-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, JI/BXvvP1vU6l8mK7ekZa7Z0A8qr8ZKLWvY2IKz4y37GQQ0JelPPPPbyijHJmd0r 9c3fSs6hrMNVIUyXcHuEUw== 0000808064-98-000006.txt : 19980504 0000808064-98-000006.hdr.sgml : 19980504 ACCESSION NUMBER: 0000808064-98-000006 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 19980131 FILED AS OF DATE: 19980429 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: C&D TECHNOLOGIES INC CENTRAL INDEX KEY: 0000808064 STANDARD INDUSTRIAL CLASSIFICATION: MISCELLANEOUS ELECTRICAL MACHINERY, EQUIPMENT & SUPPLIES [3690] IRS NUMBER: 133314599 STATE OF INCORPORATION: DE FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-09389 FILM NUMBER: 98604664 BUSINESS ADDRESS: STREET 1: 1400 UNION MEETING ROAD CITY: BLUE BELL STATE: PA ZIP: 19422 BUSINESS PHONE: 2156192700 MAIL ADDRESS: STREET 1: 1400 UNION MEETING ROAD CITY: BLUE BELL STATE: PA ZIP: 19422 10-K 1 FORM 10-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED JANUARY 31, 1998 or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _____________ to ____________ Commission file number 1-9389 C&D TECHNOLOGIES, INC. (Exact name of Registrant as specified in its Charter) State or other jurisdiction of incorporation or organization: DELAWARE I.R.S. Employer Identification Number: 13-3314599 Address of principal executive offices: 1400 Union Meeting Road Blue Bell, Pennsylvania 19422 Registrant's telephone number, including area code: (215) 619-2700 SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: Title of Class Name of each exchange -------------- on which registered COMMON STOCK ----------------------- PAR VALUE, $.01 PER SHARE NEW YORK STOCK EXCHANGE Securities registered pursuant to Section 12(g) of the Act: NONE 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 [ ] Aggregate market value of the voting stock held by nonaffiliates of the Registrant, based on the closing price on April 16, 1998: $312,583,116 Number of shares outstanding of each of the Registrant's classes of common stock as of April 16, 1998: 6,168,562 shares of Common Stock, par value $.01 per share. DOCUMENTS INCORPORATED BY REFERENCE: Registrant's Proxy Statement to be filed PART III pursuant to Regulation 14A within 120 ----------------------------- days after the end of Registrant's fiscal (Part of Form 10-K into which year covered by this Form 10-K Document is incorporated.) - ----------------------------------------- TABLE OF CONTENTS PAGE PART I Item 1 Business.............................................. 1 Item 2 Properties............................................ 11 Item 3 Legal Proceedings..................................... 12 Item 4 Submission of Matters to a Vote of Security Holders............................... 12 PART II Item 5 Market for Registrant's Common Equity and Related Stockholder Matters................ 12 Item 6 Selected Financial Data............................... 14 Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations............ 16 Item 8 Financial Statements and Supplementary Data........... 21 Item 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure......... 21 PART III Item 10 Directors and Executive Officers of the Registrant.... 21 Item 11 Executive Compensation................................ 21 Item 12 Security Ownership of Certain Beneficial Owners and Management.......................... 21 Item 13 Certain Relationships and Related Transactions........ 21 PART IV Item 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K............................ 22 SIGNATURES............................................................ 26 INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE........ F-1 i C&D TECHNOLOGIES, INC. PART I ITEM 1. BUSINESS GENERAL C&D TECHNOLOGIES, INC. (together with its operating subsidiaries, the "Company") is a leading North American producer of integrated reserve power systems for telecommunications, electronic information and industrial applications. The Company is also a leading producer of embedded high frequency switching power supplies for use in telecommunications equipment, advanced office electronics and sophisticated computer systems and of motive power systems for electric industrial vehicles. The Company's integrated reserve power systems are comprised of industrial lead acid batteries, as well as power rectifiers, power control and distribution equipment and related accessories. The Company sells these products both as individual components and as integrated power systems. In June 1997, the Company changed its name from Charter Power Systems, Inc. to C&D TECHNOLOGIES, INC. The Company was organized in November 1985 to acquire all the assets of the eighty-year old C&D Power Systems division (the "Division") of Allied Corporation ("Allied"). The Division's business essentially was unchanged by the acquisition, which was completed on January 28, 1986. Shares of Common Stock, par value $.01 per share ("Common Stock"), of the Company were first issued to the public in February 1987. In October 1992, the Company purchased substantially all of the assets and assumed certain liabilities of the manufacturing division of Ratelco, Inc. ("Ratelco"), a Seattle, Washington based manufacturer and distributor of power electronics equipment, used primarily in the regulated telecommunications power market. Ratelco also markets a nonregulated range of alarm and monitoring equipment for use with telecommunications power systems. In March 1994, the Company purchased substantially all of the assets and assumed certain liabilities of the PowerSystems Division of ITT, a Tucson, Arizona based company which designs and manufactures custom power supplies. The power supplies are used in the telecommunications power market and the office equipment market in such applications as telecommunication systems, copiers, computers and work stations. In January 1995, the Company purchased certain assets and assumed certain liabilities from the switching power supply division of Basler Electric Company, a Highland, Illinois based manufacturer of electrical components. These power supplies are used for office electronics and communications applications. In November 1995, the Company sold 50,000 shares of Common Stock in a public offering. In February 1996, the Company purchased certain equipment and inventory of LH Research, Inc. ("LH"), a Costa Mesa, California based manufacturer of standard power supply systems for the electronics industry. The power supplies are used in telecommunications, computer, medical, process control and other industrial applications. In March 1996, the Company acquired from Burr-Brown Corporation its entire interest in Power Convertibles Corporation ("PCC") consisting of 1,044,418 shares of PCC common stock and all outstanding preferred stock. In addition the Company acquired or repaid the indebtedness of PCC. In April 1996, the Company acquired 190,000 shares of PCC common stock from the former chief executive officer of PCC which together with the shares previously acquired represented in excess of 99.6% of the outstanding PCC common stock. In May 1996, the Company purchased all remaining shares of PCC common stock and shares of PCC common stock issuable upon exercise of stock options. Tucson, Arizona based PCC produces DC-to-DC converters used in communications, computer, medical and industrial and instrumentation markets and also produces battery chargers for cellular phones. In January 1998, the acquired businesses of the PowerSystems Division of ITT, the switching power supply division of Basler Electric Company, LH and PCC were combined into the Power Electronics Division of C&D TECHNOLOGIES, INC. References to a fiscal year mean the Company's fiscal year ended in the January of the year mentioned. FORWARD LOOKING STATEMENTS Certain information contained in this Annual Report on Form 10-K, including, without limitation, information appearing under Item 1, "Business," and Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations," are forward-looking statements (within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934). Factors that appear with the forward-looking statements, or in the Company's other Securities and Exchange Commission filings, could affect the Company's actual results and could cause the Company's actual results to differ materially from those expressed in any forward-looking statements made by the Company in this Annual Report on Form 10-K. MARKETS The Company manufactures and markets products in three general categories: (i) integrated reserve power systems and components for the standby power market; (ii) custom, standard and modified standard embedded high frequency AC-to-DC and DC-to-DC switching power supplies; and (iii) motive power systems. For fiscal 1998, 1997 and 1996 sales of standby power products accounted for 52.2%, 51.6% and 52.5% of the Company's sales (see "Business - Products and Customers"), respectively. For fiscal 1998, 1997 and 1996, sales of power supplies accounted for 25.3%, 24.4% and 17.9% of the Company's sales, respectively. For fiscal 1998, 1997 and 1996 sales of motive power products accounted for 22.5%, 24.0% and 29.6% of the Company's sales, respectively. The percentage of the Company's sales related to power supplies has increased as a result of aforementioned acquisitions. The majority of the Company's standby power products are used in telecommunications applications such as central telephone exchanges, microwave relay stations, private branch exchange ("PBX") systems and cellular mobile telephone systems. Other applications for the Company's standby power batteries include uninterruptible power supplies ("UPS"), principally for computers 2 and computer-controlled equipment. In addition, the Company supplies batteries and power electronics equipment for switchgear and instrumentation control systems for electric utilities. The majority of the Company's power supply products are sold to original equipment manufacturers ("OEMs") of electronic products on either a custom, standard or modified standard basis. Power supplies are embedded in almost all electronic products and are used to convert incoming AC or DC voltage to the required level and quality of DC voltage. The majority of the Company's motive power products are used to provide the primary power source for forklift trucks and other material handling vehicles. The balance are used in a variety of other applications, such as automated guided vehicle systems and airline ground support equipment. A significant portion of these sales include products and systems to recharge motive power batteries. The Company supplies certain of its standard standby power and motive power products to the U.S. Government. Company sales directly to the government have accounted for less than 5% of its sales during each of its last three fiscal years. PRODUCTS AND CUSTOMERS RESERVE POWER SYSTEMS The Company is a leading producer of fully integrated reserve power systems, which monitor and regulate electric power flow and provide backup power in the event of a primary power loss or interruption. The Company also produces the individual components of these systems, including power rectifiers, system monitors, power boards, chargers and reserve batteries. The Company's standby battery products are sold under the "C&D Powercom" name. The Company manufactures lead acid batteries for use in reserve power systems. These batteries are sold in a wide range of sizes and configurations in two broad categories: flooded and valve-regulated. Flooded batteries require periodic watering and maintenance. Valve-regulated batteries require less maintenance and are often smaller. Customer demand for valve-regulated batteries has increased over the past several years. The Company manufactures and markets a wide range of power electronics to meet the needs of its customers. The Company's power electronics products consist principally of power rectifiers and distribution and monitoring equipment. The Company's power rectifiers convert or "rectify" external AC power into DC power at the required level and quality of voltage and apply the DC power to constantly charge the reserve battery and operate the user's equipment. For installations with end applications that require varied power levels, the Company's power control and distribution equipment distributes the rectified power at the appropriate power level for each of the applications. TELECOMMUNICATIONS. The Company's major telecommunications customers include national long distance companies, Regional Bell Operating Companies, cellular system operators, personal communications services ("PCS") equipment and service providers, paging systems and PBX telephoning locations using fiber optic cable, microwave transmission or traditional copper-wired systems. 3 The Company's products include several modular power plants, which are a type of integrated reserve power system. These products, which are referred to as the Liberty AGM Series Power Plant and the Liberty ACM Series Power Plant, integrate advanced rectifiers with maintenance free valve-regulated batteries. The Company recently introduced the Maximizer, a major enhancement to its flagship valve-regulated product, the Liberty 2000. This product provides for state-of-the-art life enhancing technology through the use of a catalyst which is available exclusively from the Company through the end of the second quarter of fiscal 1999, and on a non-exclusive basis thereafter. The Company also introduced a Front Access FA-125 battery which has been specifically designed for one of the most popular cabinets in the telecommunications market. One of the Company's historically important telecommunications products has been the Round Cell reserve power battery, a flooded product which was originally designed and patented by the Bell Laboratories of AT&T for use in AT&T's own facilities and customer installations. AT&T spun off its equipment manufacturing operations into an independent company named "Lucent Technologies, Inc.," which began operations on October 1, 1996. The Company or its predecessor has manufactured Round Cells for AT&T or Lucent Technologies, Inc. since 1972 and has been the exclusive manufacturer since 1982. Lucent Technologies, Inc. accounted for 13.5% of sales for the year ended January 31, 1998. No other customer accounted for more than 6% of the Company's sales during fiscal 1998. UNINTERRUPTIBLE POWER SUPPLIES. The Company produces batteries for UPS systems, which provide instant battery backup in the event of primary power loss or interruption on sensitive equipment, thereby permitting an orderly shutdown of the equipment or continued operation until the primary source comes back on line. Large UPSs are used principally for mainframe computers, minicomputers, networks, workstations and computer-controlled equipment. EQUIPMENT FOR ELECTRIC UTILITIES AND INDUSTRIAL CONTROL APPLICATIONS. The Company produces rectifiers and batteries used in reserve power systems for switchgear and instrumentation control systems used in electric utilities and industrial control applications. These power systems enable fossil fuel, hydro and nuclear power generating stations, switching substations and industrial control facilities to be shut down in an orderly fashion during emergencies or power failures by providing auxiliary power. EMBEDDED HIGH FREQUENCY SWITCHING POWER SUPPLIES The Company, through its Power Electronics Division, designs, manufactures and distributes custom, standard and modified standard electronic power supply systems built for large OEMs of telecommunications equipment, office products, computers and workstations. In addition, the Company's Power Electronics Division manufactures rectifiers for reserve power applications that are sold by the Company's Powercom Division. The Company's Power Electronics Division also manufactures battery chargers for cellular phones. The Company's power supplies are sold under the brand names LH Research, Power Convertibles, and International Power Systems. The Company's power supply systems incorporate advanced technology and are designed for dependable operation of the host equipment. The Company's power supply products include AC-to- 4 DC power supplies, DC-to-DC converters and high voltage power supplies for use in a large number of industrial applications, with outputs ranging from several watts to several kilowatts. AC-to-DC power supplies convert alternating current, the form in which virtually all power is delivered by electric utilities to end users, into precisely controlled direct current of the constant voltage required by sensitive electronic applications. DC-to-DC converters convert one constant voltage into another constant voltage. DC-to-DC converters are widely used in distributed power systems where power is delivered within the equipment at a high voltage and is converted to a lower voltage to permit the operation of microelectronics components such as microprocessors. In the telecommunications industry, the Company's power supplies are broadly used in voice and data telecommunications. The Company also produces power supplies for office copiers, workstations and sophisticated computers. MOTIVE POWER SYSTEMS The Company produces complete systems and individual components (including power electronics and batteries) to power, monitor, charge and test the batteries used in electric industrial vehicles, including fork-lift trucks, automated guided vehicles and airline ground support equipment. The Company's customers include end users in a broad array of industries, dealers of fork-lift trucks and other material handling vehicles and, to a lesser extent, OEMs. The Company's motive power products are sold by the Company's Motive Power Division. The Company offers a broad line of motive power equipment including the C-Line, which the Company believes is the industry standard for long life; the V-Line for general material handling applications; and the high density Suprema line, designed for narrow aisle warehousing applications requiring high energy. In addition, in fiscal 1998, the Company introduced the low maintenance Liberty Eclipse battery and charger which dramatically reduces the customer's cost of operation. SALES, INSTALLATION AND SERVICING The sales, installation and servicing of the Company's power systems products are performed through several networks of independent manufacturer's representatives located throughout the United States and Canada. Each independent manufacturer's representative operates under a contract with the Company providing for compensation on a commission basis or as a distributor with product purchases for independent resale. The Company also provides engineering, furnishing and installation ("EF&I") to certain accounts through its network of independent manufacturer's representatives. In addition to these networks of independent manufacturer's representatives, the Company maintains an internal sales management force consisting of regional sales managers and product/market specialists. The regional managers are each responsible for managing a number of independent manufacturer's representatives and for developing longer-term supplier relationships with large OEMs and national accounts. The Company also maintains a separate sales force that works with the network of independent manufacturer's representatives and certain large customers. The Company also maintains several internal marketing departments in both the battery and electronics businesses. These departments manage the development of new products from the initial concept definition and management approval stage through the engineering, production and sales 5 processes. These departments are also responsible for applications engineering and technical training of sales representatives. The Company maintains branch sales offices in the United States, Canada, Europe and Asia, with the support of the Company's headquarters and service personnel, and has relationships with sales representatives or distributors in the Far East, the Middle East, Europe, Mexico and Central and South America. The Company's products typically are sold upon terms requiring payment in full within 30 to 60 days. The Company warrants its products to perform as rated for specified periods of time, ranging from one to twenty years depending on the type of product and its application, in an amount that decreases over the life of the product. The lengthiest warranties generally are applicable to standby power batteries. BACKLOG The level of unfilled orders at any given date during the year may be materially affected by the timing and product mix of the Company's receipt of orders and, taking into account considerations of manufacturing capacity and flexibility, the speed with which those orders are filled. Accordingly, the Company's backlog at any particular date is only indicative of expected future shipments, and period-to-period comparisons may not be meaningful. Orders for the Company's products are subject to cancellation by the customer prior to shipment. The Company normally ships standby power products within two weeks to two months after order and motive power products within two days to four weeks after order. Power supplies are normally shipped one week to three months after order. The Company's order backlog at March 31, 1998 was $58,522,000 and at March 31, 1997 was $47,977,000. The majority of the March 31, 1998 backlog is expected to be filled during fiscal 1999. MANUFACTURING AND RAW MATERIALS The Company manufactures its products at eight domestic plants, two plants in Mexico and one plant in Europe. Most key product lines are manufactured at a single focused plant in order to optimize manufacturing efficiency, asset management and quality control. The Company is continuing the process of capacity expansion at several of its plants. During fiscal 1997 the Company completed the process of moving product lines from the Seattle, Washington facility to the Dunlap, Tennessee and Nogales, Mexico facilities that was started in fiscal 1995. As a result, the Seattle, Washington manufacturing facility was closed during fiscal 1997. When the Company acquired the PowerSystems Division of ITT in fiscal 1995, it entered into an agreement pursuant to which a third party "shelter company" provides to the Company the Nogales, Mexico facility and employs Mexican staff and labor to assemble the Company's products. This agreement was terminated during fiscal 1998. The principal raw materials used in the manufacture of the Company's products include lead, steel, copper, plastics and electronic components, all of which are generally available from multiple suppliers. Other than the required use of two suppliers of lead for the production of Round Cell 6 batteries for Lucent Technologies, Inc., the Company uses a number of suppliers to satisfy its raw materials needs. During fiscal 1998 the Company has continued its program of ISO recognition and has received ISO 9001 certification at its Dunlap, Tennessee facility. The Company is also ISO 9001 certified at its Blue Bell, Pennsylvania headquarters, Leola, Pennsylvania, Tucson, Arizona, Mexican and Irish facilities. COMPETITION The Company competes with respect to all of its products on the basis of reputation, product quality and reliability, service capability and technology. The Company also competes on the basis of price and its relationships with large customers. The Company is a leading North American producer of integrated reserve power systems and power electronics equipment and believes that it is one of the four largest producers of reserve power systems in North America. In motive power, the Company believes that one competitor, Yuasa, Inc., has a significantly larger market share than the Company, and that the Company, along with two other manufacturers, occupies a second tier of the market in which they have a significantly larger market share than their smaller competitors. In addition, the Company believes that it has certain competitive advantages in specific product lines. In reserve power systems, the Company believes that it is one of only two major North American companies that manufactures complete, integrated reserve power systems consisting of both electronics and batteries, its other major competitors manufacturing either electronics or batteries, but not both. In motive power, all the Company's major competitors supply integrated power systems, but only the Company and one major competitor manufacture both electronics and batteries. For both reserve and motive power systems, the Company believes that the ability to provide a single source for design, engineering, manufacturing and service is an important element in its competitive position. With respect to power supplies, the Company believes that it is among a small group of larger competitors in this fragmented industry. When lead prices rise, certain of the Company's competitors that own smelting operations may have lower lead costs than the Company. However, when lead prices decline, the high fixed costs associated with these operations may provide the Company with a cost advantage. RESEARCH AND DEVELOPMENT The Company maintains extensive technology departments concentrating on electrochemical and electronics technologies. Their focus is on the development of new, standard and custom products, the ongoing development and improvement of existing products, sustaining engineering, production engineering (including quality testing and managing the expansion of production capacity) and the evaluation of competitive products. The Company's research and development facilities in North America and Europe feature advanced computer-aided design and testing equipment. Technology and engineering personnel coordinate all activities closely with operations, sales and marketing areas in order to better meet the needs of customers. 7 The Company continues to develop new products in all areas of its business. During fiscal 1998, the Company's Motive Power Division introduced the low maintenance Liberty Eclipse battery and charger which dramatically reduces the customer's cost of operation. During fiscal 1997, the Company extended its range of telecom products with the introduction of a family of medium powered high frequency rectifiers. The Company also introduced several families of high density DC-to-DC converters during fiscal 1997. INTERNATIONAL OPERATIONS The Company sells the full range of its motive and standby power products in Canada through its network of independent Canadian representatives and one branch office. Sales through these independent Canadian representatives and branch office accounted for less than 5% of the Company's sales for the last three fiscal years. In addition, the Company manufacturers a large portion of its power supplies in Nogales, Sonora, Mexico and in Agua Prieta, Sonora, Mexico for ultimate sale in the United States and Europe. The Company has no significant sales in Mexico. Power supplies are also manufactured by the Company in Shannon, Ireland. Operations in Ireland accounted for less than 5% of the Company's sales for the last three fiscal years. PATENTS AND TRADEMARKS The Company follows a policy of applying for patents on new inventions and designs and actively pursuing pending and future patent applications. The Company would aggressively assert infringement claims when, in the judgment of the Company, this is warranted. The Company believes that the growth of its business will depend primarily upon the quality of its products and its relationships with its customers, rather than the extent of its patent protection. While the Company believes that patents are important to its business operations, the loss of any single or several patents would not have a material adverse effect on the Company. During fiscal 1998, the Company continued to prosecute United States and foreign applications which had been previously filed. The Company regards its trademarks C&D, C&D POWERCOM, LIBERTY, LIBERTY SERIES, and POWER CONVERTIBLES as being of substantial value in the marketing of its products. The Company has registered its C&D, C&D POWERCOM, LIBERTY, LIBERTY SERIES, and POWER CONVERTIBLES trademarks in the United States Patent and Trademark Office and the Company also has applications pending for registrations of other trademarks in the United States. The Company's trademarks include COMPUCHARGE, FERRO FIVE, GUARDIAN, GUARDSMAN, RANGER, RANGERNET and SCOUT. EMPLOYEES At March 31, 1998 the Company had approximately 2,596 employees. Of these employees, 2,204 were employed in manufacturing and 392 were employed in field sales, technical, manufacturing support, sales support, marketing and administrative activities. The Company's management considers its employee relations to be satisfactory. Employees in eight plants are not represented by a union. Employees at the other three plants are represented by three different unions under collective bargaining agreements. 8 ENVIRONMENTAL REGULATION The Company's operations are subject to extensive and evolving environmental laws and regulations regarding the clean-up and protection of the environment and worker health and safety. These laws and regulations include requirements relating to the handling, storage, use and disposal of hazardous materials and solid wastes, recordkeeping and periodic reporting to governmental entities regarding the use of hazardous substances and disposal of hazardous wastes, monitoring and permitting of air and water emissions and monitoring and protecting workers from exposure to hazardous substances, including lead used in the Company's manufacturing processes. The Company operates under what it believes is a comprehensive environmental, health and safety compliance program, which is headed by an environmental director and staffed with trained environmental professionals. As part of its program, the Company has prepared written environmental and health and safety practice manuals, conducts regular employee training seminars, undertakes internal and external audits of its operations and environmental and health and safety programs and practices and engages in sampling and monitoring of employee air, blood lead levels and other chemical exposures. The Company also has installed certain pollution abatement equipment to minimize or reduce emissions of regulated pollutants into the environment. The Company has instituted a hazardous materials recapture and recycling program at each of its facilities and for its customers. In addition, the Company monitors and seeks to address known or potential environmental conditions resulting from or which may arise from current and historic hazardous materials handling and waste disposal practices. While the Company believes that it is in material compliance with the applicable environmental requirements, it has received, and in the future may receive, citations and notices from governmental regulatory authorities that certain of its operations are not in compliance with its permits or applicable environmental requirements. Occasionally the Company is required to pay a penalty or fine, to install control technology or to make equipment or process changes (or a combination thereof) as a result of the non-compliance or changing legal or regulatory requirements. When the Company receives a notice of a non-compliance, it undertakes to achieve compliance and to work with the authorities to resolve satisfactorily the issues raised. The associated costs of such compliance efforts have not had a material effect on the Company's business, financial condition or results of operations. Notwithstanding the Company's efforts to maintain compliance with applicable environmental requirements, if damage to persons or the environment arises from hazardous substances used, generated or disposed of in the conduct of the Company's business (or that of its predecessors to the extent the Company is not indemnified therefor), the Company may be held liable for the damage and for the costs of the environmental investigation and remediation, which could have a material adverse effect on the Company's business, financial condition or results of operations. In view of the potential financial effect such environmental liabilities could have, when the Company acquired the assets of its predecessor from Allied in January 1986, it secured an obligation from Allied to indemnify the Company from undisclosed environmental liabilities resulting from conditions existing as of the closing date. With the exception of four sites disclosed by Allied at the time of the acquisition, Allied has accepted indemnification responsibility for the Company's potential liabilities at those third party owned or operated sites with respect to which the Company has been named as a potentially responsible party by the United States Environmental Protection Agency or 9 state environmental agencies under the federal Superfund law or comparable state environmental laws. With respect to the four sites not being covered by the Allied indemnity, based upon the most currently available information, the Company believes that its share of liability at these sites will not have a material adverse effect on the Company's business, financial condition or results of operations. Moreover, the Company has accrued reserves for these and other immaterial potential environmental liabilities in its consolidated financial statements and periodically reevaluates, and changes as it deems appropriate, the reserved amounts for these liabilities in view of the most current information available to it. The Company also is aware of the existence of potential contamination at two of its properties which may require expenditures for further investigation and remediation. At the Company's Huguenot, New York facility, fluoride contamination in an inactive lagoon exceeding the state's groundwater standards, which existed prior to the Company's acquisition of the site, has resulted in the site being listed on the registry of inactive hazardous waste disposal sites maintained by the New York State Department of Environmental Conservation. The prior owner of the site, Avnet, Inc., ultimately may bear some, as yet undetermined, share of the costs associated therewith. The Company's Conyers, Georgia facility was listed on the Georgia State Hazardous Sites Inventory. Soil at the site, which was likely contaminated from a leaking underground acid neutralization tank and possibly stormwater runoff, has been excavated and disposed of by the Company, and a hydrogeologic study was undertaken to assess the impact to groundwater. That study did not reveal any groundwater impact, and assessment and remediation of off-site contamination has been completed and the final remediation report was submitted to the state on June 1, 1997. The state environmental agency may request further information and additional investigation or remediation may be necessary before the site may be removed from its Hazardous Sites Inventory. With respect to each of the properties described in the preceding two paragraphs, the Company has accrued a reserve in its consolidated financial statements for its estimate of the potential costs and liabilities associated with the potential contamination. The Company believes that the costs and potential liabilities for these matters are not likely to have a material effect on the Company's business, financial condition or results of operations. 10 ITEM 2. PROPERTIES Set forth below is certain information, as of March 31, 1998, with respect to the Company's principal properties. See "Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources." Square Products Manufactured Location Footage at or Use of Facility -------- ------- --------------------- United States Properties ------------------------ Manufacturing: - ------------- Attica, Indiana................ 207,000 Large standby power batteries and motive power batteries Conshohocken, Pennsylvania..... 130,000 Metal trays, metal racks and cabinets, battery R&D laboratories, distribution center Conyers, Georgia............... 161,000 Small standby power batteries Dunlap, Tennessee.............. 73,000 Motive power and standby power electronics products, cabinets and metal racks Huguenot, New York............. 148,000 Motive power batteries Leola, Pennsylvania............ 187,000 Large standby power batteries Tucson, Arizona................ 41,000 Power converters, cellular phone battery chargers Costa Mesa, California......... 33,000 Power supplies Other: - ----- Blue Bell, Pennsylvania........ 33,000 World headquarters Tucson, Arizona................ 40,000 Headquarters of Power Electronics Division and electronics R&D laboratories International Properties ------------------------ Manufacturing: - ------------- Agua Prieta, Sonora, Mexico.... 24,000 Power converters Nogales, Sonora, Mexico........ 83,000 Power supplies, cellular phone battery chargers Shannon, Ireland............... 19,000 Power converters and electronics R&D laboratories Other: - ----- Mississauga, Ontario, Canada.. 20,000 Canadian branch headquarters, sales office and distribution center 11 The Company owns its Attica, Conyers, Leola and Conshohocken properties. The Huguenot property is leased under an industrial revenue bond financing arrangement entitling the Company to purchase the property for a nominal amount at the end of the term of the related financing occurring in the fourth quarter of fiscal 1999. In connection with the Acquisition, Allied agreed to pay the principal and interest due under this financing arrangement. The Blue Bell, Dunlap, Mississauga, Tucson, Costa Mesa, Shannon, Agua Prieta and Nogales facilities and the Company's branch sales offices are leased. The lease of the Dunlap property terminates in January 2004. The Company has an option to purchase the Dunlap property during the lease term for $1,160,000. ITEM 3. LEGAL PROCEEDINGS The Company is involved in ordinary routine litigation incidental to the conduct of its business. None of such routine litigation, individually or in the aggregate, is material to its financial condition or results of operations in any year. See "Business - Environmental Regulation" for a description of certain administrative proceedings in which the Company is involved. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Company's Common Stock began trading on The New York Stock Exchange on December 20, 1996 under the symbol CHP. From October 27, 1995 through December 19, 1996, the Common Stock was traded on the Nasdaq National Market under the symbol CHTR. Prior to October 27, 1995 the Common Stock was listed and principally traded on the American Stock Exchange under the symbol CHP. The approximate number of beneficial and registered record holders of the Company's Common Stock on April 16, 1998 was 2,256. The following table sets forth, for the periods indicated, the high and low sales prices for the Company's Common Stock as reported by the Nasdaq National Market through December 19, 1996, and The New York Stock Exchange thereafter. These prices represent actual transactions, but do not reflect adjustment for retail markups, markdowns or commissions. Year Ended ------------------- January 31, 1998 January 31, 1997 ---------------- ---------------- Fiscal Quarter High Low High Low -------------- ---- --- ---- --- First Quarter..... $34 3/4 $25 7/8 $29 3/4 $25 Second Quarter.... 38 7/8 28 3/8 36 17 1/4 Third Quarter..... 49 1/8 37 1/2 26 1/4 20 Fourth Quarter.... 49 5/8 42 35 24 12 The Company began paying quarterly cash dividends on its Common Stock in April 1987. The dividend declared in each quarter since then has been $.0275 a share. The Company's bank loan agreement permits quarterly dividends to be paid on the Company's Common Stock so long as there is no default under that agreement. Subject to such restriction and the provisions of Delaware law, the Board of Directors currently intends to continue paying quarterly dividends in the future at the rate currently paid. There can be no assurance, however, as to the payment or amount of future dividends, since they will depend on the Company's earnings and financial condition and other factors. 13 ITEM 6. SELECTED FINANCIAL DATA The following selected historical financial data for the periods indicated have been derived from the Company's consolidated financial statements, which have been audited by Coopers & Lybrand L.L.P., independent accountants. The information below should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Company's consolidated financial statements for fiscal 1998, 1997 and 1996, which appear elsewhere herein.
Fiscal Year ------------------------------------------------------------ 1998 1997(4) 1996 1995(3) 1994 ------- ------- ------- ------- ------- (IN THOUSANDS, EXCEPT PER SHARE DATA) STATEMENT OF OPERATIONS DATA: Net sales............................. $308,054 $286,907 $242,422 $200,009 $162,005 Cost of sales......................... 226,880 219,819 185,808 154,464 123,560 ------- ------- ------- ------- ------- Gross profit........................ 81,174 67,088 56,614 45,545 38,445 Selling, general and administrative expenses............. 39,333 34,499 27,781 24,796 23,121 Research and development expenses............................ 8,610 8,143 6,196 5,284 2,746 ------- ------- ------- ------- ------- Operating income.................... 33,231 24,446 22,637 15,465 12,578 Interest expense, net................. 1,129 1,396 1,063 1,222 1,003 Other expense (income), net........... 1,058 (8) 423 310 809 ------- ------- ------- ------- ------- Income before income taxes ........ 31,044 23,058 21,151 13,933 10,766 Provision for income taxes............ 11,359 8,121 7,107 4,556 4,359 ------- ------- ------- ------- ------- Net income ........................... $ 19,685 $ 14,937 $ 14,044 $ 9,377 $ 6,407 ======= ======= ======= ======= ======= Net income per common share (1)....... $ 3.22 $ 2.39 $ 2.33 $ 1.59 $ 1.11 ======= ======= ======= ======= ======= Net income per common share - assuming dilution (2)............... $ 3.12 $ 2.32 $ 2.18 $ 1.51 1.08 ======= ======= ======= ======= ======= Dividends per common share............ $ .11 $ .11 $ .11 $ .11 $ .11 ======= ======= ======= ======= ======= BALANCE SHEET DATA: Working capital....................... $ 47,342 $ 45,436 $ 50,302 $ 27,746 $ 18,556 Total assets.......................... 166,498 159,973 130,827 112,137 93,255 Short-term debt (exclusively current portion of long-term debt)......... 321 476 200 3,670 3,121 Long-term debt........................ 10,267 29,351 15,417 14,183 11,149 Stockholders' equity.................. 97,305 74,906 68,926 51,722 41,031 - ----------
(footnotes begin on the following page) 14 (1) Based on 6,110,685, 6,258,554, 6,039,452, 5,906,311 and 5,784,429 weighted average shares outstanding for fiscal 1998, 1997, 1996, 1995 and 1994, respectively. (2) Based on 6,315,912, 6,439,165, 6,451,289, 6,210,793 and 5,922,511 weighted average shares outstanding and the effect of shares issuable under stock options based on the treasury stock method for fiscal 1998, 1997, 1996, 1995 and 1994, respectively. (3) In March 1994, the Company acquired for cash, certain assets and assumed certain liabilities of the custom power supply business of ITT PowerSystems Corporation. In January 1995, the Company purchased certain assets and assumed certain liabilities from the switching power supply business of Basler Electric Company, a Highland, Illinois based manufacturer of electrical components. (4) In February 1996, the Company acquired substantially all the assets of LH, a producer and marketer of standard power supply systems for the electronics industry. In March 1996, the Company acquired from Burr-Brown Corporation, its entire interest in PCC consisting of 1,044,418 shares of PCC common stock and all outstanding preferred stock. In addition the Company acquired or repaid the indebtedness of PCC. In April 1996, the Company acquired 190,000 shares of PCC common stock from the former chief executive officer of PCC which together with the shares previously acquired represented in excess of 99.6% of the outstanding PCC common stock. In May 1996, the Company purchased all remaining shares of PCC common stock and shares of PCC common stock issuable upon exercise of stock options. PCC produces battery chargers for cellular phones and DC-to-DC converters used on communications, computer, medical, industrial and instrumentation markets. See notes to consolidated financial statements. 15 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS IMPACT OF ECONOMY AND SHIFT IN CUSTOMER DEMAND During fiscal 1998 continued improved economic conditions resulted in higher demand for the Company's standby power products over the prior year. In the telecommunications market, continued growth in the demand for valve-regulated batteries was reflected in the growth in sales of Liberty 2000, a premium valve-regulated battery. During fiscal 1998 demand also increased for flooded batteries over the prior year. RAW MATERIAL PRICING AND PRODUCTIVITY Lead, steel, copper, plastics and electronic components are the major raw materials used in the manufacture of the Company's industrial batteries and electronics products and, accordingly, represent a significant portion of the Company's materials costs. During fiscal 1998, 1997 and 1996, the average North American producer price of lead has been $.48, $.50 and $.44 /lb., respectively. The Company has undertaken a long-term cost containment program to maximize manufacturing efficiency and continues as a matter of course to allocate a significant amount of its normal annual capital expenditures to cost containment and productivity improvement projects. INFLATION The Company's costs of manufacturing materials and labor and most other operating costs are affected by inflationary pressures. The Company's ability to pass along inflationary cost increases through higher prices may be limited during periods of stable or declining lead prices because of industry pricing practices that tend to link product prices and lead prices. The Company believes that, over recent years, it generally has been able to offset inflationary cost increases by effective raw materials purchasing programs, price increases of its products, increases in labor productivity and improvements in overall manufacturing efficiency. 16 RESULTS OF OPERATIONS The following table sets forth selected items in the Company's consolidated statements of income as a percentage of sales for the periods indicated. Fiscal Year ------------------------ 1998 1997 1996 ---- ---- ---- Net sales...................................... 100.0% 100.0% 100.0% Cost of sales.................................. 73.6 76.6 76.6 ----- ----- ----- Gross profit................................. 26.4 23.4 23.4 Selling, general and administrative expenses... 12.8 12.0 11.5 Research and development expenses.............. 2.8 2.9 2.6 ----- ----- ----- Operating income............................. 10.8 8.5 9.3 Interest expense, net ......................... 0.4 0.5 0.4 Other expense, net............................. 0.3 0.0 0.2 ----- ----- ----- Income before income taxes................... 10.1 8.0 8.7 Provision for income taxes..................... 3.7 2.8 2.9 ----- ----- ----- Net income................................... 6.4% 5.2% 5.8% ===== ===== ===== FISCAL 1998 COMPARED TO FISCAL 1997 Net sales for fiscal 1998 increased $21,147,000 or seven percent to $308,054,000 from $286,907,000 in fiscal 1997. This increase was a result of a 15 percent increase in telecommunications-related sales and a six percent increase in both non-telecommunications-related power conversion sales and UPS sales, partially offset by lower government and control sales. A portion of the fiscal 1998 sales increase resulted from the recording of a full year's sales versus a partial year in fiscal 1997 due to the acquisition of a power conversion company during the first quarter of fiscal 1997. On a company-wide basis, telecommunications-related sales were approximately 49 percent of total Company sales during fiscal 1998 versus 46 percent in fiscal 1997. Gross profit for fiscal 1998 increased $14,086,000 or 21 percent to $81,174,000 from $67,088,000 in the prior fiscal year, resulting in a gross margin of 26.4 percent versus 23.4 percent in the prior year. Gross margins increased primarily as a result of lower material costs, a shift in product mix and operating efficiencies associated with the higher sales volumes. Selling, general and administrative expenses for fiscal 1998 increased $4,834,000 or 14 percent over the prior year primarily as a result of the accelerated write-off of goodwill and intangible assets 17 associated with LH (due to impairment), higher payroll related costs, warranty, due diligence costs, and the resolution of legal disputes, partially offset by lower variable selling expense. Research and development expense remained proportional to sales as a relative percentage for both fiscal 1998 and fiscal 1997 at approximately three percent of sales. Interest expense, net, decreased 19 percent from fiscal 1997 to fiscal 1998 primarily due to lower debt balances outstanding, partially offset by lower capitalized interest related to plant expansions and lower interest income. Other expense, net, increased $1,066,000 from fiscal 1997 to fiscal 1998 as a result of higher amortization expense associated with the write-off of capitalized debt acquisition costs related to the Company's credit facility and the Development Authority of Rockdale County Industrial Revenue Bonds ("Georgia Bonds"). This increase was also due to lower nonoperating income during fiscal 1998 coupled with a foreign exchange loss in fiscal 1998 versus a slight foreign exchange gain in fiscal 1997. Income tax expense increased $3,238,000 from fiscal 1997 to fiscal 1998, primarily due to higher levels of income before income taxes coupled with a smaller favorable tax effect from foreign operations. As a result of the above, for fiscal 1998, net income rose 32 percent from fiscal 1997 to $19,685,000 or $3.22 per common share and $3.12 per common share - - assuming dilution. FISCAL 1997 COMPARED TO FISCAL 1996 Net sales for fiscal 1997 increased $44,485,000 or 18 percent to $286,907,000 from $242,422,000 in fiscal 1996. Approximately $29,000,000 of this increase was related to sales recorded by the Company's PCC and LH subsidiaries which were both acquired during the first quarter of fiscal 1997. The balance of the increase was primarily due to higher telecommunications and UPS sales, partially offset by lower motive power sales and lower power supply sales by the Company's IPS subsidiary. On a company-wide basis, fiscal 1997 telecommunication-related sales were approximately 46 percent of total Company sales versus 44 percent for fiscal 1996. Motive power sales were down four percent due to lower volumes partially offset by higher prices. Gross profit increased $10,474,000 or 19 percent to $67,088,000 from $56,614,000 in the prior fiscal year, primarily as a result of higher sales volumes. Gross margins for fiscal 1997 and 1996 were flat at 23.4 percent. Selling, general and administrative expenses increased $6,718,000 primarily as a result of the acquisition of PCC and LH, including the amortization of goodwill and other intangible assets related to the acquisitions. In addition, non-acquisition selling expenses increased primarily due to higher payroll costs, warranty, advertising, rental and consulting expenses. Research and development expenses increased $1,947,000 to $8,143,000 for fiscal 1997 primarily as a result of the acquisition of PCC and LH, and remained proportional to sales at approximately three percent of sales for fiscal 1997 and fiscal 1996. 18 Interest expense, net, increased 31 percent from fiscal 1996 to fiscal 1997 due to higher debt balances related to the above acquisitions and a stock repurchase program, partially offset by lower effective rates and higher capitalized interest related to the plant expansions at the Company's Conyers, Georgia and Leola, Pennsylvania locations. Other expense, net, decreased $431,000 from fiscal 1996 to fiscal 1997 primarily as a result of higher nonoperating income. Income tax expense increased $1,014,000 due to higher operating income and the absence in fiscal 1997 of a decrease in the valuation allowance, partially offset by the favorable tax effect of the Company's foreign operations. The fiscal 1996 decrease in the valuation allowance related to the revaluation of the stock option compensation deferred tax asset due to increases in the price of the Company's common stock. As a result of the above, net income increased six percent from fiscal 1996 to $14,937,000 or $2.39 per common share and $2.32 per common share - assuming dilution. LIQUIDITY AND CAPITAL RESOURCES Net cash provided by operating activities increased 24 percent to $31,972,000 in fiscal 1998 compared to $25,737,000 in fiscal 1997. This increase was primarily due to a smaller increase in accounts receivable in fiscal 1998 than in fiscal 1997, coupled with higher net income and depreciation in fiscal 1998. These changes resulting in higher cash flows from operations were partially offset by an increase in inventories and a decrease in accounts payable in fiscal 1998 versus a decrease in inventory and an increase in accounts payable in the prior year. Net cash used by investing activities totaled $13,598,000 for fiscal 1998, resulting in a decrease of $17,053,000 versus the prior year which included the purchase by the Company of PCC and certain equipment and inventory of LH, as well as higher capital spending. In fiscal 1997, the change in restricted cash resulted from the use of proceeds obtained from the Development Authority of Rockdale County Industrial Development Revenue Bonds, obtained in fiscal 1996, to finance the Company's expansion of the Conyers, Georgia plant. The Company exercised its option to redeem the Georgia Bonds during the second quarter of fiscal 1998. Net cash used by financing activities was $18,139,000 for fiscal 1998 compared to net cash provided by financing activities of $385,000 in the prior year. The additional borrowings in the prior year were used primarily for the funding of the acquisitions of PCC and LH and the purchase of stock in a stock repurchase program. The Company's availability under the current loan agreement is expected to be sufficient to meet its ongoing cash needs for working capital requirements, debt service, capital expenditures and possible strategic acquisitions. The Company's bank loan agreement permits quarterly dividends to be paid on the Company's Common Stock so long as there is no default under that agreement. Capital expenditures during fiscal 1998 were incurred primarily to fund capacity expansion, new product development, a continuing series of cost reduction programs, normal maintenance capital, and regulatory compliance. Fiscal 1999 capital expenditures are expected to be approximately $22,000,000 for similar purposes. 19 The Company has been notified that it is a potentially responsible party and has responded to requests for information relating to various Third Party Facilities (see note 8[B] of the notes to consolidated financial statements). DERIVATIVE FINANCIAL INSTRUMENTS Derivative financial instruments are utilized by the Company to reduce foreign exchange and interest rate risks. The Company has established a control environment which includes policies and procedures for risk assessment and the approval, reporting and monitoring of derivative financial instrument activities. The Company does not hold or issue financial instruments for trading purposes and it prohibits the use of derivatives for speculative purposes. Derivative financial instruments are accounted for on an accrual basis. Income and expense are recorded in the same category as that arising from the related asset or liability being hedged. The Company selectively uses foreign currency forward and option contracts to offset the effects of exchange rate changes on cash flows denominated in foreign currencies, primarily the Canadian dollar and Mexican peso. The Company uses interest rate swap agreements to reduce the impact of interest rate changes on its debt. The interest rate swap agreements involve the exchange of variable for fixed rate interest payments without the exchange of the underlying notional amount. READINESS FOR YEAR 2000 The Company has taken actions to understand the nature and extent of the work required to make its computer systems Year 2000 compliant. The Company has completed its assessment of its requirements to become Year 2000 compliant, has developed an action plan and currently has resources dedicated to carry out the Company's Year 2000 action plan which the Company expects to complete by December 31, 1998. The Company continues to evaluate the estimated future costs associated with its Year 2000 action plan but does not currently anticipate that such costs will have a material impact on the Company's results of operations or financial position. The Company has received inquires from its major customers and has initiated formal communications with its significant suppliers to determine the extent to which the Company might be impacted by those third parties' failure to be Year 2000 compliant. NEW ACCOUNTING PRONOUNCEMENTS NOT YET ADOPTED In June 1997, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive Income" which is effective for years beginning after December 15, 1997. This statement establishes standards for the reporting and display of comprehensive income and its components. Comprehensive income is defined to include all changes in equity during a period except those resulting from investments by owners and distributions to owners. The Company will adopt SFAS No. 130 and begin reporting comprehensive income in the first quarter of fiscal 1999. In June 1997, the FASB also issued SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information," which is effective for fiscal years beginning after December 15, 1997. This statement establishes standards for the disclosure of segment results. It requires that 20 segments be determined using the "management approach," which means the way management organizes the segments within the enterprise for making operating decisions and assessing performance. The Company has not yet determined the impact of the implementation of SFAS No. 131. In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures about Pensions and Other Postretirement Benefits." This statement significantly changes current financial statement disclosure requirements from those that were required under SFAS No. 87, "Employers' Accounting for Pensions," SFAS No. 88, "Employers' Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits," and SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions." Some of the more significant effects of SFAS No. 132 are that it: (i) standardizes the disclosure requirements for pensions and other postretirement benefits and presents them in one footnote; (ii) requires that additional information be disclosed regarding changes in the benefit obligation and fair values of plan assets; (iii) eliminates certain disclosures that are no longer considered useful, including general descriptions of the plans; (iv) permits the aggregation of information about certain plans; (v) provides reduced disclosure requirements for nonpublic entities; (vi) revises disclosures about defined contribution plans; and (vii) changes disclosures relating to multi-employer plans. SFAS No. 132 does not change the existing measurement or recognition provisions of SFAS Nos. 87, 88 or 106. SFAS No. 132 is effective for fiscal years beginning after December 15, 1997. The Company has not yet determined the impact of the implementation of SFAS No. 132. In April 1998, the American Institute of Certified Public Accountants issued Statement of Position ("SOP") 98-5, "Reporting on the Costs of Start-Up Activities." SOP 98-5 requires costs of start-up activities and organization costs to be charged to expense as incurred. SOP 98-5 is effective for financial statements for years beginning after December 15, 1998. The Company believes that the adoption of this SOP will not have a material effect on its financial position or results of operations. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The financial statements and supplementary data listed in Item 14(a)(1) hereof are incorporated herein by reference and are filed as part of this report. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. PART III The information required by Part III (Items 10 through 13) is incorporated herein by reference to the captions "Principal Stockholders," "Election of Directors," "Management" and "Certain Relationships and Related Transactions" in the Company's definitive Proxy Statement to be filed pursuant to Regulation 14A within 120 days after the end of the Company's fiscal year covered by this report. 21 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) DOCUMENTS FILED AS PART OF THIS REPORT: (1) THE FOLLOWING FINANCIAL STATEMENTS ARE INCLUDED IN THIS REPORT ON FORM 10-K: C&D TECHNOLOGIES, INC. AND SUBSIDIARIES Report of Independent Accountants Consolidated Balance Sheets as of January 31, 1998, and 1997 Consolidated Statements of Income for the years ended January 31, 1998, 1997 and 1996 Consolidated Statements of Stockholders' Equity for the years ended January 31, 1998, 1997 and 1996 Consolidated Statements of Cash Flows for the years ended January 31, 1998, 1997 and 1996 Notes to Consolidated Financial Statements (2) THE FOLLOWING FINANCIAL STATEMENT SCHEDULE IS INCLUDED IN THIS REPORT ON FORM 10-K: C&D TECHNOLOGIES, INC. AND SUBSIDIARIES for the years ended January 31, 1998, 1997 and 1996 Report of Independent Accountants on Schedule II. Valuation and Qualifying Accounts (3) EXHIBITS: 3.1 Composite Certificate of Incorporation of the Company, as amended (incorporated by reference to Exhibit 3.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended July 31, 1997). 3.2 By-laws of the Company, as amended (incorporated by reference to Exhibit 3.2 to the Company's Annual Report on Form 10-K for the fiscal year ended January 31, 1996). 4.1 Amended and Restated Financing and Security Agreement dated as of January 30, 1998 among NationsBank, N.A., CoreStates Bank, N.A., The Chase Manhattan Bank, and PNC Bank, National Association and C&D TECHNOLOGIES, INC. and its subsidiaries (filed herewith). 22 10.1 Purchase Agreement dated November 27, 1985, among Allied, Allied Canada Inc. and the Company; Amendments thereto dated January 28 and October 8, 1986 (incorporated by reference to Exhibit 10.1 to the Company's Registration Statement on Form S-1, No. 33-10889). 10.2 Agreement dated December 15, 1986, between the Company and Allied (incorporated by reference to Exhibit 10.2 to the Company's Registration Statement on Form S-1, No. 33-10889). 10.3 Lease Agreement dated February 15, 1994 by and between Sequatchie Associates, Incorporated and C&D Charter Power Systems, Inc. (incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended April 30, 1994). 10.4 C&D TECHNOLOGIES, INC. Savings Plan (October 1, 1997 Restatement) (filed herewith). 10.5 C&D Charter Power Systems, Inc. Pension Plan for Salaried Employees (as of January 27, 1998 the name was changed to C&D TECHNOLOGIES, INC. Pension Plan for Salaried Employees) as restated and amended (incorporated by reference to Exhibit 10.10 to the Company's Annual Report on Form 10-K for the fiscal year ended January 31, 1995); First and Second Amendments thereto dated December 20, 1995 (incorporated by reference to Exhibit 10.5 to the Company's Annual Report on Form 10-K for the fiscal year ended January 31, 1996); Third Amendment thereto dated February 18, 1997 (filed herewith); Fourth Amendment thereto dated January 27, 1998 (filed herewith). 10.6 Charter Power Systems, Inc. Incentive Compensation Plan (incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended July 31, 1997). 10.7 Registration Rights Agreement dated May 30, 1989, between Alfred Weber and the Company (incorporated by reference to Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the quarter ended July 31, 1995); Employment Agreement, dated as of April 1, 1996, and Pledge and Security Agreement and Reimbursement Agreement, each dated April 30, 1996, between Alfred Weber and the Company; Secured Promissory Note and Option Secured Promissory Note, each dated April 30, 1996, by Alfred Weber in favor of the Company (incorporated by reference to Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the quarter ended July 31, 1996). 10.8 Employment Agreement dated January 26, 1990, between Leslie Holden and the Company (incorporated by reference to Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q for the quarter ended July 31, 1995); Amendment thereto dated April 3, 1995 (incorporated by reference to Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q for the quarter ended April 30, 1995). 23 10.9 Agreement dated March 28, 1994, between C&D Charter Power Systems, Inc. and AT&T (incorporated by reference to Exhibit 10.20 to the Company's Annual Report on Form 10-K for the fiscal year ended January 31, 1994). 10.10 Employment Agreement dated March 1, 1994 between A. Gordon Goodyear and the Company (incorporated by reference to Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the quarter ended April 30, 1994); Amendment thereto dated April 3, 1995 (incorporated by reference to Exhibit 10.4 to the Company's Quarterly Report on Form 10-Q for the quarter ended April 30, 1995). 10.11 Employment Agreement dated April 3, 1995 between Stephen E. Markert, Jr. and the Company (incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended April 30, 1995). 10.12 Employment Agreement dated April 3, 1995 between A. T. (Paul) Kambouroglou and the Company (incorporated by reference to Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the quarter ended April 30, 1995). 10.13 Employment Agreement dated August 15, 1995 between Stephen Weglarz, Esq. and the Company (incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended October 31, 1995). 10.14 Employment Agreement dated August 1, 1997 between Larry M. Moore and the Company (incorporated by reference to Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the quarter ended July 31, 1997). 10.15 Employment Agreement dated September 30, 1997 between John J. Murray, Jr. and the Company (incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended October 31, 1997). 10.16 Charter Power Systems, Inc. 1996 Stock Option Plan (incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended July 31, 1996). 10.17 Supplemental Executive Retirement Plan dated December 11, 1997 (incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended October 31, 1997). 10.18 Supplemental Executive Retirement Plan for Alfred Weber dated December 11, 1997 (incorporated by reference to Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q for the quarter ended October 31, 1997). 21 Subsidiaries of the Company (filed herewith). 23 Consent of Independent Accountants (filed herewith). 27 Financial Data Schedule (filed herewith). 24 99.1 Additional undertaking in connection with the Company's Registration Statement on Form S-8 No. 33-31978 (filed November 7, 1989), the Company's Registration Statement on Form S-8, No. 33-71390 (filed October 27, 1993), the Company's Registration Statement on Form S-8, No. 33-86672 (filed November 23, 1994), the Company's Registration Statement on Form S-8 No. 333-17979 (filed December 16, 1996), and the Company's Registration Statement on Form S-8 No. 333-38891 (filed October 27, 1997). The registrant undertakes to furnish the Commission with a copy of certain agreements which are not being filed in accordance with Item 601(b)(4)(iii) of Regulation S-K. (b) REPORTS ON FORM 8-K. No reports on Form 8-K were filed by the Company during the last quarter of the period covered by this report. 25 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. C&D TECHNOLOGIES, INC. April 29, 1998 By: /s/ALFRED WEBER ----------------------- Alfred Weber Chairman, President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. SIGNATURE TITLE DATE --------- ----- ---- /s/ ALFRED WEBER Chairman, President and April 29, 1998 - -------------------------- Alfred Weber Chief Executive Officer /s/ STEPHEN E. MARKERT, JR Vice President Finance April 29, 1998 - -------------------------- Stephen E. Markert, Jr (Principal Financial and Accounting Officer) /s/ KEVIN P. DOWD Director April 29, 1998 - -------------------------- Kevin P. Dowd /s/ GLENN M. FEIT Director April 29, 1998 - -------------------------- Glenn M. Feit /s/ WILLIAM HARRAL, III Director April 29, 1998 - -------------------------- William Harral, III /s/ WARREN A. LAW Director April 29, 1998 - -------------------------- Warren A. Law /s/ ALAN G. LUTZ Director April 29, 1998 - -------------------------- Alan G. Lutz /s/ JOHN A. H. SHOBER Director April 29, 1998 - -------------------------- John A. H. Shober 26 INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE FINANCIAL STATEMENTS C&D TECHNOLOGIES, INC. AND SUBSIDIARIES PAGE ---- Report of Independent Accountants.................. F-2 Consolidated Balance Sheets as of January 31, 1998 and 1997........................ F-3 Consolidated Statements of Income for the years ended January 31, 1998, 1997 and 1996......................................... F-4 Consolidated Statements of Stockholders' Equity for the years ended January 31, 1998, 1997 and 1996............ F-5 Consolidated Statements of Cash Flows for the years ended January 31, 1998, 1997 and 1996......................................... F-6 Notes to Consolidated Financial Statements......... F-8 FINANCIAL STATEMENT SCHEDULE C&D TECHNOLOGIES, INC. AND SUBSIDIARIES For the years ended January 31, 1998, 1997 and 1996 Report of Independent Accountants on Schedule...... S-1 Schedule II. Valuation and Qualifying Accounts.... S-2 F-1 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Stockholders of C&D TECHNOLOGIES, INC. We have audited the accompanying consolidated balance sheets of C&D TECHNOLOGIES, INC. and Subsidiaries (formerly Charter Power Systems, Inc.) as of January 31, 1998 and 1997, and the related consolidated statements of income, stockholders' equity and cash flows for each of the three years in the period ended January 31, 1998. 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 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 provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of C&D TECHNOLOGIES, INC. and Subsidiaries as of January 31, 1998 and 1997, and the consolidated results of their operations and their cash flows for each of the three years in the period ended January 31, 1998, in conformity with generally accepted accounting principles. COOPERS & LYBRAND L.L.P. 2400 Eleven Penn Center Philadelphia, Pennsylvania March 10, 1998 F-2 C&D TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS JANUARY 31, (DOLLARS IN THOUSANDS) 1998 1997* ---- ---- ASSETS Current assets: Cash and cash equivalents ............................ $ 1,167 $ 952 Restricted cash and cash equivalents.................. - 1 Accounts receivable, less allowance for doubtful accounts of $1,701 in 1998 and $1,414 in 1997..... 42,742 41,682 Inventories........................................... 40,735 38,943 Deferred income taxes................................. 7,871 7,315 Other current assets.................................. 885 437 ------- ------- Total current assets.............................. 93,400 89,330 Property, plant and equipment, net...................... 57,058 52,469 Intangible and other assets, net........................ 5,339 6,208 Goodwill, net........................................... 10,701 11,966 ------- ------- Total assets...................................... $166,498 $159,973 ======= ======= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current portion of long-term debt..................... $ 321 $ 476 Accounts payable...................................... 22,791 23,730 Accrued liabilities................................... 16,012 14,468 Income taxes.......................................... 3,689 939 Other current liabilities............................. 3,245 4,281 ------- ------- Total current liabilities......................... 46,058 43,894 Deferred income taxes................................... 2,376 3,923 Long-term debt.......................................... 10,267 29,351 Other liabilities....................................... 10,492 7,899 ------- ------- Total liabilities................................. 69,193 85,067 ------- ------- Commitments and contingencies Stockholders' equity: Common stock, $.01 par value, 10,000,000 shares authorized; 6,614,449 and 6,547,476 shares issued in 1998 and 1997, respectively............. 66 65 Additional paid-in capital............................ 41,430 39,326 Minimum pension liability adjustment.................. - (136) Treasury stock, at cost, 452,551 and 470,551 shares in 1998 and 1997, respectively............. (10,819) (11,232) Notes receivable from stockholder, net of discount of $28 and $85 in 1998 and 1997 respectively......... (1,029) (1,636) Cumulative translation adjustment..................... (248) (374) Retained earnings .................................... 67,905 48,893 ------- ------- Total stockholders' equity........................ 97,305 74,906 ------- ------- Total liabilities and stockholders' equity........ $166,498 $159,973 ======= ======= * Reclassified for comparative purposes See notes to consolidated financial statements. F-3 C&D TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME FOR THE YEARS ENDED JANUARY 31, (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) 1998 1997 1996 ---- ---- ---- Net sales............................... $308,054 $286,907 $242,422 Cost of sales........................... 226,880 219,819 185,808 ------- ------- ------- Gross profit...................... 81,174 67,088 56,614 Selling, general and administrative expenses.......................... 39,333 34,499 27,781 Research and development expenses....... 8,610 8,143 6,196 ------- ------- ------- Operating income.................. 33,231 24,446 22,637 Interest expense, net................... 1,129 1,396 1,063 Other expense (income), net............. 1,058 (8) 423 ------- ------- ------- Income before income taxes........ 31,044 23,058 21,151 Provision for income taxes.............. 11,359 8,121 7,107 ------- ------- ------- Net income ....................... $ 19,685 $ 14,937 $ 14,044 ======= ======= ======= Net income per common share............. $ 3.22 $ 2.39 $ 2.33 Net income per common share - assuming dilution................. $ 3.12 $ 2.32 $ 2.18 See notes to consolidated financial statements. F-4 C&D TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY FOR THE YEARS ENDED JANUARY 31, 1998, 1997 AND 1996 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
Minimum Notes Common Stock Additional Pension Treasury Stock Receivable Cumulative ------------ Paid-In Liability ---------------- From Translation Retained Shares Amount Capital Adjustment Shares Amount Stockholders Adjustment Earnings ------ ------ ------- ---------- ------ ------ ------------ ---------- -------- Balance as of January 31,1995............ 5,971,041 $60 $32,053 $(1,656) $21,265 Net income................... 14,044 Dividends to stockholders, $.11 per share............. (665) Principal payments on stock- holder notes............... 1,656 Tax effect relating to stock options exercised.......... 1,426 Minimum pension liability adjustment................. $(760) Purchase of common stock..... (57,400) $(1,304) Issuance of common stock..... 50,000 667 Stock options exercised...... 305,135 3 2,137 --------- -- ------ ---- -------- ------- ------ ---- ------ Balance as of January 31, 1996........... 6,326,176 63 36,283 (760) (57,400) (1,304) - 34,644 Net income................... 14,937 Dividends to stockholders, $.11 per share............. (688) Notes receivable from stockholder........... (1,721) Discount on notes receivable from stockholder........... 137 Amortization of discount on stockholder notes.......... (52) Tax effect relating to stock options exercised.......... 1,151 Minimum pension liability adjustment................. 624 Cumulative translation adjustment................. $(374) Purchase of common stock..... (464,569) (11,092) Issuance of common stock..... 44 51,418 1,164 Stock options exercised...... 221,300 2 1,848 --------- -- ------ ---- -------- ------- ------ ---- ------ Balance as of January 31, 1997........... 6,547,476 65 39,326 (136) (470,551) (11,232) (1,636) (374) 48,893 Net Income................... 19,685 Dividends to stockholders, $.11 per share............. (673) Principal payments on stockholder notes.......... 664 Amortization of discount on stockholder notes.......... (57) Tax effect relating to stock options exercised.......... 564 Minimum pension liability adjustment................. 136 Cumulative translation adjustment................. 126 Issuance of common stock..... 434 18,000 413 Stock options exercised...... 66,973 1 1,106 --------- -- ------ ---- -------- ------- ------ ---- ------ Balance as of January 31, 1998.......... 6,614,449 $66 $41,430 $ - (452,551) $(10,819) $(1,029) $(248) $67,905 ========= == ====== ==== ======== ======= ====== ==== ======
See notes to consolidated financial statements. F-5 C&D TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED JANUARY 31, (DOLLARS IN THOUSANDS)
1998 1997* 1996 ---- ---- ---- Cash flows provided (used) by operating activities: Net income............................................. $ 19,685 $ 14,937 $ 14,044 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization.......................... 11,824 8,494 6,109 Deferred income taxes ................................. (2,338) (302) (1,237) Loss on disposal of assets............................. 175 80 428 Changes in: Accounts receivable.............................. (1,182) (7,188) (1,570) Inventories...................................... (1,856) 2,898 (8,341) Other current assets............................. (450) 163 (56) Accounts payable................................. (933) 2,943 3,405 Accrued liabilities.............................. 1,566 (802) 1,600 Income taxes payable............................. 3,447 3,004 670 Other current liabilities........................ (1,036) 1,257 (794) Other liabilities................................ 2,593 667 1,143 Other, net............................................. 477 (414) (426) ------- ------- ------- Net cash provided by operating activities................ 31,972 25,737 14,975 ------- ------- ------- Cash flows provided (used) by investing activities: Acquisition of businesses, net......................... - (19,739) - Acquisition of property, plant and equipment........... (13,640) (16,322) (7,937) Proceeds from disposal of property, plant and equipment.................................. 41 9 2,579 Change in restricted cash.............................. 1 5,401 (5,327) ------- ------- ------- Net cash used by investing activities.................... (13,598) (30,651) (10,685) ------- ------- ------- Cash flows provided (used) by financing activities: Repayment of long-term debt............................ (19,239) (8,291) (8,669) Proceeds from new borrowings........................... - 20,333 6,500 Financing costs of long-term debt...................... - - (257) Issuance of note receivable to stockholder............. - (1,057) - Repayment of notes receivable from stockholders........ 664 - 1,656 Proceeds from issuance of common stock, net............ 1,107 1,186 2,807 Purchase of treasury stock............................. - (11,092) (1,304) Payment of common stock dividends...................... (671) (694) (657) ------- ------- ------- Net cash (used) provided by financing activities......... (18,139) 385 76 ------- ------- ------- Effect of exchange rate changes on cash.................. (20) 9 9 ------- ------- ------- Increase (decrease) in cash and cash equivalents......... 215 (4,520) 4,375 Cash and cash equivalents at beginning of year........... 952 5,472 1,097 ------- ------- ------- Cash and cash equivalents at end of year................. $ 1,167 $ 952 $ 5,472 ======= ======= =======
* Reclassified for comparative purposes See notes to consolidated financial statements. F-6 C&D TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) FOR THE YEARS ENDED JANUARY 31, (DOLLARS IN THOUSANDS)
1998 1997 1996 ---- ---- ---- SUPPLEMENTAL CASH FLOW DISCLOSURES Cash paid during the year for: Interest paid, net.............................. $ 1,599 $ 1,593 $1,419 Income taxes paid............................... $10,251 $ 5,378 $7,674 SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES Acquired businesses: Estimated fair value of assets acquired......... $ - $ 13,544 $ - Goodwill and identifiable intangible assets..... - 12,655 - Purchase price obligations...................... - (1,358) - Cash paid, net of cash acquired................. - (19,739) - ------ ------- ----- Liabilities assumed............................. $ - $ 5,102 $ - ====== ======= ===== Dividends declared but not paid...................... $ 169 $ 167 $ 172 Note receivable from stockholder in connection with issuance of common stock...................... $ - $ 664 $ - Fair market value of treasury stock issued to pension plans...................................... $ 847 $ 1,208 $ -
See notes to consolidated financial statements. F-7 C&D TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) -------- 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION: C&D TECHNOLOGIES, INC. was incorporated in November 1985. The Company manufactures battery power systems and their components for commercial, industrial and government use in the North American and export standby power and motive power markets. The Company also manufactures embedded high frequency switching power supplies for use in telecommunication equipment, advanced office electronics and sophisticated computer systems. On January 28, 1986, the Company purchased substantially all of the assets of the C&D Power Systems division of Allied Corporation ("Allied") (the "Acquisition"). The consolidated financial statements include the accounts of C&D TECHNOLOGIES, INC. and its wholly owned subsidiaries (collectively the "Company"). All significant intercompany accounts and transactions have been eliminated. ACCOUNTING ESTIMATES: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. FOREIGN CURRENCY TRANSLATION: Assets and liabilities in foreign currencies are translated into U.S. dollars at the rate of exchange prevailing at the balance sheet date. Revenue and expenses are translated at the average rate of exchange for the period. Gains and losses on foreign currency transactions are included in non-operating expenses. DERIVATIVE FINANCIAL INSTRUMENTS: Derivative financial instruments are utilized by the Company to reduce foreign exchange and interest rate risks. The Company has established a control environment which includes policies and procedures for risk assessment and the approval, reporting and monitoring of derivative financial instrument activities. The Company does not hold or issue financial instruments for trading purposes and it prohibits the use of derivatives for speculative purposes. Derivative financial instruments are accounted for on an accrual basis. Income and expense are recorded in the same category as that arising from the related asset or liability being hedged. F-8 C&D TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) -------- 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) The Company selectively uses foreign currency forward and option contracts to offset the effects of exchange rate changes on cash flows denominated in foreign currencies, primarily the Canadian dollar and Mexican peso. The Company uses interest rate swap agreements to reduce the impact of interest rate changes on its debt. The interest rate swap agreements involve the exchange of variable for fixed rate interest payments without the exchange of the underlying notional amount (see Note 11). CASH AND CASH EQUIVALENTS: The Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents. The Company's cash management program utilizes zero balance accounts. Accordingly, all book overdraft balances have been reclassified to accounts payable and amounted to $6,204 and $7,577 at January 31, 1998 and 1997, respectively. REVENUE RECOGNITION: Revenue is recognized when products are shipped and title is passed to the customer. INVENTORIES: Inventories are stated at the lower of cost or net realizable value. Cost is generally determined by the last-in, first-out method for financial statement and federal income tax purposes. PROPERTY, PLANT AND EQUIPMENT: Property, plant and equipment acquired as of the Acquisition was recorded at the then fair value. Property, plant and equipment acquired subsequent to the Acquisition is recorded at cost or fair market value if part of an acquisition. Plant and equipment, including capital leases, are depreciated on the straight-line method for financial reporting purposes over estimated useful lives which range from 3 to 10 years for machinery and equipment, and 10 to 40 years for buildings and improvements. The Company's policy is to capitalize interest during the period of construction. The cost of maintenance and repairs is charged to expense as incurred. Renewals and betterments are capitalized. Upon retirement or other disposition of items of plant and equipment, the cost of the item and related accumulated depreciation are removed from the accounts and any gain or loss is included in income. The Company capitalizes purchased software, including certain costs associated with its installation. The cost of software capitalized is amortized over its estimated useful life, generally three to five years, using the straight-line method. F-9 C&D TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) -------- 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) INTANGIBLE AND OTHER ASSETS, NET: Intangible and other assets, net, includes assets acquired resulting from business acquisitions (see Note 14) and are being amortized on the straight-line method over their estimated periods of benefit, primarily five to ten years. Accumulated amortization as of January 31, 1998 and 1997 was $1,936 and $1,687, respectively. GOODWILL, NET: Goodwill represents the excess of cost over the fair value of net assets acquired and is being amortized on the straight-line method over 10 to 40 years. The recoverability of goodwill is periodically reviewed by the Company. In assessing recoverability, many factors are considered, including operating results and future undiscounted cash flows. The Company believes that no impairment of goodwill existed at January 31, 1998. Accumulated amortization as of January 31, 1998 and 1997 was $1,851 and $1,356, respectively. IMPAIRMENT OF ASSETS: An impairment loss is recognized when expected future cash flows are less than the asset's carrying value. Accordingly, when indicators of impairment are present, the Company evaluates the carrying value of property, plant and equipment and intangibles in relation to the operating performance and future undiscounted cash flows of the underlying business. The Company's policy is to record an impairment loss when it is determined that the carrying amount of the asset may not be recoverable. ACCRUED LIABILITIES: Included in accrued liabilities as of January 31, 1998 and 1997 are $2,722 and $2,413 of accrued vacation, $2,345 and $1,405 of accrued bonus and $1,925 and $3,042 of accrued workers compensation insurance, respectively. OTHER LIABILITIES: The Company provides for estimated warranty costs at the time of sale. Accrued warranty obligations of $2,443 and $3,106 are included in other current liabilities and $5,793 and $4,215 are included in other liabilities as of January 31, 1998 and 1997, respectively. ENVIRONMENTAL MATTERS: Environmental expenditures that relate to current operations are expensed or capitalized as appropriate. Expenditures that relate to an existing condition caused by past operations, and which do not contribute to current or future revenue generation, are also expensed. The Company records F-10 C&D TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) -------- 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) liabilities for environmental costs when environmental assessments and/or remedial efforts are probable and the costs can be reasonably estimated. The liability for future environmental remediation costs is evaluated on a quarterly basis by management. INCOME TAXES: The Company follows Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes," which requires recognition of deferred tax liabilities and assets for the expected future tax consequences of events that have been included in the financial statements or tax returns using tax rates in effect for the year in which the differences are expected to reverse. NET INCOME PER SHARE: In February 1997, the Financial Accounting Standards Board ("FASB") issued SFAS No. 128, "Earnings per Share". This statement establishes standards for computing and presenting earnings per share and requires restatement of prior periods. Net income per common share for the years ended January 31, 1998, 1997 and 1996 is based on the weighted average number of shares of Common Stock outstanding. Net income per common share - assuming dilution reflects the potential dilution that could occur if stock options were exercised. The Company adopted SFAS No. 128 in the fourth quarter of the fiscal year ended January 31, 1998. Weighted average common shares and common shares - assuming dilution were as follows: January 31, -------------------------------- 1998 1997 1996 ---- ---- ---- Net income (A)................. $19,685 $14,937 $14,044 Weighted average shares of common stock outstanding (B).............. 6,110,685 6,258,554 6,039,452 Assumed conversion of stock options, net of shares assumed reacquired........... 205,227 180,611 411,837 --------- --------- --------- Weighted average common shares - assuming dilution (C)................. 6,315,912 6,439,165 6,451,289 Net income per common share (A/B).................. $3.22 $2.39 $2.33 Net income per common share - assuming dilution (A/C)............... $3.12 $2.32 $2.18 F-11 C&D TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) -------- 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) NEW ACCOUNTING PRONOUNCEMENTS NOT YET ADOPTED: In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income," which is effective for years beginning after December 15, 1997. This statement establishes standards for the reporting and display of comprehensive income and its components. Comprehensive income is defined to include all changes in equity during a period except those resulting from investments by owners and distributions to owners. The Company will adopt SFAS No. 130 and begin reporting comprehensive income in the first quarter of fiscal 1999. In June 1997, the FASB also issued SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information," which is effective for fiscal years beginning after December 15, 1997. This statement establishes standards for the disclosure of segment results. It requires that segments be determined using the "management approach," which means the way management organizes the segments within the enterprise for making operating decisions and assessing performance. The Company has not yet determined the impact of the implementation of SFAS No. 131. In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures about Pensions and Other Postretirement Benefits." This statement significantly changes current financial statement disclosure requirements from those that were required under SFAS No. 87, "Employers' Accounting for Pensions," SFAS No. 88, "Employers' Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits," and SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions." Some of the more significant effects of SFAS No. 132 are that it: (i) standardizes the disclosure requirements for pensions and other postretirement benefits and presents them in one footnote; (ii) requires that additional information be disclosed regarding changes in the benefit obligation and fair values of plan assets; (iii) eliminates certain disclosures that are no longer considered useful, including general descriptions of the plans; (iv) permits the aggregation of information about certain plans; (v) provides reduced disclosure requirements for nonpublic entities; (vi) revises disclosures about defined contribution plans; and (vii) changes disclosures relating to multi-employer plans. SFAS No. 132 does not change the existing measurement or recognition provisions of SFAS Nos. 87, 88 or 106. SFAS No. 132 is effective for fiscal years beginning after December 15, 1997. The Company has not yet determined the impact of the implementation of SFAS No. 132. In April 1998, the American Institute of Certified Public Accountants issued Statement of Position ("SOP") 98-5, "Reporting on the Costs of Start-Up Activities." SOP 98-5 requires costs of start-up activities and organization costs to be charged to expense as incurred. SOP 98-5 is effective for financial statements for years beginning after December 15, 1998. The Company believes that the adoption of this SOP will not have a material effect on its financial position or results of operations. F-12 C&D TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) -------- 2. RESTRICTED CASH AND CASH EQUIVALENTS At January 31, 1998 and 1997, the Company had debt proceeds of $0 and $1 which were available solely for the acquisition and installation of equipment at the Company's existing industrial battery manufacturing facility located in Conyers, Georgia (see Note 5). 3. INVENTORIES Inventories consisted of the following: January 31, -------------------- 1998 1997 ---- ---- Raw materials................... $17,099 $17,506 Work-in-progress ............... 9,990 11,599 Finished goods.................. 13,646 9,838 ------ ------ $40,735 $38,943 ====== ====== If the first-in, first-out method of inventory accounting had been used (which approximates current cost), inventories would have been $1,902 and $3,027 higher than reported as of January 31, 1998 and 1997, respectively. 4. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment, net, consisted of the following: January 31, ---------------------- 1998 1997 ---- ---- Land................................. $ 487 $ 487 Buildings and improvements........... 19,214 18,099 Furniture, fixtures and equipment.... 92,146 82,825 Construction in progress............. 4,017 2,794 ------- ------- 115,864 104,205 Less: Accumulated depreciation....... 58,806 51,736 ------- ------- $ 57,058 $ 52,469 ======= ======= For the years ended January 31, 1998, 1997 and 1996, depreciation charged to operations amounted to $8,831, $7,281 and $5,555; maintenance and repair costs expensed totaled $7,399 $6,268 and $5,939; and interest capitalized amounted to $166, $304 and $60, respectively. F-13 C&D TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) -------- 5. LONG-TERM DEBT Long-term debt consisted of the following:
January 31, ----------- 1998 1997 ---- ---- Revolving credit facility ("Revolving Credit"); maximum commitment of $65,000 at January 31, 1998 and 1997 bearing interest at Prime minus .50% or LIBOR plus .52% and at Prime minus 0.25% or LIBOR plus 0.75%, respectively (effective rate on a weighted average basis, 6.20% as of January 31, 1998 and 6.41% as of January 31, 1997)....................................................... $ 8,000 $20,333 Pennsylvania Economic Development Financing Authority ("PEDFA") Taxable Development Revenue Bonds, 1991 Series B2, supported by a letter of credit, bearing interest at a rate set on a weekly basis which approximates the commercial paper rate (effective rate on a weighted average basis, 5.60% as of January 31, 1998 and 5.45% as of January 31, 1997), principal payable in monthly installments of $8 from December 1993 through November 1999 and of $108 from December 1999 through November 2000............................................ 1,484 1,584 PEDFA Economic Development Revenue Bonds, 1991 Series D6, supported by a letter of credit, bearing interest at a rate set on a weekly basis which approximates the commercial paper rate for high-grade tax-exempt borrowers (effective rate on a weighted average basis, 3.70% as of January 31, 1998 and 3.70% as of January 31, 1997), principal payable in monthly installments of $8 from December 1993 through November 1999 and of $67 from December 1999 through November 2000................................................ 983 1,083 Development Authority of Rockdale County Industrial Development Revenue Bonds, Series 1995, ("Georgia Bonds"), supported by a letter of credit ("Georgia L/C"), bearing interest at a rate set on a weekly basis which approximates tax exempt A+ rated debt securities (effective rate on weighted average basis, 3.70% as of January 31, 1997), principal payable at maturity December 1, 2005. The Georgia Bonds were repaid in full on June 16, 1997................................. - 6,500 Capital lease obligations, bearing interest at 10.5% ......................... 121 327 ------ ------- 10,588 29,827 Less current portion 321 476 ------ ------- $10,267 $29,351 ====== ======
F-14 C&D TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) -------- 5. LONG-TERM DEBT (CONTINUED) On September 26, 1994 the Company entered into a three-bank credit facility consisting of a $45,000 revolving credit facility and a $15,000 term loan. On January 26, 1996 the Revolving Credit facility was increased from $45,000 to $65,000. On January 30, 1998 the facility was amended and restated. During fiscal 1998 the related unamortized deferred debt acquisition costs were charged to expense. The bank group now consists of four institutions: NationsBank, CoreStates Bank, Chase Manhattan Bank and PNC Bank. The facility was changed to an unsecured credit, the maturity was extended to February 1, 2001, and the pricing and certain covenants were modified. The Company has the right to use up to $8,000 of the availability under the Revolving Credit to provide for the issuance of letters of credit, including the letters of credit covering the $2,500 PEDFA loans (the "PEDFA L/C"), for the account of the Company. The Georgia L/C was issued independently of the Revolving Credit and did not impair the $8,000 availability. At January 31, 1997 $6,575 was outstanding on the Georgia L/C. On June 16, 1997 the Georgia Bonds were paid in full. During fiscal 1998 the related unamortized deferred debt acquisition costs were charged to expense. The aggregate value of the letters of credit outstanding was $4,922 and $11,923 at January 31, 1998 and 1997 respectively. The availability under the Revolving Credit was $52,078 and $39,319 at January 31, 1998 and 1997 respectively. A letter of credit fee of between 1% and 1.125% per annum on the aggregate face amount of any outstanding letters of credit is payable quarterly. A commitment fee of .125% per annum on the amount of remaining availability is payable quarterly. The interest rates are based on a financial coverage ratio. The available rates after January 30, 1998 are in the following ranges: Prime minus .5% to Prime plus .5% or LIBOR plus .52% to LIBOR plus 1.55%. The available interest rates prior to January 30, 1998 were in the following ranges: Prime minus .4% to Prime plus .6% or LIBOR plus .6% to LIBOR plus 1.6% The maximum aggregate amounts of loans outstanding under the Revolving Credit were $26,765, $28,915 and $7,237 during the years ended January 31, 1998, 1997 and 1996, respectively. For those years the outstanding loans (excluding the PEDFA L/C guarantees) under the Revolving Credit computed on a monthly basis averaged $19,024, $21,494 and $2,204 at a weighted average interest rate of 6.47%, 6.79% and 8.53%, respectively. The Revolving Credit is unsecured. The agreement contains certain restrictive covenants, including certain cash flow and financial ratio requirements and a restriction on capital expenditures. The agreement permits payment of dividends on the Company's Common Stock so long as there is no default under the agreement. The PEDFA Bonds are subject to mandatory redemption upon the occurrence of certain events, including the termination of the corresponding L/C. The tax exempt bonds are subject to mandatory redemption if they lose their tax exempt status. F-15 C&D TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) -------- 5. LONG-TERM DEBT (CONTINUED) The Company was in compliance with its lending agreement covenants at January 31, 1998 and 1997, respectively. As of January 31, 1998, the required minimum annual principal reduction of long-term debt and capital lease obligations for each of the next five fiscal years is as follows: 1999......................... $ 321 2000 ........................ 516 2001......................... 1,751 2002......................... 8,000 2003......................... - Thereafter................... - ------ $10,588 ====== F-16 C&D TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) -------- 6. STOCKHOLDERS' EQUITY (A) STOCK OPTION PLAN: In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based Compensation." This standard permits the continued use of accounting methods prescribed by Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees," or use of the fair value based method of accounting for employee stock options. Under APB No. 25, no compensation expense is recognized when the exercise price of the Company's employee stock options equals the market price of the underlying stock at the date of grant. The Company has elected to continue using APB No. 25. At January 31, 1998, the Company had options outstanding under its Stock Option Plans. The 1996 Stock Option Plan was approved by the stockholders on July 25, 1996 and replaces the previous plan which expired on January 28, 1996. New options can be granted only under the 1996 plan, which reserved 500,000 shares of Common Stock for such use. Incentive stock options are to be granted at no less than 100% of the fair market value on the date of grant with a term of no more than ten years after the date of grant. Nonqualified stock options are to be granted at such price as the Compensation Committee of the Board of Directors deems appropriate with a term of no more than ten years and one day after the date of grant. The options are exercisable upon vesting as determined by the Compensation Committee at the time the options are granted. A summary of stock option activity related to the Company's plan is as follows:
Beginning Granted Exercised Canceled Ending Balance During During During Balance Outstanding Year Year Year Outstanding Exercisable ----------- ---- ---- ---- ----------- ----------- Year ended January 31, 1998 Number of shares.............. 431,500 141,525 66,973 22,351 483,701 198,171 Weighted average option price per share............. $17.78 $45.03 $16.52 $25.32 $25.98 $12.99 Year ended January 31, 1997 Number of shares.............. 301,800 253,000 111,300 12,000 431,500 190,500 Weighted average option price per share............. $10.19 $24.00 $10.66 $24.00 $17.78 $9.92 Year ended January 31, 1996 Number of shares.............. 403,600 - 94,125 7,675 301,800 187,300 Weighted average option price per share............. $9.96 - $9.20 $10.39 $10.19 $9.06
F-17 C&D TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) -------- 6. STOCKHOLDERS' EQUITY (CONTINUED) There were 139,826 and 259,000 shares available for future grants of options as of January 31, 1998 and 1997, respectively. The following table summarizes information about the stock options outstanding at January 31, 1998:
Options Outstanding Options Exercisable ------------------------------------------------- --------------------------------- Weighted- Average Weighted- Weighted- Remaining Average Average Range of Number Contractual Exercise Number Exercise Exercise Prices Outstanding Life Price Exercisable Price --------------- ----------- ---- ----- ----------- ----- $5.25 - $8.25 73,000 4.6 years $ 7.02 73,000 $ 7.02 $10.13 - $12.00 77,500 6.2 years $11.85 77,500 $11.85 $24.00 193,026 8.8 years $24.00 47,671 $24.00 $34.50 10,500 9.0 years $34.50 - - $45.88 129,675 9.7 years $45.88 - - ------- ------- $5.25 - $45.88 483,701 8.0 years $25.58 198,171 $12.99 ======= =======
Pro forma information regarding net income and earnings per share is required by SFAS No. 123, and has been determined as if the Company had accounted for its employee stock options under the fair value method of SFAS No. 123. The fair value for these options was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted average assumptions for 1998 and 1997. 1998 1997 ---- ---- Risk-free interest rate........... 6.44% 6.58% Expected dividend yield........... .44% .46% Expected volatility factor........ 0.409 0.400 Weighted average expected life.... 5.28 years 6.00 years The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the Company's employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options. F-18 C&D TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) -------- 6. STOCKHOLDERS' EQUITY (CONTINUED) If the Company had elected, beginning in fiscal 1997, to recognize compensation cost based on fair value of the options granted at grant date as prescribed by SFAS No. 123, net income and net income per common share would have approximated the pro forma amounts shown below: 1998 1997 ---- ---- Net income - as reported..................... $19,685 $14,937 Net income - pro forma....................... 18,953 14,795 Net income per common share - as reported.... 3.22 2.39 Net income per common share - pro forma...... 3.10 2.36 Net income per common share - assuming dilution - as reported............ 3.12 2.32 Net income per common share - assuming dilution - pro forma.............. 3.00 2.30 Weighted average fair value of options granted during the year.................... 17.96 11.24 The pro forma disclosures are not likely to be representative of the effects on net income and net income per common share in future years, because they do not take into consideration pro forma compensation expense related to grants made prior to the Company's fiscal year 1997. No options were granted during fiscal 1996. (B) GRANT OF OPTIONS: In May 1989 and June 1988, the Company granted options to purchase 110,000 and 237,386 shares, respectively, of Common Stock to certain executives for terms expiring April 30, 1994 and 1993, respectively, at $6.04 per share. In June 1991: (i) a certain executive vested in his options to purchase 26,376 shares of common stock; and (ii) the agreements regarding the remaining options were amended whereby certain vesting criteria were eliminated and the expiration dates changed, so that these options vested on April 30, 1994 and would expire on April 30, 1996 and October 31, 1995 for options to purchase 110,000 and 211,010 shares, respectively. During the year ended January 31, 1994, the option to purchase 26,376 shares expired prior to exercise. During the year ended January 31, 1996 the option to purchase 211,010 shares was exercised. During the year ended January 31, 1997 the option to purchase 110,000 shares was exercised. The Company has recorded no compensation expense related to these options in the three years ended January 31, 1998. F-19 C&D TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) ---------- 7. INCOME TAXES The provisions for income taxes as shown in the accompanying consolidated statements of income consisted of the following: January 31, ----------------------------- 1998 1997 1996 ---- ---- ---- Currently payable: Federal...................... $11,579 $7,196 $ 7,156 Foreign...................... 59 94 - State........................ 1,853 960 1,068 Foreign Sales Corporation.... 206 173 120 ------ ----- ------- 13,697 8,423 8,344 ------ ----- ------- Deferred: Federal...................... (2,039) (285) (1,052) State........................ (299) (17) (185) ------ ----- ------- (2,338) (302) (1,237) ------ ----- ------ $11,359 $8,121 $ 7,107 ====== ===== ====== The components of the deferred tax asset and liability as of January 31, 1998 and 1997 were as follows: 1998 1997 ---- ---- Deferred tax asset: Vacation and compensation accruals............ $ 3,746 $ 3,537 Restructuring reserves........................ 443 307 Postretirement benefits....................... 741 682 Warranty reserves............................. 3,261 2,903 Bad debt, inventory and return allowances..... 2,306 1,471 Environmental reserves........................ 570 593 Other accruals................................ 754 277 ------- ------ Total deferred tax asset...................... 11,821 9,770 ------ ----- Deferred tax liability: Depreciation and amortization................. (5,901) (5,773) Pension obligation............................ (306) (388) Other......................................... (119) (217) ------- ------ Total deferred tax liability.................. (6,326) (6,378) ------ ------ Net deferred tax asset........................ $ 5,495 $ 3,392 ====== ====== F-20 C&D TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) -------- 7. INCOME TAXES (CONTINUED) Reconciliations of the provisions for income taxes at the U. S. Federal statutory rate to the effective tax rates for the years ended January 31, 1998, 1997 and 1996, respectively, are as follows: January 31, ----------------------------- 1998 1997 1996 ---- ---- ---- U.S. statutory income tax........... $10,865 $8,070 $7,403 Tax effect of foreign operations.... (35) (234) - State tax, net of federal income tax benefit................ 1,010 613 574 Reduction in valuation allowance.... - - (792) Foreign sales corporation........... (388) (325) (150) Other............................... (93) (3) 72 ------ ----- ----- $11,359 $8,121 $7,107 ====== ===== ===== The decrease in the valuation allowance of $792 during the year ended January 31, 1996 relates to revaluation of the stock option compensation deferred tax asset due to increases in the price of the Company's common stock. 8. COMMITMENTS AND CONTINGENCIES (A) OPERATING LEASES: The Company leases certain manufacturing and office facilities and certain equipment under operating lease agreements. Certain leases contain renewal options and some have purchase options, and generally provide that the Company shall pay for insurance, taxes and maintenance. As of January 31, 1998, the Company had future minimum annual lease obligations under leases with noncancellable lease terms in excess of one year as follows: Fiscal Year ----------- 1999........................ $ 2,286 2000........................ 1,870 2001........................ 1,356 2002........................ 1,152 2003........................ 963 Thereafter.................. 4,766 ------ $12,393 ====== Total rent expense for all operating leases for the years ended January 31, 1998, 1997 and 1996 was $3,319, $3,289 and $1,800, respectively. F-21 C&D TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) ------- 8. COMMITMENTS AND CONTINGENCIES (CONTINUED) (B) CONTINGENT LIABILITIES: Because the Company uses lead and other hazardous substances in its manufacturing processes, it is subject to numerous federal, Canadian, Mexican, Irish, state and local laws and regulations that are designed to protect the environment and employee health and safety. These laws and regulations include requirements relating to the handling, storage, use and disposal of hazardous materials and solid wastes, recordkeeping and periodic reporting to governmental entities regarding the use of hazardous substances and disposal of hazardous wastes, monitoring and permitting of air and water emissions and monitoring and protecting workers from exposure to hazardous substances, including lead used in the Company's manufacturing processes. In the opinion of the Company, the Company complies in all material respects with these laws and regulations. Notwithstanding such compliance, if damage to persons or the environment has been or is caused by hazardous substances used, generated or disposed of in the conduct of the Company's business (or that of a predecessor to the extent the Company is not indemnified therefore), the Company may be held liable for the damage and be required to pay the cost of investigating and remedying the same, and the amount of any such liability could be material to the results of operations or financial condition. However, under the terms of the purchase agreement with Allied for the Acquisition of the Company (the "Acquisition Agreement"), Allied is obligated to indemnify the Company for any liabilities of this type resulting from conditions existing at January 28, 1986 that were not disclosed by Allied to the Company in the schedules to the Acquisition Agreement. The Company, along with numerous other parties, has been requested to provide information to the United States Environmental Protection Agency (the "EPA") in connection with investigations of the source and extent of contamination at several lead smelting facilities (the "Third Party Facilities") to which the Company had made scrap lead shipments for reclamation prior to the date of the Acquisition. As of January 16, 1989, the Company entered into an agreement with other potentially responsible parties ("PRPs") relating to remediation of a portion of one of the Third Party Facilities, the former NL Industries ("NL"), facility in Pedricktown, New Jersey (the "NL Site"), which agreement provides for their joint funding on a proportionate basis of certain remedial investigation and feasibility study activities with respect to that site. In fiscal 1993 in accordance with an EPA order, a group comprised of the Company and 30 other parties commenced work on the cleanup of a portion of the NL Site based on a specified remedial approach which is now completed. The Company did not incur costs in excess of the amount previously reserved. F-22 C&D TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) ------- 8. COMMITMENTS AND CONTINGENCIES (CONTINUED) With regard to the remainder of the NL Site, the EPA is pursuing negotiations with NL and the other PRPs, including the Company, regarding the conduct and funding of the remedial work plan. The EPA has proposed a cost allocation plan, however, the allocation percentages between parties and the basis for allocation of cost are not defined in the plan or elsewhere. Therefore, a reliable range of the potential cost to the Company of this phase of the clean-up cannot currently be determined. Accordingly, the Company has not established any reserve for this potential exposure. The remedial investigation and feasibility study at a second Third Party Facility, the former Tonolli Incorporated facility at Nesquehoning, Pennsylvania (the "Tonolli Site"), was completed in fiscal 1993. The EPA and the PRPs are continuing to evaluate the draft remedial design work plan for the site. Based on the estimated cost of the remedial approach selected by the EPA, the Company believes that the potential cost of remedial action at the Tonolli Site is likely to range between $16,000 and $17,000. The Company's allocable share of this cost has not been finally determined, and will depend on such variables as the financial capability of various other PRPs to fund their respective allocable shares of the remedial cost. Based on currently available information, however, the Company believes that its most likely exposure with respect to the Tonolli Site will be the approximately $579 previously reserved, the majority of which is expected to be paid over the next two years. The Company expects to recover a portion of its monetary obligations for the remediation of the Tonolli site through litigation against third parties and recalcitrant PRPs. The Company has responded to requests for information from the EPA with regard to three other Third Party Facilities, one in September 1991, one (the "Chicago Site") in October 1991, and the third (the "ILCO Site") in October 1993. Of the three sites, the Company has been identified as a PRP at the ILCO and Chicago Sites only. Based on currently available information, the Company believes that the potential cost of remediation at the ILCO Site is likely to range between $54,000 and $59,000 (based on the estimated costs of the remedial approach selected by the EPA). The Company's allocable share of this cost has not been finally determined and will depend on such variables as the financial capability of various other PRPs to fund their respective allocable shares of the remedial cost. However, on October 31, 1995 the Company received confirmation from the EPA that it is a de minimis PRP at the ILCO Site. Based on currently available information, however, the Company believes that its most likely exposure with respect to the ILCO Site is an immaterial amount which has been previously reserved, the majority of which is expected to be paid over the next year. Based on currently available information, the Company believes that the potential cost of the remediation at the Chicago Site is likely to range between $8,000 and $10,500 (based on the preliminary estimated costs of the remediation approach negotiated with the EPA). Sufficient information is not available to determine the Company's allocable share of this cost. Based on currently available information, however, the Company believes that its most likely exposure with respect to the Chicago Site will be the approximately $283 previously reserved, the majority of which is expected to be paid over the next two to five years. F-23 C&D TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) ------- 8. COMMITMENTS AND CONTINGENCIES (CONTINUED) Allied has accepted responsibility under the Acquisition Agreement for potential liabilities relating to all Third Party Facilities other than the aforementioned Sites. Based on currently available information, management of the Company believes that the foregoing will not have a material adverse effect on the Company's business, financial condition or results of operations. (C) PURCHASE COMMITMENTS: The Company has long-term relationships pertaining to the purchase of certain raw materials with various suppliers through December 31, 1998. These purchase commitments are not expected to exceed usage requirements. 9. MAJOR CUSTOMER Lucent Technologies accounted for 13.5% and 4.0% of net sales for the years ended January 31, 1998 and 1997. AT&T accounted for 0.7%, 11.1% and 11.4% of net sales for the years ended January 31, 1998, 1997 and 1996. Lucent Technologies was spun off from AT&T and became an operating entity on October 1, 1996. Had Lucent Technologies been an operating company for the full fiscal year, Lucent Technologies would have accounted for 12.0% of net sales and AT&T would have accounted for 3.1% of net sales for the year ended January 31, 1997. 10. CONCENTRATION OF CREDIT RISK Financial instruments which subject the Company to potential concentration of credit risk consist principally of trade receivables and temporary cash investments. The Company places its temporary cash investments with various financial institutions and, generally, limits the amount of credit exposure to any one financial institution. Except as discussed in Note 9, concentrations of credit risk with respect to trade receivables is limited by a large customer base and its geographic dispersion. The Company performs ongoing credit evaluations of its customers' financial condition and requires collateral, such as letters of credit, in certain circumstances. 11. FAIR VALUE OF FINANCIAL INSTRUMENTS The following methods and assumptions were used to estimate the fair value of each class of financial instruments: Cash and cash equivalents - the carrying amount approximates fair value because of the short maturity of these instruments. Debt (excluding capital lease obligations) - the carrying value of the Company's long term debt, including the current portion, approximates fair value based on the incremental borrowing rates currently available to the Company for loans with similar terms, maturity and tax exempt status. F-24 C&D TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) -------- 11. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED) The estimated fair values of the Company's financial instruments at January 31, 1998 and 1997 were as follows: 1998 1997 --------------------- ---------------------- Carrying Carrying Amount Fair Value Amount Fair Value ------ ---------- ------ ---------- Cash and cash equivalents ...... $ 1,167 $ 1,167 $ 952 $ 952 Restricted cash and cash equivalents ................. - - 1 1 Debt (excluding capital lease obligations) .......... 10,467 10,467 29,500 29,500 The fair value of accounts receivable, accounts payable and accrued liabilities consistently approximate the carrying value due to the relatively short maturity of these instruments and are excluded from the above table. On December 20, 1995 the Company entered into an interest rate swap agreement with a notional amount of $6,500. This swap agreement effectively fixed the interest rate on a like amount of the Company's floating rate debt at 6.01% plus the Company's LIBOR spread in effect at any time. The effective rate was 6.53% and 6.76% at January 31, 1998 and 1997, respectively. The swap expires on December 20, 2002. On June 24, 1997 the Company entered into a cross currency interest rate swap agreement with a notional amount of US $1,293. This swap agreement effectively exchanges US Dollar debt for Canadian Dollar debt and fixes the interest rate at 4.72%. The maturity date for this instrument is June 24, 1999. On June 24, 1997 the Company entered into a cross currency interest rate swap agreement with a notional amount of US $1,221. The swap agreement effectively exchanges US Dollar debt for Canadian Dollar debt and establishes floating interest rates equivalent to three months Canadian Bank Acceptances plus .18%. At January 31, 1998 the effective rate was 5.13%. The maturity date for this instrument is June 24, 1998. The Company had a foreign exchange contract on hand at January 31, 1998 hedging Mexican Peso requirements in the amount of $2,739. The estimated fair value of the aforementioned interest rate swaps and foreign exchange contract is not material. The estimates of fair value are based on market prices or current rates offered for interest rate swaps and foreign exchange contracts with similar terms and maturities. The ultimate amounts paid or received under these interest rate swaps and foreign currency contract, however, depend on future interest rates and exchange rates. F-25 C&D TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) -------- 12. RELATED PARTY TRANSACTIONS In connection with the Acquisition, the Company entered into a consulting agreement with an affiliate of certain of the Company's major stockholders. Effective January 1, 1992, the agreement was amended to eliminate the Company's obligation to pay regular periodic consulting fees and to substitute therefore an obligation to pay certain fees in connection with potential acquisitions by the Company. The agreement was terminated on November 1, 1995. No payments were made under this agreement for the years ended January 31, 1998, 1997 and 1996. In May 1988, the Company entered into an agreement with a former executive providing for (i) the purchase of 316,515 shares of Common Stock at $4.20 a share, payable in cash in the amount of $.01 a share and the balance of $4.19 a share in a noninterest bearing note and (ii) the grant of certain options (see Note 6). The note matured on October 31, 1995 and was repaid. For financial reporting purposes, the note was discounted to present value as of the date of issuance. In May 1989, the Company entered into an agreement with another executive providing for (i) the purchase of 60,000 shares of Common Stock at $5.50 a share, payable in cash in the amount of $.01 a share and an interest bearing note at 12.5% (6.0% per annum effective July 1, 1992) maturing April 30, 1998 (subject to acceleration under certain circumstances), and (ii) the grant of certain options (see Note 6). The note was repaid during the fiscal year ended January 31, 1996. The option was exercised on April 30, 1996. Under the terms of the Option Agreement, this executive paid the exercise price with an interest-free promissory note in the original principal amount of $664 that was collateralized by the shares received on exercise. The note matured on October 31, 1997 and was repaid. The Company loaned this executive $1,057 to pay the tax withholding on the exercise of such option, evidenced by a promissory note (the "Tax Note"), bearing interest at 5.33% per annum payable annually, and due on April 29, 1997, subject to extension until April 29, 1999 at the option of this executive. On April 28, 1997 this executive extended the Tax Note until April 29, 1999. The Tax Note is collateralized by 90,000 of the shares received on exercise of such option. The Company further agreed to make payments to the executive in an amount sufficient to reimburse the executive, on an after-tax basis, for all interest on the Tax Note incurred through the earlier of April 29, 1997 or the prepayment of the Tax Note. The consolidated statements of income for the years ended January 31, 1998, 1997 and 1996 include executive contract expenses of $1, $238 and $0, respectively. F-26 C&D TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) -------- 13. EMPLOYEE BENEFIT PLANS (A) The Company has various noncontributory defined benefit pension plans, which cover certain employees. The Company's funding policy is to contribute annually an amount that can be deducted for federal income tax purposes using a different actuarial cost method and different assumptions than those used for financial reporting purposes. Pension benefits for the Company's defined benefit plans are generally based on employee's years of service and qualifying compensation during the years of employment. Plan assets are invested in commingled trust funds consisting primarily of equity and U.S. Government securities. The following table represents the funded status of the Company's plans and amounts included in the Company's balance sheets:
January 31, 1998 January 31, 1997 ---------------- ---------------- Over- Under- Over- Under- funded funded funded funded Plans Plans Plans Plans ----- ----- ----- ----- Actuarial present value of benefit obligations: Vested benefit obligation.................... $4,957 $22,146 $3,679 $20,116 ===== ====== ===== ====== Accumulated benefit obligation............... $5,646 $24,146 $4,107 $21,506 ===== ====== ===== ====== Projected benefit obligation................. $5,646 $29,169 $4,107 $25,581 Plan assets at fair value.................... 6,336 27,565 4,243 24,771 ----- ------ ----- ------ Projected benefit obligation less than (in excess of) plan assets................ 690 (1,604) 136 (810) Unrecognized net loss........................ 1,048 784 702 855 Prior service cost not yet recognized in net periodic pension cost.............. 9 (11) 8 (10) Adjustment required to recognize minimum liability......................... - - - (240) ----- ------ ----- ------ Prepaid (accrued) pension cost .............. $1,747 $ (831) $ 846 $ (205) ===== ====== ===== ======
As required by SFAS No. 87, "Employers' Accounting for Pensions," for plans where the accumulated benefit obligation exceeds the fair value of the plan assets, the Company has recognized in the accompanying consolidated balance sheets the minimum liability of the unfunded accumulated benefit obligation as a long-term liability with an offsetting intangible asset and equity adjustment, net of tax impact. As of January 31, 1997, this minimum liability amounted to $240 and the reduction in equity amounted to $136. F-27 C&D TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) -------- 13. EMPLOYEE BENEFIT PLANS (CONTINUED) For the years ended January 31, 1998, 1997 and 1996, the actuarially computed net pension expense included the following components:
1998 1997 1996 ---- ---- ---- Service cost .................................. $ 1,176 $ 1,257 $ 733 Interest cost.................................. 2,246 2,100 1,906 Actual return on plan assets................... (5,438) (3,314) (6,216) Net amortization and deferrals................. 2,946 1,179 4,506 ------ ------ ------ Net pension expense............................ $ 930 $ 1,222 $ 929 ====== ====== ======
Actuarial assumptions used in accounting for the plans for the years ended January 31, 1998, 1997 and 1996 were as follows:
1998 1997 1996 ---- ---- ---- Weighted average discount rate: Pension expense......................... 7.80% 7.25% 9.25% Benefits obligations.................... 7.00% 7.80% 7.25% Weighted average rates of increase in compensation levels..................... 4.6% to 8.6% 4.6% to 8.6% 4.6% to 8.6% Weighted average expected long-term rate of return on assets................ 8.75% 8.75% 8.75%
(B) The Company provides certain health care and life insurance benefits for retired employees who meet certain service requirements under a frozen plan (the "Plan"). Under the Plan, the Company contributes a fixed amount and requires the retiree to fund the remaining cost. As the Company's contribution is frozen, the change in future health care costs should not materially impact the accumulated postretirement benefit obligation. The components of net postretirement benefit expense follow:
1998 1997 1996 ---- ---- ---- Service cost of benefits earned................... $ 59 $ 58 $ 49 Interest cost on liability........................ 109 106 111 Net amortization.................................. (24) (16) (37) --- --- --- Net postretirement benefit costs.................. $144 $148 $123 === === ===
F-28 C&D TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) -------- 13. EMPLOYEE BENEFIT PLANS (CONTINUED) The following table sets forth the Plan's postretirement benefit liability as of January 31, 1998 and 1997: 1998 1997 ---- ---- Accumulated postretirement benefit obligation: Current retirees............................. $ 698 $ 600 Fully eligible actives....................... 578 582 Other actives................................ 358 293 ----- ----- Total accumulated postretirement benefit obligation........................... 1,634 1,475 Unrecognized net gain............................ (217) (322) ----- ----- Accrued postretirement benefit liability..... $1,851 $1,797 ===== ===== The accumulated postretirement benefit obligation was determined using a weighted average discount rate of 7.0% and 7.8% for the years ended January 31, 1998 and 1997, respectively. (C) Certain salaried employees are eligible to participate in various defined contribution retirement plans. The Company's contributions under the plans are based on specified percentages of employee contributions. The Company's cost was $725, $684 and $633 for the years ended January 31, 1998, 1997 and 1996, respectively. 14. ACQUISITIONS In February 1996, the Company acquired certain equipment and inventory of LH Research, Inc. used in its power supply business, along with all rights to the name "LH Research" for $4,428 of which $892 was recorded as current portion of long-term debt and paid during the year. The Company used available cash to finance the acquisition. The acquisition was recorded using the purchase method of accounting and the net purchase price has been allocated on the basis of the estimated fair market values of the assets acquired and liabilities assumed. The excess of the aggregate purchase price over the estimated fair market values of the net assets acquired was recognized as goodwill. During the fiscal year ended January 31, 1998 the goodwill and intangible assets were written off in accordance with the Company's Impairment of Assets policy (see Note 1). F-29 C&D TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) -------- 14. ACQUISITIONS (CONTINUED) In March 1996, the Company acquired from Burr-Brown Corporation its entire interest in Power Convertibles Corporation ("PCC") consisting of 1,044,418 shares of PCC common stock and all outstanding preferred stock. In addition the Company acquired or repaid $5,158 of indebtedness of PCC. In April 1996, the Company acquired 190,000 shares of PCC common stock from the former chief executive officer of PCC which together with the shares previously acquired represented in excess of 99.6% of the outstanding PCC common stock. In May 1996, the Company purchased all remaining shares of PCC common stock and shares of PCC common stock issuable upon exercise of stock options. The source of funds for the acquisition was advances under the Company's existing credit facility. PCC is engaged in the business of designing and manufacturing DC-to-DC converters used in communications, computer, medical and industrial and instrumentation markets and also produces battery chargers for cellular phones. The acquisition has been recorded using the purchase method of accounting. The aggregate purchase price was $16,932 of which $466 was recorded as current portion of long-term debt and paid during the year. The purchase price has been allocated on the basis of the estimated fair market values of the assets acquired and liabilities assumed. The excess of the aggregate purchase price over the estimated fair market values of the net assets acquired was recognized as goodwill and is being amortized over a period of 20 years. The results of operations are included in the Company's consolidated financial statements from the date of acquisition. F-30 C&D TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) -------- 14. ACQUISITIONS (CONTINUED) The following unaudited pro forma financial information combines the consolidated results of operations as if both acquisitions had occurred as of the beginning of the periods presented. Pro forma adjustments include only the effects of events directly attributed to a transaction that are factually supportable and expected to have a continuing impact. The pro forma adjustments contained in the table below include amortization of intangibles, interest expense on the acquisition debt, elimination of interest expense on debt not acquired, reduction of certain selling, general and administrative expenses and the related income tax effects. January 31, ---------------------- 1997 1996 ---- ---- Net sales............................ $288,830 $278,309 Net income........................... $ 14,683 $ 12,938 Net income per common share.......... $ 2.35 $ 2.14 Net income per common share - assuming dilution.................. $ 2.28 $ 2.00 The pro forma financial information does not necessarily reflect the operating results that would have occurred had the acquisitions been consummated as of the above dates, nor is such information indicative of future operating results. In addition, the pro forma financial results contain estimates since the acquired businesses did not maintain information on a period comparable with the Company's fiscal year-end. F-31 C&D TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) -------- 15. QUARTERLY FINANCIAL DATA (UNAUDITED) Quarterly financial data for the years ended January 31, 1998 and 1997 follow:
First Second Third Fourth Quarter Quarter Quarter Quarter ------- ------- ------- ------- For the year ended January 31, 1998: Net sales............................. $73,346 $75,375 $81,381 $77,952 Gross profit.......................... 18,983 19,474 20,656 22,061 Operating income...................... 7,652 7,738 8,822 9,019 Net income............................ 4,135 4,704 5,319 5,527 Net income per common share........... .68 .77 .87 .90 Net income per common share - assuming dilution.................. .66 .75 .84 .87 For the year ended January 31, 1997: Net sales............................. $62,429 $71,748 $76,576 $76,154 Gross profit.......................... 15,121 15,281 18,262 18,424 Operating income...................... 5,804 4,466 6,857 7,319 Net income............................ 3,646 2,650 4,130 4,511 Net income per common share........... .58 .41 .66 .74 Net income per common share - assuming dilution................... .56 .40 .65 .72
F-32 REPORT OF INDEPENDENT ACCOUNTANTS ON SCHEDULE To the Board of Directors and Stockholders of C&D TECHNOLOGIES, INC. Our report on the consolidated financial statements of C&D TECHNOLOGIES, INC. and Subsidiaries (formerly Charter Power Systems, Inc.) is included on page F-2 of this Form 10-K. In connection with our audits of such financial statements, we have also audited the related financial statement schedule listed in item 14(a) (2) of this Form 10-K. In our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information required to be included therein. COOPERS & LYBRAND L.L.P. 2400 Eleven Penn Center Philadelphia, Pennsylvania March 10, 1998 S-1 C&D TECHNOLOGIES, INC. AND SUBSIDIARIES SCHEDULE II. VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED JANUARY 31, 1998, 1997 AND 1996 (DOLLARS IN THOUSANDS)
Additions Charged Additions Balance Balance at (Credited) Charged at Beginning to Costs & to Other End of of Period Expenses Accounts(b) Deductions(a) Period --------- -------- ----------- ------------- ------ Deducted From Assets - -------------------- Allowance for Doubtful Accounts: Year ended January 31, 1998............... $1,414 $ 401 - $114 $1,701 Year ended January 31, 1997............... 1,421 128 $109 244 1,414 Year ended January 31, 1996............... 1,404 136 - 119 1,421 - ---------
(a) Amounts written-off, net of recoveries. (b) Additions related to business acquisitions. S-2 EX-4.1 2 EXHIBIT 4.1 AMENDED AND RESTATED FINANCING AGREEMENT By and Among C&D Technologies, Inc., Ratelco Electronics, Inc., C&D/Charter Holdings, Inc., Charter Power F.S. Ltd., Mexico S.A. DE C.V., Power Convertibles Ireland Limited, C&D Technologies De Mexico S.A. De C.V., PCC Mexican Holdings, Inc. and NationsBank, N.A., CoreStates Bank, N.A., The Chase Manhattan Bank, PNC Bank, National Association Date: January 30, 1998 -1- ARTICLE 1 DEFINITIONS ............................................. 3 SECTION 1.1 Certain Defined Terms........................ 3 SECTION 1.2 Accounting Terms and Other Definitional Provisions................................... 26 ARTICLE 2 THE CREDIT FACILITIES.......................................... 27 SECTION 2.1 The Revolving Credit Facility................ 27 2.1.1 Revolving Credit Facility.................... 27 2.1.2 Procedure for Making Advances Under the Revolving Loan............................... 28 2.1.3 Lender Protection Loans...................... 30 2.1.4 Revolving Credit Notes....................... 30 2.1.5 Optional Prepayments of Revolving Loan....... 30 2.1.6 Revolving Loan Account....................... 31 2.1.7 Revolving Credit Unused Line Fee............. 31 2.1.8 Optional Reduction of Total Revolving Credit Committed Amount...................... 32 SECTION 2.2 The Letter of Credit Facility................ 33 2.2.1 Letters of Credit............................ 33 2.2.2 Letter of Credit Fees........................ 33 2.2.3 Terms of Letters of Credit................... 34 2.2.4 Procedures for Issuance of Letters of Credit....................................... 34 2.2.5 Payment of Reimbursement Obligations......... 36 2.2.6 Letter of Credit Reserves.................... 38 2.2.7 Indemnification and Assumption of Risk....... 38 2.2.8 Participations in the Letters of Credit, PEDFA Obligations............................ 41 2.2.9 Payments by the Lenders to the Agent......... 42 2.2.10 Post-Termination Date Letters of Credit...... 43 SECTION 2.3 Interest..................................... 45 2.3.1 Available Interest Rates..................... 45 2.3.2 Selection of Interest Rates.................. 46 2.3.3 Adjustment of Interest Rates................. 48 2.3.4 Inability to Determine LIBOR Rate............ 49 2.3.5 Indemnity.................................... 49 2.3.6 Payment of Interest.......................... 50 SECTION 2.4 General Financing Provisions................. 51 2.4.1 Borrowers' Representatives................... 51 2.4.2 Use of Proceeds of the Loans and Letters of Credit.................................... 54 2.4.3 Computation of Interest and Fees............. 54 -1- 2.4.4 Liens; Setoff................................ 54 2.4.5 Requirements of Law.......................... 55 2.4.6 Pro Rata Treatment and Payments.............. 56 2.4.7 Mandatory Prepayments........................ 57 2.4.8 Settlement Among Lenders..................... 59 ARTICLE 3 REPRESENTATIONS AND WARRANTIES................................. 59 SECTION 3.1 Representations and Warranties............... 59 3.1.1 Subsidiaries................................. 59 3.1.2 Good Standing................................ 60 3.1.3 Power and Authority.......................... 60 3.1.4 Binding Agreements........................... 60 3.1.5 No Conflicts................................. 60 3.1.6 No Defaults, Violations...................... 61 3.1.7 Compliance with Laws......................... 61 3.1.8 Margin Stock................................. 61 3.1.9 Investment Company Act; Margin Securities................................... 61 3.1.10 Litigation................................... 62 3.1.11 Financial Condition.......................... 62 3.1.12 Projected Financial Statements............... 62 3.1.13 Full Disclosure.............................. 63 3.1.14 Indebtedness for Borrowed Money.............. 63 3.1.15 Taxes........................................ 63 3.1.16 ERISA........................................ 63 3.1.17 Title to Properties.......................... 64 3.1.18 Presence of Hazardous Materials or Hazardous Materials Contamination............ 64 3.1.19 Places of Business........................... 64 3.1.20 Business Names and Addresses................. 64 3.1.21 Securities Acts.............................. 65 3.1.22 Governmental Regulation...................... 65 3.1.23 Solvency..................................... 65 3.1.24 Employee Relations........................... 65 3.1.25 Proprietary Rights........................... 66 SECTION 3.2 Survival..................................... 66 ARTICLE 4 CONDITIONS PRECEDENT........................................... 66 SECTION 4.1 Conditions to Effectiveness of this Agreement.................................... 66 4.1.1 Good Standing etc. ......................... 66 4.1.2 Corporate Proceedings of the Borrowers....... 66 4.1.3 Notes........................................ 67 -2- 4.1.4 Financing Documents.......................... 67 4.1.5 Opinion of Borrower's Counsel................ 67 4.1.6 Other Documents, Etc......................... 67 4.1.7 Payment of Fees.............................. 67 4.1.8 Additional Matters........................... 67 4.1.9 Commitment Fees.............................. 68 SECTION 4.2. Conditions to all Extensions of Credit....... 68 4.2.1 Compliance................................... 68 4.2.2 Default...................................... 68 4.2.3 Representations and Warranties............... 68 4.2.4 Adverse Change............................... 69 4.2.5 Legal Matters................................ 69 ARTICLE 5 COVENANTS OF THE BORROWERS..................................... 69 SECTION 5.1 Affirmative Covenants........................ 69 5.1.1 Financial Statements......................... 69 5.1.2 Reports to SEC and to Stockholders........... 71 5.1.3 Recordkeeping, Rights of Inspection, Field Examination, Etc....................... 71 5.1.4 Corporate Existence.......................... 73 5.1.5 Compliance with Laws......................... 73 5.1.6 Preservation of Properties................... 73 5.1.7 Line of Business............................. 73 5.1.8 Insurance.................................... 74 5.1.9 Taxes........................................ 74 5.1.10 ERISA........................................ 75 5.1.11 Notification of Events of Default and Adverse Developments......................... 75 5.1.12 Hazardous Materials; Contamination........... 76 5.1.13 Disclosure of Significant Transactions....... 78 5.1.14 Net Worth.................................... 78 5.1.15 Liabilities to Tangible Net Worth Ratio...... 78 5.1.16 Current Ratio................................ 79 5.1.17 Fixed Charge Coverage Ratio.................. 79 5.1.18 Funded Debt to EBITDA........................ 79 5.1.19 Business Names; Locations.................... 79 SECTION 5.2 Negative Covenants........................... 79 5.2.1 Merger, Acquisition or Sale of Assets........ 79 5.2.2 Subsidiaries................................. 80 5.2.3 Issuance of Stock............................ 81 5.2.4 Purchase or Redemption of Securities, Dividend Restrictions........................ 81 5.2.5 Indebtedness................................. 82 5.2.6 Investments, Loans and Other Transactions ................................ 84 5.2.7 Capital Expenditures......................... 85 -3- 5.2.8 Stock of Subsidiaries........................ 85 5.2.9 Liens........................................ 86 5.2.10 Transactions with Affiliates................. 86 5.2.11 ERISA Compliance............................. 86 5.2.12 Prohibition on Hazardous Materials........... 86 5.2.13 Method of Accounting......................... 86 5.2.14 Sale and Leaseback........................... 86 ARTICLE 6 DEFAULT AND RIGHTS AND REMEDIES................................ 87 SECTION 6.1 Events of Default............................ 87 6.1.1 Failure to Pay............................... 87 6.1.2 Breach of Representations and Warranties................................... 87 6.1.3 Failure to Comply with Covenants............. 87 6.1.4 Other Covenants.............................. 87 6.1.5 Default Under Other Financing Documents or Obligations............................... 87 6.1.6 Receiver; Bankruptcy......................... 87 6.1.7 Involuntary Bankruptcy, etc.................. 88 6.1.8 Judgment..................................... 88 6.1.9 Default Under Other Borrowings............... 89 6.1.10 Liquidation, Termination, or Dissolution.................................. 89 SECTION 6.2 Remedies..................................... 89 6.2.1 Acceleration................................. 89 6.2.2 Further Advances............................. 89 6.2.3 Performance by Agent......................... 90 6.2.4 Other Remedies............................... 90 ARTICLE 7 THE AGENT...................................................... 91 SECTION 7.1 Appointment, Powers and Immunities........... 91 SECTION 7.2 Rights as Lender............................. 93 SECTION 7.3 No Liability of Agent; Indemnity............. 93 SECTION 7.4 Non-Reliance on Agent and other Lenders...... 93 SECTION 7.5 Agents, Employees, Representatives........... 94 SECTION 7.6 Reliance by Agent; Reliance on Agent......... 95 SECTION 7.7 Successor Agent.............................. 95 SECTION 7.8 Agency Fee................................... 96 SECTION 7.9 Actions after Default, etc................... 96 SECTION 7.10 Circumstances Where Consent of all of the Lenders is Required.......................... 97 -4- ARTICLE 8 MISCELLANEOUS.................................................. 98 SECTION 8.1 Notices...................................... 98 SECTION 8.2 Amendments; Waivers..........................100 SECTION 8.3 Cumulative Remedies..........................101 SECTION 8.4 Severability.................................101 SECTION 8.5 Assignments by Lenders.......................102 SECTION 8.6 Participations by Lenders....................103 SECTION 8.7 Disclosure of Information by Lenders.........103 SECTION 8.8 Successors and Assigns.......................103 SECTION 8.9 Continuing Agreements........................103 SECTION 8.10 Enforcement Costs............................104 SECTION 8.11 Applicable Law; Jurisdiction.................104 8.11.1 .............................................104 8.11.2 .............................................104 8.11.3 .............................................105 8.11.4 .............................................105 SECTION 8.12 Duplicate Originals and Counterparts.........105 SECTION 8.13 Headings.....................................106 SECTION 8.14 No Agency....................................106 SECTION 8.15 Entire Agreement.............................106 SECTION 8.16 Waiver of Trial by Jury......................106 SECTION 8.17 Liability of the Agent and the Lenders.......106 SECTION 8.18 Arbitration..................................107 SECTION 8.19 Confidentiality..............................108 -5- AMENDED AND RESTATED FINANCING AGREEMENT THIS AMENDED AND RESTATED FINANCING AGREEMENT (this "Agreement") is made this 30th day of January, 1998, by and among C&D TECHNOLOGIES, INC., a corporation organized and existing under the laws of the State of Delaware, formerly known as Charter Power Systems, Inc., and successor by merger to C&D Charter Power Systems, Inc. (the "Parent"), RATELCO ELECTRONICS, INC., a corporation organized and existing under the laws of the State of Delaware ("Ratelco"), C&D/CHARTER HOLDINGS, INC., a corporation organized and existing under the laws of the State of Delaware ("Charter Holdings"), CHARTER POWER F.S. LTD., a corporation organized and existing under the laws of Bermuda ("C&D FS"), PCC DE MEXICO S.A. DE C.V. ("PCC Mexico"), a corporation organized and existing under the laws of the Republic of Mexico, POWER CONVERTIBLES IRELAND LIMITED ("PCC Ireland"), C&D TECHNOLOGIES DE MEXICO S.A. DE C.V., a corporation organized and existing under the laws of the Republic of Mexico ("C&D Mexico") PCC MEXICAN HOLDINGS, INC., a corporation organized and existing under the laws of the State of Delaware ("Mexican Holdings") (the Parent, Ratelco, Charter Holdings, C&D FS, PCC Mexico, PCC Ireland, C&D Mexico and Mexican Holdings and such other "Additional Borrowers" (as hereinafter defined) as may be parties to this Agreement at any time and from time to time, are herein collectively referred to as the "Borrowers" and individually as a "Borrower"); and NATIONSBANK, N.A., a national banking association ("NationsBank"), CORESTATES BANK, N.A., a national banking association ("CoreStates"), THE CHASE MANHATTAN BANK, a banking corporation organized and existing under the laws of the State of New York ("Chase"), and PNC BANK, NATIONAL ASSOCIATION, a national banking association ("PNC") (NationsBank, CoreStates, Chase, PNC and such other lenders as may be parties to this Agreement at any time and from time to time are herein collectively referred to as the "Lenders" and individually, as a "Lender"); and NATIONSBANK, N.A., a national banking association (the "Agent"). RECITALS A. Certain of the Borrowers, the Agent, NationsBank, CoreStates and Fleet Bank, National Association, a national banking association and successor in interest to NatWest Bank, N.A., being formerly known as National Westminster Bank, NJ ("Fleet") (NationsBank, CoreStates and Fleet are herein collectively referred to as the "Original Lenders") are parties to that certain Financing and Security Agreement dated as of September 26, 1994 by and among such Borrowers, the Agent and the Original Lenders, as amended by (i) that certain First Amendment to Financing and Security Agreement dated as of December 13, 1995, (ii) that certain Second Amendment to Financing and Security Agreement dated as of January 26, 1996, (iii) that certain Third Amendment to Financing and Security Agreement dated as of March 13, 1996, (iv) that certain -1- Fourth Amendment to Financing and Security Agreement dated as of September 3, 1996 and (v) that certain Fifth Amendment to Financing and Security Agreement dated as of October 8, 1996 (as amended, restated, supplemented or otherwise modified, the "Original Credit Agreement"). Pursuant to the provisions of the Original Credit Agreement, such Borrowers jointly and severally applied to the Original Lenders for credit facilities consisting of (i) a revolving credit facility (the "Revolving Credit Facility") in the maximum principal amount of $65,000,000 (the "Revolving Credit Committed Amount"), (ii) a letter of credit facility, as part of the Revolving Credit Facility, in the maximum principal amount of $8,000,000 (the "Letter of Credit Facility") and (iii) a term loan facility in the maximum principal amount of $15,000,000 (the "Term Loan"), all to be used by the Borrowers for the "Permitted Uses" as defined in the Original Credit Agreement, which Term Loan has been repaid in full. B. The Parent has advised the Agent and the Lenders that (i) effective June 24, 1997, the Parent changed its name from Charter Power Systems, Inc. to C&D Technologies, Inc., (ii) effective June 25, 1997, C&D Charter Power Systems, Inc., a former subsidiary of the Parent, merged into the Parent with the Parent as the surviving corporation (the "Parent Merger"), (iii) effective July 3, 1997, International Power Systems, Inc. ("International") formed C&D Mexico as a wholly-owned subsidiary of International, (iv) the Parent established a branch office in Kuala Lumpur, Malaysia (the "Malaysian Branch Office"), (v) on or before January 31, 1998 Power Convertibles Corporation formed Mexican Holdings as a wholly-owned subsidiary of Power Convertibles Corporation, and (vi) effective January 31, 1998, LH Research, Inc. and Power Convertibles Corporation were each merged into International and International and Charter Power of California ("Charter California") were each then merged into the Parent, with the Parent as the sole surviving corporation. C. The Borrowers have requested that the Agent and the Lenders (i) consent and agree to (1) the name change of the Parent, (2) the Parent Merger, (3) the creation of C&D Mexico, (4) the establishment of the Malaysian Branch Office, and (5) the removal of Fleet as a "Lender" and the addition of Chase and PNC as "Lenders" and (ii) agree to amend and restate the terms and conditions of the Original Credit Agreement. Subject to the terms and conditions of this Agreement, the Lenders and the Agent hereby consent and agree to each of the foregoing; provided that the Original Credit Agreement is amended and restated in its entirety as follows: -2- ARTICLE 1 DEFINITIONS SECTION 1.1 CERTAIN DEFINED TERMS. As used in this Agreement, the terms defined in the Preamble shall have the respective meanings specified therein, and the following terms shall have the following meanings: "Adjustment Date" has the meaning described in Section 8.5. "Additional Borrower" shall mean each Subsidiary of any of the Borrowers which has executed and delivered an Additional Borrower Joinder Supplement and has otherwise complied with the provisions of Section 5.2.2; "Additional Borrowers" shall mean the collective reference to each Additional Borrower. "Additional Borrower Joinder Supplement" shall mean an Additional Borrower Joinder Supplement in substantially the form attached hereto as EXHIBIT G, with the blanks appropriately completed and executed and delivered by each Additional Borrower and accepted by the Agent on behalf of all of the Borrowers. "Affiliate" means, with respect to a Person, (a) any partner, officer, shareholder (if holding more than ten percent (10%) of the outstanding shares of capital stock of such Person), director, employee, or managing agent of such Person, (b) any other Person (other than a Subsidiary) that (i) directly or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, such Person, (ii) directly or indirectly beneficially owns or holds ten percent (10%) or more of any class of voting stock or partnership or other voting interests of such Person or any Subsidiary of such Person, or (iii) ten percent (10%) or more of the voting stock or partnership or other voting interest of which is directly or indirectly beneficially owned or held by such Person or a Subsidiary of such Person, or (c) a Subsidiary of such Person. The term "control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through ownership of voting securities or partnership or other voting interest, by contract or otherwise. "Agent" means NationsBank, N.A., a national banking association, and any successor agent appointed pursuant to Section 7.7. "Agency Fee" and "Agency Fees" have the meanings described in 7.8. -3- "Agent's Obligations" means any and all Obligations payable solely to, and for the exclusive benefit of, the Agent by the Borrowers under the terms of this Agreement and/or any of the other Financing Documents, including, without limitation, any and all Agency Fees. "Agent's Office" means the office of the Agent specified in or determined in accordance with the provisions of Section 8.1. "Agreement" means this Financing Agreement, any and all schedules, exhibits and other attachments hereto, and all amend ments, modifications and supplements hereto and thereto which may from time to time become effective in accordance with the provi sions of Section 8.2. "Applicable Margin" has the meaning set forth in Section 2.3.1(b). "Asset Disposition" means the sale, transfer or other disposition of any asset or property of any of the Borrowers, other than sales of inventory in the ordinary course of business and dispositions of worn, used or obsolete equipment in the ordinary course of business. "Assets" means, as of any date of determination, all assets that should, in accordance with GAAP consistently applied, be classified as assets on a Consolidated balance sheet of the Borrowers and their Subsidiaries. "Assignee" means any Person to which any Lender assigns all or any portion of its interests under this Agreement, any Commitment, and any Loan, in accordance with the provisions of Section 8.5, together with any and all successors and assigns of such Person; "Assignees" means the collective reference to all Assignees. "Bankruptcy Code" means the United States Bankruptcy Code, as amended from time to time. "Base Rate" means the floating and fluctuating per annum prime commercial lending rate of interest of NationsBank, N.A., as established and declared by NationsBank, N.A. at any time or from time to time. The Base Rate shall be adjusted automatically, without notice, on the effective date of any change in such prime commercial lending rate. The Base Rate does not necessarily represent the lowest rate of interest charged by NationsBank, N.A., the Agent or any of the Lenders to borrowers. -4- "Business Day" means a day on which the Agent and all of the Lenders are open for the transaction of business at the addresses stated after their names on the signature pages of this Agreement, excluding Saturdays and Sundays. "Capital Expenditures" means, with respect to any Person, all expenditures made and liabilities incurred for the acquisition of Assets which are not, in accordance with GAAP, treated as expense items for such Person in the year made or incurred or as a prepaid expense applicable to a future year or years. Capital Expenditures shall not include, however, any expenditures made or liabilities incurred in the replacement or restoration of any Assets which may have suffered a casualty, loss or condemnation to the extent that any such expenditures or liabilities were funded with the insurance or condemnation proceeds received as a result of any such casualty, loss or condemnation. The term also includes, when required by GAAP, the entering into of any Capital Lease. "Capital Lease" means a lease of real or personal property, for which the related Lease Obligations have been or should be capitalized on the balance sheet or other financial reporting purposes in accordance with GAAP consistently applied. "Cash Equivalents" means (a) securities with maturities of one year or less from the date of acquisition issued or fully guaranteed or insured by the United States Government or any agency thereof, (b) certificates of deposit or banker's acceptances issued in Dollar denominations with maturities of one (1) year or less from the date of acquisition of, or money market or checking accounts maintained with, any of the Lenders or any other commercial bank having capital and surplus in excess of One Hundred Million Dollars ($100,000,000.00) or such other financial institutions or brokerage houses to the extent disclosed to, and approved by, the Agent, (c) commercial paper of a domestic issuer rated at least either A-1 by Standard & Poor's Corporation or P-1 by Moody's Investors Service, Inc. with maturities of nine (9) months or less from the date of acquisition and (d) cash deposits in foreign currencies with offshore financial institutions, but only to the extent necessary to enable each non-domestic Borrower to pay its ordinary course working capital expenses. "Closing Date" means the Business Day on which the Agent shall be satisfied that the conditions precedent set forth in Section 4.1 have been fulfilled. "Commitment" means, with respect to each Lender, such Lender's Revolving Credit Commitment or Letter of Credit Commitment, as the case may be, and "Commitments" means the -5- collective reference to the Revolving Credit Commitments and the Letter of Credit Commitments of all of the Lenders. "Committed Amount" means, with respect to each Lender, such Lender's Revolving Credit Committed Amount or Letter of Credit Committed Amount, as the case may be, and "Committed Amounts" means collectively the Revolving Credit Committed Amount and the Letter of Credit Committed Amount of all of the Lenders. "Commonly Controlled Entity" means an entity, whether or not incorporated, which is under common control with any of the Borrowers within the meaning of Section 414(b) or (c) of the Internal Revenue Code. "Consolidated" shall mean the collective and combined reference to all of the Borrowers and their Subsidiaries, as consolidated after elimination of intercompany items by and among Borrowers and Subsidiaries. "Current Assets" means, as of any date or for any period of determination, the amount which, in accordance with GAAP consistently applied, would be set forth opposite the caption "total current assets" (or any like caption) on a Consolidated balance sheet of the Borrowers and their Subsidiaries. "Current Letter of Credit Obligations" has the meaning described in Section 2.2.5. "Current Liabilities" means, as of any date or for any period of determination, the amount which, in accordance with GAAP consistently applied, would be set forth opposite the caption "total current liabilities" (or any like caption) on a Consolidated balance sheet of the Borrowers and their Subsidiaries. "Current Maturities" means, when used in connection with Long-Term Liabilities, as of any date of determination, the principal amount of such Liabilities coming due on such date or during the twelve-month period following such date in accordance with the terms of any instrument or agreement evidencing such Liabilities or relating thereto. "Current Ratio" means, as of any date or for any period of determination, the ratio of (a) Current Assets to (b) Current Liabilities, excluding Current Maturities of Long-Term Liabilities. "Default" means an event which, with the giving of notice or lapse of time, or both, could or would constitute an Event of Default. -6- "Dollar" and "$" means freely transferable United States dollars. "EBITDA" means as to the Borrowers, as of any date or for any period of determination, the sum of (a) the Borrowers' combined earnings as of such date or for such period, before deduction of interest expenses and income Taxes, plus (b) depreciation and amortization of Assets for such period, all as calculated in accordance with GAAP consistently applied, and on a Consolidated basis. "Enforcement Costs" means all reasonable, out of pocket expenses, charges, costs and fees whatsoever (including, without limitation, attorney's fees and expenses) of any nature whatsoever paid or incurred by or on behalf of the Agent and/or any of the Lenders in connection with (a) any or all of the Obligations, this Agreement and/or any of the other Financing Documents, including, without limitation, any amendments, restatements or supplements to this Agreement and/or any of the other Financing Documents. Notwithstanding the foregoing, Enforcement Costs shall not include any expenses, charges, costs or fees (including, without limitation, attorney's fees and expenses) incurred by the Agent or any Lender in connection with any actual or proposed assignment of any of the Commitments or Obligations in accordance with Section 8.5 of this Agreement or any actual or proposed sale of a participation in any of the Commitments or Obligations in accordance with Section 8.6 of this Agreement, except to the extent the Borrowers request that a Lender so assign or sell a participation in any such Commitments or Obligations. "Environmental Laws" means all Federal, state, local and foreign Laws in effect at any time during the term of this Agreement relating to pollution or protection of the environment or of human health, (including laws relating to emissions, discharges, releases or threatened releases of Hazardous Materials into the environment (including, without limitation, natural resource, wildlife, the indoor or outdoor environment, ambient air, surface water, ground water, or land), noise pollution, or otherwise relating to the Borrower's operations, including without limitation manufacturing, processing, distribution, use, treatment, storage, disposal, removal, transport, packing, or handling of Hazardous Materials) and any and all regulations, notices or demand letters issued, entered, promulgated, or approved thereunder; such laws and regulations include but are not limited to the Resource Conservation and Recovery Act, the Comprehensive Environmental Response, Compensation and Liability Act, the Toxic Substances Control Act, the Clean Air Act, the Clean Water Act, the Safe Drinking Water Act, the Oil Pollution Act, the Occupational Safety and Health Act, the Emergency Planning and Community Right to Know -7- Act, the National Environmental Policy Act and other state and Federal environmental regulatory, environmental lien and environmental cleanup programs, all as may be amended at any time and from time to time during the term of this Agreement. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time. "Eurodollar Business Day" means any Business Day on which dealing in Dollar deposits are carried out on the London interbank market and on which commercial banks are open for domestic and international business (including dealings in Dollar deposits) in London, England. "Eurodollar Lending Office" means with respect to the Agent and each Lender such branch or office of the Agent and each such Lender designated by the Agent and such Lender, as applicable, from time to time as the branch or office at which its LIBOR Rate Loans are to be made or maintained. "Event of Default" has the meaning described in Article 7. "Excess Proceeds" has the meaning described in Section 2.4.7. "Facilities" means the collective reference to the loan, letter of credit and other credit facilities and/or accommodations now or hereafter provided to the Borrowers by the Agent and/or any or all of the Lenders under or in connection with this Agreement. "Federal Funds Rate" means, for any day of determination, 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 Richmond or, if such rate is not so published for any day that is a Business Day, the average of quotations for such day on such transactions received by the Agent from three (3) Federal fund brokers of recognized standing selected by the Agent. "Fees" means the collective reference to each fee payable to the Agent, for its own account or for the ratable benefit of the Lenders, under the terms of this Agreement or under the terms of any of the other Financing Documents, including, without limitation, Revolving Credit Unused Line Fees, Letter of Credit Fees, and Agency Fees. -8- "Financial Officer" means the chief financial officer or treasurer of the Parent. "Financing Documents" means at any time collectively this Agreement, the Notes, the Letter of Credit Documents, the PEDFA Reimbursement Agreement, and any other instrument, agreement or document previously, simultaneously or hereafter executed and delivered by any or all of the Borrowers and/or any other Person, singly or jointly with another Person or Persons, evidencing, securing, guarantying or in connection with any or all of the Obligations and/or in connection with this Agreement, any Note, any of the Facilities, and/or any of the Obligations. "Fixed Charge Coverage Ratio" means, for any period of determination, as to the Borrowers and the Subsidiaries the ratio of (a) EBITDA to (b) the sum of (i) all aggregate cash payments of interest on account of the Obligations during such period, plus (ii) current portion of Capital Lease cash payments (including principal and interest payments) during such period, plus (iii) cash dividends declared and paid during such period, plus (iv) income Taxes paid in cash during such period, plus (v) Current Maturities of Long-Term Liabilities (excluding Capital Leases). The Fixed Charge Coverage Ratio shall be calculated on a Consolidated basis and as of the end of each fiscal quarter on a rolling four (4) quarter basis. "Funded Debt" means, as of any date and for any period of determination, the sum of (i) the aggregate unpaid principal balance of the Revolving Loan as of such date or for such period, plus (ii) the aggregate face amount of all Letters of Credit issued and outstanding as of such date or during such period plus (iii) the amount of the PEDFA Obligations. "GAAP" means generally accepted accounting principles in the United States of America consistently applied and maintained throughout the period indicated and, when used with reference to any Borrower and/or any Subsidiary, consistent with the prior financial practice of such Borrower, as reflected on the financial statements most recently furnished to the Agent and the Lenders; provided, however, that in the event that changes shall be mandated by the Financial Accounting Standards Board or any similar accounting authority of comparable standing, or shall be recommended by the Borrowers' independent public accountants, such changes shall be included in GAAP as applicable to the Borrowers, only from and after such date as the Borrower, the Required Lenders and the Agent shall have amended this Agreement to the extent necessary to reflect any such changes in the financial covenants set forth in Article 6. -9- "Governmental Authority" means any nation or government, any state or other political subdivision thereof and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government and any department, agency or instrumentality thereof. "Hazardous Materials" means (a) any "hazardous waste" as defined by the Resource Conservation and Recovery Act of 1976, as amended from time to time, and regulations promulgated thereunder; (b) any "hazardous substance" as defined by the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended from time to time, and regulations promulgated thereunder; (c) any pollutant, chemical or other industrial, toxic or hazardous substance or waste the presence of which on any property now or hereafter owned, operated or acquired by any of the Borrowers is prohibited or otherwise regulated by any Environmental Law; and/or (d) any other substance which by any Environmental Law is regulated with respect to handling in its collection, storage, treatment or disposal. "Hazardous Materials Contamination" means the contamination (whether presently existing or occurring after the date of this Agreement) by Hazardous Materials of any property owned, operated or controlled by any of the Borrowers or for which any of the Borrowers has responsibility, including, without limitation, improvements, facilities, soil, ground water, air or other elements on, or of, any property now or hereafter owned, operated or acquired by any of the Borrowers during the term of this Agreement, and any other contamination by Hazardous Materials for which any of the Borrowers is, or is claimed to be, responsible. "Indebtedness" of any Person means, without duplication and as of any date of determination, all Liabilities of such Person, and to the extent not otherwise included in Liabilities, the following: (a) all obligations for Indebtedness for Borrowed Money or for the deferred purchase price of property or services, (b) all obligations (including, during the noncancellable term of any lease in the nature of a title retention agreement, all future payment obligations under such lease discounted to their present value in accordance with GAAP) secured by any Lien to which any property or asset owned or held by such Person is subject, whether or not the obligation secured thereby shall have been assumed by such Person, -10- (c) all obligations of other Persons constituting indebtedness of such other Persons, to the extent such Person guaranteed, indemnified or otherwise agreed to become contingently, secondarily or primarily liable therefor, including, but not limited to, all obligations of such Person consisting of recourse liability with respect to accounts receivable sold or otherwise disposed of by such Person, (d) all obligations of such Person in respect of any interest rate or foreign exchange swap, cap or collar agreement or similar agreement between any Person and a financial institution providing for the transfer or mitigation of interest and/or foreign exchange risks either generally or under specific contingencies, and (e) all of the Obligations to the extent then owing. "Indebtedness for Borrowed Money" of any Person means, without duplication and as of any date of determination, the sum at such time of the following, to the extent they arise other than between Borrowers: (a) all indebtedness for borrowed money or for the deferred purchase price of property, (b) all obligations of such Person in respect of any letters of credit, banker's or other acceptances or similar obligations issued or created for the account of such Person, excluding, however the PEDFA Obligations, (c) all Lease Obligations of such Person with respect to Capital Leases, (d) all indebtedness, whether or not in any such case the same was for money borrowed, (i)represented by notes payable, and drafts accepted, that represent extensions of credit, (ii) constituting obligations evidenced by bonds, debentures, notes or similar instruments, or (iii) upon which interest charges are customarily paid or that was issued or assumed as full or partial payment for property; but excluding trade and other accounts payable in the ordinary course of business in accordance with customary trade terms and which are not overdue (as determined in accordance with customary -11- trade practices) or which are being disputed in good faith by such Person and for which adequate reserves are being provided on the books of such Person in accordance with GAAP and excluding inter-Borrower indebtedness to the extent eliminated in consolidation, as reflected in the Consolidated financial statements of the Borrowers and the Subsidiaries furnished to the Agent and the Lenders in accordance with the provisions of this Agreement. "Interest Rate Election Notice" has the meaning described in Section 2.3.2(d). "Interest Period" means as to any LIBOR Loan, the period commencing on and including the date such LIBOR Loan is made (or on the effective date of the Borrowers' election to convert any Prime Loan to a LIBOR Loan in accordance with the provisions of this Agreement) and ending on and including the day which is 30, 60, 90 or 180 days thereafter, as selected by the Borrowers in accordance with the provisions of this Agreement, and thereafter, each period commencing on the last day of the then preceding Interest Period for such LIBOR Loan and ending on and including the day which is 30, 60, 90 or 180 days thereafter, as selected by the Borrowers in accordance with the provisions of this Agreement; provided, however that: (a) the first day of any Interest Period shall be a Eurodollar Business Day; (b) if any Interest Period would end on a day that shall not be a Eurodollar Business Day, such Interest Period shall be extended to the next succeeding Eurodollar Business Day unless such next succeeding Eurodollar Business Day would fall in the next calendar month, in which case, such Interest Period shall end on the next preceding Eurodollar Business Day; and (c) no Interest Period shall extend beyond the Revolving Credit Expiration Date. "Interest Rate" means the Prime Rate or the LIBOR Rate, as applicable. "Internal Revenue Code" means the Internal Revenue Code of 1986, as amended from time to time, and the income tax regulations issued thereunder. "Laws" means all ordinances, statutes, rules, regulations, orders, injunctions, writs, permits, approvals, authorizations or decrees of any Governmental Authority or -12- political subdivision or agency thereof, or of any court or similar entity established by any thereof or of common law. "Lease Obligations" of any Person means, as of any date of determination, the rental commitments of such Person for such period under leases for real and/or personal property (net of rent from subleases thereof, but including Taxes, insurance, maintenance and similar expenses which such Person is obligated to pay under the terms of said leases, except to the extent that such Taxes, insurance, maintenance and similar expenses are payable by sublessees), including rental commitments under Capital Leases. "Lender" means (a) NationsBank in its capacity as a Lender, CoreStates, Chase and PNC and (b) each Person that becomes an Assignee pursuant to the provisions of Section 8.5. "Letter of Credit" and "Letters of Credit" shall have the meanings described in Section 2.2.1 hereof and shall also include the PEDFA Obligations. "Letter of Credit Agreement" means, as of any date of determination, each letter of credit application and agreement substantially in the form of the Agent's then standard form of application for letter of credit or such other form or forms as may be approved by the Agent, executed and delivered by the Borrowers in connection with the issuance of a Letter of Credit, as the same may from time to time be amended, restated, supplemented or modified and includes the PEDFA Reimbursement Agreement; and "Letter of Credit Agreements" means the collective reference to each Letter of Credit Agreement and the PEDFA Reimbursement Agreement in effect at any time and from time to time. "Letter of Credit Cash Collateral Account" has the meaning described in Section 2.2.10. "Letter of Credit Commitment" means the agreement of the Agent, in its capacity as a Lender, to issue Letters of Credit in accordance with the provisions of this Agreement and the Letter of Credit Agreements and to assume liability for the PEDFA Obligations in accordance with the provisions of the PEDFA Participation and Reimbursement Agreements, and the agreement of each Lender to purchase undivided participation interests in such Letters of Credit and in the PEDFA Obligations in accordance with the provisions of this Agreement; "Letter of Credit Commitments" means the collective reference to the Letter of Credit Commitments of the Agent and the Lenders. "Letter of Credit Committed Amount" has the meaning described in Section 2.2.1. -13- "Letter of Credit Documents" means any and all drafts under or purporting to be under a Letter of Credit, any Letter of Credit Agreement, and any other instrument, document or agreement executed and/or delivered by any or all of the Borrowers and/or any other Person under, pursuant to or in connection with a Letter of Credit or any Letter of Credit Agreement. "Letter of Credit Facility" means the facility established by the Agent, in its capacity as a Lender, pursuant to Section 2.2 of this Agreement. "Letter of Credit Fee" and "Letter of Credit Fees" have the meanings described in Section 2.2.2 hereof. "Letter of Credit Obligations" means all Obligations of the Borrowers under and with respect to the Letters of Credit and the Letter of Credit Agreements, including, the PEDFA Obligations, and the PEDFA Reimbursement Agreement. "Liabilities" means, as of any date or for any period of determination, all liabilities that should, in accordance with GAAP consistently applied, be classified as liabilities on a Consolidated balance sheet of the Borrowers and their Subsidiaries. "LIBOR Base Rate" means for any Interest Period with respect to any LIBOR Loan, the per annum interest rate (rounded upward, if necessary, to the nearest next 1/16 of 1%) quoted to the Agent, on an immediately available funds basis, at or about 11:00 a.m. (London time) on the date that is two (2) Eurodollar Business Days prior to the first day of such Interest Period, for the offering by leading banks in the London interbank Eurodollar market of Dollar deposits with the Agent for a period comparable in time to the duration of such Interest Period and in amounts comparable to the amount of such LIBOR Loan as to which the LIBOR Base Rate is to be determined. "LIBOR Loan" means any Loan for which interest is to be computed with reference to the LIBOR Rate. "LIBOR Rate" means for any Interest Period with respect to any LIBOR Loan, the per annum rate of interest calculated pursuant to the following formula: LIBOR Rate = LIBOR BASE RATE + Applicable Margin ------------------------- 100% - Reserve Percentage "Lien" means any mortgage, deed of trust, deed to secure debt, grant, pledge, security interest, assignment, encumbrance, judgment, lien, claim or charge of any kind, whether perfected or -14- unperfected, avoidable or unavoidable, including, without limitation, any conditional sale or other title retention agreement, any lease in the nature thereof, and the filing of or agreement to give any financing statement under the Laws of any jurisdiction, excluding the precautionary filing of any financing statement by any lessor in a true lease transaction, by any bailor in a true bailment transaction or by any consignor in a true consignment transaction under the Laws of any jurisdiction or the agreement to give any financing statement by any lessee in a true lease transaction, by any bailee in a true bailment transaction or by any consignee in a true consignment transaction. "Loan" means each advance under the Revolving Loan and "Loans" means the collective reference to all advances under the Revolving Loan. "Loan Notice" has the meaning described in Section 2.1.2. "Long-Term Liabilities" means, with respect to any Person, the aggregate amount of all Liabilities of such Person other than Current Liabilities. "Mandatory Prepayment" and "Mandatory Prepayments" has the meaning described in Section 2.4.7. "Materially Adverse Effect" means an effect, singly or in the aggregate on the business, assets, liabilities, condition (financial or otherwise), results of operations or business prospects of any or all of the Borrowers (taken as a whole) that would result in the Borrowers violating any of the covenants set forth in Sections 5.1.14 through 5.1.18 of this Agreement. "Maximum Rate" has the meaning described in Section 2.3.6. "Minimum Net Worth Amount" has the meaning described in Section 5.1.14. "Multiemployer Plan" means a "multiemployer plan" as defined in Section 4001(a)(3) of ERISA to which any or all of the Borrowers and/or any Commonly Controlled Entity is required to contribute or has contributed within the immediately preceding five (5) years. "Net Proceeds" means proceeds or other consideration received by any Borrower from any Asset Disposition (including, without limitation, notes or other debt or equity securities, assumption of any Liabilities or other tangible or intangible economic benefits received by such Borrower in connection with any -15- Asset Disposition), net of customary and reasonable settlement costs, fees and expenses of such Asset Disposition. "Net Outstandings" of any Lender means, as of any date of determination, the sum of (i) all amounts paid by such Lender (other than pursuant to Section 2.4.8) to the Agent with respect to the Revolving Loan or otherwise under this Agreement, minus (ii) all amounts paid by the Agent to such Lender which are received by the Agent and which, pursuant to this Agreement, are paid over to such Lender for application in reduction of the outstanding principal balance of the Revolving Loan. "Net Worth" means, as to the Borrowers and Subsidiaries and as of any date or for any period of determination, the excess of (a) Assets, over (b) Liabilities, as calculated on a Consolidated basis. "Non-Ratable Loan" has the meaning described in Section 2.1.2(d). "Note" means a Revolving Credit Note; and "Notes" means collectively the Revolving Credit Notes and all other promissory notes which may from time to time evidence all or any portion of the Obligations. "Obligations" means all present and future indebtedness, obligations, and liabilities, whether now existing or contemplated or hereafter arising, of any or all of the Borrowers to the Agent and/or any or all of the Lenders under, arising pursuant to, in connection with and/or on account of the provisions of this Agreement, each Note, and any of the other Financing Documents, the Loans, and any of the Facilities including, without limitation, the principal of, and interest on, each Note, late charges, the Fees and Enforcement Costs. "Original Closing Date" shall mean September 26, 1994. "Outstanding Letter of Credit Obligations" means the aggregate face amount of all Letters of Credit at any one time outstanding and issued by the Agent pursuant to the provisions of this Agreement, plus the aggregate face amount of the PEDFA Obligations, plus the amount of any unpaid Letter of Credit Fees accrued or scheduled to accrue on such Letters of Credit, less the aggregate amount of all drafts issued under or purporting to have been issued under such Letters of Credit and/or the PEDFA Letters of Credit that have been paid by the Agent and for which the Agent has been reimbursed by the Borrowers in full in accordance with Section 2.2.5 and the Letter of Credit Agreements, and for which -16- the Agent has no further obligation or commitment to restore all or any portion of the amounts drawn and reimbursed. "PBGC" means the Pension Benefit Guaranty Corporation. "PEDFA $1,400,000 Letter of Credit" means that certain irrevocable letter of credit issued by PNC Bank, National Association as security for the $1,400,000 Pennsylvania Economic Development Financing Authority Economic Development Revenue Bonds, 1990 Series D6 (C&D Charter Power Systems, Inc.), as the same may be amended, restated, reissued, renewed, supplemented or otherwise modified at any time and from time to time. "PEDFA $1,900,000 Letter of Credit" means that certain irrevocable letter of credit issued by PNC Bank, National Association as security for the $1,900,000 Pennsylvania Economic Development Financing Authority Economic Development Revenue Bonds, 1990 Series B2 (C&D Charter Power Systems, Inc., as the same may be amended, restated, reissued, renewed, supplemented or otherwise modified at any time and from time to time. "PEDFA Letters of Credit" means collectively the PEDFA $1,400,000 Letter of Credit and the PEDFA $1,900,000 Letter of Credit. "PEDFA Loans" means those loans previously made by the Pennsylvania Economic Development Financing Authority to C&D Charter on or about December 1, 1991 in the original aggregate principal amount of Three Million Three Hundred Thousand Dollars ($3,300,000). "PEDFA Obligations" means any and all primary and contingent obligations, indebtedness and liabilities of the Agent under and in connection with either or both of the PEDFA Participation and Reimbursement Agreements, including, without limitation, the Agent's obligation to reimburse PNC Bank, National Association for any amounts drawn under either or both of the Letters of Credit and to pay certain fees and other amounts as provided in the PEDFA Participation and Reimbursement Agreements and the Agent's obligation to pay fees, costs and charges. "PEDFA $1,400,000 Participation and Reimbursement Agreement" means that certain participation and reimbursement agreement dated as of September 1, 1994 by and between the Agent and PNC Bank, National Association pursuant to which the Agent agreed to reimburse PNC Bank, National Association for any amounts drawn under the PEDFA $1,400,000 Letter of Credit and to pay certain fees and other amounts due with respect to the PEDFA $1,400,000 Letter of Credit, as the same may be amended, restated, -17- supplemented or otherwise modified at any time and from time to time. "PEDFA $1,900,000 Participation and Reimbursement Agreement" means that certain participation and reimbursement agreement dated as of September 1, 1994 by and between the Agent and PNC Bank, National Association pursuant to which the Agent agreed to reimburse PNC Bank, National Association for any amounts drawn under the PEDFA $1,900,000 Letter of Credit and to pay certain fees and other amounts due with respect to the PEDFA $1,900,000 Letter of Credit, as the same may be amended, restated, supplemented or otherwise modified at any time and from time to time. "PEDFA Participation and Reimbursement Agreements" means collectively the PEDFA $1,900,000 Participation and Reimbursement Agreement and the PEDFA $1,400,000 Participation and Reimbursement Agreement. "PEDFA Reimbursement Agreement" means that certain reimbursement agreement dated September 26, 1994 by and among the Agent and the Borrowers pursuant to which the Borrowers jointly and severally agreed to reimburse the Agent for any amounts paid by the Agent on account of the PEDFA Obligations, as the same may be amended, restated, supplemented or otherwise modified at any time and from time to time. "Permitted Acquisitions" means the acquisition or purchase of, or investment in, any Person, any operating division or unit of any Person, or the stock or assets of any Person or the combination with any Person regardless of the structure of the transaction (provided that such combination would not otherwise result in a Default or Event of Default), engaged principally in the lines of business set forth in Section 5.1.7; provided, however that (i) the aggregate purchase price of, investment in, expenditures relating to (excluding customary and reasonable transaction costs), and assumed Liabilities in connection with, any given acquisition, purchase, or investment cannot exceed Fifteen Million Dollars ($15,000,000), (ii) the total purchase prices of, investments in, expenditures relating to (excluding customary and reasonable transaction costs), and assumed Liabilities in connection with, all such acquisitions, purchases and/or investments made on or after the Closing Date cannot exceed the Total Revolving Credit Committed Amount in effect from time to time, (iii) such acquisition, purchase, assumption of liabilities or investment cannot otherwise constitute or give rise to a Default or an Event of Default, (iv) the Borrowers have furnished financial projections in form and content reasonably acceptable to the Agent and the Required Lenders which give effect to such acquisition, -18- purchase or investment and which indicate that such acquisition, purchase, assumption of Liabilities and/or investment would not cause a Default or Event of Default, and (v) a Phase I environmental assessment of any real property to be acquired or purchased by any of the Borrowers or owned by any Person to be acquired or purchased by any of the Borrowers or owned by any Person in which any of the Borrowers intend to make an investment, has been performed by a reputable and recognized environmental consulting firm engaged by the Agent and reasonably acceptable to the Required Lenders and has revealed no material Hazardous Materials Contamination or material violations of any Environmental Laws, the remediation of or compliance with which could result in a material Liability not reflected in the purchase price. The Agent agrees to obtain competitive bids from at least three (3) environmental consulting firms prior to selecting an environmental consultant to prepare the required Phase I environmental assessments. "Permitted Asset Disposition" means a sale, lease, transfer or other disposition of any asset or property of any of the Borrowers which satisfies the following conditions: (a) the Net Proceeds to be paid or received with respect to such sale, lease, transfer or other disposition are less than or equal to One Million Dollars ($1,000,000), (b) the sum of (i) the Net Proceeds to be paid or received with respect to such sale, lease, transfer or other disposition of any asset or property of any of the Borrowers, plus (ii) the Net Proceeds paid or received with respect to all other sales, leases, transfers or other dispositions made during the then current fiscal year, is less than or equal to Two Million Dollars ($2,000,000), and (c) there does not exist a Default or an Event of Default at the time of such sale, lease, transfer or other disposition. "Permitted Dividends" means (i) cash dividends paid or to be paid by the Parent which are no greater than $3,175,000 during any fiscal year, (ii) any dividend declared by a Wholly Owned Subsidiary of the Parent and (iii) any stock dividend declared by the Parent or any Wholly Owned Subsidiary of the Parent. "Permitted Liens" means: (a) Liens securing Taxes (excluding any Lien imposed by the PBGC pursuant to any of the provisions of ERISA), which are not delinquent or which the Agent has determined in the -19- exercise of its reasonable discretion (i) are being diligently contested in good faith and by appropriate proceedings, (ii) the Borrowers have set aside adequate reserves in accordance with GAAP to pay any such Taxes or otherwise have sufficient availability under the Revolving Credit Facility to cover any such Taxes, and (iii) are not, and will not be with appropriate filing, the giving of notice and/or the passage of time, entitled to priority over any Lien of the Agent and the Lenders, (b) Liens consisting of deposits or pledges made in the ordinary course of business in connection with, or to secure payment of, obligations under workers' compensation, social security, unemployment insurance or similar Laws or under payment or performance bonds, (c) Liens constituting encumbrances in the nature of zoning restrictions, easements and rights or restrictions of record on the use of real property owned by a Borrower (i) in existence as of the Closing Date, (ii) which arise after the Closing Date, but which remain in effect for less than one hundred twenty (120) days after any Borrower learns of such Liens, or (iii) which arise after the Closing Date, but which do not prevent the Agent and the Lenders from realizing on the full value of any such real property which is collateral for any of the Obligations, as determined by the Agent and the Required Lenders in their good faith, reasonable discretion, (d) Liens securing Permitted Preferred Indebtedness; provided that such Liens at all times encumber only the assets or property, the purchase price of which was financed with the Permitted Preferred Indebtedness or any other assets or property of any of the Borrowers, (e) Liens in favor of the Agent for the ratable benefit of the Lenders, (f) judgment Liens to the extent the entry of such judgment does not constitute a Default or an Event of Default under the terms of this Agreement, (g) purchase money Liens upon Assets acquired after the Closing Date securing Indebtedness for Borrowed Money permitted by Section 5.2.5(h), (h) Capital Leases if and to the extent permitted by Section 5.2.5, -20- (i) Liens in favor of any of the Lenders securing Indebtedness permitted by Section 5.2.5(g). (j) Statutory Liens of materialmen, merchants, carriers, workers, repairers or similar Persons incurred in the ordinary course of business for sums not overdue or for sums being contested in good faith by appropriate proceedings, provided that the Borrowers shall have set aside on their books adequate reserves therefor in accordance with GAAP. (k) such other Liens, if any, as are set forth on EXHIBIT "B" attached hereto and made a part hereof. "Permitted Preferred Indebtedness" means Indebtedness for Borrowed Money incurred by any or all of the Borrowers on or after the Closing Date (x) to finance the acquisition of Assets or property or the Capital Lease of Assets or property, which Indebtedness for Borrowed Money has below-market interest rates, tax-exempt interest, or other terms which, taken as a whole, are more advantageous to the Borrowers than those contained herein and (y) which the Lenders declined to extend to the Borrowers after having been offered the opportunity by the Borrowers to provide such Indebtedness for Borrowed Money. The Agent and the Lenders agree that the Borrowers may assume that the Lenders have declined to extend the requested Indebtedness for Borrowed Money unless the Agent or any of the Lenders have notified the Borrowers in writing to the contrary within fifteen (15) days of their receipt of all proposed material terms and conditions of the proposed Indebtedness for Borrowed Money in writing. "Permitted Uses" means: (a) with respect to the Letters of Credit (i) to secure obligations of any of the Borrowers under any workers' compensation Laws or insurance and (ii) for such other purposes as the Agent shall approve in its sole and absolute discretion, subject to the provisions of 2.2. In addition, the Agent's agreement to assume liability for the PEDFA Obligations shall constitute a Permitted Use of the Letter of Credit Facility. (b) with respect to the Revolving Loan (i) the payment of ordinary course, working capital expenses of any or all of the Borrowers (including ordinary course operational expenses), (ii) Capital Expenditures (excluding Capital Leases) if and to the extent permitted by Section 5.2.7, and (iii) Permitted Acquisitions. Permitted Uses do not include investments in any securities or similar instruments or investments made for arbitrage purposes. Notwithstanding the foregoing, the -21- Borrowers may deposit or invest Revolving Loan proceeds in accounts or other short-term investments having maturities of not more than one hundred twenty (120) days; provided, that (i) such deposits or investments are intended to be maintained in such accounts or other investments by the Borrowers for not more than one hundred twenty (120) days, (ii) the Borrowers intend to use the Revolving Loan proceeds so deposited or invested for Permitted Uses within such one hundred twenty (120) day period, and (iii) the Borrowers intended to temporarily defer using such Revolving Loan proceeds for Permitted Uses for legitimate and beneficial tax or other economic reasons, as disclosed to the Agent and the Lenders promptly upon request. (c) the purchase of Stock if and to the extent such purchase is expressly permitted by the provisions of this Agreement. "Person" means and includes an individual, a corporation, a partnership, a limited liability company, a joint venture, a trust, an unincorporated association, a government or political subdivision or agency thereof or any other organization or entity. "Plan" means any pension plan which is covered by Title IV of ERISA and in respect of which any of the Borrowers or a Commonly Controlled Entity is an "employer" as defined in Section 3 of ERISA, except that the term "Plan" shall not include a Multiemployer Plan. "Post-Default Rate" means with respect to all of the Obligations, as of any date of determination, the highest Interest Rate then in effect, plus three percent (3%) per annum. "Post-Termination Date Letter of Credit" and "Post-Termination Date Letters of Credit" have the meaning described in Section 2.2.10. "Prepayment" means a Revolving Loan Optional Prepayment or a Mandatory Prepayment, as the case may be; and "Prepayments" mean collectively Revolving Loan Optional Prepayments and Mandatory Prepayments. "Prime Loan" means any Loan for which interest is to be computed with reference to the Prime Rate. "Prime Rate" means the Base Rate in effect at any time and from time to time, plus the Applicable Margin. -22- "Proprietary Rights" means all of each Borrower's now owned and hereafter arising or acquired patents, copyrights, trademarks, and all other rights under any of the foregoing, all extensions, renewals, reissues, divisions, continuations, and continuations-in-part of any of the foregoing, and all rights to sue for past, present and future infringement of any of the foregoing. "Proportionate Share" means at any time and as to any Lender, the percentage derived by dividing the unpaid principal amount of the Loans and Letter of Credit Obligations (including, the PEDFA Obligations) owing to that Lender by the aggregate unpaid principal amount of all Loans and Letter of Credit Obligations (including, the PEDFA Obligations) then outstanding; or if no Loans or Letter of Credit Obligations are outstanding, by dividing the total amount of such Lender's Commitments by the total amount of the Commitments of the Agent and all of the Lenders. "Reportable Event" means any of the events set forth in Section 4043(b) of ERISA or the regulations thereunder, but excluding reportable events with respect to which the thirty (30) day notice requirement has been waived by the PGBC. "Required Lenders" means at any time of determination one or more of the Lenders holding at least sixty-six and two/thirds (66-2/3%) of the Commitments. "Reserve Percentage" means, at any time, the then current maximum rate for which reserves (including any basic, supplemental, marginal and emergency reserves) are required to be maintained by member banks of the Federal Reserve System under Regulation D of the Board of Governors of the Federal Reserve System against "Eurocurrency liabilities", as that term is defined in Regulation D. The LIBOR Rate with respect to each LIBOR Loan shall be adjusted automatically on and as of the effective date of any change in the Reserve Percentage applicable thereto. "Responsible Officer" means the chief executive officer of the Parent or the president of the Parent or, with respect to financial matters, the Financial Officer. "Revolving Credit Commitment" means the agreement of a Lender relating to the making of the Revolving Loan and advances thereunder subject to and in accordance with the provisions of this Agreement; "Revolving Credit Commitments" means the collective reference to the Revolving Credit Commitment of each of the Lenders. -23- "Revolving Credit Commitment Period" means the period of time from the Closing Date to the Business Day preceding the Revolving Credit Termination Date. "Revolving Credit Committed Amount" has the meaning described in Section 2.1.1. "Revolving Credit Expiration Date" means February 1, 2001. "Revolving Credit Facility" means the facility established by the Lenders pursuant to Section 2.1 of this Agreement. "Revolving Credit Note" and "Revolving Credit Notes" have the meanings described in Section 2.1.4. "Revolving Credit Optional Reduction" and "Revolving Credit Optional Reductions" have the meanings described in Section 2.1.8. "Revolving Credit Proportionate Share" has the meaning described in Section 2.1.1. "Revolving Credit Termination Date" means the earlier of (a) the Revolving Credit Expiration Date, or (b) the date on which the Revolving Credit Commitments are terminated pursuant to Section 6.2.2. "Revolving Credit Unused Line Fee" and "Revolving Credit Unused Line Fees" have the meanings described in Section 2.1.7. "Revolving Loan" has the meaning described in Section 2.1.1. "Revolving Loan Account" has the meaning described in Section 2.1.6. "Revolving Loan Optional Prepayment" and "Revolving Loan Optional Prepayments" have the meanings described in Section 2.1.5. "Settlement Date" means each Business Day after the Closing Date on which settlement is to be made among the Lenders in accordance with the provisions of Section 2.4.8. "Settlement Report" means each report, substantially in the form attached hereto as EXHIBIT C, prepared by the Agent and delivered to each Lender and setting forth, among other things, as of the Settlement Date indicated thereon and as of the next -24- preceding Settlement Date, the aggregate principal balance of the Revolving Loan outstanding, each Lender's Proportionate Share of the Revolving Loan and each Lender's Net Outstandings, and all payments of principal, interest and Fees received by the Agent from the Borrowers for the ratable benefit of the Lenders during the period beginning on such next preceding Settlement Date and ending on such Settlement Date. "State" means the State of Maryland. "Stock" means the issued and outstanding common stock of the Parent. "Subordinated Indebtedness" means any Indebtedness incurred at any time by any or all of the Borrowers, the repayment of which is subordinated to the Obligations by a written agreement in form and substance satisfactory to the Agent in its sole and absolute discretion. "Subsidiary" means any corporation the majority of the voting shares of which at the time are owned directly by any of the Borrowers and/or by one or more Subsidiaries of any of the Borrowers. "Tangible Net Worth" means, as to the Borrowers and the Subsidiaries and as of any date or for any period of determination, the sum at such time or during such period of: (a) Net Worth; less (b) the total of (i) all Assets which would be classified as intangible assets under GAAP consistently applied, (ii) applicable reserves, allowances and other similar properly deductible items to the extent deductible in accordance with GAAP when calculating Net Worth, (iii) goodwill, (iv) the amount of all accounts receivable and notes receivable from stockholders, officers, directors and/or employees, which in any individual case or in the aggregate, exceed Two Hundred Fifty Thousand Dollars ($250,000) and (v) the aggregate principal amount of any and all Subordinated Indebtedness to the extent included in Net Worth; all as calculated on a Consolidated basis. "Taxes" means all taxes and assessments whether general or special, ordinary or extraordinary, or foreseen or unforeseen, of every character (including all penalties or interest thereon), which at any time may be assessed, levied, confirmed or imposed by any Governmental Authority on any of the Borrowers or any of their -25- properties or assets or any part thereof or in respect of any of their franchises, businesses, income or profits. "Total Net Proceeds" has the meaning described in Section 2.4.7. "Total Revolving Credit Committed Amount" has the meaning described in Section 2.1.1. "Wholly Owned Subsidiary" means any Subsidiary all the shares of stock of all classes of which (other than directors' (or their nominees) qualifying shares) at the time are owned directly or indirectly by any of the Borrowers and/or by one or more Wholly Owned Subsidiaries of any of the Borrowers. SECTION 1.2 ACCOUNTING TERMS AND OTHER DEFINITIONAL PROVISIONS. Unless otherwise defined herein, as used in this Agreement and in any certificate, report or other document made or delivered pursuant hereto, accounting terms not otherwise defined herein, and accounting terms only partly defined herein, to the extent not defined, shall have the respective meanings given to them under GAAP. The words "hereof", "herein" and "hereunder" and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement, and article, section, subsection, schedule and exhibit references are references to articles, sections or subsections of, or schedules or exhibits to, as the case may be, this Agreement unless otherwise specified. As used herein, the singular number shall include the plural, the plural the singular and the use of the masculine, feminine or neuter gender shall include all genders, as the context may require. Without implying any limitation on the foregoing, any reference to the "Borrowers" in any provision of this Agreement or any of the other Financing Documents shall be deemed to refer to each and any one or more of the Borrowers, jointly and severally. Reference to any one or more of the Financing Documents shall mean the same as the foregoing may from time to time be amended, restated, substituted, extended, renewed, supplemented or otherwise modified, so long as and to the extent such amendment, supplement, modification or replacement is either not prohibited by the terms of this Agreement or is consented to as required under the terms of this Agreement. References to any Person include its permitted successors and assigns. -26- ARTICLE 2 THE CREDIT FACILITIES SECTION 2.1 THE REVOLVING CREDIT FACILITY. 2.1.1 REVOLVING CREDIT FACILITY. Subject to and upon the provisions of this Agreement, and in reliance upon the representations and warranties contained herein and/or in any of the Financing Documents, the Lenders collectively establish a revolving credit facility jointly and severally in favor of the Borrowers. The aggregate of all advances under the Revolving Credit Facility are sometimes referred to in this Agreement collectively as the "Revolving Loan". Advances repaid may be readvanced and reborrowed in accordance with the provisions of this Agreement. Advances may only be used for Permitted Uses. The amount set forth below opposite each Lender's name is herein called such Lender's "Revolving Credit Committed Amount" and the total of each Lender's Revolving Credit Committed Amount is herein called the "Total Revolving Credit Committed Amount". The proportionate share set forth below opposite each Lender's name is herein called such Lender's "Revolving Credit Proportionate Share": Revolving Credit Revolving Credit Lender Committed Amount Proportionate Share - ------ ---------------- ------------------- NationsBank $27,950,000 43% CoreStates $19,500,000 30% Chase $ 8,775,000 13.5% PNC $ 8,775,000 13.5% Total Revolving Credit Committed Amount: $65,000,000 100% Neither the Agent nor any of the Lenders shall be responsible for the Revolving Credit Commitment of any other Lender, nor will the failure of any Lender to perform its obligations under its Revolving Credit Commitment in any way relieve any other Lender from performing its obligations under its Revolving Credit Commitment. During the Revolving Credit Commitment Period, the Borrowers may request advances under the Revolving Credit Facility in accordance with the provisions of this Agreement; provided that after giving effect to the Borrowers' request: -27- (i) the outstanding principal balance of each Lender's Proportionate Share of the Revolving Loan and of the Letter of Credit Obligations (including, the PEDFA Obligations) would not exceed such Lender's Revolving Credit Committed Amount, and (ii) the aggregate outstanding principal balance of the Revolving Loan and all Letter of Credit Obligations (including, the PEDFA Obligations) would not exceed the Total Revolving Credit Committed Amount. 2.1.2 PROCEDURE FOR MAKING ADVANCES UNDER THE REVOLVING LOAN. (a) (i) The Borrowers may jointly and severally borrow under the Revolving Credit Facility on any Eurodollar Business Day if the borrowing is a LIBOR Loan or on any Business Day if the borrowing is a Prime Loan. Each borrowing under the Revolving Credit Facility which is a Prime Loan shall be in a minimum principal amount of Five Hundred Thousand Dollars ($500,000) and each borrowing under the Revolving Credit Facility which is a LIBOR Loan shall be in a minimum principal amount of Two Million Dollars ($2,000,000). (ii) The Borrowers shall give the Agent oral or written notice (a "Loan Notice") not later than 12:00 p.m (Baltimore Time) on the Business Day of the requested date for the making of a Prime Loan, and not later than 12:00 p.m (Baltimore Time) on the third Eurodollar Business Day before the requested date for the making of a LIBOR Loan. Each Loan Notice shall be in the form of EXHIBIT D, shall be accompanied by or include an Interest Rate Election Notice, and shall specify (1) the requested date for the making of an advance, which shall be, in the case of a LIBOR Loan, a Eurodollar Business Day, and, in the case of a Prime Loan, a Business Day, (2) the amount of the requested advance, and (3) if requested by the Agent, the purpose of the requested borrowing. (iii) Any oral Loan Notice shall be confirmed in writing by the Borrowers within three (3) Business Days after the making of the requested advance under the Revolving Loan. Each Loan Notice shall be irrevocable. A Financial Officer of the Parent may from time to time designate in writing one or more other Persons authorized to submit Loan Notices and Interest Rate Election Notices. (b) All advances of the Revolving Loan shall be disbursed by the Agent on the requested borrowing date, in funds immediately available to one or more of the Borrowers, by credit to an account of any of the Borrowers at the Agent's Office or in such other manner as may have been specified in the applicable Loan Notice and as shall be acceptable to the Agent in its sole and absolute -28- discretion. The Agent shall only disburse those advances made available to the Agent by the Lenders in accordance with Section 2.1.2(c). (c) Upon the Agent's receipt of a Loan Notice, the Agent shall promptly notify each Lender of the amount of each advance to be made by such Lender on the requested borrowing date under such Lender's Revolving Credit Commitment and the Interest Rate applicable to such advance. Not later than 2:00 p.m. (Baltimore Time) on each requested borrowing date, each Lender shall, if it has received timely notice from the Agent of the Borrowers' request for an advance, make available to the Agent, in funds immediately available to the Agent at the Agent's Office, such Lender's Proportionate Share of the advance to be made on such date. (d) Unless the Agent shall have received notice from a Lender prior to 2:00 p.m. (Baltimore Time) on the requested date for the making of an advance under the Revolving Loan that such Lender will make available to the Agent, such Lender's Revolving Credit Proportionate Share of the advance requested to be made on such date, the Agent will assume that such Lender will not make such amount available to the Agent on such date in accordance with Section 2.1.2(c) and such Lender's Revolving Credit Proportionate Share of the requested advance shall not be made to the Borrowers. The failure of any Lender to fund its Revolving Credit Proportionate Share of any requested advance shall not relieve any other Lender of its obligation to fund its Revolving Credit Proportionate Share of such advance. If, however, such other Lenders fund their Revolving Credit Proportionate Share of the requested advance (each a "Non-Ratable Loan", and collectively, the "Non-Ratable Loans") based on the determination of the Agent and such Lenders that they are in fact obligated to fund such requested advance pursuant to the terms of this Agreement, the Obligations due and payable with respect to such Non-Ratable Loans shall have a first priority claim with respect to any payments or collections received on account of the Revolving Loan and any and all such payments or collections shall be shared between the Lenders which elected to make the Non-Ratable Loans, on a pro-rata basis, notwithstanding any other provision of this Agreement. If and to the extent the Lenders fund their Revolving Credit Proportionate Share of any requested advance as provided herein, the Agent shall fund the requested advance prior to 3:00 p.m. (Baltimore time) to the extent of the funds made available by the Lenders. The Agent shall promptly notify the Borrowers of any Lender's refusal to fund its Revolving Credit Proportionate Share of any requested advance. -29- 2.1.3 LENDER PROTECTION LOANS. The Borrowers hereby irrevocably authorize the Lenders at any time and from time to time after and during the continuance of a Default or an Event of Default, without further request from or notice to the Borrowers, to make advances under the Revolving Loan which the Agent, in its sole and absolute discretion, deems necessary or appropriate to protect the interests of the Agent and/or any or all of the Lenders under this Agreement, including, without limitation, advances under the Revolving Loan made to cover (i) unpaid debit balances in the Revolving Loan Account, (ii) past due payments of principal and/or interest on account of any Loan, (iii) any other Obligations (including any Letter of Credit Obligations) not paid as and when due and payable, and (iv) any unpaid Enforcement Costs which remain outstanding for more than ten (10) days after the giving of notice by the Agent to the Borrowers. Each such advance shall be made as a Prime Loan. The Borrowers acknowledge and agree that the Agent and the Lenders shall be entitled, at their option, to reduce the availability under the Revolving Loan by the amount of any Enforcement Costs not paid by the Borrowers immediately upon demand, notwithstanding the fact that the Lenders cannot make advances under this Section 2.1.3 until such Enforcement Costs have been outstanding for at least ten (10) days after the giving of notice by the Agent to the Borrowers. 2.1.4 REVOLVING CREDIT NOTES. The joint and several obligations of the Borrowers to pay each and every Lender's Proportionate Share of the Revolving Loan, with interest, shall be evidenced by a series of promissory notes (as from time to time extended, amended, restated, supplemented or otherwise modified, collectively the "Revolving Credit Notes" and individually a "Revolving Credit Note") substantially in the form of EXHIBIT A attached hereto and made a part hereof, with appropriate insertions. Each Lender's Revolving Credit Note shall be dated as of the Closing Date, shall be payable to the order of such Lender at the times provided in the Revolving Credit Note, and shall be in the maximum principal amount of such Lender's Revolving Credit Commitment. The Borrowers acknowledge and agree that, if the unpaid principal balance of the Revolving Loan outstanding from time to time exceeds the aggregate face amount of the Revolving Credit Notes, the excess shall bear interest at the Post-Default Rate and shall be payable, with interest, ON DEMAND. 2.1.5 OPTIONAL PREPAYMENTS OF REVOLVING LOAN. Subject to the provisions of Section 2.3.5, the Borrowers may, at their option, at any time and from time to time prepay (each a "Revolving Loan Optional Prepayment" and collectively the "Revolving Loan Optional Prepayments") the Revolving Loan, in whole or in part without premium or penalty. Partial Revolving Loan Optional Prepayments shall be in amounts not less than One Hundred Thousand -30- Dollars ($100,000). Revolving Loan Optional Prepayments shall be made following a written notice to the Agent specifying the date and amount of any intended Revolving Loan Optional Prepayment. The amount to be prepaid shall be paid by the Borrowers to the Agent on the date specified for such prepayment in the notice, which notice shall be irrevocable. 2.1.6 REVOLVING LOAN ACCOUNT. The Agent will establish and maintain a loan account on its books (the "Revolving Loan Account") to which the Agent will (a) DEBIT (i) the principal amount of each advance under the Revolving Loan made by the Lenders as of the date made, (ii) the amount of any interest accrued on the Revolving Loan as and when due, and (iii) any other amounts due and payable by the Borrowers to the Agent and/or the Lenders from time to time under the provisions of this Agreement in connection with the Revolving Loan, including, without limitation, Enforcement Costs, Fees and late charges, all as and when due and payable, and (b) CREDIT all payments made by the Borrowers to the Agent on account of the Revolving Loan as of the date made. All credit entries to the Revolving Loan Account are conditional and shall be readjusted as of the date made if final payment is not received by the Agent in cash or collected funds. The Borrowers hereby promise to pay to the order of the Agent for the ratable benefit of the Lenders, on the Revolving Credit Termination Date, an amount equal to the excess, if any, of all debit entries over all credit entries recorded in the Revolving Loan Account. Any and all periodic or other statements or reconciliations of the Revolving Loan Account, and the information contained in those statements or reconciliations, shall be presumed conclusively to be correct, absent manifest error, and shall constitute an account stated between the Lenders and the Borrowers unless the Agent receives specific written objection from any of the Borrowers within thirty (30) Business Days after such statement or reconciliation shall have been sent by the Agent to the Borrowers. The Agent and the Lenders acknowledge and agree that the Borrowers' obligation to pay the Obligations evidenced by the Revolving Credit Notes constitutes the same, and is not in duplication of, the obligation to pay the Obligations as provided in this Section. 2.1.7 REVOLVING CREDIT UNUSED LINE FEE. The Borrowers shall jointly and severally pay to the Agent, in arrears, for the ratable benefit of the Lenders, a quarterly revolving credit unused line fee (collectively, the "Revolving Credit Unused Line Fees" and individually, a "Revolving Credit Unused Line Fee") in an amount to be determined based upon the ratio of Funded Debt to EBITDA for the rolling four (4) quarter month period covered by the then most recent financial statements furnished or required to be furnished to the Agent pursuant to and in the form required by Section 5.1.1(a) and Section 5.1.1(c). Within three (3) Business -31- Days of the Agent's receipt of such financial statements in the form required, the Agent shall calculate the ratio of Funded Debt to EBITDA for the then rolling four (4) quarter period covered by such financial statements, and shall notify the Borrowers and the Lenders of the Agent's determination. If such financial statements are not furnished as and when required, the Borrowers may not be permitted to select or change an Interest Rate or an Interest Period. Following, the Agent's determination of the Funded Debt to EBITDA ratio, the Revolving Credit Unused Line Fee shall be equal to the per annum "Fee Percentage Amount" as set forth below multiplied by the difference between (a) the Total Revolving Credit Committed Amount in effect from time to time and (b) the sum of (i) the average daily outstanding principal balance of the Revolving Loan during the then preceding quarterly period and (ii) the average daily face amount of all Letters of Credit outstanding during such quarterly period: Funded Debt to EBITDA Ratio Fee Percentage Amount --------------------------- --------------------- Less than 1.0 to 1.0 .125% Greater than or equal to .125% 1.0 to 1.0, but less than 1.75 to 1.0 Greater than or equal to .16% 1.75 to 1.0, but less than 2.25 to 1.0 Greater than or equal to .19% 2.25 to 1.0, but less than 2.75 to 1.0 Greater than or equal to .23% 2.75 to 1.0, but less than 3.0 to 1.0 Greater than or equal to 3.0 to 1.0 .50% 2.1.8 OPTIONAL REDUCTION OF TOTAL REVOLVING CREDIT COMMITTED AMOUNT. The Borrowers shall have the right to reduce permanently (each a "Revolving Credit Optional Reduction" and collectively the "Revolving Credit Optional Reductions") the Total Revolving Credit Committed Amount in effect from time to time in amounts not less than Five Million Dollars ($5,000,000) and in integral multiples of Five Hundred Thousand Dollars ($500,000), upon at least five (5) Business Days prior written notice to the Agent specifying the date and amount of such Revolving Credit -32- Optional Reduction. No Revolving Credit Optional Reduction shall be permitted if, after giving effect to such reduction, the then outstanding principal balance of the Revolving Loan and any and all then Outstanding Letter of Credit Obligations exceeds the Total Revolving Credit Committed Amount as so reduced. Such notice shall be irrevocable as to the amount and date of such Revolving Credit Optional Reduction. After each such Revolving Credit Optional Reduction, the Revolving Credit Unused Line Fee provided for in Section 2.1.7 hereof shall be calculated at the times set forth in such section with respect to the Total Revolving Credit Committed Amount as reduced. The Revolving Credit Committed Amount of each Lender shall be reduced by such Lender's Proportionate Share of each Revolving Credit Optional Reduction. SECTION 2.2 THE LETTER OF CREDIT FACILITY. 2.2.1 LETTERS OF CREDIT. Subject to and upon the provisions of this Agreement, and as a part of the Revolving Credit Commitments, the Borrowers may, upon the prior approval of the Agent, obtain letters of credit (as the same may from time to time be amended, supplemented or otherwise modified, each a "Letter of Credit" and collectively the "Letters of Credit") from the Agent from time to time from the Closing Date until the Business Day preceding the Revolving Credit Termination Date. In addition, subject to and upon the provisions of this Agreement, and as part of the Revolving Credit Commitments, the Agent shall agree to assume liability for the PEDFA Obligations in accordance with the provisions of the PEDFA Participation and Reimbursement Agreements. The Borrowers will not be entitled to obtain a Letter of Credit unless (a) the Borrowers are then able to obtain an advance under the Revolving Loan from the Lenders in an amount not less than the amount of the Letter of Credit requested by the Borrowers, and (b) the sum of the then Outstanding Letter of Credit Obligations (including the aggregate face amount of the PEDFA Obligations and the amount of the requested Letter of Credit) does not exceed Eight Million Dollars ($8,000,000) (the "Letter of Credit Committed Amount"). The Letters of Credit shall be available only for Permitted Uses. 2.2.2 LETTER OF CREDIT FEES. Prior to or simultaneously with the opening of each Letter of Credit and the Agent's execution and delivery of the PEDFA Participation and Reimbursement Agreements, the Borrowers shall pay to the Agent for the ratable benefit of the Lenders, a letter of credit fee (each a "Letter of Credit Fee" and collectively the "Letter of Credit Fees") as follows: (a) with respect to the PEDFA Obligations and any Letter of Credit issued to secure any obligations of any of the Borrowers -33- under or in connection with any workers' compensation Laws or insurance, a Letter of Credit Fee in an amount equal to one percent (1%) per annum of the face amount of the aggregate face amount of the PEDFA Obligations and/or such Letter of Credit, as appropriate, which the Borrowers acknowledge and agree shall be in addition to any fees payable by the Agent under or as part of the PEDFA Participation and Reimbursement Agreements, (b) with respect to any other standby Letter of Credit (other than the PEDFA Obligations), a Letter of Credit Fee in an amount equal to one and one-eighth percent (1-1/8%) per annum of the face amount of such Letter of Credit, and (c) with respect to any other commercial Letter of Credit (other than the PEDFA Obligations), a Letter of Credit Fee in an amount equal to one and one-eighth percent (1-1/8%) per annum of the face amount of such Letter of Credit. Letter of Credit Fees shall be paid upon the opening of the Letter of Credit, upon the Agent's execution and delivery of the PEDFA Participation and Reimbursement Agreements and upon each anniversary date, if any. In addition, the Borrowers shall pay to the Agent, for its own account, any and all additional issuance, negotiation, processing, transfer or other fees to the extent and as and when required by the provisions of any Letter of Credit Agreement; such additional fees are included in and a part of the "Fees" payable by the Borrowers under the provisions of this Agreement and are for the exclusive benefit of the Agent and are a part of the Agent's Obligations. 2.2.3 TERMS OF LETTERS OF CREDIT. Unless otherwise agreed by the Lenders in writing, each Letter of Credit (a) shall be opened pursuant to a Letter of Credit Agreement, (b) shall expire on a date not later than the Business Day preceding the Revolving Credit Expiration Date and (c) shall be issued for a Permitted Use. Neither the Agent nor any of the Lenders shall have any obligation or commitment to consent to the renewal, extension or amendment to either or both of the PEDFA Letters of Credit. 2.2.4 PROCEDURES FOR ISSUANCE OF LETTERS OF CREDIT. (a) The Borrowers shall give the Agent oral or written notice at least two (2) Business Days prior to the date on which the Borrower desires the Agent to issue a Letter of Credit. Any oral notice shall be confirmed in writing by the Borrowers within three (3) Business Days after the issuance of the requested Letter of Credit. Such notice shall be irrevocable and shall be accompanied by a duly executed Letter of Credit Agreement specifying: (a) the name and address of the intended beneficiary of the Letter of Credit, (b) the requested original face amount of the -34- Letter of Credit, (c) whether the Letter of Credit is to be revocable or irrevocable, (d) the Business Day on which the Letter of Credit is to be opened and the date on which the Letter of Credit is to expire, (e) the terms of payment of any draft or drafts which may be drawn under the Letter of Credit, (g) any other terms or provisions the Borrowers desire to be contained in the Letter of Credit, and (h) the purpose for which such Letter of Credit is to be issued. Such notice shall also be accompanied by such other information, certificates, confirmations, and other items as the Agent may require to assure that the Letter of Credit is to be issued in accordance with the provisions of this Agreement and a Letter of Credit Agreement. The Borrowers shall attach to such notice the form of the Letter of Credit that the Borrowers request be issued. The Agent and the Lenders agree that if there is any express conflict between the provisions of this Agreement and the provisions of any Letter of Credit Agreement regarding the Agent's duties and obligations, the provisions of this Agreement shall prevail. (b) The Agent shall determine, as of the Business Day immediately preceding the requested effective date of issuance of the Letter of Credit as set forth in a notice from the Borrowers pursuant to Section 2.2.4(a), the amount of the unused Letter of Credit Facility. If (i) the form of Letter of Credit delivered by the Borrowers to the Agent, if any, is acceptable to the Agent in its sole and absolute discretion, (ii) the undrawn face amount of the requested Letter of Credit is less than or equal to the unused Letter of Credit Facility, (iii) the Letter of Credit complies with the conditions set forth in Section 2.2.3, (iv) the notice provided by the Borrowers to the Agent is given in accordance with Section 2.2.4(a), (v) the Agent has received a certificate from the Borrowers stating that the conditions set forth in Section 4.2 have been satisfied, (vi) the Borrowers have paid all Letter of Credit Fees and other Fees (including customary issuance and negotiation fees) payable in connection with the issuance of such Letter of Credit, and (vii) the Borrowers have executed and delivered to the Agent a Letter of Credit Agreement, then the Agent will issue the Letter of Credit in accordance with its customary procedures. Promptly upon issuance of a Letter of Credit, the Agent shall give each Lender written or telephonic notice of the issuance of such Letter of Credit, and within five (5) Business Days of the issuance of such Letter of Credit, the Agent shall furnish to the Lenders a photocopy of such Letter of Credit. (c) No Letter of Credit shall be extended or amended unless the requirements of this Section 2.2.4 are met as though a new Letter of Credit were being requested and issued. -35- (d) The Agent shall have no obligation to issue any Letter of Credit, if as of the date of issuance of such Letter of Credit, there exists any order of any court, arbitrator or Governmental Authority having jurisdiction or authority over the Agent, which shall purport by its terms to enjoin or restrain banks generally from issuing letters of credit of the type and in the amount of the proposed Letter of Credit, or if there exists any Law, rule or regulation applicable to banks generally or any request or directive (whether or not having the force of law) from any Governmental Authority with jurisdiction over banks generally, which shall prohibit, or request that the Agent refrain from, the issuance of letters of credit generally or the issuance of such Letter of Credit. (e) In the event of any conflict between the provisions of this Agreement and the provisions of a Letter of Credit Agreement, the provisions of this Agreement shall prevail and control unless otherwise expressly provided in the Letter of Credit Agreement. 2.2.5 PAYMENT OF REIMBURSEMENT OBLIGATIONS. (a) The Borrowers hereby promise to pay to the Agent, ON DEMAND and in Dollars, the following which are herein collectively referred to as the "Current Letter of Credit Obligations": (i) the amount which the Agent has paid under each draft or draw on a Letter of Credit or under either or both of the PEDFA Participation and Reimbursement Agreements; (ii) any and all reasonable charges and expenses which the Agent may pay or incur relative to the Letter of Credit, the PEDFA Obligations and/or such draws or drafts; and (iii) interest on the amounts described in (i) and (ii) above not paid by the Borrowers as and when due and payable under the provisions of (i) and (ii) above from the day the same are due and payable until paid in full at a rate per annum equal to the then current highest rate of interest on the Revolving Loan, or if no advances are outstanding under the Revolving Loan, the Prime Rate, plus one percent (1%) per annum. In addition, the Borrowers hereby promise to pay any and all other Letter of Credit Obligations as and when due and payable in accordance with the provisions of this Agreement and the Letter of Credit Agreements. Notwithstanding the foregoing, the Agent shall be entitled to use and apply funds on deposit in the Letter of Credit Cash Collateral Account to pay any draft or draw on a Post-Expiration Letter of Credit, without prior notice to or consent of, -36- the Borrowers and/or the Lenders, in accordance with the provisions of Section 2.2.10. (b) The obligation of the Borrowers to pay Current Letter of Credit Obligations and all other Letter of Credit Obligations shall be absolute and unconditional under any and all circumstances and irrespective of any setoff, counterclaim or defense to payment which any or all of the Borrowers or any other account party may have or have had against any beneficiary of such Letter of Credit, any beneficiary of the PEDFA Letters of Credit, the Agent, any of the Lenders, or any other Person, including, without limitation, any defense based on the failure of any draft or draw to conform to the terms of such Letter of Credit (except if such draft or draw fails to substantially comply with such terms), any draft or other document proving to be forged, fraudulent or invalid, or the legality, validity, regularity or enforceability of such Letter of Credit, any draft or other documents presented with any draft, any Letter of Credit Agreement, this Agreement, or any of the other Financing Documents, all whether or not the Agent or any of the Lenders had actual or constructive knowledge of the same, and irrespective of any security or guarantee therefor or right of offset with respect thereto and irrespective of any other circumstances whatsoever which constitutes, or might be construed to constitute, an equitable or legal discharge of any of the Borrowers for any Letter of Credit Obligations, in bankruptcy or otherwise; PROVIDED, HOWEVER, that the Borrowers shall not be obligated to reimburse the Agent for any wrongful payment under such Letter of Credit made as a result of the Agent's willful misconduct or gross negligence. (c) The obligation of the Borrowers to pay the Letter of Credit Obligations shall not be conditioned or contingent upon the pursuit by the Agent or any other Person at any time of any right or remedy against any Person which may be or become liable in respect of all or any part of such obligation or against any security or guarantee therefor or right of offset with respect thereto. (d) The Letter of Credit Obligations shall continue to be effective, or be reinstated, as the case may be, if at any time payment of all or any portion of the Letter of Credit Obligations is rescinded or must otherwise be restored or returned by the Agent or any of the Lenders upon the insolvency, bankruptcy, dissolution, liquidation or reorganization of any Person, or upon or as a result of the appointment of a receiver, intervenor, or conservator of, or trustee or similar officer for, any Person, or any substantial part of such Person's property, all as though such payments had not been made. -37- (e) If any Laws, order of court and/or ruling or regulation of any Governmental Authority of the United States (or any state thereof) and/or any country other than the United States permits a beneficiary under a Letter of Credit to require the Agent, the Lenders and/or any of their respective branches, Affiliates and/or correspondents to pay drafts under or purporting to be under a Letter of Credit after the expiration date of the Letter of Credit, the Borrowers shall reimburse the Agent and the Lenders, as appropriate, for any such payment pursuant to the provisions of this Section 2.2.5. 2.2.6 LETTER OF CREDIT RESERVES. If any change in any Law or regulation, or in the interpretation thereof by any court or other Governmental Authority charged with the administration thereof, shall either (a) impose, modify or deem applicable any reserve, special deposit or similar requirement against Letters of Credit issued by the Agent and/or the Agent's agreement to assume liability for the PEDFA Obligations, or (b) impose on the Agent any other condition regarding any Letter of Credit and/or the PEDFA Obligations, and the result of any event referred to in clauses (a) or (b) above shall be to increase the cost to the Agent of issuing, maintaining or extending the Letter of Credit or of continuing its agreement to assume liability for the PEDFA Obligations or the cost to any of the Lenders of funding any obligation under or in connection with the Letter of Credit and/or the PEDFA Obligations (which increase in cost shall be the result of the Agent's reasonable allocation of the aggregate of such cost increases resulting from such events), then, within ten (10) days of the Agent's written invoice therefor, the Borrowers shall pay to the Agent from time to time as specified by the Agent, additional amounts which shall be sufficient to compensate the Agent and the Lenders for such increased cost, together with interest on each such amount from the date demanded until payment in full thereof at a rate per annum equal to the then highest current rate of interest on the Revolving Loan. The Agent agrees to furnish to the Borrowers, upon written request, a certificate as to the Agent's calculation of any such increased cost, together with such supporting documentation for such calculation as the Borrowers may reasonably request. 2.2.7 INDEMNIFICATION AND ASSUMPTION OF RISK. (a) The Borrowers hereby instruct the Agent to pay any draft complying with the terms of any Letter of Credit irrespective of any instructions of any of the Borrowers to the contrary. The Borrowers further hereby instruct the Agent, at the Agent's option, to pay any amounts demanded by PNC under either or both of the PEDFA Participation and Reimbursement Agreements in accordance with the provisions of the PEDFA Participation and Reimbursement -38- Agreements, irrespective of any instructions of any of the Borrowers to the contrary. (b) The Agent, the Lenders and each of their respective branches, Affiliates and/or correspondents shall not be responsible for, and the Borrowers hereby indemnify and hold the Agent, the Lenders and their respective branches, Affiliates and/or correspondents harmless from and against all liability, loss and out of pocket expense (including reasonable attorney's fees and costs) incurred by the Agent, any of the Lenders and/or any of their respective branches, Affiliates and/or correspondents relative to and/or as a consequence of: (i) any failure by any of the Borrowers to perform any obligations under this Section 2.2 or under any Letter of Credit Agreement, (ii) the issuance of any Letter of Credit and any draft, draw and/or acceptance under or purported to be under any Letter of Credit, other than as a result of the Agent's willful misconduct or gross negligence, (iii) any action taken or omitted by the Agent, any of the Lenders and/or any of their respective branches, Affiliates and/or correspondents at the request of any of the Borrowers, (iv) any failure or inability of the Agent to perform in accordance with the terms of any Letter of Credit or in accordance with the terms of either or both of the PEDFA Participation and Reimbursement Agreements, by reason of any control or restriction rightfully or wrongfully exercised by any DE FACTO or DE JURE Governmental Authority, group or individual asserting or exercising governmental or paramount powers, (v) any consequences arising from causes beyond the reasonable control of the Agent, the Lenders and/or their respective branches, Affiliates and/or correspondents, or (vi) the Agent's agreement to assume liability for the PEDFA Obligations and any demand for payment under either or both of the PEDFA Participation and Reimbursement Agreements, other than as a result of the Agent's willful misconduct or gross negligence, as determined by a court of competent jurisdiction. (c) As among the Borrowers, the Lenders and the Agent, the Borrowers hereby assume all risks of (1) the acts and omissions of, -39- or misuses of, any of the Letters of Credit by any beneficiary and/or by any other users of the Letters of Credit, (2) the acts or omissions of, or misuses of, either of the PEDFA Letters of Credit by any beneficiary and/or by any other user of the PEDFA Letters of Credit, and (3) the acts and omissions of, or misuses of, any rights or remedies of PNC Bank, National Association under or in connection with the PEDFA Obligations. In furtherance and not in limitation of the foregoing, the Agent, the Lenders and their respective branches, Affiliates and/or correspondents, shall not be liable or responsible in any respect for: (i) any error, omission, interruption or delay in transmission, dispatch or delivery of any one or more messages or advices in connection with any Letter of Credit and/or the PEDFA Obligations, whether transmitted by cable, telegraph, telex, mail or otherwise and despite any cipher or code which may be employed, (ii) any action, inaction or omission which may be taken or suffered by the Agent, any of the Lenders, and any of their respective branches, Affiliates and/or correspondents, in good faith or through inadvertence in identifying or failing to identify any beneficiary or otherwise in connection with any Letter of Credit and/or any of the PEDFA Obligations, if taken or omitted in the absence of willful misconduct or gross negligence, (iii) the form, validity, sufficiency, accuracy, genuineness or legal effect of any document submitted by any Person in connection with the application for and issuance of and presentation of drafts with respect to any of the Letters of Credit or of demands for payment under the PEDFA Participation and Reimbursement Agreements, even if it should prove to be in any respect or all respects invalid, insufficient, inaccurate, fraudulent or forged, (iv) the validity or sufficiency of any instrument transferring or assigning or purporting to transfer or assign any Letter of Credit, any of the PEDFA Obligations, or the rights or benefits thereunder or proceeds thereof, in whole or in part, which may prove to be invalid or ineffective for any reason, (v) the failure of any beneficiary of any Letter of Credit to comply with conditions required in order to draw upon such Letter of Credit; provided that the beneficiary has substantially complied with such conditions, (vi) errors in interpretation of technical terms, -40- (vii) any loss or delay in the transmission or otherwise of any document required in order to make a drawing under any Letter of Credit or of the proceeds thereof or a demand for payment of the PEDFA Obligations, except as may arise from the Agent's willful misconduct or gross negligence, (viii) the misapplication by the beneficiary of any Letter of Credit or of the proceeds of any drawing under such Letter of Credit or by PNC Bank, National Association of the PEDFA Obligations or any amounts paid by the Agent on account of the PEDFA Obligations, or (ix) any consequences arising from causes beyond the control of the Agent, including, without limitation, any acts by any Governmental Authority. (d) Any action taken or omitted to be taken by the Agent under or in connection with any Letter of Credit and/or any of the PEDFA Obligations, if taken or omitted in the absence of willful misconduct or gross negligence, shall not result in any liability of the Agent to any Lender or relieve any Lender of its obligations to the Agent under Section 2.2.8. In determining whether to pay any draft under a Letter of Credit, the Agent shall have no obligation to any Lender other than to confirm that any documents required to be delivered under such Letter of Credit in connection with such draw have been presented and appear on their face to comply substantially with the requirements of such Letter of Credit. In determining whether to pay any demand under the PEDFA Obligations, the Agent shall have no obligation to any Lender other than to confirm that the demand was made in accordance with the provisions of the PEDFA Participation and Reimbursement Agreements. 2.2.8 PARTICIPATIONS IN THE LETTERS OF CREDIT, PEDFA OBLIGATIONS. Each Lender hereby irrevocably authorizes the Agent to assume liability for the PEDFA Obligations in accordance with the provisions of the PEDFA Participation and Reimbursement Agreements. Each Lender further hereby irrevocably authorizes the Agent to issue Letters of Credit in accordance with the provisions of this Agreement. As of the date the Agent executes and delivers the PEDFA Participation and Reimbursement Agreements, each Lender shall be deemed, automatically and without notice to or consent of any Person, to have irrevocably and unconditionally purchased and received from the Agent, without recourse or warrant, an undivided interest and participation in the PEDFA Obligations (including, without limitation, any and all obligations of the Borrowers under the PEDFA Reimbursement Agreement and related Letter of Credit Obligations), equal to such Lender's Revolving Credit Proportionate Share of the face amount of the PEDFA Obligations. As of the date each Letter of Credit is opened or issued by the Agent pursuant to -41- the provisions of this Agreement, each Lender shall be deemed, automatically and without notice to or consent of any Person, to have irrevocably and unconditionally purchased and received from the Agent, without recourse or warranty, an undivided interest and participation in such Letter of Credit (including, without limitation, any and all obligations of the Borrowers under and with respect to such Letter of Credit and the related Letter of Credit Obligations), equal to such Lender's Revolving Credit Proportionate Share of the face amount of such Letter of Credit. 2.2.9 PAYMENTS BY THE LENDERS TO THE AGENT. (a) If the Borrowers fail to pay to the Agent any Current Letter of Credit Obligations as and when due and payable, the Agent shall promptly notify each of the Lenders and each of the Lenders shall make an advance under the Revolving Loan to the Agent for the account of the Borrowers in accordance with the provisions of Section 2.1.3 in an amount equal to such Lender's Revolving Credit Proportionate Share of such unpaid Current Letter of Credit Obligations. If the Lenders are unable to make such an advance for the account of the Borrowers because any or all of the Borrowers are the subject of a bankruptcy case, the Agent shall demand payment from each of the Lenders of such Lender's Revolving Credit Proportionate Share of the unpaid Current Letter of Credit Obligations and said unpaid Current Letter of Credit Obligations shall be deemed and shall remain Obligations of the Borrowers hereunder until paid in full. In addition, if any amount paid to the Agent on account of any Current Letter of Credit Obligations is rescinded or is required to be restored or turned over by the Agent to any of the Borrowers or any other Person upon the insolvency, bankruptcy, dissolution, liquidation or reorganization of any of the Borrowers or any other Person or upon or as a result of the appointment of a receiver, intervenor, trustee, conservator or similar officer for any of the Borrowers or any other Person, or is otherwise not indefeasibly covered by an advance under the Revolving Loan, the Agent shall promptly notify each of the Lenders and each of the Lenders shall make an advance under the Revolving Loan to the Agent for the account of the Borrowers in accordance with Section 2.1.4 in an amount equal to such Lender's Revolving Credit Proportionate Share of its portion of the Current Letter of Credit Obligations which the Agent so returned, restored or remitted. (b) Each of the Lenders irrevocably and unconditionally agrees to honor any such demands for payment under this Section 2.2.9 and promises to pay to the Agent's account on the same Business Day as demanded the amount of its Revolving Credit Proportionate Share of the outstanding Current Letter of Credit Obligations in immediately available funds, without any setoff, -42- counterclaim or deduction of any kind or nature whatsoever. Any payment by a Lender hereunder shall in no way release, discharge or lessen the joint and several obligations of the Borrowers to pay Current Letter of Credit Obligations to the Agent in accordance with the provisions of this Agreement. (c) The obligation of each of the Lenders to remit the amounts of its Revolving Credit Proportionate Share of outstanding Current Letter of Credit Obligations for the account of the Agent pursuant to this Section 2.2.9 shall be unconditional and irrevocable under any and all circumstances and may not be terminated, suspended or delayed for any reason whatsoever, provided that all payments of such amounts by each of the Lenders shall be without prejudice to the rights of each of the Lenders with respect to the Agent's alleged willful misconduct or gross negligence. Any claim any Lender may have against the Agent as a result of the Agent's alleged willful misconduct or gross negligence may be brought by such Lender in a separate action against the Agent but may not be used as a defense to payment under the provisions of this Section 2.2.9. (d) No failure of any Lender to remit the amount of its Revolving Credit Proportionate Share of outstanding Current Letter of Credit Obligations to the Agent pursuant to this Section 2.2.9 shall affect the obligations of the Agent under any Letter of Credit, and if any Lender does not remit to the Agent the amount of its Revolving Credit Proportionate Share of Current Letter of Credit Obligations on the same day as demanded, then without limiting such Lender's obligation to transmit funds on the same Business Day as demanded, such Lender shall be obligated to pay, on demand of the Agent and without setoff, counterclaim or deduction of any kind whatsoever interest on the unpaid amount at the Federal Funds Rate for each day from the date such amount shall be due and payable to the Agent until the date such amount shall have been paid in full to the Agent by such Lender. 2.2.10 POST-TERMINATION DATE LETTERS OF CREDIT. If any Letter of Credit has an expiration date later than the Business Day preceding the Revolving Credit Termination Date (each a "Post-Termination Date Letter of Credit" and collectively, the "Post-Termination Date Letters of Credit"), advances under the Revolving Loan shall be made by the Lenders for the account of the Borrowers as of the Business Day preceding the Revolving Credit Termination Date, such advances to be in the aggregate face amount of all such Post-Termination Date Letters of Credit. The amount of each Lender's advance shall be equal to its Revolving Credit Proportionate Share of the aggregate face amount of all such Post-Termination Date Letters of Credit. The Agent shall deposit the proceeds of such advances into one or more interest bearing -43- accounts with and in the name of the Agent and over which the Agent shall have exclusive power of access and withdrawal (collectively, the "Letter of Credit Cash Collateral Account"); provided, that (i) the Agent shall have no obligation or commitment to deposit or invest the proceeds of such advances into any account or other investment which would impose restrictions or limitations on the Agent's ability to withdraw or otherwise access funds on deposit immediately upon demand and (ii) the Agent shall have no obligation or commitment to deposit the proceeds of such advances into an account which bears interest at a rate greater than the then current maximum Interest Rate. The Letter of Credit Cash Collateral Account is to be held by the Agent, for the ratable benefit of the Lenders, as additional collateral and security for any Letter of Credit Obligations relating to the Post-Termination Date Letters of Credit. The Borrowers hereby assign, pledge, grant and set over to the Agent, for the ratable benefit of the Lenders, a first priority security interest in, and Lien on, all of the funds on deposit in the Letter of Credit Cash Collateral Account, together with any and all proceeds (cash and non-cash) thereof as additional collateral and security for the Letter of Credit Obligations relating to the Post-Termination Date Letters of Credit and for all of the other Obligations. The Borrowers acknowledge and agree that the Agent shall be entitled to fund any draw or draft on any Post-Termination Date Letter of Credit from the monies on deposit in the Letter of Credit Cash Collateral Account without notice to or consent of any of the Borrowers or any of the Lenders. The Borrowers further acknowledge and agree that the Agent's election to fund any draw or draft on any Post-Termination Date Letter of Credit from the Letter of Credit Cash Collateral Account shall in no way limit, impair, lessen, reduce, release or otherwise adversely affect the Borrowers' joint and several obligations to pay any Letter of Credit Obligations under or relating to the Post-Termination Date Letters of Credit. At such time as all Post-Termination Date Letters of Credit have expired and all Letter of Credit Obligations relating to the Post-Termination Date Letters of Credit have been paid in full, the Agent agrees to apply the amount of any remaining funds on deposit in the Letter of Credit Cash Collateral Account to the then unpaid balance of the Obligations under the Revolving Credit Facility in such order and manner as the Agent shall determine in its sole and absolute discretion. The Agent and the Lenders acknowledge and agree that the Agent's ability to fund any draw or draft on any Post-Termination Date Letter of Credit from the Letter of Credit Cash Collateral Account shall not be construed to obligate the Borrowers to pay all or any portion of the Letter of Credit Obligations more than once. The PEDFA Obligations shall be deemed a Post-Termination Date Letter of Credit for purposes of this Agreement, at the Agent's option, if the Agent continues to be liable, either contingently or primarily, for any of the PEDFA Obligations, at any time on or after the -44- Revolving Credit Termination Date. The Agent, however, shall have no obligation or commitment to consent to any such extension or renewal of the PEDFA Obligations. SECTION 2.3 INTEREST. 2.3.1 AVAILABLE INTEREST RATES. (a) Each Loan shall bear interest until maturity (whether by acceleration, declaration, extension or otherwise) at either the Prime Rate or the LIBOR Rate, as selected and specified by the Borrowers in an Interest Rate Election Notice furnished to the Agent in accordance with the provisions of Section 2.3.2(d), or as otherwise determined in accordance with the provisions of this Section 2.3, and as may be adjusted from time to time in accordance with the provisions of Section 2.3.3. Notwithstanding the foregoing, following the occurrence and during the continuance of an Event of Default, at the option of the Required Lenders, all Loans and all other Obligations shall bear interest at the Post-Default Rate. (b) The percentage to be added when calculating the available Interest Rates for Loans (the "Applicable Margin") shall vary from time to time and as between Loans, and shall be determined from time to time based upon the ratio of Funded Debt to EBITDA for the twelve (12) month period covered by the then most recent financial statements furnished or required to be furnished to the Agent pursuant to and in the form required by Section 5.1.1(a) and Section 5.1.1(c). Within three (3) Business Days of the Agent's receipt of such financial statements in the form required, the Agent shall calculate the ratio of Funded Debt to EBITDA for the then twelve (12) month period covered by such financial statements, and shall notify the Borrowers and the Lenders of its determination. If such financial statements are not furnished as and when required, the Borrowers may not be permitted to select or change an Interest Rate or an Interest Period. Following the Agent's determination of the Funded Debt to EBITDA ratio, the Applicable Margin for available Interest Rates shall be as follows: (i) with respect to advances under the Revolving Loan, the Applicable Margin to be added when calculating the available Interest Rates shall be as follows: Funded Debt to EBITDA Ratio Applicable Margin --------------------------- ----------------- Less than 1.0 to 1.0 LIBOR Loans: .52% Prime Loans: -.50% Greater than or equal to LIBOR Loans: .64% -45- 1.0 to 1.0, but less than Prime Loans: -.30% 1.75 to 1.0 Greater than or equal to LIBOR Loans: .84% 1.75 to 1.0, but less than Prime Loans: -.10% 2.25 to 1.0 Greater than or equal to LIBOR Loans: 1.15% 2.25 to 1.0, but less than Prime Loans: .25% 2.75 to 1.0 Greater than or equal to LIBOR Loans: 1.55% 2.75 to 1.0, but less than Prime Loans: .50% 3.0 to 1.0 (ii) If the ratio of Funded Debt to EBITDA at any time equals or exceeds 3.0 to 1.0 all Loans shall bear interest at the Post-Default Rate. (c) At any time and from time to time, upon the Borrowers' request, the Agent agrees to advise the Borrowers of the then current Base Rate. 2.3.2 SELECTION OF INTEREST RATES. (a) By an Interest Rate Election Notice furnished to the Agent in accordance with the provisions of Section 2.3.2(d), the Borrowers may select the initial Interest Rate or Interest Rates to be charged on the Loans disbursed on the Closing Date. From time to time after the Closing Date as provided in this Section 2.3.2, by an Interest Rate Election Notice furnished to the Agent in accordance with the provisions of Section 2.3.2(d), the Borrowers may select an initial Interest Rate or Interest Rates for any Loans made after the Closing Date or may convert the Interest Rate and, when applicable, the Interest Period, for any existing Loan to any other Interest Rate or, when applicable, any other Interest Period. (b) The Borrowers' selection of an Interest Rate and/or an Interest Period, the Borrowers' election to convert an Interest Rate and/or an Interest Period to another Interest Rate or Interest Period, and any other adjustments in an Interest Rate, including, without limitation, any adjustments made in accordance with Section 2.3.3, are subject to the following limitations: (i) with respect to advances under the Revolving Loan, the Borrowers shall not at any time select or change to an Interest Period that extends beyond the Revolving Credit Expiration Date, -46- (ii) except as otherwise provided in Section 2.3.5, no change from the LIBOR Rate to the Prime Rate shall become effective on a day other than a Business Day and on a day which is the last day of the then current Interest Period, no change of an Interest Period shall become effective on a day other than the last day of the then current Interest Period, and no change from the Prime Rate to the LIBOR Rate shall become effective on a day other than a Eurodollar Business Day, (ii) any Interest Rate change for any Loan to be effective on a date on which any principal payment on account of such Loan is scheduled to be paid shall be made only after such payment shall have been made, (iv) with respect to the Revolving Loan, no more than four (4) Interest Rates may be in effect from time to time, (v) the first day of each Interest Period shall be a Eurodollar Business Day, (vi) as of the effective date of a selection, there shall not exist a Default or an Event of Default, (viii) as required by the provisions of Section 2.3.1(b), the Agent shall have determined the ratio of Funded Debt to EBITDA for the twelve (12) month period covered by the financial statements furnished or required to be furnished to the Agent as of the date of determination and as and when required by the provisions of Section 5.1.1(a) and Section 5.1.1(c), and (ix) the minimum principal amount of a LIBOR Loan shall be Two Million Dollars ($2,000,000). The Agent may elect to charge interest at the Post-Default Rate on any Obligations after the occurrence and during the continuance of an Event of Default. The Borrowers acknowledge and agree that any increase in the interest rate shall be retroactive to the occurrence of a Default if such Default becomes an Event of Default. (c) If a Loan Notice is not accompanied by an Interest Rate Election Notice or does not otherwise include a selection of an Interest Rate and, if applicable, an Interest Period, or if, after having made a selection of an Interest Rate and, if applicable, an Interest Period, the Borrowers fail or are not otherwise entitled under the provisions of this Agreement to continue such Interest -47- Rate or Interest Period, the Borrowers shall be deemed to have selected the Prime Rate as the Interest Rate until such time as the Borrowers have selected a different Interest Rate and specified an Interest Period in accordance with, and subject to, the provisions of this Section 2.3. (d) The Lenders will not be obligated to make Loans, to convert the Interest Rate on Loans to another Interest Rate, or to change Interest Periods, unless the Agent shall have received an irrevocable written or telephonic notice (an "Interest Rate Election Notice") from the Borrowers at the times and specifying the following information: (i) the amount to be borrowed or converted, (ii) a selection of the Prime Rate or the LIBOR Rate, (iii) the length of the Interest Period if the Interest Rate selected is the LIBOR Rate, and (iv) the requested date on which such election is to be effective. Any telephonic notice must be confirmed in writing within three (3) Business Days. Each Interest Rate Election Notice must be received by the Agent not later than 10:00 a.m. (Baltimore Time) on the Business Day of any requested borrowing or conversion in the case of a selection of the Prime Rate and not later than 10:00 a.m. (Baltimore Time) on the third Business Day before the effective date of any requested borrowing or conversion in the case of a selection of the LIBOR Rate. 2.3.3 ADJUSTMENT OF INTEREST RATES. The Interest Rate on the Loans shall be subject to adjustment quarterly if, following the Agent's receipt and review of the Borrowers' then most recent financial statements furnished to the Agent as and when required by the provisions of Section 5.1.1(a) and Section 5.1.1(c), the ratio of Funded Debt to EBITDA for the twelve (12) month period covered by such financial statements has changed from the ratio previously calculated by the Agent at the time of the Agent's receipt and review of the Borrowers' last financial statements previously furnished to the Agent in accordance with Section 5.1.1(a) and 5.1.1(c), and that the change in the ratio would result in a change in the Applicable Margin. The Interest Rate or Interest Rates shall be adjusted, upwards or downwards, as appropriate, to the corresponding Interest Rate or Interest Rates which reflect the change in the Applicable Margin. In the case of a Loan for which the Interest Rate is the previous Prime Rate, the Interest Rate shall be changed to the then available Prime Rate, -48- and in the case of a Loan for which the Interest Rate is the previous LIBOR Rate, the Interest Rate shall be changed to the available LIBOR Rate for the applicable Interest Period. In the case of a Prime Loan, any adjustment in the Interest Rate shall be effective as of the first day of the first calendar month following the Agent's calculation of the most recent Borrowers' Funded Debt to EBITDA ratio which resulted in a change in the Applicable Margin. In the case of a LIBOR Loan, any adjustment in the Interest Rate shall be effective as of the end of the Interest Period for such LIBOR Loan. Interest Rate adjustments under this Section 2.3.3 shall be made not more frequently than once quarterly. 2.3.4 INABILITY TO DETERMINE LIBOR RATE. In the event that (i) the Agent shall have determined that, by reason of circumstances affecting the London interbank eurodollar market, adequate and reasonable means do not exist for ascertaining the LIBOR Rate for any requested Interest Period with respect to a Loan the Borrowers have requested to be made or to be converted to a LIBOR Loan or (ii) the Required Lenders shall determine and notify the Agent that the rates quoted by the Agent for the purpose of computing the LIBOR Rate for any requested Interest Period with respect to a Loan the Borrowers have requested to be made or to be converted to a LIBOR Loan do not adequately and fairly reflect the cost to the Required Lenders of funding or converting such Loan, the Agent shall give notice of such determination to the Borrowers and the Lenders at least one (1) day prior to the proposed date for funding or converting such Loan. If such notice is given, any request for a LIBOR Loan shall be made or converted to a Prime Loan or withdrawn, at the Borrowers' election. Until such notice has been withdrawn by the Agent, the Borrowers will not request that any Loan be made or converted to a LIBOR Loan. 2.3.5 INDEMNITY. The Borrowers jointly and severally agree to indemnify and reimburse each Lender and to hold each Lender harmless from any loss or reasonable, out of pocket cost or expense which such Lender may sustain or incur as a consequence of (a) a default by the Borrowers in payment when due of the principal amount of or interest on any LIBOR Loan, (b) the failure of the Borrowers to make, or convert the Interest Rate of, a Loan after the Borrowers have given a Loan Notice or an Interest Rate Election Notice, (c) the failure of the Borrowers to make any Prepayment after the Borrowers have given notice of such intention to make a Prepayment, and/or (d) the making by the Borrowers of a Prepayment of a LIBOR Loan on a day which is not the last day of the Interest Period for such LIBOR Loan, including, without limitation, any such loss or expense arising from the reemployment of funds obtained by such Lender to maintain its Proportionate Share of any LIBOR Loan or from fees payable to terminate the -49- deposits from which such funds were obtained; provided, however, that such Lender will use its best efforts to redeploy such funds in a commercially reasonable manner. This agreement and covenant of the Borrowers shall survive termination or expiration of this Agreement and the Commitments and the payment and performance of all of the Obligations. 2.3.6 PAYMENT OF INTEREST. (a) Unpaid and accrued interest on any advance of the Revolving Loan which consists of a Prime Loan shall be paid monthly, in arrears, on the first day of each calendar month, commencing on the first such date after the Closing Date, and on the first day of each calendar month thereafter, and at maturity (whether by acceleration, declaration, extension or otherwise). Notwithstanding the foregoing, any and all unpaid and accrued interest on any Prime Loan converted to a LIBOR Loan or prepaid shall be paid immediately upon such conversion and/or prepayment, as appropriate. (b) Unpaid and accrued interest on any LIBOR Loan shall be paid on the last Business Day of each Interest Period for such LIBOR Loan and at maturity (whether by acceleration, declaration, extension or otherwise) in arrears; provided, however that any and all unpaid and accrued interest on any LIBOR Loan prepaid prior to expiration of the then current Interest Period for such LIBOR Loan shall be paid immediately upon prepayment. (c) It is not intended by the Agent or any of the Lenders, and nothing contained in this Agreement or in any of the Notes, shall be deemed, to establish or require the payment of a rate of interest in excess of the maximum rate permitted by applicable Laws (the "Maximum Rate"). If, in any month or in any Interest Period, the effective Interest Rate charged on any of the Obligations would exceed the Maximum Rate, then such Interest Rate with respect to those Obligations for that month or Interest Period, as applicable, shall be the Maximum Rate, and, if in future months or Interest Periods, such Interest Rate would otherwise be less than the Maximum Rate, then such Interest Rate shall remain at the Maximum Rate until such time as the amount of interest paid on account of such Obligations equals the amount of interest which would have been paid if the same had not been limited by the Maximum Rate. In the event, upon payment in full of all of the Obligations and termination or expiration of the Commitments, the total amount of interest paid or accrued during the term of this Agreement is less than the total amount of interest which would have been paid or accrued if the effective Interest Rate or Interest Rates had at all times been and remained in effect, then the Borrowers shall, to the extent permitted by applicable Laws, jointly and severally pay to the Agent for the ratable benefit of the Lenders an amount equal to the excess, if any, of (i) the lesser of (a) the amount of interest -50- which would have been charged if the Maximum Rate had, at all times, been in effect and (b) the amount of interest which would have accrued had the effective Interest Rate or Interest Rates, at all times, been in effect and (ii) the amount of interest actually paid or accrued under this Agreement. In the event the Lenders receive, collect or apply as interest any sum in excess of the Maximum Rate, such excess amount shall be applied to the reduction of the principal balance of the Obligations, and if no such principal is then outstanding, such excess or part thereof remaining, shall be returned to the Borrowers. SECTION 2.4 GENERAL FINANCING PROVISIONS. 2.4.1 BORROWERS' REPRESENTATIVES. (a) The Lenders are hereby irrevocably authorized by the Borrowers to make Loans to any or all of the Borrowers and the Agent is hereby irrevocably authorized by the Borrowers to issue Letters of Credit for the account of any or all of the Borrowers, pursuant to the provisions of this Agreement upon the written, oral or telephone request of any one of the Persons who is from time to time a Responsible Officer of the Parent under the provisions of the most recent "Certificate" of corporate resolutions and/or incumbency for the Parent on file with the Agent. Neither the Agent nor any of the Lenders assumes any responsibility or liability for any errors, mistakes, and/or discrepancies in the oral, telephonic, written or other transmissions of any instructions, orders, requests and confirmations between the Agent and any of the Borrowers or the Agent and any of the Lenders in connection with the Facilities, any Loan, any Letter of Credit, the PEDFA Obligations, or any other transaction in connection with the provisions of this Agreement, except as may arise from the willful misconduct or gross negligence of the Agent or any of the Lenders, as appropriate. (b) The Borrowers in the discretion of their respective managements are to agree among themselves as to the allocation of the benefits of Letters of Credit and the proceeds of Loans, and the purposes for which such benefits and proceeds will be used so long as any such allocation or purpose is not in violation of this Agreement. The Borrowers hereby represent and warrant to the Agent and the Lenders that each of them will derive benefits, directly and indirectly, from each Letter of Credit and from each Loan, both in their separate capacity and as a member of the integrated group to which each of the Borrowers belong, because the successful operation of the integrated group is dependent upon the continued successful performance of the functions of the integrated group as a whole. For administrative convenience the Parent is hereby irrevocably appointed by each of the Borrowers as agent for each of -51- the Borrowers for the purpose of requesting Letters of Credit and Loans, receiving the benefits of such Letters of Credits and the proceeds of Loans, and disbursing the proceeds of Loans as between the Borrowers. By reason thereof, the Parent is hereby irrevocably appointed by each of the Borrowers as the attorney-in-fact of each of the Borrowers with power and authority through its duly authorized officer or officers to (a) endorse any check (if any) for the proceeds of any Loan for and on behalf of each of the Borrowers and in the name of each of the Borrowers and (b) instruct the Agent to credit the proceeds of any Loan directly to an account of any of the Borrowers which shall evidence the making of such Loan and shall constitute the acknowledgement by each of the Borrowers of the receipt of the proceeds of such Loan. (c) Each of the Borrowers is accepting joint and several liability hereunder in consideration of the financial accommodations to be provided by the Lenders and the Agent under this Agreement, for the mutual benefit, directly and indirectly, of each of the Borrowers, and in consideration of the undertakings of each of the Borrowers to accept joint and several liability for the obligations of each of them. (d) Each of the Borrowers jointly and severally hereby irrevocably and unconditionally accepts, not merely as a surety but also as a co-debtor, joint and several liability with each other Borrower, with respect to the payment and performance of all of the Obligations arising under this Agreement, it being the intention of the parties hereto that all of the Obligations shall be the joint and several obligations of all of the Borrowers without preferences or distinctions among them. (e) If and to the extent that any of the Borrowers shall fail to make any payment with respect to any of the Obligations as and when due or to perform any of covenant or agreement in accordance with the terms hereof, then in such event the other Borrowers will make such payment with respect to, or perform, such Obligation, covenant and/or agreement. (f) The obligations of each Borrower hereunder constitute full recourse obligations of such Borrower enforceable against it to the full extent of its properties and assets, irrespective of the validity, regularity or enforceability of this Agreement or any other circumstance whatsoever. (g) Except as otherwise expressly provided herein, each Borrower hereby waives notice of acceptance of its joint and several liability, notice of any and all Loans, notice of occurrence of any Default or Event of Default, or of any demand for any payment under this Agreement, notices of any action at any time -52- taken or omitted by the Lenders or the Agent under or in respect of any of the Obligations, any requirement of diligence and, generally, all demands, notices and other formalities of every kind in connection with this Agreement. Each Borrower hereby assents to, and waives notice of, any extensions or postponement of the time for the payment of any of the Obligations hereunder, the acceptance of any partial payment thereon, any waiver, consent, or other action or acquiescence by the Lenders or the Agent at any time or times in respect of any default by any Borrower in the performance or satisfaction of any term, covenant, condition or provision of this Agreement, any and all other indulgences whatsoever by the Lenders or the Agent in respect of any of the Obligations. The obligations of each Borrower hereunder shall not be diminished or rendered unenforceable by any winding up, reorganization, arrangement, liquidation, reconstruction or similar proceeding with respect to any Borrower, the Lenders or the Agent. The joint and several liability of the Borrowers hereunder shall continue in full force and effect notwithstanding any absorption, merger, amalgamation or any other change whatsoever in the name, membership, constitution or place of formation of any Borrower, the Lenders or the Agent. (h) The provisions of this Section are made for the benefit of the Lenders and the Agent and their successors and assigns, and may be enforced by them in accordance with the terms of this Agreement from time to time against any of the Borrowers as often as occasion therefor may arise and without requirement on the part of the Lenders or the Agent first to marshall any of their claims or to exercise any of their rights against the other Borrowers or to exhaust any remedies available to them against the other Borrowers or to resort to any other source or means of obtaining payment of any of the Obligations or to elect any other remedy. The provisions of this Section shall remain in effect until all of the Obligations shall have been paid in full or otherwise fully satisfied. If at any time, any payment, or any part thereof, made -53- in respect of any of the Obligations, is rescinded or must otherwise be restored or returned by the Lenders or the Agent upon the insolvency, bankruptcy or reorganization of any of the Borrowers, or otherwise, the provisions of this Section will forthwith be reinstated in effect, as though such payment had not been made. 2.4.2 USE OF PROCEEDS OF THE LOANS AND LETTERS OF CREDIT. The proceeds of each Loan and each Letter of Credit shall be used by the Borrowers for Permitted Uses, and for no other purposes except as may otherwise be agreed by the Agent in writing. 2.4.3 COMPUTATION OF INTEREST AND FEES. All applicable Fees and interest shall be calculated on the basis of a year of 360 days for the actual number of days elapsed. Any change in the interest rate on any of the Obligations resulting from a change in the Base Rate shall become effective as of the opening of business on the day on which such change in the Base Rate is announced. 2.4.4 LIENS; SETOFF. (a) The Borrowers hereby grant to the Agent and to the Lenders a continuing Lien for all of the Obligations (including, without limitation, the Agent's Obligations) upon any and all monies, securities, and other property of each of the Borrowers and the proceeds thereof, now or hereafter on deposit with, held or received by, or in transit to, the Agent, any of the Lenders, and/or any Affiliate of the Agent and/or any of the Lenders, and also upon any and all deposit accounts (general or special) and credits of any of the Borrowers, if any, with the Agent, any of the Lenders or any Affiliate of the Agent or any of the Lenders, at any time existing, excluding any deposit accounts held by any of the Borrowers in their capacity as trustee for Persons who are not Affiliates of any of the Borrowers. Without implying any limitation on any other rights the Agent and/or the Lenders may have under the Financing Documents or applicable Laws, during the continuance of an Event of Default, the Agent is hereby authorized by the Borrowers at any time and from time to time, without prior notice to the Borrowers, to set off, appropriate and apply any or all items hereinabove referred to against any or all of the Obligations (including, without limitation, the Agent's Obligations) then outstanding, first to payment of the Agent's Obligations and then to the remaining Obligations in such order and manner as shall be determined by the Agent in its sole and absolute discretion, subject to the provisions of Section 2.4.6. The Agent agrees to give the Borrowers notice of any such set off promptly following the occurrence thereof, but any failure to give such notice as and when required shall not invalidate the set off or -54- obligate the Agent or any of the Lenders to return or restore any amounts set off. (b) Each Lender agrees for the benefit of each other Lender, that if it shall through the exercise of a right of banker's lien, setoff, or counterclaim against any or all of the Borrowers or though a secured claim the security for which is a debt owed by such Lender to any or all of the Borrowers, or other security or interest arising from, or in lieu of, such secured claim, received by such Lender under any applicable bankruptcy, insolvency, or other similar laws or otherwise obtain payment, of all or any part of its Proportionate Share of the Obligations as a result of which the unpaid amount of such Lender's Proportionate Share of the Obligations is proportionately less than the unpaid amount of the Proportionate Share of the Obligations owed to any other Lender, (i) such Lender shall purchase (which it shall be deemed to have done simultaneously upon the receipt of such payment) from such other Lenders a participation in the Proportionate Share of the Obligations owed to such other Lenders so that the aggregate unpaid amount of the Proportionate Share of all Obligations of such Lender shall be proportionately the same as the Proportionate Shares of the other Lenders in the unpaid amount of the Obligations then outstanding; provided, however, that if such purchase is made pursuant to this Agreement and the payment giving rise thereto is thereafter recovered, such purchase shall be rescinded and the purchase price restored without interest, and (ii) such other adjustments shall be made as shall be equitable to ensure that all of the Lenders share each such payment pro rata according to their respective Proportionate Shares. Notwithstanding the foregoing, no Lender shall be required or permitted to make a purchase of such a participation and no other adjustments shall be made during any period in which such Lender is insolvent or under receivership, and nothing herein contained shall in any way affect the right of any Lender to obtain payment (whether by exercise of right of banker's lien, setoff or counterclaim or otherwise) of Indebtedness other than the Obligations. 2.4.5 REQUIREMENTS OF LAW. In the event that any Lender shall have determined in good faith that (a) the adoption of any Laws regarding capital adequacy, or (b) any change therein or in the interpretation or application thereof or (c) compliance by such Lender or any corporation controlling such Lender with any request or directive regarding capital adequacy (whether or not having the force of law) from any central bank or Governmental Authority, does or shall have the effect of reducing the rate of return on the capital of such Lender or any corporation controlling such Lender, as a consequence of the obligations of the such Lender hereunder to a level below that which such Lender or any corporation controlling such Lender would have achieved but for -55- such adoption, change or compliance (taking into consideration the policies of such Lender and the corporation controlling such Lender, with respect to capital adequacy) by an amount deemed by such Lender to be material, then from time to time, after submission by such Lender to the Borrowers of a written request therefor and a statement of the basis for such determination, the Borrowers shall pay to such Lender such additional amount or amounts in order to compensate for such reduction. For purposes of this Section 2.4.5, "material " shall mean an amount equal to or greater than Fifty Thousand Dollars ($50,000). 2.4.6 PRO RATA TREATMENT AND PAYMENTS. (a) Each borrowing by the Borrowers under the Commitments, including the issuance of any Letter of Credit, each conversion by the Borrowers of an Interest Rate, each Prepayment and any reduction in the Revolving Credit Commitments shall be made pro rata in accordance with each Lender's Proportionate Share. Unless otherwise specifically set forth among the provisions of this Agreement, all payments to be made by the Borrowers on account of the Obligations (except any and all payments on account of the Agent's Obligations) shall be made and/or applied pro rata in accordance with each Lender's Proportionate Share. (b) All payments of the Obligations, including, without limitation, principal, interest, Prepayments, and Fees, shall be paid by the Borrowers without setoff or counterclaim to the Agent (except as otherwise provided herein) at the Agent's office specified in Section 8.1 in immediately available funds not later than 12:00 p.m. (Baltimore Time) on the due date of such payment. All payments received by the Agent after such time shall be deemed to have been received by the Agent for purposes of computing interest and Fees as of the next Business Day. The Agent shall remit to each Lender its Proportionate Share of any payment received on the same day in the event such payment is received prior to 12:00 p.m. (Baltimore Time) and, on the next succeeding Business Day, in the event such payment is received after such time. Payments shall not be considered received by the Agent until such payments are paid to the Agent in immediately available funds. (c) Unless the Agent shall have received notice from the Borrowers prior to the date on which any payment is due to the Agent that the Borrowers will not make such payment in full, the Agent may assume that the Borrowers have made such payment in full to the Agent on such date and the Agent in its sole discretion may, in reliance upon such assumption, cause to be distributed to each Lender on such due date an amount equal to the amount then due such Lender. If and to the extent the Borrowers shall not have so made -56- such payment in full to the Agent and the Agent shall have distributed to any Lender all or any portion of such amount, such Lender shall repay to the Agent on demand the amount so distributed to such Lender, together with interest thereon at the Federal Funds Rate, for each day from the date such amount is distributed to such Lender until the date such Lender repays such amount to the Agent. (d) Each of the Borrowers hereby irrevocably authorizes the Agent, each Lender and each Affiliate of the Agent and/or any of the Lenders to charge any account of any of the Borrowers maintained with the Agent, any Lender and/or any Affiliate of the Agent or any of the Lenders with such amounts as may be necessary from time to time to pay any of the Obligations (whether or not owed to the Agent, such Lender or such Affiliate) which are not paid within ten (10) days of the date when due. In addition, each of the Borrowers hereby authorizes and directs the Agent to charge any account of any of the Borrowers maintained with the Agent to pay any and all unpaid and accrued interest on the Obligations, including any PEDFA Obligations, as and when due and payable. The Agent and each Lender agrees to give the Borrowers notice of any charge to any account promptly after any such charge is made by the Agent and/or any Lender, as appropriate. (e) If any payment under this Agreement or under any Note shall be specified to be made upon a day which is not a Business Day, it shall be made on the next succeeding day which is a Business Day and such extension of time shall, in such case, be included in computing interest and Fees, if applicable. 2.4.7 MANDATORY PREPAYMENTS. The Borrowers shall be required to make mandatory prepayments (each a "Mandatory Prepayment" and collectively, the "Mandatory Prepayments") at the times and in the amounts as provided in this Section 2.4.7. (a) Immediately upon receipt by any of the Borrowers of the Net Proceeds of any Asset Disposition, such Borrower shall make a Mandatory Prepayment to the Agent; provided, however that the Borrowers shall not be required to make a Mandatory Prepayment as a result of an Asset Disposition if either (i) the Net Proceeds for such Asset Disposition are less than or equal to One Million Dollars ($1,000,000) or (ii) the Net Proceeds for all Asset Dispositions of all of the Borrowers during the then current fiscal year, plus the Net Proceeds for such intended Asset Disposition are less than or equal to Two Million Dollars ($2,000,000). Each such Mandatory Prepayment shall be in an amount equal to the Excess Proceeds. The term "Excess Proceeds" shall mean: (i) with respect to any Asset Disposition for which the Net Proceeds exceeds One Million Dollars ($1,000,000), the -57- excess of (x) the Net Proceeds for such Asset Disposition, over (y) One One Million Dollars ($1,000,000), and (ii) with respect to any Asset Disposition for which the sum of (1) the Net Proceeds for such Asset Disposition, plus (2) the sum of the Net Proceeds for all other Asset Dispositions made by any or all of the Borrowers during the then current fiscal year, exceeds Two Million Dollars ($2,000,000) (the sum of (1) and (2) are herein referred to as the "Total Net Proceeds"), the excess of (x) Total Net Proceeds, over (y) Two Million Dollars ($2,000,000). Concurrently with the making of any such Mandatory Prepayment, the Borrowers shall furnish to the Agent a certificate of the Financial Officer of the Parent demonstrating the calculations of the amount of the Excess Proceeds. (b) Except as set forth in subsection (c) below, all Mandatory Prepayments made pursuant to this Section 2.4.7 shall be applied first to any unpaid and accrued Enforcement Costs, second to any and all unpaid and accrued Fees, third to any and all unpaid and accrued interest on the Obligations, fourth to the unpaid principal balance of the Revolving Loan, and then to such other Obligations, if any, in such order and manner as the Agent shall determine in its sole and absolute discretion. (c) Notwithstanding the foregoing, the Borrowers shall not be obligated to make a Mandatory Prepayment pursuant to this Section 2.4.7 as a result of an Asset Disposition to the extent the Excess Proceeds of such Asset Disposition are used by the Borrowers or are intended in good faith to be used by the Borrowers within the next six (6) months following the Asset Disposition to replace the specific assets or properties which are the subject of such Asset Disposition; provided, that (i) the Borrowers shall notify the Agent in writing prior to any Asset Disposition if the Borrowers intend to use all or any portion of the Excess Proceeds to so replace any such assets or properties, which notice shall specify the expected date, cost and nature of the replacement, (ii) any Excess Proceeds not used immediately to replace any such assets or properties shall be used to make a Mandatory Prepayment of the Revolving Loan or shall be deposited in an account or other investment held by the Agent or any of the Lenders, and (iii) the Borrowers furnish to the Agent, if requested, evidence satisfactory to the Agent which verifies that Excess Proceeds have been used to replace assets or properties which were the subject of an Asset Disposition which gave rise to the Excess Proceeds. If and to the extent any such Excess Proceeds are deposited in an account or other investment with the Agent or any of the Lenders, the Borrowers agree that no withdrawals from any such account or other -58- investment shall be permitted except to fund replacement of the assets or properties which gave rise to such Excess Proceeds, all as verified to the Agent's satisfaction. Any Excess Proceeds not used to so replace any such assets or properties shall be paid to the Agent as a Mandatory Prepayment under this Section 2.4.7. 2.4.8 SETTLEMENT AMONG LENDERS. (a) It is agreed that each Lender's Net Outstandings are intended by the Lenders to be equal at all times to such Lender's Revolving Credit Proportionate Share of the unpaid principal balance of the Revolving Loan. (b) To the extent and in the manner provided in this Section 2.4.8, settlement among the Lenders as to the Revolving Loan shall occur on each Business Day (each a "Settlement Date"). On each Settlement Date payments shall be made by or to the Agent and the other Lenders in the manner provided in this Section 2.4.8 in accordance with the Settlement Report delivered by the Agent to the Lenders pursuant to the provisions of this Section 2.4.8 with respect to such Settlement Date so that as of each Settlement Date, and after giving effect to the transactions to take place on such Settlement Date, each Lender's Net Outstandings shall equal such Lender's Revolving Credit Proportionate Share of all advances under the Revolving Loan then outstanding. (c) The Agent shall deliver to each Lender a Settlement Report not later than 3:00 p.m. (Baltimore Time) on each Settlement Date, which Settlement Report will be in the form of EXHIBIT C attached hereto and made a part hereof and shall cover the period beginning on the next preceding Settlement Date and ending on such designated Settlement Date. ARTICLE 3 REPRESENTATIONS AND WARRANTIES SECTION 3.1 REPRESENTATIONS AND WARRANTIES. Each of the Borrowers represent and warrant to the Agent and each of the Lenders as follows: 3.1.1 SUBSIDIARIES. The Borrowers have the Sub- sidiaries listed on Schedule 3.1.1. All of the Subsidiaries are "Borrowers". Each of the Subsidiaries is a Wholly Owned Subsidiary, except as shown on Schedule 3.1.1, which correctly indicates the nature and amount of each Borrower's ownership interests in such Subsidiaries. -59- 3.1.2 GOOD STANDING. Each of the Borrowers (a) is a corporation duly organized, existing and in good standing under the laws of the jurisdiction of its incorporation, (b) has the corporate power to own its property and to carry on its business as now being conducted, and (c) is duly qualified to do business and is in good standing in each jurisdiction in which the character of the properties owned by it therein or in which the transaction of its business makes such qualification necessary, except where the failure to do so could or would have a Materially Adverse Effect. 3.1.3 POWER AND AUTHORITY. Each of the Borrowers has full corporate power and authority to execute and deliver this Agreement and the other Financing Documents to which it is a party, to make the borrowings under this Agreement, and to incur and perform the Obligations whether under this Agreement, the other Financing Documents or otherwise, all of which have been duly authorized by all proper and necessary corporate action. No consent or approval of shareholders or any creditors of any of the Borrowers, and no consent, approval, filing or registration with or notice to any Governmental Authority on the part of any of the Borrowers, is required as a condition to the execution, delivery, validity or enforceability of this Agreement or the other Financing Documents or the performance by any of the Borrowers of any or all of the Obligations, except as has been obtained or made, and except for the filings required to perfect the Liens of the Agent and the Lenders required by this Agreement. 3.1.4 BINDING AGREEMENTS. This Agreement and the other Financing Documents executed and delivered by any or all of the Borrowers have been properly executed and delivered and constitute the valid and legally binding obligations of such Borrowers and are fully enforceable against such Borrowers in accordance with their respective terms (subject to limitations as to enforceability which might result from bankruptcy, reorganization, arrangement, insolvency or other similar laws affecting creditor's rights generally and subject to limitations as to principles of equity). 3.1.5 NO CONFLICTS. Neither the execution, delivery and performance of the terms of this Agreement or of any of the other Financing Documents executed and delivered by any of the Borrowers nor the consummation of the transactions contemplated by this Agreement will conflict with, violate or be prevented by (a) any Borrower's charter, articles of incorporation or bylaws, (b) any existing mortgage, indenture, contract or agreement binding on any of the Borrowers or affecting any of its property, or (c) any Laws. -60- 3.1.6 NO DEFAULTS, VIOLATIONS. (a) No Default or Event of Default has occurred and is continuing. (b) None of the Borrowers nor any of its Subsidiaries is in default under or with respect to any obligation under any existing mortgage, indenture, contract or agreement binding on it or affecting its property, in any respect which could have a Materially Adverse Effect. 3.1.7 COMPLIANCE WITH LAWS. Except as set forth in the Schedules attached to this Agreement, none of the Borrowers nor any of its Subsidiaries is in violation of any applicable Laws (including, without limitation, any Environmental Laws, any Laws relating to employment practices and occupational or health standards and controls) or order, writ, injunction, decree or demand of any court, arbitrator, or any Governmental Authority affecting any of the Borrowers or any of its Subsidiaries or any of its or their properties, the violation of which, considered in the aggregate, could have a Materially Adverse Effect. 3.1.8 MARGIN STOCK. None of the proceeds of the Loans or Letters of Credit will be used, directly or indirectly, by any of the Borrowers or any Subsidiary for the purpose of purchasing or carrying, or for the purpose of reducing or retiring any indebtedness which was originally incurred to purchase or carry, any "margin security" within the meaning of Regulation G (12 CFR Part 207), or "margin stock" within the meaning of Regulation U (12 CFR Part 221), of the Board of Governors of the Federal Reserve System or for any other purpose which might make the transactions contemplated in this Agreement a "purpose credit" within the meaning of said Regulation G or Regulation U, or cause this Agreement to violate any other regulation of the Board of Governors of the Federal Reserve System or the Securities Exchange Act of 1934, as amended, or any rules or regulations promulgated under any of such statutes. None of the proceeds of the Loans or Letters of Credit will be used, directly or indirectly, by any of the Borrowers or any Subsidiary, for any purpose which violates, or which is inconsistent with, the provisions of Regulation X of the Board of Governors. 3.1.9 INVESTMENT COMPANY ACT; MARGIN SECURITIES. None of the Borrowers nor any of its or their Subsidiaries is an investment company within the meaning of the Investment Company Act of 1940, as amended, nor is it, directly or indirectly, controlled by or acting on behalf of any Person which is an investment company within the meaning of said Act. None of the Borrowers nor any of its or their Subsidiaries is engaged principally, or as one of its important activities, in the business of extending credit for the purpose of purchasing or carrying "margin security" within the -61- meaning of Regulation G (12 CFR Part 207), or "margin stock" within the meaning of Regulation U (12 CFR Part 221), of the Board of Governors of the Federal Reserve System. 3.1.10 LITIGATION. Except as otherwise disclosed to the Agent and the Lenders on Schedule 3.1.10 attached to and made a part of this Agreement, there are no proceedings, actions or investigations pending or, so far as any of the Borrowers know, threatened before or by any court, arbitrator or any Governmental Authority which, in any one case or in the aggregate, the foreseeable outcome of which would reasonably be expected to have a Materially Adverse Effect. 3.1.11 FINANCIAL CONDITION. The Consolidated financial statements of the Borrowers and all of their respective Subsidiaries as at October 31, 1997 and for the nine (9) month period then ended fairly present the financial condition of the Borrowers and all such Subsidiaries and the results of their operations as of the date and for the period referred to and have been prepared in accordance with GAAP applied on a consistent basis throughout the period involved. There are no liabilities, direct or indirect, fixed or contingent, of any of the Borrowers or any of their respective Subsidiaries as of the date of such financial statements which are not reflected therein or in the notes thereto as required by GAAP. There has been no materially adverse change in the financial condition or operations of any of the Borrowers or any of their respective Subsidiaries (taken as whole) since the date of such financial statements and to the Borrowers' knowledge no such materially adverse change is pending or threatened, in either case, the foreseeable outcome of which would reasonably be expected to have a Materially Adverse Effect. None of the Borrowers nor any Subsidiary has guaranteed the obligations of, or made any investment in or advances to, any Person that is not a Borrower, except as disclosed in such financial statements or as otherwise permitted by the provisions of this Agreement. 3.1.12 PROJECTED FINANCIAL STATEMENTS. As a condition of any Permitted Acquisition, the Borrowers are obligated to furnish to the Agent financial projections in form and content reasonably acceptable to the Agent and the Required Lenders which give effect to the proposed acquisition. The Borrowers represent and warrant as of the date of delivery of such financial projections, that they represent the Borrowers' good faith estimate of the future Consolidated financial condition of the Borrowers after giving effect to such proposed acquisition and are based on assumptions included therein, which the Borrowers believe in good faith to be reasonable. -62- 3.1.13 FULL DISCLOSURE. This Agreement, together with the financial statements referred to in Section 3.1.11 of this Agreement, all other certificates furnished under the provisions of this Agreement and the schedules to this Agreement (a) do not contain any untrue statement of a material fact and (b) when taken in their entirety, do not omit any material fact necessary to make the statements contained therein not misleading. In addition, to the knowledge, information and belief of the Borrowers, the annual budgets furnished to the Agent as required under the provisions of this Agreement (a) do not contain any untrue statement of a material fact and (b) when taken in their entirety, do not omit any material fact necessary to make the statements contained therein not misleading, as of the date such annual budgets were furnished to the Agent. 3.1.14 INDEBTEDNESS FOR BORROWED MONEY. Except for the Obligations and except as set forth in the most current financial statements furnished to the Agent in accordance with the provisions of Section 3.1.11 or Section 5.1.1 or as set forth in Schedule 3.1.14 attached to and made a part of this Agreement, the Borrowers have no Indebtedness for Borrowed Money. 3.1.15 TAXES. Each of the Borrowers and its Subsidiaries has filed all returns, reports and forms (or duly obtained extensions for the filing thereof) for Taxes which, to the knowledge of the Borrowers, are required to be filed, and has paid all Taxes as shown on such returns or on any assessment received by it, to the extent that such Taxes have become due, unless and to the extent only that such Taxes, assessments and governmental charges are currently contested in good faith and by appropriate proceedings by such Borrower or Subsidiary, such Taxes are not the subject of any Liens other than Permitted Liens, and adequate reserves therefor have been established as required under GAAP. All tax liabilities of the Borrowers and Subsidiaries were as of the date of audited financial statements referred to in Section 3.1.11 above, and are now, adequately provided for on the books of the Borrowers or their Subsidiaries, as appropriate under GAAP. No tax liability has been asserted by the Internal Revenue Service or any state or local authority against any of the Borrowers for Taxes in excess of those already paid for periods covered by prior returns. 3.1.16 ERISA. With respect to any Plan, and if the Borrowers would be exposed to a material liability (as determined by the Agent and the Required Lenders in their good faith, reasonable discretion) as a result: (a) no "accumulated funding deficiency" as defined in Code ss.412 or ERISA ss.302 has occurred, whether or not that accumulated funding deficiency has been waived; (b) no Reportable Event has occurred; and (c) no -63- termination of any plan subject to Title IV of ERISA has occurred with respect to any Multiemployer Plan and within the immediately preceding five (5) years, and if the Borrowers would be exposed to a material liability as a result (i) none of the Borrowers nor any Commonly Controlled Entity has incurred a "complete withdrawal" within the meaning of ERISA ss.4203 from any Multiemployer Plan or (ii) none of the Borrowers nor any Commonly Controlled Entity has incurred a "partial withdrawal" within the meaning of ERISA ss.4205 with respect to any Multiemployer Plan; or (iii) to the best knowledge of the Borrowers, after due and diligent inquiry, no Multiemployer Plan is in "reorganization" within the meaning of ERISA ss.4241 nor has notice been received by any of the Borrowers or any commonly controlled entity that such a multiemployer plan will be placed in "reorganization". 3.1.17 TITLE TO PROPERTIES. Each of the Borrowers has good title to all of its properties, including, without limitation, the properties and assets reflected in the balance sheets described in Section 3.1.11 above. Each of the Borrowers has legal, enforceable and uncontested rights to use freely such property and assets. 3.1.18 PRESENCE OF HAZARDOUS MATERIALS OR HAZARDOUS MATERIALS CONTAMINATION. To the best of each Borrower's knowledge after due and diligent inquiry and except as set forth in Schedule 3.1.18, (a) no Hazardous Materials are located on any real property owned, controlled or operated by such Borrower or for which any of the Borrowers are responsible in concentrations which would violate any applicable Environmental Laws or impose liability or obligations on the Borrowers under any Environmental Laws for any investigation, corrective action, remediation or monitoring of Hazardous Materials and, except for supplies for use by such Borrower in the ordinary course of its business and stored, used and disposed in accordance with applicable Environmental Laws; and (b) no property owned, controlled or operated by any of the Borrowers has ever been used as a manufacturing, storage, or dump site for Hazardous Materials nor is affected by Hazardous Materials Contamination on or from any other property which could or would have a Materially Adverse Effect. 3.1.19 PLACES OF BUSINESS. Schedule 3.1.19 completely and accurately identifies the address of (a) each Borrower's chief executive office, (b) any and each other place of business of each Borrower, and (c) the location of all books and records pertaining to its properties and assets. 3.1.20 BUSINESS NAMES AND ADDRESSES. Except as disclosed in Schedule 3.1.20, since 1986 with respect to the Parent, and since acquisition by the Parent of C&D Charter, as -64- appropriate, none of Borrowers has changed its name, identity or corporate structure, has not conducted business under any name other than its current name, and has not conducted its business in any jurisdiction other than those disclosed on Schedule 3.1.20, except that (i) the Parent has changed its name from Charter Power Systems, Inc. to C&D Technologies, Inc. effective June 24, 1997, (ii) C&D Charter Power Systems, Inc., International and Charter California, former subsidiaries of the Parent, have each been merged into the Parent, with the Parent being the surviving corporation, and (iii) the Parent has established a branch office in Kuala Lumpur, Malaysia. 3.1.21 SECURITIES ACTS. None of the Borrowers has issued any unregistered securities in violation of the registration requirements of Section 5 of the Securities Act of 1933, as amended, or any other Law, and is not in violation of any rule, regulation, or requirement under the Securities Act of 1933, as amended, or the Securities and Exchange Act of 1934, as amended. None of the Borrowers are required to qualify any indenture under the Trust Indenture Act of 1939, as amended, in connection with the execution and delivery of any of the Notes. 3.1.22 GOVERNMENTAL REGULATION. None of the Borrowers nor any of its or their Subsidiaries is subject to regulation under the Public Utility Holding Company Act of 1935, the Federal Power Act or the Interstate Commerce Act or to any Federal or state Laws limiting its or their ability to incur Indebtedness for Borrowed Money. 3.1.23 SOLVENCY. In each case after giving effect to the Indebtedness for Borrowed Money represented by the Obligations outstanding and/or to be incurred and the transactions contemplated by this Agreement, the Borrowers, on a consolidated basis, are solvent, having assets of a fair salable value which exceed the amount required to pay their debts as they become absolute and matured (including contingent, subordinated, unmatured and unliquidated Liabilities), and the Borrowers, on a consolidated basis, are able to and anticipate that they will be able to meet their debts as they mature and have adequate capital to conduct the business in which they are or propose to be engaged. 3.1.24 EMPLOYEE RELATIONS. None of the Borrowers, except as set forth in Schedule 3.1.24, is a party to any collective bargaining agreement nor has any labor union been recognized as the representative of such Borrower's employees, and no such Borrower knows of any actual or threatened strikes or work stoppage involving such Borrower's employees. -65- 3.1.25 PROPRIETARY RIGHTS. The Proprietary Rights possessed by the Borrowers or otherwise available to the Borrowers by virtue of being in the public domain constitute all of the property of such type necessary to the conduct of each Borrower's past practices. Any and all obligations to pay royalties or other charges with respect to such properties and assets are reflected in accordance with GAAP on the financial statements described in Section 3.1.11. SECTION 3.2 SURVIVAL. All representations and warranties contained in or made under or in connection with this Agreement and the other Financing Documents shall survive the Closing Date, the making of any advance under the Loans, the issuance of any Letter of Credit, the extension of credit hereunder, and the incurring of any other Obligations. ARTICLE 4 CONDITIONS PRECEDENT SECTION 4.1 CONDITIONS TO EFFECTIVENESS OF THIS AGREEMENT. This Agreement shall not be effective until fulfillment of the following conditions precedent in a manner satisfactory to the Agent on or before the Closing Date: 4.1.1 GOOD STANDING ETC. The Agent shall have received a certificate of good standing for each of the Borrowers certified by the Secretary of State, or other appropriate Governmental Authority, of the state of incorporation for such Borrowers. The Agent shall have received a certificate of qualification to do business for each of the Borrowers certified by the Secretary of State or other Governmental Authority of each state in which such Borrower conducts business. 4.1.2 CORPORATE PROCEEDINGS OF THE BORROWERS. The Agent shall have received a certificate dated as of the Closing Date by the Secretary or an Assistant Secretary of each of the Borrowers covering: (a) true and complete copies of such Borrower's corporate charter, bylaws, and all amendments thereto if and to the extent amended since the Original Closing Date; (b) true and complete copies of the resolutions of its Board of Directors authorizing (i) the execution, delivery and performance of this Agreement and the other Financing Documents to which such Borrower is a party and (ii) the borrowings by the Borrowers -66- hereunder (including the issuance of any Letters of Credit); (c) the incumbency, authority and signatures of the officers of such Borrower authorized to sign this Agreement and the other Financing Documents to which such Borrower is a party; and (d) the identity of such Borrower's current officers and management, and with respect to the Parent, to the best knowledge of the Parent based on forms 13D and 13G filed with the Securities and Exchange Commission, the identity of the common stock holders of the Parent having a percentage ownership interest greater than or equal to ten percent (10%) of the Parent's current outstanding stock and their respective percentage ownership interests. 4.1.3 NOTES. The Agent shall have received the Revolving Credit Notes, each conforming to the requirements hereof and executed by a Responsible Officer of each of the Borrowers and attested by a duly authorized representative of each of the Borrowers. 4.1.4 FINANCING DOCUMENTS. Each of the Borrowers shall have executed and delivered the Financing Documents to be executed by it. 4.1.5 OPINION OF BORROWER'S COUNSEL. The Agent shall have received the favorable opinion of counsel for the Borrowers addressed to the Agent and the Lenders in form satisfactory to the Agent, the Lenders and their respective counsel. 4.1.6 OTHER DOCUMENTS, ETC. The Agent shall have received such other certificates, opinions, documents and instruments confirmatory of or otherwise relating to the transactions contemplated hereby as may have been reasonably requested by the Agent. 4.1.7 PAYMENT OF FEES. The Agent shall have received payment of any Fees due on or before the Closing Date. 4.1.8 ADDITIONAL MATTERS. All other documents and legal matters in connection with the transactions contemplated by this Agreement and the other Financing Documents shall be reasonably satisfactory in form and substance to the Agent and its counsel. -67- 4.1.9 COMMITMENT FEES. The Borrowers shall pay to the Agent, for the ratable benefit of the Lenders, commitment fees equal to the following amounts at the following times (each a "Commitment Fee" and collectively, the "Commitment Fees"): Date Amount - ---- ------ Closing Date $30,000 First anniversary date of Closing Date $20,000 Second anniversary date of Closing Date $ 5,000 Each Commitment Fee shall constitute a Fee for purposes of this Agreement and shall be deemed fully earned and non-refundable as of the date due and payable. SECTION 4.2. CONDITIONS TO ALL EXTENSIONS OF CREDIT. The making of all advances under the Loans and the issuance of all Letters of Credit is subject to the fulfillment of the following conditions precedent in a manner satisfactory to the Agent: 4.2.1 COMPLIANCE. The Borrowers shall have complied and shall then be in compliance with all terms, covenants, conditions and provisions of this Agreement and the other Financing Documents which are binding upon it. 4.2.2 DEFAULT. There shall exist no Event of Default or Default. The Borrowers acknowledge and agree that the failure of the Borrowers to comply with any of the financial covenants set forth in Sections 5.1.14 through 5.1.18 shall constitute a Default and that the Agent shall not be entitled to waive any Event of Default or Default without the prior consent of the Required Lenders. 4.2.3 REPRESENTATIONS AND WARRANTIES. All of the representations and warranties contained in this Agreement shall be true, correct and complete for the initial extension of credit hereunder. The representations and warranties contained in Sections 3.1.1 through 3.1.11, 3.1.12, 3.1.15, and 3.1.19, 3.1.21 through 3.1.23 hereof shall be true as of the date of each subsequent extension of credit or issuance of a Letter of Credit; provided, that representations and warranties as to financial statements shall be deemed to refer to the most recent financial statements delivered to the Agent. In addition, such representations and warranties may be updated in writing in connection with a proposed subsequent extension of credit or issuance of a Letter of Credit, but no such update shall be binding upon the Agent or the Lenders without the consent of the Agent and -68- the Required Lenders (which shall be deemed given if the Agent or any of the Required Lenders do not reject a proposed amendment within fifteen (15) days of its submission to them respectively; and provided that neither the Agent nor any of the Required Lenders shall have any obligation to agree to any such update). Updates of Section 3.1.3 shall be made by compliance with the provisions of Section 5.2.2 hereof and shall require no consent of the Agent or Lenders. 4.2.4 ADVERSE CHANGE. No adverse change shall have occurred in the financial condition of the Borrowers which would, in the reasonable good faith judgment of the Agent and the Required Lenders, have a Materially Adverse Effect. 4.2.5 LEGAL MATTERS. All legal documents incident to each advance under the Loans and each of the Letters of Credit shall be reasonably satisfactory to counsel for the Agent. ARTICLE 5 COVENANTS OF THE BORROWERS SECTION 5.1 AFFIRMATIVE COVENANTS. So long as any of the Obligations and/or any of the Commitments shall be outstanding, the Borrowers jointly and severally agree with the Agent and the Lenders as follows: 5.1.1 FINANCIAL STATEMENTS. (a) ANNUAL STATEMENTS AND CERTIFICATES. The Borrowers shall furnish to the Agent and the Lenders as soon as available, but in no event more than one hundred twenty (120) days after the close of the Parent's fiscal year, (i) a copy of the annual Consolidated financial statements in reasonable detail satisfactory to the Agent relating to all of the Borrowers and their respective Subsidiaries, prepared in accordance with GAAP and examined and certified by independent certified public accountants satisfactory to the Agent, which financial statements shall include a Consolidated balance sheet of all of the Borrowers and their respective Subsidiaries, as of the end of such fiscal year and Consolidated statements of income, cash flows and changes in shareholders equity of each of the Borrowers and their respective Subsidiaries for such fiscal year, in each case setting forth in comparative form the figures for the then previous fiscal year, and in each case without qualification as to the scope of the audit or the status of any of the Borrowers as a "going concern", (ii) a detailed computation of each financial covenant in this Agreement which is applicable for the period reported, including, without limitation, the ratio of Funded Debt to EBITDA, all as prepared by -69- the Financial Officer of the Parent in a format reasonably acceptable to the Agent and (iii) any and all form 10Ks required to be filed by any of the Borrowers with the Securities and Exchange Commission with respect to the relevant fiscal year. The Agent and the Lenders acknowledge and agree that if and to the extent the financial statements required by this subsection (a) are in accordance with the requirements of the "EDGAR Rules" promulgated by the Securities and Exchange Commission as of the date of this Agreement, that such financial statements shall be deemed to be in a form acceptable to the Agent and the Lenders if such financial statements are in all respects at least comparable to the financial statements previously furnished to the Agent and the Lenders as to scope, information and format. (b) ANNUAL STATEMENT OF ACCOUNTANT. If the Parent shall cease to be a reporting company under the Securities Exchange Act of 1934, as amended, then thereafter the Borrowers shall furnish to the Agent and the Lenders as soon as available, but in no event more than one hundred twenty (120) days after the close of the Parent's fiscal year, a letter of the accountant who examined and certified the annual financial statement relating to the Borrowers and their Subsidiaries stating whether anything in such accountant's examination has revealed the occurrence of a Default or an Event of Default, and, if so, stating the facts with respect thereto. (c) QUARTERLY STATEMENTS AND CERTIFICATES. The Borrowers shall furnish to the Agent and the Lenders as soon as available, but in no event more than sixty (60) days after the close of the Parent's fiscal quarters, (i) a Consolidated balance sheet of the Borrowers and their Subsidiaries as of the close of such period, (ii) Consolidated statements of income, cash flows and changes in shareholders equity statements for such period, (iii) a detailed computation of each financial covenant in this Agreement which is applicable for the period reported, including, without limitation the ratio of Funded Debt to EBITDA, all as prepared and certified by the Financial Officer of the Parent and accompanied by a certificate of that officer stating whether any event has occurred which constitutes a Default or an Event of Default, and, if so, stating the facts with respect thereto, (iv) any and all form 10Qs required to be filed by any of the Borrowers with the Securities and Exchange Commission, and (v) a quarterly aging report of all accounts receivable in summary form reasonably acceptable to the Agent and the Lenders. (d) ANNUAL BUDGETS. The Borrowers shall furnish to the Agent and the Lenders as soon as available, but in no event more than forty-five (45) days after the close of each of the Parent's fiscal years, annual budget statements for all of the -70- Borrowers and their respective Subsidiaries on a Consolidated basis, detailed by fiscal quarters, in form and content substantially similar to those provided to the Board of Directors of the Parent for its most recent fiscal year, and all as prepared and certified by the Financial Officer of the Parent. (e) ADDITIONAL REPORTS AND INFORMATION. The Borrowers shall furnish to the Agent and the Lenders promptly, such additional information, reports or statements as the Agent and/or any of the Lenders may from time to time reasonably request. (f) ENVIRONMENTAL COMPLIANCE CERTIFICATES. The Borrowers shall furnish to the Agent within forty-five (45) days after the close of each of the Parent's fiscal quarters, an Environmental Compliance Certificate in form attached hereto as EXHIBIT E with respect to each of the Borrowers, which demonstrate to the Agent's reasonable satisfaction that none of the Borrowers is or is likely to be in violation of any Environmental Laws which would constitute a Material Adverse Effect. (g) MANAGEMENT LETTER. The Borrowers shall furnish to the Agent and the Lenders as soon as available, but in no event more than one hundred eighty (180) days after the close of the Parent's fiscal year, a copy of a management letter prepared by the Parent's independent certified public accountants to be reasonably acceptable to the Agent and the Lenders. 5.1.2 REPORTS TO SEC AND TO STOCKHOLDERS. The Borrowers will furnish to the Agent and the Lenders, promptly upon the filing or making thereof, at least one (l) copy of all financial statements, reports, notices and proxy statements sent by the Parent to its stockholders, and of all regular and other reports filed by the Parent with any securities exchange or with the Securities and Exchange Commission. 5.1.3 RECORDKEEPING, RIGHTS OF INSPECTION, FIELD EXAMINATION, ETC. (a) Each of the Borrowers shall, and shall cause each of its Subsidiaries to, maintain (i) a standard system of accounting in accordance with GAAP, and (ii) proper books of record and account in which, in all material respects, full, true and correct entries are made of all dealings and transactions in relation to its properties, business and activities. The Agent and the Lenders acknowledge and agree that the Borrowers and Subsidiaries may not reflect and document all intercompany transactions among Borrowers and Subsidiaries in accordance with GAAP; the Borrowers covenant and agree, however to handle such intercompany transactions in accordance with their current -71- practices if and to the extent not otherwise handled in accordance with GAAP. (b) Each of the Borrowers shall, and shall cause each of its Subsidiaries to, permit authorized representatives of the Agent to visit and inspect the properties of any and all of the Borrowers and its or their Subsidiaries, to review, audit, check and inspect each Borrower's other books of record at any time with or without notice and to make abstracts and photocopies thereof, and to discuss the affairs, finances and accounts of any or all of the Borrowers and its or their Subsidiaries, with the management, officers, directors, employees designated by a Responsible Officer and other representatives of any or all of the Borrowers and its or their Subsidiaries and its or their respective accountants as and to the extent designated by a Responsible Officer, all at such times during normal business hours and other reasonable times and as often as the Agent may reasonably request. Notwithstanding the foregoing, the Agent and the Lenders agree to give the Borrowers prior reasonable notice of any such review, audit, check or inspection in the event there does not exist a Default or an Event of Default. The Borrowers acknowledge and agree that if no member of the Borrowers' management is employed by any of the Borrowers at the time of any requested inspection, the Agent and the Lenders shall be permitted to discuss the affairs, finances and accounts of any or all of the Borrowers with any employees or other representatives of any or all of the Borrowers, including accountants. (c) Following the occurrence of a Default or an Event of Default, each of the Borrowers hereby irrevocably authorizes and directs all accountants and auditors employed by any or all of the Borrowers and/or any of its or their Subsidiaries at any time during the term of this Agreement to exhibit and deliver to the Agent and the Lenders copies of any and all of the financial statements, trial balances, management letters, or other accounting records of any nature of any or all of the Borrowers and/or any or all of its or their Subsidiaries in the accountant's or auditor's possession, and to disclose to the Agent and any of the Lenders any information they may have concerning the financial status and business operations of any or all of the Borrowers and/or any of its or their Subsidiaries. Further, each of the Borrowers hereby authorizes all Governmental Authorities to furnish to the Agent and the Lenders copies of reports or examinations relating to any or all of the Borrowers and/or any or all of its or their Subsidiaries, whether made by any of the Borrowers or otherwise. (d) Any and all costs and expenses incurred by, or on behalf of, the Agent in connection with the conduct of any of the foregoing shall be part of the Enforcement Costs and -72- shall be payable to the Agent within ten (10) days of the Agent's written request therefor. Each of the Borrowers acknowledges and agrees that such expenses may include, but shall not be limited to, any and all reasonable out-of-pocket costs and expenses of the Agent's employees and agents in, and when, travelling to any of the Borrowers' facilities. 5.1.4 CORPORATE EXISTENCE. Except as otherwise permitted under Section 5.2.1, each of the Borrowers shall maintain, and shall cause each of its Subsidiaries to maintain, its corporate existence in good standing in the jurisdiction in which it is incorporated and in each other jurisdiction where it is required to register or qualify to do business if the failure to do so in such other jurisdiction could or would have a Materially Adverse Effect. 5.1.5 COMPLIANCE WITH LAWS. Each of the Borrowers shall comply, and shall cause each of its Subsidiaries to comply, with all applicable Laws (including, without limitation Environmental Laws) and to observe the valid requirements of Governmental Authorities, the noncompliance with or the nonobservance of which might have a Materially Adverse Effect. 5.1.6 PRESERVATION OF PROPERTIES. Each of the Borrowers will, and will cause each of its Subsidiaries to, at all times (a) maintain, preserve, protect and keep its properties, whether owned or leased, in reasonably good operating condition, working order and repair (ordinary wear and tear and casualty excepted), and from time to time will make all proper repairs, maintenance, replacements, additions and improvements thereto as are commercially reasonable and needed to maintain such properties in good operating condition, working order and repair, in all material respects, and (b) use all commercially reasonable efforts to do or cause to be done all things necessary to preserve and to keep in full force and effect its material franchises, leases of real and personal property, Proprietary Rights and permits which are necessary for the orderly continuance of its business. 5.1.7 LINE OF BUSINESS. The Borrowers will continue to engage principally in the business of manufacturing, assembling, distributing, selling and exporting power systems and their related components for commercial, industrial and government use in the world-wide standby power, motive power, power electronics and power supply markets generally. The Borrowers' battery power systems are comprised principally of industrial lead acid and nickel-cadmium batteries as well as power rectifiers, power inverters, sensing and alarm systems, power control and distribution equipment and related accessories. The Borrowers' -73- products are sold as individual components and as integrated power systems. 5.1.8 INSURANCE. Each of the Borrowers will, and will cause each of its Subsidiaries to, at all times maintain with A-rated insurance companies such insurance as is required by applicable Laws and such other insurance, in such amounts, of such types and against such risks, hazards, liabilities, casualties and contingencies as are usually insured against in the same geographic areas by business entities engaged in the same or similar business. Without limiting the generality of the foregoing, each of the Borrowers will, and will cause each of its Subsidiaries to, keep adequately insured all of its and their property against loss or damage resulting from fire or other risks insured against by extended coverage and maintain public liability insurance against claims for personal injury, death or property damage occurring upon, in or about any properties occupied or controlled by it, or arising in any manner out of the businesses carried on by it, all in such amounts as are reasonable and customary in the lines of business set forth in Section 5.1.7 and are in amounts at least equal to the market value or replacement value of any assets or property covered. Each of the Borrowers shall deliver to the Agent on each date there is a material change in the insurance coverage and on each renewal date of any insurance a certificate of insurance from a Responsible Officer of the Borrowers containing a detailed list of the insurance then in effect and stating the names of the insurance companies, the types, the amounts and rates of the insurance, dates of the expiration thereof and the properties and risks covered thereby. Within thirty (30) days after notice in writing from the Agent, the Borrowers will obtain such additional insurance with respect to the Borrowers and the Subsidiaries as the Agent may reasonably request. The Agent and the Lenders agree that all proceeds of insurance shall be paid to the Borrowers, which shall determine within thirty (30) days of their receipt of such proceeds whether to apply the proceeds of insurance either to the repair, replacement or restoration of the property damaged or destroyed or to the repayment of the Obligations. The Borrowers shall notify the Agent in writing as to their determination with respect to insurance proceeds within such thirty (30) day period. If and to the extent the Borrowers elect to use insurance proceeds to repair, replace or restore the property damaged or destroyed, the Borrowers covenant to use such proceeds for the repair, replacement or restoration in good faith and promptly following any Borrower's receipt thereof. 5.1.9 TAXES. Except to the extent that the validity or amount thereof is being contested in good faith and by appropriate proceedings, each of the Borrowers will, and will cause each of their Subsidiaries to, pay and discharge all Taxes as and -74- when due and payable. The Borrowers shall furnish to the Agent at such times as the Agent may require proof satisfactory to the Agent of the making of payments or deposits required by applicable Laws including, without limitation, payments or deposits with respect to amounts withheld by any of the Borrowers from wages and salaries of employees and amounts contributed by any of the Borrowers on account of federal and other income or wage taxes and amounts due under the Federal Insurance Contributions Act, as amended. 5.1.10 ERISA. Each of the Borrowers will, and will cause each of its Subsidiaries to, comply with the minimum funding requirements of the Code with respect to employee Plans for its respective employees. None of the Borrowers will permit with respect to any Plan (a) any prohibited transaction or transactions under ERISA or the Internal Revenue Code, which results, or may result, in any material liability of any of the Borrowers and their Subsidiaries, as determined by the Agent and the Required Lenders in their good faith, reasonable discretion, or (b) any Reportable Event if, upon termination of the Plan with respect to which one or more such Reportable Events shall have occurred, there is or would be any material liability of any of the Borrowers and/or any of their Subsidiaries to the PBGC, as determined by the Agent and the Required Lenders in their good faith, reasonable discretion. Upon the Agent's reasonable request, the Borrowers will deliver to the Agent a copy of the most recent actuarial report, financial statements and annual report completed with respect to any Plan of a Borrower or Subsidiary that is a "defined benefit plan", as defined in ERISA. 5.1.11 NOTIFICATION OF EVENTS OF DEFAULT AND ADVERSE DEVELOPMENTS. The Borrowers shall promptly notify the Agent upon obtaining knowledge of the occurrence of: (a) any Event of Default; (b) any Default; (c) any litigation instituted or overtly threatened against any of the Borrowers or any of its or their Subsidiaries and of the entry of any judgment or Lien against any of the assets or properties of any of the Borrowers or any Subsidiary where the claims against any of the Borrowers or any Subsidiary exceed One Million Dollars ($1,000,000) and are not covered by insurance; (d) any event, development or circumstance whereby the financial statements furnished hereunder which, subsequent to their issuance, prove to have failed in any material respect to present fairly, in accordance with GAAP, -75- the financial condition and operational results of the Borrowers and their Subsidiaries, on a Consolidated basis as of the date of such financial statements; (e) any judicial, administrative or arbitral proceeding pending against any of the Borrowers or any of its or their Subsidiaries and any judicial or administrative proceeding known by any of the Borrowers to be threatened against it or them or any of its or their Subsidiaries, the reasonably foreseeable outcome of which the Borrowers' determine, in good faith could have a Materially Adverse Effect; and (f) the receipt by any of the Borrowers or any Subsidiary of any notice, claim or demand from any Governmental Authority which alleges that any of the Borrowers or any Subsidiary is in violation of any of the terms of, or has failed to comply with any applicable Laws regulating its operation and business, including, but not limited to, the Occupational Safety and Health Act, ERISA and Environmental Laws, which failure could, in the Borrowers' good faith determination, have a Materially Adverse Effect; in each case describing in detail satisfactory to the Agent the nature thereof and the action the Borrowers propose to take with respect thereto. 5.1.12 HAZARDOUS MATERIALS; CONTAMINATION. Each of the Borrowers agrees to: (a) give notice to the Agent within two (2) Business Days after any Borrower's acquiring knowledge of the presence of any Hazardous Materials in concentrations which would violate any applicable Environmental Laws or impose liability or obligations on the Borrowers under any Environmental Laws for any investigation, corrective action, remediation or monitoring of the Hazardous Materials on any property owned, operated or controlled by such Borrower or any Subsidiary of such Borrower or for which any of the Borrowers or any Subsidiaries of any of the Borrowers are responsible (provided that such notice shall not be required for Hazardous Materials placed or stored on such property in accordance with applicable Laws in the ordinary course of the Borrowers' lines of business expressly described in this Agreement) or of any Hazardous Materials Contamination with a full description thereof; -76- (b) promptly comply with any Environmental Laws requiring the removal, treatment or disposal of Hazardous or Hazardous Materials Contamination and provide the Agent with satisfactory evidence of such compliance; provided, however, that the Borrowers may contest or defend, in good faith, against any purported requirement or the imposition of any potential liability under the Environmental Laws in any reasonable manner available to the Borrowers, and during the pendency of any such contest or defense defer compliance with and payment in respect of such purported requirements or potential liability; (c) if the Agent determines in the exercise of its good faith, reasonable discretion, that there is a reasonable likelihood that any liability, duty or obligation resulting from or relating to any Hazardous Materials or Hazardous Materials Contamination affecting any property owned, controlled or operated by any of the Borrowers or any of their respective Subsidiaries, may be imposed on the Agent and/or any of the Lender, provide the Agent, within thirty (30) days after a demand by the Agent, with a bond, letter of credit or similar financial assurance evidencing to the Agent's satisfaction that the necessary funds are available to pay the cost of removing, treating, and disposing of such Hazardous Materials or Hazardous Materials Contamination and discharging any Lien which may be established as a result thereof on any property owned, operated or controlled by any of the Borrowers or any Subsidiary of any of the Borrowers or for which any of the Borrowers or any Subsidiary of any of the Borrowers are responsible (the Agent agrees not to make such demand for a bond, letter of credit or similar financial assurance unless the Borrowers have failed to remedy the Hazardous Materials Contamination or otherwise take such other action as shall be reasonably acceptable to the Agent and the Lenders to address such Hazardous Materials Contamination, in a time frame considered reasonable by the Agent given the facts and circumstances of the Hazardous Materials Contamination); and (d) as part of the Obligations, defend, indemnify and hold harmless the Agent, each of the Lenders and each of their respective agents, employees, trustees, successors and assigns from any and all claims which may now or in the future (whether before or after the termination of this Agreement) be asserted as a result of the presence of any Hazardous Materials on any -77- property owned, operated or controlled by any of the Borrowers or any Subsidiary of any of the Borrowers for any Hazardous Materials Contamination for which any of the Borrowers or any Subsidiary of any of the Borrowers are actually or potentially responsible. The Borrowers acknowledge and agree that this indemnification shall survive the termination of this Agreement and the Commitments and the payment and performance of all of the other Obligations. 5.1.13 DISCLOSURE OF SIGNIFICANT TRANSACTIONS. Each of the Borrowers shall deliver to the Agent a written notice describing in detail each transaction by it involving the sale, lease, or loss or casualty to or disposition of an interest in any fixed or capital Assets which, as reasonably determined by the Borrowers, exceeds One Million Dollars ($1,000,000), said notices to be delivered to the Agent within thirty (30) days of the occurrence of each such transaction. 5.1.14 NET WORTH. The Borrowers and the Subsidiaries, at all times during the first fiscal quarter ending on or after the Closing Date, tested as of the end of such first fiscal quarter, shall maintain a Net Worth of not less than the sum of (i) Fifty-eight Million Dollars ($58,000,000), plus (ii) forty percent (40%) of the Borrowers' and the Subsidiaries' Consolidated earnings (as defined in accordance with GAAP) and calculated as net profit after Taxes) for such fiscal quarter. The Borrowers and the Subsidiaries, at all times for all fiscal quarters thereafter, tested as of the end of each such fiscal quarter, shall maintain a Net Worth of not less than the sum of (i) the Minimum Net Worth Amount for the then preceding fiscal quarter, plus (ii) forty percent (40%) of the Borrowers' and the Subsidiaries' Consolidated earnings for the then current fiscal quarter. As used herein, the term "Minimum Net Worth Amount" shall mean for any fiscal quarter of the Borrowers and the Subsidiaries, the minimum Net Worth required by this Section 5.1.14 for such fiscal quarter. All increases in the Minimum Net Worth Amount shall be cumulative, such that the Minimum Net Worth Amount required for any given fiscal quarter shall at least be equal to the sum of Minimum Net Worth Amount for the then preceding fiscal quarter, plus forty percent (40%) of the Borrowers' and the Subsidiaries' Consolidated earnings for the then current fiscal quarter. Notwithstanding the foregoing, the Borrowers acknowledge and agree that the Minimum Net Worth Amount for any fiscal quarter shall always be at least equal to the Minimum Net Worth Amount for the then preceding fiscal quarter. 5.1.15 LIABILITIES TO TANGIBLE NET WORTH RATIO. The Borrowers and the Subsidiaries, on a Consolidated basis and as -78- of the end of each fiscal quarter, commencing with the first such fiscal quarter ending on or after the Closing Date, shall have a ratio of Liabilities to Tangible Net Worth of not more than 2.25 to 1.0. 5.1.16 CURRENT RATIO. The Borrowers and the Subsidiaries, on a Consolidated basis and as of the end of each fiscal quarter, commencing with the first such fiscal quarter ending on or after the Closing Date, shall have a Current Ratio of not less than 1.5 to 1.0. 5.1.17 FIXED CHARGE COVERAGE RATIO. The Borrowers and the Subsidiaries, on a Consolidated basis and as of the end of each fiscal quarter, commencing with the first such fiscal quarter ending on or after the Closing Date, shall have a Fixed Charge Coverage Ratio of not less than 1.5 to 1.0. The Fixed Charge Coverage Ratio shall be calculated on a rolling four (4) quarter basis. 5.1.18 FUNDED DEBT TO EBITDA. The Borrowers and the Subsidiaries, on a Consolidated basis and as of the end of each fiscal quarter, commencing with the first such fiscal quarter ending on or after the Closing Date, shall have a ratio of Funded Debt to EBITDA of not more than 3.5 to 1.0. EBITDA shall be calculated on a rolling four (4) quarter basis. 5.1.19 BUSINESS NAMES; LOCATIONS. Each Borrower will notify and will cause each of its Subsidiaries to notify the Agent not less than thirty (30) days prior to (a) any change in the name under which such Borrower or Subsidiary conducts its business, (b) any change of the location of the chief executive office of such Borrower or Subsidiary, and (c) the opening of any new place of business or the closing of any existing place of business, and any change in the location of the places where the books and records, or any part thereof, are kept. SECTION 5.2 NEGATIVE COVENANTS. So long as any of the Obligations or Commitments or Letters of Credit shall be outstanding, the Borrowers agree with the Agent and the Lenders that without the prior written consent of the Agent: 5.2.1 MERGER, ACQUISITION OR SALE OF ASSETS. None of the Borrowers will, or will permit any Subsidiary to, (i) enter into any merger or consolidation or amalgamation, (ii) windup or dissolve (or suffer any liquidation or dissolution), (iii) acquire all or substantially all of the assets of any Person, except for Permitted Acquisitions, or (iv) sell, lease or otherwise dispose of any of its Assets, except (1) Inventory disposed of in the ordinary course of business prior to an Event of Default, (2) -79- Permitted Asset Dispositions, (3) intercompany sales, leases or other dispositions among and between Borrowers and Subsidiaries, or mergers, consolidations, restructurings, or stock transfers among and between Borrowers or mergers, consolidations, restructurings or stock transfers among and between Subsidiaries, and (4) the disposition of worn or obsolete equipment in the ordinary course of business. The Agent and the Lenders agree to review all financial projections furnished by the Borrowers in connection with a proposed Permitted Acquisition promptly upon receipt of such projections and in any event to complete such review within fifteen (15) days of having received projections in the form required. 5.2.2 SUBSIDIARIES. None of the Borrowers will create or acquire, or will permit any Subsidiaries to create or acquire, any Subsidiaries other than (i) the Subsidiaries existing on the date hereof and (ii) Permitted Acquisitions. Notwithstanding the foregoing, the Borrowers shall be permitted to create Subsidiaries at any time and from time to time without the prior consent of the Agent or the Lenders; provided, that (a) there does not exist a Default or an Event of Default at the time of such creation, (b) the creation of any such Subsidiary shall not otherwise cause or result in the occurrence of a Default or an Event of Default, and (c) within thirty (30) days of any such Subsidiary's formation by execution and delivery of an Additional Borrower Joinder Agreement in the form attached hereto as EXHIBIT G, the Borrowers shall cause such Subsidiary to become a "Borrower" under this Agreement, and thus jointly and severally liable for payment and performance of all of the Obligations. In addition, if and to the extent deemed reasonably necessary by the Agent or any of the Lenders, such Subsidiary and the Borrowers shall take any and all actions reasonably required by the Agent and the Lenders to effect and consummate the foregoing, including, without limitation, the execution and deliver of amended and restated promissory notes and such other Financing Documents as the Agent may reasonably require. The Borrowers further covenant and agree to cause each Subsidiary which constitutes a Permitted Acquisition within thirty (30) days of its acquisition (1) to execute and deliver an Additional Borrower Joinder Agreement, and thereby become a "Borrower" under this Agreement, and thus jointly and severally liable for payment and performance of all of the Obligations and (2) to take any and all actions reasonably required by the Agent and the Lenders to effect and consummate the foregoing, including, without limitation, the execution and deliver of amended and restated promissory notes and such other Financing Documents as the Agent may reasonably require. The Borrowers covenant and agree that all Subsidiaries of any Borrower or any Subsidiary will become "Borrowers" under this Agreement as and when required by the provisions of this Section. -80- 5.2.3 ISSUANCE OF STOCK. None of the Borrowers (except for the Parent) will issue, or grant, or will permit any Subsidiary to issue or grant, any option or right to purchase, any of their capital stock, except for the issuance of stock or options to purchase stock to employees in the ordinary course of business and except for the issuance of stock or options to any or all of the Borrowers which is pledged and delivered to the Agent and the Lenders. 5.2.4 PURCHASE OR REDEMPTION OF SECURITIES, DIVIDEND RESTRICTIONS. None of the Borrowers will, or will permit any Subsidiary to, (i) purchase, redeem or otherwise acquire any shares of its capital stock or warrants now or hereafter outstanding, except the Parent shall be permitted to purchase Stock, to the extent the Parent determines in the exercise of its prudent and commercially reasonable discretion that the price to be paid for such purchase and/or redemption is economically advantageous and financially sound for the Parent; provided that (1) any such purchase would not or could not reasonably be expected to cause an Event of Default or a Default, (2) no Event of Default or Default shall exist at the time of any such proposed purchase, (3) the aggregate purchase price of all Stock purchased at any time since the Closing Date does not exceed Eighteen Million Dollars ($18,000,000) and (4) the aggregate purchase price of Stock purchased in any fiscal year shall not exceed Seven Million Dollars ($7,000,000), (ii) declare or pay any dividends or other distributions, except for Permitted Dividends, (iii) apply any of its property or assets to the purchase, redemption or other retirement of any shares of any class of capital stock of any of the Borrowers or Subsidiaries, except as set forth in clause (i) above, (iv) set apart any sum for the payment of any dividends on any shares of any class of capital stock of any of the Borrowers or Subsidiaries or for the purchase, redemption, or other retirement of on any shares of any class of capital stock of any of the Borrowers or Subsidiaries, except as set forth in clauses (i) and (ii) above, (v) effect any distribution by a reduction of capital contribution obligations with respect to any shares of any class of capital stock of any of the Borrowers or Subsidiaries or any warrants, (vi) permit any Subsidiary that is not a Borrower or Subsidiary to purchase or acquire any shares of any class of capital stock of or warrants issued by any Borrower or any Subsidiary, and (vii) following the occurrence of a Default or an Event of Default, not prepay, purchase or redeem any Indebtedness for Borrowed Money other than the Obligations. No dividends, including Permitted Dividends, may be paid following the occurrence and during the continuance of a Default or an Event of Default. Notwithstanding the foregoing, the Borrowers' failure to comply with Section 5.1.14 for any given fiscal quarter shall not prevent or prohibit any Borrower from declaring or paying Permitted -81- Dividends as of the end of such fiscal quarter; provided that there does not exist any other Default or Event of Default at the time of such declaration or payment and provided that the Borrowers are in compliance with Section 5.1.14 as of the end of the fiscal year which includes such fiscal quarter calculated on a cumulative basis. Notwithstanding anything to the contrary contained in this Agreement, the Agent and any one Lender (other than NationsBank) may consent to the Parent's purchase of Stock having an aggregate purchase price in any fiscal year in excess of Seven Million Dollars ($7,000,000). 5.2.5 INDEBTEDNESS. None of the Borrowers nor any Subsidiary will create, incur, assume or suffer to exist any Indebtedness for Borrowed Money, except: (a) the Obligations; (b) current accounts payable arising in the ordinary course of business; (c) Indebtedness secured by Permitted Liens; (d) the PEDFA Loans; (e) Indebtedness existing on the date of this Agreement and reflected on the financial statements furnished pursuant to Section 3.1.11; (f) Permitted Preferred Indebtedness; (g) Unsecured letters of credit, banker's acceptances and/or (1) secured foreign exchange or interest rate swaps, collars or caps or similar agreements between a Borrower (or a Subsidiary) and any of the Lenders and/or (2) unsecured foreign exchange or interest rate swaps, collars or caps or similar agreements between a Borrower (or a Subsidiary) and any other financial institution, providing for the transfer or mitigation of foreign exchange risks or interest rate risks either generally or under specific contingencies; (h) Indebtedness for Borrowed Money incurred after the date of this Agreement; provided, that (i) such Indebtedness for -82- Borrowed Money is incurred on account of purchase money or finance lease arrangements of Assets (other than real property) acquired by a Borrower after the date of this Agreement, and (ii) each such purchase money or finance lease arrangement does not exceed the cost or fair market value of the Assets acquired or leased and does not extend to any Assets or property other than that purchased or leased; (i) Capital Leases; (j) Indebtedness for Borrowed Money incurred by any Borrower or Subsidiary to any other Borrower or Subsidiary; provided, that all financial statements to be furnished to the Agent as required by Section 5.1.1 at any time after and during the continuance of such Indebtedness for Borrowed Money are both Consolidated and consolidating, except that any such consolidating statements shall not be audited; and (k) Subordinated Indebtedness incurred by any Borrower or Subsidiary in consideration, in whole or in part, for a Permitted Acquisition; provided that such Subordinated Indebtedness is to the seller or other party to any merger, acquisition or other business combination, regardless of the structure of the transaction, comprising or relating to such Permitted Acquisition and provided further that such Subordinated Indebtedness is unsecured and is fully subordinated to payment and performance of the Obligations in accordance with a written subordination agreement in form and content reasonably acceptable to the Agent and the Required Lenders. Notwithstanding the foregoing, the amount of Indebtedness for Borrowed Money permitted under clauses (f), (g), (h) and (i) shall not at any time, individually or in the aggregate, equal or exceed Fifteen Million Dollars ($15,000,000). In calculating the amount -83- of Indebtedness for Borrowed Money relating to interest rate swaps, collars, caps or similar agreements permitted under subsection (g), the Agent and the Lenders acknowledge and agree that it is not appropriate to consider the full notional amount of the swap, collar, cap or similar agreement as Indebtedness for Borrowed Money; instead, the appropriate amount to be deemed Indebtedness for Borrowed Money shall be based on the risk amount attributable to the Lender or other financial institution providing such swap, collar, cap or similar agreement, which risk amount shall be determined by the Agent in its good faith, reasonable discretion based on the amount and maturity of the swap, collar, cap or similar agreement and in accordance with the Agent's customary procedures and practices in calculating risk amounts for similar swaps, collars, caps or agreements then available from the Agent. Similarly, in calculating the amount of Indebtedness for Borrowed Money relating to foreign exchange swaps and similar agreements permitted under subsection (g), the amount to be considered Indebtedness for Borrowed Money may be less than the full notional amount of the swap or similar agreement; but, instead shall be equal to the risk amount attributed to a similar swap or similar agreement then available from the Agent, as determined by the Agent in its good faith, reasonable discretion based on the term of the swap or similar agreement and the foreign currency involved. 5.2.6 INVESTMENTS, LOANS AND OTHER TRANSACTIONS. None of the Borrowers nor any Subsidiary will (a) make, assume, acquire or continue to hold any investment in any real property (unless used in connection with their business and treated as a capital asset) or any Person, whether by stock purchase, capital contribution, equity investment, grants, gifts or other transfers of assets, properties (including cash and non-cash) which are not expected or required to be repaid, acquisition of Indebtedness of such Person or otherwise (including, without limitation, investments in any joint venture or partnership), except for capital contributions to any other Borrower (leasehold improvements to any facility leased by any of the Borrowers or any Subsidiary shall not be construed as an "investment" for purposes of this Section), (b) guaranty or otherwise become contingently liable for the Indebtedness or obligations of any Person, or (c) make any loans or advances, or otherwise extend credit to any Person, except: (a) i) the extensions of credit set forth in Schedule 5.2.6, as the same may be renewed or extended at any time and from time to time, and (ii) any other advance to an officer or employee of any of the Borrowers or of any Subsidiary for travel or other business expenses in the ordinary course of business; -84- (b) the endorsement of negotiable instruments for deposit or collection or similar transactions in the ordinary course of business; (c) any investment in Cash Equivalents; (d) trade credit extended to customers in the ordinary course of business; (e) ordinary working capital and other advances among and between the Borrowers and guaranties by one Borrower of obligations of another Borrower in the ordinary course of business; (f) payments of royalties and interest to Charter Holdings; and (g) credit extended to manufacturer representatives of the Borrowers to permit or support such representatives to expand or reinforce the Borrowers' markets and/or business opportunities; provided, that such credit shall be extended in accordance with the Borrowers' past practices and in a prudent and commercially reasonable manner. Notwithstanding the foregoing, the amount of loans and advances permitted under clauses (a) and (g) above shall not at any time, individually or in the aggregate, equal or exceed One Million Dollars ($1,000,000). 5.2.7 CAPITAL EXPENDITURES. Except for Permitted Acquisitions, none of the Borrowers nor any Subsidiary will, directly or indirectly (by way of the acquisition of the securities of a Person or otherwise), make any Capital Expenditures in the aggregate for the Borrowers and their Subsidiaries (taken as a whole) for fiscal years 1999, 2000 and 2001 exceeding, in the aggregate, Sixty Million Dollars ($60,000,000); provided that (i) in any given fiscal year the aggregate amount of Capital Expenditures shall not exceed Twenty-five Million Dollars ($25,000,000) and (ii) the making of such Capital Expenditure could not reasonably be expected to give rise to a Default or an Event of Default. 5.2.8 STOCK OF SUBSIDIARIES. Except as otherwise expressly permitted by Section 5.2.1, none of the Borrowers will sell or otherwise dispose of any shares of capital stock of any Subsidiary (except in connection with a merger or consolidation of a Wholly Owned Subsidiary into any of the other Borrowers) or permit any Subsidiary to issue any additional shares of its capital stock except PRO RATA to its stockholders. -85- 5.2.9 LIENS. None of the Borrowers nor any Subsidiary will create, incur, assume or suffer to exist any Lien upon any of its or their properties or assets, whether now owned or hereafter acquired, except for Liens securing the Obligations and Permitted Liens. 5.2.10 TRANSACTIONS WITH AFFILIATES. None of the Borrowers nor any Subsidiary will enter into or participate in any transaction with any Affiliate (other than a Borrower) with terms which would not otherwise be available in a transaction negotiated in good faith between independent third-parties having equal bargaining power, except for transactions among any Borrower and any Subsidiary, other than a Subsidiary in which an Affiliate (other than a Borrower or another Subsidiary) has an equity or other ownership interest. 5.2.11 ERISA COMPLIANCE. None of the Borrowers nor any Subsidiary shall: (a) engage in or permit any "prohibited transaction" (as defined in the Internal Revenue Code); (b) cause any "accumulated funding deficiency" as defined in the Internal Revenue Code and/or the Internal Revenue Code; (c) terminate any pension plan in a manner which could result in the imposition of a Lien by PGBC on the property of any of the Borrowers pursuant to the Internal Revenue Code; (d) terminate or consent to the termination of any Multiemployer Plan; or (e) incur a complete or partial withdrawal with respect to any Multiemployer Plan. 5.2.12 PROHIBITION ON HAZARDOUS MATERIALS. None of the Borrowers shall place, manufacture or store or permit to be placed, manufactured or stored any Hazardous Materials on any property owned, operated or controlled by any of the Borrowers or for which any of the Borrowers are responsible other than Hazardous Materials placed or stored on such property in accordance with all applicable Laws (including Environmental Laws) in the ordinary course of any Borrower's business. 5.2.13 METHOD OF ACCOUNTING. The Borrowers shall not change the method of accounting employed in the preparation of the financial statements furnished prior to the date of this Agreement to the Agent, unless required to conform to GAAP and on the condition that the Borrowers' accountants shall furnish such information as the Agent may request to reconcile the changes with the Borrowers' prior financial statements. 5.2.14 SALE AND LEASEBACK. Without the prior written consent of the Agent and the Required Lenders, none of the Borrowers nor any Subsidiary will directly or indirectly enter into any arrangement to sell or transfer all or any substantial part of -86- its fixed assets and thereupon or within one year thereafter rent or lease the assets so sold or transferred. ARTICLE 6 DEFAULT AND RIGHTS AND REMEDIES SECTION 6.1 EVENTS OF DEFAULT. The occurrence of any one or more of the following events shall constitute an "Event of Default" under the provisions of this Agreement: 6.1.1 FAILURE TO PAY. The failure of the Borrowers to pay any of the Obligations as and when due and payable in accordance with the provisions of this Agreement, the Notes and/or any of the other Financing Documents, and such failure to pay shall remain uncured for a period of ten (10) days; 6.1.2 BREACH OF REPRESENTATIONS AND WARRANTIES. Any representation or warranty made in this Agreement or in any report, statement, schedule, certificate, opinion (including any opinion of counsel for the Borrowers), financial statement or other document furnished in connection with this Agreement, any of the other Financing Documents, or the Obligations, shall prove to have been false or misleading when made (or, if applicable, when reaffirmed) in any material respect. 6.1.3 FAILURE TO COMPLY WITH COVENANTS. The failure of the Borrowers to perform, observe or comply with any covenant, condition or agreement contained in Section 5.1.3(b), Section 5.1.4, Section 5.1.8, or Section 5.2 of this Agreement. 6.1.4 OTHER COVENANTS. The failure of the Borrowers to perform, observe or comply with any covenant, condition or agreement contained in this Agreement, other than those set forth in Section 6.1.1, Section 6.1.2 and 6.1.3 above, which default shall remain unremedied for thirty (30) days after written notice thereof to the Borrowers by the Agent. 6.1.5 DEFAULT UNDER OTHER FINANCING DOCUMENTS OR OBLIGATIONS. A default shall occur under any of the other Financing Documents or under any other Obligations, including, without limitation, the PEDFA Obligations, and such default is not cured within any applicable grace period provided therein. 6.1.6 RECEIVER; BANKRUPTCY. Any Borrower or any Subsidiary shall (a) apply for or consent to the appointment of a receiver, trustee or liquidator of itself or any of its property, (b) admit in writing its inability to pay its debts as they mature, (c) make a general assignment for the benefit of creditors, (d) be -87- adjudicated a bankrupt or insolvent, (e) file a voluntary petition in bankruptcy or a petition or an answer seeking or consenting to reorganization or an arrangement with creditors or to take advantage of any bankruptcy, reorganization, insolvency, readjustment of debt, dissolution or liquidation law or statute, or an answer admitting the material allegations of a petition filed against it in any proceeding under any such law, or take corporate action for the purposes of effecting any of the foregoing, or (f) by any act to indicate its consent to, approval of or acquiescence in any such proceeding or the appointment of any receiver of or trustee for any of its property, or suffer any such receivership, trusteeship or proceeding to continue undischarged and unappealed for a period of sixty (60) days, or (g) by any act indicate its consent to, approval of or acquiescence in any order, judgment or decree by any court of competent jurisdiction or any Governmental Authority enjoining or otherwise prohibiting the operation of a material portion of any Borrower's or any Subsidiary's business or the use or disposition of a material portion of any Borrower's or any Subsidiary's assets, all as determined by the Agent and the Required Lenders in their good faith, reasonable discretion. 6.1.7 INVOLUNTARY BANKRUPTCY, ETC. (a) An order for relief shall be entered in any involuntary case brought against any Borrower or any Subsidiary under the Bankruptcy Code, or (b) any such case shall be commenced against any Borrower or any Subsidiary and shall not be dismissed or stayed within sixty (60) days after the filing of the petition, or (c) an order, judgment or decree under any other Law is entered by any court of competent jurisdiction or by any other Governmental Authority on the application of a Governmental Authority or of a Person other than any Borrower or any Subsidiary (i) adjudicating any Borrower or any Subsidiary bankrupt or insolvent, or (ii) appointing a receiver, trustee or liquidator of any Borrower or of any Subsidiary, or of a material portion of any Borrower's or any Subsidiary's assets, as determined by the Agent and the Required Lenders in their good faith, reasonable discretion or (iii) enjoining, prohibiting or otherwise limiting the operation of a material portion of any Borrower's or any Subsidiary's business or the use or disposition of a material portion of any Borrower's or any Subsidiary's assets, as determined by the Agent and the Required Lenders in their good faith, reasonable discretion, and such order, judgment or decree continues unstayed and in effect for a period of sixty (60) days from the date entered. 6.1.8 JUDGMENT. Unless adequately insured in the opinion of the Agent, the entry of a judgment against any or all of the Borrowers and/or any Subsidiaries, which individually or taken as a whole with any other judgments against any or all of the Borrowers and/or any Subsidiaries, exceeds Five Hundred Thousand -88- Dollars ($500,000), and the failure by the Borrowers or Subsidiaries to discharge the same, or cause it to be discharged, within thirty (30) days from the date of the order, decree or process under which or pursuant to which such judgment was entered (including all extensions), or to secure a stay of execution pending appeal of such judgment. 6.1.9 DEFAULT UNDER OTHER BORROWINGS. Default shall be made with respect to any Indebtedness for Borrowed Money (other than the Obligations and after expiration of any applicable notice and cure periods, if any) of any of the Borrowers, the principal amount of which Indebtedness for Borrowed Money, singly or in the aggregate equals or exceeds One Million Dollars ($1,000,000), if the effect of such default is to accelerate the maturity of such evidence of the Indebtedness for Borrowed Money or to permit the holder or obligee thereof or other party thereto to cause any indebtedness to become due prior to its stated maturity. 6.1.10 LIQUIDATION, TERMINATION, OR DISSOLUTION. Except as permitted by Section 5.2.1, if any of the Borrowers shall liquidate, dissolve or terminate its existence, without the prior written consent of the Agent, except in the case of Borrowers which are Subsidiaries of the Parent, for liquidation into another Borrower which does not otherwise cause an Event of Default or a Default. SECTION 6.2 REMEDIES. Upon the occurrence of any Event of Default, the Agent, at the direction of the Required Lenders, may at any time thereafter exercise any one or more of the following rights, powers or remedies: 6.2.1 ACCELERATION. The Agent may declare any or all of the Obligations to be immediately due and payable, notwithstanding anything contained in this Agreement or in any of the other Financing Documents to the contrary, without presentment, demand, protest, notice of protest or of dishonor, or other notice of any kind, all of which the Borrowers hereby waive. THE OCCURRENCE OR NON-OCCURRENCE OF A DEFAULT OR AN EVENT OF DEFAULT UNDER THIS AGREEMENT OR UNDER ANY OF THE OTHER FINANCING DOCUMENTS SHALL IN NO WAY AFFECT OR CONDITION THE AGENT'S RIGHT, UPON THE DIRECTION OF THE REQUIRED LENDERS, TO DEMAND IMMEDIATE PAYMENT AT ANY TIME OF ANY OF THE OBLIGATIONS WHICH ARE PAYABLE ON DEMAND REGARDLESS OF WHETHER OR NOT A DEFAULT OR AN EVENT OF DEFAULT HAS OCCURRED. 6.2.2 FURTHER ADVANCES. The Agent may from time to time without notice to the Borrowers suspend, terminate or limit any further advances, Loans, Letters of Credit or other extensions of credit under this Agreement and/or under any of the other -89- Financing Documents. Further, upon the occurrence of an Event of Default specified in Sections 6.1.6 (Receiver; Bankruptcy) or 6.1.7 (Involuntary Bankruptcy, etc.) above, the Revolving Credit Commitments, the Letter of Credit Commitments and any agreement in any of the Financing Documents to provide additional credit and/or to issue Letters of Credit shall immediately and automatically terminate and the unpaid principal amount of the Notes (with accrued interest thereon) and all other Obligations then outstanding, shall immediately become due and payable without further action of any kind and without presentment, demand, protest or notice of any kind, all of which are hereby expressly waived by each of the Borrowers. 6.2.3 PERFORMANCE BY AGENT. If the Borrowers shall fail to pay the Obligations or otherwise fail to perform, observe or comply with any of the conditions, covenants, terms, stipulations or agreements contained in this Agreement or any of the other Financing Documents, the Agent without notice to or demand upon the Borrowers and without waiving or releasing any of the Obligations or any Default or Event of Default, may (but shall be under no obligation to) at any time thereafter make such payment or perform such act for the account and at the expense of the Borrowers, and may enter upon the premises of any or all of the Borrowers for that purpose and take all such action thereon as the Agent may consider necessary or appropriate for such purpose and each of the Borrowers hereby irrevocably appoints the Agent as its attorney-in-fact to do so, with power of substitution, in the name of the Agent or in the name of any or all of the Borrowers or otherwise, for the use and benefit of the Agent, but at the cost and expense of the Borrowers and without notice to the Borrowers. All sums so paid or advanced by the Agent together with interest thereon from the date of payment, advance or incurring until paid in full at the Post-Default Rate and all costs and expenses, shall be deemed part of the Enforcement Costs, shall be paid by the Borrowers to the Agent on demand, and shall constitute and become a part of the Agent's Obligations. 6.2.4 OTHER REMEDIES. The Agent may from time to time proceed to protect or enforce the rights of the Agent and/or any of the Lenders by an action or actions at law or in equity or by any other appropriate proceeding, whether for the specific performance of any of the covenants contained in this Agreement or in any of the other Financing Documents, or for an injunction against the violation of any of the terms of this Agreement or any of the other Financing Documents, or in aid of the exercise or execution of any right, remedy or power granted in this Agreement, the Financing Documents, and/or applicable Laws. The Agent and each of the Lenders is authorized to offset and apply to all or any part of the Obligations all moneys, credits and other -90- property of any nature whatsoever of any or all of the Borrowers now or at any time hereafter in the possession of, in transit to or from, under the control or custody of, or on deposit with, the Agent, any of the Lenders or any Affiliate of the Agent or any of the Lenders. ARTICLE 7 THE AGENT SECTION 7.1 APPOINTMENT, POWERS AND IMMUNITIES. In order to expedite the various transactions contemplated by this Agreement, each of the Lenders hereby irrevocably appoints and authorizes NationsBank to act as their agent under this Agreement and each of the other Financing Documents and to serve as their representative within the meaning of Section 9-105(1)(m) of the Uniform Commercial Code. NationsBank hereby consents to such appointment and agrees to perform the duties of Agent as specified herein. Each of the Lenders authorizes and directs the Agent to take such action in their name and on their behalf under the terms and provisions of this Agreement and the other Financing Documents and to exercise such rights and powers thereunder as are specifically delegated to or required of the Agent by the terms of this Agreement and each of the other Financing Documents, together with such other rights and powers as are reasonably incidental thereto. The Agent is hereby expressly and irrevocably authorized by each of the Lenders, as agent on behalf of itself and the other Lenders: (a) To receive on behalf of each of the Lenders any payment or collection on account of the Obligations and to distribute to each Lender its Proportionate Share of all such payments and collections so received as provided in this Agreement; (b) To receive all documents and items to be furnished to the Lenders under the Financing Documents (nothing contained herein shall relieve the Borrowers of any obligation to deliver any item directly to the Lenders to the extent expressly required by the provisions of this Agreement); (c) To act as nominee for and on behalf of the Lenders in and under this Agreement and the other Financing Documents; (d) To arrange for the means whereby the funds of the Lenders are to be made available to the Borrowers; (e) To distribute promptly to the Lenders, if required by the terms of this Agreement, all written information, requests, notices, Loan Notices, Interest Rate Election Notices, payments, -91- Prepayments, documents and other items received from any of the Borrowers or any other Person; (f) To deliver to the Borrowers and other Persons, all requests, demands, approvals, notices, and consents received from any of the Lenders; (g) To the extent permitted by this Agreement and/or any of the other Financing Documents, to exercise on behalf of each Lender all rights and remedies of the Lenders upon the occurrence of any Event of Default and/or Default specified in this Agreement and/or in any of the other Financing Documents; (h) To execute any documents on behalf of the Lenders as the secured party for the benefit of itself and the Lenders; and (i) To take such other actions as may be requested by the Required Lenders. The Agent (i) shall have no duties or responsibilities to the Lenders except those expressly set forth in this Agreement and the other Financing Documents, and shall not by reason of this Agreement or any other Financing Document be a fiduciary or trustee for any Lender, (ii) shall not be required to initiate or conduct any litigation or collection proceedings hereunder or under any other Financing Document except to the extent instructed by the Required Lenders, (iii) shall not be responsible for any action taken or omitted to be taken by it or by any of its officers, directors, agents or employees hereunder or under any other Financing Document, except for its own willful misconduct and gross negligence and that of its officers, directors, agents or employees while acting within the scope of their employment or agency, (iv) shall not be required under any circumstances to take any action that, in its judgment, is contrary to the provisions of this Agreement and/or any of the other Financing Documents and/or applicable Laws or which would or could expose the Agent to any liability or expense against which it has not been indemnified to its satisfaction. The duties of the Agent shall be mechanical and administrative in nature. As to any matters not expressly provided for by this Agreement, the Agent shall in all cases be fully protected in acting or in refraining from acting, hereunder in accordance with instructions signed by the Required Lenders, and such instructions of the Required Lenders in any action taken or failure to act pursuant thereto shall be binding on all of the Lenders. Where any provision of this Agreement requires the consent, agreement or other action of the Lenders, the Agent shall act only upon the consent or instructions of the Required Lenders except as provided in Section 7.10. -92- SECTION 7.2 RIGHTS AS LENDER. The Agent in its capacity as a Lender and not as Agent shall have the same rights and powers under this Agreement as the other Lenders and may exercise the same as though it were not Agent for the Lenders, and the term "Lender" or "Lenders" shall, unless the context otherwise indicates, include the Agent in its individual capacity as a Lender. The Agent and its Affiliates may (without having to account therefor to any other Lender) accept deposits from, lend money to, provide financial advisory or other business to any of the Borrowers, any Affiliate of any of the Borrowers or any of their respective officers, directors and employees as if it were not acting as Agent, and the Agent may accept fees and other consideration from any of the Borrowers, any Affiliate of any of the Borrowers or any of their respective officers, directors and employees (in addition to the Agency Fees or other arrangements fees heretofore agreed to between the Borrowers and the Agent) for services in connection with this Agreement or otherwise without having to account for or share the same with the Lenders. SECTION 7.3 NO LIABILITY OF AGENT; INDEMNITY. Neither the Agent nor any of its Affiliates, officers, directors, employees, or agents shall be liable to any of the Lenders for any action taken or omitted to be taken by it or them hereunder or otherwise in connection with this Agreement, except for its or their willful misconduct and/or gross negligence. The Lenders hereby agree to indemnify the Agent (to the extent not reimbursed by the Borrowers), ratably on the basis of their respective Proportionate Shares, for and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses (including attorneys' fees), and disbursements of any kind or nature whatsoever imposed on, incurred by or asserted against the Agent in any way relating to or arising out of this Agreement, any of the other Financing Documents or any of the Obligations or the enforcement of any of the terms of this Agreement and/or any of the other Financing Documents; provided that no such Lender shall be liable for any of the foregoing to the extent they arise from willful misconduct or gross negligence by the Agent. SECTION 7.4 NON-RELIANCE ON AGENT AND OTHER LENDERS. Each Lender expressly acknowledges that neither the Agent nor any of its officers, directors, employees, agents, or Affiliates has made any representations or warranties to it and that no act by any of the foregoing hereafter taken, including any review or audit of the affairs of the Borrower shall be deemed to constitute a representation or warranty to any Lender. Each Lender agrees that it has, independently and without reliance on the Agent or any other Lender, and based on such documents and information as it has deemed appropriate, made its own credit analysis of the Borrowers and decision to enter into this Agreement and that it will -93- independently and without reliance upon the Agent or any other Lender, and based on such documents and information as it shall deem appropriate at the time, continue to make its own analysis and decisions in taking or not taking action under this Agreement or any of the other Financing Documents, including, without limitation, the financial condition or solvency of the Borrowers or any other Person. Each Lender represents and warrants to the Agent and the other Lenders that it has received from the Agent a copy of each of the Financing Documents executed on or before the date it enters into this Agreement and has examined or has had an opportunity to examine each of such Financing Documents. Each Lender represents and warrants to the Agent and the other Lenders that such Lender has the full right, power and authority to enter into this Agreement and make its Proportionate Share of the Loans and to purchase participations in the Letters of Credit without notice to, or consent of, any Person and has taken all action, corporate or otherwise, necessary to authorize it to enter into and execute this Agreement. The Agent shall not be responsible to the Lenders for any recitals, statements, representations, or warranties contained in this Agreement, or in any other Financing Document, or of the value, validity, effectiveness, genuineness, enforceability, or sufficiency of this Agreement or any other Financing Document or for any failure by any Borrower or any other Person to perform any of its obligations under this Agreement or any other Financing Document. The Agent shall not be required to keep itself informed as to the performance or observance by the Borrowers of this Agreement or any other Financing Document or as to the existence or possible existence of any Event of Default or Default or to inspect the properties or books of Borrowers. Except as expressly provided herein, the Agent has no duty or responsibility, either initially or on a continuing basis, to provide any Lender with any credit or other information with respect to the operations, business, property, condition (financial or otherwise) or creditworthiness of the Borrowers or any other Person. SECTION 7.5 AGENTS, EMPLOYEES, REPRESENTATIVES. The Agent may execute any and all duties under this Agreement and the Financing Documents by or through representatives, agents or employees, and in such event the representatives, agents and employees shall be entitled to the benefit of all rights of indemnification under this Agreement and/or any of the Financing Documents to which the Agent would be entitled if the Agent had executed such duties. In addition, the Agent may consult with legal counsel selected by it. The Agent shall not be liable for any action taken or suffered in good faith by it in accordance with advice of such counsel. -94- SECTION 7.6 RELIANCE BY AGENT; RELIANCE ON AGENT. The Agent shall be entitled to rely, and shall be fully protected in relying, upon any notice, consent, writing, resolution, certificate, schedule, affidavit, letter, cablegram, telecopy, telex, telegram, teletype message, statement, order or other document or conversation believed by it to be genuine and correct and to have been signed, sent or made by the proper Person or Persons and upon advice and statements of legal counsel (including, without limitation, counsel to the Borrower), independent accountants and other experts selected by the Agent. The Agent may deem and treat the original Lenders as the owners of the respective Notes for all purposes until receipt by the Agent of a written notice of assignment, negotiation or transfer of any interest therein by the Lenders. Any interest, authority or consent of any holder of any of the Notes shall be conclusive and binding on any subsequent holder, transferee, or assignee of such Notes. The Borrowers shall be entitled to rely and shall be fully protected in relying upon any notice, consent or communication from the Agent which purports to be from and on behalf of the Agent and the Lenders. SECTION 7.7 SUCCESSOR AGENT. Subject to the appointment and acceptance of a successor Agent as provided herein, the Agent may not resign at any time without the prior written consent of the Required Lenders. If the Agent shall resign as Agent under this Agreement as permitted by this Section 7.7, the Required Lenders shall, with the prior consent of the Borrowers not to be reasonably withheld, appoint from among the Lenders a successor agent, whereupon such successor agent shall succeed to the rights, powers, and duties of the Agent, and the term "Agent" shall mean such successor agent effective upon its appointment, and the former Agent's rights, powers and duties as Agent shall be terminated, without any other or further act or deed on the part of such former Agent or any of the parties to the Agreement. If no successor Agent shall have been appointed hereunder within thirty (30) days after the Agent's notice of resignation or removal, then the resigning or removed Agent may, on behalf of the Lenders, appoint a successor Agent, which shall be a commercial bank organized under the laws of the United States or any State thereof and having a combined capital and surplus of at least $100,000,000.00. Upon the acceptance of its appointment as successor Agent, such successor Agent shall thereupon succeed to and become vested with all rights, powers, privileges, immunities, and duties of the resigning or removed Agent, and the resigning or removed Agent shall be discharged from its duties and obligations under this Agreement and the other Financing Documents. After any Agent's resignation or removal as Agent, the provisions of this Article shall continue in -95- effect for its benefit in respect of any actions taken or omitted to be taken by it while it was Agent. SECTION 7.8 AGENCY FEE. The Borrowers shall pay to the Agent, for its sole and exclusive benefit, (i) a fee equal to Thirty Thousand Dollars ($30,000) on or before the Closing Date and (ii) annually thereafter, a loan administration and agency fee (collectively, the "Agency Fees" and individually, an "Agency Fee"), in the amount of Forty-five Thousand Dollars ($45,000). The initial Agency Fee shall be payable in advance on the Closing Date, and each Agency Fee thereafter shall be payable in advance on each anniversary date of the Closing Date. Each Agency Fee shall be fully earned and non-refundable upon the date paid. The Agent shall retain all of the Agency Fees for its own account and shall have no obligation to remit or pay any portion thereof to any of the Lenders. SECTION 7.9 ACTIONS AFTER DEFAULT, ETC. In the event that the Agent shall have been notified in writing by any of the Borrowers or any Lender of any Default or Event of Default, the Agent and the Lenders agree that the Agent: (a) shall immediately notify the Lenders; (b) shall take such action and assert such rights under this Agreement as it is expressly required to do pursuant to the terms of this Agreement; (c) may, unless otherwise directed by the Required Lenders, take such other actions and assert such other rights as it deems advisable, in its sole discretion, for the protection of the Agent's and the Lenders' interests pursuant to applicable Laws and/or any of the Financing Documents; (d) shall, upon the written request of the Required Lenders, as expeditiously and effectively as is reasonably practicable, enforce or attempt to enforce the Financing Documents; provided, however, (i) the Agent shall be guided by the Required Lenders as to the action to be taken in enforcing or attempting to enforce the Financing Documents; and (ii) the Agent, notwithstanding indemnification, need not take any action which it believes, upon advice of counsel, is prohibited by this Agreement or applicable Law; and (e) shall inform the Lenders of taking of action or assertion of rights pursuant to this Section. -96- Each Lender agrees with the Agent and the other Lenders that the decisions and determinations of the Required Lenders in enforcing the Notes and the other Financing Documents and in guiding the Agent in those matters shall be binding upon all the Lenders, including, without limitation, authorizing the Agent at the pro rata expense of all the Lenders (to the extent not reimbursed by the Borrowers) to retain attorneys to seek judgment on the Notes and to foreclose upon or exercise other rights under any of the Financing Documents. Each Lender similarly agrees with the other Lenders and covenants with the Borrowers that it will not seek to separately institute any legal action on its Notes or the other Financing Documents. All rights of action under the Financing Documents may be enforced by the Agent only, for the benefit of itself and the Lenders, and any suit or proceeding instituted by the Agent for the benefit of itself and the Lenders in furtherance of such enforcement may be brought in its name as Agent for the benefit of itself and the Lenders without the necessity of joining as plaintiffs or defendants any Lender, and the recovery of any judgment shall be for the benefit of the Agent and the Lenders, subject to the expenses of the Agent. The Agent shall not be deemed to have knowledge or notice of the occurrence of any Event of Default or Default unless the Agent has received notice from a Lender or the Borrowers referring to this Agreement, describing such Event of Default or Default, and stating that such notice is a "notice of default". SECTION 7.10 CIRCUMSTANCES WHERE CONSENT OF ALL OF THE LENDERS IS REQUIRED. Notwithstanding anything to the contrary contained herein, no amendment, modification, change or waiver shall be effective without the consent of all of the Lenders to: (a) extend the maturity of the principal of, or interest on, any Note or of any of the other Obligations; (b) reduce the principal amount of any Note or of any of the other Obligations or the rate of interest thereon, except as expressly permitted herein or therein; (c) change the date of payment of principal of, or interest on, any Note or of any of the other Obligations; (d) change the method of calculation utilized in connection with the computation of interest and Fees; (e) change the manner of pro rata application by the Agent of payments made by the Borrowers, or any other payments required hereunder or under the other Financing Documents, except as provided with respect to the payment of Non-Ratable Loans; -97- (f) modify this Section or the definition of "Required Lenders"; or (g) increase or decrease the amount of, or extend, any Lender's Committed Amount. ARTICLE 8 MISCELLANEOUS SECTION 8.1 NOTICES. All notices, requests and demands to or upon the parties to this Agreement shall be in writing and shall be deemed to have been given or made when delivered by hand on a Business Day, when sent when delivered by confirmed telecopy, or three (3) days after the date when deposited in the mail, postage prepaid by registered or certified mail, return receipt requested, or on the Business Day next following the day on which the notice is delivered to nationally recognized overnight courier, addressed as follows: Borrowers: c/o C&D Technologies, Inc. 1400 Union Meeting Road P.O.Box 3053 Blue Bell, Pennsylvania 11422-0858 Attn: Treasurer Telecopy No: (215) 619-7811 with a copy to: Proskauer, Rose, Goetz & Mendelsohn 1585 Broadway New York, New York 10036 Attn: Steven L. Kirshenbaum, Esquire Telecopy No: (212) 969-2900 Agent: NationsBank, N.A. 10 Light Street Baltimore, Maryland 21202 Attn: Mr. Patrick M. Moore -98- Telecopy No: (410) 528-1657 with a copy to: Shaun F. Carrick, Esquire Miles & Stockbridge 10 Light Street Baltimore, Maryland 21202 Telecopy No: (410) 385-3700 CoreStates: CoreStates Bank, N.A. Regional/PA Division FC 3-90-1-1 Suite 300 2240 Butler Pike Plymouth Meeting, Pennsylvania 19462 Attn: Karl F. Schultz Telecopy No: (610) 834-2069 Chase: The Chase Manhattan Bank One Riverfront Plaza Newark, New Jersey 07102 Attn: Thomas F. Conroy, Jr. Vice President Telecopy No.: (973) 353-6158 PNC: PNC Bank, National Association Valley Forge Regional Banking Center Suite 200 1000 Westlakes Drive Berwyn, Pennsylvania 19312 Attn: Warren Engle Vice President Telecopy No.: (610) 725-5799 with a copy to: PNC Bank, National Association 1600 Market Street 28th Floor F2-F070-28-4 Philadelphia, Pennsylvania 19103 Attn: Sharon Coghlan, Esquire -99- By written notice, each party to this Agreement may change the address to which notice is given to that party, provided that such changed notice shall include a street address to which notices may be delivered by overnight courier in the ordinary course on any Business Day. SECTION 8.2 AMENDMENTS; WAIVERS. This Agreement and the other Financing Documents may not be amended, modified, or changed in any respect except by an agreement in writing signed by the Agent, the Required Lenders and the Borrowers, and to the extent provided in Section 7.10 by an agreement in writing signed by all of the Lenders and the Borrowers. No waiver of any provision of this Agreement or of any of the other Financing Documents, nor consent to any departure by the Borrowers therefrom, shall in any event be effective unless the same shall be in writing. No course of dealing between the Borrowers and the Agent and/or any of the Lenders and no act or failure to act from time to time on the part of the Agent and/or any of the Lenders shall constitute a waiver, amendment or modification of any provision of this Agreement or any of the other Financing Documents or any right or remedy under this Agreement, under any of the other Financing Documents or under applicable Laws. Without implying any limitation on the foregoing, and subject to the provisions of Section 7.10: (a) Any waiver or consent shall be effective only in the specific instance, for the terms and purpose for which given, subject to such conditions as the Agent may specify in any such instrument. (b) No waiver of any Default or Event of Default shall extend to any subsequent or other Default or Event of Default, or impair any right consequent thereto. (c) No notice to or demand on any of the Borrowers in any case shall entitle the Borrowers to any other or further notice or demand in the same, similar or other circumstance. (d) No failure or delay by the Agent or any of the Lenders to insist upon the strict performance of any term, condition, covenant or agreement of this Agreement or of any of the other Financing Documents, or to exercise any right, power or remedy consequent upon a breach thereof, shall constitute a waiver, amendment or modification of any such term, condition, covenant or agreement or of any such breach or preclude the Agent from exercising any such right, power or remedy at any time or times. -100- (e) By accepting payment after the due date of any amount payable under this Agreement or under any of the other Financing Documents, the Agent shall not be deemed to waive the right either to require prompt payment when due of all other amounts payable under this Agreement or under any of the other Financing Documents, or to declare a default for failure to effect such prompt payment of any such other amount. SECTION 8.3 CUMULATIVE REMEDIES. The rights, powers and remedies provided in this Agreement and in the other Financing Documents are cumulative, may be exercised concurrently or separately, may be exercised from time to time and in such order as the Agent shall determine, subject to the provisions of this Agreement, and are in addition to, and not exclusive of, rights, powers and remedies provided by existing or future applicable Laws. In order to entitle the Agent to exercise any remedy reserved to it in this Agreement, it shall not be necessary to give any notice, other than such notice as may be expressly required in this Agreement. Without limiting the generality of the foregoing and subject to the terms of this Agreement, the Agent may: (a) proceed against any one or more of the Borrowers with or without proceeding against any one or more of the other Borrowers or any other Person who may be liable for all or any part of the Obligations; (b) proceed against any one or more of the Borrowers with or without proceeding under any of the other Financing Documents or any collateral and security for all or any part of the Obligations; (c) without reducing or impairing the joint and several obligation of the Borrowers and without notice, release or compromise with any guarantor or other Person liable for all or any part of the Obligations under the Financing Documents or otherwise; (d) without reducing or impairing the joint and several obligations of the Borrowers and without notice thereof: (i) approve the making of advances under the Revolving Loan under this Agreement, (ii) waive any provision of this Agreement or the other Financing Documents, (iii) exercise or fail to exercise rights of set-off or other rights, or (iv) accept partial payments or extend from time to time the maturity of all or any part of the Obligations. SECTION 8.4 SEVERABILITY. In case one or more provisions, or part thereof, contained in this Agreement or in the other Financing Documents shall be invalid, illegal or unenforceable in -101- any respect under any Law, then without need for any further agreement, notice or action: (a) the validity, legality and enforceability of the remaining provisions shall remain effective and binding on the parties thereto and shall not be affected or impaired thereby; (b) the obligation to be fulfilled shall be reduced to the limit of such validity; (c) if such provision or part thereof pertains to repayment of the Obligations, then, at the sole and absolute discretion of the Agent, all of the Obligations of the Borrowers to the Agent and the Lenders shall become immediately due and payable; and (d) if affected provision or part thereof does not pertain to repayment of the Obligations, but operates or would prospectively operate to invalidate this Agreement in whole or in part, then such provision or part thereof only shall be void, and the remainder of this Agreement shall remain operative and in full force and effect. SECTION 8.5 ASSIGNMENTS BY LENDERS. Any Lender may, with the prior written consent of the Agent, and with prior notice to the Borrowers, but without the consent of the Borrowers, assign to any Person reasonably acceptable to the Borrowers (each an "Assignee" and collectively, the "Assignees") all or a portion of such Lender's Commitments. Any Lender which elects to make such an assignment shall pay to the Agent, for the exclusive benefit of the Agent, an administrative fee for processing each such assignment in the amount of Three Thousand Dollars ($3,000.00). Such Lender and its Assignee shall notify the Agent and the Borrowers in writing of the date on which the assignment is to be effective (the "Adjustment Date"). On or before the Adjustment Date, the assigning Lender, the Agent, the Borrowers and the respective Assignee shall execute and deliver a written assignment agreement in the form attached hereto as EXHIBIT F, which shall constitute an amendment to this Agreement to the extent necessary to reflect such assignment. Upon the request of any assigning Lender following an assignment made in accordance with this Section 8.5, the Borrowers shall issue new Notes to the assigning Lender and its Assignee reflecting such assignment, in exchange for the existing Notes held by the assigning Lender. In addition, notwithstanding the foregoing, any Lender may at any time pledge all or any portion of such Lender's rights under -102- this Agreement, any of the Commitments or any of the Obligations to a Federal Reserve Bank. SECTION 8.6 PARTICIPATIONS BY LENDERS. Any Lender may at any time sell to one or more financial institutions participating interests in any of such Lender's Obligations or Commitments; provided, however, that (a) after giving effect to such assignment, such Lender must continue to hold a Proportionate Share of the Commitments at least equal to Five Million Dollars ($5,000,000), (b) no such participation shall relieve such Lender from its obligations under this Agreement or under any of the other Financing Documents to which it is a party, (c) such Lender shall remain solely responsible for the performance of its obligations under this Agreement and under all of the other Financing Documents to which it is a party, and the Borrowers, the Agent and the other Lenders shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Agreement and the other Financing Documents. Each Lender agrees to give the Borrowers prior notice of the sale of any participating interest in such Lender's Obligations or Commitments, which notice shall identify the proposed participant. SECTION 8.7 DISCLOSURE OF INFORMATION BY LENDERS. In connection with any sale, transfer, assignment or participation by any Lender in accordance with Section 8.5 or Section 8.6, each Lender shall have the right to disclose to any actual or potential purchaser, assignee, transferee or participant all financial records, information, reports, financial statements and documents obtained in connection with this Agreement and/or any of the other Financing Documents or otherwise; provided that such persons shall agree, for the benefit of the Borrowers, to be bound by the provisions of Section 8.19, whether or not such sale, transfer, assignment or participation is consummated. SECTION 8.8 SUCCESSORS AND ASSIGNS. This Agreement and all other Financing Documents shall be binding upon and inure to the benefit of the Borrowers, the Agent and the Lenders and their respective heirs, personal representatives, successors and assigns, except that the Borrowers shall not have the right to assign its rights hereunder or any interest herein without the prior written consent of the Agent and the Required Lenders. SECTION 8.9 CONTINUING AGREEMENTS. All covenants, agreements, representations and warranties made by the Borrowers in this Agreement, in any of the other Financing Documents, and in any certificate delivered pursuant hereto or thereto shall survive the making by the Lenders of the Loans, the issuance of Letters of Credit by the Agent and the execution and delivery of the Notes, shall be binding upon the Borrowers regardless of how long before -103- or after the date hereof any of the Obligations were or are incurred, and shall continue in full force and effect so long as any of the Obligations are outstanding and unpaid. SECTION 8.10 ENFORCEMENT COSTS. The Borrowers agree to pay to the Agent on demand all Enforcement Costs to the extent due and payable, together with interest thereon from the date incurred or advanced until paid in full at a per annum rate of interest equal at all times to the Post-Default Rate. Enforcement Costs shall be immediately due and payable within ten (10) days of written invoice therefor. Without implying any limitation on the foregoing, the Borrowers agree, as part of the Enforcement Costs, to pay upon demand any and all stamp and other Taxes and fees payable or determined to be payable in connection with the execution and delivery of this Agreement and the other Financing Documents and to save the Agent and the Lenders harmless from and against any and all liabilities with respect to or resulting from any delay in paying or omission to pay any Taxes or fees referred to in this Section. The provisions of this Section shall survive the execution and delivery of this Agreement, the repayment of the other Obligations and shall survive the termination of this Agreement. SECTION 8.11 APPLICABLE LAW; JURISDICTION. 8.11.1 As a material inducement to the Agent and the Lenders to enter into this Agreement, the Borrowers acknowledge and agree that the Financing Documents, including, this Agreement, shall be governed by the Laws of the State, as if each of the Financing Documents and this Agreement had each been executed, delivered, administered and performed solely within the State even though for the convenience and at the request of the Borrowers, one or more of the Financing Documents may be executed elsewhere. The Agent and the Lenders acknowledge, however, that remedies under certain of the Financing Documents which relate to property outside the State may be subject to the laws of the state in which the property is located. 8.11.2 Each of the Borrowers irrevocably submit to the jurisdiction of any state or federal court sitting in the State over any suit, action or proceeding arising out of or relating to this Agreement or any of the other Financing Documents. Each of the Borrowers irrevocably waive, to the fullest extent permitted by law, any objection that it may now or hereafter have to the laying of the venue of any such suit, action or proceeding brought in any such court and any claim that any such suit, action or proceeding brought in any such court has been brought in an inconvenient forum. Final judgment in any such suit, action or proceeding brought in any such court shall be conclusive and -104- binding upon the Borrowers, jointly and severally, and may be enforced in any court in which any of the Borrowers are subject to jurisdiction, by a suit upon such judgment, PROVIDED that service of process is effected upon the Borrowers in one of the manners specified in this Section or as otherwise permitted by applicable Laws. 8.11.3 Each of the Borrowers hereby irrevocably designates and appoints The Corporation Trust Incorporated, 32 South Street, Baltimore, Maryland 21202, as such Borrower's authorized agent to receive on such Borrowers' behalf service of any and all process that may be served in any suit, action or proceeding of the nature referred to in this Section, including, but not limited to, any demands for arbitration, in any state or federal court sitting in the State or before Judicial Arbitration and Mediation Services, Inc. or the American Arbitration Association. If such agent shall cease so to act, each of the Borrowers shall irrevocably designate and appoint without delay another such agent in the State satisfactory to the Agent and shall promptly deliver to the Agent evidence in writing of such other agent's acceptance of such appointment and its agreement that such appointment shall be irrevocable. 8.11.4 Each of the Borrowers hereby consents to process being served in any suit, action or proceeding of the nature referred to in this Section by (i) the mailing of a copy thereof by registered or certified mail, postage prepaid, return receipt requested, to any of the Borrowers at such Borrower's address designated in or pursuant to Section 8.1 hereof, and (ii) serving a copy thereof upon in accordance with applicable law, the agent, if any, designated and appointed by the Borrowers as the Borrowers' agent for service of process by or pursuant to this Section. Each of the Borrowers irrevocably agrees that such service (i) shall be deemed in every respect effective service of process upon all of the Borrowers in any such suit, action or proceeding, and (ii) shall, to the fullest extent permitted by law, be taken and held to be valid personal service upon all of the Borrowers to the extent the action is located in Maryland. Nothing in this Section shall affect the right of the Agent to serve process in any manner otherwise permitted by law or limit the right of the Agent otherwise to bring proceedings against any of the Borrowers in the courts of any jurisdiction or jurisdictions. SECTION 8.12 DUPLICATE ORIGINALS AND COUNTERPARTS. This Agreement may be executed in any number of duplicate originals or counterparts, each of such duplicate originals or counterparts shall be deemed to be an original and all taken together shall constitute but one and the same instrument. -105- SECTION 8.13 HEADINGS. The headings in this Agreement are included herein for convenience only, shall not constitute a part of this Agreement for any other purpose, and shall not be deemed to affect the meaning or construction of any of the provisions hereof. SECTION 8.14 NO AGENCY. Nothing herein contained shall be construed to constitute any of the Borrowers as the agent of the Agent or any of the Lenders for any purpose whatsoever or to permit any of the Borrowers to pledge any of the credit of the Agent or any of the Lenders. Neither the Agent nor any of the Lenders shall, by anything herein or in any of the Financing Documents or otherwise, assume any of the Borrowers' obligations under any contract or agreement assigned to the Agent and/or the Lenders, and neither the Agent nor any of the Lenders shall be responsible in any way for the performance by any of the Borrowers of any of the terms and conditions thereof. SECTION 8.15 ENTIRE AGREEMENT. This Agreement is intended by the Agent, the Lenders and the Borrowers to be a complete, exclusive and final expression of the agreements contained herein. Neither the Agent, the Lenders nor the Borrowers shall hereafter have any rights under any prior agreements pertaining to the matters addressed by this Agreement but shall look solely to this Agreement for definition and determination of all of their respective rights, liabilities and responsibilities under this Agreement. SECTION 8.16 WAIVER OF TRIAL BY JURY. THE BORROWERS, THE AGENT AND THE LENDERS HEREBY JOINTLY AND SEVERALLY WAIVE TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO WHICH ANY OF THEM MAY BE PARTIES, ARISING OUT OF OR IN ANY WAY PERTAINING TO (A) THIS AGREEMENT OR (B) ANY OF THE FINANCING DOCUMENTS. THIS WAIVER CONSTITUTES A WAIVER OF TRIAL BY JURY OF ALL CLAIMS AGAINST ALL PARTIES TO SUCH ACTIONS OR PROCEEDINGS, INCLUDING CLAIMS AGAINST PARTIES WHO ARE NOT PARTIES TO THIS AGREEMENT. This waiver is knowingly, willingly and voluntarily made by the Borrowers, the Agent and the Lenders, and the Borrowers, the Agent and the Lenders hereby represent that no representations of fact or opinion have been made by any individual to induce this waiver of trial by jury or to in any way modify or nullify its effect. The Borrowers, the Agent and the Lenders further represent that they have been represented in the signing of this Agreement and in the making of this waiver by independent legal counsel, selected of their own free will, and that they have had the opportunity to discuss this waiver with counsel. SECTION 8.17 LIABILITY OF THE AGENT AND THE LENDERS. The Borrowers hereby agree that neither the Agent nor any of the -106- Lenders shall be chargeable for any negligence, mistake, act or omission of any accountant, examiner, agency or attorney employed by the Agent and/or any of the Lenders in making examinations, investigations or collections, or otherwise in perfecting, maintaining, protecting or realizing upon any Lien or security interest or any other interest in any security for the Obligations. By inspecting any other properties of any of the Borrowers or by accepting or approving anything required to be observed, performed or fulfilled by any of the Borrowers or to be given to the Agent and/or any of the Lenders pursuant to this Agreement or any of the other Financing Documents, neither the Agent nor any of the Lenders shall be deemed to have warranted or represented the condition, sufficiency, legality, effectiveness or legal effect of the same, and such acceptance or approval shall not constitute any warranty or representation with respect thereto by the Agent and/or the Lenders. SECTION 8.18 ARBITRATION. ANY CONTROVERSY OR CLAIM BETWEEN OR AMONG THE PARTIES HERETO INCLUDING, BUT NOT LIMITED TO THOSE ARISING OUT OF THIS AGREEMENT OR THE OTHER FINANCING DOCUMENTS, INCLUDING ANY CLAIM BASED ON OR ARISING FROM AN ALLEGED TORT, SHALL BE DETERMINED BY BINDING ARBITRATION IN ACCORDANCE WITH THE FEDERAL ARBITRATION ACT (OR IF NOT APPLICABLE, THE APPLICABLE STATE ACT), THE RULES OF PRACTICE AND PROCEDURE FOR ARBITRATION OF COMMERCIAL DISPUTES OF THE JUDICIAL ARBITRATION AND MEDIATION SERVICES, INC. (J.A.M.S.) AND THE "SPECIAL RULES" SET FORTH BELOW. IN THE EVENT OF AN INCONSISTENCY, THE SPECIAL RULES SHALL CONTROL. JUDGMENT UPON ANY ARBITRATION AWARD MAY BE ENTERED IN ANY COURT HAVING JURISDICTION. ANY PARTY TO THIS AGREEMENT OR ANY OTHER FINANCING DOCUMENT MAY BRING ANY ACTION, INCLUDING A SUMMARY OR EXPEDITED PROCEEDING, TO COMPEL ARBITRATION OF ANY CONTROVERSY OR CLAIM TO WHICH THIS AGREEMENT OR ANY OTHER FINANCING DOCUMENT RELATES IN ANY COURTS HAVING JURISDICTION OVER SUCH ACTION. (A) SPECIAL RULES. THE ARBITRATION SHALL BE CONDUCTED IN THE CITY OF AGENT'S DOMICILE AT THE TIME OF EXECUTION OF THIS NOTE AND ADMINISTERED BY J.A.M.S. WHO WILL APPOINT AN ARBITRATOR. IF J.A.M.S. IS UNABLE OR LEGALLY PRECLUDED FROM ADMINISTERING THE ARBITRATION, THEN THE AMERICAN ARBITRATION ASSOCIATION WILL SERVE. ALL ARBITRATION HEARINGS WILL BE COMMENCED WITHIN 90 DAYS OF THE DEMAND FOR ARBITRATION; FURTHER, THE ARBITRATOR SHALL ONLY, UPON A SHOWING OF CAUSE, BE PERMITTED TO EXTEND THE COMMENCING OF SUCH HEARING FOR AN ADDITIONAL 60 DAYS. (B) RESERVATION OF RIGHTS. NOTHING IN THIS AGREEMENT OR OTHER FINANCING DOCUMENTS SHALL BE DEEMED TO: (I) LIMIT OR EXPAND THE APPLICABILITY OF ANY OTHERWISE APPLICABLE STATUTES OF LIMITATION OR REPOSE AND ANY WAIVERS CONTAINED IN THIS INSTRUMENT, AGREEMENT OR DOCUMENT; OR (II) BE A WAIVER BY THE AGENT OR ANY OF THE LENDERS OF THE PROTECTION AFFORDED TO ANY OF THEM BY 12 U.S.C. ss.91 OR ANY SUBSTANTIALLY EQUIVALENT STATE LAW; OR (III) LIMIT OR -107- EXPAND THE RIGHT OF THE AGENT OR ANY OF THE LENDERS (A) TO EXERCISE SELF HELP REMEDIES SUCH AS (BUT NOT LIMITED TO) SET OFF, OR (B) TO FORECLOSE AGAINST ANY REAL OR PERSONAL PROPERTY, OR (C) TO OBTAIN FROM A COURT PROVISIONAL OR ANCILLARY REMEDIES SUCH AS (BUT NOT LIMITED TO) INJUNCTIVE RELIEF, WRIT OF POSSESSION OR THE APPOINTMENT OF A RECEIVER. THE AGENT MAY EXERCISE SUCH SELF HELP RIGHTS, FORECLOSE UPON SUCH PROPERTY, OR OBTAIN SUCH PROVISIONAL OR ANCILLARY REMEDIES BEFORE, DURING OR AFTER THE PENDENCY OF ANY ARBITRATION PROCEEDING BROUGHT PURSUANT TO THIS AGREEMENT OR ANOTHER FINANCING DOCUMENT. NEITHER THE EXERCISE OF SELF HELP REMEDIES NOR THE INSTITUTION OR MAINTENANCE OF ANY ACTION FOR FORECLOSURE OR FOR PROVISIONAL OR ANCILLARY REMEDIES SHALL CONSTITUTE A WAIVER OF THE RIGHT OF ANY PARTY, INCLUDING THE CLAIMANT IN SUCH ACTION, TO ARBITRATE THE MERITS OF THE CONTROVERSY OR CLAIM OCCASIONING RESORT TO SUCH REMEDIES. SECTION 8.19 CONFIDENTIALITY. The Agent and the Lenders hereby agree to exercise reasonable efforts to keep any non-public information delivered or made available to the Agent and/or any of the Lenders pursuant to this Agreement or any of the Financing Documents, confidential from any Person except (a) Persons employed or retained by the Agent and/or any of the Lenders who are or are expected to become engaged in evaluating, approving, structuring or administering the Obligations, (b) with the prior written consent of Borrowers, (c) as is permitted under and in connection with Section 8.5 or Section 8.6, (d) as would be reasonably required in connection with the exercise of any remedy under this Agreement or any of the Financing Documents after and during the continuance of an Event of Default or a Default or (e) as may be required by law; provided that in the event that the Agent or any of the Lenders or its or their representatives are requested or compelled (by oral questions, interrogatories, requests for information or documents, subpoena, civil investigative demand or similar process) to disclose any of the non-public information delivered or made available to Agent and/or any of the Lenders pursuant to this Agreement or any of the Financing Documents, the Agent, the Lenders and its and their representatives agree, to the extent legally permissible, to provide the Borrowers with prompt notice of such request. -108- IN WITNESS WHEREOF, each of the parties hereto have executed and delivered this Agreement under their respective seals as of the day and year first written above. ATTEST: C&D TECHNOLOGIES, INC. /s/ROBERT E. MARLEY By:/s/STEPHEN E. MARKERT, JR. (Seal) Name:Stephen E. Markert, Jr. Title:VP-CFO ATTEST: RATELCO ELECTRONICS, INC. /s/ROBERT E. MARLEY By:/s/STEPHEN E. MARKERT, JR. (Seal) Name:Stephen E. Markert, Jr. Title:VP-CFO ATTEST: C&D/CHARTER HOLDINGS, INC. /s/STEPHEN E. MARKERT, JR. By: /s/ ROBERT E. MARLEY (Seal) Name:Robert E. Marley Title:VP ATTEST: CHARTER POWER F.S., LTD. /s/ROBERT E. MARLEY By:/s/STEPHEN E. MARKERT, JR. (Seal) Name:Stephen E. Markert, Jr. Title:VP-CFO ATTEST: PCC DE MEXICO S.A. DE C.V. /s/ROBERT E. MARLEY By:/s/STEPHEN E. MARKERT, JR. (Seal) Name:Stephen E. Markert, Jr. Title:VP-CFO ATTEST: POWER CONVERTIBLES IRELAND LIMITED /s/ROBERT E. MARLEY By:/s/STEPHEN E. MARKERT, JR. (Seal) Name:Stephen E. Markert, Jr. Title:VP-CFO -109- ATTEST: CD TECHNOLOGIES DE MEXICO S.A. DE C.V. /s/ROBERT E. MARLEY By:/s/STEPHEN E. MARKERT, JR. (Seal) Name:Stephen E. Markert, Jr. Title:VP-CFO ATTEST: PCC MEXICAN HOLDINGS, INC. /s/ROBERT E. MARLEY By:/s/STEPHEN E. MARKERT, JR. (Seal) Name:Stephen E. Markert, Jr. Title:VP-CFO WITNESS: NATIONSBANK, N.A. in its capacity as Agent /s/ ROBERT P. BOULLE By: /s/ PATRICK M. MOORE (Seal) Name: Patrick M. Moore Title: Vice President WITNESS: NATIONSBANK, N.A. in its capacity as a Lender /s/ ROBERT P. BOULLE By: /s/ PATRICK M. MOORE (Seal) Name: Patrick M. Moore Title: Vice President WITNESS: CORESTATES BANK, N.A. in its capacity as a Lender _________________________ By:/s/ KARL F. SCHULTZ (Seal) Name:Karl F. Schultz Title: WITNESS: THE CHASE MANHATTAN BANK in its capacity as a Lender /s/ RAY E. GORDANO By: /s/ THOMAS F. CONROY, JR.(Seal) Name: Thomas F. Conroy, Jr. Title: Vice President -110- WITNESS: PNC BANK, NATIONAL ASSOCIATION in its capacity as a Lender /s/ HEIDI S. BABMUELLER By:/s/WARREN C. ENGLE (Seal) Banking Officer Name: Warren C. Engle Title: Vice President -111- LIST OF EXHIBITS A. Form of Revolving Credit Note B. Permitted Liens C. Settlement Report D. Form of Loan Notice E. Form of Environmental Compliance Certificate F. Form of Assignment Agreement G. Form of Additional Borrower Joinder Supplement -112- SCHEDULES Schedule 3.1.1 - Subsidiaries Schedule 3.1.10 - Litigation Schedule 3.1.14 - Indebtedness for Borrowed Money Schedule 3.1.18 - Hazardous Materials or Hazardous Material Contamination Schedule 3.1.19 - Places of Business Schedule 3.1.20 - Changes in Names of Borrowers Schedule 3.1.24 - Labor Matters Schedule 5.2.6 - Extension of Credit -113- SCHEDULE 3.1.1 SUBSIDIARIES OF C&D TECHNOLOGIES, INC. C&D/Charter Holdings, Inc., a Delaware corporation Ratelco Electronics, Inc., a Delaware corporation Charter Power F.S. Ltd., a Bermuda corporation PCC Mexican Holdings, Inc., a Delaware corporation PCC de Mexico, S.A. de C.V., a Mexican corporation C&D TECHNOLOGIES de Mexico, S.A., de C.V., a Mexican corporation Power Convertibles Corporation Ireland Ltd., an Irish corporation Schedule 3.1.10: LEGAL ISSUES PENDING LITIGATION o Lawrence B. Sayers Enterprises (Effective Transportation Services) o Bruce Blacklock (Eastern Battery) o John Gennarelli v. C&D Charter Power Systems, Inc. and Onan Corporation o Apollo Graphics v. C&D Charter Power Systems, Inc. o Chicago-Dubuque Foundry Corp. v. Exide Electronics Corp. et al THREATENED LITIGATION o Mr. Sheldon Bailey o Olympian Trademark o Vancouver D.C. Power Enterprises, Inc. o Novatec o Conyer's Clean Up o J. M. Shaefer o Conley Equipment Company Declaratory Judgement Action SCHEDULE 3.1.14 INDEBTEDNESS FOR BORROWED MONEY Capitalized Leases in the aggregate amount of $143,974 as of December 31, 1997. Schedule 3.1.18 - Hazardous Materials I. The Borrower has been named as a potentially responsible party ("PRP") by the United States Environmental Protection Agency ("EPA") with respect to the following third party owned or operated facilities to which scrap batteries and/or lead containing or lead contaminated waste had been shipped from Borrower's facilities for reclamation and/or disposal. A. The former Tonolli Incorporated Site at Nesquehoning, Pennsylvania: The remedial investigation and feasibility study at this site was completed in fiscal 1993. Although the Borrower's final allocable share of the costs of the investigation and remediation of this site has not yet been determined, the waste-in lists prepared by the EPA attribute 2.1107% to the Borrower. Based upon the remedial approach selected by the EPA for this matter the Borrower has accrued $90,000 as a reserve on Borrower's consolidated financial statements. B. National Lead Industries Site at Pedricktown, New Jersey: The Borrower, along with other PRPs, completed the remediation of the first operable unit for which it was named as a PRP, i.e. the removal of waste piles, stormwater controls and demolition of site buildings. According to waste-in lists prepared by the EPA the Borrower contributed 3.5489% of the waste at the site. The Borrower has expended approximately $129,000 in connection with the investigation and remedial work on the first available information on the remaining remediation at the site, an accrued reserve of $153,599 remains on the Borrower's consolidated financial statements for this matter. C. U.S.S. Lead Refinery Site in East Chicago, Indiana: The Borrower has recently received a PRP notice from the EPA. Based on the preliminary waste-in volumetric ranking for the site prepared by the EPA the Borrower contributed 2.695% of the waste. Based on currently available information, the Borrower has accrued $283,500 as a reserve on its consolidated financial statements for this matter. D. ILCO Smelter Site in Leeds, Alabama: The Borrower has been identified as a PRP at the site and was classified by EPA as a DE MINIMIS party in 1997. The Borrower has entered into an agreement with EPA allowing it to "cash out" its liability for this matter pending approval of the agreement by the major members of the PRP group. While the Borrower's allocable share of the cost of the remediation has not been finally determined, the Borrower has accrued $40,000 as a reserve for this matter. II. With respect to the third party owned or operated site known as the Crown Industrial Site in Lackawaxen Township, Pennsylvania, in 1991 the Borrower was asked by the Pennsylvania Department of Environmental Resources ("PADER") for information relating to Borrower's potential liability at the site. Information was provided which generally indicated that Borrower had no information to evidence its use of the site. Since that information was provided, the Borrower has received no further communication from PADER and has not been asked to participate in the costs of the investigation or cleanup of the site. Based on information available to it, the Borrower believes that any liability it may ave at the site would be small. III. The Borrower has been named a PRP in other third party owned or operated sites not listed above. However, pursuant to the Acquisition Agreement between the Borrower and Allied Corporation ("Allied") pursuant to which the Borrower acquired the assets of the C&D Power Systems division of Allied, Allied is obligated to indemnify the Borrower for any liabilities relating to those third part owned or operated facilities at which the Borrower has been named a PRP (other than those set forth above) and Allied has accepted responsibility for the potential liabilities relating to those third party facilities other than those sites specified above. IV. The Borrower is aware of the following potential Hazardous Materials Contamination which may exist on the Borrower's principal properties: A. Huguenot, New York: Fluoride contamination exceeding the state's groundwater standards in an inactive lagoon which existed prior to the Borrower's acquisition of the site. The site is currently listed on the New York State Department of Environmental Conservations's Inactive Hazardous Waste Disposal List. The Borrower has accrued $185,000 as a reserve on its consolidated financial statements for this potential liability. B. Conyers, Georgia: In or about 1981, the site was listed on the Georgia State Hazardous Sites Inventory. Contaminated soil, likely from a leaking underground acid neutralization tank and possibly stormwater runoff, has been exhumed and disposed of and a hydrogeologic study has been undertaken to assess the impact, if any, to groundwater. The study did not reveal any impact on the groundwater. The State has recently requested a status report on the site from Borrower. This report was submitted to the state in May 1997. SCHEDULE 3.1.19 PLACES OF BUSINESS 1400 Union Meeting Rd. 1661 Route 22 West Blue Bell, Pa. 19422 Bound Brook, NJ 08805 200 W. Main St. 1825 Summit Ave. Suite 206 Attica Indiana 47918-0279 Plano, TX 75074 7701 W. 79th St. 41 Cedar Ave. BOXHM 1179 Bridgeview, Il 60455 Hamilton HM EX Bermuda Washington & Cherry Street 1105 N. Market Street Suite 1300 Conshohocken, Pa 19428 Wilmington, DE 19899 1835 Industrial Blvd Unit 9 Distribution Centre Conyers, Ga. 30012 Shannon, Ireland 18 Industrial Park Rd. Calle Internationa, Avenida 17 S/N Dunlap, TN 37327 Agua Prieta Sonora Mexico Route 209 Internat. Hwy KM612/2Blg 271-2 Huguenot, NY 12746-0430 Sonora Nogales, Mexico 82 E. Main Street No 55-4 The Highway Centre, Jalan Leola, Pa 17540-1996 51/205, Petaling, Selengor Darul Malaysia 3400 E. Britannia Dr. Suite 1222 General Warehouse 1000 Naperville Tucson AZ. 85706 Suite B Bolingbrook, IL 60813 7430 Pacific Circle Std Warehouse 1335 Old Norcross Mississauga, Ontario Canada L5T 2A3 Lawrenceville, GA 30245 2211 American Ave. Broadmont Rd Hayward, Ca 94545 Tucson AZ 85706 9220 Norwalk Boulevard Santa Fe Springs, Ca 90670 345 Baker St Costa Mesa, Ca 92626 SCHEDULE 3.1.20 CHANGES IN NAMES OF BORROWERS Please refer to the preamble section of this amended and restated agreement for a list of current names of borrowers. Former names of borrowers that have since been merged or remain as trade styles are: C&D Power Systems, Inc. C&D Charter Power Systems, Inc. C&D Batteries, Inc. C&D Charter Power Systems, Inc. PowerCom Division Motive Power Division Charter Power of California DBA Calpacific Power Electronics Division LH Research Inc. Power Convertibles Corporation PCC International Power Systems, Inc. Ratelco Electronics, Inc. Cactus Holdings, Inc. C&D Charter Power Systems Canada, Inc. Schedule 3.1.24 LABOR MATTERS The Borrowers are parties to the following collective bargaining agreements: CONSHOHOCKEN AMERICAN FEDERATION OF GRAINMILLERS Local #367 Contract: 10/7/96 - 10/6/2000 ATTICA I.U.E. Local #950 Contract: 9/15/95 - 9/15/99 CONYERS U.A.W. Local #1726 Contract: 3/1/96 - 3/1/2000 No Borrower knows of any actual or threatened strikes or work stoppages involving such Borrower's employees. SCHEDLUE 5.2.6 EXTENSION OF CREDIT Aggregate of Loan to: Pentatech Holdings, Malaysia - $13,084.97 Instant Power Systems, Inc. - $68,671.70 EX-10.4 3 EXHIBIT 10.4 C&D TECHNOLOGIES SAVINGS PLAN (October 1, 1997 Restatement) Fidelity Management Trust Company, its affiliates and employees may not provide you with legal or tax advice in connection with the execution of this document. It should be reviewed by your attorney and/or accountant prior to execution. CORPORATEplan for RETIREMENT VOLUME SUBMITTER PLAN DOCUMENT SYSTEMS TABLE OF CONTENTS ARTICLE I DEFINITIONS 1.1 - Plan Definitions 1.2 - Interpretation ARTICLE II SERVICE 2.1 - Definitions 2.2 - Crediting of Hours of Service 2.3 - Crediting of Continuous Service 2.4 - Eligibility Service 2.5 - Vesting Service 2.6 - Crediting of Service on Transfer or Amendment ARTICLE III ELIGIBILITY 3.1 - Eligibility 3.2 - Transfers of Employment 3.3 - Reemployment 3.4 - Notification Concerning New Eligible Employees 3.5 - Effect and Duration ARTICLE IV TAX-DEFERRED CONTRIBUTIONS 4.1 - Tax-deferred Contributions 4.2 - Amount of Tax-Deferred Contributions 4.3 - Changes in Reduction Authorization 4.4 - Suspension of Tax-Deferred Contributions 4.5 - Resumption of Tax-Deferred Contributions 4.6 - Delivery of Tax-Deferred Contributions 4.7 - Vesting of Tax-Deferred Contributions ARTICLE V AFTER-TAX AND ROLLOVER CONTRIBUTIONS 5.1 - After-Tax Contributions 5.2 - Amount of After-Tax Contributions by Payroll Withholding 5.3 - Changes in Payroll Withholding Authorization 5.4 - Suspension of After-Tax Contributions by Payroll Withholding 5.5 - Resumption of After-Tax Contributions by Payroll Withholding 5.6 - Rollover Contributions 5.7 - Delivery of After-Tax Contributions 5.8 - Vesting of After-Tax Contributions and Rollover Contributions (i) ARTICLE VI EMPLOYER CONTRIBUTIONS 6.1 - Contribution Period 6.2 - Profit-Sharing Contributions 6.3 - Allocation of Profit-Sharing Contributions 6.4 - Qualified Nonelective Contributions 6.5 - Allocation of Qualified Nonelective Contributions 6.6 - Matching Contributions 6.7 - Allocation of Matching Contributions 6.8 - Verification of Amount of Employer Contributions by the Sponsor 6.9 - Payment of Employer Contributions 6.10 - Eligibility to Participate in Allocation 6.11 - Vesting of Employer Contributions 6.12 - Election of Former Vesting Schedule 6.13 - Forfeitures to Reduce Employer Contributions ARTICLE VII LIMITATIONS ON CONTRIBUTIONS 7.1 - Definitions 7.2 - Code Section 402(g) Limit 7.3 - Distribution of Excess Deferrals 7.4 - Limitation on Tax-Deferred Contributions of Highly Compensated Employees 7.5 - Distribution of Excess Tax-deferred Contributions 7.6 - Limitation on Matching Contributions and After-Tax Contributions of Highly Compensated Employees 7.7 - Forfeiture or Distribution of Excess Contributions 7.8 - Multiple Use Limitation 7.9 - Determination of Income or Loss 7.10 - Code Section 415 Limitations on Crediting of Contributions and Forfeitures 7.11 - Coverage Under Other Qualified Defined Contribution Plan 7.10 - Coverage Under Qualified Defined Benefit Plan 7.11 - Scope of Limitations ARTICLE VIII TRUST FUNDS AND SEPARATE ACCOUNTS 8.1 - General Fund 8.2 - Investment Funds 8.3 - Loan Investment Fund 8.4 - Income On Trust 8.5 - Separate Accounts 8.6 - Sub-accounts ARTICLE IX LIFE INSURANCE CONTRACTS 9.1 - No Life Insurance Contracts (ii) ARTICLE X DEPOSIT AND INVESTMENT OF CONTRIBUTIONS 10.1 - Future Contribution Investment Elections 10.2 - Deposit of Contributions 10.3 - Election to Transfer Between Funds ARTICLE XI CREDITING AND VALUING SEPARATE ACCOUNTS 11.1 - Crediting Separate Accounts 11.2 - Valuing Separate Accounts 11.3 - Plan Valuation Procedures 11.4 - Finality of Determinations 11.5 - Notification ARTICLE XII LOANS 12.1 - Application for Loan 12.2 - Reduction of Account Upon Distribution 12.3 - Requirements to Prevent a Taxable Distribution 12.4 - Administration of Loan Investment Fund 12.5 - Default 12.6 - Special Rules Applicable to Loans 12.7 - Loans Granted Prior to Amendment ARTICLE XIII WITHDRAWALS WHILE EMPLOYED 13.1 - Withdrawals of After-Tax Contributions 13.2 - Withdrawals of Rollover Contributions 13.3 - Withdrawals of Employer Contributions 13.4 - Withdrawals of Tax-Deferred Contributions 13.5 - Limitations on Withdrawals Other Than Hardship Withdrawals 13.6 - Conditions and Limitations on Hardship Withdrawals 13.7 - Order of Withdrawal From a Participant's Sub-Accounts ARTICLE XIV TERMINATION OF EMPLOYMENT AND SETTLEMENT DATE 14.1 - Termination of Employment and Settlement Date 14.2 - Separate Accounting for Non-Vested Amounts 14.3 - Disposition of Non-Vested Amounts 14.4 - Recrediting of Forfeited Amounts ARTICLE XV DISTRIBUTIONS 15.1 - Distributions to Participants 15.2 - Distributions to Beneficiaries 15.3 - Cash Outs and Participant Consent 15.4 - Required Commencement of Distribution 15.5 - Reemployment of a Participant (iii) 15.6 - Restrictions on Alienation 15.7 - Facility of Payment 15.8 - Inability to Locate Payee 15.9 - Distribution Pursuant to Qualified Domestic Relations Orders ARTICLE XVI FORM OF PAYMENT 16.1 - Definitions 16.2 - Normal Form of Payment 16.3 - Optional Forms of Payment 16.4 - Change of Option Election 16.5 - Form of Annuity Requirements 16.6 - Qualified Preretirement Survivor Annuity Requirements 16.7 - Direct Rollover 16.8 - Notice Regarding Forms of Payment 16.9 - Reemployment ARTICLE XVII BENEFICIARIES 17.1 - Designation of Beneficiary 17.2 - Spousal Consent Requirements ARTICLE XVIII ADMINISTRATION 18.1 - Authority of the Sponsor 18.2 - Action of the Sponsor 18.3 - Claims Review Procedure 18.4 - Qualified Domestic Relations Orders 18.5 - Indemnification 18.6 - Actions Binding ARTICLE XIX AMENDMENT AND TERMINATION 19.1 - Amendment 19.2 - Limitation on Amendment 19.3 - Termination 19.4 - Reorganization 19.5 - Withdrawal of An Employer ARTICLE XX ADOPTION BY OTHER ENTITIES 20.1 - Adoption by Related Companies 20.2 - Effective Plan Provisions ARTICLE XXI MISCELLANEOUS PROVISIONS 21.1 - No Commitment as to Employment 21.2 - Benefits (iv) 21.3 - No Guarantees 21.4 - Expenses 21.5 - Precedent 21.6 - Duty to Furnish Information 21.7 - Withholding 21.8 - Merger, Consolidation, or Transfer of Plan Assets 21.9 - Back Pay Awards 21.10- Condition on Employer Contributions 21.11- Return of Contributions to an Employer 21.12- Validity of Plan 21.13- Trust Agreement 21.14- Parties Bound 21.15- Application of Certain Plan Provisions 21.16- Leased Employees 21.17- Transferred Funds ARTICLE XXII TOP-HEAVY PROVISIONS 22.1 - Definitions 22.2 - Applicability 22.3 - Minimum Employer Contribution 22.4 - Adjustments to Section 415 Limitations 22.5 - Accelerated Vesting ARTICLE XXIII EFFECTIVE DATE 23.1 - Effective Date of Amendment and Restatement (v) PREAMBLE The C&D Technologies Savings Plan, originally effective as of February 1, 1986, is hereby amended and restated in its entirety. The Plan, as amended and restated hereby, is intended to qualify as a profit-sharing plan under Section 401(a) of the Code, and includes a cash or deferred arrangement that is intended to qualify under Section 401(k) of the Code. The Plan is maintained for the exclusive benefit of eligible employees and their beneficiaries. Notwithstanding any other provision of the Plan to the contrary, a Participant's vested interest in his Separate Account under the Plan on and after the effective date of this amendment and restatement shall be not less than his vested interest in his account on the day immediately preceding the effective date. In addition, notwithstanding any other provision of the Plan to the contrary, the forms of payment and other Plan provisions that were available under the Plan immediately prior to the later of the effective date of this amendment and restatement or the date this amendment and restatement is adopted and that may not be eliminated under Section 411(d)(6) of the Code shall continue to be available to Participants who had an account under the Plan on the day immediately preceding the later of the effective date or the date this amendment and restatement is adopted. The Plan is intended to constitute an "individual account plan" eligible, effective as of October 1, 1997, to hold "qualifying employer securities", within the meaning of ERISA. 1 ARTICLE I DEFINITIONS 1.1 - PLAN DEFINITIONS As used herein, the following words and phrases have the meanings hereinafter set forth, unless a different meaning is plainly required by the context: The "ADMINISTRATOR" means the Sponsor unless the Sponsor designates another person or persons to act as such. An "AFTER-TAX CONTRIBUTION" means any after-tax employee contribution made by a Participant as may be permitted under Article V. The "BENEFICIARY" of a Participant means the person or persons entitled under the provisions of the Plan to receive distribution hereunder in the event the Participant dies before receiving distribution of his entire interest under the Plan. The "CODE" means the Internal Revenue Code of 1986, as amended from time to time. Reference to a section of the Code includes such section and any comparable section or sections of any future legislation that amends, supplements, or supersedes such section. "COMPANY STOCK" means common stock of C&D Technologies, Inc., $.01 par value. "COMPANY STOCK FUND" means the C&D Technologies, Inc. Stock Fund, a fund invested in Company Stock pursuant to the Plan. The "COMPENSATION" of a Participant for any period means the wages as defined in Section 3401(a) of the Code, determined without regard to any rules that limit compensation included in wages based on the nature or location of the employment or services performed, and all other payments made to him for such period for services as an Employee for which his Employer is required to furnish the Participant a written statement under Sections 6041(d), 6051(a)(3), and 6052 of the Code, and excluding reimbursements or other expense allowances, fringe benefits, moving expenses, deferred compensation, and welfare benefits, but determined prior to any exclusions for amounts deferred under Section 125, 402(e)(3), 402(h)(1)(B), 403(b), or 457(b) of the Code or for certain contributions described in Section 414(h)(2) of the Code that are picked up by the employing unit and treated as employer contributions. 2 Notwithstanding the foregoing, Compensation shall not include the value of any qualified or non-qualified stock option granted to the Participant by his Employer to the extent such value is includible in the Participant's taxable income. In no event, however, shall the Compensation of a Participant taken into account under the Plan for any Plan Year exceed (1) $200,000 for Plan Years beginning prior to January 1, 1994, or (2) $150,000 for Plan Years beginning on or after January 1, 1994 (subject to adjustment annually as provided in Section 401(a)(17)(B) and Section 415(d) of the Code; provided, however, that the dollar increase in effect on January 1 of any calendar year, if any, is effective for Plan Years beginning in such calendar year). If the Compensation of a Participant is determined over a period of time that contains fewer than 12 calendar months, then the annual compensation limitation described above shall be adjusted with respect to that Participant by multiplying the annual compensation limitation in effect for the Plan Year by a fraction the numerator of which is the number of full months in the period and the denominator of which is 12; provided, however, that no proration is required for a Participant who is covered under the Plan for less than one full Plan Year if the formula for allocations is based on Compensation for a period of at least 12 months. In determining the Compensation, for purposes of applying the annual compensation limitation described above, of a Participant who is a five percent owner or among the ten Highly Compensated Employees receiving the greatest Compensation for the Plan Year, the Compensation of the Participant's spouse and of his lineal descendants who have not attained age 19 as of the close of the Plan Year shall be included as Compensation of the Participant for the Plan Year. If as a result of applying the family aggregation rule described in the preceding sentence the annual compensation limitation would be exceeded, the limitation shall be prorated among the affected family members in proportion to each member's Compensation as determined prior to application of the family aggregation rules. A "CONTRIBUTION PERIOD" means the period specified in Article VI for which Employer Contributions shall be made. An "ELIGIBLE EMPLOYEE" means any Employee who has met the eligibility requirements of Article III to have Tax-Deferred Contributions made to the Plan on his behalf. The "ELIGIBILITY SERVICE" of an employee means the period or periods of service credited to him under the provisions of Article II for purposes of determining his eligibility to participate in the Plan as may be required under Article III or Article VI. 3 An "EMPLOYEE" means any employee of an Employer who is employed on a salaried basis other than a leased employee or an employee who is covered by a collective bargaining agreement to the extent that benefits were the subject of good faith bargaining unless the collective bargaining agreement provides otherwise. An "EMPLOYER" means the Sponsor and any entity which has adopted the Plan as may be provided under Article XX. An "EMPLOYER CONTRIBUTION" means the amount, if any, that an Employer contributes to the Plan as may be provided under Article VI or Article XXII. An "ENROLLMENT DATE" means the first day of each calendar month of the Plan Year. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time. Reference to a section of ERISA includes such section and any comparable section or sections of any future legislation that amends, supplements, or supersedes such section. "FAIR MARKET VALUE" means, with respect to a specified date, the closing price of a share of Company Stock as reported for the preceding trading day on the principal national securities exchange in the United States on which it is then traded, or, if Company Stock is not traded on any national securities exchange, as quoted on an automated quotation system sponsored by the National Association of Securities Dealers, or if the sales of the Company Stock shall not have been reported on such date, on the first day prior thereto on which the Company Stock was reported or quoted. With respect to investments other than investments in Company Stock, Fair Market Value shall be determined by the entity maintaining the applicable Investment Fund, in accordance with generally accepted valuation methods and practices. The "GENERAL FUND" means a Trust Fund maintained by the Trustee as required to hold and administer any assets of the Trust that are not allocated among any separate Investment Funds as may be provided in the Plan or the Trust Agreement. No General Fund shall be maintained if all assets of the Trust are allocated among separate Investment Funds. A "HIGHLY COMPENSATED EMPLOYEE" means an Employee or former Employee who is a highly compensated active employee or highly compensated former employee as defined hereunder. 4 A "highly compensated active employee" includes any Employee who performs services for an Employer during the determination year and who (i) was a five percent owner at any time during the determination year or the look back year, (ii) received compensation from an Employer during the look back year in excess of $75,000 (subject to adjustment annually at the same time and in the same manner as under Section 415(d) of the Code), (iii) was in the top paid group of employees for the look back year and received compensation from an Employer during the look back year in excess of $50,000 (subject to adjustment annually at the same time and in the same manner as under Section 415(d) of the Code), (iv) was an officer of an Employer during the look back year and received compensation during that year in excess of 50 percent of the dollar limitation in effect for that year under Section 415(b)(1)(A) of the Code or, if no officer received compensation in excess of that amount for the look back year or the determination year, received the greatest compensation for the look back year of any officer, or (v) was one of the 100 employees paid the greatest compensation by an Employer for the determination year and would be described in (ii), (iii), or (iv) above if the term "determination year" were substituted for "look back year". A "highly compensated former employee" includes any Employee who separated from service from an Employer and all Related Companies (or is deemed to have separated from service from an Employer and all Related Companies) prior to the determination year, performed no services for an Employer during the determination year, and was a highly compensated active employee for either the separation year or any determination year ending on or after the date the Employee attains age 55. The determination of who is a Highly Compensated Employee hereunder, including determinations as to the number and identity of employees in the top paid group, the 100 employees receiving the greatest compensation from an Employer, the number of employees treated as officers, and the compensation considered, shall be made in accordance with the provisions of Section 414(q) of the Code and regulations issued thereunder. For purposes of this definition, the following terms have the following meanings: (a) The "determination year" means the Plan Year or, if the Administrator makes the election provided in paragraph (b) below, the period of time, if any, which extends beyond the look back year and ends on the last day of the Plan Year for which testing is being performed (the "lag period"). If the lag period is less than 12 months long, the dollar amounts specified in (ii), (iii), and (iv) above shall be prorated based upon the number of months in the lag period. 5 (b) The "look back year" means the 12-month period immediately preceding the determination year; provided, however, that the Administrator may elect instead to treat the calendar year ending with or within the determination year as the "look back year". An "HOUR OF SERVICE" with respect to a person means each hour, if any, that may be credited to him in accordance with the provisions of Article II. An "INVESTMENT FUND" means any separate investment Trust Fund maintained by the Trustee as may be provided in the Plan or the Trust Agreement or any separate investment fund maintained by the Trustee, to the extent that there are Participant Sub-Accounts under such funds, to which assets of the Trust may be allocated and separately invested. A "MATCHING CONTRIBUTION" means any Employer Contribution made to the Plan on account of a Participant's Tax-Deferred Contributions as provided in Article VI. The "NORMAL RETIREMENT DATE" of an employee means the date he attains age 65. A "PARTICIPANT" means any person who has a Separate Account in the Trust. The "PLAN" means C&D Technologies Savings Plan, as from time to time in effect. A "PLAN YEAR" means the 12-consecutive-month period ending on December 31. A "PROFIT-SHARING CONTRIBUTION" means any Employer Contribution made to the Plan as provided in Article VI, other than Matching Contributions and Qualified Nonelective Contributions. A "QUALIFIED NONELECTIVE CONTRIBUTION" means any Employer Contribution made to the Plan as provided in Article VI that may be taken into account to satisfy the limitations on contributions by Highly Compensated Employees under Article VII. A "RELATED COMPANY" means any corporation or business, other than an Employer, which would be aggregated with an Employer for a relevant purpose under Section 414 of the Code. A "ROLLOVER CONTRIBUTION" means any rollover contribution to the Plan made by a Participant as may be permitted under Article V. 6 A "SEPARATE ACCOUNT" means the account maintained by the Trustee in the name of a Participant that reflects his interest in the Trust and any Sub-Accounts maintained thereunder, as provided in Article VIII. The "SETTLEMENT DATE" of a Participant means the date on which a Participant's interest under the Plan becomes distributable in accordance with Article XV. The "SPONSOR" means C&D Technologies, Inc., and any successor thereto. A "SUB-ACCOUNT" means any of the individual sub-accounts of a Participant's Separate Account that is maintained as provided in Article VIII. A "TAX-DEFERRED CONTRIBUTION" means the amount contributed to the Plan on a Participant's behalf by his Employer in accordance with his reduction authorization executed pursuant to Article IV. The "TRUST" means the trust maintained by the Trustee under the Trust Agreement. The "TRUST AGREEMENT" means the agreement entered into between the Sponsor and the Trustee relating to the holding, investment, and reinvestment of the assets of the Plan, together with all amendments thereto. The "TRUSTEE" means the trustee or any successor trustee which at the time shall be designated, qualified, and acting under the Trust Agreement. The Sponsor may designate a person or persons other than the Trustee to perform any responsibility of the Trustee under the Plan, other than trustee responsibilities as defined in Section 405(c)(3) of ERISA, and the Trustee shall not be liable for the performance of such person in carrying out such responsibility except as otherwise provided by ERISA. The term Trustee shall include any delegate of the Trustee as may be provided in the Trust Agreement. A "TRUST FUND" means any fund maintained under the Trust by the Trustee. A "VALUATION DATE" means the date or dates designated by the Sponsor and communicated in writing to the Trustee for the purpose of valuing the General Fund and each Investment Fund and adjusting Separate Accounts and Sub-Accounts hereunder, which dates need not be uniform with respect to the General Fund, each Investment Fund, Separate Account, or Sub-Account; provided, however, that the General Fund and each Investment Fund shall be 7 valued and each Separate Account and Sub-Account shall be adjusted no less often than once annually. The "VESTING SERVICE" of an employee means the period or periods of service credited to him under the provisions of Article II for purposes of determining his vested interest in his Employer Contributions Sub-Account, if Employer Contributions are provided for under either Article VI or Article XXII. 1.2 - INTERPRETATION Where required by the context, the noun, verb, adjective, and adverb forms of each defined term shall include any of its other forms. Wherever used herein, the masculine pronoun shall include the feminine, the singular shall include the plural, and the plural shall include the singular. 8 ARTICLE II SERVICE 2.1 - DEFINITIONS For purposes of this Article, the following terms have the following meanings: (a) The "continuous service" of an employee means the service credited to him in accordance with the provisions of Section 2.3 of the Plan. (b) The "employment commencement date" of an employee means the date he first completes an Hour of Service. (c) A "maternity/paternity absence" means a person's absence from employment with an Employer or a Related Company because of the person's pregnancy, the birth of the person's child, the placement of a child with the person in connection with the person's adoption of the child, or the caring for the person's child immediately following the child's birth or adoption. A person's absence from employment will not be considered a maternity/paternity absence unless the person furnishes the Administrator such timely information as may reasonably be required to establish that the absence was for one of the purposes enumerated in this paragraph and to establish the number of days of absence attributable to such purpose. (d) The "reemployment commencement date" of an employee means the first date following a severance date on which he again completes an Hour of Service. (e) The "severance date" of an employee means the earlier of (i) the date on which he retires, dies, or his employment with an Employer and all Related Companies is otherwise terminated, or (ii) the first anniversary of the first date of a period during which he is absent from work with an Employer and all Related Companies for any other reason; provided, however, that if he terminates employment with or is absent from work with an Employer and all Related Companies on account of service with the armed forces of the United States, he shall not incur a severance date if he is eligible for reemployment rights under the Uniformed Services Employment and Reemployment Rights Act of 1994 and he returns to work with an Employer or a Related Company within the period during which he retains such reemployment rights. 9 2.2 - CREDITING OF HOURS OF SERVICE A person shall be credited with an Hour of Service for each hour for which he is paid, or entitled to payment, for the performance of duties for an Employer or any Related Company. 2.3 - CREDITING OF CONTINUOUS SERVICE A person shall be credited with continuous service for the aggregate of the periods of time between his employment commencement date or any reemployment commencement date and the severance date that next follows such employment commencement date or reemployment commencement date; provided, however, that an employee who has a reemployment commencement date within the 12-consecutive-month period following the earlier of the first date of his absence or his severance date shall be credited with continuous service for the period between such severance date and reemployment commencement date. 2.4 - ELIGIBILITY SERVICE An employee shall be credited with Eligibility Service equal to his continuous service. 2.5 - VESTING SERVICE Years of Vesting Service shall be determined in accordance with the following provisions: (a) An employee shall be credited with years of Vesting Service equal to his period of continuous service. (b) Notwithstanding the provisions of paragraph (a), continuous service completed by an employee prior to a severance date shall not be included in determining the employee's years of Vesting Service unless the employee had a nonforfeitable right to any portion of his Separate Account, excluding that portion of his Separate Account that is attributable to After-Tax or Rollover Contributions, as of the severance date, or the period of time between the severance date and his reemployment commencement date is less than the greater of five years or his period of continuous service determined as of the severance date; and provided, however, that solely for purposes of applying this paragraph, if a person is on a maternity/paternity absence beyond the first anniversary of the first day of such absence, his severance date shall be the second anniversary of the first day of such maternity/paternity absence. 10 2.6 - CREDITING OF SERVICE ON TRANSFER OR AMENDMENT Notwithstanding any other provision of the Plan to the contrary, if an Employee is transferred from employment covered under a qualified plan maintained by an Employer or a Related Company for which service is credited based on Hours of Service and computation periods in accordance with Department of Labor Regulations ss2530.200 through 2530.203 to employment covered under the Plan or, prior to amendment, the Plan provided for crediting of service on the basis of Hours of Service and computation periods, an affected Employee shall be credited with Eligibility Service and Vesting Service hereunder equal to: (a) the Employee's years of service credited to him under the Hours of Service method before the computation period in which the transfer or the effective date of the amendment occurs, plus (b) the greater of (i) the period of service that would be credited to the Employee under the elapsed time method provided hereunder for his employment during the entire computation period in which the transfer or the effective date of the amendment occurs or (ii) the service taken into account under the Hours of Service method for such computation period as of the transfer date or the effective date of the amendment, plus (c) the service credited to such Employee under the elapsed time method provided hereunder for the period of time beginning on the day after the last day of the computation period in which the transfer or the effective date of the amendment occurs. 11 ARTICLE III ELIGIBILITY 3.1 - ELIGIBILITY Each Employee who was an Eligible Employee immediately prior to the effective date of this amendment and restatement shall continue to be an Eligible Employee. Each other Employee shall become an Eligible Employee for purposes of electing to make Tax-Deferred Contributions under the Plan as of the Enrollment Date next following his date of hire. Each other Employee shall become an Eligible Employee for purposes of the Profit-Sharing Contribution and Matching Contribution portions of the Plan as of the Enrollment Date coinciding with or next following the date he completes one year of Eligibility Service. 3.2 - TRANSFERS OF EMPLOYMENT If a person is transferred directly from employment with an Employer or with a Related Company in a capacity other than as an Employee to employment as an Employee, he shall become an Eligible Employee as of the date he is so transferred if prior to an Enrollment Date preceding such transfer date he has met the eligibility requirements of Section 3.1. Otherwise, the eligibility of a person who is so transferred shall be determined in accordance with Section 3.1. 3.3 - REEMPLOYMENT If a person who terminated employment with an Employer and all Related Companies is reemployed as an Employee and if he had been an Eligible Employee prior to his termination of employment, he shall again become an Eligible Employee on the date he is reemployed. Otherwise, the eligibility of a person who terminated employment with an Employer and all Related Companies and who is reemployed by an Employer or a Related Company shall be determined in accordance with Section 3.1 or 3.2. 3.4 - NOTIFICATION CONCERNING NEW ELIGIBLE EMPLOYEES Each Employer shall notify the Administrator as soon as practicable of Employees becoming Eligible Employees as of any date. 3.5 - EFFECT AND DURATION Upon becoming an Eligible Employee, an Employee shall be bound by all the terms and conditions of the Plan and the Trust Agreement. 12 A person shall continue as an Eligible Employee only so long as he continues in employment as an Employee. 13 ARTICLE IV TAX-DEFERRED CONTRIBUTIONS 4.1 - TAX-DEFERRED CONTRIBUTIONS Effective as of the date he becomes an Eligible Employee, or any subsequent Enrollment Date, each Eligible Employee may elect in writing in accordance with rules prescribed by the Administrator to have Tax-Deferred Contributions made to the Plan on his behalf by his Employer as hereinafter provided. An Eligible Employee's written election shall include his authorization for his Employer to reduce his Compensation and to make Tax-Deferred Contributions on his behalf and his election as to the investment of his contributions in accordance with Article X. Tax-Deferred Contributions on behalf of an Eligible Employee shall commence with the first payment of Compensation made on or after the date on which his election is effective. 4.2 - AMOUNT OF TAX-DEFERRED CONTRIBUTIONS The amount of Tax-Deferred Contributions to be made to the Plan on behalf of an Eligible Employee by his Employer shall be an integral percentage of his Compensation of not less than 1 percent nor more than 15 percent, subject to the overall limitation described in Section 7.10. In the event an Eligible Employee elects to have his Employer make Tax-Deferred Contributions on his behalf, his Compensation shall be reduced for each payroll period by the percentage he elects to have contributed on his behalf to the Plan in accordance with the terms of his currently effective reduction authorization. 4.3 - CHANGES IN REDUCTION AUTHORIZATION An Eligible Employee may change the percentage of his future Compensation that his Employer contributes on his behalf as Tax-Deferred Contributions at such time or times during the Plan Year as the Administrator may prescribe by filing an amended reduction authorization with his Employer such number of days prior to the date such change is to become effective as the Administrator shall prescribe. An Eligible Employee who changes his reduction authorization shall be limited to selecting a percentage of his Compensation that is otherwise permitted hereunder. Tax-Deferred Contributions shall be made on behalf of such Eligible Employee by his Employer pursuant to his amended reduction authorization filed in accordance with this Section commencing with Compensation paid to the Eligible Employee on or after the date such filing is effective, until otherwise altered or terminated in accordance with the Plan. 14 4.4 - SUSPENSION OF TAX-DEFERRED CONTRIBUTIONS An Eligible Employee on whose behalf Tax-Deferred Contributions are being made may have such contributions suspended at any time by giving such number of days advance written notice to his Employer as the Administrator shall prescribe. Any such voluntary suspension shall take effect commencing with Compensation paid to such Eligible Employee on or after the expiration of the required notice period and shall remain in effect until Tax-Deferred Contributions are resumed as hereinafter set forth. 4.5 - RESUMPTION OF TAX-DEFERRED CONTRIBUTIONS An Eligible Employee who has voluntarily suspended his Tax-Deferred Contributions may have such contributions resumed at such time or times during the Plan Year as the Administrator may prescribe, by filing a new reduction authorization with his Employer such number of days prior to the date as of which such contributions are to be resumed as the Administrator shall prescribe. 4.6 - DELIVERY OF TAX-DEFERRED CONTRIBUTIONS As soon after the date an amount would otherwise be paid to an Employee as it can reasonably be separated from Employer assets, each Employer shall cause to be delivered to the Trustee in cash all Tax-Deferred Contributions attributable to such amounts. 4.7 - VESTING OF TAX-DEFERRED CONTRIBUTIONS A Participant's vested interest in his Tax-Deferred Contributions Sub-Account shall be at all times 100 percent. 15 ARTICLE V AFTER-TAX AND ROLLOVER CONTRIBUTIONS 5.1 - AFTER-TAX CONTRIBUTIONS An Eligible Employee may elect in writing in accordance with rules prescribed by the Administrator to make After-Tax Contributions to the Plan. After-Tax Contributions may be made either by payroll withholding and/or by delivery of a cash amount to an Eligible Employee's Employer, as determined by the Administrator. If the Eligible Employee does not already have an investment election on file with the Administrator, his election to make After-Tax Contributions to the Plan shall include his election as to the investment of his contributions in accordance with Article X. An Eligible Employee's election to make After-Tax Contributions by payroll withholding may be made effective as of any Enrollment Date occurring on or after the date on which he becomes an Eligible Employee. After-Tax Contributions by payroll withholding shall commence with the first payment of Compensation made on or after the Enrollment Date on which the Eligible Employee's election is effective. 5.2 - AMOUNT OF AFTER-TAX CONTRIBUTIONS BY PAYROLL WITHHOLDING The amount of After-Tax Contributions made by an Eligible Employee by payroll withholding shall be an integral percentage of his Compensation of not less than 1 percent nor more than 10 percent, subject to the overall limitation described in Section 7.10. 5.3 - CHANGES IN PAYROLL WITHHOLDING AUTHORIZATION An Eligible Employee may change the percentage of his future Compensation that he contributes to the Plan as After-Tax Contributions by payroll withholding at such time or times during the Plan Year as the Administrator may prescribe by filing an amended payroll withholding authorization with his Employer such number of days prior to the date such change is to become effective as the Administrator shall prescribe. An Eligible Employee who changes his payroll withholding authorization shall be limited to selecting a percentage of his Compensation that is otherwise permitted under Section 5.2. After-Tax Contributions shall be made pursuant to an Eligible Employee's amended payroll withholding authorization filed in accordance with this Section commencing with Compensation paid to the Eligible Employee on or after the date such filing is effective, until otherwise altered or terminated in accordance with the Plan. 16 5.4 - SUSPENSION OF AFTER-TAX CONTRIBUTIONS BY PAYROLL WITHHOLDING An Eligible Employee who is making After-Tax Contributions by payroll withholding may have such contributions suspended at any time by giving such number of days advance written notice to his Employer as the Administrator shall prescribe. Any such voluntary suspension shall take effect commencing with Compensation paid to such Eligible Employee on or after the expiration of the required notice period and shall remain in effect until After-Tax Contributions are resumed as hereinafter set forth. 5.5 - RESUMPTION OF AFTER-TAX CONTRIBUTIONS BY PAYROLL WITHHOLDING An Eligible Employee who has voluntarily suspended his After-Tax Contributions made by payroll withholding in accordance with Section 5.4 may have such contributions resumed at such time or times during the Plan Year as the Administrator may prescribe by filing a new payroll withholding authorization with his Employer such number of days prior to the date as of which such contributions are to be resumed as the Administrator shall prescribe. 5.6 - ROLLOVER CONTRIBUTIONS An Employee who was a participant in a plan qualified under Section 401 or 403 of the Code and who is entitled to a cash distribution from such plan that he elects (i) to roll over directly to a qualified retirement plan, (ii) to roll over to a qualified retirement plan within 60 days of receipt of such distribution or (iii) to roll over into a conduit IRA from which he receives a later cash distribution, may elect to make a Rollover Contribution to the Plan if he is entitled under Section 402(c), Section 403(a)(4), or Section 408(d)(3)(A) of the Code to roll over such distribution to another qualified retirement plan. The Administrator may require an Employee to provide it with such information as it deems necessary or desirable to show that he is entitled to roll over such distribution to another qualified retirement plan. An Employee shall make a Rollover Contribution to the Plan by delivering, or causing to be delivered, to the Trustee the cash that constitutes the Rollover Contribution amount within 60 days of receipt of the distribution from the plan or from the conduit IRA in the manner prescribed by the Administrator. If the Employee does not already have an investment election on file with the Administrator, the Employee shall also deliver to the Administrator his election as to the investment of his contributions in accordance with Article X. 17 5.7 - DELIVERY OF AFTER-TAX CONTRIBUTIONS As soon after the date an amount would otherwise be paid to an Employee as it can reasonably be separated from Employer assets or as soon as reasonably practicable after an amount has been delivered to an Employer by an Employee, the Employer shall cause to be delivered to the Trustee in cash the After-Tax Contributions attributable to such amount. 5.8 - VESTING OF AFTER-TAX CONTRIBUTIONS AND ROLLOVER CONTRIBUTIONS A Participant's vested interest in his After-Tax Contributions Sub-Account and his Rollover Contributions Sub-Account shall be at all times 100 percent. 18 ARTICLE VI EMPLOYER CONTRIBUTIONS 6.1 - CONTRIBUTION PERIOD The Contribution Period for Employer Contributions under the Plan shall be each Plan Year. 6.2 - PROFIT-SHARING CONTRIBUTIONS Each Employer may, in its discretion, make a Profit-Sharing Contribution to the Plan for the Contribution Period in an amount determined by the Sponsor. 6.3 - ALLOCATION OF PROFIT-SHARING CONTRIBUTIONS Any Profit-Sharing Contribution made for a Contribution Period shall be allocated among the Employees who are eligible to participate in the allocation of Profit-Sharing Contributions for the Contribution Period, as determined under this Article. The allocable share of each such Employee shall be in the ratio which his Compensation from the Employers for the Contribution Period bears to the aggregate of such Compensation for all such Employees. Notwithstanding any other provision of the Plan to the contrary, Compensation with respect to any period ending prior to the date on which an Employee first became eligible to participate in the allocation of Profit-Sharing Contributions shall be disregarded in determining the amount of the Employee's allocable share. 6.4 - QUALIFIED NONELECTIVE CONTRIBUTIONS Each Employer may, in its discretion, make a Qualified Nonelective Contribution to the Plan for the Contribution Period in an amount determined by the Sponsor. 6.5 - ALLOCATION OF QUALIFIED NONELECTIVE CONTRIBUTIONS Any Qualified Nonelective Contribution made by an Employer for the Contribution Period shall be allocated among its Employees during the Contribution Period who are eligible to participate in the allocation of Qualified Nonelective Contributions for the Contribution Period, as determined under this Article, other than any such Employee who is a Highly Compensated Employee. The allocable share of each such Employee shall be either (i) in the ratio which his Compensation from the Employer for the Contribution Period bears to the aggregate of such Compensation for all such Employees or (ii) a flat dollar amount, as determined by the Sponsor for the Contribution Period. 19 Notwithstanding any other provision of the Plan to the contrary, Compensation with respect to any period ending prior to the date on which an Employee first became eligible to participate in the allocation of Qualified Nonelective Contributions shall be disregarded in determining the amount of the Employee's allocable share. 6.6 - MATCHING CONTRIBUTIONS Each Employer may make a Matching Contribution to the Plan for each Contribution Period in an amount equal to the percentage, determined by the Sponsor, in its discretion, for the Contribution Period, of the Tax-Deferred Contributions for the Contribution Period made on behalf of its Employees during the Contribution Period who are eligible to participate in the allocation of Matching Contributions for the Contribution Period as determined under this Article. 6.7 - ALLOCATION OF MATCHING CONTRIBUTIONS Any Matching Contribution made by an Employer for the Contribution Period shall be allocated among its Employees during the Contribution Period who are eligible to participate in the allocation of Matching Contributions for the Contribution Period, as determined under this Article. The allocable share of each such Employee shall be an amount equal to the percentage determined by the Sponsor of the Tax-Deferred Contributions made on his behalf for the Contribution Period. 6.8 - VERIFICATION OF AMOUNT OF EMPLOYER CONTRIBUTIONS BY THE SPONSOR The Sponsor shall verify the amount of Employer Contributions to be made by each Employer in accordance with the provisions of the Plan. Notwithstanding any other provision of the Plan to the contrary, the Sponsor shall determine the portion of the Employer Contribution to be made by each Employer with respect to an Employee who transfers from employment with one Employer as an Employee to employment with another Employer as an Employee. 6.9 - PAYMENT OF EMPLOYER CONTRIBUTIONS Employer Contributions made for a Contribution Period shall be paid in cash or in qualifying employer securities, as defined in Section 407(d)(5) of ERISA, to the Trustee within the period of time required under the Code in order for the contribution to be deductible by the Employer in determining its Federal income taxes for the Plan Year. 20 6.10 - ELIGIBILITY TO PARTICIPATE IN ALLOCATION Each Employee shall be eligible to participate in the allocation of Employer Contributions beginning on the date he becomes, or again becomes, an Eligible Employee in accordance with the provisions of Article III. Notwithstanding any other provision of the Plan to the contrary, no person shall be eligible to participate in the allocation of Profit-Sharing Contributions for a Contribution Period unless (i) he is employed by an Employer or a Related Company on the last day of the Contribution Period and (ii) he has completed at least 1,000 Hours of Service during the Plan Year; provided, however, that if the Plan would not otherwise meet the minimum coverage requirements of Section 410(b) of the Code in any Plan Year, the group of Employees eligible to participate in the allocation of Profit-Sharing Contributions shall be expanded to include the minimum number of Employees who would be eligible to participate except for their failure to complete the required number of Hours of Service during the Plan Year that is necessary to meet the minimum coverage requirements. The Employees who become eligible to participate under the provisions of the immediately preceding clause shall be those Employees who have completed the greatest number of Hours of Service during the Plan Year. If the Plan still would not meet the minimum coverage requirements of Section 410(b) of the Code, the group of Employees shall be expanded further to include the minimum number of Employees who are not employed by an Employer or a Related Company on the last day of the Contribution Period that is necessary to meet the minimum coverage requirements. The Employees who become eligible to participate under the provisions of the immediately preceding sentence shall be those Employees who have completed the greatest number of Hours of Service during the Contribution Period. 6.11 - VESTING OF EMPLOYER CONTRIBUTIONS A Participant's vested interest in his Qualified Nonelective Contributions Sub-Account shall be at all times 100 percent. A Participant's vested interest in his Profit-Sharing and Matching Contributions Sub-Accounts shall be determined in accordance with the following schedule: YEARS OF VESTING SERVICE VESTED INTEREST Less than 1 0% 1 but less than 2 20% 2 but less than 3 40% 3 but less than 4 60% 4 but less than 5 80% 5 or more 100% 21 Notwithstanding the foregoing, if a Participant is employed by an Employer or a Related Company on his Normal Retirement Date, the date he becomes physically or mentally disabled such that he can no longer continue in the service of his Employer and is eligible to receive a disability benefit under the terms of the Social Security Act, the date his employment terminates due to a reduction in workforce as determined by the Employer, or the date he dies, his vested interest in his Profit-Sharing and Matching Contributions Sub-Accounts shall be 100 percent. 6.12 - ELECTION OF FORMER VESTING SCHEDULE If the Sponsor adopts an amendment to the Plan that directly or indirectly affects the computation of a Participant's vested interest in his Employer Contributions Sub-Account, any Participant with three or more years of Vesting Service shall have a right to have his vested interest in his Employer Contributions Sub-Account continue to be determined under the vesting provisions in effect prior to the amendment rather than under the new vesting provisions, unless the vested interest of the Participant in his Employer Contributions Sub-Account under the Plan as amended is not at any time less than such vested interest determined without regard to the amendment. A Participant shall exercise his right under this Section by giving written notice of his exercise thereof to the Administrator within 60 days after the latest of (i) the date he receives notice of the amendment from the Administrator, (ii) the effective date of the amendment, or (iii) the date the amendment is adopted. Notwithstanding the foregoing, a Participant's vested interest in his Employer Contributions Sub-Account on the effective date of such an amendment shall not be less than his vested interest in his Employer Contributions Sub-Account immediately prior to the effective date of the amendment. 6.13 - FORFEITURES TO REDUCE EMPLOYER CONTRIBUTIONS Notwithstanding any other provision of the Plan to the contrary, the amount of the Employer Contribution required under this Article for a Plan Year shall be reduced by the amount of any forfeitures occurring during the Plan Year that are not used to pay Plan expenses. 22 ARTICLE VII LIMITATIONS ON CONTRIBUTIONS 7.1 - DEFINITIONS For purposes of this Article, the following terms have the following meanings: (a) The "actual deferral percentage" with respect to an Eligible Employee for a particular Plan Year means the ratio of the Tax-Deferred Contributions made on his behalf for the Plan Year to his test compensation for the Plan Year, except that, to the extent permitted by regulations issued under Section 401(k) of the Code, the Sponsor may elect to take into account in computing the numerator of each Eligible Employee's actual deferral percentage the qualified nonelective contributions made to the Plan on his behalf for the Plan Year; provided, however, that contributions made on a Participant's behalf for a Plan Year shall be included in determining his actual deferral percentage for such Plan Year only if the contributions are made to the Plan prior to the end of the 12-month period immediately following the Plan Year to which the contributions relate. The determination and treatment of the actual deferral percentage amounts for any Participant shall satisfy such other requirements as may be prescribed by the Secretary of the Treasury. (b) The "aggregate limit" means the sum of (i) 125 percent of the greater of the average contribution percentage for eligible participants other than Highly Compensated Employees or the average actual deferral percentage for Eligible Employees other than Highly Compensated Employees and (ii) the lesser of 200 percent or two plus the lesser of such average contribution percentage or average actual deferral percentage, or, if it would result in a larger aggregate limit, the sum of (iii) 125 percent of the lesser of the average contribution percentage for eligible participants other than Highly Compensated Employees or the average actual deferral percentage for Eligible Employees other than Highly Compensated Employees and (iv) the lesser of 200 percent or two plus the greater of such average contribution percentage or average actual deferral percentage. (c) The "annual addition" with respect to a Participant for a limitation year means the sum of the Tax-Deferred Contributions, Employer Contributions, and After-Tax Contributions allocated to his Separate Account for the 23 limitation year (including any excess contributions that are distributed pursuant to this Article), the employer contributions, employee contributions, and forfeitures allocated to his accounts for the limitation year under any other qualified defined contribution plan (whether or not terminated) maintained by an Employer or a Related Company concurrently with the Plan, and amounts described in Sections 415(l)(2) and 419A(d)(2) of the Code allocated to his account for the limitation year; provided, however, that the annual addition for limitation years beginning prior to January 1, 1987 shall not be recalculated to treat all After-Tax Contributions and employee contributions as annual additions. (d) The "Code Section 402(g) limit" means the dollar limit imposed by Section 402(g)(1) of the Code or established by the Secretary of the Treasury pursuant to Section 402(g)(5) of the Code in effect on January 1 of the calendar year in which an Eligible Employee's taxable year begins. (e) The "contribution percentage" with respect to an eligible participant for a particular Plan Year means the ratio of the sum of the matching contributions made to the Plan on his behalf and the After-Tax Contributions made by him for the Plan Year to his test compensation for such Plan Year, except that, to the extent permitted by regulations issued under Section 401(m) of the Code, the Sponsor may elect to take into account in computing the numerator of each eligible participant's contribution percentage the Tax-Deferred Contributions and/or qualified nonelective contributions made to the Plan on his behalf for the Plan Year; provided, however, that any Tax-Deferred Contributions and/or qualified nonelective contributions that were taken into account in computing the numerator of an eligible participant's actual deferral percentage may not be taken into account in computing the numerator of his contribution percentage; and provided, further, that contributions made by or on a Participant's behalf for a Plan Year shall be included in determining his contribution percentage for such Plan Year only if the contributions are made to the Plan prior to the end of the 12-month period immediately following the Plan Year to which the contributions relate. The determination and treatment of the contribution percentage amounts for any Participant shall satisfy such other requirements as may be prescribed by the Secretary of the Treasury. (f) An "elective contribution" means any employer contribution made to a plan maintained by an Employer or any Related 24 Company on behalf of a Participant in lieu of cash compensation pursuant to his written election to defer under any qualified CODA as described in Section 401(k) of the Code, any simplified employee pension cash or deferred arrangement as described in Section 402(h)(1)(B) of the Code, any eligible deferred compensation plan under Section 457 of the Code, or any plan as described in Section 501(c)(18) of the Code, and any contribution made on behalf of the Participant by an Employer or a Related Company for the purchase of an annuity contract under Section 403(b) of the Code pursuant to a salary reduction agreement. (g) An "eligible participant" means any Employee who is eligible to make After-Tax Contributions or to have Tax-Deferred Contributions made on his behalf (if Tax-Deferred Contributions are taken into account in computing contribution percentages) or to participate in the allocation of matching contributions. (h) An "excess deferral" with respect to a Participant means that portion of a Participant's Tax-Deferred Contributions that when added to amounts deferred under other plans or arrangements described in Sections 401(k), 408(k), or 403(b) of the Code, would exceed the Code Section 402(g) limit and is includable in the Participant's gross income under Section 402(g) of the Code. (i) A "family member" of an Employee means the Employee's spouse, his lineal ascendants, his lineal descendants, and the spouses of such lineal ascendants and descendants. (j) A "limitation year" means the calendar year. (k) A "matching contribution" means any employer contribution allocated to an Eligible Employee's account under the Plan or any other plan of an Employer or a Related Company solely on account of elective contributions made on his behalf or employee contributions made by him. (l) A "qualified nonelective contribution" means any employer contribution made on behalf of a Participant that the Participant could not elect instead to receive in cash, that is a qualified nonelective contribution as defined in Section 401(k) and Section 401(m) of the Code and regulations issued thereunder, is nonforfeitable when made, and is distributable only as permitted in regulations issued under Section 401(k) of the Code. 25 (m) The "test compensation" of an Eligible Employee for a Plan Year means compensation as defined in Section 414(s) of the Code and regulations issued thereunder, limited, however, to (1) $200,000 for Plan Years beginning prior to January 1, 1994, or (2) $150,000 for Plan Years beginning on or after January 1, 1994 (subject to adjustment annually as provided in Section 401(a)(17)(B) and Section 415(d) of the Code; provided, however, that the dollar increase in effect on January 1 of any calendar year, if any, is effective for Plan Years beginning in such calendar year). If the test compensation of a Participant is determined over a period of time that contains fewer than 12 calendar months, then the annual compensation limitation described above shall be adjusted with respect to that Participant by multiplying the annual compensation limitation in effect for the Plan Year by a fraction the numerator of which is the number of full months in the period and the denominator of which is 12; provided, however, that no proration is required for a Participant who is covered under the Plan for less than one full Plan Year if the formula for allocations is based on Compensation for a period of at least 12 months. In determining the test compensation, for purposes of applying the annual compensation limitation described above, of a Participant who is a five percent owner or among the ten Highly Compensated Employees receiving the greatest test compensation for the limitation year, the test compensation of the Participant's spouse and of his lineal descendants who have not attained age 19 as of the close of the limitation year shall be included as test compensation of the Participant for the limitation year. If as a result of applying the family aggregation rule described in the preceding sentence the annual compensation limitation would be exceeded, the limitation shall be prorated among the affected family members in proportion to each member's test compensation as determined prior to application of the family aggregation rules. 7.2 - CODE SECTION 402(G) LIMIT In no event shall the amount of the Tax-Deferred Contributions made on behalf of an Eligible Employee for his taxable year, when aggregated with any elective contributions made on behalf of the Eligible Employee under any other plan of an Employer or a Related Company for his taxable year, exceed the Code Section 402(g) limit. In the event that the Administrator determines that the reduction percentage elected by an Eligible Employee will result in his exceeding the Code Section 402(g) limit, the Administrator may adjust the reduction authorization 26 of such Eligible Employee by reducing the percentage of his Tax-Deferred Contributions to such smaller percentage that will result in the Code Section 402(g) limit not being exceeded. If the Administrator determines that the Tax-Deferred Contributions made on behalf of an Eligible Employee would exceed the Code Section 402(g) limit for his taxable year, the Tax-Deferred Contributions for such Participant shall be automatically suspended for the remainder, if any, of such taxable year. If an Employer notifies the Administrator that the Code Section 402(g) limit has nevertheless been exceeded by an Eligible Employee for his taxable year, the Tax-Deferred Contributions that, when aggregated with elective contributions made on behalf of the Eligible Employee under any other plan of an Employer or a Related Company, would exceed the Code Section 402(g) limit, plus any income and minus any losses attributable thereto, shall be distributed to the Eligible Employee no later than the April 15 immediately following such taxable year. Any Tax-Deferred Contributions that are distributed to an Eligible Employee in accordance with this Section shall NOT be taken into account in computing the Eligible Employee's actual deferral percentage for the Plan Year in which the Tax-Deferred Contributions were made, unless the Eligible Employee is a Highly Compensated Employee. If an amount of Tax-Deferred Contributions is distributed to a Participant in accordance with this Section, matching contributions that are attributable solely to the distributed Tax-Deferred Contributions, plus any income and minus any losses attributable thereto, shall be forfeited by the Participant. Any such forfeited amounts shall be treated as a forfeiture under the Plan in accordance with the provisions of Article XIV as of the last day of the month in which the distribution of Tax-Deferred Contributions pursuant to this Section occurs. 7.3 - DISTRIBUTION OF EXCESS DEFERRALS Notwithstanding any other provision of the Plan to the contrary, if a Participant notifies the Administrator in writing no later than the March 1 following the close of the Participant's taxable year that excess deferrals have been made on his behalf under the Plan for such taxable year, the excess deferrals, plus any income and minus any losses attributable thereto, shall be distributed to the Participant no later than the April 15 immediately following such taxable year. Any Tax-Deferred Contributions that are distributed to a Participant in accordance with this Section shall nevertheless be taken into account in computing the Participant's actual deferral percentage for the Plan Year in which the Tax-Deferred Contributions were made. If an amount of Tax-Deferred Contributions is distributed to a Participant in accordance with this Section, matching contributions that are 27 attributable solely to the distributed Tax-Deferred Contributions, plus any income and minus any losses attributable thereto, shall be forfeited by the Participant. Any such forfeited amounts shall be treated as a forfeiture under the Plan in accordance with the provisions of Article XIV as of the last day of the month in which the distribution of Tax-Deferred Contributions pursuant to this Section occurs. 7.4 - LIMITATION ON TAX-DEFERRED CONTRIBUTIONS OF HIGHLY COMPENSATED EMPLOYEES Notwithstanding any other provision of the Plan to the contrary, the Tax-Deferred Contributions made with respect to a Plan Year on behalf of Eligible Employees who are Highly Compensated Employees may not result in an average actual deferral percentage for such Eligible Employees that exceeds the greater of: (a) a percentage that is equal to 125 percent of the average actual deferral percentage for all other Eligible Employees; or (b) a percentage that is not more than 200 percent of the average actual deferral percentage for all other Eligible Employees and that is not more than two percentage points higher than the average actual deferral percentage for all other Eligible Employees. In order to assure that the limitation contained herein is not exceeded with respect to a Plan Year, the Administrator is authorized to suspend completely further Tax-Deferred Contributions on behalf of Highly Compensated Employees for any remaining portion of a Plan Year or to adjust the projected actual deferral percentages of Highly Compensated Employees by reducing their percentage elections with respect to Tax-Deferred Contributions for any remaining portion of a Plan Year to such smaller percentages that will result in the limitation set forth above not being exceeded. In the event of any such suspension or reduction, Highly Compensated Employees affected thereby shall be notified of the reduction or suspension as soon as possible and shall be given an opportunity to make a new Tax-Deferred Contribution election to be effective the first day of the next following Plan Year. In the absence of such an election, the election in effect immediately prior to the suspension or adjustment described above shall be reinstated as of the first day of the next following Plan Year. For purposes of applying the limitation contained in this Section, the Tax-Deferred Contributions, qualified nonelective contributions (to the extent that such qualified nonelective contributions are taken into account in computing actual deferral 28 percentages), and test compensation of any Eligible Employee who is a family member of another Eligible Employee who is a five percent owner or among the ten Highly Compensated Employees receiving the greatest test compensation for the Plan Year shall be aggregated with the Tax-Deferred Contributions, qualified nonelective contributions, and test compensation of such other Eligible Employee, and such family member shall not be considered an Eligible Employee for purposes of determining the average actual deferral percentage for all other Eligible Employees. In determining the actual deferral percentage for any Eligible Employee who is a Highly Compensated Employee for the Plan Year, elective contributions and qualified nonelective contributions (to the extent that qualified nonelective contributions are taken into account in computing actual deferral percentages) made to his accounts under any other plan of an Employer or a Related Company shall be treated as if all such contributions were made to the Plan; provided, however, that if such a plan has a plan year different from the Plan Year, any such contributions made to the Highly Compensated Employee's accounts under the plan for the plan year ending with or within the same calendar year as the Plan Year shall be treated as if such contributions were made to the Plan. Notwithstanding the foregoing, such contributions shall not be treated as if they were made to the Plan if regulations issued under Section 401(k) of the Code do not permit such plan to be aggregated with the Plan. If one or more plans of an Employer or Related Company are aggregated with the Plan for purposes of satisfying the requirements of Section 401(a)(4) or 410(b) of the Code, then actual deferral percentages under the Plan shall be calculated as if the Plan and such one or more other plans were a single plan. For Plan Years beginning after December 31, 1991, plans may be aggregated to satisfy Section 401(k) of the Code only if they have the same plan year. The Administrator shall maintain records sufficient to show that the limitation contained in this Section was not exceeded with respect to any Plan Year and the amount of the qualified nonelective contributions taken into account in computing actual deferral percentages for any Plan Year. 7.5 - DISTRIBUTION OF EXCESS TAX-DEFERRED CONTRIBUTIONS Notwithstanding any other provision of the Plan to the contrary, in the event that the limitation contained in Section 7.4 is exceeded in any Plan Year, the Tax-Deferred Contributions made with respect to a Highly Compensated Employee that exceed the maximum amount permitted to be contributed to the Plan on his behalf under Section 7.4, plus any income and minus any losses 29 attributable thereto, shall be distributed to the Highly Compensated Employee prior to the end of the next succeeding Plan Year. If excess amounts are attributable to Participants aggregated under the family aggregation rules described in Section 7.4, the excess shall be allocated among family members in proportion to the Tax-Deferred Contributions made with respect to each family member. If such excess amounts are distributed more than 2 1/2 months after the last day of the Plan Year for which the excess occurred, an excise tax may be imposed under Section 4979 of the Code on the Employer maintaining the Plan with respect to such amounts. The maximum amount permitted to be contributed to the Plan on a Highly Compensated Employee's behalf under Section 7.4 shall be determined by reducing Tax-Deferred Contributions made on behalf of Highly Compensated Employees in order of their actual deferral percentages beginning with the highest of such percentages. The determination of the amount of excess Tax-Deferred Contributions shall be made after application of Section 7.3, if applicable. If an amount of Tax-Deferred Contributions is distributed to a Participant in accordance with this Section, matching contributions that are attributable solely to the distributed Tax-Deferred Contributions, plus any income and minus any losses attributable thereto, shall be forfeited by the Participant. Any such forfeited amounts shall be treated as a forfeiture under the Plan in accordance with the provisions of Article XIV as of the last day of the month in which the distribution of Tax-Deferred Contributions pursuant to this Section occurs. 7.6 - LIMITATION ON MATCHING CONTRIBUTIONS AND AFTER-TAX CONTRIBUTIONS OF HIGHLY COMPENSATED EMPLOYEES Notwithstanding any other provision of the Plan to the contrary, the matching contributions and After-Tax Contributions made with respect to a Plan Year by or on behalf of eligible participants who are Highly Compensated Employees may not result in an average contribution percentage for such eligible participants that exceeds the greater of: (a) a percentage that is equal to 125 percent of the average contribution percentage for all other eligible participants; or (b) a percentage that is not more than 200 percent of the average contribution percentage for all other eligible participants and that is not more than two percentage points higher than the average contribution percentage for all other eligible participants. 30 For purposes of applying the limitation contained in this Section, the matching contributions, After-Tax Contributions, qualified nonelective contributions and Tax-Deferred Contributions (to the extent that such qualified nonelective contributions and Tax-Deferred Contributions are taken into account in computing contribution percentages), and test compensation of any eligible participant who is a family member of another eligible participant who is a five percent owner or among the ten Highly Compensated Employees receiving the greatest test compensation for the Plan Year shall be aggregated with the matching contributions, After-Tax Contributions, qualified nonelective contributions, Tax-Deferred Contributions, and test compensation of such other eligible participant, and such family member shall not be considered an eligible participant for purposes of determining the average contribution percentage for all other eligible participants. In determining the contribution percentage for any eligible participant who is a Highly Compensated Employee for the Plan Year, matching contributions, employee contributions, qualified nonelective contributions, and elective contributions (to the extent that qualified nonelective contributions and elective contributions are taken into account in computing contribution percentages) made to his accounts under any other plan of an Employer or a Related Company shall be treated as if all such contributions were made to the Plan; provided, however, that if such a plan has a plan year different from the Plan Year, any such contributions made to the Highly Compensated Employee's accounts under the plan for the plan year ending with or within the same calendar year as the Plan Year shall be treated as if such contributions were made to the Plan. Notwithstanding the foregoing, such contributions shall not be treated as if they were made to the Plan if regulations issued under Section 401(m) of the Code do not permit such plan to be aggregated with the Plan. If one or more plans of an Employer or a Related Company are aggregated with the Plan for purposes of satisfying the requirements of Section 401(a)(4) or 410(b) of the Code, the contribution percentages under the Plan shall be calculated as if the Plan and such one or more other plans were a single plan. For Plan Years beginning after December 31, 1989, plans may be aggregated to satisfy Section 401(m) of the Code only if they have the same plan year. The Administrator shall maintain records sufficient to show that the limitation contained in this Section was not exceeded with respect to any Plan Year and the amount of the elective contributions and qualified nonelective contributions taken into account in computing contribution percentages for any Plan Year. 31 7.7 - FORFEITURE OR DISTRIBUTION OF EXCESS CONTRIBUTIONS Notwithstanding any other provision of the Plan to the contrary, in the event that the limitation contained in Section 7.6 is exceeded in any Plan Year, the matching contributions and After-Tax Contributions made by or on behalf of a Highly Compensated Employee that exceed the maximum amount permitted to be contributed to the Plan by or on behalf of such Highly Compensated Employee under Section 7.6, plus any income and minus any losses attributable thereto, shall be forfeited, to the extent forfeitable, or distributed to the Participant prior to the end of the next succeeding Plan Year as hereinafter provided. If excess amounts are attributable to Participants aggregated under the family aggregation rules described in Section 7.5, the excess shall be allocated among family members in proportion to the matching contributions and After-Tax Contributions and qualified nonelective contributions (to the extent that qualified nonelective contributions are taken into account in computing contribution percentages) made with respect to each family member. If such excess amounts are distributed more than 2 1/2 months after the last day of the Plan Year for which the excess occurred, an excise tax may be imposed under Section 4979 of the Code on the Employer maintaining the Plan with respect to such amounts. The maximum amount permitted to be contributed to the Plan by or on behalf of a Highly Compensated Employee under Section 7.6 shall be determined by reducing matching contributions and After-Tax Contributions made by or on behalf of Highly Compensated Employees in order of their contribution percentages beginning with the highest of such percentages. The distribution or forfeiture requirement of this Section shall be satisfied by reducing contributions made by or on behalf of the Highly Compensated Employee to the extent necessary in the following order: After-Tax Contributions made by the Highly Compensated Employee, if any, shall be distributed. Matching contributions attributable to Tax-Deferred Contributions shall be distributed or forfeited, as appropriate. Any amounts forfeited with respect to a Participant pursuant to this Section shall be treated as a forfeiture under the Plan in accordance with the provisions of Article XIV as of the last day of the month in which the distribution of contributions pursuant to this Section occurs. The amount of excess After-Tax Contributions of a Participant shall in all cases be 32 distributable; the excess matching contributions shall be distributable to the extent the Participant has a vested interest in his Employer Contributions Sub-Account that is attributable to matching contributions. The determination of the amount of excess matching contributions and After-Tax Contributions shall be made after application of Section 7.3, if applicable, and after application of Section 7.5, if applicable. 7.8 - MULTIPLE USE LIMITATION Notwithstanding any other provision of the Plan to the contrary, the following multiple use limitation as required under Section 401(m) of the Code shall apply: the sum of the average actual deferral percentage for Eligible Employees who are Highly Compensated Employees and the average contribution percentage for eligible participants who are Highly Compensated Employees may not exceed the aggregate limit. In the event that, after satisfaction of Section 7.5 and Section 7.7, it is determined that contributions under the Plan fail to satisfy the multiple use limitation contained herein, the multiple use limitation shall be satisfied by further reducing the actual deferral percentages of Eligible Employees who are Highly Compensated Employees (beginning with the highest such percentage) to the extent necessary to eliminate the excess, with such further reductions to be treated as excess Tax-Deferred Contributions and disposed of as provided in Section 7.5, or in an alternative manner, consistently applied, that may be permitted by regulations issued under Section 401(m) of the Code. 7.9 - DETERMINATION OF INCOME OR LOSS The income or loss attributable to excess contributions that are distributed pursuant to this Article shall be determined for the preceding Plan Year under the method otherwise used for allocating income or loss to Participant's Separate Accounts. 7.10 - CODE SECTION 415 LIMITATIONS ON CREDITING OF CONTRIBUTIONS AND FORFEITURES Notwithstanding any other provision of the Plan to the contrary, the annual addition with respect to a Participant for a limitation year shall in no event exceed the lesser of (i) $30,000 (adjusted as provided in Section 415(d) of the Code, with the first adjustment being made for limitation years beginning on or after January 1, 1996) or (ii) 25 percent of the Participant's compensation, as defined in Section 415(c)(3) of the Code and regulations issued thereunder, for the limitation year. If the annual addition to the Separate Account of a Participant in any limitation year would otherwise exceed the amount that may be applied for his benefit under the limitation 33 contained in this Section, the limitation shall be satisfied by reducing contributions made by or on behalf of the Participant to the extent necessary in the following order: After-Tax Contributions made by the Participant for the limitation year, if any, shall be reduced. Tax-Deferred Contributions made on the Participant's behalf for the limitation year that have not been matched, if any, shall be reduced. Tax-Deferred Contributions made on the Participant's behalf for the limitation year that have been matched and the matching contributions attributable thereto, if any, shall be reduced pro rata. Employer Contributions (other than matching contributions and qualified nonelective contributions) otherwise allocable to the Participant's Separate Account for the limitation year shall be reduced. Qualified nonelective contributions made on the Participant's behalf for the limitation year shall be reduced. The amount of any reduction of Tax-Deferred Contributions or After-Tax Contributions (plus any income attributable thereto) shall be returned to the Participant. The amount of any reduction of Employer Contributions shall be deemed a forfeiture for the limitation year. Amounts deemed to be forfeitures under this Section shall be held unallocated in a suspense account established for the limitation year and shall be applied against the Employer's contribution obligation for the next following limitation year (and succeeding limitation years, as necessary). If a suspense account is in existence at any time during a limitation year, all amounts in the suspense account must be allocated to Participants' Separate Accounts (subject to the limitations contained herein) before any further Tax-Deferred Contributions, Employer Contributions, or After-Tax Contributions may be made to the Plan by or on behalf of Participants. No suspense account established hereunder shall share in any increase or decrease in the net worth of the Trust. For purposes of this Article, excesses shall result only from the allocation of forfeitures, a reasonable error in estimating a Participant's annual compensation (as defined in Section 415(c)(3) of the Code and regulations issued thereunder), a reasonable error in determining the amount of Tax-Deferred Contributions that may be made with respect to any Participant under the limits of Section 415 of the Code, or other limited facts and circumstances that justify the availability of the provisions set forth above. 34 7.11 - COVERAGE UNDER OTHER QUALIFIED DEFINED CONTRIBUTION PLAN If a Participant is covered by any other qualified defined contribution plan (whether or not terminated) maintained by an Employer or a Related Company concurrently with the Plan, and if the annual addition for the limitation year would otherwise exceed the amount that may be applied for the Participant's benefit under the limitation contained in Section 7.10, such excess shall be reduced first by returning the employee contributions made by the Participant for the limitation year under all of the defined contribution plans other than the Plan and the income attributable thereto to the extent necessary. If the limitation contained in Section 7.10 is still not satisfied after returning all of the employee contributions made by the Participant under all such other plans, the excess shall be reduced by returning the elective contributions made on the Participant's behalf for the limitation year under all such other plans and the income attributable thereto to the extent necessary on a pro rata basis among all of such plans. If the limitation contained in Section 7.10 is still not satisfied after returning all of the elective contributions made on the Participant's behalf under all such other plans, the procedure set forth in Section 7.10 shall be invoked to eliminate any such excess. If the limitation contained in Section 7.10 is still not satisfied after invocation of the procedure set forth in Section 7.10, the portion of the employer contributions and of forfeitures for the limitation year under all such other plans that has been allocated to the Participant thereunder, but which exceeds the limitation set forth in Section 7.10, shall be deemed a forfeiture for the limitation year and shall be disposed of as provided in such other plans; provided, however, that if the Participant is covered by a money purchase pension plan, the forfeiture shall be effected first under any other defined contribution plan that is not a money purchase pension plan and, if the limitation is still not satisfied, then under such money purchase pension plan. 7.12 - COVERAGE UNDER QUALIFIED DEFINED BENEFIT PLAN If a Participant in the Plan is also covered by a qualified defined benefit plan (whether or not terminated) maintained by an Employer or a Related Company, in no event shall the sum of the defined benefit plan fraction (as defined in Section 415(e)(2) of the Code) and the defined contribution plan fraction (as defined in Section 415(e)(3) of the Code) exceed 1.0 in any limitation year. If, before October 3, 1973, the Participant was an active participant in a qualified defined benefit plan maintained by an Employer or a Related Company and otherwise satisfies the requirements of Section 2004(d)(2) of ERISA, then for purposes of 35 applying this Section, the defined benefit plan fraction shall not exceed 1.0. If the Plan satisfied the applicable requirements of Section 415 of the Code as in effect for all limitation years beginning before January 1, 1987, an amount shall be subtracted from the numerator of the defined contribution plan fraction (not exceeding such numerator) as prescribed by the Secretary of the Treasury so that the sum of the defined benefit plan fraction and the defined contribution plan fraction computed under Section 415(e)(1) of the Code, as revised by the Tax Reform Act of 1986, does not exceed 1.0 for such limitation year. In the event the special limitation contained in this Section is exceeded, the benefits otherwise payable to the Participant under any such qualified defined benefit plan shall be reduced to the extent necessary to meet such limitation. 7.13 - SCOPE OF LIMITATIONS The limitations contained in Sections 7.10, 7.11, and 7.12 shall be applicable only with respect to benefits provided pursuant to defined contribution plans and defined benefit plans described in Section 415(k) of the Code. 36 ARTICLE VIII TRUST FUNDS AND SEPARATE ACCOUNTS 8.1 - GENERAL FUND The Trustee shall maintain a General Fund as required to hold and administer any assets of the Trust that are not allocated among the Investment Funds as provided in the Plan or the Trust Agreement. The General Fund shall be held and administered as a separate common trust fund. The interest of each Participant or Beneficiary under the Plan in the General Fund shall be an undivided interest. The General Fund may be invested in whole or in part in equity securities issued by an Employer or a Related Company that are publicly traded and are "qualifying employer securities" as defined in Section 407(d)(5) of ERISA. 8.2 - INVESTMENT FUNDS The Sponsor shall determine the number and type of Investment Funds and select the investments for such Investment Funds. The number of Investment Funds and the investments for such Investment Funds may be changed by the Sponsor from time to time. The Sponsor shall communicate the same and any changes therein in writing to the Administrator and the Trustee. Each Investment Fund shall be held and administered as a separate common trust fund. The interest of each Participant or Beneficiary under the Plan in any Investment Fund shall be an undivided interest. The Sponsor may determine to offer one or more Investment Funds that are invested in whole or in part in equity securities issued by an Employer or a Related Company that are publicly traded and are "qualifying employer securities" as defined in Section 407(d)(5) of ERISA. 8.3 - LOAN INVESTMENT FUND If a loan from the Plan to a Participant is approved in accordance with the provisions of Article XII, the Sponsor shall direct the establishment and maintenance of a loan Investment Fund in the Participant's name. The assets of the loan Investment Fund shall be held as a separate trust fund. A Participant's loan Investment Fund shall be invested in the note reflecting the loan that is executed by the Participant in accordance with the provisions of Article XII. Notwithstanding any other provision of the Plan to the contrary, income received with respect to a Participant's loan Investment Fund shall be allocated and the loan Investment Fund shall be administered as provided in Article XII. 37 8.4 - INCOME ON TRUST Any dividends, interest, distributions, or other income received by the Trustee with respect to any Trust Fund maintained hereunder shall be allocated by the Trustee to the Trust Fund for which the income was received. 8.5 - SEPARATE ACCOUNTS As of the first date a contribution is made by or on behalf of an Employee, there shall be established a Separate Account in his name reflecting his interest in the Trust. Each Separate Account shall be maintained and administered for each Participant and Beneficiary in accordance with the provisions of the Plan. The balance of each Separate Account shall be the balance of the account after all credits and charges thereto, for and as of such date, have been made as provided herein. 8.6 - SUB-ACCOUNTS A Participant's Separate Account shall be divided into individual Sub-Accounts reflecting the portion of the Participant's Separate Account that is derived from Tax-Deferred Contributions, After- Tax Contributions, Rollover Contributions, or Employer Contributions. Each Sub-Account shall reflect separately contributions allocated to each Trust Fund maintained hereunder and the earnings and losses attributable thereto. The Employer Contributions Sub-Account shall reflect separately that portion of such Sub-Account that is derived from Employer Contributions that may be taken into account to satisfy the limitations on contributions for Highly Compensated Employees contained in Article VII. Such other Sub-Accounts may be established as are necessary or appropriate to reflect a Participant's interest in the Trust. 38 ARTICLE IX LIFE INSURANCE CONTRACTS 9.1 - NO LIFE INSURANCE CONTRACTS There shall be no life insurance contracts purchased under the Plan. 39 ARTICLE X DEPOSIT AND INVESTMENT OF CONTRIBUTIONS 10.1 - FUTURE CONTRIBUTION INVESTMENT ELECTIONS Each Eligible Employee shall make an investment election in the manner and form prescribed by the Administrator directing the manner in which his Tax-Deferred Contributions, After-Tax Contributions, Rollover Contributions, and Employer Contributions shall be invested. An Eligible Employee's investment election shall specify the percentage, in the percentage increments prescribed by the Administrator, of such contributions that shall be allocated to one or more of the Investment Funds with the sum of such percentages equaling 100 percent. The investment election by a Participant shall remain in effect until his entire interest under the Plan is distributed or forfeited in accordance with the provisions of the Plan or until he files a change of investment election with the Administrator, in such form as the Administrator shall prescribe. A Participant's change of investment election may be made effective as of the date or dates prescribed by the Administrator. 10.2 - DEPOSIT OF CONTRIBUTIONS All Tax-Deferred Contributions, After-Tax Contributions, Rollover Contributions, and Employer Contributions shall be deposited in the Trust and allocated among the Investment Funds in accordance with the Participant's currently effective investment election; provided, however, that any contributions made to the Plan in qualifying employer securities shall be allocated to the Employer securities Investment Fund established by the Sponsor, pending directions to the Administrator regarding their future investment. If no investment election is on file with the Administrator at the time contributions are to be deposited to a Participant's Separate Account, the Participant shall be notified and an investment election form shall be provided to him. Until such Participant shall make an effective election under this Section, his contributions shall be allocated among the Investment Funds as directed by the Administrator. 10.3 - ELECTION TO TRANSFER BETWEEN FUNDS A Participant may elect to transfer investments from any Investment Fund to any other Investment Fund. The Participant's transfer election shall specify either (i) a percentage, in the percentage increments prescribed by the Administrator, of the amount eligible for transfer, which percentage may not exceed 100 percent, or (ii) a dollar amount that is to be transferred. Subject to any restrictions pertaining to a particular Investment 40 Fund, a Participant's transfer election may be made effective as of the date or dates prescribed by the Administrator. 41 ARTICLE XI CREDITING AND VALUING SEPARATE ACCOUNTS 11.1 - CREDITING SEPARATE ACCOUNTS All contributions made under the provisions of the Plan shall be credited to Separate Accounts in the Trust Funds by the Trustee, in accordance with procedures established in writing by the Administrator, either when received or on the succeeding Valuation Date after valuation of the Trust Fund has been completed for such Valuation Date as provided in Section 11.2, as shall be determined by the Administrator. 11.2 - VALUING SEPARATE ACCOUNTS Separate Accounts in the Trust Funds shall be valued by the Trustee on the Valuation Date, in accordance with procedures established in writing by the Administrator, either in the manner adopted by the Trustee and approved by the Administrator or in the manner set forth in Section 11.3 as Plan valuation procedures, as determined by the Administrator. 11.3 - PLAN VALUATION PROCEDURES With respect to the Trust Funds, the Administrator may determine that the following valuation procedures shall be applied. As of each Valuation Date hereunder, the portion of any Separate Accounts in a Trust Fund shall be adjusted to reflect any increase or decrease in the value of the Trust Fund for the period of time occurring since the immediately preceding Valuation Date for the Trust Fund (the "valuation period") in the following manner: (a) First, the value of the Trust Fund shall be determined by valuing all of the assets of the Trust Fund at Fair Market Value. (b) Next, the net increase or decrease in the value of the Trust Fund attributable to net income and all profits and losses, realized and unrealized, during the valuation period shall be determined on the basis of the valuation under paragraph (a) taking into account appropriate adjustments for contributions, loan payments, and transfers to and distributions, withdrawals, loans, and transfers from such Trust Fund during the valuation period. (c) Finally, the net increase or decrease in the value of the Trust Fund shall be allocated among Separate Accounts in 42 the Trust Fund in the ratio of the balance of the portion of such Separate Account in the Trust Fund as of the preceding Valuation Date less any distributions, withdrawals, loans, and transfers from such Separate Account balance in the Trust Fund since the Valuation Date to the aggregate balances of the portions of all Separate Accounts in the Trust Fund similarly adjusted, and each Separate Account in the Trust Fund shall be credited or charged with the amount of its allocated share. Notwithstanding the foregoing, the Administrator may adopt such accounting procedures as it considers appropriate and equitable to establish a proportionate crediting of net increase or decrease in the value of the Trust Fund for contributions, loan payments, and transfers to and distributions, withdrawals, loans, and transfers from such Trust Fund made by or on behalf of a Participant during the valuation period. 11.4 - FINALITY OF DETERMINATIONS The Trustee shall have exclusive responsibility for determining the balance of each Separate Account maintained hereunder. The Trustee's determinations thereof shall be conclusive upon all interested parties. 11.5 - NOTIFICATION Within a reasonable period of time after the end of each Plan Year, the Administrator shall notify each Participant and Beneficiary of the balances of his Separate Account and Sub-Accounts as of a Valuation Date during the Plan Year. 43 ARTICLE XII LOANS 12.1 - APPLICATION FOR LOAN A Participant who is a party in interest, other than a shareholder employee, as defined in Section 408(d)(3) of ERISA, may make written application to the Administrator for a loan from his Separate Account. As collateral for any loan granted hereunder, the Participant shall grant to the Plan a security interest in his vested interest under the Plan equal to the amount of the loan; provided, however, that in no event may the security interest exceed 50 percent of the Participant's vested interest under the Plan determined as of the date as of which the loan is originated in accordance with Plan provisions. In the case of a Participant who is an active employee, the Participant also shall enter into an agreement to repay the loan by payroll withholding. No loan in excess of 50 percent of the Participant's vested interest under the Plan shall be made from the Plan. Loans shall not be made available to Highly Compensated Employees in an amount greater than the amount made available to other employees. A loan shall not be granted unless the Participant consents in writing to the charging of his Separate Account for unpaid principal and interest amounts in the event the loan is declared to be in default. If a Participant's Separate Account is subject to the qualified joint and survivor annuity provisions under Article XVI, the Participant's spouse must consent in writing to any loan hereunder. Any spousal consent given pursuant to this Section must acknowledge the effect of the loan and must be witnessed by a Plan representative or a notary public. Such spousal consent shall be binding with respect to the consenting spouse and any subsequent spouse with respect to the loan. A new spousal consent shall be required if the Participant's Separate Account is used for security in any renegotiation, extension, renewal, or other revision of the loan. 12.2 - REDUCTION OF ACCOUNT UPON DISTRIBUTION Notwithstanding any other provision of the Plan, the amount of a Participant's Separate Account that is distributable to the Participant or his Beneficiary under Article XIII or XV shall be reduced by the portion of his vested interest that is held by the Plan as security for any loan outstanding to the Participant, provided that in the event of a distribution under Article XV the reduction is used to repay the loan. If distribution is made because of the Participant's death prior to the commencement of 44 distribution of his Separate Account and less than 100 percent of the Participant's vested interest in his Separate Account (determined without regard to the preceding sentence) is payable to his surviving spouse, then the balance of the Participant's vested interest in his Separate Account shall be adjusted by reducing the vested account balance by the amount of the security used to repay the loan, as provided in the preceding sentence, prior to determining the amount of the benefit payable to the surviving spouse. 12.3 - REQUIREMENTS TO PREVENT A TAXABLE DISTRIBUTION Notwithstanding any other provision of the Plan to the contrary, the following terms and conditions shall apply to any loan made to a Participant under this Article: (a) The interest rate on any loan to a Participant shall be a reasonable interest rate commensurate with current interest rates charged for loans made under similar circumstances by persons in the business of lending money. (b) The amount of any loan to a Participant (when added to the outstanding balance of all other loans to the Participant from the Plan or any other plan maintained by an Employer or a Related Company) shall not exceed the lesser of: (i) $50,000, reduced by the excess, if any, of the highest outstanding balance of any other loan to the Participant from the Plan or any other plan maintained by an Employer or a Related Company during the preceding 12-month period over the outstanding balance of such loans on the date a loan is made hereunder; or (ii) 50 percent of the vested portions of the Participant's Separate Account and his vested interest under all other plans maintained by an Employer or a Related Company. (c) The term of any loan to a Participant shall be no greater than five years, except in the case of a loan used to acquire any dwelling unit which within a reasonable period of time is to be used (determined at the time the loan is made) as a principal residence of the Participant. (d) Except as otherwise permitted under Treasury regulations, substantially level amortization shall be required over the term of the loan with payments made not less frequently than quarterly. 45 12.4 - ADMINISTRATION OF LOAN INVESTMENT FUND Upon approval of a loan to a Participant, the Administrator shall direct the Trustee to transfer an amount equal to the loan amount from the Investment Funds in which it is invested, as directed by the Administrator, to the loan Investment Fund established in the Participant's name. Any loan approved by the Administrator shall be made to the Participant out of the Participant's loan Investment Fund. All principal and interest paid by the Participant on a loan made under this Article shall be deposited to his Separate Account and shall be allocated upon receipt among the Investment Funds in accordance with the Participant's currently effective investment election. The balance of the Participant's loan Investment Fund shall be decreased by the amount of principal payments and the loan Investment Fund shall be terminated when the loan has been repaid in full. 12.5 - DEFAULT If a Participant fails to make or cause to be made, any payment required under the terms of the loan within 90 days following the date on which such payment shall become due or there is an outstanding principal balance existing on a loan after the last scheduled repayment date, the Administrator shall direct the Trustee to declare the loan to be in default, and the entire unpaid balance of such loan, together with accrued interest, shall be immediately due and payable. In any such event, if such balance and interest thereon is not then paid, the Trustee shall charge the Separate Account of the borrower with the amount of such balance and interest as of the earliest date a distribution may be made from the Plan to the borrower without adversely affecting the tax qualification of the Plan or of the cash or deferred arrangement. 12.6 - SPECIAL RULES APPLICABLE TO LOANS Any loan made hereunder shall be subject to the following rules: (a) Loans limited to Eligible Employees: No loans shall be made to an Employee who makes a Rollover Contribution in accordance with Article V, but who is not an Eligible Employee as provided in Article III. (b) Minimum Loan Amount: A Participant may not request a loan for less than $1,000. (c) Maximum Number of Outstanding Loans: A Participant with an outstanding loan may not apply for another loan until the existing loan is paid in full and may not refinance an existing loan or attain a second loan for the purpose of 46 paying off the existing loan. A Participant may not apply for more than one loan during the Plan Year. The provisions of this paragraph shall not apply to any loans made prior to the effective date of this amendment and restatement; provided, however, that a Participant may not apply for a new loan hereunder until all outstanding loans made to the Participant prior to the effective date of this amendment and restatement have been paid in full. (d) Maximum Period for Real Estate Loans: The term of any loan to a Participant that is used to acquire any dwelling unit which within a reasonable period of time is to be used (determined at the time the loan is made) as a principal residence of the Participant shall be no greater than ten years. (e) Pre-Payment Without Penalty: A Participant may pre-pay the balance of any loan hereunder prior to the date it is due without penalty. (f) Effect of Termination of Employment: Upon a Participant's termination of employment, the balance of any outstanding loan hereunder shall immediately become due and owing. 12.7 - LOANS GRANTED PRIOR TO AMENDMENT Notwithstanding any other provision of this Article to the contrary, any loan made under the provisions of the Plan as in effect prior to this amendment and restatement shall remain outstanding until repaid in accordance with its terms or the otherwise applicable Plan provisions. 47 ARTICLE XIII WITHDRAWALS WHILE EMPLOYED 13.1 - WITHDRAWALS OF AFTER-TAX CONTRIBUTIONS A Participant who is employed by an Employer or a Related Company may elect in writing, subject to the limitations and conditions prescribed in this Article, to make a cash withdrawal or a withdrawal in the form of a qualified joint and survivor annuity as provided in Article XVI from his After-Tax Contributions Sub-Account. 13.2 - WITHDRAWALS OF ROLLOVER CONTRIBUTIONS A Participant who is employed by an Employer or a Related Company may elect in writing, subject to the limitations and conditions prescribed in this Article, to make a cash withdrawal or a withdrawal in the form of a qualified joint and survivor annuity as provided in Article XVI from his Rollover Contributions Sub-Account. 13.3 - WITHDRAWALS OF EMPLOYER CONTRIBUTIONS A Participant who is employed by an Employer or a Related Company and has attained age 59 1/2, been a Participant under the Plan for 5 or more years, or is determined by the Administrator to have incurred a hardship as defined in this Article may elect in writing, subject to the limitations and conditions prescribed in this Article to make a cash withdrawal or a withdrawal in the form of a qualified joint and survivor annuity as provided in Article XVI from his vested interest in his Employer Contributions Sub-Account. Notwithstanding the foregoing, in no event may a Participant withdraw that portion of his Employer Contributions Sub-Account that is attributable to Employer Contributions that may be taken into account to satisfy the limitations on contributions for Highly Compensated Employees contained in Article VII prior to the Participant's attainment of age 59 1/2, unless the distribution is made because of a hardship. The maximum amount that a Participant may withdraw pursuant to this Section shall be an amount ("X") determined by the following formula: X = P(AB + D) - D For purposes of the formula: P = The Participant's vested interest in his Employer Contributions Sub-Account on the date distribution is to be made; provided, however, that if the 48 distribution is to be made prior to the Participant's attainment of age 59 1/2, his vested interest shall be determined without regard to his vested interest in that portion of his Employer Contributions Sub-Account that is attributable to Employer Contributions that may be taken into account to satisfy the limitations on contributions for Highly Compensated Employees contained in Article VII. AB = The balance of the Participant's Employer Contributions Sub-Account as of the Valuation Date immediately preceding the date distribution is to be made; provided, however, that if the distribution is to be made prior to the Participant's attainment of age 59 1/2, such balance shall exclude that portion of his Employer Contributions Sub-Account that is attributable to Employer Contributions that may be taken into account to satisfy the limitations on contributions for Highly Compensated Employees contained in Article VII. D = The amount of all prior withdrawals from the Participant's Employer Contributions Sub-Account made pursuant to this Section. Notwithstanding any other provision of the Plan to the contrary, the maximum amount that a Participant may withdraw pursuant to this Section because of a hardship is 100 percent of his vested interest in the balance of his Employer Contributions Sub-Account, exclusive of Employer Contributions that may be taken into account to satisfy the limitations on contributions for Highly Compensated Employees contained in Article VII, and any earnings thereon, that are credited to such account as of a date that is after December 31, 1988. 13.4 - WITHDRAWALS OF TAX-DEFERRED CONTRIBUTIONS A Participant who is employed by an Employer or a Related Company and who has attained age 59 1/2 or is determined by the Administrator to have incurred a hardship as defined in this Article may elect in writing, subject to the limitations and conditions prescribed in this Article, to make a cash withdrawal or a withdrawal in the form of a qualified joint and survivor annuity as provided in Article XVI from his Tax-Deferred Contributions Sub-Account. The maximum amount that a Participant may withdraw pursuant to this Section because of a hardship is the balance of his Tax-Deferred Contributions Sub-Account, 49 exclusive of any earnings credited to such Sub-Account as of a date that is after December 31, 1988. 13.5 - LIMITATIONS ON WITHDRAWALS OTHER THAN HARDSHIP WITHDRAWALS Withdrawals made pursuant to this Article, other than hardship withdrawals, shall be subject to the following conditions and limitations: A Participant must file a written withdrawal application with the Administrator such number of days prior to the date as of which it is to be effective as the Administrator shall prescribe. Withdrawals may be made effective as soon as reasonably practicable following the Administrator's receipt of the Participant's directions. A Participant who makes a withdrawal from his After-Tax Contributions Sub-Account prior to attaining age 59 1/2 may not make a further withdrawal of After-Tax Contributions under this Article during the remainder of the Plan Year in which the withdrawal is effective. A Participant who makes a withdrawal from his Rollover Contributions Sub-Account prior to attaining age 59 1/2 may not make a further withdrawal of Rollover Contributions under this Article during the remainder of the Plan Year in which the withdrawal is effective. If a Participant's Separate Account is subject to the qualified joint and survivor annuity provisions under Article XVI, the Participant's spouse must consent in writing to any withdrawal hereunder. 13.6 - CONDITIONS AND LIMITATIONS ON HARDSHIP WITHDRAWALS A Participant must file a written application for a hardship withdrawal with the Administrator such number of days prior to the date as of which it is to be effective as the Administrator may prescribe. Hardship withdrawals may be made effective as soon as reasonably practicable following the Administrator's receipt of the Participant's directions. If a Participant's Separate Account is subject to the qualified joint and survivor annuity provisions under Article XVI, the Participant's spouse must consent to any withdrawal hereunder. The Administrator shall grant a hardship withdrawal only if it determines that the withdrawal is necessary to meet an immediate and heavy financial need of the Participant. An immediate and heavy financial need of the Participant means a financial need on account of: 50 (a) expenses previously incurred by or necessary to obtain for the Participant, the Participant's spouse, or any dependent of the Participant (as defined in Section 152 of the Code) medical care described in Section 213(d) of the Code; (b) costs directly related to the purchase (excluding mortgage payments) of a principal residence for the Participant; (c) payment of tuition, related educational fees, and room and board expenses for the next 12 months of post-secondary education for the Participant, the Participant's spouse, or any dependent of the Participant; or (d) the need to prevent the eviction of the Participant from his principal residence or foreclosure on the mortgage of the Participant's principal residence. A withdrawal shall be deemed to be necessary to satisfy an immediate and heavy financial need of a Participant only if all of the following requirements are satisfied: The withdrawal is not in excess of the amount of the immediate and heavy financial need of the Participant. The Participant has obtained all distributions, other than hardship distributions, and all non-taxable loans currently available under all plans maintained by an Employer or any Related Company. The Participant's Tax-Deferred Contributions and After-Tax Contributions and the Participant's elective tax-deferred contributions and employee after-tax contributions under all other tax-qualified plans maintained by an Employer or any Related Company shall be suspended for at least twelve months after his receipt of the withdrawal. The Participant shall not make Tax-Deferred Contributions or elective tax-deferred contributions under any other tax-qualified plan maintained by an Employer or any Related Company for the Participant's taxable year immediately following the taxable year of the withdrawal in excess of the applicable limit under Section 402(g) of the Code for such next taxable year less the amount of the Participant's Tax-Deferred Contributions and elective tax-deferred contributions under any other plan maintained by an Employer or any Related Company for the taxable year of the withdrawal. 51 The minimum hardship withdrawal that a Participant may make is $1,000. The amount of a hardship withdrawal may include any amounts necessary to pay any Federal, state, or local income taxes or penalties reasonably anticipated to result from the distribution. A Participant shall not fail to be treated as an Eligible Employee for purposes of applying the limitations contained in Article VII of the Plan merely because his Tax-Deferred Contributions are suspended in accordance with this Section. 13.7 - ORDER OF WITHDRAWAL FROM A PARTICIPANT'S SUB-ACCOUNTS Distribution of a withdrawal amount shall be made from a Participant's Sub-Accounts, to the extent necessary, in the order prescribed by the Administrator, which order shall be uniform with respect to all Participants and non-discriminatory. If the Sub-Account from which a Participant is receiving a withdrawal is invested in more than one Investment Fund, the withdrawal shall be charged against the Investment Funds as directed by the Administrator. 52 ARTICLE XIV TERMINATION OF EMPLOYMENT AND SETTLEMENT DATE 14.1 - TERMINATION OF EMPLOYMENT AND SETTLEMENT DATE A Participant's Settlement Date shall occur on the date he terminates employment with an Employer and all Related Companies because of death, disability, retirement, or other termination of employment. Written notice of a Participant's Settlement Date shall be given by the Administrator to the Trustee. 14.2 - SEPARATE ACCOUNTING FOR NON-VESTED AMOUNTS If as of a Participant's Settlement Date the Participant's vested interest in his Employer Contributions Sub-Account is less than 100 percent, that portion of his Employer Contributions Sub-Account that is not vested shall be accounted for separately from the vested portion and shall be disposed of as provided in the following Section. If prior to his Settlement Date such a Participant made a withdrawal in accordance with the provisions of Article XIII, the vested portion of his Employer Contributions Sub-Account shall be equal to the maximum withdrawable amount as determined under Article XIII, without regard to any exclusion for amounts attributable to Employer Contributions that may be taken into account to satisfy the limitations on contributions for Highly Compensated Employees contained in Article VII. 14.3 - DISPOSITION OF NON-VESTED AMOUNTS That portion of a Participant's Employer Contributions Sub-Account that is not vested upon the occurrence of his Settlement Date shall be disposed of as follows: (a) If the Participant has no vested interest in his Separate Account upon the occurrence of his Settlement Date or his vested interest in his Separate Account as of the date of distribution does not exceed $3,500 resulting in the Participant's receipt of a single sum payment of such vested interest, the non-vested balance remaining in the Participant's Employer Contributions Sub-Account will be forfeited and his Separate Account closed as of (i) the Participant's Settlement Date, if the Participant has no vested interest in his Separate Account, or (ii) the date the single sum payment occurs. (b) If the Participant's vested interest in his Separate Account exceeds $3,500 and the Participant is eligible for and consents in writing to a single sum payment of his vested interest in his Separate Account, the non-vested 53 balance remaining in the Participant's Employer Contributions Sub-Account will be forfeited and his Separate Account closed as of the date the single sum payment occurs, provided that such distribution occurs prior to the end of the second Plan Year beginning on or after the Participant's Settlement Date. (c) If neither paragraph (a) nor paragraph (b) is applicable, the non-vested portion of the Participant's Employer Contributions Sub-Account will continue to be held in such Sub-Account and will not be forfeited until the end of the five-year period beginning on his Settlement Date. Whenever the non-vested portion of a Participant's Employer Contributions Sub-Account is forfeited under the provisions of the Plan with respect to a Plan Year, the amount of such forfeiture, as of the last day of the Plan Year, shall be applied first against Plan expenses for the Plan Year and then against the Employer Contribution obligations for the Plan Year of the Employer for which the Participant last performed services as an Employee. Notwithstanding the foregoing, however, should the amount of all such forfeitures for any Plan Year with respect to any Employer exceed the amount of such Employer's Employer Contribution obligation for the Plan Year, the excess amount of such forfeitures shall be held unallocated in a suspense account established with respect to the Employer and shall for all Plan purposes be applied against the Employer's Employer Contribution obligations for the following Plan Year. 14.4 - RECREDITING OF FORFEITED AMOUNTS A former Participant who forfeited the non-vested portion of his Employer Contributions Sub-Account in accordance with the provisions of this Article and who is reemployed by an Employer or a Related Company shall have such forfeited amounts recredited to a new Separate Account in his name, without adjustment for interim gains or losses experienced by the Trust, if: (a) he returns to employment with an Employer or a Related Company before the end of the five-year period beginning on the later of his Settlement Date or the date he received distribution of his vested interest in his Separate Account; (b) he resumes employment covered under the Plan before the end of the five-year period beginning on the date he is reemployed; and (c) if he received distribution of his vested interest in his Separate Account, he repays to the Plan the full amount of 54 such distribution before the end of the five-year period beginning on the date he is reemployed. Funds needed in any Plan Year to recredit the Separate Account of a Participant with the amounts of prior forfeitures in accordance with the preceding sentence shall come first from forfeitures that arise during such Plan Year, and then from Trust income earned in such Plan Year, with each Trust Fund being charged with the amount of such income proportionately, unless his Employer chooses to make an additional Employer Contribution, and shall finally be provided by his Employer by way of a separate Employer Contribution. 55 ARTICLE XV DISTRIBUTIONS 15.1 - DISTRIBUTIONS TO PARTICIPANTS A Participant whose Settlement Date occurs shall receive distribution of his vested interest in his Separate Account in the form provided under Article XVI beginning as soon as reasonably practicable following his Settlement Date or the date his application for distribution is filed with the Administrator, if later. In addition, a Participant who continues in employment with an Employer or a Related Company after his Normal Retirement Date may elect to receive distribution of all or any portion of his Separate Account in the form provided under Article XVI at any time following his Normal Retirement Date. 15.2 - DISTRIBUTIONS TO BENEFICIARIES If a Participant dies prior to the date distribution of his vested interest in his Separate Account begins under this Article, his Beneficiary shall receive distribution of the Participant's vested interest in his Separate Account in the form provided under Article XVI beginning as soon as reasonably practicable following the date the Beneficiary's application for distribution is filed with the Administrator. Unless distribution is to be made over the life or over a period certain not greater than the life expectancy of the Beneficiary, distribution of the Participant's entire vested interest shall be made to the Beneficiary no later than the end of the fifth calendar year beginning after the Participant's death. If distribution is to be made over the life or over a period certain no greater than the life expectancy of the Beneficiary, distribution shall commence no later than: (a) If the Beneficiary is not the Participant's spouse, the end of the first calendar year beginning after the Participant's death; or (b) If the Beneficiary is the Participant's spouse, the later of (i) the end of the first calendar year beginning after the Participant's death or (ii) the end of the calendar year in which the Participant would have attained age 70 1/2. If distribution is to be made to a Participant's spouse, it shall be made available within a reasonable period of time after the Participant's death that is no less favorable than the period of time applicable to other distributions. If a Participant dies after the date distribution of his vested interest in his 56 Separate Account begins under this Article, but before his entire vested interest in his Separate Account is distributed, his Beneficiary shall receive distribution of the remainder of the Participant's vested interest in his Separate Account beginning as soon as reasonably practicable following the Participant's date of death in a form that provides for distribution at least as rapidly as under the form in which the Participant was receiving distribution. 15.3 - CASH OUTS AND PARTICIPANT CONSENT Notwithstanding any other provision of the Plan to the contrary, if a Participant's vested interest in his Separate Account does not exceed $3,500, distribution of such vested interest shall be made to the Participant in a single sum payment as soon as reasonably practicable following his Settlement Date. If a Participant's vested interest in his Separate Account is $0, he shall be deemed to have received distribution of such vested interest as of his Settlement Date. If a Participant's vested interest in his Separate Account exceeds $3,500, distribution shall not commence to such Participant prior to his Normal Retirement Date without the Participant's written consent and the written consent of his spouse if the Participant's Separate Account is subject to the qualified joint and survivor annuity provisions under Article XVI and payment is not made through the purchase of a qualified joint and survivor annuity. If at the time of a distribution or deemed distribution to a Participant from his Separate Account, the Participant's vested interest in his Separate Account exceeded $3,500, then for purposes of this Section, the Participant's vested interest in his Separate Account on any subsequent date shall be deemed to exceed $3,500. 15.4 - REQUIRED COMMENCEMENT OF DISTRIBUTION Notwithstanding any other provision of the Plan to the contrary, distribution of a Participant's vested interest in his Separate Account shall commence to the Participant no later than the earlier of: (a) 60 days after the close of the Plan Year in which (i) the Participant's Normal Retirement Date occurs, (ii) the 10th anniversary of the year in which he commenced participation in the Plan occurs, or (iii) his Settlement Date occurs, whichever is latest; or (b) the April 1 following the close of the calendar year in which he attains age 70 1/2, whether or not his Settlement Date has occurred, except that if a Participant attained age 70 1/2 prior to January 1, 1988, and was not a five-percent owner (as defined in Section 416 of the Code) 57 at any time during the five-Plan-Year period ending within the calendar year in which he attained age 70 1/2, distribution of such Participant's vested interest in his Separate Account shall commence no later than the April 1 following the close of the calendar year in which he attains age 70 1/2 or retires, whichever is later. Distributions required to commence under this Section shall be made in the form provided under Article XVI and in accordance with Section 401(a)(9) of the Code and regulations issued thereunder, including the minimum distribution incidental benefit requirements. 15.5 - REEMPLOYMENT OF A PARTICIPANT If a Participant whose Settlement Date has occurred is reemployed by an Employer or a Related Company, he shall lose his right to any distribution or further distributions from the Trust arising from his prior Settlement Date and his interest in the Trust shall thereafter be treated in the same manner as that of any other Participant whose Settlement Date has not occurred. 15.6 - RESTRICTIONS ON ALIENATION Except as provided in Section 401(a)(13) of the Code relating to qualified domestic relations orders and Section 1.401(a)-13(b)(2) of Treasury regulations relating to Federal tax levies and judgments, no benefit under the Plan at any time shall be subject in any manner to anticipation, alienation, assignment (either at law or in equity), encumbrance, garnishment, levy, execution, or other legal or equitable process; and no person shall have power in any manner to anticipate, transfer, assign (either at law or in equity), alienate or subject to attachment, garnishment, levy, execution, or other legal or equitable process, or in any way encumber his benefits under the Plan, or any part thereof, and any attempt to do so shall be void. 15.7 - FACILITY OF PAYMENT If the Administrator finds that any individual to whom an amount is payable hereunder is incapable of attending to his financial affairs because of any mental or physical condition, including the infirmities of advanced age, such amount (unless prior claim therefor shall have been made by a duly qualified guardian or other legal representative) may, in the discretion of the Administrator, be paid to another person for the use or benefit of the individual found incapable of attending to his financial affairs or in satisfaction of legal obligations incurred by or on behalf of such individual. The Trustee shall make such payment only upon receipt of written instructions to such effect from the 58 Administrator. Any such payment shall be charged to the Separate Account from which any such payment would otherwise have been paid to the individual found incapable of attending to his financial affairs and shall be a complete discharge of any liability therefor under the Plan. 15.8 - INABILITY TO LOCATE PAYEE If any benefit becomes payable to any person, or to the executor or administrator of any deceased person, and if that person or his executor or administrator does not present himself to the Administrator within a reasonable period after the Administrator mails written notice of his eligibility to receive a distribution hereunder to his last known address and makes such other diligent effort to locate the person as the Administrator determines, that benefit will be forfeited. However, if the payee later files a claim for that benefit, the benefit will be restored. 15.9 - DISTRIBUTION PURSUANT TO QUALIFIED DOMESTIC RELATIONS ORDERS Notwithstanding any other provision of the Plan to the contrary, if a qualified domestic relations order so provides, distribution may be made to an alternate payee pursuant to a qualified domestic relations order, as defined in Section 414(p) of the Code, regardless of whether the Participant's Settlement Date has occurred or whether the Participant is otherwise entitled to receive a distribution under the Plan. 59 ARTICLE XVI FORM OF PAYMENT 16.1 - DEFINITIONS For purposes of this Article, the following terms have the following meanings: (a) A Participant's "annuity starting date" means the first day of the first period for which an amount is paid as an annuity or any other form. (b) The "automatic annuity form" means the form of annuity that will be purchased on behalf of a Participant who has elected the optional annuity form of payment unless the Participant elects another form of annuity. (c) A "qualified election" means an election that is made during the qualified election period. A qualified election of a form of payment other than a qualified joint and survivor annuity or designating a Beneficiary other than the Participant's spouse to receive amounts otherwise payable as a qualified preretirement survivor annuity must include the written consent of the Participant's spouse, if any. A Participant's spouse will be deemed to have given written consent to the Participant's election if the Participant establishes to the satisfaction of a Plan representative that spousal consent cannot be obtained because the spouse cannot be located or because of other circumstances set forth in Section 401(a)(11) of the Code and regulations issued thereunder. The spouse's written consent must acknowledge the effect of the Participant's election and must be witnessed by a Plan representative or a notary public. In addition, the spouse's written consent must either (i) specify the form of payment selected instead of a joint and survivor annuity, if applicable, and that such form may not be changed (except to a qualified joint and survivor annuity) without written spousal consent and specify any non-spouse Beneficiary designated by the Participant, if applicable, and that such Beneficiary may not be changed without written spousal consent or (ii) acknowledge that the spouse has the right to limit consent as provided in clause (i), but permit the Participant to change the form of payment selected or the designated Beneficiary without the spouse's further consent. Any written consent given or deemed to have been given by a Participant's spouse hereunder shall be irrevocable and shall be effective only 60 with respect to such spouse and not with respect to any subsequent spouse. (d) The "qualified election period" with respect to the automatic annuity form means the 90 day period ending on a Participant's annuity starting date. The "qualified election period" with respect to a qualified preretirement survivor annuity means the period beginning on the later of (i) the date he elects an annuity form of payment or (ii) the first day of the Plan Year in which the Participant attains age 35 or, if he terminates employment prior to such date, the day he terminates employment with his Employer and all Related Companies. A Participant whose employment has not terminated may make a qualified election designating a Beneficiary other than his spouse prior to the Plan Year in which he attains age 35; provided, however, that such election shall cease to be effective as of the first day of the Plan Year in which the Participant attains age 35. (e) A "qualified joint and survivor annuity" means an immediate annuity payable at earliest retirement age under the Plan, as defined in regulations issued under Section 401(a)(11) of the Code, for the life of a Participant with a survivor annuity payable for the life of the Participant's spouse that is equal to at least 50 percent of the amount of the annuity payable during the joint lives of the Participant and his spouse, provided that the survivor annuity shall not be payable to a Participant's spouse if such spouse is not the same spouse to whom the Participant was married on his annuity starting date. (f) A "qualified preretirement survivor annuity" means an annuity payable to the surviving spouse of a Participant in accordance with the provisions of Section 16.6. (g) A "single life annuity" means an annuity payable for the life of the Participant. 16.2 - NORMAL FORM OF PAYMENT Except as otherwise provided in Section 16.6, unless a Participant, or his Beneficiary, if the Participant has died, elects one of the optional forms of payment, distribution shall be made to the Participant, or his Beneficiary, as the case may be, in a single sum payment. Distribution of the Fair Market Value of the Participant's Separate Account shall be made in cash or in kind, as elected by the Participant, except that distribution shall not be made in Employer stock. 61 16.3 - OPTIONAL FORMS OF PAYMENT A Participant, or his Beneficiary, as the case may be, may elect to receive distribution in one of the following optional forms of payment: (a) Installment Payments - Distribution shall be made in a series of installments over a period not exceeding the life expectancy of the Participant, or the Participant's Beneficiary, if the Participant has died, or a period not exceeding the joint life and last survivor expectancy of the Participant and his Beneficiary. Each installment shall be equal in amount except as necessary to adjust for any changes in the value of the Participant's Separate Account. The determination of life expectancies shall be made on the basis of the expected return multiples in Tables V and VI of Section 1.72-9 of the Treasury regulations and shall be calculated either once at the time installment payments begin or annually for the Participant and/or his Beneficiary, if his Beneficiary is his spouse, as determined by the Participant at the time installment payments begin. Distribution of the Fair Market Value of the Participant's Separate Account shall be made in cash or in kind, as elected by the Participant, except that distribution shall not be made in Employer stock. (b) Annuity Contract - Distribution shall be made through the purchase of an annuity of the type described in Section 16.5. The terms of any annuity contract purchased hereunder and distributed to a Participant or his Beneficiary shall comply with the requirements of the Plan. 16.4 - CHANGE OF OPTION ELECTION Subject to the provisions of Section 16.5, a Participant or Beneficiary who has elected an optional form of payment may revoke or change his election at any time prior to his annuity starting date by filing with the Administrator a written election in the form prescribed by the Administrator. 16.5 - FORM OF ANNUITY REQUIREMENTS If a Participant elects to receive distribution through the purchase of an annuity contract, distribution shall be made to such Participant through the purchase of an annuity contract that provides for payment in one of the following automatic annuity forms: 62 (a) The automatic annuity form for a Participant who is married on his annuity starting date is the 50 percent qualified joint and survivor annuity. (b) The automatic annuity form for a Participant who is not married on his annuity starting date is the single life annuity. A Participant who has elected the optional annuity form of payment can revoke or change his election only pursuant to a qualified election. 16.6 - QUALIFIED PRERETIREMENT SURVIVOR ANNUITY REQUIREMENTS If a married Participant elects to receive distribution through the purchase of an annuity contract and dies before his annuity starting date, his spouse shall receive distribution of the value of the Participant's vested interest in his Separate Account through the purchase of an annuity contract that provides for payment over the life of the Participant's spouse. A Participant's spouse may elect to receive distribution under any one of the other forms of payment available under this Article instead of in the qualified preretirement survivor annuity form. If a married Participant's Beneficiary designation on file with the Administrator pursuant to Article XVII designates a non-spouse Beneficiary, the designation shall become inoperative upon the Participant's election to receive distribution through the purchase of an annuity contract, unless the Participant files a new designation of Beneficiary form with the Administrator. A Participant can only designate a non-spouse Beneficiary to receive distribution of that portion of his Separate Account otherwise payable as a qualified preretirement survivor annuity pursuant to a qualified election. 16.7 - DIRECT ROLLOVER Notwithstanding any other provision of the Plan to the contrary, in lieu of receiving distribution in the form of payment provided under this Article, a "qualified distributee" may elect in writing, in accordance with rules prescribed by the Administrator, to have any portion or all of a distribution made on or after January 1, 1993, that is an "eligible rollover distribution" paid directly by the Plan to the "eligible retirement plan" designated by the "qualified distributee"; provided, however, that this provision shall not apply if the total distribution is less than $200 and that a "qualified distributee" may not elect this provision with respect to a portion of a distribution that is less than $500. Any such payment by the Plan to another "eligible retirement plan" shall 63 be a direct rollover and shall be made only after all applicable consent requirements are satisfied. For purposes of this Section, the following terms have the following meanings: (a) An "eligible retirement plan" means an individual retirement account described in Section 408(a) of the Code, an individual retirement annuity described in Section 408(b) of the Code, an annuity plan described in Section 403(a) of the Code, or a qualified trust described in Section 401(a) of the Code that accepts rollovers; provided, however, that, in the case of a direct rollover by a surviving spouse, an eligible retirement plan does not include a qualified trust described in Section 401(a) of the Code. (b) An "eligible rollover distribution" means any distribution of all or any portion of the balance of a Participant's Separate Account; provided, however, that an eligible rollover distribution does not include: any distribution that is one of a series of substantially equal periodic payments made not less frequently than annually for the life or life expectancy of the qualified distributee or the joint lives or joint life expectancies of the qualified distributee and the qualified distributee's designated beneficiary, or for a specified period of ten years or more; any distribution to the extent such distribution is required under Section 401(a)(9) of the Code; and the portion of any distribution that consists of the Participant's After-Tax Contributions. (c) A "qualified distributee" means a Participant, his surviving spouse, or his spouse or former spouse who is an alternate payee under a qualified domestic relations order, as defined in Section 414(p) of the Code. 16.8 - NOTICE REGARDING FORMS OF PAYMENT Within the 60 day period ending 30 days before a Participant's annuity starting date, the Administrator shall provide him with a written explanation of his right to defer distribution until his Normal Retirement Date, or such later date as may be provided in the Plan, his right to make a direct rollover, and the forms of payment available under the Plan, including a written explanation of (i) the terms and conditions of the automatic annuity form applicable if the Participant elects to receive distribution through the purchase of an annuity contract, (ii) the Participant's right to choose a form of payment other than the automatic annuity form or to revoke such choice, and (iii) the rights of the Participant's spouse. Notwithstanding the foregoing, distribution of the Participant's Separate Account may 64 commence less than 30 days after such notice is provided to the Participant if (i) the Administrator clearly informs the Participant of his right to consider his election of whether or not to make a direct rollover or to receive a distribution prior to his Normal Retirement Date and his election of a form of payment for a period of at least 30 days following his receipt of the notice, (ii) the Participant, after receiving the notice, affirmatively elects an early distribution with his spouse's written consent, if necessary, (iii) the Participant's annuity starting date is a date after the date the notice is provided to him, (iv) the Participant may revoke his election at any time prior to the later of his annuity starting date or the expiration of the seven-day period beginning the day after the date the notice is provided to him, and (v) distribution does not commence to the Participant before such revocation period ends. In addition, in the event a Participant elects to receive distribution through the purchase of an annuity contract, the Administrator shall provide such a Participant with a written explanation of (i) the terms and conditions of the qualified preretirement survivor annuity, (ii) the Participant's right to designate a non-spouse Beneficiary to receive distribution of that portion of his Separate Account otherwise payable as a qualified preretirement survivor annuity or to revoke such designation, and (iii) the rights of the Participant's spouse. The Administrator shall provide such explanation within one of the following periods, whichever ends last: (a) the period beginning with the first day of the Plan Year in which the Participant attains age 32 and ending on the last day of the Plan Year preceding the Plan Year in which the Participant attains age 35; (b) the period beginning 12 calendar months before the date an individual becomes a Participant and ending 12 calendar months after such date; or (c) the period beginning 12 calendar months before the date the Participant elects to receive distribution through the purchase of an annuity contract and ending 12 calendar months after such date; provided, however, that in the case of a Participant who separates from service prior to attaining age 35, the explanation shall be provided to such Participant within the period beginning 12 calendar months before the Participant's separation from service and ending 12 calendar months after his separation from service. 65 16.9 - REEMPLOYMENT If a Participant is reemployed by an Employer or a Related Company prior to receiving distribution of the entire balance of his vested interest in his Separate Account, his prior election of a form of payment hereunder shall become ineffective. Notwithstanding the foregoing, if a Participant had elected to receive distribution through the purchase of an annuity contract, the requirements of Sections 16.5 and 16.6 of the Plan shall continue in effect with respect to his entire Separate Account. 66 ARTICLE XVII BENEFICIARIES 17.1 - DESIGNATION OF BENEFICIARY A married Participant's Beneficiary shall be his spouse, unless the Participant designates a person or persons other than his spouse as Beneficiary with his spouse's written consent. A Participant may designate a Beneficiary on the form prescribed by the Administrator. If no Beneficiary has been designated pursuant to the provisions of this Section, or if no Beneficiary survives the Participant and he has no surviving spouse, then the Beneficiary under the Plan shall be the Participant's estate. If a Beneficiary dies after becoming entitled to receive a distribution under the Plan but before distribution is made to him in full, and if no other Beneficiary has been designated to receive the balance of the distribution in that event, the estate of the deceased Beneficiary shall be the Beneficiary as to the balance of the distribution. A Participant's designation of a Beneficiary shall be subject to the qualified preretirement survivor annuity provisions of Article XVI. 17.2 - SPOUSAL CONSENT REQUIREMENTS Any written spousal consent given pursuant to this Article must acknowledge the effect of the action taken and must be witnessed by a Plan representative or a notary public. In addition, the spouse's written consent must either (i) specify any non-spouse Beneficiary designated by the Participant and that such Beneficiary may not be changed without written spousal consent or (ii) acknowledge that the spouse has the right to limit consent to a specific Beneficiary, but permit the Participant to change the designated Beneficiary without the spouse's further consent. A Participant's spouse will be deemed to have given written consent to the Participant's designation of Beneficiary if the Participant establishes to the satisfaction of a Plan representative that such consent cannot be obtained because the spouse cannot be located or because of other circumstances set forth in Section 401(a)(11) of the Code and regulations issued thereunder. Any written consent given or deemed to have been given by a Participant's spouse hereunder shall be valid only with respect to the spouse who signs the consent. 67 ARTICLE XVIII ADMINISTRATION 18.1 - AUTHORITY OF THE SPONSOR The Sponsor, which shall be the administrator for purposes of ERISA and the plan administrator for purposes of the Code, shall be responsible for the administration of the Plan and, in addition to the powers and authorities expressly conferred upon it in the Plan, shall have all such powers and authorities as may be necessary to carry out the provisions of the Plan, including the power and authority to interpret and construe the provisions of the Plan, to make benefit determinations, and to resolve any disputes which arise under the Plan. The Sponsor may employ such attorneys, agents, and accountants as it may deem necessary or advisable to assist in carrying out its duties hereunder. The Sponsor shall be a "named fiduciary" as that term is defined in Section 402(a)(2) of ERISA. The Sponsor may: (a) allocate any of the powers, authority, or responsibilities for the operation and administration of the Plan (other than trustee responsibilities as defined in Section 405(c)(3) of ERISA) among named fiduciaries; and (b) designate a person or persons other than a named fiduciary to carry out any of such powers, authority, or responsibilities; except that no allocation by the Sponsor of, or designation by the Sponsor with respect to, any of such powers, authority, or responsibilities to another named fiduciary or a person other than a named fiduciary shall become effective unless such allocation or designation shall first be accepted by such named fiduciary or other person in a writing signed by it and delivered to the Sponsor. 18.2 - ACTION OF THE SPONSOR Any act authorized, permitted, or required to be taken under the Plan by the Sponsor and which has not been delegated in accordance with Section 18.1, may be taken by a majority of the members of the board of directors of the Sponsor, either by vote at a meeting, or in writing without a meeting, or by the employee or employees of the Sponsor designated by the board of directors to carry out such acts on behalf of the Sponsor. All notices, advice, directions, certifications, approvals, and instructions required or authorized to be given by the Sponsor as under the Plan shall be in writing and signed by either (i) a majority of the members of the board of directors of the Sponsor or by such 68 member or members as may be designated by an instrument in writing, signed by all the members thereof, as having authority to execute such documents on its behalf, or (ii) the employee or employees authorized to act for the Sponsor in accordance with the provisions of this Section. 18.3 - CLAIMS REVIEW PROCEDURE Whenever a claim for benefits under the Plan filed by any person (herein referred to as the "Claimant") is denied, whether in whole or in part, the Sponsor shall transmit a written notice of such decision to the Claimant within 90 days of the date the claim was filed or, if special circumstances require an extension, within 180 days of such date, which notice shall be written in a manner calculated to be understood by the Claimant and shall contain a statement of (i) the specific reasons for the denial of the claim, (ii) specific reference to pertinent Plan provisions on which the denial is based, and (iii) a description of any additional material or information necessary for the Claimant to perfect the claim and an explanation of why such information is necessary. The notice shall also include a statement advising the Claimant that, within 60 days of the date on which he receives such notice, he may obtain review of such decision in accordance with the procedures hereinafter set forth. Within such 60-day period, the Claimant or his authorized representative may request that the claim denial be reviewed by filing with the Sponsor a written request therefor, which request shall contain the following information: (a) the date on which the Claimant's request was filed with the Sponsor; provided, however, that the date on which the Claimant's request for review was in fact filed with the Sponsor shall control in the event that the date of the actual filing is later than the date stated by the Claimant pursuant to this paragraph; (b) the specific portions of the denial of his claim which the Claimant requests the Sponsor to review; (c) a statement by the Claimant setting forth the basis upon which he believes the Sponsor should reverse the previous denial of his claim for benefits and accept his claim as made; and (d) any written material (offered as exhibits) which the Claimant desires the Sponsor to examine in its consideration of his position as stated pursuant to paragraph (c) of this Section. 69 Within 60 days of the date determined pursuant to paragraph (a) of this Section or, if special circumstances require an extension, within 120 days of such date, the Sponsor shall conduct a full and fair review of the decision denying the Claimant's claim for benefits and shall render its written decision on review to the Claimant. The Sponsor's decision on review shall be written in a manner calculated to be understood by the Claimant and shall specify the reasons and Plan provisions upon which the Sponsor's decision was based. 18.4 - QUALIFIED DOMESTIC RELATIONS ORDERS The Sponsor shall establish reasonable procedures to determine the status of domestic relations orders and to administer distributions under domestic relations orders which are deemed to be qualified orders. Such procedures shall be in writing and shall comply with the provisions of Section 414(p) of the Code and regulations issued thereunder. 18.5 - INDEMNIFICATION In addition to whatever rights of indemnification the members of the board of directors of the Sponsor or any employee or employees of the Sponsor to whom any power, authority, or responsibility is delegated pursuant to Section 18.2, may be entitled under the articles of incorporation or regulations of the Sponsor, under any provision of law, or under any other agreement, the Sponsor shall satisfy any liability actually and reasonably incurred by any such person or persons, including expenses, attorneys' fees, judgments, fines, and amounts paid in settlement (other than amounts paid in settlement not approved by the Sponsor), in connection with any threatened, pending or completed action, suit, or proceeding which is related to the exercising or failure to exercise by such person or persons of any of the powers, authority, responsibilities, or discretion as provided under the Plan, or reasonably believed by such person or persons to be provided hereunder, and any action taken by such person or persons in connection therewith, unless the same is judicially determined to be the result of such person or persons' gross negligence or willful misconduct. 18.6 - ACTIONS BINDING Subject to the provisions of Section 18.3, any action taken by the Sponsor which is authorized, permitted, or required under the Plan shall be final and binding upon the Employers, the Trustee, all persons who have or who claim an interest under the Plan, and all third parties dealing with the Employers or the Trustee. 70 ARTICLE XIX AMENDMENT AND TERMINATION 19.1 - AMENDMENT Subject to the provisions of Section 19.2, the Sponsor may at any time and from time to time, by action of its board of directors, or such officers of the Sponsor as are authorized by its board of directors, amend the Plan, either prospectively or retroactively. Any such amendment shall be by written instrument executed by the Sponsor. 19.2 - LIMITATION ON AMENDMENT The Sponsor shall make no amendment to the Plan which shall decrease the accrued benefit of any Participant or Beneficiary, except that nothing contained herein shall restrict the right to amend the provisions of the Plan relating to the administration of the Plan and Trust. Moreover, no such amendment shall be made hereunder which shall permit any part of the Trust to revert to an Employer or any Related Company or be used or be diverted to purposes other than the exclusive benefit of Participants and Beneficiaries. 19.3 - TERMINATION The Sponsor reserves the right, by action of its board of directors, to terminate the Plan as to all Employers at any time (the effective date of such termination being hereinafter referred to as the "termination date"). Upon any such termination of the Plan, the following actions shall be taken for the benefit of Participants and Beneficiaries: (a) As of the termination date, each Investment Fund shall be valued and all Separate Accounts and Sub-Accounts shall be adjusted in the manner provided in Article XI, with any unallocated contributions or forfeitures being allocated as of the termination date in the manner otherwise provided in the Plan. The termination date shall become a Valuation Date for purposes of Article XI. In determining the net worth of the Trust, there shall be included as a liability such amounts as shall be necessary to pay all expenses in connection with the termination of the Trust and the liquidation and distribution of the property of the Trust, as well as other expenses, whether or not accrued, and shall include as an asset all accrued income. (b) All Separate Accounts shall then be disposed of to or for the benefit of each Participant or Beneficiary in 71 accordance with the provisions of Article XV as if the termination date were his Settlement Date; provided, however, that notwithstanding the provisions of Article XV, if the Plan does not offer an annuity option and if neither his Employer nor a Related Company establishes or maintains another defined contribution plan (other than an employee stock ownership plan as defined in Section 4975(e)(7) of the Code), the Participant's written consent to the commencement of distribution shall not be required regardless of the value of the vested portions of his Separate Account. (c) Notwithstanding the provisions of paragraph (b) of this Section, no distribution shall be made to a Participant of any portion of the balance of his Tax-Deferred Contributions Sub-Account prior to his separation from service (other than a distribution made in accordance with Article XIII or required in accordance with Section 401(a)(9) of the Code) unless (i) neither his Employer nor a Related Company establishes or maintains another defined contribution plan (other than an employee stock ownership plan as defined in Section 4975(e)(7) of the Code, a tax credit employee stock ownership plan as defined in Section 409 of the Code, or a simplified employee pension as defined in Section 408(k) of the Code) either at the time the Plan is terminated or at any time during the period ending 12 months after distribution of all assets from the Plan; provided, however, that this provision shall not apply if fewer than two percent of the Eligible Employees under the Plan were eligible to participate at any time in such other defined contribution plan during the 24-month period beginning 12 months before the Plan termination, and (ii) the distribution the Participant receives is a "lump sum distribution" as defined in Section 402(e)(4) of the Code, without regard to clauses (i), (ii), (iii), and (iv) of sub-paragraph (A), sub-paragraph (B), or sub-paragraph (H) thereof. Notwithstanding anything to the contrary contained in the Plan, upon any such Plan termination, the vested interest of each Participant and Beneficiary in his Employer Contributions Sub-Account shall be 100 percent; and, if there is a partial termination of the Plan, the vested interest of each Participant and Beneficiary who is affected by the partial termination in his Employer Contributions Sub-Account shall be 100 percent. For purposes of the preceding sentence only, the Plan shall be deemed to terminate automatically if there shall be a complete discontinuance of contributions hereunder by all Employers. 72 19.4 - REORGANIZATION The merger, consolidation, or liquidation of any Employer with or into any other Employer or a Related Company shall not constitute a termination of the Plan as to such Employer. If an Employer disposes of substantially all of the assets used by the Employer in a trade or business or disposes of a subsidiary and in connection therewith one or more Participants terminates employment but continues in employment with the purchaser of the assets or with such subsidiary, no distribution from the Plan shall be made to any such Participant prior to his separation from service (other than a distribution made in accordance with Article XIII or required in accordance with Section 401(a)(9) of the Code), except that a distribution shall be permitted to be made in such a case, subject to the Participant's consent (to the extent required by law), if (i) the distribution would constitute a "lump sum distribution" as defined in section 402(e)(4) of the Code, without regard to clauses (i), (ii), (iii), or (iv) of sub-paragraph (A), sub-paragraph (B), or sub-paragraph (H) thereof, (ii) the Employer continues to maintain the Plan after the disposition, (iii) the purchaser does not maintain the Plan after the disposition, and (iv) the distribution is made by the end of the second calendar year after the calendar year in which the disposition occurred. 19.5 - WITHDRAWAL OF AN EMPLOYER An Employer other than the Sponsor may withdraw from the Plan at any time upon notice in writing to the Administrator (the effective date of such withdrawal being hereinafter referred to as the "withdrawal date"), and shall thereupon cease to be an Employer for all purposes of the Plan. An Employer shall be deemed automatically to withdraw from the Plan in the event of its complete discontinuance of contributions, or, subject to Section 19.4 and unless the Sponsor otherwise directs, it ceases to be a Related Company of the Sponsor or any other Employer. Upon the withdrawal of an Employer, the withdrawing Employer shall determine whether a partial termination has occurred with respect to its Employees. In the event that the withdrawing Employer determines a partial termination has occurred, the action specified in Section 19.3 shall be taken as of the withdrawal date, as on a termination of the Plan, but with respect only to Participants who are employed solely by the withdrawing Employer, and who, upon such withdrawal, are neither transferred to nor continued in employment with any other Employer or a Related Company. The interest of any Participant employed by the withdrawing Employer who is transferred to or continues in employment with any other Employer or a Related Company, and the interest of any Participant employed solely by an Employer or a Related Company other than the withdrawing 73 Employer, shall remain unaffected by such withdrawal; no adjustment to his Separate Accounts shall be made by reason of the withdrawal; and he shall continue as a Participant hereunder subject to the remaining provisions of the Plan. 74 ARTICLE XX ADOPTION BY OTHER ENTITIES 20.1 - ADOPTION BY RELATED COMPANIES A Related Company that is not an Employer may, with the consent of the Sponsor, adopt the Plan and become an Employer hereunder by causing an appropriate written instrument evidencing such adoption to be executed in accordance with the requirements of its organizational authority. Any such instrument shall specify the effective date of the adoption. 20.2 - EFFECTIVE PLAN PROVISIONS An Employer who adopts the Plan shall be bound by the provisions of the Plan in effect at the time of the adoption and as subsequently in effect because of any amendment to the Plan. 75 ARTICLE XXI MISCELLANEOUS PROVISIONS 21.1 - NO COMMITMENT AS TO EMPLOYMENT Nothing contained herein shall be construed as a commitment or agreement upon the part of any person to continue his employment with an Employer or Related Company, or as a commitment on the part of any Employer or Related Company to continue the employment, compensation, or benefits of any person for any period. 21.2 - BENEFITS Nothing in the Plan nor the Trust Agreement shall be construed to confer any right or claim upon any person, firm, or corporation other than the Employers, the Trustee, Participants, and Beneficiaries. 21.3 - NO GUARANTEES The Employers, the Administrator, and the Trustee do not guarantee the Trust from loss or depreciation, nor do they guarantee the payment of any amount which may become due to any person hereunder. 21.4 - EXPENSES The expenses of administration of the Plan, including the expenses of the Administrator and fees of the Trustee, shall be paid from the Trust as a general charge thereon, unless the Sponsor elects to make payment. Notwithstanding the foregoing, the Sponsor may direct that administrative expenses that are allocable to the Separate Account of a specific Participant shall be paid from that Separate Account and the costs incident to the management of the assets of an Investment Fund or to the purchase or sale of securities held in an Investment Fund shall be paid by the Trustee from such Investment Fund. 21.5 - PRECEDENT Except as otherwise specifically provided, no action taken in accordance with the Plan shall be construed or relied upon as a precedent for similar action under similar circumstances. 21.6 - DUTY TO FURNISH INFORMATION The Employers, the Administrator, and the Trustee shall furnish to any of the others any documents, reports, returns, statements, 76 or other information that the other reasonably deems necessary to perform its duties hereunder or otherwise imposed by law. 21.7 - WITHHOLDING The Trustee shall withhold any tax which by any present or future law is required to be withheld, and which the Administrator notifies the Trustee in writing is to be so withheld, from any payment to any Participant or Beneficiary hereunder. 21.8 - MERGER, CONSOLIDATION, OR TRANSFER OF PLAN ASSETS The Plan shall not be merged or consolidated with any other plan, nor shall any of its assets or liabilities be transferred to another plan, unless, immediately after such merger, consolidation, or transfer of assets or liabilities, each Participant in the Plan would receive a benefit under the Plan which is at least equal to the benefit he would have received immediately prior to such merger, consolidation, or transfer of assets or liabilities (assuming in each instance that the Plan had then terminated). 21.9 - BACK PAY AWARDS The provisions of this Section shall apply only to an Employee or former Employee who becomes entitled to back pay by an award or agreement of an Employer without regard to mitigation of damages. If a person to whom this Section applies was or would have become an Eligible Employee after such back pay award or agreement has been effected, and if any such person who had not previously elected to make Tax-Deferred Contributions pursuant to Section 4.1 shall within 30 days of the date he receives notice of the provisions of this Section make an election to make Tax-Deferred Contributions in accordance with such Section 4.1 (retroactive to any Enrollment Date as of which he was or has become eligible to do so), then such Participant may elect that any Tax-Deferred Contributions not previously made on his behalf but which, after application of the foregoing provisions of this Section, would have been made under the provisions of Article IV and any After-Tax Contributions which he had not previously made but which, after application of the foregoing provisions of this Section, he would have made under the provisions of Article V, shall be made out of the proceeds of such back pay award or agreement. In addition, if any such Employee or former Employee would have been eligible to participate in the allocation of Employer Contributions under the provisions of Article VI for any prior Plan Year after such back pay award or agreement has been effected, his Employer shall make an Employer Contribution equal to the amount of the Employer Contribution which would have been allocated to such Participant under the provisions of Article VI 77 as in effect during each such Plan Year. The amounts of such additional contributions shall be credited to the Separate Account of such Participant. Any additional contributions made by such Participant and by an Employer pursuant to this Section shall be made in accordance with, and subject to the limitations of the applicable provisions of Articles IV, V, VI, and VII. 21.10 - CONDITION ON EMPLOYER CONTRIBUTIONS Notwithstanding anything to the contrary contained in the Plan or the Trust Agreement, any contribution of an Employer hereunder is conditioned upon the continued qualification of the Plan under Section 401(a) of the Code, the exempt status of the Trust under Section 501(a) of the Code, and the deductibility of the contribution under Section 404 of the Code. Except as otherwise provided in this Section and Section 21.11, however, in no event shall any portion of the property of the Trust ever revert to or otherwise inure to the benefit of an Employer or any Related Company. 21.11 - RETURN OF CONTRIBUTIONS TO AN EMPLOYER Notwithstanding any other provision of the Plan or the Trust Agreement to the contrary, in the event any contribution of an Employer made hereunder: (a) is made under a mistake of fact, or (b) is disallowed as a deduction under Section 404 of the Code, such contribution may be returned to the Employer within one year after the payment of the contribution or the disallowance of the deduction to the extent disallowed, whichever is applicable. In the event the Plan does not initially qualify under Section 401(a) of the Code, any contribution of an Employer made hereunder may be returned to the Employer within one year of the date of denial of the initial qualification of the Plan, but only if an application for determination was made within the period of time prescribed under Section 403(c)(2)(B) of ERISA. 21.12 - VALIDITY OF PLAN The validity of the Plan shall be determined and the Plan shall be construed and interpreted in accordance with the laws of the State or Commonwealth in which the Sponsor has its principal place of business, except as preempted by applicable Federal law. The invalidity or illegality of any provision of the Plan shall not affect the legality or validity of any other part thereof. 78 21.13 - TRUST AGREEMENT The Trust Agreement and the Trust maintained thereunder shall be deemed to be a part of the Plan as if fully set forth herein and the provisions of the Trust Agreement are hereby incorporated by reference into the Plan. 21.14 - PARTIES BOUND The Plan shall be binding upon the Employers, all Participants and Beneficiaries hereunder, and, as the case may be, the heirs, executors, administrators, successors, and assigns of each of them. 21.15 - APPLICATION OF CERTAIN PLAN PROVISIONS A Participant's Beneficiary, if the Participant has died, or alternate payee under a qualified domestic relations order shall be treated as a Participant for purposes of directing investments as provided in Article X. For purposes of the general administrative provisions and limitations of the Plan, a Participant's Beneficiary or alternate payee under a qualified domestic relations order shall be treated as any other person entitled to receive benefits under the Plan. Upon any termination of the Plan, any such Beneficiary or alternate payee under a qualified domestic relations order who has an interest under the Plan at the time of such termination, which does not cease by reason thereof, shall be deemed to be a Participant for all purposes of the Plan. 21.16 - LEASED EMPLOYEES Any leased employee, other than an excludable leased employee, shall be treated as an employee of the Employer for which he performs services for all purposes of the Plan with respect to the provisions of Sections 401(a)(3), (4), (7), and (16), and 408(k), 410, 411, 415, and 416 of the Code; provided, however, that no leased employee shall accrue a benefit hereunder based on service as a leased employee except as otherwise specifically provided in the Plan. A "leased employee" means any person who performs services for an Employer or a Related Company (the "recipient") (other than an employee of the recipient) pursuant to an agreement between the recipient and any other person (the "leasing organization") on a substantially full-time basis for a period of at least one year, provided that such services are of a type historically performed, in the business field of the recipient, by employees. An "excludable leased employee" means any leased employee of the recipient who is covered by a money purchase pension plan maintained by the leasing organization which provides for (i) a nonintegrated employer contribution on 79 behalf of each participant in the plan equal to at least ten percent of compensation, (ii) full and immediate vesting, and (iii) immediate participation by employees of the leasing organization (other than employees who perform substantially all of their services for the leasing organization or whose compensation from the leasing organization in each plan year during the four-year period ending with the plan year is less than $1,000); provided, however, that leased employees do not constitute more than 20 percent of the recipient's nonhighly compensated work force. For purposes of this Section, contributions or benefits provided to a leased employee by the leasing organization that are attributable to services performed for the recipient shall be treated as provided by the recipient. 21.17 - TRANSFERRED FUNDS If funds from another qualified plan are transferred or merged into the Plan, such funds shall be held and administered in accordance with any restrictions applicable to them under such other plan to the extent required by law and shall be accounted for separately to the extent necessary to accomplish the foregoing. 80 ARTICLE XXII TOP-HEAVY PROVISIONS 22.1 - DEFINITIONS For purposes of this Article, the following terms shall have the following meanings: (a) The "compensation" of an employee means compensation as defined in Section 415 of the Code and regulations issued thereunder. In no event, however, shall the compensation of a Participant taken into account under the Plan for any Plan Year exceed (1) $200,000 for Plan Years beginning prior to January 1, 1994, or (2) $150,000 for Plan Years beginning on or after January 1, 1994 (subject to adjustment annually as provided in Section 401(a)(17)(B) and Section 415(d) of the Code; provided, however, that the dollar increase in effect on January 1 of any calendar year, if any, is effective for Plan Years beginning in such calendar year). If the compensation of a Participant is determined over a period of time that contains fewer than 12 calendar months, then the annual compensation limitation described above shall be adjusted with respect to that Participant by multiplying the annual compensation limitation in effect for the Plan Year by a fraction the numerator of which is the number of full months in the period and the denominator of which is 12; provided, however, that no proration is required for a Participant who is covered under the Plan for less than one full Plan Year if the formula for allocations is based on Compensation for a period of at least 12 months. In determining the compensation, for purposes of applying the annual compensation limitation described above, of a Participant who is a five-percent owner or one of the ten Highly Compensated Employees receiving the greatest compensation for the Plan Year, the compensation of the Participant's spouse and of his lineal descendants who have not attained age 19 as of the close of the Plan Year shall be included as compensation of the Participant for the Plan Year. If as a result of applying the family aggregation rule described in the preceding sentence the annual compensation limitation would be exceeded, the limitation shall be prorated among the affected family members in proportion to each member's compensation as determined prior to application of the family aggregation rules. (b) The "determination date" with respect to any Plan Year means the last day of the preceding Plan Year, except that 81 the determination date with respect to the first Plan Year of the Plan, shall mean the last day of such Plan Year. (c) A "key employee" means any Employee or former Employee who is a key employee pursuant to the provisions of Section 416(i)(1) of the Code and any Beneficiary of such Employee or former Employee. (d) A "non-key employee" means any Employee who is not a key employee. (e) A "permissive aggregation group" means those plans included in each Employer's required aggregation group together with any other plan or plans of the Employer, so long as the entire group of plans would continue to meet the requirements of Sections 401(a)(4) and 410 of the Code. (f) A "required aggregation group" means the group of tax-qualified plans maintained by an Employer or a Related Company consisting of each plan in which a key employee participates and each other plan that enables a plan in which a key employee participates to meet the requirements of Section 401(a)(4) or Section 410 of the Code, including any plan that terminated within the five-year period ending on the relevant determination date. (g) A "super top-heavy group" with respect to a particular Plan Year means a required or permissive aggregation group that, as of the determination date, would qualify as a top-heavy group under the definition in paragraph (i) of this Section with "90 percent" substituted for "60 percent" each place where "60 percent" appears in the definition. (h) A "super top-heavy plan" with respect to a particular Plan Year means a plan that, as of the determination date, would qualify as a top-heavy plan under the definition in paragraph (j) of this Section with "90 percent" substituted for "60 percent" each place where "60 percent" appears in the definition. A plan is also a "super top-heavy plan" if it is part of a super top-heavy group. (i) A "top-heavy group" with respect to a particular Plan Year means a required or permissive aggregation group if the sum, as of the determination date, of the present value of the cumulative accrued benefits for key employees under all defined benefit plans included in such group and the aggregate of the account balances of key employees under all defined contribution plans included in such group 82 exceeds 60 percent of a similar sum determined for all employees covered by the plans included in such group. (j) A "top-heavy plan" with respect to a particular Plan Year means (i), in the case of a defined contribution plan (including any simplified employee pension plan), a plan for which, as of the determination date, the aggregate of the accounts (within the meaning of Section 416(g) of the Code and the regulations and rulings thereunder) of key employees exceeds 60 percent of the aggregate of the accounts of all participants under the plan, with the accounts valued as of the relevant valuation date and increased for any distribution of an account balance made in the five-year period ending on the determination date, (ii), in the case of a defined benefit plan, a plan for which, as of the determination date, the present value of the cumulative accrued benefits payable under the plan (within the meaning of Section 416(g) of the Code and the regulations and rulings thereunder) to key employees exceeds 60 percent of the present value of the cumulative accrued benefits under the plan for all employees, with the present value of accrued benefits to be determined under the accrual method uniformly used under all plans maintained by an Employer or, if no such method exists, under the slowest accrual method permitted under the fractional accrual rate of Section 411(b)(1)(C) of the Code and including the present value of any part of any accrued benefits distributed in the five-year period ending on the determination date, and (iii) any plan (including any simplified employee pension plan) included in a required aggregation group that is a top-heavy group. For purposes of this paragraph, the accounts and accrued benefits of any employee who has not performed services for an Employer or a Related Company during the five-year period ending on the determination date shall be disregarded. For purposes of this paragraph, the present value of cumulative accrued benefits under a defined benefit plan for purposes of top-heavy determinations shall be calculated using the actuarial assumptions otherwise employed under such plan, except that the same actuarial assumptions shall be used for all plans within a required or permissive aggregation group. A Participant's interest in the Plan attributable to any Rollover Contributions, except Rollover Contributions made from a plan maintained by an Employer or a Related Company, shall not be considered in determining whether the Plan is top-heavy. Notwithstanding the foregoing, if a plan is included in a required or permissive aggregation group that is not a top-heavy group, such plan shall not be a top-heavy plan. 83 (k) The "valuation date" with respect to any determination date means the most recent Valuation Date occurring within the 12-month period ending on the determination date. 22.2 - APPLICABILITY Notwithstanding any other provision of the Plan to the contrary, the provisions of this Article shall be applicable during any Plan Year in which the Plan is determined to be a top-heavy plan as hereinafter defined. If the Plan is determined to be a top-heavy plan and upon a subsequent determination date is determined no longer to be a top-heavy plan, the vesting provisions of Article VI shall again become applicable as of such subsequent determination date; provided, however, that if the prior vesting provisions do again become applicable, any Employee with three or more years of Vesting Service may elect in accordance with the provisions of Article VI, to continue to have his vested interest in his Employer Contributions Sub-Account determined in accordance with the vesting schedule specified in Section 22.5. 22.3 - MINIMUM EMPLOYER CONTRIBUTION If the Plan is determined to be a top-heavy plan, the Employer Contributions allocated to the Separate Account of each non-key employee who is an Eligible Employee and who is employed by an Employer or a Related Company on the last day of such top-heavy Plan Year shall be no less than the lesser of (i) three percent of his compensation or (ii) the largest percentage of compensation that is allocated as an Employer Contribution and/or Tax-Deferred Contribution for such Plan Year to the Separate Account of any key employee; except that, in the event the Plan is part of a required aggregation group, and the Plan enables a defined benefit plan included in such group to meet the requirements of Section 401(a)(4) or 410 of the Code, the minimum allocation of Employer Contributions to each such non-key employee shall be three percent of the compensation of such non-key employee. Any minimum allocation to a non-key employee required by this Section shall be made without regard to any social security contribution made on behalf of the non-key employee, his number of hours of service, his level of compensation, or whether he declined to make elective or mandatory contributions. Notwithstanding the minimum top-heavy allocation requirements of this Section, if the Plan is a top-heavy plan, each non-key employee who is an Eligible Employee and who is employed by an Employer or a Related Company on the last day of a top-heavy Plan Year and who is also covered under a top-heavy defined benefit plan maintained by an Employer or a Related Company will receive the top-heavy benefits provided under the defined benefit plan in lieu of the minimum top-heavy 84 allocation under the Plan offset by the benefits provided under the Plan. 22.4 - ADJUSTMENTS TO SECTION 415 LIMITATIONS If the Plan is determined to be a top-heavy plan and an Employer maintains a defined benefit plan covering some or all of the Employees that are covered by the Plan, the defined benefit plan fraction and the defined contribution plan fraction, described in Article VII, shall be determined as provided in Section 415 of the Code by substituting "1.0" for "1.25" each place where "1.25" appears, except that such substitutions shall not be applied to the Plan if (i) the Plan is not a super top-heavy plan, (ii) the Employer Contribution for such top-heavy Plan Year for each non-key employee who is to receive a minimum top-heavy benefit hereunder is not less than four percent of such non-key employee's compensation, and (iii) the minimum annual retirement benefit accrued by a non-key employee who participates under one or more defined benefit plans of an Employer or a Related Company for such top-heavy Plan Year is not less than the lesser of three percent times years of service with an Employer or a Related Company or thirty percent. 22.5 - ACCELERATED VESTING If the Plan is determined to be a top-heavy plan, a Participant's vested interest in his Employer Contributions Sub-Account shall be determined no less rapidly than in accordance with the following vesting schedule: YEARS OF VESTING SERVICE VESTED INTEREST less than 1 0% 1 but less than 2 20% 2 but less than 3 40% 3 but less than 4 60% 4 but less than 5 80% 5 or more 100% 85 ARTICLE XXIII EFFECTIVE DATE 23.1 - EFFECTIVE DATE OF AMENDMENT AND RESTATEMENT This amendment and restatement is effective as of October 1, 1997. * * * EXECUTED AT BLUE BELL, PA, this 30TH day of DECEMBER, 1997. C&D TECHNOLOGIES, INC. By: /s/ Stephen E. Markert, Jr. Title: VP-CFO 87 EX-10.5 4 EXHIBIT 10.5 C&D Charter Power Systems, Inc. Pension Plan for Salaried Employees Amendment 3 It is the desire of the Board of Directors of C&D Charter Power Systems, Inc. (hereinafter referred to as "the Company") to amend the C&D Charter Power Systems, Inc. Pension Plan for Salaried Employees (hereinafter referred to as "the Plan") to modify the factors used in determining a lump sum pension payable under the Plan. Under Section 10.1 of the Plan, the Company retains the right to amend the Plan. (1) Section 6 of Appendix A to the Plan is hereby amended by the addition of the following paragraph at the end thereof: "Lump sum settlements made in accordance with Section 6.7 and 6.8 herein, on or after the first day of the month following the date of adoption of this amendment, shall equal the monthly pension payable at Normal Retirement Date (or if later, the Benefit Commencement Date) multiplied by the factor from the mortality table prescribed by the Secretary of the Treasury based on the prevailing Commissioners' standard table (described in Code Section 807(d)(5)(A)) used to determine reserves for group annuity contracts issued on the date as of which present value is being determined (without regard to Code Section 807(d)(5)). The interest rate is the interest rate on 30-year Treasury securities for the month of November which immediately precedes the Plan Year in which the distribution occurs." C&D Charter Power Systems, Inc. By: /s/ Alfred Weber S. E. Markert, Jr. ------------------------------------- Director Date: 2/18/97 C&D Charter Power Systems, Inc. Pension Plan for Salaried Employees Amendment 4 (1) Effective January 1, 1998 the name of the plan shall be: "C&D TECHNOLOGIES, INC. Pension Plan for Salaried Employees". and Section 1.23 and any other provision of the plan shall be amended by replacing the name "C&D Charter Power Systems, Inc." with the name C&D TECHNOLOGIES, INC. (2) Article II, Section 2.1(b) shall be amended by the addition of the following sentence: "Effective on and after January 1, 1997, each Employee shall be eligible to become a Member on their date of hire." (3) Article I, Section 1.19(g) shall be amended by the addition of the following: "Eligibility Service, on and after January 1, 1997, shall be used to determine vesting or benefits." C&D TECHNOLOGIES, INC. By: /s/ Stephen E. Markert, Jr. ---------------------------- Date: 1/27/98 EX-21 5 EXHIBIT 21 SUBSIDIARIES OF C&D TECHNOLOGIES, INC. C&D Charter Holdings, Inc., incorporated in the state of Delaware Ratelco Electronics, Inc., incorporated in the state of Delaware Charter Power F. S. Ltd., incorporated in the Islands of Bermuda Power Convertibles Corporation Ireland Ltd., organized under the laws of Ireland PCC Mexican Holdings, Inc., a Delaware corporation PCC de Mexico, S. A. de C.V., organized under the laws of Sonora, Mexico C&D TECHNOLOGIES de Mexico, S. A., de C. V., organized under the laws of Sonora, Mexico EX-23 6 EXHIBIT 23 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in the registration statements of C&D TECHNOLOGIES, INC. and Subsidiaries (formerly Charter Power Systems, Inc.) on Forms S-8 (Registration Nos. 33-31978, 33-71390, 33-86672, 333-17979 and 333-38891) and Form S-3 Registration No. 333-3889 of our reports dated March 10, 1998 on our audits of the consolidated financial statements and financial statement schedule of C&D TECHNOLOGIES, INC. and Subsidiaries as of January 31, 1998 and 1997, and for each of the three years in the period ended January 31, 1998, which reports are included in this Annual Report on Form 10-K. COOPERS & LYBRAND L.L.P. 2400 Eleven Penn Center Philadelphia, Pennsylvania April 27, 1998 EX-27.1 7
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET AS OF 1/31/98 AND STATEMENT OF INCOME FOR THE YEAR ENDED 1/31/98 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1000 YEAR JAN-31-1998 JAN-31-1998 1167 0 44443 1701 40735 93400 115864 58806 166498 46058 0 0 0 66 97239 166498 308054 308054 226880 226880 8610 0 1129 31044 11359 19685 0 0 0 19685 3.22 3.12
EX-27.2 8
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEETS AS OF 10/31/97, 7/31/97, AND 4/30/97. AND STATEMENTS OF INCOME FOR THE PERIODS ENDED 10/31/97, 7/31/97, AND 4/30/97 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1000 9-MOS 6-MOS 3-MOS JAN-31-1998 JAN-31-1998 JAN-31-1998 OCT-31-1997 JUL-31-1997 APR-30-1997 2915 1190 1033 0 0 0 45716 44960 43927 1675 1658 1565 40263 40924 41539 95658 93724 92897 54487 51863 52404 0 0 0 167288 162426 162470 44355 42758 46297 17816 21867 24422 0 0 0 0 0 0 66 66 66 90799 83449 78692 167288 162426 162470 230102 148721 73346 230102 148721 73346 170989 110264 54363 170989 110264 54363 6358 4202 2076 0 0 0 1041 740 376 22328 13939 6564 8170 5100 2429 14158 8839 4135 0 0 0 0 0 0 0 0 0 14158 8839 4135 2.32 1.45 .68 2.25 1.41 .66
EX-27.3 9
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEETS AS OF 1/31/97 AND 1/31/96 AND STATEMENTS OF INCOME FOR THE PERIODS ENDED 1/31/97 AND 1/31/96 AND IS QUALIFIED IN ITS ENTIRETY BY REVERENCE TO SUCH FINANCIAL STATEMENTS. 1000 YEAR YEAR JAN-31-1997 JAN-31-1996 JAN-31-1997 JAN-31-1996 953 10874 0 0 43096 33276 1414 1421 38943 35227 89330 85558 104205 84335 51736 44960 159973 130827 43894 35256 0 15417 0 0 0 0 65 63 74841 68863 159973 130827 286907 242422 286907 242422 219819 185808 219819 185808 8143 6196 0 0 1396 1063 23058 21151 8121 7107 14937 14044 0 0 0 0 0 0 14937 14044 2.39 2.33 2.32 2.18
EX-27.4 10
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFOMRATION EXTRACTED FORM THE CONSOLIDATED BALANCE SHEETS AS OF 10/31/96, 7/31/96 AND 4/30/96 AND STATEMENTS OF INCOME FOR THE PERIODS ENDED 10/31/96, 7/31/96 AND 4/30/96 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1000 9-MOS 6-MOS 3-MOS JAN-31-1997 JAN-31-1997 JAN-31-1997 OCT-31-1996 JUL-31-1996 APR-30-1996 1319 3024 5826 0 0 0 44382 39865 37950 1462 1429 1378 41363 41764 45335 92982 92012 95469 50532 49061 46433 0 0 0 160222 157942 159117 45460 40010 44522 32154 29752 29162 0 0 0 0 0 0 65 65 65 70346 75473 73419 160222 157942 159117 210753 134177 62429 210753 134177 62429 162089 103775 47308 162089 103775 47308 6115 4036 1874 0 0 0 941 553 262 16073 9590 5545 5647 3294 1899 10426 6296 3646 0 0 0 0 0 0 0 0 0 10426 6296 3646 1.65 .99 .58 1.60 .96 .56
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