner thereof is entitled to the benefit of the trust hereby created subject to the provisions of Section 203(d) and Article XIV hereof. (b) If the Bond Registrar is other than the Trustee, the Trustee may appoint the Bond Registrar as an Authenticating Agent with the power to act on the Trustee's behalf and subject to its direction in the authentication and delivery of Bonds in connection with transfers and exchanges under Section 205 hereof, and the authentication and delivery of Bonds by an Authenticating Agent pursuant to this Section shall, for all purposes of this Indenture, be deemed to be the authentication and delivery "by the Trustee". The Trustee shall, however, itself authenticate all Bonds upon their initial issuance. The Authenticating Agent may authenticate Bonds in substitution for Undelivered Bonds. The Authenticating Agent shall be entitled to reasonable compensation from the Company for its services. (c) Any corporation into which any Authenticating Agent may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, consolidation or conversion to which any Authenticating Agent shall be a party, or any corporation succeeding to the corporate trust business of any Authenticating Agent, shall be the successor of the Authenticating Agent hereunder, if such successor corporation is otherwise eligible as a Bond Registrar under Section 204 hereof, without the execution or filing of any further document on the part of the parties hereto or the Authenticating Agent or such successor corporation. (d) Any Authenticating Agent may at any time resign by giving written notice of resignation to the Trustee, the Issuer, the Remarketing Agent and the Company. The Trustee may at any time terminate the agency of any Authenticating Agent by giving written notice of termination to such Authenticating Agent, the Issuer and the Company. Upon receiving such a notice of resignation or upon such a termination, or in case at any time any Authenticating Agent shall cease to be eligible under this Section, the Trustee shall promptly appoint a successor Authenticating Agent, shall give written notice of such appointment to the Issuer and the Company, and shall mail notice of such appointment to all owners of Bonds as the names and addresses of such owners appear on the Bond Register. Section 208. Payment of Principal and Interest; Interest Rights Preserved. (a) The principal and redemption price of any Bond shall be payable, upon surrender of such Bond, at the office of the Trustee or other paying agent appointed pursuant to this Indenture. Interest on each Interest Payment Date shall be payable by check, mailed on the Interest Payment Date to the address of the person entitled thereto on the Regular Record Date or, if applicable, the Special Record Date, as such address shall appear in the Bond Register. While the Bonds bear interest at a Variable Rate, Interest shall also be payable by wire transfer to the account of a member bank of the Federal Reserve System of any owner of Bonds in the aggregate principal amount of $1,000,000 or more at the written request (identifying such account by number) of such owner received by the Trustee on or prior to the Regular Record Date or Special Record Date. (b) Interest on any Bond which is payable, and is punctually paid or duly provided for, on any Interest Payment Date shall be paid to the person in whose name that Bond is registered at the close of business on the Regular Record Date for such interest. (c) Any interest on any Bond which is payable, and is not punctually paid or duly provided for, on any Interest Payment Date (herein called "Defaulted Interest") shall forthwith cease to be payable to the owner of such Bonds on the relevant Regular Record Date solely by virtue of such registered owner having been such record owner on the Regular Record Date, and such Defaulted Interest shall be paid, pursuant to Section 911 hereof, to the person in whose name the Bond is registered at the close of business on a Special Record Date to be fixed by the Trustee, such date to be not more than fifteen (15) nor less than ten (10) days prior to the date of proposed payment. The Trustee shall cause notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor to be mailed, first class postage prepaid, to each Bondholder, at its address as it appears in the Bond Register, not less than ten (10) days prior to such Special Record Date. (d) Subject to the foregoing provisions of this Section 208, each Bond delivered under this Indenture, upon transfer of or exchange for or in lieu of any other Bond shall carry the rights to interest accrued and unpaid, and to accrue, as such other Bond. All payments of principal and redemption price of and interest on the Bonds, whether upon redemption, acceleration, maturity or otherwise, shall be made first, pursuant to draws under the Credit Facility in accordance with its terms on the dates when due; second, from other Available Moneys on deposit with the Trustee and not held in trust for the benefit of the owners of the Bonds pursuant to the provisions of Article XIV hereof; and then from other collected funds available to the Trustee hereunder for such payments. Section 209. Persons Deemed Owners. The Issuer, the Trustee, the Bond Registrar and the Authenticating Agent may deem and treat the person in whose name any Bond is registered as the absolute owner thereof (whether or not such Bond shall be overdue and notwithstanding any notation of ownership or other writing thereon made by anyone other than the Issuer, the Trustee, the Bond Registrar or the Authenticating Agent) for the purpose of receiving payment of or on account of the principal of (and premium, if any, on), and (subject to Section 208 hereof) interest on such Bond, and for all other purposes, and neither the Issuer, the Trustee, the Bond Registrar, nor the Authenticating Agent shall be affected by any notice to the contrary. All such payments so made to any such registered owner, or upon his order, shall be valid and, to the extent of the sum or sums so paid, effectual to satisfy and discharge the liability for moneys payable upon any such Bond. Section 210. Mutilated, Destroyed, Lost, Stolen or Undelivered Bonds. (a) If any Bond shall become mutilated, the Issuer shall execute, and the Trustee or its Authenticating Agent shall thereupon authenticate and deliver, a new Bond of like tenor and denomination in exchange and substitution for the Bond so mutilated, but only upon surrender to the Trustee of such mutilated Bond for cancellation, and the Issuer and the Trustee may require reasonable indemnity therefor. If any Bond shall be reported lost, stolen or destroyed, evidence as to the loss, theft or destruction thereof shall be submitted to the Issuer and the Trustee; and if such evidence shall be satisfactory to both and indemnity satisfactory to both shall be given, the Issuer shall execute, and thereupon the Trustee or its Authenticating Agent shall authenticate and deliver, a new Bond of like tenor and denomination. The cost of providing any substitute Bond under the provisions of this Section shall be borne by the Bondholder for whose benefit such substitute Bond is provided. If any such mutilated, lost, stolen or destroyed Bond shall have matured or be about to mature, the Issuer may, with the consent of the Trustee, pay to the owner the principal amount of such Bond upon the maturity thereof and the compliance with the aforesaid conditions by such owner, without the issuance of a substitute Bond therefor. (b) The Issuer shall execute and the Trustee or its Authenticating Agent shall authenticate and deliver a substitute Bond in lieu of each Undelivered Bond. (c) Every substituted Bond issued pursuant to this Section 210 shall constitute an additional contractual obligation of the Issuer, whether or not the Bond alleged to have been destroyed, lost or stolen shall be at any time enforceable by anyone, and shall be entitled to all of the benefits of this Indenture equally and proportionately with any and all other Bonds duly issued hereunder. (d) All Bonds shall be held and owned upon the express condition that the foregoing provisions are, to the extent permitted by law, exclusive with respect to the replacement or payment of mutilated, destroyed, lost, stolen or Undelivered Bonds and shall preclude any and all other rights or remedies. Section 211. Temporary Bonds. Pending preparation of definitive Bonds, or by agreement with the purchasers of all Bonds, the Issuer may issue, and, upon its request, the Trustee shall authenticate, in lieu of definitive Bonds one or more temporary printed or typewritten Bonds of substantially the tenor recited above in any denomination authorized under Section 202 hereof. Upon request of the Issuer, the Trustee shall authenticate definitive Bonds in exchange for and upon surrender of an equal principal amount of temporary Bonds. Until so exchanged, temporary Bonds shall have the same rights, remedies and security hereunder as definitive Bonds. Section 212. Cancellation of Surrendered Bonds. Bonds surrendered for payment, redemption, transfer or exchange and Bonds surrendered to the Trustee by the Issuer or by the Company for cancellation shall be cancelled by the Trustee and a certificate evidencing such cancellation shall be furnished by the Trustee to the Issuer and the Company. Bonds purchased pursuant to Section 203 hereof shall not be surrendered Bonds and, unless otherwise specifically provided in this Indenture, shall be Outstanding Bonds. Section 213. Conditions of Issuance. (a) Prior to or simultaneously with the authentication and delivery of the Bonds by the Trustee, the Trustee shall have received notice that the conditions for the issuance of the Letter of Credit as set forth in Article VII of the original Reimbursement Agreement have been satisfied and there shall be filed with the Trustee such documents, certificates and opinions as Trustee may require, including, the following: (1) A copy, certified by the Secretary, of the resolution of the Issuer authorizing the issuance of the Bonds, awarding the Bonds and directing the authentication and delivery of the Bonds to or upon the order of the purchaser(s) therein named upon payment of the purchase price therein set forth. (2) Executed counterparts of this Indenture, the Sale Agreement, the Note (endorsed without recourse by the Issuer to the Trustee), the Letter of Credit, the Reimbursement Agreement, the Tender Agency Agreement and the Remarketing Agreement. (3) An opinion of Counsel to the Issuer, to the effect that the execution and delivery of the Sale Agreement and this Indenture have been duly authorized by the Issuer, the Sale Agreement and this Indenture have been duly executed by the Issuer and that, assuming proper authorization and execution of this Indenture by the Trustee and of the Sale Agreement by the Company, the Sale Agreement and this Indenture are the valid and binding agreements of the Issuer enforceable in accordance with their respective terms, subject to the qualification that enforceability thereof may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws affecting enforcement of creditors' rights generally and by the exercise of judicial discretion in accordance with general equitable principles. (4) An opinion of Counsel to the Company to the effect that the execution and delivery of the Sale Agreement, the Note, the Reimbursement Agreement, the Remarketing Agreement and the Tender Agency Agreement have been duly authorized by the Company, that the Sale Agreement, the Note, the Reimbursement Agreement, the Remarketing Agreement and the Tender Agency Agreement have been duly executed and delivered by the Company, and that the Sale Agreement, the Note, the Reimbursement Agreement, the Remarketing Agreement and the Tender Agency Agreement, assuming due authorization, execution and delivery thereof by the other parties thereto, if any, are valid, binding and enforceable against the Company in accordance with their terms, subject to the qualification that enforceability thereof may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws affecting enforcement of creditors' rights generally and by the exercise of judicial discretion in accordance with general equitable principles. (5) An opinion of Counsel to the Company to the effect that copies of such instruments and financing statements (described in such opinion) as are necessary have been recorded and filed in the manner and places required by State law with the effect that (i) the lien on this Indenture has been perfected and creates, as to the rights of the Issuer under the Sale Agreement assigned under this Indenture, a valid security interest; and (ii) that the Issuer's endorsement and pledge of the Note to the Trustee and the Trustee's possession thereof creates a valid, perfected, first priority security interest in the Note, subject to no equal or prior liens. (6) An opinion of Counsel to the Issuer, to the effect that the issuance of the Bonds and the execution of this Indenture have been duly and validly authorized by the Issuer, that all conditions precedent to the delivery of the Bonds have been fulfilled and that the Bonds and this Indenture are valid and binding agreements of the Issuer enforceable in accordance with their terms, subject to the qualification that enforceability thereof may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws affecting enforcement of creditors' rights generally and by the exercise of judicial discretion in accordance with general equitable principles. (7) A written request and authorization of the Issuer addressed to the Trustee directing the Trustee to authenticate and deliver the Bonds. (8) Such other documents as the Trustee may reasonably require. (9) A favorable opinion of Bond Counsel as to the tax-exempt status of interest on the Bonds. (b) When the documents mentioned in paragraphs (1) through (9) of subsection (a) of this Section shall have been filed with the Trustee and when the Bonds shall have been executed as required by this Indenture, the Trustee shall authenticate the Bonds and deliver them to or upon the order of the purchaser(s) named in the resolution mentioned in paragraph (1) thereof, but only upon payment to the Trustee for the account of the Issuer of the purchase price of the Bonds. The Trustee shall be entitled to rely conclusively upon such resolution or resolutions, or document approved thereby, as to the name of the purchasers and the amount of such purchase price. (c) Simultaneously with the delivery of the Bonds, the Trustee shall apply the proceeds of the Bonds in accordance with Article IV of this Indenture. ARTICLE III PURCHASE AND REMARKETING OF TENDERED BONDS Section 301. Remarketing of Tendered Bonds. (a) Not later than the close of business on the date the Tender Agent receives an Optional Tender Notice, the Tender Agent shall notify the Remarketing Agent and the Company by telephone, telex or telecopier, confirmed in writing if requested, specifying the Variable Rate Purchase Date. (b) Not later than the close of business on the ninth (9th) day prior to the Conversion Date, the Trustee shall notify the Placement Agent and the Company by telephone, telex or telecopier, confirmed in writing if requested, specifying the aggregate principal amount of Bonds deemed tendered for mandatory purchase on the Conversion Date. (c) Except as provided in subsection (d) below and Section 305 hereof, upon receipt by the Remarketing Agent of notice from the Tender Agent pursuant to Section 301(a) hereof and by the Placement Agent of notice from the Trustee pursuant to Section 301(b) hereof, the Remarketing Agent or the Placement Agent, as the case may be, shall use its best efforts to arrange for the sale, at par plus accrued interest, if any, of such Bonds tendered or deemed tendered for settlement on the Variable Rate Purchase Date or the Conversion Date, respectively. At or before 4:00 p.m. on the Business Day immediately preceding the Variable Rate Purchase Date or the Conversion Date, the Remarketing Agent or the Placement Agent, respectively, shall give notice by telephone, telecopier or telex, promptly confirmed in writing if requested, to the Trustee and the Tender Agent specifying the principal amount of such Bonds, if any, placed by it and to the Trustee the names, addresses and social security numbers or other tax identification numbers of the proposed purchasers thereof. (d) Notwithstanding the provisions of subsection (c) above, any Bond purchased pursuant to the terms of this Indenture from the date notice of redemption or conversion is given shall not be remarketed except to a buyer who agrees at the time of such purchase to tender such Bond for redemption or purchase on the redemption or purchase date. (e) During the Variable Rate Period, the Remarketing Agent shall continue to use its best efforts to arrange for the sale, at the best price available, but not less than the principal amount thereof plus accrued interest, of any Bonds purchased with moneys advanced under the Credit Facility pursuant to Section 302(a)(2) hereof; provided that Bonds purchased with moneys advanced under the Credit Facility shall not be released for delivery to the purchasers unless the Credit Facility has been reinstated by the sum of (a) the amount drawn thereunder to pay the purchase price for such Bonds and (b) interest on such portion for 120 days at a maximum rate of 15%, and the Trustee has received the executed reinstatement certificate required to be delivered by such Credit Facility Issuer. The Trustee agrees to advise the Tender Agent immediately upon receipt of such reinstatement certificate. Section 302. Purchase of Bonds Delivered to the Tender Agent. (a) There is hereby established with the Tender Agent a Bond Purchase Fund out of which the purchase price for Bonds tendered for purchase on a Variable Rate Purchase Date, the Conversion Date or on such other date on which Bonds are remarketed shall be paid. There are hereby established in the Bond Purchase Fund two separate and segregated accounts, to be designated the "Remarketing Account" and the "Bank Account". Funds received from purchasers of Tendered Bonds (other than the Company or the Credit Facility Issuer) shall be deposited by the Remarketing Agent or the Placement Agent, as the case may be, in the Remarketing Account. At or prior to 10:00 a.m. on each Variable Rate Purchase Date or the Conversion Date, the Remarketing Agent or the Placement Agent, as the case may be, shall deliver to the Tender Agent for deposit in the Remarketing Account of the Bond Purchase Fund immediately available funds, payable to the order of the Tender Agent, in an amount equal to the purchase price of the Bonds to be delivered to the Tender Agent that have been remarketed by the Remarketing Agent or placed by the Placement Agent as specified in the notice delivered pursuant to Section 301(c) hereof. Funds, if any, drawn by the Trustee under the Credit Facility pursuant to Section 302(b) below in an amount equal to the aggregate purchase price of Bonds tendered for purchase less the amount available in the Remarketing Account shall, at the direction of the Trustee, be delivered by the Credit Facility Issuer to the Tender Agent for deposit in the Bank Account of the Bond Purchase Fund. On each Variable Rate Purchase Date and on the Conversion Date, the Tender Agent shall effect the purchase, but only from the funds listed below, of such Bonds from the owners thereof at a purchase price equal to the principal amount thereof, plus interest accrued, if any, to the date of purchase and such payment shall be made in immediately available funds. Funds from the payment of such purchase price shall be derived from the following sources in the order of priority indicated: (1) proceeds of the remarketing of such Bonds pursuant to Section 301(c) hereof which constitute Available Moneys. (2) moneys furnished by the Trustee to the Tender Agent representing proceeds of a drawing by the Trustee under the Credit Facility; and (3) any other moneys available for such purposes. (b) The Tender Agent shall advise the Trustee by telex or telecopier and shall advise the Credit Facility Issuer and the Company by telephone, in each case, no later than 10:30 a.m. on each Variable Rate Purchase Date or the Conversion Date, as the case may be, of the amount of any drawing under the Credit Facility necessary to make timely payments hereunder. The Trustee shall promptly (and in no event later than 11:00 a.m.) take all action necessary to draw on the Credit Facility the specified amount. All amounts received by the Trustee from a drawing under the Credit Facility shall be transferred to the Tender Agent and held by the Tender Agent in the Bank Account pending application of such moneys as provided in this Article III. The Trustee shall provide to the Tender Agent the funds referred to in paragraph (2) of Section 302(a) prior to the time the Tender Agent is required to apply such funds to effect the purchase of Bonds and shall notify the Tender Agent promptly after receipt of notice from the Credit Facility Issuer reinstating the Credit Facility. The Remarketing Agent shall deliver funds from the sale of Bonds held by the Credit Facility Issuer as pledgee of the Company pursuant to Section 301(e) hereof to the Tender Agent for deposit in the Remarketing Account, which funds shall be promptly paid by the Tender Agent on behalf of the Company to the Credit Facility Issuer as reimbursement under the Reimbursement Agreement. The Tender Agent shall notify the Trustee of any such reimbursement, and the Trustee shall promptly deliver to the Credit Facility Issuer any reinstatement certificate and the form of transfer certificate required by the Credit Facility. Section 303. Delivery of Purchased Bonds. (a) Bonds purchased shall be delivered as follows: (1) Bonds placed by the Remarketing Agent or the Placement Agent pursuant to Section 301 hereof shall be delivered by the Tender Agent to the Remarketing Agent or the Placement Agent, as the case may be, on behalf of the purchasers thereof. (2) Bonds purchased with moneys described in Section 302(a)(2) shall be delivered to the Credit Facility Issuer as pledgee of the Company pursuant to the terms of the Reimbursement Agreement and the Pledge Agreement or the Credit Facility Issuer designee. (b) Except as otherwise set forth herein, Bonds delivered as provided in this Section 303 shall be registered by the Bond Registrar in the manner directed by the recipient thereof. (c) In the event that any Bond to be delivered to the Tender Agent is not delivered by the owner thereof properly endorsed for transfer on or prior to the Variable Rate Purchase Date or the Conversion Date, as the case may be, and there has been irrevocably deposited with the Tender Agent an amount sufficient to pay the purchase price thereof, which amount may be held by the Tender Agent in a non-interest bearing account, the Issuer shall execute and the Trustee or its Authenticating Agent shall authenticate and deliver a substitute Bond in lieu of the Undelivered Bond and the Bond Registrar shall register such Bond in the name of the purchaser thereof. Thereafter, interest on such Undelivered Bond shall cease to accrue, and the holder thereof shall be entitled only to payment of the purchase price therefor and not to the benefits of the Indenture. (d) Notwithstanding the foregoing, Bonds purchased with funds identified in Section 302(a)(2) hereof shall be held by the Credit Facility Issuer or the Tender Agent and shall not be delivered to subsequent purchasers thereof or any other person until the Trustee has notified the Tender Agent that the Credit Facility has been reinstated to the extent of the purchase price of such Bonds and interest thereon. Section 304. Delivery of the Proceeds of the Sale of Remarketed Bonds. The proceeds of the placement of the Bonds by the Remarketing Agent of any Bonds delivered to the Tender Agent or by the Placement Agent of Bonds on the Conversion Date shall be paid first, to the tendering Bondholders of such Bonds; second, to the Credit Facility Issuer, to the extent of any amounts drawn under the Credit Facility in connection with the payment of the purchase price for such Bonds and not reimbursed to the Credit Facility Issuer as of the time of sale of such Bonds; and third, to the Company. Section 305. No Remarketing After Certain Events. Anything in this Indenture to the contrary notwithstanding, there shall be no remarketing of Bonds pursuant to this Article III after the Conversion Date or the principal of the Bonds shall have been accelerated pursuant to Section 902 hereof. ARTICLE IV REFUNDING OF PRIOR BONDS Section 401. Refunding of Prior Bonds. The proceeds of the sale of the Bonds shall be held in trust by the Trustee and paid by the Trustee immediately to the holders of the Prior Bonds to pay in full the outstanding principal amount of the Prior Bonds. Simultaneously with such payment by the Trustee, the Company shall pay all additional amounts sufficient to pay interest on the Prior Bonds to the date of redemption thereof and to pay directly all fees, charges and expenses of the holders, the Paying Agent and Registrar for the Prior Bonds and the Prior Trustee on the date of delivery of the Bonds. Following such payments, the Trustee shall receive from the Prior Trustee a certificate to the effect that the Prior Bonds have been redeemed and paid in full and evidence that the Prior Bonds have been cancelled. ARTICLE V REVENUES AND APPLICATION THEREOF Section 501. Revenues to be Paid Over to Trustee. The Issuer has caused the Revenues to be paid directly to the Trustee. If, notwithstanding these arrangements, the Issuer receives any payments on account of the Note or a Credit Facility with respect to the principal or redemption price of or interest on the Bonds, the Issuer shall immediately pay over the same to the Trustee to be held as Revenues. Section 502. The Bond Fund. (a) There is hereby established with the Trustee a special fund to be designated "Village of Walden Industrial Development Agency Industrial Development Revenue Refunding Bonds (Spence Engineering Company Project), Series 1994 Bond Fund" (the "Bond Fund"), the moneys in which, in accordance with Section 502(c) hereof, the Trustee shall apply to (1) the principal or redemption price of Bonds as they mature or become due, upon surrender thereof, and (2) the interest on Bonds as it becomes payable. There are hereby established with the Trustee within the Bond Fund two separate and segregated accounts, to be designated the "Payments Account" and the "Credit Facility Account". (b) There shall be deposited into the various accounts of the Bond Fund from time to time the following: (1) into the Payments Account, (A) all payments of principal or redemption price (including premium) of or interest on the Note, and (B) all other moneys received by the Trustee under and pursuant to the provisions of this Indenture or any of the provisions of the Note or the Sale Agreement, when accompanied by written directions from the person depositing such moneys that such moneys are to be paid into such account of the Bond Fund. All amounts deposited in the Payments Account shall be segregated and held, with the earnings thereon, separate and apart from other funds in the Bond Fund until such amounts become Available Moneys. At such time as funds deposited in the Payments Account become Available Moneys, they may be commingled with other Available Moneys in the Payments Account; and (2) into the Credit Facility Account, all moneys drawn by the Trustee under the Credit Facility to pay principal or redemption price (excluding any premium) of the Bonds and interest on the Bonds. (c) Except as provided in Section 911 hereof, moneys in the Bond Fund shall be used solely for the payment of the principal or redemption price of the Bonds and interest on the Bonds from the following sources but only in the following order of priority; (1) moneys held in the Credit Facility Account, provided that in no event shall moneys held in the Credit Facility Account be used to pay any amounts due on Bonds which are held by or for the Company, including without limitation, Bonds pledged to the Credit Facility Issuer, or to pay any portion of the redemption premiums required pursuant to Section 701(a)(2) hereof; and (2) moneys held in the Payments Account to the extent such amounts qualify as Available Moneys (except with respect to moneys paid on Bonds that are held by or for the Company, including without limitation, Bonds pledged to the Credit Facility Issuer, which moneys need not qualify as Available Moneys). (d) Not later than 10:00 a.m. on the third (3rd) Business Day preceding the date on which principal or redemption price of or interest on the Bonds is due and payable (the "Payment Date"), the Trustee shall have notified the Company and the Credit Facility Issuer of the amounts of principal and interest due on the Bonds on the Payment Date. Not later than 11:00 a.m. on each Payment Date, the Trustee shall present a draft or drafts under the Credit Facility in the amounts due and payable on the Bonds. Such funds shall be wired by the Bank to be deposited in the Credit Facility Account and payments due under the Bonds shall be made by the Trustee in accordance with Section 208 and Section 502(c) hereof. Following such payment to the Bondholders, the Trustee shall, on behalf of the Company, promptly pay moneys on deposit in the Payments Account in an amount equal to the amounts of such drawing or drawings to the Bank as reimbursement to the Bank under the terms of the Reimbursement Agreement. If no amounts are owed by the Company to the Credit Facility Issuer under the Reimbursement Agreement, any amounts remaining in the Payments Account on the Business Day immediately following a Payment Date shall be paid to the Company upon request with the consent of the Credit Facility Issuer. (e) Except as provided in the following sentence, the Bond Fund shall be depleted at least once each year, except for a reasonable carryover amount (not to exceed the greater of one year's earnings on the Bond Fund or one-twelfth (1/12th) of annual debt service). Any money deposited in the Bond Fund shall be spent within a thirteen (13) month period beginning on the date of deposit, and any amount received from investment of money held in the Bond Fund shall be spent within a one (1) year period beginning on the date of receipt. Any amounts remaining in the Bond Fund after payment in full of the principal or redemption price of and interest on the Bonds (or provisions for payment thereof) shall be paid to the Company at the written request of the Company therefor or as otherwise required by law; provided, that if any payments have been received by the Trustee from the Credit Facility in connection with such payment of the Bonds, any remaining amounts shall be paid to the Credit Facility Issuer to the extent of such payments. Section 503. Revenues to Be Held for All Bondholders; Certain Exceptions. Revenues shall, until applied as provided in this Indenture, be held by the Trustee in trust for the benefit of the owners of all Outstanding Bonds, except that any portion of the Revenues representing principal or redemption price of any Bonds, and interest on any Bonds previously matured or called for redemption in accordance with Article VII of this Indenture, shall be held for the benefit of the owners of such Bonds only. Section 504. Rebate Fund. In the event that the Company provides for the deposit of amounts from time to time for rebate to the United States of America pursuant to the Sale Agreement, the Trustee is hereby authorized to create a special fund to be designated as the Rebate Fund. The Rebate Fund shall be held separate and apart from all other funds under this Indenture and shall not be subject to the lien and pledge granted hereunder for the benefit of Bondholders. The Trustee shall remit money deposited in the Rebate Fund to the United States of America or otherwise as directed in writing by the Company. All moneys deposited in the Rebate Fund shall be held and invested at the sole direction of the Company. In making investments hereunder, or in selling or disposing of investments as required hereby, the Trustee shall have no duty or responsibility to independently verify compliance with Sections 148(d) and 148(f) of the Code and the regulations promulgated thereunder and the Trustee shall be fully protected in relying solely upon the written directions of the Company as aforesaid. Under no circumstances whatsoever shall the Trustee be liable to the Issuer, the Company or any holder for any loss of tax-exempt status of the Bonds, or any claims, demands, damages, liabilities, losses, costs or expenses resulting therefrom or in any way connected therewith, so long as the Trustee acts only in accordance with the written directions of the Company as provided hereunder. The Trustee shall not be responsible for any losses in the investment of money in the Rebate Fund made at the direction of the Company. ARTICLE VI DEPOSITARIES OF MONEYS, SECURITY FOR DEPOSITS AND INVESTMENT OF FUNDS; THE CREDIT FACILITY Section 601. Security for Deposits. All moneys deposited with the Trustee under the provisions of this Indenture or the Sale Agreement shall be held in trust and applied only in accordance with the provisions of this Indenture and the Sale Agreement and shall not be subject to lien (other than the lien created hereby) or attachment by any creditor of the Trustee, the Issuer or the Company. Section 602. Investment of Moneys. (a) At the request and the direction of the Company (confirmed in writing), moneys held for the credit of the Bond Fund (including any amount therein) shall be invested and reinvested by the Trustee in Investment Obligations which shall mature not later than the respective dates when the moneys held for the credit of said funds will be required for the purposes intended, provided that moneys held in the Credit Facility Account of the Bond Fund shall be invested and reinvested by the Trustee only in Governmental Obligations which shall mature not later than the date on which such moneys will be required to be paid; provided further that such investment shall only be made at the direction of the Company. The Trustee shall be entitled to rely on instruction from the Company. In making investments hereunder, or in selling or disposing of investments as required hereby, the Trustee shall have no duty or responsibility to independently verify compliance with Sections 148(d) and 148(f) of the Code and the regulations promulgated thereunder and the Trustee shall be fully protected in relying solely upon the written directions of the Company as aforesaid. Under no circumstances whatsoever shall the Trustee be liable to the Issuer, the Company or any holder for any loss of tax-exempt status of the Bonds, or any claims, demands, damages, liabilities, losses, costs or expenses resulting therefrom or in any way connected therewith, so long as the Trustee acts only in accordance with the written directions of the Company as provided hereunder. (b) Obligations so purchased as an investment of moneys in any such fund or account shall be deemed at all times to be a part of such fund or account, and the interest accruing thereon and any profit realized from such investment shall be credited to such fund or account, and any loss resulting from such investment shall be charged to such fund or account. The Trustee shall sell at market price or present for redemption any obligation so purchased whenever it shall be necessary so to do in order to provide cash to meet any payment or transfer from any such fund or account. Neither the Trustee nor the Issuer shall be liable or responsible for loss resulting from any such investment or the sale of any such investment made pursuant to the terms of this Section. (c) For the purpose of the Trustee's determination of the amount on deposit to the credit of any such fund or account, obligations in which moneys in such fund or account have been invested shall be valued at the lower of cost or market. (d) The Trustee may make any and all investments permitted by this Section through its own bond or investment department, unless otherwise directed in writing by the Company Representative. Section 603. The Credit Facility. (a) Initial Letter of Credit. (1) The Letter of Credit shall be a direct pay letter of credit and shall provide for direct payments to or upon the order of the Trustee as hereinafter set forth and shall be the irrevocable obligation of the Bank to pay to or upon the order of the Trustee, upon request and in accordance with the terms thereof, an amount of up to $7,875,000 of which (A) $7,500,000 shall support the payment of principal of the Bonds when due and that portion of the purchase price corresponding to principal of Tendered Bonds not remarketed on any Variable Rate Purchase Date or sold on the Conversion Date, and (B) $375,000 shall support the payment of up to one hundred twenty (120) days' interest at a maximum rate of fifteen percent (15%) per annum on the Bonds when due and that portion of the purchase price corresponding to interest on Tendered Bonds not remarketed on any Variable Rate Purchase Date or sold on the Conversion Date. (2) The Letter of Credit shall terminate automatically on the earliest of (A) the date on which a drawing under the Letter of Credit has been honored upon the maturity or acceleration of the Bonds or redemption of all the Bonds, (B) the day on which the Credit Facility Issuer receives the notice of the conversion following the Conversion Date, (C) the date on which the Bank receives notice from the Trustee that an Alternate Credit Facility is substituted for the Letter of Credit and is in effect, (D) the date on which the Bank receives notice from the Trustee that there are no longer any Bonds Outstanding and (E) the Stated Termination Date described in the Letter of Credit as it may be extended pursuant to the terms thereof. (3) The Bank's obligation under the Letter of Credit may be reduced to the extent of any drawing thereunder, subject to reinstatement as provided therein. The Letter of Credit shall provide that, with respect to a drawing by the Trustee solely to pay interest on the Bonds on any Interest Payment Date, if the Trustee shall not have received from the Bank within ten (10) days from the date of such drawing a notice by telecopier, by telex or in writing that the Bank has not been reimbursed, the Trustee's right to draw under the Letter of Credit with respect to the payment of interest shall be reinstated on or before the eleventh (11th) day following such drawing in an amount equal to such drawing. With respect to any other drawing by the Trustee, the amount available under the Letter of Credit for payment of the purchase price of the Bonds and interest on the Bonds shall be reinstated in an amount equal to any such drawing but only to the extent that the Bank is reimbursed in accordance with the terms of the Reimbursement Agreement for the amounts so drawn. (4) The Letter of Credit shall provide that if, in accordance with the terms of the Indenture, the Bonds shall become or be declared immediately due and payable pursuant to any provision of the Indenture, the Trustee shall be entitled to draw on the Letter of Credit to the extent that the amounts are available thereunder to pay the aggregate principal amount of the Bonds then Outstanding plus an amount of interest not to exceed one hundred twenty (120) days. (5) Upon the termination of the Letter of Credit, the Trustee shall return the Letter of Credit to the Bank. (b) Expiration. Unless an Alternate Credit Facility has been provided in accordance with Section 603(c) hereof at least thirty (30) days before the Interest Payment Date immediately preceding the fourteenth (14th) day prior to the expiration date of a Credit Facility, the Trustee shall call the Bonds for redemption in accordance with the Section 701(c)(2) hereof. If at any time there shall cease to be any Bonds Outstanding hereunder, the Trustee shall promptly surrender the then current Credit Facility to the Credit Facility Issuer for cancellation. The Trustee shall comply with the procedures set forth in the Credit Facility relating to the termination thereof. (c) Alternate Credit Facilities. While the Bonds bear interest at the Variable Rate, the Company may, at its option, provide for the delivery to the Trustee of an Alternate Credit Facility. The Alternate Credit Facility shall have terms in all respects material to the owners of the Bonds the same as the Credit Facility being replaced and shall be in form acceptable to the Trustee and the Tender Agent. On or prior to the date of delivery of an Alternate Credit Facility to the Trustee, the Company shall furnish to the Trustee: (1) an opinion of Counsel stating that the delivery of such Alternate Credit Facility to the Trustee is authorized under this Indenture and complies with the terms hereof and that such Alternate Credit Facility is enforceable against the Credit Facility Issuer thereof in accordance with its terms, and (2) if the Bonds are rated by Moody's or S&P, written evidence (or such other evidence satisfactory to the Trustee) from Moody's, if the Bonds are rated by Moody's, and from S&P, if the Bonds are rated by S&P, in each case to the effect that such rating agency has reviewed the proposed Alternate Credit Facility and that the substitution of the proposed Alternate Credit Facility for the then current Credit Facility will not, by itself, result in: (A) a permanent withdrawal of its rating of the Bonds, or (B) a reduction of the then current rating of the Bonds, or if the Bonds are not rated by Moody's or S&P, written evidence (or such other evidence satisfactory to the Trustee in its sole discretion) that obligations substantially equivalent in term to the term of the proposed Alternate Letter of Credit of the bank or institution issuing the proposed Alternate Credit Facility are rated by Moody's or S&P in the same category as the obligations of substantially equivalent term of the bank or institution which issued the Credit Facility being replaced; provided, however, if the Company provides the Trustee with an opinion of Bond Counsel that a change in the then current rating on the Bonds or a change in the Credit Facility Issuer to a bank or institution the obligations of which are rated in a different category than those obligations of equivalent term of the issuer of the Credit Facility being replaced will not adversely affect the exclusion of the interest on the Bonds from gross income from federal tax purposes, then such evidence need not be provided, but the Company shall instead provide the Trustee with written evidence (or such other evidence as shall be satisfactory to the Trustee) that the commercial paper of the bank or institution issuing the proposed Alternate Credit Facility is rated P-3 or higher by Moody's or A-3 or higher by S&P. The Trustee shall then accept such Alternate Credit Facility and surrender the previously held Credit Facility to the previous Credit Facility Issuer for cancellation promptly on or before the fifteenth (15th) day after the Alternate Credit Facility becomes effective, but not later than the fifteenth (15th) day following the last Interest Payment Date covered by the Credit Facility to be cancelled. (d) Notices of Substitution or Replacement of Credit Facility. (1) The Trustee shall, at least twenty (20) days prior to the proposed replacement of a Credit Facility with an Alternate Credit Facility, give notice thereof by mail to the owners of the Bonds, which notice shall include the identity of the issuer thereof and the rating, if any, to be assigned to the Bonds by Moody's or S&P following the effective date of such Alternate Credit Facility or, if the Bonds are not then rated by Moody's or S&P, then the rating assigned by Moody's or S&P to the obligations substantially equivalent in term to the term of the proposed Alternate Credit Facility of the Issuer of such Alternate Credit Facility. (2) The Trustee shall promptly give notice of any replacement of the Credit Facility to the Issuer, the Tender Agent and the Remarketing Agent. ARTICLE VII REDEMPTION OR PURCHASE OF THE BONDS Section 701. Redemption or Purchase Dates and Prices. The Bonds shall be subject to redemption, and, in certain instances, to purchase, prior to maturity in the amounts, at the times and in the manner provided in this Article VII. Payments of the redemption price or the purchase price of any Bond shall be made only upon the surrender to the Trustee or its agent, as directed, of any Bond so redeemed or purchased. (a) Optional Redemption (1) Optional Redemption During Variable Rate Period. While the Bonds bear interest at the Variable Rate, the Bonds shall be subject to redemption, upon the written direction of the Issuer, given at the request of the Company, on any Interest Payment Date and on the Conversion Date in whole or in part, at a redemption price of one hundred percent (100%) of the principal amount thereof, without premium, plus interest accrued to the redemption date. (2) Optional Redemption With Premium During Fixed Rate Period. While the Bonds bear interest at the Fixed Rate, the Bonds shall be subject to redemption upon the written direction of the Issuer, given at the request of the Company, in whole or in part, on any Interest Payment Date occurring on or after the dates set forth below, at the redemption prices (expressed as percentages of principal amount to be redeemed) set forth below plus interest accrued to the redemption date as follows: Commencement of Redemption Period Redemption Price The Business Day four 103% declining by 1/2% on each (4) years from the succeeding anniversary of the first Conversion Date day of the redemption period until reaching 100% and thereafter at 100% (b) Extraordinary Optional Redemption Due to Casualty or Eminent Domain. (1) The Bonds may be redeemed as a whole or in part by the Issuer at any time at the written direction of the Company, at a redemption price equal to one hundred percent (100%) of the principal amount thereof plus interest accrued thereon to the redemption date, without premium, under any of the following conditions, the existence of which shall be certified to the Trustee by the Company Representative: (A) The Project shall have been damaged or destroyed to such extent that the amount of Net Proceeds of insurance exceeds $500,000 and the Company elects not to rebuild the Project or fails to so elect within ninety (90) days of receipt by the Trustee of such Net Proceeds; or (B) Title to, or the temporary use of, all of the Project or any substantial portion thereof shall have been taken by Eminent Domain and the amount of Net Proceeds from such taking exceeds $500,000 and the Company elects not to replace the property so taken or fails so to elect within ninety (90) days of receipt by the Trustee of such Net Proceeds. (2) Such redemption shall occur on the next Interest Payment Date occurring not less than thirty (30) days following the expiration of such 90-day period referred to in paragraph (1) of this Section 701(b). (c) Mandatory Redemption. (1) Determination of Taxability. The Bonds shall be subject to mandatory redemption in whole on any date at a redemption price equal to one hundred percent (100%) of the principal amount thereof plus accrued interest to the redemption date which shall not be more than one hundred eighty (180) days following the receipt by the Trustee of a written notice of a Determination of Taxability. (2) Failure to Provide Alternate Credit Facility. The Bonds shall be subject to mandatory redemption during the Variable Rate Period at one hundred percent (100%) of the principal amount thereof, without premium, plus interest accrued, if any, thereon to the date of redemption, on the Interest Payment Date occurring closest to but not after fifteen (15) days prior to the date of expiration of the then current Credit Facility, unless an Alternate Credit Facility has been provided in accordance with Article VI hereof. (d) Mandatory Purchase on Conversion Date. The Bonds shall be subject to mandatory purchase in whole on the Conversion Date at a purchase price equal to one hundred percent (100%) of the principal amount thereof, without premium, plus interest accrued, if any, thereon to the date of purchase, on the Conversion Date. Section 702. Company to Direct Optional Redemption. The Issuer shall direct the Trustee in writing to call Bonds for optional redemption when and only when it shall have been notified by the Company to do so and the Company has notified the Trustee in writing that the Company has made or intends to make a corresponding prepayment under the Note. Such direction from the Issuer to the Trustee shall be given at least forty-five (45) days but not more than sixty (60) days prior to the redemption date or such shorter period as shall be acceptable to the Trustee. So long as a Credit Facility is then held by the Trustee, the Trustee shall only call Bonds for optional redemption if it has Available Moneys in the Payments Account of the Bond Fund or has been notified by the Credit Facility Issuer that it will receive moneys pursuant to the Credit Facility, in the aggregate, sufficient to pay the redemption price of the Bonds to be called for redemption, plus accrued interest thereon. Section 703. Selection of Bonds to be Called for Redemption. Except as otherwise provided herein or in the Bonds, if less than all the Bonds are to be redeemed, the particular Bonds to be called for redemption shall be selected in the following order of priority: first, Bonds pledged to the Bank pursuant to the Pledge Agreement, second, Bonds owned by the Company and third, Bonds selected by any random or other method determined by the Trustee in its sole discretion to be fair and reasonable. The Trustee shall treat any Bond of a denomination greater than One Hundred Thousand Dollars ($100,000) as representing that number of separate Bonds each of the denomination of the minimum denomination of One Hundred Thousand Dollars ($100,000) or any integral multiple of Five Thousand Dollars ($5,000) in excess thereof as the Trustee shall so determine. Section 704. Notice of Redemption or Purchase. (a) When required to redeem or purchase Bonds under any provision of this Article VII, or when directed to do so by the Issuer, the Trustee shall cause notice of the redemption or purchase to be given not more than sixty (60) days and not less than twenty (20) days prior to the redemption or purchase date by mailing a copy of all notices of redemption or purchase by first class mail, postage prepaid, to all registered owners of Bonds to be redeemed or purchased at their addresses shown on the Bond Register. Failure to mail any such notice or defect in the mailing thereof in respect of any Bond shall not affect the validity of the redemption or purchase of any other Bond. Notices of redemption or purchases shall also be mailed to the Remarketing Agency and the Credit Facility Issuer, if any. Any such notice shall be given in the name of the Issuer, shall identify the Bonds to be redeemed or purchased (and, in the case of partial redemption or purchase of any Bonds, the respective principal amounts thereof to be redeemed or purchased), shall specify the redemption or purchase date, and shall state that on the redemption or purchase date, the redemption or purchase price of the Bonds called for redemption or purchase will be payable at the principal corporate trust office of the Trustee, or in the case of mandatory redemptions or purchases pursuant to Section 701(c)(2) or 701(d) hereof at the office of the Trustee's Paying Agent, if any, and that from that date interest will cease to accrue. The Trustee may use "CUSIP" numbers in notices of redemption or purchase as a convenience to Bondholders, provided that any such notice shall state that no representation is made as to the correctness of such numbers either as printed on the Bonds or as contained in any notice of redemption or purchase and that reliance may be placed only on the identification numbers containing the prefix established under the Indenture. (b) With respect to any notice of redemption or purchase of Bonds in accordance with Section 701(c)(2) hereof, such notice shall also specify the date of the expiration of the term of the Credit Facility. (c) After the Conversion Date, if at the time of mailing of notice of any optional redemption the Issuer shall not have deposited with the Trustee moneys sufficient to redeem all the Bonds called for redemption, such notice may state that it is conditional on the deposit of Available Moneys with the Trustee not later than the redemption date, and such notice shall be of no effect unless such moneys are so deposited. (d) Upon redemption of less than all of the Bonds, the Trustee shall furnish to the Credit Facility Issuer a notice in the form specified by the Credit Facility Issuer to reduce the coverage provided by the Credit Facility and upon redemption of all of the Bonds, the Trustee shall surrender the Credit Facility to the Credit Facility Issuer for cancellation. (e) Purchases under Section 701(d) hereof shall be in accordance with Section 202(e) hereof. Section 705. Bonds Redeemed or Purchased in Part. Any Bond which is to be redeemed or purchased only in part shall be surrendered at a place stated in the notice provided for in Section 704 hereof (with due endorsement by, or a written instrument of transfer in form satisfactory to the Trustee duly executed by, the owner thereof or his attorney duly authorized in writing) and the Issuer shall execute and the Trustee or its Authenticating Agent shall authenticate and deliver to the owner of such Bond without service charge, a new Bond or Bonds, of any authorized denomination as requested by such owner in an aggregate principal amount equal to and in exchange for the unredeemed and unpurchased portion of the principal of the Bond so surrendered. ARTICLE VIII PARTICULAR COVENANTS AND PROVISIONS Section 801. Covenant to Pay the Bonds; Bonds Limited Obligations of the Issuer. (a) The Issuer covenants that it will promptly pay the principal of and interest on and other amounts payable under the Bonds at the places, on the dates and in the manner provided herein and in the Bonds according to the true intent and meaning thereof. Such principal and interest and other amounts are payable solely from the payments made by the Company on the Note and other Revenues. (b) The Issuer shall not in any event be liable for the payment of the principal of or interest on the Bonds, or for the performance of any pledge, mortgage, obligation or agreement of any kind whatsoever which may be undertaken by the Issuer, and neither the Bonds nor any of the agreements or obligations of the Issuer shall be construed to constitute an indebtedness of the Issuer within the meaning of any constitutional or statutory provision whatsoever. The Bonds and the interest thereon shall never constitute an indebtedness or a charge against the general credit of the Issuer within the meaning of any constitutional provision or statutory limitation and shall never constitute nor give rise to any pecuniary liability of the Issuer, but shall be limited obligations of the Issuer payable solely from the revenues and other funds pledged therefor and shall not be payable from any other assets or funds of the Issuer, and neither the faith and credit nor the taxing power of the State or any political subdivision or any agency thereof is pledged to the payment of the principal of or the interest on the Bonds. Section 802. Covenants to Perform Obligations Under this Indenture. The Issuer covenants that it will faithfully perform at all times any and all covenants, undertakings, stipulations and provisions contained in this Indenture, in the Bonds executed and delivered hereunder and in all proceedings of the Issuer pertaining thereto and will faithfully observe and perform at all times any and all covenants, undertakings, stipulations and provisions of the Sale Agreement on its part to be observed or performed. The Issuer covenants that it is duly authorized under the Constitution and laws of the State, including particularly and without limitation the Act, to issue the Bonds authorized hereby and to enter into this Indenture, to endorse the Note to the Trustee, to pledge the payments on the Note and other Revenues in the manner and to the extent herein set forth, and to assign its interest in the Note and the Sale Agreement to the Trustee; and that all action on its part for the issuance of the Bonds issued hereunder and the execution and delivery of this Indenture has been duly and effectively taken; and that the Bonds in the hands of the owners thereof are and will be the valid and binding obligations of the Issuer according to the tenor and import thereof. Section 803. Covenant to Perform Obligations Under the Sale Agreement. Subject to the provisions of Section 804 of this Article, the Issuer covenants and agrees that it will not suffer, permit or take any action or do anything or fail to take any action or fail to do anything which may result in the termination or cancellation of the Sale Agreement so long as any Bond is Outstanding; that it will punctually fulfill its obligations and will require the Company to perform punctually its duties and obligations under the Sale Agreement; that it will not execute or agree to any change, amendment or modification of or supplement to the Sale Agreement or this Indenture except by a supplement or an amendment duly executed by the Issuer and the Company with the approval of the Trustee and upon the further terms and conditions set forth in Article XIII of this Indenture; that it will not agree to any abatement, reduction, abrogation, waiver, diminution or other modification in any manner or to any extent whatsoever of the obligation of the Company to pay the Note and to meet its other obligations as provided in the Sale Agreement; and that it will promptly notify the Trustee in writing of any actual or alleged Event of Default under the Sale Agreement, whether by the Company or the Issuer, and will further notify the Trustee at least thirty (30) days before the proposed date of effectiveness of any proposed termination or cancellation of the Sale Agreement. Section 804. Trustee May Enforce the Issuer's Rights Under the Sale Agreement. The Sale Agreement, a duly executed counterpart of which has been filed with the Trustee, sets forth the covenants and obligations of the Issuer and the Company, including a provision in Section 12.9 thereof that subsequent to the issuance of the Bonds and prior to Payment of the Bonds (as defined in the Sale Agreement) the Sale Agreement and the Note may not be effectively amended, changed, modified, altered or terminated except as provided in Article XIII of this Indenture, and reference is hereby made to the Sale Agreement for a detailed statement of said covenants and obligations of the Company under the Sale Agreement, and the Issuer agrees that the Trustee, subject to the provisions of the Sale Agreement and this Indenture reserving certain rights to the Issuer and respecting actions by the Trustee in its name or in the name of the Issuer, may enforce all rights of the Issuer and all obligations of the Company under and pursuant to the Sale Agreement for and on behalf of the Bondholders whether or not the Issuer is in default hereunder. Section 805. Covenant Against Arbitrage. The Issuer covenants and agrees that it will not make or authorize any use, and directs the Trustee not to make or permit any use, of the proceeds of the Bonds which would cause any Bond to be an "arbitrage bond" within the meaning of Section 148 of the Code and the applicable regulations promulgated from time to time thereunder, and further covenants that it will observe and not violate the requirements of Section 148 of the Code and any such applicable regulations to the extent necessary so that the interest on the Bonds will not cease to be excluded from the gross income of the recipients thereof for federal income tax purposes by reason of such use of proceeds; provided that neither the Issuer nor the Trustee shall be liable for any investment of moneys under this Indenture made at the direction of the Company Representative. Section 806. Inspection of the Bond Register. At reasonable times and upon reasonable regulations established by the Bond Registrar, the Bond Register may be inspected and copied by and at the expense of the Company or any Bondholder. Section 807. Priority of Pledge and Security Interest. The pledge herein made of the Trust Estate and the security interest created herein with respect thereto constitutes a first and prior pledge of, and a security interest in, the Trust Estate. Said pledge and security interest shall at no time be impaired directly or indirectly by the Issuer or the Trustee, and the Trust Estate shall not otherwise be pledged and, except as provided herein and in the Sale Agreement, no persons shall have any rights with respect thereto. Section 808. Insurance and Condemnation Proceeds. Reference is hereby made to Sections 6.4 and 6.5 of the Sale Agreement whereunder it is provided that under certain circumstances the respective Net Proceeds of insurance and condemnation awards (or Net Proceeds from a sale in lieu of condemnation) are to be paid to the Trustee and deposited in separate trust accounts (but not in the Bond Fund) and to be disbursed and paid out as therein provided. The Trustee hereby accepts and agrees to perform the duties and obligations as therein specified. ARTICLE IX DEFAULT AND REMEDIES Section 901. Defaults. Each of the following events is hereby declared to be an "Event of Default": (a) Payment of interest on any of the Bonds shall not be made when the same shall become due; or (b) Payment of the principal or redemption price of any of the Bonds shall not be made when the same shall become due, whether at maturity or upon call for redemption or otherwise; or (c) An "Event of Default" under the Sale Agreement shall have occurred and not have been waived; or (d) The Trustee receives written notice from the Credit Facility Issuer that an Event of Default under the Reimbursement Agreement has occurred and has not been waived; or (e) The Trustee receives notice by telecopier, by telex or in writing from the Credit Facility Issuer that the Credit Facility Issuer has not been reimbursed for a drawing thereon on or before the close of business on the tenth (10th) calendar day following a drawing under such Credit Facility to pay interest on the Bonds and that the interest portion of the Letter of Credit will not be reinstated for the amount so drawn; or (f) Payment of the purchase price of any Bond tendered pursuant to Section 203 hereof is not made when payment is due; or (g) The Issuer shall fail to duly and punctually perform any of the covenants, conditions, agreements and provisions contained in the Bonds or in this Indenture on the part of the Issuer to be performed other than as referred to in the preceding subsections of this Section; provided, however, that no failure specified in subsections (c) or (g) of this Section 901 shall constitute an Event of Default until written notice specifying such failure and requiring the same to be remedied shall have been given to the Company and the Issuer by the Trustee, which may give notice in its discretion and shall give such notice at the written direction of the owners of not less than twenty-five percent (25%) in aggregate principal amount of Bonds Outstanding, and the Company and the Issuer shall have had thirty (30) days after receipt of such notice to correct said failure and shall not have corrected said failure within the applicable period. Section 902. Acceleration and Annulment Thereof. (a) Subject to the requirement that the consent of the Credit Facility Issuer to any acceleration must be obtained in the case of an Event of Default described in subsections (c) or (g) of Section 901 hereof, upon the occurrence of an Event of Default, the Trustee may, and upon (1) the written request of the Credit Facility Issuer, or (2) the occurrence of an Event of Default described in subsection (a), (b), (d), (e) or (f) of Section 901 hereof, the Trustee shall, by notice to the Issuer, declare the entire unpaid principal of and interest on the Bonds due and payable; and upon such declaration, the said principal, together with interest accrued thereon, shall become payable immediately, without penalty or premium, at the place of payment provided therein, anything in the Indenture or in the Bonds to the contrary notwithstanding. The Trustee shall not be permitted to request receipt of indemnity to its satisfaction prior to such declaration of acceleration. Upon the occurrence of any acceleration hereunder, the Trustee shall immediately exercise such rights as it may have as the owner of the Note to declare all payments thereunder to be due and payable immediately, and to the extent it has not already done so, shall immediately draw upon the Credit Facility to the extent permitted by the terms thereof. Interest on the Bonds shall cease to accrue upon receipt by the Trustee of funds drawn under the Credit Facility. (b) Immediately after any acceleration because of the occurrence of an Event of Default under Sections 901(a), (b), (d), (e), (f) or (g), the Trustee shall (immediately, and in no event within two Business Days thereafter) notify in writing the Issuer, the Company and the Credit Facility Issuer of the occurrence of such acceleration. Within five (5) days of the occurrence of any acceleration hereunder, the Trustee shall notify by first class mail, postage prepaid, the owners of all Bonds Outstanding of the occurrence of such acceleration. (c) If, after the principal of the Bonds has become due and payable, all arrears of interest upon the Bonds are paid by the Issuer, and the Issuer also performs all other things in respect to which it may have been in default hereunder and pays the reasonable charges of the Trustee and the Bondholders, including reasonable attorneys' fees, then, and in every such case, the Credit Facility Issuer or a Majority of the Bondholders by written notice to the Issuer and to the Trustee, may annul such acceleration and its consequences, and such annulment shall be binding upon the Trustee and upon all owners of Bonds issued hereunder; provided, however, that the Trustee shall not annul any declaration without the written consent of the Credit Facility Issuer unless such acceleration has resulted from the failure of the Credit Facility Issuer to honor a proper draw for payment under the Credit Facility. Notwithstanding the foregoing, the Trustee shall not annul any acceleration which has resulted from an Event of Default which has resulted in a drawing under the Credit Facility under Section 901(e) hereof unless the Credit Facility has been reinstated in accordance with its terms to an amount equal to the principal amount of the Bonds Outstanding plus one hundred twenty (120) days' interest accrued thereon, and the Trustee has received written notice of such reinstatement from the Credit Facility Issuer. The Trustee shall forward a copy of any notice from Bondholders received by it pursuant to this paragraph to the Company. Immediately upon such annulment, the Trustee shall cancel, by notice to the Company, any demand for payment of the Note made by the Trustee pursuant to this Section 902. Section 903. Other Remedies. If any Event of Default occurs and is continuing, the Trustee, before or after the principal of the Bonds becomes immediately due and payable, may enforce each and every right granted to it as the owner of the Note and under the Sale Agreement and any supplements or amendments thereto. In exercising such rights and the rights given the Trustee under this Article IX, the Trustee shall take such action as, in the judgment of the Trustee applying the standards described in Section 1001 hereof, would best serve the interests of the Bondholders. Section 904. Legal Proceedings by the Trustee. (a) If any Event of Default has occurred and is continuing, the Trustee in its discretion may, and upon the written request of the Credit Facility Issuer or the owners of not less than twenty-five percent (25%) in aggregate principal amount of the Outstanding Bonds and receipt of indemnity to its satisfaction shall, in its own name: (1) By mandamus, or other suit, action or proceeding at law or in equity, enforce all rights of the Bondholders hereunder; (2) Bring suit upon the Bonds, the Credit Facility (but only to the extent the Credit Facility Issuer shall have wrongfully dishonored drawings made in strict conformity with the terms hereof) and the Note; and (3) By action or suit in equity seek to enjoin any acts or things which may be unlawful or in violation of the rights of the Bondholders. (b) If an Event of Default under Section 901(c) occurs and is continuing, the Trustee in its discretion may, and upon the written request of the owners of not less than twenty-five percent (25%) in aggregate principal amount of the Outstanding Bonds and receipt of indemnity to its satisfaction shall, enforce each and every right granted to it under the Sale Agreement or as owner of the Note. Section 905. Discontinuance of Proceedings by the Trustee. If any proceeding commenced by the Trustee on account of any Event of Default is discontinued or is determined adversely to the Trustee, then the Company, the Credit Facility Issuer, the Issuer, the Trustee and the Bondholders shall be restored to their former positions and rights hereunder as though no proceedings had been commenced. Section 906. Credit Facility Issuer or Bondholders May Direct Proceedings. Anything to the contrary in this Indenture notwithstanding, either the Credit Facility Issuer if a Credit Facility is in effect (and no default has occurred and is continuing under the Credit Facility), or a Majority of the Bondholders, if there is no Credit Facility in effect, shall have the right, after furnishing indemnity satisfactory to the Trustee, to direct the method and place of conducting all remedial proceedings by the Trustee hereunder, provided that such direction shall not be in conflict with any rule of law or with this Indenture or unduly prejudice the rights of minority Bondholders. Section 907. Limitations on Actions by the Bondholders. (a) No Bondholder shall have any right to bring suit on the Credit Facility. No Bondholder shall have any right to pursue any other remedy hereunder unless: (1) the Trustee shall have been given written notice of an Event of Default; (2) the owners of not less than twenty-five percent (25%) in aggregate principal amount of the Outstanding Bonds shall have requested the Trustee, in writing, to exercise the powers hereinabove granted or to pursue such remedy in its or their name or names; (3) the Trustee shall have been offered indemnity satisfactory to it against costs, expenses and liabilities, except that no offer of indemnification shall be required for a declaration of acceleration under Section 902 hereof or for a drawing under the Credit Facility; (4) the Trustee shall have failed to comply with such request within a reasonable time; and (5) prior to the Conversion Date, the Credit Facility Issuer has failed to honor a proper draw request under the Credit Facility. (b) Notwithstanding the foregoing provisions of subsection (a) of this Section 907 or any other provision of this Indenture, the obligation of the Issuer shall be absolute and unconditional to pay hereunder, but solely from the Revenues and other funds pledged under this Indenture, the principal or redemption price of, and interest on, the Bonds to the respective owners thereof on the respective due dates thereof, and nothing herein shall affect or impair the right of action, which is absolute and unconditional, of such owners to enforce such payment. Section 908. Trustee May Enforce Rights Without Possession of the Bonds. All rights under this Indenture and the Bonds may be enforced by the Trustee without the possession of any Bonds or the production thereof at the trial or other proceedings relative thereto, and any proceedings instituted by the Trustee shall be brought in its name for the ratable benefit of the owners of the Bonds. Section 909. Remedies Not Exclusive. No remedy herein conferred is intended to be exclusive of any other remedy or remedies, and each remedy is in addition to every other remedy given hereunder or now or hereafter existing at law or in equity or by statute. Section 910. Delays and Omissions Not to Impair Rights. No delays or omission in respect of exercising any right or power accruing upon any default shall impair such right or power or be a waiver of such default, and every remedy given by this Article IX may be exercised from time to time and as often as may be deemed expedient. Section 911. Application of Moneys in the Event of Default. (a) Any moneys received by the Trustee under this Article IX shall be applied in the following order; provided that any moneys received by the Trustee from a drawing under the Credit Facility shall be applied to the extent permitted by the terms thereof only as provided in paragraph (3) below with respect to the principal of, and interest accrued on, Bonds other than Bonds held by or for the Company: (1) To the payment of the reasonable costs of the Trustee, including counsel fees and any disbursements of the Trustee with interest thereon at the per annum rate equal to the "Prime" or "Base" rate of the Credit Facility Issuer; and (2) To the payment of reasonable costs and expenses of the Issuer, including counsel fees, incurred in connection with the Event of Default; and (3) To the payment of principal or redemption price (as the case may be) and interest on the Bonds, and in case such moneys shall be insufficient to pay the same in full, then to payment of principal or redemption price and interest ratably, without preference or priority of one over another or of any installment of interest over any other installment of interest. (b) The surplus, if any, shall be paid to the Company or the person lawfully entitled to receive the same as a court of competent jurisdiction may direct; provided that, if the Trustee has received payments on the Credit Facility following the Event of Default, the surplus shall be paid to the Credit Facility Issuer to the extent of such payments to the extent the Credit Facility Issuer has not been reimbursed for such payments and its fees and expenses related thereto. Section 912. Trustee and Bondholders Entitled to All Remedies Under the Act. It is the purpose of this Article IX to provide such remedies to the Trustee and the Bondholders as may be lawfully granted under the provisions of the Act, but should any remedy herein granted be held unlawful, the Trustee and the Bondholders shall nevertheless be entitled to every remedy provided by the Act. It is further intended that, insofar as lawfully possible, the provisions of this Article shall apply to and be binding upon any trustee or receiver appointed under applicable law. Section 913. Trustee May File Claim in Bankruptcy. (a) In case of the pendency of any receivership, insolvency, liquidation, bankruptcy, reorganization, arrangement, adjustment, composition or other similar judicial proceeding relating to the Issuer, the Company or any other obligor upon the Sale Agreement or the Bonds or to property of the Issuer, the Company, or such other obligor or the creditors of any of them, the Trustee (irrespective of whether the principal of the Bonds shall then be due and payable as therein expressed or by declaration or otherwise and irrespective of whether the Trustee shall have made any demand on the Company for the payment on the Note of an amount equal to overdue principal or interest or additional interest) shall be entitled and empowered, by intervention in such proceedings or otherwise; (1) to file and prove a claim for the whole amount of principal and interest owing and unpaid in respect of the Bonds and to file such other papers or documents as may be necessary or advisable in order to have the claims of the Trustee (including any claim for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel) and of the Bondholders allowed in such judicial proceeding; and (2) to collect and receive any moneys or other property payable or deliverable on any such claims and to distribute the same; and any receiver, assignee, trustee, liquidator, sequestrator (or other similar official) in any such judicial proceeding is hereby authorized by the Bondholders to make such payments to the Trustee, and in the event that the Trustee shall consent to the making of such payments directly to the Bondholders, to pay to the Trustee any amount due to it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 911 hereof. (b) Nothing herein contained shall be deemed to authorize the Trustee to authorize or consent to or accept, or adopt on behalf of the Bondholders, any plan of reorganization, arrangement, adjustment or composition affecting the Bonds or the rights of any Bondholder thereof, or to authorize the Trustee to vote in respect of the claim of the Bondholders in any such proceeding. (c) All moneys received by the Trustee pursuant to any right given or action taken under this Indenture shall, after payment of the costs and expenses of the proceedings resulting in the collection of such moneys and the fees and expenses of the Trustee, be deposited in the Bond Fund and applied to the payment of the principal of, redemption premium, if any, and interest then due and unpaid on the Bonds in accordance with the provisions of this Indenture. Section 914. Receiver. Upon the occurrence of an Event of Default and upon the filing of a suit or other commencement of judicial proceedings to enforce the rights of the Trustee and of the Bondholders under this Indenture, the Trustee shall be entitled, as a matter of right, to the appointment of a receiver or receivers of the amounts payable on the Note or otherwise under the Sale Agreement and assigned to the Trustee under this Indenture pending such proceedings, with such powers as the court making such appointment shall confer, whether or not any such amounts payable shall be deemed sufficient ultimately to satisfy the Bonds. ARTICLE X CONCERNING THE TRUSTEE Section 1001. Acceptance of the Trusts. The Trustee hereby represents and warrants to the Issuer (for the benefit of the Company and the Bondholders as well as the Issuer) that it is a national banking association and that it is duly authorized under the laws of the United States of America to accept and execute trusts of the character herein set out. The Trustee accepts and agrees to execute the trusts imposed upon it by this Indenture, but only upon the terms and conditions set forth in this Article and subject to the provisions of this Indenture including the following express terms and conditions, to all of which the parties hereto and the Bondholders agree: (a) Except during the continuance of an Event of Default, the Trustee undertakes to perform such duties and only such duties as are specifically set forth in this Indenture, and no implied covenants or obligations shall be read into this Indenture against the Trustee. (b) In case an Event of Default has occurred and is continuing, the Trustee shall exercise such of the rights and powers vested in it by this Indenture, and use the same degree of care and skill in their exercise, as a prudent man would exercise or use under the circumstances in the conduct of his own affairs. (c) The Trustee may execute any of the trusts or powers hereof and perform any of its duties by or through attorneys, agents, receivers or employees and it shall not be responsible for any misconduct or negligence of any such attorney, agent or receiver appointed by it upon due care, and shall be entitled to act upon the opinion or advice of its counsel concerning all matters of trust hereof and the duties hereunder, and may in all cases be reimbursed hereunder for reasonable compensation paid to all such attorneys, agents, receivers and employees as may reasonably be employed in connection with the trust hereof. The Trustee may conclusively rely upon an opinion of counsel and shall not be responsible for any loss or damage resulting from any action or non-action by it taken or omitted to be taken in good faith in reliance upon such opinion of counsel. (d) Except as is specifically provided in Section 1019 with respect to the filing of continuation statements, the Trustee shall not be responsible for any recital herein, or in the Bonds (except in respect to the authentication certificate of the Trustee endorsed on the Bonds), or for insuring the Trust Estate or any part of the Project or collecting any insurance moneys, or for the validity of the execution hereof by the Issuer or of any supplements hereto or instruments of further assurance, or for the sufficiency of the security for the Bonds; and the Trustee shall not be bound to ascertain or inquire as to the performance or observance of any agreements or conditions on the part of the Issuer or on the part of the Company under the Sale Agreement, except as hereinafter set forth; but the Trustee may require of the Issuer or the Company full information and advice as to the performance of the agreements and conditions aforesaid and as to the condition of the Trust Estate. (e) The Trustee shall not be liable in connection with the performance or non-performance of its duties under this Indenture except for its own grossly negligent action, its own grossly negligent failure to act, or its own willful misconduct, except that: (1) this subsection shall not be construed to limit the effect of subsection (a) of this Section 1001; (2) The Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer or Officers of the Trustee unless it shall be proved that the Trustee was grossly negligent in ascertaining the pertinent facts; and (3) The Trustee shall not be liable with respect to any action taken or omitted to be taken by it in good faith in accordance with the direction of a Majority of the Bondholders relating to the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred upon the Trustee under this Indenture. (f) Whether or not therein expressly so provided, every provision of this Indenture that in any way relates to the Trustee, including without limitation Sections 1003 and 1004 hereof, shall be subject to the provisions of this Section 1001. Section 1002. Trustee to Give Notice. (a) The Trustee shall not be required to take notice or be deemed to have notice of any default hereunder, except failure by the Issuer to cause to be made any of the payments to the Trustee required to be made by Article V or failure by the Issuer or the Company to file with the Trustee any document required by this Indenture or the Sale Agreement to be so filed, unless the Trustee shall be notified of such default by the Issuer or by the holders of 25% in aggregate principal amount of Bonds then Outstanding or unless a responsible corporate trust officer of the Trustee charged with the responsibility for the management of the trusts conferred by this Indenture shall have actual knowledge of such default. (b) If a responsible trust officer of the Trustee charged with the responsibility for the management of the trusts conferred by this Indenture shall have actual knowledge of any Event of Default continuing hereunder, the Trustee shall give to all Bondholders and to the Credit Facility Issuer written notice of all such defaults within thirty (30) days after receipt of such information. (c) Promptly upon receipt of notice of the occurrence of a Determination of Taxability, the Trustee shall give notice thereof to the Company, the Issuer, the Bondholders and former Bondholders and to the Credit Facility Issuer. Section 1003. Trustee Entitled to Indemnity. (a) The Company shall indemnify the Trustee its officers, directors and employees against any loss, liability or expense incurred by it arising out of or in connection with the acceptance or administration of its duties under this Indenture, except as set forth in subsection (b) below. The Trustee shall notify the Company promptly of any claim for which it may seek indemnity. Except where the Company is the claimant, the Company shall have full and sole right to defend the claim, and the Trustee shall cooperate in the defense. If the Trustee engages separate counsel, the Trustee shall pay all fees and expenses of such counsel and the Company shall no longer have the obligation to indemnify the Trustee; provided, however that the Trustee shall have the right to retain separate counsel, with the fees and expenses to be paid by the Company, if representation of the Trustee would be inappropriate due to an actual conflict of interest, as reasonably determined by either party, between the Trustee and the Company. The Company shall not be responsible for any settlement reached without the Company's consent. (b) The Company shall not be obligated to reimburse any expense or to indemnify against any loss or liability incurred by the Trustee through its gross negligence, willful misconduct or bad faith. (c) To secure the Company's payment obligations in this Section, the Trustee shall have a lien prior to the lien of the Trustee for the benefit of the owners of the Bonds on all money or property held or collected by the Trustee, except for amounts drawn under the Credit Facility [and money and property held in the Rebate Fund], as to which the Trustee shall have no such lien. Such obligations shall survive the satisfaction and discharge of this Indenture. (d) When the Trustee incurs expenses or renders services after an Event of Default, the expenses and compensation for the services are intended to constitute expenses of administration under any applicable bankruptcy law. (e) The Trustee may begin suit, or appear in and defend suit, or do anything else in its judgment proper to be done by it as such Trustee, without indemnity under paragraph (a) above, and in such case the Issuer shall reimburse the Trustee from funds available therefor under the Sale Agreement for all costs and expenses, outlays and counsel fees and other reasonable disbursements properly incurred in connection therewith; provided, however, that the Trustee shall: (1) make all payments hereunder of principal and redemption price of and interest on the Bonds and of the purchase price of Bonds tendered at the option of the owners thereof or purchased by the Company in lieu of redemption, (2) accelerate the Bonds when required to do so hereunder other than at the direction of the Bondholders, and (3) draw on the Credit Facility when required to do so hereunder, each without the necessity of the Bondholders providing security or indemnity to the Trustee. If the Issuer shall fail to make reimbursement, the Trustee may reimburse itself from any moneys in its possession under the provisions of this Indenture other than moneys drawn under the Credit Facility and shall be entitled with respect thereto to a preference over the Bonds. Section 1004. Trustee Not Responsible for Insurance, Taxes, Execution of this Indenture, Acts of the Issuer or Application of the Moneys Applied in Accordance with this Indenture. (a) The Trustee shall not be under any obligation to effect or maintain insurance or to renew any policies of insurance or to inquire as to the sufficiency of any policies of insurance carried by the Company, or to report, or make or file claims or proof of loss for, any loss or damage insured against or which may occur, or to keep itself informed or advised as to the payment of any taxes or assessments, or to require any such payment to be made. The Trustee shall have no responsibility in respect of the validity, sufficiency, due execution or acknowledgment of this Indenture or any supplements thereto or instruments of further assurance or the validity or sufficiency of the security provided hereunder or in respect of the validity of the Bonds or the due execution or issuance thereof. The Trustee shall not be under any obligation to see that any duties herein imposed upon any party other than itself, or any covenants herein contained on the part of any party other than itself to be performed, shall be done or performed, and the Trustee shall be under no liability for failure to see that any such duties or covenants are so done or performed. (b) The Trustee shall not be liable or responsible because of the failure of the Issuer or of any of its employees or agents to make any collections or deposits or to perform any act herein required of the Issuer or because of the loss of any moneys arising through the insolvency or the act or default or omission of any other depositary in which such moneys shall have been deposited under the provisions of this Indenture. The Trustee shall not be responsible for the application of any of the proceeds of the Bonds or any other moneys deposited with it and paid out, withdrawn or transferred hereunder if such application, payment, withdrawal or transfer shall be made in accordance with the provisions of this Indenture. The Trustee shall not be responsible or liable for any loss suffered in connection with any investment of funds made by it in accordance with Section 602. (c) The permissive right of the Trustee to do things enumerated in this Indenture shall not be construed as a duty, and the Trustee shall not be answerable for other than its gross negligence or willful misconduct. The immunities and exemptions from liability of the Trustee hereunder shall extend to its directors, officers, employees and agents. Section 1005. Compensation. Subject to the provisions of any agreement relating to the compensation of the Trustee, the Issuer shall cause the Company to pay to the Trustee as Administrative Expenses its reasonable fees, charges and out-of-pocket expenses in accordance with Section 7.5 of the Sale Agreement. In computing the Trustee's compensation, the parties shall not be limited by any law on the compensation of an express trust. If the Company shall fail to make any payment required by this Section 1005, the Trustee may, but shall be under no obligation to, make such payment from any moneys in its possession under the provisions of this Indenture and shall be entitled to a preference therefor over the Bonds hereunder; provided that no payments under this Section 1005 shall be made with moneys drawn under the Credit Facility. Section 1006. Trustee to Preserve Records. All records and files pertaining to the Project in the custody of the Trustee shall be open at all reasonable times to the inspection of the Issuer, the Credit Facility Issuer and the Company and their agents and representatives. Section 1007. Trustee May Be a Bondholder. The institution acting as Trustee under this Indenture, and its directors, officers, employees or agents, may in good faith buy, sell, own, hold and deal in the Bonds issued under and secured by this Indenture, and may join in the capacity of a Bondholder in any action which any Bondholder may be entitled to take with like effect as if such institution were not the Trustee under this Indenture. To the extent permitted by law, such institution may also receive tenders and purchase in good faith Bonds from itself, including any department, affiliate or subsidiary, with like effect as if it were not the Trustee. Section 1008. Trustee Not Responsible for Recitals. The recitals, statements and representations contained herein and in the Bonds shall be taken and construed as made by and on the part of the Issuer and not by the Trustee, and the Trustee shall not be under any responsibility for the correctness of the same. Section 1009. No Trustee Responsibility for Recording or Filing. The Trustee shall not be under any obligation to see to the recording or filing of this Indenture, the Sale Agreement, any financing statements or any other instrument or otherwise to the giving to any person of notice of the provisions hereof or thereof. Section 1010. Trustee May Require Information. Except for the obligations of the Trustee under Section 902 and the obligations of the Trustee to make payments on the Bonds when due and to draw under the Credit Facility as required hereunder, anything contained in this Indenture to the contrary notwithstanding, the Trustee shall have the right, but shall not be required, to demand, as a condition of any action by the Trustee in respect of the authentication of any Bonds, the withdrawal of any cash, the release of any property, or any action whatsoever within the purview of this Indenture, any showings, certificates, opinions, appraisals or other information, or evidence of corporate authority, in addition to that required by the terms hereof. Section 1011. Trustee May Rely on Certificates. The Trustee shall be protected and shall incur no liability in acting or proceeding, or in not acting or not proceeding, in good faith and in accordance with the terms of this Indenture, upon any ordinance, resolution, order, notice, request, consent, waiver, certificate, statement, instrument, opinion, affidavit, requisition, bond or other paper or document which it shall in good faith believe to be genuine and to have been adopted or signed by the proper board or person or to have been prepared and furnished pursuant to any of the provisions of the Sale Agreement or this Indenture, or upon the written opinion of any attorney, engineer, accountant or other expert believed by it to be qualified in relation to the subject matter, and the Trustee shall not be under any duty to make any investigation or inquiry as to any statements contained or matters referred to in any such instrument. Any action taken by the Trustee pursuant to this Indenture upon the request or authority or consent of any person who at the time of making such request or giving such authority or consent is the owner of any Bond shall be conclusive and binding upon all future owners of the same Bond and upon Bonds issued in exchange therefor or in place thereof. Section 1012. Trustee Bond. The Trustee shall not be required to give any bond or surety in respect to the execution of its rights and obligations hereunder. Section 1013. Segregation of Funds; Interests: All moneys received by the Trustee shall, until used or applied or invested as herein provided, be held in trust in the manner and for the purposes for which they were received but need not be segregated from other funds except to the extent required by this Indenture or law. The Trustee shall not be under any liability for interest on any moneys received hereunder. Section 1014. Qualification of the Trustee. There shall at all times be a Trustee hereunder which shall be an association or a corporation organized and doing business under the laws of the United States of America or of any state, authorized under such laws and the applicable laws of the State to exercise corporate trust powers and act as Bond Registrar hereunder, having a combined capital and surplus of at least One Hundred Million Dollars ($100,000,000), and subject to supervision or examination by federal or state authority. If such association or corporation is not a commercial bank or trust company, it shall also have a rating by Moody's (if the Bonds are then rated by Moody's) of BAA 3/P3 or higher, or by S&P (if the Bonds are then rated by S&P) of Baa/A3 or higher or shall otherwise be approved in writing by Moody's or S&P, as the case may be. If such association or corporation publishes reports of condition at least annually, pursuant to law or to the requirements of the aforesaid supervising or examining authority, then for the purposes of this Section 1014, the combined capital and surplus of such association or corporation shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. If at any time the Trustee shall cease to be eligible in accordance with the provisions of this Section 1014, it shall resign immediately in the manner and with the effect specified in Section 1015 hereof. Section 1015. Resignation and Removal of the Trustee. (a) No resignation or removal of the Trustee and no appointment of a successor Trustee pursuant to this Article shall become effective until the acceptance of appointment by the successor Trustee under Section 1016 hereof. (b) The Trustee may resign at any time by giving written notice thereof to the Issuer and the Company. If an instrument of acceptance by a successor Trustee shall not have been delivered to the Trustee within thirty (30) days after the giving of such notice of resignation, the retiring Trustee may petition any court of competent jurisdiction for the appointment of a successor Trustee. (c) The Trustee may be removed at any time by an instrument or instruments in writing to the Trustee, with copies to the Issuer and the Company, signed by a Majority of the Bondholders or by their attorneys, legal representatives or agents and delivered to the Trustee, the Issuer and the Company (such instruments to be effective only when received by the Trustee). (d) If at any time: (1) the Trustee shall cease to be eligible under Section 1014 hereof, and shall fail to resign after written request therefor by the Company or by a Majority of the Bondholders, or (2) the Trustee shall become incapable of acting or shall be adjudged a bankrupt or insolvent or a receiver of the Trustee or of its property shall be appointed or any public officer shall take charge or control of the Trustee or of its property or affairs for the purpose of rehabilitation, conservation or liquidation, then, in any such case, the Issuer or the Company may remove the Trustee, or any Bondholder may petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor. (e) If the Trustee shall resign, be removed or become incapable of acting, or if a vacancy shall occur in the office of Trustee for any cause, the Issuer with the approval of the Company shall promptly appoint a successor. If no successor Trustee shall have been so appointed by the Issuer and approved by the Company or a Majority of the Bondholders and accepted appointment in the manner hereinafter provided, any Bondholder, if he has been a bona fide owner of a Bond for at least six (6) months, may petition any court of competent jurisdiction for the appointment of a successor Trustee. (f) The Issuer shall give notice of each resignation and each removal of the Trustee and each appointment of a successor Trustee by mailing written notice of such event by first-class mail, postage prepaid, to each Bondholder. Each notice shall include the name and address of the principal corporate trust office of the successor Trustee. Section 1016. Successor Trustee. (a) Every successor Trustee appointed hereunder shall execute, acknowledge and deliver to its predecessor, and also to the Issuer and the Company, an instrument in writing accepting such appointment hereunder, and thereupon and upon transfer of the Credit Facility to the successor Trustee such successor Trustee without any further act, shall become fully vested with all the rights, immunities, powers and trusts, and subject to all the duties and obligations, of its predecessors; but such predecessor shall, nevertheless, on the written request of its successor or of the Issuer and upon payment of the expenses, charges and other disbursements of such predecessor which are payable pursuant to the provisions of Section 1005 hereof, execute and deliver an instrument transferring to such successor Trustee all the rights, immunities, powers and trusts of such predecessor hereunder; and every predecessor Trustee shall deliver all property and moneys held by it hereunder to its successor, subject, nevertheless, to its preference, if any, provided for in Sections 1003 and 1005 hereof. Should any instrument in writing from the Issuer be required by any successor Trustee for more fully and certainly vesting in such Trustee the rights, immunities, powers and trusts hereby vested or intended to be vested in the predecessor Trustee, any such instrument in writing shall and will, on request, be executed, acknowledged and delivered by the Issuer. The resignation of any Trustee and the instrument or instruments removing any Trustee and appointing a successor hereunder, together with all other instruments provided for in this Article, shall be filed and/or recorded by the successor Trustee in each recording office where this Indenture and the Financing Statements have been filed and/or recorded. (b) Notwithstanding any of the foregoing provisions of this Article, any bank or trust company having power to perform the duties and execute the trusts of this Indenture and otherwise qualified to act as Trustee hereunder with or into which the bank or trust company acting as Trustee may be merged or consolidated, or to which the assets and business of such bank or trust company may be sold, shall be deemed the successor of the Trustee. Section 1017. Co-Trustee. It is the purpose of this Indenture that there shall be no violation of any law of any jurisdiction denying or restricting the right of certain banking corporations or associations to transact business as trustee as contemplated herein in such jurisdiction. It is recognized that in case of litigation under this Indenture and in particular in case of the enforcement of the security interest contained in this Indenture upon the occurrence of an Event of Default, it may be necessary that the Trustee appoint an additional individual or institution as a separate Trustee or Co-Trustee, which shall be satisfactory to the Company. The following provisions of this Section 1017 are adapted to these ends: (a) In the event of the incapacity or lack of authority of the Trustee by reason of any present or future law of any jurisdiction to exercise any of the rights, powers and trusts herein granted to the Trustee or to hold title to or a security interest in the Trust Estate or to take any other action which may be necessary or desirable in connection therewith, each and every remedy, power, right, claim, demand, cause of action, immunity, estate, title, interest and lien expressed or intended by this Indenture to be exercised by or vested in or conveyed to the Trustee with respect thereto shall be exercisable by and vest in such separate Trustee or Co-Trustee but only to the extent necessary to enable the separate Trustee or Co-Trustee to exercise such rights, powers and trusts, and every covenant and obligation necessary to the exercise thereof shall run to and be enforceable by such separate Trustee or Co-Trustee. (b) Should any deed, conveyance or instrument in writing from the Issuer be required by the separate Trustee or Co-Trustee so appointed by the Trustee in order to more fully and certainly vest in and confirm to it such properties, rights, powers, trusts, duties and obligations any and all such deeds, conveyances and instruments shall, on request, be executed, acknowledged and delivered by the Issuer. In case any separate Trustee or Co-Trustee or a successor to either, shall die, be dissolved, become incapable of action, resign or be removed, all the estates, properties, rights, powers, trusts, duties and obligations of such separate Trustee or Co-Trustee, so far as permitted by law, shall vest in and be exercised by the Trustee until the appointment of a new Trustee or successor to such separate Trustee or Co-Trustee. Section 1018. Notice to Moody's or S&P. At any time during which the Bonds are rated by Moody's or S&P, the Trustee shall notify Moody's or S&P, as applicable, promptly of: (a) any change in the Trustee, (b) the expiration or termination of the Credit Facility during the Variable Rate Period unless an Alternate Credit Facility is provided to the Trustee in accordance with the terms of this Indenture, (c) a change in the interest rate borne by the Bonds from a Variable Rate to a Fixed Rate, (d) the payment of all of the Bonds, or (e) any material change to this Indenture, the Sale Agreement, the Reimbursement Agreement, the Credit Facility or the Remarketing Agreement. Section 1019. Filing of Certain Continuation Statements. From time to time, the Trustee shall file or cause to be filed continuation statements for the purpose of continuing without lapse the effectiveness of (i) those Financing Statements which shall have been filed at or prior to the issuance of the Bonds in connection with the Issuer's assignment to the Trustee of the Trust Estate pursuant to the authority of the Uniform Commercial Code of the State of New York, and (ii) any previously filed continuation statements which shall have been filed as herein required. The Issuer and the Company shall sign and deliver to the Trustee or its designee such continuation statements as may be requested of it from time to time by the Trustee. Upon the filing of any such continuation statement the Trustee shall immediately notify the Issuer that the same has been accomplished. ARTICLE XI EXECUTION OF INSTRUMENTS BY THE BONDHOLDERS AND PROOF OF OWNERSHIP OF THE BONDS Section 1101. Execution of Instruments by the Bondholders and Proof of Ownership of the Bonds. (a) Any request, direction, consent or other instrument in writing required or permitted by this Indenture to be signed or executed by a Bondholder may be signed or executed by the Bondholder or its attorneys or legal representatives. Proof of the execution of any such instrument and of the ownership of the Bonds shall be sufficient for any purpose of this Indenture and shall be conclusive in favor of the Trustee with regard to any action taken by it under such instrument if made in the following manner: The fact and date of the execution by any person of any such instrument may be proved by the verification of any officer in any jurisdiction who, by the laws thereof, has power to take affidavits within such jurisdiction, to the effect that such instrument was subscribed and sworn to before him, or by an affidavit of a witness to such execution, and where such execution is by an officer of a corporation or association or a member of a partnership on behalf of such corporation, association or partnership, such verification or affidavit shall also constitute sufficient proof of his authority. (b) Nothing contained in this Section 1101 shall be construed as limiting the Trustee to such proof, it being intended that the Trustee may accept any other evidence of the matters herein stated which may be sufficient. Any request or consent of a Bondholder shall bind every future owner of the Bond(s) to which such request or consent pertains or any Bond(s) issued in lieu thereof in respect of anything done by the Trustee pursuant to such request or consent. (c) Notwithstanding any of the foregoing provisions of this Section 1101, the Trustee shall not be required to recognize any person as an owner of Bonds or to take any action at its request unless the Bonds shall be deposited with it. Section 1102. Preservation of Information. The Trustee shall preserve in the Bond Register, in as current a form as is reasonably practicable, the name and address of each Bondholder received by the Trustee in its capacity as Bond Registrar. ARTICLE XII THE REMARKETING AGENT; THE TENDER AGENT; THE PLACEMENT AGENT Section 1201. The Remarketing Agent. (a) The Issuer hereby appoints First Union National Bank of North Carolina, with its corporate office in Charlotte, North Carolina, as Remarketing Agent under this Indenture. The Remarketing Agent and any successor Remarketing Agent, by written instrument delivered to the Issuer, the Trustee and the Company, shall accept the duties and obligations imposed on it under this Indenture and the Remarketing Agreement. (b) In addition to the other obligations imposed on the Remarketing Agent hereunder, the Remarketing Agent shall agree to keep such books and records in connection with its activities as Remarketing Agent hereunder as shall be consistent with prudent industry practice and make such books and records available for inspection by the Issuer, the Trustee, the Credit Facility Issuer and the Company at all reasonable times. (c) The Remarketing Agent shall at all times be a member of the National Association of Securities Dealers, Inc. and registered as a Municipal Securities Dealer under the Securities Exchange Act of 1934, as amended, or a national banking association or a bank or a trust company, in each case authorized by law to perform its obligations hereunder. (d) If at any time the Remarketing Agent is unable or unwilling to act as Remarketing Agent, the Remarketing Agent, upon thirty (30) Business Days' prior written notice to the Issuer, the Trustee, the Tender Agent and the Company, may resign. The Remarketing Agent may be removed at any time by the Company with the consent of the Issuer, by written notice signed by the Company delivered to the Trustee, the Remarketing Agent, the Credit Facility Issuer and the Tender Agent. Upon resignation or removal of the Remarketing Agent, the Company, with the consent of the Issuer, shall appoint a substitute Remarketing Agent meeting the qualifications of Section 1201(c) above. (e) In the event that the Company shall fail to appoint a successor Remarketing Agent, upon the resignation or removal of the Remarketing Agent or upon its dissolution, insolvency or bankruptcy, the Trustee may, but is not required to, appoint a Remarketing Agent or itself act as Remarketing Agent until the appointment of a successor Remarketing Agent in accordance with this Section 1201; provided, however, that the Trustee, in its capacity as Remarketing Agent, shall not be required to sell Bonds or determine the interest rate on the Bonds pursuant to Section 202 hereof. Section 1202. The Tender Agent. (a) The Issuer hereby appoints as Tender Agent under this Indenture The First National Bank of Boston, which agent has a corporate trust office at Canton, Massachusetts. The Tender Agent and any successor Tender Agent, by written instrument delivered to the Issuer, the Trustee and the Company, shall accept the duties and obligations imposed on it under this Indenture. (b) The Tender Agent shall at all times be a member of the National Association of Securities Dealers, Inc. having a capitalization of at least Fifteen Million Dollars ($15,000,000) and a rating by Moody's (if the Bonds are then rated by Moody's) of BAA 3/P3 or higher, or a national banking association or a bank or a trust company having capital and surplus of at least $50,000,000, in each case authorized by law to perform its obligations hereunder. (c) If at any time the Tender Agent is unable or unwilling to act as Tender Agent, the Tender Agent, upon sixty (60) days' prior written notice to the Issuer, the Trustee, the Remarketing Agent and the Company, may resign; provided, however, that in no case shall such resignation become effective until the appointment of a successor Tender Agent. The Tender Agent may be removed at any time by the Company with the consent of the Issuer, by written notice signed by the Company delivered to the Trustee, the Remarketing Agent, the Credit Facility Issuer and the Tender Agent; provided, however, that in no case shall such removal become effective until the appointment of a successor Tender Agent. Upon resignation or removal of the Tender Agent, the Company, with the consent of the Issuer, shall appoint a substitute Tender Agent meeting the qualifications of Section 1202(b) above. (d) In the event that the Company shall fail to appoint a successor Tender Agent, upon the resignation or removal of the Tender Agent or upon its dissolution, insolvency or bankruptcy, the Trustee may at its discretion, but is not required to, act as Tender Agent until the appointment of a successor Tender Agent in accordance with this Section 1202. Section 1203. The Placement Agent. The Placement Agent shall be a member of the National Association of Securities Dealers, Inc. and registered as a Municipal Securities Dealer under the Securities Exchange Act of 1934, as amended, or a national banking association or a bank or trust company, in each case authorized by law to perform its obligations described in Section 202(e) hereof. Section 1204. Notices. The Trustee shall, within thirty (30) days of the resignation or removal of the Remarketing Agent or the Tender Agent or the appointment of the Placement Agent or a successor Remarketing Agent or Tender Agent, give notice thereof by first class mail, postage prepaid, to the owners of the Bonds. ARTICLE XIII AMENDMENTS AND SUPPLEMENTS Section 1301. Amendments and Supplements Without the Bondholders' Consent. This Indenture may be amended or supplemented at any time and from time to time, without the consent of the Bondholders, but with the consent of the Credit Facility Issuer, if a Credit Facility is in effect (and no default has occurred and is continuing under the Credit Facility), by a supplemental indenture authorized by the Issuer filed with the Trustee, for one or more of the following purposes: (a) to add additional covenants of the Issuer or to surrender any right or power herein conferred upon the Issuer; (b) for any purpose not inconsistent with the terms of this Indenture or to cure any ambiguity or to correct or supplement any provision contained herein or in any supplemental indenture which may be defective or inconsistent with any other provision contained herein or in any supplemental indenture, or to make such other provisions in regard to matters or questions arising under this Indenture which shall not adversely affect the interests of the owners of the Bonds or the Company; (c) to permit the Bonds to be converted during the Variable Rate Period to certificateless securities or securities represented by a master certificate held in trust, ownership of which, in either case, is evidenced by book entries on the books of the Bond Registrar, for any period of time; (d) to permit the appointment of a Co-Trustee under this Indenture; (e) to modify, eliminate or add to the provisions of this Indenture to such extent as shall be necessary to effect the qualification of this Indenture under the Trust Indenture Act of 1939, or under any similar federal statute hereafter enacted, and to add to this Indenture such other provisions as may be expressly permitted by the Trust Indenture Act of 1939; (e) except as otherwise provided in Section 1302 hereof, to modify, eliminate or add to the provisions of this Indenture to such extent as shall be necessary to obtain a rating of the Bonds from Moody's or S&P; (f) to amend the administrative provisions hereof to accommodate the provisions of an Alternate Credit Facility; and (g) to amend the provisions hereof to reflect the obligation of the Trustee, the Issuer or the Company to disclose information regarding the Bonds, the Project, the Issuer, the Company or the issuer of the Letter of Credit as shall be required or recommended to be disclosed in accordance with applicable regulations or guidelines established by, among others, the American Bankers Association Corporate Trust Committee. Section 1302. Amendments With the Bondholders' and the Credit Facility Issuer's Consent. (a) This Indenture may be amended from time to time, except with respect to: (1) the principal, redemption price, purchase price, or interest payable upon any Bonds, (2) the Interest Payment Dates, the dates of maturity or the redemption or purchase provisions of any Bonds, and (3) this Article XIII, by a supplemental indenture consented to by the Credit Facility Issuer if a Credit Facility is in effect (and no default has occurred and is continuing under the Credit Facility) and by the Company and approved by a Majority of the Bondholders which would be affected by the action proposed to be taken. (b) This Indenture may be amended with respect to the matters enumerated in paragraphs (1) through (3) of subsection (a) of this Section with the unanimous consent of all Bondholders, the Credit Facility Issuer if a Credit Facility is in effect (and there is no default has occurred and is continuing under the Credit Facility), the Company and the Issuer. Notwithstanding the foregoing, the Issuer and the Trustee and, during the Variable Rate Period, the Credit Facility Issuer if the Credit Facility is in effect (and no default has occurred and is continuing under the Credit Facility), may amend the Indenture to such extent as may be necessary to obtain a rating of the Bonds from Moody's or S&P without providing the opinion of Bond Counsel specified in paragraph (2) above. Section 1303. Supplemental Indentures Affecting the Rights of the Credit Facility Issuer. Anything herein to the contrary notwithstanding, a supplemental indenture under this Article XIII which in the judgment of the Credit Facility Issuer if a Credit Facility is in effect (and no default has occurred and is continuing under the Credit Facility) adversely affects the rights of the Credit Facility Issuer shall not become effective unless or until the Credit Facility Issuer shall have consented to the execution and delivery thereof. Section 1304. Amendment of the Sale Agreement. (a) The Company, the Trustee and, during the Variable Rate Period, the Credit Facility Issuer if a Credit Facility is in effect (and no default has occurred and is continuing under the Credit Facility), may amend the Sale Agreement; provided that prior to making any amendment, the Company shall provide the Trustee and the Credit Facility Issuer with: (1) a copy of the proposed amendment and (2) an opinion of Bond Counsel to the effect that such amendment or supplement will not adversely affect the exclusion of the interest on the Bonds from the gross income of the recipients thereof for federal income tax purposes and unless the Trustee shall have otherwise given its consent to such amendment or supplement, to the further effect that such amendment or supplement will not otherwise adversely affect the interests of the Bondholders. Notwithstanding the foregoing, the Issuer, the Company, the Trustee, and, during the Variable Rate Period, the Credit Facility Issuer if a Credit Facility is in effect (and no default has occurred and is continuing under the Credit Facility), may amend the Sale Agreement to such extent as may be necessary to obtain a rating of the Bonds from Moody's or S&P without providing the opinion of Bond Counsel specified in paragraph (2) above. (b) If the Company proposes to amend the Sale Agreement in such a manner as would adversely affect the interests of the Bondholders, the Trustee shall notify Bondholders of the proposed amendment and may consent thereto with the consent of at least a Majority of the Bondholders which would be affected by the action proposed to be taken; provided, that the Trustee shall not, without the unanimous consent of the owners of all Bonds then Outstanding, consent to any amendment which would: (1) decrease the amounts payable on the Note, (2) change the due date of principal of or interest on the Note or change any of the prepayment provisions of the Note, or (3) change Section 5.6 of the Sale Agreement. Section 1305. Amendment of the Sale Agreement Requiring the Consent of the Credit Facility Issuer. Anything herein to the contrary notwithstanding, any amendment, change or modification of the Sale Agreement which in the judgment of the Credit Facility Issuer affects the rights of the Credit Facility Issuer shall not become effective unless or until the Credit Facility Issuer shall have consented to the execution and deliver of such amendment, change or modification. Section 1306. Amendment of the Credit Facility. The initial Credit Facility may be amended to such extent as shall be necessary to obtain a rating of the Bonds from Moody's or S&P provided that such amendment or supplement will not adversely affect the interests of the Bondholders. The Trustee shall notify the Bondholders and the Issuer of any proposed amendment of the Credit Facility which would adversely affect the interests of the Bondholders and may consent thereto with the consent of the Issuer, which consent shall not be unreasonably withheld, and at least a Majority of the Bondholders which would be affected by the action proposed to be taken; provided, that the Trustee shall not, without the unanimous consent of the owners of all Bonds then Outstanding, consent to any amendment which would decrease the amount payable under the Credit Facility or reduce the term of the Credit Facility. Section 1307. Trustee Authorized to Join in Amendments and Supplements; Reliance on Counsel. The Trustee is authorized to join with the Issuer in the execution and delivery of any supplemental indenture or amendment permitted by this Article XIII and in so doing shall be fully protected by an opinion of Counsel that such supplemental indenture or amendment is so permitted and has been duly authorized by the Issuer and that all things necessary to make it a valid and binding agreement have been done; provided that certain amendments may, by agreement between the Trustee and the Credit Facility Issuer, require the prior consent of the Credit Facility Issuer. ARTICLE XIV DEFEASANCE; OTHER PAYMENTS Section 1401. Defeasance. (a) When the principal or redemption price (as the case may be) of, and interest on all Bonds issued hereunder have been paid, including without limitation the purchase price for Bonds tendered under Section 202 hereof, or provision has been made for payment of the same, together with the compensation of the Trustee and all other sums payable hereunder by the Issuer, the right, title and interest of the Trustee in and to the Trust Estate and the security interests shall thereupon cease, and the Trustee, on written demand of the Issuer, shall release this Indenture and the security interests and shall execute such documents to evidence such release as may be reasonably required by the Issuer and shall turn over to the Company or to such person, body or authority as may be entitled to receive the same all balances then held by it hereunder; provided, that, if any payments have been received by the Trustee from the Credit Facility in connection with such release, such balances shall be paid to the Credit Facility Issuer to the extent of such payments. If payment or provision therefor is made with respect to less than all of the Bonds, the particular Bonds (or portion thereof) for which provision for payment shall have been considered made shall be selected by lot by the Trustee and thereupon the Trustee shall take similar action for the release of this Indenture with respect to such Bonds. Notwithstanding anything to the contrary contained herein, Bonds purchased at the option of the owners thereof with moneys held by the Trustee pursuant to this Article XIV shall not be remarketed but shall be cancelled by the Trustee. (b) Provision for the payment of Bonds shall be deemed to have been made when the Trustee holds in the Bond Fund, in trust and irrevocably set aside exclusively for such payment, (1) moneys sufficient to make such payment provided that if a Credit Facility is then held by the Trustee, such moneys shall constitute Available Moneys or (2) noncallable Governmental Obligations maturing as to principal and interest in such amounts and at such times as will provide sufficient moneys without reinvestment to make such payment; provided that the Trustee shall have received an opinion of Bond Counsel to the effect that such deposit will not affect the exclusion of the interest on any of the Bonds from the gross income of the recipients thereof for federal income tax purposes (e.g. by causing any of the Bonds to be classified as an "arbitrage bond" within the meaning of Section 148 of the Code), and provided further, that if a Credit Facility is then held by the Trustee, such Governmental Obligations shall have been on deposit with the Trustee in a separate and segregated account for a period of three hundred sixty-seven (367) days during and prior to which no Event of Bankruptcy has occurred or which Governmental Obligations were purchased with Available Moneys. (c) No Bonds in respect of which a deposit under subsection (b) above has been made shall be deemed paid within the meaning of this Article unless the Trustee is satisfied that the amounts deposited are sufficient to make all payments that might become due on the Bonds, including purchase price payments for Bonds tendered at the option of the owners or purchased by the Company in lieu of redemption, if any. Notwithstanding the foregoing, no delivery to the Trustee under this subsection (c) shall be deemed a payment of any Bonds which are to be redeemed prior to their stated maturity until such Bonds shall have been irrevocably called or designated for redemption on a date thereafter on which such Bonds may be redeemed in accordance with the provisions of this Indenture or the Issuer shall have given the Trustee, in form satisfactory to the Trustee, irrevocable instructions to give notice of redemption. Neither the obligations nor moneys deposited with the Trustee pursuant to this Section shall be withdrawn or used for any purpose other than, and shall be segregated and held in trust for, the payment of the principal of, redemption price of, purchase price if applicable of, and interest on the Bonds with respect to which such deposit has been made. In the event that such moneys or obligations are to be applied to the payment of principal or redemption price of any Bonds more than sixty (60) days following the deposit thereof with the Trustee, the Trustee shall mail a notice stating that such moneys or obligations have been deposited and identifying the Bonds for the payment of which such moneys or obligations are being held to all owners of such Bonds at their addresses shown on the Bond Register. (d) Anything in Article XIV to the contrary notwithstanding, if moneys or Governmental Obligations have been deposited or set aside with the Trustee pursuant to this Article for the payment of the principal or redemption price, including purchase price if applicable, of the Bonds and the interest thereon and the principal or redemption price, including purchase price if applicable, of such Bonds and such moneys or Governmental Obligations do not constitute Available Moneys, no amendment to the provisions of this Article shall be made without the consent of the owner of each of the Bonds affected thereby. (e) Notwithstanding the foregoing, those provisions relating to the purchase of Bonds upon the demand of any Bondholders, the maturity of Bonds, interest payments and dates thereof, and the dates, premiums and notice requirements for optional and mandatory redemption or purchase and the Trustee's remedies with respect thereto, and provisions relating to exchange, transfer and registration of Bonds, replacement of mutilated, destroyed, lost or stolen Bonds, the safekeeping and cancellation of Bonds, non-presentment of Bonds, the holding of moneys in trust and repayments to the Company or the Credit Facility Issuer from the Bond Fund and the duties of the Trustee in connection with all of the foregoing and the fees, expenses and indemnities of the Trustee, shall remain in effect and shall be binding upon the Trustee, the Issuer, the Company and the Bondholders notwithstanding the release and discharge of the lien of this Indenture until payment in full of all outstanding Bonds. Section 1402. Deposit of Funds for Payment of the Bonds. If the principal or redemption price of any Bonds become due, either at maturity or by call for redemption or otherwise, together with all interest accruing thereon to the due date, has been paid or provision therefor made in accordance with Section 1401 hereof, all interest on such Bonds shall cease to accrue on the due date and all liability of the Issuer with respect to such Bonds shall likewise cease, except as hereinafter provided. Thereafter the owners of such Bonds shall be restricted exclusively to the funds so deposited for any claim of whatsoever nature with respect to such Bonds, and the Trustee shall hold such funds in trust for such owners. Section 1403. Effect of Purchase of the Bonds. No purchase of Bonds pursuant to Section 303 hereof shall be deemed to be a payment or redemption of such Bonds or any portion thereof and such purchase will not operate to extinguish or discharge the indebtedness evidenced by such Bonds. ARTICLE XV MISCELLANEOUS PROVISIONS Section 1501. Covenants of the Issuer to Bind its Successors. In the event of the dissolution of the Issuer, all of the covenants, stipulations, obligations and agreements contained in this Indenture by or in behalf of or for the benefit of the Issuer shall bind or inure to the benefit of the successor or successors of the Issuer from time to time and any officer, board, commission, authority, agency or instrumentality to whom or to which any power or duty affecting such covenants, stipulations, obligations and agreements shall be transferred by or in accordance with law, and the term "Issuer" as used in this Indenture shall include such successor or successors. Section 1502. Notices. (a) Any notice, demand, direction, request or other instrument authorized or required by this Indenture to be given or filed with the Issuer, the Trustee, the Company or the Credit Facility Issuer shall be in writing and shall be deemed given or filed for all purposes of this Indenture when delivered by hand delivery or mailed by first class mail, postage prepaid, registered or certified mail, addressed as follows: (1) If to the Issuer, to: Village of Walden Industrial Development Agency 8 Scofield Street Walden, NY 12586 (Attention Chairman) with a copy to: Richard J. Drake Drake, Sommers, Loeb, Tarshis & Catania, P.C. One Corwin Court P.O. Box 1479 Newburgh, NY 12550 (2) If to the Company, to: Spence Engineering Company, Inc. c/o Watts Regulator Co. 815 Chestnut Street North Andover, MA 01845 (Attention: William C. McCartney, Corporate Controller); and with a copy to: John R. LeClaire, P.C. Goodwin, Procter & Hoar Exchange Place Boston, MA 02109 (3) If to the Trustee, to: The First National Bank of Boston 150 Royall Street, Mail Stop 45-02-15 Canton, MA 02021 Attn: Corporate Trust Division (4) If to the Credit Facility Issuer, to: First Union National Bank of North Carolina 301 South College Street T-7 Charlotte, NC 28288 Attention: International Operations CORP-10. and if sent by telegraph, telegram or telecopy, addressed as above, at the time and date appearing on the report of delivery. Notwithstanding the foregoing, the delivery of Bonds or Optional Tender Notices to the Trustee or Tender Agent if made by telegraph, telegram or telecopy, must be made by delivery of the hard copy by overnight delivery on the date of delivery of such telegraph, telegram or telecopy and shall not be effective until actual receipt thereof by the Trustee or the Tender Agent, as the case may be. (b) A duplicate copy of each notice or other communication given hereunder by either the Issuer or Trustee to the other shall also be given to the Company. (c) All documents received by the Trustee under the provisions of this Indenture, or photographic copies thereof, shall be retained in its possession until this Indenture shall be released in accordance with the provisions of the Indenture, subject at all reasonable times to the inspection of the Issuer and the Bondholders and the agents and representatives thereof. (d) The Issuer, the Trustee, the Company and the Credit Facility Issuer may, by notice given hereunder, designate any further or different addresses to which subsequent notices, certificates or other communications shall be sent. Section 1503. Trustee as the Paying Agent and the Bond Registrar. The Trustee is hereby designated and agrees to act as payment agent and Bond Registrar for and in respect of the Bonds and any amounts received under the Credit Facility or the Sale Agreement. Section 1504. Rights Under this Indenture. Except as herein otherwise expressly provided, nothing in this Indenture expressed or implied is intended or shall be construed to confer upon any person, firm or corporation other than the parties hereto, the Company and the owners of the Bonds issued under and secured by this Indenture, any rights under this Indenture or any provisions hereof, this Indenture and all its provisions being intended to be and being for the sole and exclusive benefit of the parties hereto, the Company and the owners from time to time of the Bonds issued hereunder. Section 1505. Form of Certificates and Opinions. Except as otherwise provided in this Indenture, any request, notice, certificate or other instrument from the Issuer or the Company to the Trustee shall be deemed to have been signed by the proper party or parties if signed by the Issuer Representative or the Company Representative, respectively, and the Trustee may accept and rely upon a certificate signed by the Issuer Representative as to any action taken by the Issuer and by the Company Representative as to any action taken by the Company. Section 1506. Severability. In case any one or more of the provisions of this Indenture or of the Bonds issued hereunder shall for any reason be held to be illegal or invalid, such illegality or invalidity shall not affect any other provisions of this Indenture or of the bonds, but this Indenture and the Bonds shall be construed and enforced as if such illegal or invalid provision had not been contained therein. In case any covenant, stipulation, obligation or agreement of the Issuer contained in this Indenture or in the Bonds shall for any reason be held to be in violation of law, then such covenant, stipulation, obligation or agreement of the Issuer shall be enforced to the full extent permitted by law. Section 1507. Covenants of the Issuer Not Covenants of Officials Individually. All covenants, stipulations, obligations and agreements of the Issuer contained in this Indenture shall be deemed to be covenants, stipulations, obligations and agreements of the Issuer to the full extent permitted by the Constitution and laws of the State. No covenant, stipulation, obligation or agreement contained herein shall be deemed to be a covenant, stipulation, obligation or agreement of any present or future officer, member, agent or employee of the Issuer in his individual capacity, and no officer of the Issuer executing the Bonds shall be liable personally on the Bonds or be subject to any personal liability or accountability by reason of the issuance thereof. No officer, agent or employee of the Issuer shall incur any personal liability in acting or proceeding or in not acting or not proceeding in accordance with the terms of this Indenture. Section 1508. State Law Governs. This Indenture shall be governed by and construed in accordance with the laws of the State. Section 1509. Payments Due on Days Other Than Business Days. In any case where the date of maturity of interest on or principal of the Bonds or the date fixed for redemption of the Bonds shall be in the city of payment a day other than a Business Day, then payment of interest or principal need not be made on such date but may be made on the next succeeding Business Day with the same force and effect as if made on the date of maturity or the date fixed for redemption, provided that interest shall accrue for the period of any such extension. Section 1510. Execution in Counterparts. This Indenture may be executed in multiple counterparts, each of which shall be regarded for all purposes as an original, and such counterparts shall constitute but one and the same instrument, and no one counterpart of which need be executed by all parties. IN WITNESS WHEREOF, the VILLAGE OF WALDEN INDUSTRIAL DEVELOPMENT AGENCY has caused this Indenture to be executed in its name and on its behalf by the Chairman or Vice Chairman of the Issuer, the official seal of the Issuer to be impressed hereon and the same to be attested by the Secretary or Assistant Secretary of the Issuer; and the Trustee has caused this Indenture to be executed in its name and on its behalf by an authorized officer, its corporate seal to be impressed hereon and the same to be attested by a responsible officer, all as of the date and year first above written. VILLAGE OF WALDEN INDUSTRIAL DEVELOPMENT AGENCY By: /s/ Mathew R. Steichen Chairman, Mathew R. Steichen Attest: By: /s/ John Bruce Seguin Secretary, John Bruce Seguin THE FIRST NATIONAL BANK OF BOSTON, as Trustee By: /s/ James E. Schultz Its: Senior Account Administrator Attest: By: /s/ (Signature) Assistant Cashier EX-10.15 5 LOAN AGREEMENT between HILLSBOROUGH COUNTY INDUSTRIAL DEVELOPMENT AUTHORITY and LESLIE CONTROLS, INC. relating to the $4,765,000 Hillsborough County Industrial Development Authority Industrial Development Revenue Refunding Bonds (Leslie Controls, Inc. Project), Series 1994 __________________________________________________________ NOTE: CERTAIN RIGHTS OF THE HILLSBOROUGH COUNTY INDUSTRIAL DEVELOPMENT AUTHORITY UNDER THIS LOAN AGREEMENT HAVE BEEN ASSIGNED TO, AND ARE SUBJECT TO A SECURITY INTEREST IN FAVOR OF, THE FIRST NATIONAL BANK OF BOSTON, TRUSTEE FOR THE OWNERS OF THE BONDS UNDER A TRUST INDENTURE OF EVEN DATE HEREWITH, AS AMENDED OR SUPPLEMENTED FROM TIME TO TIME. INFORMATION CONCERNING SUCH SECURITY INTEREST MAY BE OBTAINED FROM THE TRUSTEE AT 150 ROYALL STREET, CANTON, MASSACHUSETTS. __________________________________________________________ DATED AS OF July 1, 1994 TABLE OF CONTENTS Page Parties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Recitals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 ARTICLE I DEFINITIONS AND RULES OF CONSTRUCTION . . . . . . . . . . . . 2 Section 1.1. Definitions. . . . . . . . . . . . . . . . . . . . . 2 Section 1.2. Rules of Construction. . . . . . . . . . . . . . . . 7 ARTICLE II REPRESENTATIONS . . . . . . . . . . . . . . . . . . . . . . . 8 Section 2.1. Representations by the Issuer. . . . . . . . . . . . 8 Section 2.2. Representations, Warranties and Covenants by the Company. . . . . . . . . . . . . . . . . . . . . . . 10 ARTICLE III CONSENT TO ASSIGNMENT. . . . . . . . . . . . . . . . 13 Section 3.1. Company Consent to Assignment of Agreement and Execution of Indenture . . . . . . . . . . . . . . . 13 ARTICLE IV ISSUANCE OF THE BONDS . . . . . . . . . . . . . . . . . . . . 13 Section 4.1. Agreement to Issue the Bonds . . . . . . . . . . . . 13 Section 4.2. No Third Party Beneficiary . . . . . . . . . . . . . 13 ARTICLE V LOAN BY THE ISSUER TO THE COMPANY; REPAYMENT. . . . . . . . . 14 Section 5.1. Loan by the Issuer; Repayment. . . . . . . . . . . . 14 Section 5.2. No Set-Off . . . . . . . . . . . . . . . . . . . . . 14 Section 5.3. Prepayments. . . . . . . . . . . . . . . . . . . . . 14 Section 5.4. Credits Against the Note . . . . . . . . . . . . . . 15 Section 5.5. Letter of Credit and Reimbursement Agreement . . . . 15 ARTICLE VI OPERATION; TAXES AND UTILITY CHARGES; INSURANCE AND EMINENT DOMAIN . . . . . . . . . . . . 15 Section 6.1. Operation of the Project by the Company. . . . . . . 15 Section 6.2. Taxes and Utility Charges. . . . . . . . . . . . . . 15 Section 6.3. Insurance. . . . . . . . . . . . . . . . . . . . . . 16 Section 6.4. Eminent Domain . . . . . . . . . . . . . . . . . . . 16 Section 6.5. Application of Net Proceeds of Insurance and Eminent Domain . . . . . . . . . . . . . . . . . . . 16 Section 6.6. Parties to Give Notice . . . . . . . . . . . . . . . 17 ARTICLE VII SPECIAL COVENANTS. . . . . . . . . . . . . . . . . . 18 Section 7.1. Access to the Project and Inspection . . . . . . . . 18 Section 7.2. Further Assurances and Corrective Instruments. . . . 18 Section 7.3. Tax and Arbitrage Covenants; Notice of Event of Taxability . . . . . . . . . . . . . . . . . . . . . 18 Section 7.4. Recording and Filing; Other Instruments. . . . . . . 20 Section 7.5. Administrative Expenses. . . . . . . . . . . . . . . 20 Section 7.6. Indemnity Against Claims . . . . . . . . . . . . . . 20 Section 7.7. Release and Indemnification. . . . . . . . . . . . . 21 Section 7.8. Additional Information . . . . . . . . . . . . . . . 21 Section 7.9. Default Certificates . . . . . . . . . . . . . . . . 21 Section 7.10. Observe Laws . . . . . . . . . . . . . . . . . . . . 22 Section 7.11. Election . . . . . . . . . . . . . . . . . . . . . . 22 Section 7.12. No Warranty of Condition of Suitability by the Issuer. . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 Section 7.13. Redemption of Prior Bonds. . . . . . . . . . . . . . 23 ARTICLE VIII ASSIGNMENT, LEASING AND SELLING. . . . . . . . . . . 23 Section 8.1. Assignment of this Loan Agreement or Lease or Sale of the Project by the Company . . . . . . . . . 23 Section 8.2. Restrictions on Transfer of the Issuer's Rights. . . 24 Section 8.3. Assignment by the Issuer . . . . . . . . . . . . . . 24 Section 8.4. Merger of Issuer . . . . . . . . . . . . . . . . . . 24 ARTICLE IX EVENTS OF DEFAULT AND REMEDIES. . . . . . . . . . . . . . . . 25 Section 9.1. Events of Default Defined. . . . . . . . . . . . . . 25 Section 9.2. Remedies on Default. . . . . . . . . . . . . . . . . 26 Section 9.3. Application of Amounts Realized in Enforcement of Remedies . . . . . . . . . . . . . . . . . . . . . . 26 Section 9.4. No Remedy Exclusive. . . . . . . . . . . . . . . . . 27 Section 9.5. Agreement to Pay Attorneys' Fees and Expenses. . . . 27 Section 9.6. Correlative Waivers. . . . . . . . . . . . . . . . . 27 ARTICLE X PREPAYMENTS . . . . . . . . . . . . . . . . . . . . . . . . . 27 Section 10.1. Optional Prepayments . . . . . . . . . . . . . . . . 27 Section 10.2. Mandatory Prepayments. . . . . . . . . . . . . . . . 28 Section 10.3. Other Mandatory Prepayments. . . . . . . . . . . . . 28 ARTICLE XI REBATE PROVISIONS . . . . . . . . . . . . . . . . . . . . . . 29 Section 11.1. Creation of the Rebate Fund. . . . . . . . . . . . . 29 ARTICLE XII MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . 29 Section 12.1. References to the Bonds Ineffective After Bonds Paid . . . . . . . . . . . . . . . . . . . . . . . . 29 Section 12.2. No Implied Waiver. . . . . . . . . . . . . . . . . . 29 Section 12.3. Issuer Representative. . . . . . . . . . . . . . . . 29 Section 12.4. Company Representative . . . . . . . . . . . . . . . 30 Section 12.5. Notices. . . . . . . . . . . . . . . . . . . . . . . 30 Section 12.6. If Payment or Performance Date Is Other Than a Business Day . . . . . . . . . . . . . . . . . . . . 31 Section 12.7. Binding Effect . . . . . . . . . . . . . . . . . . . 31 Section 12.8. Severability . . . . . . . . . . . . . . . . . . . . 31 Section 12.9. Amendments, Changes and Modifications. . . . . . . . 31 Section 12.10. Execution in Counterparts. . . . . . . . . . . . . . 31 Section 12.11. Applicable Law . . . . . . . . . . . . . . . . . . . 31 Section 12.12. No Charge Against Issuer Credit. . . . . . . . . . . 31 Section 12.13. Issuer Not Liable. . . . . . . . . . . . . . . . . . 32 Section 12.14. Expenses . . . . . . . . . . . . . . . . . . . . . . 32 Section 12.15. Amounts Remaining with the Trustee . . . . . . . . . 32 Execution by the Issuer. . . . . . . . . . . . . . . . . . . . . . . . . 33 Execution by the Company . . . . . . . . . . . . . . . . . . . . . . . . 33 Exhibit A Promissory Note Exhibit B The Project _______________________ LOAN AGREEMENT _______________________ This LOAN AGREEMENT, dated as of July 1, 1994, between the HILLSBOROUGH COUNTY INDUSTRIAL DEVELOPMENT AUTHORITY (the "Issuer"), a public body corporate and politic and a public instrumentality created pursuant to the laws of the State of Florida (the "State"), and LESLIE CONTROLS, INC. (the "Company"), a corporation organized and existing under the laws of the State of New Jersey. W I T N E S S E T H: WHEREAS, the Act (as hereinafter defined) authorizes the creation of industrial development agencies to facilitate the financing of capital projects comprising an industrial and manufacturing plant; and WHEREAS, the Act further authorizes each agency to issue its bonds for the purpose of carrying out any of its corporate purposes; and WHEREAS, pursuant to and in accordance with the provisions of the Act, the County Commissioners of Hillsborough County, Florida created the Issuer; and WHEREAS, the Issuer is authorized and empowered to enter into this Loan Agreement by the provisions of the Act; and WHEREAS, the Issuer has heretofore indicated its willingness to issue industrial revenue bonds under the Act for the purpose of refunding in whole the outstanding principal amount of the Issuer's Industrial Development Revenue Bonds (Leslie Controls, Inc. Project), Series 1986 in the original aggregate principal amount of $7,200,000 (the "Prior Bonds"), the proceeds of which were used to finance, in whole or in part, the cost of acquiring, constructing and installing a certain project in Hillsborough County, Florida (the "Project") owned and operated by the Company; and WHEREAS, to obtain funds for such purposes the Issuer will issue and sell its Industrial Development Revenue Refunding Bonds (Leslie Controls, Inc. Project), Series 1994 in the aggregate principal amount of $4,765,000 dated as of July 1, 1994 (the "Bonds"), under and pursuant to the Act, to be secured by and contain such terms and provisions as are set forth in that certain Trust Indenture (the "Indenture") dated as of July 1, 1994 between the Issuer and The First National Bank of Boston, Boston, Massachusetts, as Trustee (the "Trustee"), and the proceeds from the sale of the Bonds shall be deposited with the Trustee and disbursed in the manner and for the purposes set forth herein and in the Indenture, all as more fully provided herein and therein; and WHEREAS, in undertaking the issuance of the Bonds the Issuer has observed the criteria and requirements established by the Act. NOW, THEREFORE, in consideration of the respective representations and agreements contained herein, the parties hereto, recognizing that in the performance of the agreements of the Issuer herein contained, any obligation it may thereby incur for the payment of money shall not be deemed to constitute a debt, liability or obligation of the Issuer or of the State of Florida or any political subdivision thereof, except to the extent that the Bonds hereinafter mentioned shall be a limited obligation of the Issuer, payable solely from revenues provided therefor under the provisions of this Loan Agreement, the Note and from the Credit Facility Issuer under a Credit Facility (each as hereinafter defined) or derived from the exercise of the rights of the Issuer thereunder, agree as follows: ARTICLE I DEFINITIONS AND RULES OF CONSTRUCTION Section 1.1. Definitions. In addition to words and terms elsewhere defined in this Loan Agreement or in the Indenture, the following words and terms shall have the following meanings: "Act" shall mean all applicable provisions of the Constitution and laws of the State of Florida, including without limitation the Florida Industrial Development Financing Act, Parts II and III of Chapter 159, Florida Statutes, as amended from time to time and the resolution of the Board of County Commissioners of Hillsborough County, Florida adopted on October 27, 1971 organizing the Issuer. "Administrative Expenses" shall mean the amounts payable pursuant to Section 7.5 hereof by the Company to or for the account of the Issuer to provide for payment of reasonable costs and expenses incurred by the Issuer. "Affiliate" shall mean, with respect to any Person, any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such Person. For the purposes of this definition, "control", when used with respect to a Person, means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise, and the terms "controlling" and "controlled" have meanings correlative to the foregoing. "Bond" or "Bonds" shall mean the Hillsborough County Industrial Development Authority Industrial Development Revenue Refunding Bonds (Leslie Controls, Inc. Project), Series 1994, authorized to be issued pursuant to the Bond Resolution in accordance with the Indenture in the aggregate principal amount of $4,765,000, including such Bonds issued in replacement for mutilated, destroyed, lost or stolen Bonds pursuant to Section 210 of the Indenture. "Bond Documents" shall mean collectively the Indenture, the Bonds, this Loan Agreement, the Note, the Letter of Credit Documents, the Tender Agency Agreement and the Remarketing Agreement. "Bond Resolution" shall mean the resolution adopted by the Issuer on July 25, 1994 authorizing the execution and delivery of the Issuer Documents and the issuance of the Bonds by the Issuer. "Closing Date" means the date of the issuance and delivery of the Bonds. "Code" means the Internal Revenue Code of 1986, as amended, including, when appropriate, the statutory predecessor of the Code, and all applicable regulations (whether proposed, temporary or final) under that Code and the statutory predecessor of the Code, and any official rulings and judicial determinations under the foregoing applicable to the Bonds. "Company" shall mean Leslie Controls, Inc., a New Jersey corporation, and its successors or assigns and any surviving, resulting or transferee corporation or other entity. "Company Representative" shall mean any one of the persons at the time designated to act on behalf of the Company by written certificate furnished to the Issuer and the Trustee containing the specimen signatures of such persons and signed on behalf of the Company by the President or any duly authorized officer of the Company. "Consistent Basis" shall mean, in reference to the application of Generally Accepted Accounting Principles, that the accounting principles observed in the period referred to are comparable in all material respects to those applied in the preceding period, except as to any changes consented to by the Credit Facility Issuer. "Counsel" shall mean an attorney or firm of attorneys acceptable to the Trustee, and may, but need not, be counsel to the Issuer or the Company. "Credit Facility" shall mean the Letter of Credit or any Alternate Credit Facility delivered to the Trustee pursuant to Article VI of the Indenture. "Credit Facility Issuer" shall mean the Bank with respect to the Letter of Credit and if applicable the institution issuing any Alternate Credit Facility. "Determination of Taxability" shall be defined as and shall be deemed to have occurred on the first to occur of the following: (i) on the date when the Company files any statement, supplemental statement or other tax schedule, return or document (whether pursuant to Treasury Regulations Section 1.103-10(b)(2)(vi), as the same may be amended or supplemented, or otherwise) which discloses that an Event of Taxability shall have in fact occurred; (ii) on the date when any Bondholder or former Bondholder notifies the Company or the Trustee that it has received an approving written opinion of Bond Counsel to the effect that an Event of Taxability shall have occurred unless, within one hundred eighty (180) days after receipt by the Company of such notification from the Trustee, any Bondholder or any former Bondholder, the Company shall obtain and deliver to the Trustee a favorable ruling or determination letter issued to or on behalf of the Company by the Commissioner or any District Director of Internal Revenue (or any other government official exercising the same or a substantially similar function from time to time) to the effect that, after taking into consideration such facts as form the basis for the opinion that an Event of Taxability has occurred, an Event of Taxability shall not have occurred; (iii) on the date when the Company shall be advised in writing by the Commissioner or any District Director of Internal Revenue (or any other government official or agent exercising the same or a substantially similar function from time to time) that, based upon filings of the Company, or upon any review or audit of the Company, or upon any other ground whatsoever, an Event of Taxability shall have occurred; (iv) on the date when the Company shall receive notice in writing from any Bondholder or former Bondholder, or from the Trustee, that the Internal Revenue Service (or any other government agency exercising the same or a substantially similar function from time to time) has assessed as includable in the gross income of any Bondholder or former Bondholder the interest on such Bondholder's or former Bondholder's Bond due to the occurrence of an Event of Taxability; provided, however, no Determination of Taxability shall be deemed to have occurred under subparagraph (iii) or (iv) hereof unless the Company has been afforded the opportunity, at its expense, to contest any such assessment or unfavorable ruling and, further, no Determination of Taxability shall be deemed to have occurred until such contest, if made, has been finally determined. "Eminent Domain" shall mean the taking of title to, or the temporary use of, the Project or any part thereof pursuant to eminent domain or condemnation proceedings, or any voluntary conveyance of any part of the Project during the pendency of, or as a result of a threat of, such proceedings. "Event of Default" or "Default" shall have the meaning set forth in Section 9.1 hereof. "Event of Taxability" shall mean a change in law or fact or the interpretation thereof, or the occurrence or existence of any fact, event or circumstance (including, without limitation, the issuance of obligations or the incurring of capital expenditures in excess of those permitted by Section 103(b)(6)(D) of the 1954 Code, or the taking of any action by the Company, or the failure to take any action by the Company, or the making by the Company of misrepresentation herein or in any certificate required to be given in connection with the issuance, sale or delivery of the Bonds) which has the effect of causing the interest paid or payable on any Bond to become includable in the gross income of any Bondholder or former Bondholder of any Bond other than a Bondholder or former Bondholder who is or was a "substantial user" or "related person" as such terms are used in Section 147(a) of the Code. "Financing Statements" means any and all financing statements (including continuation statements) filed for record from time to time to perfect the security interests created or assigned hereby or by the Indenture. "Generally Accepted Accounting Principles" shall mean those principles of accounting set forth in pronouncements of the Financial Accounting Standards Board and its predecessors or pronouncements of the American Institute of Certified Public Accountants or those principles of accounting which have other substantial authoritative support and are applicable in the circumstances as of the date of application, as such principles are from time to time supplemented and amended. "Indenture" shall mean the Trust Indenture of even date herewith by and between the Issuer and the Trustee, together with any amendments or supplements thereof permitted thereby. "Issuer" shall mean Hillsborough County Industrial Development Authority and its successors and assigns. "Issuer Documents" shall mean collectively the Indenture and this Loan Agreement. "Issuer Representative" shall mean any one of the persons at the time designated to act on behalf of the Issuer by written certificate furnished to the Company and the Trustee containing the specimen signatures of such persons and signed on behalf of the Issuer by the Chairman. "Letter of Credit Documents" shall mean the Letter of Credit, the Reimbursement Agreement and the Pledge Agreement. "Loan Agreement" shall mean this Loan Agreement and any amendments and supplements thereto permitted by the Indenture. "Net Proceeds" means the proceeds received by the Issuer from the sale of the Bonds including all earnings and profits thereon but excluding any proceeds deposited in a reasonably required reserve or replacement fund. When used with respect to any insurance proceeds or award resulting from, or other amount received in connection with, Eminent Domain, the term "Net Proceeds" shall mean the gross proceeds from such proceeds, award or other amount, less all expenses (including attorneys' fees) incurred in the realization thereof. "1954 Code" shall mean the Internal Revenue Code of 1954, as amended through August 15, 1986, and all applicable regulations (whether proposed, temporary or final) thereunder and any official rulings and determinations under the foregoing applicable to the Bonds or the Prior Bonds. "Note" shall mean the promissory note given by the Company pursuant to Section 5.4 of this Loan Agreement, substantially in the form of Exhibit "A" attached hereto. "Overdue Rate" shall mean the Prime Rate plus two percent, or the maximum contract rate permitted by law, whichever is lower. "Payment of the Bonds" shall mean payment of (i) the principal of and interest on the Bonds in accordance with their terms whether through payment at maturity, upon acceleration or prepayment, (ii) all amounts due as Administrative Expenses or otherwise, and (iii) any and all other liabilities and obligations arising under the Indenture and this Loan Agreement, in any case, in such a manner that all such amounts due and owing with respect to the Bonds shall have been paid. "Permitted Encumbrances" shall mean, as of any particular time, liens for ad valorem and special assessments, if any, which are not then delinquent or which are being contested in good faith. "Person" shall mean an individual, partnership, corporation, trust, unincorporated organization, association, joint venture, joint-stock company, or a government or agency or political subdivision thereof. "Prime Rate" shall mean that rate of interest per annum announced by First Union National Bank of North Carolina at its principal office in Charlotte, North Carolina, from time to time to be its prime rate. "Project" shall mean the land or buildings and other improvements thereon, and all machinery, equipment, apparatus, office furnishings and other property financed in whole or in part with the proceeds of the Prior Bonds, including any substitutions therefor and any repairs, renewals and replacements thereof from time to time, including the real property described in Exhibit "B" attached hereto and by this reference made a part hereof. "Rebate Fund" means the Fund of that name created pursuant to Section 504 of the Indenture and described in Section 11.1 hereof. "Regulations" shall mean the applicable Treasury Regulations under Sections 103 and 141 through 150 of the Code whether at the time proposed, temporary, final or otherwise. "Reimbursement Agreement" shall mean the Letter of Credit, Reimbursement and Guaranty Agreement of even date herewith by and among the Company, Watts Industries, Inc. as guarantor, and the Bank, and any supplements or amendments thereto. "Related Person" means "related person" within the meaning of Section 103(b)(6)(C) of the 1954 Code by reference to Sections 267, 707(b) and 1563(a) of the 1954 Code, except that fifty percent is substituted for eighty percent in Section 1563(a). "Security interest" or "security interests" shall refer to the security interests created in the Indenture and shall have the meaning set forth in the U.C.C. "State" shall mean the State of Florida. "Tax Regulatory Certificate" shall mean the certificate of the Company, dated the date of delivery of the Bonds, setting forth certain facts, estimates and circumstances with respect to the Bonds. "Trustee" shall mean the banking institution at the time serving as Trustee under the Indenture. Section 1.2. Rules of Construction. (a) Words of masculine gender shall be deemed and construed to include correlative words of the feminine and neuter genders, and words of the neuter gender shall be deemed and construed to include correlative words of the masculine and feminine genders. (b) The table of contents, captions and headings in this Loan Agreement are for convenience only and in no way define, limit or describe the scope or intent of any provisions or Sections of this Loan Agreement. (c) All references herein to particular Articles or Sections are references to Articles or Sections of this Loan Agreement unless some other reference is established. (d) All accounting terms not specifically defined herein shall be construed in accordance with Generally Accepted Accounting Principles applied on a Consistent Basis. (e) All references herein to the Company shall be deemed to refer to each of the Persons if more than one are described by such term and any agreement, obligation, duty or liability of the Company shall be a joint and several agreement, obligation, duty or liability of each of the Persons so described by such term. (f) Any terms not defined herein but defined in any of the other Bond Documents shall have the same meaning herein. ARTICLE II REPRESENTATIONS Section 2.1. Representations by the Issuer. The Issuer makes the following representations as the basis for the undertakings on its part herein contained: (a) Organization and Authority. The Issuer is a public body corporate and politic and a public instrumentality created pursuant to the laws of the State of Florida. The Issuer has all requisite power and authority under the Act to (i) adopt the Bond Resolution, (ii) issue the Bonds, (iii) use the proceeds thereof to refund the Prior Bonds, and (iv) enter into, and perform its obligations under the Issuer Documents. (b) Pending Litigation. There are no actions, suits, proceedings, inquiries or investigations pending, or to the knowledge of the Issuer threatened, against or affecting the Issuer in any court or before any governmental authority or arbitration board or tribunal, which involve the possibility of materially and adversely affecting the transactions contemplated by the Issuer Documents or which, in any way, would adversely affect the validity or enforceability of the Bonds, the Issuer Documents or any agreement or instrument to which the Issuer is a party and which is used or contemplated for use in the consummation of the transactions contemplated hereby or thereby or the ability of the Issuer to perform its respective obligations hereunder and thereunder. (c) Agreements Are Legal and Authorized. The adoption of the Bond Resolution, the issuance and sale of the Bonds and the execution and delivery by the Issuer of the Issuer Documents and the compliance by the Issuer with all of the provisions of each thereof and of the Bonds (i) are within the purposes, powers and authority of the Issuer, (ii) have been done in full compliance with the provisions of the Act, are legal and will not conflict with or constitute on the part of the Issuer a violation of or a breach of or default under, or result in the creation of any lien, charge or encumbrance upon any property of the Issuer (other than as contemplated by this Loan Agreement and the Indenture) under the provisions of, any charter instrument, by-law, indenture, mortgage, deed of trust, note agreement or other agreement or instrument to which the Issuer is a party or by which the Issuer is bound, or any license, judgment, decree, law, statute, order, rule or regulation of any court or governmental agency or body having jurisdiction over the Issuer or any of its activities or properties, and (iii) have been duly authorized by all necessary corporate action on the part of the Issuer. (d) Governmental Consents. Neither the nature of the Issuer nor any of its activities or properties, nor any relationship between the Issuer and any other person, nor any circumstance in connection with the offer, issue, sale or delivery of any of the Bonds is such as to require the consent, approval or authorization of, or the filing, registration or qualification with, any governmental authority on the part of the Issuer in connection with the execution, delivery and performance of the Issuer Documents or the offer, issue, sale or delivery of the Bonds, other than those already obtained, which include (i) the approval of the Board of County Commissioners, (ii) the compliance with the information reporting requirements contained in Section 149(e) of the Code, (iii) the public approval of the issuance of the Bonds contained in Section 147(f) of the Code, and (iv) the filing of Financing Statements perfecting the security interests created under the Indenture; provided, however, no representation is made herein as to compliance with the securities or "blue sky" laws of any jurisdiction. (e) No Defaults. No event has occurred and no condition exists with respect to the Issuer which would constitute an Event of Default as defined in this Loan Agreement or the Indenture or which, with the lapse of time or with the giving of notice or both, would become an Event of Default under this Loan Agreement or the Indenture. The Issuer is not in default under the Act or under any charter instrument or by-law. (f) No Prior Pledge. Neither this Loan Agreement nor any of the revenues pledged under the Indenture have been pledged or hypothecated in any manner or for any purpose other than as provided in the Indenture as security for the payment of the Bonds. (g) Nature and Location of Project. The refinancing of the costs of the Project is in furtherance of the public purpose intended to be served by the Act and is specifically authorized by the Act. The Project is located wholly within the geographic limits of the Issuer. (h) Public Hearing and Approval. A public hearing was duly held by the Hillsborough County Industrial Development Authority on June 15, 1994, upon reasonable public notice, at which hearing members of the public were afforded reasonable opportunity to be heard on all matters pertaining to the location and nature of the Project and the refinancing thereof and to the issuance of the Bonds. On July 13, 1994, after the above mentioned public hearing, the issuance of the Bonds was approved by the Hillsborough County Board of County Commissioners, which is the applicable elected representative of the Issuer. (i) Due Authorization. By the Bond Resolution the Issuer has authorized the issuance and sale of the Bonds to provide funds for refunding, by payment and redemption, the Prior Bonds, and authorized and approved the Issuer's execution, delivery and performance of the Issuer Documents, the endorsement of the Note and the other instruments contemplated hereby to be executed and delivered by the Issuer, which Bond Resolution has not been amended, modified or rescinded and continues to be in full force and effect. (j) Limited Obligations. Notwithstanding anything herein contained to the contrary, any obligation the Issuer may hereby incur for the payment of money shall not be deemed to constitute a debt, liability or obligation of the Issuer, Hillsborough County or of the State of Florida or any political subdivision thereof, except to the extent that the Bonds shall be a limited obligation of the Issuer payable solely from (i) the revenues hereunder and under the Note, (ii) revenues derived from the sale of the Bonds, and (iii) amounts on deposit from time to time in the Bond Fund, subject to the provisions of this Loan Agreement and the Indenture permitting the application thereof for the purposes and on the terms and conditions set forth herein and therein. (k) Issuance of Bonds. To accomplish the foregoing, the Issuer proposes to issue $4,765,000 in aggregate principal amount of its Bonds immediately following the execution and delivery of this Loan Agreement. The date, denominations, interest rate, maturity date, redemption provisions and other pertinent provisions with respect to the Bonds are set forth in the Indenture (particularly Articles II and III thereof). (l) Validity of Issuer Documents. When duly executed and delivered on behalf of the Issuer, and assuming the due authorization, execution and delivery by the Company of this Loan Agreement, and the due authorization, execution and delivery by the Trustee of the Indenture, each of the Issuer Documents shall constitute a valid and binding obligation of the Issuer enforceable in accordance with its terms. (m) Representations and Other Written Statements. Neither the representations of the Issuer contained in this Loan Agreement or the Indenture nor any written statement relating to the Issuer furnished by the Issuer in connection with the transactions contemplated hereby, contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements contained herein and therein not misleading. Section 2.2. Representations, Warranties and Covenants by the Company. The Company makes the following representations as the basis for the undertakings on its part herein contained: (a) Corporate Organization and Power. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of New Jersey and is qualified to do business and is in good standing under the laws of the State. (b) Pending Litigation. There are no proceedings pending, or to the knowledge of the Company threatened against or affecting the Company in any court or before any governmental authority or arbitration board or tribunal which are likely to have a material adverse effect on the ability of the Company to perform its obligations under this Loan Agreement and the Bond Documents to which it is a party. (c) Agreements Are Legal and Authorized. The execution and delivery by the Company of this Loan Agreement, the Note and the Bond Documents to which it is a party and the compliance by the Company with all of the provisions hereof (and thereof) (i) are within the corporate power of the Company, (ii) after giving effect to the redemption of the Prior Bonds will not conflict with or result in any breach of any of the provisions of, or constitute a default under any agreement, charter document, by-law or other instrument to which the Company is a party or by which it may be bound, and (iii) have been duly authorized by all necessary corporate action on the part of the Company. (d) No Defaults. No event has occurred and no condition exists with respect to the Company that would constitute an Event of Default under this Loan Agreement, the Note, the Bond Documents to which it is a party or the Indenture or which, with the lapse of time or with the giving of notice or both, would become an Event of Default under this Loan Agreement, the Note, the Indenture or the Bond Documents to which it is a party. (e) Nature and Location of Project. The Project has been completed in accordance with the Project Summary (described in Exhibit "B" attached hereto and made a part hereof), constitutes a "project" within the meaning of the Act and is located wholly within the geographic limits of the Issuer. (f) Ownership and Operation of Project. The Company presently intends to operate the Project as a manufacturing facility from the date hereof to the expiration or sooner termination of this Agreement as provided herein, and as a "project" within the meaning of the Act. (g) Disclosure Documents. Except as reflected or referenced in the Private Placement Memorandum dated August 4, 1994 relating to the Bonds, including the documents incorporated therein by reference (the "Private Placement Memorandum"), there have been no changes in the assets or liabilities or financial condition of the Company, other than changes in the ordinary course of business, which in the aggregate are materially adverse with respect to the Company's ability to perform its obligations under this Loan Agreement or the Bond Documents to which it is a party. There were no material liabilities, contingent or otherwise, of the Company which were not reflected or referenced in the Private Placement Memorandum, and the Company has not entered into any commitments or contracts since the date of the Private Placement Memorandum which are not reflected or referenced in the Private Placement Memorandum, other than in the ordinary and normal course of its business, which might, in light of any fact or condition presently known to the Company, have a materially adverse effect upon the financial condition, operations or business of the Company or its ability to perform its obligations hereunder or thereunder. (h) Issuance of Private Activity Bonds. The Company has not caused or will not cause the issuance of "private activity" bonds (as defined in the Code) or of "industrial development bonds" (as defined in the 1954 Code) on its behalf in any jurisdiction of the United States during the 30-day period commencing 15 days prior to the issuance of the Bonds. (i) Use of Proceeds of Bonds. The Company shall not permit the proceeds of the Bonds to be used in any manner, nor shall it make any expenditures with respect to the Project or perform or permit any act, which would cause the Bonds to fail to meet the requirements of Section 147(b) of the Code. (j) No Further Approval. No authorization, approval, consent, permit or license of any regulatory body or authority, not already obtained, is required on the part of the Company for the valid and lawful execution and delivery of this Loan Agreement and the Note. (k) Other Events. To the best knowledge of the Company, no event has occurred which, with the lapse of time or the giving of notice or both, would give any creditor of the Company the right to accelerate the maturity of any of such party's outstanding indebtedness for money borrowed. (l) Certificates and Documents. The certificates and all other documents delivered and to be delivered by the Company in connection with the transactions contemplated by this Loan Agreement and the Note and the other Bond Documents to which it is a party as of their respective dates, taken as a whole, do not and will not include any untrue statement of a material fact or omit to state a material fact necessary to make the statements herein and therein, in the light of the circumstances under which they are or will be made, not misleading. The certificates and all other documents delivered and to be delivered by the Company or its representatives in connection with the transactions contemplated by this Loan Agreement and the Note and the Bond Documents to which it is a party are or will be on the dates on which they are or will be delivered true and complete in all material respects. (m) Use of Proceeds. All of the proceeds of the sale of the Bonds will be applied to redeem the principal of the Prior Bonds on the redemption date thereof. None of the proceeds of the sale of the Bonds will be applied to pay issuance costs of the Bonds or to pay costs of the refunding. (n) Matters Relating to Tax Exemption. The Company will not take or omit to take any action which would impair the exclusion of the interest on the Bonds from the gross income of the recipients thereof for federal income tax purposes, and will comply with all of its covenants and agreements contained in the Tax Regulatory Certificate. (o) Certain Arbitrage Matters. After the expiration of any applicable temporary period under Section 148(d)(3) of the Code, at no time during any bond year will the aggregate amount of gross proceeds of the Bonds invested in higher yielding investments (within the meaning of Section 148(b) of the Code) exceed one hundred fifty percent (150%) of the debt service on the Bonds for such bond year and the aggregate amount of gross proceeds of the Bonds invested in higher yielding investments, if any, will be promptly and appropriately reduced as the amount of outstanding Bonds are reduced, provided however that the foregoing shall not require the sale or disposition of any investments in higher yielding investments if such sale or disposition would result in a loss which exceeds the amount which would be paid to the United States pursuant to Section 504 of the Indenture (but for such sale or disposition) at the time of such sale or disposition if a payment under Section 504 of the Indenture were due at such time. At no time will any funds constituting gross proceeds of the Bonds be used in a manner as to constitute failure of compliance with Section 148 of the Code. The terms "bond year", "gross proceeds", "higher yielding investments", "yield", and "debt service" have the meanings assigned to them for purposes of Section 148 of the Code. (p) Tax Regulatory Certificate. The Company's Tax Regulatory Certificate executed and delivered by the Company concurrently with the issuance and delivery of the Bonds is true, accurate and complete in all material respects as of the date on which executed and delivered. ARTICLE III CONSENT TO ASSIGNMENT Section 3.1. Company Consent to Assignment of Agreement and Execution of Indenture. The Company understands that the Issuer, as security for the payment of the principal of, and the interest on, the Bonds, will assign and pledge to, and create a security interest in favor of, the Trustee pursuant to the Indenture in certain of its rights, title and interest in and to this Loan Agreement including all Pledged Revenues, reserving, however, its rights (a) pursuant to this Loan Agreement providing that notices, approvals, consents, requests and other communications be given to the Issuer, (b) to reimbursement and payment of costs and expenses under this Loan Agreement, and (c) to indemnification and to exemption from liability, both individual and corporate, as provided under this Loan Agreement, and the Company hereby agrees and consents to such assignment and pledge. The Company acknowledges that it has received a copy of the Indenture and consents to the execution of the same by the Issuer. ARTICLE IV ISSUANCE OF THE BONDS Section 4.1. Agreement to Issue the Bonds. To provide funds for redemption of the Prior Bonds, the Issuer agrees that it will authorize, sell, issue and deliver the Bonds in the aggregate principal amount of $4,765,000 in the manner set forth in the Indenture and cause the proceeds of the Bonds to be applied as provided in the Indenture. Section 4.2. No Third Party Beneficiary. It is specifically agreed between the parties executing this Loan Agreement that it is not intended by any of the provisions of any part of this Loan Agreement to create in the public or any member thereof, other than as may be expressly provided herein or as contemplated in the Indenture, a third party beneficiary hereunder, or to authorize anyone not a party to this Loan Agreement to maintain a suit for personal injuries or property damage pursuant to the terms or provisions of this Loan Agreement. The duties, obligations, and responsibilities of the parties to this Loan Agreement with respect to third parties shall remain as imposed by law. ARTICLE V LOAN BY THE ISSUER TO THE COMPANY; REPAYMENT Section 5.1. Loan by the Issuer; Repayment. (a) Upon the terms and conditions of this Loan Agreement, the Issuer shall lend to the Company the proceeds of the sale of the Bonds. The loan shall be evidenced by and repayable as set forth in the Note. (b) As consideration for the issuance of the Bonds and the making of the loan to the Company by the Issuer, the Company will execute and deliver this Loan Agreement and the Note, in the form attached as Exhibit "A" hereto, and the Issuer will endorse the Note without recourse to the order of, and pledge the Note and assign this Loan Agreement and the Note to, the Trustee, as the assignee of the Issuer under the Indenture, contemporaneously with the issuance of the Bonds. The Company shall repay the loan in accordance with the provisions of the Note and of this Loan Agreement. Section 5.2. No Set-Off. The obligation of the Company to make the payments required by the Note shall be absolute and unconditional. The Company will pay without abatement, diminution or deduction (whether for taxes or otherwise) all such amounts regardless of any cause or circumstance whatsoever including, without limitation, any defense, set-off, recoupment or counterclaim that the Company may have or assert against the Issuer, the Trustee, any Bondholder or any other person. Section 5.3. Prepayments. The Company may prepay all or any part of the amounts the Note obligates it to pay as provided in Section 701 of the Indenture with respect to prepayment of the Bonds. Except as provided in this Section 5.3 and in Sections 10.1, 10.2 and 10.3 hereof, the Company shall not be entitled to prepay the Note or cause the Bonds to be prepaid. The Company shall prepay all of the amounts it is required to prepay as provided in Sections 10.2 and 10.3 hereof. Section 5.4. Credits Against the Note. To the extent that principal of or interest on the Bonds shall be paid, there shall be credited against the unpaid principal of or interest on the Note, as the case may be, an amount equal to the principal of or interest on the Bonds so paid. If the principal of and interest on and other amounts payable under the Bonds shall have been paid sufficiently that Payment of the Bonds shall have occurred, then the Note, ipso facto, shall be deemed to have been paid in full, the Company's obligations thereon shall be discharged (with the exception of the obligation of the Company to make certain payments which may subsequently arise as a result of a Determination of Taxability which shall survive notwithstanding Payment of the Bonds), and the Note shall be cancelled and surrendered to the Company. Section 5.5. Letter of Credit and Reimbursement Agreement. As a further condition to the Issuer's making the loan hereunder, the Company shall: (a) cause the Letter of Credit to be issued and delivered to the Trustee as security for the Bonds. Until the Conversion Date, the Company shall cause a Credit Facility meeting the requirements of Section 603 of the Indenture to be maintained with the Trustee; and (b) enter into the Reimbursement Agreement with the Bank in form and substance satisfactory to the Bank and execute and deliver the other Letter of Credit Documents required by the Bank. ARTICLE VI OPERATION; TAXES AND UTILITY CHARGES; INSURANCE AND EMINENT DOMAIN Section 6.1. Operation of the Project by the Company. (a) The Company shall pay or cause to be paid all costs and expenses of operation and maintenance of the Project. (b) The Company may, at its own expense, make from time to time any additions, modifications or improvements to the Project that it may deem desirable for its business purposes. Section 6.2. Taxes and Utility Charges. (a) The Company shall pay as the same respectively become due, (1) all taxes, assessments, levies, claims and charges of any kind whatsoever that may at any time be lawfully assessed or levied against or with respect to the Project (including, without limiting the generality of the foregoing, any tax upon or with respect to the income or profits of the Issuer from the Project and that, if not paid, would become a charge on the payments to be made under this Loan Agreement or the Note prior to or on a parity with the charge thereon created by the Indenture and including ad valorem, sales and excise taxes, assessments and charges upon the Company's interest in the Project), (2) all utility and other charges incurred in the operation, maintenance, use, occupancy and upkeep of the Project and (3) all assessments and charges lawfully made by any governmental body for public improvements that may be secured by a lien on any portion of the Project. (b) The Company may, at its expense, contest in good faith any such levy, tax, assessment, claim or other charge. The Issuer and the Trustee, at the expense of the Company, will cooperate fully in any such permitted contest. (c) The Company shall furnish the Issuer and the Trustee, upon request, with proof of payment of any taxes, governmental charges, utility charges, insurance premiums or other charges required to be paid by the Company under this Loan Agreement. Section 6.3. Insurance. Until Payment of the Bonds shall be made, the Company will keep the Project properly and continuously insured against such risks as are customarily insured against by businesses of like size and type engaged in the same or similar manufacturing operations (other than business interruption insurance). Section 6.4. Eminent Domain. Unless the Company shall have prepaid the Note pursuant to the provisions of Article X hereof, in the event that title to, or the temporary use of, the Project, or any part thereof shall be taken by Eminent Domain, the Company shall be obligated to continue to make the payments required to be made pursuant to the Note and the Net Proceeds received as a result of such Eminent Domain shall be applied as provided in Section 6.5(b) hereof. Section 6.5. Application of Net Proceeds of Insurance and Eminent Domain. (a) The Net Proceeds of the insurance carried with respect to the Project shall be applied by the Company toward extinguishment of the defect or claim or satisfaction of the liability with respect to which such insurance proceeds may be paid. (b) The Net Proceeds of the insurance carried with respect to the Project (excluding the Net Proceeds of any business interruption insurance, which shall be paid to the Company), and the Net Proceeds resulting from Eminent Domain, except as hereinafter provided, shall be paid to the Trustee and applied as follows: (1) If the amount of the Net Proceeds does not exceed $500,000, the Net Proceeds shall be paid to the Company and shall be applied to the repair, replacement, renewal or improvement of the Project or at the Company's election paid to the Trustee and applied as provided in (2)(B) below. (2) If the amount of the Net Proceeds exceeds $500,000, the Net Proceeds shall be paid to and held by the Trustee as a special trust fund and invested in accordance with Section 602 of the Indenture and the provisions of Article XI hereof pending receipt of written instructions from the Company. At the option of the Company, to be exercised within the period of ninety (90) days from the receipt by the Trustee of such Net Proceeds, the Company shall advise the Trustee that (A) the Company will use the Net Proceeds for the repair, replacement, renewal or improvement of the Project (such funds to be delivered by the Trustee to the Company), or (B) the Net Proceeds shall be applied to the prepayment of the Bonds as provided in Article X hereof. If the Company does not advise the Trustee within said period of ninety (90) days that it elects to proceed under clause (A) to use such Net Proceeds for the repair, replacement, renewal or improvement of the Project, such Net Proceeds shall be applied to the repayment of the Bonds pursuant to Article X hereof. Any prepayment pursuant to the preceding sentence shall be effected on the next Interest Payment Date not less than thirty (30) days after the expiration of said period of ninety (90) days without an election by the Company. Notwithstanding the foregoing, so long as a Credit Facility is in effect, in the event of any inconsistency between the terms contained in this Agreement and those contained in the Reimbursement Agreement, the provisions of the Reimbursement Agreement should be deemed to control in accordance with its terms. (c) The Company agrees that if it shall elect to use the moneys paid to the Trustee pursuant to subsection (b)(2) of this Section 6.5 for the repair, replacement, renewal or improvement of the Project, it will restore the Project, or cause the same to be done, to a condition substantially equivalent to its condition prior to the occurrence of the event to which the Net Proceeds were attributable. To the extent that the Net Proceeds are not sufficient to restore or replace the Project, the Company shall use its own funds to restore or replace the Project. Any balance remaining after any such application of such Net Proceeds shall be paid to the Company. The Company shall be entitled to the Net Proceeds of any insurance or resulting from Eminent Domain relating to property of the Company not included in the Project and not providing security for the Note or this Loan Agreement. Section 6.6. Parties to Give Notice. In case of any material damage to or destruction of all or any part of the Project, the Company shall give prompt notice thereof to the Issuer, the Credit Facility Issuer and the Trustee. In case of a taking or proposed taking of all or any part of the Project or any right therein by Eminent Domain, the Company shall give prompt notice thereof to the Issuer, the Credit Facility Issuer and the Trustee. Each such notice shall describe generally the nature and extent of such damage, destruction, taking loss, proceeding or negotiations. ARTICLE VII SPECIAL COVENANTS Section 7.1. Access to the Project and Inspection. The Trustee and the Issuer shall have the right, at all reasonable times upon the furnishing of reasonable notice to the Company under the circumstances, to enter upon the Project Site and to examine and inspect the Project. Section 7.2. Further Assurances and Corrective Instruments. Subject to the provisions of the Indenture, the Issuer and the Company agree that they will, from time to time, execute, acknowledge and deliver, or cause to be executed, acknowledged and delivered, such supplements and amendments hereto and such further instruments as may reasonably be required for correcting any inadequate or incorrect description of the Project, and for carrying out the intention or facilitating the performance of this Loan Agreement. Section 7.3. Tax and Arbitrage Covenants; Notice of Event of Taxability. (a) Notwithstanding any other provision hereof, the Company covenants and agrees that it shall at all times do and perform all acts and things necessary or desirable and within its reasonable control in order to assure that interest paid on the Bonds shall, for the purpose of federal income taxation, not be included in gross income of the recipients thereof, except in the event that such recipient is a "substantial user" or "related person" within the meaning of Section 103(b) of the 1954 Code or Section 147(a) of the Code. (b) Neither the Company nor the Issuer shall take any action or fail to take any action, and the Company covenants that it will not approve the Trustee's taking any action or failing to take any action or making any investment or use of the proceeds of the Bonds, if such action, use or failure would adversely affect the tax-exempt status of the interest on the Bonds under Section 103 of the Code or cause any of the Bonds to be an "arbitrage bond" within the meaning of Section 148 of the Code and the Treasury Regulations as the same may be applicable to the Bonds at the time of such action, investment or use. (c) The Company shall give prompt written notice to the Issuer and the Trustee of the filing by the Company of any statement, tax schedule, return or document with the Internal Revenue Service which discloses that an Event of Taxability shall have occurred and its receipt of any written advice from the Internal Revenue Service that an Event of Taxability shall have occurred. (d) The Company acknowledges that it has examined, executed and delivered the Tax Regulatory Certificate and its terms relating to compliance with the Code and shall comply with the covenants, instructions and guidelines contained in the Tax Regulatory Certificate. The Company's obligation to make any payments of Rebate Amounts (as defined in the Tax Regulatory Certificate) required by the Tax Regulatory Certificate and to prepare and furnish to the Issuer and the Trustee the statements and forms described therein shall survive payment in full of the Bonds notwithstanding any provision of this Loan Agreement to the contrary. (e) The Company and the Issuer will furnish accurate information necessary to enable Bond Counsel to make any certifications which might be required under the Regulations. (f) Whenever the Issuer shall be required to file, deliver or execute, or produce any reports, notices or other documents under the Code or the Regulations while the Bonds are outstanding, the Company shall furnish or cause the proper person to furnish in due time to the Issuer, through the attorney for the Issuer, the completed form of such report, notice or other required document together with (a) a certification by the Company or other proper person required to provide information that such document is accurate, and (b) if requested by the Issuer or if otherwise required herein or in the Indenture, an opinion of Bond Counsel addressed to the Issuer that the report or other document is not in violation of any provision of law or of the Issuer Documents or other documents constituting a part of the transcript of proceedings relating to the issuance of the Bonds and that such report, notice or other required document meets the legal requirements for such filing, delivery or execution. In the event of the failure or refusal of the Company or other proper person to comply with this provision, the Company agrees to pay the statement for attorney's fees and administrative time presented by the Issuer for filing, delivering or executing such report or documents, such statement to be paid within thirty (30) days after written notice to the Company by the Issuer. In order to insure that interest on the Bonds is not and will not become subject to federal income taxes as a result of failure of the Bonds to satisfy the requirement of Section 149(e) of the Code, the Company covenants with the Issuer and the Trustee that it will, on or before the date of issuance of the Bonds supply to the Issuer and the Trustee all information required under Internal Revenue Service Form 8038, Information Return for Private Activity Bond Issues (Form 8038), including without limitation the following: (a) the date of issue, the amount of lendable proceeds of the issue, and the stated interest rate, term and face amount of each obligation which is part of the issue; (b) the name of the applicable elected representative who approved the issue, or a description of the voter referendum by which the issue was approved; and (c) a description of any property to be financed from the proceeds of the issue. The Company further covenants that on or before the due date thereof, it will cause Form 8038 to be completed, executed and filed with the appropriate office of the Internal Revenue Service. Section 7.4. Recording and Filing; Other Instruments. (a) The Company covenants that it will, at its expense, cause Counsel in the State to take all steps as are reasonably necessary to render an opinion to the Issuer and the Trustee not earlier than sixty (60) nor later than thirty (30) days prior to each anniversary date occurring at five-year intervals after the issuance of the Bonds to the effect that all financing statements, continuation statements, notices and other instruments required by applicable law have been recorded or filed or re-recorded or re-filed in such manner and in such places required by law in order fully to preserve and protect the rights of the Trustee in the granting by the Issuer of certain rights of the Issuer, pursuant to the Indenture, under this Loan Agreement and the Note. (b) The Company and the Issuer shall execute and deliver all instruments and shall furnish all information and evidence deemed necessary or advisable by such Counsel to enable him to render the opinion referred to in subsection (a) of this Section. The Company shall file and re-file and record and re-record or cause to be filed and re-filed and recorded and re-recorded all instruments required to be filed and re-filed and recorded or re-recorded pursuant to the opinion of such Counsel and shall continue or cause to be continued the liens of such instruments for so long as the Bonds shall be outstanding, except as otherwise required by this Loan Agreement. Section 7.5. Administrative Expenses. The Company shall pay to or for the account of the Issuer within thirty (30) days after notice thereof all reasonable costs and expenses incurred by the Issuer in connection with the financing and administration of the Project, including, without limitation, the costs of administering this Loan Agreement and the fees and expenses of the Trustee, attorneys, consultants and others. Section 7.6. Indemnity Against Claims. (a) The Company will pay and discharge and will indemnify and hold harmless the Issuer and the Trustee from (1) any lien or charge upon amounts payable hereunder by the Company to the Issuer, (2) any taxes, assessments, impositions and other charges in respect of the Project, and (3) any claim of any kind or character whatsoever arising from, connected with or in any way related to the Bonds or the Project except such claims that result from the gross negligence or willful misconduct of the Issuer or the Trustee. (b) If any claim of any such lien or charge upon payments, or any such taxes, assessments, impositions or other charges, are sought to be imposed, the Issuer or the Trustee, as the case may be, will give prompt notice to the Company, and the Company shall have the sole right and duty to assume, and shall assume, the defense thereof, with full power to litigate, compromise or settle the same in its sole discretion. Section 7.7. Release and Indemnification. The Company shall at all times protect and hold the Issuer and its members, officers, employees and agents harmless against any claims or liability resulting from any loss or damage to property or any injury to or death of any person that may be occasioned by any cause whatsoever pertaining to the Bonds, the Project or the use thereof, including without limitation any lease thereof or assignment of its interest in this Agreement, such indemnification to include reasonable expenses and attorneys' fees incurred by the Issuer and its members, officers, employees, attorneys and agents in connection therewith, provided that such indemnity shall be effective only to the extent of any loss that may be sustained by the Issuer, its members, officers, employees, attorneys and agents in excess of the Net Proceeds received by it or them from any insurance carrier with respect to such loss and provided further that the benefits of this Section 7.7 shall not inure to any person other than the Issuer and its members, officers, employees, attorneys and agents. In case any action or proceeding is brought against the Issuer or any of its members, officers, employees or agents by reason of any such claim, the affected party shall notify the Company and the Company shall resist or defend such action or proceeding and control the conduct thereof; provided, however, that the Issuer shall have the right to retain separate counsel, with the fees and expenses to be paid by the Company, if representation of the Issuer would be inappropriate due to an actual conflict of interest, as reasonably determined by the Issuer or the Company, between the Issuer and the Company. The Issuer and its members, officers, employees and agents shall cooperate and join with the Company at the expense of the Company as may be required in connection with any such action or proceeding. The Company shall not be responsible for any settlement reached without the Company's consent. Section 7.8. Additional Information. The Issuer and the Trustee are authorized to provide information concerning the outstanding principal amount and payment history of, and other information pertaining to, the Bonds or the Note to any agency or regulatory authority of the State requesting such information. Section 7.9. Default Certificates. The Company shall deliver to the Trustee forthwith, upon obtaining knowledge of any Event of Default hereunder or under the Note, the Indenture, or the Reimbursement Agreement, a certificate of the Company specifying the nature and period of existence thereof and what action the Company proposes to take with respect thereto. Section 7.10. Observe Laws. The Company shall observe all applicable laws, regulations and other valid requirements of any regulatory authority with respect to its operations at the Project. Section 7.11. Election. The Issuer hereby elects to have the provisions of Sections 144(a)(4) of the Code apply to the Bonds. In support of this election, the Issuer states as follows: (a) The name of the Issuer is: Hillsborough County Industrial Development Authority and its address is: c/o Thomas K. Morrison, Esq., Morrison, Morrison & Mills, P.A., Suite 100, 1200 West Platt Street, Tampa, FL 33606. (b) The principal user of the Project will be: Leslie Controls, Inc. Employer Identification Number: 221063780 (c) The Bonds are in the principal amount of $4,765,000, and are to be issued on August 4, 1994. Except for the Prior Bonds (which will be paid in full and redeemed within 90 (ninety) days of the date of issuance of the Bonds), there are no outstanding prior issues the proceeds of which have been or are to be used primarily with respect to facilities located or to be located in the County, the principal users of which is or will be the Company or any Related Persons. (d) There were no "Section 103(b)(6)(d) capital expenditures by the Issuer," as that term is defined in the Regulations, which were paid or incurred during the three (3) years preceding the date of issuance of the Prior Bonds to facilities located in Hillsborough County the principal user of which is or will be the Company or any Related Person, except as described in the Tax Regulatory Certificate of the Company. (e) Except for the Bonds and the Prior Bonds, there is no outstanding issue of qualified small issue bonds (as that term is used in Section 141(e)(1)(D) of the Code) issued on behalf of the Company, the proceeds of which have been or will be issued primarily with respect to: (1) Any facility located in whole or in part in the County; or (2) Any "contiguous or integrated facility" (within the meaning of Section 1.103-10(b)(2)(ii)(e) of the Regulations) with respect to any facility located in whole or in part in the County. Section 7.12. No Warranty of Condition of Suitability by the Issuer. THE ISSUER MAKES NO WARRANTY, EITHER EXPRESS OR IMPLIED, AS TO THE CONDITION, TITLE, DESIGN, OPERATION, MERCHANTABILITY OR FITNESS OF THE PROJECT OR THAT IT IS OR WILL BE SUITABLE FOR THE COMPANY'S PURPOSES OR NEEDS. Section 7.13. Redemption of Prior Bonds. The Company hereby undertakes to refund the Prior Bonds on or before November 1, 1994 pursuant to Section 401 of the Indenture. In connection with such refunding, the Company or Watts Industries, Inc. shall pay all additional amounts sufficient to pay the principal of and interest on the Prior Bonds to the date of redemption thereof and to pay directly all fees, charges and expenses of the holders of the Prior Bonds and of the Prior Trustee in connection with the redemption of the Prior Bonds. ARTICLE VIII ASSIGNMENT, LEASING AND SELLING Section 8.1. Assignment of this Loan Agreement or Lease or Sale of the Project by the Company. With the prior written consent of the Credit Facility Issuer, the rights of the Company under this Loan Agreement may be assigned, and the Project may be leased or sold as a whole or in part, without the necessity of obtaining the consent of the Issuer or the Trustee, subject, however, to the following conditions: (a) without the prior written consent of the Credit Facility Issuer and the Issuer, no assignment, transfer, sale or lease shall relieve the Company from primary liability for any of its obligations hereunder, and if any such assignment, transfer, sale or lease occurs, the Company shall continue to remain primarily liable for the payments specified herein and in the Note and for performance and observance of the other agreements on its part herein provided to be performed and observed by it; and the Company shall also provide the Trustee with an approving opinion of Bond Counsel to the effect that such assignment, transfer, sale or lease will not adversely affect the status of interest on the Bonds for federal tax purposes. (b) the assignee, lessee or purchaser shall assume the obligations of the Company hereunder to the extent of the interest assigned, leased or sold; and (c) the Company shall, within thirty (30) days after the delivery thereof, furnish or cause to be furnished to the Issuer and to the Trustee a true and complete copy of each such assignment, instrument of transfer, lease or sale agreement, as the case may be, together with any instrument of assumption. Section 8.2. Restrictions on Transfer of the Issuer's Rights. Except for the assignment made pursuant to the Indenture of certain of its rights under this Loan Agreement and its pledge of the Note, endorsed without recourse to the order of the Trustee, to the Trustee as security pursuant to the Indenture, the Issuer will not during the term of this Loan Agreement sell, assign, transfer or convey any of its interests in this Loan Agreement or the Note. Section 8.3. Assignment by the Issuer. It is understood, agreed and acknowledged that the Issuer, as security for payment of the principal of and interest on the Bonds, will grant to the Trustee pursuant to the Indenture, inter alia, certain of its right, title and interest in and to this Loan Agreement (reserving certain of its rights, as more particularly described in the Indenture) and will pledge the Note, endorsed as aforesaid, to the Trustee as security, and the Company hereby assents to such assignment and pledge. Section 8.4. Merger of Issuer. (a) Nothing contained in this Loan Agreement shall prevent the consolidation of the Issuer with, or merger of the Issuer into, or transfer of title to the Project to, any other political subdivision, provided that: (1) the tax-exempt status of the interest on the Bonds shall not be adversely affected thereby, and (2) upon such consolidation, merger or transfer, the due and punctual performance and observance of all the agreements and conditions of this Loan Agreement to be kept and performed by the Issuer shall be expressly assumed in writing by the political subdivision resulting from such consolidation or surviving such merger or to which such merger was made. (b) Within thirty (30) days after the consummation of any such consolidation, merger or transfer of title, the Issuer shall give notice thereof, in reasonable detail to the Company and the Trustee. The Issuer promptly shall furnish such additional information with respect to any such transaction as the Company or the Trustee reasonably may request. ARTICLE IX EVENTS OF DEFAULT AND REMEDIES Section 9.1. Events of Default Defined. The term "Event of Default" or "Default" shall mean any one or more of the following events: (a) the failure by the Company to pay or cause to be paid when due any payment of principal of or interest on or other amount payable under the Note. (b) the failure of the Issuer to pay or cause to be paid when due any payment of principal of or interest on or other amount payable under the Bonds. (c) the failure of the Company to perform any of its obligations under Section 7.3 hereof. (d) the occurrence of an "Event of Default" or "event of default" under any of the other Bond Documents. (e) any representation or warranty of the Company contained in Section 2.2 hereof or in any document, instrument or certificate delivered pursuant hereto or to the Indenture or in connection with the issuance and sale of the Bonds shall be false, misleading or incomplete in any material respect on the date as of which made. (f) failure by the Company to observe or perform any covenant, condition or agreement on the part of the Company under the Note or this Loan Agreement, other than as referred to in the preceding paragraphs of this Section 9.1, for a period of thirty (30) days after written notice, specifying such failure and requesting that it be remedied, is given to the Company by the Issuer or the Trustee. (g) the commencement against the Company of an involuntary case under the federal bankruptcy laws, as now constituted or hereafter amended, or any other applicable federal or state bankruptcy, insolvency or other similar law, or of any action or proceeding for the appointment of a receiver, liquidator, assignee, custodian, trustee, sequestrator (or similar official) of the Company or for any substantial part of its property, or for the winding-up or liquidation of its affairs and the continuance of any such case, action, or proceeding unstayed and in effect for a period of thirty (30) consecutive days. (h) the commencement by the Company of a voluntary case under the federal bankruptcy laws, as now constituted or hereafter amended, or any other applicable federal or state bankruptcy, insolvency or other similar law, or the consent by it to, or its acquiescence in the appointment of or taking possession by a receiver, liquidator, assignee, trustee, custodian, sequestrator (or other similar official) of the Company or of any substantial part of its property, or the making by it of or the consent by it to any assignment for the benefit of creditors, or the failure of the Company generally to pay its debts as such debts become due, or the taking of any action by the Company in furtherance of any of the foregoing. Section 9.2. Remedies on Default. (a) If Payment of the Bonds shall not have been made, whenever any Event of Default referred to in Section 9.1 hereof shall have happened and shall not have been waived: (1) The Issuer may, by written notice, declare all installments of principal repayable pursuant to the Note for the remainder of the term thereof to be immediately due and payable, whereupon the same, together with accrued interest thereon as provided for in the Note, shall become immediately due and payable without presentment, demand, protest or any other notice whatsoever, all of which are hereby expressly waived by the Company; provided, however, all such amounts shall automatically be and become immediately due and payable without notice upon the occurrence of any event described in Section 9.1(g) or 9.1(h) hereof, which notice the Company hereby expressly waives. (2) The Issuer may take whatever other action at law or in equity may appear necessary or desirable to collect the amounts payable pursuant to the Note then due and thereafter to become due, or to enforce the performance and observance of any obligation, agreement or covenant of the Company under this Loan Agreement or under any of the other Bond Documents. (b) In the enforcement of the remedies provided in this Section 9.2, the Issuer may treat all reasonable expenses of enforcement including, without limitation, legal, accounting and advertising fees and expenses, as additional amounts payable by the Company then due and owing and the Company agrees to pay such additional amounts upon demand. Section 9.3. Application of Amounts Realized in Enforcement of Remedies. Any amounts collected pursuant to action taken under Section 9.2 hereof shall be paid to the Trustee and applied to the payment of, first, any costs, expenses and fees incurred by the Issuer and the Trustee as a result of taking such action; second, to the extent permitted by law, any interest which shall have accrued on any overdue interest and any accrued interest on any overdue principal of the Bonds at the rate set forth in the Bonds; third, any overdue interest on the Bonds; fourth, any overdue principal of the Bonds; fifth, the outstanding principal balance of the Bonds. If Payment of the Bonds shall have been made, any remaining moneys shall be applied in accordance with Section 911(b) of the Indenture. Section 9.4. No Remedy Exclusive. No remedy herein conferred upon or reserved to the Issuer is intended to be exclusive of any other available remedy or remedies, but each and every such remedy shall be cumulative and shall be in addition to every other remedy given under this Loan Agreement or now or hereafter existing at law or in equity or by statute. No delay or omission to exercise any right or power accruing upon the occurrence of an Event of Default shall impair any such right or power or shall be construed to be a waiver thereof, but any such right and power may be exercised from time to time and as often as may be deemed expedient. Section 9.5. Agreement to Pay Attorneys' Fees and Expenses. In connection with any Event of Default, if the Issuer or the Trustee employs attorneys or incurs other expenses for the collection of amounts payable hereunder or for the enforcement of the performance or observance of any covenants or agreements on the part of the Company herein contained, the Company agrees that it will on demand therefor pay to the Issuer or the Trustee the reasonable fees of such attorneys and such other reasonable expenses so incurred by the Issuer or the Trustee. Section 9.6. Correlative Waivers. If an event of default under Section 901 of the Indenture shall be cured or waived and any remedial action by the Trustee rescinded, any correlative default under this Loan Agreement shall be deemed to have been cured or waived. ARTICLE X PREPAYMENTS Section 10.1. Optional Prepayments. (a) The Company is hereby granted, and shall have, the option to prepay the unpaid principal of the Note in whole or in part in accordance with and as set forth in Section 701 of the Indenture with respect to the prepayment of the Bonds; provided, all prepayments shall be made in immediately available funds and with interest accrued to the date of prepayment and that any prepayment of the Note in part shall be applied to unpaid installments of principal in inverse order of maturity. Any prepayment pursuant to this subsection (a) shall be made by the Company taking, or causing the Issuer to take, the actions required (1) for Payment of the Bonds, in the case of prepayment of the Note in whole, or (2) to effect prepayment of less than all of the Bonds according to their terms in the case of a partial prepayment of the Note. (b) In the event of damage, destruction or condemnation of the Project or any part thereof, the Company may, at its option, pursuant to Section 6.5 hereof and without penalty or premium, prepay the Note in whole or in part; provided that any such prepayment shall be made in immediately available funds with the interest accrued to the date of whole or partial prepayment. Any prepayment pursuant to this subsection (b) shall be made by the Company taking, or causing the Issuer to take, the actions required for the full or partial prepayment of the Bond as provided for in subsection (a) hereof. (c) To exercise the option granted in subsection (a) or (b) of this Section 10.1, the Company shall give written notice to the Issuer and the Trustee which shall specify therein (1) the date of the intended prepayment of the Note, which shall not be less than thirty (30) nor more than sixty (60) days from the date the notice is mailed and (2) the principal amount of the Note to be prepaid. When given, such notice shall be irrevocable by the Company. Section 10.2. Mandatory Prepayments. (a) In the event of a Determination of Taxability, the Company shall, (1) on a date selected by the Company not more than one hundred eighty (180) days following the date of the Determination of Taxability, prepay the entire unpaid principal balance of the Note in full and interest thereon, without premium, as provided therein. Immediately upon the occurrence of a Determination of Taxability, the Company shall notify the Issuer and the Trustee of the date selected for payment pursuant to this Section 10.2. (b) In the event any Credit Facility is not renewed and an Alternate Credit Facility has not been provided in accordance with Section 603 of the Indenture, the Company shall on or before the Interest Payment Date occurring closest to but not after fifteen (15) days prior to the expiration date of the then current Credit Facility, prepay the entire unpaid principal balance of the Note in full. The Company shall promptly notify the Issuer and the Trustee of the date selected for such payment. Section 10.3. Other Mandatory Prepayments. The amounts required to be applied to the prepayment of the Note by Sections 5.3 and 6.5 hereof shall be applied by the Company to prepay, together with accrued interest, all or a portion of the unpaid principal of the Note. Such prepayment shall be made by the Company taking, or causing the Issuer to take, the actions required (a) for payment of the Bonds, whether by redemption prior to the maturity or by payment at maturity, or (b) to effect the purchase, redemption or payment at maturity of less than all of the installments of principal of the Bonds in inverse order of their maturities. ARTICLE XI REBATE PROVISIONS Section 11.1. Creation of the Rebate Fund. (a) The Issuer shall create and establish with the Trustee a special trust fund in the name of the Issuer to be designated by the Trustee and which is referred to herein as the Rebate Fund (the "Rebate Fund"), which shall be held, invested, expended and accounted for in accordance with this Loan Agreement. (b) Moneys in the Rebate Fund shall be held in trust by the Trustee and, subject to Section 7.3 hereof, shall be held for the benefit of the United States as contemplated under the provisions of this Loan Agreement and shall not be considered to be held for the benefit of the Issuer, the Company, the Trustee or the owners of the Bonds. ARTICLE XII MISCELLANEOUS Section 12.1. References to the Bonds Ineffective After Bonds Paid. Upon Payment of the Bonds, all references in this Loan Agreement to the Bonds shall be ineffective and the Issuer and any owner of the Bonds shall not thereafter have any rights hereunder, excepting reporting and payment of rebate payments under Section 7.3 hereof and rights of the Issuer to indemnification and payment of expenses contained, without limitation, in Sections 7.5, 7.6 and 7.7 hereof. Section 12.2. No Implied Waiver. In the event any agreement contained in the Note or this Loan Agreement should be breached by either party and thereafter waived by the other party, such waiver shall be limited to the particular breach so waived and shall not be deemed to waive any other breach thereunder or hereunder. Neither any failure nor any delay on the part of the Trustee to exercise any right, power or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right, power or privilege preclude any other or further exercise thereof, or the exercise of any other right, power or privilege. Section 12.3. Issuer Representative. Whenever under the provisions of this Loan Agreement the approval of the Issuer is required or the Issuer is required to take some action at the request of the Company, such approval shall be made or such action shall be taken by the Issuer Representative; and the Company, the Trustee and the Bondholders shall be authorized to rely on any such approval or action. Section 12.4. Company Representative. Whenever under the provisions of this Loan Agreement the approval of the Company is required or the Company is required to take some action at the request of the Issuer, such approval shall be made or such action shall be taken by the Company Representative; and the Issuer, the Trustee and the Bondholders shall be authorized to act on any such approval or action. Section 12.5. Notices. (a) All notices, certificates or other communications hereunder shall be sufficiently given and shall be deemed given when delivered by hand delivery or mailed by first class, postage prepaid, registered or certified mail, or sent by nationally-recognized overnight courier addressed as follows: (1) if to the Issuer: Hillsborough County Industrial Development Authority c/o Thomas K. Morrison Morrison, Morrison & Mills, P.A. Suite 100 1200 West Platt Street Tampa, FL 33606; (2) if to the Company: Leslie Controls, Inc. c/o Watts Industries, Inc. 815 Chestnut Street North Andover, MA 01845 (Attention: William C. McCartney, Corporate Controller) with a copy to: John R. LeClaire, P.C. Goodwin, Procter & Hoar Exchange Place Boston, MA 02109 (3) if to the Trustee: The First National Bank of Boston 150 Royall Street, Mail Stop 45-02-15 Canton, MA 02021 Attention: Corporate Trust Division (b) The Issuer, the Company or the Trustee may, by notice given hereunder, designate from time to time any further or different addresses to which subsequent notices, certificates or other communications shall be sent. Section 12.6. If Payment or Performance Date Is Other Than a Business Day. If the specified or last date for the making of any payment, the performance of any act or the exercising of any right, as provided in this Loan Agreement, shall be a day other than a Business Day, such payment may be made or act performed or right exercised on the next succeeding Business Day; provided that interest shall accrue during any such period during which payment shall not occur. Section 12.7. Binding Effect. This Loan Agreement shall inure to the benefit of and shall be binding upon the Issuer, the Company and their respective successors and assigns, subject to the provisions of Section 8.3 hereof. Section 12.8. Severability. In the event any provision of this Loan Agreement or the Note shall be held invalid or unenforceable by any court of competent jurisdiction, such holding shall not invalidate or render unenforceable any other provision hereof or thereof. Section 12.9. Amendments, Changes and Modifications. Subsequent to the issuance of the Bonds and prior to Payment of the Bonds, this Loan Agreement and the other Bond Documents, may not be effectively amended, changed, modified, altered or terminated except in accordance with the Indenture. Section 12.10. Execution in Counterparts. This Loan Agreement may be executed in several counterparts, each of which shall be an original and all of which shall constitute but one and the same instrument, and no one counterpart of which need be executed by all parties. Section 12.11. Applicable Law. This Loan Agreement shall be governed by and construed in accordance with the laws of the State. Section 12.12. No Charge Against Issuer Credit. No provision hereof shall be construed to impose a charge against the general credit of the Issuer or any personal or pecuniary liability upon any member, official, employee or agent of the Issuer. Section 12.13. Issuer Not Liable. Notwithstanding any other provision of this Loan Agreement (a) the Issuer shall not be liable to the Company, the Trustee, any Bondholder or any other Person for any failure of the Issuer to take action under this Loan Agreement, and (b) except with respect to any action for specific performance or any action in the nature of a prohibitory or mandatory injunction, neither the Issuer nor any officer or member of the Issuer nor any other official, employee, attorney or agent of the Issuer shall be liable to the Company, the Trustee, any Bondholder or any other Person for any action taken by the Issuer or by any of its officers, servants, agents or employees or for any failure to take action under this Loan Agreement or the Indenture except for the Issuer's willful misconduct. In acting under this Loan Agreement, or in refraining from acting under this Loan Agreement, the Issuer may conclusively rely on the advice of its counsel. Section 12.14. Expenses. The Company agrees to pay all reasonable fees and expenses incurred in connection with the preparation, execution, delivery, modification, waiver, and amendment of this Loan Agreement, the other Bond Documents and related documents, and the fees and expenses of bond counsel, counsel for the Issuer and counsel for the Trustee in connection therewith or in connection with any transactions contemplated thereby. The Company also agrees to pay to the Trustee, as and when the same become due, its reasonable fees for services rendered and its expenses incurred as Trustee, including the reasonable fees of its counsel, and such other amounts as the Company herein assumes or agrees to pay, including costs or expenses necessary to cancel and discharge the Indenture. The Company also agrees to pay all expenses incurred by the Trustee or the Issuer in collection of any indebtedness incurred hereunder in the event of default by the Company, including reasonable attorneys fees. Section 12.15. Amounts Remaining with the Trustee. Any amounts remaining in the Bond Fund or otherwise in trust with the Trustee under the Indenture or this Loan Agreement shall, after Payment of the Bonds and all Administrative Expenses in accordance with this Loan Agreement, be disbursed by the Trustee in accordance with the provisions of the Indenture or otherwise as may be required by law. IN WITNESS WHEREOF, the Issuer and the Company have caused this Loan Agreement to be executed in their respective legal names by their duly authorized representatives all as of the date first above written. LESLIE CONTROLS, INC. By /s/ (Signature) Its: Assistant Treasurer HILLSBOROUGH COUNTY INDUSTRIAL DEVELOPMENT AUTHORITY By /s/ (Signature) Its: Chairman EX-10.16 6 LETTER OF CREDIT, REIMBURSEMENT AND GUARANTY AGREEMENT Dated as of July 1, 1994 TABLE OF CONTENTS Pages ARTICLE I DEFINITIONS. . . . . . . . . . . . . . . . . . . . 3 ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE GUARANTOR. . . . . . . . . . . . . . . . . . . . . 10 2.1. Incorporation. . . . . . . . . . . . . . . . . . . 10 2.2. Power and Authority; No Conflicts; Enforceability . . . . . . . . . . . . . . . . . . 10 2.3. Financial Condition. . . . . . . . . . . . . . . . 11 2.4. Title to Property and Assets . . . . . . . . . . . 11 2.5. Litigation . . . . . . . . . . . . . . . . . . . . 11 2.6. Taxes. . . . . . . . . . . . . . . . . . . . . . . 11 2.7. Trademarks, Franchises and Licenses. . . . . . . . 12 2.8. No Default . . . . . . . . . . . . . . . . . . . . 12 2.9. Governmental Authority . . . . . . . . . . . . . . 12 2.10. ERISA Requirements . . . . . . . . . . . . . . . . 12 2.11. Pollution and Environmental Control; Hazardous Substances . . . . . . . . . . . . . . . 12 2.12. Capital Structure. . . . . . . . . . . . . . . . . 13 2.13. Solvent Financial Condition. . . . . . . . . . . . 13 2.14 Restrictions . . . . . . . . . . . . . . . . . . . 13 2.15. Full Disclosure. . . . . . . . . . . . . . . . . . 13 2.16. Labor Relations. . . . . . . . . . . . . . . . . . 13 2.17. Compliance with Laws . . . . . . . . . . . . . . . 14 2.18 Brokers. . . . . . . . . . . . . . . . . . . . . . 14 2.19 Trade Relations. . . . . . . . . . . . . . . . . . 14 2.20 Investment Company Act . . . . . . . . . . . . . . 14 2.21. Survival of Representations and Warranties . . . . . . . . . . . . . . . . . . . . 14 ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE BORROWER . . . . . . . . . . . . . . . . . . . . . 15 3.1. Incorporation. . . . . . . . . . . . . . . . . . . 15 3.2. Power and Authority. . . . . . . . . . . . . . . . 15 3.3. Governmental Authority . . . . . . . . . . . . . . 15 3.4. Project Site . . . . . . . . . . . . . . . . . . . 15 3.5. Survival of Representatives and Warranties . . . . . . . . . . . . . . . . . . 16 ARTICLE IV TERMS OF LETTER OF CREDIT, REIMBURSEMENT, OTHER PAYMENTS AND GUARANTY. . . . . . . . . . . . 17 4.1. Letter of Credit . . . . . . . . . . . . . . . . . 17 4.2. Reimbursement and Other Payments . . . . . . . . . 17 4.3. Tender Advances. . . . . . . . . . . . . . . . . . 17 4.4. Commission and Fee . . . . . . . . . . . . . . . . 19 4.5. Increased Costs . . . . . . . . . . . . . . . . . 19 4.6. Computation. . . . . . . . . . . . . . . . . . . . 19 4.7. Payment Procedure. . . . . . . . . . . . . . . . . 19 4.8. Business Days. . . . . . . . . . . . . . . . . . . 20 4.9. Reimbursement of Expenses. . . . . . . . . . . . . 20 4.10. Expiration Date. . . . . . . . . . . . . . . . . . 20 4.11. Guaranty . . . . . . . . . . . . . . . . . . . . . 20 4.12. Obligations Absolute . . . . . . . . . . . . . . . 21 4.13. Waiver of Guarantor's Rights . . . . . . . . . . . 22 ARTICLE V SECURITY; INSURANCE. . . . . . . . . . . . . . . . 24 5.1. Security . . . . . . . . . . . . . . . . . . . . . 24 5.2. Casualty and Liability Insurance Required . . . . . . . . . . . . . . . . . . . . . 24 5.3. Notice of Casualty or Taking . . . . . . . . . . . 24 ARTICLE VI AFFIRMATIVE COVENANTS. . . . . . . . . . . . . . . 25 6.1. Financial Reports and Other Data and Information. . . . . . . . . . . . . . . . . . 25 6.2. Books, Records and Inspections . . . . . . . . . . 26 6.3. Maintenance of Property, Insurance . . . . . . . . 27 6.4. Corporate Franchises . . . . . . . . . . . . . . . 27 6.5. Compliance with Statutes, etc. . . . . . . . . . . 27 6.6. ERISA. . . . . . . . . . . . . . . . . . . . . . . 27 6.7. Performance of Obligations . . . . . . . . . . . . 28 6.8. Taxes and Liens. . . . . . . . . . . . . . . . . . 28 6.9. Payment of Obligations . . . . . . . . . . . . . . 28 6.10. Environmental Matters. . . . . . . . . . . . . . . 29 ARTICLE VII NEGATIVE COVENANTS . . . . . . . . . . . . . . . . 30 7.1. Negative Pledge; Liens . . . . . . . . . . . . . . 30 7.2. Consolidation or Merger. . . . . . . . . . . . . . 31 7.3. Sale of Assets, Dissolution, Etc.. . . . . . . . . 31 7.4. Loans and Investments. . . . . . . . . . . . . . . 31 7.5. Consolidated Total Liabilities to Consolidated Tangible Net Worth. . . . . . . . . . 32 7.6. Coverage Ratio . . . . . . . . . . . . . . . . . . 32 7.7. Current Ratio. . . . . . . . . . . . . . . . . . . 32 7.8. Consolidated Net Worth . . . . . . . . . . . . . . 32 ARTICLE VIII CONDITIONS TO ISSUANCE OF LETTER OF CREDIT . . . . . . . . . . . . . . . . . . . . . . 33 8.1. Conditions of Issuance . . . . . . . . . . . . . . 33 8.2. Additional Conditions Precedent to Issuance of the Letter of Credit . . . . . . . . . 34 8.3. Conditions Precedent to Each Tender Advance . . . . . . . . . . . . . . . . . . 34 ARTICLE IX DEFAULT. . . . . . . . . . . . . . . . . . . . . . 36 9.1. Events of Default. . . . . . . . . . . . . . . . . 36 9.2. No Remedy Exclusive. . . . . . . . . . . . . . . . 38 ARTICLE X MISCELLANEOUS. . . . . . . . . . . . . . . . . . . 39 10.1. Indemnification. . . . . . . . . . . . . . . . . . 39 10.2. Transfer of Letter of Credit . . . . . . . . . . . 40 10.3. Reduction of Letter of Credit. . . . . . . . . . . 40 10.4. Liability of the Bank. . . . . . . . . . . . . . . 40 10.5. Successors and Assigns . . . . . . . . . . . . . . 41 10.6. Notices. . . . . . . . . . . . . . . . . . . . . . 41 10.7. Amendment. . . . . . . . . . . . . . . . . . . . . 42 10.8. Effect of Delay and Waivers. . . . . . . . . . . . 42 10.9. Counterparts . . . . . . . . . . . . . . . . . . . 42 10.10. Severability . . . . . . . . . . . . . . . . . . . 42 10.11. Cost of Collection . . . . . . . . . . . . . . . . 42 10.12. Set Off. . . . . . . . . . . . . . . . . . . . . . 42 10.13. Governing Law. . . . . . . . . . . . . . . . . . . 43 10.14. References . . . . . . . . . . . . . . . . . . . . 43 10.15. Consent to Jurisdiction, Venue . . . . . . . . . . 43 EXHIBIT A Form of Letter of Credit EXHIBIT B Representations of the Guarantor; Representations of the Borrower EXHIBIT C Liens EXHIBIT D Insurance EXHIBIT E Opinion of Counsel to the Borrower and the Guarantor EXHIBIT F Opinion of Bond Counsel LETTER OF CREDIT, REIMBURSEMENT and GUARANTY AGREEMENT THIS AGREEMENT, dated as of July 1, 1994 by and among LESLIE CONTROLS, INC., a New Jersey corporation ("the Borrower"), WATTS INDUSTRIES, INC., a Delaware corporation ("the Guarantor"), and THE FIRST UNION NATIONAL BANK OF NORTH CAROLINA, a national banking association organized and existing under the laws of the United States with its principal offices located in Charlotte, North Carolina (the "Bank"); W I T N E S S E T H: WHEREAS, arrangements have been made pursuant to a Trust Indenture of even date herewith (the "Indenture") between the Hillsborough County Industrial Development Authority (the "Issuer") and The First National Bank of Boston, Boston, Massachusetts (the "Trustee") for the issuance and sale by the Issuer of its Industrial Development Revenue Refunding Bonds (Leslie Controls, Inc. Project), Series 1994 in the original aggregate principal amount of $4,765,000 (the "Bonds"); and WHEREAS, the Bonds have been issued for the purpose of refunding in whole the outstanding principal amount of the Issuer's Industrial Development Revenue Refunding Bonds (Leslie Controls Project), Series 1986 in the original aggregate principal amount of $7,200,000 (the "Prior Bonds"), the proceeds of which were used to finance, in whole or in part, the cost of acquiring, constructing and installing a certain project in Hillsborough County, Florida (the "Project") owned and operated by the Borrower; and WHEREAS, in order to enhance the marketability of the Bonds, the Borrower has requested the Bank to issue an irrevocable direct pay letter of credit in the form attached hereto as Exhibit A (such letter of credit or any successor or substitute letter of credit issued by the Bank herein individually and collectively called the "Letter of Credit") in an aggregate amount not exceeding $5,003,250, of which (a) $4,765,000 shall support the payment of principal or portion of the purchase price corresponding to principal of the Bonds and (b) $238,250 shall support the payment of up to 120 days' interest or portion of the purchase price corresponding to interest on the Bonds at an assumed interest rate of 15% per annum; and WHEREAS, as a condition precedent to the issuance of the Letter of Credit, the Bank has requested and the Guarantor has agreed to unconditionally guarantee the obligations of the Borrower hereunder as hereinafter provided; NOW, THEREFORE, in consideration of the premises and other good and valuable consideration, including the covenants, terms and conditions hereinafter appearing, and to induce the Bank to issue the Letter of Credit, the Borrower and the Guarantor do hereby covenant and agree with the Bank as follows: ARTICLE I Definitions All words and terms defined in Article I of the Loan Agreement shall have the same meanings in this Agreement, unless otherwise specifically defined herein. The terms defined in this Article I have, for all purposes of this Agreement, the meanings specified hereinabove or in this Article, unless defined elsewhere herein or the context clearly requires otherwise. 1.1. "Affiliate" means any person, corporation, association or other business entity which directly or indirectly controls, or is controlled by, or is under common control with the Borrower or the Guarantor. 1.2. "Agreement" shall mean this Letter of Credit, Reimbursement and Guaranty Agreement, as the same may from time to time be amended, modified or supplemented in accordance with the terms hereof. 1.3. "Alternate Credit Facility" means any irrevocable direct pay letter of credit, insurance policy or similar credit enhancement or support facility for the benefit of the Trustee, the terms of which Alternate Credit Facility shall in all respects material to the registered owners of the Bonds be the same (except for the term set forth in such Alternate Credit Facility) as those of the Letter of Credit. 1.4. "Bankruptcy Code" means 11 U.S.C. (section) 101 et seq., as amended. 1.5. "Bondholder" or "Bondholders" means the initial and any future registered owners of the Bond or Bonds as registered on the books and records of the Bond Registrar pursuant to Section 204 of the Indenture. 1.6. "Bond Documents" means, collectively, the Loan Agreement, the Note, the Remarketing Agreement, the Tender Agency Agreement, the Indenture, the Security Instruments and the Bonds, as the same may be amended, modified or supplemented from time to time in accordance with their respective terms. 1.7. "Borrower" means Leslie Controls, Inc., a New Jersey corporation. 1.8. "Cash and Cash Equivalents" means as to any Person at a particular date, the aggregate amount of all items categorized as "cash" and "cash equivalents" on the balance sheet of such Person, as determined in accordance with GAAP. 1.09. "Consistent Basis" means, in reference to the application of GAAP, that the accounting principles observed in the period referred to are comparable in all material respects to those applied in the preceding period, except as to any changes consented to by the Bank. 1.10. "Consolidated Net Income" means the consolidated gross revenues of the Guarantor and the Borrower and the Subsidiaries of each for such period less all expenses and other proper charges for such period (including taxes on or measured by income) determined in accordance with GAAP. 1.11. "Consolidated Net Worth" of the Guarantor and the Borrower and the Subsidiaries of each shall mean at any time as of which the amount thereof is to be determined, the sum of the Net Worth of such Persons. 1.12. "Consolidated Subsidiaries" means the Subsidiaries of the Guarantor included in the audited consolidated financial statements of the Guarantor from time to time. 1.13. "Consolidated Tangible Net Worth" of the Guarantor and the Borrower and the Subsidiaries of each shall mean at any time as of which the amount thereof is to be determined, the Consolidated Net Worth less, the sum of the following (without duplication of deductions in respect of items already deducted in arriving at surplus and retained earnings): (a) all reserves, except legal reserves and other contingency reserves (i.e., reserves not allocated to specific purposes and not deducted from assets), which are properly treated as appropriations of surplus or retained earnings; (b) the book value of all assets which would be treated as intangibles under GAAP including, without limitation, capitalized expenses, goodwill, trademarks, trade names, franchises, copyrights, patents and unamortized debt discount and expense; and (c) any treasury stock. 1.14. "Consolidated Total Liabilities" means the sum of the Total Liabilities of the Guarantor and the Borrower and the Subsidiaries of each at any time as of which the amount thereof is to be determined. 1.15. "Consultant" means any third-party architect or engineer satisfactory to the Bank. 1.16. "Current Assets" means Cash and Cash Equivalents and all other assets or resources of a Person which are expected to be realized in cash, sold in the ordinary course of business, or consumed within one year, all determined in accordance with GAAP. 1.17. "Current Liabilities" means the amount of all liabilities of a Person which by their terms are payable within one year (including all indebtedness payable on demand or maturing not more than one year from the date of computation and the current portion of long-term debt), all determined in accordance with GAAP. 1.18. "Default" means an event or condition the occurrence of which would, with the lapse of time or the giving of notice, or both, become an Event of Default. 1.19. "Distribution" means in respect of any corporation means and includes: (i) the payment of any dividends or other distributions on capital stock of the corporation (except distributions in such stock) and (ii) the redemption or acquisition of its Securities unless made contemporaneously from the net proceeds of the sale of its Securities. 1.20. "Environmental Laws" means all federal, state and local laws, rules, regulations, ordinances, programs, permits, guidances, orders and consent decrees relating to health, safety and environmental matters, including, but not limited to, the Resource Conservation and Recovery Act; the Comprehensive Environmental Response, Compensation and Liability Act of 1980; the Toxic Substances Control Act, as amended; the Clean Water Act; the River and Harbor Act; the Water Pollution Control Act; the Marine Protection Research and Sanctuaries Act; the Deep-Water Port Act; the Safe Drinking Water Act; the Superfund Amendments and Reauthorization Act of 1986; the Federal Insecticide, Fungicide and Rodenticide Act; the Mineral Lands and Leasing Act; the Surface Mining Control and Reclamation Act; state and federal superlien and environmental cleanup programs and laws; and U.S. Department of Transportation regulations. 1.21. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended, including any rules and regulations promulgated thereunder. 1.22. "ERISA Affiliate" means a Person under common control with the Guarantor within the meaning of Section 414(c) of the Internal Revenue Code of 1986, as amended, or Section 4001(b) of ERISA. 1.23. "Event of Default" means an Event of Default as defined in Section 9.1 hereof. 1.24. "Expiration Date" means July 29, 1997, the expiration date of the Letter of Credit, as such date may be extended in accordance with the terms of Section 4.10 hereof. 1.25. "GAAP" means those principles of accounting set forth in pronouncements of the Financial Accounting Standards Board and its predecessors or pronouncements of the American Institute of Certified Public Accountants or those principles of accounting which have other substantial authoritative support and are applicable in the circumstances as of the date of application, as such principles are from time to time supplemented or amended. 1.26. "Guarantor" means Watts Industries, Inc., a Delaware corporation. 1.27. "Indebtedness" means with respect to any Person, all indebtedness of such Person for borrowed money, all indebtedness of such Person for the acquisition of property other than purchase of products and merchandise in the ordinary course of business, indebtedness secured by and any lien, pledge or other encumbrance on the property of such Person whether or not such indebtedness is assumed, all liability of such Person by way of endorsements (other than for collection or deposit in the ordinary course of business); all guarantees of Indebtedness of any other Person by such Person (including any agreement, contingent or otherwise, to purchase any obligation representing such Indebtedness or property constituting security therefor, or to advance or supply funds for such purpose or to maintain working capital or other balance sheet or income statement condition, or any other arrangement in substance effecting any of the foregoing); all leases and other items which in accordance with GAAP are classified as liabilities on a balance sheet; provided that in no event shall the term Indebtedness include capital stock, surplus and retained earnings, minority interests in the common stock of subsidiaries, reserves for deferred income taxes and investment credits, other deferred credits and reserves, and deferred compensation obligations. 1.28. "Lien" means any interest in Property securing an obligation owed to, or a claim by, a Person other than the owner of the Property, whether such interest is based on the common law, statute or contract, and including, but not limited to, the security interest, security title or lien arising from a security agreement, mortgage, deed of trust, deed to secure debt, encumbrance, pledge, conditional sale or trust receipt or a lease, consignment or bailment for security purposes. For the purpose of this Agreement, the Borrower or the Guarantor, respectively, shall be deemed to be the owner of any Property which it has acquired or holds subject to a conditional sale agreement or other arrangement pursuant to which title to the Property has been retained by or vested in some other Person for security purposes. 1.29. "Material Adverse Effect" means a material adverse effect on the business, operations or financial condition of the Guarantor and its Subsidiaries or if applicable, such other Person, taken as a whole. 1.30. "Money Borrowed" as applied to Indebtedness, means (i) Indebtedness for borrowed money; (ii) Indebtedness, whether or not in any such case the same was for borrowed money, (A) which is represented by notes payable or drafts accepted that evidence extensions of credit, (B) which constitutes obligations evidenced by bonds, debentures, notes or similar instruments, or (C) upon which interest charges are customarily paid (other than accounts payable) or that was issued or assumed as full or partial payment for Property; (iii) Indebtedness that constitutes a Capitalized Lease Obligation; and (iv) Indebtedness under any guaranty of obligations that would constitute Indebtedness for Money Borrowed under clauses (i) through (iii) hereof. 1.31. "Net Worth" means the amount of issued and outstanding share capital, plus the amount of additional paid-in capital, retained earnings (or, in the case of a deficit, minus the amount of such deficit), determined in accordance with GAAP. 1.32. "Obligations" means all loans and all other advances, debts, liabilities, obligations, covenants and duties owing, arising, due or payable from the Borrower to the Bank of any kind or nature, present or future, whether or not evidenced by any note, guaranty or other instrument, whether arising under this Agreement or any of the other Bond Documents or Security Instruments or otherwise, whether direct or indirect (including those acquired by assignment), absolute or contingent, primary or secondary, due or to become due, now existing or hereafter arising and however acquired. The term includes, without limitation, all interest, charges, expenses, fees, attorney's fees and any other sums chargeable to the Borrower under any of the Bond Documents or Security Instruments. 1.33. "Officer's Certificate" means the Certificate of the Chief Financial Officer or the Controller of the Borrower or the Guarantor, as the case shall be, as approved by the Bank. 1.34. "Other Agreements" means any and all agreements, instruments and documents (other than this Agreement and the Security Instruments), heretofore, now or hereafter executed by the Borrower or the Guarantor or the Subsidiaries of either or any of them and delivered to the Bank in respect to the transactions contemplated by this Agreement. 1.35. "Permitted Encumbrances" means and includes: (a) liens for taxes and assessments not delinquent or which are being contested in good faith by appropriate proceedings and against which adequate reserves have been provided for on the books of the Guarantor or the Borrower, as applicable; (b) worker's, mechanic's and materialmen's liens and similar liens incurred in the ordinary course of business remaining undischarged or unstayed for not longer than 60 days following Borrower's notice of the attachment thereof; (c) attachments remaining undischarged or unstayed for not longer than 60 days from the making thereof; (d) liens in respect of final judgments or awards remaining undischarged or unstayed for not longer than 60 days from the making thereof; (e) liens in respect of pledges or deposits under worker's compensation laws, liens to secure customs bonds, unemployment insurance or similar legislation and in respect of pledges or deposits to secure bids, tenders, contracts (other than contracts for the payment of money), leases or statutory obligations, or in connection with surety, appeal and similar bonds incidental to the conduct of litigation; (f) any other liens, easements, encumbrances, rights of way and clouds on title included within the term "Permitted Encumbrances" as defined in the Deed to Secure Debt and Security Agreement. 1.36. "Person" means an individual, partnership, corporation, trust, joint venture, unincorporated organization, association, or a government, or agency or political subdivision or instrumentality thereof. 1.37. "Plan" means a pension plan (other than a multiemployer pension plan as defined in Section 3(37) of ERISA) that is subject to Title IV of ERISA. 1.38. "Pledge Agreement" means the Pledge Agreement of even date herewith from the Borrower to the Bank. 1.39. "Prime Rate" means the interest rate publicly announced from time to time by the Bank to be its prime rate, which may not necessarily be its best lending rate. In the event the Bank shall abolish or abandon the practice of announcing its Prime Rate or should the same be unascertainable, the Bank shall designate a comparable reference rate which shall be deemed to be the Prime Rate under this Agreement. 1.40. "Private Placement Memorandum" means the Private Placement Memorandum dated July 29, 1994 relating to the Bonds. 1.41. "Prohibited Transaction" means any transaction set forth in Section 406 of ERISA or Section 4975 of the Internal Revenue Code of 1986, as amended from time to time. 1.42. "Project" means the manufacturing facility acquired, constructed and installed with the proceeds of the Prior Bonds, owned and operated by the Borrower in Hillsborough County, Florida. 1.43. "Property" means any interest in any kind of property or asset, whether real, personal or mixed, or tangible or intangible. 1.44. "Reportable Event" means any of the events set forth in Section 4043(b) of ERISA other than those events for which the obligation to notify the Pension Benefit Guaranty Corporation ("PBGC") has been waived under 29 C.F.R. Part 2615. 1.45. "Security" means shall have the same meaning as in Section 2(1) of the Securities Act of 1933, as amended. 1.46. "Security Instruments" means, collectively, the Pledge Agreement and any and all Other Agreements. 1.47. "Solvent" means as to any Person, such Person (i) owns Property whose fair saleable value is greater than the amount required to pay all of such Person's Indebtedness (including contingent debts), (ii) is able to pay all of its Indebtedness as such Indebtedness matures and (iii) has capital sufficient to carry on its business and transactions and all business and transactions in which it is about to engage. 1.48. "Subsidiary" or "Subsidiaries" means, as to any Person, any corporation whether organized and existing under the laws of any state of the United States, including the District of Columbia and Puerto Rico, or under the laws of any foreign country, of which more than 50% of voting stock at any time is owned or controlled directly or indirectly by the Borrower or the Guarantor, as applicable. 1.49. "Tender Advance" has the meaning assigned to that term in Section 4.3 of this Agreement. 1.50. "Tender Draft" has the meaning assigned to that term in the Letter of Credit. 1.51. "Termination Date" means the last day a drawing is available under the Letter of Credit. 1.52. "Trustee" means any Person or group of Persons at the time serving as corporate fiduciary under the Indenture. 1.53. "Uniform Customs and Practice" shall mean the Uniform Customs and Practice for Documentary Credits, 1994 Revision, ICC Publication No. 500. ARTICLE II Representations and Warranties of the Guarantor The Guarantor represents and warrants to the Bank (which representations and warranties shall survive the delivery of the documents mentioned herein and the issuance of the Letter of Credit) that: 2.1. Incorporation. Each of the Guarantor and its Consolidated Subsidiaries is a corporation, partnership or joint venture, respectively, duly organized, existing and in good standing under the laws of its respective jurisdiction, except where the failure to be in good standing would not have a Material Adverse Effect and has the corporate or other power to own its respective properties and to carry on its respective business as now or at such future time being conducted, and is duly qualified as a foreign corporation or otherwise to do business in every jurisdiction in which the failure to be so qualified would have a Material Adverse Effect. On the date of the execution and delivery of this Agreement, the Guarantor has the respective Consolidated Subsidiaries shown on Exhibit B hereto, and no other Subsidiaries. 2.2. Power and Authority; No Conflicts; Enforceability. It is duly authorized under all applicable provisions of law to execute, deliver and perform this Agreement and the Other Agreements to which it is a party, and all corporate action on its part required for the lawful execution, delivery and performance hereof and thereof has been duly taken; and this Agreement and the Other Agreements to which it is a party, upon the due execution and delivery hereof, will be the valid, binding and legal obligation of the Guarantor enforceable in accordance with their respective terms, subject to bankruptcy, insolvency, reorganization, moratorium, or similar laws affecting creditors' rights generally and to general principles of equity. Neither the execution of this Agreement, nor the fulfillment of or compliance with the respective provisions and terms hereof, will (A) conflict with, or result in a breach of the terms, conditions or provisions of, or constitute a violation of or default under any applicable law, regulation, judgment, writ, order or decree to which the Guarantor or any Consolidated Subsidiary or any of their respective properties are subject, or the charter or bylaws of the Guarantor or any Consolidated Subsidiary, or any agreement or instrument to which the Guarantor or any Consolidated Subsidiary is now a party and (b) create any lien, charge or encumbrance upon any of the property or assets of the Guarantor or any Consolidated Subsidiary pursuant to the terms of any agreement or instrument to which the Guarantor or any Subsidiary is a party or by which they, or any of them, or any of their respective properties, are bound except pursuant to the Security Instruments. 2.3. Financial Condition. The consolidated balance sheet of the Guarantor and its Consolidated Subsidiaries for the fiscal year ended as of June 30, 1993 and the fiscal quarters ended September 30, 1993, December 31, 1993 and March 31, 1994, and the related consolidated statements of income and retained earnings and changes in financial position for the period then ended, copies of which have been furnished to the Bank, are correct, complete and fairly present the financial condition of the Guarantor and its Consolidated Subsidiaries in all material respects as at the respective date of said balance sheets, and the results of its respective operations for each such period. The Guarantor and its Consolidated Subsidiaries do not have any material direct or contingent liabilities as of the date of this Agreement which are not provided for or reflected in the balance sheets dated March 31, 1994, or referred to in notes thereto or set forth in Exhibit B hereto. There has been no material adverse change in the business, properties or condition, financial or otherwise, of the Guarantor and its Consolidated Subsidiaries since March 31, 1994. 2.4. Title to Property and Assets. It has good and marketable title to its Property, including the properties and assets reflected in the financial statements and notes thereto described in Section 2.3 hereof, except for such assets as have been disposed of since the date of said financial statements in the ordinary course of business or as are no longer useful in the conduct of its business, and all such properties and assets are free and clear of all material Liens, mortgages, pledges, encumbrances or charges of any kind except Liens reflected in the financial statements or Exhibit B hereto or permitted under Section 7.2 hereof. 2.5. Litigation. There are no pending or, to the best of its knowledge, threatened material actions, suits or proceedings before any court, arbitrator or governmental or administrative body or agency which may materially adversely affect the properties, business or condition, financial or otherwise, of the Guarantor and its Consolidated Subsidiaries on a consolidated basis, except as disclosed in the financial statements and notes thereto described in Section 2.3 hereof or Exhibit B hereto. 2.6. Taxes. It has filed all material tax returns required to be filed by it and all material taxes due with respect thereto have been paid, and except as described in Exhibit B hereto, no controversy in respect of a material amount of additional taxes, state, federal or foreign, of the Guarantor is pending, or, to the knowledge of the Guarantor, threatened. The federal income taxes of the Guarantor have been examined and reported on or closed by applicable statutes for all fiscal years to and including the fiscal year ending June 30, 1990, and adequate reserves have been established for the payment of all such taxes for periods ended subsequent to June 30, 1990. 2.7. Trademarks, Franchises and Licenses. It owns, possesses, or has the right to use all necessary material patents, licenses, franchises, trademarks, trademark rights, trade names, trade name rights and copyrights to conduct business as now conducted, without known conflict with any patent, license, franchise, trademark, trade name, or copyright of any other Persons. 2.8. No Default. It is not in default in the performance, observance or fulfillment of any of its material obligations, covenants or conditions contained in any agreement or instrument to which it is a party or by which it may be bound, the effect of which default would allow any Person to cause such obligation under the agreement or instrument to become due prior to its stated maturity. 2.9. Governmental Authority. It has received the written approval of all federal, state, local and foreign governmental authorities, if any, necessary to carry out the terms of this Agreement, and no further governmental consents or approvals are required in the making or performance of this Agreement by it. 2.10. ERISA Requirements. It has not incurred any material liability to the PBGC established under ERISA (or any successor thereto under ERISA) in connection with any Plan established or maintained by it or by any Person under common control with it (within the meaning of Section 414(c) of the Internal Revenue Code of 1986, as amended (the "Code"), or of Section 4001(b) of ERISA), or in which its employees are entitled to participate. No such Plan has incurred any material accumulated funding deficiency within the meaning of ERISA. No Reportable Event in connection with any such Plan has occurred or is continuing. 2.11. Pollution and Environmental Control; Hazardous Substances. It has obtained all permits, licenses and other authorizations which are required under any Environmental Laws, except to the extent that failure to have obtained any such permit, license or authorization will not have a Material Adverse Effect, and is in material compliance with, all federal, state, and local Environmental Laws and regulations relating, without limitation, to pollution, reclamation or protection of the environment, including laws relating to emissions, discharges, releases or threatened releases of pollutants, contaminants or hazardous or toxic materials or wastes into air, water, or land, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport, or handling of pollutants, contaminants or hazardous or toxic substances, materials or wastes the failure to comply with which would have a Material Adverse Effect. Neither any Guarantor, nor to Guarantor's knowledge any previous owner of the Project Site, has disposed of any hazardous substances on any portion of the Project Site. As used in this subparagraph, "hazardous substances" shall have the meaning set forth in the Comprehensive Environmental Response, Compensation, and Liability Act, 42 U.S.C. (section) 6901, et. seq., and the regulations adopted pursuant to such act. 2.12. Capital Structure. Exhibit B attached hereto and made a part hereof states the correct name of each of the Consolidated Subsidiaries of the Guarantor, the jurisdiction of organization or incorporation and the percentage of its voting stock owned by the Guarantor. The Guarantor has good title to all of the shares it purports to own of the stock of each Consolidated Subsidiary, free and clear in each case of any Lien other than Permitted Liens. All such shares have been duly issued and are fully paid and non-assessable. 2.13. Solvent Financial Condition. It is now, and after giving effect to the transactions contemplated hereby, will be Solvent. 2.14. Restrictions. It is not a party or subject to any contract, agreement, or charter or other corporate restriction, which Guarantor believes materially and adversely affects its business or the use or ownership of any of its Properties. The Guarantor is not a party or subject to any contract or agreement which restricts its right or ability to incur Indebtedness, other than as set forth on Exhibit B attached hereto, none of which prohibit the execution of or compliance with this Agreement by the Guarantor. 2.15. Full Disclosure. The Financial Statements referred to in Section 2.3 above, do not, nor does this Agreement or the Bond Documents or any Other Agreement or written statement of the Guarantor to the Bank (including, without limitation, the Guarantor's filings, if any, with the Securities and Exchange Commission), taken as a whole, contain any untrue statement of a material fact or omit a material fact necessary to make the statements contained therein or herein not misleading. There is no fact which the Guarantor has failed to disclose to the Bank in writing which materially affects adversely or, so far as the Guarantor can now foresee, will materially affect adversely the Properties, business, prospects, profits, or condition (financial or otherwise) of the Guarantor or any of its Consolidated Subsidiaries or the ability of the Guarantor or the Borrower to perform this Agreement or the Bond Documents. 2.16. Labor Relations. Except as described on Exhibit B attached hereto and made a part hereof, there are no material grievances, disputes or controversies with any union or any other organization of the Guarantor's employees, or threats of strikes, work stoppages or any asserted pending demands for collective bargaining by any union or organization which could have a Material Adverse Effect. 2.17. Compliance With Laws. It has duly complied in all material respects with, and its Properties, business operations and leaseholds are in compliance in all material respects with, the provisions of all federal, state and local laws, rules and regulations applicable to the Guarantor, its Properties or the conduct of its business, including, without limitation, OSHA and all Environmental Laws, the failure to comply with which would have a Material Adverse Effect. 2.18. Brokers. There are no claims for brokerage commissions, finder's fees or investment banking fees in connection with the transactions contemplated by this Agreement, except for fees owed to the Bank and its affiliates. 2.19. Trade Relations. There exists no actual or threatened termination, cancellation or limitation of, or any modification or change in, the business relationship between the Guarantor and any customer or any group of customers whose purchases individually or in the aggregate are material to the business of the Guarantor, or with any material supplier, and there exists no present condition or state of facts or circumstances which would materially affect adversely the Guarantor or prevent the Guarantor from conducting such business after the consummation of the transaction contemplated by this Agreement in substantially the same manner in which it has heretofore been conducted. 2.20. Investment Company Act. The Guarantor is not an "investment company" or a company "controlled" by an "investment company", within the meaning of the Investment Company Act of 1940, as amended. 2.21. Survival of Representations and Warranties. It covenants, warrants and represents to the Bank that all representations and warranties of the Guarantor contained in this Agreement or any of the Bond Documents or Other Agreements shall be true at the time of its execution of this Agreement and, the Bond Documents or Other Agreements, and shall survive the execution, delivery and acceptance thereof by the Bank and the parties thereto and the closing of the transactions described therein or related thereto. ARTICLE III Representations and Warranties of the Borrower The Borrower represents and warrants to the Bank (which representations and warranties shall survive the delivery of the documents mentioned herein and the issuance of the Letter of Credit) that: 3.1. Incorporation. It is a corporation duly incorporated, existing and in good standing under the laws of the State of its incorporation, and has the corporate or other power to own its Property and to carry on its business as now being conducted. 3.2. Power and Authority. It is duly authorized under all applicable provisions of law to execute, deliver and perform this Agreement and the Bond Documents, and all action, corporate or otherwise, as applicable, on its part required for the lawful execution, delivery and performance hereof has been duly taken; and this Agreement and the Bond Documents, upon the due execution and delivery hereof, will be its valid and binding obligation enforceable in accordance with their respective terms, subject to bankruptcy, insolvency, reorganization, moratorium, or similar laws affecting creditors' rights generally and to general principles of equity. Neither the execution of this Agreement nor the Bond Documents, nor the fulfillment of or compliance with their respective provisions and terms, will (a) conflict with, or result in a breach of the terms, conditions or provisions of, or constitute a violation of or default under any applicable law, regulation, judgment, writ, order or decree to which it or any of its properties is subject, or its charter or by-laws, or any agreement or instrument to which it or any of its Subsidiaries is now a party or by which it or any of its Subsidiaries or any of their respective properties is bound or affected, or (b) create any lien, charge or encumbrance upon any of its or any of its Subsidiaries' property or assets pursuant to the terms of any agreement or instrument to which it or any of its Subsidiaries is a party or by which it or any of its Subsidiaries or any of their respective properties is bound except pursuant to the Security Instruments. 3.3. Governmental Authority. It has received the written approval of all federal, state, local and foreign governmental authorities, if any, necessary to carry out the terms of this Agreement, and no further governmental consents or approvals are required in the making or performance of this Agreement and the Bond Documents. 3.4. Project Site. The operation of the Project complies in all material respects with presently existing zoning and other land use restrictions affecting the Project Site, including without limitation, any restrictive covenants. 3.5. Survival of Representations and Warranties. It covenants, warrants and represents to the Bank that all representations and warranties of contained in this Agreement or any of the Bond Documents shall be true at the time of its execution of this Agreement and the Bond Documents, and shall survive the execution, delivery and acceptance thereof by the Bank and the parties thereto and the closing of the transactions described therein or related thereto. ARTICLE IV Terms of Letter of Credit, Reimbursement, Other Payments and Guaranty 4.1. Letter of Credit. The Bank agrees, on the terms and conditions hereinafter set forth, to issue and deliver the Letter of Credit in favor of the Trustee in substantially the form of Exhibit A attached hereto upon fulfillment of the applicable conditions set forth in Article VIII hereof. The Bank agrees that any and all payments under the Letter of Credit will be made with the Bank's own funds. 4.2. Reimbursement and Other Payments. The Borrower shall pay to the Bank: (a) on or before 3:00 P.M., EST, but after the honoring of a draw by the Bank, on the date that any amount is drawn under the Letter of Credit, a sum equal to such amount so drawn under the Letter of Credit; (b) on demand, interest on any and all amounts remaining unpaid by the Borrower when due hereunder from the date such amounts become due until payment thereof in full, at a fluctuating interest rate per annum equal at all times to the lesser of (i) the Prime Rate plus two percent (2%) or (ii) the highest lawful rate permitted by applicable law; (c) on demand, any and all reasonable expenses incurred by the Bank in enforcing any rights under this Agreement and the Bond Documents; and (d) on demand all charges, commissions, costs and expenses set forth in Sections 4.4, 4.5 and 4.9 hereof. 4.3. Tender Advances. (a) If the Bank shall make any payment of that portion of the purchase price corresponding to principal and interest of the Bonds drawn under the Letter of Credit pursuant to a Tender Draft and the conditions set forth in Section 8.3 all have been fulfilled, such payment shall constitute a tender advance made by the Bank to the Borrower on the date and in the amount of such payment (a "Tender Advance"); provided that if the conditions of said Section 8.3 have not been fulfilled, the amount so drawn pursuant to the Tender Draft shall be payable in accordance with the terms of Section 4.2(a) above. Notwithstanding any other provision hereof, the Borrower shall repay the unpaid amount of each Tender Advance, together with all unpaid interest thereon on the earlier to occur of (i) such date as Bonds purchased pursuant to a Tender Draft are resold as provided in paragraph 4.3(d) hereof, (ii) on the date 366 days following the date of such Tender Advance, or (iii) the Termination Date. The Borrower may prepay the outstanding amount of any Tender Advance in whole or in part, together with accrued interest to the date of such prepayment on the date such amount is prepaid. The Borrower shall notify the Bank prior to 11:00 A.M., EST on the date of such prepayment of the amount to be prepaid. (b) The Borrower shall pay interest on the unpaid amount of each Tender Advance from the date of such Tender Advance until such amount is paid in full, payable monthly, in arrears, on the first day of each month during the term of each Tender Advance and on the date such amount is paid in full, at a fluctuating interest rate per annum in effect from time to time equal to the Prime Rate, provided that the unpaid amount of any Tender Advance which is not paid when due shall bear interest at the lesser of the Prime Rate plus two percent (2%) or the highest rate permitted by applicable law, payable on demand and on the date such amount is paid in full. (c) Pursuant to the Pledge Agreement the Borrower has agreed that, in accordance with the terms of the Indenture, Bonds purchased with proceeds of any Tender Draft shall be delivered by the Tender Agent to the Bank or its designee to be held by the Bank or its designee in pledge as collateral securing the Borrower's payment obligations to the Bank hereunder. Bonds so delivered to the Bank or its designee shall be registered in the name of the Bank, or its designee, as pledgee of the Borrower, as provided for in Section 3 of the Pledge Agreement. (d) Prior to or simultaneously with the resale of Pledged Bonds, the Borrower shall prepay or cause the Tender Agent to prepay as provided below the then outstanding Tender Advances (in the order in which they were made) by paying to the Bank an amount equal to the sum of (a) the amounts advanced by the Bank pursuant to the corresponding Tender Drafts relating to such Bonds, plus (b) the aggregate amount of accrued and unpaid interest on such Tender Advances. Such payment shall be applied by the Bank in reimbursement of such drawings (and as prepayment of Tender Advances resulting from such drawings in the manner described below), and, upon receipt by the Bank of a certificate completed and signed by the Trustee in substantially the form of Annex F to the Letter of Credit, the Borrower irrevocably authorizes the Bank to rely on such certificate and to reinstate the Letter of Credit in accordance therewith. Funds held by the Tender Agent as a result of sales of the Pledged Bonds by the Remarketing Agent shall be paid to the Bank by the Tender Agent to be applied to the amounts owing by the Borrower to the Bank pursuant to this paragraph (d). Upon payment to the Bank of the amount of such Tender Advance to be prepaid, together with accrued interest on such Tender Advance to the date of such prepayment on the amount to be prepaid, the principal amount outstanding of Tender Advances shall be reduced by the amount of such prepayment and interest shall cease to accrue on the amount prepaid. 4.4. Commission and Fee. (a) The Borrower shall pay to the Bank a commission at the rate of one-half of one percent per annum on the undrawn amount available to be drawn under the Letter of Credit (computed on the date that such commission is payable) from and including the date of issuance of the Letter of Credit until the Termination Date, payable (i) as to the year in which the Letter of Credit is issued, on such date of issuance, and (ii) thereafter payable annually in advance in full on the first day of each anniversary of the issuance of the Letter of Credit. If the Letter of Credit is terminated or if there is a drawing under the Letter of Credit to pay the principal of the Bonds during the year preceding such anniversary date, the Bank will refund to the Borrower the applicable unused portion of the commission calculated on a pro rata basis. (b) The Borrower shall pay to the Bank, upon each drawing under the Letter of Credit in accordance with its terms, a fee of $150 per drawing. (c) The Borrower shall pay to the Bank, upon transfer of the Letter of Credit in accordance with its terms, a transfer fee of $1,000. 4.5. Increased Costs. In the event of any change in any existing or future law, regulation, ruling or interpretation thereof affecting the Bank which shall either (a) impose, modify or make applicable any reserve, special deposit, capital requirement, assessment or similar requirement against the Letter of Credit or (b) impose on the Bank any other condition regarding the Letter of Credit, and the result of any event referred to in clause (a) or (b) above shall be to increase the cost (including a reasonable allocation of resources) or decrease the yield to the Bank of issuing or maintaining the Letter of Credit (which increase in cost shall be the result of the Bank's reasonable allocation of the aggregate of such cost increases or yield decreases resulting from such events), then, upon demand by the Bank, the Borrower shall immediately pay to the Bank, from time to time as specified by the Bank, additional amounts which shall be sufficient to compensate the Bank for such increased cost or decreased yield. A statement of charges submitted by the Bank, shall be conclusive, absent manifest error, as to the amount owed. 4.6. Computation. All payments of interest, commission and other charges under this Agreement shall be computed on the per annum basis, based upon a year of 365 (or 366, as the case may be) days, and calculated for the actual number of days elapsed. 4.7. Payment Procedure. All payments made by the Borrower under this Agreement shall be made to the Bank in lawful currency of the United States of America and in immediately available funds at the Bank's offices described at the beginning of this Agreement before 12:00 Noon, EST on the date when due, except for payments made in accordance with the terms of Section 4.2(a). 4.8. Business Days. If the date for any payment hereunder falls on a day which is not a Business Day, then for all purposes of this Agreement the same shall be deemed to have fallen on the next succeeding Business Day, and such extension of time shall in such case be included in the computation of payments of interest or commission, as the case may be. 4.9. Reimbursement of Expenses. The Borrower will pay all reasonable legal fees (computed without regard to any statutory presumption) incurred by the Bank in connection with the preparation, execution and delivery of this Agreement, the Letter of Credit, the Bond Documents, and all transactions contemplated hereby and thereby (including any amendments hereto or thereto or consents or waivers hereunder or thereunder) and will also pay all fees, charges or taxes for the recording or filing of Security Instruments. The Borrower will also pay for all reasonable legal expenses of the Bank in connection with the administration of the Letter of Credit, this Agreement and the Bond Documents. The Borrower will, upon request, promptly reimburse the Bank for all amounts expended, advanced or incurred by the Bank to collect or satisfy any obligation of the Borrower under this Agreement or any of the Bond Documents, or to enforce the rights of the Bank under this Agreement or any of the Bond Documents, which amounts will include, without limitation, all court costs, reasonable attorneys' fees, fees of auditors and accountants and investigation expenses incurred by the Bank in connection with any such matters. 4.10. Expiration Date. The Letter of Credit will expire on its stated Expiration Date, unless the Bank notifies the Borrower in writing at least 120 days prior to the Expiration Date that the Bank will extend such applicable Expiration Date for an additional one-year period from the then applicable Expiration Date. 4.11. Guaranty. (a) the Guarantor hereby absolutely and unconditionally guarantees, the full and timely payment when due, whether at stated maturity, by acceleration or otherwise, of all obligations of the Borrower now or hereafter existing under this Agreement or any of the Security Instruments, whether for principal, interest, fees, expenses or otherwise. The Guarantor further agrees to pay any and all expenses (including without limitation reasonable attorneys' fees and expenses) incurred by the Bank in enforcing or protecting its rights against the Guarantor under this Agreement or any of the Security Instruments. (b) This is a guaranty of payment and not of collection, and the Guarantor expressly waives any right to require that any action be brought against the Borrower or any other guarantor or to require that resort be had to any security, whether held by or available to the Bank or to any other guaranty. If the Borrower shall default in payment of the principal, interest, or fees on or any other amount payable hereunder when and as the same shall become due, whether by acceleration, call for prepayment, or otherwise, or upon the occurrence of any other Event of Default hereunder, the Guarantor, upon demand by the Bank or its successors or assigns, will promptly and fully make such payments. All payments by the Guarantor shall be made in immediately available coin or currency of the United States of America which on the respective dates of payment thereof is legal tender for the payment of public and private debts. Each default in payment of the principal, interest, fees or any other amount payable hereunder, or the occurrence of any other Event of Default hereunder, shall give rise to a separate cause of action hereunder, and separate suits may be brought hereunder as each cause of action arises. The Bank, or its successors or assigns, in its sole discretion, shall have the right to proceed first and directly against the Guarantor and its successors and assigns. (c) The Guarantor hereby waives promptness, diligence, notice of acceptance and any other notice with respect to any of the obligations of the Borrower under this Agreement or any requirement that the Bank protect, secure, perfect or insure any security interest or lien or any property subject hereto or to the Security Instruments or exhaust any right or take any action against the Borrower or any other Person. (d) The Guarantor will not exercise any rights that it may acquire by way of subrogation under this Agreement, by any payment made hereunder or otherwise, until all the obligations of the Borrower shall have been paid or performed in full. If any amount shall be paid to the Guarantor on account of such subrogation rights at any time when all the obligations of the Borrower hereunder shall not have been paid or performed in full, such amount shall be held in trust for the benefit of the Bank and shall forthwith be paid to the Bank to be credited and applied upon the obligations of the Borrower hereunder, whether matured or unmatured, in accordance with the terms hereof. (e) This guaranty shall continue to be effective or be reinstated, as the case may be, if at any time any payment of any of the obligations of the Borrower hereunder is rescinded or is otherwise returned by the Bank upon the insolvency, bankruptcy or reorganization of the Borrower or otherwise, all as though such payment had not been made. 4.12. Obligations Absolute. The obligations of each of the Borrower and the Guarantor under this Agreement shall be absolute, unconditional and irrevocable, and shall be paid strictly in accordance with the terms of this Agreement, under all circumstances whatsoever, including, without limitation, the following circumstances: (a) any lack of validity or enforceability of the Letter of Credit, the Bonds, any of the other Bond Documents, any of the Security Instruments or any other agreement or instrument related thereto; (b) any amendment or waiver of or any consent to departure from the terms of the Letter of Credit, the Bonds, any of the other Bond Documents, any of the Security Instruments or any other agreement or instrument related thereto; (c) the existence of any claim, setoff, defense or other right which any of the Borrower, the Guarantor or the Issuer may have at any time against the Trustee, any beneficiary or any transferee of the Letter of Credit (or any Person for whom the Trustee, any such beneficiary or any such transferee may be acting), the Bank or any other Person, whether in connection with this Agreement, the other Security Instruments, the Letter of Credit, the Bond Documents, the Project or any unrelated transaction; (d) any statement, draft or other document presented under the Letter of Credit proving to be forged, fraudulent, invalid or insufficient in any respect, or any statement therein being untrue or inaccurate in any respect whatsoever; (e) the surrender, exchange or impairment of any security for the performance or observance of any of the terms of this Agreement; or (f) any other circumstance which might otherwise constitute a defense available to, or a discharge of, the Borrower or a Guarantor, except subject to the qualification that obligations may be reinstated upon bankruptcy, notwithstanding payment in full of the Borrower's obligations to the Bank. Notwithstanding the absolute obligations of the Borrower and the Guarantor as provided above, the Bank shall be liable to the Borrower and the Guarantor as provided in Section 10.4 hereof. 4.13. Waiver of Guarantor's Rights. The Guarantor hereby waives to the fullest extent possible as and against the Borrower and its assets any and all rights, whether at law, in equity, by agreement or otherwise, to subrogation, indemnity, reimbursement, contribution, or any other similar claim, cause of action or remedy that otherwise would arise out of the Guarantor's performance of its obligations to the Bank under this Agreement. The preceding waiver is intended by both the Guarantor and the Bank to be for the benefit of the Borrower, and the waiver shall be enforceable by the Borrower or any of its successors or assigns as an absolute defense to any action by the Guarantor against the Borrower or its assets which arises out of the Guarantor's having made any payment to the Bank with respect to any of the Borrower's liabilities guaranteed hereunder. ARTICLE V Security; Insurance 5.1. Security. As security for the full and timely payment and performance by the Borrower and the Guarantor of their respective obligations hereunder, the Borrower shall on the date hereof deliver the Pledge Agreement to the Bank. 5.2. Casualty and Liability Insurance Required. The Borrower will keep the Project and its Properties continuously insured against such risks as are customarily insured against by businesses of like size and type engaged in the same or similar operations (other than business interruption insurance) including, without limiting the generality of any other covenant contained herein or in the Bond Documents, casualty insurance and general comprehensive liability insurance against claims for bodily injury, death or property damage; provided, however, that the insurance so required may be provided by blanket policies now or hereafter maintained by the Borrower or the Guarantor. 5.3. Notice of Casualty or Taking. In case of any material damage to or destruction of all or any part of the Project, the Borrower shall give prompt notice thereof to the Bank. In case of a taking or proposed taking of all or any material part of the Project or any right therein by Eminent Domain, the Borrower shall give prompt notice thereof to the Bank. Each such notice shall describe generally the nature and extent of such damage, destruction, taking, loss, proceeding or negotiations. ARTICLE VI Affirmative Covenants Until all the Obligations to be performed and paid shall have been performed and paid in full, and for so long as the Letter of Credit shall be outstanding, unless the Bank shall otherwise consent in writing, the Borrower and the Guarantor will perform and observe all covenants and agreements contained on its respective part in this Article VI. 6.1. Financial Reports and Other Data and Information. (a) Quarterly Statements. Within forty-five (45) days after the end of each fiscal quarter, a balance sheet of the Guarantor and its Consolidated Subsidiaries at the end of that period and an income statement for that period and for the portion of the fiscal year ending with such period on a consolidated and consolidating basis, setting forth in comparative form the figures for the same period of the preceding fiscal year, and certified by the Chief Financial Officer or Controller of the Guarantor as complete and correct in all material respects and prepared in accordance with GAAP, except without footnotes and subject to normal year-end audit adjustments. (b) Annual Statements. Within ninety (90) days after the end of each fiscal year, a detailed audited financial report of the Guarantor and its Consolidated Subsidiaries on a consolidated and consolidating basis, containing a balance sheet at the end of that period and an income statement and statement of cash flows for that period, setting forth in comparative form the figures for the preceding fiscal year, and containing an unqualified opinion of independent certified public accountants acceptable to the Bank that the financial statements were prepared in accordance with GAAP, and that the examination in connection with the financial statements was made in accordance with generally accepted auditing standards and accordingly included tests of the accounting records and other auditing procedures that were considered necessary in the circumstances. (c) SEC and Other Reports; Orders, Judgments, Etc. Promptly upon its becoming available, one copy of each regular or periodic report, registration statement or prospectus filed by the Guarantor with any securities exchange or the Securities and Exchange Commission or any successor agency, and of any material order, judgment, decree, decision or ruling issued by any governmental authority in any proceeding to which the Guarantor is a party; (d) Accountants' Statements. Within the period provided in paragraph (b) above, a letter of the accountants who render the opinion on the financial statements, stating that they reviewed this Agreement and that in performing the examination necessary to render an opinion on the annual financial statements they obtained no knowledge of any such Default or Event of Default resulting from the Guarantor's failure to observe the financial ratios under Sections 7.5 through 7.8, or, if the accountants have knowledge of a Default or Event of Default, a statement specifying to the best of their knowledge the nature and period of existence of the Default or Event of Default; (e) Certificates. At the time of the delivery of the financial statements provided for in Section 6.1(a) and (b), an Officers' Certificate of the Guarantor to the effect that to the best of his knowledge, no Default or Event of Default has occurred and is continuing; (f) Notice of Default or Litigation. Promptly, and in any event within three Business Days after the Chief Financial Officer or Controller of the Guarantor obtains knowledge thereof, notice of (1) the occurrence of any event which constitutes a Default or Event of Default, (2) any litigation or governmental proceeding pending against the Guarantor which is likely to materially and adversely affect the business, operations, property, assets, condition (financial or otherwise) or prospects of the Guarantor and its Subsidiaries on a consolidated basis; (g) Environmental Matters. Promptly upon obtaining knowledge thereof, notice of any facts or circumstances known to the Borrower that the Guarantor reasonably believes is likely to form the basis for the assertion of any material claim against the Guarantor relating to environmental matters including, but not limited to, any claim arising from past or present environmental practices asserted under CERCLA, RCRA, or any other federal, state or local environmental statute; (h) Other Information. From time to time, such other information or documents (financial or otherwise) as the Bank may reasonably request. 6.2. Books, Records and Inspections. The Borrower and the Guarantor will keep proper books of record and account in which full, true and correct entries in conformity with GAAP and all requirements of law shall be made of all dealings and transactions in relation to their businesses and activities. The Borrower and the Guarantor will permit officers and designated representatives of the Bank to visit and inspect, under guidance of officers of the Borrower and the Guarantor as applicable, any of the properties of the Borrower and the Guarantor and to examine the books of account of the Borrower and the Guarantor and discuss the affairs, finances and accounts of the Borrower and the Guarantor with, and be advised as to the same by, its and their officers, as applicable, all at such reasonable times and intervals and to such reasonable extent as the Bank may request. 6.3. Maintenance of Property, Insurance. Exhibit D sets forth a true and complete listing of all material insurance maintained by the Guarantor and the Borrower as of the date hereof, with the amounts insured on the date hereof set forth therein. Each of the Borrower and the Guarantor shall (i) keep all property useful and necessary in their business in good working order and condition, except for property which has become obsolete or is no longer useful, (ii) maintain with financially sound and reputable insurance companies insurance which provides substantially the same (or greater) coverage and, as to the Borrower, against at least such risks as are described in Exhibit D, and (iii) furnish to the Bank, upon written request, full information as to the insurance carried. 6.4. Corporate Franchises. The Borrower and the Guarantor will do or cause to be done, all things necessary to preserve and keep in full force and effect their existence and their material rights, franchises, licenses and patents; provided, however, that nothing in this Section 6.4 shall prevent the withdrawal by the Borrower or the Guarantor of any qualification as a foreign corporation in any jurisdiction where such withdrawal could not have a material adverse effect on the business, operations, property, assets, condition (financial or otherwise) or prospects of the Borrower or the Guarantor and nothing in this Section 6.4 shall prevent the merger of the Borrower into the Guarantor or into a Consolidated Subsidiary of the Guarantor. 6.5. Compliance with Statutes, etc. The Borrower and the Guarantor will comply with all applicable statutes, regulations and orders of, and all applicable restrictions imposed by, all governmental bodies, domestic or foreign, in respect of the conduct of their businesses and their ownership of property (including applicable statutes, regulations, orders and restrictions relating to environmental standards and controls), except such noncompliances as could not, in the aggregate, have a material adverse effect on the business, operations, property, assets, condition (financial or otherwise) or prospects of the Borrower and the Guarantor or of the Borrower and the Guarantor taken as a whole. 6.6. ERISA. As soon as possible and in any event within 10 days after the Borrower or the Guarantor knows that a Reportable Event has occurred with respect to a Plan established or maintained by the Borrower, the Guarantor or any ERISA Affiliate, that a material accumulated funding deficiency has been incurred or an application is to be or has been made to the Secretary of the Treasury for a waiver or modification of the minimum funding standard (including any required installment payments) or an extension of any amortization period under Section 412 of the Code with respect to such a Plan, that a Plan has been or will be terminated, reorganized, petitioned or declared insolvent under Title IV of ERISA in a manner that has a Material Adverse Effect, that such a Plan has an Unfunded Current Liability within the meaning of Title IV of ERISA giving rise to a lien under ERISA, that proceedings will be or have been instituted to terminate such a Plan under circumstances that will have a Material Adverse Effect, or that the Borrower or the Guarantor or an ERISA Affiliate will incur any material liability to or on account of such a Plan under Section 4062, 4063 or 4064, or which is a multiemployer plan under Section 515, 4201 or 4203 of ERISA, the Borrower and the Guarantor will deliver to the Bank a certificate of a financial officer thereof, setting forth details as to such occurrence and action, if any, which the Borrower, the Guarantor or ERISA Affiliate is required or proposes to take, together with any notices required or proposed to be given to or filed with or by the Borrower, the Guarantor, the ERISA Affiliate, the PBGC, a Plan participant or the Plan administrator with respect thereto. The Borrower and the Guarantor will deliver to the Bank a complete copy of the annual report (Form 5500) of each Plan required to be filed with the Internal Revenue Service or the PBGC, given to Plan participants or received by either the Borrower or the Guarantor. 6.7. Performance of Obligations. The Borrower and the Guarantor will perform all of their obligations under the terms of each mortgage, indenture, security agreement and other agreement by which they are bound, except such non-performances as could not in the aggregate, have a material adverse effect on the business, operations, property, assets, condition (financial or otherwise) or prospects of the Borrower and the Guarantor or of the Borrower and the Guarantor taken as a whole. 6.8. Taxes and Liens. The Borrower and the Guarantor will promptly pay, or cause to be paid, all material taxes, assessments or other governmental charges which may lawfully be levied or assessed upon the income or profits of Borrower or the Guarantor or upon any Property, real, personal or mixed, belonging to Borrower or the Guarantor, or upon any part thereof, and also any lawful claims for labor, material and supplies which, if unpaid, might become a lien or charge against any such property; provided, however, neither Borrower nor the Guarantor shall be required to pay any such tax, assessment, charge, levy or claim so long as the validity thereof shall be actively contested in good faith by proper proceedings and, against which the Borrower or the Guarantor, as the case may be, shall have established reserves which are in amounts satisfactory to the Borrower's or the Guarantor's, as the case may be, independent certified public accountants. 6.9. Payment of Obligations. The Borrower and the Guarantor will pay, when due, all its material obligations and liabilities, except where the same (other than Indebtedness) are being contested in good faith by appropriate proceedings diligently prosecuted and appropriate reserves for the accrual of same are maintained and, in the case of judgments, enforcement thereof has been stayed pending such contest. 6.10. Environmental Matters. The Borrower and the Guarantor will obtain and maintain all licenses, permits, and approvals required in connection with the Project with respect to Hazardous Materials (which shall mean all materials defined as "hazardous substances," "hazardous waste" or "solid waste" in the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, the Resource Conservation and Recovery Act or any similar environmental statute) and the Borrower or the Guarantor, as applicable, will remain in full compliance with such licenses, permits and approvals, except to the extent that failure to so comply would not have a Material Adverse Effect. The Borrower and the Guarantor will give the Bank copies of any citations, orders, notices or other communications received with respect to violations or alleged violations of any environmental laws in connection with the Project if such violation or alleged violation is likely to have a Material Adverse Effect. The Borrower and the Guarantor shall indemnify and hold the Bank and its directors, officers, shareholders and employees harmless from and against any and all damages, penalties, fines, claims, liens, suits, liabilities, costs (including clean-up costs) judgments and expenses (including attorneys', consultants' or experts' fees and expenses) of every kind and nature suffered by or asserted against the Bank as a direct or indirect result of any warranty or representation made by the Borrower and the Guarantor in this Section 6.11 being false or untrue in any material respect or any requirement under any environmental law, which requires the elimination or removal of any Hazardous Materials at the Project Site by the Bank, the Borrower, the Guarantor or any transferee of the Borrower, the Guarantor or the Bank, except to the extent that any such damages, penalties, fines, claims, liens, suits, liabilities, costs, judgments, or expenses result directly or indirectly from the actions of the Bank or any of its directors, officers, shareholders or employees. ARTICLE VII Negative Covenants Until all the Obligations to be performed and paid shall have been performed and paid in full, and for so long as the Letter of Credit shall be outstanding, unless the Bank shall otherwise consent in writing, the Borrower and the Guarantor covenant and agree as follows: 7.1. Negative Pledge; Liens. The Borrower and the Guarantor will not create, incur, assume or suffer to exist any Lien upon or with respect to any property or assets (real or personal, tangible or intangible) constituting the Project or sell any such property or assets subject to an understanding or agreement, contingent or otherwise, to repurchase such property or assets (including sales of accounts receivable with recourse to the Borrower or any of the Guarantor), or assign any right to receive income or permit the filing of any financing statement under the Uniform Commercial Code of any state or any other similar notice of Lien under any similar recording or notice statute; provided that the provisions of this Section 7.1 shall not prevent the creation, incurrence, assumption or existence of: (i) Liens in favor of the Bank; (ii) Liens for taxes not yet due, or Liens for taxes being contested in good faith and by appropriate proceedings for which adequate reserves have been established; (iii) Except as hereinafter set forth, Liens in respect of property or assets of the Borrower or the Guarantor imposed by law, which were incurred in the ordinary course of business, such as carriers', warehousemen's and mechanics' liens and other similar Liens arising in the ordinary course of business, not to exceed $10,000,000 in the aggregate, and (x) which do not in the aggregate materially detract from the value of such property or assets or materially impair the use thereof in the operation of the business of the Borrower or the Guarantor or (y) which are being contested in good faith by appropriate proceedings, which proceedings have the effect of preventing the forfeiture or sale of the property or assets subject to any such Lien; (iv) Liens in existence on the date hereof which are listed, and the property subject thereto described in Exhibit C, with an indication therein that such Liens are "Permitted Liens" hereunder, provided that if in Exhibit C any Lien is listed as being a Permitted Lien only for a designated time period, such Lien shall cease to be a Permitted Lien after the expiration of such time period; (v) Permitted Encumbrances; (vi) Liens created pursuant to the Security Instruments; and (vii) Utility deposits and pledges or deposits in connection with worker's compensation, unemployment insurance and other social security legislation; 7.2. Consolidation or Merger. The Guarantor will not enter into any transaction of merger or consolidation, except for mergers in which the Guarantor is the surviving entity. 7.3. Sale of Assets, Dissolution, Etc. Subject to Section 7.2 hereof, the Guarantor will not (a) transfer, sell, assign, lease or otherwise dispose of properties or assets including notes, franchises or contract rights, or any stock (valued at book value) or any Indebtedness of any Subsidiary in any fiscal year which taken together have an aggregate book value in excess of thirty percent (30%) of Consolidated Net Worth, except in the ordinary course of business, or (b) change the nature of its business, or wind up, liquidate or dissolve, or agree to do any of the foregoing. 7.4. Loans and Investments. The Guarantor will not make or permit to remain outstanding any loan or advance to, or own, purchase or acquire any stock or securities of, or any interest in, or make any capital contribution to or investment in, any other Person, except that the Guarantor or any Subsidiary may (i) make or permit to remain outstanding loans, advances and capital contributions to and investments in, and acquire any stock or securities of any wholly-owned Subsidiary; (ii) own, purchase or acquire (a) Government Obligations (as defined in the Indenture), (b) deposit accounts with and certificates of deposit of commercial banks with a capital and surplus in excess of Fifty Million Dollars ($50,000,000), (c) banker's acceptances drawn on or accepted by commercial banks with a capital and surplus in excess of Fifty Million Dollars ($50,000,000), (d) repurchase agreements secured by obligations of the type specified in (a) above due not more than one year from the date of acquisition thereof, and (e) commercial paper rated A- 2 or better by Moody's and variable rate preferred stock rated A or better by Standard & Poor's; (iii) acquire any amount of stock or securities of, or any interest in, or make any capital contribution to or investment in, any other Person in connection with an acquisition of more than 50% of the voting stock of or other controlling interest in such Person provided the acquired Person becomes a Subsidiary of the Guarantor included in the Guarantor's balance sheet as a Consolidated Subsidiary; (iv) make loans and advances to employees of the Guarantor and its Subsidiaries in the ordinary course of business; and (v) make or permit to remain outstanding other loans and advances to, and purchase and acquire stock and securities of, and make capital contributions to or investments in other Persons (including without limitation Persons which are not Subsidiaries of the Guarantor), in an aggregate amount not to exceed forty percent (40%) of Consolidated Net Worth. 7.5. Consolidated Total Liabilities to Consolidated Tangible Net Worth. The Guarantor will not at any time permit the ratio of its Consolidated Total Liabilities to its Consolidated Tangible Net Worth to be greater than 1.25 to 1.0. 7.6. Coverage Ratio. The Guarantor will not at any time permit the ratio of EBIT for any period of four consecutive fiscal quarters to Interest Expense, for the same period, to be less than 2.50 to 1.0. 7.7. Current Ratio. The Guarantor will not permit the ratio of Consolidated Current Assets to Consolidated Current Liabilities, at any time, to be less than 2.50 to 1.0. 7.8. Consolidated Net Worth. The Guarantor will not permit Consolidated Net Worth to be less than $250,000,000 at December 31, 1993 or such higher amount as hereinafter set forth. The Consolidated Net Worth of the Guarantor shall increase quarterly, beginning with the fiscal quarter ended December 31, 1993, by an amount equal to 50% of the Consolidated Net Income (if positive) of the Guarantor for such fiscal quarter. ARTICLE VIII Conditions to Issuance of Letter of Credit 8.1. Conditions of Issuance. On or prior to the date of issuance of the Letter of Credit, the Borrower and the Guarantor shall have furnished to the Bank, in form satisfactory to the Bank, the following: (a) two executed counterparts of this Agreement and executed counterparts of each of the Security Instruments; (b) executed counterparts of each of the Bond Documents (except for the Bonds, as to which a specimen copy may be furnished); (c) evidence of compliance with the insurance requirements contained in Article VI hereof; (d) an opinion dated the date hereof addressed to, and in form and substance acceptable to, the Bank from the Issuer's counsel, as to such matters as the Bank may require; (e) opinion(s) of counsel for the Borrower and the Guarantor dated the date hereof addressed to, and substantially in the form attached hereto as Exhibit E and otherwise in form and substance acceptable to, the Bank; (f) certificates of the Borrower and the Guarantor, as applicable, including references to (i) Articles of Incorporation, By-laws and other charter documents as applicable, (ii) resolutions of the Board of Directors, authorizing the execution, delivery and performance of the appropriate Bond Documents, this Agreement and the Security Instruments to which the Borrower or the Guarantor, as the case may be, is a party, (iii) incumbency and specimen signatures of officers, and (iv) such other matters as the Bank may require; (g) (a) copies of the Articles of Incorporation, By-laws or other charter documents, as applicable, of the Guarantor, certified as true and correct by an authorized officer as of the date of issuance of the Bonds; and (b) as to any corporations, certificates dated no earlier than 20 days prior to the date of issuance of the Bonds of the Secretary of State of the applicable states as to the good standing of the Borrower and the Guarantor; (h) an opinion of Bond Counsel, in substantially the form of Exhibit F hereto in form and substance satisfactory to the Bank and its counsel, and as to such other matters as the Bank may reasonably request; (i) copies of all governmental approvals required in connection with this transaction, including the resolution of the Issuer authorizing the authentication and issuance of the Bonds; (j) evidence of payment to the Bank of the commission pursuant to Section 4.4 of this Agreement; (k) such other documents, instruments and certifications as the Bank may reasonably require. 8.2 Additional Conditions Precedent to Issuance of the Letter of Credit. (a) The obligation of the Bank to issue the Letter of Credit shall be subject to the further conditions precedent that on the date of issuance the following statements shall be true and the Bank shall have received a certificate signed by the Chief Financial Officer or Controller of the Borrower and by the Guarantor, dated the date of issuance, stating that: (i) The representations and warranties contained in Article II and Article III of this Agreement, Section 5 of the Pledge Agreement Section 2.2 of the Loan Agreement are correct on and as of the date of issuance of the Letter of Credit as though made on and as of such date; and (ii) No event has occurred or would result from the issuance of the Letter of Credit, which constitutes an Event of Default or would constitute an Event of Default but for the requirement that notice be given or time elapse or both; and (b) there shall have been no introduction of or change in, or in the interpretation of, any law or regulation that would make it unlawful or unduly burdensome for the Bank to issue the Letter of Credit, no outbreak or escalation of hostilities or other calamity or crisis, no suspension of or material limitation on trading on the New York Stock Exchange or any other national securities exchange, no declaration of a general banking moratorium by United States or North Carolina banking authorities, and no establishment of any new restrictions on transactions in securities or on banks materially affecting the free market for securities or the extension of credit by banks. 8.3. Conditions Precedent to Each Tender Advance. Each payment made by the Bank under the Letter of Credit pursuant to a Tender Draft shall constitute a Tender Advance hereunder only if on the date of such payment no event has occurred or would result from such Tender Advance, which constitutes an Event of Default or would constitute an Event of Default but for the requirement that notice be given or time elapse or both. Unless the Borrower or the Guarantor shall have previously advised the Bank in writing or the Bank has actual knowledge that the above statement is no longer true, the Borrower and the Guarantor shall be deemed to have represented and warranted, on the date of payment by the Bank under the Letter of Credit pursuant to a Tender Draft, that on the date of such payment the above statement is true and correct. ARTICLE IX Default 9.1. Events of Default. Each of the following shall constitute an Event of Default under this Agreement, whereupon all obligations, whether then owing or contingently owing, will, at the option of the Bank or its successors or assigns, immediately become due and payable by the Borrower without presentation, demand, protest or notice of any kind, all of which are hereby expressly waived, and the Borrower will pay the reasonable attorneys' fees incurred by the Bank, or its successors or assigns, in connection with such Event of Default: (a) Failure of the Borrower or the Guarantor to pay within five (5) days of the date when due any payment of principal, interest, commission, charge or expense referred to in Article IV hereof; or (b) The occurrence of an "Event of Default" under any of the Security Instruments or any of the Bond Documents; or (c) If the Borrower or the Guarantor default in the payment of principal when due, whether by acceleration or otherwise, or interest on any other Indebtedness in excess of $15 million beyond any period of grace provided with respect thereto, or in the performance of any other agreement, term or condition contained in any agreement under which any such obligation is created, if the effect of such default is to cause, or permit the holder or holders of such obligation (or a trustee for such holder or holders) to cause, such obligation to become due prior to its stated maturity; or (d) If any representation, warranty, certification or statement made by the Borrower or the Guarantor herein, or in any writing furnished by or on behalf of the Borrower or any of the Guarantor in connection with the loan by the Issuer under the Loan Agreement or pursuant to this Agreement, or any of the Security Instruments shall have been false, misleading or incomplete in any material respect on the date as of which made; or (e) If the Borrower or the Guarantor default in the performance or observance of any agreement or covenant contained in Article VII hereof; or (f) If the Borrower or the Guarantor default in the performance or observance of any other agreement, covenant, term or condition contained herein, and such default shall not have been remedied thirty (30) days after written notice thereof shall have been received by it from the Bank; or (g) The Borrower or the Guarantor shall make an assignment for the benefit of creditors, file a petition in bankruptcy, have entered against or in favor of it an order for relief under the Federal Bankruptcy Code or similar law of any foreign jurisdiction, generally fail to pay its debts as they come due (either as to number or amount), admit in writing its inability to pay its debts generally as they mature, make a voluntary assignment for the benefit of creditors, commence any voluntary assignment for the benefit of creditors, commence any proceeding relating to it under any reorganization, arrangement, readjustment of debt, dissolution or liquidation law or statute of any jurisdiction, whether now or hereafter in effect, or by any act, indicate its consent to, approval of or acquiescence in any such proceeding for the appointment of any receiver of, or trustee or custodian (as defined in the Federal Bankruptcy Code) for itself, or any substantial part of its property, or a trustee or a receiver shall be appointed for the Borrower or for a substantial part of the property of the Borrower or the Guarantor and such appointment remains in effect for more than sixty (60) days, or a petition in bankruptcy or for reorganization shall be filed against the Borrower or the Guarantor and such petition shall not be dismissed within sixty (60) days after such filing; (h) If a final judgment, which with other outstanding final judgments against the Borrower or the Guarantor exceeds an aggregate of Eight Million Dollars ($8,000,000), in excess of insurance, shall be rendered against the Borrower or the Guarantor and if within 30 days after entry thereof such judgment shall not have been discharged or execution thereof stayed pending appeal, or if within 30 days after the expiration of any such stay such judgment shall not have been discharged; then at any time thereafter, the Bank may (a) pursuant to Section 902 of the Indenture, advise the Trustee that an Event of Default has occurred and instruct the Trustee to declare the principal of all Bonds then outstanding and interest thereon to be immediately due and payable, and (b) proceed hereunder, and under the Security Instruments and, to the extent therein provided, under the Bond Documents, in such order as it may elect and the Bank shall have no obligation to proceed against any Person or exhaust any other remedy or remedies which it may have and without resorting to any other security, whether held by or available to the Bank. 9.2. No Remedy Exclusive. No remedy herein conferred upon or reserved to the Bank is intended to be exclusive of any other available remedy or remedies, but each and every such remedy shall be cumulative and shall be in addition to every other remedy given hereunder and the Security Instruments or now or hereafter existing at law or in equity or by statute. ARTICLE X Miscellaneous 10.1. Indemnification. (a) Each of the Borrower and the Guarantor, jointly and severally, hereby indemnifies and holds the Bank harmless from and against any and all claims, damages, losses, liabilities, costs or expenses whatsoever which the Bank may incur (or which may be claimed against the Bank by any Person) (i) by reason of or in connection with the execution and delivery or transfer of, or payment or failure to pay under, the Letter of Credit, provided that the Borrower and the Guarantor shall not be required to indemnify the Bank for any claims, damages, losses, liabilities, costs or expenses to the extent, but only to the extent, caused by (a) the gross negligence or willful misconduct of the Bank in connection with paying drafts presented under the Letter of Credit or (b) the Bank's willful failure to pay under the Letter of Credit (other than in connection with a court order) after the presentation to it by the Trustee or a successor corporate fiduciary under the Indenture of a sight draft and certificate strictly complying with the terms and conditions of the Letter of Credit or (c) any other failure of the Bank to conform to the Uniform Customs and Practice; or (ii) by reason of or in connection with the execution, delivery or performance of any of this Agreement, the Security Instruments or any transaction contemplated by any thereof. (b) Each of the Borrower and the Guarantor, jointly and severally, hereby indemnifies and holds the Bank harmless from and against any and all damages, penalties, fines, claims, liens, suits, liabilities, costs (including clean-up costs), judgments and expenses (including attorneys', consultants' or experts' fees and expenses) of every kind and nature suffered by or asserted against the Bank as a direct or indirect result of any warranty or representation made by the Borrower and the Guarantor in Sections 2.11 hereof, respectively, being false or untrue in any material respect or any requirement under any law, regulation or ordinance, local, state, or federal, which requires the elimination or removal of any hazardous materials, substances, wastes or other environmentally regulated substances at the Project Site, except to the extent that any such damages, penalties, fines, claims, liens, suits, liabilities, costs, judgments or expenses result directly or indirectly from the actions of the Bank or any of its directors, officers, shareholders or employees. The Borrower's and the Guarantor's obligations hereunder to the Bank shall not be limited to any extent by the term of this Agreement, and, as to any act or occurrence prior to the termination of this Agreement which gives rise to liability hereunder, shall continue, survive and remain in full force and effect notwithstanding the termination of the Bank's obligations hereunder. Anything herein to the contrary notwithstanding, nothing in this Section 10.1 is intended or shall be construed to limit the Borrower's reimbursement obligation or the Guarantor's guaranty obligation contained in Article IV hereof. Without prejudice to the survival of any other obligation of the Borrower or the Guarantor, the indemnities and obligations of the Borrower and the Guarantor contained in this Section 10.1 shall survive the payment in full of amounts payable pursuant to Article IV and the Termination Date. 10.2. Transfer of Letter of Credit. The Letter of Credit may be transferred and assigned in accordance with the terms of the Letter of Credit. 10.3. Reduction of Letter of Credit. (a) The Letter of Credit is subject to reduction pursuant to its terms. (b) If the amount available to be drawn under the Letter of Credit shall be permanently reduced in accordance with the terms thereof, then the Bank shall have the right to require the Trustee to surrender the Letter of Credit to the Bank and to issue on such date, in substitution for such outstanding Letter of Credit, a substitute irrevocable letter of credit, substantially in the form of the Letter of Credit but with such changes therein as shall be appropriate to give effect to such reduction, dated such date, for the amount to which the amount available to be drawn under the Letter of Credit shall have been reduced. 10.4. Liability of the Bank. Neither the Bank nor any of its officers, directors, employees, agents or consultants shall be liable or responsible for: (a) the use which may be made of the Letter of Credit or for any acts or omissions of the Trustee or any beneficiary or transferee in connection therewith; (b) the validity, sufficiency or genuineness of documents, or of any endorsement(s) thereon, even if such documents should in fact prove to be in any or all respects invalid, insufficient, inaccurate, fraudulent or forged; (c) payment by the Bank against presentation of documents which do not comply with the terms of the Letter of Credit, including failure of any documents to bear any reference or adequate reference to the Letter of Credit; or (d) any other circumstances whatsoever in any way related to the making or failure to make payment under the Letter of Credit; except only that the Borrower and the Guarantor shall have a claim against the Bank, and the Bank shall be liable to the Borrower and the Guarantor, to the extent but only to the extent, of any direct, as opposed to consequential, damages suffered by the Borrower or the Guarantor which were caused by (i) the gross negligence or willful misconduct of the Bank in determining whether documents presented under the Letter of Credit complied with the terms of the Letter of Credit or (ii) wrongful failure of the Bank to pay under the Letter of Credit after the presentation to it by the Trustee or a successor trustee under the Indenture of a sight draft and certificate strictly complying with the terms and conditions of the Letter of Credit or (iii) any other failure of the Bank to conform to the requirements of the Uniform Customs and Practice. In furtherance and not in limitation of the foregoing, the Bank may accept documents that appear on their face to be in order, without responsibility for further investigation, regardless of any notice or information to the contrary. 10.5. Successors and Assigns. This Agreement shall be binding upon the Borrower, the Guarantor and the Bank, their respective successors and assigns and all rights against the Borrower or the Guarantor arising under this Agreement shall be for the sole benefit of the Bank, its successors and assigns, all of whom shall be entitled to enforce performance and observance of this Agreement to the same extent as if they were parties hereto. 10.6. Notices. All notices, requests and demands to or upon the respective parties hereto shall be deemed to have been given or made when hand delivered or mailed first class, certified or registered mail, postage prepaid, or by overnight courier service, addressed as follows or to such other address as the parties hereto shall have been notified pursuant to this Section 10.6: The Bank: The First Union National Bank of North Carolina Two First Union Center, 7th Floor Charlotte, North Carolina 28288-0742 Attention: International Operations with a copy to: The First Union National Bank of North Carolina One First Union Plaza, 19th Floor Charlotte, North Carolina 28288 Attention: Capital Markets The Borrower: Leslie Controls, Inc. c/o Watts Industries, Inc. 815 Chestnut Street North Andover, Massachusetts 01845 Attention: Corporate Controller The Guarantor: Watts Industries, Inc. Route 114 and Chestnut Street North Andover, MA 01845 except in cases where it is expressly herein provided that such notice, request or demand is not effective until received by the party to whom it is addressed, in which event said notice, request or demand shall be effective only upon receipt by the addressee. 10.7 Amendment. This Agreement may be amended, modified or discharged only upon an agreement in writing of the Borrower, the Guarantor and the Bank. 10.8. Effect of Delay and Waivers. No delay or omission to exercise any right or power accruing upon any default, omission or failure of performance hereunder shall impair any such right or power or shall be construed to be a waiver thereof, but any such right and power may be exercised from time to time and as often as may be deemed expedient. In order to entitle the Bank to exercise any remedy now or hereafter existing at law or in equity or by statute, it shall not be necessary to give any notice, other than such notice as may be herein expressly required. In the event any provision contained in this Agreement should be breached by any party and thereafter waived by the other party so empowered to act, such waiver shall be limited to the particular breach hereunder. No waiver, amendment, release or modification of this Agreement shall be established by conduct, custom or course of dealing, but solely by an instrument in writing duly executed by the parties thereunto duly authorized by this Agreement. 10.9. Counterparts. This Agreement may be executed simultaneously in several counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 10.10. Severability. The invalidity or unenforceability of any one or more phrases, sentences, clauses or Sections contained in this Agreement shall not affect the validity or enforceability of the remaining portions of this Agreement, or any part thereof. 10.11. Cost of Collection. Each of the Borrower and the Guarantor shall be liable for the payment of all reasonable fees and expenses, including reasonable attorneys' fees (computed without regard to any statutory presumption), incurred in connection with the enforcement of this Agreement. 10.12. Set Off. Upon the occurrence of an Event of Default hereunder, the Bank is hereby authorized, without notice to the Borrower or the Guarantor, to set off, appropriate and apply any and all monies, securities and other properties of the Borrower or the Guarantor hereafter held or received by or in transit to the Bank from or for the Borrower or the Guarantor, against the obligations of the Borrower or the Guarantor irrespective of whether the Bank shall have made any demand hereunder or any other Credit Security Instrument under and although such obligations may be contingent or unmatured. 10.13. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Florida. The Guarantor hereby acknowledge that the Letter of Credit shall be governed by and construed in accordance with Uniform Customs and Practice. 10.14. References. The words "herein", "hereof", "hereunder" and other words of similar import when used in this Agreement refer to this Agreement as a whole, and not to any particular article, section or subsection. 10.15. Consent to Jurisdiction, Venue. In the event that any action, suit or other proceeding is brought against the Borrower or the Guarantor by or on behalf of the Bank to enforce the observance or performance of any of the provisions of this Agreement or of any of the Security Instruments, including without limitation the collection of any amounts owing thereunder, each of the Borrower and the Guarantor hereby (i) irrevocably consents to the exercise of jurisdiction over the Borrower and the Guarantor and to the extent permitted by applicable laws, their property, by the United States District Court, Southern District of North Carolina, and by Supreme Court of North Carolina or the State Court and (ii) irrevocably waives any objection it might now or hereafter have or assert to the venue of any such proceeding in any court described in clause (i) above. IN WITNESS WHEREOF, the Borrower, the Guarantor and the Bank have caused this Agreement to be executed in their respective names, as a sealed instrument all as of the date first above written. THE BORROWER: LESLIE CONTROLS, INC. By: /s/ (Signature) ____________________________ Title: Assistant Treasurer THE GUARANTOR: WATTS INDUSTRIES, INC. By: /s/ (Signature) ___________________________ Title: Vice President of Finance THE BANK: THE FIRST UNION NATIONAL BANK OF NORTH CAROLINA By: /s/ (Signature) ___________________________ Title: AVP ATTEST: /s/ (Signature) _______________________ Title: Ass't Sec'ty (Corporate Seal) EX-10.17 7 TRUST INDENTURE HILLSBOROUGH COUNTY INDUSTRIAL DEVELOPMENT AUTHORITY and THE FIRST NATIONAL BANK OF BOSTON, as Trustee securing the $4,765,000 Hillsborough County Industrial Development Authority Industrial Development Revenue Refunding Bonds (Leslie Controls, Inc. Project), Series 1994 DATED AS OF July 1, 1994 TABLE OF CONTENTS Page Parties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Recitals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Forms: Form of Bond. . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Form of Bondholder's Optional Retention Notice. . . . . . . . . . . 17 ARTICLE I DEFINITIONS AND RULES OF CONSTRUCTION . . . . . . . . . . . . 18 Section 101. Definitions. . . . . . . . . . . . . . . . . . . . . 18 Section 102. Rules of Construction. . . . . . . . . . . . . . . . 28 ARTICLE II THE BONDS . . . . . . . . . . . . . . . . . . . . . . . . . . 28 Section 201. Amount, Terms, and Issuance of the Bonds . . . . . . 28 Section 202. Designation, Denominations, Maturity Date and Interest Rates of the Bonds. . . . . . . . . . . . . 29 Section 203. Optional Tender Provisions of the Bonds. . . . . . . 32 Section 204. Registered Bonds Required; Bond Registrar and Bond Register. . . . . . . . . . . . . . . . . . . . 33 Section 205. Transfer and Exchange. . . . . . . . . . . . . . . . 34 Section 206. Execution. . . . . . . . . . . . . . . . . . . . . . 35 Section 207. Authentication; Authenticating Agent . . . . . . . . 35 Section 208. Payment of Principal and Interest; Interest Rights Preserved . . . . . . . . . . . . . . . . . . 36 Section 209. Persons Deemed Owners. . . . . . . . . . . . . . . . 37 Section 210. Mutilated, Destroyed, Lost, Stolen or Undelivered Bonds. . . . . . . . . . . . . . . . . . . . . . . . 37 Section 211. Temporary Bonds. . . . . . . . . . . . . . . . . . . 38 Section 212. Cancellation of Surrendered Bonds. . . . . . . . . . 38 Section 213. Conditions of Issuance . . . . . . . . . . . . . . . 38 ARTICLE III PURCHASE AND REMARKETING OF TENDERED BONDS . . . . . 40 Section 301. Remarketing of Tendered Bonds. . . . . . . . . . . . 40 Section 302. Purchase of Bonds Delivered to the Tender Agent. . . 41 Section 303. Delivery of Purchased Bonds. . . . . . . . . . . . . 42 Section 304. Delivery of the Proceeds of the Sale of Remarketed Bonds . . . . . . . . . . . . . . . . . . 43 Section 305. No Remarketing After Certain Events. . . . . . . . . 43 ARTICLE IV REFUNDING OF PRIOR BONDS. . . . . . . . . . . . . . . . . . . 43 Section 401. Refunding of Prior Bonds . . . . . . . . . . . . . . 43 ARTICLE V REVENUES AND APPLICATION THEREOF. . . . . . . . . . . . . . . 44 Section 501. Revenues to be Paid Over to Trustee. . . . . . . . . 44 Section 502. The Bond Fund. . . . . . . . . . . . . . . . . . . . 44 Section 503. Revenues to Be Held for All Bondholders; Certain Exceptions . . . . . . . . . . . . . . . . . . . . . 46 Section 504. Rebate Fund. . . . . . . . . . . . . . . . . . . . . 46 ARTICLE VI DEPOSITARIES OF MONEYS, SECURITY FOR DEPOSITS AND INVESTMENT OF FUNDS; THE CREDIT FACILITY . . . . 47 Section 601. Security for Deposits. . . . . . . . . . . . . . . . 47 Section 602. Investment of Moneys . . . . . . . . . . . . . . . . 47 Section 603. The Credit Facility. . . . . . . . . . . . . . . . . 48 ARTICLE VII REDEMPTION OR PURCHASE OF THE BONDS. . . . . . . . . 51 Section 701. Redemption or Purchase Dates and Prices. . . . . . . 51 Section 702. Company to Direct Optional Redemption. . . . . . . . 52 Section 703. Selection of Bonds to be Called for Redemption . . . 53 Section 704. Notice of Redemption or Purchase . . . . . . . . . . 53 Section 705. Bonds Redeemed or Purchased in Part. . . . . . . . . 54 ARTICLE VIII PARTICULAR COVENANTS AND PROVISIONS. . . . . . . . . 54 Section 801. Covenant to Pay the Bonds; Bonds Limited Obligations of the Issuer. . . . . . . . . . . . . . 54 Section 802. Covenants to Perform Obligations Under this Indenture. . . . . . . . . . . . . . . . . . . . . . 55 Section 803. Covenant to Perform Obligations Under the Loan Agreement. . . . . . . . . . . . . . . . . . . . . . 55 Section 804. Trustee May Enforce the Issuer's Rights Under the Loan Agreement . . . . . . . . . . . . . . . . . . . 56 Section 805. Covenant Against Arbitrage . . . . . . . . . . . . . 56 Section 806. Inspection of the Bond Register. . . . . . . . . . . 56 Section 807. Priority of Pledge and Security Interest . . . . . . 56 Section 808. Insurance and Condemnation Proceeds. . . . . . . . . 57 ARTICLE IX DEFAULT AND REMEDIES. . . . . . . . . . . . . . . . . . . . . 57 Section 901. Defaults . . . . . . . . . . . . . . . . . . . . . . 57 Section 902. Acceleration and Annulment Thereof . . . . . . . . . 58 Section 903. Other Remedies . . . . . . . . . . . . . . . . . . . 59 Section 904. Legal Proceedings by the Trustee . . . . . . . . . . 59 Section 905. Discontinuance of Proceedings by the Trustee . . . . 60 Section 906. Credit Facility Issuer or Bondholders May Direct Proceedings. . . . . . . . . . . . . . . . . . . . . 60 Section 907. Limitations on Actions by the Bondholders. . . . . . 60 Section 908. Trustee May Enforce Rights Without Possession of the Bonds. . . . . . . . . . . . . . . . . . . . . . 61 Section 909. Remedies Not Exclusive . . . . . . . . . . . . . . . 61 Section 910. Delays and Omissions Not to Impair Rights. . . . . . 61 Section 911. Application of Moneys in the Event of Default. . . . 61 Section 912. Trustee and Bondholders Entitled to All Remedies Under the Act. . . . . . . . . . . . . . . . . . . . 62 Section 913. Trustee May File Claim in Bankruptcy . . . . . . . . 62 Section 914. Receiver . . . . . . . . . . . . . . . . . . . . . . 63 ARTICLE X CONCERNING THE TRUSTEE. . . . . . . . . . . . . . . . . . . . 63 Section 1001. Acceptance of the Trusts . . . . . . . . . . . . . . 63 Section 1002. Trustee to Give Notice . . . . . . . . . . . . . . . 65 Section 1003. Trustee Entitled to Indemnity. . . . . . . . . . . . 65 Section 1004. Trustee Not Responsible for Insurance, Taxes, Execution of this Indenture, Acts of the Issuer or Application of the Moneys Applied in Accordance with this Indenture . . . . . . . . . . . 66 Section 1005. Compensation . . . . . . . . . . . . . . . . . . . . 67 Section 1006. Trustee to Preserve Records. . . . . . . . . . . . . 67 Section 1007. Trustee May Be a Bondholder. . . . . . . . . . . . . 67 Section 1008. Trustee Not Responsible for Recitals . . . . . . . . 68 Section 1009. No Trustee Responsibility for Recording or Filing. . 68 Section 1010. Trustee May Require Information. . . . . . . . . . . 68 Section 1011. Trustee May Rely on Certificates . . . . . . . . . . 68 Section 1012. Trustee Bond . . . . . . . . . . . . . . . . . . . . 69 Section 1013. Segregation of Funds; Interests. . . . . . . . . . . 69 Section 1014. Qualification of the Trustee . . . . . . . . . . . . 69 Section 1015. Resignation and Removal of the Trustee . . . . . . . 69 Section 1016. Successor Trustee. . . . . . . . . . . . . . . . . . 70 Section 1017. Co-Trustee . . . . . . . . . . . . . . . . . . . . . 71 Section 1018. Notice to Moody's or S&P . . . . . . . . . . . . . . 72 Section 1019. Filing of Certain Continuation Statements. . . . . . 72 ARTICLE XI EXECUTION OF INSTRUMENTS BY THE BONDHOLDERS AND PROOF OF OWNERSHIP OF THE BONDS . . . . . . . . . . . . . 73 Section 1101. Execution of Instruments by the Bondholders and Proof of Ownership of the Bonds. . . . . . . . . . . 73 Section 1102. Preservation of Information. . . . . . . . . . . . . 73 ARTICLE XII THE REMARKETING AGENT; THE TENDER AGENT; THE PLACEMENT AGENT . . . . . . . . . . . . . . 74 Section 1201. The Remarketing Agent. . . . . . . . . . . . . . . . 74 Section 1202. The Tender Agent . . . . . . . . . . . . . . . . . . 75 Section 1203. The Placement Agent. . . . . . . . . . . . . . . . . 75 Section 1204. Notices. . . . . . . . . . . . . . . . . . . . . . . 75 ARTICLE XIII AMENDMENTS AND SUPPLEMENTS . . . . . . . . . . . . . 76 Section 1301. Amendments and Supplements Without the Bondholders' Consent . . . . . . . . . . . . . . . . 76 Section 1302. Amendments With the Bondholders' and the Credit Facility Issuer's Consent. . . . . . . . . . . . . . 77 Section 1303. Supplemental Indentures Affecting the Rights of the Credit Facility Issuer . . . . . . . . . . . . . 77 Section 1304. Amendment of the Loan Agreement. . . . . . . . . . . 77 Section 1305. Amendment of the Loan Agreement Requiring the Consent of the Credit Facility Issuer. . . . . . . . 78 Section 1306. Amendment of the Credit Facility . . . . . . . . . . 78 Section 1307. Trustee Authorized to Join in Amendments and Supplements; Reliance on Counsel . . . . . . . . . . 79 ARTICLE XIV DEFEASANCE; OTHER PAYMENTS . . . . . . . . . . . . . 79 Section 1401. Defeasance . . . . . . . . . . . . . . . . . . . . . 79 Section 1402. Deposit of Funds for Payment of the Bonds. . . . . . 81 Section 1403. Effect of Purchase of the Bonds. . . . . . . . . . . 81 ARTICLE XV MISCELLANEOUS PROVISIONS. . . . . . . . . . . . . . . . . . . 81 Section 1501. Covenants of the Issuer to Bind its Successors . . . 81 Section 1502. Notices. . . . . . . . . . . . . . . . . . . . . . . 82 Section 1503. Trustee as the Paying Agent and the Bond Registrar. . . . . . . . . . . . . . . . . . . . . . 83 Section 1504. Rights Under this Indenture. . . . . . . . . . . . . 83 Section 1505. Form of Certificates and Opinions. . . . . . . . . . 83 Section 1506. Severability . . . . . . . . . . . . . . . . . . . . 83 Section 1507. Covenants of the Issuer Not Covenants of Officials Individually . . . . . . . . . . . . . . . 84 Section 1508. State Law Governs. . . . . . . . . . . . . . . . . . 84 Section 1509. Payments Due on Days Other Than Business Days. . . . 84 Section 1510. Execution in Counterparts. . . . . . . . . . . . . . 85 EXHIBIT A. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86 EXHIBIT B. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88 _________________________ TRUST INDENTURE _________________________ This TRUST INDENTURE, dated as of July 1, 1994, between Hillsborough County Industrial Development Authority (the "Issuer"), a public body corporate and politic and a public instrumentality created pursuant to the laws of the State of Florida, and The First National Bank of Boston, a national banking association, having its principal office in Boston, Massachusetts (in its capacity as trustee to be hereinafter referred to as the "Trustee"). W I T N E S S E T H: WHEREAS, the Issuer intends to (a) issue and sell its variable rate industrial revenue refunding bonds in the aggregate principal amount of $4,765,000 (the "Bonds"); (b) pursuant to a Loan Agreement (the "Loan Agreement") of even date herewith, loan the proceeds of the Bonds to Leslie Controls, Inc. (the "Company") to be used to refund the outstanding principal amount of Issuer's $7,200,000 Hillsborough County Industrial Development Authority Industrial Development Revenue Bonds (Leslie Controls, Inc. Project), Series 1986 Bonds (the "Prior Bonds"); and (c) to secure the repayment of the Bonds by (1) the assignment contained herein from the Issuer to the Trustee, pursuant to which the Issuer assigns to the Trustee for the benefit of the Bondholders (hereinafter defined) certain of its rights under the Loan Agreement, endorses without recourse to the order of, and pledges and assigns to, the Trustee, the Note of even date herewith issued by the Company pursuant to the Loan Agreement (the "Note"), and (2) the delivery to the Trustee of an irrevocable direct pay letter of credit dated the date of issuance of the Bonds in the amount of $5,003,250 issued by First Union National Bank of North Carolina; WHEREAS, as security for the payment of the Bonds, the Issuer has agreed to assign and pledge to the Trustee all right, title and interest of the Issuer in (a) the Loan Agreement (except certain rights reserved by the Issuer under the terms of this Indenture), (b) the "Pledged Revenues" (hereinafter defined), (c) all amounts on deposit from time to time in the "Bond Fund" (hereinafter defined), but excluding any amounts on deposit in the "Rebate Account" (hereinafter defined) and (d) all amounts or deposit from time to time in the "Redemption Fund" (hereinafter defined); and WHEREAS, the Company and First Union National Bank of North Carolina, a national banking association (the "Bank") have entered into a Letter of Credit and Reimbursement and Guaranty Agreement, dated as of July 1, 1994 (the "Reimbursement Agreement") pursuant to which the Bank has agreed to issue its irrevocable direct-pay letter of credit, dated the date of the delivery of the Bonds (the "Letter of Credit"), in favor of the Trustee, for the account of the Company obligating the Bank to pay the Trustee upon draws made by the Trustee in accordance with the terms thereof, up to (i) an amount equal to the aggregate principal amount of the Bonds then Outstanding (as hereinafter defined) to be used by the Trustee (a) to pay the principal of such Bonds whether at maturity, upon redemption, acceleration or otherwise, and (b) to pay the portion of the purchase price equal to the principal amount of any such Bonds delivered to the Tender Agent (hereinafter defined) for purchase, plus (ii) an amount equal to up to one hundred twenty (120) days' accrued interest on the Bonds at the maximum interest rate of fifteen percent (15%) per annum, to be used by the Trustee to pay accrued interest on the Bonds and to pay the portion of the purchase price of tendered Bonds equal to the accrued interest, if any, on any such Bonds; and WHEREAS, all things necessary to make the Bonds, when authenticated by the Trustee and issued and delivered as provided in this Indenture, the legal, valid, binding and enforceable limited obligations of the Issuer, according to the import thereof, and to create a valid assignment and pledge of the Pledged Revenues to the payment of the principal of, and the redemption premium (if any) and the interest on, the Bonds and a valid assignment of certain of the rights, title and interest of the Issuer in the Loan Agreement and the Note, have been done and performed, and the execution, issuance and delivery of the Bonds, subject to the terms hereof, have in all respects been authorized; and WHEREAS, the Trustee has accepted the trusts created by this Indenture and in evidence thereof has joined in the execution hereof; and WHEREAS, the Issuer has determined that the Bonds to be issued hereunder shall be substantially in the following form, with such variations, omissions and insertions as are required or permitted by this Indenture: [Form of Bond] CUSIP 432321-DF1 THE ISSUER IS NOT OBLIGATED TO PAY THE PRINCIPAL OF, REDEMPTION PREMIUM, IF ANY, OR INTEREST ON THIS BOND EXCEPT FROM THE REVENUES AND PROCEEDS PLEDGED THEREFOR PURSUANT TO THE INDENTURE, AND NEITHER THE FAITH AND CREDIT NOR THE TAXING POWER OF THE ISSUER OR OF THE STATE OF FLORIDA OR OF ANY POLITICAL SUBDIVISION THEREOF IS PLEDGED TO THE PAYMENT THEREOF. THIS BOND SHALL NOT BE DEEMED TO CONSTITUTE A DEBT, LIABILITY OR OBLIGATION OF THE ISSUER, HILLSBOROUGH COUNTY OR OF THE STATE OF FLORIDA OR ANY POLITICAL SUBDIVISION THEREOF WITHIN THE MEANING OF ANY PROVISION OF THE CONSTITUTION OR LAWS OF THE STATE AND SHALL NOT CONSTITUTE OR GIVE RISE TO A PECUNIARY LIABILITY OF THE ISSUER OR OF THE STATE OR ANY POLITICAL SUBDIVISION THEREOF. THIS BOND MAY BE TENDERED FOR PURCHASE AS DESCRIBED HEREIN. DELIVERY OF AN OPTIONAL TENDER NOTICE WITH RESPECT TO THIS BOND CONSTITUTES AN IRREVOCABLE OFFER TO SELL THIS BOND ON THE DATE SPECIFIED THEREIN AND IS BINDING ON SUBSEQUENT OWNERS OF THIS BOND. IN THE EVENT THE OWNER OF THIS BOND FAILS TO DELIVER THIS BOND TO THE TENDER AGENT ON THE SPECIFIED DATE, THE OWNER HEREOF SHALL THEREAFTER BE ENTITLED ONLY TO PAYMENT OF THE PURCHASE PRICE AND NOT TO THE BENEFITS OF THE INDENTURE. THIS BOND ALSO IS SUBJECT TO MANDATORY TENDER AND PURCHASE AS DESCRIBED HEREIN. HILLSBOROUGH COUNTY INDUSTRIAL DEVELOPMENT AUTHORITY INDUSTRIAL DEVELOPMENT REVENUE REFUNDING BOND (LESLIE CONTROLS, INC. PROJECT), SERIES 1994 No. R-_________ Registered Owner: __________________________ Principal Amount: __________________________ Maturity Date: First Business Day of August, 2019 Initial Interest Rate: 3.15 % Interest Payment Dates: The first Business Day of each March, June, September and December, commencing the first Business Day of September, 1994, the Conversion Date (hereinafter defined) and the Maturity Date. Original Delivery Date: August 4, 1994 HILLSBOROUGH COUNTY INDUSTRIAL DEVELOPMENT AUTHORITY (herein called the "Issuer"), a public body corporate and politic and a public instrumentality created pursuant to the laws of the State of Florida (herein called the "State"), for value received, hereby promises to pay (but only from the sources hereinafter mentioned) to the Registered Owner set forth above, or registered assigns, the Principal Amount set forth above on the Maturity Date set forth above and to pay (but only from the sources hereinafter mentioned) interest thereon from the Interest Payment Date immediately preceding the Date of Authentication endorsed hereon, unless this Bond is authenticated on an Interest Payment Date in which event it will bear interest from such date or unless it is authenticated prior to the first Business Day of September, 1994, in which event it will bear interest from the Date of Authentication, payable on each Interest Payment Date, until payment of said principal sum has been made or provided for, at the rate or rates per annum set forth below. Principal and interest and premium, if any, will be paid in any coin or currency of the United States of America which, at the time of payment, is legal tender for the payment of public and private debts. Interest will be paid by check mailed on the Interest Payment Date to the person in whose name this Bond is registered at the close of business on the Regular Record Date (as hereinafter defined) immediately preceding such Interest Payment Date; provided, however, that while the Bonds (as hereinafter defined) bear interest at the Variable Rate (as hereinafter defined) interest will also be payable by wire transfer to the account at a member bank of the Federal Reserve System of any registered owner of Bonds in the aggregate principal amount of One Million Dollars ($1,000,000) or more at the written request (identifying such account by number) of such owner received by the Trustee (as hereinafter defined) on or before the Regular Record Date. While the Bonds bear interest at the Variable Rate (as hereinafter defined), the Regular Record Date will be the close of business on the Business Day immediately preceding each Interest Payment Date. While the Bonds bear interest at the Fixed Rate (as hereinafter defined), the Regular Record Date will be the fifteenth (15th) day of the calendar month immediately preceding each Interest Payment Date. Any such interest not so punctually paid or duly provided for will forthwith cease to be payable to the owner on such Regular Record Date, and may be paid to the person in whose name this Bond is registered at the close of business on a Special Record Date (as defined in the Indenture (hereinafter defined)) for the payment of such defaulted interest to be fixed by the Trustee, or may be paid at any time in any other lawful manner, all as more fully provided in the Indenture. Principal and redemption price will be paid upon surrender of this Bond at the principal corporate trust office of The First National Bank of Boston, as Trustee (said banking institution and any successor trustee or co-trustee under the Indenture being herein called the "Trustee"), in the Town of Canton, Massachusetts. Payment of the purchase price of Bonds purchased as described herein will be paid, upon surrender of such Bonds, at the office of The First National Bank of Boston, in the Town of Canton, Massachusetts (in such capacity, herein called the "Tender Agent"). This Bond is issued under and pursuant to the Constitution and laws of the State of Florida (the "State"), particularly the Florida Industrial Development Financing Act, Parts II and III of Chapter 159, Florida Statutes, as amended from time to time, and the resolution of the Board of County Commissioners of Hillsborough County, Florida adopted on October 27, 1971 organizing the Issuer (collectively the "Act"), and under and pursuant to a resolution duly adopted by the Issuer on July 25, 1994. This Bond and the issue of which it is a part and the purchase price thereof, the premium, if any, and interest thereon are limited obligations of the Issuer payable by the Issuer solely from the revenues and receipts derived from the Loan Agreement (as hereinafter defined), including payments received under the Note (as hereinafter defined), which revenues and receipts have been pledged and assigned to the Trustee to secure payment thereof and from amounts received pursuant to the Credit Facility (as hereinafter defined). This Bond and the interest hereon will not constitute an indebtedness or a charge against the general credit or taxing powers of the Issuer, Hillsborough County, the State of Florida or any political subdivision thereof within the meaning of any constitutional provision or statutory limitation and shall never constitute nor give rise to any pecuniary liability of the Issuer, but will be a limited obligation of the Issuer payable solely from the revenues and other funds pledged therefor and will not be payable from any assets or funds of the Issuer other than the revenues and other funds pledged therefor, and neither the faith and credit nor the taxing power of the State or any political subdivision or any agency thereof is pledged to the payment of the principal of or the interest on this Bond. This Bond is one of the Bonds of a duly authorized issue of variable rate industrial revenue bonds of the Issuer in the aggregate original principal amount of $4,765,000 and designated "Hillsborough County Industrial Development Authority Industrial Development Revenue Refunding Bonds (Leslie Controls, Inc. Project), Series 1994" (the "Bonds"). The Bonds are being issued for the purpose of refunding in whole the outstanding principal amount of the $7,200,000 Hillsborough County Industrial Development Authority Industrial Development Revenue Bonds (Leslie Controls, Inc. Project), Series 1986 (the "Prior Bonds"), the proceeds of which were used to finance, in whole or in part, the cost of acquiring, constructing and installing a certain project in Hillsborough County owned and operated by the Company (the "Project"). This Bond is issued under and pursuant to a Trust Indenture dated as of July 1, 1994 (said Trust Indenture, together with all such supplements and amendments thereto as therein permitted, being herein called the "Indenture"), by and between the Issuer and The First National Bank of Boston, as trustee (said banking institution and any successor trustee or co-trustee under the Indenture being herein called the "Trustee"). An executed counterpart of the Indenture is on file at the principal corporate trust office of the Trustee. Reference is hereby made to the Indenture for the provisions, among others, with respect to the custody and application of the proceeds of the Bonds; the collection and disposition of revenues; a description of the funds charged with and pledged to the payment of the principal of and interest on and any other amounts payable under the Bonds; the nature and extent of the security; the terms and conditions under which the Bonds are or may be issued; and the rights, duties and obligations of the Issuer and of the Trustee and the rights of the owners of the Bonds, and, by the acceptance of this Bond, the owner hereof assents to all of the provisions of the Indenture. The Issuer has entered into a Loan Agreement dated as of July 1, 1994 (herein called the "Loan Agreement"), with Leslie Controls, Inc., a New Jersey corporation (herein called the "Company"), under which the Issuer has agreed to lend to the Company the proceeds of this bond (the "Loan") and in consideration and as evidence of the Loan, the Company has agreed to issue its promissory note (herein called the "Note") in the principal amount, payable in installments, bearing interest at a rate or rates and payable at times corresponding to the principal amount of, installments of principal of, interest rates on and due dates of the Bonds. The Loan Agreement also provides for the payment by the Company of certain fees and expenses of the Issuer and the Trustee, and the Loan Agreement further obligates the Company (a) to pay the cost of maintaining the Project in good repair in all material respects and keeping the same properly insured and (b) to maintain a Credit Facility (as hereinafter defined) during the period of time the Bonds bear interest at the Variable Rate (herein called the "Variable Rate Period"). As security for the payment of the Bonds, all right, title and interest of the Issuer in (a) the Loan Agreement (except certain rights reserved by the Issuer under the terms of the Indenture), together with the Loan Agreement, (b) the Pledged Revenues, (c) all amounts on deposit from time to time in the Bond Fund (defined in the Indenture), but excluding any amounts on deposit in the "Rebate Account" (defined in the Indenture), and (d) all amounts on deposit from time to time in the Redemption Fund (defined in the Indenture) have been assigned to the Trustee under the Indenture and pledged to the payment of the principal of, and the redemption premium (if any) and the interest on, the Bonds. The Issuer shall not be vested with any interest in the Project by virtue of the issuance of the Bonds, and the Project shall not otherwise constitute any part of the security for the payment of the Bonds. Reference to the Indenture is hereby made for a description of the aforesaid Bond Fund which is charged with, and pledged to, the payment of the principal of, and the redemption premium (if any) and the interest on, the Bonds, the nature and extent of the security, the rights, duties and obligations of the Issuer, the Company and the Trustee, the rights of the owners of the Bonds, the terms and conditions under and upon the occurrence of which the Indenture and the Loan Agreement may be modified and the terms and conditions under and upon the occurrence of which the lien of the Indenture may be defeased as to this Bond prior to the maturity or redemption date hereof, to all of the provisions of which the owner hereof, by the acceptance of this Bond, assents. Credit Facility. The Company has entered into a Letter of Credit, Reimbursement and Guaranty Agreement dated as of July 1, 1994 (herein called the "Reimbursement Agreement") by and among the Company, Watts Industries, Inc, as guarantor and First Union National Bank of North Carolina (in such capacity, herein called the "Bank"). Pursuant to the Reimbursement Agreement, the Company has caused a Letter of Credit issued by the Bank (herein called the "Letter of Credit"; such Letter of Credit and any extensions or renewals thereof or any amendment thereto and any Alternate Credit Facility (as hereinafter defined) referred to herein as the "Credit Facility"), to be delivered to the Trustee. The Trustee will be entitled under the Letter of Credit to draw up to an amount of $5,003,250, of which (a) $4,765,000 will be available for the payment of principal or that portion of the purchase price corresponding to principal of the Bonds and (b) $238,250 will support the payment of up to one hundred twenty (120) days' interest or that portion of the purchase price corresponding to interest on the Bonds at a maximum rate of fifteen percent (15%) per annum. Subject to the provisions of the Indenture, the Company is required during the Variable Rate Period to provide an alternate credit facility with terms and provisions substantially the same as those of the Letter of Credit (an "Alternate Credit Facility") prior to the termination of Letter of Credit. During the Variable Rate Period unless the Letter of Credit or the then current Alternate Credit Facility is replaced prior to its expiration in accordance with the terms of the Indenture, this Bond will become subject to mandatory redemption as provided in the Indenture. Source of Funds. The principal of, premium, if any, and interest on the Bonds are payable solely from payments on the Note, under the Loan Agreement and from any other moneys held by the Trustee under the Indenture for such purpose, including, with respect to principal and interest only, moneys drawn by the Trustee under the Letter of Credit or Alternate Credit Facility for the benefit of the Bondholders (the Bank as the issuer of the Letter of Credit and the institution issuing any Alternate Credit Facility are herein called the "Credit Facility Issuer"). Except as otherwise specified in the Indenture, this Bond is entitled to the benefits of the Indenture equally and ratably both as to principal (and redemption and purchase price) and interest with all other Bonds issued under the Indenture. INTEREST RATES Initial Interest Rate. The Bonds will bear interest from the Original Delivery Date to August 10, 1994 at the Initial Interest Rate. Variable Rate. After August 10, 1994, prior to (and including) the Conversion Date (hereinafter defined), the Bonds will bear interest at a rate equal to a floating rate established as hereinafter provided (herein called the "Variable Rate"). The Variable Rate will be equal to the rate of interest certified to the Trustee by First Union National Bank of North Carolina as remarketing agent for the Bonds (herein, with its successors in such capacity, called the "Remarketing Agent") on and as of each Wednesday (or the next succeeding Business Day (as defined in the Indenture) if such Wednesday is not a Business Day) (herein called the "Determination Date") as the minimum rate of interest necessary, in the judgment of the Remarketing Agent taking into account market conditions prevailing on the Determination Date, to enable the Remarketing Agent to arrange for the sale of all of the Bonds on the Determination Date in the secondary market at a price equal to the principal amount thereof (plus interest accrued to the date of settlement). If the Remarketing Agent fails to certify such rate, the Variable Rate for the next Calculation Period or Periods (hereinafter defined) until thereafter certified by the Remarketing Agent will remain the same as that most recently established and certified by the Remarketing Agent. In the event the Remarketing Agent fails to certify such rate for four (4) consecutive Calculation Periods, the rate for each Calculation Period thereafter (if none is certified by the Remarketing Agent) will be ninety percent (90%) of the yield for United States Treasury bills maturing approximately thirty (30) days after the Determination Date as published by The Wall Street Journal on such Determination Date (or, if The Wall Street Journal is no longer published, then any reasonably equivalent financial publication selected by the Remarketing Agent) (or the next preceding Business Day on which The Wall Street Journal is published if not published on the Determination Date). For purposes hereof, "Calculation Period" shall mean the period from and including the day following the Determination Date of each week (even if not a Business Day) to and including the following Determination Date; provided that if during the Variable Period the Determination Date at the end of such Calculation Period is a Regular Record Date, such Calculation Period will extend until the Business Day following such Determination Date. If, for any reason, the Variable Rate is not determined as described above or is held to be invalid or unenforceable by a court of competent jurisdiction for any period, the interest rate for each such period will be equal to eight percent (8.00%) per annum. Notwithstanding anything to the contrary contained herein or in the Indenture, the Variable Rate will not be a rate of interest in excess of fifteen percent (15.00%) per annum. Interest prior to the Conversion Date (hereinafter defined) will be computed on the basis of a three hundred sixty-five (365) or three hundred sixty-six (366) day year, as applicable, for the number of days actually elapsed, and will be payable on each Interest Payment Date. Fixed Rate. (a) The interest rate on this Bond will be converted to the Fixed Rate upon an election by the Company pursuant to the Indenture to convert the rate of interest on all Bonds then outstanding from the Variable Rate to the Fixed Rate upon satisfaction of certain conditions and notice given by the Company and by the Trustee in accordance with the requirements of the Indenture, and the Bonds shall be subject to mandatory tender for purchase by the owners thereof on the Conversion Date, which shall be an Interest Payment Date. On and after the Conversion Date the owners of the Bonds will not be entitled to tender Bonds for purchase. On or before the Conversion Date, the Placement Agent will determine the Fixed Rate in the manner described in subsection (c) below, and will promptly notify the Company and the Trustee of the Fixed Rate. (b) At least twenty (20) but not more than thirty (30) days prior to the Conversion Date, a notice will be mailed by the Trustee to each registered owner of Bonds stating, among other things, (1) the Conversion Date, (2) the name and address of the placement agent which has agreed to use its best efforts to arrange for the sale of any Bonds to be tendered or deemed tendered for purchase on the Conversion Date (herein called the "Placement Agent"), (3) that after the seventeenth (17th) day preceding the Conversion Date, the owner will not be entitled to deliver an Optional Tender Notice and that after the tenth (10th) day preceding the Conversion Date, the owner will not be entitled to tender this Bond for purchase as described below, (4) that this Bond will be deemed tendered for purchase on the Conversion Date, (5) that in order to receive payment of the purchase price of any Bond which is deemed to have been tendered, the registered owner of such Bond must deliver such Bond to the office of the Tender Agent before 10 a.m. Eastern time on the Conversion Date, and (6) that interest on any Bond will be payable only to (but not including) the Conversion Date. Any Bonds not so tendered on the Conversion Date ("Undelivered Bonds"), for which there has been irrevocably deposited in trust with the Trustee an amount of moneys sufficient to pay the purchase price of the Undelivered Bonds, shall be deemed to have been tendered and purchased at the purchase price. IN THE EVENT OF A FAILURE BY AN OWNER OF BONDS TO TENDER ITS BONDS ON OR PRIOR TO THE CONVERSION DATE, SAID OWNER SHALL NOT BE ENTITLED TO ANY PAYMENT (INCLUDING ANY INTEREST TO ACCRUE SUBSEQUENT TO THE CONVERSION DATE) OTHER THAN THE PURCHASE PRICE FOR SUCH UNTENDERED BONDS, AND ANY UNTENDERED BONDS SHALL NO LONGER BE ENTITLED TO THE BENEFITS OF THE INDENTURE, EXCEPT FOR THE PURPOSE OF PAYMENT OF THE PURCHASE PRICE THEREFOR. (c) Upon the Conversion Date stated in such notice, the Fixed Rate to be borne by the Bonds for the period beginning on the Conversion Date and ending on the Maturity Date or prior redemption of the Bonds (the "Fixed Rate"), will be the interest rate per annum which, in the sole judgment of the Placement Agent, taking into account prevailing financial market conditions, would be the minimum interest rate required to sell such Bonds on the Conversion Date at a price equal to 100% of the principal amount thereof. The Fixed Rate shall be determined by the Placement Agent on or before the Conversion Date, and the Placement Agent shall notify the Trustee and the Company thereof by telephone or such other manner as may be appropriate by not later than 2:00 p.m., Eastern time on such date, which notice shall be promptly confirmed in writing. (d) If, for any reason, the Fixed Rate is held to be invalid or unenforceable by a court of competent jurisdiction, the Fixed Rate will be eight percent (8.00%) per annum. Notwithstanding anything to the contrary contained herein or in the Indenture, the Fixed Rate will not be a rate of interest in excess of fifteen percent (15.00%) per annum. (e) The Fixed Rate will be computed on the basis of a three hundred sixty (360)-day year, computed for the actual number of days elapsed, and will be payable on each Interest Payment Date after the Conversion Date until the principal of, and premium, if any, and interest on the Bonds shall have been paid in full. Interest Rate Determination Binding. The determination of the interest rate on the Bonds by the Remarketing Agent or Placement Agent, as appropriate, in accordance with the terms of the Indenture will be conclusive and binding upon the registered owners of the Bonds, the Issuer, the Company, the Trustee, the Remarketing Agent, the Placement Agent, the Tender Agent and the Credit Facility Issuer. REDEMPTION OF BONDS Optional Redemption. (a) While the Bonds bear interest at the Variable Rate, the Bonds will be subject to redemption upon the written direction of the Issuer, given at the request of the Company, on any Interest Payment Date and on the Conversion Date, in whole or in part, at a redemption price equal to one hundred percent (100%) of the principal amount thereof without premium plus interest accrued to the redemption date. (b) While the Bonds bear interest at the Fixed Rate, the Bonds will be subject to redemption upon the written direction of the Issuer, given at the request of the Company, in whole or in part, on any Interest Payment Date occurring on or after the dates set forth below, at the redemption prices (with a premium expressed as a percentage of principal amount to be redeemed) set forth below plus interest accrued to the redemption date as follows: Commencement of Redemption Period Redemption Price The Business Day four 103%, declining by 1/2% on each (4) years from the succeeding anniversary of the first Conversion Date day of the redemption period until reaching 100% and thereafter at 100% (c) The Bonds will be subject to redemption upon the written direction of the Issuer, given at the request of the Company, at any time in whole or in part at a redemption price equal to one hundred percent (100%) of the principal amount thereof plus interest accrued to the redemption date in the event of damage, destruction or condemnation of the Project, all as more fully described in Section 701(b) of the Indenture. Mandatory Redemption. (a) The Bonds will be subject to mandatory redemption in whole on any date at a redemption price equal to one hundred percent (100%) of the principal amount thereof plus accrued interest to the redemption date within one hundred eighty (180) days after receipt by the Trustee of a written notice of a Determination of Taxability (as defined in the Loan Agreement). (b) During the Variable Rate Period, the Bonds will be subject to mandatory redemption in whole on the Interest Payment Date occurring closest to but not after fifteen (15) days prior to the date of expiration of the then current Credit Facility unless prior to such date an Alternate Credit Facility has been provided in accordance with the Indenture, at a redemption price or purchase price equal to one hundred percent (100%) of the principal amount thereof, without premium, plus interest accrued to the redemption date. Notice of Redemption and Selection of Bonds. Any notice of redemption, identifying the Bonds or portions thereof to be redeemed, will be given not more than sixty (60) days and not less than twenty (20) days prior to the redemption date, by mailing a copy of the redemption notice by first class mail to the owner of each Bond to be redeemed in whole or in part at the address shown on the Bond Register maintained by the Bond Registrar. Notice of optional redemption may be conditioned upon the deposit of moneys with the Trustee before the date fixed for redemption and such notice will be of no effect unless such moneys are so deposited. All Bonds so called for redemption, including Bonds purchased by the Company as provided in the Indenture but not yet surrendered for payment of the purchase price, will cease to bear interest on the specified redemption date provided funds for their redemption price and any accrued interest payable on the specified redemption date are on deposit at the principal place of payment at that time. If less than all the Bonds are to be redeemed, the particular Bonds to be called for redemption will be selected in the following order of priority: first, Bonds pledged to the Credit Facility Issuer; second, Bonds owned by the Company and third, Bonds selected by any random or other method determined by the Trustee in its sole discretion. Mandatory Purchase Upon Conversion to Fixed Rate. The Bonds will be subject to mandatory purchase in whole (and not in part) on the Conversion Date at a purchase price equal to one hundred percent (100%) of the principal amount thereof plus interest accrued thereon to the date of purchase. THE OWNER OF THIS BOND, BY ACCEPTANCE HEREOF, AGREES TO THE MANDATORY PURCHASE OF THIS BOND AS PROVIDED IN THE INDENTURE, AND AGREES THAT THIS BOND WILL BE PURCHASED ON THE DATE SPECIFIED UPON DEPOSIT WITH THE TRUSTEE OF AN AMOUNT SUFFICIENT TO PAY THE PURCHASE PRICE HEREOF. THE OWNER OF THIS BOND ALSO UNDERSTANDS AND AGREES THAT IN THE EVENT THE OWNER FAILS TO DELIVER THIS BOND, PROPERLY ENDORSED FOR TRANSFER, TO THE TRUSTEE ON THE DATE SPECIFIED, INTEREST WILL CEASE TO ACCRUE HEREON ON SUCH SPECIFIED DATE AND THE OWNER HEREOF WILL THEREAFTER BE ENTITLED ONLY TO PAYMENT OF THE PURCHASE PRICE AND NOT TO THE BENEFIT OF THE INDENTURE. Purchase at Option of the Owner During Variable Rate Period. While the Bonds bear interest at the Variable Rate, any Bond or portion thereof in an authorized denomination will be purchased on the demand of the owner thereof, on any Business Day at a purchase price equal to one hundred percent (100%) of the principal amount thereof plus interest accrued to the date of purchase upon delivery to the Tender Agent of an Optional Tender Notice in the form attached hereto as Exhibit A (herein called the "Optional Tender Notice") specifying the date on which such Bond will be purchased, which date will be a Business Day not prior to the seventh (7th) day after the date of delivery of the Optional Tender Notice. To receive payment of the purchase price, the owner will be required to deliver such Bond to the Tender Agent, accompanied by an executed form of assignment and any other instruments of transfer satisfactory to the Trustee, not less than five (5) days prior to the purchase date specified in such notice as provided in the Indenture; provided, however, that any owner which is an investment company registered pursuant to the Investment Company Act of 1940 may deliver such Bond to the Tender Agent at or prior to 10:00 a.m. on the date of purchase. No purchase of Bonds at the option of the owner thereof or on the Conversion Date will be deemed to be a payment or redemption of the Bonds or any portion thereof. Notwithstanding the foregoing, no owner will have a right to tender its Bond(s) for purchase as described in this paragraph following acceleration of the payment of the Bonds pursuant to the terms of the Indenture or after the Conversion Date. THE OWNER OF THIS BOND, BY ACCEPTANCE HEREOF, AGREES THAT DELIVERY OF THE WRITTEN NOTICE DESCRIBED IN THE PRECEDING PARAGRAPH BY THE OWNER CONSTITUTES AN IRREVOCABLE OFFER TO SELL THIS BOND ON THE DATE SPECIFIED, AND THAT THIS BOND WILL BE PURCHASED ON SUCH DATE UPON DEPOSIT WITH THE TENDER AGENT OF AN AMOUNT SUFFICIENT TO PAY THE PURCHASE PRICE HEREOF. THE OWNER OF THIS BOND ALSO UNDERSTANDS AND AGREES THAT IN THE EVENT THE OWNER FAILS TO DELIVER THIS BOND, PROPERLY ENDORSED FOR TRANSFER, TO THE TENDER AGENT ON THE DATE SPECIFIED IN THE NOTICE, THIS BOND WILL BE HELD BY THE OWNER AS AGENT FOR THE COMPANY, INTEREST WILL CEASE TO ACCRUE HEREON AS OF THE DATE SPECIFIED IN THE NOTICE AND THE OWNER HEREOF WILL THEREAFTER BE ENTITLED ONLY TO PAYMENT OF THE PURCHASE PRICE AND NOT TO THE BENEFITS OF THE INDENTURE AND THE ISSUER WILL, TO THE EXTENT PERMITTED BY LAW, EXECUTE AND THE TRUSTEE WILL AUTHENTICATE AND DELIVER A SUBSTITUTE BOND IN LIEU OF THE UNDELIVERED BOND. Tender Agent. The Issuer has appointed The First National Bank of Boston as Tender Agent. The Tender Agent may be changed at any time by the Company with the consent of the Trustee. Authorized Denominations. Subject to the provisions of the Indenture, the Bonds are issuable as registered Bonds in the denomination of One Hundred Thousand Dollars ($100,000) or any integral multiple of $5,000 in excess thereof; provided that if less than $100,000 in principal amount of Bonds is Outstanding, one Bond shall be issued in such smaller denomination; and provided further, that subsequent to the initial issuance of the Bonds, replacement or substitution Bonds or Bonds issued in exchange in accordance with the provisions of Section 205 of the Indenture may be issued in denominations of $5,000 or integral multiples thereof. Subject to the limitations provided in the Indenture and upon payment of any tax or governmental charge, if any, Bonds may be exchanged for a like aggregate principal amount of Bonds of other authorized denominations. Transfer. This Bond is transferable by the registered owner hereof or his duly authorized attorney at the principal corporate trust office of The First National Bank of Boston, as Bond Registrar, in Canton, Massachusetts, in compliance with the terms and conditions set forth in the Indenture and upon surrender of this Bond, provided that transfers in connection with the remarketing hereof will be made at the corporate trust office of the Trustee in Canton, Massachusetts, accompanied by a duly executed instrument of transfer in form satisfactory to the Bond Registrar, subject to such reasonable regulations as the Issuer, the Bond Registrar or the Trustee may prescribe and upon payment of any tax or other governmental charge incident to such transfer, PROVIDED THAT IF MONEYS FOR THE PURCHASE OF THIS BOND HAVE BEEN PROVIDED PURSUANT TO A DRAW UNDER THE CREDIT FACILITY, THIS BOND IS NOT TRANSFERABLE TO ANYONE OTHER THAN THE COMPANY OR ITS ASSIGNEE OR PLEDGEE. Upon any such transfer, the Trustee shall cause a new Bond or Bonds registered in the name of the transferee or transferees in denominations authorized by the Indenture and in the same aggregate principal amount as the principal amount of this Bond (and of the same maturity and bearing interest at the same rate) will be issued to the transferee. Except as set forth in this Bond and as otherwise provided in the Indenture, the person in whose name this Bond is registered will be deemed the owner hereof for all purposes, and the Issuer, the Bond Registrar and the Trustee will not be affected by any notice to the contrary. The owner of this Bond will have no right to enforce the provisions of the Indenture or to institute action to enforce the covenants therein, or to take any action with respect to any Event of Default under the Indenture or to institute, appear in or defend any suit or other proceeding with respect thereto, except as provided in the Indenture. In certain events, on the conditions, in the manner and with the effect set forth in the Indenture, the principal of this Bond may become or may be declared due and payable before the stated maturity hereof, together with the interest accrued hereon. Modifications or alterations of the Loan Agreement and the Indenture and any supplement or amendment thereto may be made only to the extent and in the circumstances permitted by the Indenture and may be made in certain cases without the consent of the owners of the Bonds. Anything herein or in the Indenture to the contrary notwithstanding, the obligations of the Issuer hereunder will be subject to the limitation that payment of interest to the owner of this Bond will not be required to the extent that receipt of any such payment by the owner of this Bond would be contrary to the provisions of law applicable to such Bond which limits the maximum rate of interest which may be charged or collected by such owner. In any case where the date of maturity of interest on or principal of the Bonds or the date fixed for redemption of the Bonds shall be in the city of payment a day other than a Business Day, then payment of interest or principal need not be made on such date but may be made on the next succeeding Business Day with the same force and effect as if made on the date of maturity or the date fixed for redemption, provided that interest will accrue for the period of any such extension. This Bond will be governed by and construed in accordance with the laws of the State of Florida. All acts, conditions and things required to happen, exist and be performed precedent to and in the issuance of this Bond and the execution of the Indenture have happened, exist and have been performed as so required. IN WITNESS WHEREOF, the Issuer has caused this Bond to be executed with the manual or facsimile signature of the Chairman or Vice Chairman of the Issuer, its official seal to be impressed or imprinted hereon and the same to be attested by the manual or facsimile signature of the Secretary or Assistant Secretary of the Issuer, all as of __________ ___, 1994. HILLSBOROUGH COUNTY INDUSTRIAL DEVELOPMENT AUTHORITY By: Chairman (Seal) Attest: By: Secretary * * * * * CERTIFICATE OF AUTHENTICATION This Bond is one of the Bonds of the series designated therein and issued under the provisions of the within-mentioned Indenture. The First National Bank of Boston, as Trustee By: Its: Authorized Signatory Date of Authentication: ________, 1994 * * * * * [FORM OF ASSIGNMENT TO APPEAR ON REVERSE OF BOND] FORM OF ASSIGNMENT FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE the within bond of the _______________________________ and does hereby constitute and appoint _________________ ______________ attorney to transfer the said bond on the books of the within named Issuer, with full power of substitution in the premises. Dated: In the presence of: Bondholder Signature Guaranteed: [End of Form of Bond] ; and NOW, THEREFORE, in consideration of the premises, of the acceptance by the Trustee of the trusts hereby created, and of the purchase and acceptance of the Bonds by the Bondholders, and also for and in consideration of the sum of One Dollar to the Issuer in hand paid by the Trustee at or before the execution and delivery of this Indenture, the receipt of which is hereby acknowledged, and for the purpose of fixing and declaring the terms and conditions upon which the Bonds are to be issued, delivered, secured and accepted by the Bondholders and any and all other persons who shall from time to time be or become owners thereof, and in order to secure the payment of the Bonds at any time issued and outstanding hereunder and the interest thereon according to their tenor, purport and effect, and in order to secure the performance and observance of all the covenants, agreements and conditions therein and herein contained; THE ISSUER DOES HEREBY PLEDGE AND ASSIGN, and grant a security interest unto the Trustee and its successors and assigns for the benefit of the owners of the Bonds all right, title and interest of the Issuer presently owned or hereafter acquired in and to the following (collectively, the "Trust Estate"): (a) The Loan Agreement (as the same may from time to time be supplemented or amended), including, but not limited to, all payments or installment purchase obligations due and to become due under the Note and the Loan Agreement whether made at their respective due dates or as prepayments permitted or required by the Loan Agreement together with full power and authority, in the name of the Issuer or otherwise, to demand, receive, enforce, collect or receipt for any or all of the foregoing, to endorse or execute any checks or other instruments or orders, to file any claims and to take any action which the Trustee may deem necessary or advisable in connection therewith, and the Issuer hereby irrevocably appoints the Trustee attorney-in-fact of the Issuer for such purposes, which appointment is coupled with an interest and is irrevocable; provided, however, that the Issuer shall continue to have all the rights, together with the Trustee, contained in the following sections of the Loan Agreement: (i) Section 7.1 (pertaining to the Issuer's right of access to the Project (as defined in the Loan Agreement)); (ii) Section 7.5 (pertaining to the Issuer's right to receive payment for certain costs and expenses); (iii) Section 7.6 (pertaining to the Issuer's right to certain indemnities); (iv) Section 7.7 (pertaining to the Issuer's right to release and indemnification); (v) Section 7.8 (pertaining to the Issuer's right to receive certain information); (vi) Section 8.1 (pertaining to the Issuer's right to consent or withhold consent to assignment of rights of the Company under the Loan Agreement or lease or sale of the Project); (vii) Sections 9.2(b), 9.3 and 9.5 (pertaining to the Issuer's right to reimbursement of expenses incurred upon a default); (viii) Sections 10.1(c), 10.2 and 10.3 (pertaining to the Issuer's right to notice of prepayments and rights upon the occurrence of certain events; (ix) Section 12.5 (pertaining to the Issuer's right to receive notices); and (x) Sections 12.12, 12.13 and 12.14 (pertaining to the limitations on the liability of the Issuer). (b) The Note of even date herewith of the Company to the Issuer in the original principal amount of $4,765,000 evidencing the Company's obligation to pay the purchase price pursuant to the Loan Agreement, together with interest thereon and other amounts with respect thereto, as provided for in the Loan Agreement, the Issuer having on this date endorsed, pledged and assigned the Note without recourse to the order of, and delivered the same to, the Trustee as security for the obligations of the Issuer to the Trustee hereinafter referred to. (c) All money or securities at any time on deposit in, in transit to or credited to any account or Fund created hereunder, including without limitation the Bond Fund and the Redemption Fund but excluding the Rebate Fund; (d) Revenues (as hereinafter defined); and it is so mutually agreed and covenanted by and between the parties hereto for the equal and proportionate benefit and security of the Bondholders without preference, priority or distinction as to lien or otherwise, except as hereinafter provided, of any one Bond over any other Bond, by reason of priority in the issue, sale or negotiation thereof or otherwise, for the benefit of the Bondholders and as security for the fulfillment of the obligations of the Issuer hereunder; TO HAVE AND TO HOLD the same forever, subject, however, to the exceptions, reservations and matters therein and herein recited but IN TRUST, nevertheless, for the benefit and security of the owners from time to time of the Bonds delivered hereunder and issued by the Issuer and outstanding or, to the extent set forth herein, for the benefit of the Credit Facility Issuer, so long as a Credit Facility is in place in respect of the Bonds; PROVIDED, HOWEVER, that if, after the right, title and interest of the Trustee in and to the Trust Estate pledged and assigned to it under this Indenture shall have ceased, terminated and become void in accordance with Article XIV hereof, the principal of and interest on the Bonds and any other obligations arising hereunder shall have been paid to the Bondholders or shall have been paid by the Company pursuant to Article XIV hereof, then, this Indenture and all covenants, agreements and other obligations of the Issuer hereunder shall cease, terminate and be void, and thereupon the Trustee shall cancel and discharge this Indenture and execute and deliver to the Issuer and the Company such instruments in writing as shall be required to evidence the discharge hereof; otherwise, this Indenture shall be and remain in full force and effect. THIS INDENTURE FURTHER WITNESSETH, and it is expressly declared, that the Bonds issued and secured hereunder are to be issued and delivered and the trust estate and other revenues and funds herein pledged and assigned are to be dealt with and disposed of under, upon and subject to the terms, conditions, stipulations, covenants, agreements, trusts, uses and purposes as hereinafter expressed, and the Issuer has agreed and covenanted, and does hereby agree and covenant, with the Trustee and with the owners of said Bonds, as follows, that is to say: ARTICLE I DEFINITIONS AND RULES OF CONSTRUCTION Section 101. Definitions. All words and terms defined in Article I of the Loan Agreement shall have the same meanings in this Indenture, unless otherwise specifically defined herein. In addition, the following words and terms as used in this Indenture shall have the following meanings unless some other meaning is plainly intended: "Act" shall mean all applicable provisions of the Constitution and laws of the State of Florida, including without limitation the Florida Industrial Development Financing Act, Parts II and III of Chapter 159, Florida Statutes, as amended from time to time, and the resolution of the Board of County Commissioners of Hillsborough County, Florida adopted on October 27, 1971 organizing the Issuer. "Alternate Credit Facility" shall mean an irrevocable direct pay letter of credit, insurance policy or similar credit enhancement or support facility for the benefit of the Trustee, the terms of which Alternate Credit Facility shall, in all respects material to the Bondholders, be the same (except for the term of such Alternate Credit Facility) as the Credit Facility that is replaced by such Alternate Credit Facility as set forth in Section 603 hereof. "Authenticating Agent" shall mean the Trustee and any agent so appointed pursuant to Section 207 hereof. "Available Moneys" shall mean: (a) any moneys which have been paid to the Trustee by the Company and which have been on deposit with the Trustee for at least three hundred sixty-seven (367) days during and prior to which no Event of Bankruptcy shall have occurred, and the proceeds from the investment of such moneys after such moneys have become Available Moneys, and (b) moneys on deposit with the Trustee representing proceeds from the resale by the Remarketing Agent of Bonds to persons other than the Issuer or the Company as described in Article III hereof, which, in each case, were at all times since their deposit with the Trustee held in a separate and segregated account or accounts or sub-account or sub-accounts in which no moneys were which were not Available Moneys were at any time held, and the proceeds from the investment thereof, and (c) moneys drawn under a Credit Facility which in each case were at all times since their deposit with the Trustee held in a separate and segregated account or accounts or sub-account or sub-accounts in which no moneys (other than those drawn under a Credit Facility) were at any time held. "Bank" shall mean First Union National Bank of North Carolina as the issuer of the Letter of Credit, and its successors and assigns. "Bank Account" shall mean the account of that name established in the Bond Purchase Fund pursuant to Section 302 hereof. "Bond" or "Bonds" shall mean any bond or bonds authenticated and delivered under this Indenture. "Bond Counsel" shall mean an attorney-at-law or a firm of attorneys of nationally recognized standing in matters pertaining to the tax-exempt nature of interest on bonds issued by states and their political subdivisions, duly admitted to the practice of law before the highest court of any state of the United States of America and approved by the Issuer. "Bond Fund" shall mean the trust fund so designated which is established pursuant to Section 502(a) hereof. "Bond Purchase Fund" shall mean the trust fund so designated which is established pursuant to Section 302 hereof. "Bond Register" shall have the meaning provided in Section 204 hereof. "Bond Registrar" shall mean the Bond Registrar as designated in Section 204 hereof. "Bondholder" or "Bondholders" or "owner" or "owners" shall mean the initial owner or owners and any future owner or owners of the Bond or Bonds as registered on the books and records of the Bond Registrar pursuant to Section 204 hereof. "Business Day" shall mean a day upon which banks in the State and in the States of Massachusetts and North Carolina are open for the transaction of business of the nature required pursuant to the Loan Agreement and this Indenture. "Calculation Period" shall mean the period from and including the day following the Determination Date of each week (even if not a Business Day) to and including the following Determination Date; provided, that if the Determination Date at the end of a Calculation Period is a Regular Record Date, such Calculation Period will extend until the Business Day following such Determination Date. "Company" shall mean Leslie Controls, Inc., a New Jersey corporation, and its successor or assigns and any surviving, resulting or transferee corporation or other entity. "Conversion Date" shall mean that Business Day elected by the Company in accordance with Section 202(e) of the Indenture as the effective date of conversion of the interest rate on the Bonds from the Variable Rate to the Fixed Rate, which date shall be an Interest Payment Date. "Counsel" shall mean an attorney or firm of attorneys acceptable to the Trustee (who may, but need not be, counsel to the Issuer or the Company). "Credit Facility" shall mean the Letter of Credit or any Alternate Credit Facility delivered to the Trustee pursuant to Article VI hereof. "Credit Facility Account" shall mean the account of that name established in the Bond Fund pursuant to Section 502 hereof. "Credit Facility Issuer" shall mean the Bank with respect to the Letter of Credit and the institution issuing any Alternate Credit Facility. "Defaulted Interest" has the meaning provided in Section 208 hereof. "Determination Date" shall mean Wednesday of each week or if Wednesday is not a Business Day then the next succeeding Business Day. "Event of Bankruptcy" shall mean a petition by or against the Company or the Issuer under any bankruptcy act or under any similar act which may be enacted which shall have been filed (other than bankruptcy proceedings instituted by the Company or the Issuer against third parties) unless such petition shall have been dismissed and such dismissal shall be final and not subject to appeal. "Event of Default" shall mean any of the events specified in Section 901 hereof to be an Event of Default. "Fixed Rate" shall mean the fixed annual rate of interest on the bonds determined by the Placement Agent pursuant to Section 202(e) hereof. If, for any reason, the Fixed Rate is held to be invalid or unenforceable by a court of competent jurisdiction, the Fixed Rate shall be equal to eight percent (8.00%) per annum. The Fixed Rate shall in no event exceed fifteen percent (15.00%). "Fixed Rate Period" shall mean the period during which the Fixed Rate is in effect, which shall be the period beginning on the Conversion Date and ending on the Maturity Date. "Governmental Obligations" shall mean: (i) direct obligations of the United States of America for the full and timely payment of which the full faith and credit of the United States of America is pledged, (ii) obligations issued by a Person controlled or supervised by and acting as an instrumentality of the United States of America, the full and timely payment of which is unconditionally guaranteed as a full faith and credit obligation of the United States of America, and (iii) securities or receipts evidencing ownership interests in obligations or specified portions (such as principal or interest) of obligations described in clause (i) or (ii) above the full and timely payment of which securities, receipts or obligations is unconditionally guaranteed by the United States of America, which obligations, securities or receipts are not subject to redemption prior to maturity at less than par at the option of anyone other than the holder thereof. "Indenture" shall mean this Indenture as amended or supplemented at the time in question. "Initial Interest Rate" shall mean the initial rate of interest of 3.15 % per annum on the Bonds. "Initial Rate Period" shall mean from and including the Original Delivery Date to and including August 10, 1994. "Interest Payment Date" shall mean the first Business Day of each March, June, September and December commencing on the first Business Day of September, 1994, and ending on the Maturity Date of the Bonds. "Investment Obligations" shall mean: (a) any Government Obligations; (b) any bonds or other obligations of the United States of America which as to principal and interest constitute direct obligations of the United States of America, or any obligations of subsidiary corporations of the United States of America fully guaranteed as to payment by the United States of America; (c) obligations of the Federal Land Bank; (d) obligations of the Federal Home Loan Bank; (e) obligations of the Federal Intermediate Credit Bank; (f) bonds or obligations issued by any public housing agency or municipal corporation in the United States of America, which such bonds or obligations are fully secured as to the payment of both principal and interest by a pledge of annual contributions under an annual contributions contract or contracts with the United States government, or project notes issued by any public housing agency, urban renewal agency, or municipal corporation in the United States of America which are fully secured as to payment of both principal and interest by a requisition, loan, or payment agreement with the United States government; (g) interest-bearing savings accounts (including that of the Trustee), interest-bearing certificates of deposit or interest-bearing time deposits or any other investments constituting direct obligations of any bank which has deposits insured by the Federal Deposit Insurance Corporation; provided that such accounts, certificates of deposits, time deposits, or investments are either (a) insured by the Federal Deposit Insurance Corporation, or (b) secured by the deposit with any national or state bank located within the State of any Government Obligation; (h) short term obligations of corporations organized under the laws of any state with assets exceeding $500,000,000 if (i) such obligations are rated within the two (2) highest categories established by Moody's and S&P and which mature no later than one hundred eighty (180) days from the date of purchase and (ii) the purchases do not exceed ten (10%) percent of such corporation's outstanding obligations; (i) money market mutual funds registered under the Investment Company Act of 1940, as amended, provided that the portfolio of any such money market fund is limited to Government Obligations and to agreements to purchase Government Obligations; and (j) repurchase agreements with respect to obligations included in subsections (a) through (i) above and any other investments to the extent at the time permitted by then applicable law for the investment of public funds. "Issuer" shall mean the Hillsborough County Industrial Development Authority, a corporate governmental agency, constituting a public benefit corporation and existing pursuant to the constitution and laws of the State including the Act. "Letter of Credit" shall mean the irrevocable direct pay letter of credit dated August 4, 1994, in the amount of $5,003,250 issued by the Bank, including any extensions thereof. "Loan Agreement" shall mean the Loan Agreement of even date herewith between the Issuer and the Company and any amendments or supplements thereof permitted by this Indenture. "Majority of the Bondholders" shall mean the owners of a majority of the aggregate principal amount of the Outstanding Bonds. "Maturity Date" shall mean the first business day of August, 2019. "Moody's" shall mean Moody's Investors Service, Inc. a Delaware corporation, its successors and assigns, and, if such corporation shall be dissolved or liquidated or shall no longer perform the functions of a securities rating agency, "Moody's" shall be deemed to refer to any other nationally recognized securities rating agency designated by the Trustee, with the consent of the Company and the Credit Facility Issuer. "Note" shall mean the promissory note given by the Company pursuant to the provisions of the Loan Agreement, substantially in the form attached thereto. "Optional Tender Notice" shall mean a notice from the owner of a Bond to the Tender Agent in the form attached to the Bond as Exhibit A. "Original Delivery Date" shall mean August 4, 1994. "Outstanding" in connection with Bonds shall mean, as of the time in question, all Bonds authenticated and delivered under the Indenture, except: (i) Bonds theretofore canceled or required to be cancelled under Section 212 hereof; (ii) Bonds which are deemed to have been paid in accordance with Article XIV hereof; and (iii) Bonds in substitution for which other Bonds have been authenticated and delivered pursuant to Article II hereof. In determining whether the owners of a requisite aggregate principal amount of Bonds Outstanding have concurred in any request, demand, authorization, direction, notice, consent or waiver under the provisions hereof, Bonds which are held by or on behalf of the Company (unless all of the outstanding Bonds are then owned by the Company) or an Affiliate of the Company (as defined below) shall be disregarded for the purpose of any such determination. For the purpose of this paragraph, an "Affiliate" of any specified entity shall mean any other entity directly or indirectly controlling or controlled by or under direct or indirect common control with such specified entity and "control", when used with respect to any specific entity, shall mean the power to direct the management and policies of such entity, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. "Payments Account" shall mean the account of that name established in the Bond Fund pursuant to Section 502 hereof. "Placement Agent" shall mean the securities dealer, bank or trust company which is designated by the Company with the consent of the Credit Facility Issuer and which will agree to establish the Preliminary Fixed Rate and to use its best efforts to arrange for the sale of Tendered Bonds on the Conversion Date, all as more particularly described in Section 202(e) hereof. "Pledge Agreement" shall mean the Pledge Agreement of even date herewith by the Company to the Bank, and any amendments or supplements thereof. "Pledged Revenues" means and shall include the payments required to be made by the Company under the Loan Agreement except payments to be made to the Trustee for services rendered as Trustee under the Indenture and as Bond Registrar and paying agent for the Bonds and except for expenses, indemnification and other payments required to be made pursuant to Sections 7.5 and 7.6 of the Loan Agreement. "Principal Office" of the Trustee or Bond Registrar shall mean the office at which, at the time in question, its corporate trust business is principally conducted. "Prior Bonds" means the $7,200,000 Hillsborough County Industrial Development Authority Industrial Development Revenue Bonds (Leslie Controls, Inc. Project), Series 1986. "Prior Trustee" means First Florida Bank, N.A., as trustee under a Trust Indenture dated as of April 18, 1986 between Hillsborough County Industrial Development Authority and First Florida Bank, N.A. "Private Placement Memorandum" shall mean the Private Placement Memorandum dated August 4, 1994, relating to the Bonds. "Regular Record Date" shall mean: (i) in respect of any Interest Payment Date during the Variable Rate Period, the close of business on the Business Day immediately preceding each such Interest Payment Date, and (ii) in respect of any Interest Payment Date during the Fixed Rate Period, the fifteenth (15th) day (whether or not a Business Day) of the calendar month immediately preceding each such Interest Payment Date. "Reimbursement Agreement" shall mean the Letter of Credit, Reimbursement and Guaranty Agreement of even date herewith by and among the Company, Watts Industries, Inc., as guarantor, and the Bank, as the same may be amended from time to time and filed with the Trustee, and any agreement of the Company with a Credit Facility Issuer setting forth the obligations of the Company to such Credit Facility Issuer arising out of any payments under a Credit Facility and which provides that it shall be deemed to be a Reimbursement Agreement for the purpose of this Indenture. "Remarketing Account" shall mean the account of that name established in the Bond Purchase Fund pursuant to Section 302 hereof. "Remarketing Agent" shall mean First Union National Bank of North Carolina and its successors as provided in Section 1201 hereof. "Remarketing Agreement" shall mean the Remarketing Agreement of even date herewith between the Company and the Remarketing Agent and any amendments and supplements thereof. "Requisite Bondholders" shall mean the owners of more than two-thirds (2/3rds) in aggregate principal amount of the Outstanding Bonds. "Responsible Officer" when used with respect to the Trustee shall mean the chairman or vice-chairman of the board of directors, the chairman or vice-chairman of the executive committee of the board of directors, the president, any vice president, the secretary, any assistant secretary, the treasurer, any assistant treasurer, the cashier, any assistant cashier, any trust officer or assistant trust officer, the controller and any assistant controller or any other officer of the Trustee customarily performing functions similar to those performed by any of the above designated officers of banking institutions with trust powers and also shall mean, with respect to a particular corporate trust matter, any other officer to whom such matter is referred because of his knowledge of and familiarity with the particular subject. "Revenues" shall mean: (i) all amounts payable to the Trustee with respect to the principal or redemption price of, or interest on the Bonds (a) by the Company under the Note, and (b) by the Credit Facility Issuer under a Credit Facility, and (ii) investment income with respect to any moneys held by the Trustee in the Bond Fund or the Redemption Fund. "Security interest" or security interests" refers to the security interests created herein and in the Security Instruments and shall have the meaning set forth in the Uniform Commercial Code. "S&P" shall mean Standard & Poor's Corporation, a New York corporation, its successors and assigns, and, if such corporation shall be dissolved or liquidated or shall no longer perform the functions of a securities rating agency, "S&P" shall be deemed to refer to any other nationally recognized securities rating agency designated by the Trustee, with the consent of the Company and the Credit Facility Issuer. "Special Record Date" shall mean for purpose of payment of Defaulted Interest on the Bonds, the date fixed by the Trustee pursuant to Section 208 hereof. "State" shall mean the State of Florida. "Subsidiary" shall mean any corporation, association or other business entity of which more than fifty percent (50%) of the issued and outstanding stock or equivalent thereof having ordinary voting power is, at the time at which any determination is being made, owned or controlled by the Company or by one or more Subsidiaries or other affiliates of the Company. "Tender Agent" shall mean The First National Bank of Boston and its successors as provided in Section 1202 hereof. "Tender Agency Agreement" shall mean the Tender Agency Agreement of even date herewith among the Company, the Trustee and the Tender Agent. "Tendered Bonds" shall mean those Bonds tendered or deemed tendered by the owners for purchase pursuant to an Optional Tender Notice or on the Conversion Date. "Trustee" shall mean The First National Bank of Boston and its successor in the trust hereunder. "Undelivered Bond" shall mean: (i) any Bond for which an Optional Tender Notice has been given pursuant to Section 203 hereof and which has not been delivered to the Tender Agent on the date specified for purchase and (ii) any Bond which has not been delivered to the Trustee for redemption or purchase on any mandatory redemption or purchase date or the Conversion Date; provided that in either case the Trustee has on hand and available on such date funds sufficient to purchase or redeem said Bond. "Variable Rate" shall mean a variable interest rate established after the Initial Rate Period as the rate of interest determined by the Remarketing Agent on and as of each Determination Date as the minimum rate of interest necessary, in the judgment of the Remarketing Agent, taking into account market conditions prevailing on the Determination Date, to enable the Remarketing Agent to arrange for the sale of all of the Bonds on the Determination Date in the secondary market at a price equal to the principal amount thereof (plus interest accrued to the date of settlement). If the Remarketing Agent fails to certify such rate, the Variable Rate for the next succeeding Calculation Period or Periods until thereafter certified by the Remarketing Agent shall remain the same as that most recently established and certified by the Remarketing Agent until thereafter certified by the Remarketing Agent or adjusted as set forth in the next succeeding sentence. In the event the Remarketing Agent fails to certify such rate for four (4) consecutive Calculation Periods, such rate for each Calculation Period thereafter (if none is certified by the Remarketing Agent) shall be ninety percent (90%) of the yield for United States Treasury bills maturing approximately thirty (30) days after the Determination Date for such Calculation Period as published by The Wall Street Journal on such Determination Date (or the next Business Day on which The Wall Street Journal is published if not published on the Determination Date) (or, if The Wall Street Journal is no longer published, then any reasonably equivalent financial publication selected by the Remarketing Agent); provided that if during the Variable Period the Determination Date at the end of each such Calculation Period is a Regular Record Date, such Calculation Period will extend until the Business Day following such Determination Date. A Bondholder may request the Variable Rate in effect from time to time with respect to the Bonds from the Trustee or the Remarketing Agent. If, for any reason, the Variable Rate is not determined as described above or is held to be invalid or unenforceable by a court of competent jurisdiction for any period, the interest rate for each such period shall be equal to eight percent (8.00%) per annum. The Variable Rate shall not be a rate in excess of fifteen percent (15.00%) per annum. "Variable Rate Period" shall mean that period during which a Variable Rate is in effect on the Bonds. "Variable Rate Purchase Date" shall mean while the Bonds bear interest at the Variable Rate, any Business Day (prior to and including the date which is the tenth day preceding the Conversion Date) on which the Bonds may be tendered for purchase at the option of the owner thereof in accordance with Section 203 hereof. Section 102. Rules of Construction. (a) Words of the masculine gender shall be deemed and construed to include correlative words of the feminine and neuter genders. Unless the context shall otherwise indicate, the words "Bond, "owner", "Bondholder", "Bondholder of Record" and "person" shall include the plural as well as the singular number; the word "person" shall include any individual, corporation, partnership, joint venture, association, joint-stock company, trust, unincorporated organization or government or any agency or political subdivision thereof; and the word "Bondholder" when used herein with respect to the Bonds shall mean the registered owner of any of the Bonds. (b) Words importing the redemption or calling for redemption of the Bonds shall not be deemed to refer to or connote payment of Bonds at their stated maturity. (c) The Table of Contents, captions and headings in this Indenture are for convenience only and in no way limit the scope or intent of any provision or section of this Indenture. (d) All references herein to particular articles or sections are references to articles or sections of this Indenture unless some other reference is indicated. (e) All references herein to the Code or the 1954 Code or any particular provision or section thereof shall be deemed to refer to any successor, or successor provision or section, thereof, as the case may be. (f) All references herein to time shall be Charlotte, North Carolina time. ARTICLE II THE BONDS Section 201. Amount, Terms, and Issuance of the Bonds. (a) The Bonds shall be limited to $4,765,000 in aggregate principal amount and shall contain substantially the terms recited in the form of Bond above and as set forth in this Indenture. No Bonds may be issued under this Indenture except in accordance with this Article II. No additional bonds shall be issued under this Indenture. (b) The Issuer may cause a copy of the text of the opinion of Bond Counsel delivered in connection with the issuance of the Bonds to be printed on any of the Bonds. The Bonds may bear such endorsement or legend satisfactory to the Trustee as may be required to conform to usage or law with respect thereto, including the imposition of CUSIP or other identifying numbers. (c) Upon satisfaction of the conditions set forth in Section 213 hereof, the Issuer shall issue the Bonds, and the Trustee shall, at the Issuer's request, authenticate the Bonds and deliver them as specified in the request. Section 202. Designation, Denominations, Maturity Date and Interest Rates of the Bonds. (a) Designation, Denominations, Maturity Date. The Bonds shall be designated "$4,765,000 Hillsborough County Industrial Development Authority Industrial Development Revenue Refunding Bonds (Leslie Controls, Inc. Project), Series 1994." The Bonds shall be issuable as fully registered Bonds in the denominations of $100,000 or any integral multiple of $5,000 in excess thereof; provided that if less than One Hundred Thousand Dollars ($100,000) principal amount of Bonds is outstanding one Bond shall be issued in such smaller denomination; and provided further, that subsequent to the initial issuance of the Bonds, replacement or substitution Bonds or Bonds issued in exchange in accordance with the provisions of Section 205 hereof may be issued in denominations of $5,000 and integral multiples thereof. All Bonds shall bear the date of their authentication, shall bear interest from the most recent date to which interest has been paid or duly provided for, or, if authenticated on an Interest Payment Date, from that date, or, if no interest has been paid or duly provided for, from the date of authentication, and shall mature, subject to prior redemption as provided in Article VII hereof, on the first business day of August, 2019. The Bonds shall be numbered from "1" consecutively upwards prefixed by the letter "R". (b) Interest Rates. The Bonds shall bear interest at the applicable rate provided below. On each Interest Payment Date, interest accrued through the day immediately preceding such Interest Payment Date shall be payable. While the Bonds bear interest at a Variable Rate interest on the Bonds shall be computed on the basis of a year of three hundred sixty-five (365) or three hundred sixty-six (366) days, as applicable, for the number of days actually elapsed. From and including the Conversion Date, and thereafter, interest on the Bonds shall be computed on the basis of a three hundred sixty (360) day year for the number of days actually elapsed. (c) Initial Interest Rate. For the Initial Rate Period, the Bonds shall bear interest at the Initial Interest Rate. (d) Variable Rate. Following the Initial Rate Period and until the Conversion Date, the Bonds shall bear interest at the Variable Rate. During the Variable Rate Period, the Remarketing Agent shall determine the interest rate for the Bonds on each Determination Date. The Remarketing Agent shall give notice by telephone, telecopier, telex, telegram or other telecommunication device, and upon request shall confirm in writing, on the Determination Date to the Trustee and the Company of the interest rate to be in effect for the following Calculation Period. The determination of the Variable Rate by the Remarketing Agent shall be conclusive and binding upon the Bondholders, the Issuer, the Company, the Trustee, the Tender Agent and the Remarketing Agent. Any owner may request the Variable Rate in effect from time to time with respect to the Bonds from the Trustee or the Remarketing Agent. (e) Fixed Rate; Conversion to Fixed Rate. (1) The Company has a one-time option to convert the interest rate payable on the Bonds from the Variable Rate to the Fixed Rate effective on an Interest Payment Date following compliance by the Company with the provisions of this Section 202(e). The Bonds shall be subject to mandatory tender for purchase by the Owners thereof on the Conversion Date. To exercise the option to convert, the Company shall deliver or mail by first class mail (i) a notice to the Trustee and the Credit Facility Issuer with respect to the determination of the Company to convert the interest rate on the Bonds from the Variable Rate to the Fixed Rate, which notice shall be delivered to the Trustee at least thirty (30) but not more than forty-five (45) days prior to the Conversion Date, and (ii) the opinion of Bonds Counsel described in Section 202(f) hereof. The Trustee shall then deliver or mail by first class mail a notice in substantially the form attached hereto as Exhibit B at least twenty (20) days but not more than thirty (30) days prior to the Conversion Date to the Owner of each Bond at the address shown on the registration books of the Issuer. Any notice given by the Trustee as provided in this Section shall be conclusively presumed to have been duly given, whether or not the Owner receives the notice. Failure to mail any such notice, or the mailing of defective notice, to any Owner, shall not affect the proceeding for purchase as to any Owner to whom proper notice is mailed. Said notice shall state, among other things, (1) the Conversion Date, (2) the name and address of the placement agent which has agreed to use its best efforts to arrange for the sale of any bonds to be tendered or deemed tendered for purchase on the Conversion Date (herein called the "Placement Agent"), (3) that after the seventeenth (17th) day preceding the Conversion Date, the owner will not be entitled to deliver an Optional Tender Notice and that after the tenth (10th) day preceding the Conversion Date, the owner will not be entitled to tender this Bond for purchase as described below, (4) that this Bond will be deemed tendered for purchase on the Conversion Date, (5) that in order to receive payment of the purchase price of any Bond which is deemed to have been tendered, the registered owner of such Bond must deliver such Bond to the office of the Tender Agent before 10 a.m. Eastern time on the Conversion Date specifying such address, and (6) that interest on any Bond will be payable only to (but not including) the Conversion Date. As described above, Owners of Bonds shall be required to tender their Bonds on the Conversion Date to the Tender Agent for purchase at the purchase price, and any such Bonds not so tendered on the Conversion Date ("Undelivered Bonds"), for which there has been irrevocably deposited in trust with the Trustee an amount of moneys sufficient to pay the Purchase Price of the Untendered Bonds, shall be deemed to have been tendered and purchased pursuant to this Section 202(e). IN THE EVENT OF A FAILURE BY AN OWNER OF BONDS TO TENDER ITS BONDS ON OR PRIOR TO THE CONVERSION DATE, SAID OWNER SHALL NOT BE ENTITLED TO ANY PAYMENT (INCLUDING ANY INTEREST TO ACCRUE SUBSEQUENT TO THE CONVERSION DATE) OTHER THAN THE PURCHASE PRICE FOR SUCH UNTENDERED BONDS, AND ANY UNTENDERED BONDS SHALL NO LONGER BE ENTITLED TO THE BENEFITS OF THIS INDENTURE, EXCEPT FOR THE PURPOSE OF PAYMENT OF THE PURCHASE PRICE THEREFOR. (2) On or before the proposed Conversion Date, the Placement Agent shall determine the Fixed Rate as of such date in the manner described in subsection (4) below and shall notify the Trustee and the Company of the Fixed Rate by telephone, telecopier, telex, telegram or other telecommunication device and upon request, shall confirm such notice in writing. (3) Any owner of Bonds to be converted to a Fixed Rate shall be deemed to have tendered its Bonds to the Tender Agent. Said owner shall not be entitled to any payment (including any interest to accrue subsequently to the Conversion Date) other than the purchase price for such Bonds which shall be equal to the unpaid principal amount of such Bonds, and any such Bonds shall no longer be entitled to the benefits of this Indenture, except for the purpose of payment of the purchase price therefor and interest payable on the Conversion Date. Payment of the purchase price of any such Bonds shall be made only upon the presentment and surrender of such Bonds to the Tender Agent. Upon request, the Trustee shall provide the Tender Agent with the address set forth on the Bond Register for such owner. In the case of any Bond deemed tendered, the Issuer shall cause to be executed, and the Trustee shall authenticate and deliver to the new owner as provided in Section 301 hereof a new Bond of like date and tenor in lieu of and in substitution for such Bond deemed to be tendered. (4) On or before the Conversion Date, the Fixed Rate shall be the interest rate per annum which, in the sole judgment of the Placement Agent, taking into account prevailing financial market conditions, would be the minimum interest rate required to sell such Bonds on the Conversion Date at a price equal to the 100% of the principal amount thereof. The Fixed Rate shall be determined by the Placement Agent on or before the Conversion Date, and the Placement Agent shall notify the Trustee and the Company thereof by telephone or such other manner as may be appropriate by not later than 2:00 p.m., Eastern time, on the Conversion Date, which notice shall be promptly confirmed in writing. (f) Condition to Conversion; Additional Notices. (1) As a condition to the giving of notice as provided in Section 202(e) above, the Company shall provide the Trustee with an opinion of Bond Counsel to the effect that the proposed conversion of the interest rate on the Bonds will not cause the interest on the Bonds to be includable in the gross income of the owners thereof for federal income tax purposes. (2) The delivery by the Company to the Trustee of a letter from Bond Counsel confirming the opinion required prior to the notification described above on such Conversion Date is a condition precedent to any such Conversion. In the event that the Company fails to deliver to the Trustee the letter of Bond Counsel referred to in the preceding sentence, such Conversion shall not take effect, and the Bonds shall continue to bear interest at the Variable Rate. (3) The Trustee shall provide the Tender Agent with a copy of any notice delivered to the owners of the Bonds pursuant to Section 202 hereof. Section 203. Optional Tender Provisions of the Bonds. (a) While the Bonds bear interest at the Variable Rate, any Bond or portion thereof in an authorized denomination (other than a Bond registered in the name of the Company) shall be purchased on the demand of the owner thereof, on any Business Day at a purchase price equal to one hundred percent (100%) of the principal amount thereof plus interest accrued to the date of purchase, if the owner of such Bond delivers to the Tender Agent at its address filed with the Trustee an Optional Tender Notice at least seven (7) days prior to the Variable Rate Purchase Date specified in such Notice. (b) Any Optional Tender Notice delivered pursuant to the preceding subsection shall automatically constitute: (1) an irrevocable offer to sell such bond on the Variable Rate Purchase Date at a price equal to one hundred percent (100%) of the principal amount of such Bond plus interest accrued to the Variable Rate Purchase Date; and (2) an irrevocable authorization and instruction to the Bond Registrar to effect transfer of such Bond to the purchaser thereof on the Variable Rate Purchase Date. No purchase of Bonds pursuant to the provisions of this Section 203 shall be deemed a redemption thereof. (c) Any owner who delivers an Optional Tender Notice pursuant to this Section 203 shall deliver such Bond to the Tender Agent, at its address filed with the Trustee, not less than five (5) days prior to the Variable Rate Purchase Date specified in the aforesaid Optional Tender Notice; provided, however, that any Bond owner which is an investment company registered under the Investment Company Act of 1940 may deliver Bonds owned by it to the Tender Agent at its address filed with the Trustee, at or prior to 10:00 a.m. on the Variable Rate Purchase Date. All Bonds delivered to the Tender Agent pursuant to this Section 203 must be duly endorsed for transfer in blank in form satisfactory to the Trustee. (d) If a Bondholder who gives the Optional Tender Notice shall fail to deliver the Bond or Bonds identified in the Optional Tender Notice to the Tender Agent at or prior to 10:00 a.m. on the Variable Rate Purchase Date, such Undelivered Bond shall be purchased and shall cease to accrue interest on such Variable Rate Purchase Date and the owner thereof shall thereafter be entitled only to payment of the purchase price therefor and not to the benefits of this Indenture, and the Issuer, to the extent permitted by law, shall execute and the Trustee or the Authenticating Agent shall authenticate and deliver a substitute Bond or Bonds in lieu of the Undelivered Bond and the Bond Registrar shall register such Bond in the name of the purchaser or purchasers thereof pursuant to Section 205 hereof. The Tender Agent shall notify the Trustee and the Bond Registrar of any Undelivered Bonds. The Trustee shall (1) notify the Remarketing Agent of such Undelivered Bond and (2) place a stop transfer against such Undelivered Bonds until the Undelivered Bonds are properly delivered to the Tender Agent. Payment of the purchase price of any such Undelivered Bonds shall be made only upon the presentment and surrender of such Bonds to the Tender Agent. Upon notice of such delivery, the Bond Registrar shall make any necessary adjustment to the Bond Register. (e) Notwithstanding anything to the contrary contained herein, the rights of the owners to tender Bonds pursuant to this Section 203 shall cease immediately and without further notice from and including the date payment of the Bonds is accelerated following an Event of Default pursuant to Article IX hereof. Section 204. Registered Bonds Required; Bond Registrar and Bond Register. (a) All Bonds shall be issued in fully registered form. The Bonds shall be registered upon original issuance and upon subsequent transfer or exchange as provided in this Indenture. (b) The Issuer shall designate one or more persons to act as "Bond Registrar" for the Bonds, provided that the Bond Registrar appointed for the Bonds shall be either the Trustee or a person which would meet the requirements for qualification as a successor trustee imposed by Section 1014 hereof. The Issuer hereby appoints The First National Bank of Boston as its Bond Registrar in respect of the Bonds. Any person other than the Trustee undertaking to act as Bond Registrar shall first execute a written agreement, in form satisfactory to the Trustee, to perform the duties of a Bond Registrar under this Indenture, which agreement shall be filed with the Trustee and the Tender Agent. (c) The Bond Registrar shall act as registrar and transfer agent for the Bonds. There shall be kept at an office of the Bond Registrar a register (herein sometimes referred to as the "Bond Register") in which, subject to such reasonable regulations as the Issuer, the Trustee or the Bond Registrar may prescribe, there shall be provisions for the registration of the Bonds and for the registration of transfers of the Bonds. The Issuer shall cause the Bond Registrar to designate, by a written notification to the Trustee, a specific office location (which may be changed from time to time, upon similar notification) at which the Bond Register is kept. In the absence of a specific designation by the Bond Registrar, the principal corporate trust office of the Trustee in Canton, Massachusetts shall be deemed such office in respect of the Bonds for which the Trustee is acting as Bond Registrar. Section 205. Transfer and Exchange. (a) Upon surrender for transfer of any Bond at the office of the Bond Registrar, the Issuer shall execute and the Trustee or its Authenticating Agent shall authenticate and deliver in the name of the transferee or transferees, one or more new fully registered Bonds of authorized denomination for the aggregate principal amount which the new owner is entitled to receive; provided that if moneys for the purchase of such Bond have been provided pursuant to a draw under the Credit Facility, such Bond shall not be transferable to any one other than the Company or its assignee or pledgee. Except for transfers in connection with the purchase of Bonds pursuant to Section 203 hereof and the remarketing thereof pursuant to Article III, which shall be effected at the office of the Tender Agent in Canton, Massachusetts, Bonds shall be surrendered for transfer at the principal corporate trust office of the Trustee in Canton, Massachusetts. Also, the Issuer shall execute and the Trustee or its Authenticating Agent shall authenticate and deliver Bonds in lieu of Undelivered Bonds. (b) Bonds may be exchanged for other Bonds of any other authorized denomination, of a like aggregate principal amount, upon surrender of the Bonds to be exchanged at the principal corporate trust office of the Bond Registrar or Trustee; provided, however, that in connection with the purchase of Bonds tendered for purchase and the remarketing thereof pursuant to Article III hereof, Bonds may be exchanged at the principal office of the Tender Agent, or any office of any agent designated by, the Trustee. Whenever any Bonds are so surrendered for exchange, the Issuer shall execute, and the Trustee or its Authenticating Agent shall authenticate and deliver, the Bonds which the Bondholder making the exchange is entitled to receive. (c) All Bonds presented for transfer, exchange, redemption or payment (if so required by the Issuer, the Bond Registrar or the Trustee) shall be accompanied by a written instrument or instruments of transfer or authorization for exchange, in form satisfactory to the Bond Registrar, which may include a signature guarantee, duly executed by the owner or by his attorney duly authorized in writing. (d) No service charge shall be made to a Bondholder for any exchange or transfer of Bonds, but the Issuer or the Bond Registrar may require payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto. (e) Except in connection with the purchase of Bonds pursuant to Section 203 hereof and the remarketing thereof pursuant to Article III hereof, neither the Issuer nor any Bond Registrar on behalf of the Issuer shall be required to issue, transfer or exchange any Bond selected for redemption in whole or in part. (f) New Bonds delivered upon transfer or exchange shall be valid obligations of the Issuer, evidencing the same debt as the Bond surrendered, shall be secured by this Indenture and shall be entitled to all of the security and benefits hereof to the same extent as the Bonds surrendered; Section 206. Execution. (a) The Bonds shall be executed by the manual or facsimile signature of the Chairman, the seal of the Issuer shall be affixed, imprinted, lithographed or reproduced thereon and the same shall be attested by the manual or facsimile signature of the Secretary. (b) Bonds executed as above provided may be issued and shall, upon request of the Issuer, be authenticated by the Trustee or the Authenticating Agent, notwithstanding that any officer signing such Bonds or whose facsimile signature appears thereon shall have ceased to hold office at the time of issuance or authentication or shall not have held office at the date of the Bond. Section 207. Authentication; Authenticating Agent. (a) No Bond shall be valid for any purpose until the Trustee's Certificate of Authentication thereon shall have been duly executed as provided in this Indenture, and such authentication shall be conclusive proof that such Bond has been duly authenticated and delivered under this Indenture and that the owner thereof is entitled to the benefit of the trust hereby created subject to the provisions of Section 203(d) and Article XIV hereof. (b) If the Bond Registrar is other than the Trustee, the Trustee may appoint the Bond Registrar as an Authenticating Agent with the power to act on the Trustee's behalf and subject to its direction in the authentication and delivery of Bonds in connection with transfers and exchanges under Section 205 hereof, and the authentication and delivery of Bonds by an Authenticating Agent pursuant to this Section shall, for all purposes of this Indenture, be deemed to be the authentication and delivery "by the Trustee". The Trustee shall, however, itself authenticate all Bonds upon their initial issuance. The Authenticating Agent may authenticate Bonds in substitution for Undelivered Bonds. The Authenticating Agent shall be entitled to reasonable compensation from the Company for its services. (c) Any corporation into which any Authenticating Agent may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, consolidation or conversion to which any Authenticating Agent shall be a party, or any corporation succeeding to the corporate trust business of any Authenticating Agent, shall be the successor of the Authenticating Agent hereunder, if such successor corporation is otherwise eligible as a Bond Registrar under Section 204 hereof, without the execution or filing of any further document on the part of the parties hereto or the Authenticating Agent or such successor corporation. (d) Any Authenticating Agent may at any time resign by giving written notice of resignation to the Trustee, the Issuer, the Remarketing Agent and the Company. The Trustee may at any time terminate the agency of any Authenticating Agent by giving written notice of termination to such Authenticating Agent, the Issuer and the Company. Upon receiving such a notice of resignation or upon such a termination, or in case at any time any Authenticating Agent shall cease to be eligible under this Section, the Trustee shall promptly appoint a successor Authenticating Agent, shall give written notice of such appointment to the Issuer and the Company, and shall mail notice of such appointment to all owners of Bonds as the names and addresses of such owners appear on the Bond Register. Section 208. Payment of Principal and Interest; Interest Rights Preserved. (a) The principal and redemption price of any Bond shall be payable, upon surrender of such Bond, at the office of the Trustee or other paying agent appointed pursuant to this Indenture. Interest on each Interest Payment Date shall be payable by check, mailed on the Interest Payment Date to the address of the person entitled thereto on the Regular Record Date or, if applicable, the Special Record Date, as such address shall appear in the Bond Register. While the Bonds bear interest at a Variable Rate, Interest shall also be payable by wire transfer to the account of a member bank of the Federal Reserve System of any owner of Bonds in the aggregate principal amount of $1,000,000 or more at the written request (identifying such account by number) of such owner received by the Trustee on or prior to the Regular Record Date or Special Record Date. (b) Interest on any Bond which is payable, and is punctually paid or duly provided for, on any Interest Payment Date shall be paid to the person in whose name that Bond is registered at the close of business on the Regular Record Date for such interest. (c) Any interest on any Bond which is payable, and is not punctually paid or duly provided for, on any Interest Payment Date (herein called "Defaulted Interest") shall forthwith cease to be payable to the owner of such Bonds on the relevant Regular Record Date solely by virtue of such registered owner having been such record owner on the Regular Record Date, and such Defaulted Interest shall be paid, pursuant to Section 911 hereof, to the person in whose name the Bond is registered at the close of business on a Special Record Date to be fixed by the Trustee, such date to be not more than fifteen (15) nor less than ten (10) days prior to the date of proposed payment. The Trustee shall cause notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor to be mailed, first class postage prepaid, to each Bondholder, at its address as it appears in the Bond Register, not less than ten (10) days prior to such Special Record Date. (d) Subject to the foregoing provisions of this Section 208, each Bond delivered under this Indenture, upon transfer of or exchange for or in lieu of any other Bond shall carry the rights to interest accrued and unpaid, and to accrue, as such other Bond. All payments of principal and redemption price of and interest on the Bonds, whether upon redemption, acceleration, maturity or otherwise, shall be made first, pursuant to draws under the Credit Facility in accordance with its terms on the dates when due; second, from other Available Moneys on deposit with the Trustee and not held in trust for the benefit of the owners of the Bonds pursuant to the provisions of Article XIV hereof; and then from other collected funds available to the Trustee hereunder for such payments. Section 209. Persons Deemed Owners. The Issuer, the Trustee, the Bond Registrar and the Authenticating Agent may deem and treat the person in whose name any Bond is registered as the absolute owner thereof (whether or not such Bond shall be overdue and notwithstanding any notation of ownership or other writing thereon made by anyone other than the Issuer, the Trustee, the Bond Registrar or the Authenticating Agent) for the purpose of receiving payment of or on account of the principal of (and premium, if any, on), and (subject to Section 208 hereof) interest on such Bond, and for all other purposes, and neither the Issuer, the Trustee, the Bond Registrar, nor the Authenticating Agent shall be affected by any notice to the contrary. All such payments so made to any such registered owner, or upon his order, shall be valid and, to the extent of the sum or sums so paid, effectual to satisfy and discharge the liability for moneys payable upon any such Bond. Section 210. Mutilated, Destroyed, Lost, Stolen or Undelivered Bonds. (a) If any Bond shall become mutilated, the Issuer shall execute, and the Trustee or its Authenticating Agent shall thereupon authenticate and deliver, a new Bond of like tenor and denomination in exchange and substitution for the Bond so mutilated, but only upon surrender to the Trustee of such mutilated Bond for cancellation, and the Issuer and the Trustee may require reasonable indemnity therefor. If any Bond shall be reported lost, stolen or destroyed, evidence as to the loss, theft or destruction thereof shall be submitted to the Issuer and the Trustee; and if such evidence shall be satisfactory to both and indemnity satisfactory to both shall be given, the Issuer shall execute, and thereupon the Trustee or its Authenticating Agent shall authenticate and deliver, a new Bond of like tenor and denomination. The cost of providing any substitute Bond under the provisions of this Section shall be borne by the Bondholder for whose benefit such substitute Bond is provided. If any such mutilated, lost, stolen or destroyed Bond shall have matured or be about to mature, the Issuer may, with the consent of the Trustee, pay to the owner the principal amount of such Bond upon the maturity thereof and the compliance with the aforesaid conditions by such owner, without the issuance of a substitute Bond therefor. (b) The Issuer shall execute and the Trustee or its Authenticating Agent shall authenticate and deliver a substitute Bond in lieu of each Undelivered Bond. (c) Every substituted Bond issued pursuant to this Section 210 shall constitute an additional contractual obligation of the Issuer, whether or not the Bond alleged to have been destroyed, lost or stolen shall be at any time enforceable by anyone, and shall be entitled to all of the benefits of this Indenture equally and proportionately with any and all other Bonds duly issued hereunder. (d) All Bonds shall be held and owned upon the express condition that the foregoing provisions are, to the extent permitted by law, exclusive with respect to the replacement or payment of mutilated, destroyed, lost, stolen or Undelivered Bonds and shall preclude any and all other rights or remedies. Section 211. Temporary Bonds. Pending preparation of definitive Bonds, or by agreement with the purchasers of all Bonds, the Issuer may issue, and, upon its request, the Trustee shall authenticate, in lieu of definitive Bonds one or more temporary printed or typewritten Bonds of substantially the tenor recited above in any denomination authorized under Section 202 hereof. Upon request of the Issuer, the Trustee shall authenticate definitive Bonds in exchange for and upon surrender of an equal principal amount of temporary Bonds. Until so exchanged, temporary Bonds shall have the same rights, remedies and security hereunder as definitive Bonds. Section 212. Cancellation of Surrendered Bonds. Bonds surrendered for payment, redemption, transfer or exchange and Bonds surrendered to the Trustee by the Issuer or by the Company for cancellation shall be cancelled by the Trustee and a certificate evidencing such cancellation shall be furnished by the Trustee to the Issuer and the Company. Bonds purchased pursuant to Section 203 hereof shall not be surrendered Bonds and, unless otherwise specifically provided in this Indenture, shall be Outstanding Bonds. Section 213. Conditions of Issuance. (a) Prior to or simultaneously with the authentication and delivery of the Bonds by the Trustee, the Trustee shall have received notice that the conditions for the issuance of the Letter of Credit as set forth in Article VIII of the original Reimbursement Agreement have been satisfied and there shall be filed with the Trustee such documents, certificates and opinions as Trustee may require, including, the following: (1) A copy, certified by the Secretary, of the resolution of the Issuer authorizing the issuance of the Bonds, awarding the Bonds and directing the authentication and delivery of the Bonds to or upon the order of the purchaser(s) therein named upon payment of the purchase price therein set forth. (2) Executed counterparts of this Indenture, the Loan Agreement, the Note (endorsed without recourse by the Issuer to the Trustee), the Letter of Credit, the Reimbursement Agreement, the Tender Agency Agreement and the Remarketing Agreement. (3) An opinion of Counsel to the Issuer, to the effect that the execution and delivery of the Loan Agreement and this Indenture have been duly authorized by the Issuer, the Loan Agreement and this Indenture have been duly executed by the Issuer and that, assuming proper authorization and execution of this Indenture by the Trustee and of the Loan Agreement by the Company, the Loan Agreement and this Indenture are the valid and binding agreements of the Issuer enforceable in accordance with their respective terms, subject to the qualification that enforceability thereof may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws affecting enforcement of creditors' rights generally and by the exercise of judicial discretion in accordance with general equitable principles. (4) An opinion of Counsel to the Company to the effect that the execution and delivery of the Loan Agreement, the Note, the Reimbursement Agreement, the Remarketing Agreement and the Tender Agency Agreement have been duly authorized by the Company, that the Loan Agreement, the Note, the Reimbursement Agreement, the Remarketing Agreement and the Tender Agency Agreement have been duly executed and delivered by the Company, and that the Loan Agreement, the Note, the Reimbursement Agreement, the Remarketing Agreement and the Tender Agency Agreement, assuming due authorization, execution and delivery thereof by the other parties thereto, if any, are valid, binding and enforceable against the Company in accordance with their terms, subject to the qualification that enforceability thereof may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws affecting enforcement of creditors' rights generally and by the exercise of judicial discretion in accordance with general equitable principles. (5) An opinion of Counsel to the Company to the effect that copies of such instruments and financing statements (described in such opinion) as are necessary have been recorded and filed in the manner and places required by State law with the effect that (i) the lien on this Indenture has been perfected and creates, as to the rights of the Issuer under the Loan Agreement assigned under this Indenture, a valid security interest; and (ii) that the Issuer's endorsement and pledge of the Note to the Trustee and the Trustee's possession thereof creates a valid, perfected, first priority security interest in the Note, subject to no equal or prior liens. (6) An opinion of Counsel to the Issuer, to the effect that the issuance of the Bonds and the execution of this Indenture have been duly and validly authorized by the Issuer, that all conditions precedent to the delivery of the Bonds have been fulfilled and that the Bonds and this Indenture are valid and binding agreements of the Issuer enforceable in accordance with their terms, subject to the qualification that enforceability thereof may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws affecting enforcement of creditors' rights generally and by the exercise of judicial discretion in accordance with general equitable principles. (7) A written request and authorization of the Issuer addressed to the Trustee directing the Trustee to authenticate and deliver the Bonds. (8) Such other documents as the Trustee may reasonably require. (9) A favorable opinion of Bond Counsel as to the tax-exempt status of interest on the Bonds. (b) When the documents mentioned in paragraphs (1) through (9) of subsection (a) of this Section shall have been filed with the Trustee and when the Bonds shall have been executed as required by this Indenture, the Trustee shall authenticate the Bonds and deliver them to or upon the order of the purchaser(s) named in the resolution mentioned in paragraph (1) thereof, but only upon payment to the Trustee for the account of the Issuer of the purchase price of the Bonds. The Trustee shall be entitled to rely conclusively upon such resolution or resolutions, or document approved thereby, as to the name of the purchasers and the amount of such purchase price. (c) Simultaneously with the delivery of the Bonds, the Trustee shall apply the proceeds of the Bonds in accordance with Article IV of this Indenture. ARTICLE III PURCHASE AND REMARKETING OF TENDERED BONDS Section 301. Remarketing of Tendered Bonds. (a) Not later than the close of business on the date the Tender Agent receives an Optional Tender Notice, the Tender Agent shall notify the Remarketing Agent and the Company by telephone, telex or telecopier, confirmed in writing if requested, specifying the Variable Rate Purchase Date. (b) Not later than the close of business on the ninth (9th) day prior to the Conversion Date, the Trustee shall notify the Placement Agent and the Company by telephone, telex or telecopier, confirmed in writing if requested, specifying the aggregate principal amount of Bonds deemed tendered for mandatory purchase on the Conversion Date. (c) Except as provided in subsection (d) below and Section 305 hereof, upon receipt by the Remarketing Agent of notice from the Tender Agent pursuant to Section 301(a) hereof and by the Placement Agent of notice from the Trustee pursuant to Section 301(b) hereof, the Remarketing Agent or the Placement Agent, as the case may be, shall use its best efforts to arrange for the sale, at par plus accrued interest, if any, of such Bonds tendered or deemed tendered for settlement on the Variable Rate Purchase Date or the Conversion Date, respectively. At or before 4:00 p.m. on the Business Day immediately preceding the Variable Rate Purchase Date or the Conversion Date, the Remarketing Agent or the Placement Agent, respectively, shall give notice by telephone, telecopier or telex, promptly confirmed in writing if requested, to the Trustee and the Tender Agent specifying the principal amount of such Bonds, if any, placed by it and to the Trustee the names, addresses and social security numbers or other tax identification numbers of the proposed purchasers thereof. (d) Notwithstanding the provisions of subsection (c) above, any Bond purchased pursuant to the terms of this Indenture from the date notice of redemption or conversion is given shall not be remarketed except to a buyer who agrees at the time of such purchase to tender such Bond for redemption or purchase on the redemption or purchase date. (e) During the Variable Rate Period, the Remarketing Agent shall continue to use its best efforts to arrange for the sale, at the best price available, but not less than the principal amount thereof plus accrued interest, of any Bonds purchased with moneys advanced under the Credit Facility pursuant to Section 302(a)(2) hereof; provided that Bonds purchased with moneys advanced under the Credit Facility shall not be released for delivery to the purchasers unless the Credit Facility has been reinstated by the sum of (a) the amount drawn thereunder to pay the purchase price for such Bonds and (b) interest on such portion for 120 days at a maximum rate of 15%, and the Trustee has received the executed reinstatement certificate required to be delivered by such Credit Facility Issuer. The Trustee agrees to advise the Tender Agent immediately upon receipt of such reinstatement certificate. Section 302. Purchase of Bonds Delivered to the Tender Agent. (a) There is hereby established with the Tender Agent a Bond Purchase Fund out of which the purchase price for Bonds tendered for purchase on a Variable Rate Purchase Date, the Conversion Date or on such other date on which Bonds are remarketed shall be paid. There are hereby established in the Bond Purchase Fund two separate and segregated accounts, to be designated the "Remarketing Account" and the "Bank Account". Funds received from purchasers of Tendered Bonds (other than the Company or the Credit Facility Issuer) shall be deposited by the Remarketing Agent or the Placement Agent, as the case may be, in the Remarketing Account. At or prior to 10:00 a.m. on each Variable Rate Purchase Date or the Conversion Date, the Remarketing Agent or the Placement Agent, as the case may be, shall deliver to the Tender Agent for deposit in the Remarketing Account of the Bond Purchase Fund immediately available funds, payable to the order of the Tender Agent, in an amount equal to the purchase price of the Bonds to be delivered to the Tender Agent that have been remarketed by the Remarketing Agent or placed by the Placement Agent as specified in the notice delivered pursuant to Section 301(c) hereof. Funds, if any, drawn by the Trustee under the Credit Facility pursuant to Section 302(b) below in an amount equal to the aggregate purchase price of Bonds tendered for purchase less the amount available in the Remarketing Account shall, at the direction of the Trustee, be delivered by the Credit Facility Issuer to the Tender Agent for deposit in the Bank Account of the Bond Purchase Fund. On each Variable Rate Purchase Date and on the Conversion Date, the Tender Agent shall effect the purchase, but only from the funds listed below, of such Bonds from the owners thereof at a purchase price equal to the principal amount thereof, plus interest accrued, if any, to the date of purchase and such payment shall be made in immediately available funds. Funds from the payment of such purchase price shall be derived from the following sources in the order of priority indicated: (1) proceeds of the remarketing of such Bonds pursuant to Section 301(c) hereof which constitute Available Moneys. (2) moneys furnished by the Trustee to the Tender Agent representing proceeds of a drawing by the Trustee under the Credit Facility; and (3) any other moneys available for such purposes. (b) The Tender Agent shall advise the Trustee by telex or telecopier and shall advise the Credit Facility Issuer and the Company by telephone, in each case, no later than 10:30 a.m. on each Variable Rate Purchase Date or the Conversion Date, as the case may be, of the amount of any drawing under the Credit Facility necessary to make timely payments hereunder. The Trustee shall promptly (and in no event later than 11:00 a.m.) take all action necessary to draw on the Credit Facility the specified amount. All amounts received by the Trustee from a drawing under the Credit Facility shall be transferred to the Tender Agent and held by the Tender Agent in the Bank Account pending application of such moneys as provided in this Article III. The Trustee shall provide to the Tender Agent the funds referred to in paragraph (2) of Section 302(a) prior to the time the Tender Agent is required to apply such funds to effect the purchase of Bonds and shall notify the Tender Agent promptly after receipt of notice from the Credit Facility Issuer reinstating the Credit Facility. The Remarketing Agent shall deliver funds from the sale of Bonds held by the Credit Facility Issuer as pledgee of the Company pursuant to Section 301(e) hereof to the Tender Agent for deposit in the Remarketing Account, which funds shall be promptly paid by the Tender Agent on behalf of the Company to the Credit Facility Issuer as reimbursement under the Reimbursement Agreement. The Tender Agent shall notify the Trustee of any such reimbursement, and the Trustee shall promptly deliver to the Credit Facility Issuer any reinstatement certificate and the form of transfer certificate required by the Credit Facility. Section 303. Delivery of Purchased Bonds. (a) Bonds purchased shall be delivered as follows: (1) Bonds placed by the Remarketing Agent or the Placement Agent pursuant to Section 301 hereof shall be delivered by the Tender Agent to the Remarketing Agent or the Placement Agent, as the case may be, on behalf of the purchasers thereof. (2) Bonds purchased with moneys described in Section 302(a)(2) shall be delivered to the Credit Facility Issuer as pledgee of the Company pursuant to the terms of the Reimbursement Agreement and the Pledge Agreement or the Credit Facility Issuer designee. (b) Except as otherwise set forth herein, Bonds delivered as provided in this Section 303 shall be registered by the Bond Registrar in the manner directed by the recipient thereof. (c) In the event that any Bond to be delivered to the Tender Agent is not delivered by the owner thereof properly endorsed for transfer on or prior to the Variable Rate Purchase Date or the Conversion Date, as the case may be, and there has been irrevocably deposited with the Tender Agent an amount sufficient to pay the purchase price thereof, which amount may be held by the Tender Agent in a non-interest bearing account, the Issuer shall execute and the Trustee or its Authenticating Agent shall authenticate and deliver a substitute Bond in lieu of the Undelivered Bond and the Bond Registrar shall register such Bond in the name of the purchaser thereof. Thereafter, interest on such Undelivered Bond shall cease to accrue, and the holder thereof shall be entitled only to payment of the purchase price therefor and not to the benefits of the Indenture. (d) Notwithstanding the foregoing, Bonds purchased with funds identified in Section 302(a)(2) hereof shall be held by the Credit Facility Issuer or the Tender Agent and shall not be delivered to subsequent purchasers thereof or any other person until the Trustee has notified the Tender Agent that the Credit Facility has been reinstated to the extent of the purchase price of such Bonds and interest thereon. Section 304. Delivery of the Proceeds of the Sale of Remarketed Bonds. The proceeds of the placement of the Bonds by the Remarketing Agent of any Bonds delivered to the Tender Agent or by the Placement Agent of Bonds on the Conversion Date shall be paid first, to the tendering Bondholders of such Bonds; second, to the Credit Facility Issuer, to the extent of any amounts drawn under the Credit Facility in connection with the payment of the purchase price for such Bonds and not reimbursed to the Credit Facility Issuer as of the time of sale of such Bonds; and third, to the Company. Section 305. No Remarketing After Certain Events. Anything in this Indenture to the contrary notwithstanding, there shall be no remarketing of Bonds pursuant to this Article III after the Conversion Date or the principal of the Bonds shall have been accelerated pursuant to Section 902 hereof. ARTICLE IV REFUNDING OF PRIOR BONDS Section 401. Refunding of Prior Bonds. (a) A special fund is hereby created and designated the Hillsborough County Industrial Development Authority Industrial Development Revenue Refunding Bonds (Leslie Controls, Inc. Project), Series 1994 Redemption Fund (the "Redemption Fund"). The moneys received by the Issuer from the proceeds of the sale of the Bonds shall be deposited to the Redemption Fund. (b) Moneys held in the Redemption Fund shall be invested and reinvested by the Trustee, at the written direction of the Company in Investment Obligations which shall mature not later than November 1, 1994. Obligations so purchased as an investment of moneys in the Redemption fund shall be deemed at all times to be part of the Redemption Fund, and the interest accruing thereon and any profit realized from such investment shall be credited to the Redemption Fund, and any loss resulting from such investment shall be charged to the Redemption Fund. The Trustee shall sell at market price or present for redemption any obligation so purchased whenever it shall be necessary so to do in order to provide cash to meet any payment or transfer from the Redemption Fund. Neither the Trustee nor the Issuer shall be liable or responsible for loss resulting from any such investment or the sale of any such investment made pursuant to the terms of this Section. The Trustee may make any and all investments permitted by this Section through its own bond or investment department, unless otherwise directed in writing by the Company. (c) The moneys in the Redemption Fund shall be held by the Trustee in trust and shall, on November 1, 1994 or such earlier date as directed by the Company, be applied, together with additional funds contributed by the Company or by Watts Industries, Inc., to the payment in full of the outstanding principal amount of the Prior Bonds. (d) Simultaneously with payment by the Trustee as described in (c) above, the Company shall pay all additional amounts sufficient to pay the principal of and interest on the Prior Bonds to the date of redemption thereof and to pay directly all fees, charges and expenses of the holders of the Prior Bonds and of the Prior Trustee in connection with the redemption of the Prior Bonds. Following such payments, the Trustee shall receive from the holder of the Prior Bonds or the Prior Trustee a certificate to the effect that the Prior Bonds have been redeemed and paid in full and evidence that the Prior Bonds have been cancelled. ARTICLE V REVENUES AND APPLICATION THEREOF Section 501. Revenues to be Paid Over to Trustee. The Issuer has caused the Revenues to be paid directly to the Trustee. If, notwithstanding these arrangements, the Issuer receives any payments on account of the Note or a Credit Facility with respect to the principal or redemption price of or interest on the Bonds, the Issuer shall immediately pay over the same to the Trustee to be held as Revenues. Section 502. The Bond Fund. (a) There is hereby established with the Trustee a special fund to be designated "Hillsborough County Industrial Development Authority Industrial Development Revenue Refunding Bonds (Leslie Controls, Inc. Project), Series 1994 Bond Fund" (the "Bond Fund"), the moneys in which, in accordance with Section 502(c) hereof, the Trustee shall apply to (1) the principal or redemption price of Bonds as they mature or become due, upon surrender thereof, and (2) the interest on Bonds as it becomes payable. There are hereby established with the Trustee within the Bond Fund two separate and segregated accounts, to be designated the "Payments Account" and the "Credit Facility Account". (b) There shall be deposited into the various accounts of the Bond Fund from time to time the following: (1) into the Payments Account, (A) all payments of principal or redemption price (including premium) of or interest on the Note, and (B) all other moneys received by the Trustee under and pursuant to the provisions of this Indenture or any of the provisions of the Note or the Loan Agreement, when accompanied by written directions from the person depositing such moneys that such moneys are to be paid into such account of the Bond Fund. All amounts deposited in the Payments Account shall be segregated and held, with the earnings thereon, separate and apart from other funds in the Bond Fund until such amounts become Available Moneys. At such time as funds deposited in the Payments Account become Available Moneys, they may be commingled with other Available Moneys in the Payments Account; and (2) into the Credit Facility Account, all moneys drawn by the Trustee under the Credit Facility to pay principal or redemption price (excluding any premium) of the Bonds and interest on the Bonds. (c) Except as provided in Section 911 hereof, moneys in the Bond Fund shall be used solely for the payment of the principal or redemption price of the Bonds and interest on the Bonds from the following sources but only in the following order of priority; (1) moneys held in the Credit Facility Account, provided that in no event shall moneys held in the Credit Facility Account be used to pay any amounts due on Bonds which are held by or for the Company, including without limitation, Bonds pledged to the Credit Facility Issuer, or to pay any portion of the redemption premiums required pursuant to Section 701(a)(2) hereof; and (2) moneys held in the Payments Account to the extent such amounts qualify as Available Moneys (except with respect to moneys paid on Bonds that are held by or for the Company, including without limitation, Bonds pledged to the Credit Facility Issuer, which moneys need not qualify as Available Moneys). (d) Not later than 10:00 a.m. on the third (3rd) Business Day preceding the date on which principal or redemption price of or interest on the Bonds is due and payable (the "Payment Date"), the Trustee shall have notified the Company and the Credit Facility Issuer of the amounts of principal and interest due on the Bonds on the Payment Date. Not later than 11:00 a.m. on each Payment Date, the Trustee shall present a draft or drafts under the Credit Facility in the amounts due and payable on the Bonds. Such funds shall be wired by the Bank to be deposited in the Credit Facility Account and payments due under the Bonds shall be made by the Trustee in accordance with Section 208 and Section 502(c) hereof. Following such payment to the Bondholders, the Trustee shall, on behalf of the Company, promptly pay moneys on deposit in the Payments Account in an amount equal to the amounts of such drawing or drawings to the Bank as reimbursement to the Bank under the terms of the Reimbursement Agreement. If no amounts are owed by the Company to the Credit Facility Issuer under the Reimbursement Agreement, any amounts remaining in the Payments Account on the Business Day immediately following a Payment Date shall be paid to the Company upon request with the consent of the Credit Facility Issuer. (e) Except as provided in the following sentence, the Bond Fund shall be depleted at least once each year, except for a reasonable carryover amount (not to exceed the greater of one year's earnings on the Bond Fund or one-twelfth (1/12th) of annual debt service). Any money deposited in the Bond Fund shall be spent within a thirteen (13) month period beginning on the date of deposit, and any amount received from investment of money held in the Bond Fund shall be spent within a one (1) year period beginning on the date of receipt. Any amounts remaining in the Bond Fund after payment in full of the principal or redemption price of and interest on the Bonds (or provisions for payment thereof) shall be paid to the Company at the written request of the Company therefor or as otherwise required by law; provided, that if any payments have been received by the Trustee from the Credit Facility in connection with such payment of the Bonds, any remaining amounts shall be paid to the Credit Facility Issuer to the extent of such payments. Section 503. Revenues to Be Held for All Bondholders; Certain Exceptions. Revenues shall, until applied as provided in this Indenture, be held by the Trustee in trust for the benefit of the owners of all Outstanding Bonds, except that any portion of the Revenues representing principal or redemption price of any Bonds, and interest on any Bonds previously matured or called for redemption in accordance with Article VII of this Indenture, shall be held for the benefit of the owners of such Bonds only. Section 504. Rebate Fund. In the event that the Company provides for the deposit of amounts from time to time for rebate to the United States of America pursuant to the Loan Agreement, the Trustee is hereby authorized to create a special fund to be designated as the Rebate Fund. The Rebate Fund shall be held separate and apart from all other funds under this Indenture and shall not be subject to the lien and pledge granted hereunder for the benefit of Bondholders. The Trustee shall remit money deposited in the Rebate Fund to the United States of America or otherwise as directed in writing by the Company. All moneys deposited in the Rebate Fund shall be held and invested at the sole direction of the Company. In making investments hereunder, or in selling or disposing of investments as required hereby, the Trustee shall have no duty or responsibility to independently verify compliance with Sections 148(d) and 148(f) of the Code and the regulations promulgated thereunder and the Trustee shall be fully protected in relying solely upon the written directions of the Company as aforesaid. Under no circumstances whatsoever shall the Trustee be liable to the Issuer, the Company or any holder for any loss of tax-exempt status of the Bonds, or any claims, demands, damages, liabilities, losses, costs or expenses resulting therefrom or in any way connected therewith, so long as the Trustee acts only in accordance with the written directions of the Company as provided hereunder. The Trustee shall not be responsible for any losses in the investment of money in the Rebate Fund made at the direction of the Company. ARTICLE VI DEPOSITARIES OF MONEYS, SECURITY FOR DEPOSITS AND INVESTMENT OF FUNDS; THE CREDIT FACILITY Section 601. Security for Deposits. All moneys deposited with the Trustee under the provisions of this Indenture or the Loan Agreement shall be held in trust and applied only in accordance with the provisions of this Indenture and the Loan Agreement and shall not be subject to lien (other than the lien created hereby) or attachment by any creditor of the Trustee, the Issuer or the Company. Section 602. Investment of Moneys. (a) At the request and the direction of the Company (confirmed in writing), moneys held for the credit of the Bond Fund (including any amount therein) shall be invested and reinvested by the Trustee in Investment Obligations which shall mature not later than the respective dates when the moneys held for the credit of said funds will be required for the purposes intended, provided that moneys held in the Credit Facility Account of the Bond Fund shall be invested and reinvested by the Trustee only in Governmental Obligations which shall mature not later than the date on which such moneys will be required to be paid; provided further that such investment shall only be made at the direction of the Company. The Trustee shall be entitled to rely on instruction from the Company. In making investments hereunder, or in selling or disposing of investments as required hereby, the Trustee shall have no duty or responsibility to independently verify compliance with Sections 148(d) and 148(f) of the Code and the regulations promulgated thereunder and the Trustee shall be fully protected in relying solely upon the written directions of the Company as aforesaid. Under no circumstances whatsoever shall the Trustee be liable to the Issuer, the Company or any holder for any loss of tax-exempt status of the Bonds, or any claims, demands, damages, liabilities, losses, costs or expenses resulting therefrom or in any way connected therewith, so long as the Trustee acts only in accordance with the written directions of the Company as provided hereunder. (b) Obligations so purchased as an investment of moneys in any such fund or account shall be deemed at all times to be a part of such fund or account, and the interest accruing thereon and any profit realized from such investment shall be credited to such fund or account, and any loss resulting from such investment shall be charged to such fund or account. The Trustee shall sell at market price or present for redemption any obligation so purchased whenever it shall be necessary so to do in order to provide cash to meet any payment or transfer from any such fund or account. Neither the Trustee nor the Issuer shall be liable or responsible for loss resulting from any such investment or the sale of any such investment made pursuant to the terms of this Section. (c) For the purpose of the Trustee's determination of the amount on deposit to the credit of any such fund or account, obligations in which moneys in such fund or account have been invested shall be valued at the lower of cost or market. (d) The Trustee may make any and all investments permitted by this Section through its own bond or investment department, unless otherwise directed in writing by the Company Representative. Section 603. The Credit Facility. (a) Initial Letter of Credit. (1) The Letter of Credit shall be a direct pay letter of credit and shall provide for direct payments to or upon the order of the Trustee as hereinafter set forth and shall be the irrevocable obligation of the Bank to pay to or upon the order of the Trustee, upon request and in accordance with the terms thereof, an amount of up to $5,003,250 of which (A) $4,765,000 shall support the payment of principal of the Bonds when due and that portion of the purchase price corresponding to principal of Tendered Bonds not remarketed on any Variable Rate Purchase Date or sold on the Conversion Date, and (B) $238,250 shall support the payment of up to one hundred twenty (120) days' interest at a maximum rate of fifteen percent (15%) per annum on the Bonds when due and that portion of the purchase price corresponding to interest on Tendered Bonds not remarketed on any Variable Rate Purchase Date or sold on the Conversion Date. (2) The Letter of Credit shall terminate automatically on the earliest of (A) the date on which a drawing under the Letter of Credit has been honored upon the maturity or acceleration of the Bonds or redemption of all the Bonds, (B) the day on which the Credit Facility Issuer receives the notice of the conversion following the Conversion Date, (C) the date on which the Bank receives notice from the Trustee that an Alternate Credit Facility is substituted for the Letter of Credit and is in effect, (D) the date on which the Bank receives notice from the Trustee that there are no longer any Bonds Outstanding and (E) the Stated Termination Date described in the Letter of Credit as it may be extended pursuant to the terms thereof. (3) The Bank's obligation under the Letter of Credit may be reduced to the extent of any drawing thereunder, subject to reinstatement as provided therein. The Letter of Credit shall provide that, with respect to a drawing by the Trustee solely to pay interest on the Bonds on any Interest Payment Date, if the Trustee shall not have received from the Bank within ten (10) days from the date of such drawing a notice by telecopier, by telex or in writing that the Bank has not been reimbursed, the Trustee's right to draw under the Letter of Credit with respect to the payment of interest shall be reinstated on or before the eleventh (11th) day following such drawing in an amount equal to such drawing. With respect to any other drawing by the Trustee, the amount available under the Letter of Credit for payment of the purchase price of the Bonds and interest on the Bonds shall be reinstated in an amount equal to any such drawing but only to the extent that the Bank is reimbursed in accordance with the terms of the Reimbursement Agreement for the amounts so drawn. (4) The Letter of Credit shall provide that if, in accordance with the terms of the Indenture, the Bonds shall become or be declared immediately due and payable pursuant to any provision of the Indenture, the Trustee shall be entitled to draw on the Letter of Credit to the extent that the amounts are available thereunder to pay the aggregate principal amount of the Bonds then Outstanding plus an amount of interest not to exceed one hundred twenty (120) days. (5) Upon the termination of the Letter of Credit, the Trustee shall return the Letter of Credit to the Bank. (b) Expiration. Unless an Alternate Credit Facility has been provided in accordance with Section 603(c) hereof at least thirty (30) days before the Interest Payment Date immediately preceding the fourteenth (14th) day prior to the expiration date of a Credit Facility, the Trustee shall call the Bonds for redemption in accordance with the Section 701(c)(2) hereof. If at any time there shall cease to be any Bonds Outstanding hereunder, the Trustee shall promptly surrender the then current Credit Facility to the Credit Facility Issuer for cancellation. The Trustee shall comply with the procedures set forth in the Credit Facility relating to the termination thereof. (c) Alternate Credit Facilities. While the Bonds bear interest at the Variable Rate, the Company may, at its option, provide for the delivery to the Trustee of an Alternate Credit Facility. The Alternate Credit Facility shall have terms in all respects material to the owners of the Bonds the same as the Credit Facility being replaced and shall be in form acceptable to the Trustee and the Tender Agent. On or prior to the date of delivery of an Alternate Credit Facility to the Trustee, the Company shall furnish to the Trustee: (1) an opinion of Counsel stating that the delivery of such Alternate Credit Facility to the Trustee is authorized under this Indenture and complies with the terms hereof and that such Alternate Credit Facility is enforceable against the Credit Facility Issuer thereof in accordance with its terms, and (2) if the Bonds are rated by Moody's or S&P, written evidence (or such other evidence satisfactory to the Trustee) from Moody's, if the Bonds are rated by Moody's, and from S&P, if the Bonds are rated by S&P, in each case to the effect that such rating agency has reviewed the proposed Alternate Credit Facility and that the substitution of the proposed Alternate Credit Facility for the then current Credit Facility will not, by itself, result in: (A) a permanent withdrawal of its rating of the Bonds, or (B) a reduction of the then current rating of the Bonds, or if the Bonds are not rated by Moody's or S&P, written evidence (or such other evidence satisfactory to the Trustee in its sole discretion) that obligations substantially equivalent in term to the term of the proposed Alternate Letter of Credit of the bank or institution issuing the proposed Alternate Credit Facility are rated by Moody's or S&P in the same category as the obligations of substantially equivalent term of the bank or institution which issued the Credit Facility being replaced; provided, however, if the Company provides the Trustee with an opinion of Bond Counsel that a change in the then current rating on the Bonds or a change in the Credit Facility Issuer to a bank or institution the obligations of which are rated in a different category than those obligations of equivalent term of the issuer of the Credit Facility being replaced will not adversely affect the exclusion of the interest on the Bonds from gross income from federal tax purposes, then such evidence need not be provided, but the Company shall instead provide the Trustee with written evidence (or such other evidence as shall be satisfactory to the Trustee) that the commercial paper of the bank or institution issuing the proposed Alternate Credit Facility is rated P-3 or higher by Moody's or A-3 or higher by S&P. The Trustee shall then accept such Alternate Credit Facility and surrender the previously held Credit Facility to the previous Credit Facility Issuer for cancellation promptly on or before the fifteenth (15th) day after the Alternate Credit Facility becomes effective, but not later than the fifteenth (15th) day following the last Interest Payment Date covered by the Credit Facility to be cancelled. (d) Notices of Substitution or Replacement of Credit Facility. (1) The Trustee shall, at least twenty (20) days prior to the proposed replacement of a Credit Facility with an Alternate Credit Facility, give notice thereof by mail to the owners of the Bonds, which notice shall include the identity of the issuer thereof and the rating, if any, to be assigned to the Bonds by Moody's or S&P following the effective date of such Alternate Credit Facility or, if the Bonds are not then rated by Moody's or S&P, then the rating assigned by Moody's or S&P to the obligations substantially equivalent in term to the term of the proposed Alternate Credit Facility of the Issuer of such Alternate Credit Facility. (2) The Trustee shall promptly give notice of any replacement of the Credit Facility to the Issuer, the Tender Agent and the Remarketing Agent. ARTICLE VII REDEMPTION OR PURCHASE OF THE BONDS Section 701. Redemption or Purchase Dates and Prices. The Bonds shall be subject to redemption, and, in certain instances, to purchase, prior to maturity in the amounts, at the times and in the manner provided in this Article VII. Payments of the redemption price or the purchase price of any Bond shall be made only upon the surrender to the Trustee or its agent, as directed, of any Bond so redeemed or purchased. (a) Optional Redemption (1) Optional Redemption During Variable Rate Period. While the Bonds bear interest at the Variable Rate, the Bonds shall be subject to redemption, upon the written direction of the Issuer, given at the request of the Company, on any Interest Payment Date and on the Conversion Date in whole or in part, at a redemption price of one hundred percent (100%) of the principal amount thereof, without premium, plus interest accrued to the redemption date. (2) Optional Redemption With Premium During Fixed Rate Period. While the Bonds bear interest at the Fixed Rate, the Bonds shall be subject to redemption upon the written direction of the Issuer, given at the request of the Company, in whole or in part, on any Interest Payment Date occurring on or after the dates set forth below, at the redemption prices (expressed as percentages of principal amount to be redeemed) set forth below plus interest accrued to the redemption date as follows: Commencement of Redemption Period Redemption Price The Business Day four 103% declining by 1/2% on each (4) years from the succeeding anniversary of the first Conversion Date day of the redemption period until reaching 100% and thereafter at 100% (b) Extraordinary Optional Redemption Due to Casualty or Eminent Domain. (1) The Bonds may be redeemed as a whole or in part by the Issuer at any time at the written direction of the Company, at a redemption price equal to one hundred percent (100%) of the principal amount thereof plus interest accrued thereon to the redemption date, without premium, under any of the following conditions, the existence of which shall be certified to the Trustee by the Company Representative: (A) The Project shall have been damaged or destroyed to such extent that the amount of Net Proceeds of insurance exceeds $500,000 and the Company elects not to rebuild the Project or fails to so elect within ninety (90) days of receipt by the Trustee of such Net Proceeds; or (B) Title to, or the temporary use of, all of the Project or any substantial portion thereof shall have been taken by Eminent Domain and the amount of Net Proceeds from such taking exceeds $500,000 and the Company elects not to replace the property so taken or fails so to elect within ninety (90) days of receipt by the Trustee of such Net Proceeds. (2) Such redemption shall occur on the next Interest Payment Date occurring not less than thirty (30) days following the expiration of such 90-day period referred to in paragraph (1) of this Section 701(b). (c) Mandatory Redemption. (1) Determination of Taxability. The Bonds shall be subject to mandatory redemption in whole on any date at a redemption price equal to one hundred percent (100%) of the principal amount thereof plus accrued interest to the redemption date which shall not be more than one hundred eighty (180) days following the receipt by the Trustee of a written notice of a Determination of Taxability. (2) Failure to Provide Alternate Credit Facility. The Bonds shall be subject to mandatory redemption during the Variable Rate Period at one hundred percent (100%) of the principal amount thereof, without premium, plus interest accrued, if any, thereon to the date of redemption, on the Interest Payment Date occurring closest to but not after fifteen (15) days prior to the date of expiration of the then current Credit Facility, unless an Alternate Credit Facility has been provided in accordance with Article VI hereof. (d) Mandatory Purchase on Conversion Date. The Bonds shall be subject to mandatory purchase in whole on the Conversion Date at a purchase price equal to one hundred percent (100%) of the principal amount thereof, without premium, plus interest accrued, if any, thereon to the date of purchase, on the Conversion Date. Section 702. Company to Direct Optional Redemption. The Issuer shall direct the Trustee in writing to call Bonds for optional redemption when and only when it shall have been notified by the Company to do so and the Company has notified the Trustee in writing that the Company has made or intends to make a corresponding prepayment under the Note. Such direction from the Issuer to the Trustee shall be given at least forty-five (45) days but not more than sixty (60) days prior to the redemption date or such shorter period as shall be acceptable to the Trustee. So long as a Credit Facility is then held by the Trustee, the Trustee shall only call Bonds for optional redemption if it has Available Moneys in the Payments Account of the Bond Fund or has been notified by the Credit Facility Issuer that it will receive moneys pursuant to the Credit Facility, in the aggregate, sufficient to pay the redemption price of the Bonds to be called for redemption, plus accrued interest thereon. Section 703. Selection of Bonds to be Called for Redemption. Except as otherwise provided herein or in the Bonds, if less than all the Bonds are to be redeemed, the particular Bonds to be called for redemption shall be selected in the following order of priority: first, Bonds pledged to the Bank pursuant to the Pledge Agreement, second, Bonds owned by the Company and third, Bonds selected by any random or other method determined by the Trustee in its sole discretion to be fair and reasonable. The Trustee shall treat any Bond of a denomination greater than One Hundred Thousand Dollars ($100,000) as representing that number of separate Bonds each of the denomination of the minimum denomination of One Hundred Thousand Dollars ($100,000) or any integral multiple of Five Thousand Dollars ($5,000) in excess thereof as the Trustee shall so determine. Section 704. Notice of Redemption or Purchase. (a) When required to redeem or purchase Bonds under any provision of this Article VII, or when directed to do so by the Issuer, the Trustee shall cause notice of the redemption or purchase to be given not more than sixty (60) days and not less than twenty (20) days prior to the redemption or purchase date by mailing a copy of all notices of redemption or purchase by first class mail, postage prepaid, to all registered owners of Bonds to be redeemed or purchased at their addresses shown on the Bond Register. Failure to mail any such notice or defect in the mailing thereof in respect of any Bond shall not affect the validity of the redemption or purchase of any other Bond. Notices of redemption or purchases shall also be mailed to the Remarketing Agent and the Credit Facility Issuer, if any. Any such notice shall be given in the name of the Issuer, shall identify the Bonds to be redeemed or purchased (and, in the case of partial redemption or purchase of any Bonds, the respective principal amounts thereof to be redeemed or purchased), shall specify the redemption or purchase date, and shall state that on the redemption or purchase date, the redemption or purchase price of the Bonds called for redemption or purchase will be payable at the principal corporate trust office of the Trustee, or in the case of mandatory redemptions or purchases pursuant to Section 701(c)(2) or 701(d) hereof at the office of the Trustee's Paying Agent, if any, and that from that date interest will cease to accrue. The Trustee may use "CUSIP" numbers in notices of redemption or purchase as a convenience to Bondholders, provided that any such notice shall state that no representation is made as to the correctness of such numbers either as printed on the Bonds or as contained in any notice of redemption or purchase and that reliance may be placed only on the identification numbers containing the prefix established under the Indenture. (b) With respect to any notice of redemption or purchase of Bonds in accordance with Section 701(c)(2) hereof, such notice shall also specify the date of the expiration of the term of the Credit Facility. (c) After the Conversion Date, if at the time of mailing of notice of any optional redemption the Issuer shall not have deposited with the Trustee moneys sufficient to redeem all the Bonds called for redemption, such notice may state that it is conditional on the deposit of Available Moneys with the Trustee not later than the redemption date, and such notice shall be of no effect unless such moneys are so deposited. (d) Upon redemption of less than all of the Bonds, the Trustee shall furnish to the Credit Facility Issuer a notice in the form specified by the Credit Facility Issuer to reduce the coverage provided by the Credit Facility and upon redemption of all of the Bonds, the Trustee shall surrender the Credit Facility to the Credit Facility Issuer for cancellation. (e) Purchases under Section 701(d) hereof shall be in accordance with Section 202(e) hereof. Section 705. Bonds Redeemed or Purchased in Part. Any Bond which is to be redeemed or purchased only in part shall be surrendered at a place stated in the notice provided for in Section 704 hereof (with due endorsement by, or a written instrument of transfer in form satisfactory to the Trustee duly executed by, the owner thereof or his attorney duly authorized in writing) and the Issuer shall execute and the Trustee or its Authenticating Agent shall authenticate and deliver to the owner of such Bond without service charge, a new Bond or Bonds, of any authorized denomination as requested by such owner in an aggregate principal amount equal to and in exchange for the unredeemed and unpurchased portion of the principal of the Bond so surrendered. ARTICLE VIII PARTICULAR COVENANTS AND PROVISIONS Section 801. Covenant to Pay the Bonds; Bonds Limited Obligations of the Issuer. (a) The Issuer covenants that it will promptly pay the principal of and interest on and other amounts payable under the Bonds at the places, on the dates and in the manner provided herein and in the Bonds according to the true intent and meaning thereof. Such principal and interest and other amounts are payable solely from the payments made by the Company on the Note and other Revenues. (b) The Issuer shall not in any event be liable for the payment of the principal of or interest on the Bonds, or for the performance of any pledge, mortgage, obligation or agreement of any kind whatsoever which may be undertaken by the Issuer, and neither the Bonds nor any of the agreements or obligations of the Issuer shall be construed to constitute an indebtedness of the Issuer within the meaning of any constitutional or statutory provision whatsoever. The Bonds and the interest thereon shall never constitute an indebtedness or a charge against the general credit of the Issuer within the meaning of any constitutional provision or statutory limitation and shall never constitute nor give rise to any pecuniary liability of the Issuer, but shall be limited obligations of the Issuer payable solely from the revenues and other funds pledged therefor and shall not be payable from any other assets or funds of the Issuer, and neither the faith and credit nor the taxing power of the State or any political subdivision or any agency thereof is pledged to the payment of the principal of or the interest on the Bonds. Section 802. Covenants to Perform Obligations Under this Indenture. The Issuer covenants that it will faithfully perform at all times any and all covenants, undertakings, stipulations and provisions contained in this Indenture, in the Bonds executed and delivered hereunder and in all proceedings of the Issuer pertaining thereto and will faithfully observe and perform at all times any and all covenants, undertakings, stipulations and provisions of the Loan Agreement on its part to be observed or performed. The Issuer covenants that it is duly authorized under the Constitution and laws of the State, including particularly and without limitation the Act, to issue the Bonds authorized hereby and to enter into this Indenture, to endorse the Note to the Trustee, to pledge the payments on the Note and other Revenues in the manner and to the extent herein set forth, and to assign its interest in the Note and the Loan Agreement to the Trustee; and that all action on its part for the issuance of the Bonds issued hereunder and the execution and delivery of this Indenture has been duly and effectively taken; and that the Bonds in the hands of the owners thereof are and will be the valid and binding obligations of the Issuer according to the tenor and import thereof. Section 803. Covenant to Perform Obligations Under the Loan Agreement. Subject to the provisions of Section 804 of this Article, the Issuer covenants and agrees that it will not suffer, permit or take any action or do anything or fail to take any action or fail to do anything which may result in the termination or cancellation of the Loan Agreement so long as any Bond is Outstanding; that it will punctually fulfill its obligations and will require the Company to perform punctually its duties and obligations under the Loan Agreement; that it will not execute or agree to any change, amendment or modification of or supplement to the Loan Agreement or this Indenture except by a supplement or an amendment duly executed by the Issuer and the Company with the approval of the Trustee and upon the further terms and conditions set forth in Article XIII of this Indenture; that it will not agree to any abatement, reduction, abrogation, waiver, diminution or other modification in any manner or to any extent whatsoever of the obligation of the Company to pay the Note and to meet its other obligations as provided in the Loan Agreement; and that it will promptly notify the Trustee in writing of any actual or alleged Event of Default under the Loan Agreement, whether by the Company or the Issuer, that comes to the attention of the Issuer, and will further notify the Trustee at least thirty (30) days before the proposed date of effectiveness of any proposed termination or cancellation of the Loan Agreement. Section 804. Trustee May Enforce the Issuer's Rights Under the Loan Agreement. The Loan Agreement, a duly executed counterpart of which has been filed with the Trustee, sets forth the covenants and obligations of the Issuer and the Company, including a provision in Section 12.9 thereof that subsequent to the issuance of the Bonds and prior to Payment of the Bonds (as defined in the Loan Agreement) the Loan Agreement and the Note may not be effectively amended, changed, modified, altered or terminated except as provided in Article XIII of this Indenture, and reference is hereby made to the Loan Agreement for a detailed statement of said covenants and obligations of the Company under the Loan Agreement, and the Issuer agrees that the Trustee, subject to the provisions of the Loan Agreement and this Indenture reserving certain rights to the Issuer and respecting actions by the Trustee in its name or in the name of the Issuer, may enforce all rights of the Issuer and all obligations of the Company under and pursuant to the Loan Agreement for and on behalf of the Bondholders whether or not the Issuer is in default hereunder. Section 805. Covenant Against Arbitrage. The Issuer covenants and agrees that it will not make or authorize any use, and directs the Trustee not to make or permit any use, of the proceeds of the Bonds which would cause any Bond to be an "arbitrage bond" within the meaning of Section 148 of the Code and the applicable regulations promulgated from time to time thereunder, and further covenants that it will observe and not violate the requirements of Section 148 of the Code and any such applicable regulations to the extent necessary so that the interest on the Bonds will not cease to be excluded from the gross income of the recipients thereof for federal income tax purposes by reason of such use of proceeds; provided that neither the Issuer nor the Trustee shall be liable for any investment of moneys under this Indenture made at the direction of the Company Representative. Section 806. Inspection of the Bond Register. At reasonable times and upon reasonable regulations established by the Bond Registrar, the Bond Register may be inspected and copied by and at the expense of the Company or any Bondholder. Section 807. Priority of Pledge and Security Interest. The pledge herein made of the Trust Estate and the security interest created herein with respect thereto constitutes a first and prior pledge of, and a security interest in, the Trust Estate. Said pledge and security interest shall at no time be impaired directly or indirectly by the Issuer or the Trustee, and the Trust Estate shall not otherwise be pledged and, except as provided herein and in the Loan Agreement, no persons shall have any rights with respect thereto. Section 808. Insurance and Condemnation Proceeds. Reference is hereby made to Sections 6.4 and 6.5 of the Loan Agreement whereunder it is provided that under certain circumstances the respective Net Proceeds of insurance and condemnation awards (or Net Proceeds from a sale in lieu of condemnation) are to be paid to the Trustee and deposited in separate trust accounts (but not in the Bond Fund) and to be disbursed and paid out as therein provided. The Trustee hereby accepts and agrees to perform the duties and obligations as therein specified. ARTICLE IX DEFAULT AND REMEDIES Section 901. Defaults. Each of the following events is hereby declared to be an "Event of Default": (a) Payment of interest on any of the Bonds shall not be made when the same shall become due; or (b) Payment of the principal or redemption price of any of the Bonds shall not be made when the same shall become due, whether at maturity or upon call for redemption or otherwise; or (c) An "Event of Default" under the Loan Agreement shall have occurred and not have been waived; or (d) The Trustee receives written notice from the Credit Facility Issuer that an Event of Default under the Reimbursement Agreement has occurred and has not been waived; or (e) The Trustee receives notice by telecopier, by telex or in writing from the Credit Facility Issuer that the Credit Facility Issuer has not been reimbursed for a drawing thereon on or before the close of business on the tenth (10th) calendar day following a drawing under such Credit Facility to pay interest on the Bonds and that the interest portion of the Letter of Credit will not be reinstated for the amount so drawn; or (f) Payment of the purchase price of any Bond tendered pursuant to Section 203 hereof is not made when payment is due; or (g) The Issuer shall fail to duly and punctually perform any of the covenants, conditions, agreements and provisions contained in the Bonds or in this Indenture on the part of the Issuer to be performed other than as referred to in the preceding subsections of this Section; provided, however, that no failure specified in subsections (c) or (g) of this Section 901 shall constitute an Event of Default until written notice specifying such failure and requiring the same to be remedied shall have been given to the Company and the Issuer by the Trustee, which may give notice in its discretion and shall give such notice at the written direction of the owners of not less than twenty-five percent (25%) in aggregate principal amount of Bonds Outstanding, and the Company and the Issuer shall have had thirty (30) days after receipt of such notice to correct said failure and shall not have corrected said failure within the applicable period. Section 902. Acceleration and Annulment Thereof. (a) Subject to the requirement that the consent of the Credit Facility Issuer to any acceleration must be obtained in the case of an Event of Default described in subsections (c) or (g) of Section 901 hereof, upon the occurrence of an Event of Default, the Trustee may, and upon (1) the written request of the Credit Facility Issuer, or (2) the occurrence of an Event of Default described in subsection (a), (b), (d), (e) or (f) of Section 901 hereof, the Trustee shall, by notice to the Issuer, declare the entire unpaid principal of and interest on the Bonds due and payable; and upon such declaration, the said principal, together with interest accrued thereon, shall become payable immediately, without penalty or premium, at the place of payment provided therein, anything in the Indenture or in the Bonds to the contrary notwithstanding. The Trustee shall not be permitted to request receipt of indemnity to its satisfaction prior to such declaration of acceleration. Upon the occurrence of any acceleration hereunder, the Trustee shall immediately exercise such rights as it may have as the owner of the Note to declare all payments thereunder to be due and payable immediately, and to the extent it has not already done so, shall immediately draw upon the Credit Facility to the extent permitted by the terms thereof. Interest on the Bonds shall cease to accrue upon receipt by the Trustee of funds drawn under the Credit Facility. (b) Immediately after any acceleration because of the occurrence of an Event of Default under Sections 901(a), (b), (d), (e) or (f), the Trustee shall (immediately, and in no event within two Business Days thereafter) notify in writing the Issuer, the Company and the Credit Facility Issuer of the occurrence of such acceleration. Within five (5) days of the occurrence of any acceleration hereunder, the Trustee shall notify by first class mail, postage prepaid, the owners of all Bonds Outstanding of the occurrence of such acceleration. (c) If, after the principal of the Bonds has become due and payable, all arrears of interest upon the Bonds are paid by the Issuer, and the Issuer also performs all other things in respect to which it may have been in default hereunder and pays the reasonable charges of the Trustee and the Bondholders, including reasonable attorneys' fees, then, and in every such case, the Credit Facility Issuer or a Majority of the Bondholders by written notice to the Issuer and to the Trustee, may annul such acceleration and its consequences, and such annulment shall be binding upon the Trustee and upon all owners of Bonds issued hereunder; provided, however, that the Trustee shall not annul any declaration without the written consent of the Credit Facility Issuer unless such acceleration has resulted from the failure of the Credit Facility Issuer to honor a proper draw for payment under the Credit Facility. Notwithstanding the foregoing, the Trustee shall not annul any acceleration which has resulted from an Event of Default which has resulted in a drawing under the Credit Facility under Section 901(e) hereof unless the Credit Facility has been reinstated in accordance with its terms to an amount equal to the principal amount of the Bonds Outstanding plus one hundred twenty (120) days' interest accrued thereon, and the Trustee has received written notice of such reinstatement from the Credit Facility Issuer. The Trustee shall forward a copy of any notice from Bondholders received by it pursuant to this paragraph to the Company. Immediately upon such annulment, the Trustee shall cancel, by notice to the Company, any demand for payment of the Note made by the Trustee pursuant to this Section 902. Section 903. Other Remedies. If any Event of Default occurs and is continuing, the Trustee, before or after the principal of the Bonds becomes immediately due and payable, may enforce each and every right granted to it as the owner of the Note and under the Loan Agreement and any supplements or amendments thereto. In exercising such rights and the rights given the Trustee under this Article IX, the Trustee shall take such action as, in the judgment of the Trustee applying the standards described in Section 1001 hereof, would best serve the interests of the Bondholders. Section 904. Legal Proceedings by the Trustee. (a) If any Event of Default has occurred and is continuing, the Trustee in its discretion may, and upon the written request of the Credit Facility Issuer or the owners of not less than twenty-five percent (25%) in aggregate principal amount of the Outstanding Bonds and receipt of indemnity to its satisfaction shall, in its own name: (1) By mandamus, or other suit, action or proceeding at law or in equity, enforce all rights of the Bondholders hereunder; (2) Bring suit upon the Bonds, the Credit Facility (but only to the extent the Credit Facility Issuer shall have wrongfully dishonored drawings made in strict conformity with the terms hereof) and the Note; and (3) By action or suit in equity seek to enjoin any acts or things which may be unlawful or in violation of the rights of the Bondholders. (b) If an Event of Default under Section 901(c) occurs and is continuing, the Trustee in its discretion may, and upon the written request of the owners of not less than twenty-five percent (25%) in aggregate principal amount of the Outstanding Bonds and receipt of indemnity to its satisfaction shall, enforce each and every right granted to it under the Loan Agreement or as owner of the Note. Section 905. Discontinuance of Proceedings by the Trustee. If any proceeding commenced by the Trustee on account of any Event of Default is discontinued or is determined adversely to the Trustee, then the Company, the Credit Facility Issuer, the Issuer, the Trustee and the Bondholders shall be restored to their former positions and rights hereunder as though no proceedings had been commenced. Section 906. Credit Facility Issuer or Bondholders May Direct Proceedings. Anything to the contrary in this Indenture notwithstanding, either the Credit Facility Issuer if a Credit Facility is in effect (and no default has occurred and is continuing under the Credit Facility), or a Majority of the Bondholders, if there is no Credit Facility in effect, shall have the right, after furnishing indemnity satisfactory to the Trustee, to direct the method and place of conducting all remedial proceedings by the Trustee hereunder, provided that such direction shall not be in conflict with any rule of law or with this Indenture or unduly prejudice the rights of minority Bondholders. Section 907. Limitations on Actions by the Bondholders. (a) No Bondholder shall have any right to bring suit on the Credit Facility. No Bondholder shall have any right to pursue any other remedy hereunder unless: (1) the Trustee shall have been given written notice of an Event of Default; (2) the owners of not less than twenty-five percent (25%) in aggregate principal amount of the Outstanding Bonds shall have requested the Trustee, in writing, to exercise the powers hereinabove granted or to pursue such remedy in its or their name or names; (3) the Trustee shall have been offered indemnity satisfactory to it against costs, expenses and liabilities, except that no offer of indemnification shall be required for a declaration of acceleration under Section 902 hereof or for a drawing under the Credit Facility; (4) the Trustee shall have failed to comply with such request within a reasonable time; and (5) prior to the Conversion Date, the Credit Facility Issuer has failed to honor a proper draw request under the Credit Facility. (b) Notwithstanding the foregoing provisions of subsection (a) of this Section 907 or any other provision of this Indenture, the obligation of the Issuer shall be absolute and unconditional to pay hereunder, but solely from the Revenues and other funds pledged under this Indenture, the principal or redemption price of, and interest on, the Bonds to the respective owners thereof on the respective due dates thereof, and nothing herein shall affect or impair the right of action, which is absolute and unconditional, of such owners to enforce such payment. Section 908. Trustee May Enforce Rights Without Possession of the Bonds. All rights under this Indenture and the Bonds may be enforced by the Trustee without the possession of any Bonds or the production thereof at the trial or other proceedings relative thereto, and any proceedings instituted by the Trustee shall be brought in its name for the ratable benefit of the owners of the Bonds. Section 909. Remedies Not Exclusive. No remedy herein conferred is intended to be exclusive of any other remedy or remedies, and each remedy is in addition to every other remedy given hereunder or now or hereafter existing at law or in equity or by statute. Section 910. Delays and Omissions Not to Impair Rights. No delays or omission in respect of exercising any right or power accruing upon any default shall impair such right or power or be a waiver of such default, and every remedy given by this Article IX may be exercised from time to time and as often as may be deemed expedient. Section 911. Application of Moneys in the Event of Default. (a) Any moneys received by the Trustee under this Article IX shall be applied in the following order; provided that any moneys received by the Trustee from a drawing under the Credit Facility shall be applied to the extent permitted by the terms thereof only as provided in paragraph (3) below with respect to the principal of, and interest accrued on, Bonds other than Bonds held by or for the Company: (1) To the payment of the reasonable costs of the Trustee, including counsel fees and any disbursements of the Trustee with interest thereon at the per annum rate equal to the "Prime" or "Base" rate of the Credit Facility Issuer and to the payment of reasonable costs and expenses of the Issuer, including counsel fees, incurred in connection with the Event of Default; and (2) To the payment of principal or redemption price (as the case may be) and interest on the Bonds, and in case such moneys shall be insufficient to pay the same in full, then to payment of principal or redemption price and interest ratably, without preference or priority of one over another or of any installment of interest over any other installment of interest. (b) The surplus, if any, shall be paid to the Company or the person lawfully entitled to receive the same as a court of competent jurisdiction may direct; provided that, if the Trustee has received payments on the Credit Facility following the Event of Default, the surplus shall be paid to the Credit Facility Issuer to the extent of such payments to the extent the Credit Facility Issuer has not been reimbursed for such payments and its fees and expenses related thereto. Section 912. Trustee and Bondholders Entitled to All Remedies Under the Act. It is the purpose of this Article IX to provide such remedies to the Trustee and the Bondholders as may be lawfully granted under the provisions of the Act, but should any remedy herein granted be held unlawful, the Trustee and the Bondholders shall nevertheless be entitled to every remedy provided by the Act. It is further intended that, insofar as lawfully possible, the provisions of this Article shall apply to and be binding upon any trustee or receiver appointed under applicable law. Section 913. Trustee May File Claim in Bankruptcy. (a) In case of the pendency of any receivership, insolvency, liquidation, bankruptcy, reorganization, arrangement, adjustment, composition or other similar judicial proceeding relating to the Issuer, the Company or any other obligor upon the Loan Agreement or the Bonds or to property of the Issuer, the Company, or such other obligor or the creditors of any of them, the Trustee (irrespective of whether the principal of the Bonds shall then be due and payable as therein expressed or by declaration or otherwise and irrespective of whether the Trustee shall have made any demand on the Company for the payment on the Note of an amount equal to overdue principal or interest or additional interest) shall be entitled and empowered, by intervention in such proceedings or otherwise; (1) to file and prove a claim for the whole amount of principal and interest owing and unpaid in respect of the Bonds and to file such other papers or documents as may be necessary or advisable in order to have the claims of the Trustee (including any claim for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel) and of the Bondholders allowed in such judicial proceeding; and (2) to collect and receive any moneys or other property payable or deliverable on any such claims and to distribute the same; and any receiver, assignee, trustee, liquidator, sequestrator (or other similar official) in any such judicial proceeding is hereby authorized by the Bondholders to make such payments to the Trustee, and in the event that the Trustee shall consent to the making of such payments directly to the Bondholders, to pay to the Trustee any amount due to it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 911 hereof. (b) Nothing herein contained shall be deemed to authorize the Trustee to authorize or consent to or accept, or adopt on behalf of the Bondholders, any plan of reorganization, arrangement, adjustment or composition affecting the Bonds or the rights of any Bondholder thereof, or to authorize the Trustee to vote in respect of the claim of the Bondholders in any such proceeding. (c) All moneys received by the Trustee pursuant to any right given or action taken under this Indenture shall, after payment of the costs and expenses of the proceedings resulting in the collection of such moneys and the fees and expenses of the Trustee, be deposited in the Bond Fund and applied to the payment of the principal of, redemption premium, if any, and interest then due and unpaid on the Bonds in accordance with the provisions of this Indenture. Section 914. Receiver. Upon the occurrence of an Event of Default and upon the filing of a suit or other commencement of judicial proceedings to enforce the rights of the Trustee and of the Bondholders under this Indenture, the Trustee shall be entitled, as a matter of right, to the appointment of a receiver or receivers of the amounts payable on the Note or otherwise under the Loan Agreement and assigned to the Trustee under this Indenture pending such proceedings, with such powers as the court making such appointment shall confer, whether or not any such amounts payable shall be deemed sufficient ultimately to satisfy the Bonds. ARTICLE X CONCERNING THE TRUSTEE Section 1001. Acceptance of the Trusts. The Trustee hereby represents and warrants to the Issuer (for the benefit of the Company and the Bondholders as well as the Issuer) that it is a national banking association and that it is duly authorized under the laws of the United States of America to accept and execute trusts of the character herein set out. The Trustee accepts and agrees to execute the trusts imposed upon it by this Indenture, but only upon the terms and conditions set forth in this Article and subject to the provisions of this Indenture including the following express terms and conditions, to all of which the parties hereto and the Bondholders agree: (a) Except during the continuance of an Event of Default, the Trustee undertakes to perform such duties and only such duties as are specifically set forth in this Indenture, and no implied covenants or obligations shall be read into this Indenture against the Trustee. (b) In case an Event of Default has occurred and is continuing, the Trustee shall exercise such of the rights and powers vested in it by this Indenture, and use the same degree of care and skill in their exercise, as a prudent man would exercise or use under the circumstances in the conduct of his own affairs. (c) The Trustee may execute any of the trusts or powers hereof and perform any of its duties by or through attorneys, agents, receivers or employees and it shall not be responsible for any misconduct or negligence of any such attorney, agent or receiver appointed by it upon due care, and shall be entitled to act upon the opinion or advice of its counsel concerning all matters of trust hereof and the duties hereunder, and may in all cases be reimbursed hereunder for reasonable compensation paid to all such attorneys, agents, receivers and employees as may reasonably be employed in connection with the trust hereof. The Trustee may conclusively rely upon an opinion of counsel and shall not be responsible for any loss or damage resulting from any action or non-action by it taken or omitted to be taken in good faith in reliance upon such opinion of counsel. (d) Except as is specifically provided in Section 1019 with respect to the filing of continuation statements, the Trustee shall not be responsible for any recital herein, or in the Bonds (except in respect to the authentication certificate of the Trustee endorsed on the Bonds), or for insuring the Trust Estate or any part of the Project or collecting any insurance moneys, or for the validity of the execution hereof by the Issuer or of any supplements hereto or instruments of further assurance, or for the sufficiency of the security for the Bonds; and the Trustee shall not be bound to ascertain or inquire as to the performance or observance of any agreements or conditions on the part of the Issuer or on the part of the Company under the Loan Agreement, except as hereinafter set forth; but the Trustee may require of the Issuer or the Company full information and advice as to the performance of the agreements and conditions aforesaid and as to the condition of the Trust Estate. (e) The Trustee shall not be liable in connection with the performance or non-performance of its duties under this Indenture except for its own grossly negligent action, its own grossly negligent failure to act, or its own willful misconduct, except that: (1) this subsection shall not be construed to limit the effect of subsection (a) of this Section 1001; (2) The Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer or Officers of the Trustee unless it shall be proved that the Trustee was grossly negligent in ascertaining the pertinent facts; and (3) The Trustee shall not be liable with respect to any action taken or omitted to be taken by it in good faith in accordance with the direction of a Majority of the Bondholders relating to the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred upon the Trustee under this Indenture. (f) Whether or not therein expressly so provided, every provision of this Indenture that in any way relates to the Trustee, including without limitation Sections 1003 and 1004 hereof, shall be subject to the provisions of this Section 1001. Section 1002. Trustee to Give Notice. (a) The Trustee shall not be required to take notice or be deemed to have notice of any default hereunder, except failure by the Issuer to cause to be made any of the payments to the Trustee required to be made by Article V or failure by the Issuer or the Company to file with the Trustee any document required by this Indenture or the Loan Agreement to be so filed, unless the Trustee shall be notified of such default by the Issuer or by the holders of 25% in aggregate principal amount of Bonds then Outstanding or unless a responsible corporate trust officer of the Trustee charged with the responsibility for the management of the trusts conferred by this Indenture shall have actual knowledge of such default. (b) If a responsible trust officer of the Trustee charged with the responsibility for the management of the trusts conferred by this Indenture shall have actual knowledge of any Event of Default continuing hereunder, the Trustee shall give to all Bondholders and to the Credit Facility Issuer written notice of all such defaults within thirty (30) days after receipt of such information. (c) Promptly upon receipt of notice of the occurrence of a Determination of Taxability, the Trustee shall give notice thereof to the Company, the Issuer, the Bondholders and former Bondholders and to the Credit Facility Issuer. Section 1003. Trustee Entitled to Indemnity. (a) The Company shall indemnify the Trustee its officers, directors and employees against any loss, liability or expense incurred by it arising out of or in connection with the acceptance or administration of its duties under this Indenture, except as set forth in subsection (b) below. The Trustee shall notify the Company promptly of any claim for which it may seek indemnity. Except where the Company is the claimant, the Company shall have full and sole right to defend the claim, and the Trustee shall cooperate in the defense. If the Trustee engages separate counsel, the Trustee shall pay all fees and expenses of such counsel and the Company shall no longer have the obligation to indemnify the Trustee; provided, however that the Trustee shall have the right to retain separate counsel, with the fees and expenses to be paid by the Company, if representation of the Trustee would be inappropriate due to an actual conflict of interest, as reasonably determined by either party, between the Trustee and the Company. The Company shall not be responsible for any settlement reached without the Company's consent. (b) The Company shall not be obligated to reimburse any expense or to indemnify against any loss or liability incurred by the Trustee through its gross negligence, willful misconduct or bad faith. (c) To secure the Company's payment obligations in this Section and in Section 911, the Trustee shall have a lien prior to the lien of the Trustee for the benefit of the owners of the Bonds on all money or property held or collected by the Trustee, except for amounts drawn under the Credit Facility and money and property held in the Rebate Fund, as to which the Trustee shall have no such lien. Such obligations shall survive the satisfaction and discharge of this Indenture. (d) When the Trustee or Issuer incurs expenses or renders services after an Event of Default, the expenses and compensation for the services are intended to constitute expenses of administration under any applicable bankruptcy law. (e) The Trustee may begin suit, or appear in and defend suit, or do anything else in its judgment proper to be done by it as such Trustee, without indemnity under paragraph (a) above, and in such case the Issuer shall reimburse the Trustee and the Issuer, on an equal basis, from funds available therefor under the Loan Agreement for all costs and expenses, outlays and counsel fees and other reasonable disbursements properly incurred in connection therewith; provided, however, that the Trustee shall: (1) make all payments hereunder of principal and redemption price of and interest on the Bonds and of the purchase price of Bonds tendered at the option of the owners thereof or purchased by the Company in lieu of redemption, (2) accelerate the Bonds when required to do so hereunder other than at the direction of the Bondholders, and (3) draw on the Credit Facility when required to do so hereunder, each without the necessity of the Bondholders providing security or indemnity to the Trustee. If the Issuer shall fail to make reimbursement, the Trustee may reimburse itself from any moneys in its possession under the provisions of this Indenture other than moneys drawn under the Credit Facility and shall be entitled with respect thereto to a preference over the Bonds. Section 1004. Trustee Not Responsible for Insurance, Taxes, Execution of this Indenture, Acts of the Issuer or Application of the Moneys Applied in Accordance with this Indenture. (a) The Trustee shall not be under any obligation to effect or maintain insurance or to renew any policies of insurance or to inquire as to the sufficiency of any policies of insurance carried by the Company, or to report, or make or file claims or proof of loss for, any loss or damage insured against or which may occur, or to keep itself informed or advised as to the payment of any taxes or assessments, or to require any such payment to be made. The Trustee shall have no responsibility in respect of the validity, sufficiency, due execution or acknowledgment of this Indenture or any supplements thereto or instruments of further assurance or the validity or sufficiency of the security provided hereunder or in respect of the validity of the Bonds or the due execution or issuance thereof. The Trustee shall not be under any obligation to see that any duties herein imposed upon any party other than itself, or any covenants herein contained on the part of any party other than itself to be performed, shall be done or performed, and the Trustee shall be under no liability for failure to see that any such duties or covenants are so done or performed. (b) The Trustee shall not be liable or responsible because of the failure of the Issuer or of any of its employees or agents to make any collections or deposits or to perform any act herein required of the Issuer or because of the loss of any moneys arising through the insolvency or the act or default or omission of any other depositary in which such moneys shall have been deposited under the provisions of this Indenture. The Trustee shall not be responsible for the application of any of the proceeds of the Bonds or any other moneys deposited with it and paid out, withdrawn or transferred hereunder if such application, payment, withdrawal or transfer shall be made in accordance with the provisions of this Indenture. The Trustee shall not be responsible or liable for any loss suffered in connection with any investment of funds made by it in accordance with Section 602. (c) The permissive right of the Trustee to do things enumerated in this Indenture shall not be construed as a duty, and the Trustee shall not be answerable for other than its gross negligence or willful misconduct. The immunities and exemptions from liability of the Trustee hereunder shall extend to its directors, officers, employees and agents. Section 1005. Compensation. Subject to the provisions of any agreement relating to the compensation of the Trustee, the Issuer shall cause the Company to pay to the Trustee as Administrative Expenses its reasonable fees, charges and out-of-pocket expenses in accordance with Section 7.5 of the Loan Agreement. In computing the Trustee's compensation, the parties shall not be limited by any law on the compensation of an express trust. If the Company shall fail to make any payment required by this Section 1005, the Trustee may, but shall be under no obligation to, make such payment from any moneys in its possession under the provisions of this Indenture and shall be entitled to a preference therefor over the Bonds hereunder; provided that no payments under this Section 1005 shall be made with moneys drawn under the Credit Facility. Section 1006. Trustee to Preserve Records. All records and files pertaining to the Project in the custody of the Trustee shall be open at all reasonable times to the inspection of the Issuer, the Credit Facility Issuer and the Company and their agents and representatives. Section 1007. Trustee May Be a Bondholder. The institution acting as Trustee under this Indenture, and its directors, officers, employees or agents, may in good faith buy, sell, own, hold and deal in the Bonds issued under and secured by this Indenture, and may join in the capacity of a Bondholder in any action which any Bondholder may be entitled to take with like effect as if such institution were not the Trustee under this Indenture. To the extent permitted by law, such institution may also receive tenders and purchase in good faith Bonds from itself, including any department, affiliate or subsidiary, with like effect as if it were not the Trustee. Section 1008. Trustee Not Responsible for Recitals. The recitals, statements and representations contained herein and in the Bonds shall be taken and construed as made by and on the part of the Issuer and not by the Trustee, and the Trustee shall not be under any responsibility for the correctness of the same. Section 1009. No Trustee Responsibility for Recording or Filing. The Trustee shall not be under any obligation to see to the recording or filing of this Indenture, the Loan Agreement, any financing statements or any other instrument or otherwise to the giving to any person of notice of the provisions hereof or thereof. Section 1010. Trustee May Require Information. Except for the obligations of the Trustee under Section 902 and the obligations of the Trustee to make payments on the Bonds when due and to draw under the Credit Facility as required hereunder, anything contained in this Indenture to the contrary notwithstanding, the Trustee shall have the right, but shall not be required, to demand, as a condition of any action by the Trustee in respect of the authentication of any Bonds, the withdrawal of any cash, the release of any property, or any action whatsoever within the purview of this Indenture, any showings, certificates, opinions, appraisals or other information, or evidence of corporate authority, in addition to that required by the terms hereof. Section 1011. Trustee May Rely on Certificates. The Trustee shall be protected and shall incur no liability in acting or proceeding, or in not acting or not proceeding, in good faith and in accordance with the terms of this Indenture, upon any ordinance, resolution, order, notice, request, consent, waiver, certificate, statement, instrument, opinion, affidavit, requisition, bond or other paper or document which it shall in good faith believe to be genuine and to have been adopted or signed by the proper board or person or to have been prepared and furnished pursuant to any of the provisions of the Loan Agreement or this Indenture, or upon the written opinion of any attorney, engineer, accountant or other expert believed by it to be qualified in relation to the subject matter, and the Trustee shall not be under any duty to make any investigation or inquiry as to any statements contained or matters referred to in any such instrument. Any action taken by the Trustee pursuant to this Indenture upon the request or authority or consent of any person who at the time of making such request or giving such authority or consent is the owner of any Bond shall be conclusive and binding upon all future owners of the same Bond and upon Bonds issued in exchange therefor or in place thereof. Section 1012. Trustee Bond. The Trustee shall not be required to give any bond or surety in respect to the execution of its rights and obligations hereunder. Section 1013. Segregation of Funds; Interests: All moneys received by the Trustee shall, until used or applied or invested as herein provided, be held in trust in the manner and for the purposes for which they were received but need not be segregated from other funds except to the extent required by this Indenture or law. The Trustee shall not be under any liability for interest on any moneys received hereunder. Section 1014. Qualification of the Trustee. There shall at all times be a Trustee hereunder which shall be an association or a corporation organized and doing business under the laws of the United States of America or of any state, authorized under such laws and the applicable laws of the State to exercise corporate trust powers and act as Bond Registrar hereunder, having a combined capital and surplus of at least One Hundred Million Dollars ($100,000,000), and subject to supervision or examination by federal or state authority. If such association or corporation is not a commercial bank or trust company, it shall also have a rating by Moody's (if the Bonds are then rated by Moody's) of BAA 3/P3 or higher, or by S&P (if the Bonds are then rated by S&P) of Baa/A3 or higher or shall otherwise be approved in writing by Moody's or S&P, as the case may be. If such association or corporation publishes reports of condition at least annually, pursuant to law or to the requirements of the aforesaid supervising or examining authority, then for the purposes of this Section 1014, the combined capital and surplus of such association or corporation shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. If at any time the Trustee shall cease to be eligible in accordance with the provisions of this Section 1014, it shall resign immediately in the manner and with the effect specified in Section 1015 hereof. Section 1015. Resignation and Removal of the Trustee. (a) No resignation or removal of the Trustee and no appointment of a successor Trustee pursuant to this Article shall become effective until the acceptance of appointment by the successor Trustee under Section 1016 hereof. (b) The Trustee may resign at any time by giving written notice thereof to the Issuer and the Company. If an instrument of acceptance by a successor Trustee shall not have been delivered to the Trustee within thirty (30) days after the giving of such notice of resignation, the retiring Trustee may petition any court of competent jurisdiction for the appointment of a successor Trustee. (c) The Trustee may be removed at any time by an instrument or instruments in writing to the Trustee, with copies to the Issuer and the Company, signed by a Majority of the Bondholders or by their attorneys, legal representatives or agents and delivered to the Trustee, the Issuer and the Company (such instruments to be effective only when received by the Trustee). (d) If at any time: (1) the Trustee shall cease to be eligible under Section 1014 hereof, and shall fail to resign after written request therefor by the Company or by a Majority of the Bondholders, or (2) the Trustee shall become incapable of acting or shall be adjudged a bankrupt or insolvent or a receiver of the Trustee or of its property shall be appointed or any public officer shall take charge or control of the Trustee or of its property or affairs for the purpose of rehabilitation, conservation or liquidation, then, in any such case, the Issuer or the Company may remove the Trustee, or any Bondholder may petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor. (e) If the Trustee shall resign, be removed or become incapable of acting, or if a vacancy shall occur in the office of Trustee for any cause, the Issuer with the approval of the Company shall promptly appoint a successor. If no successor Trustee shall have been so appointed by the Issuer and approved by the Company or a Majority of the Bondholders and accepted appointment in the manner hereinafter provided, any Bondholder, if he has been a bona fide owner of a Bond for at least six (6) months, may petition any court of competent jurisdiction for the appointment of a successor Trustee. (f) The Issuer shall give notice of each resignation and each removal of the Trustee and each appointment of a successor Trustee by mailing written notice of such event by first-class mail, postage prepaid, to each Bondholder. Each notice shall include the name and address of the principal corporate trust office of the successor Trustee. Section 1016. Successor Trustee. (a) Every successor Trustee appointed hereunder shall execute, acknowledge and deliver to its predecessor, and also to the Issuer and the Company, an instrument in writing accepting such appointment hereunder, and thereupon and upon transfer of the Credit Facility to the successor Trustee such successor Trustee without any further act, shall become fully vested with all the rights, immunities, powers and trusts, and subject to all the duties and obligations, of its predecessors; but such predecessor shall, nevertheless, on the written request of its successor or of the Issuer and upon payment of the expenses, charges and other disbursements of such predecessor which are payable pursuant to the provisions of Section 1005 hereof, execute and deliver an instrument transferring to such successor Trustee all the rights, immunities, powers and trusts of such predecessor hereunder; and every predecessor Trustee shall deliver all property and moneys held by it hereunder to its successor, subject, nevertheless, to its preference, if any, provided for in Sections 1003 and 1005 hereof. Should any instrument in writing from the Issuer be required by any successor Trustee for more fully and certainly vesting in such Trustee the rights, immunities, powers and trusts hereby vested or intended to be vested in the predecessor Trustee, any such instrument in writing shall and will, on request, be executed, acknowledged and delivered by the Issuer. The resignation of any Trustee and the instrument or instruments removing any Trustee and appointing a successor hereunder, together with all other instruments provided for in this Article, shall be filed and/or recorded by the successor Trustee in each recording office where this Indenture and the Financing Statements have been filed and/or recorded. (b) Notwithstanding any of the foregoing provisions of this Article, any bank or trust company having power to perform the duties and execute the trusts of this Indenture and otherwise qualified to act as Trustee hereunder with or into which the bank or trust company acting as Trustee may be merged or consolidated, or to which the assets and business of such bank or trust company may be sold, shall be deemed the successor of the Trustee. Section 1017. Co-Trustee. It is the purpose of this Indenture that there shall be no violation of any law of any jurisdiction denying or restricting the right of certain banking corporations or associations to transact business as trustee as contemplated herein in such jurisdiction. It is recognized that in case of litigation under this Indenture and in particular in case of the enforcement of the security interest contained in this Indenture upon the occurrence of an Event of Default, it may be necessary that the Trustee appoint an additional individual or institution as a separate Trustee or Co-Trustee, which shall be satisfactory to the Company. The following provisions of this Section 1017 are adapted to these ends: (a) In the event of the incapacity or lack of authority of the Trustee by reason of any present or future law of any jurisdiction to exercise any of the rights, powers and trusts herein granted to the Trustee or to hold title to or a security interest in the Trust Estate or to take any other action which may be necessary or desirable in connection therewith, each and every remedy, power, right, claim, demand, cause of action, immunity, estate, title, interest and lien expressed or intended by this Indenture to be exercised by or vested in or conveyed to the Trustee with respect thereto shall be exercisable by and vest in such separate Trustee or Co-Trustee but only to the extent necessary to enable the separate Trustee or Co-Trustee to exercise such rights, powers and trusts, and every covenant and obligation necessary to the exercise thereof shall run to and be enforceable by such separate Trustee or Co-Trustee. (b) Should any deed, conveyance or instrument in writing from the Issuer be required by the separate Trustee or Co-Trustee so appointed by the Trustee in order to more fully and certainly vest in and confirm to it such properties, rights, powers, trusts, duties and obligations any and all such deeds, conveyances and instruments shall, on request, be executed, acknowledged and delivered by the Issuer. In case any separate Trustee or Co-Trustee or a successor to either, shall die, be dissolved, become incapable of action, resign or be removed, all the estates, properties, rights, powers, trusts, duties and obligations of such separate Trustee or Co-Trustee, so far as permitted by law, shall vest in and be exercised by the Trustee until the appointment of a new Trustee or successor to such separate Trustee or Co-Trustee. Section 1018. Notice to Moody's or S&P. At any time during which the Bonds are rated by Moody's or S&P, the Trustee shall notify Moody's or S&P, as applicable, promptly of: (a) any change in the Trustee, (b) the expiration or termination of the Credit Facility during the Variable Rate Period unless an Alternate Credit Facility is provided to the Trustee in accordance with the terms of this Indenture, (c) a change in the interest rate borne by the Bonds from a Variable Rate to a Fixed Rate, (d) the payment of all of the Bonds, or (e) any material change to this Indenture, the Loan Agreement, the Reimbursement Agreement, the Credit Facility or the Remarketing Agreement. Section 1019. Filing of Certain Continuation Statements. From time to time, the Trustee shall file or cause to be filed continuation statements for the purpose of continuing without lapse the effectiveness of (i) those Financing Statements which shall have been filed at or prior to the issuance of the Bonds in connection with the Issuer's assignment to the Trustee of the Trust Estate pursuant to the authority of the Uniform Commercial Code of the State of Florida, and (ii) any previously filed continuation statements which shall have been filed as herein required. The Issuer and the Company shall sign and deliver to the Trustee or its designee such continuation statements as may be requested of it from time to time by the Trustee. Upon the filing of any such continuation statement the Trustee shall immediately notify the Issuer that the same has been accomplished. ARTICLE XI EXECUTION OF INSTRUMENTS BY THE BONDHOLDERS AND PROOF OF OWNERSHIP OF THE BONDS Section 1101. Execution of Instruments by the Bondholders and Proof of Ownership of the Bonds. (a) Any request, direction, consent or other instrument in writing required or permitted by this Indenture to be signed or executed by a Bondholder may be signed or executed by the Bondholder or its attorneys or legal representatives. Proof of the execution of any such instrument and of the ownership of the Bonds shall be sufficient for any purpose of this Indenture and shall be conclusive in favor of the Trustee with regard to any action taken by it under such instrument if made in the following manner: The fact and date of the execution by any person of any such instrument may be proved by the verification of any officer in any jurisdiction who, by the laws thereof, has power to take affidavits within such jurisdiction, to the effect that such instrument was subscribed and sworn to before him, or by an affidavit of a witness to such execution, and where such execution is by an officer of a corporation or association or a member of a partnership on behalf of such corporation, association or partnership, such verification or affidavit shall also constitute sufficient proof of his authority. (b) Nothing contained in this Section 1101 shall be construed as limiting the Trustee to such proof, it being intended that the Trustee may accept any other evidence of the matters herein stated which may be sufficient. Any request or consent of a Bondholder shall bind every future owner of the Bond(s) to which such request or consent pertains or any Bond(s) issued in lieu thereof in respect of anything done by the Trustee pursuant to such request or consent. (c) Notwithstanding any of the foregoing provisions of this Section 1101, the Trustee shall not be required to recognize any person as an owner of Bonds or to take any action at its request unless the Bonds shall be deposited with it. Section 1102. Preservation of Information. The Trustee shall preserve in the Bond Register, in as current a form as is reasonably practicable, the name and address of each Bondholder received by the Trustee in its capacity as Bond Registrar. ARTICLE XII THE REMARKETING AGENT; THE TENDER AGENT; THE PLACEMENT AGENT Section 1201. The Remarketing Agent. (a) The Issuer hereby appoints First Union National Bank of North Carolina, with its corporate office in Charlotte, North Carolina, as Remarketing Agent under this Indenture. The Remarketing Agent and any successor Remarketing Agent, by written instrument delivered to the Issuer, the Trustee and the Company, shall accept the duties and obligations imposed on it under this Indenture and the Remarketing Agreement. (b) In addition to the other obligations imposed on the Remarketing Agent hereunder, the Remarketing Agent shall agree to keep such books and records in connection with its activities as Remarketing Agent hereunder as shall be consistent with prudent industry practice and make such books and records available for inspection by the Issuer, the Trustee, the Credit Facility Issuer and the Company at all reasonable times. (c) The Remarketing Agent shall at all times be a member of the National Association of Securities Dealers, Inc. and registered as a Municipal Securities Dealer under the Securities Exchange Act of 1934, as amended, or a national banking association or a bank or a trust company, in each case authorized by law to perform its obligations hereunder. (d) If at any time the Remarketing Agent is unable or unwilling to act as Remarketing Agent, the Remarketing Agent, upon thirty (30) Business Days' prior written notice to the Issuer, the Trustee, the Tender Agent and the Company, may resign. The Remarketing Agent may be removed at any time by the Company with the consent of the Issuer, by written notice signed by the Company delivered to the Trustee, the Remarketing Agent, the Credit Facility Issuer and the Tender Agent. Upon resignation or removal of the Remarketing Agent, the Company, with the consent of the Issuer, shall appoint a substitute Remarketing Agent meeting the qualifications of Section 1201(c) above. (e) In the event that the Company shall fail to appoint a successor Remarketing Agent, upon the resignation or removal of the Remarketing Agent or upon its dissolution, insolvency or bankruptcy, the Trustee may, but is not required to, appoint a Remarketing Agent or itself act as Remarketing Agent until the appointment of a successor Remarketing Agent in accordance with this Section 1201; provided, however, that the Trustee, in its capacity as Remarketing Agent, shall not be required to sell Bonds or determine the interest rate on the Bonds pursuant to Section 202 hereof. Section 1202. The Tender Agent. (a) The Issuer hereby appoints as Tender Agent under this Indenture The First National Bank of Boston, which agent has a corporate trust office at Canton, Massachusetts. The Tender Agent and any successor Tender Agent, by written instrument delivered to the Issuer, the Trustee and the Company, shall accept the duties and obligations imposed on it under this Indenture. (b) The Tender Agent shall at all times be a member of the National Association of Securities Dealers, Inc. having a capitalization of at least Fifteen Million Dollars ($15,000,000) and a rating by Moody's (if the Bonds are then rated by Moody's) of BAA 3/P3 or higher, or a national banking association or a bank or a trust company having capital and surplus of at least $50,000,000, in each case authorized by law to perform its obligations hereunder. (c) If at any time the Tender Agent is unable or unwilling to act as Tender Agent, the Tender Agent, upon sixty (60) days' prior written notice to the Issuer, the Trustee, the Remarketing Agent and the Company, may resign; provided, however, that in no case shall such resignation become effective until the appointment of a successor Tender Agent. The Tender Agent may be removed at any time by the Company with the consent of the Issuer, by written notice signed by the Company delivered to the Trustee, the Remarketing Agent, the Credit Facility Issuer and the Tender Agent; provided, however, that in no case shall such removal become effective until the appointment of a successor Tender Agent. Upon resignation or removal of the Tender Agent, the Company, with the consent of the Issuer, shall appoint a substitute Tender Agent meeting the qualifications of Section 1202(b) above. (d) In the event that the Company shall fail to appoint a successor Tender Agent, upon the resignation or removal of the Tender Agent or upon its dissolution, insolvency or bankruptcy, the Trustee may at its discretion, but is not required to, act as Tender Agent until the appointment of a successor Tender Agent in accordance with this Section 1202. Section 1203. The Placement Agent. The Placement Agent shall be a member of the National Association of Securities Dealers, Inc. and registered as a Municipal Securities Dealer under the Securities Exchange Act of 1934, as amended, or a national banking association or a bank or trust company, in each case authorized by law to perform its obligations described in Section 202(e) hereof. Section 1204. Notices. The Trustee shall, within thirty (30) days of the resignation or removal of the Remarketing Agent or the Tender Agent or the appointment of the Placement Agent or a successor Remarketing Agent or Tender Agent, give notice thereof by first class mail, postage prepaid, to the owners of the Bonds. ARTICLE XIII AMENDMENTS AND SUPPLEMENTS Section 1301. Amendments and Supplements Without the Bondholders' Consent. This Indenture may be amended or supplemented at any time and from time to time, without the consent of the Bondholders, but with the consent of the Credit Facility Issuer, if a Credit Facility is in effect (and no default has occurred and is continuing under the Credit Facility), by a supplemental indenture authorized by the Issuer filed with the Trustee, for one or more of the following purposes: (a) to add additional covenants of the Issuer or to surrender any right or power herein conferred upon the Issuer; (b) for any purpose not inconsistent with the terms of this Indenture or to cure any ambiguity or to correct or supplement any provision contained herein or in any supplemental indenture which may be defective or inconsistent with any other provision contained herein or in any supplemental indenture, or to make such other provisions in regard to matters or questions arising under this Indenture which shall not adversely affect the interests of the owners of the Bonds or the Company; (c) to permit the Bonds to be converted during the Variable Rate Period to certificateless securities or securities represented by a master certificate held in trust, ownership of which, in either case, is evidenced by book entries on the books of the Bond Registrar, for any period of time; (d) to permit the appointment of a Co-Trustee under this Indenture; (e) to modify, eliminate or add to the provisions of this Indenture to such extent as shall be necessary to effect the qualification of this Indenture under the Trust Indenture Act of 1939, or under any similar federal statute hereafter enacted, and to add to this Indenture such other provisions as may be expressly permitted by the Trust Indenture Act of 1939; (e) except as otherwise provided in Section 1302 hereof, to modify, eliminate or add to the provisions of this Indenture to such extent as shall be necessary to obtain a rating of the Bonds from Moody's or S&P; (f) to amend the administrative provisions hereof to accommodate the provisions of an Alternate Credit Facility; and (g) to amend the provisions hereof to reflect the obligation of the Trustee, the Issuer or the Company to disclose information regarding the Bonds, the Project, the Issuer, the Company or the issuer of the Letter of Credit as shall be required or recommended to be disclosed in accordance with applicable regulations or guidelines established by, among others, the American Bankers Association Corporate Trust Committee. Section 1302. Amendments With the Bondholders' and the Credit Facility Issuer's Consent. (a) This Indenture may be amended from time to time, except with respect to: (1) the principal, redemption price, purchase price, or interest payable upon any Bonds, (2) the Interest Payment Dates, the dates of maturity or the redemption or purchase provisions of any Bonds, and (3) this Article XIII, by a supplemental indenture consented to by the Credit Facility Issuer if a Credit Facility is in effect (and no default has occurred and is continuing under the Credit Facility) and by the Company and approved by a Majority of the Bondholders which would be affected by the action proposed to be taken. (b) This Indenture may be amended with respect to the matters enumerated in paragraphs (1) through (3) of subsection (a) of this Section with the unanimous consent of all Bondholders, the Credit Facility Issuer if a Credit Facility is in effect (and there is no default has occurred and is continuing under the Credit Facility), the Company and the Issuer. Notwithstanding the foregoing, the Issuer and the Trustee and, during the Variable Rate Period, the Credit Facility Issuer if the Credit Facility is in effect (and no default has occurred and is continuing under the Credit Facility), may amend the Indenture to such extent as may be necessary to obtain a rating of the Bonds from Moody's or S&P without providing the opinion of Bond Counsel specified in paragraph (2) above. Section 1303. Supplemental Indentures Affecting the Rights of the Credit Facility Issuer. Anything herein to the contrary notwithstanding, a supplemental indenture under this Article XIII which in the judgment of the Credit Facility Issuer if a Credit Facility is in effect (and no default has occurred and is continuing under the Credit Facility) adversely affects the rights of the Credit Facility Issuer shall not become effective unless or until the Credit Facility Issuer shall have consented to the execution and delivery thereof. Section 1304. Amendment of the Loan Agreement. (a) The Company, the Trustee and, during the Variable Rate Period, the Credit Facility Issuer if a Credit Facility is in effect (and no default has occurred and is continuing under the Credit Facility), may amend the Loan Agreement; provided that prior to making any amendment, the Company shall provide the Trustee and the Credit Facility Issuer with: (1) a copy of the proposed amendment and (2) an opinion of Bond Counsel to the effect that such amendment or supplement will not adversely affect the exclusion of the interest on the Bonds from the gross income of the recipients thereof for federal income tax purposes and unless the Trustee shall have otherwise given its consent to such amendment or supplement, to the further effect that such amendment or supplement will not otherwise adversely affect the interests of the Bondholders. Notwithstanding the foregoing, the Issuer, the Company, the Trustee, and, during the Variable Rate Period, the Credit Facility Issuer if a Credit Facility is in effect (and no default has occurred and is continuing under the Credit Facility), may amend the Loan Agreement to such extent as may be necessary to obtain a rating of the Bonds from Moody's or S&P without providing the opinion of Bond Counsel specified in paragraph (2) above. (b) If the Company proposes to amend the Loan Agreement in such a manner as would adversely affect the interests of the Bondholders, the Trustee shall notify Bondholders of the proposed amendment and may consent thereto with the consent of at least a Majority of the Bondholders which would be affected by the action proposed to be taken; provided, that the Trustee shall not, without the unanimous consent of the owners of all Bonds then Outstanding, consent to any amendment which would: (1) decrease the amounts payable on the Note, (2) change the due date of principal of or interest on the Note or change any of the prepayment provisions of the Note, or (3) change Section 5.3 of the Loan Agreement. Section 1305. Amendment of the Loan Agreement Requiring the Consent of the Credit Facility Issuer. Anything herein to the contrary notwithstanding, any amendment, change or modification of the Loan Agreement which in the judgment of the Credit Facility Issuer affects the rights of the Credit Facility Issuer shall not become effective unless or until the Credit Facility Issuer shall have consented to the execution and delivery of such amendment, change or modification. Section 1306. Amendment of the Credit Facility. The initial Credit Facility may be amended to such extent as shall be necessary to obtain a rating of the Bonds from Moody's or S&P provided that such amendment or supplement will not adversely affect the interests of the Bondholders. The Trustee shall notify the Bondholders and the Issuer of any proposed amendment of the Credit Facility which would adversely affect the interests of the Bondholders and may consent thereto with the consent of the Issuer, which consent shall not be unreasonably withheld, and at least a Majority of the Bondholders which would be affected by the action proposed to be taken; provided, that the Trustee shall not, without the unanimous consent of the owners of all Bonds then Outstanding, consent to any amendment which would decrease the amount payable under the Credit Facility or reduce the term of the Credit Facility. Section 1307. Trustee Authorized to Join in Amendments and Supplements; Reliance on Counsel. The Trustee is authorized to join with the Issuer in the execution and delivery of any supplemental indenture or amendment permitted by this Article XIII and in so doing shall be fully protected by an opinion of Counsel that such supplemental indenture or amendment is so permitted and has been duly authorized by the Issuer and that all things necessary to make it a valid and binding agreement have been done; provided that certain amendments may, by agreement between the Trustee and the Credit Facility Issuer, require the prior consent of the Credit Facility Issuer. ARTICLE XIV DEFEASANCE; OTHER PAYMENTS Section 1401. Defeasance. (a) When the principal or redemption price (as the case may be) of, and interest on all Bonds issued hereunder have been paid, including without limitation the purchase price for Bonds tendered under Section 202 hereof, or provision has been made for payment of the same, together with the compensation of the Trustee and all other sums payable hereunder by the Issuer, the right, title and interest of the Trustee in and to the Trust Estate and the security interests shall thereupon cease, and the Trustee, on written demand of the Issuer, shall release this Indenture and the security interests and shall execute such documents to evidence such release as may be reasonably required by the Issuer and shall turn over to the Company or to such person, body or authority as may be entitled to receive the same all balances then held by it hereunder; provided, that, if any payments have been received by the Trustee from the Credit Facility in connection with such release, such balances shall be paid to the Credit Facility Issuer to the extent of such payments. If payment or provision therefor is made with respect to less than all of the Bonds, the particular Bonds (or portion thereof) for which provision for payment shall have been considered made shall be selected by lot by the Trustee and thereupon the Trustee shall take similar action for the release of this Indenture with respect to such Bonds. Notwithstanding anything to the contrary contained herein, Bonds purchased at the option of the owners thereof with moneys held by the Trustee pursuant to this Article XIV shall not be remarketed but shall be cancelled by the Trustee. (b) Provision for the payment of Bonds shall be deemed to have been made when the Trustee holds in the Bond Fund, in trust and irrevocably set aside exclusively for such payment, (1) moneys sufficient to make such payment provided that if a Credit Facility is then held by the Trustee, such moneys shall constitute Available Moneys or (2) noncallable Governmental Obligations maturing as to principal and interest in such amounts and at such times as will provide sufficient moneys without reinvestment to make such payment; provided that the Trustee shall have received an opinion of Bond Counsel to the effect that such deposit will not affect the exclusion of the interest on any of the Bonds from the gross income of the recipients thereof for federal income tax purposes (e.g. by causing any of the Bonds to be classified as an "arbitrage bond" within the meaning of Section 148 of the Code), and provided further, that if a Credit Facility is then held by the Trustee, such Governmental Obligations shall have been on deposit with the Trustee in a separate and segregated account for a period of three hundred sixty-seven (367) days during and prior to which no Event of Bankruptcy has occurred or which Governmental Obligations were purchased with Available Moneys. (c) No Bonds in respect of which a deposit under subsection (b) above has been made shall be deemed paid within the meaning of this Article unless the Trustee is satisfied that the amounts deposited are sufficient to make all payments that might become due on the Bonds, including purchase price payments for Bonds tendered at the option of the owners or purchased by the Company in lieu of redemption, if any. Notwithstanding the foregoing, no delivery to the Trustee under this subsection (c) shall be deemed a payment of any Bonds which are to be redeemed prior to their stated maturity until such Bonds shall have been irrevocably called or designated for redemption on a date thereafter on which such Bonds may be redeemed in accordance with the provisions of this Indenture or the Issuer shall have given the Trustee, in form satisfactory to the Trustee, irrevocable instructions to give notice of redemption. Neither the obligations nor moneys deposited with the Trustee pursuant to this Section shall be withdrawn or used for any purpose other than, and shall be segregated and held in trust for, the payment of the principal of, redemption price of, purchase price if applicable of, and interest on the Bonds with respect to which such deposit has been made. In the event that such moneys or obligations are to be applied to the payment of principal or redemption price of any Bonds more than sixty (60) days following the deposit thereof with the Trustee, the Trustee shall mail a notice stating that such moneys or obligations have been deposited and identifying the Bonds for the payment of which such moneys or obligations are being held to all owners of such Bonds at their addresses shown on the Bond Register. (d) Anything in Article XIV to the contrary notwithstanding, if moneys or Governmental Obligations have been deposited or set aside with the Trustee pursuant to this Article for the payment of the principal or redemption price, including purchase price if applicable, of the Bonds and the interest thereon and the principal or redemption price, including purchase price if applicable, of such Bonds and such moneys or Governmental Obligations do not constitute Available Moneys, no amendment to the provisions of this Article shall be made without the consent of the owner of each of the Bonds affected thereby. (e) Notwithstanding the foregoing, those provisions relating to the purchase of Bonds upon the demand of any Bondholders, the maturity of Bonds, interest payments and dates thereof, and the dates, premiums and notice requirements for optional and mandatory redemption or purchase and the Trustee's remedies with respect thereto, and provisions relating to exchange, transfer and registration of Bonds, replacement of mutilated, destroyed, lost or stolen Bonds, the safekeeping and cancellation of Bonds, non-presentment of Bonds, the holding of moneys in trust and repayments to the Company or the Credit Facility Issuer from the Bond Fund and the duties of the Trustee in connection with all of the foregoing and the fees, expenses and indemnities of the Trustee, shall remain in effect and shall be binding upon the Trustee, the Issuer, the Company and the Bondholders notwithstanding the release and discharge of the lien of this Indenture until payment in full of all outstanding Bonds. Section 1402. Deposit of Funds for Payment of the Bonds. If the principal or redemption price of any Bonds become due, either at maturity or by call for redemption or otherwise, together with all interest accruing thereon to the due date, has been paid or provision therefor made in accordance with Section 1401 hereof, all interest on such Bonds shall cease to accrue on the due date and all liability of the Issuer with respect to such Bonds shall likewise cease, except as hereinafter provided. Thereafter the owners of such Bonds shall be restricted exclusively to the funds so deposited for any claim of whatsoever nature with respect to such Bonds, and the Trustee shall hold such funds in trust for such owners. Section 1403. Effect of Purchase of the Bonds. No purchase of Bonds pursuant to Section 303 hereof shall be deemed to be a payment or redemption of such Bonds or any portion thereof and such purchase will not operate to extinguish or discharge the indebtedness evidenced by such Bonds. ARTICLE XV MISCELLANEOUS PROVISIONS Section 1501. Covenants of the Issuer to Bind its Successors. In the event of the dissolution of the Issuer, all of the covenants, stipulations, obligations and agreements contained in this Indenture by or in behalf of or for the benefit of the Issuer shall bind or inure to the benefit of the successor or successors of the Issuer from time to time and any officer, board, commission, authority, agency or instrumentality to whom or to which any power or duty affecting such covenants, stipulations, obligations and agreements shall be transferred by or in accordance with law, and the term "Issuer" as used in this Indenture shall include such successor or successors. Section 1502. Notices. (a) Any notice, demand, direction, request or other instrument authorized or required by this Indenture to be given or filed with the Issuer, the Trustee, the Company or the Credit Facility Issuer shall be in writing and shall be deemed given or filed for all purposes of this Indenture when delivered by hand delivery or mailed by first class mail, postage prepaid, registered or certified mail, addressed as follows: (1) If to the Issuer, to: Hillsborough County Industrial Development Authority c/o Thomas K. Morrison, Esq. Morrison, Morrison & Mills, D.A. Suite 100 1200 West Platt Street Tampa, FL 33606 (2) If to the Company, to: Leslie Controls, Inc. c/o Watts Industries, Inc. 815 Chestnut Street North Andover, MA 01845 (Attention: William C. McCartney, Corporate Controller); and with a copy to: John R. LeClaire, P.C. Goodwin, Procter & Hoar Exchange Place Boston, MA 02109 (3) If to the Trustee, to: The First National Bank of Boston 150 Royall Street, Mail Stop 45-02-15 Canton, MA 02021 Attention: Corporate Trust Division (4) If to the Credit Facility Issuer, to: First Union National Bank of North Carolina 301 South College Street T-7 Charlotte, NC 28288 Attention: International Operations CORP-10. and if sent by telegraph, telegram or telecopy, addressed as above, at the time and date appearing on the report of delivery. Notwithstanding the foregoing, the delivery of Bonds or Optional Tender Notices to the Trustee or Tender Agent if made by telegraph, telegram or telecopy, must be made by delivery of the hard copy by overnight delivery on the date of delivery of such telegraph, telegram or telecopy and shall not be effective until actual receipt thereof by the Trustee or the Tender Agent, as the case may be. (b) A duplicate copy of each notice or other communication given hereunder by either the Issuer or Trustee to the other shall also be given to the Company. (c) All documents received by the Trustee under the provisions of this Indenture, or photographic copies thereof, shall be retained in its possession until this Indenture shall be released in accordance with the provisions of the Indenture, subject at all reasonable times to the inspection of the Issuer and the Bondholders and the agents and representatives thereof. (d) The Issuer, the Trustee, the Company and the Credit Facility Issuer may, by notice given hereunder, designate any further or different addresses to which subsequent notices, certificates or other communications shall be sent. Section 1503. Trustee as the Paying Agent and the Bond Registrar. The Trustee is hereby designated and agrees to act as payment agent and Bond Registrar for and in respect of the Bonds and any amounts received under the Credit Facility or the Loan Agreement. Section 1504. Rights Under this Indenture. Except as herein otherwise expressly provided, nothing in this Indenture expressed or implied is intended or shall be construed to confer upon any person, firm or corporation other than the parties hereto, the Company and the owners of the Bonds issued under and secured by this Indenture, any rights under this Indenture or any provisions hereof, this Indenture and all its provisions being intended to be and being for the sole and exclusive benefit of the parties hereto, the Company and the owners from time to time of the Bonds issued hereunder. Section 1505. Form of Certificates and Opinions. Except as otherwise provided in this Indenture, any request, notice, certificate or other instrument from the Issuer or the Company to the Trustee shall be deemed to have been signed by the proper party or parties if signed by the Issuer Representative or the Company Representative, respectively, and the Trustee may accept and rely upon a certificate signed by the Issuer Representative as to any action taken by the Issuer and by the Company Representative as to any action taken by the Company. Section 1506. Severability. In case any one or more of the provisions of this Indenture or of the Bonds issued hereunder shall for any reason be held to be illegal or invalid, such illegality or invalidity shall not affect any other provisions of this Indenture or of the bonds, but this Indenture and the Bonds shall be construed and enforced as if such illegal or invalid provision had not been contained therein. In case any covenant, stipulation, obligation or agreement of the Issuer contained in this Indenture or in the Bonds shall for any reason be held to be in violation of law, then such covenant, stipulation, obligation or agreement of the Issuer shall be enforced to the full extent permitted by law. Section 1507. Covenants of the Issuer Not Covenants of Officials Individually. All covenants, stipulations, obligations and agreements of the Issuer contained in this Indenture shall be deemed to be covenants, stipulations, obligations and agreements of the Issuer to the full extent permitted by the Constitution and laws of the State. No covenant, stipulation, obligation or agreement contained herein shall be deemed to be a covenant, stipulation, obligation or agreement of any present or future officer, member, agent or employee of the Issuer in his individual capacity, and no officer of the Issuer executing the Bonds shall be liable personally on the Bonds or be subject to any personal liability or accountability by reason of the issuance thereof. No officer, agent or employee of the Issuer shall incur any personal liability in acting or proceeding or in not acting or not proceeding in accordance with the terms of this Indenture. Section 1508. State Law Governs. This Indenture shall be governed by and construed in accordance with the laws of the State. Section 1509. Payments Due on Days Other Than Business Days. In any case where the date of maturity of interest on or principal of the Bonds or the date fixed for redemption of the Bonds shall be in the city of payment a day other than a Business Day, then payment of interest or principal need not be made on such date but may be made on the next succeeding Business Day with the same force and effect as if made on the date of maturity or the date fixed for redemption, provided that interest shall accrue for the period of any such extension. Section 1510. Execution in Counterparts. This Indenture may be executed in multiple counterparts, each of which shall be regarded for all purposes as an original, and such counterparts shall constitute but one and the same instrument, and no one counterpart of which need be executed by all parties. IN WITNESS WHEREOF, the HILLSBOROUGH COUNTY INDUSTRIAL DEVELOPMENT AUTHORITY has caused this Indenture to be executed in its name and on its behalf by the Chairman or Vice Chairman of the Issuer and to the same to be attested by the Secretary or Assistant Secretary of the Issuer; and the Trustee has caused this Indenture to be executed in its name and on its behalf by an authorized officer and the same to be attested by a responsible officer, all as of the date and year first above written. HILLSBOROUGH COUNTY INDUSTRIAL DEVELOPMENT AUTHORITY By: (Signature) Chairman, Attest: By: (Signature) Secretary, THE FIRST NATIONAL BANK OF BOSTON, as Trustee By: (Signature) Its: Account Administrator Attest: By: (Signature) Assistant Cashier EX-10.32 8 REVOLVING CREDIT AGREEMENT Dated as of August 30, 1994 among WATTS INVESTMENT COMPANY, THE FINANCIAL INSTITUTIONS LISTED ON SCHEDULE 1 HERETO, THE FIRST NATIONAL BANK OF BOSTON, as Agent and WATTS INDUSTRIES, INC., as Guarantor 1. DEFINITIONS AND RULES OF INTERPRETATION. 1 1.1. Definitions. 1 1.2. Rules of Interpretation. 12 2. THE REVOLVING CREDIT FACILITY. 13 2.1. Commitment to Lend. 13 2.2. Facility Fee. 14 2.3. Reduction of Total Commitment. 14 2.4. The Notes. 14 2.5. Interest on Revolving Credit Loans. 15 2.6. Requests for Revolving Credit Loans. 15 2.7. Conversion Options. 15 2.7.1. Conversion to Different Type of Revolving Credit Loan. 15 2.7.2. Continuation of Type of Revolving Credit Loan. 16 2.7.3. Eurodollar Rate Loans. 16 2.8. Funds for Revolving Credit Loans. 17 2.8.1. Funding Procedures. 17 2.8.2. Advances by Agent. 17 3. REPAYMENT OF THE REVOLVING CREDIT LOANS. 18 3.1. Maturity. 18 3.2. Mandatory Repayments of Revolving Credit Loans. 18 3.3. Optional Repayments of Revolving Credit Loans. 18 4. CERTAIN GENERAL PROVISIONS. 19 4.1. Closing Fee. 19 4.2. Agent's Fee. 19 4.3. Funds for Payments. 19 4.3.1. Payments to Agent. 19 4.3.2. No Offset, etc. 19 4.4. Computations. 20 4.5. Inability to Determine Eurodollar Rate. 20 4.6. Illegality. 20 4.7. Additional Costs, etc. 21 4.8. Capital Adequacy. 22 4.9. Certificate. 23 4.10. Indemnity. 23 4.11. Interest on Overdue Amounts. 23 5. GUARANTY. 23 5.1. Guaranty. 23 5.2. Guaranty Absolute. 24 5.3. Effectiveness; Enforcement. 25 5.4. Waivers. 25 5.5. Subrogation Waiver. 25 6. REPRESENTATIONS AND WARRANTIES. 26 6.1. Corporate Authority. 26 6.1.1. Incorporation; Good Standing. (i) 26 6.1.2. Authorization. 26 6.1.3. Enforceability. 26 6.2. Governmental Approvals. 27 6.3. Title to Properties; Leases. 27 6.4. Financial Statements. 27 6.5. No Material Changes, etc. 28 6.6. Franchises, Patents, Copyrights, etc. 28 6.7. Litigation. 28 6.8. No Materially Adverse Contracts, etc. 28 6.9. Compliance With Other Instruments, Laws, etc. 29 6.10. Tax Status. 29 6.11. No Event of Default. 29 6.12. Holding Company and Investment Company Acts. 29 6.13. Absence of Financing Statements, etc. 29 6.14. Certain Transactions. 30 6.15. Employee Benefit Plans. 30 6.15.1. In General. 30 6.15.2. Terminability of Welfare Plans. 30 6.15.3. Guaranteed Pension Plans. 31 6.15.4. Multiemployer Plans. 31 6.16. Regulations U and X. 31 6.17. Environmental Compliance. 32 6.18. Subsidiaries, etc. 34 7. AFFIRMATIVE COVENANTS OF THE BORROWER AND THE PARENT. 34 7.1. Punctual Payment. 34 7.2. Maintenance of Office. 34 7.3. Records and Accounts. 34 7.4. Financial Statements, Certificates and Information. 34 7.5. Notices. 36 7.5.1. Defaults. 36 7.5.2. Environmental Events. 36 7.5.3. Notice of Litigation and Judgments. 36 7.6. Corporate Existence; Maintenance of Properties. 37 7.7. Insurance. 37 7.8. Taxes. 38 7.9. Inspection of Properties and Books, etc. 38 7.9.1. General. 38 7.9.2. Communication with Accountants. 38 7.10. Compliance with Laws, Contracts, Licenses, and Permits. 39 7.11. Employee Benefit Plans. 39 7.12. Use of Proceeds. 40 7.13. Further Assurances. 40 8. CERTAIN NEGATIVE COVENANTS OF THE BORROWER AND THE PARENT. 40 8.1. Restrictions on Indebtedness. 40 8.2. Restrictions on Liens. 42 8.3. Restrictions on Investments. 43 8.4. Distributions. 45 8.5. Merger, Consolidation. 45 8.5.1. Mergers and Acquisitions. 45 8.5.2. Disposition of Assets. 46 8.6. Sale and Leaseback. 46 8.7. Compliance with Environmental Laws. 46 8.8. Employee Benefit Plans. 47 8.9. Certain Transactions. 48 9. FINANCIAL COVENANTS OF THE BORROWER AND THE PARENT. 48 9.1. Fixed Charge Coverage Ratio. 48 9.2. Leverage Ratio. 48 9.3. Consolidated Tangible Net Worth. 48 10. CLOSING CONDITIONS. 48 10.1. Loan Documents. 48 10.2. Certified Copies of Charter Documents. 49 10.3. Corporate Action. 49 10.4. Incumbency Certificate. 49 10.5. Opinion of Counsel. 49 10.6. Proceedings and Documents. 49 10.7. Payment of Fees. 50 11. CONDITIONS TO ALL BORROWINGS. 50 11.1. Representations True; No Event of Default. 50 11.2. No Legal Impediment. 50 11.3. Governmental Regulation. 50 12. EVENTS OF DEFAULT; ACCELERATION; ETC. 50 12.1. Events of Default and Acceleration. 50 12.2. Termination of Commitments. 54 12.3. Remedies. 54 12.4. Distribution of Proceeds. 54 13. SETOFF. 55 14. THE AGENT. 56 14.1. Authorization. 56 14.2. Employees and Agents. 57 14.3. No Liability. 57 14.4. No Representations. 57 14.5. Payments. 58 14.5.1. Payments to Agent. 58 14.5.2. Distribution by Agent. 58 14.5.3. Delinquent Banks. 58 14.6. Holders of Notes. 59 14.7. Indemnity. 59 14.8. Agent as Bank. 59 14.9. Resignation. 59 14.10. Notification of Defaults and Events of Default. 60 15. EXPENSES. 60 16. INDEMNIFICATION. 61 17. SURVIVAL OF COVENANTS, ETC. 62 18. ASSIGNMENT AND PARTICIPATION. 62 18.1. Conditions to Assignment by Banks. 62 18.2. Certain Representations and Warranties; Limitations; Covenants. 63 18.3. Register. 64 18.4. New Notes. 65 18.5. Participations. 65 18.6. Disclosure. 65 18.7. Assignee or Participant Affiliated with the Borrower. 66 18.8. Miscellaneous Assignment Provisions. 66 18.9. Assignment by Borrower. 67 19. CONFIDENTIALITY. 67 20. NOTICES, ETC. 67 21. GOVERNING LAW. 68 22. HEADINGS. 69 23. COUNTERPARTS. 69 24. ENTIRE AGREEMENT, ETC. 69 25. WAIVER OF JURY TRIAL. 69 26. CONSENTS, AMENDMENTS, WAIVERS, ETC. 70 27. SEVERABILITY. 70 Exhibits & Schedules Exhibit A - Form of Revolving Credit Note Exhibit B - Form of Loan Request Exhibit C - Form of Compliance Certificate Exhibit D - Form of Legal Opinion Exhibit E - Form of Assignment and Acceptance Schedule 1 - Banks, Commitments, Commitment Percentages, Domestic Lending Offices, Eurodollar Lending Offices Schedule 6.3 - Leased Property Schedule 6.7 - Litigation Schedule 6.13 - Financing Statements Schedule 6.17 - Environmental Matters Schedule 6.18 - Subsidiaries Schedule 8.1 - Existing Indebtedness Schedule 8.2 - Liens Schedule 8.3 - Investments REVOLVING CREDIT AGREEMENT This REVOLVING CREDIT AGREEMENT is made as of August 30, 1994, by and among (a) Watts Investment Company (the "Borrower") a Delaware corporation having its principal place of business at 715 King Street, Wilmington, Delaware, 19801, (b) the financial institutions listed on Schedule 1 hereto and such other financial institutions that are or may become parties to this Credit Agreement from time to time in accordance with the provisions hereof, (c) The First National Bank of Boston, as agent for itself and the other financial institutions party hereto, and (d) Watts Industries, Inc. (the "Parent"), a Delaware corporation having its principal place of business at 815 Chestnut Street, North Andover, Massachusetts 01845, as guarantor hereunder. 1. DEFINITIONS AND RULES OF INTERPRETATION. 1.1. Definitions. The following terms shall have the meanings set forth in this (section)1 or elsewhere in the provisions of this Credit Agreement referred to below: Affiliate. Any Person that would be considered to be an affiliate of the Parent or the Borrower under Rule 144(a) of the Rules and Regulations of the Securities and Exchange Commission, as in effect on the date hereof, if such Person were issuing securities. Agent's Head Office. The Agent's head office located at 100 Federal Street, Boston, Massachusetts 02110, or at such other location as the Agent may designate from time to time. Agent. The First National Bank of Boston acting as agent for the Banks. Agent's Special Counsel. Bingham, Dana & Gould or such other counsel as may be approved by the Agent. Applicable Margin. A percentage to be determined for each fiscal quarter as of the last day of the previous fiscal quarter based on the higher of the Parent's senior unsecured debt ratings as published by either (i) Moody's Investors Services, Inc. or (ii) Standard & Poor's Corporation on such date, in accordance with the schedule set forth below: Rating S&P/Moody's Applicable Margin A/A2 or Higher 0.20% A-/A3 0.25% BBB+/Baa 1 0.3125% BBB/Baa2 0.35% BBB-/Baa3 0.4375% Non Investment Grade or unrated by either 0.75% rating agency Assignment and Acceptance. See (section)18.1. Balance Sheet Date. June 30, 1994. Banks. FNBB and the other lending institutions listed on Schedule 1 hereto and any other Person who becomes an assignee of any rights and obligations of a Bank pursuant to (section)18. Base Rate. The higher of (i) the annual rate of interest announced from time to time by FNBB at its head office in Boston, Massachusetts, as its "base rate" and (ii) one-half of one percent (1/2%) above the Federal Funds Effective Rate. For the purposes of this definition, "Federal Funds Effective Rate" shall mean, for any day, the rate per annum equal 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 that is a Business Day, the average of the quotations for such day on such transactions received by the Agent from three funds brokers of recognized standing selected by the Agent. Base Rate Loans. Revolving Credit Loans bearing interest calculated by reference to the Base Rate. Borrower. As defined in the preamble hereto. Business Day. Any day on which banking institutions in Boston, Massachusetts are open for the transaction of banking business and, in the case of Eurodollar Rate Loans, also a day which is a Eurodollar Business Day. Capital Assets. Fixed assets, both tangible (such as land, buildings, fixtures, machinery and equipment) and intangible (such as patents, copyrights, trademarks, franchises and good will); provided that Capital Assets shall not include any item customarily charged directly to expense or depreciated over a useful life of twelve (12) months or less in accordance with generally accepted accounting principles. Capital Expenditures. Amounts paid or indebtedness incurred by the Parent or any of its Subsidiaries in connection with the purchase or lease by the Parent or any of its Subsidiaries of Capital Assets that would be required to be capitalized and shown on the balance sheet of such Person in accordance with generally accepted accounting principles. Capitalized Leases. Leases under which the Parent or any of its Subsidiaries is the lessee or obligor, the discounted future rental payment obligations under which are required to be capitalized on the balance sheet of the lessee or obligor in accordance with generally accepted accounting principles. CERCLA. See (section)6.17. Closing Date. The first date on which the conditions set forth in (sections) 10 and 11 have been satisfied and any Revolving Credit Loans are to be made. Code. The Internal Revenue Code of 1986. Commitment. With respect to each Bank, the amount set forth on Schedule 1 hereto as the amount of such Bank's commitment to make Loans to the Borrower, as the same may be reduced from time to time; or if such commitment is terminated pursuant to the provisions hereof, zero. Commitment Percentage. With respect to each Bank, the percentage determined by dividing such Bank's Commitment by the aggregate Commitments of all of the Banks. Each Bank's Commitment Percentage as of the Closing Date is set forth on Schedule 1 hereto. Consolidated or consolidated. With reference to any term defined herein, shall mean that term as applied to the accounts of the Parent and its Subsidiaries, consolidated in accordance with generally accepted accounting principles. Consolidated Net Income (or Deficit). The consolidated net income (or deficit) of the Parent and its Subsidiaries, after deduction of all expenses, taxes, and other proper charges, determined in accordance with generally accepted accounting principles, after eliminating therefrom all extraordinary nonrecurring items of income or loss. Consolidated Net Worth. Consolidated Total Assets minus Consolidated Total Liabilities, and minus, to the extent otherwise includable in the computation of Consolidated Net Worth, any subscriptions receivable for the purchase of capital stock. Consolidated Tangible Net Worth. Consolidated Total Assets minus Consolidated Total Liabilities, and minus the sum of: (a) the total book value of all assets of the Parent and its Subsidiaries properly classified as intangible assets under generally accepted accounting principles, including such items as good will, the purchase price of acquired assets in excess of the fair market value thereof, trademarks, trade names, service marks, brand names, copyrights, patents and licenses, and rights with respect to the foregoing; plus (b) all amounts representing any write-up in the book value of any assets of the Parent or its Subsidiaries resulting from a revaluation thereof subsequent to the Balance Sheet Date, excluding adjustments to translate foreign assets and liabilities for changes in foreign exchange rates made in accordance with Financial Accounting Standards Board Statement No. 52; plus (c) to the extent otherwise includable in the computation of Consolidated Tangible Net Worth, any subscriptions receivable for the purchase of capital stock. Consolidated Total Assets. All assets of the Parent and its Subsidiaries determined on a consolidated basis in accordance with generally accepted accounting principles. Consolidated Total Interest Expense. For any period, the aggregate amount of interest required to be paid or accrued by the Parent and its Subsidiaries during such period on all Indebtedness of the Parent and its Subsidiaries outstanding during all or any part of such period, whether such interest was or is required to be reflected as an item of expense or capitalized, including payments consisting of interest in respect of Capitalized Leases and plus, without duplication, commitment fees, agency fees, facility fees, balance deficiency fees and similar fees or expenses in connection with the borrowing of money. Consolidated Total Liabilities. All liabilities of the Parent and its Subsidiaries determined on a consolidated basis in accordance with generally accepted accounting principles. Conversion Request. A notice given by the Borrower to the Agent of the Borrower's election to convert or continue a Loan in accordance with (section)2.7. Credit Agreement. This Revolving Credit Agreement, including the Schedules and Exhibits hereto. Default. See (section)12. Distribution. The declaration or payment of any dividend on or in respect of any shares of any class of capital stock of any of the Borrower, the Parent or any of their Subsidiaries, other than dividends payable solely in shares of common stock of such Person; the purchase, redemption, or other retirement of any shares of any class of capital stock of any of the Borrower, the Parent or any of their Subsidiaries (or any options, warrants or other rights to acquire shares of such capital stock), directly or indirectly through a Subsidiary of such Person or otherwise; the return of capital by any of the Borrower, the Parent or any of their Subsidiaries to its shareholders as such; or any other distribution on or in respect of any shares of any class of capital stock of any of the Borrower, the Parent or any of their Subsidiaries. Dollars or $. Dollars in lawful currency of the United States of America. Domestic Lending Office. Initially, the office of each Bank designated as such in Schedule 1 hereto; thereafter, such other office of such Bank, if any, located within the United States that will be making or maintaining Base Rate Loans. Drawdown Date. The date on which any Revolving Credit Loan is made or is to be made, and the date on which any Revolving Credit Loan is converted or continued in accordance with (section)2.7. Earnings Before Interest, Taxes, Depreciation and Amortization. The Consolidated Net Income (or Deficit) of the Parent and its Subsidiaries for any period, after all expenses and other proper charges but before payment or provision for any income taxes or interest expense for such period, plus depreciation and amortization for such period, determined in accordance with generally accepted accounting principles. Eligible Assignee. Any of (i) a commercial bank or finance company organized under the laws of the United States, or any State thereof or the District of Columbia, and having total assets in excess of $5,000,000,000; (ii) a commercial bank organized under the laws of any other country which is a member of the Organization for Economic Cooperation and Development (the "OECD"), or a political subdivision of any such country, and having total assets in excess of $5,000,000,000, provided that such bank is acting through a branch or agency located in the country in which it is organized or another country which is also a member of the OECD; and (iii) if, but only if, an Event of Default has occurred and is continuing, any other bank, insurance company, commercial finance company or other financial institution or other Person approved by the Agent, such approval not to be unreasonably withheld. Employee Benefit Plan. Any employee benefit plan within the meaning of (section)3(3) of ERISA maintained or contributed to by any of the Borrower, the Parent or any ERISA Affiliate, other than a Multiemployer Plan. Environmental Laws. See (section)6.17(a). ERISA. The Employee Retirement Income Security Act of 1974. ERISA Affiliate. Any Person which is treated as a single employer with either of the Borrower or the Parent under (section)414 of the Code. ERISA Reportable Event. A reportable event with respect to a Guaranteed Pension Plan within the meaning of (section)4043 of ERISA and the regulations promulgated thereunder as to which the requirement of notice has not been waived. Eurocurrency Reserve Rate. For any day with respect to a Eurodollar Rate Loan, the maximum rate (expressed as a decimal) at which any lender subject thereto would be required to maintain reserves under Regulation D of the Board of Governors of the Federal Reserve System (or any successor or similar regulations relating to such reserve requirements) against "Eurocurrency Liabilities" (as that term is used in Regulation D), if such liabilities were outstanding. The Eurocurrency Reserve Rate shall be adjusted automatically on and as of the effective date of any change in the Eurocurrency Reserve Rate. Eurodollar Business Day. Any day on which commercial banks are open for international business (including dealings in Dollar deposits) in London or such other eurodollar interbank market as may be selected by the Agent in its sole discretion acting in good faith. Eurodollar Lending Office. Initially, the office of each Bank designated as such in Schedule 1 hereto; thereafter, such other office of such Bank, if any, that shall be making or maintaining Eurodollar Rate Loans. Eurodollar Rate. For any Interest Period with respect to a Eurodollar Rate Loan, the rate of interest equal to (i) the rate at which FNBB's Eurodollar Lending Office is offered Dollar deposits, at or about 10:00 a.m., Boston time, two Eurodollar Business Days prior to the beginning of such Interest Period in the interbank eurodollar market where the eurodollar and foreign currency and exchange operations of such Eurodollar Lending Office are customarily conducted, for delivery on the first day of such Interest Period for the number of days comprised therein and in an amount comparable to the amount of the Eurodollar Rate Loan of FNBB to which such Interest Period applies, divided by (ii) a number equal to 1.00 minus the Eurocurrency Reserve Rate, if applicable. Eurodollar Rate Loans. Revolving Credit Loans bearing interest calculated by reference to the Eurodollar Rate. Event of Default. See (section)12. Existing Indebtedness. See (section)8.1(f). Facility Fee. See (section)2.2. Facility Fee Rate. For any date of determination, a percentage to be determined for such date based on the higher of the Parent's senior unsecured debt ratings as published by either (i) Moody's Investors Services, Inc. or (ii) Standard & Poor's Corporation on such date, in accordance with the schedule set forth below: Rating Facility Fee S&P/Moody's Rate A/A2 or Higher 0.10% A-/A3 0.10% BBB+/Baa 1 0.1250% BBB/Baa2 0.15% BBB-/Baa3 0.1875% Non Investment Grade or unrated by either 0.25% rating agency Fixed Charge Coverage Ratio. For any period, the ratio of (i) the result of (A) Earnings Before Interest, Taxes, Depreciation and Amortization minus (B) Capital Expenditures, to (ii) the sum of (A) Consolidated Total Interest Expense (without duplication of any interest taken into account in the computation of the Fixed Charged Coverage Ratio in any prior period) plus (B) current maturities of long term Indebtedness due and payable during such period in accordance with generally accepted accounting principles, in each case for the Parent and its Subsidiaries on a consolidated basis for such period. FNBB. The First National Bank of Boston in its individual capacity. generally accepted accounting principles. (i) When used in (sections)8.1 or 9, whether directly or indirectly through reference to a capitalized term used therein, means (A) principles that are consistent with the principles promulgated or adopted by the Financial Accounting Standards Board and its predecessors, in effect for the fiscal year ended on the Balance Sheet Date, and (B) to the extent consistent with such principles, the accounting practice of the Parent reflected in its financial statements for the year ended on the Balance Sheet Date, and (ii) when used in general, other than as provided above, means principles that are (A) consistent with the principles promulgated or adopted by the Financial Accounting Standards Board and its predecessors, as in effect from time to time and (B) consistently applied with past financial statements of the Parent adopting the same principles, provided that in each case referred to in this definition of "generally accepted accounting principles" a certified public accountant would, insofar as the use of such accounting principles is pertinent, be in a position to deliver an unqualified opinion (other than a qualification regarding changes in generally accepted accounting principles) as to financial statements in which such principles have been properly applied. Guaranteed Obligations. See (section)5.1. Guaranteed Pension Plan. Any employee pension benefit plan within the meaning of (section)3(2) of ERISA currently maintained or contributed to by the Borrower or any ERISA Affiliate the benefits of which are guaranteed on termination in full or in part by the PBGC pursuant to Title IV of ERISA, other than a Multiemployer Plan. Hazardous Substances. See (section)6.17(b). Indebtedness. All obligations, contingent and otherwise, that in accordance with generally accepted accounting principles should be classified upon the obligor's balance sheet as liabilities, or to which reference should be made by footnotes thereto, including in any event and whether or not so classified: (i) all debt and similar monetary obligations, whether direct or indirect, including, without limitation, Capitalized Lease obligations; (ii) all liabilities secured by any mortgage, pledge, security interest, lien, charge, or other encumbrance existing on property owned or acquired subject thereto, whether or not the liability secured thereby shall have been assumed; and (iii) all guarantees, endorsements and other contingent obligations whether direct or indirect in respect of indebtedness of others, including any obligation to supply funds to or in any manner to invest in, directly or indirectly, the debtor, to purchase indebtedness, or to assure the owner of indebtedness against loss, through an agreement to purchase goods, supplies, or services for the purpose of enabling the debtor to make payment of the indebtedness held by such owner or otherwise, and the obligations to reimburse the issuer in respect of any letters of credit, whether drawn or undrawn, to the extent not duplicative of the Indebtedness secured by such letters of credit. Interest Payment Date. (i) As to any Base Rate Loan, the fifteenth day of each calendar month and (ii) as to any Eurodollar Rate Loan in respect of which the Interest Period is (A) 3 months or less, the last day of such Interest Period, (B) more than 3 months but less than or equal to 6 months, the date that is 3 months from the first day of such Interest Period, and, in addition, the last day of such Interest Period and (C) more than 6 months, the date that is 3 months from the first day of such Interest Period, the date that is 6 months from the first day of such Interest Period, and, in addition, the last day of such Interest Period. Interest Period. With respect to each Loan, (i) initially, the period commencing on the Drawdown Date of such Loan and ending on the last day of one of the periods set forth below, as selected by the Borrower in a Loan Request (A) for any Base Rate Loan, the last day of the calendar month and (B) for any Eurodollar Rate Loan, 1, 2, 3, 4, 5, or 6 months and, with the prior written consent of each of the Banks, 9 months; and (ii) thereafter, each period commencing on the last day of the next preceding Interest Period applicable to such Loan and ending on the last day of one of the periods set forth above, as selected by the Borrower in a Conversion Request; provided that all of the foregoing provisions relating to Interest Periods are subject to the following: (a) if any Interest Period with respect to a Eurodollar Rate Loan would otherwise end on a day that is not a Eurodollar Business Day, that Interest Period shall be extended to the next succeeding Eurodollar Business Day unless the result of such extension would be to carry such Interest Period into another calendar month, in which event such Interest Period shall end on the immediately preceding Eurodollar Business Day; (b) if any Interest Period with respect to a Base Rate Loan would end on a day that is not a Business Day, that Interest Period shall end on the next succeeding Business Day; (c) if the Borrower shall fail to give notice as provided in (section)2.7, the Borrower shall be deemed to have requested a conversion of the affected Eurodollar Rate Loan to a Base Rate Loan and the continuance of all Base Rate Loans as Base Rate Loans on the last day of the then current Interest Period with respect thereto; (d) any Interest Period that begins on the last Eurodollar Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall end on the last Eurodollar Business Day of a calendar month; and (e) any Interest Period relating to any Eurodollar Rate Loan that would otherwise extend beyond the Maturity Date shall end on the Maturity Date. Investments. All expenditures made and all liabilities incurred (contingently or otherwise) for the acquisition of stock or Indebtedness of, or for loans, advances, capital contributions or transfers of property to, or in respect of any guaranties (or other commitments as described under Indebtedness), or obligations of, any Person. In determining the aggregate amount of Investments outstanding at any particular time: (i) the amount of any Investment represented by a guaranty shall be taken at not less than the principal amount of the obligations guaranteed and still outstanding; (ii) there shall be included as an Investment all interest accrued with respect to Indebtedness constituting an Investment unless and until such interest is paid; (iii) there shall be deducted in respect of each such Investment any amount received as a return of capital (but only by repurchase, redemption, retirement, repayment, liquidating dividend or liquidating distribution); (iv) there shall not be deducted in respect of any Investment any amounts received as earnings on such Investment, whether as dividends, interest or otherwise, except that accrued interest included as provided in the foregoing clause (ii) may be deducted when paid; and (v) there shall not be deducted from the aggregate amount of Investments any decrease in the value thereof. Loan Documents. This Credit Agreement and the Notes. Loan Request. See (section)2.6. Loans. The Revolving Credit Loans. Majority Banks. As of any date, the Banks holding at least fifty-one percent (51%) of the outstanding principal amount of the Notes on such date; and if no such principal is outstanding, the Banks whose aggregate Commitments constitutes at least fifty-one percent (51%) of the Total Commitment. Maturity Date. August 31, 1999. Multiemployer Plan. Any multiemployer plan within the meaning of (section)3(37) of ERISA maintained or contributed to by any of the Borrower, the Parent or any ERISA Affiliate. Note Record. A Record with respect to a Note. Notes. See (section)2.4. Obligations. All indebtedness, obligations and liabilities of any of the Borrower, the Parent and any of their Subsidiaries to any of the Banks and the Agent, individually or collectively, existing on the date of this Credit Agreement or arising thereafter, direct or indirect, joint or several, absolute or contingent, matured or unmatured, liquidated or unliquidated, secured or unsecured, arising by contract, operation of law or otherwise, arising or incurred under this Credit Agreement or any of the other Loan Documents or in respect of any of the Loans or any of the Notes or other instruments at any time evidencing any thereof. Other Indebtedness. See (section)8.1(h). outstanding. With respect to the Loans, the aggregate unpaid principal thereof as of any date of determination. Parent. As defined in the Preamble hereto. PBGC. The Pension Benefit Guaranty Corporation created by (section)4002 of ERISA and any successor entity or entities having similar responsibilities. Permitted Liens. Liens, security interests and other encumbrances permitted by (section)8.2. Person. Any individual, corporation, partnership, trust, unincorporated association, business, or other legal entity, and any government or any governmental agency or political subdivision thereof. Real Estate. All real property at any time owned or leased (as lessee or sublessee) by any of the Borrower, the Parent or any of their Subsidiaries. Record. The grid attached to a Note, or the continuation of such grid, or any other similar record, including computer records, maintained by any Bank with respect to any Loan referred to in such Note. Revolving Credit Loans. Revolving credit loans made or to be made by the Banks to the Borrower pursuant to (section)2. Subsidiary. Any corporation, association, trust, partnership, joint venture, or other business entity of which the designated parent shall at any time own directly or indirectly through a Subsidiary or Subsidiaries at least a majority (by number of votes) of the outstanding Voting Stock. Total Commitment. The sum of the Commitments of the Banks, as in effect from time to time. Total Funded Debt. The principal amount of Indebtedness for borrowed money (including obligations under Capitalized Leases allocable to principal) of the Parent and its Subsidiaries on a consolidated basis. Type. As to any Revolving Credit Loan its nature as a Base Rate Loan or a Eurodollar Rate Loan. Voting Stock. Stock or similar interests, of any class or classes (however designated), the holders of which are at the time entitled, as such holders, to vote for the election of a majority of the directors (or persons performing similar functions) of the corporation, association, trust, partnership, joint venture, or other business entity involved, whether or not the right so to vote exists by reason of the happening of a contingency. 1.2. Rules of Interpretation. (a) A reference to any document or agreement shall include such document or agreement as amended, modified or supplemented from time to time in accordance with its terms and the terms of this Credit Agreement. (b) The singular includes the plural and the plural includes the singular. (c) A reference to any law includes any amendment or modification to such law. (d) A reference to any Person includes its permitted successors and permitted assigns. (e) Accounting terms not otherwise defined herein have the meanings assigned to them by generally accepted accounting principles applied on a consistent basis by the accounting entity to which they refer. (f) The words "include", "includes" and "including" are not limiting. (g) All terms not specifically defined herein or by generally accepted accounting principles, which terms are defined in the Uniform Commercial Code as in effect in the Commonwealth of Massachusetts, have the meanings assigned to them therein, with the term "instrument" being that defined under Article 9 of the Uniform Commercial Code. (h) Reference to a particular "(section)" refers to that section of this Credit Agreement unless otherwise indicated. (i) The words "herein", "hereof", "hereunder" and words of like import shall refer to this Credit Agreement as a whole and not to any particular section or subdivision of this Credit Agreement. 2. THE REVOLVING CREDIT FACILITY. 2.1. Commitment to Lend. Subject to the terms and conditions set forth in this Credit Agreement, each of the Banks severally agrees to lend to the Borrower and the Borrower may borrow, repay, and reborrow from time to time between the Closing Date and the Maturity Date upon notice by the Borrower to the Agent given in accordance with (section)2.6, such sums as are requested by the Borrower up to a maximum aggregate principal amount outstanding (after giving effect to all amounts requested) at any one time equal to such Bank's Commitment, provided that the sum of the outstanding amount of the Revolving Credit Loans (after giving effect to all amounts requested) shall not at any time exceed the Total Commitment. The Revolving Credit Loans shall be made pro rata in accordance with each Bank's Commitment Percentage. Each request for a Revolving Credit Loan hereunder shall constitute a representation and warranty by the Borrower that the conditions set forth in (section)10 and (section)11.1, in the case of the initial Revolving Credit Loans to be made on the Closing Date, and (section)11.1, in the case of all other Revolving Credit Loans, have been satisfied on the date of such request. 2.2. Facility Fee. The Borrower agrees to pay to the Agent for the accounts of the Banks in accordance with their respective Commitment Percentages a facility fee (the "Facility Fee") calculated at a rate per annum equal to the Facility Fee Rate determined as of the last day of the calendar quarter for which such Facility Fee is to be determined (or, in the case of Facility Fee payments to be made prior the last day of the calendar quarter, the Facility Fee Rate determined as of such date) on the average daily amount during such calendar quarter or portion thereof of the Total Commitment in effect during such calendar quarter. The Facility Fee shall be payable quarterly in arrears on the first day of each calendar quarter for the immediately preceding calendar quarter commencing on the first such date following the date hereof, with a final payment on the Maturity Date or any earlier date on which the Commitments shall terminate. 2.3. Reduction of Total Commitment. The Borrower shall have the right at any time and from time to time upon ten (10) Business Days prior written notice to the Agent to reduce by $2,000,000 or integral multiples of $1,000,000 in excess thereof or terminate entirely the unborrowed portion of the Total Commitment, whereupon the Commitments of the Banks shall be reduced pro rata in accordance with their respective Commitment Percentages of the amount specified in such notice or, as the case may be, terminated. Promptly after receiving any notice of the Borrower delivered pursuant to this (section)2.3, the Agent will notify the Banks of the substance thereof. Upon the effective date of any such reduction or termination, the Borrower shall pay to the Agent for the respective accounts of the Banks the full amount of any Facility Fee then accrued on the amount of the reduction. No reduction of the Commitments may be reinstated. 2.4. The Notes. The Revolving Credit Loans shall be evidenced by separate promissory notes of the Borrower in substantially the form of Exhibit A hereto (each a "Note"), dated as of the Closing Date and completed with appropriate insertions. One Note shall be payable to the order of each Bank in a principal amount equal to such Bank's Commitment or, if less, the outstanding amount of all Revolving Credit Loans made by such Bank, plus interest accrued thereon, as set forth below. The Borrower irrevocably authorizes each Bank to make or cause to be made, at or about the time of the Drawdown Date of any Revolving Credit Loan or at the time of receipt of any payment of principal on such Bank's Note, an appropriate notation on such Bank's Note Record reflecting the making of such Revolving Credit Loan or (as the case may be) the receipt of such payment. The outstanding amount of the Revolving Credit Loans set forth on such Bank's Note Record shall be prima facie evidence of the principal amount thereof owing and unpaid to such Bank, but the failure to record, or any error in so recording, any such amount on such Bank's Note Record shall not limit or otherwise affect the obligations of the Borrower hereunder or under any Note to make payments of principal of or interest on any Note when due. 2.5. Interest on Revolving Credit Loans. Except as otherwise provided in (section)4.11, (a) Each Base Rate Loan shall bear interest for the period commencing with the Drawdown Date thereof and ending on the last day of the Interest Period with respect thereto at the Base Rate. (b) Each Eurodollar Rate Loan shall bear interest for the period commencing with the Drawdown Date thereof and ending on the last day of the Interest Period with respect thereto equal to the Eurodollar Rate determined for such Interest Period plus the Applicable Margin. (d) The Borrower promises to pay interest on each Revolving Credit Loan in arrears on each Interest Payment Date with respect thereto. 2.6. Requests for Revolving Credit Loans. The Borrower shall give to the Agent written notice in the form of Exhibit B hereto (or telephonic notice confirmed in a writing in the form of Exhibit B hereto) of each Revolving Credit Loan requested hereunder (a "Loan Request") (i) no later than 10 o'clock a.m. (Boston time) on the proposed Drawdown Date of any Base Rate Loan, and (ii) no less than three (3) Eurodollar Business Days prior to the proposed Drawdown Date of any Eurodollar Rate Loan. Each such notice shall specify (A) the principal amount of the Revolving Credit Loan requested, (B) the proposed Drawdown Date of such Revolving Credit Loan, (C) the Interest Period for such Revolving Credit Loan and (D) the Type of such Revolving Credit Loan. Promptly upon receipt of any such notice, the Agent shall notify each of the Banks thereof. Each such notice shall be irrevocable and binding on the Borrower and shall obligate the Borrower to accept the Revolving Credit Loan requested from the Banks on the proposed Drawdown Date. Each Loan Request shall be in a minimum aggregate amount of $2,000,000 or integral multiples of $1,000,000 in excess thereof. 2.7. Conversion Options. 2.7.1. Conversion to Different Type of Revolving Credit Loan. The Borrower may elect from time to time to convert any outstanding Revolving Credit Loan to a Revolving Credit Loan of another Type, provided that (i) with respect to any such conversion of a Eurodollar Rate Loan to a Base Rate Loan, the Borrower shall give the Agent at least two (2) Business Days prior written notice of such election, and such conversion shall only be made on the last day of the Interest Period with respect to such Eurodollar Loan; (ii) with respect to any such conversion of a Base Rate Loan to a Eurodollar Rate Loan, the Borrower shall give the Agent at least three (3) Eurodollar Business Days prior written notice of such election and (iii) no Loan may be converted into a Eurodollar Rate Loan when any Default or Event of Default has occurred and is continuing. On the date on which such conversion is being made each Bank shall take such action as is necessary to transfer its Commitment Percentage of such Revolving Credit Loans to its Domestic Lending Office or its Eurodollar Lending Office, as the case may be. All or any part of outstanding Revolving Credit Loans of any Type may be converted as provided herein, provided that partial conversions shall be in an aggregate principal amount of $2,000,000 or integral multiples of $1,000,000 in excess thereof. Each Conversion Request relating to the conversion of a Revolving Credit Loan to a Eurodollar Rate Loan shall be irrevocable by the Borrower. 2.7.2. Continuation of Type of Revolving Credit Loan. Any Revolving Credit Loans of any Type may be continued as such upon the expiration of an Interest Period with respect thereto by compliance by the Borrower with the notice provisions contained in (section)2.7.1; provided that no Eurodollar Rate Loan may be continued as such when any Default or Event of Default has occurred and is continuing, but shall be automatically converted to a Base Rate Loan on the last day of the first Interest Period relating thereto ending during the continuance of any Default or Event of Default of which the officers of the Agent active upon the Borrower's account have actual knowledge. In the event that the Borrower fails to provide any such notice with respect to the continuation of any Eurodollar Rate Loan as such, then such Eurodollar Rate Loan shall be automatically converted to a Base Rate Loan on the last day of the first Interest Period relating thereto. The Agent shall notify the Banks promptly when any such automatic conversion contemplated by this (section)2.7 is scheduled to occur. 2.7.3. Eurodollar Rate Loans. Any conversion to or from Eurodollar Rate Loans shall be in such amounts and be made pursuant to such elections so that, after giving effect thereto, the aggregate principal amount of all Eurodollar Rate Loans having the same Interest Period shall not be less than $1,000,000 or integral multiples of $100,000 in excess thereof. 2.8. Funds for Revolving Credit Loans. 2.8.1. Funding Procedures. Not later than 11 o'clock a.m. (Boston time) on the proposed Drawdown Date of any Revolving Credit Loans, each of the Banks will make available to the Agent, at the Agent's Head Office, in immediately available funds, the amount of such Bank's Commitment Percentage of the amount of the requested Revolving Credit Loans. Upon receipt from each Bank of such amount, and upon receipt of the documents required by (sections)10 and 11 and the satisfaction of the other conditions set forth therein, to the extent applicable, the Agent will make available to the Borrower the aggregate amount of such Revolving Credit Loans made available to the Agent by the Banks. The failure or refusal of any Bank to make available to the Agent at the aforesaid time and place on any Drawdown Date the amount of its Commitment Percentage of the requested Revolving Credit Loans shall not relieve any other Bank from its several obligation hereunder to make available to the Agent the amount of such other Bank's Commitment Percentage of any requested Revolving Credit Loans. 2.8.2. Advances by Agent. The Agent may, unless notified to the contrary by any Bank on or prior to a Drawdown Date, assume that such Bank has made available to the Agent on such Drawdown Date the amount of such Bank's Commitment Percentage of the Revolving Credit Loans to be made on such Drawdown Date, and the Agent may (but it shall not be required to), in reliance upon such assumption, make available to the Borrower a corresponding amount. If any Bank makes available to the Agent such amount on a date after such Drawdown Date, such Bank shall pay to the Agent on demand an amount equal to the product of (i) the average computed for the period referred to in clause (iii) below, of the weighted average interest rate paid by the Agent for federal funds acquired by the Agent during each day included in such period, times (ii) the amount of such Bank's Commitment Percentage of such Revolving Credit Loans, times (iii) a fraction, the numerator of which is the number of days that elapse from and including such Drawdown Date to the date on which the amount of such Bank's Commitment Percentage of such Revolving Credit Loans shall become immediately available to the Agent, and the denominator of which is 365. A statement of the Agent submitted to such Bank with respect to any amounts owing under this paragraph shall be prima facie evidence of the amount due and owing to the Agent by such Bank. If the amount of such Bank's Commitment Percentage of such Revolving Credit Loans is not made available to the Agent by such Bank within three (3) Business Days following such Drawdown Date, the Agent shall be entitled to recover such amount from the Borrower on demand, with interest thereon at the rate per annum applicable to the Revolving Credit Loans made on such Drawdown Date. 3. REPAYMENT OF THE REVOLVING CREDIT LOANS. 3.1. Maturity. The Borrower promises to pay on the Maturity Date, and there shall become absolutely due and payable on the Maturity Date, all of the Revolving Credit Loans outstanding on such date, together with any and all accrued and unpaid interest and fees thereon. 3.2. Mandatory Repayments of Revolving Credit Loans. If at any time the sum of the outstanding amount of the Revolving Credit Loans exceeds the Total Commitment, then the Borrower shall immediately pay the amount of such excess to the Agent for application to the Revolving Credit Loans. 3.3. Optional Repayments of Revolving Credit Loans. The Borrower shall have the right, at its election, to repay the outstanding amount of the Revolving Credit Loans, as a whole or in part, at any time without penalty or premium, provided that the full or partial prepayment of the outstanding amount of any Eurodollar Rate Loans pursuant to this (section)3.3 may be made only on the last day of the Interest Period relating thereto. The Borrower shall give the Agent, no later than 10:00 a.m., Boston time, at least three (3) Business Days prior written notice, of any proposed repayment pursuant to this (section)3.3 of Base Rate Loans, and four (4) Eurodollar Business Days notice of any proposed repayment pursuant to this (section)3.3 of Eurodollar Rate Loans, in each case, specifying the proposed date of payment of Revolving Credit Loans and the principal amount to be paid. Each such partial prepayment of the Loans shall be in a minimum amount of $2,000,000 or an integral multiple of $1,000,000 in excess thereof, shall be accompanied by the payment of accrued interest on the principal repaid to the date of payment and shall be applied first to the principal of Base Rate Loans and then to the principal of Eurodollar Rate Loans. Each partial prepayment shall be allocated among the Banks, in proportion, as nearly as practicable, to the respective unpaid principal amount of each Bank's Revolving Credit Note, with adjustments to the extent practicable to equalize any prior repayments not exactly in proportion. 4. CERTAIN GENERAL PROVISIONS. 4.1. Closing Fee. The Borrower agrees to pay to the Agent on the Closing Date a closing fee in the amount set forth in the letter agreement regarding certain fees dated as of August 4, 1994 between the Borrower, the Parent, and the Agent. 4.2. Agent's Fee. The Borrower shall pay to the Agent annually in advance, for the Agent's own account, on the Closing Date and on each anniversary of the Closing Date, an Agent's fee in the amount set forth in the letter agreement regarding certain fees dated as of August 4, 1994 between the Borrower, the Parent and the Agent. 4.3. Funds for Payments. 4.3.1. Payments to Agent. All payments of principal, interest, Facility Fees and any other amounts due hereunder or under any of the other Loan Documents shall be made to the Agent, for the respective accounts of the Banks and the Agent, at the Agent's Head Office or at such other location in the Boston, Massachusetts, area that the Agent may from time to time designate, in each case in immediately available funds. 4.3.2. No Offset, etc. All payments by the Borrower hereunder and under any of the other Loan Documents shall be made without setoff or counterclaim and free and clear of and without deduction for any taxes, levies, imposts, duties, charges, fees, deductions, withholdings, compulsory loans, restrictions or conditions of any nature now or hereafter imposed or levied by any jurisdiction or any political subdivision thereof or taxing or other authority therein unless the Borrower is compelled by law to make such deduction or withholding. If any such obligation is imposed upon the Borrower with respect to any amount payable by it hereunder or under any of the other Loan Documents, the Borrower will pay to the Agent, for the account of the Banks or (as the case may be) the Agent, on the date on which such amount is due and payable hereunder or under such other Loan Document, such additional amount in Dollars as shall be necessary to enable the Banks or the Agent to receive the same net amount which the Banks or the Agent would have received on such due date had no such obligation been imposed upon the Borrower. The Borrower will deliver promptly to the Agent certificates or other valid vouchers for all taxes or other charges deducted from or paid with respect to payments made by the Borrower hereunder or under such other Loan Document. 4.4. Computations. All computations of interest on the Loans and of the Facility Fee and all other fees shall be based on a 360-day year and paid for the actual number of days elapsed. Except as otherwise provided in the definition of the term "Interest Period" with respect to Eurodollar Rate Loans, whenever a payment hereunder or under any of the other Loan Documents becomes due on a day that is not a Business Day, the due date for such payment shall be extended to the next succeeding Business Day, and interest shall accrue during such extension. The outstanding amount of the Loans as reflected on the Note Records from time to time shall be considered correct and binding on the Borrower unless within fifteen (15) Business Days after receipt of any notice by the Agent or any of the Banks of such outstanding amount, the Agent or such Bank shall notify the Borrower to the contrary. 4.5. Inability to Determine Eurodollar Rate. In the event, prior to the commencement of any Interest Period relating to any Eurodollar Rate Loan, the Agent shall determine that adequate and reasonable methods do not exist for ascertaining the Eurodollar Rate that would otherwise determine the rate of interest to be applicable to any Eurodollar Rate Loan during any Interest Period, the Agent shall forthwith give notice of such determination (which shall be conclusive and binding on the Borrower and the Banks) to the Borrower and the Banks. In such event (i) any Loan Request or Conversion Request with respect to Eurodollar Rate Loans shall be automatically withdrawn and shall be deemed a request for Base Rate Loans, (ii) each Eurodollar Rate Loan will automatically, on the last day of the then current Interest Period thereof, become a Base Rate Loan, and (iii) the obligations of the Banks to make Eurodollar Rate Loans shall be suspended until the Agent determines that the circumstances giving rise to such suspension no longer exist, whereupon the Agent shall so notify the Borrower and the Banks. 4.6. Illegality. Notwithstanding any other provisions herein, if any present or future law, regulation, treaty or directive or in the interpretation or application thereof shall make it unlawful for any Bank to make or maintain Eurodollar Rate Loans, such Bank shall forthwith give notice of such circumstances to the Borrower and the other Banks and thereupon (i) the commitment of such Bank to make Eurodollar Rate Loans or convert Loans of another Type to Eurodollar Rate Loans shall forthwith be suspended and (ii) such Bank's Revolving Credit Loans then outstanding as Eurodollar Rate Loans, if any, shall be converted automatically to Base Rate Loans on the last day of each Interest Period applicable to such Eurodollar Rate Loans or within such earlier period as may be required by law. The Borrower hereby agrees promptly to pay the Agent for the account of such Bank, upon demand by such Bank, any additional amounts necessary to compensate such Bank for any costs incurred by such Bank in making any conversion in accordance with this (section)4.6, including any interest or fees payable by such Bank to lenders of funds obtained by it in order to make or maintain its Eurodollar Loans hereunder. 4.7. Additional Costs, etc. If any present or future applicable law, which expression, as used herein, includes statutes, rules and regulations thereunder and interpretations thereof by any competent court or by any governmental or other regulatory body or official charged with the administration or the interpretation thereof and requests, directives, instructions and notices at any time or from time to time hereafter made upon or otherwise issued to any Bank or the Agent by any central bank or other fiscal, monetary or other authority (whether or not having the force of law), shall: (a) subject any Bank or the Agent to any tax, levy, impost, duty, charge, fee, deduction or withholding of any nature with respect to this Credit Agreement, the other Loan Documents, such Bank's Commitment or the Loans (other than taxes based upon or measured by the income or profits of such Bank or the Agent), or (b) materially change the basis of taxation (except for changes in taxes on income or profits) of payments to any Bank of the principal of or the interest on any Loans or any other amounts payable to any Bank or the Agent under this Credit Agreement or the other Loan Documents, or (c) impose or increase or render applicable (other than to the extent specifically provided for elsewhere in this Credit Agreement) any special deposit, reserve, assessment, liquidity, capital adequacy or other similar requirements (whether or not having the force of law) against assets held by, or deposits in or for the account of, or loans by, or commitments of an office of any Bank, or (d) impose on any Bank or the Agent any other conditions or requirements with respect to this Credit Agreement, the other Loan Documents, the Loans, such Bank's Commitment, or any class of loans or commitments of which any of the Loans or such Bank's Commitment forms a part, and the result of any of the foregoing clauses (a) through (d) is: (i) to increase the cost to any Bank of making, funding, issuing, renewing, extending or maintaining any of the Loans or such Bank's Commitment, or (ii) to reduce the amount of principal, interest or other amount payable to such Bank or the Agent hereunder on account of such Bank's Commitment or any of the Loans, or (iii) to require such Bank or the Agent to make any payment or to forego any interest or other sum payable hereunder, the amount of which payment or foregone interest or other sum is calculated by reference to the gross amount of any sum receivable or deemed received by such Bank or the Agent from the Borrower hereunder, then, and in each such case, the Borrower will, no later than fifteen (15) days after demand made by such Bank or (as the case may be) the Agent at any time and from time to time and as often as the occasion therefor may arise, pay to such Bank or the Agent such additional amounts as will be sufficient to compensate such Bank or the Agent for such additional cost, reduction, payment or foregone interest or other sum. 4.8. Capital Adequacy. If after the date hereof any Bank or the Agent determines that (i) the adoption of or change in any law, governmental rule, regulation, policy, guideline or directive (whether or not having the force of law) regarding capital requirements for banks or bank holding companies or any change in the interpretation or application thereof by a court or governmental authority with appropriate jurisdiction, or (ii) compliance by such Bank or the Agent or any corporation controlling such Bank or the Agent with any law, governmental rule, regulation, policy, guideline or directive (whether or not having the force of law) of any such entity regarding capital adequacy, has the effect of reducing the return on such Bank's or the Agent's commitment with respect to any Loans to a level below that which such Bank or the Agent could have achieved but for such adoption, change or compliance (taking into consideration such Bank's on the Agent's then existing policies with respect to capital adequacy and assuming full utilization of such entity's capital) by any amount deemed by such Bank or (as the case may be) the Agent to be material, then such Bank or the Agent may notify the Borrower of such fact. To the extent that the amount of such reduction in the return on capital is not reflected in the then applicable interest rate, the Borrower agrees to pay such Bank or (as the case may be) the Agent for the amount of such reduction in the return on capital as and when such reduction is determined upon presentation by such Bank or (as the case may be) the Agent of a certificate in accordance with (section)4.9 hereof. Each Bank shall allocate such cost increases among its customers in good faith and on an equitable basis. 4.9. Certificate. A certificate setting forth any additional amounts payable pursuant to (sections)4.7 or 4.8 and a brief explanation of such amounts which are due, submitted by any Bank or the Agent to the Borrower, shall be conclusive, absent manifest error, that such amounts are due and owing. 4.10. Indemnity. The Borrower agrees to indemnify each Bank and to hold each Bank harmless from and against any loss, cost or expense (including loss of anticipated profits) that such Bank may sustain or incur as a consequence of (i) default by the Borrower in payment of the principal amount of or any interest on any Eurodollar Rate Loans as and when due and payable, including any such loss or expense arising from interest or fees payable by such Bank to lenders of funds obtained by it in order to maintain its Eurodollar Rate Loans, (ii) default by the Borrower in making a borrowing after the Borrower has given (or is deemed to have given) a Loan Request or a Conversion Request relating thereto in accordance with (sections)2.6 or 2.7 or (iii) the making of any payment of a Eurodollar Rate Loan or the making of any conversion of any such Loan to a Base Rate Loan on a day that is not the last day of the applicable Interest Period with respect thereto, including interest or fees payable by such Bank to lenders of funds obtained by it in order to maintain any such Loans. 4.11. Interest on Overdue Amounts. Overdue principal and (to the extent permitted by applicable law) interest on the Loans and all other overdue amounts payable hereunder or under any of the other Loan Documents shall bear interest compounded monthly and payable on demand at a rate per annum equal to two percent (2%) above the Base Rate until such amount shall be paid in full (after as well as before judgment). 5. GUARANTY. 5.1. Guaranty. For value received and hereby acknowledged and as an inducement to the Banks to make the Loans available to the Borrower, the Parent hereby unconditionally and irrevocably guarantees (i) the full punctual payment when due, whether at stated maturity, by acceleration or otherwise, of all Obligations of the Borrower now or hereafter existing hereunder and under the Notes and the other Loan Documents, whether for principal, interest, fees, expenses, or otherwise, (ii) the strict performance and observance by the Borrower of its obligations under this Credit Agreement and the other Loan Documents and of all agreements, warranties and covenants applicable to the Borrower in this Credit Agreement; and (iii) the strict performance of all such obligations under this Credit Agreement and the other Loan Documents which would become due but for the operation of the automatic stay pursuant to (section) 362(a) of the United States Bankruptcy Code and the operation of (sections) 502(b) and 506(c) of the United States Bankruptcy Code (such obligations collectively being the "Guaranteed Obligations"). 5.2. Guaranty Absolute. The Parent guarantees that the Guaranteed Obligations will be paid strictly in accordance with the terms hereof and of the Notes, regardless of any law, regulation or order now or hereafter in effect in any jurisdiction affecting any of such terms or the rights of the Banks with respect thereto. The liability of the Parent under this (section)5 with regard to the Guaranteed Obligations of the Borrower shall be absolute and unconditional irrespective of: (i) any lack of validity or enforceability of this Credit Agreement with respect to the Borrower (with regard to such Guaranteed Obligations), the Notes of the Borrower, the Loan Documents, or any other agreement or instrument relating thereto; (ii) any change in the time of, manner or place of payment of, or in any other term of, all or any of the Guaranteed Obligations of the Borrower or any other amendment or waiver of or any consent to departure from this Credit Agreement (with regard to such Guaranteed Obligations) or the Notes of the Borrower; (iii) any exchange, release or nonperfection of any collateral, or any release or amendment or waiver of or consent to departure from any other guaranty, for all or any of the Guaranteed Obligations of the Borrower; (iv) any change in ownership of the Borrower; (v) any acceptance of any partial payment(s) from the Borrower; or (vi) any other circumstance which might otherwise constitute a defense available to, or a discharge of, the Borrower in respect of its Guaranteed Obligations. The obligations of the Parent contained in this (section)5 shall continue to be effective or be reinstated, as the case may be, if at any time any payment of any of the Guaranteed Obligations is rescinded or must otherwise be returned by the Banks upon the insolvency, bankruptcy or reorganization of the Borrower or otherwise, all as though such payment had not been made. 5.3. Effectiveness; Enforcement. The guaranty obligations of the Parent under this (section)5 shall be effective and shall be deemed to be made with respect to each Loan made to the Borrower as of the time it is made. No invalidity, irregularity or unenforceability by reason of any bankruptcy or similar law, or any law or order of any government or agency thereof purporting to reduce, amend or otherwise affect any liability of the Borrower, and no defect in or insufficiency or want of powers of the Borrower or irregular or improperly recorded exercise thereof, shall impair, affect, be a defense to or claim against such guaranty. The agreements of the Parent contained in this (section)5 constitute a continuing guaranty and shall (i) survive any termination of this Credit Agreement and (ii) remain in full force and effect until payment in full of, and performance of all Guaranteed Obligations and all other amounts payable under this (section)5. The agreements of the Parent contained in this (section)5 are made for the benefit of the Banks and their successors and assigns, and may be enforced from time to time as often as occasion therefor may arise and without requirement on the part of the Banks first to exercise any rights against the Borrower or to exhaust any remedies available to them against the Borrower or to resort to any other source or means of obtaining payment of any of the said obligations or to elect any other remedy. 5.4. Waivers. To the fullest extent permitted by law, the Parent hereby irrevocably waives promptness, diligence, presentment, demand, protest notice of acceptance and any other notice with respect to any of the Guaranteed Obligations and this (section)5 and any requirement that the Banks protect, secure, perfect or otherwise take action to ensure any security interest or lien on any property subject thereto or exhaust any right or take any action against the Borrower or any other Person or any collateral. The Parent also irrevocably waives, to the fullest extent permitted by law, all defenses which at any time may be available to it in respect of the Guaranteed Obligations by virtue of any statute of limitations, valuation, stay, moratorium law or other similar law now or hereafter in effect. 5.5. Subrogation Waiver. Notwithstanding any term contained herein to the contrary, the Parent hereby waives all rights of subrogation, reimbursement, restitution, contribution or indemnity against the Borrower, and will not prove any claim in competition with the Agent or the Banks in respect of any payment hereunder in any bankruptcy, insolvency, or reorganization case or proceedings of any nature. 6. REPRESENTATIONS AND WARRANTIES. Each of the Borrower and the Parent represents and warrants to the Banks and the Agent as follows: 6.1. Corporate Authority. 6.1.1. Incorporation; Good Standing. (i) Each of the Borrower and the Parent is a corporation, and each of their Subsidiaries is a corporation, partnership or joint venture, duly organized, validly existing and in good standing under the laws of its jurisdiction of organization, and (ii) each of the Borrower, the Parent and their Subsidiaries (a) has all requisite power to own its property and conduct its business as now conducted and as presently contemplated, and (b) is in good standing and is duly authorized to do business in each jurisdiction where such qualification is necessary except where a failure to be so qualified would not have a materially adverse effect on the business, assets or financial condition of any of the Borrower or the Parent individually, or the Borrower, the Parent and their Subsidiaries taken as a whole. 6.1.2. Authorization. The execution, delivery and performance of this Credit Agreement and the other Loan Documents to which the Borrower, the Parent or any of their Subsidiaries is or is to become a party and the transactions contemplated hereby and thereby (i) are within the corporate authority of such Person, (ii) have been duly authorized by all necessary corporate proceedings, (iii) do not conflict with or result in any breach or contravention of any provision of law, statute, rule or regulation to which any of the Borrower, the Parent or any of their Subsidiaries is subject or any judgment, order, writ, injunction, license or permit applicable to any of the Borrower, the Parent or any of their Subsidiaries and (iv) do not conflict with any provision of the corporate charter or bylaws of, or any agreement or other instrument binding upon, any of the Borrower, the Parent or any of their Subsidiaries or any of their respective properties. 6.1.3. Enforceability. The execution and delivery of this Credit Agreement and the other Loan Documents to which the Borrower, the Parent or any of their Subsidiaries is or is to become a party will result in valid and legally binding obligations of such Person enforceable against it in accordance with the respective terms and provisions hereof and thereof, except as enforceability is limited by bankruptcy, insolvency, reorganization, moratorium or other laws relating to or affecting generally the enforcement of creditors' rights and except to the extent that availability of the remedy of specific performance or injunctive relief is subject to the discretion of the court before which any proceeding therefor may be brought. 6.2. Governmental Approvals. The execution, delivery and performance by the Borrower, the Parent and any of their Subsidiaries of this Credit Agreement and the other Loan Documents to which such Person is or is to become a party and the transactions contemplated hereby and thereby do not require the approval or consent of, or filing with, any governmental agency or authority other than (i) those already obtained, and (ii) filings with the Securities and Exchange Commission to be made on or prior to September 30, 1994. 6.3. Title to Properties; Leases. Except as indicated on Schedule 6.3 hereto, the Borrower, the Parent and their Subsidiaries own all of the assets reflected in the consolidated balance sheet of the Parent and its Subsidiaries as at the Balance Sheet Date or acquired since that date (except property and assets sold or otherwise disposed of in the ordinary course of business since that date and other dispositions permitted pursuant to (section)8.5.2 hereof), subject to no rights of others, including any mortgages, leases, conditional sales agreements, title retention agreements, liens or other encumbrances except Permitted Liens. 6.4. Financial Statements. There has been furnished to the Agent a consolidated balance sheet of the Parent and its Subsidiaries as at the Balance Sheet Date, and a consolidated statement of income for the fiscal year then ended, certified by the Parent's independent certified public accountants. Such balance sheet and statement of income have been prepared in accordance with generally accepted accounting principles and fairly present in all material respects the financial condition of the Parent and its Subsidiaries as at the close of business on the date thereof and the results of operations for the fiscal year then ended. There are no contingent liabilities of any of the Borrower, the Parent or any of their Subsidiaries as of such date involving material amounts, known to the officers of the Borrower or the Parent not disclosed in said balance sheet and the related notes thereto. 6.5. No Material Changes, etc. As of the Closing Date and the first Drawdown Date, there has occurred no materially adverse change in the financial condition or business of any of the Borrower, the Parent or their Subsidiaries as shown on or reflected in the consolidated balance sheet of the Parent and its Subsidiaries as at the Balance Sheet Date, or the consolidated statement of income for the fiscal year then ended, other than changes in the ordinary course of business that have not had any materially adverse effect either individually or in the aggregate on the business or financial condition of the Borrower or the Parent, or of the Parent and its Subsidiaries taken as a whole. Since the Balance Sheet Date and prior to the Closing Date, neither the Borrower nor the Parent has made any Distribution other than a dividend declared by the Parent in July 1994. 6.6. Franchises, Patents, Copyrights, etc. Each of the Borrower, the Parent and their Subsidiaries possesses all material franchises, patents, copyrights, trademarks, trade names, licenses and permits, and rights in respect of the foregoing, adequate for the conduct of its business substantially as now conducted without known conflict with any rights of others. 6.7. Litigation. Except as provided in Schedule 6.7 hereto, there are no actions, suits, proceedings or investigations of any kind pending or threatened against any of the Borrower, the Parent or any of their Subsidiaries before any court, tribunal or administrative agency or board that, if adversely determined, might, either in any case or in the aggregate, materially adversely affect the properties, assets, financial condition or business of the Borrower, the Parent and their Subsidiaries taken as a whole or materially impair the right of the Borrower, the Parent and their Subsidiaries, considered as a whole, to carry on business substantially as now conducted by them, or for which adequate reserves are not maintained on the consolidated balance sheet of the Parent and its Subsidiaries, or which question the validity of this Credit Agreement or any of the other Loan Documents, or any action taken or to be taken pursuant hereto or thereto. 6.8. No Materially Adverse Contracts, etc. Neither the Borrower nor the Parent nor any of their Subsidiaries is subject to any charter, corporate or other legal restriction, or any judgment, decree, order, rule or regulation that has or is expected in the future to have a materially adverse effect on the business, assets or financial condition of any of the Borrower, the Parent or any of their Subsidiaries. Neither the Borrower nor the Parent nor any of their Subsidiaries is a party to any contract or agreement that has or is expected, in the judgment of the Borrower's or the Parent's officers, to have any materially adverse effect on the business of any of the Borrower, the Parent or any of their Subsidiaries. 6.9. Compliance With Other Instruments, Laws, etc. Neither the Borrower nor the Parent nor any of their Subsidiaries is in violation of any provision of its charter documents, bylaws, or any agreement or instrument to which it may be subject or by which it or any of its properties may be bound or any decree, order, judgment, statute, license, rule or regulation, in any of the foregoing cases in a manner that could materially adversely affect the financial condition, properties or business of any of the Borrower, the Parent or the Parent and its Subsidiaries taken as a whole. 6.10. Tax Status. Each of the Borrower, the Parent and their Subsidiaries (i) has made or filed all material federal and state income and all other tax returns, reports and declarations required by any jurisdiction to which any of them is subject, (ii) has paid all material taxes and other governmental assessments and charges shown or determined to be due on such returns, reports and declarations, except those being contested in good faith and by appropriate proceedings and (iii) has set aside on its books provisions reasonably adequate for the payment of all material taxes for periods subsequent to the periods to which such returns, reports or declarations apply. There are no unpaid taxes in any material amount claimed to be due by the taxing authority of any jurisdiction, and the respective officers of each of the Borrower and the Parent know of no basis for any such claim. 6.11. No Event of Default. No Default or Event of Default has occurred and is continuing. 6.12. Holding Company and Investment Company Acts. Neither the Borrower nor the Parent nor any of their Subsidiaries is a "holding company", or a "subsidiary company" of a "holding company", or an affiliate" of a "holding company", as such terms are defined in the Public Utility Holding Company Act of 1935; nor is it an "investment company", or an "affiliated company" or a "principal underwriter" of an "investment company", as such terms are defined in the Investment Company Act of 1940. 6.13. Absence of Financing Statements, etc. Except with respect to Permitted Liens and except as set forth on Schedule 6.13 attached hereto, as of the Closing Date in respect of all active domestic operations of the Borrower and the Parent there is no financing statement, security agreement, chattel mortgage, real estate mortgage or other document filed or recorded with any filing records, registry, or other public office, that purports to cover, affect or give notice of any present or possible future lien on, or security interest in, any assets or property of any of the Borrower, the Parent or any of their Subsidiaries or rights relating thereto which would have a material adverse effect on the business, assets, property or financial condition of any of the Borrower, the Parent or any of their Subsidiaries. 6.14. Certain Transactions. Except for arm's length transactions pursuant to which the Borrower, the Parent or any of their Subsidiaries makes payments in the ordinary course of business upon terms no less favorable than such Person could obtain from third parties and except for payment of certain legal fees of a voting trust for the Horne family stock, and payment of expenses for preparation of tax returns of certain officers and directors of the Parent and its Subsidiaries and other transactions between the Borrower and the Parent or any of their Subsidiaries deemed by management of the Borrower and the Parent in good faith to be beneficial to the Borrower and the Parent, none of the officers, directors, employees or Affiliates of any of the Borrower, the Parent or any of their Subsidiaries is presently a party to any transaction with any of the Borrower, the Parent or any of their Subsidiaries (other than for services as employees, officers and directors), including any contract, agreement or other arrangement providing for the furnishing of services to or by, providing for rental of real or personal property to or from, or otherwise requiring payments to or from any officer, director, Affiliate or any such employee or, to the knowledge of the Borrower or the Parent or any of their Subsidiaries, any corporation, partnership, trust or other entity in which any officer, director, Affiliate or any such employee has a substantial interest or is an officer, director, trustee or partner. 6.15. Employee Benefit Plans. 6.15.1. In General. Except for the Jameco Industries, Inc. Pension Plan, each Employee Benefit Plan has been maintained and operated in compliance in all material respects with the provisions of ERISA and, to the extent applicable, the Code, including but not limited to the provisions thereunder respecting prohibited transactions. Each of the Borrower and the Parent has heretofore delivered to the Agent the most recently completed annual report, Form 5500, with all required attachments, and actuarial statement required to be submitted under (section)103(d) of ERISA, with respect to each Guaranteed Pension Plan. 6.15.2. Terminability of Welfare Plans. Under each Employee Benefit Plan which is an employee welfare benefit plan within the meaning of (section)3(1) or (section)3(2)(B) of ERISA, no benefits are due unless the event giving rise to the benefit entitlement occurs prior to plan termination (except as required by Title I, Subtitle B Part 6 of ERISA). Each of the Borrower, the Parent or an ERISA Affiliate thereof, as appropriate, may terminate each such Plan at any time (or at any time subsequent to the expiration of any applicable bargaining agreement) in the discretion of the Borrower, the Parent or such ERISA Affiliate, as the case may be, without liability to any Person other than those liabilities relating to events occurring prior to termination. 6.15.3. Guaranteed Pension Plans. Each contribution required to be made to a Guaranteed Pension Plan, whether required to be made to avoid the incurrence of an accumulated funding deficiency, the notice or lien provisions of (section)302(f) of ERISA, or otherwise, has been timely made. No waiver of an accumulated funding deficiency or extension of amortization periods has been received with respect to any Guaranteed Pension Plan. No liability to the PBGC (other than required insurance premiums, all of which have been paid) has been incurred by any of the Borrower, the Parent or any ERISA Affiliate thereof with respect to any Guaranteed Pension Plan and there has not been any ERISA Reportable Event, or any other event or condition which presents a material risk of termination of any Guaranteed Pension Plan by the PBGC. Based on the latest valuation of each Guaranteed Pension Plan (which in each case occurred within twelve months of the date of this representation), and on the actuarial methods and assumptions employed for that valuation, the aggregate benefit liabilities of all Guaranteed Pension Plans within the meaning of (section)4001 of ERISA did not exceed the aggregate value of the assets of all Guaranteed Pension Plans, disregarding for this purpose the benefit liabilities and assets of any Guaranteed Pension Plan with assets in excess of benefit liabilities, by more than $2,500,000. 6.15.4. Multiemployer Plans. Neither the Borrower nor the Parent nor any ERISA Affiliate thereof has incurred any material liability (including secondary liability) to any Multiemployer Plan as a result of a complete or partial withdrawal from such Multiemployer Plan under (section)4201 of ERISA or as a result of a sale of assets described in (section)4204 of ERISA. Neither the Borrower nor the Parent nor any ERISA Affiliate thereof has been notified that any Multiemployer Plan is in reorganization or insolvent under and within the meaning of (section)4241 or (section)4245 of ERISA or that any Multiemployer Plan intends to terminate or has been terminated under (section)4041A of ERISA. 6.16. Regulations U and X. The proceeds of the Loans shall be used for working capital and general corporate purposes of the Borrower, the Parent and their Subsidiaries, including acquisitions permitted by (section)8.5.1 hereof. No portion of any Loan is to be used for the purpose of purchasing or carrying any "margin security" or "margin stock" as such terms are used in Regulations U and X of the Board of Governors of the Federal Reserve System, 12 C.F.R. Parts 221 and 224. 6.17. Environmental Compliance. Except as set forth on Schedule 6.17 attached hereto, each of Borrower and the Parent has taken all commercially reasonable steps (determined as of the time of investigation) to investigate the past and present condition and usage of the Real Estate and the operations conducted thereon and, based upon such diligent investigation, has determined that: (a) neither the Borrower nor the Parent nor any of their Subsidiaries nor any operation on the Real Estate is in violation, or alleged violation, of any judgment, decree, order, law, license, rule or regulation pertaining to environmental matters, including without limitation, those arising under the Resource Conservation and Recovery Act ("RCRA"), the Comprehensive Environmental Response, Compensation and Liability Act of 1980 as amended ("CERCLA"), the Superfund Amendments and Reauthorization Act of 1986 ("SARA"), the Federal Clean Water Act, the Federal Clean Air Act, the Toxic Substances Control Act, or any state or local statute, regulation, ordinance, order or decree relating to health, safety or the environment (hereinafter "Environmental Laws"), which violation could reasonably be expected to have a material adverse effect on the environment or the business, assets or financial condition of the Borrower, the Parent and their Subsidiaries taken as a whole; (b) neither the Borrower nor the Parent nor any of their Subsidiaries has received notice from any third party including, without limitation, any federal, state or local governmental authority, (i) that any one of them has been identified by the United States Environmental Protection Agency ("EPA) as a potentially responsible party under CERCLA with respect to a site listed on the National Priorities List, 40 C.F.R. Part 300 Appendix B; (ii) that any hazardous waste, as defined by 42 U.S.C. (section)6903(5), any hazardous substances as defined by 42 U.S.C. (section)9601(14), any pollutant or contaminant as defined by 42 U.S.C. (section)9601(33) and any toxic substances, oil or hazardous materials or other chemicals or substances regulated by any Environmental Laws ("Hazardous Substances") which any one of them has generated, transported or disposed of has been found at any site at which a federal, state or local agency or other third party has conducted or has ordered that any of the Borrower, the Parent or any of their Subsidiaries conduct a remedial investigation, removal or other response action pursuant to any Environmental Law; or (iii) that it is or shall be a named party to any claim, action, cause of action, complaint, or legal or administrative proceeding (in each case, contingent or otherwise) arising out of any third party's incurrence of costs, expenses, losses or damages of any kind whatsoever in connection with the release of Hazardous Substances, liability for which could reasonably be expected to have a material adverse effect on the business, assets or financial condition of the Borrower, the Parent and their Subsidiaries, taken as a whole; (c) (i) to the best of the Borrower's, the Parent's and their Subsidiaries' knowledge, no portion of the Real Estate has been used for the handling, processing, storage or disposal of Hazardous Substances except in material compliance with applicable Environmental Laws; (ii) in the course of any activities conducted by any of the Borrower, the Parent, any of their Subsidiaries or to the best knowledge of the executive officers of the Borrower or the Parent without independent investigation, operators of their properties, no Hazardous Substances have been generated or are being used on the Real Estate except in material compliance with applicable Environmental Laws; (iii) there have been no releases (i.e. any past or present releasing, spilling, leaking, pumping, pouring, emitting, emptying, discharging, injecting, escaping, disposing or dumping) or threatened releases of Hazardous Substances on, upon, into or from the properties of any of the Borrower, the Parent or any of their Subsidiaries, which releases or threatened releases could reasonably be expected have a material adverse effect on the value of any of the Real Estate or adjacent properties; (iv) to the best of the Borrower's and the Parent's knowledge, there have been no releases on, upon, from or into any real property in the vicinity of any of the Real Estate which, through soil or groundwater contamination, may have come to be located on, and which would have a material adverse effect on the value of, the Real Estate; and (v) in addition, any Hazardous Substances that have been generated on any of the Real Estate have been managed or disposed of in material compliance with applicable Environmental Laws, and, to the best of the Borrower's, the Parent's, and their Subsidiaries' knowledge, without independent investigation, the transporters and facilities utilized by the Parent, the Borrower, or any of their Subsidiaries to transport or dispose of such Person's Hazardous Substances have not failed to operate in compliance with any permits authorizing such activities and are not in material violation of any applicable Environmental Laws; and (d) neither the Borrower nor the Parent nor any of their Subsidiaries nor any of the Real Estate is subject, by virtue of the transactions set forth herein and contemplated hereby, to any applicable environmental law requiring the performance of Hazardous Substances site assessments, or the removal or remediation of Hazardous Substances, or the giving of notice to any governmental agency or the recording or delivery to other Persons of an environmental disclosure document or statement. 6.18. Subsidiaries, etc. Schedule 6.18 sets forth all of the Subsidiaries of each of the Parent and the Borrower. Except as set forth on Schedule 6.18 hereto, neither the Borrower nor the Parent nor any of their Subsidiaries is engaged in any joint venture or partnership with any other person. 7. AFFIRMATIVE COVENANTS OF THE BORROWER AND THE PARENT. Each of Borrower and the Parent covenants and agrees that, so long as any Obligation or Note is outstanding or any Bank has any obligation to make any Loans: 7.1. Punctual Payment. Each of the Borrower and the Parent will duly and punctually pay or cause to be paid the principal and interest on the Loans and the Facility Fee and Agent's fee provided for in this Credit Agreement, all in accordance with the terms of this Credit Agreement and the Notes. 7.2. Maintenance of Office. The Borrower and the Parent will each maintain its chief executive office in Wilmington, Delaware and North Andover, Massachusetts, respectively, or at such other place in the United States of America as such Person shall designate upon written notice to the Agent, where notices, presentations and demands to or upon such Person in respect of the Loan Documents may be given or made. 7.3. Records and Accounts. Each of the Borrower and the Parent will (i) keep, and cause each of its Subsidiaries to keep, true and accurate records and books of account in which full, true and correct entries will be made in accordance with generally accepted accounting principles and (ii) maintain adequate accounts and reserves for all taxes (including income taxes), depreciation, depletion, obsolescence and amortization of its properties and the properties of its Subsidiaries, contingencies, and other reserves, all in accordance with generally accepted accounting principles. 7.4. Financial Statements, Certificates and Information. Each of the Borrower and the Parent will deliver to the Agent and the Banks: (a) as soon as practicable, but in any event not later than ninety (90) days after the end of each fiscal year of the Parent, the consolidated balance sheet of the Parent and its Subsidiaries, each as at the end of such year, and the related consolidated statement of income and consolidated statement of cash flow for such year, each setting forth in comparative form the figures for the previous fiscal year and all such consolidated statements to be in reasonable detail, prepared in accordance with generally accepted accounting principles, and certified without qualification by Ernst & Young or any other of the six largest firms of independent certified public accountants located in the United States, together with a written statement from such accountants to the effect that they have read the covenants set forth in (sections)8.1(h), 8.3(i) and (j) and 9 of this Credit Agreement and the relevant definitions and provisions applicable thereto, and that, in making the examination necessary to said certification, they have obtained no knowledge of any Default or Event of Default, or, if such accountants shall have obtained knowledge of any then existing Default or Event of Default they shall disclose in such statement any such Default or Event of Default; provided that such accountants shall not be liable to the Banks for failure to obtain knowledge of any Default or Event of Default; (b) as soon as practicable, but in any event not later than forty-five (45) days after the end of each of the fiscal quarters of the Parent (other than the fourth fiscal quarter of each fiscal year), copies of the unaudited consolidated balance sheet of the Parent and its Subsidiaries, each as at the end of such quarter, and the related consolidated statement of income and consolidated statement of cash flow for the portion of the Parent's fiscal year then elapsed, all in reasonable detail and prepared in accordance with generally accepted accounting principles (subject to customary exceptions for interim financial statements), together with a certification by the principal financial or accounting officer of the Parent that the information contained in such financial statements fairly presents the financial position of the Parent and its Subsidiaries on the date thereof (subject to year-end adjustments); (c) simultaneously with the delivery of the financial statements referred to in subsections (a) and (b) above, a statement certified by the principal financial or accounting officer of each of the Borrower and the Parent in substantially the form of Exhibit C hereto and setting forth in reasonable detail computations evidencing compliance with the covenants contained in (section)9 and (if applicable) reconciliations to reflect changes in generally accepted accounting principles since the Balance Sheet Date; (d) promptly following the filing or mailing thereof, copies of all material of a financial nature filed with the Securities and Exchange Commission or sent generally to the stockholders of the Borrower; and (e) from time to time such other financial data and information (including accountants' management letters) as the Agent or any Bank may reasonably request. 7.5. Notices. 7.5.1. Defaults. The Borrower will promptly notify the Agent and each of the Banks in writing of the occurrence of any Default or Event of Default. If any Person shall give any notice or take any other action in respect of a claimed default (whether or not constituting an Event of Default) under this Credit Agreement or any other note, evidence of indebtedness, indenture or other obligation to which or with respect to which any of the Borrower, the Parent or any of their Subsidiaries is a party or obligor, whether as principal or surety, the Borrower shall forthwith give written notice thereof to each of the Banks, describing the notice or action and the nature of the claimed default. 7.5.2. Environmental Events. Each of the Borrower and the Parent will, and will cause each of its Subsidiaries to, promptly give notice to the Agent (i) of any violation of any Environmental Law that any of the Borrower, the Parent or any of their Subsidiaries reports in writing or is reportable by such Person in writing (or for which any written report supplemental to any oral report is made) to any federal, state or local environmental agency and (ii) upon becoming aware thereof, of any inquiry, proceeding, investigation, or other action, including a notice from any agency of potential environmental liability, or any federal, state or local environmental agency or board, that has the potential to materially affect the assets, liabilities, financial conditions or operations of the Borrower, the Parent and their Subsidiaries, taken as a whole. 7.5.3. Notice of Litigation and Judgments. Each of the Borrower and the Parent will, and will cause each of its Subsidiaries to, give notice to the Agent in writing within fifteen (15) days of becoming aware of any litigation or proceedings threatened in writing or any pending litigation and proceedings affecting any of the Borrower, the Parent or any of their Subsidiaries or to which any of the Borrower, the Parent or any of their Subsidiaries is or becomes a party involving an uninsured claim against any of the Borrower, the Parent or any of their Subsidiaries that could reasonably be expected to have a materially adverse effect on any of the Borrower, the Parent or any of their Subsidiaries and stating the nature and status of such litigation or proceedings. Each of the Borrower and the Parent will, and will cause each of their Subsidiaries to, give notice to the Agent, in writing, in form and detail satisfactory to the Agent, within ten (10) days of any judgment not covered by insurance, final or otherwise, against any of the Borrower, the Parent or any of their Subsidiaries in an amount in excess of $5,000,000. 7.6. Corporate Existence; Maintenance of Properties. Each of the Borrower and the Parent will do or cause to be done all things necessary to preserve and keep in full force and effect its corporate existence, rights and franchises and those of its Subsidiaries, except as otherwise permitted by (section)8.5.1. Each of the Borrower and the Parent (i) will cause all of its properties and those of its Subsidiaries used or useful in the conduct of its business or the business of its Subsidiaries to be maintained and kept in good condition, repair and working order and supplied with all necessary equipment, (ii) will cause to be made all necessary repairs, renewals, replacements, betterments and improvements thereof, all as in the judgment of the Borrower or the Parent may be necessary so that the business carried on in connection therewith may be properly and advantageously conducted at all times, and (iii) will, and will cause each of its Subsidiaries to, continue to engage primarily in the principal lines of business now conducted by them and in similar or related businesses; provided that nothing in this (section)7.6 shall prevent the Borrower or the Parent from discontinuing the operation and maintenance of any of its properties or those of its Subsidiaries if such discontinuance is, in the judgment of the Borrower or the Parent, desirable in the conduct of its or their business and that do not in the aggregate materially adversely affect the business of the Borrower, the Parent and their Subsidiaries. 7.7. Insurance. Each of the Borrower and the Parent will, and will cause each of its Subsidiaries to, maintain with financially sound and reputable insurers insurance with respect to its properties and business against such casualties and contingencies as shall be in accordance with the general practices of businesses engaged in similar activities in similar geographic areas and in amounts, containing such terms, in such forms and for such periods as may be reasonable and prudent. 7.8. Taxes. Each of the Borrower and the Parent will, and will cause each of its Subsidiaries to, duly pay and discharge, or cause to be paid and discharged, before the same shall become overdue, all material taxes, assessments and other governmental charges (other than taxes, assessments and other governmental charges imposed by foreign jurisdictions that in the aggregate are not material to the business or assets of any of the Borrower, the Parent or any of their Subsidiaries on an individual basis or of the Borrower, the Parent and their Subsidiaries on a consolidated basis) imposed upon it and its real properties, sales and activities, or any part thereof, or upon the income or profits therefrom, as well as all material claims for labor, materials, or supplies that if unpaid might by law become a lien or charge upon any of its property; provided that any such tax, assessment, charge, levy or claim need not be paid if the validity or amount thereof shall currently be contested in good faith by appropriate proceedings and if the Borrower or the Parent or such Subsidiary shall have set aside on its books adequate reserves with respect thereto; and provided further that the Borrower, the Parent and each of their Subsidiaries will pay all such taxes, assessments, charges, levies or claims forthwith upon the commencement of proceedings to foreclose any lien that may have attached as security therefor. 7.9. Inspection of Properties and Books, etc. 7.9.1. General. Each of the Borrower and the Parent shall permit the Banks, through the Agent or any of the Banks' other designated representatives, to visit and inspect any of the properties of the Borrower or the Parent or any of their Subsidiaries to examine the books of account and other records (to the extent not confidential, and if any of such materials are confidential, subject to the Agent's ability to discuss with representatives of the Borrower, the Parent and their Subsidiaries and their professional advisors the matters covered by such confidential material) of any of the Borrower, the Parent and their Subsidiaries (and to make copies thereof and extracts therefrom), and to discuss the affairs, finances and accounts of the Borrower, the Parent and their Subsidiaries with, and to be advised as to the same by, its and their officers, all at such reasonable times and intervals during regular business hours as the Agent or any Bank may reasonably request. 7.9.2. Communication with Accountants. Each of the Borrower and the Parent authorizes the Agent and the Banks (i) to obtain from the Borrower's, the Parent's and their Subsidiaries' independent certified public accountants copies of any and all accountants' management letters prepared with respect to the Borrower, the Parent or any of their Subsidiaries, (ii) to communicate directly with such accountants with regard to matters disclosed in such management letters, and (iii) with the consent of the Borrower or the Parent, which consent shall not be unreasonably withheld or delayed, to communicate directly with such accountants with regard to all other matters concerning the business, financial condition and other affairs of any of the Borrower, the Parent or any of their Subsidiaries, provided that after the occurrence and during the continuance of a Default or an Event of Default, no such consent shall be required. Each of the Borrower, the Parent and their Subsidiaries hereby authorize and direct such accountants to disclose to the Agent and the Banks all such management letters and any and all additional financial statements and supporting financial documents and schedules with respect to the business, financial condition and other affairs of any of the Borrower, the Parent or any of their Subsidiaries in connection with such communications. At the request of the Agent, the Borrower, the Parent or the appropriate Subsidiary shall deliver a letter addressed to such accountants instructing them to comply with the provisions of this (section)7.9.2. 7.10. Compliance with Laws, Contracts, Licenses, and Permits. Each of the Borrower and the Parent will, and will cause each of its Subsidiaries to, comply with (i) the applicable laws and regulations wherever its business is conducted, including all Environmental Laws, (ii) the provisions of its charter documents and by-laws, (iii) all agreements and instruments by which it or any of its properties may be bound and (iv) all applicable decrees, orders, and judgments, except where non-compliance could not have a materially adverse effect on the business, assets or financial condition of any of the Borrower or the Parent individually, or the Parent and its Subsidiaries taken as a whole. If at any time while any Loan or Note is outstanding or any Bank has any obligation to make Loans hereunder, any authorization, consent, approval, permit or license from any officer, agency or instrumentality of any government shall become necessary or required in order that the Borrower or the Parent may fulfill any of its obligations hereunder, the Borrower or, as the case may be, the Parent will immediately take or cause to be taken all reasonable steps within the power of such Person to obtain such authorization, consent, approval, permit or license and furnish the Banks with evidence thereof. 7.11. Employee Benefit Plans. Each of the Borrower and the Parent will (i) promptly upon filing the same with the Department of Labor or Internal Revenue Service, furnish to the Agent a copy of the most recent actuarial statement required to be submitted under (section)103(d) of ERISA and Annual Report, Form 5500, with all required attachments, in respect of each Guaranteed Pension Plan and (ii) promptly upon receipt or dispatch, furnish to the Agent any notice, report or demand sent or received in respect of a Guaranteed Pension Plan under (sections)302, 4041, 4042, 4043, 4063, 4065, 4066 and 4068 of ERISA, or in respect of a Multiemployer Plan, under (sections)4041A, 4202, 4219, 4242, or 4245 of ERISA. 7.12. Use of Proceeds. The Borrower, the Parent and their Subsidiaries will use the proceeds of the Loans solely for working capital and general corporate purposes, including acquisitions permitted by (section)8.5.1. 7.13. Further Assurances. Each of the Borrower and the Parent will, and will cause each of its Subsidiaries to, cooperate with the Banks and the Agent and execute such further instruments and documents as the Banks or the Agent shall reasonably request to carry out to their reasonable satisfaction the transactions contemplated by this Credit Agreement and the other Loan Documents. 8. CERTAIN NEGATIVE COVENANTS OF THE BORROWER AND THE PARENT. Each of the Borrower and the Parent covenants and agrees that, so long as any Obligations or Note is outstanding or any Bank has any obligation to make any Loans: 8.1. Restrictions on Indebtedness. Neither Borrower nor the Parent will, nor will they permit any of their Subsidiaries to, create, incur, assume, guarantee or be or remain liable, contingently or otherwise, with respect to any Indebtedness other than: (a) Indebtedness to the Banks and the Agent arising under any of the Loan Documents; (b) current liabilities of the Borrower, the Parent or their Subsidiaries incurred in the ordinary course of business not incurred through (i) the borrowing of money, or (ii) the obtaining of credit except for credit on an open account basis customarily extended and in fact extended in connection with normal purchases of goods and services, and any letters of credit issued for the account of the Borrower, the Parent or any of their Subsidiaries in support of such permitted current liabilities; (c) Indebtedness in respect of taxes, assessments, governmental charges or levies and claims for labor, materials and supplies to the extent that payment therefor shall not at the time be required to be made in accordance with the provisions of (section)7.8; (d) Indebtedness in respect of judgments or awards that have been in force for less than the applicable period for taking an appeal so long as execution is not levied thereunder or in respect of which the Borrower, the Parent or the applicable Subsidiary shall at the time in good faith be prosecuting an appeal or proceedings for review and in respect of which a stay of execution shall have been obtained pending such appeal or review; (e) endorsements for collection, deposit or negotiation and warranties of products or services, in each case incurred in the ordinary course of business; (f) Indebtedness existing on the date of this Credit Agreement and listed and described on Schedule 8.1 hereto ("Existing Indebtedness"), and any refinancings of Existing Indebtedness, provided that at no time shall the sum of (i) the aggregate principal amount of Existing Indebtedness remaining outstanding at such time plus (ii) the aggregate principal amount of Indebtedness in respect of such refinancings at such time exceed the aggregate principal amount of Existing Indebtedness on the Closing Date; (g) Indebtedness of the Borrower or the Parent to any Subsidiary of the Borrower or the Parent, and Indebtedness of any Subsidiary of the Borrower or the Parent to the Borrower or the Parent or any other Subsidiary of the Borrower or the Parent; (h) other Indebtedness for borrowed money and credit received (including Capitalized Leases, letters of credit issued for the account of the Borrower, the Parent or any of their Subsidiaries, and Indebtedness incurred pursuant to the sale and leaseback of any property permitted by the provisions of (section)8.6 hereof), provided that at no time shall the aggregate amount of such Indebtedness exceed 10% of the Consolidated Total Assets of the Parent and its Subsidiaries determined as of the last day of the fiscal year of the Parent most recently ended (such Indebtedness permitted by this subsection (h), "Other Indebtedness"); and (i) (a) in addition to, or in combination with, Indebtedness permitted by clause (h) of this (section)8.1, with respect to any Subsidiary acquired by the Borrower, the Parent or any of their Subsidiaries after the Closing Date, Indebtedness of such newly acquired Subsidiary in existence as of the date of such acquisition, provided that such Indebtedness is not incurred in contemplation of such acquisition, and any guaranties of such Indebtedness issued by the Borrower, the Parent or any of its Subsidiaries, including without limitation, with respect to any indemnities for environmental, employee benefit, tax, litigation and similar liabilities, but excluding the acquisition price of such Subsidiary; provided that at no time shall the outstanding aggregate amount of such Indebtedness (excluding, to the extent duplicative, such guaranties) exceed $10,000,000, and (b) with respect to any Subsidiary acquired or to be acquired after the Closing Date, guaranties by the Parent of the acquisition price of such new Subsidiary which price shall not include any of the obligations contemplated by clause (a) above. 8.2. Restrictions on Liens. Neither the Borrower nor the Parent, will, nor will they permit any of their Subsidiaries to, (i) create or incur or suffer to be created or incurred or to exist any lien, encumbrance, mortgage, pledge, charge, restriction or other security interest of any kind upon any of its property or assets of any character whether now owned or hereafter acquired, or upon the income or profits therefrom; (ii) transfer any of such property or assets or the income or profits therefrom for the purpose of subjecting the same to the payment of Indebtedness or performance of any other obligation in priority to payment of its general creditors; (iii) acquire, or agree or have an option to acquire, any property or assets upon conditional sale or other title retention or purchase money security agreement, device or arrangement; (iv) suffer to exist for a period of more than thirty (30) days after the same shall have been incurred any Indebtedness or claim or demand against it that if unpaid might by law or upon bankruptcy or insolvency, or otherwise, be given any priority whatsoever over its general creditors; or (v) sell, assign, pledge or otherwise transfer any accounts, contract rights, general intangibles, chattel paper or instruments, with or without recourse; provided that the Borrower, the Parent and any Subsidiary of the Borrower or the Parent may create or incur or suffer to be created or incurred or to exist: (a) liens in favor of the Borrower or the Parent on all or part of the assets of Subsidiaries of the Borrower or the Parent securing Indebtedness owing by Subsidiaries of the Borrower or the Parent to the Borrower or the Parent, as the case may be; (b) liens to secure taxes, assessments and other government charges in respect of obligations not overdue or liens on properties to secure claims for labor, material or supplies in respect of obligations not overdue; (c) deposits or pledges made in connection with, or to secure payment of, workmen's compensation, unemployment insurance, old age pensions or other social security obligations, or deposits to secure the performance of tenders, bids and other contracts (other than for the payment of borrowed money) arising in the ordinary course of business; (d) liens in respect of the interest of lessors under leases of real property; (e) liens on properties in respect of judgments or awards, the Indebtedness with respect to which is permitted by (section)8.1(d); (f) liens of carriers, warehousemen, mechanics and materialmen, and other like liens on properties, in existence less than 120 days from the date of creation thereof in respect of obligations not overdue; (g) encumbrances consisting of easements, rights of way, zoning restrictions, restrictions on the use of real property and defects and irregularities in the title thereto, landlord's or lessor's liens under leases to which the Borrower, the Parent or any of their Subsidiaries is a party, and other minor liens or encumbrances none of which in the opinion of the Borrower or the Parent interferes materially with the use of the property affected in the ordinary conduct of the business of the Borrower, the Parent and their Subsidiaries, which defects do not individually or in the aggregate have a materially adverse effect on the business of the Borrower, the Parent or any of their Subsidiaries individually or of the Borrower, the Parent and their Subsidiaries on a consolidated basis; (h) presently outstanding liens listed on Schedule 8.2 hereto, and liens to secure refinancings of Existing Indebtedness secured by presently outstanding liens to the extent and up to the amount that the refinanced Existing Indebtedness was secured; provided that the refinancing of such Existing Indebtedness is permitted by the provisions of (section)8.1(f) hereof; and (i) liens securing Other Indebtedness. 8.3. Restrictions on Investments. Each of the Borrower and the Parent will not, and will not permit any of their Subsidiaries to, make or permit to exist or to remain outstanding any Investment except Investments in: (a) marketable direct or guaranteed obligations of the United States of America that mature within one (1) year from the date of purchase by the Borrower, the Parent or the applicable Subsidiary; (b) demand deposits, certificates of deposit, bankers acceptances and time deposits of United States banks having total assets in excess of $1,000,000,000; (c) securities commonly known as "commercial paper" issued by a corporation organized and existing under the laws of the United States of America or any state thereof that at the time of purchase have been rated and the ratings for which are not less than "P 1" if rated by Moody's Investors Services, Inc., and not less than "A 1" if rated by Standard and Poor's; or other debt securities issued by such a corporation that at the time of purchase have been rated and the ratings for which are not less than "A" if rated by either Moody's Investors Services, Inc. or Standard and Poor's Corporation; (d) obligations issued by (i) any state of the United States of America or (ii) any political subdivision of any such state or any public instrumentality thereof which are rated and the ratings for which are not less than "Aaa" if rated by Moody's Investors Services, Inc. or "AAA" if rated by Standard & Poor's Corporation; (e) Investments in shares of any so-called "money market fund" provided that such fund is registered under the Investment Company Act of 1940, has net assets of at least $100,000,000, has an investment portfolio with an average maturity of 365 days or less and is not considered to be a "high-yield" fund; (f) Investments existing on the date hereof and listed on Schedule 8.3 hereto; (g) Investments with respect to Indebtedness permitted by (section)8.1(g) so long as the applicable Subsidiaries remain Subsidiaries of the Borrower or the Parent, as the case may be; (h) Investments consisting of the guaranty by the Parent of the Obligations hereunder, or Investments by the Borrower or the Parent in their Subsidiaries; (i) Investments consisting of (A) loans and advances to employees for entertainment, travel and other similar expenses in the ordinary course of business not to exceed $200,000 in the aggregate at any time outstanding, (B) loans to employees of the Parent, pursuant to the terms of the Parent's non-qualified stock option plan, secured by pledges of the stock of the Parent owned by such employee, not to exceed $1,000,000 in the aggregate at any time outstanding and (C) loans and advances to employees for moving or relocation expenses not to exceed $1,000,000 in the aggregate at any time outstanding; (j) Investments (i) in joint ventures in lines of business that are similar or related to a line of business in which the Borrower, the Parent, or any of their Subsidiaries is then engaged, not to exceed $25,000,000 in the aggregate at any time, and (ii) if the Parent shall own, at any time, less than a majority (by number of votes) of the outstanding Voting Stock of Tianjin Tanggu Watts Valve Company Ltd., by the Parent in Tianjin Tanggu Watts Valve Company Ltd. not to exceed $10,000,000 in the aggregate plus the amount of any unutilized portion of the $25,000,000 in Investments otherwise permitted by this clause (j) at any time thereafter; (k) Investments in stock or asset acquisitions permitted by (section)8.5.1 hereof. 8.4. Distributions. The Borrower will not make any Distributions unless both immediately before and immediately after such Distribution, no Default or Event of Default has occurred or is continuing. 8.5. Merger, Consolidation. 8.5.1. Mergers and Acquisitions. Neither the Borrower nor the Parent will, nor will they permit any of their Subsidiaries to, (a) become a party to any merger or consolidation with any other party, unless (i) such other party is in a line of business that is similar or related to a line of business in which the Borrower, the Parent, or any of their Subsidiaries is then engaged, (ii) the survivor of such merger or consolidation is the Borrower, the Parent or a Subsidiary of the Parent which is a corporation organized and existing under the laws of the United States or a state thereof, provided that each of the Borrower and the Parent shall survive any merger or consolidation to which it is a party, and (iii) immediately following such merger or consolidation no Default or Event of Default has occurred or is continuing; or (b) agree to or effect any asset acquisition or stock acquisition (other than the acquisition of assets in the ordinary course of business consistent with past practices) unless (i) the business being so acquired is in a line of business that is similar or related to a line of business in which the Borrower, the Parent, or any of their Subsidiaries is then engaged, (ii) except to the extent permitted by (section)8.3(j), the business being so acquired will be run as part of the Parent or a Subsidiary of the Parent, and (iii) immediately following such acquisition no Default or Event of Default has occurred or is continuing. 8.5.2. Disposition of Assets. Neither the Borrower nor the Parent will, nor will they permit any of their Subsidiaries to, become a party to or agree to or effect any disposition of assets (including capital stock), other than (i) the sale of inventory and obsolete equipment in the ordinary course of business, consistent with past practices, or (ii) prior to the occurrence of a Default or Event of Default, the disposition or sale of assets, in one or more arms-length transactions, having a cumulative aggregate sales price not to exceed (A) in any fiscal year of the Parent, $70,000,000, and (B) in the aggregate from the Closing Date, $100,000,000; provided that, the value as of the date of disposition of any non-cash assets received by the Borrower, the Parent or any Subsidiary in payment of any portion of the purchase price shall be equal to the fair market value of such assets. 8.6. Sale and Leaseback. Neither the Borrower nor the Parent will, nor will they permit any of their Subsidiaries to, enter into any arrangement, directly or indirectly, whereby any of the Borrower, the Parent or any of their Subsidiaries shall sell or transfer any property owned by it in order then or thereafter to lease such property or lease other property that such Person intends to use for substantially the same purpose as the property being sold or transferred ("Sale and Leaseback Arrangements"), other than, so long as no Default or Event of Default shall have occurred and be continuing, Sale and Leaseback Arrangements with respect to property, the net book value of which determined on a cumulative basis from the Closing Date, shall not exceed $5,000,000 in the aggregate. 8.7. Compliance with Environmental Laws. Neither the Borrower nor the Parent will, nor will they permit any of their Subsidiaries to, (i) (a) use any of the Real Estate or any portion thereof for the handling, processing, storage or disposal of Hazardous Substances except in material compliance with all Environmental Laws, (b) cause or permit to be located on any of the Real Estate any underground tank or other underground storage receptacle for Hazardous Substances except in compliance with all Environmental Laws, or (c) generate any Hazardous Substances on any of the Real Estate except in compliance with all Environmental Laws, unless non-compliance could not have a materially adverse effect on the business, assets or financial condition of any of the Borrower or the Parent individually, or the Parent and its Subsidiaries taken as a whole, or (ii) (a) conduct any activity at any Real Estate or use any Real Estate in any manner so as to cause a release (i.e. releasing, spilling, leaking, pumping, pouring, emitting, emptying, discharging, injecting, escaping, leaching, disposing or dumping) or threatened release of Hazardous Substances on, upon or into the Real Estate or properties in the vicinity thereof in violation of any Environmental Laws, or (b) otherwise conduct any activity at any Real Estate or use any Real Estate in any manner that would violate any Environmental Law in any material respect or bring such Real Estate in material violation of any Environmental Law, unless such violation could not have a materially adverse effect on the business, assets or financial condition of any of the Borrower or the Parent individually, or the Parent and its Subsidiaries taken as a whole. 8.8. Employee Benefit Plans. Neither the Borrower, the Parent nor any ERISA Affiliate thereof will: (a) engage in any "prohibited transaction" within the meaning of (section)406 of ERISA or (section)4975 of the Code which could result in a material liability for any of the Borrower, the Parent or any of their Subsidiaries; or (b) permit any Guaranteed Pension Plan to incur an "accumulated funding deficiency", as such term is defined in (section)302 of ERISA, whether or not such deficiency is or may be waived; or (c) fail to contribute to any Guaranteed Pension Plan to an extent which, or terminate any Guaranteed Pension Plan in a manner which, could result in the imposition of a material lien or material encumbrance on the assets of the Borrower, the Parent or any of their Subsidiaries pursuant to (section)302(f) or (section)4068 of ERISA; or (d) permit or take any action which would result in the aggregate benefit liabilities (with the meaning of (section)4001 of ERISA) of all Guaranteed Pension Plans exceeding by more than $2,500,000 the value of the aggregate assets of such Plans, disregarding for this purpose the benefit liabilities and assets of any such Plan with assets in excess of benefit liabilities. 8.9. Certain Transactions. Except for arm's length transactions pursuant to which the Borrower, the Parent or any of their Subsidiaries makes payments in the ordinary course of business upon terms no less favorable than such Person could obtain from third parties and except for payment of certain legal fees of a voting trust for the Horne family stock, and payment of expenses for preparation of tax returns of certain officers and directors of the Parent and its Subsidiaries and other transactions between the Borrower and the Parent or any of their Subsidiaries deemed by management of the Borrower and the Parent in good faith to be beneficial to the Borrower and the Parent, neither the Borrower nor the Parent will, nor will they permit any of their Subsidiaries to, enter into any transaction with any officer, director, employee or Affiliate of any of the Borrower, the Parent or any of their Subsidiaries (other than for service as employees, officers and directors), including any contract, agreement or other arrangement providing for the furnishing of services to or by, providing for rental of real or personal property to or from, or otherwise requiring payments to or from any such officer, director, employee or Affiliate or, any corporation, partnership, trust or other entity in which any such officer, director, employee or Affiliate has a substantial interest or is an officer, director, trustee or partner. 9. FINANCIAL COVENANTS OF THE BORROWER AND THE PARENT. 9.1. Fixed Charge Coverage Ratio. Neither the Borrower nor the Parent will permit the Fixed Charge Coverage Ratio for any period of four consecutive fiscal quarters of the Parent to be less than 3.00:1.00. 9.2. Leverage Ratio. Neither the Borrower nor the Parent will permit the ratio of (i) Total Funded Debt to (ii) the sum of (A) Total Funded Debt plus (B) Consolidated Net Worth, to exceed 0.40:1.00 at any time. 9.3. Consolidated Tangible Net Worth. Neither the Borrower nor the Parent will permit at any time Consolidated Tangible Net Worth to be less than the sum of $220,000,000 plus an amount equal to, on a cumulative basis, 50% of positive Consolidated Net Income for each prior complete fiscal year of the Parent subsequent to the fiscal year ended on the Balance Sheet Date. 10. CLOSING CONDITIONS. The obligations of the Banks to make the initial Revolving Credit Loans shall be subject to the satisfaction of the following conditions precedent on or prior to the Closing Date: 10.1. Loan Documents. Each of the Loan Documents shall have been duly executed and delivered by the respective parties thereto, shall be in full force and effect and shall be in form and substance satisfactory to each of the Banks. Each Bank shall have received a fully executed copy of each such document. 10.2. Certified Copies of Charter Documents. Each of the Banks shall have received from each of the Borrower and the Parent, (i) a copy, certified by a duly authorized officer of such Person to be true and complete on the Closing Date, of each of (a) its charter or other incorporation documents as in effect on such date of certification, and (b) its by-laws as in effect on such date and (ii) a certificate of good standing certified by the Secretary of State of the jurisdiction in which it is incorporated and each state in which it is qualified to do business as a foreign corporation. 10.3. Corporate Action. All corporate action necessary for the valid execution, delivery and performance by each of the Borrower and the Parent of this Credit Agreement and the other Loan Documents to which it is or is to become a party shall have been duly and effectively taken, and evidence thereof satisfactory to the Banks shall have been provided to each of the Banks. 10.4. Incumbency Certificate. Each of the Banks shall have received from each of the Borrower and the Parent an incumbency certificate, dated as of the Closing Date, signed by a duly authorized officer of such Person, and giving the name and bearing a specimen signature of each individual who shall be authorized: (i) to sign, in the name and on behalf of such Person, each of the Loan Documents to which such Person is or is to become a party; (ii) in the case of the Borrower, to make Loan Requests and Conversion Requests; and (iii) to give notices and to take other action on its behalf under the Loan Documents. 10.5. Opinion of Counsel. Each of the Banks and the Agent shall have received a favorable opinion addressed to the Banks and the Agent, dated as of the Closing Date, in form and substance satisfactory to the Banks and the Agent and substantially in the form of Exhibit D hereof, from Goodwin, Procter & Hoar, counsel to the Borrower and the Parent, and each of the Borrower and the Parent instruct Goodwin, Procter & Hoar to deliver such opinion to the Banks and the Agent. 10.6. Proceedings and Documents. All proceedings in connection with the transactions contemplated by this Credit Agreement, the other Loan Documents and all other documents incident thereto shall be satisfactory in substance and in form to the Banks and to the Agent and the Agent's Special Counsel, and the Banks, the Agent and such counsel shall have received all information and such counterpart originals or certified or other copies of such documents as the Agent may reasonably request. 10.7. Payment of Fees. The Borrower shall have paid to the Agent the closing fee and the Agent's fee pursuant to (sections)4.1 and 4.2, and all fees, expenses and disbursements of the Agent's Special Counsel accrued prior to the Closing Date. 11. CONDITIONS TO ALL BORROWINGS. The obligations of the Banks to make any Loan, whether on or after the Closing Date, shall also be subject to the satisfaction of the following conditions precedent: 11.1. Representations True; No Event of Default. Each of the representations and warranties of any of the Borrower, the Parent and any of their Subsidiaries contained in this Credit Agreement, the other Loan Documents or in any document or instrument delivered pursuant to or in connection with this Credit Agreement shall be true as of the date as of which they were made and shall also be true at and as of the time of the making of such Loan, with the same effect as if made at and as of that time (except to the extent of changes resulting from transactions contemplated or permitted by this Credit Agreement and the other Loan Documents and changes occurring in the ordinary course of business that singly or in the aggregate are not materially adverse to the business, assets or financial condition of the Borrower or the Parent, individually or the Parent and its Subsidiaries taken as a whole, and to the extent that such representations and warranties relate expressly to an earlier date) and no Default or Event of Default shall have occurred and be continuing. The Agent shall have received a certificate from each of the Borrower and the Parent signed by an authorized officer of such Person to such effect. 11.2. No Legal Impediment. No change shall have occurred in any law or regulations thereunder or interpretations thereof that in the reasonable opinion of any Bank would make it illegal for such Bank to make such Loan. 11.3. Governmental Regulation. Each Bank shall have received from the Borrower, the Parent or any regulatory authority such statements in substance and form reasonably satisfactory to such Bank as such Bank shall require for the purpose of compliance with any applicable regulations of the Comptroller of the Currency or the Board of Governors of the Federal Reserve System. 12. EVENTS OF DEFAULT; ACCELERATION; ETC. 12.1. Events of Default and Acceleration. If any of the following events ("Events of Default" or, if the giving of notice or the lapse of time or both is required, then, prior to such notice or lapse of time, "Defaults") shall occur: (a) the Borrower shall fail to pay any principal of the Loans when the same shall become due and payable, whether at the stated date of maturity or any accelerated date of maturity or at any other date fixed for payment; (b) the Borrower shall fail to pay any interest on the Loans, the Facility Fee, the Agent's fee, or other sums due hereunder or under any of the other Loan Documents, within five (5) days after the same shall become due and payable, whether at the stated date of maturity or any accelerated date of maturity or at any other date fixed for payment; (c) the Borrower or the Parent shall fail to comply with any of their covenants contained in (sections)7 (other than (sections)7.2, 7.7, 7.10 and 7.11), 8 or 9; (d) the Borrower or the Parent or any of its Subsidiaries shall fail to perform any term, covenant or agreement contained herein or in any of the other Loan Documents (other than those specified elsewhere in this (section)12) for thirty (30) days after written notice of such failure has been given to the Borrower by the Agent; (e) any representation or warranty of the Borrower or the Parent or any of their Subsidiaries in this Credit Agreement or any of the other Loan Documents or in any other document or instrument delivered pursuant to or in connection with this Credit Agreement shall prove to have been false in any material respect upon the date when made or deemed to have been made or repeated; (f) any of the Borrower, the Parent or any of their Subsidiaries shall fail to pay at maturity, or within any applicable period of grace, any obligation (including any guaranties thereof) in respect of borrowed money or credit received (including letters of credit issued for the account of the Borrower, the Parent or any of its Subsidiaries) or in respect of any Capitalized Leases in excess of $10,000,000 in the aggregate, or fail to observe or perform any material term, covenant or agreement contained in any agreement by which it is bound, evidencing or securing borrowed money or credit received or in respect of any Capitalized Leases in excess of $10,000,000 in the aggregate, for such period of time as would permit (assuming the giving of appropriate notice if required) the holder or holders thereof or of any obligations issued thereunder to accelerate the maturity thereof; (g) any of the Borrower, the Parent or any of their Subsidiaries shall make an assignment for the benefit of creditors, or admit in writing its inability to pay or generally fail to pay its debts as they mature or become due, or shall petition or apply for the appointment of a trustee or other custodian, liquidator or receiver of any of the Borrower, the Parent or any of their Subsidiaries or of any substantial part of the assets of any of the Borrower, the Parent or any of their Subsidiaries or shall commence any case or other proceeding relating to any of the Borrower, the Parent or any of their Subsidiaries under any bankruptcy, reorganization, arrangement, insolvency, readjustment of debt, dissolution or liquidation or similar law of any jurisdiction, now or hereafter in effect, or shall take any action to authorize or in furtherance of any of the foregoing, or if any such petition or application shall be filed or any such case or other proceeding shall be commenced against any of the Borrower, the Parent or any of their Subsidiaries and any of the Borrower, the Parent or any of their Subsidiaries shall indicate its approval thereof, consent thereto or acquiescence therein or such petition or application shall not have been dismissed within forty-five (45) days following the filing thereof; (h) a decree or order is entered appointing any such trustee, custodian, liquidator or receiver or adjudicating any of the Borrower, the Parent or any of their Subsidiaries bankrupt or insolvent, or approving a petition in any such case or other proceeding, or a decree or order for relief is entered in respect of any of the Borrower, the Parent or any of their Subsidiaries in an involuntary case under federal bankruptcy laws as now or hereafter constituted; (i) there shall remain in force, undischarged, unsatisfied and unstayed, for more than thirty days, whether or not consecutive, any final judgment against any of the Borrower, the Parent or any of their Subsidiaries that, with other outstanding final judgments, undischarged, against the Borrower, the Parent and any of their Subsidiaries exceeds in the aggregate $5,000,000; (j) (i) if any of the Loan Documents shall be cancelled, terminated, revoked or rescinded otherwise than in accordance with the terms thereof or with the express prior written agreement, consent or approval of the Banks, or (ii) any action at law, suit or in equity or other legal proceeding to cancel, revoke or rescind any of the Loan Documents shall be commenced by or on behalf of any of (A) the Borrower, the Parent or any of their Subsidiaries party thereto, or (B) any of the Horne family stockholders, or (C) any other stockholder if such action, suit or proceeding has not been dismissed or withdrawn within sixty (60) days of the commencement thereof, or (iii) any court or any other governmental or regulatory authority or agency of competent jurisdiction shall make a determination that, or issue a judgment, order, decree or ruling to the effect that, any one or more of the Loan Documents is illegal, invalid or unenforceable in accordance with the terms thereof; (k) with respect to any Guaranteed Pension Plan, an ERISA Reportable Event shall have occurred and the Majority Banks shall have determined in their reasonable discretion that such event reasonably could be expected to result in liability of any of the Borrower, the Parent or any of their Subsidiaries to the PBGC or such Guaranteed Pension Plan in an aggregate amount exceeding $1,000,000 and such event in the circumstances occurring reasonably could constitute grounds for the termination of such Guaranteed Pension Plan by the PBGC or for the appointment by the appropriate United States District Court of a trustee to administer such Guaranteed Pension Plan; or a trustee shall have been appointed by the United States District Court to administer such Guaranteed Pension Plan; or the PBGC shall have instituted proceedings to terminate such Guaranteed Pension Plan; (l) any of the Borrower, the Parent or any of their Subsidiaries shall be enjoined, restrained or in any way prevented by the order of any court or any administrative or regulatory agency from conducting any material part of its business and such order shall continue in effect for more than thirty (30) days; or (m) the Parent shall cease to own, directly or indirectly, 100% of the capital stock of the Borrower; or Timothy P. Horne and members of the Horne family (or any trusts or similar entities established for the benefit of members of the Horne family) shall at any time cease to own, legally or beneficially, at least fifty-one percent (51%) (by number of votes) of the Voting Stock of the Parent; or, during any period of twelve consecutive calendar months, individuals who were directors or who were elected by the members of the board of directors of the Parent on the first day of such period shall cease to constitute a majority of the board of directors of the Parent. then, and in any such event, so long as the same may be continuing, the Agent may, and upon the request of the Majority Banks shall, by notice in writing to the Borrower declare all amounts owing with respect to this Credit Agreement, the Notes and the other Loan Documents to be, and they shall thereupon forthwith become, immediately due and payable without presentment, demand, protest or other notice of any kind, all of which are hereby expressly waived by the Borrower and the Parent; provided that in the event of any Event of Default specified in (sections)12.1(g) or 12.1(h), all such amounts shall become immediately due and payable automatically and without any requirement of notice from the Agent or any Bank. 12.2. Termination of Commitments. If any one or more of the Events of Default specified in (sections)12.1(g) or 12.1(h) shall occur, the Total Commitment shall forthwith terminate and each of the Banks shall be relieved of all obligations to make Loans to the Borrower. If any other Event of Default shall have occurred and be continuing, the Agent may and, upon the request of the Majority Banks, shall, by notice to the Borrower, terminate the Total Commitment, and upon such notice being given the Total Commitment shall terminate immediately and each of the Banks shall be relieved of all further obligations to make Loans. If any such notice is given to the Borrower, the Agent will forthwith furnish a copy thereof to each of the Banks. No termination of the credit hereunder shall relieve the Borrower or the Parent of any of the Obligations or any of their existing obligations to any of the Banks arising under other agreements or instruments. 12.3. Remedies. In case any one or more of the Events of Default shall have occurred and be continuing, each Bank, if owed any amount with respect to the Loans, may, (i) prior to acceleration of the maturity of the Loans pursuant to (section)12.1, with the consent of the Majority Banks but not otherwise, proceed to protect and enforce its rights by suit in equity, action at law or other appropriate proceeding, whether for the specific performance of any covenant or agreement contained in this Credit Agreement and the other Loan Documents or any instrument pursuant to which the Obligations to such Bank are evidenced, including as permitted by applicable law the obtaining of the ex parte appointment of a receiver, and, (ii) following acceleration of the maturity of the Loans pursuant to (section)12.1, proceed to enforce the payment thereof or any other legal or equitable right of such Bank. No remedy herein conferred upon any Bank or the Agent or the holder of any Note is intended to be exclusive of any other remedy and each and every remedy shall be cumulative and shall be in addition to every other remedy given hereunder or now or hereafter existing at law or in equity or by statute or any other provision of law. 12.4. Distribution of Proceeds. In the event that, following the occurrence or during the continuance of any Default or Event of Default, the Agent or any Bank, as the case may be, receives any monies in connection with the enforcement of any of the Loan Documents such monies shall be distributed for application as follows: (a) First, to the payment of, or (as the case may be) the reimbursement of the Agent for or in respect of all reasonable costs, expenses, disbursements and losses which shall have been incurred or sustained by the Agent in connection with the collection of such monies by the Agent, for the exercise, protection or enforcement by the Agent of all or any of the rights, remedies, powers and privileges of the Agent under this Credit Agreement or any of the other Loan Documents and in support of any provision of adequate indemnity to the Agent against all taxes or liens which by law shall have, or may have, priority over the rights of the Agent to such monies; (b) Second, to all other Obligations in such order or preference as the Majority Banks may determine; provided, however, that distributions in respect of such Obligations shall be made (i) pari passu among Obligations with respect to the Agent's fee payable under (section)4.2 and all other Obligations and (ii) Obligations owing to the Banks with respect to each type of Obligation such as interest, principal, fees and expenses, shall be made among the Banks pro rata based upon the amount of the Obligations outstanding with respect to each Bank; and provided, further, that the Agent may in its reasonable discretion make proper allowance to take into account any Obligations not then due and payable; and (c) Third, the excess, if any, shall be returned to the Borrower or to such other Persons as are entitled thereto. 13. SETOFF. Regardless of the adequacy of any collateral, during the continuance of any Event of Default, any deposits or other sums credited by or due from any of the Banks to either of the Borrower or the Parent and any securities or other property of the Borrower or the Parent in the possession of such Bank may be applied to or set off by such Bank against the payment of Obligations and any and all other liabilities, direct, or indirect, absolute or contingent, due or to become due, now existing or hereafter arising, of the Borrower or the Parent to such Bank. Each of the Banks agrees with each other Bank that (i) except with respect to the amount of any check or electronic equivalent deposited with such Bank and credited to the Borrower's or the Parent's account maintained with such Bank which is subsequently returned to the Borrower or the Parent unpaid, if an amount to be set off is to be applied to Indebtedness of the Borrower or the Parent to such Bank, other than the Obligations evidenced by the Notes held by such Bank, such amount shall be applied ratably to such other Indebtedness and to the Obligations evidenced by all such Notes held by such Bank, and (ii) if such Bank shall receive from the Borrower or the Parent, whether by voluntary payment, exercise of the right of setoff, counterclaim, cross action, enforcement of the claim evidenced by the Notes held by such Bank by proceedings against the Borrower or the Parent at law or in equity or by proof thereof in bankruptcy, reorganization, liquidation, receivership or similar proceedings, or otherwise, and shall retain and apply to the payment of the Note or Notes held by such Bank any amount in excess of its ratable portion of the payments received by all of the Banks with respect to the Notes held by all of the Banks, such Bank will make such disposition and arrangements with the other Banks with respect to such excess, either by way of distribution, pro tanto assignment of claims, subrogation or otherwise as shall result in each Bank receiving in respect of the Notes held by its proportionate payment as contemplated by this Credit Agreement; provided that if all or any part of such excess payment is thereafter recovered from such Bank, such disposition and arrangements shall be rescinded and the amount restored to the extent of such recovery, but without interest. 14. THE AGENT. 14.1. Authorization. (a) The Agent is authorized to take such action on behalf of each of the Banks and to exercise all such powers as are hereunder and under any of the other Loan Documents and any related documents delegated to the Agent, together with such powers as are reasonably incident thereto, provided that no duties or responsibilities not expressly assumed herein or therein shall be implied to have been assumed by the Agent. (b) The relationship between the Agent and each of the Banks is that of an independent contractor. The use of the term "Agent" is for convenience only and is used to describe, as a form of convention, the independent contractual relationship between the Agent and each of the Banks. Nothing contained in this Credit Agreement nor the other Loan Documents shall be construed to create an agency, trust or other fiduciary relationship between the Agent and any of the Banks. (c) As an independent contractor empowered by the Banks to exercise certain rights and perform certain duties and responsibilities hereunder and under the other Loan Documents, the Agent is nevertheless a "representative" of the Banks, as that term is defined in Article 1 of the Uniform Commercial Code, for purposes of actions for the benefit of the Banks and the Agent with respect to all collateral security and guaranties contemplated by the Loan Documents, if any. Such actions include the designation of the Agent as "secured party", "mortgagee" or the like on all financing statements and other documents and instruments, whether recorded or otherwise, relating to the attachment, perfection, priority or enforcement of any security interests, mortgages or deeds of trust in collateral security intended to secure the payment or performance of any of the Obligations. 14.2. Employees and Agents. The Agent may exercise its powers and execute its duties by or through employees or agents and shall be entitled to take, and to rely on, advice of counsel concerning all matters pertaining to its rights and duties under this Credit Agreement and the other Loan Documents. The Agent may utilize the services of such Persons as the Agent in its sole discretion may reasonably determine, and all reasonable fees and expenses of any such Persons shall be paid by the Borrower. 14.3. No Liability. Neither the Agent nor any of its shareholders, directors, officers or employees nor any other Person assisting them in their duties nor any agent or employee thereof, shall be liable for any waiver, consent or approval given or any action taken, or omitted to be taken, in good faith by it or them hereunder or under any of the other Loan Documents, or in connection herewith or therewith, or be responsible for the consequences of any oversight or error of judgment whatsoever, except that the Agent or such other Person, as the case may be, may be liable for losses due to its willful misconduct or gross negligence. 14.4. No Representations. The Agent shall not be responsible for the execution or validity or enforceability of this Credit Agreement (except for the execution by the Agent, or the validity or enforceability against the Agent, of this Credit Agreement), the Notes, any of the other Loan Documents or any instrument at anytime constituting, or intended to constitute, collateral security for the Notes, or for the value of any such collateral security or for the validity, enforceability or collectability of any such amounts owing with respect to the Notes, or for any recitals or statements, warranties or representations made herein or in any of the other Loan Documents or in any certificate or instrument hereafter furnished to it by or on behalf of the Borrower or the Parent, or be bound to ascertain or inquire as to the performance or observance of any of the terms, conditions, covenants or agreements herein or in any instrument at any time constituting, or intended to constitute, collateral security for the Notes or to inspect any of the properties, books or records of any of the Borrower, the Parent or any of their Subsidiaries. The Agent shall not be bound to ascertain whether any notice, consent, waiver or request delivered to it by the Borrower or the Parent or any holder of any of the Notes shall have been duly authorized or is true, accurate and complete. The Agent has not made nor does it now make any representations or warranties, express or implied, nor does it assume any liability to the Banks, with respect to the credit worthiness or financial conditions of any of the Borrower, the Parent or any of their Subsidiaries. Each Bank acknowledges that it has, independently and without reliance upon the Agent or any other Bank, and based upon such information and documents as it has deemed appropriate, made its own credit analysis and decision to enter into this Credit Agreement. 14.5. Payments. 14.5.1. Payments to Agent. A payment by the Borrower or the Parent to the Agent hereunder or any of the other Loan Documents for the account of any Bank shall constitute a payment to such Bank. The Agent agrees promptly to distribute to each Bank such Bank's pro rata share of payments received by the Agent for the account of the Banks except as provided in (sections)4.6 through 4.8, 4.10 and 16 and as otherwise expressly provided herein or in any of the other Loan Documents. 14.5.2. Distribution by Agent. If in the opinion of the Agent the distribution of any amount received by it in such capacity hereunder, under the Notes or under any of the other Loan Documents might involve it in liability, it may refrain from making distribution until its right to make distribution shall have been adjudicated by a court of competent jurisdiction. If a court of competent jurisdiction shall adjudge that any amount received and distributed by the Agent is to be repaid, each Person to whom any such distribution shall have been made shall either repay to the Agent its proportionate share of the amount so adjudged to be repaid or shall pay over the same in such manner and to such Persons as shall be determined by such court. 14.5.3. Delinquent Banks. Notwithstanding anything to the contrary contained in this Credit Agreement or any of the other Loan Documents, any Bank that fails absent notification to the Agent by such Bank pursuant to (section)2.8.2 (i) to make available to the Agent its pro rata share of any Loan or (ii) to comply with the provisions of (section)14 with respect to making dispositions and arrangements with the other Banks, where such Bank's share of any payment received, whether by setoff or otherwise, is in excess of its pro rata share of such payments due and to payable to all of the Banks, in each case as, when and to the full extent required by the provisions of this Credit Agreement, shall be deemed delinquent (a "Delinquent Bank") and shall be deemed a Delinquent Bank until such time as such delinquency is satisfied. A Delinquent Bank shall be deemed to have assigned any and all payments due to it from the Borrower or the Parent, whether on account of outstanding Loans, interest, fees or otherwise, to the remaining nondelinquent Banks for application to, and reduction of, their respective pro rata shares of all outstanding Loans. The Delinquent Bank hereby authorizes the Agent to distribute such payments to the nondelinquent Banks in proportion to their respective pro rata shares of all outstanding Loans. A Delinquent Bank shall be deemed to have satisfied in full a delinquency when and if, as a result of application of the assigned payments to all outstanding Loans of the nondelinquent Banks, the Banks' respective pro rata shares of all outstanding Loans have returned to those in effect immediately prior to such delinquency and without giving effect to the nonpayment causing such delinquency. 14.6. Holders of Notes. The Agent may deem and treat the payee of any Note as the absolute owner thereof for all purposes hereof until it shall have been furnished in writing with a different name by such payee or by a subsequent holder. 14.7. Indemnity. The Banks ratably agree hereby to indemnify and hold harmless the Agent from and against any and all claims, actions and suits (whether groundless or otherwise), losses, damages, costs, expenses (including any expenses for which the Agent has not been reimbursed by the Borrower as required by (section)15), and liabilities of every nature and character arising out of or related to this Credit Agreement, the Notes, or any of the other Loan Documents or the transactions contemplated or evidenced hereby or thereby, or the Agent's actions taken hereunder or thereunder, except to the extent that any of the same shall be directly caused by the willful misconduct or gross negligence of any of the Agent, its directors, officers or employees or any other Person assisting them in their duties or any agent or employee thereof. 14.8. Agent as Bank. In its individual capacity, FNBB shall have the same obligations and the same rights, powers and privileges in respect to its Commitment and the Loans made by it, and as the holder of any of the Notes, as it would have were it not also the Agent. 14.9. Resignation. The Agent may resign at any time by giving sixty (60) days prior written notice thereof to the Banks and the Borrower. Upon any such resignation, the Majority Banks shall have the right to appoint a successor Agent. Unless a Default or Event of Default shall have occurred and be continuing, such successor Agent shall be reasonably acceptable to the Borrower. If no successor Agent shall have been so appointed by the Majority Banks and shall have accepted such appointment within thirty (30) days after the retiring Agent's giving of notice of resignation, then the retiring Agent may, on behalf of the Banks, appoint a successor Agent, which shall be a financial institution having a rating of not less than A or its equivalent by Standard & Poor's Corporation. Upon the acceptance of any appointment as Agent hereunder by a successor Agent, such successor Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Agent, and the retiring Agent shall be discharged from its duties and obligations hereunder. After any retiring Agent's resignation, the provisions of this Credit Agreement and the other Loan Documents shall continue in effect for its benefit in respect of any actions taken or omitted to be taken by it while it was acting as Agent. 14.10. Notification of Defaults and Events of Default. Each Bank hereby agrees that, upon learning of the existence of a Default or an Event of Default, it shall promptly notify the Agent thereof. The Agent hereby agrees that upon receipt of any notice under this (section)14.10 it shall promptly notify the other Banks of the existence of such Default or Event of Default. 15. EXPENSES. The Borrower agrees to pay (i) the reasonable costs of producing and reproducing this Credit Agreement, the other Loan Documents and the other agreements and instruments mentioned herein, in connection with the preparation, administration or interpretation of such documents, the closing hereunder, and any amendments, restatements, modifications, approvals, consents or waivers hereto or hereunder, (ii) any taxes (including any interest and penalties in respect thereto) payable by the Agent or any of the Banks (other than taxes based upon the Agent's or any Bank's net income) on or with respect to the transactions contemplated by this Credit Agreement (the Borrower hereby agreeing to indemnify the Agent and each Bank with respect thereto), (iii) the reasonable fees, expenses and disbursements of the Agent's Special Counsel incurred in connection with the preparation, administration or interpretation of the Loan Documents and other instruments mentioned herein, the closing hereunder, and amendments, restatements, modifications, approvals, consents or waivers hereto or hereunder, (iv) the reasonable fees, expenses and disbursements of the Agent incurred by the Agent in connection with the preparation, syndication, administration or interpretation of the Loan Documents and other instruments mentioned herein, provided that amounts attributable to syndication expenses shall not exceed $5,000, and (vi) all reasonable out-of-pocket expenses (including without limitation reasonable attorneys' fees, costs and disbursements, which attorneys shall be outside counsel to the Agent or any of the Banks, and reasonable consulting, accounting, appraisal, investment banking and similar professional fees and charges) incurred by the Agent or any of the Banks in connection with (A) the enforcement of or preservation of rights under any of the Loan Documents against the Borrower or the Parent or any of their Subsidiaries or the administration thereof after the occurrence of a Default or Event of Default and (B) any litigation, proceeding or dispute whether arising hereunder or otherwise, in any way related to the Agent's relationship with the Borrower, the Parent or any of their Subsidiaries, provided, however that the Agent shall refund any amounts paid pursuant to the terms of this (section)15 to the extent that they have been determined by a court of competent jurisdiction, by final order, to have been incurred solely as a result of a breach by the Agent of its obligations under this Credit Agreement. The covenants of this (section)15 shall survive payment or satisfaction of payment of amounts owing with respect to the Obligations. 16. INDEMNIFICATION. The Borrower agrees to indemnify and hold harmless the Agent and the Banks and their respective affiliates, officers, directors, employees, agents or other representatives from and against any and all actual or threatened claims, actions and suits whether groundless or otherwise, and from and against any and all liabilities, losses, damages and expenses of every nature and character arising out of this Credit Agreement or any of the other Loan Documents or the transactions contemplated hereby including, without limitation, (i) any actual or proposed use by any of the Borrower, the Parent or any of their Subsidiaries of the proceeds of any of the Loans, (ii) any of the Borrower, the Parent or any of their Subsidiaries entering into or performing this Credit Agreement or any of the other Loan Documents or (iii) with respect to any of the Borrower, the Parent and any of their Subsidiaries and their respective properties and assets, the violation of any Environmental Law, the presence, disposal, escape, seepage, leakage, spillage, discharge, emission, release or threatened release of any Hazardous Substances or any action, suit, proceeding or investigation brought or threatened with respect to any Hazardous Substances (including, but not limited to claims with respect to wrongful death, personal injury or damage to property), in each case including, without limitation, the reasonable fees and disbursements of counsel incurred in connection with any such investigation, litigation or other proceeding. In litigation, or the preparation therefor, the Banks and the Agent shall be entitled to select their own counsel and, in addition to the foregoing indemnity, the Borrower agrees to pay promptly the reasonable fees and expenses of such counsel if (x) in the written opinion of counsel to the Agent, use of counsel of the Borrower's choice could reasonably be expected to give rise to a conflict of interest, or (y) the Borrower shall not have employed counsel reasonably satisfactory to the Agent and the Banks to represent the Agent and the Banks within reasonable time after notice of the institution of any such litigation or proceeding. If, and to the extent that the obligations of the Borrower under this (section)16 are unenforceable for any reason, the Borrower hereby agrees to make the maximum contribution to the payment in satisfaction of such obligations which is permissible under applicable law. The covenants contained in this (section)16 shall survive payment of satisfaction in full of the Obligations. 17. SURVIVAL OF COVENANTS, ETC. All covenants, agreements, representations and warranties made herein, in the Notes, in any of the other Loan Documents or in any documents or other papers delivered by or on behalf of the Borrower, the Parent or any of their Subsidiaries pursuant hereto shall be deemed to have been relied upon by the Banks and the Agent, notwithstanding any investigation heretofore or hereafter made by any of them, and shall survive the making by the Banks of the Loans, as herein contemplated, and shall continue in full force and effect so long as any Obligations under this Credit Agreement or the Notes or any of the other Loan Documents remains outstanding or any Bank has any obligation to make any Loans, and for such further time as may be otherwise expressly specified in this Credit Agreement. All statements contained in any certificate or other paper delivered to any Bank or the Agent at any time by or on behalf of the Borrower, the Parent or any of their Subsidiaries pursuant hereto or in connection with the transactions contemplated hereby shall constitute representations and warranties by the Borrower, the Parent or such Subsidiary hereunder. 18. ASSIGNMENT AND PARTICIPATION. 18.1. Conditions to Assignment by Banks. Except as provided herein, each Bank may assign to one or more Eligible Assignees all or a portion of its interests, rights and obligations under this Credit Agreement (including all or a portion of its Commitment Percentage and Commitment and the same portion of the Loans at the time owing to it) and the Notes held by it; provided that (i) the Agent shall have given its prior written consent to such assignment, which consent shall not be unreasonably withheld or delayed, (ii) prior to the occurrence or continuance of a Default or Event of Default, the Borrower shall have given its prior written consent to all such assignments in amounts of less than $20,000,000, which consent shall not be unreasonably withheld or delayed (it being understood by the parties that no consent of the Borrower shall be required for assignments in amounts of $20,000,000 or in excess thereof or following the occurrence of a Default or an Event of Default), (iii) each such assignment shall be of a constant, and not a varying, percentage of all the assigning Bank's rights and obligations under this Credit Agreement, and (iv) the parties to such assignment shall execute and deliver to the Agent, for recording in the Register (as hereinafter defined), an Assignment and Acceptance, substantially in the form of Exhibit E hereto (an "Assignment and Acceptance"), together with any Notes subject to such assignment. Upon such execution, delivery, acceptance and recording, from and after the effective date specified in each Assignment and Acceptance, which effective date shall be at least five (5) Business Days after the execution thereof, (i) the assignee thereunder shall be a party hereto and, to the extent provided in such Assignment and Acceptance, have the rights and obligations of a Bank hereunder, and (ii) the assigning Bank shall, to the extent provided in such assignment and upon payment to the Agent of the registration fee referred to in (section)18.3, be released from its obligations under this Credit Agreement. 18.2. Certain Representations and Warranties; Limitations; Covenants. By executing and delivering an Assignment and Acceptance, the parties to the assignment thereunder confirm to and agree with each other and the other parties hereto as follows: (a) other than the representation and warranty that it is the legal and beneficial owner of the interest being assigned thereby free and clear of any adverse claim, the assigning Bank makes no representation or warranty, express or implied, and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with this Credit Agreement or the execution, legality, validity, enforceability, genuineness, sufficiency or value of this Credit Agreement, the other Loan Documents or any other instrument or document furnished pursuant hereto or the attachment, perfection or priority of any security interest or mortgage; (b) the assigning Bank makes no representation or warranty and assumes no responsibility with respect to the financial condition of any of the Borrower, the Parent or any of their Subsidiaries or any other Person primarily or secondarily liable in respect of any of the Obligations, or the performance or observance by any of the Borrower, the Parent or any of their Subsidiaries or any other Person primarily or secondarily liable in respect of any of the Obligations of any of their obligations under this Credit Agreement or any of the other Loan Documents or any other instrument or document furnished pursuant hereto or thereto; (c) such assignee confirms that it has received a copy of this Credit Agreement, together with copies of the most recent financial statements referred to in (section)6.4 and (section)7.4 and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into such Assignment and Acceptance; (d) such assignee will, independently and without reliance upon the assigning Bank, the Agent or any other Bank and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Credit Agreement; (e) such assignee represents and warrants that it is an Eligible Assignee; (f) such assignee appoints and authorizes the Agent to take such action as agent on its behalf and to exercise such powers under this Credit Agreement and the other Loan Documents as are delegated to the Agent by the terms hereof or thereof, together with such powers as are reasonably incidental thereto; (g) such assignee agrees that it will perform in accordance with their terms all of the obligations that by the terms of this Credit Agreement are required to be performed by it as a Bank; and (h) such assignee represents and warrants that it is legally authorized to enter into such Assignment and Acceptance. 18.3. Register. The Agent shall maintain a copy of each Assignment and Acceptance delivered to it and a register or similar list (the "Register") for the recordation of the names and addresses of the Banks and the Commitment Percentage of, and principal amount of the Revolving Credit Loans owing to the Banks from time to time. The entries in the Register shall be conclusive, in the absence of manifest error, and the Borrower, the Agent and the Banks may treat each Person whose name is recorded in the Register as a Bank hereunder for all purposes of this Credit Agreement. Upon each such recordation, the assigning Bank agrees to pay to the Agent a registration fee in the sum of $2,500. 18.4. New Notes. Upon its receipt of an Assignment and Acceptance executed by the parties to such assignment, together with each Note subject to such assignment, the Agent shall (i) record the information contained therein in the Register, and (ii) give prompt notice thereof to the Borrower and the Banks (other than the assigning Bank). Within five (5) Business Days after receipt of such notice, the Borrower, at its own expense, shall execute and deliver to the Agent, in exchange for each surrendered Note, a new Note to the order of such Eligible Assignee in an amount equal to the amount assumed by such Eligible Assignee pursuant to such Assignment and Acceptance and, if the assigning Bank has retained some portion of its obligations hereunder, a new Note to the order of the assigning Bank in an amount equal to the amount retained by it hereunder. Such new Notes shall provide that they are replacements for the surrendered Notes, shall be in an aggregate principal amount equal to the aggregate principal amount of the surrendered Notes, shall be dated the effective date of such Assignment and Acceptance and shall otherwise be in substantially the form of the assigned Notes. Within five (5) days of issuance of any new Notes pursuant to this (section)18.4, the Borrower shall deliver an opinion of counsel, addressed to the Banks and the Agent, relating to the due authorization, execution and delivery of such new Notes and the legality, validity and binding effect thereof, in form and substance satisfactory to the Banks. The surrendered Notes shall be cancelled and returned to the Borrower. 18.5. Participations. Each Bank may sell participations to one or more banks or other entities in all or a portion of such Bank's rights and obligations under this Credit Agreement and the other Loan Documents; provided that (i) each such participation shall be in an amount of not less than $5,000,000 (ii) any such sale or participation shall not affect the rights and duties of the selling Bank hereunder to the Borrower and (iii) the only rights granted to the participant pursuant to such participation arrangements with respect to waivers, amendments or modifications of the Loan Documents shall be the rights to approve waivers, amendments or modifications that would reduce the principal of or the interest rate on any Loans, extend the term or increase the amount of the Commitment of such Bank as it relates to such participant, reduce the amount of any commitment fees to which such participant is entitled or extend any regularly scheduled payment date for principal or interest. 18.6. Disclosure. The Borrower agrees that in addition to disclosures made in accordance with standard and customary banking practices and (section)19 hereof, any Bank may disclose information obtained by such Bank pursuant to this Credit Agreement to assignees or participants and potential assignees or participants hereunder; provided that such assignees or participants or potential assignees or participants shall agree (i) to treat in confidence such information unless such information otherwise becomes public knowledge, (ii) not to disclose such information to a third party, except as required by law or legal process and (iii) not to make use of such information for purposes of transactions unrelated to such contemplated assignment or participation. 18.7. Assignee or Participant Affiliated with the Borrower. If any assignee Bank is an Affiliate of the Borrower or the Parent, then any such assignee Bank shall have no right to vote as a Bank hereunder or under any of the other Loan Documents for purposes of granting consents or waivers or for purposes of agreeing to amendments or other modifications to any of the Loan Documents or for purposes of making requests to the Agent pursuant to (section)12.1 or (section)12.2, and the determination of the Majority Banks shall for all purposes of this Agreement and the other Loan Documents be made without regard to such assignee Bank's interest in any of the Loans. If any Bank sells a participating interest in any of the Loans to a participant, and such participant is the Borrower or the Parent or an Affiliate of the Borrower or the Parent, then such transferor Bank shall promptly notify the Agent of the sale of such participation. A transferor Bank shall have no right to vote as a Bank hereunder or under any of the other Loan Documents for purposes of granting consents or waivers or for purposes of agreeing to amendments or modifications to any of the Loan Documents or for purposes of making requests to the Agent pursuant to (section)12.1 or (section)12.2 to the extent that such participation is beneficially owned by the Borrower or the Parent or any Affiliate of the Borrower or the Parent, and the determination of the Majority Banks shall for all purposes of this Agreement and the other Loan Documents be made without regard to the interest of such transferor Bank in the Loans to the extent of such participation. 18.8. Miscellaneous Assignment Provisions. Any assigning Bank shall retain its rights to be indemnified pursuant to (section)16 with respect to any claims or actions arising prior to the date of such assignment. If any assignee Bank is not incorporated under the laws of the United States of America or any state thereof, it shall, prior to the date on which any interest or fees are payable hereunder or under any of the other Loan Documents for its account, deliver to the Borrower and the Agent certification as to its exemption from deduction or withholding of any United States federal income taxes. If FNBB transfers all of its interest, rights and obligations under this Credit Agreement, the Agent shall, in consultation with the Borrower and with the consent of the Borrower and the Majority Banks, appoint another Bank to act as a reference Bank for the purpose of determining the Eurodollar Rate hereunder. Anything contained in this (section)18 to the contrary notwithstanding, any Bank may at any time pledge all or any portion of its interest and rights under this Credit Agreement (including all or any portion of its Notes) to any of the twelve Federal Reserve Banks organized under (section)4 of the Federal Reserve Act, 12 U.S.C. (section)341. No such pledge or the enforcement thereof shall release the pledgor Bank from its obligations hereunder or under any of the other Loan Documents. 18.9. Assignment by Borrower. Neither the Borrower nor the Parent shall assign or transfer any of its rights or obligations under any of the Loan Documents without the prior written consent of each of the Banks. 19. CONFIDENTIALITY. Until three (3) years following the date on which the relevant Bank has no obligation to make any Loan and no Loan or Note in favor of such Bank is outstanding, all confidential information and documents concerning the Borrower, the Parent or any of their Subsidiaries supplied by the Borrower or the Parent to any Bank pursuant to the terms of this Credit Agreement (collectively, the "Information") which information shall be deemed confidential and will be held in confidence by such Bank in accordance with its customary procedures for handling confidential information of this nature and such Banks shall not disclose such Information, except that each of the Borrower and the Parent hereby authorizes each Bank to disclose any Information or any other Loan Document (i) to any bank regulatory authority, governmental agency or representative thereof, (ii) to any officer, director or employee of such Bank who has reason to know such Information or any independent auditor, counsel, agent or other representative of such Bank, provided that such independent auditor, counsel, agent or other representative enters into a confidentiality agreement with the Borrower substantially similar to such Bank's agreement with the Borrower, (iii) to any participant or assignee or potential participant or potential assignee pursuant to the terms of (section)18.6 hereof, and (iv) pursuant to subpoena, court order, or legal process but only to the extent required by applicable laws and regulations, including those applying to classified material. 20. NOTICES, ETC. Except as otherwise expressly provided in this Credit Agreement, all notices and other communications made or required to be given pursuant to this Credit Agreement or the Notes shall be in writing and shall be delivered in hand, mailed by United States registered or certified first class mail, postage prepaid, sent by overnight courier, or sent by telegraph, telecopy, telefax or telex and confirmed by delivery via courier or postal service, addressed as follows: (a) if to the Borrower, at 715 King Street, Wilmington, Delaware 19801, Attention: Kenneth Kubacki (with a copy to the Parent at the address set forth below), or at such other address for notice as the Borrower shall last have furnished in writing to the Person giving the notice; (b) if to the Parent, at 815 Chestnut Street, North Andover, Massachusetts 01845, Attention: William McCartney, or at such other address for notice as the Parent shall last have furnished in writing to the Person giving the notice; (c) if to the Agent, at 100 Federal Street, Boston, Massachusetts 02110, USA, Attention: Harvey H. Thayer, Jr., Vice President, or such other address for notice as the Agent shall last have furnished in writing to the Person giving the notice; and (d) if to any Bank, at such Bank's address set forth on Schedule 1 hereto, or such other address for notice as such Bank shall have last furnished in writing to the Person giving the notice. Any such notice or demand shall be deemed to have been duly given or made and to have become effective (i) if delivered by hand, overnight courier or facsimile to a responsible officer of the party to which it is directed, at the time of the receipt thereof by such officer or the sending of such facsimile and (ii) if sent by registered or certified first-class mail, postage prepaid, on the third Business Day following the mailing thereof. 21. GOVERNING LAW. THIS CREDIT AGREEMENT AND EACH OF THE OTHER LOAN DOCUMENTS, EXCEPT AS OTHERWISE SPECIFICALLY PROVIDED THEREIN, ARE CONTRACTS UNDER THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS AND SHALL FOR ALL PURPOSES BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF SAID COMMONWEALTH OF MASSACHUSETTS (EXCLUDING THE LAWS APPLICABLE TO CONFLICTS OR CHOICE OF LAW). EACH OF THE BORROWER AND THE PARENT AGREES THAT ANY SUIT FOR THE ENFORCEMENT OF THIS CREDIT AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS MAY BE BROUGHT IN THE COURTS OF THE COMMONWEALTH OF MASSACHUSETTS OR ANY FEDERAL COURT SITTING THEREIN AND CONSENTS TO THE NONEXCLUSIVE JURISDICTION OF SUCH COURT AND THE SERVICE OF PROCESS IN ANY SUCH SUIT BEING MADE UPON THE BORROWER OR THE PARENT BY MAIL AT THE ADDRESS SPECIFIED IN (section)20. EACH OF THE BORROWER AND THE PARENT HEREBY WAIVES ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE VENUE OF ANY SUCH SUIT OR ANY SUCH COURT OR THAT SUCH SUIT IS BROUGHT IN AN INCONVENIENT COURT. 22. HEADINGS. The captions in this Credit Agreement are for convenience of reference only and shall not define or limit the provisions hereof. 23. COUNTERPARTS. This Credit Agreement and any amendment hereof may be executed in several counterparts and by each party on a separate counterpart, each of which when so executed and delivered shall be an original, and all of which together shall constitute one instrument. In proving this Credit Agreement it shall not be necessary to produce or account for more than one such counterpart signed by the party against whom enforcement is sought. 24. ENTIRE AGREEMENT, ETC. The Loan Documents and any other documents executed in connection herewith or therewith express the entire understanding of the parties with respect to the transactions contemplated hereby. Neither this Credit Agreement nor any term hereof may be changed, waived, discharged or terminated, except as provided in (section)26. 25. WAIVER OF JURY TRIAL. Each of Borrower, the Parent, the agent and each bank hereby waives its right to a jury trial with respect to any action or claim arising out of any dispute in connection with this Credit Agreement, the Notes or any of the other Loan Documents, any rights or obligations hereunder or thereunder or the performance of such rights and obligations. Except as prohibited by law, each of the Borrower and the Parent hereby waives any right it may have to claim or recover in any litigation referred to in the preceding sentence any special, exemplary, punitive or consequential damages or any damages other than, or in addition to, actual damages. Each of the Borrower and the Parent (i) certifies that no representative, agent or attorney of any Bank or the Agent has represented, expressly or otherwise, that such Bank or the Agent would not, in the event of litigation, seek to enforce the foregoing waivers and (ii) acknowledges that the Agent and the Banks have been induced to enter into this Credit Agreement, the other Loan Documents to which it is a party by, among other things, the waivers and certifications contained herein. 26. CONSENTS, AMENDMENTS, WAIVERS, ETC. Except as otherwise expressly provided in this Credit Agreement, any consent or approval required or permitted by this Credit Agreement to be given by one or more or all of the Banks may be given, and any term of this Credit Agreement or of any other instrument related hereto or mentioned herein may be amended, and the performance or observance by the Borrower or the Parent of any terms of this Credit Agreement or such other instrument or the continuance of any Default or Event of Default may be waived (either generally or in a particular instance and either retroactively or prospectively) with, but only with, the written consent of the Borrower and the written consent of the Majority Banks. Notwithstanding the foregoing, the rate of interest on the Notes, the payment date for principal, interest or fees hereunder, the term of the Notes, the amount of the Commitments of the Banks, the amount of the Facility Fee hereunder, and this (section)26 may not be changed nor may the guaranty of the Parent set forth in (section)5 be released, without the written consent of the Borrower and the written consent of each Bank affected thereby; the definition of Majority Banks may not be amended without the written consent of all of the Banks; and the amount of the Agent's fee and (section)14 may not be amended without the written consent of the Agent. No waiver shall extend to or affect any obligation not expressly waived or impair any right consequent thereon. No course of dealing or delay or omission on the part of either Bank in exercising any right shall operate as a waiver thereof or otherwise be prejudicial thereto. No notice to or demand upon the Borrower or the Parent shall entitle the Borrower or the Parent to other or further notice or demand in similar or other circumstances. 27. SEVERABILITY. The provisions of this Credit Agreement are severable and if any one clause or provision hereof shall be held invalid or unenforceable in whole or in part in any jurisdiction, then such invalidity or unenforceability shall affect only such clause or provision, or part thereof, in such jurisdiction, and shall not in any manner affect such clause or provision in any other jurisdiction, or any other clause or provision of this Credit Agreement in any jurisdiction. IN WITNESS WHEREOF, the undersigned have duly executed this Credit Agreement as a sealed instrument as of the date first set forth above. WATTS INVESTMENT COMPANY By: ______________________________ THE FIRST NATIONAL BANK OF BOSTON, individually and as Agent By: ______________________________ FIRST UNION NATIONAL BANK OF NORTH CAROLINA By: ______________________________ MELLON BANK, N.A. By: ______________________________ THE NORTHERN TRUST COMPANY By: ______________________________ CREDIT LYONNAIS CAYMAN ISLAND BRANCH By: ______________________________ BROWN BROTHERS HARRIMAN & CO. By: ______________________________ WATTS INDUSTRIES, INC., as Guarantor By: ______________________________ EX-21 9 EXHIBIT 21 DIRECT AND INDIRECT SUBSIDIARIES OF WATTS INDUSTRIES, INC. DOMESTIC: Watts Automatic Control Valve, Inc. [Delaware] Watts International Sales Corp. [Massachusetts] Watts Investment Company [Delaware] Watts Regulator Company [Massachusetts] Watts Securities Corp. [Massachusetts] Circle Seal Controls, Inc. [Delaware] Green Country Castings, Inc. [Oklahoma] Henry Pratt Company [Delaware] James Jones Company [California] KF Industries, Inc. [Oklahoma] KF Sales Corp. [Delaware] Rudolph Labranche, Inc. [New Hampshire] Leslie Controls, Inc. [New Jersey] Nicholson Steam Trap, Inc. [Delaware] Spence Engineering Company, Inc. [Delaware] Ancon U.S.A., Inc. [Delaware] Jameco Acquisition Corp. [Delaware] Jameco Industries, Inc. [New York] INTERNATIONAL: Watts Industries (Canada) Inc. [Canada] Watts Industries Europe B.V. [The Netherlands] Watts Industries France S.A. [France] Watts Ocean GmbH [Germany] Wattsco International [U.S. Virgin Islands] Watts Ocean BV [The Netherlands] Watts SFR SA [France] Watts UK Ltd. [United Kingdom] Edward Barber & Co. Ltd. [United Kingdom] Edward Barber (UK) Ltd. [United Kingdom] G.R.C. Controls SA [Spain] HST AG [Switzerland] HST GmbH [Austria] Intermes SpA [Italy] KF Industries, Ltd. [United Kingdom] Kingsworth Products Ltd. [United Kingdom] Leslie International V.I. [Virgin Islands] M.T.R GmbH [Germany] Ocean B.V. [The Netherlands] Watts Industries AG [Switzerland] V.R.A. BvbA [Belgian] Jameco Export Sales Corporation [U.S. Virgin Islands] Multiscope SpA Watts Intermes LDA [Portugal] WIG Armaturen Vertriebs, GmbH [Germany] WSA Heizungs und Sanitartechnik GmbH [Germnay] WIC Verwaltungs und Beteiligungs GmbH [Germany] EXHIBIT 21 DIRECT AND INDIRECT SUBSIDIARIES OF WATTS INDUSTRIES, INC. In addition to the foregoing, the Company holds an 89% interest in R.G. Laurence Company, Inc. [New Jersey], an 80% interest in Londa SpA [Italy], a 55% interest in ISI SpA [Italy] and a 60% interest in Tianjin Tanggu Watts Valve Company Limited, a Chinese joint venture. EX-27 10 EXHIBIT 27 (FDS) FILED WITH FORM 10-K
5 THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE REGISTRANTS STATEMENTS OF CONSOLIDATED EARNINGS AND CONSOLIDATED BALANCE SHEETS FOR FISCAL YEAR ENDED JUNE 30, 1994 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000795403 WATTS INDUSTRIES, INC. 1,000 YEAR JUN-30-1994 JUL-01-1993 JUN-30-1994 65,000 0 83,830 4,488 153,080 320,879 230,375 94,126 558,850 74,348 92,268 2,948 0 0 358,603 558,850 518,541 518,541 322,336 443,933 7,273 0 8,779 67,335 26,325 41,010 0 0 0 41,010 $1.38 $1.38 Includes 58,769 of short-term investments. Includes only cost of goods sold and selling, general and administrative expenses. Includes interest expense shown below.
EX-13 11 ANNUAL REPORT 1994 WATTS INDUSTRIES, Inc. (FRONT COVER GRAPHICS: Pictures of valves) ANNUAL REPORT - - ------------- 1994 (LOGO) (INSIDE FRONT COVER) (Descriptions of valves on front cover) Contromatics Actuated Butterfly Valve KF Industries Top Entry Valve Circle Seal Controls Motor Operated Valve Leslie Controls Aeroflow(TM) Control Valve Henry Pratt Company Butterfly Valve Watts Regulator Company Water Pressure Reducing Valve KF Industries Three-Way Trunnion Ball Valve Spence Engineering Company Steam Pressure Reducing Valve Watts ACV Automatic Control Valve Watts Regulator Company Actuated Ball Valve Watts Regulator Company Backflow Preventer ANNUAL REPORT - - ------------- 1994 Watts Industries, Inc. Annual Report 1994 Page Long Term Growth ..................................2 To Our Shareholders ...............................3 Operational Strategy ..............................4 Industrial and Oil & Gas ..........................5 Plumbing & Heating and Water Quality ...................................6-7 Municipal Water ...................................8 Steam .............................................9 Consolidated Financial Statements ................10 Report of Independent Auditors ...................10 Management's Discussion .......................22-25 Quarterly Information ............................25 Fifteen Year Financial Summary ................26-27 Acquisitions .....................................28 Directors and Officers ............Inside back cover A LEADER IN VALVE TECHNOLOGY WATTS(R) INDUSTRIES, INC. SINCE 1874 Watts Industries: Committed to the achievement of sustained long-term growth. (Fifteen year history) [Graph of Net Sales showing a Compounded Annual Growth Rate of 17%] [Graph of Net Income showing a Compounded Annual Growth Rate of 19%] [Graph of Stockholders' Equity showing a Compounded Annual Growth Rate of 20%] 2 To Our Shareholders Watts achieved yet another record year for both sales and earnings. This performance marked the 18th consecutive year of increased sales and 17th of 18 years of record net income. Net sales for Fiscal 1994 increased 11% to $519 million and net income increased 50% to $41 million. Excluding the unusual charges and the cumulative effect of the tax accounting change in Fiscal 1993, net income increased 18% and the fully diluted earnings per share were $1.38 versus $1.16 last year. Acquisition activity included two Canadian-based manufacturers of traps and drains for commercial, industrial, and institutional construction. Ancon and Enpoco were acquired during the first half of Fiscal 1994. With combined annual sales of approximately $12 million, these companies have a significant share of the Canadian market and will add strong product lines to our domestic plumbing product range during Fiscal 1995. Many weeks were devoted to business trips to Asia to explore the region's unfolding growth markets, including China. The first tangible result of these efforts was the commencement on September 1st of a joint venture with the Tianjin Tanggu Valve Plant of the People's Republic of China, in which Watts has a 60% controlling investment. Tanggu, an established ISO 9001 certified manufacturer, sells its butterfly, globe, and check valves to 29 provinces and autonomous regions in China and exports to the United States, Europe, Australia, and Southeast Asia. We expect there will be further joint ventures in China during Fiscal 1995. In addition to water and industrial, our focus will be on the valve markets for oil and gas, power generation, and central steam heating. Sales were flat in Europe owing to the recession which continued throughout Fiscal 1994. Some of the impact of the recession was offset by the rebuilding of former East Germany, and the developing markets of Poland, Czech Republic, Hungary, Slovakia, and other emerging Eastern European markets. Our consolidation of the acquired companies and product lines resulted in an operating profit of 14%. Any increase in sales volume during Fiscal 1995 should have a meaningful impact upon operating earnings because of the leverage now established. Europe continues to be an area of opportunity for growth by acquisition. Watts will also continue to explore the world markets for joint ventures and acquisitions. Our near-term Corporate objective is to increase international business as a percent of total sales. International sales, including Canada, increased as a percent of sales from 23% in Fiscal 1993 to 29% during 1994. Domestically, our growth was led by the Watts Regulator Company and its water-oriented Plumbing and Heating, Water Quality (backflow preventers), and OEM Divisions. The sales for these divisions increased by 10% from $150 million in Fiscal 1993 to $165 million in Fiscal 1994. A return to some normalization within their traditional markets, including a strong rebound in residential construction, helped these divisions in their record performance. Strong sales growth was also experienced within the oil and gas segment led by KF Industries. KF's sales increased by 14% from $57 million in Fiscal 1993 to $65 million in Fiscal 1994. This increase was derived primarily from a strong international market, especially in gas transmission pipeline projects. On July 28, 1994, Watts announced the acquisition of Jameco Industries, a domestic manufacturer of valves and plumbing hardware sold through wholesale plumbing and heating distribution and to the DIY (do-it-yourself) market. Jameco, with sales of $56 million for the twelve months ending June 30, 1994, represents one of our largest acquisitions to date. Its complementary fit with the Watts Regulator Plumbing and Heating Division should enhance both companies in presenting one of the largest arrays of plumbing products available to the U.S. market. We remain committed to our goal of double-digit growth with the ambitious objective of reaching $1 billion in sales by the end of the decade. Including the latest acquisitions, we expect our sales will exceed $600 million in Fiscal 1995. With more financial resources allocated to new product development, the prospect of improving markets for more of our business segments, and our ongoing acquisition search, we are optimistic about future growth prospects. [Signature of Timothy P. Horne] Timothy P. Horne Chairman of the Board, President, and Chief Executive Officer [Photograph of Timothy P. Horne] 3 Operational Strategy During the past ten years, Watts has embarked on an aggressive growth plan resulting in acquisitions of 28 valve companies that represented more than 60% of our sales during Fiscal 1994. In doing so, we have diversified the company into new valve markets and added important product lines. Our sales have grown at a compounded growth rate of 17% during this period as each year set new sales records for the company. Our ability to successfully grow at this pace can be attributed to a number of factors, but primarily to our commitment and focus on what we know best - the valve industry. Having achieved a milestone of over $500 million in sales, our next objective is to double our size within the next five years. During Fiscal 1994, we dedicated ourselves to setting the stage for this growth through a series of measures: [Photograph of David A. Bloss, Sr., Executive Vice President] 1. Organized businesses according to markets served: Within the United States, we have organized our independently-operated businesses into four strategic groups focused on major valve markets: Plumbing & Heating and Water Quality, Municipal Water, Industrial and Oil & Gas, and Steam. This alignment will allow us to offer extensive product lines and capitalize on economies of scale to achieve greater market share and profitability. 2. Expanded our international scope to Asia: To achieve global market participation, we are positioning ourselves for the tremendous growth that is expected in the Asian markets. Our initial focus is the People's Republic of China where significant capital expenditures are anticipated to develop its domestic infrastructure. Our objective is to leverage our valve technology and manufacturing expertise by joint ventures with manufacturers in China who serve the region's valve markets for municipal water, oil and gas, and steam applications. 3. New product development: During Fiscal 1994, we directed substantial capital and human resources to new product development. A key initiative was the formation of teams within our businesses to identify, engineer and commercialize new products to strengthen our position in our target markets. 4. Improved employee development and communication: "Developing tomorrow's leaders today" is a pervasive theme in our efforts to create an organizational environment that supports our growth objectives. During the past year, we have organized employee work-group sessions to inspire creativity and develop key leadership skills. These ongoing sessions are also designed to promote information sharing between business units to identify opportunities to improve sales and operating performance. We have already seen tangible results. [Photograph of Kenneth J. McAvoy, Chief Financial Officer and Executive Vice President of European Operations] We believe that these strategic moves will assist us in our efforts to achieve our $1 billion sales objective by the end of this decade. The following pages describe how we are addressing each of our major market segments and identify the significant activities of the past year. - - -------------------------------------------------------------------------------- Tianjin Tanggu Valve [Photo of Business License [Photos] Company of the Joint Venture] Joint Tianjin Tanggu Watts Valve Company, Ltd. Venture 4 Industrial and Oil & Gas Watts' oil and gas companies supply valves to the major independent petroleum and natural gas production companies worldwide, while the Watts Regulator Industrial Division supplies valves to the domestic markets for petrochemical, process control, severe service, and fugitive emission control. The Industrial and Oil & Gas Group supplies a comprehensive line of valves to its market, including ball valves, check valves, butterfly valves and needle valves. Building on their strength of having one of the broadest product lines, the oil and gas companies and the Industrial Division have consolidated most of their domestic field sales representation. This allows the Group to offer a more complete valve package to its customers. The integrated marketing effort is more efficient and less costly than the prior system, and eliminates the potential for confusion and overlap at the distributor and end-user levels. Domestic demand for industrial valves was comparable to last year. However, earnings for the Industrial Division grew as cost reduction efforts, product consolidations and a greater emphasis on engineered products improved margins. Domestic chemical and petrochemical companies are shifting their capital investment projects to offshore locations, primarily to be closer to raw material extraction sites. Therefore, we are targeting sales and marketing efforts to become a more significant participant in valve purchases for international projects during Fiscal 1995. Operating the Industrial Division and oil and gas companies as one group with coordinated distribution for the two market segments provides an efficient and expedient method of delivering Watts' valves to the changing world markets. Domestic demand for oil and gas products increased moderately during the fiscal year, while international results, reflecting the ever more global economy, showed robust growth. KF Industries actively marketed overseas and supported these efforts with a strong new product development program and rapid deliveries. Overall, the oil and gas business enjoyed strong growth in sales and earnings. During the year, the Group leveraged its resources by opening a new valve automation and repair center in Houston, Texas, to provide distributors and end users with factory-authorized automation and repair of quarter-turn valve products. Automation and repair will strengthen Watts' competitive position in the domestic and international marketplace. Furthermore, the Group has established regional offices in Singapore and London and is focusing its attention on developing joint ventures in China, Indonesia and Venezuela during the coming year. [Photograph of Alfred S. Schommer, Group Vice President Industrial and Oil & Gas] Allied with our Industrial Division is Circle Seal Controls, Inc., which supplies valves to the aerospace, industrial and cryogenic markets. - - -------------------------------------------------------------------------------- [Photo] [Photo of a valve] KF Industries, Inc. Oklahoma City, OK [Pie Graph Showing Percentages of Oil & Gas (13%) and Industrial (12.4%) in the Industrial, Oil & Gas Market] [Photo] Watts Regulator Industrial Division Milford, NH 5 Plumbing & Heating and Water Quality Watts serves the Plumbing and Heating and Water Quality markets with a comprehensive line of valve products. These include temperature and pressure relief valves for water heaters, water pressure reducing valves to regulate water pressures within the home and high-rise buildings, and backflow preventers to protect potable water systems from the potential hazard of water backflowing from contaminated sources downstream. The application of these products is generally enforced by strict national and regional plumbing codes and, in the case of backflow preventers, is supported by federal legislation such as the Safe Drinking Water Act of 1974. Watts manufactures many other speciality and commodity products for these markets including temperature control valves, ball valves, pipeline strainers, hydronic heating specialities, electric motorized valves, thermal expansion tanks, and other plumbing and heating products to provide customers with the broadest range of valves and assemblies. Watts' customer base includes over 6,000 plumbing and heating wholesalers who resell to mechanical contractors and installing plumbers. Watts' wholesalers have the advantage of buying a full product range from a single source. [Photo of Kevin R. Sweeney, Executive Vice President, Water Products Division and Paul A. Lacourciere, Executive Vice President, Watts Regulator Company] Domestic demand for plumbing and heating and water quality valves increased significantly during the year owing primarily to the resurgence of residential housing construction. Sales of water quality valves, namely backflow preventers, also increased for the first time in three years as their principal market, commercial construction, finally tempered its decline, and there was more stringent enforcement of the plumbing codes governing the installation of these products. We also expanded sales to original equipment manufacturers (OEMs). Standard catalog products were augmented with valves custom designed to the exacting specifications of individual OEM requirements, thereby stimulating a sales increase for this division of nearly 20%. The replacement demand for Watts' products has consistently offset some of the impact of interest-rate-sensitive construction cycles. Watts estimates that approximately 40% of sales derived from these markets are replacement driven. With market leadership for its principal valves and an installed base in excess of 100 million valves, Watts' prospects for increasing replacement business are excellent. [Photo of Ernest E. Elliott, Vice President, Watts Products Division] The flagship company serving these markets is the Watts Regulator Company, founded in 1874. Its seven domestic manufacturing plants produce over 65,000 valves per day, providing all of the benefits of high volume manufacturing including significant purchasing power. - - -------------------------------------------------------------------------------- [Photos of valves] [Pie Graph Showing Percentages of Plumbing & Heating (34%) and Water Quality (12.5%) in the Plumbing & Heating and Water Quality Markets] [Photo] [Photo] Franklin, NH facility Spindale, NC facility [Photo] [Photo] Canaan, NH facility Chesnee, SC facility 6 The European counterpart of Watts Regulator is Intermes, S.p.A., headquartered in Italy. Intermes has an extensive range of valve products to satisfy the demands of diverse wholesaler requirements in the major European markets, including Germany, France, Italy, Holland, the Benelux countries, Spain, Portugal, and, more recently, Eastern European countries as well. Most of the Intermes product range mirrors the valve products produced by Watts Regulator, except the Intermes products are custom designed for the European market requirements since product styling and performance characteristics generally differ from those of the United States. [Photo of Jean-Marc Sassier, Managing Director, Watts Industries Europe] Watts SFR in France and Watts Ocean in Holland augment the Intermes line with relief valves, pressure regulators, and backflow preventers. The products from all companies are combined into a single product offering to several thousand plumbing and heating wholesalers throughout the major European markets. The enforcement of European plumbing codes for pressure relief valves, water pressure regulators, and backflow preventers offers many of the same advantages in Europe for Intermes as in the domestic market for Watts Regulator. The German sales arm of Intermes, MTR GmbH, headquartered in Stuttgart, offers excellent future market opportunities in Eastern Europe. Initial sales during the past year have been realized in Poland, Hungary, Czech Republic, Slovakia, and other emerging markets. While Germany has been beleaguered with a serious recession throughout Fiscal 1994, construction and remodeling in former East Germany have provided some support to Watts' sales base. Overall sales for Fiscal 1994 for Watts Europe were flat, but there are some prospects for gradually improving market conditions in Western Europe and continued growth in Eastern Europe. [Photo of Victor L. Pitt, President, Watts Industries (Canada) Inc.] Watts Canada also enjoyed a year of increasing sales as the Canadian economy partially recovered from its long-term recession. Watts has a large market share in Canada which is supported by three manufacturing operations. During the year, Watts acquired the leading Canadian manufacturer of floor and roof drains, intercepters, backwater valves, and yard hydrants when it purchased LeHage Industries in July, 1993. The Ancon Division of LeHage presents an entirely new range of products to complement Watts' plumbing line of valves sold through wholesale distribution in Canada and the United States. As a further complement to the Ancon line of products, Watts Canada acquired Enpoco in November, 1993. The introduction of these product lines into the U.S. is one of Watts' priorities for growth during the new fiscal year. [Photo] [Photo] [Photo] Watts Ocean B.V. Watts SFR SA Woodbridge, Ontario facility Eerbeek, Netherlands Fressenneville, France [Photo] [Photo] [Photo] Intermes, SpA MTR GmbH Burlington, Ontario facility Caldaro, Italy Gemmrigheim, Germany [Pie Graph showing Fiscal 1994 Sales: International 29% and Domestic 71%] 7 Municipal Water Watts' Municipal Water Group manufactures valves that are widely used to control the flow, pressure and level of water in systems for potable water supply, wastewater treatment, industrial process water and cooling water for power generation. The performance and quality of these valves enhance the reliability and efficiency of the systems in which they are installed. Demand in the municipal water market comes from a combination of new construction, expansion, renovation and repair. The obsolescence of systems installed after the second World War, a shifting and expanding population, and federal regulations regarding clean water drive a continuing need for the Group's products. Federal and state funding limitations sometimes delay the implementation of some of these projects which are highly competitive. [Photo of Edward G. Holtgraver, Group Vice President, Municipal Water] Henry Pratt Company is a leading producer of butterfly and ball valves for municipal water supply. In power generation, Henry Pratt is one of a limited number of companies certified to supply valves to nuclear plants. With its large installed base, Henry Pratt is positioned to benefit from the growing business for maintenance and repair as domestic nuclear power plants age. James Jones Company markets bronze fire hydrants, ball valves, curb stops and related bronze products for public and private potable water distribution systems. It has experienced growth from improved customer service, quality and delivery lead times, and a renewed emphasis on its core products and regional markets. Profits have improved due to increased volumes and aggressive cost management. James Jones is currently active in 11 states, with plans for controlled expansion within the United States and certain export markets as regionally focused products are developed. With the acquisition of EBCO, Watts provides a similar line of products for the United Kingdom. The Watts Automatic Control Valve (ACV) is a pilot-operated, diaphragm-actuated, automatic hydraulic control valve used for water, fuels and other low to medium viscosity liquids. Henry Pratt will market Watts ACV products with its project specification and bid packages during Fiscal 1995. By providing a more comprehensive, integrated product package, the Municipal Water Group will meet more of its customers' needs and make it more attractive for independent distributors to promote the line. At the same time, the companies will maintain the independence necessary to provide the customer responsiveness that has been key to their competitive success. [Photo of Robert T. McLaurin, Corporate Vice President, Asian Operations] Serving the municipal water valve market in the People's Republic of China, Tianjin Tanggu Watts Valve Company, Ltd. is Watts' first effort to leverage domestic valve technology and manufacturing expertise in this international market. [Photo] [Photo] Watts Automatic Control Valve, Inc. Henry Pratt Company Houston, TX Aurora and Dixon, IL [Pie Graph Showing Percentage of Municipal Water (16.1%) in the Municipal Water Market] [Photo of valve] [Photo] [Photo] Edward Barber & Company, Ltd. James Jones Company Tottenham, U.K. El Monte, CA 8 Steam The Steam Group companies provide products that control the efficient and safe use of steam - recognized as an economical method of transferring energy from one place to another. Watts' four companies in this segment address a wide variety of markets, from HVAC, where steam is used in heating and cooling applications, to power generation, industrial process, and propulsion systems on U.S. Navy ships. Spence Engineering is a leader in the control of HVAC steam and is also active in industrial plants. Leslie Controls is both the premier supplier of control valves to the U.S. Navy and a supplier of products that are used in a variety of industrial and commercial steam applications. Nicholson Steam Trap is a leader in thermostatic trap technology, and the R. G. Laurence Company manufactures products primarily for the gas turbine industry. [Photo of Charles S. Wolley, Group Vice President, Steam] Overall, the long-term market outlook for steam generation is flat, but some new products and ongoing maintenance and repair opportunities should continue to support moderate growth. Steam unleashes a destructive force on system components, creating a demand for replacement parts that is predictable and steady. Proper handling of steam is also critical for safety. Therefore, the Steam Group's approach of selling through technical representatives concentrating on safety, reliability, and proper system design creates added value for its customer base. Growth in 1994 was led by a rebound in sales to the U.S. Navy and the results of a strong new product development program. Leslie introduced the Aeroflow(TM) control valve which, coupled with its digital positioning system and optical feedback, delivers precision previously unattainable within the power industry. Spence Engineering strengthened its position in HVAC with a significant expansion of its ASME safety relief valve product line, and R.G. Laurence experienced strong growth in the gas turbine industry by redesigning its Soli-Con(TM) line of solenoid control valves to meet changing OEM requirements. Cost management remains a focus. The recently completed relocation of Nicholson's manufacturing operations from Wilkes-Barre, Pennsylvania, to the Spence facility in Walden, New York, will reduce operating costs and improve manufacturing capabilities. Also, significant manufacturing cost improvements were realized through product engineering efforts. [Photo of Frederic B. Horne, Corporate Vice President] International Sourcing The global economy presents opportunities to procure materials internationally. Watts is sourcing worldwide for competitive supplies of lower cost steel, iron and bronze castings, and other commodity materials, while maintaining sound partnerships with the most progressive and competitive U.S. suppliers. Through a careful blending process, our lower cost base will benefit and complement our capital investment program and position Watts for consistent, profitable growth. - - -------------------------------------------------------------------------------- [Photo] Leslie Controls, Inc. R.G. Laurence Company, Inc. Tampa, FL [Photo] Spence Engineering Company, Inc., Nicholson Steam Trap, Inc. Walden, NY [Pie Graph Showing Percentage of Steam (12%) in the Steam Market] [Photo of valve] 9 Statements of Consolidated Earnings (Amounts in thousands, except per share information)
Fiscal Year Ended June 30 1994 1993 1992 --------------------------------------- Net sales ............................................................................. $ 518,541 $ 465,796 $ 423,808 Cost of goods sold .................................................................... 322,336 292,103 262,804 --------- --------- --------- GROSS PROFIT .................................................................. 196,205 173,693 161,004 Selling, general and administrative expenses .......................................... 121,597 111,550 96,458 Unusual charges ....................................................................... 7,000 --------- --------- --------- OPERATING EARNINGS ............................................................ 74,608 55,143 64,546 Other (income) expense: Interest income .................................................................... (2,986) (4,397) (4,103) Interest expense ................................................................... 8,779 9,152 7,879 Other--net .......................................................................... 1,480 1,248 831 --------- --------- --------- 7,273 6,003 4,607 --------- --------- --------- EARNINGS BEFORE INCOME TAXES AND CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING ..................................... 67,335 49,140 59,939 Provision for income taxes ............................................................ 26,325 18,734 23,314 --------- --------- --------- EARNINGS BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING .......................................................... 41,010 30,406 36,625 Cumulative effect on prior years (to June 30, 1992) of change in accounting for income taxes ........................................... 3,132 --------- --------- --------- NET EARNINGS .................................................................. $ 41,010 $ 27,274 $ 36,625 ========= ========= ========= Primary earnings per Common Share: Earnings before cumulative effect of change in accounting .......................... $ 1.38 $ 1.01 $ 1.29 Cumulative effect on prior years of change in accounting ........................... (.10) --------- --------- --------- NET EARNINGS .................................................................. $ 1.38 $ .91 $ 1.29 ========= ========= ========= Fully diluted earnings per Common Share: Earnings before cumulative effect of change in accounting .......................... $ 1.38 $ 1.01 $ 1.27 Cumulative effect on prior years of change in accounting ............................................................ (.10) --------- --------- --------- NET EARNINGS .................................................................. $ 1.38 $ .91 $ 1.27 ========= ========= ========= Dividends paid per Common Share ....................................................... $ .20 $ .16 $ .13 ========= ========= ========= Weighted average number of Common Shares: Primary ............................................................................ 29,674 30,090 28,326 ========= ========= ========= Fully diluted ...................................................................... 29,717 30,098 30,080 ========= ========= =========
The accompanying notes are an integral part of these consolidated financial statements. Report of Independent Auditors Board of Directors Watts Industries, Inc. We have audited the accompanying consolidated balance sheets of Watts Industries, Inc. and subsidiaries as of June 30, 1994 and 1993, and the related statements of consolidated earnings, consolidated stockholders' equity, and consolidated cash flows for each of the three years in the period ended June 30, 1994. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We did not audit the 1994 and 1993 financial statements of Watts Industries Europe B.V., a wholly-owned subsidiary, which statements reflect total assets of $107,729,000 and $100,219,000 as of June 30, 1994 and 1993, respectively, and total revenues of $79,709,000 and $57,645,000, for the years then ended. Those 1994 and 1993 statements were audited by other auditors, Deloitte & Touche, whose report has been furnished to us, and our opinion, insofar as it relates to data included for Watts Industries Europe B.V., is based solely on the report of the other auditors. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the 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. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits and the report of other auditors provide a reasonable basis for our opinion. In our opinion, based on our audits and the report of other auditors, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Watts Industries, Inc. and subsidiaries at June 30, 1994 and 1993, and the consolidated results of their operations and their cash flows for each of the three years in the period ended June 30, 1994, in conformity with generally accepted accounting principles. As discussed in Note 4 to the consolidated financial statements, in 1993, the Company changed its method of accounting for income taxes. Boston, Massachusetts [Signature of Ernst & Young] August 5, 1994 10 Consolidated Balance Sheets (Amounts in thousands, except share information)
ASSETS June 30 1994 1993 --------- --------- CURRENT ASSETS Cash and cash equivalents ............................................................ $ 6,231 $ 16,937 Short-term investments ............................................................... 58,769 66,198 Trade accounts receivable, less allowance of $4,488 in 1994 and $3,565 in 1993 for doubtful accounts ......................................... 79,342 68,099 Inventories: Finished goods ................................................................... 60,104 48,910 Work in process .................................................................. 39,671 33,939 Raw materials .................................................................... 53,305 49,064 --------- --------- 153,080 131,913 Prepaid expenses and other current assets ............................................ 8,484 9,494 Deferred income taxes ................................................................ 14,973 8,551 --------- --------- Total Current Assets ............................................................. 320,879 301,192 OTHER ASSETS Goodwill, net of accumulated amortization of $7,232 in 1994 and $4,743 in 1993 ............................................. 89,500 87,017 Other ................................................................................ 12,222 13,205 --------- --------- 101,722 100,222 PROPERTY, PLANT AND EQUIPMENT Land ................................................................................. 11,263 11,247 Buildings and improvements ........................................................... 62,279 59,951 Machinery and equipment .............................................................. 149,652 142,384 Construction in progress ............................................................. 7,181 4,665 --------- --------- 230,375 218,247 Less allowance for depreciation ...................................................... 94,126 83,986 --------- --------- 136,249 134,261 --------- --------- $ 558,850 $ 535,675 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable ..................................................................... $ 24,672 $ 21,180 Accrued expenses and other liabilities ............................................... 36,840 40,441 Accrued compensation ................................................................. 8,355 10,059 Income taxes payable ................................................................. 3,340 4,494 Current portion of long-term debt .................................................... 1,141 2,366 --------- --------- Total Current Liabilities ........................................................ 74,348 78,540 LONG-TERM DEBT, net of current portion ................................................... 97,479 101,468 DEFERRED INCOME TAXES .................................................................... 16,357 13,435 OTHER LIABILITIES ........................................................................ 9,115 7,112 STOCKHOLDERS' EQUITY Preferred Stock, $.10 par value; 5,000,000 shares authorized, no shares issued or outstanding Class A Common Stock, $.10 par value; authorized 40,000,000 shares; issued 18,009,822 shares in 1994 and 9,226,770 in 1993 ........................... 1,801 923 Class B Common Stock, $.10 par value; authorized 13,000,000 shares; issued 11,472,470 in 1994 and 5,744,635 in 1993 .................................. 1,147 574 Additional paid-in capital ........................................................... 92,996 101,491 Retained earnings .................................................................... 268,706 235,052 Foreign currency translation adjustment .............................................. (3,099) (2,920) --------- --------- 361,551 335,120 --------- --------- $ 558,850 $ 535,675 ========= =========
The accompanying notes are an integral part of these consolidated financial statements. 11 Statements of Consolidated Stockholders' Equity (Amounts in thousands, except share information)
Foreign Class A Class B Additional Currency Total Common Stock Common Stock Paid-In Retained Translation Stockholders' Shares Amount Shares Amount Capital Earnings Adjustment Equity --------- ------ --------- ------ -------- -------- ----------- ------------- Balance at July 1, 1991 7,826,522 $ 783 5,778,575 $ 578 $ 55,308 $178,759 $ 287 $235,715 Net earnings 36,625 36,625 Shares of Class A Common Stock issued upon conversion of debt 1,245,944 125 42,951 43,076 Shares of Class B Common Stock converted to Class A Common Stock 32,940 3 (32,940) (3) Shares of Class A Common Stock exchanged upon the exercise of stock options and retired (5,129) (1) (266) (267) Shares of Class A Common Stock issued upon the exercise of stock options 70,553 7 2,041 2,048 Common Stock cash dividends (3,865) (3,865) Change in foreign currency translation adjustment 1,561 1,561 ---------- ------ ---------- ------ -------- -------- ------- -------- Balance at June 30, 1992 9,170,830 917 5,745,635 575 100,034 211,519 1,848 314,893 Net earnings 27,274 27,274 Shares of Class B Common Stock converted to Class A Common Stock 1,000 1 (1,000) (1) Shares of Class A Common Stock exchanged upon the exercise of stock options and retired (4,500) (1) (218) (219) Shares of Class A Common Stock issued upon the exercise of stock options 59,440 6 1,675 1,681 Common Stock cash dividends (3,741) (3,741) Change in foreign currency translation adjustment (4,768) (4,768) ---------- ------ ---------- ------ -------- -------- ------- -------- Balance at June 30, 1993 9,226,770 923 5,744,635 574 101,491 235,052 (2,920) 335,120 Net earnings 41,010 41,010 Shares of Class B Common Stock converted to Class A Common Stock 16,500 1 (16,500) (1) Shares of Class A Common Stock exchanged upon the exercise of stock options and retired (25,498) (3) (1,172) (1,175) Shares of Class A Common Stock issued upon the exercise of stock options 154,761 16 4,707 4,723 Purchase and retirement of treasury stock (342,700) (34) (12,030) (12,064) Common Stock cash dividends (5,884) (5,884) Effect of two-for-one stock split 8,979,989 898 5,744,335 574 (1,472) Change in foreign currency translation adjustment (179) (179) ---------- ------ ---------- ------ -------- -------- ------- -------- Balance at June 30, 1994 18,009,822 $1,801 11,472,470 $1,147 $ 92,996 $268,706 ($3,099) $361,551 ========== ====== ========== ====== ======== ======== ======= ========
The accompanying notes are an integral part of these consolidated financial statements. 12 Statements of Consolidated Cash Flows (Amounts in thousands)
Fiscal Year Ended June 30 1994 1993 1992 -------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES Net earnings .................................................................... $41,010 $27,274 $36,625 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization.............................................. 22,393 20,560 17,630 Deferred income taxes...................................................... (151) (1,273) (4,274) Loss on disposal of equipment.............................................. 15 168 67 Cumulative effect of change in accounting for income taxes................. 3,132 Changes in operating assets and liabilities, net of effects from business acquisitions: Accounts receivable................................................. (9,849) 8,755 (5,687) Inventories......................................................... (18,592) (3,540) (4,228) Prepaid expenses and other current assets........................... 1,425 1,334 1,218 Accounts payable, accrued expenses and other liabilities............ 158 (9,447) (2,494) ------- ------- ------- Net cash provided by operating activities..................................... 36,409 46,963 38,857 INVESTING ACTIVITIES Additions to property, plant and equipment........................................ (19,928) (25,798) (18,054) Proceeds from sale of equipment................................................... 395 635 505 Increase in goodwill and other assets............................................. (1,196) (1,378) (1,081) Business acquisitions, net of cash acquired: Henry Pratt................................................................... (57,154) Intermes .................................................................... (6,094) (22,184) Other acquisitions............................................................ (4,783) (13,494) (2,393) Repayment of debt of acquired businesses.......................................... (1,935) (6,872) Net changes in short-term investments............................................. 7,429 32,690 (27,644) ------- ------- ------- Net cash used in investing activities......................................... (26,112) (36,401) (105,821) FINANCING ACTIVITIES Purchase and retirement of treasury stock......................................... (12,064) Payments of long-term debt........................................................ (6,032) (963) (879) Proceeds from the sale of Notes................................................... 75,000 Proceeds from long-term borrowings................................................ 716 3,048 Proceeds from exercise of stock options........................................... 2,418 1,265 1,286 Cash dividends.................................................................... (5,884) (4,785) (3,637) ------- ------- ------- Net cash provided by (used in) financing activities........................... (20,846) (1,435) 71,770 Effect of exchange rates on cash and cash equivalents............................. (157) (2,179) 378 ------- ------- ------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.............................. (10,706) 6,948 5,184 Cash and cash equivalents at beginning of year.................................... 16,937 9,989 4,805 ------- ------- ------- CASH AND CASH EQUIVALENTS AT END OF YEAR...................................... $ 6,231 $16,937 $ 9,989 ======== ======= ========
The accompanying notes are an integral part of these consolidated financial statements. 13 Notes to Consolidated Financial Statements 1. ACCOUNTING POLICIES Principles of Consolidation: The consolidated financial statements include the accounts of Watts Industries, Inc. and its majority-owned subsidiaries (the Company). Upon consolidation, all significant intercompany accounts and transactions are eliminated. Foreign Currency Translation: Balance sheet accounts of foreign subsidiaries are translated into United States dollars at fiscal year-end exchange rates. Operating accounts are translated at average exchange rates for each year. Net translation gains or losses are adjusted directly to a separate component of stockholders' equity. Cash Equivalents and Short-Term Investments: Cash equivalents consist of investments having maturities of three months or less at the date of purchase. Short-term investments consist of corporate and municipal bonds, and mutual funds whose portfolios consist principally of United States Government securities. Short-term investments are valued at cost, which approximates market. In May 1993, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standard (SFAS) No. 115, "Accounting for Certain Investments in Debt and Equity Securities." This Statement will be effective beginning in fiscal year 1995, and expands the use of fair value accounting and reporting for certain investments in debt and equity securities, but retains the use of the amortized cost method for those investments in debt securities for which the holder has the positive intent and ability to hold to maturity. The Company believes that adoption of this Standard will not have a significant effect on its results of operations or financial condition. Concentrations of Credit Risk: Financial instruments which potentially subject the Company to concentration of credit risk consist principally of cash equivalents, short-term investments and trade receivables. The Company places its cash equivalents and short-term investments with high credit, quality financial institutions and, by policy, limits the amount of credit exposure to any one financial institution. Concentrations of credit risk with respect to trade receivables are limited due to the large number of customers included in the Company's customer base and their dispersion across many different industries and geographic areas. As of June 30, 1994, the Company had no significant concentrations of credit risk. Inventories: Inventories are stated at cost (principally first-in, first-out method) not in excess of net realizable value. Inventories amounting to $14,050,000 at June 30, 1994 and $14,019,000 at June 30, 1993 are valued using the last-in, first-out method (LIFO), which approximates current replacement cost. Property, Plant and Equipment: Property, plant and equipment are recorded at acquired cost. Depreciation is provided on the straight-line basis over the estimated useful lives of the assets. Income Taxes: Deferred income taxes are recognized for temporary differences between financial statement and income tax bases of assets and liabilities for which income tax benefits and obligations will be realized in future years. Goodwill: Goodwill represents the excess of cost over the fair value of net assets of businesses acquired. This balance is amortized over 40 years using the straight-line method. To the extent the Company makes payments under contingent earn-out arrangements related to businesses previously acquired, those amounts are recorded as additional goodwill. The carrying value of goodwill is reviewed if the facts and circumstances suggest that it may be impaired. If this review indicates that goodwill will not be recoverable, as determined based on the undiscounted cash flows of the entity acquired over the remaining amortization period, the Company's carrying value of the goodwill would be reduced to its fair value. Earnings Per Common Share: Earnings per common share is based upon the weighted average number of Class A and B Common Shares outstanding during each period and the dilutive effect of Class A Common Stock options. Shares of Class A Common Stock issuable upon conversion of outstanding Convertible Subordinated Debentures were included in the calculation of fully diluted earnings per share, up to the date of conversion on March 15, 1992. Had the conversion of these Debentures taken place at the beginning of 1992, primary earnings per share in 1992 would have been $1.27. Basis of Presentation: Certain amounts in 1993 and 1992 have been reclassified to permit comparison with the 1994 presentation. 2. BUSINESS ACQUISITIONS On November 6, 1992, the Company acquired 100% of the outstanding common stock of Intermes, a plumbing and heating valve manufacturer, for $28.3 million. 14 2. BUSINESS ACQUISITIONS(cont'd.) On September 30, 1991, the Company acquired 100% of the outstanding common stock of Henry Pratt Company for cash of $57.2 million. In addition, upon Pratt's achievement of targeted operating income levels, the Company will be required to make annual contingent payments through 1997 of $1.3 million plus 25% of amounts in excess of targeted operating income levels. In addition, the Company acquired other valve manufacturers for cash of $4.8 million, $13.5 million and $2.4 million in fiscal 1994, 1993 and 1992, respectively. These acquisitions were accounted for under the purchase method. The results of operations of the acquired businesses are included in the consolidated financial statements from the dates of acquisition. The following unaudited pro forma consolidated results of operations for the years ended June 30, 1993 and 1992 are presented as if the acquisitions made in 1993 and 1992 had been made at the beginning of the year in which the acquisitions occurred, and at the beginning of the year immediately preceding the year of the acquisitions. The effects of acquisitions made in 1994 are not material and, accordingly, have been excluded from the pro forma presentation. 1993 1992 ------------ ------------ Net sales .................................... $483,081,000 $485,061,000 Net earnings ................................. 26,807,000 37,184,000 Primary net earnings per Common Share ........ .89 1.32 The pro forma results of operations give effect to interest costs of funds used to finance the acquisitions and include adjustments for depreciation and amortization resulting from the allocation of the costs of the acquisitions. The unaudited pro forma information is not necessarily indicative of either the results of operations that would have occurred had the purchase been made during the periods presented, or the future results of the combined operations. 3. UNUSUAL CHARGES In December 1992, the Company recorded unusual charges of $7 million. These unusual charges were related to environmental matters and costs associated with the downsizing and restructuring of certain previously acquired companies. The charges include approximately $2 million relating to the resolution of environmental litigation arising under CERCLA (Comprehensive Environmental Response, Compensation and Liability Act) involving a manufacturing facility sold in 1978, and clean-up costs principally relating to certain of the Company's foundry operations; a $3 million accrual for estimated future environmental clean-up costs; and $2 million relating to downsizing of certain previously acquired operations which have been negatively impacted by reduced military spending and to the consolidation and relocation of the operations of a previously acquired business. 4. INCOME TAXES The Company adopted SFAS Statement No. 109 ("Accounting for Income Taxes") as of the beginning of fiscal year 1993. The cumulative effect on prior years of this change in accounting principle decreased fiscal 1993 net earnings by $3.1 million or $.10 per share, and is reported separately in the statement of consolidated earnings for the year ended June 30, 1993. The effect of adopting Statement 109, including its application to prior business combinations, did not have a material impact on 1993 pre-tax earnings. At June 30, 1994, the Company has foreign net operating loss carryforwards of $6.2 million for income tax purposes that expire in years 1995 through 2004. In addition, foreign net operating losses of $3.4 million can be carried forward indefinitely. These carryforwards resulted primarily from the Company's 1993 business acquisitions. The significant components of the Company's deferred tax liabilities and assets are as follows: June 30 1994 1993 Deferred tax liabilities: ------------ ------------- Depreciation ................................ $ 12,402,000 $ 12,172,000 Other ....................................... 3,955,000 1,263,000 ------------ ------------ Total deferred tax liabilities ............ 16,357,000 13,435,000 Deferred tax assets: Accrued expenses ............................ 8,202,000 6,367,000 Other ....................................... 7,613,000 3,998,000 ------------ ------------ Total deferred tax assets ................. 15,815,000 10,365,000 Valuation allowance for deferred tax assets . (842,000) (1,814,000) ------------ ------------ Net deferred tax assets ................... 14,973,000 8,551,000 ------------ ------------ Net deferred tax liabilities .............. $ 1,384,000 $ 4,884,000 ============ ============ 15 Notes to Consolidated Financial Statements (cont'd.) 4. INCOME TAXES (cont'd.) The provision for income taxes is based on the following pre-tax earnings: 1994 1993 1992 ----------- ----------- ----------- Domestic .............. $57,375,000 $42,260,000 $52,238,000 Foreign ............... 9,960,000 6,880,000 7,701,000 ----------- ----------- ----------- $67,335,000 $49,140,000 $59,939,000 =========== =========== =========== The provision for income taxes as reflected in the statements of consolidated earnings consists of the following: Deferred Liability Method Method ---------------------------- ------------- 1994 1993 1992 ------------- ----------- ------------- Currently payable: Federal ...................... $ 20,035,000 $ 14,583,000 $ 20,987,000 Foreign ...................... 2,606,000 2,850,000 2,995,000 State ........................ 3,835,000 2,574,000 3,606,000 ------------ ------------ ------------ 26,476,000 20,007,000 27,588,000 Deferred, principally federal .. (151,000) (1,273,000) (4,274,000) ------------ ------------ ------------ $ 26,325,000 $ 18,734,000 $ 23,314,000 ============ ============ ============ Total income taxes reported are different than would have been computed by applying the federal statutory tax rate to earnings before income taxes. The reasons for this difference are as follows: Deferred Liability Method Method ---------------------------- ----------- 1994 1993 1992 ------------ ------------ ----------- Computed expected federal income tax expense ........... $23,567,000 $16,708,000 $20,379,000 State income taxes, net of federal tax benefit ....... 2,350,000 1,548,000 2,243,000 Other .......................... 408,000 478,000 692,000 ----------- ----------- ----------- $26,325,000 $18,734,000 $23,314,000 =========== =========== =========== Undistributed earnings of the Company's foreign subsidiaries amounted to approximately $36 million, $29 million and $25 million at June 30, 1994, 1993 and 1992 respectively. Those earnings are considered to be indefinitely reinvested and, accordingly, no provision for U.S. federal and state income taxes has been provided thereon. Upon distribution of those earnings in the form of dividends or otherwise, the Company would be subject to both U.S. income taxes (subject to an adjustment for foreign tax credits) and withholding taxes payable to the various foreign countries. Determination of the amount of U.S. income tax liability that would be incurred is not practicable because of the complexities associated with its hypothetical calculation; however, unrecognized foreign tax credits would be available to reduce some portion of any U.S. income tax liability. Withholding taxes of approximately $2.8 million would be payable upon remittance of all previously unremitted earnings at June 30, 1994. The Company made income tax payments of $31.4 million, $20.5 million and $27.6 million in 1994, 1993 and 1992, respectively. 5. ACCRUED EXPENSES AND OTHER LIABILITIES Accrued expenses and other liabilities consist of the following: June 30 1994 1993 ----------- ----------- Commissions and sales incentives payable ....... $ 6,860,000 $ 5,915,000 Accrued insurance costs ........................ 6,330,000 4,481,000 Accrued medical and pension benefits ........... 3,072,000 2,820,000 Accrued payments in connection with business acquisitions ........................ 2,982,000 10,612,000 Other .......................................... 17,596,000 16,613,000 ----------- ----------- $36,840,000 $40,441,000 =========== =========== 16 6. FINANCING ARRANGEMENTS
Long-term debt consists of the following: June 30 1994 1993 ------------ ------------ 8-3/8% Notes, Due 2003 ............................. $ 75,000,000 $ 75,000,000 Industrial Revenue Bonds, maturing periodically from 2006 through 2019. Interest accrues at a variable rate based on weekly tax-exempt interest rates (2.75% at June 30, 1994) ......................... 17,268,000 17,653,000 Other .............................................. 6,352,000 11,181,000 ------------ ------------ 98,620,000 103,834,000 Less current portion ............................... 1,141,000 2,366,000 ------------ ------------ $ 97,479,000 $101,468,000 ============ ============
On November 26, 1991, the Company issued $75,000,000 principal amount of 8-3/8% Notes Due 2003. Interest is payable semiannually on December 1 and June 1 each year. The notes are not subject to optional redemption prior to maturity and there are no sinking fund payments required. The notes are considered general unsecured obligations of the Company. The notes include covenants, which, among other things, restrict borrowings secured by certain assets and certain sale and leaseback transactions by the Company or any "restricted subsidiary" (as defined), subject to certain exceptions, including secured borrowings not exceeding 10% of the Company's consolidated stockholders' equity, unless the notes are secured ratably with such borrowings. Principal payments during each of the next five fiscal years are due as follows: 1995-$1,141,000; 1996-$883,000; 1997-$682,000; 1998-$552,000; and 1999-$5,457,000. Interest paid during fiscal 1994 and 1993 approximates interest expense. 7. COMMON STOCK On January 18, 1994, the Board of Directors declared a two-for-one stock split, effective March 15, 1994, in the form of a dividend of one additional share of the Company's Common Stock (Class A and B) for each share owned by stockholders of record at the close of business on March 1, 1994. Par value remained at $.10 per share. Earnings per share, cash dividends per share, weighted average common shares outstanding and the stock option plan share information have been restated for all periods presented to reflect the stock split. During 1994, the Company repurchased 342,700 shares of Class A Common Stock prior to the stock split for $12.1 million. The Class A Common Stock and Class B Common Stock have equal dividend and liquidation rights. Each share of the Company's Class A Common Stock is entitled to one vote on all matters submitted to stockholders and each share of Class B Common Stock is entitled to ten votes on all such matters. Shares of Class B Common Stock are convertible into shares of Class A Common Stock, on a one-to-one basis, at the option of the holder. The Company has reserved a total of 14,663,116 shares of Class A Common Stock for issuance under its Incentive Stock Option Plan, its Nonqualified Stock Option Plan and conversion of shares of Class B Common Stock into Class A Common Stock. 8. QUALIFIED AND NONQUALIFIED STOCK OPTION PLANS The Company has a qualified incentive stock option plan whereunder options to purchase up to 1,980,000 shares of Class A Common Stock may be granted to key employees. Options are granted at an exercise price equal to 100% of the fair market value per share on the date of grant. At June 30, 1994, the Company has reserved 1,495,800 shares of Class A Common Stock for issuance under the plan. The Company also has a nonqualified stock option plan whereunder options to purchase up to 2,000,000 shares of Class A Common Stock may be granted to key employees. Options are granted at an exercise price determined by the Board of Directors, but not less than 50% of the fair market value per share on the date of grant. At June 30, 1994, the Company has reserved 1,694,846 shares of Class A Common Stock for issuance under the plan. 17 Notes to Consolidated Financial Statements (cont'd.) 8. QUALIFIED AND NONQUALIFIED STOCK OPTION PLANS (cont'd.) A summary of activity in the plans is as follows: Number of Shares Qualified Nonqualified Exercise Price --------- ------------ -------------- Outstanding options at July 1, 1991 467,510 312,586 $ 8.09 to $17.50 Granted 206,000 136,000 16.88 to 24.75 Exercised (71,384) (69,722) 8.09 to 17.50 Cancelled (14,000) 10.50 to 17.50 ------- ------- Outstanding options at June 30, 1992 588,126 378,864 8.09 to 24.75 Granted 210,000 136,000 16.60 to 24.34 Exercised (86,880) (32,000) 8.09 to 22.50 Cancelled (34,000) 14.25 to 22.50 ------- ------- Outstanding options at June 30, 1993 677,246 482,864 8.75 to 24.75 Granted 237,500 146,000 15.73 to 22.50 Exercised (108,446) (167,432) 8.75 to 22.50 Cancelled (54,000) (158,000) 8.75 to 22.50 ------- ------- Outstanding options at June 30, 1994 752,300 303,432 $ 8.75 to $24.75 ======= ======= Outstanding options generally vest at the rate of 20% per year. At June 30, 1994, 192,880 qualified options were exercisable and 45,432 nonqualified options were exercisable. 9. RETIREMENT BENEFITS The Company has defined benefit pension plans covering substantially all of its domestic nonunion employees. Plans covering salaried employees provide pension benefits that are based on years of service and the employee's compensation during the last five years of employment. Plans covering hourly employees generally provide benefits of stated amounts for each year of service. The Company's funding policy is to contribute annually the maximum amount that can be deducted for federal income tax purposes. Contributions are intended to provide not only for benefits attributable to service to date, but also for those expected to be earned in the future. The following table sets forth the components of pension expense, the funded status and amounts recognized in the consolidated balance sheets for the Company's domestic defined benefit pension plans. Defined benefit plans for the Company's foreign subsidiaries are not material. The Company computes its pension obligations and expense using March 31 as its measurement date.
March 31 1994 1993 ------------ ------------ Actuarial present value of benefit obligations: Accumulated benefit obligation, including vested benefits of $18,361,000 at March 31, 1994 and $15,951,000 at March 31, 1993 ............... $ 19,046,000 $ 16,647,000 ============ ============ Projected benefit obligation for services rendered to date ....................... $ 24,288,000 $ 20,714,000 Plan assets at fair value, primarily fixed income securities ..................... 24,432,000 22,443,000 ------------ ------------ Plan Assets in Excess of Projected Benefit Obligation ............................... 144,000 1,729,000 Unrecognized net (gain) loss from past experience different from that assumed and effect of changes in assumptions ................................ 410,000 (467,000) Unrecognized prior service cost ..................................................... 1,089,000 1,178,000 Unrecognized net transition asset ................................................... (3,181,000) (3,499,000) ------------ ------------ Accrued Pension Liability ........................................................... ($ 1,538,000) ($ 1,059,000) ============ ============
18 9. RETIREMENT BENEFITS (cont'd) Net pension cost included the following components:
Year Ended March 31 1994 1993 1992 ----------- ----------- ----------- Service cost--benefits earned during the year ................................... $ 1,753,000 $ 1,678,000 $ 1,486,000 Interest cost on projected benefit obligation ................................... 1,775,000 1,556,000 1,359,000 Actual return on plan assets .................................................... (1,608,000) (1,787,000) (1,930,000) Net amortization and deferral ................................................... (418,000) (105,000) 255,000 ----------- ----------- ----------- $ 1,502,000 $ 1,342,000 $ 1,170,000 =========== =========== ===========
The weighted average discount rate and rate of increase in future compensation levels used in determining the actuarial present value of the projected benefit obligation were approximately 8% and 6%, respectively, at March 31, 1994 and 1993. The expected long-term rate of return on plan assets in 1994, 1993 and 1992 was approximately 8%. In November 1992, the FASB issued SFAS No. 112 "Employers' Accounting for Postemployment Benefits." The Statement will be effective for fiscal year 1995 and requires in certain cases that estimated costs of postemployment benefits be recognized over the service lives of employees. The Company believes that adoption of the Standard will not have a material effect on its results of operations or financial condition. 10. COMMITMENTS AND CONTINGENCIES The Company is engaged in various claims and litigation arising from its operations. In the opinion of management, uninsured losses, if any, resulting from these matters will not have a material adverse impact on the consolidated financial position or future results of operations of the Company. The Company has been named a potentially responsible party with respect to identified contaminated sites. The level of contamination varies significantly from site to site and remediation efforts that are underway are in various stages. In certain cases, remediation has not begun. The Company has evaluated its potential exposure based on all currently available information and has recorded an estimate of its liability for environmental matters. With respect to one contaminated site included on the Environmental Protection Agency's National Priorities List, the Company expects to be named a potentially responsible party. The process of determining the causes and extent of contamination, the cost of remediation and the method to allocate that cost among those ultimately determined to be responsible is in a very early stage. Accordingly, the ultimate outcome of this matter cannot be determined at this time. 11. FAIR VALUE OF FINANCIAL INSTRUMENTS The following method and assumptions were used by the Company to estimate the fair value of its financial statements: Cash and Cash Equivalents and Short-Term Investments The carrying amounts reported in the balance sheet approximate fair value. Long-Term Debt The fair value of the Company's 8-3/8% Notes, Due 2003 is based on quoted market prices. The fair value of other long-term debt is estimated using discounted cash flow analyses, based on the Company's incremental borrowing rates for similar types of borrowing arrangements. The carrying amount and the estimated fair market value of the Company's long term debt are as follows: June 30 1994 1993 ------------ ------------ Carrying amount ...................... $ 98,620,000 $103,834,000 Estimated fair value ................. 99,745,000 113,115,000 19 Notes to Consolidated Financial Statements (cont'd.) 12. FINANCIAL INFORMATION BY GEOGRAPHIC AREA The Company designs, manufactures and sells an extensive line of valves for plumbing and heating, municipal water, water quality, industrial, steam, and oil and gas markets. Sales, operating profit and identifiable assets by major geographic area are summarized as follows. Transfer prices to foreign subsidiaries are intended to produce profit margins commensurate with sales and marketing efforts.
(Amounts in thousands) ----------------------------------------------------------------------------- Domestic Canada Europe Eliminations Consolidated -------- -------- -------- ------------ ------------ 1994 - - ----------------------------------------------- Sales ........................................ $410,100 $ 28,732 $ 79,709 $518,541 Transfer between areas ....................... 14,991 2,820 $ 17,811 -------- -------- -------- -------- -------- $425,091 $ 31,552 $ 79,709 $ 17,811 $518,541 ======== ======== ======== ======== ======== Operating Earnings of Geographic Areas ............................ $ 68,120 $ 2,304 $ 10,276 $ 94 $ 80,606 ======== ======== ======== ======== General corporate expenses ................... 5,998 -------- Operating Earnings ............................ $ 74,608 ======== Identifiable Assets .......................... $428,293 $ 23,469 $108,072 $ 984 $558,850 ======== ======== ======== ======== ======== 1993 - - ----------------------------------------------- Sales ........................................ $388,804 $ 19,347 $ 57,645 $465,796 Transfer between areas ....................... 13,166 2,196 $ 15,362 -------- -------- -------- -------- -------- $401,970 $ 21,543 $ 57,645 $ 15,362 $465,796 ======== ======== ======== ======== ======== Operating Earnings of Geographic Areas ............................ $ 52,105 $ 2,306 $ 6,294 $ 264 $ 60,441 ======== ======== ======== ======== General corporate expenses ................... 5,298 -------- Operating Earnings ............................ $ 55,143 ======== Identifiable Assets .......................... $415,759 $ 20,343 $100,463 $ 890 $535,675 ======== ======== ======== ======== ======== 1992 - - ----------------------------------------------- Sales ........................................ $376,782 $ 19,836 $ 27,190 $423,808 Transfer between areas ....................... 13,623 1,694 $ 15,317 -------- -------- -------- -------- -------- $390,405 $ 21,530 $ 27,190 $ 15,317 $423,808 ======== ======== ======== ======== ======== Operating Earnings of Geographic Areas ............................ $ 60,621 $ 3,420 $ 4,538 $ 94 $ 68,485 ======== ======== ======== ======== General corporate expenses ................... 3,939 -------- Operating Earnings ........................... $ 64,546 ======== Identifiable Assets .......................... $433,737 $ 19,624 $ 22,885 $ 626 $475,620 ======== ======== ======== ======== ========
Included in domestic sales are export sales of $45.4 million in 1994, $31.6 million in 1993 and $28.1 million in 1992. 13. SUBSEQUENT EVENTS During July, the Company purchased a domestic manufacturer of metal and plastic water supply products with annual revenues of approximately $56 million for $35.2 million in cash. The Company also entered into a joint venture for $8.5 million with a valve manufacturer located in the People's Republic of China in exchange for a 60% interest in the Chinese joint venture. During August, the Company entered into a five year agreement with a banking syndicate which permits the Company to borrow up to $125 million under an unsecured line of credit facility. Borrowings under the agreement accrue interest at LIBOR, plus 25 basis points. 20 14. QUARTERLY FINANCIAL INFORMATION (UNAUDITED) (Amounts in thousands, except share information)
First Second Third Fourth Quarter Quarter Quarter Quarter -------- -------- -------- -------- 1994 ---- Net sales....................................................... $130,581 $127,734 $133,532 $126,694 Gross profit.................................................... 49,272 49,342 50,691 46,900 Net earnings.................................................... 10,537 10,548 11,040 8,885 Primary and fully diluted net earnings per Common Share......... .35 .36 .37 .30 Dividends paid per share........................................ .045 .045 .055 .055 1993 ---- Net sales........................................................ $109,616 $113,909 $119,764 $122,507 Gross profit..................................................... 41,186 43,899 44,755 43,853 Earnings before cumulative effect of change in accounting........................................ 9,932 4,996 8,567 6,911 Net earnings..................................................... 6,800 4,996 8,567 6,911 Primary and fully diluted earnings per Common Share: Earnings before cumulative effect of change in accounting........................................ .33 .17 .28 .23 Net earnings..................................................... .23 .17 .28 .23 Dividends paid per share......................................... .035 .035 .045 .045 1992 ---- Net sales........................................................ $94,098 $108,078 $110,238 $111,394 Gross profit..................................................... 35,909 41,446 42,819 40,830 Net earnings..................................................... 9,101 8,932 10,117 8,475 Earnings per Common Share: Primary........................................................ .33 .32 .36 .28 Fully diluted.................................................. .32 .32 .35 .28 Dividends paid per share......................................... .030 .030 .035 .035
Primary and fully diluted earnings per share and dividends paid per share have been restated for all periods presented above to reflect the stock split effected in March 1994. 21 Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations Fiscal Year Ended June 30, 1994 Compared to Fiscal Year Ended June 30, 1993 Net sales increased $52,745,000 (11.3%) to $518,541,000. This increase was attributable to the inclusion of the net sales of acquired companies and increased unit shipments of certain product lines. The net sales of Intermes, S.p.A. ("Intermes") acquired in November 1992, Edward Barber Company ("EBCO") acquired in May 1993, Ancon Products, Inc. ("Ancon") acquired in July 1993, and Enpoco Canada, Ltd. ("Enpoco") acquired in November 1993, all foreign based companies, represented approximately 56% of the increase. The Company had increased unit shipments of plumbing and heating valves, water quality valves, and oil and gas valves. These increases were partially offset by decreased unit shipments of municipal water valves and aerospace/military valves. International sales increased from 23% to 29% of total sales, principally as a result of the acquisitions discussed above. Export sales increased almost $14,000,000 (44%) to $45,400,000, primarily due to increased shipments of oil and gas valves. The Company intends to maintain its strategy of seeking acquisition opportunities as well as developing its international sales to achieve sales growth. Gross profit increased $22,512,000 (13.0%) to $196,205,000 and increased as a percentage of net sales from 37.3% to 37.8%. This increased percentage was primarily attributable to improved manufacturing performance and increased volume, particularly in the plumbing and heating and water quality segments, as well as decreased costs of bronze ingot. During fiscal 1995, the Company anticipates the cost of ingot to rise which may unfavorably impact its margin depending on its ability to increase selling prices. Selling, general and administrative expenses increased $3,047,000 (2.6%) to $121,597,000. The Company recorded $7,000,000 of unusual charges in the year ended June 30, 1993 for environmental matters and costs associated with the downsizing and restructuring of certain acquired companies. Excluding the effect of this charge, selling, general and administrative expenses would have increased $10,047,000 (9.0%) in the period ended June 30, 1994. This increase is primarily attributable to the inclusion of the expenses of acquired companies and increased commissions associated with the higher sales volume. These increases were partially offset by decreased spending at several subsidiaries as a result of downsizing programs implemented during the last fiscal year. The Company from time to time is involved with environmental proceedings and incurs costs on an ongoing basis related to environmental matters. The Company has been or expects to be named a potentially responsible party with respect to currently identified contaminated sites, which are in various stages of the remediation process. The Company has evaluated its potential exposure based on all currently available information and has recorded its estimate of its liability for environmental matters. The ultimate outcome of these environmental matters cannot be determined. The Company currently anticipates that it will not incur significant expenditures in fiscal 1995 in connection with any of these environmentally contaminated sites. Please see Note 10 to the accompanying consolidated financial statements. Interest income decreased $1,411,000 (32.1%) to $2,986,000 due to decreased levels of cash and short-term investments. Net earnings increased $13,736,000 (50.4%) to $41,010,000. If the Company had not incurred the $7,000,000 of unusual charges and the cumulative effect of the change in accounting method in fiscal 1993, net earnings would have increased 18.5%. The Company's return on investment for the fiscal year ended June 30, 1994 was 11.8%. The Company's return on investment for the fiscal year ended June 30, 1993 before the change in accounting method and the $7,000,000 of unusual charges was 10.4%. This compares to 13.7% for fiscal year 1992, 15.8% for fiscal year 1991, and 17.6% for fiscal year 1990. The primary reasons for these declining percentages is the increase in stockholders' equity associated with the conversion of the Company's $44,000,000 Convertible Debentures on or prior to March 15, 1992 and the sale on February 28, 1991 of 920,000 shares of Class A Common Stock in a public offering at a price to the public of $40.50 per share. Stockholders' equity increased $78,732,000 as a result of these transactions. These transactions have also resulted in a relatively high level of cash and short-term investments which also had the effect of decreasing the 22 return on investment ratio due to the lower return earned on these assets as compared to the return earned on operating assets. The change in foreign exchange rates since June 30, 1993 did not have a material impact on the results of operations or the financial condition of the Company. The weighted average number of common shares, after giving effect to the two-for-one stock split described in Note 7 to the accompanying consolidated financial statements, outstanding on June 30, 1994 decreased to 29,674,464 from 30,089,898 for primary earnings per share. This decrease is the result of the repurchase by the Company, prior to the stock split, of 342,700 shares of Class A Common Stock. Primary and fully diluted earnings per share were $1.38 for the period ended June 30, 1994 compared to $1.16 before unusual charges and the cumulative effect of the change in accounting method for the period June 30, 1993. Results of Operations Fiscal Year Ended June 30, 1993 Compared to Fiscal Year Ended June 30, 1992 Net sales increased $41,988,000 (9.9%) to $465,796,000. This increase was attributable exclusively to the inclusion of the net sales of acquired companies, including the net sales of Intermes, S.p.A. ("Intermes") acquired in November 1992, Henry Pratt Company ("Pratt") acquired in September 1991, Waletzko Armaturen GmbH ("Waletzko") acquired in July 1992, Edward Barber Company (EBCO) acquired in May 1993, and Rockford Valve Company ("Rockford") acquired in August 1992. Without the net sales of these acquired companies, net sales for fiscal year 1993 would have been equal to the net sales for fiscal year 1992. The Company had increased unit shipments of plumbing and heating valves, water flow control valves, and oil and gas valves. However, these increases were offset by decreased unit shipments of steam control valves to the Navy, and aerospace/military valves. The Company believes the reduction in Navy/military sales to be a long-term condition. The Company also believes that as long as the general economic environment remains at its current level, it will be difficult to achieve meaningful internal sales growth. The Company intends to maintain its strategy of seeking acquisition opportunities as well as developing its international sales to achieve growth. Gross profit increased $12,689,000 (7.9%) to $173,693,000 but decreased as a percentage of net sales from 38.0% to 37.3%. This decreased percentage was primarily attributable to decreased unit pricing in certain product lines due to competitive pricing pressure, decreased absorption of fixed manufacturing expenses resulting from lower production levels associated with decreased sales of steam control valves to the Navy, and a less favorable product mix. Selling, general and administrative expenses increased $22,092,000 (22.9%) to $118,550,000. This increase includes $7,000,000 of unusual charges; without these unusual charges the increase would have been $15,092,000 (15.6%). These unusual charges are related to environmental matters and costs associated with the downsizing and restructuring of certain acquired companies. The charges include approximately $2,000,000 relating to the resolution of environmental litigation arising under CERCLA (Comprehensive Environmental Response, Compensation, and Liability Act) involving a manufacturing facility sold in 1978, and clean-up costs relating principally to certain of the Company's foundry operations; a $3,000,000 accrual for estimated future environmental clean-up costs; and $2,000,000 relating to downsizing of certain previously acquired operations which have been negatively impacted by reduced military spending and to the consolidation and relocation of the operations of a previously acquired company. The balance of the increased expenses is due to the inclusion of expenses of Intermes and the other acquired companies discussed above, and increased international selling expenses. The Company from time to time is involved with environmental proceedings and incurs costs on an on-going basis related to environmental matters. Interest expense increased $1,273,000 (16.2%) to $9,152,000 due to the issuance on November 26, 1991 of $75,000,000 aggregate principal amount of the Company's 8-3/8% Notes Due 2003 and the inclusion of the interest expense of 23 Management's Discussion (cont'd.) Intermes. These increases were partially offset by the conversion of $44,000,000 aggregate principal amount of the Company's 7-3/4% Convertible Subordinated Debentures Due 2014 into Class A Common Stock on or prior to March 15, 1992. Other expense increased $417,000 (50.2%) to $1,248,000 primarily due to the inclusion of the company's share of the net loss of a partially owned subsidiary of Intermes. Earnings before income taxes decreased $10,799,000 (18.0%) to $49,140,000. Net earnings before the change in accounting method decreased $6,219,000 (17.0%) to $30,406,000. If the Company had not incurred the $7,000,000 of unusual charges, net earnings before the change in accounting method would have decreased $1,880,000 (5.1%). Effective retroactively to July 1, 1992, the Company changed its method of accounting for income taxes from the deferred method to the liability method required by FASB Statement No. 109, "Accounting for Income Taxes". The change is required for the Company's fiscal year beginning July 1, 1993 (fiscal 1994), however, the Company has elected early adoption of the new rules. As permitted under the new rules, prior years' financial statements were not restated. The cumulative effect of adopting Statement No. 109 as of July 1, 1992 is to decrease net earnings $3,132,000 or $.10 per share for the current fiscal year. The on-going effect of the net income tax rules is expected to decrease pre-tax income by approximately $100,000 per year because of increased depreciation expense as a result of Statement No. 109's requirement to report assets acquired in prior business combinations at their pre-tax amounts. The net deferred tax liabilities at June 30, 1993 will not be materially affected by the recently enacted federal corporate income tax rate increase. The change in foreign exchange rates since June 30, 1992 did not have a material impact on the results of operations or the financial condition of the Company. The weighted average number of common shares outstanding on June 30, 1993 increased to 30,089,898 from 28,325,552 for the period ended June 30, 1992 due to the conversion of the Company's 7-3/4% Convertible Subordinated Debentures Due 2014 described above. Primary earnings per share decreased to $.91 for the fiscal year ended June 30, 1993 from $1.29 for the fiscal year ended June 30, 1992. Fully diluted earnings per share decreased to $.91 from $1.27 for the same periods. The following table illustrates the reasons for the changes in fully diluted earnings per share: Fiscal Year Ended June 30, ------------------- 1993 1992 ------ ------ Earnings per share as reported....................... $.91 $1.27 Change in accounting method.......................... .10 Impact of unusual charges............................ .15 ----- ----- $1.16 $1.27 ===== ===== Liquidity and Capital Resources During the fiscal year ended June 30, 1994, the Company repurchased 342,700 shares on a pre-split basis of its Class A Common Stock through open market repurchases for an aggregate purchase price of $12,064,000. The Company's repurchase program is now complete. In July, 1993, a subsidiary of the Company purchased Ancon Products, Inc. located in Scarborough, Ontario, Canada. Ancon manufactures a wide range of floor and roof drains, intercepters, backwater valves, yard hydrants, and stainless and carbon steel specialty products used primarily in commercial and industrial construction applications. In November, 1993, a subsidiary of the Company also purchased Enpoco Canada, Ltd., a manufacturer of drains located in Ontario, Canada. The aggregate purchase price for these acquisitions was U.S. $4,783,000. The Company also repaid $1,935,000 of debt acquired with one of the companies. The Company made contingent purchase price payments of $6,094,000 as part of the Intermes acquisition. The Company 24 also spent $19,928,000 on capital expenditures, primarily manufacturing machinery and equipment. The Company is budgeting $27,000,000 of capital expenditures in the fiscal year ending June 30, 1995, as part of its commitment to continuously improve its manufacturing capabilities. Working capital at June 30, 1994 was $246,531,000 compared to $222,652,000 at June 30, 1993. Cash and short-term investments were $65,000,000 at June 30, 1994 compared to $83,135,000 at June 30, 1993. The ratio of current assets to current liabilities was 4.3 to 1 at June 30, 1994 compared to 3.8 to 1 at June 30, 1993. Debt as a percentage of total capital employed was 21.4% at June 30, 1994 compared to 23.7% at June 30, 1993. Subsequent to fiscal year end, on July 28, 1994, the Company purchased Jameco Industries, Inc. ("Jameco") of Wyandanch, New York, for a cash purchase price of $35,200,000. Jameco is a manufacturer of metal and plastic water supply products, including valves, tubular products and sink strainers that are sold primarily to residential construction and home repair and remodeling markets in the United States and overseas. Jameco had net sales of approximately $56,000,000 for the twelve months ended June 30, 1994. In August, 1994, the Company entered into a joint venture with a valve company in Tianjin, People's Republic of China. The Company will invest a total of $8,500,000 for a 60% interest in the joint venture during fiscal year 1995. In August, 1994, the Company acquired the Cryolab valve product line from SAES Pure Gas, Inc. for a total purchase price of approximately $890,000. Cryolab will be integrated into the existing cryogenic valve business at the Company's wholly-owned subsidiary, Circle Seal Controls of Corona, California. In order to support the Company's acquisition program, working capital requirements which would arise due to acquisitions, and for general corporate purposes, the Company received a five-year commitment for an unsecured line of credit for $125,000,000. The Company anticipates that available funds and those funds provided from current operations will be sufficient to meet current operating requirements and anticipated capital expenditures for at least the next 24 months. Quarterly Information
Dividends Fiscal Quarters Market Price Per Share 1994 1993 1994 1993 -------------------- -------------------- ---- ---- High Low High Low First 22-1/16 17-1/8 24-1/2 22 $.045 $.035 Second 25-1/4 21-1/4 25-1/8 22 .045 .035 Third 28-5/8 23-1/2 24-1/4 19-1/2 .055 .045 Fourth 27 22-1/4 20-5/8 17-11/16 .055 .045 ----- ----- Year $.20 $.16 ===== =====
25 Fifteen Year Financial Summary (Amounts in thousands, except per share information)
Operating Data 1994 1993 1992 1991 1990 Net sales $518,541 $465,796 $423,808 $350,780 $291,861 - - ------------------------------------------------------------------------------------------------------------------------------------ Gross profit 196,205 173,693 161,004 134,790 115,167 - - ------------------------------------------------------------------------------------------------------------------------------------ % of net sales 37.8 37.3 38.0 38.4 39.5 - - ------------------------------------------------------------------------------------------------------------------------------------ Selling, general and administrative expenses 121,597 118,550 96,458 80,584 68,552 - - ------------------------------------------------------------------------------------------------------------------------------------ % of net sales 23.4 25.5 22.8 23.0 23.5 - - ------------------------------------------------------------------------------------------------------------------------------------ Operating income 74,608 55,143 64,546 54,206 46,615 - - ------------------------------------------------------------------------------------------------------------------------------------ % of net sales 14.4 11.8 15.2 15.5 16.0 - - ------------------------------------------------------------------------------------------------------------------------------------ Earnings before income taxes 67,335 49,140 59,939 51,332 44,223 - - ------------------------------------------------------------------------------------------------------------------------------------ % of net sales 13.0 10.55 14.1 14.6 15.2 - - ------------------------------------------------------------------------------------------------------------------------------------ Provision for income taxes 26,325 18,734 23,314 19,651 16,521 - - ------------------------------------------------------------------------------------------------------------------------------------ % of earnings before income taxes 39.1 38.1 38.9 38.2 37.4 - - ------------------------------------------------------------------------------------------------------------------------------------ Net earnings 41,010 27,274 36,625 31,681 27,702 - - ------------------------------------------------------------------------------------------------------------------------------------ % of net sales 7.9 5.9 8.6 9.0 9.5 - - ------------------------------------------------------------------------------------------------------------------------------------ Net earnings before unusual charges & accounting change -- 34,745 -- -- -- - - ------------------------------------------------------------------------------------------------------------------------------------ % of net earnings before unusual charges & accounting change -- 7.5 -- -- -- - - ------------------------------------------------------------------------------------------------------------------------------------ Investment Data Total assets $558,850 $535,675 $475,620 $353,223 $286,761 - - ------------------------------------------------------------------------------------------------------------------------------------ Cash and short-term investments 65,000 83,135 108,877 76,049 42,031 - - ------------------------------------------------------------------------------------------------------------------------------------ Current assets 320,879 301,192 301,291 229,583 181,089 - - ------------------------------------------------------------------------------------------------------------------------------------ Current ratio 4.3 to 1 3.8 to 1 5.5 to 1 5.1 to 1 4.3 to 1 - - ------------------------------------------------------------------------------------------------------------------------------------ Working capital 246,531 222,652 246,355 184,796 138,640 - - ------------------------------------------------------------------------------------------------------------------------------------ Capital expenditures 19,928 25,798 18,054 14,101 17,788 - - ------------------------------------------------------------------------------------------------------------------------------------ Depreciation and amortization expense 22,393 20,560 17,630 13,581 11,561 - - ------------------------------------------------------------------------------------------------------------------------------------ Net property, plant and equipment 136,249 134,261 105,373 90,309 80,290 - - ------------------------------------------------------------------------------------------------------------------------------------ Capital employed: - - ------------------- Total debt 98,620 103,834 96,564 66,209 71,100 - - ------------------------------------------------------------------------------------------------------------------------------------ Stockholders' equity 361,551 335,120 314,893 235,715 170,775 - - ------------------------------------------------------------------------------------------------------------------------------------ Capital employed 460,171 438,954 411,457 301,924 241,875 - - ------------------------------------------------------------------------------------------------------------------------------------ Debt as a % of capital employed 21.4 23.7 23.5 21.9 29.4 - - ------------------------------------------------------------------------------------------------------------------------------------ Return on Investment Data Return on average stockholders' investment less ending cash and short-term investments - % 14.2 10.5 17.5 20.1 20.8 - - ------------------------------------------------------------------------------------------------------------------------------------ Return on average stockholders' investment - % 11.8 8.4 13.7 15.8 17.6 - - ------------------------------------------------------------------------------------------------------------------------------------ Per Share Data Net earnings - Fully diluted/Before unusual charges & accounting change $1.38 $.91/1.16 $1.27 $1.18 $1.06 - - ------------------------------------------------------------------------------------------------------------------------------------ Common cash dividends paid .20 .16 .13 .11 .09 - - ------------------------------------------------------------------------------------------------------------------------------------ Ending stockholders' equity 12.18 11.14 11.12 9.03 6.72 - - ------------------------------------------------------------------------------------------------------------------------------------ Weighted average shares outstanding - Fully diluted 29,717 30,098 30,080 28,707 27,955 - - ------------------------------------------------------------------------------------------------------------------------------------
Please refer to acquisition history on page 28. 26
Operating Data 1989 1988 1987 1986 1985 Net sales $223,871 $181,353 $145,561 $137,004 $124,372 - - ------------------------------------------------------------------------------------------------------------------------------------ Gross profit 86,612 72,628 59,641 54,650 48,384 - - ------------------------------------------------------------------------------------------------------------------------------------ % of net sales 38.7 40.0 41.0 39.9 38.9 - - ------------------------------------------------------------------------------------------------------------------------------------ Selling, general and administrative expenses 48,483 40,502 31,608 30,606 26,948 - - ------------------------------------------------------------------------------------------------------------------------------------ % of net sales 21.7 22.3 21.7 22.3 21.7 - - ------------------------------------------------------------------------------------------------------------------------------------ Operating income 38,129 32,126 28,033 24,044 21,436 - - ------------------------------------------------------------------------------------------------------------------------------------ % of net sales 17.0 17.7 19.3 17.5 17.2 - - ------------------------------------------------------------------------------------------------------------------------------------ Earnings before income taxes 37,758 31,058 27,611 24,197 21,732 - - ------------------------------------------------------------------------------------------------------------------------------------ % of net sales 16.9 17.1 19.0 17.7 17.5 - - ------------------------------------------------------------------------------------------------------------------------------------ Provision for income taxes 14,743 12,133 13,306 11,427 10,312 - - ------------------------------------------------------------------------------------------------------------------------------------ % of earnings before income taxes 39.0 39.1 48.2 47.2 47.5 - - ------------------------------------------------------------------------------------------------------------------------------------ Net earnings 23,015 18,925 14,305 12,770 11,420 - - ------------------------------------------------------------------------------------------------------------------------------------ % of net sales 10.3 10.4 9.8 9.3 9.2 - - ------------------------------------------------------------------------------------------------------------------------------------ Net earnings before unusual charges & accounting change -- -- -- -- -- - - ------------------------------------------------------------------------------------------------------------------------------------ % of net earnings before unusual charges & accounting change -- -- -- -- -- - - ------------------------------------------------------------------------------------------------------------------------------------ Investment Data Total assets $246,821 $176,760 $148,241 $115,337 $103,829 - - ------------------------------------------------------------------------------------------------------------------------------------ Cash and short-term investments 79,099 40,405 41,905 16,735 11,905 - - ------------------------------------------------------------------------------------------------------------------------------------ Current assets 175,333 118,925 99,542 71,590 65,124 - - ------------------------------------------------------------------------------------------------------------------------------------ Current ratio 5.8 to 1 5.1 to 1 6.6 to 1 5.6 to 1 3.7 to 1 - - ------------------------------------------------------------------------------------------------------------------------------------ Working capital 145,300 95,734 84,345 58,831 47,636 - - ------------------------------------------------------------------------------------------------------------------------------------ Capital expenditures 12,257 10,704 7,127 11,688 9,840 - - ------------------------------------------------------------------------------------------------------------------------------------ Depreciation and amortization expense 8,807 6,793 5,399 4,356 3,261 - - ------------------------------------------------------------------------------------------------------------------------------------ Net property, plant and equipment 59,225 52,877 44,793 38,659 31,496 - - ------------------------------------------------------------------------------------------------------------------------------------ Capital employed: - - ------------------- Total debt 67,165 24,448 23,045 23,611 21,582 - - ------------------------------------------------------------------------------------------------------------------------------------ Stockholders' equity 143,714 122,944 104,982 75,813 64,052 - - ------------------------------------------------------------------------------------------------------------------------------------ Capital employed 210,879 147,392 128,027 99,424 85,634 - - ------------------------------------------------------------------------------------------------------------------------------------ Debt as a % of capital employed 31.9 16.6 18.0 23.7 25.2 - - ------------------------------------------------------------------------------------------------------------------------------------ Return on Investment Data Return on average stockholders' investment less ending cash and short-term investments - % 21.9 23.1 21.0 21.7 24.5 - - ------------------------------------------------------------------------------------------------------------------------------------ Return on average stockholders' investment - % 17.3 16.6 15.8 18.3 19.4 - - ------------------------------------------------------------------------------------------------------------------------------------ Per Share Data Net earnings - Fully diluted/Before unusual charges & accounting change $ .91 $ .75 $ .58 $ .56 $ .50 - - ------------------------------------------------------------------------------------------------------------------------------------ Common cash dividends paid .07 .05 .03 .04 .02 - - ------------------------------------------------------------------------------------------------------------------------------------ Ending stockholders' equity 5.69 4.88 4.23 3.31 2.80 - - ------------------------------------------------------------------------------------------------------------------------------------ Weighted average shares outstanding - Fully diluted 25,922 25,186 24,816 22,896 22,870 - - ------------------------------------------------------------------------------------------------------------------------------------
Operating Data 1984 1983 1982 1981 1980 Net sales $102,551 $77,211 $71,626 $66,023 $54,777 - - ------------------------------------------------------------------------------------------------------------------------------------ Gross profit 39,912 30,608 25,253 21,734 16,668 - - ------------------------------------------------------------------------------------------------------------------------------------ % of net sales 38.9 39.6 35.3 32.9 30.4 - - ------------------------------------------------------------------------------------------------------------------------------------ Selling, general and administrative expenses 22,517 17,732 14,469 11,838 10,442 - - ------------------------------------------------------------------------------------------------------------------------------------ % of net sales 22.0 23.0 20.2 17.9 19.1 - - ------------------------------------------------------------------------------------------------------------------------------------ Operating income 17,395 12,876 10,784 9,896 6,226 - - ------------------------------------------------------------------------------------------------------------------------------------ % of net sales 17.0 16.7 15.1 15.0 11.4 - - ------------------------------------------------------------------------------------------------------------------------------------ Earnings before income taxes 17,818 13,226 11,283 9,919 6,216 - - ------------------------------------------------------------------------------------------------------------------------------------ % of net sales 17.4 17.1 15.8 15.0 11.3 - - ------------------------------------------------------------------------------------------------------------------------------------ Provision for income taxes 8,306 5,975 4,895 4,765 3,024 - - ------------------------------------------------------------------------------------------------------------------------------------ % of earnings before income taxes 46.6 45.2 43.4 48.0 48.6 - - ------------------------------------------------------------------------------------------------------------------------------------ Net earnings 9,512 7,251 6,388 5,154 3,192 - - ------------------------------------------------------------------------------------------------------------------------------------ % of net sales 9.3 9.4 8.9 7.8 5.8 - - ------------------------------------------------------------------------------------------------------------------------------------ Net earnings before unusual charges & accounting change -- -- -- -- -- - - ------------------------------------------------------------------------------------------------------------------------------------ % of net earnings before unusual charges & accounting change -- -- -- -- -- - - ------------------------------------------------------------------------------------------------------------------------------------ Investment Data Total assets $80,745 $67,369 $58,150 $49,756 $34,476 - - ------------------------------------------------------------------------------------------------------------------------------------ Cash and short-term investments 18,966 11,772 13,319 4,020 2,819 - - ------------------------------------------------------------------------------------------------------------------------------------ Current assets 60,671 50,092 43,332 35,407 24,026 - - ------------------------------------------------------------------------------------------------------------------------------------ Current ratio 3.8 to 1 4.3 to 1 4.1 to 1 2.8 to 1 4.5 to 1 - - ------------------------------------------------------------------------------------------------------------------------------------ Working capital 44,701 38,521 32,659 22,948 18,694 - - ------------------------------------------------------------------------------------------------------------------------------------ Capital expenditures 5,081 5,670 1,483 2,100 2,229 - - ------------------------------------------------------------------------------------------------------------------------------------ Depreciation and amortization expense 2,357 1,954 1,710 1,779 924 - - ------------------------------------------------------------------------------------------------------------------------------------ Net property, plant and equipment 19,582 16,956 13,419 13,647 7,635 - - ------------------------------------------------------------------------------------------------------------------------------------ Capital employed: - - ------------------- Total debt 9,707 10,145 9,249 6,215 4,009 - - ------------------------------------------------------------------------------------------------------------------------------------ Stockholders' equity 53,475 44,622 37,393 31,255 25,537 - - ------------------------------------------------------------------------------------------------------------------------------------ Capital employed 63,182 54,767 46,642 37,470 29,546 - - ------------------------------------------------------------------------------------------------------------------------------------ Debt as a % of capital employed 15.4 18.5 19.8 16.6 13.6 - - ------------------------------------------------------------------------------------------------------------------------------------ Return on Investment Data Return on average stockholders' investment less ending cash and short-term investments - % 25.9 22.9 22.1 19.3 14.4 - - ------------------------------------------------------------------------------------------------------------------------------------ Return on average stockholders' investment - % 19.4 17.7 18.6 17.9 13.3 - - ------------------------------------------------------------------------------------------------------------------------------------ Per Share Data Net earnings - Fully diluted/Before unusual charges & accounting change $ .42 $ .32 $ .26 $ .21 $ .15 - - ------------------------------------------------------------------------------------------------------------------------------------ Common cash dividends paid -- -- .01 -- -- - - ------------------------------------------------------------------------------------------------------------------------------------ Ending stockholders' equity 2.34 1.95 1.55 1.30 1.22 - - ------------------------------------------------------------------------------------------------------------------------------------ Weighted average shares outstanding - Fully diluted 22,860 22,860 24,110 24,122 20,890 - - ------------------------------------------------------------------------------------------------------------------------------------
27 Acquisitions (Fiscal Years) 1995-Tianjin Tanggu Watts Valve Company, Ltd., Jameco Industries, Inc., Cryolab 1994-Enpoco, LeHage Industries, Inc. 1993-Edward Barber & Company Ltd., Intermes Group, Rockford Controls, Waletzko GmbH 1992-Contromatics, Henry Pratt Company 1991-Bailey, SFR-France, Circle Seal Controls 1990-Nicholson Steam Trap, Leslie Controls 1989-Eagle Valve Company, KF Industries, Taras Valve, Epps Mfg. Ltd., A.S.M.E. Steam Pop Relief Valves 1988-Ocean B.V., Flippen Float Valves 1987-Muesco Valve Company, Prier Frost-Proof Hydrants, James Jones Company 1985-Spence Engineering Company, Hale Oilfield Products 1874-Watts Regulator Company - Founded A LEADER IN VALVE TECHNOLOGY WATTS(R) INDUSTRIES, INC. SINCE 1874 28 (INSIDE BACK COVER) Directors Timothy P. Horne Chairman of the Board, President and Chief Executive Officer of the Corporation David A. Bloss, Sr. Executive Vice President of the Corporation Kenneth J. McAvoy Chief Financial Officer, Treasurer, Secretary of the Corporation Frederic B. Horne Corporate Vice President of the Corporation Noah T. Herndon Partner of Brown Brothers Harriman & Company Gordon W. Moran President and Chief Executive Officer Hollingsworth & Vose Company Wendy E. Lane Chairman Lane Holdings, Inc. Daniel J. Murphy, III Chairman Northmark Bank Corporate Officers Timothy P. Horne Chairman of the Board, President and Chief Executive Officer David A. Bloss, Sr. Executive Vice President Kenneth J. McAvoy Chief Financial Officer, and Executive Vice President of European Operations Frederic B. Horne Corporate Vice President Suzanne M. Zabitchuck Corporate Counsel and Assistant Secretary William C. McCartney Vice President of Finance and Controller Robert T. McLaurin Corporate Vice President Asian Operations Michael O. Fifer Vice President Corporate Development Division Officers Paul A. Lacourciere Executive Vice President Watts Regulator Company Kevin R. Sweeney Executive Vice President Water Products Division Ernest E. Elliott Vice President Water Products Division Alfred S. Schommer Group Vice President Industrial and Oil & Gas Edward G. Holtgraver Group Vice President Municipal Water Charles S. Wolley Group Vice President Steam Victor L. Pitt President Watts Industries (Canada) Inc. Jean-Marc Sassier Managing Director Watts Industries Europe Corporate Information Executive Offices 815 Chestnut Street North Andover, MA 01845-6098 Tel. (508) 688-1811 Fax: (508) 688-5841 Registrar and Transfer Agent The First National Bank of Boston 100 Federal Street Boston, MA 02110 Counsel Goodwin, Procter & Hoar Exchange Place Boston, MA 02109 Auditors Ernst & Young 200 Clarendon Street Boston, MA 02116 Annual Meeting October 18, 1994 10:00 am Andover Inn Andover, MA Stock Listing National Market System of NASDAQ Ticker Symbol: WATTA Form 10-K Stockholders may obtain without charge a copy of the Company's most recent Annual Report on Form 10-K filed with the Securities and Exchange Commission by writing to Watts Industries, Inc. Attn: Chief Financial Officer 815 Chestnut St. North Andover, MA 01845-6098 (BACK COVER) The Companies of Watts Industries, Inc. PLUMBING & HEATING Watts Regulator Company, Water Products Division North Andover, MA Watts Industries (Canada) Inc. Woodbridge, Ontario, Canada Watts SFR SA, Fressenneville, France Intermes SpA, Caldaro, Italy MTR GmbH, Gemmrigheim, Germany G.R.C. Controls S.A., Badalona (Barcelona), Spain Jameco Industries, Inc., Wyandanch, NY WATER QUALITY Watts Regulator Company, Backflow Prevention Division North Andover, MA Watts Ocean B.V., AB Eerbeek, Netherlands MUNICIPAL WATER Henry Pratt Company, Aurora, IL James Jones Company, El Monte, CA Watts ACV, Inc., Houston, TX Edward Barber & Company, Ltd., United Kingdom Tianjin Tanggu Watts Valve Company, Ltd. Tianjin, People's Republic of China STEAM Leslie Controls, Inc., Tampa, FL Spence Engineering Company, Inc., Walden, NY Nicholson Steam Trap, Inc., Walden, NY R.G. Laurence Company, Inc., Tampa, FL INDUSTRIAL Watts Regulator Co, Industrial Division North Andover, MA Contromatics, Milford, NH Circle Seal Controls, Inc., Corona, CA OIL & GAS KF Industries, Inc., Oklahoma City, OK Hale Oilfield Products, Houston, TX (WATTS COMPANY LOGO) -----END PRIVACY-ENHANCED MESSAGE-----