EX-10.1 5 e23614ex10_1.txt CONVERTIBLE NOTE HEDGE TRANSACTION Exhibit 10.1 -------------------------------------------------------------------------------- Bank of America [LOGO] EQUITY FINANCIAL PRODUCTS GROUP -------------------------------------------------------------------------------- Bank of America, N.A. c/o Banc of America Securities LLC 9 West 57th Street, 40th Floor New York, NY 10019 March 7, 2006 To: Albany International Corp. 1373 Broadway Albany, New York 12204 Attention: Christopher J. Connally, Corporate Treasurer Telephone No.: (518) 445-2235 Facsimile No.: (518) 447-6305 Re: Call Option Transaction Ref. No.: NY-21551 The purpose of this letter agreement is to confirm the terms and conditions of the Transaction entered into between Bank of America, N.A. ("BofA"), and Albany International Corp., a Delaware corporation (the "Counterparty"), on the Trade Date specified below (the "Transaction"). This letter agreement constitutes a "Confirmation" as referred to in the ISDA Master Agreement specified below. This Confirmation shall replace any previous agreements and serve as the final documentation for this Transaction. The definitions and provisions contained in the 1996 ISDA Equity Derivatives Definitions (the "Equity Definitions"), as published by the International Swaps and Derivatives Association, Inc., are incorporated into this Confirmation. In the event of any inconsistency between the Equity Definitions and this Confirmation, this Confirmation shall govern. Certain defined terms used herein have the meanings assigned to them in the Offering Memorandum dated March 7, 2006 (the "Offering Memorandum") relating to the USD 150,000,000 principal amount of 2.25% Convertible Senior Notes due 2026, (the "Convertible Notes" and each USD 1,000 principal amount of Convertible Notes, a "Convertible Note") issued by the Counterparty pursuant to an Indenture to be dated on or about March 13, 2006 between the Counterparty and JPMorgan Chase Bank, N.A., as trustee (the "Indenture"). In the event of any inconsistency between the terms defined in the Offering Memorandum and this Confirmation, this Confirmation shall govern. Each party is hereby advised, and each such party acknowledges, that the other party has engaged in, or refrained from engaging in, substantial financial transactions and has taken other material actions in reliance upon the parties' entry into the Transaction to which this Confirmation relates on the terms and conditions set forth below. 1. This Confirmation evidences a complete and binding agreement between BofA and the Counterparty as to the terms of the Transaction to which this Confirmation relates. This Confirmation shall supplement, form a part of, and be subject to an agreement in the form of the 2002 ISDA Master Agreement (the "Agreement") as if BofA and the Counterparty had executed an agreement in such form (but without any Schedule except for the election of the laws of the State of New York as the governing law) on the Trade Date. In the event of any inconsistency between provisions of that Agreement and this Confirmation, this Confirmation will prevail for the purpose of the Transaction to which this Confirmation relates. The parties hereby agree that no Transaction other than the Transaction to which this Confirmation relates shall be governed by the Agreement. 2. The terms of the particular Transaction to which this Confirmation relates are as follows: General Terms: Trade Date: March 7, 2006 Option Style: "Modified American", as described under "Exercise and Valuation" below Option Type: Call Buyer: Counterparty Seller: BofA Shares: The Class A common stock of the Counterparty, par value USD 0.001 per Share (Exchange symbol "AIN") Number of Options: 60,000 Option Entitlement: As of any date, a number equal to the Conversion Rate as of such date (as defined in the Indenture, but without regard to any adjustments to the Conversion Rate pursuant to Section 15.04(i), Section 15.03(a) or Section 15.03(d) of the Indenture), for each Convertible Note. Strike Price: USD 44.52 Premium: USD 15,939,541.64 Premium Payment Date: March 13, 2006 Exchange: The New York Stock Exchange Related Exchange(s): None Exercise and Valuation: Exercise Period(s): Notwithstanding the Equity Definitions, in respect of Exercisable Options relating to Convertible Notes with a particular Conversion Date (each as defined below), the Exercise Period shall be the period commencing on and including the Conversion Date for the Convertible Notes corresponding to such Exercisable Options and ending at 7:30 a.m. New York City time on the first day of the relevant Cash Settlement Averaging Period; provided that if the Counterparty has validly designated March 15, 2013 as a redemption date for the Convertible Notes pursuant to the terms of the Indenture, there shall be a single Exercise Period for Exercisable Options relating to the Convertible 2 Notes with a Conversion Date following the day on which the Counterparty gives notice of such redemption and that Exercise Period shall terminate at 7:30 a.m. New York City time on the redemption date; provided further that if the Counterparty has not validly designated March 15, 2013 as a redemption date for the Convertible Notes pursuant to the terms of the Indenture, Conversion Dates occurring after the date that is twenty-seven (27) Scheduled Trading Days prior to March 15, 2013 shall not result in the commencement of an Exercise Period and no Exercisable Options will be exercised or deemed exercised in respect thereof. "Scheduled Trading Day" means any day on which the Exchange is scheduled to be open for trading for its regular trading session. Exercisable Options: In respect of any date on which a holder of Convertible Notes properly surrenders, or is deemed to surrender, to the Counterparty a Convertible Note for conversion (a "Conversion Date"), a number of Options equal to 40% of the number of Convertible Notes properly surrendered, or deemed surrendered, for conversion on such Conversion Date (which, for the avoidance of doubt, may be rounded up or down by the Company to account for any conversions which may result in fractional Exercisable Options and may not exceed the Number of Options). Expiration Date: For any Exercisable Option, the earlier of (i) the final day of the Exercise Period for such Exercisable Option, and (ii) the Final Expiration Date. Final Expiration Date: March 15, 2013 Multiple Exercise: Applicable, as described under Exercisable Options above. Automatic Exercise: Applicable, subject to the provisions of "Notice of Exercise" below. Notice of Exercise: Notwithstanding anything to the contrary in the Equity Definitions, in order to exercise any Exercisable Option, the Counterparty must notify BofA, which notification shall be irrevocable after 7:30 a.m. New York City time on the first day of the relevant Cash Settlement Averaging Period and shall not be subject to subsequent amendments, in writing or orally (and, if such Notice of Exercise is delivered by the Counterparty after the close of business in New York City on the Scheduled Trading Day immediately preceding the Expiration Date, via e-mail to: dg.efp_doc_group@bofasecurities.com), by 7:30 a.m. New York City time on the first day of the 3 relevant Cash Settlement Averaging Period for such Exercisable Option of (i) the number of Convertible Notes properly submitted for conversion on the relevant Conversion Date and the number of Exercisable Options corresponding to such Convertible Notes, (ii) the first day of the applicable Cash Settlement Averaging Period and (iii) the scheduled Settlement Date; provided that if the Counterparty has validly designated March 15, 2013 as a redemption date for the Convertible Notes pursuant to the terms of the Indenture, such notice may be given on or prior to the Expiration Date for such Exercisable Options and need only specify the number of Convertible Notes submitted for conversion during the final Exercise Period and the number of Exercisable Options corresponding to such Convertible Notes. Exchange Business Day: Section 1.20 of the Equity Definitions is hereby replaced in its entirety by the following: "'Exchange Business Day' means a day during which (i) trading in the Shares generally occurs and (ii) there is no Market Disruption Event and (iii) the Last Reported Sale Price (as defined in the Indenture) for the Shares is available for such day." Market Disruption Event: Section 4.3(a) of the Equity Definitions is hereby replaced in its entirety by the following: "'Market Disruption Event' means, in respect of the Shares, (i) a failure by the Exchange to open for trading during its regular trading session or (ii) the occurrence or existence prior to 1:00 p.m. New York City time on any Exchange Business Day for the Shares for an aggregate one half-hour period of any suspension or limitation imposed on trading (by reason of movements in price exceeding limits permitted by the Exchange or otherwise) in the Shares or in any options, contracts or future contracts relating to the Shares." Settlement Terms: Settlement Method: Net Share Settlement Net Share Settlement: For each Exercisable Option that is exercised or deemed exercised, BofA will deliver to the Counterparty, on the related Settlement Date, a number of Shares equal to the Net Shares in respect of such Exercisable Option. In no event will the Net Shares be less than zero. Net Shares: In respect of each Exercisable Option exercised or deemed exercised, a number of Shares equal to (i) the 4 Option Entitlement multiplied by (ii) the sum, for each Exchange Business Day during the relevant Cash Settlement Averaging Period, of (A) the Relevant Price on such Exchange Business Day, less the Strike Price, divided by (B) the Relevant Price on such Exchange Business Day, divided by (iii) twenty-five (25); provided, however, that if the calculation contained in clause (A) above results in a negative number, such number shall be replaced with the number "zero". BofA will deliver cash in lieu of any fractional Share with respect to any Net Shares to be delivered with respect to all Exercisable Options having the same Settlement Date based on the Last Reported Sale Price (as defined in the Indenture) for the Shares on the final Exchange Business Day of the relevant Cash Settlement Averaging Period. Relevant Price: For each Exchange Business Day during a Cash Settlement Averaging Period, the per Share volume-weighted average price for such day as displayed under the heading "Bloomberg VWAP" on Bloomberg page AIN [equity] AQR (or any successor thereto) in respect of the period from 9:30 a.m. to 4:00 p.m. (New York City time) on such Exchange Business Day (or if such volume-weighted average price is unavailable, the market value of one Share on such Exchange Business Day, as determined by the Calculation Agent, using a volume-weighted method). Cash Settlement For each Exercisable Option, the Averaging Period: twenty-five (25) consecutive Exchange Business Days commencing on and including the second Exchange Business Day following the Conversion Date for the Convertible Note relating to such Exercisable Option; provided that if the Counterparty has validly designated March 15, 2013 as a redemption date for the Convertible Notes pursuant to the terms of the Indenture, the Cash Settlement Averaging Period for any Exercisable Options relating to the Convertible Notes with a Conversion Date following the date on which the Counterparty gives notice of such redemption, the twenty-five (25) consecutive Exchange Business Days commencing on and including the twenty-eighth (28th) Scheduled Trading Day preceding such redemption date. Settlement Date: For each Exercisable Option, the settlement date for Shares to be delivered with respect to the related Convertible Notes under the terms of the Indenture. Other Applicable Provisions: The provisions of Sections 6.6, 6.7, 6.8, 6.9 and 6.10 of the Equity Definitions will be applicable, except that all 5 references in such provisions to "Physically-Settled" shall be read as references to "Net Share Settled". "Net Share Settled" in relation to any Option means that Net Share Settlement is applicable to that Option. Failure to Deliver: Applicable 3. Additional Terms applicable to the Transaction: Adjustments applicable to the Transaction: Potential Adjustment Events: Notwithstanding Section 9.1(e) of the Equity Definitions, a "Potential Adjustment Event" means any occurrence of any event or condition, as set forth in Section 15.04 of the Indenture resulting in an adjustment to the Conversion Rate of the Convertible Notes, excluding adjustments or conditions that result from an adjustment to the Conversion Rate pursuant to Section 15.04(i) or Section 15.03(a) of the Indenture. Method of Adjustment: Calculation Agent Adjustment, and means that, notwithstanding Section 9.1(c) of the Equity Definitions, upon any adjustment to the Conversion Rate of the Convertible Notes pursuant to the Indenture (other than Section 15.04(i) and Section 15.03(a) of the Indenture) and an equivalent adjustment to the Option Entitlement hereunder, the Calculation Agent, in order to reflect the effect of the event or condition relating to such adjustment on this Transaction, will make a corresponding adjustment to any one or more of the Strike Price, Number of Options and any other variable relevant to the exercise, settlement or payment for the Transaction. Extraordinary Events applicable to the Transaction: Merger Events: Notwithstanding Section 9.2(a) of the Equity Definitions, a "Merger Event" means the occurrence of any event or condition set forth in Section 15.06 of the Indenture. Consequence of Merger Events: Notwithstanding Section 9.3 of the Equity Definitions, upon the occurrence of a Merger Event, the Calculation Agent shall make a corresponding adjustment in respect of any adjustment under the Indenture to any one or more of the nature of the Shares, Strike Price, Number of Options, Option Entitlement and any other variable relevant to the exercise, settlement or payment for the Transaction; provided, however, that such adjustment (i) shall be made without regard to any adjustment to the Conversion Rate for the issuance of additional shares as set forth in Section 15.03(a) of the Indenture, and (ii) shall assume that, in the case of a "Public Acquirer Change of Control" (as defined 6 in the Indenture), the Counterparty does not make an election provided in Section 15.03(d) of the Indenture. Additional Termination Events: If an event of default with respect to the Counterparty shall occur under the terms of the Convertible Notes as set forth in Section 7.01 of the Indenture and such event of default results in the declaration of principal and interest immediately due and payable pursuant to the terms of the Indenture, such event shall constitute an Additional Termination Event applicable to this Transaction, with respect to which the Counterparty shall be deemed to be the sole Affected Party and this Transaction shall be the sole Affected Transaction; provided that, notwithstanding Section 6(b)(iv)(1) of the Agreement, BofA will be required, if the Counterparty makes itself promptly available upon request, to consult with the Counterparty and to reasonably consider whether it is advisable to designate an Early Termination Date pursuant to Section 6(b) of the Agreement. Whenever the Counterparty is required to deliver to the Trustee an officer's certificate with respect to a default or an event of default pursuant to Section 5.08 of the Indenture, the Counterparty shall also be required to deliver a copy of such certificate to BofA hereunder. 4. Calculation Agent: BofA. Whenever the Calculation Agent is required to act or to exercise judgment in any way, it will do so in good faith and in a commercially reasonable manner to achieve a commercially reasonable result. The Calculation Agent shall, not later than the third Currency Business Day following receipt of a written request of the Counterparty, provide the Counterparty with a written explanation of the basis of any determination, adjustment or calculation made hereunder; provided that if, after reviewing such written explanation, the Counterparty objects to such determination, adjustment or calculation, then the Counterparty, BofA and the Calculation Agent shall make reasonable good faith efforts to agree upon an appropriate determination, adjustment or calculation. 5. Account Details: (a) Account for payments from the Counterparty: JPMorgan, New York ABA: 021-000-021 Acct: CHASUS33 Acct No.: 910-1010-693 Account for delivery of Shares to the Counterparty: DTC 50108 (Computershare) 7 Note: the shares cannot be sent electronically. They must be DWACed. (b) Account for payments to BofA: Bank of America, N.A. San Francisco, CA SWIFT: BOFAUS65 Bank Routing: 121-000-358 Account Name: Bank of America Account No.: 12333-34172 Account for delivery of Shares from BofA: DTC 0733 Acct Name: Bank of America NA Acct #: 116-0077 6. Offices: The Office of the Counterparty for the Transaction is: Inapplicable, the Counterparty is not a Multibranch Party. The Office of BofA for the Transaction is: New York Bank of America, N.A. c/o Banc of America Securities LLC 9 West 57th Street, 40th Floor New York, NY 10019 7. Notices: For purposes of this Confirmation: (a) Address for notices or communications to the Counterparty: Albany International Corp. 1373 Broadway Albany, New York 12204 Attention: Christopher J. Connally Telephone No.: (518) 445-2235 Facsimile No.: (518) 447-6305 With a copy to: Albany International Corp. 1373 Broadway Albany, New York 12204 Attention: Charles J. Silva, Jr. Telephone No.: (518) 445-2277 Facsimile No.: (518) 447-6575 (b) Address for notices or communications to BofA: Bank of America, N.A. c/o Banc of America Securities LLC Equity Financial Products 8 Attention: Legal Department 9 West 57th Street, 40th Floor New York, NY 10019 Facsimile No.: (212) 326-8610 8. Representations and Warranties of the Counterparty The representations and warranties of the Counterparty set forth in Section 4 of the Purchase Agreement (the "Purchase Agreement") dated as of the Trade Date between the Counterparty and J.P. Morgan Securities Inc. and Banc of America Securities LLC, as Initial Purchasers, are true and correct and are hereby deemed to be repeated to BofA as if set forth herein. The Counterparty hereby further represents and warrants to BofA that: (a) The Counterparty has all necessary corporate power and authority to execute, deliver and perform its obligations in respect of this Transaction; such execution, delivery and performance have been duly authorized by all necessary corporate action on the Counterparty's part; and this Confirmation has been duly and validly executed and delivered by the Counterparty and constitutes its valid and binding obligation, enforceable against the Counterparty in accordance with its terms, subject to applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and similar laws affecting creditors' rights and remedies generally, and subject, as to enforceability, to general principles of equity, including principles of commercial reasonableness, good faith and fair dealing (regardless of whether enforcement is sought in a proceeding at law or in equity) and except that rights to indemnification and contribution hereunder may be limited by federal or state securities laws or public policy relating thereto. (b) Neither the execution and delivery of this Confirmation nor the incurrence or performance of obligations of the Counterparty hereunder will conflict with or result in a breach of the certificate of incorporation or by-laws (or any equivalent documents) of the Counterparty, or any applicable law or regulation, or any order, writ, injunction or decree of any court or governmental authority or agency, or any agreement or instrument to which the Counterparty or any of its Significant Subsidiaries is a party or by which the Counterparty or any of its Significant Subsidiaries is bound or to which the Counterparty or any of its Significant Subsidiaries is subject, or constitute a default under, or result in the creation of any lien under, any such agreement or instrument, or breach or constitute a default under any agreements and contracts of the Counterparty and its Significant Subsidiaries filed as exhibits to the Counterparty's Annual Report on Form 10-K for the year ended December 31, 2004, incorporated by reference in the Offering Memorandum. (c) No consent, approval, authorization, or order of, or filing with, any governmental agency or body or any court is required in connection with the execution, delivery or performance by the Counterparty of this Confirmation, except such as have been obtained or made and such as may be required under the Securities Act of 1933, as amended (the "Securities Act") or state securities laws. (d) The Counterparty is an "eligible contract participant" (as such term is defined in Section 1a(12) of the Commodity Exchange Act, as amended (the "CEA") because one or more of the following is true: The Counterparty is a corporation, partnership, proprietorship, organization, trust or other entity and: 9 (A) the Counterparty has total assets in excess of USD 10,000,000; (B) the obligations of the Counterparty hereunder are guaranteed, or otherwise supported by a letter of credit or keepwell, support or other agreement, by an entity of the type described in Section 1a(12)(A)(i) through (iv), 1a(12)(A)(v)(I), 1a(12)(A)(vii) or 1a(12)(C) of the CEA; or (C) the Counterparty has a net worth in excess of USD 1,000,000 and has entered into this Agreement in connection with the conduct of Counterparty's business or to manage the risk associated with an asset or liability owned or incurred or reasonably likely to be owned or incurred by the Counterparty in the conduct of the Counterparty's business. (e) The Counterparty is not, on the date hereof, in possession of any material non-public information with respect to the Counterparty. 9. Other Provisions: (a) Opinions. The Counterparty shall deliver to BofA an opinion of counsel, dated as of the Trade Date, substantially in the form set forth in Exhibit A hereto. (b) Amendment. If the Initial Purchasers party to the Purchase Agreement exercise their right to purchase additional Convertible Notes as set forth therein, then, at the discretion of the Counterparty, BofA and the Counterparty will amend this Confirmation to provide for such increase in Convertible Notes (but on pricing terms acceptable to BofA and the Counterparty) (such amendment to provide for the payment by the Counterparty to BofA of the additional premium related thereto). (c) No Reliance, etc. Each party represents that (i) it is entering into the Transaction evidenced hereby as principal (and not as agent or in any other capacity); (ii) neither the other party nor any of its agents are acting as a fiduciary for it; (iii) it is not relying upon any representations except those expressly set forth in the Agreement or this Confirmation; (iv) it has not relied on the other party for any legal, regulatory, tax, business, investment, financial, and accounting advice, and it has made its own investment, hedging, and trading decisions based upon its own judgment and not upon any view expressed by the other party or any of its agents; and (v) it is entering into this Transaction with a full understanding of the terms, conditions and risks thereof and it is capable of and willing to assume those risks. (d) Share De-listing Event. If at any time during the period from and including the Trade Date, to and including the Final Expiration Date, the Shares cease to be listed or quoted on the Exchange for any reason (other than a Merger Event as a result of which the shares of common stock underlying the Options are listed or quoted on The New York Stock Exchange, The American Stock Exchange or the NASDAQ National Market (or their respective successors) (the "Successor Exchange")) and are not immediately re-listed or quoted as of the date of such de-listing on the Successor Exchange (a "Share De-listing"), then Cancellation and Payment (as defined in Section 9.6 of the Equity Definitions, treating the "Announcement Date" as the date of first public announcement that the Share De-listing, will occur and the "Merger Date" as the date of the Share De-listing) shall apply, and the date of the de-listing shall be deemed the date of termination for purposes of calculating any payment due from one party to the other in connection with the cancellation of this Transaction. If the Shares are immediately re-listed on a 10 Successor Exchange upon their de-listing from the Exchange, this Transaction shall continue in full force and effect, provided that the Successor Exchange shall be deemed to be the Exchange for all purposes hereunder; provided that the Calculation Agent may make appropriate adjustments to the terms of this Transaction to reflect the effect of such re-listing. For the avoidance of doubt, in no event will a Share De-listing result in an obligation of the Counterparty under this Confirmation to make a payment to BofA. (e) Repurchase Notices. The Counterparty shall, on any day on which the Counterparty effects any repurchase of Shares, promptly give BofA a written notice of such repurchase (a "Repurchase Notice") on such day if following such repurchase, the number of outstanding Shares on such day, subject to any adjustments provided herein, is (i) less than 25 million (in the case of the first such notice) or (ii) thereafter, more than 125,000 less than the number of Shares included in the immediately preceding Repurchase Notice. The Counterparty agrees to indemnify and hold harmless BofA and its affiliates and their respective officers, directors, employees, affiliates, advisors, agents and controlling persons (each, an "Indemnified Person") from and against any and all losses (including losses relating to BofA's reasonable hedging activities as a consequence of becoming, or of the risk of becoming, a Section 16 "insider", including without limitation, any forbearance from reasonable hedging activities or cessation of such hedging activities and any losses in connection therewith with respect to this Transaction), claims, damages, judgments, liabilities and expenses (including reasonable attorney's fees), joint or several, which an Indemnified Person actually may become subject to, as a result of the Counterparty's failure to provide BofA with a Repurchase Notice on the day and in the manner specified in this Section 9(e), and to reimburse, within 30 days, upon written request, each of such Indemnified Persons for any reasonable legal or other expenses incurred in connection with investigating, preparing for, providing testimony or other evidence in connection with or defending any of the foregoing. If any suit, action, proceeding (including any governmental or regulatory investigation), claim or demand shall be brought or asserted against the Indemnified Person, such Indemnified Person shall promptly notify the Counterparty in writing, and the Counterparty, upon request of the Indemnified Person, shall retain counsel reasonably satisfactory to the Indemnified Person to represent the Indemnified Person and any others the Counterparty may designate in such proceeding and shall pay the fees and expenses of such counsel related to such proceeding. The Counterparty shall not be liable for any settlement of any proceeding effected without its written consent, but if settled with such consent or if there be a final judgment for the plaintiff, the Counterparty agrees to indemnify any Indemnified Person from and against any loss or liability by reason of such settlement or judgment. The Counterparty shall not, without the prior written consent of the Indemnified Person, effect any settlement of any pending or threatened proceeding in respect of which any Indemnified Person is or could have been a party and indemnity could have been sought hereunder by such Indemnified Person, unless such settlement includes an unconditional release of such Indemnified Person from all liability on claims that are the subject matter of such proceeding on terms reasonably satisfactory to such Indemnified Person. If the indemnification provided for in this paragraph (e) is unavailable to an Indemnified Person or insufficient in respect of any losses, claims, damages or liabilities referred to therein, then the Counterparty under such paragraph, in lieu of indemnifying such Indemnified Person thereunder, shall contribute to the amount paid or payable by such Indemnified Person as a result of such losses, claims, damages or liabilities. The remedies provided for in this paragraph (e) are not exclusive and shall not limit any rights or remedies which may otherwise be available to any Indemnified Person at law or in equity. The indemnity and contribution agreements contained in this 11 paragraph (e) shall remain operative and in full force and effect regardless of the termination of this Transaction. (f) Regulation M. The Counterparty was not on the Trade Date and is not on the date hereof engaged in a distribution, as such term is used in Regulation M under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), of any securities of the Counterparty, other than a distribution meeting the requirements of the exception set forth in Rules 101(b)(10) and 102(b)(7) of Regulation M. The Counterparty shall not, until the second Exchange Business Day immediately following the Trade Date, engage in any such distribution. (g) No Manipulation. The Counterparty is not entering into this Transaction to create actual or apparent trading activity in the Shares (or any security convertible into or exchangeable for the Shares) or to raise or depress or otherwise manipulate the price of the Shares (or any security convertible into or exchangeable for the Shares). (h) Number of Repurchased Shares. The Counterparty represents that it could have purchased Shares, in an amount equal to the product of the Number of Options and the Option Entitlement, on the Exchange or otherwise, in compliance with applicable law, its organizational documents and any orders, decrees, contractual agreements binding upon the Counterparty, on the Trade Date. (i) Board Authorization. Each of this Transaction and the issuance of the Convertible Notes was approved by its board of directors and publicly announced, solely for the purposes stated in such board resolution and public disclosure and the Counterparty's board of directors has duly authorized any repurchase of Shares pursuant to this Transaction. The Counterparty further represents that there is no internal policy, whether written or oral, of the Counterparty that would prohibit the Counterparty from entering into any aspect of this Transaction, including, but not limited to, the purchases of Shares to be made pursuant hereto. (j) Transfer or Assignment. (i) The Counterparty shall have the right to assign its rights and obligations hereunder with respect to any Options hereunder (such Options, the "Transfer Options"), subject to BofA's consent, such consent not to be unreasonably withheld or delayed; provided that such assignment or transfer shall be effected on terms satisfactory to BofA and shall be subject, but not limited, to the following conditions: (A) With respect to any Transfer Options, the Counterparty shall not be released from its notice and indemnification obligations pursuant to Section 9(c) or any obligations under Section 9(s) of this Confirmation; (B) Any Transfer Options shall only be transferred or assigned to a third party reasonably acceptable to BofA and on terms, including any reasonable undertakings by such third party and execution of any documentation and delivery of legal opinions with respect to securities laws and other matters by such third party and the Counterparty, as are requested and reasonably satisfactory to BofA; and (C) The Counterparty shall be responsible for all reasonable costs and expenses, including reasonable counsel fees, incurred by BofA in connection with such transfer or assignment. (ii) BofA may not transfer or assign all or any portion of its rights or obligations under this Transaction without consent of the Counterparty; provided, however, that if BofA, in its reasonable discretion, determines that, (x) its "beneficial ownership" (within the 12 meaning of Section 16 of the Exchange Act and rules promulgated thereunder) exceeds 8% or more of the Counterparty's outstanding Shares or (y) the product of the Number of Options and the Option Entitlement divided by the total number of the Counterparty's outstanding Shares (the "Options Equity Percentage") exceeds 15%, then: (A) BofA may transfer or assign a number of Options sufficient to reduce such "beneficial ownership" to 7.5% or such Options Equity Percentage to 14.5% to any third party with a rating for its long term, unsecured and unsubordinated indebtedness of A- or better by Standard & Poor's Ratings Service or its successor ("S&P"), or A3 or better by Moody's Investors Service ("Moody's") or, if either S&P or Moody's ceases to rate such debt, at least an equivalent rating or better by a substitute rating agency mutually agreed by the Counterparty and BofA; and (B) If such "beneficial ownership" exceeds 8% or such Options Equity Percentage exceeds 15%, (1) at a time when the number of Counterparty's outstanding Shares, subject to any adjustments provided herein, is less than 22 million; (2) as a result of any breach by the Counterparty of its notice obligations under Section 9(e); or (3) and if, in the good faith reasonable judgment of BofA, based upon advice of counsel and as a result of events occurring after the Trade Date, BofA reasonably determines that it would be inadvisable to engage in any alternative hedging transactions, which would enable it to reduce its "beneficial" ownership or its Options Equity Percentage, other than by transfer, assignment or termination, and in either case BofA reasonably determines that it is unable after its commercially reasonable efforts to effect transfer or assignment on pricing terms and in a time period reasonably acceptable to BofA that would reduce its "beneficial ownership" to 7.5% or such Options Equity Percentage to 14.5%; BofA may designate any Exchange Business Day as an Early Termination Date with respect to a portion (the "Terminated Portion") of this Transaction, such that its "beneficial ownership" following such partial termination would be approximately equal to 7.5% or the Options Equity Percentage approximately equal to 14.5%, as applicable. If BofA so designates an Early Termination Date with respect to a portion of this Transaction, a payment shall be made pursuant to Section 6 of the Agreement as if an Early Termination Date had occurred in respect of a Transaction having terms identical to this Transaction except with a Number of Options equal to the Terminated Portion, with respect to which the Counterparty shall be the sole Affected Party and such Transaction shall be the only Affected Transaction. (iii) Notwithstanding any other provision in this Confirmation to the contrary requiring or allowing BofA to purchase, sell, receive or deliver any Shares or other securities to or from the Counterparty, BofA may designate any of its affiliates to purchase, sell, receive or deliver such shares or other securities and otherwise to perform BofA's obligations in respect of this Transaction and any such designee may assume such obligations. BofA shall be discharged of its obligations to the Counterparty only to the extent of any such performance. 13 (k) Modified Settlement. If, upon advice of counsel, BofA reasonably determines, with respect to applicable legal and regulatory requirements, including any requirements relating to BofA's hedging activities hereunder, or due to a lack of sufficient liquidity in the borrow market for the Shares, that it would not be practicable or advisable to deliver, or to acquire to deliver, any or all of the Shares to be delivered by BofA on the Settlement Date for this Transaction, BofA may, by notice to the Counterparty on or prior to any anticipated Settlement Date (a "Nominal Settlement Date"), elect to deliver the Shares on a different date or two or more dates, whether immediately preceding or following such Settlement Date (each, a "Staggered Settlement Date"), as follows: (i) in such notice, BofA will specify to the Counterparty the related Staggered Settlement Date or Dates (the last of which may be no later than the twenty-fifth (25th) Scheduled Trading Day following the Nominal Settlement Date) and the number of Shares that it will deliver on each Staggered Settlement Date; and (ii) the aggregate number of Shares that BofA will deliver to the Counterparty hereunder on all such Staggered Settlement Dates will equal the number of Shares that BofA would otherwise be required to deliver on such Nominal Settlement Date. BofA shall effect such delivery as promptly as is practicable and shall compensate the Counterparty for any delayed delivery by paying, in addition to delivering any Shares hereunder, an amount, as determined by the Calculation Agent, equal to the sum for each day of such delay of the product of (i) the Federal Funds Rate divided by 360 and (ii) the value of the Shares not delivered as of such day; provided that if BofA fails to deliver any Shares hereunder by the twenty-fifth (25th) Scheduled Trading Day immediately following the Nominal Settlement Date, such event shall constitute an Additional Termination Event with respect to the portion of this Transaction corresponding to the number of Shares not delivered by BofA by such date, with respect to which BofA shall be the sole Affected Party and this Transaction the sole Affected Transaction. "Federal Funds Rate" means, for any day, the rate set forth for such day opposite the caption "Federal funds", as such rate is displayed on the page FedsOpen [Index][GO] on the Bloomberg Professional Service or any successor page; provided that if no rate appears for any day on such page, the rate for the immediately preceding day for which a rate does so appear shall be used for such day. (l) Damages. Neither party shall be liable under Section 6.10 of the Equity Definitions for special, indirect or consequential damages, even if informed of the possibility thereof. (m) Early Unwind. In the event the sale of Convertible Notes is not consummated with the initial purchasers for any reason by the close of business in New York on March 13, 2006 (or such later date as agreed upon by the parties) (March 13, 2006 or such later date as agreed upon, being the "Early Unwind Date"), this Transaction shall automatically terminate (the "Early Unwind"), on the Early Unwind Date and (i) the Transaction and all of the respective rights and obligations of BofA and the Counterparty under the Transaction shall be cancelled and terminated and (ii) each party shall be released and discharged by the other party from and agrees not to make any claim against the other party with respect to any obligations or liabilities of the other party arising out of and to be performed in connection with the Transaction either prior to or after the Early Unwind Date; provided that, if the failure to consummate the sale of the Convertible Notes results from a breach by the Counterparty of any representation of or any undertaking by the Counterparty contained in the Purchase Agreement, the Counterparty shall purchase from 14 BofA on the Early Unwind Date any Shares purchased by BofA or one or more of its affiliates in connection with this Transaction and reimburse BofA for any costs or expenses (including market losses) relating to the unwinding of its reasonable hedging activities in connection with the Transaction (including any losses or costs incurred as a result of its terminating, liquidating, obtaining or reestablishing any reasonable hedge or related trading position). The amount of any such reimbursement shall be determined by BofA in its reasonable good faith discretion. BofA shall notify the Counterparty of such amount, including, upon the Counterparty's request, an explanation of the basis of determination of such amount, and the Counterparty shall pay such amount in immediately available funds on the Early Unwind Date. BofA and the Counterparty represent and acknowledge to the other that, subject to the proviso included in this Section, upon an Early Unwind, all obligations with respect to the Transaction shall be deemed fully and finally discharged. (n) Role of Agent. Each party agrees and acknowledges that (i) Banc of America Securities LLC ("BASL"), has acted solely as agent and not as principal with respect to this Transaction and (ii) BASL has no obligation or liability, by way of guaranty, endorsement or otherwise, in any manner in respect of this Transaction (including, if applicable, in respect of the settlement thereof). Each party agrees it will look solely to the other party (or any guarantor in respect thereof) for performance of such other party's obligations under this Transaction. (o) Additional Provisions. (i) Notwithstanding Section 9.7 of the Equity Definitions, everything in the first paragraph of Section 9.7(b) of the Equity Definitions after the words "Calculation Agent" in the third line through the remainder of such Section 9.7 shall be deleted and replaced with the following: "based on an amount representing the Calculation Agent's determination of the fair value to Buyer of an option with terms that would preserve for Buyer the economic equivalent of any payment or delivery (assuming satisfaction of each applicable condition precedent, including, for the avoidance of doubt, the occurrence of a Conversion Date with respect to each Option) by the parties in respect of the relevant Transaction that would have been required after that date but for the occurrence of the Share De-listing." (ii) Notwithstanding anything to the contrary in the Agreement, this Confirmation or the Equity Definitions, (A) in determining any amount payable in respect of an Early Termination Date or a Cancellation and Payment, the value of this Transaction shall be determined as if all Options outstanding at such time would become Exercisable Options during the Final Exercise Period and, (B) in no event shall the calculation of the amount under Section 6 of the Agreement in respect of an Additional Termination Event result in any amount being payable by the Counterparty. (p) Alternative Calculations and Payment on Early Termination and on Certain Extraordinary Events. If, in respect of this Transaction, an amount is payable by BofA to the Counterparty (i) pursuant to Section 9.7 of the Equity Definitions or this Confirmation (except in the event of a Merger Event in which the consideration to be paid to holders of Shares consists solely of cash) or (ii) pursuant to Section 6(d)(ii) of the Agreement (except in the event of an Event of Default in which the Counterparty is the Defaulting Party or a Termination Event in which the Counterparty is the Affected Party, other than an Event of Default of the type described in Section 5(a)(iii), (v), (vi), (vii) or 15 (viii) of the Agreement or in this Confirmation or a Termination Event of the type described in Section 5(b)(i), (ii), (iii), (iv), (v) or (vi) of the Agreement or in this Confirmation, in each case resulting from an event or events outside the Counterparty's control) (a "Payment Obligation"), the Counterparty may, in its sole -- discretion, request that BofA satisfy such Payment Obligation by the Share Termination Alternative (as defined below) and shall give irrevocable telephonic notice to BofA, confirmed in writing within one Currency Business Day, no later than 12:00 p.m. New York City time on the Merger Date, the date of the Share De-listing or the Early Termination Date, as applicable; provided that if the Counterparty does not validly request that BofA satisfy its Payment Obligation by the Share Termination Alternative, BofA shall have the right, in its sole discretion, to satisfy its Payment Obligation by the Share Termination Alternative, notwithstanding Counterparty's lack of election or election to the contrary. In calculating any amounts under Section 6(e) of the Agreement, notwithstanding anything to the contrary in the Agreement, (1) separate amounts shall be calculated as set forth in Section 6(e) with respect to (a) this Transaction and (b) all other Transactions, and (2) such separate amounts shall be payable pursuant to Section 6(d)(ii) of the Agreement, subject to, in the case of clause (1)(a), the Share Termination Alternative right hereunder. Share Termination Alternative: If applicable, BofA shall deliver to the Counterparty the Share Termination Delivery Property on the date when the Payment Obligation would otherwise be due pursuant to Section 9.7 of the Equity Definitions, this Confirmation or Section 6(d)(ii) and 6(e) of the Agreement, as applicable (the "Share Termination Payment Date"), in satisfaction of the Payment Obligation in the manner reasonably requested by the Counterparty free of payment. Share Termination A number of Share Termination Delivery Property: Delivery Units, as calculated by the Calculation Agent, equal to the Payment Obligation divided by the Share Termination Unit Price. The Calculation Agent shall adjust the Share Termination Delivery Property by replacing any fractional portion of a security therein with an amount of cash equal to the value of such fractional security based on the values used to calculate the Share Termination Unit Price. Share Termination Unit Price: The value to BofA of property contained in one Share Termination Delivery Unit on the date such Share Termination Delivery Units are to be delivered as Share Termination Delivery Property, as determined by the Calculation Agent in its discretion by commercially reasonable means and notified 16 by the Calculation Agent to BofA at the time of notification of the Payment Obligation. Share Termination Delivery Unit: One Share or, if a Merger Event has occurred and a corresponding adjustment to this Transaction has been made, a unit consisting of the number or amount of each type of property received by a holder of one Share (without consideration of any requirement to pay cash or other consideration in lieu of fractional amounts of any securities) in such Merger Event, as determined by the Calculation Agent. Failure to Deliver: Applicable Other applicable provisions: If the Share Termination Alternative is applicable, the provisions of Sections 6.6, 6.7, 6.8, 6.9 and 6.10 (as modified above) of the Equity Definitions will be applicable, except that all references in such provisions to "Physically-Settled" shall be read as references to "Share Termination Settled" and all references to "Shares" shall be read as references to "Share Termination Delivery Units". "Share Termination Settled" in relation to this Transaction means that the Share Termination Alternative is applicable to this Transaction. (q) Governing Law. New York law (without reference to choice of law doctrine). (r) Waiver of Jury Trial. Each party waives, to the fullest extent permitted by applicable law, any right it may have to a trial by jury in respect of any suit, action or proceeding relating to this Transaction. Each party (i) certifies that no representative, agent or attorney of the other party has represented, expressly or otherwise, that such other party would not, in the event of such a suit, action or proceeding, seek to enforce the foregoing waiver and (ii) acknowledges that it and the other party have been induced to enter into this Transaction, as applicable, by, among other things, the mutual waivers and certifications provided herein. (s) Registration. The Counterparty hereby agrees that if, in the good faith reasonable judgment of BofA, based upon the advice of counsel, the Shares ("Hedge Shares") acquired by BofA for the purpose of hedging its obligations pursuant to this Transaction cannot be sold in the U.S. public market by BofA without registration under the Securities Act, the Counterparty shall, at its election, either (i) in order to allow BofA to sell the Hedge Shares in a registered offering, make available to BofA an effective registration statement under the Securities Act to cover the resale of such Hedge Shares and enter into an agreement, in form and substance reasonably satisfactory to BofA, substantially in the form of an underwriting agreement for a registered offering; provided, however, that if BofA, in its reasonable discretion, is not satisfied with access to due diligence materials, the results of its due diligence investigation, or the procedures and 17 documentation for the registered offering referred to above, then clause (ii) or clause (iii) of this Section 9(s) shall apply at the election of the Counterparty, (ii) in order to allow BofA to sell the Hedge Shares in a private placement, enter into a private placement agreement substantially similar to private placement purchase agreements customary for private placements of equity securities, in form and substance reasonably satisfactory to BofA (in which case, the Calculation Agent shall make any adjustments to the terms of this Transaction that are necessary, in its reasonable judgment, to compensate BofA for any discount from the public market price of the Shares incurred on the sale of Hedge Shares in a private placement), or (iii) purchase the Hedge Shares from BofA at the Last Reported Sale Price on such Exchange Business Days, and in the amounts, requested by BofA. (t) Tax Advice. BofA and its affiliates do not provide tax advice. Accordingly, any statements contained herein as to tax matters were neither written nor intended by BofA to be used and cannot be used by any taxpayer for the purpose of avoiding tax penalties that may be imposed on such taxpayer. If any person uses or refers to any such tax statement in promoting, marketing or recommending a partnership or other entity, investment plan or arrangement to any taxpayer, then the statement expressed above is being delivered to support the promotion or marketing of the transaction or matter addressed and the recipient should seek advice based on its particular circumstances from an independent tax advisor. Notwithstanding anything herein to the contrary, the sender and any intended recipient of this communication (and any of its employees, representatives and other agents) may disclose to any and all persons, without limitation of any kind, the tax treatment or tax structure of this transaction. (u) No Setoff. Notwithstanding any provision of the Agreement or any other agreement between the parties to the contrary, obligations under this Transaction shall not be set off by BofA (including, for the avoidance of doubt, pursuant to Section 6(f) of the Agreement) against any other obligations of the parties, whether arising under the Agreement, this Confirmation, under any other agreement between the parties hereto, by operation of law or otherwise. 18 Please confirm that the foregoing correctly sets forth the terms of our agreement by executing this Confirmation and returning it in the manner indicated in the attached cover letter. Very truly yours, Bank of America, N.A. By: /s/ Eric P. Hambleton ----------------------- Authorized Signatory Name: Eric P. Hambleton Accepted and confirmed as of the Trade Date: ALBANY INTERNATIONAL CORP. By: /s/ David C. Michaels ----------------------- Authorized Signatory Name: David C. Michaels 19 Annex A Form of Legal Opinion 20 JPMorgan [LOGO] JPMorgan Chase Bank, N. A. P.O. Box 161 60 Victoria Embankment London EC4Y 0JP England March 7, 2006 To: Albany International Corp. 1373 Broadway Albany, New York 12204 Attention: Christopher J. Connally, Corporate Treasurer Telephone No.: (518) 445-2235 Facsimile No.: (518) 447-6305 Re: Call Option Transaction The purpose of this letter agreement is to confirm the terms and conditions of the Transaction entered into between JPMorgan Chase Bank, National Association, London Branch ("JPMorgan"), and Albany International Corp., a Delaware corporation (the "Counterparty"), on the Trade Date specified below (the "Transaction"). This letter agreement constitutes a "Confirmation" as referred to in the ISDA Master Agreement specified below. This Confirmation shall replace any previous agreements and serve as the final documentation for this Transaction. The definitions and provisions contained in the 1996 ISDA Equity Derivatives Definitions (the "Equity Definitions"), as published by the International Swaps and Derivatives Association, Inc., are incorporated into this Confirmation. In the event of any inconsistency between the Equity Definitions and this Confirmation, this Confirmation shall govern. Certain defined terms used herein have the meanings assigned to them in the Offering Memorandum dated March 7, 2006 (the "Offering Memorandum") relating to the USD 150,000,000 principal amount of 2.25% Convertible Senior Notes due 2026, (the "Convertible Notes" and each USD 1,000 principal amount of Convertible Notes, a "Convertible Note") issued by the Counterparty pursuant to an Indenture to be dated on or about March 13, 2006 between the Counterparty and JPMorgan Chase Bank, N.A., as trustee (the "Indenture"). In the event of any inconsistency between the terms defined in the Offering Memorandum and this Confirmation, this Confirmation shall govern. Each party is hereby advised, and each such party acknowledges, that the other party has engaged in, or refrained from engaging in, substantial financial transactions and has taken other material actions in reliance upon the parties' entry into the Transaction to which this Confirmation relates on the terms and conditions set forth below. 1. This Confirmation evidences a complete and binding agreement between JPMorgan and the Counterparty as to the terms of the Transaction to which this Confirmation relates. This Confirmation shall supplement, form a part of, and be subject to an agreement in the form of the 2002 ISDA Master Agreement (the "Agreement") as if JPMorgan and the Counterparty had executed an agreement in such form (but without any Schedule except for the election of the laws of the State of New York as the governing law) on the Trade Date. In the event of any inconsistency between provisions of that Agreement and this Confirmation, this Confirmation will prevail for the purpose of the Transaction to which this Confirmation relates. The parties hereby agree that no Transaction other than the Transaction to which this Confirmation relates shall be governed by the Agreement. JPMorgan Chase Bank, National Association Organised under the laws of the United States as a National Banking Association Main Office 1111 Polaris Parkway, Columbus, Ohio 43271 Registered as a branch in England & Wales branch No. BR000746 Registered Branch Office 125 London Wall, London EC2Y 5AJ Authorised and regulated by the Financial Services Authority 2. The terms of the particular Transaction to which this Confirmation relates are as follows: General Terms: Trade Date: March 7, 2006 Option Style: "Modified American", as described under "Exercise and Valuation" below Option Type: Call Buyer: Counterparty Seller: JPMorgan Shares: The Class A common stock of the Counterparty, par value USD 0.001 per Share (Exchange symbol "AIN") Number of Options: 90,000 Option Entitlement: As of any date, a number equal to the Conversion Rate as of such date (as defined in the Indenture, but without regard to any adjustments to the Conversion Rate pursuant to Section 15.04(i), Section 15.03(a) or Section 15.03(d) of the Indenture), for each Convertible Note. Strike Price: USD 44.52 Premium: USD 23,909,312.47 Premium Payment Date: March 13, 2006 Exchange: The New York Stock Exchange Related Exchange(s): None Exercise and Valuation: Exercise Period(s): Notwithstanding the Equity Definitions, in respect of Exercisable Options relating to Convertible Notes with a particular Conversion Date (each as defined below), the Exercise Period shall be the period commencing on and including the Conversion Date for the Convertible Notes corresponding to such Exercisable Options and ending at 7:30 a.m. New York City time on the first day of the relevant Cash Settlement Averaging Period; provided that if the Counterparty has validly designated March 15, 2013 as a redemption date for the Convertible Notes pursuant to the terms of the Indenture, there shall be a single Exercise Period for Exercisable Options relating to the Convertible Notes with a Conversion Date following the day on which the Counterparty gives notice of such redemption and that Exercise Period shall terminate at 7:30 a.m. New York City time on the redemption date; provided further that if the Counterparty has not validly designated March 15, 2013 as 2 a redemption date for the Convertible Notes pursuant to the terms of the Indenture, Conversion Dates occurring after the date that is twenty-seven (27) Scheduled Trading Days prior to March 15, 2013 shall not result in the commencement of an Exercise Period and no Exercisable Options will be exercised or deemed exercised in respect thereof. "Scheduled Trading Day" means any day on which the Exchange is scheduled to be open for trading for its regular trading session. Exercisable Options: In respect of any date on which a holder of Convertible Notes properly surrenders, or is deemed to surrender, to the Counterparty a Convertible Note for conversion (a "Conversion Date"), a number of Options equal to 60% of the number of Convertible Notes properly surrendered, or deemed surrendered, for conversion on such Conversion Date (which, for the avoidance of doubt, may be rounded up or down by the Company to account for any conversions which may result in fractional Exercisable Options and may not exceed the Number of Options). Expiration Date: For any Exercisable Option, the earlier of (i) the final day of the Exercise Period for such Exercisable Option, and (ii) the Final Expiration Date. Final Expiration Date: March 15, 2013 Multiple Exercise: Applicable, as described under Exercisable Options above. Automatic Exercise: Applicable, subject to the provisions of "Notice of Exercise" below. Notice of Exercise: Notwithstanding anything to the contrary in the Equity Definitions, in order to exercise any Exercisable Option, the Counterparty must notify JPMorgan, which notification shall be irrevocable after 7:30 a.m. New York City time on the first day of the relevant Cash Settlement Averaging Period and shall not be subject to subsequent amendments, in writing or orally (and, if such Notice of Exercise is delivered by the Counterparty after the close of business in New York City on the Scheduled Trading Day immediately preceding the Expiration Date, via e-mail to the address specified by JPMorgan and delivered to the Counterparty by the Premium Payment Date), by 7:30 a.m. New York City time on the first day of the relevant Cash Settlement Averaging Period for such Exercisable Option of (i) the number of Convertible Notes properly submitted for conversion on the relevant Conversion Date and the number of Exercisable Options corresponding to such Convertible Notes, (ii) the first day of the applicable Cash Settlement Averaging Period and (iii) the scheduled Settlement Date; provided that if the 3 Counterparty has validly designated March 15, 2013 as a redemption date for the Convertible Notes pursuant to the terms of the Indenture, such notice may be given on or prior to the Expiration Date for such Exercisable Options and need only specify the number of Convertible Notes submitted for conversion during the final Exercise Period and the number of Exercisable Options corresponding to such Convertible Notes. Exchange Business Day: Section 1.20 of the Equity Definitions is hereby replaced in its entirety by the following: "'Exchange Business Day' means a day during which (i) trading in the Shares generally occurs and (ii) there is no Market Disruption Event and (iii) the Last Reported Sale Price (as defined in the Indenture) for the Shares is available for such day." Market Disruption Event: Section 4.3(a) of the Equity Definitions is hereby replaced in its entirety by the following: "'Market Disruption Event' means, in respect of the Shares, (i) a failure by the Exchange to open for trading during its regular trading session or (ii) the occurrence or existence prior to 1:00 p.m. New York City time on any Exchange Business Day for the Shares for an aggregate one half-hour period of any suspension or limitation imposed on trading (by reason of movements in price exceeding limits permitted by the Exchange or otherwise) in the Shares or in any options, contracts or future contracts relating to the Shares." Settlement Terms: Settlement Method: Net Share Settlement Net Share Settlement: For each Exercisable Option that is exercised or deemed exercised, JPMorgan will deliver to the Counterparty, on the related Settlement Date, a number of Shares equal to the Net Shares in respect of such Exercisable Option. In no event will the Net Shares be less than zero. Net Shares: In respect of each Exercisable Option exercised or deemed exercised, a number of Shares equal to (i) the Option Entitlement multiplied by (ii) the sum, for each Exchange Business Day during the relevant Cash Settlement Averaging Period, of (A) the Relevant Price on such Exchange Business Day, less the Strike Price, divided by (B) the Relevant Price on such Exchange Business Day, divided by (iii) twenty-five (25); provided, however, that if the calculation contained in clause (A) above results in a negative number, such number shall be replaced with the number "zero". JPMorgan will deliver cash in lieu of any fractional Share with respect to any Net Shares to be delivered 4 with respect to all Exercisable Options having the same Settlement Date based on the Last Reported Sale Price (as defined in the Indenture) for the Shares on the final Exchange Business Day of the relevant Cash Settlement Averaging Period. Relevant Price: For each Exchange Business Day during a Cash Settlement Averaging Period, the per Share volume-weighted average price for such day as displayed under the heading "Bloomberg VWAP" on Bloomberg page AIN {equity} AQR (or any successor thereto) in respect of the period from 9:30 a.m. to 4:00 p.m. (New York City time) on such Exchange Business Day (or if such volume-weighted average price is unavailable, the market value of one Share on such Exchange Business Day, as determined by the Calculation Agent, using a volume-weighted method). Cash Settlement For each Exercisable Option, the Averaging Period: twenty-five (25) consecutive Exchange Business Days commencing on and including the second Exchange Business Day following the Conversion Date for the Convertible Note relating to such Exercisable Option; provided that if the Counterparty has validly designated March 15, 2013 as a redemption date for the Convertible Notes pursuant to the terms of the Indenture, the Cash Settlement Averaging Period for any Exercisable Options relating to the Convertible Notes with a Conversion Date following the date on which the Counterparty gives notice of such redemption, the twenty-five (25) consecutive Exchange Business Days commencing on and including the twenty-eighth (28th) Scheduled Trading Day preceding such redemption date. Settlement Date: For each Exercisable Option, the settlement date for Shares to be delivered with respect to the related Convertible Notes under the terms of the Indenture. Other Applicable Provisions: The provisions of Sections 6.6, 6.7, 6.8, 6.9 and 6.10 of the Equity Definitions will be applicable, except that all references in such provisions to "Physically-Settled" shall be read as references to "Net Share Settled". "Net Share Settled" in relation to any Option means that Net Share Settlement is applicable to that Option. Failure to Deliver: Applicable 3. Additional Terms applicable to the Transaction: Adjustments applicable to the Transaction: Potential Adjustment Events: Notwithstanding Section 9.1(e) of the Equity Definitions, a "Potential Adjustment Event" means any occurrence of any event or condition, as set forth in Section 15.04 of the Indenture resulting in an adjustment to the Conversion 5 Rate of the Convertible Notes, excluding adjustments or conditions that result from an adjustment to the Conversion Rate pursuant to Section 15.04(i) or Section 15.03(a) of the Indenture. Method of Adjustment: Calculation Agent Adjustment, and means that, notwithstanding Section 9.1(c) of the Equity Definitions, upon any adjustment to the Conversion Rate of the Convertible Notes pursuant to the Indenture (other than Section 15.04(i) and Section 15.03(a) of the Indenture) and an equivalent adjustment to the Option Entitlement hereunder, the Calculation Agent, in order to reflect the effect of the event or condition relating to such adjustment on this Transaction, will make a corresponding adjustment to any one or more of the Strike Price, Number of Options and any other variable relevant to the exercise, settlement or payment for the Transaction. Extraordinary Events applicable to the Transaction: Merger Events: Notwithstanding Section 9.2(a) of the Equity Definitions, a "Merger Event" means the occurrence of any event or condition set forth in Section 15.06 of the Indenture. Consequence of Merger Events: Notwithstanding Section 9.3 of the Equity Definitions, upon the occurrence of a Merger Event, the Calculation Agent shall make a corresponding adjustment in respect of any adjustment under the Indenture to any one or more of the nature of the Shares, Strike Price, Number of Options, Option Entitlement and any other variable relevant to the exercise, settlement or payment for the Transaction; provided, however, that such adjustment (i) shall be made without regard to any adjustment to the Conversion Rate for the issuance of additional shares as set forth in Section 15.03(a) of the Indenture, and (ii) shall assume that, in the case of a "Public Acquirer Change of Control" (as defined in the Indenture), the Counterparty does not make an election provided in Section 15.03(d) of the Indenture. Additional Termination Events: If an event of default with respect to the Counterparty shall occur under the terms of the Convertible Notes as set forth in Section 7.01 of the Indenture and such event of default results in the declaration of principal and interest immediately due and payable pursuant to the terms of the Indenture, such event shall constitute an Additional Termination Event applicable to this Transaction, with respect to which the Counterparty shall be deemed to be the sole Affected Party and this Transaction shall be the sole Affected Transaction; provided that, notwithstanding Section 6(b)(iv)(1) of the Agreement, JPMorgan will be required, if the Counterparty makes itself promptly available upon request, to consult with the Counterparty and to reasonably consider whether it is advisable to designate an Early Termination Date pursuant to Section 6(b) of the Agreement. Whenever the Counterparty is required to deliver to the Trustee an officer's certificate with respect to a default or an event of default pursuant to Section 5.08 of the Indenture, the Counterparty shall also be required to deliver a copy of such certificate to JPMorgan hereunder. 6 4. Calculation Agent: JPMorgan. Whenever the Calculation Agent is required to act or to exercise judgment in any way, it will do so in good faith and in a commercially reasonable manner to achieve a commercially reasonable result. The Calculation Agent shall, not later than the third Currency Business Day following receipt of a written request of the Counterparty, provide the Counterparty with a written explanation of the basis of any determination, adjustment or calculation made hereunder; provided that if, after reviewing such written explanation, the Counterparty objects to such determination, adjustment or calculation, then the Counterparty, JPMorgan and the Calculation Agent shall make reasonable good faith efforts to agree upon an appropriate determination, adjustment or calculation. 5. Account Details: (a) Account for payments from the Counterparty: JPMorgan, New York ABA: 021-000-021 Acct: CHASUS33 Acct No.: 910-1010-693 Account for delivery of Shares to the Counterparty: DTC 50108 (Computershare) Note: the shares cannot be sent electronically. They must be DWACed. (b) Account for payments to JPMorgan: JPMorgan Chase Bank, N.A., New York ABA: 021 000 021 Favour: JPMorgan Chase Bank, N.A. - London A/C: 0010962009 CHASUS33 Account for delivery of Shares from JPMorgan: DTC 060 6. Offices: The Office of the Counterparty for the Transaction is: Inapplicable, the Counterparty is not a Multibranch Party. The Office of JPMorgan for the Transaction is: New York JPMorgan Chase Bank, N.A. London Branch P.O. Box 161 60 Victoria Embankment London EC4Y 0JP England 7 7. Notices: For purposes of this Confirmation: (a) Address for notices or communications to the Counterparty: Albany International Corp. 1373 Broadway Albany, New York 12204 Attention: Christopher J. Connally Telephone No.: (518) 445-2235 Facsimile No.: (518) 447-6305 With a copy to: Albany International Corp. 1373 Broadway Albany, New York 12204 Attention: Charles J. Silva, Jr. Telephone No.: (518) 445-2277 Facsimile No.: (518) 447-6575 (b) Address for notices or communications to JPMorgan: JPMorgan Chase Bank, National Association 277 Park Avenue, 11th Floor New York, NY 10172 Attention: Nathan Lulek EDG Corporate Marketing Telephone No.: (212) 622-2262 Facsimile No.: (212) 622-8091 8. Representations and Warranties of the Counterparty The representations and warranties of the Counterparty set forth in Section 4 of the Purchase Agreement (the "Purchase Agreement") dated as of the Trade Date between the Counterparty and J.P. Morgan Securities Inc. and Banc of America Securities LLC, as Initial Purchasers, are true and correct and are hereby deemed to be repeated to JPMorgan as if set forth herein. The Counterparty hereby further represents and warrants to JPMorgan that: (a) The Counterparty has all necessary corporate power and authority to execute, deliver and perform its obligations in respect of this Transaction; such execution, delivery and performance have been duly authorized by all necessary corporate action on the Counterparty's part; and this Confirmation has been duly and validly executed and delivered by the Counterparty and constitutes its valid and binding obligation, enforceable against the Counterparty in accordance with its terms, subject to applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and similar laws affecting creditors' rights and remedies generally, and subject, as to enforceability, to general principles of equity, including principles of commercial reasonableness, good faith and fair dealing (regardless of whether enforcement is sought in a proceeding at law or in equity) and except that rights to indemnification and contribution hereunder may be limited by federal or state securities laws or public policy relating thereto. (b) Neither the execution and delivery of this Confirmation nor the incurrence or performance of obligations of the Counterparty hereunder will conflict with or result in a breach of the certificate of incorporation or by-laws (or any equivalent documents) of the Counterparty, or any applicable law or regulation, or any order, writ, injunction or decree of any court or governmental authority or agency, or any agreement or instrument to which the Counterparty or any of its Significant Subsidiaries is a party or by which the Counterparty or any of its Significant Subsidiaries is bound or to which the Counterparty 8 or any of its Significant Subsidiaries is subject, or constitute a default under, or result in the creation of any lien under, any such agreement or instrument, or breach or constitute a default under any agreements and contracts of the Counterparty and its Significant Subsidiaries filed as exhibits to the Counterparty's Annual Report on Form 10-K for the year ended December 31, 2004, incorporated by reference in the Offering Memorandum. (c) No consent, approval, authorization, or order of, or filing with, any governmental agency or body or any court is required in connection with the execution, delivery or performance by the Counterparty of this Confirmation, except such as have been obtained or made and such as may be required under the Securities Act of 1933, as amended (the "Securities Act") or state securities laws. (d) The Counterparty is an "eligible contract participant" (as such term is defined in Section 1a(12) of the Commodity Exchange Act, as amended (the "CEA") because one or more of the following is true: The Counterparty is a corporation, partnership, proprietorship, organization, trust or other entity and: (A) the Counterparty has total assets in excess of USD 10,000,000; (B) the obligations of the Counterparty hereunder are guaranteed, or otherwise supported by a letter of credit or keepwell, support or other agreement, by an entity of the type described in Section 1a(12)(A)(i) through (iv), 1a(12)(A)(v)(I), 1a(12)(A)(vii) or 1a(12)(C) of the CEA; or (C) the Counterparty has a net worth in excess of USD 1,000,000 and has entered into this Agreement in connection with the conduct of Counterparty's business or to manage the risk associated with an asset or liability owned or incurred or reasonably likely to be owned or incurred by the Counterparty in the conduct of the Counterparty's business. (e) The Counterparty is not, on the date hereof, in possession of any material non-public information with respect to the Counterparty. 9. Other Provisions: (a) Opinions. The Counterparty shall deliver to JPMorgan an opinion of counsel, dated as of the Trade Date, substantially in the form set forth in Exhibit A hereto. (b) Amendment. If the Initial Purchasers party to the Purchase Agreement exercise their right to purchase additional Convertible Notes as set forth therein, then, at the discretion of the Counterparty, JPMorgan and the Counterparty will amend this Confirmation to provide for such increase in Convertible Notes (but on pricing terms acceptable to JPMorgan and the Counterparty) (such amendment to provide for the payment by the Counterparty to JPMorgan of the additional premium related thereto). (c) No Reliance, etc. Each party represents that (i) it is entering into the Transaction evidenced hereby as principal (and not as agent or in any other capacity); (ii) neither the other party nor any of its agents are acting as a fiduciary for it; (iii) it is not relying upon any representations except those expressly set forth in the Agreement or this Confirmation; (iv) it has not relied on the other party for any legal, regulatory, tax, business, investment, financial, and accounting advice, and it has made its own investment, hedging, and trading decisions based upon its own judgment and not upon any view expressed by the other party or any of its agents; and (v) it is entering into this Transaction with a full understanding of the terms, conditions and risks thereof and it is capable of and willing to assume those risks. 9 (d) Share De-listing Event. If at any time during the period from and including the Trade Date, to and including the Final Expiration Date, the Shares cease to be listed or quoted on the Exchange for any reason (other than a Merger Event as a result of which the shares of common stock underlying the Options are listed or quoted on The New York Stock Exchange, The American Stock Exchange or the NASDAQ National Market (or their respective successors) (the "Successor Exchange")) and are not immediately re-listed or quoted as of the date of such de-listing on the Successor Exchange (a "Share De-listing"), then Cancellation and Payment (as defined in Section 9.6 of the Equity Definitions, treating the "Announcement Date" as the date of first public announcement that the Share De-listing, will occur and the "Merger Date" as the date of the Share De-listing) shall apply, and the date of the de-listing shall be deemed the date of termination for purposes of calculating any payment due from one party to the other in connection with the cancellation of this Transaction. If the Shares are immediately re-listed on a Successor Exchange upon their de-listing from the Exchange, this Transaction shall continue in full force and effect, provided that the Successor Exchange shall be deemed to be the Exchange for all purposes hereunder; provided that the Calculation Agent may make appropriate adjustments to the terms of this Transaction to reflect the effect of such re-listing. For the avoidance of doubt, in no event will a Share De-listing result in an obligation of the Counterparty under this Confirmation to make a payment to JPMorgan. (e) Repurchase Notices. The Counterparty shall, on any day on which the Counterparty effects any repurchase of Shares, promptly give JPMorgan a written notice of such repurchase (a "Repurchase Notice") on such day if following such repurchase, the number of outstanding Shares on such day, subject to any adjustments provided herein, is (i) less than 25 million (in the case of the first such notice) or (ii) thereafter, more than 125,000 less than the number of Shares included in the immediately preceding Repurchase Notice. The Counterparty agrees to indemnify and hold harmless JPMorgan and its affiliates and their respective officers, directors, employees, affiliates, advisors, agents and controlling persons (each, an "Indemnified Person") from and against any and all losses (including losses relating to JPMorgan's reasonable hedging activities as a consequence of becoming, or of the risk of becoming, a Section 16 "insider", including without limitation, any forbearance from reasonable hedging activities or cessation of such hedging activities and any losses in connection therewith with respect to this Transaction), claims, damages, judgments, liabilities and expenses (including reasonable attorney's fees), joint or several, which an Indemnified Person actually may become subject to, as a result of the Counterparty's failure to provide JPMorgan with a Repurchase Notice on the day and in the manner specified in this Section 9(e), and to reimburse, within 30 days, upon written request, each of such Indemnified Persons for any reasonable legal or other expenses incurred in connection with investigating, preparing for, providing testimony or other evidence in connection with or defending any of the foregoing. If any suit, action, proceeding (including any governmental or regulatory investigation), claim or demand shall be brought or asserted against the Indemnified Person, such Indemnified Person shall promptly notify the Counterparty in writing, and the Counterparty, upon request of the Indemnified Person, shall retain counsel reasonably satisfactory to the Indemnified Person to represent the Indemnified Person and any others the Counterparty may designate in such proceeding and shall pay the fees and expenses of such counsel related to such proceeding. The Counterparty shall not be liable for any settlement of any proceeding effected without its written consent, but if settled with such consent or if there be a final judgment for the plaintiff, the Counterparty agrees to indemnify any Indemnified Person from and against any loss or liability by reason of such settlement or judgment. The Counterparty shall not, without the prior written consent of the Indemnified Person, effect any settlement of any pending or threatened proceeding in respect of which any Indemnified Person is or could have been a party and indemnity could have been sought hereunder by such Indemnified Person, unless such settlement includes an unconditional release of such Indemnified Person from all liability on claims that are the subject matter of such proceeding on terms reasonably satisfactory to such Indemnified Person. If the indemnification provided for in 10 this paragraph (e) is unavailable to an Indemnified Person or insufficient in respect of any losses, claims, damages or liabilities referred to therein, then the Counterparty under such paragraph, in lieu of indemnifying such Indemnified Person thereunder, shall contribute to the amount paid or payable by such Indemnified Person as a result of such losses, claims, damages or liabilities. The remedies provided for in this paragraph (e) are not exclusive and shall not limit any rights or remedies which may otherwise be available to any Indemnified Person at law or in equity. The indemnity and contribution agreements contained in this paragraph (e) shall remain operative and in full force and effect regardless of the termination of this Transaction. (f) Regulation M. The Counterparty was not on the Trade Date and is not on the date hereof engaged in a distribution, as such term is used in Regulation M under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), of any securities of the Counterparty, other than a distribution meeting the requirements of the exception set forth in Rules 101(b)(10) and 102(b)(7) of Regulation M. The Counterparty shall not, until the second Exchange Business Day immediately following the Trade Date, engage in any such distribution. (g) No Manipulation. The Counterparty is not entering into this Transaction to create actual or apparent trading activity in the Shares (or any security convertible into or exchangeable for the Shares) or to raise or depress or otherwise manipulate the price of the Shares (or any security convertible into or exchangeable for the Shares). (h) Number of Repurchased Shares. The Counterparty represents that it could have purchased Shares, in an amount equal to the product of the Number of Options and the Option Entitlement, on the Exchange or otherwise, in compliance with applicable law, its organizational documents and any orders, decrees, contractual agreements binding upon the Counterparty, on the Trade Date. (i) Board Authorization. Each of this Transaction and the issuance of the Convertible Notes was approved by its board of directors and publicly announced, solely for the purposes stated in such board resolution and public disclosure and the Counterparty's board of directors has duly authorized any repurchase of Shares pursuant to this Transaction. The Counterparty further represents that there is no internal policy, whether written or oral, of the Counterparty that would prohibit the Counterparty from entering into any aspect of this Transaction, including, but not limited to, the purchases of Shares to be made pursuant hereto. (j) Transfer or Assignment. (i) The Counterparty shall have the right to assign its rights and obligations hereunder with respect to any Options hereunder (such Options, the "Transfer Options"), subject to JPMorgan's consent, such consent not to be unreasonably withheld or delayed; provided that such assignment or transfer shall be effected on terms satisfactory to JPMorgan and shall be subject, but not limited, to the following conditions: (A) With respect to any Transfer Options, the Counterparty shall not be released from its notice and indemnification obligations pursuant to Section 9(c) or any obligations under Section 9(s) of this Confirmation; (B) Any Transfer Options shall only be transferred or assigned to a third party reasonably acceptable to JPMorgan and on terms, including any reasonable undertakings by such third party and execution of any documentation and delivery of legal opinions with respect to securities laws and other matters by such third party and the Counterparty, as are requested and reasonably satisfactory to JPMorgan; and (C) The Counterparty shall be responsible for all reasonable costs and expenses, including reasonable counsel fees, incurred by JPMorgan in connection with such transfer or assignment. 11 (ii) JPMorgan may not transfer or assign all or any portion of its rights or obligations under this Transaction without consent of the Counterparty; provided, however, that if JPMorgan, in its reasonable discretion, determines that, (x) its "beneficial ownership" (within the meaning of Section 16 of the Exchange Act and rules promulgated thereunder) exceeds 8% or more of the Counterparty's outstanding Shares or (y) the product of the Number of Options and the Option Entitlement divided by the total number of the Counterparty's outstanding Shares (the "Options Equity Percentage") exceeds 15%, then: (A) JPMorgan may transfer or assign a number of Options sufficient to reduce such "beneficial ownership" to 7.5% or such Options Equity Percentage to 14.5% to any third party with a rating for its long term, unsecured and unsubordinated indebtedness of A- or better by Standard & Poor's Ratings Service or its successor ("S&P"), or A3 or better by Moody's Investors Service ("Moody's") or, if either S&P or Moody's ceases to rate such debt, at least an equivalent rating or better by a substitute rating agency mutually agreed by the Counterparty and JPMorgan; and (B) If such "beneficial ownership" exceeds 8% or such Options Equity Percentage exceeds 15%, (1) at a time when the number of Counterparty's outstanding Shares, subject to any adjustments provided herein, is less than 22 million; (2) as a result of any breach by the Counterparty of its notice obligations under Section 9(e); or (3) and if, in the good faith reasonable judgment of JPMorgan, based upon advice of counsel and as a result of events occurring after the Trade Date, JPMorgan reasonably determines that it would be inadvisable to engage in any alternative hedging transactions, which would enable it to reduce its "beneficial" ownership or its Options Equity Percentage, other than by transfer, assignment or termination, and in either case JPMorgan reasonably determines that it is unable after its commercially reasonable efforts to effect transfer or assignment on pricing terms and in a time period reasonably acceptable to JPMorgan that would reduce its "beneficial ownership" to 7.5% or such Options Equity Percentage to 14.5%; JPMorgan may designate any Exchange Business Day as an Early Termination Date with respect to a portion (the "Terminated Portion") of this Transaction, such that its "beneficial ownership" following such partial termination would be approximately equal to 7.5% or the Options Equity Percentage approximately equal to 14.5%, as applicable. If JPMorgan so designates an Early Termination Date with respect to a portion of this Transaction, a payment shall be made pursuant to Section 6 of the Agreement as if an Early Termination Date had occurred in respect of a Transaction having terms identical to this Transaction except with a Number of Options equal to the Terminated Portion, with respect to which the Counterparty shall be the sole Affected Party and such Transaction shall be the only Affected Transaction. (iii) Notwithstanding any other provision in this Confirmation to the contrary requiring or allowing JPMorgan to purchase, sell, receive or deliver any Shares or other securities to or from the Counterparty, JPMorgan may designate any of its affiliates to purchase, sell, receive or deliver such shares or other securities and otherwise to perform JPMorgan's obligations in respect of this Transaction and any such designee may assume such obligations. JPMorgan shall be discharged of its obligations to the Counterparty only to the extent of any such performance. 12 (k) Modified Settlement. If, upon advice of counsel, JPMorgan reasonably determines, with respect to applicable legal and regulatory requirements, including any requirements relating to JPMorgan's hedging activities hereunder, or due to a lack of sufficient liquidity in the borrow market for the Shares, that it would not be practicable or advisable to deliver, or to acquire to deliver, any or all of the Shares to be delivered by JPMorgan on the Settlement Date for this Transaction, JPMorgan may, by notice to the Counterparty on or prior to any anticipated Settlement Date (a "Nominal Settlement Date"), elect to deliver the Shares on a different date or two or more dates, whether immediately preceding or following such Settlement Date (each, a "Staggered Settlement Date"), as follows: (i) in such notice, JPMorgan will specify to the Counterparty the related Staggered Settlement Date or Dates (the last of which may be no later than the twenty-fifth (25th) Scheduled Trading Day following the Nominal Settlement Date) and the number of Shares that it will deliver on each Staggered Settlement Date; and (ii) the aggregate number of Shares that JPMorgan will deliver to the Counterparty hereunder on all such Staggered Settlement Dates will equal the number of Shares that JPMorgan would otherwise be required to deliver on such Nominal Settlement Date. JPMorgan shall effect such delivery as promptly as is practicable and shall compensate the Counterparty for any delayed delivery by paying, in addition to delivering any Shares hereunder, an amount, as determined by the Calculation Agent, equal to the sum for each day of such delay of the product of (i) the Federal Funds Rate divided by 360 and (ii) the value of the Shares not delivered as of such day; provided that if JPMorgan fails to deliver any Shares hereunder by the twenty-fifth (25th) Scheduled Trading Day immediately following the Nominal Settlement Date, such event shall constitute an Additional Termination Event with respect to the portion of this Transaction corresponding to the number of Shares not delivered by JPMorgan by such date, with respect to which JPMorgan shall be the sole Affected Party and this Transaction the sole Affected Transaction. "Federal Funds Rate" means, for any day, the rate set forth for such day opposite the caption "Federal funds", as such rate is displayed on the page FedsOpen {Index}{GO} on the Bloomberg Professional Service or any successor page; provided that if no rate appears for any day on such page, the rate for the immediately preceding day for which a rate does so appear shall be used for such day. (l) Damages. Neither party shall be liable under Section 6.10 of the Equity Definitions for special, indirect or consequential damages, even if informed of the possibility thereof. (m) Early Unwind. In the event the sale of Convertible Notes is not consummated with the initial purchasers for any reason by the close of business in New York on March 13, 2006 (or such later date as agreed upon by the parties) (March 13, 2006 or such later date as agreed upon, being the "Early Unwind Date"), this Transaction shall automatically terminate (the "Early Unwind"), on the Early Unwind Date and (i) the Transaction and all of the respective rights and obligations of JPMorgan and the Counterparty under the Transaction shall be cancelled and terminated and (ii) each party shall be released and discharged by the other party from and agrees not to make any claim against the other party with respect to any obligations or liabilities of the other party arising out of and to be performed in connection with the Transaction either prior to or after the Early Unwind Date; provided that, if the failure to consummate the sale of the Convertible Notes results from a breach by the Counterparty of any representation of or any undertaking by the Counterparty contained in the Purchase Agreement, the Counterparty shall purchase from JPMorgan on the Early Unwind Date any Shares purchased by JPMorgan or one or more of its affiliates in connection with this Transaction and reimburse JPMorgan for any costs 13 or expenses (including market losses) relating to the unwinding of its reasonable hedging activities in connection with the Transaction (including any losses or costs incurred as a result of its terminating, liquidating, obtaining or reestablishing any reasonable hedge or related trading position). The amount of any such reimbursement shall be determined by JPMorgan in its reasonable good faith discretion. JPMorgan shall notify the Counterparty of such amount, including, upon the Counterparty's request, an explanation of the basis of determination of such amount, and the Counterparty shall pay such amount in immediately available funds on the Early Unwind Date. JPMorgan and the Counterparty represent and acknowledge to the other that, subject to the proviso included in this Section, upon an Early Unwind, all obligations with respect to the Transaction shall be deemed fully and finally discharged. (n) Role of Agent. Each party agrees and acknowledges that (i) J.P. Morgan Securities Inc., an affiliate of JPMorgan ("JPMSI"), has acted solely as agent and not as principal with respect to this Transaction and (ii) JPMSI has no obligation or liability, by way of guaranty, endorsement or otherwise, in any manner in respect of this Transaction (including, if applicable, in respect of the settlement thereof). Each party agrees it will look solely to the other party (or any guarantor in respect thereof) for performance of such other party's obligations under this Transaction. (o) Additional Provisions. (i) Notwithstanding Section 9.7 of the Equity Definitions, everything in the first paragraph of Section 9.7(b) of the Equity Definitions after the words "Calculation Agent" in the third line through the remainder of such Section 9.7 shall be deleted and replaced with the following: "based on an amount representing the Calculation Agent's determination of the fair value to Buyer of an option with terms that would preserve for Buyer the economic equivalent of any payment or delivery (assuming satisfaction of each applicable condition precedent, including, for the avoidance of doubt, the occurrence of a Conversion Date with respect to each Option) by the parties in respect of the relevant Transaction that would have been required after that date but for the occurrence of the Share De-listing." (ii) Notwithstanding anything to the contrary in the Agreement, this Confirmation or the Equity Definitions, (A) in determining any amount payable in respect of an Early Termination Date or a Cancellation and Payment, the value of this Transaction shall be determined as if all Options outstanding at such time would become Exercisable Options during the Final Exercise Period and, (B) in no event shall the calculation of the amount under Section 6 of the Agreement in respect of an Additional Termination Event result in any amount being payable by the Counterparty. (p) Alternative Calculations and Payment on Early Termination and on Certain Extraordinary Events. If, in respect of this Transaction, an amount is payable by JPMorgan to the Counterparty (i) pursuant to Section 9.7 of the Equity Definitions or this Confirmation (except in the event of a Merger Event in which the consideration to be paid to holders of Shares consists solely of cash) or (ii) pursuant to Section 6(d)(ii) of the Agreement (except in the event of an Event of Default in which the Counterparty is the Defaulting Party or a Termination Event in which the Counterparty is the Affected Party, other than an Event of Default of the type described in Section 5(a)(iii), (v), (vi), (vii) or (viii) of the Agreement or in this Confirmation or a Termination Event of the type described in Section 5(b)(i), (ii), (iii), (iv), (v) or (vi) of the Agreement or in this Confirmation, in each case resulting from an event or events outside the Counterparty's control) (a "Payment Obligation"), the Counterparty may, in its sole -- discretion, request that JPMorgan satisfy such Payment Obligation by the Share Termination Alternative (as defined below) and shall give irrevocable telephonic notice to JPMorgan, confirmed in writing within one Currency Business Day, no later than 12:00 p.m. New York City time 14 on the Merger Date, the date of the Share De-listing or the Early Termination Date, as applicable; provided that if the Counterparty does not validly request that JPMorgan satisfy its Payment Obligation by the Share Termination Alternative, JPMorgan shall have the right, in its sole discretion, to satisfy its Payment Obligation by the Share Termination Alternative, notwithstanding Counterparty's lack of election or election to the contrary. In calculating any amounts under Section 6(e) of the Agreement, notwithstanding anything to the contrary in the Agreement, (1) separate amounts shall be calculated as set forth in Section 6(e) with respect to (a) this Transaction and (b) all other Transactions, and (2) such separate amounts shall be payable pursuant to Section 6(d)(ii) of the Agreement, subject to, in the case of clause (1)(a), the Share Termination Alternative right hereunder. Share Termination Alternative: If applicable, JPMorgan shall deliver to the Counterparty the Share Termination Delivery Property on the date when the Payment Obligation would otherwise be due pursuant to Section 9.7 of the Equity Definitions, this Confirmation or Section 6(d)(ii) and 6(e) of the Agreement, as applicable (the "Share Termination Payment Date"), in satisfaction of the Payment Obligation in the manner reasonably requested by the Counterparty free of payment. Share Termination Delivery Property: A number of Share Termination Delivery Units, as calculated by the Calculation Agent, equal to the Payment Obligation divided by the Share Termination Unit Price. The Calculation Agent shall adjust the Share Termination Delivery Property by replacing any fractional portion of a security therein with an amount of cash equal to the value of such fractional security based on the values used to calculate the Share Termination Unit Price. Share Termination Unit Price: The value to JPMorgan of property contained in one Share Termination Delivery Unit on the date such Share Termination Delivery Units are to be delivered as Share Termination Delivery Property, as determined by the Calculation Agent in its discretion by commercially reasonable means and notified by the Calculation Agent to JPMorgan at the time of notification of the Payment Obligation. Share Termination Delivery Unit: One Share or, if a Merger Event has occurred and a corresponding adjustment to this Transaction has been made, a unit consisting of the number or amount of each type of property received by a holder of one Share (without consideration of any requirement to pay cash or other consideration in lieu of fractional amounts 15 of any securities) in such Merger Event, as determined by the Calculation Agent. Failure to Deliver: Applicable Other applicable provisions: If the Share Termination Alternative is applicable, the provisions of Sections 6.6, 6.7, 6.8, 6.9 and 6.10 (as modified above) of the Equity Definitions will be applicable, except that all references in such provisions to "Physically-Settled" shall be read as references to "Share Termination Settled" and all references to "Shares" shall be read as references to "Share Termination Delivery Units". "Share Termination Settled" in relation to this Transaction means that the Share Termination Alternative is applicable to this Transaction. (q) Governing Law. New York law (without reference to choice of law doctrine). (r) Waiver of Jury Trial. Each party waives, to the fullest extent permitted by applicable law, any right it may have to a trial by jury in respect of any suit, action or proceeding relating to this Transaction. Each party (i) certifies that no representative, agent or attorney of the other party has represented, expressly or otherwise, that such other party would not, in the event of such a suit, action or proceeding, seek to enforce the foregoing waiver and (ii) acknowledges that it and the other party have been induced to enter into this Transaction, as applicable, by, among other things, the mutual waivers and certifications provided herein. (s) Registration. The Counterparty hereby agrees that if, in the good faith reasonable judgment of JPMorgan, based upon the advice of counsel, the Shares ("Hedge Shares") acquired by JPMorgan for the purpose of hedging its obligations pursuant to this Transaction cannot be sold in the U.S. public market by JPMorgan without registration under the Securities Act, the Counterparty shall, at its election, either (i) in order to allow JPMorgan to sell the Hedge Shares in a registered offering, make available to JPMorgan an effective registration statement under the Securities Act to cover the resale of such Hedge Shares and enter into an agreement, in form and substance reasonably satisfactory to JPMorgan, substantially in the form of an underwriting agreement for a registered offering; provided, however, that if JPMorgan, in its reasonable discretion, is not satisfied with access to due diligence materials, the results of its due diligence investigation, or the procedures and documentation for the registered offering referred to above, then clause (ii) or clause (iii) of this Section 9(s) shall apply at the election of the Counterparty, (ii) in order to allow JPMorgan to sell the Hedge Shares in a private placement, enter into a private placement agreement substantially similar to private placement purchase agreements customary for private placements of equity securities, in form and substance reasonably satisfactory to JPMorgan (in which case, the Calculation Agent shall make any adjustments to the terms of this Transaction that are necessary, in its reasonable judgment, to compensate JPMorgan for any discount from the public market price of the Shares incurred on the sale of Hedge Shares in a private placement), or (iii) purchase the Hedge Shares from JPMorgan at the Last Reported Sale Price on such Exchange Business Days, and in the amounts, requested by JPMorgan. (t) Tax Advice. JPMorgan and its affiliates do not provide tax advice. Accordingly, any statements contained herein as to tax matters were neither written nor intended by JPMorgan to be used and cannot be used by any taxpayer for the purpose of avoiding tax 16 penalties that may be imposed on such taxpayer. If any person uses or refers to any such tax statement in promoting, marketing or recommending a partnership or other entity, investment plan or arrangement to any taxpayer, then the statement expressed above is being delivered to support the promotion or marketing of the transaction or matter addressed and the recipient should seek advice based on its particular circumstances from an independent tax advisor. Notwithstanding anything herein to the contrary, the sender and any intended recipient of this communication (and any of its employees, representatives and other agents) may disclose to any and all persons, without limitation of any kind, the tax treatment or tax structure of this transaction. (u) No Setoff. Notwithstanding any provision of the Agreement or any other agreement between the parties to the contrary, obligations under this Transaction shall not be set off by JPMorgan (including, for the avoidance of doubt, pursuant to Section 6(f) of the Agreement) against any other obligations of the parties, whether arising under the Agreement, this Confirmation, under any other agreement between the parties hereto, by operation of law or otherwise. 17 Please confirm that the foregoing correctly sets forth the terms of our agreement by executing this Confirmation and returning it in the manner indicated in the attached cover letter. Very truly yours, J.P. Morgan Securities Inc., as agent for JPMorgan Chase Bank, National Association By: /s/ Sudheer Tegulapelle ------------------------------------ Authorized Signatory Name: Sudheer Tegulapelle Accepted and confirmed as of the Trade Date: ALBANY INTERNATIONAL CORP. By: /s/ David C. Michaels ------------------------------- Authorized Signatory Name: David C. Michaels JPMorgan Chase Bank, National Association Organised under the laws of the United States as a National Banking Association Main Office 1111 Polaris Parkway, Columbus, Ohio 43271 Registered as a branch in England & Wales branch No. BR000746 Registered Branch Office 125 London Wall, London EC2Y 5AJ Authorised and regulated by the Financial Services Authority Annex A Form of Legal Opinion