-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, RDqKTGiNAmkqzA5D7bA33X61F4yeIJROO7yiE+I8c9NZlY7STSBNaOXIyTQjILgQ Z8vthnkra70eaOFBJQDAGA== 0000950114-96-000310.txt : 19961118 0000950114-96-000310.hdr.sgml : 19961118 ACCESSION NUMBER: 0000950114-96-000310 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961114 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: GARDNER DENVER MACHINERY INC CENTRAL INDEX KEY: 0000916459 STANDARD INDUSTRIAL CLASSIFICATION: GENERAL INDUSTRIAL MACHINERY & EQUIPMENT [3560] IRS NUMBER: 760419383 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-23654 FILM NUMBER: 96664164 BUSINESS ADDRESS: STREET 1: 1800 GARDNER EXPRESSWAY STREET 2: P O BOX 528 CITY: QUINCY STATE: IL ZIP: 62301 BUSINESS PHONE: 2172225400 MAIL ADDRESS: STREET 1: 1800 GARDNER EXPRESSWAY STREET 2: P O BOX 528 CITY: QUINCY STATE: IL ZIP: 62301 10-Q 1 GARDNER DENVER MACHINERY INC. FORM 10-Q 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1996 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number 0-23654 GARDNER DENVER MACHINERY INC. (Exact Name of Registrant as Specified in its Charter) DELAWARE 76-0419383 (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification No.) 1800 GARDNER EXPRESSWAY QUINCY, ILLINOIS 62301 (Address of Principal Executive Offices and Zip Code) (217) 222-5400 (Registrant's Telephone Number, Including Area Code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirement for the past 90 days. Yes X No ------------ ---------- Number of shares outstanding of the issuer's Common Stock, par value $.01 per share, as of November 12 1996: 4,922,078 shares. 2 PART I FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS. GARDNER DENVER MACHINERY INC. CONSOLIDATED STATEMENT OF OPERATIONS (dollars in thousands, except per share amounts) (Unaudited)
THREE MONTHS ENDED SEPTEMBER 30, 1996 1995 ------- ------- Revenues $56,519 $44,894 Costs and expenses: Cost of sales (exclusive of depreciation and amortization) 38,977 31,903 Depreciation and amortization 2,099 2,016 Selling and administrative expenses 8,147 6,355 Interest expense 906 1,198 Loss on investment in and advances to affiliate 60 - ------- ------- Income before income taxes 6,330 3,422 Provision for income taxes 2,595 1,540 ------- ------- Net income $3,735 $1,882 ======= ======= Earnings per share $0.73 $0.38 ======= ======= - --------------------- The accompanying notes are an integral part of this statement.
2 3 GARDNER DENVER MACHINERY INC. CONSOLIDATED STATEMENT OF OPERATIONS (dollars in thousands, except per share amounts) (Unaudited)
NINE MONTHS ENDED SEPTEMBER 30, 1996 1995 -------- -------- Revenues $154,002 $144,083 Costs and expenses: Cost of sales (exclusive of depreciation and amortization) 106,509 102,324 Depreciation and amortization 5,897 6,337 Selling and administrative expenses 20,522 18,457 Interest expense 2,000 3,955 Loss on investment in and advances to affiliate 158 - -------- -------- Income before income taxes 18,916 13,010 Provision for income taxes 7,629 5,855 -------- -------- Net income $11,287 $7,155 ======== ======== Earnings per share $2.23 $1.47 ======== ======== - ------------------------ The accompanying notes are an integral part of this statement.
3 4 GARDNER DENVER MACHINERY INC. CONSOLIDATED BALANCE SHEET (dollars in thousands, except per share amounts)
(Unaudited) SEPTEMBER 30, DECEMBER 31, 1996 1995 ------------- ------------ ASSETS Current Assets: Cash and cash equivalents $ 16,012 $ 1,869 Receivables, net 46,769 39,933 Inventories, net 47,800 46,318 Deferred income taxes 2,371 - Other 2,181 2,217 ---------- ---------- Total current assets 115,133 90,337 ---------- ---------- Plant and equipment, net 34,350 32,184 Intangibles, net 74,371 43,050 Deferred income taxes 19,881 17,808 Investment in and advances to affiliate 863 - Other assets 1,107 872 ---------- ---------- Total assets $245,705 $184,251 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current maturities of long-term debt $ 2,803 $ 1,441 Accounts payable and accrued liabilities 49,683 29,675 Deferred income taxes - 486 ---------- ---------- Total current liabilities 52,486 31,602 ---------- ---------- Long-term debt, less current maturities 67,153 36,661 Postretirement benefits other than pensions 57,050 60,108 Other long-term liabilities 1,131 646 ---------- ---------- Total liabilities 177,820 129,017 ---------- ---------- Stockholders' equity: Common stock, $.01 par value; 50,000,000 shares authorized; 4,902,589 shares issued and outstanding at September 30, 1996 49 48 Capital in excess of par value 134,571 133,175 Retained deficit (66,702) (77,989) Cumulative translation adjustment (33) - ---------- ---------- Total stockholders' equity 67,885 55,234 ---------- ---------- Total liabilities and stockholders' equity $245,705 $184,251 ========== ========== The accompanying notes are an integral part of this statement.
4 5 GARDNER DENVER MACHINERY INC. CONSOLIDATED STATEMENT OF CASH FLOWS (dollars in thousands) (Unaudited)
NINE MONTHS ENDED SEPTEMBER 30, ----------------------- 1996 1995 ------- ------- Cash flows from operating activities: Net income $11,287 $7,155 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 4,015 4,807 Amortization 1,881 1,530 Loss on investment in and advances to affiliate 158 - Stock issued for employee benefit plans 896 960 Deferred income taxes (450) 415 Changes in assets and liabilities (excluding the impact of acquisitions): Receivables, net 3,932 (5,157) Inventories, net 6,665 7,454 Accounts payable and accrued liabilities 895 3,280 Other assets and liabilities, net (4,114) (3,902) ------- ------- Net cash provided by operating activities 25,165 16,542 ------- ------- Cash flows from investing activities: Acquisitions (net of cash acquired) (33,950) - Capital expenditures (1,518) (2,135) Disposals of plant and equipment 596 316 Investment in and advances to affiliate (1,050) - ------- ------- Net cash used for investing activities (35,922) (1,819) ------- ------- Cash flows from financing activities: Principal payments on long-term debt (38,601) (13,997) Proceeds from long-term debt 63,000 - Proceeds from stock options 501 17 ------- ------- Net cash provided by (used for) financing activities 24,900 (13,980) ------- ------- Increase in cash and cash equivalents 14,143 743 ------- ------- Cash and cash equivalents, beginning of period 1,869 3,330 ------- ------- Cash and cash equivalents, end of period $16,012 $4,073 ======= ======= The accompanying notes are an integral part of this statement.
5 6 NOTES TO FINANCIAL STATEMENTS NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES. Basis of Presentation. The accompanying financial statements include the accounts of Gardner Denver Machinery Inc. ("Gardner Denver" or the "Company") and its majority-owned subsidiaries, including the acquisitions in August of Gardner Denver Holdings Inc.("GDHI"), known as NORAMPTCO, Inc. until August 9, 1996, and TCM Investments, Inc. ("TCM"). All transactions between Gardner Denver Machinery Inc. and its majority-owned subsidiaries have been eliminated. The financial information presented as of any date other than December 31 has been prepared from the books and records without audit. The accompanying consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and do not include all of the information and the footnotes required by generally accepted accounting principles for complete statements. In the opinion of management, all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of such financial statements, have been included. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. These consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto for the year ended December 31, 1995 contained in the Company's 1995 Annual Report to Stockholders. Interest Rate Swap Agreements. The interest differential to be paid or received under these agreements is accrued as the interest rates change, and is recognized over the life of the agreements. See Note 6 in this document for additional information on these agreements. Investment in and Advances to Affiliate. The Company uses the equity method of accounting for its 25% interest in GVM Gesellschaft fur Schraubenverdichter und Schraubenmotorentechnologie mbH ("GVM"). Due to losses incurred to date by GVM, consolidated retained earnings of the Company do not include any undistributed earnings from GVM accounted for by the equity method at September 30, 1996. There were no equity investments in GVM at December 31, 1995. For additional information regarding the investment in and advances to affiliate, see Note 7. NOTE 2. INCOME TAXES. In the first nine months of 1996 and 1995, the Company paid $7.7 million and $1.1 million, respectively to the various taxing authorities and recognized $7.6 million and $5.9 million, respectively in tax expense. In addition, during the first quarter of 1996, the Company received $2.3 million in tax refunds from an overpayment of federal income taxes in the fourth quarter of 1995. 6 7 NOTE 3. INVENTORIES.
September 30 December 31, 1996 1995 ------------ ------------ Raw Materials $ 7,224 $ 7,398 Work-in-process 10,558 6,702 Finished goods, including parts and subassemblies 49,608 47,334 Perishable tooling and supplies 3,096 3,096 --------- --------- 70,486 64,530 Excess of current standard costs over LIFO costs (13,578) (10,606) Excess and slow-moving inventory (9,108) (7,606) --------- --------- Total net inventories $ 47,800 $ 46,318 ========= =========
NOTE 4. LONG-TERM DEBT AND OTHER BORROWING ARRANGEMENTS. Long-term debt at September 30, 1996 consisted of certain industrial revenue bonds and other notes due between 1997 and 2005 totaling $7.0 million (which included debt assumed by the Company in its recent acquisitions), $28 million from a $65 million credit facility entered into on November 30, 1995, and unsecured notes payable of $35 million. The credit facility is a three-year, unsecured, revolving loan used to repay a secured term loan and revolving line of credit, and to provide for general corporate purposes. At September 30, 1996, $37 million remained available for additional borrowings at which time the Company and lenders agreed to extend the maturity of the revolving loan until November 30, 1999. All other terms and conditions of the loan remained unchanged. On September 26, 1996, the Company entered into an unsecured senior note agreement for $35 million at a fixed interest rate of 7.3%. This debt has a ten-year final, seven-year average maturity. The loan is due September 26, 2006 with principal payments beginning in 2000. Maturities of long-term debt for the five years subsequent to September 30, 1996 are $2.8 million for 1997; $1.2 million for 1998; $29.1 million for 1999; $5.9 million for 2000; and $5.7 million for 2001. Total interest expense during the first nine months of 1996 and 1995 totaled $2.0 and $4.0 million, respectively. Interest paid for each period was not materially different from the amount expensed. NOTE 5. EARNINGS PER SHARE. Earnings per share were calculated for the three month and nine month periods ended September 30, 1996 based on 5,122,554 and 5,072,493 weighted average shares outstanding for each period respectively, while earnings per share for the three and nine month periods ended September 30, 1995 were calculated based on 4,940,750 and 4,864,811 weighted average shares outstanding, respectively. 7 8 NOTE 6. INTEREST RATE SWAP AGREEMENTS. At September 30, 1996, the Company had two interest rate swap agreements with a commercial bank (the "Counter Party") outstanding, having a cumulative notional principal amount of $30 million. The swaps provide an average fixed LIBOR rate of 6%. One interest rate swap terminates in November 1996 and the second in November 1997. The Counter Party has an option to extend either, or both agreements for one additional year each. The Company is exposed to credit loss in the event of nonperformance by the Counter Party to the interest rate swap agreements. However, the Company does not anticipate such nonperformance. NOTE 7. INVESTMENT IN AND ADVANCES TO AFFILIATE. On February 13, 1996 the Company exercised an option to purchase 25% of the common stock in GVM, a privately held German company. The investment is accounted for using the equity method. As part of the agreement, the Company has committed to loan GVM a total of $0.9 million over the remainder of 1996. As of September 30, 1996, the Company has loaned its affiliate $0.8 million of this commitment. The agreement specifies the payment of market interest rates and the re-payment of the loan at the end of five years. The loan is included in Investment in and Advances to Affiliate on the Consolidated Balance Sheet. The Company has an option to acquire an additional 24% of GVMs aggregate authorized capital by converting part of its claim to any payments of principal and accrued interest under the loan into such equity interest. NOTE 8. ACQUISITIONS. On August 9, 1996, the Company purchased 100% of the issued and outstanding stock of GDHI for $26.8 million (net of cash acquired). GDHI designs, manufactures and sells blowers and exhausters used in various industrial and waste water applications. The purchase price was allocated to assets and liabilities based on their respective fair values at the date of acquisition and resulted in cost in excess of net assets acquired of $27.3 million. As a result of the stability of the product technology, markets and customers, this amount is being amortized over 40 years using the straight line method. The following summarizes the unaudited pro forma results of operations of the combined companies which includes the actual results of the Company, historical results of operations of GDHI for the first seven months of the year and adjustments to the historical results for expected changes in operations assuming the acquisition had been effective at the beginning of the fiscal year. These adjustments include the effect of amortization of goodwill, interest expense of acquisition debt, elimination of expenses related to the former principal owner/CEO, costs incurred for the sale of GDHI, and certain other adjustments, together with related income tax effects. The results are not necessarily indicative of what would have occurred had these transactions been consummated as of the beginning of the fiscal year presented, or of future operations of the consolidated companies. The Companys pro forma results of operations for the nine months ending September 30, 1996 were: revenues of $177.3 million, income before income taxes of $21.1 million, net income of $12.6 million, and earnings per share of $2.48. The Companys pro forma results of operations for the 8 9 nine months ending September 30, 1995 were: revenues of $175.1 million, income before income taxes of $14.3 million, net income of $7.7 million and earnings per share of $1.58. On August 14, 1996, the Company purchased 100% of the issued and outstanding stock of TCM for $7.2 million (net of cash acquired). TCM designs, manufactures and sells pumps and compressors used primarily in oil and natural gas applications. The purchase price was allocated to assets and liabilities based on their respective fair values at the date of acquisition and resulted in cost in excess of net assets acquired of $4.1 million. As a result of the stability of TCMs products, markets and customers, this amount is being amortized over 40 years using the straight line method. Both acquisitions have been accounted for by the purchase method, and accordingly, the results of operations of GDHI and TCM are included in the Companys Consolidated Statement of Operations from the dates of acquisition. Certain estimates of fair market value of assets received and liabilities assumed were made with adjustments to each separate companys historical financial statements. These adjustments included estimates of various costs totaling $6.2 million planned by management necessary to fully integrate the acquisitions into Gardner Denver's operations. These estimates and adjustments have not yet been finalized. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. RESULTS OF OPERATIONS. Revenues For both the three and nine month periods ended September 30, 1996, revenues for compressor products, adjusted to exclude nonrecurring revenues, increased due to the effect of acquisitions in August and the impact of a limited scheduled shutdown when compared to the same periods of 1995. Revenues for petroleum products have increased significantly in the three and nine month periods of 1996, compared to the comparable periods of 1995, due to incremental demand resulting from the impact of higher prices of oil and natural gas on drilling activity, the effect of acquisitions made in August and the impact of a limited scheduled shutdown. For the nine months ended September 30, 1996, revenues were $154.0 million compared to $144.1 million in the same period of 1995. Revenues in the first nine months of 1996 included approximately $9.3 million from the acquisitions of GDHI and TCM. Revenues in the first nine months of 1995 included approximately $4.4 million from sales of castings and drilling components which did not recur in 1996 since the Companys foundry and drilling components product line were sold in the fourth quarter of 1995. Excluding revenues from recent acquisitions from the results of 1996 and sales of castings and drilling components from 1995, revenues increased approximately $5.0 million (4%) for the nine month period of 1996 compared to the same period of 1995. Revenues in the Compressed Air Products segment, excluding revenues from acquisitions in 1996 9 10 and casting sales in 1995, increased approximately 2% to $126.7 million for the nine month period of 1996 from $124.6 million for the comparable period of 1995. Excluding drilling components in 1995 and revenues from acquisitions in 1996, Petroleum Products segment revenues increased approximately 19% to $18.0 million for the nine month period of 1996 from $15.1 million for the comparable period of 1995. Revenues in the third quarter of 1996 were $56.5 million compared to $44.9 million in the same quarter of 1995. Excluding nonrecurring casting and drilling components sales of $0.5 million in 1995 and revenues of $9.3 million from GDHI and TCM in 1996, revenues in the third quarter of 1996 increased approximately $2.8 million (6%) over the same period in 1995. Approximately $1.4 million of this increase is attributable to a shorter manufacturing shutdown period in 1996, compared to 1995. Due to production requirements, this regularly scheduled shutdown was limited to one week in 1996 at one manufacturing facility, compared to two weeks in previous years. A second manufacturing facility was shutdown for one week during the second quarter of 1996 and one week during the third quarter. In previous years, this facility was shutdown for two consecutive weeks during the third quarter. Revenues for the Compressed Air Products segment rose to $48.2 million in the third quarter of 1996 from $39.7 million in the same period of 1995, adjusted to exclude casting sales. Approximately $7.1 million of this increase is attributable to the acquisitions. Petroleum Products segment revenues increased to $8.3 million in the third quarter of 1996 from $4.7 million in the comparable quarter of 1995, adjusted to exclude sales of drilling components. Approximately $2.2 million of this increase is attributable to the recent acquisitions. Sequentially, revenues in the third quarter of 1996 declined $1.7 million, or 3% from the second quarter of 1996, excluding the impact of the recent acquisitions. This volume reduction is a result of a shorter production period in the third quarter compared to that of the second as a result of the scheduled manufacturing shutdown. Costs and Expenses Gross margins (defined as revenues less cost of sales exclusive of depreciation and amortization) for the nine month period of 1996 increased $5.7 million (14%) to $47.5 million from $41.8 million in the same period of 1995. The increase in gross margin was primarily due to the impact from the recent acquisitions ($3.1 million), with the remaining improvement primarily resulting from cost reduction efforts and manufacturing process improvements. Gross margin as a percentage of sales improved to 30.8% in the nine month period of 1996 from 29.0% in the same period of 1995. If adjusted to exclude castings and drilling components sales, which generated below average margins, the gross margin percentage for the nine month period of 1995 would have been 29.2% compared to 30.7% for the same period of 1996 excluding the impact of the acquisitions. For the third quarter of 1996 the gross margin percentage improved to 31.0% (30.8% excluding the acquisitions) from 28.9% in the third quarter of 1995 (29.1% adjusted to exclude casting and drilling components sales). The improvement for both the nine month period and the quarter is indicative of the combined effect of previously completed cost reduction efforts and manufacturing process improvements and the impact of the recent acquisitions. 10 11 Excluding the effect of acquisitions, the gross margin percentage for the third quarter of 1996 was not materially different from that of the second quarter of 1996. The Company expects that gross margin will be enhanced in the fourth quarter of 1996 by the inclusion of LIFO income. Depreciation and amortization decreased 6% to $5.9 million in the first nine months of 1996, compared with $6.3 million for the same period of 1995. For the third quarter, depreciation and amortization increased 5% to $2.1 million in 1996, compared to $2.0 million in 1995. The decrease in the nine month period was primarily a result of the disposal of the foundry assets upon the completion of the sale in 1995. An expense reduction also results from existing assets becoming fully depreciated. The increase in depreciation and amortization expense for the three month period was due to the impact of the acquisitions ($0.3 million) offset by depreciation savings from the sale of the foundry ($0.2 million). For the nine month period, depreciation and amortization expense as a percentage of revenues decreased to approximately 3.8% in 1996 from 4.4% in 1995, while for the three month period, depreciation and amortization expense as a percentage of revenues decreased to 3.7% from 4.5%. In both cases the reduction is due to the effect of lower depreciation expense and increased revenues discussed above. Selling and administrative expenses increased in the first nine months of 1996 by 11% to $20.5 million from $18.5 million in the same period of 1995. As a percentage of revenues, selling and administrative expenses for the nine months increased to 13.3% in 1996 from 12.8% in 1995 in spite of increased revenues. For the third quarter, selling and administrative expenses increased 27% to $8.1 million in 1996 from $6.4 million for the same period of 1995. As a percentage of revenues, selling and administrative expenses for the third quarter increased to 14.4% in 1996 from 14.2% in 1995. Approximately $1.7 million of this increase in each the three and nine month periods is attributable to newly acquired operations. The increases are also due to higher manpower levels and related travel and training expenses since the Company operated with several employment openings in the previous year, and increased professional fees associated with the acquisitions. During the nine month period of 1996, the Company recognized its proportionate share ($0.2 million) of the losses incurred by GVM as a loss on investment in and advances to affiliate. For the third quarter of 1996 this loss was $0.1 million. For additional information on this investment, refer to Notes 1 and 7 of the Notes to Financial Statements contained in this document. Interest expense decreased $2.0 million (50%) to $2.0 million for the nine month period of 1996 compared to the same period of 1995, due to a significantly lower debt level for most of the period and lower interest rates in effect during 1996 compared to 1995. During the third quarter of 1996, interest expense decreased $0.3 million (25%) compared to the same period in 1995, for the same reasons, offset by higher expense beginning in August related to the acquisitions. In November 1995, the Company executed a new credit facility which reduced its effective interest rate by approximately 200 basis points. In September 1996, the Company obtained $35 million in long-term financing at a fixed rate of approximately 7.3%. The proceeds from this private placement were utilized to partially repay existing bank debt. See Note 4 of the Notes to Financial Statements contained in this document for further information on the Companys borrowing arrangements. 11 12 Compared to the same period of 1995, income before income taxes increased $5.9 million (45%) in the first nine months of 1996 to $18.9 million, primarily due to increased revenue volume and gross margin, and interest expense and depreciation reductions. For the third quarter of 1996, income before taxes increased $2.9 million (85%) from the same period of 1995 to $6.3 million for the same reasons. Approximately $0.8 million of the increase in each of the nine and three month periods is attributable to the acquisitions. Compared to 1995, provision for income taxes increased by $1.8 million to $7.6 million for the first nine months of 1996, and by $1.1 million to $2.6 million for the third quarter of 1996, as a result of the increase in income before taxes. The Company's effective tax rate declined to 41% in the third quarter of 1996 from 45% in the same period of 1995, which reduced income taxes for the quarter by $0.3 million ($0.05 per share) compared to the previous year. For the nine month period, the lower effective tax rate in 1996 decreased income taxes by $0.9 million ($0.17 per share) compared to 1995. The reduction in the tax rate is due to benefits generated through the Companys Foreign Sales Corporation (FSC) and other tax strategies. Net income for the nine months ended September 30, 1996 increased $4.1 million (57%) to $11.3 million from $7.2 million for the same period in 1995 and increased $1.8 million (95%) to $3.7 million for the third quarter compared to 1995, for the reasons previously discussed. Net income in each the nine and three month periods included approximately $0.4 million ($0.08 per share) from the acquisitions. During the third quarter of 1996, net income remained consistent when compared to the second quarter of the year. The incremental income from the acquisitions was offset by the financial impact of the manufacturing shutdown. LIQUIDITY AND CAPITAL RESOURCES Operating Working Capital During the nine months ended September 30, 1996, operating working capital (defined as receivables plus inventories, less accounts payable and accrued liabilities) decreased $11.7 million to $44.9 million. Receivables increased $6.8 million since the end of 1995, due to the impact of the recent acquisitions which added $11.5 million. Without the acquisitions, receivables would have declined $4.7 million due to the receipt of a federal income tax refund in the first quarter of 1996 and higher collections including increased use of progress payments. The refund resulted from an overpayment of taxes related to the timing of the sale of the drilling components product line and the associated inventory liquidation. Taxes were paid assuming that the inventory liquidation would not be consummated in 1995, but this sale was completed in late December. The $1.5 million increase in inventories was a result of the acquisitions, which caused a $7.9 million increase. Without the acquisitions, inventory declined $6.4 million due to continued focus on improving inventory turnover and the shipment of several large orders in 1996 which had been manufactured in 1995 and held at the customers request. Inventories also declined $3.2 million due to increased sales of petroleum products which are substantially from stock. The $20.0 million increase in accounts payable and accrued liabilities was essentially due to the impact of the recent 12 13 acquisitions, and includes accrued liabilities related to integrating various operations of the Company. Cash Flows During the nine months ended September 30, 1996, the Company generated cash flows from operations totaling $25.2 million, an increase of $8.6 million (52%) over the comparable period in 1995. This substantial increase was primarily the result of the increased net income ($4.1 million) and the decreased operating working capital ($5.9 million reduction compared to the prior period) discussed previously, partially offset by lower depreciation and amortization ($0.4 million) and additions to the deferred tax assets ($0.9 million). Cash was also provided by the completion of a $35 million debt placement and a $28 million borrowing under the Company's existing revolving line of credit. The cash flows and additional debt enabled the Company to invest in acquisitions ($33.9 million) and a joint venture ($1.0 million), expend $1.5 million on capital expenditures, and repay $38.6 million of long- term debt principal, resulting in an increase in the cash balance of $14.1 million. Capital Expenditures and Commitments Capital projects to reduce product costs, improve product quality, increase manufacturing efficiency and operating flexibility or expand production capacity resulted in expenditures of $1.5 million in the first nine months of 1996, which was $0.6 million less than the level of capital expenditures in the comparable period in 1995. The Company also expended $1.4 million for intangible and other assets in the first nine months of 1996, primarily for the implementation of a new integrated business system. Commitments for future capital expenditures at September 30, 1996 totaled $6.9 million. Management expects additional capital authorizations to be committed during the remainder of 1996, but substantial portions of these commitments will not be spent in the current year. PENDING LITIGATION The Company is a defendant (together with Cooper) in a lawsuit alleging misappropriation of trade secrets and interference with contractual relations in connection with research and development of single screw design technology and its related manufacturing techniques. The suit requests $4.66 million in compensatory damages and an unspecified amount in punitive damages. As part of the spin-off of the Company from Cooper, the Company agreed to indemnify Cooper for losses incurred in this type of lawsuit. Although the extent of the liability, if any, remains unknown, management does not believe the ultimate resolution of this legal action will have a materially adverse impact on the results of operations or the financial condition of the Company. 13 14 PART II - OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) List of Exhibits: 2.1 Stock Purchase Agreement, dated as of July 11, 1996, among Gardner Denver Machinery Inc., Jacques Lepage, Suzanne Lepage, Anne Lepage and Arthur Lepage, filed as Exhibit 2.0 to Gardner Denver Machinery Inc.s Current Report on Form 8-K, dated August 9, 1996, as amended, and incorporated herein by reference. 2.2 Stock Purchase Agreement, dated as of August 10, 1996, among Gardner Denver Machinery Inc., TCM Investments, Inc. and the Holders of all the Issued and Outstanding Common Stock and Options to Acquire Common Stock of TCM Investments, Inc. 4.0 Note Purchase Agreement dated as of September 26, 1996. 10.0 First Amendment, dated as of September 10, 1996 to the Credit Agreement dated as of November 30, 1995. 11.1 Computation of earnings per share for the three months ended September 30, 1996. 11.2 Computation of earnings per share for the nine months ended September 30, 1996. 27.0 Financial Data Schedule (b) Reports on Form 8-K The Company filed a Current Report on Form 8-K, dated August 9, 1996 and a related amended Current Report on Form 8-K/A, related to its acquisition of NORAMPTCO. This Form 8-K included a description of the acquisition (Item 2), the audited financial statements for NORAMPTCO for the fiscal year ended January 31, 1996, in accordance with Rule 3.05 of Regulation S-X, (Item 7), and pro forma financial information prepared pursuant to Article 11 of Regulation S-X (Item 7). 14 15 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. GARDNER DENVER MACHINERY INC. Date: November 12, 1996 By: /s/Ross J. Centanni ----------------------------------------- Ross J. Centanni President and Chief Executive Officer Date: November 12, 1996 By: /s/Philip R. Roth ------------------------------------------ Philip R. Roth Vice President, Finance and Chief Financial Officer 15 16 GARDNER DENVER MACHINERY INC. EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION 2.1 Stock Purchase Agreement, dated as of July 11, 1996, among Gardner Denver Machinery Inc., Jacques Lepage, Suzanne Lepage, Anne Lepage and Arthur Lepage, filed as Exhibit 2.0 to Gardner Denver Machinery Inc.s Current Report on Form 8-K, dated August 9, 1996, as amended, and incorporated herein by reference. 2.2 Stock Purchase Agreement, dated as of August 10, 1996, among Gardner Denver Machinery Inc., TCM Investments Inc. and the Holders of all the Issued and Outstanding Common Stock and Options to Acquire Common Stock of TCM Investments, Inc. 4.0 Note Purchase Agreement dated as of September 26, 1996. 10.0 First Amendment, dated as of September 10, 1996 to the Credit Agreement dated as of November 30, 1995. 11.1 Computation of earnings per share for the three months ended September 30, 1996. 11.2 Computation of earnings per share for the nine months ended September 30, 1996. 27.0 Financial Data Schedule.
16 EX-2.2 2 STOCK PURCHASE AGREEMENT 1 Exhibit 2.2 - -------------------------------------------------------------------------------- STOCK PURCHASE AGREEMENT BY AND AMONG GARDNER DENVER MACHINERY INC. AND TCM INVESTMENTS, INC. AND THE HOLDERS OF ALL THE ISSUED AND OUTSTANDING COMMON STOCK AND OPTIONS TO ACQUIRE COMMON STOCK OF TCM INVESTMENTS, INC. DATED AS OF AUGUST 10, 1996 - -------------------------------------------------------------------------------- 2 STOCK PURCHASE AGREEMENT ------------------------ THIS STOCK PURCHASE AGREEMENT (the "Agreement") is made and entered into as of the 10th day of August, 1996, by and among GARDNER DENVER MACHINERY INC., a Delaware corporation ("Buyer"), TCM INVESTMENTS, INC., an Oklahoma corporation ("TCM"), and the holders of all the issued and outstanding shares of TCM Common Stock and all issued and outstanding options to purchase TCM Common Stock as set forth on Exhibit A hereto (the "Holders") (TCM, --------- the Holders and Buyer are collectively referred to as the "Parties"). For all purposes herein, each Holder is acting individually only with respect to its Shares and not jointly with the other Holders, except as expressly set forth herein. W I T N E S S E T H: - - - - - - - - - - WHEREAS, TCM and its Subsidiaries are engaged in the business of manufacturing, buying, selling, distributing, assembling and repairing pumps and compressors and other matters incidental thereto (the "Business"); and WHEREAS, TCM is a corporation duly organized and existing under the laws of the State of Oklahoma which, as of the date hereof, has authorized capital stock consisting of Five Hundred Thousand (500,000) shares of common stock, with a par value of $1.00 per share ("TCM's Common Stock"), of which there are Three Hundred Forty-Five Thousand Two Hundred Ninety and 71/100 (345,290.71) shares outstanding on a fully diluted basis, consisting of Two Hundred Forty-Seven Thousand Two Hundred Ninety and 71/100 (247,290.71) issued and outstanding shares of TCM Common Stock (the "Common Shares") and Ninety-Eight Thousand (98,000) options to purchase shares of TCM Common Stock (the "Option Shares") (the Common Shares and the Option Shares together, the "Shares"); and WHEREAS, Buyer desires to purchase and acquire, upon the terms and subject to the conditions and exceptions contained herein, all of the Shares from the Holders; NOW, THEREFORE, FOR AND IN CONSIDERATION of the premises, the mutual promises, covenants and agreements contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties hereto hereby agree as follows: 1. BASIC TRANSACTION. ----------------- 1.1 ACQUISITION OF SHARES. Upon the terms and --------------------- subject to the conditions and exceptions contained herein, at Closing, Buyer agrees to purchase and accept from the Holders and each Holder agrees to sell, transfer and deliver to Buyer its Common Shares and to cancel and terminate its Option Shares, which collectively shall constitute all the Common Shares and Option Shares. 1.2 PURCHASE PRICE. In consideration of and in -------------- exchange for the Common Shares and cancellation of the Option Shares, Buyer shall pay to the Holders at Closing, by and through the 18 3 Disbursement Agent, Seven Million Dollars ($7,000,000.00) plus or minus the adjustments set forth in Section 1.4 below (the "Purchase Price") less the Holdback Funds, by wire transfer of immediately available FED funds to Holders in accordance with the written instructions of the Disbursement Agent and Buyer shall wire transfer the Holdback Funds in immediately available FED funds into the Escrow Account established with Escrow Holder to be held and disbursed in accordance with the Holdback Escrow Agreement. One Hundred Thousand Dollars ($100,000.00) of the Purchase Price shall be allocated equally between the Consulting Agreement and the Non- Competition Agreement described in Sections 2.2.3 and 2.2.4 hereof, respectively. Payment of the Purchase Price as aforesaid by Buyer to the Disbursement Agent in accordance with his written instructions shall fully discharge Buyer's obligation to the Holders for the purchase of the Shares and, together with the transfer described in Section 1.3, to Jack L. Alexander ("Alexander") under the Consulting Agreement and Non-Competition Agreement. 1.3 Additional Consideration. As additional ------------------------ consideration for the Non-Competition Agreement described in Section 2.2.4, Buyer shall cause that certain real estate legally described on Schedule 1.3 (the "Adex Property"), which is ------------ presently owned by Adex, Inc., a Subsidiary of TCM, to be transferred and assigned by quit claim deed to Alexander or his designee subsequent to the Closing. Buyer and Alexander agree that the Adex Property shall be valued at not less than its net book value as reflected in the Final April 30, 1996 Financial Statements for purposes of such transfer and assignment. In connection with such transfer, Alexander shall indemnify and save and hold harmless Buyer, its affiliates and subsidiaries, and their respective partners, officers, directors, shareholders, agents and representatives, and each of them, from and against any and all costs, fines, claims and expenses (including attorney fees) reasonably and actually incurred in connection with or arising out of or resulting from any environmental conditions, contamination or pollution of any nature or kind which exits, has existed, or may exist in the future with respect to the Adex Property. 1.4 ADJUSTMENT IN PURCHASE PRICE - CHANGE IN NET WORTH. -------------------------------------------------- 1.4.1 ADJUSTMENT. If the Net Worth of TCM and ---------- its Subsidiaries, as reflected on the Final April 30, 1996 Financial Statements, is: (i) less than Three Million Three Hundred Fifty-One Thousand Dollars ($3,351,000.00) (the "Lesser Base Amount"), the Purchase Price shall be reduced, dollar for dollar, by the amount by which such Net Worth, as reflected on the Final April 30, 1996 Financial Statements, is less than the Lesser Base Amount; or (ii) greater than Three Million Four Hundred Fifty-One Thousand Dollars ($3,451,000.00) (the "Greater Base Amount"), the Purchase Price shall be increased, dollar for dollar, by the amount by which such Net Worth, as reflected on the Final April 30, 1996 Financial Statements is greater than the Greater Base Amount. 1.4.2 DETERMINATION OF FINAL APRIL 30, 1996 FINANCIAL ----------------------------------------------- STATEMENTS. - ---------- (a) PREPARATION OF PRELIMINARY FINANCIAL STATEMENTS. ----------------------------------------------- In order to determine the adjustment, if any, in the Purchase Price as set forth above, promptly after execution hereof, TCM shall cause its auditors ("TCM's Auditors") to complete an audit of TCM and its Subsidiaries, on a consolidated basis, as of April 30, 1996 (the "Financial Statement Date"). Immediately upon completion thereof, TCM's Auditors shall deliver to Buyer and TCM, Audited Financial Statements, 19 4 together with the worksheets on which they are based (the "Preliminary April 30, 1996 Financial Statements"), of TCM and its Subsidiaries as of the close of business on the Financial Statement Date (without giving effect to the transactions contemplated by this Agreement). The Preliminary April 30, 1996 Financial Statements shall be prepared in accordance with GAAP on a basis consistent with the application of such principles used in the preparation of the audited financial statements of TCM and its Subsidiaries for the year ending April 30, 1995. (b) BUYER'S REVIEW OF PRELIMINARY APRIL 30, 1996 -------------------------------------------- FINANCIAL STATEMENTS. Following its receipt of the Preliminary - -------------------- April 30, 1996 Financial Statements, Buyer or Buyer's auditors, Arthur Andersen ("Buyer's Auditors"), shall have ten (10) business days to review the same. At or before the end of such ten (10) business day period, Buyer shall either: (1) accept the Preliminary April 30, 1996 Financial Statements in their entirety, in which case the Preliminary April 30, 1996 Financial Statements shall be the Final April 30, 1996 Financial Statements and the Net Worth of TCM and its Subsidiaries shall be determined based thereon as delivered; or (2) deliver to TCM and TCM's Auditors written notice of those items in the Preliminary April 30, 1996 Financial Statements which Buyer disputes, in which case all other items not affected by the disputed items will be deemed to be as set forth on the Preliminary April 30, 1996 Financial Statements as delivered. Within a further period of five (5) business days after the end of Buyer's aforementioned ten (10) business day period, Buyer and TCM shall attempt in good faith to resolve any such disputed items. If Buyer and TCM can reach an agreement on such disputed items within such time, then such financial statements reflecting such agreement shall be herein referred to as the Final April 30, 1996 Financial Statements and the Net Worth of TCM and its Subsidiaries shall be based thereon. (c) DISPUTE RESOLUTION MECHANISM. Failing such ---------------------------- resolution, at the end of said five (5) business days, Buyer and Holders' Committee shall agree on an independent accounting firm (the "Independent Accountants") to serve as arbitrator with respect to the disputed items. The unresolved disputed items will be referred to the Independent Accountants for final binding arbitration of such disputed items. The Independent Accountants shall establish procedures for resolution of the disputed items if Buyer and Holders' Committee are unable to agree on such procedures and shall determine the unresolved disputed items within fourteen (14) business days after such reference. The Independent Accountants shall review the opinions and adjustments suggested by Buyer or Buyer's Auditors and shall determine what adjustments, if any, should be made to the Preliminary April 30, 1996 Financial Statements (such statement, together with the Independent Accountants adjustments, being herein referred to as the Final April 30, 1996 Financial Statements) and shall be binding on TCM and Buyer. The Net Worth of TCM and its Subsidiaries as of the Financial Statement Date shall then be as reflected in the Final April 30, 1996 Financial Statements as determined in accordance herewith. The decision of the Independent Accountants shall be final and binding on the Parties hereto, and judgment may be entered on the basis of such decision in any court having jurisdiction. The fees of the Independent Accountants, if any, shall be shared equally by Buyer and the Holders, with the Holders' share being deducted from the Purchase Price otherwise payable to them at Closing. 20 5 2. CLOSING. ------- 2.1 CLOSING. Upon the terms and subject to the ------- conditions and exceptions contained herein, the closing of the transactions contemplated hereby (the "Closing") shall take place at the offices of Sublett and Shafer, P.C., Suite 805, 320 South Boston, Tulsa, Oklahoma at 10:00 a.m. (local time) on August 14, 1996, or as soon as practicable thereafter following the date on which all of the conditions set forth in Section 6 hereof are satisfied or waived (the "Closing Date"), unless the Parties hereto shall otherwise agree. 2.2 DELIVERIES AND PAYMENTS AT CLOSING. ---------------------------------- 2.2.1 PAYMENT FOR TENDERED SHARES. At the --------------------------- Closing and subject to the adjustments provided in Section 1, Buyer shall pay the Purchase Price due to Holders, less the Holdback Funds, to the Disbursement Agent and shall pay the Holdback Funds to the Escrow Holder as provided in Section 1 hereof against receipt by Buyer from the Holders of all (a) share certificates representing all the Common Shares, duly endorsed for transfer to Buyer, and (b) termination agreements evidencing the cancellation and termination of the Option Shares (the "Termination Agreements"), in such form as Buyer may reasonably request. 2.2.2 CERTIFICATES. At the Closing, Buyer and ------------ TCM shall each deliver to the other the certificates and other items described in Section 6 hereof. 2.2.3 CONSULTING AGREEMENT. At the Closing, in -------------------- accordance with Section 6.1 hereof, Buyer and Alexander shall enter into a Consulting Agreement substantially in the form attached hereto as Exhibit B (the "Consulting Agreement"). --------- 2.2.4 AGREEMENT NOT TO COMPETE. At Closing, in ------------------------ accordance with Section 6.1 hereof, Buyer and Alexander shall enter into a Non-Competition Agreement substantially in the form attached hereto as Exhibit C (the "Non-Competition Agreement"). --------- 2.2.5 HOLDBACK ESCROW AGREEMENT. At the Closing, ------------------------- in accordance with Section 6.3.6 hereof, Buyer, TCM, Holders' Agents and the Escrow Holder shall enter into a Holdback Escrow Agreement substantially in the form attached hereto as Exhibit D --------- (the "Holdback Escrow Agreement"). 2.2.6 TERMINATION OF EMPLOYMENT AGREEMENT. ----------------------------------- Effective as of the Closing Date, all employment agreements between TCM and it Subsidiaries and Alexander shall be terminated pursuant to a Termination of Contract(s) of Employment, substantially in the form attached hereto as Exhibit E (the "Termination of Employment --------- Agreement(s)"). 2.2.7 RESIGNATIONS AND MERGER OF ESOP. As of the ------------------------------- Closing Date, all officers and directors of TCM and its Subsidiaries and all trustees of the ESOP shall resign other than those whom Buyer shall have specified in writing at least five (5) business days prior to the Closing. Within sixty (60) days following the Closing, Buyer shall merge the ESOP into Buyer's 401(k) 21 6 retirement saving plan and shall complete all Internal Revenue Service filings related thereto as soon as is reasonably possible. 2.2.8 TERMINATION OF LIFE INSURANCE CONTRACTS. --------------------------------------- Effective as of the Closing Date, TCM shall cancel the two life insurance policies it owns in the face amount of $1,000,000.00 on Alexander's life. Any refundable prepaid premiums or cash surrender value on such policies shall be TCM's property. 2.2.9 OTHER CLOSING TRANSACTIONS. At the -------------------------- Closing, each of the Parties hereto shall take such other actions reasonably required hereby to be performed by it prior to or at the Closing, including, without limitation, satisfying the conditions set forth in Section 6 hereof. 3. REPRESENTATIONS AND WARRANTIES OF TCM AND HOLDERS. ------------------------------------------------- As an inducement to Buyer to enter into this Agreement and to consummate the transactions contemplated hereby, Holders, TCM and its Subsidiaries hereby represent and warrant that the following are true and correct as of the date hereof and shall, except as may be specifically provided for in this Agreement or otherwise specifically agreed upon or waived, in each case in writing by Buyer, be true and correct as of the Closing: 3.1 VALIDITY. This Agreement constitutes the -------- legal, valid and binding obligation of TCM and is enforceable in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency, moratorium, reorganization, and other laws affecting creditors' rights generally and general principles of equity, regardless of whether asserted in equity or at law. 3.2 SCHEDULES. The Schedules referred to in this --------- Section 3 are attached hereto and incorporated herein by reference, and all information set forth in such Schedules is true, correct and complete in all material respects as of the date of this Agreement, and such Schedules taken as a whole do not omit to state any material fact necessary in order to make the statements therein not misleading, and shall be deemed for all purposes of this Agreement to constitute part of the representations and warranties under this Section 3. Each of the documents and other writings furnished to Buyer and its representatives, officers, directors and employees, or any of them, (collectively, the "Buyer's Representatives") by TCM and its representatives, officers, directors and employees, or any of them, pursuant to this Agreement is true, correct and complete in all material respects as of the date furnished and at Closing and does not omit to state any material fact necessary in order to make the statements therein not misleading. TCM shall promptly provide Buyer with written notification of any material event or occurrence or other material information of any kind whatsoever necessary to maintain this Agreement and all other documents and writings furnished to the Buyer's Representatives pursuant to this Agreement as true, correct and complete in all material respects at the time of the execution hereof and at all times thereafter to and including the Closing Date. 22 7 3.3 CORPORATE AND FINANCIAL. ----------------------- 3.3.1 ORGANIZATION. TCM is a corporation duly ------------ organized, validly existing and in good standing under the laws of the State of Oklahoma and has the corporate power to carry on its business as it is now being conducted or presently proposed to be conducted. TCM is duly qualified as a foreign corporation to do business, and is in good standing (to the extent the concept of good standing exists), in each jurisdiction where the character of its properties owned or held under lease or the nature of its activities makes such qualification necessary. 3.3.2 SUBSIDIARIES. Schedule 3.3.2 sets forth ------------ -------------- for each Subsidiary of TCM (i) its name and jurisdiction of incorporation, (ii) the number of shares of authorized capital stock of each class of its capital stock, (iii) the number of issued and outstanding shares of each class of its capital stock, the names of the holders thereof, and the number of shares held by each such holder, and (iv) the number of shares of its capital stock held in treasury, if any. All of the issued and outstanding shares of capital stock of each Subsidiary of TCM have been duly authorized and are validly issued, fully paid and non-assessable. Except as set forth in Schedule 3.3.2, either TCM or one of its -------------- Subsidiaries holds of record and owns beneficially all of the outstanding shares of each Subsidiary, free and clear of any restrictions on transfer (except as required by applicable securities laws) or security interests, options, warrants, purchase rights, contracts, commitments, equity claims and demands. Except for the Option Shares which are being cancelled as of the Closing, there are no outstanding or authorized options, warrants, purchase rights, subscription rights, conversion rights, exchange rights or other contracts or commitments that could require any of TCM or its Subsidiaries to sell, transfer or otherwise dispose of any capital stock of any of its Subsidiaries or that could require any Subsidiary of TCM to issue, sell or otherwise cause to become outstanding any of its own capital stock. Except as set forth in Schedule 3.3.2, neither TCM nor any of its Subsidiaries - -------------- controls, directly or indirectly, or has any direct or indirect equity participation in any Person which is not a Subsidiary of TCM. 3.3.3 AUTHORITY; NO CONFLICT. ---------------------- (a) TCM has full power and authority to enter into this Agreement and, with the consent of the Holders of the Option Shares, to terminate the Option Shares as contemplated by this Agreement, and all corporate action including, but not limited to, approval by the Board of Directors which may be necessary on the part of TCM to consummate such transactions has been taken or will be taken prior to Closing. At or prior to Closing, TCM will furnish Buyer with a certified copy of the Board of Directors resolution or unanimous written consent approving this Agreement and the transactions contemplated hereby. (b) This Agreement and all other agreements to be executed and delivered by TCM hereunder will not result in any conflict with, breach of, or default or acceleration under, any mortgage, agreement, lease, indenture, or other instrument, order, judgment or decree to which TCM or any of its Subsidiaries is a party or by which TCM or its properties or assets may be bound or affected or violate any applicable law or regulation. 23 8 (c) TCM has furnished the Buyer's Representatives with a complete and correct copy of the Certificate of Incorporation, as amended to date, of TCM as certified by the Secretary of State of the State of Oklahoma and a complete and correct copy of the Bylaws of TCM, as presently in effect, certified by its incumbent secretary. 3.3.4 CAPITAL STRUCTURE. ----------------- (a) The authorized capital stock of TCM consists of Five Hundred Thousand (500,000) shares of $1.00 par value common stock of which Two Hundred Forty-Seven Thousand Two Hundred Ninety and 71/100 (247,290.71) shares are issued and outstanding and options to purchase an additional Ninety-Eight Thousand (98,000) shares of such common stock are issued and outstanding. There are no preferred shares of TCM. All of the Common Shares are duly and validly issued, fully paid and non-assessable and were offered, issued and sold in compliance with all applicable federal and state securities laws. No person or entity has any right of rescission or claim for damages under federal or state securities laws with respect to the issuance of any Shares of TCM's Common Stock previously issued. None of the outstanding Shares have been issued in violation of any preemptive or other rights of the Holders. (b) Except for the Option Shares, TCM does not have outstanding any securities or other rights which are either by their terms or by contract convertible or exchangeable into capital stock of or other equity interest in TCM or any preemptive or similar rights to subscribe for or to purchase, or any options or warrants or agreements for the purchase or issuance (contingent or otherwise) of, or any calls, commitments or claims of any character relating to, TCM's Common Stock or other equity interest or securities convertible into TCM's Common Stock or other equity interest. Except as otherwise provided in the ESOP and for the agreement herein to terminate the Option Shares, TCM is not subject to any obligation (contingent or otherwise) to repurchase or otherwise acquire or retire or to register any shares of its capital stock. (c) There is no agreement to which TCM or any of its Subsidiaries is a party restricting the transfer of any Shares except as required by applicable state and federal securities laws. (d) Any Shares which have been purchased or redeemed by TCM have been purchased or redeemed in accordance with all applicable federal and state laws, rules and regulations, including, without limitation, all federal and state securities laws. The sale of the Common Shares to Buyer and the termination of the Option Shares by Seller shall not result in, and will not, with the giving of notice or lapse of time or both, result in a default or acceleration of the maturity of, or otherwise modify, any agreement, note, mortgage, bond, security agreement, loan agreement or other contract or commitment of TCM and its Subsidiaries. 3.3.5 CORPORATE RECORDS. The stock records and ----------------- minute books of TCM furnished to the Buyer's Representatives by TCM prior to Closing fully and accurately reflect all issuances, transfers and redemptions of the capital stock of TCM, correctly show the total number of Common Shares issued and outstanding on the date hereof and as of Closing, correctly set forth the Option Shares and the number of Option Shares, correctly show all corporate action taken by the directors and 24 9 shareholders of TCM since the incorporation of TCM (including actions taken by consent without a meeting) and contain true and complete copies or originals of TCM's Certificate of Incorporation and all amendments thereto, Bylaws as amended and currently in force, and the minutes of all meetings or consent actions of TCM's directors and shareholders since the incorporation of TCM. No resolutions, regulations or bylaws have been passed, enacted, consented to or adopted by such directors or shareholders since the incorporation of TCM, except those contained in the minute books. 3.3.6 FINANCIAL STATEMENTS. TCM has delivered to -------------------- the Buyer's Representatives true, correct and complete copies of the audited consolidated financial statements of TCM and its Subsidiaries for the fiscal years ended April 30, 1995 and April 30, 1994, including fiscal balance sheets, statements of income and retained earnings, statements of changes in financial position, a statement of cash flows and related notes (all of the foregoing described financial statements together with the Final April 30, 1996 Financial Statements being herein collectively referred to as the "Financial Statements"). 3.3.7 LIABILITIES. Except as disclosed in the ----------- Schedules hereto (including Schedule 3.3.7) or in the Final -------------- April 30, 1996 Financial Statements, TCM and its Subsidiaries do not have any material debt, liability, or obligation of any kind, whether accrued, absolute, contingent or otherwise, including but not limited to (a) liability or obligation on account of any federal, state, local or foreign taxes or penalties, interest or fines with respect to such taxes, (b) liability arising from or by virtue of the production, manufacture, sale, lease, distribution, delivery or other transfer or disposition of personal property or services of any type, kind or variety, or (c) unfunded liabilities with respect to the ESOP or any Pension Plan or profit sharing plan, whether operated by TCM or any of its Subsidiaries covering employees of TCM or its Subsidiaries, except liabilities incurred in the ordinary course of business since the Financial Statement Date (none of which has, individually or in the aggregate, been or will be materially adverse to the business or financial condition of TCM). The ESOP has no loans outstanding and has no obligation to repay any such loans. Except as set forth on Schedule 3.3.7 -------------- or as reflected on the Final April 30, 1996 Financial Statements, TCM and its Subsidiaries have no material obligations (absolute or contingent) to provide funds on behalf of, or to guarantee or assume any debt, liability or obligation of any Person, except for endorsements in connection with the deposit of items for collection. All material contingent liabilities of TCM and its Subsidiaries in connection with the recourse financing of the sale of inventory to customers on the date hereof and the Closing Date are and will relate only to genuine, legal, valid and collectible obligations in the ordinary course of business of customers who are the primary obligors. 3.3.8 ABSENCE OF CHANGES. Except as set forth on ------------------ Schedule 3.3.8 and the other Schedules hereto, since the - -------------- Financial Statement Date: (a) There has been no change in the Business, assets, liabilities, results of operation or financial condition of TCM and its Subsidiaries, or in any of its relationships with suppliers, customers, employees, lessors or others, which individually or in the aggregate has had or is likely to have a material adverse effect on the Businesses, assets or properties of TCM and its Subsidiaries 25 10 taken as a whole; (b) There has been no material uninsured damage, destruction or loss to the assets or properties of TCM or its Subsidiaries taken as a whole; (c) Except for the transactions provided for in this Agreement, the businesses of TCM and its Subsidiaries have been operated in all material respects in the ordinary course; (d) The properties and assets of TCM and its Subsidiaries taken as a whole have been maintained in all material respects in good order, repair and condition, ordinary wear and tear excepted; (e) The books, accounts and records of TCM and its Subsidiaries have been maintained in all material respects in the usual, regular and ordinary manner on a basis consistent with prior years; (f) There has been no declaration, setting aside or payment of any dividend or other distribution on or in respect of the Shares nor has there been any direct or indirect redemption, retirement, purchase or other acquisition by TCM of TCM's Common Stock, except for the cancellation of the Option Shares at Closing and except in accordance with the ESOP; (g) Except for changes disclosed to Buyer on Schedule 3.3.8, there has been (i) no increase in the - -------------- compensation or in the rate of compensation or commissions payable or to become payable by TCM or any of its Subsidiaries to (x) any director whose regular compensation is listed on Schedule 3.3.8, -------------- or (y) any officer, salaried employee, salesman, distributor or agent earning Forty-Five Thousand Dollars ($45,000.00) or more per annum; (ii) no increase in the compensation or in the rate of compensation payable or to become payable to hourly employees and salaried employees of TCM and its Subsidiaries earning less than Forty-Five Thousand Dollars ($45,000.00) per annum; (iii) no director, officer, or employee hired at a salary in excess of Forty-Five Thousand Dollars ($45,000.00) per annum; (iv) no increase in any payment of or payment or commitment to pay any bonus, profit sharing or other extraordinary compensation to any employee; and (v) no increase in the rate of commissions paid or payable to any employee of TCM and its Subsidiaries; (h) There has been no material labor dispute, organizational effort by any union, unfair labor practice charge or employment discrimination or harassment charge, nor institution of nor, to the knowledge of TCM and its Subsidiaries, threatened institution of any such effort, complaint or other proceeding in connection therewith, involving TCM or any of its Subsidiaries or affecting the operations of TCM and its Subsidiaries; (i) Except for contributions to the ESOP, as disclosed to Buyer on Schedule 3.3.8, there has been no -------------- issuance or sale by TCM and its Subsidiaries of their authorized capital stock, options or warrants for such capital stock, bonds, notes or other securities of TCM or any of its Subsidiaries or any modification or amendment of the rights of the holders of any outstanding capital stock, bonds, notes or other securities thereof; 26 11 (j) Except to the extent provided in the security agreements between TCM and its Subsidiaries and each of the suppliers of TCM's and its Subsidiaries' inventory providing for a security interest solely in the inventory purchased by TCM and its Subsidiaries from such suppliers in the ordinary course of TCM's and its Subsidiaries' business to secure payment of the purchase price of such inventory, there has been no mortgage, lien or other encumbrance (other than as is created through the operation of law in the ordinary course of business) or security interest (other than liens for current taxes not yet due) created on or in (including without limitation, any deposit for security consisting of) any asset or assets of TCM and its Subsidiaries or assumed by TCM and its Subsidiaries with respect to any asset or assets; (k) There has been no material indebtedness or other material liability or obligation (whether absolute, accrued, contingent or otherwise) incurred by TCM and its Subsidiaries, including, without limitation, any draws or advances under any lines of credit, which would be required to be reflected on a balance sheet of TCM and its Subsidiaries, prepared in accordance with GAAP, except such as have been incurred in the ordinary course of business of TCM and its Subsidiaries; (l) No obligation or liability of TCM or its Subsidiaries has been discharged or satisfied, other than the current liabilities reflected on the Final April 30, 1996 Financial Statement and current liabilities incurred in the ordinary course of business; (m) Except for the sale of inventory in the ordinary course of business, there has been no sale, transfer or other disposition of any assets of TCM and its Subsidiaries, the fair market value of which individually exceeds Fifty Thousand Dollars ($50,000.00); (n) Except as set forth on Schedule 3.3.8, there ----- have been no material charge-off's of or reserves established with respect to the accounts receivable; (o) There has been no amendment, termination or waiver of any right of TCM or any of its Subsidiaries under any contract or agreement or governmental license, permit or permission which, individually or in the aggregate, has had or will have a material adverse effect on the business or properties of TCM and its Subsidiaries; and (p) There has been no creation of, amendment to or contributions made to any bonus, incentive compensation, deferred compensation, profit sharing, retirement, pension, group insurance or other benefit plan, or any union, employment or consulting agreement or arrangement. 3.3.9 LITIGATION AND PROCEEDINGS. Except as set -------------------------- forth on Schedule 3.3.9, there are no material actions, decrees, -------------- suits, counterclaims, claims, proceedings or governmental or other investigations pending or, to the knowledge of TCM and its Subsidiaries, threatened against, by or affecting TCM or its Subsidiaries in any court or before any arbitrator or governmental agency, and no material judgment, award, order or decree of any nature has been rendered against TCM or its Subsidiaries or with respect thereto by any agency, arbitrator, court, commission or other authority which has not been paid or discharged, nor, to the knowledge of TCM and its Subsidiaries, does 27 12 TCM or its Subsidiaries have any unasserted contingent liabilities which, individually or collectively, might have a material adverse effect on the assets or on the operation of TCM and its Subsidiaries or which might prevent or impede the Closing. Neither TCM nor any of its Subsidiaries have received notice that any of them have been charged with and, to the knowledge of TCM, neither TCM nor any of its Subsidiaries are under investigation with respect to any charge concerning any provision of any federal, state or other applicable or administrative regulation with respect to the business of TCM and its Subsidiaries. There are no pending or, to the knowledge of TCM, threatened claims against any of the officers or directors of TCM and its Subsidiaries in connection with the business or affairs of TCM and its Subsidiaries. The reserves relating to such actions, decrees, suits, counterclaims, claims, proceedings, or governmental investigations which are set forth on Schedule 3.3.9 -------------- are, in the good faith opinion of management of TCM and its Subsidiaries, adequate to cover all liabilities and obligations of TCM and its Subsidiaries; however, there can be no guarantee of outcome. 3.4 BUSINESS OPERATIONS. ------------------- 3.4.1 PERMITS; COMPLIANCE WITH LAW. ---------------------------- (a) TCM and its Subsidiaries and each of its officers, directors and employees have all material permits, licenses, approvals and authorizations of and registrations with and under all federal, state, local and foreign laws, authorities and agencies required for TCM and its Subsidiaries and their officers, directors and employees to carry on each part of their respective activities as presently conducted in connection with the business of TCM and its Subsidiaries and all of such permits, licenses, approvals, authorizations and registrations are in full force and effect, and no suspension or cancellation of any of them is pending or threatened. (b) Except to the extent otherwise disclosed herein (including any Schedules hereto), TCM and its Subsidiaries have complied in all material respects with all federal, state and local laws, rules, regulations and ordinances applicable to it or its Business or its employees (including, without limitation, the National Labor Relations Act, as amended, Title VII of the Civil Rights Act of 1964, as amended, and the Age Discrimination in Employment Act, as amended). No past violation of any such law, rule, regulation or ordinance has occurred which could or would materially impair the right or ability of TCM and its Subsidiaries or its respective officers, directors or employees to conduct their respective activities in connection with the Business of TCM and its Subsidiaries. 3.4.2 ENVIRONMENTAL. ------------- (a) TCM and its Subsidiaries hereby warrant and represent that: (i) Except as set forth on Schedule 3.4.2, all -------------- underground storage tanks, if any, that have been owned or operated by TCM and its Subsidiaries at the facilities and properties presently owned, operated and leased by TCM and its Subsidiaries, and any other underground storage tanks which have been located at such facilities and properties, have been removed, and all clean-up associated therewith completed in accordance with applicable Environmental Laws; 28 13 (ii) Except as set forth in Schedule 3.4.2, TCM -------------- and its Subsidiaries have obtained all permits, licenses, governmental approvals and other authorizations which they are required to have under Environmental Laws, and TCM and its Subsidiaries have prepared, submitted, made or given all required filings, reports, disclosures and notifications and maintained all records that they are required to make or maintain under applicable Environmental Laws relating to the generation, use, manufacture, refining, transportation, treatment, storage, handling, cleanup, disposal, transfer, production, processing, or release by or for TCM and its Subsidiaries of Hazardous Substances on, in, under or from any properties or facilities currently or previously owned, operated or leased by TCM and its Subsidiaries; (iii) Except as set forth in Schedule 3.4.2, TCM -------------- and its Subsidiaries are and have been in compliance with all applicable limitations, restrictions, conditions, prohibitions, requirements, obligations, schedules and timetables contained in the Environmental Laws and permits issued thereunder, with respect to operations by TCM and its Subsidiaries at properties and facilities currently and previously owned, operated and leased by TCM and its Subsidiaries including, without limitation, the generation, use, manufacture, transportation, treatment, storage, handling, disposal, transfer, recycling, reclamation, production and processing by or for TCM and its Subsidiaries of Hazardous Substances at, on, under, or from any of the properties or facilities; (iv) Except as set forth in Schedule 3.4.2, there -------------- is no civil, criminal or administrative action, suit, demand, claim, hearing, notice or demand letter, environmental lien, notice of violation, investigation, or proceeding pending or, to the knowledge of TCM and its Subsidiaries, threatened against TCM and its Subsidiaries involving any Environmental Laws or Hazardous Substances; (v) Except as set forth in Schedule 3.4.2, TCM -------------- and its Subsidiaries and their officers, directors, managers, and employees are not aware of any instance of or any investigation, assessment, removal or remediation of a release of Hazardous Substances at, on, under or from any facility owned or operated by TCM or any of its Subsidiaries. 3.4.3 INSURANCE. Schedule 3.4.3 contains a complete --------- -------------- list and description (including the expiration date, premium amount and coverage thereunder) of all policies of insurance and bonds presently maintained by, or providing coverage for, TCM and its Subsidiaries or any of its officers and directors (as officers and directors of TCM and its Subsidiaries), all of which are and will be maintained through the Closing Date, in full force and effect, together with a complete list of all pending claims under any insurance policy or bond. All material terms, obligations and provisions of each insurance policy and bond have been complied with, all premiums due thereon have been paid, and no notice of cancellation with respect thereto has been received. In the good faith judgment of TCM, the policies and bonds presently maintained by, or providing coverage for TCM and its Subsidiaries or any of their officers and directors (as officers and directors of TCM and its Subsidiaries), provide adequate coverage to insure the properties and business of TCM and its Subsidiaries and the activities of their officers and directors against such risks and in such amounts as are prudent and customary. Except as set forth on Schedule 3.4.3, -------------- neither TCM nor any of its Subsidiaries will have as of the Closing Date any liability for premiums or for retrospective premium adjustments for any period prior to the Closing Date. TCM has heretofore delivered to Buyer's 29 14 Representatives true, correct and complete copies of all insurance policies and bonds or the binders for all insurance policies and bonds presently maintained by, or providing coverage for TCM, its Subsidiaries or any of their officers and directors (as officers and directors of TCM and its Subsidiaries), or a summary thereof. The insurance coverage listed in Schedule 3.4.3 hereto is on an occurrence basis. -------------- 3.5 CONTRACTS; PROPERTIES AND ASSETS. -------------------------------- 3.5.1 CONTRACTS AND COMMITMENTS. Except as ------------------------- reflected in the other Schedules hereto and other than the purchase and sale of inventory in the ordinary course of TCM's and its Subsidiaries' business, Schedule 3.5.1 contains a list which -------------- identifies and briefly describes all written and oral contracts, agreements, guaranties or commitments, to which TCM or its Subsidiaries is a party or by which TCM or its Subsidiaries may be bound (including, without limitation, employment agreements and open purchase and sale orders), involving the payment by or to TCM or its Subsidiaries of more than Fifty Thousand Dollars ($50,000.00) or which is otherwise material to, or in connection with, the operation of the business of TCM and its Subsidiaries. There are no material written or oral contracts, agreements, guaranties or commitments to which TCM and its Subsidiaries is a party or by which TCM and its Subsidiaries or their properties are bound, other than as reflected on Schedule 3.5.1, and other -------------- than those relating to the purchase or sale of inventory in the ordinary course of TCM's and its Subsidiaries' business, involving payments or obligations in the aggregate for all such contracts, agreements, guaranties or commitments in excess of Three Hundred Thousand Dollars ($300,000.00). Each such contract, agreement, guaranty or commitment is in full force and effect and is valid and enforceable in accordance with its terms and constitutes a legal and binding obligation of the respective parties thereto and is not the subject of any notice of default, termination or partial termination. TCM and its Subsidiaries have complied in all respects with the provisions of such contracts, agreements, guaranties and commitments. A true and complete copy of each such document has been submitted to Buyer for examination. Neither TCM nor any of its Subsidiaries has any arrangement (formal or informal) nor are any of them a party to any agreement with any current or previous customer regarding any rebates or other payments or gifts (in kind or in cash). 3.5.2 LICENSES; INTELLECTUAL PROPERTY. Except as ------------------------------- described in Schedule 3.5.2, neither TCM nor any of its -------------- Subsidiaries are a party, either as licensor or licensee, to any material agreement for any inventions, patent, process, trademark, service mark, trade name, copyright, trade secret or confidential information ("Intellectual Property"). All Intellectual Property and applications therefor or registrations thereof, owned or used by TCM and its Subsidiaries are listed in Schedule 3.5.2 and -------------- comprise all such Intellectual Property required for TCM and its Subsidiaries to conduct, and to continue to conduct, their business as presently conducted. If any such Intellectual Property is owned by any Person other than TCM or one of its Subsidiaries, TCM shall cause such Person to assign and transfer such Intellectual Property to TCM or one of its Subsidiaries, without cost, prior to the Closing. Except as set forth on Schedule 3.5.2, there are no -------------- rights of third parties with respect to any of, and TCM and its Subsidiaries have the right to use, the Intellectual Property owned or used by TCM and its Subsidiaries. TCM and its Subsidiaries have complied in all material respects with applicable laws relating to the filing or registration of "fictitious names" or trade names, if any. 30 15 3.5.3 TITLE TO PROPERTIES. TCM and its ------------------- Subsidiaries have good and marketable title to all of their properties, real and personal, tangible and intangible, including, but not limited to, those reflected on the Final April 30, 1996 Financial Statements (except as since sold or otherwise disposed of in the ordinary course of business), free and clear of all encumbrances, liens, security interests, claims or charges of any kind or character except (i) those referred to in Schedule 3.5.3 -------------- and (ii) liens for real estate taxes not yet due and payable. TCM and its Subsidiaries possess all property and rights that TCM and its Subsidiaries consider necessary to the conduct of their business as presently conducted. 3.5.4 CONDITIONS OF PROPERTIES. Taken as a ------------------------ whole, all of the buildings and equipment owned or leased by TCM and its Subsidiaries and used in its Business are in good condition and repair in all material respects, normal wear and tear excepted, suited for the uses intended, and operated in conformity with all material applicable building, zoning and other applicable ordinances, laws and regulations, and to the knowledge of TCM and its Subsidiaries, there are no proposed changes therein that would have a material adverse effect on such properties or their use. 3.5.5 REAL PROPERTY AND LEASES. ------------------------ (a) All leases pursuant to which TCM or its Subsidiaries are lessee or lessor of any real or personal property (the "Company Leases") are valid and enforceable with respect to TCM or its Subsidiaries, as the case may be, and, to the knowledge of TCM and its Subsidiaries, with respect to the other party or parties thereto, in accordance with their respective terms; there is not under any of such leases (i) any material default or any claimed default by TCM or its Subsidiaries or event of default or event which with notice or lapse of time, or both, would constitute a default by TCM or its Subsidiaries and in respect of which adequate steps have not been taken to prevent a default on its part from occurring; or (ii) to the knowledge of TCM and its Subsidiaries, any existing default by any lessee of TCM or its Subsidiaries or any event of default or event which with notice or lapse of time, or both, would constitute a material default by any such lessee. A true, complete and accurate list of the Company Leases, setting forth the lessor and lessee, property, initial and renewal term and annual rentals is contained in Schedule 3.5.5. -------------- (b) The copies of the Company Leases heretofore furnished by TCM and its Subsidiaries to Buyer's Representatives are true, correct and complete, and such Company Leases have not been modified in any material respect and are in full force and effect in accordance with their respective terms. (c) The interest of TCM or its Subsidiaries in and under each of the Company Leases is unencumbered and subject to no present claim, contest, dispute, action or, to the knowledge of TCM, threatened action at law or in equity. (d) The present use and operation of, and improvements upon, all real properties leased by TCM or its Subsidiaries (the "Leased Properties") are in conformity with all applicable material building, zoning and other applicable laws, ordinances and regulations, and, to the knowledge of TCM and its Subsidiaries, there are no proposed changes therein that would have a material adverse 31 16 effect on the Leased Properties or their use. (e) Except as set forth in Schedule 3.5.5, no -------------- rent has been paid in advance and no security deposit has been paid by, nor is any brokerage commission payable by TCM and its Subsidiaries with respect to any Company Lease pursuant to which either TCM or one of its Subsidiaries is lessee. (f) There are no contractual obligations or agreements in principle for either TCM or one of its Subsidiaries to enter into new leases of real property or to renew or amend existing Company Leases prior to the Closing Date. (g) Schedule 3.5.5 lists all real property that -------------- either TCM or any of its Subsidiaries owns (the "Real Estate"). With respect to each such parcel of Real Estate, TCM or one of its Subsidiaries has good and marketable title to the parcel of Real Estate free and clear of any security interests, easements, covenants or other restrictions, except as described in the Surveys provided pursuant to Section 5.5.2 below, except for installments of regular or special assessments not yet delinquent and recorded easements, and such other encumbrances as may be set forth on Schedule 3.5.5. In addition, with respect to each parcel, - -------------- there are no outstanding leases, subleases or other agreements (written or oral) granting to any party or parties the right to use or occupy any portion of the parcel of Real Estate and there are no outstanding options or rights of first refusal to purchase the parcel of Real Estate or any portion thereof or the interest therein. 3.5.6 INVENTORIES. The inventory of TCM and its ----------- Subsidiaries consists of items of a quality and quantity usable and salable in the ordinary course of their Businesses, and, taken as a whole, the values of obsolete or slow moving materials and materials below standard quality have been written down on its books of account on a consistent basis to realizable market value, or adequate reserves have been provided therefor. All goods sold or otherwise distributed by TCM and its Subsidiaries and all finished goods in the inventory of TCM and its Subsidiaries conform in all respects to customary trade standards for marketable goods, subject to returns of goods or warranty claims in accordance with the prior history of TCM and its Subsidiaries. 3.6 EMPLOYEES AND BENEFITS. ---------------------- 3.6.1 DIRECTORS OR OFFICERS. Schedule 3.6.1 correctly --------------------- -------------- lists all of the present officers and directors of TCM and its Subsidiaries. 3.6.2 COMPENSATION STRUCTURE. Schedule 3.6.2 contains ---------------------- -------------- a true and complete list of the names, titles, and compensation arrangements of each employee of TCM and its Subsidiaries (including, without limitation, all salary, wages, bonuses and fringe benefits other than those fringe benefits made available to all employees on a nondiscriminatory basis, in each case separately itemized) earning in excess of Forty-Five Thousand Dollars ($45,000.00) per year. Except as set forth in Schedule 3.6.2, no management or other key employee -------------- or significant number of other employees of TCM or any of its Subsidiaries has informed or advised TCM or any of its Subsidiaries employees do not intend to continue such employee's or employees' 32 17 employment with TCM or one of its Subsidiaries, as the case may be, after the date hereof. TCM and its Subsidiaries have heretofore provided the Buyer's Representatives with copies of all written agreements, and memoranda currently in effect which have been provided to such employees relating to their current compensation. A list of such agreements is included in Schedule 3.6.2. -------------- 3.6.3 EMPLOYEE BENEFITS. ----------------- (a) Except as set forth in Schedule 3.6.3, -------------- neither TCM nor any of its Subsidiaries has or maintains a "pension plan" (as such term is defined in Section 3 of ERISA), "welfare benefit plan" (as such term is defined in Section 3 of ERISA), bonus plan, stock option plan, deferred compensation plan or other similar plan for any of its employees. (b) Each "employee benefit plan" as defined in Section 3(3) of ERISA, maintained by or on behalf of TCM or one of its Subsidiaries or by any other party (including any plans which are "multiemployer plans" under Section 3(37)(A) of ERISA ("Multiemployer Plans")) and any defined benefit pension plan (as defined in Section 3(35) of ERISA) terminated by TCM or one of its Subsidiaries within the five (5) plan years ending immediately before the Closing Date which covers or covered any employee of TCM or its Subsidiaries, or any predecessor of either TCM or one of its Subsidiaries is listed on Schedule 3.6.3 (all such plans listed on -------------- Schedule 3.6.3 are sometimes collectively referred to herein as the - -------------- "Plans" and individually as a "Plan"). (c) True and complete copies of all the Plans and Plan trusts, Summary Plan Descriptions, Actuarial Reports (if any) and Annual Reports on Form 5500 for the most recent three years with respect to the Plans, Internal Revenue Service determination letters and any other related documents have been, or prior to the Closing Date will be, provided to the Buyer's Representatives. (d) Except as set forth on Schedule 3.6.3, with -------------- respect to each Plan: (i) no litigation or administrative or other proceeding is pending or known to be threatened; (ii) the Plan has been administered in substantial compliance with, and has been restated or amended (except for amendments not yet required by law to be made) so as to comply with, all material applicable requirements of law including all material applicable requirements of ERISA, the Code and regulations promulgated thereunder by the Internal Revenue Service and the United States Department of Labor. No Plan nor any trustee, administrator or fiduciary thereof has at any time been involved in any transaction relating to such Plan which would constitute a breach of fiduciary duty under ERISA or a "prohibited transaction" within the meaning of Section 406 of ERISA or Section 4975 of the Code. (e) Each Plan has been administered in all material respects in compliance with applicable law and the terms of the Plan. (f) Each "employee pension benefit plan" within the meaning of Section 3(2) of ERISA ("Pension Plan") maintained by or on behalf of TCM is listed on Schedule 3.6.3, and copies of such -------------- Pension Plans have been, or prior to the Closing Date will be, provided to Buyer's Representatives. The Pension Plans are qualified plans within the meaning of Section 401(a) of the Code, and the 33 18 trusts thereunder are exempt from federal income tax under Section 501(a) of the Code, and TCM's and each of its Subsidiaries' predecessors, if any, have made or accrued, and as of the Closing Date will have made or accrued, all payments and contributions required to be made under the provisions of the Pension Plans or by law with respect to any period prior to the Closing Date. Except as set forth on Schedule 3.6.3, as of the date hereof, no -------------- contribution to either the 401(k) plan or ESOP maintained by TCM and its Subsidiaries has been authorized which has not been fully paid. (g) Except as disclosed on Schedule 3.6.3 and -------------- except for obligations under the Consolidated Omnibus Budget Reconciliation Act of 1985 ("COBRA"), neither TCM nor any of its Subsidiaries has any obligation to provide, or liability for, health care, life insurance or other benefits after termination of employment for former or present employees. As of the Closing Date, TCM and its Subsidiaries will have cured any known material violations or deficiencies under applicable statutes, orders and regulations relating to its employee benefit plans or its administration thereof and will have provided adequate reserves, or insurance or qualified trust funds, for all claims incurred through the Closing Date, based on an actuarial valuation satisfactory to the actuaries of Buyer representing a projection of claims expected to be incurred for such retirees during their period of coverage under such Plan. (h) To the knowledge of TCM and its Subsidiaries, no fact or circumstance exists which could constitute grounds in the future for the Pension Benefit Guaranty Corporation ("PBGC") (or any successor to the PBGC) to take any action whatsoever under Section 4042 of ERISA in connection with any plan which an Affiliate of TCM or one of its Subsidiaries maintains within the meaning of Section 4062 or 4064 of ERISA, and, in either case, the PBGC has not previously taken any such action which has resulted in, or reasonably might result in, any liability of an Affiliate or TCM or any of its Subsidiaries to the PBGC, which would have a materially adverse effect on the business of TCM and its Subsidiaries. (i) Only current and former employees of TCM and its Subsidiaries or their dependents participate in the Plans. (j) TCM is not an affiliate with any entity other than entities required to be aggregated with it pursuant to Sections 414(b), (c), (m) or (o) of the Code. No Plan is cosponsored or has been adopted by any entity other than TCM or one of its Subsidiaries. (k) No Pension Plan had an accumulated funding deficiency as of the last day of the most recent plan year thereof. Within the past ten (10) years, no Pension Plan has been completely or partially terminated, no reportable event has occurred with respect to such plan and, to the knowledge of TCM and its Subsidiaries, no proceeding by the PBGC to terminate any such Pension Plan has been instituted or threatened. With respect to the Plans, to the knowledge of TCM and its Subsidiaries, no claims are pending or threatened with respect to the assets thereunder or the assets of TCM, its Subsidiaries and Affiliates, except for routine claims for benefits. None of the Plans is a multiple employer welfare arrangement, as defined in Section 3(40)(A) of Title I of ERISA. Each Plan can be terminated after the Closing Date to eliminate the liability for claims under such Plan resulting from occurrences after the date of termination. 34 19 3.6.4 LABOR-RELATED MATTERS. Neither TCM nor any --------------------- of its Subsidiaries is a party to any collective bargaining agreement or agreement with any union or labor organization. Except as set forth on Schedule 3.6.4, there are no pending or -------------- asserted claims against TCM or any of its Subsidiaries, or any of its officers or directors for unfair labor practices, employment discrimination, wrongful or retaliatory discharge, sexual harassment, workers' compensation, employment compensation, negligent hiring or retention or for unpaid salaries, wages or other fringe benefits ("Employee Claims"). Except as set forth on Schedule 3.6.4, to the knowledge of TCM and its Subsidiaries, - -------------- there are no threatened or unasserted Employee Claims of any material kind or nature. 3.6.5 TRANSACTIONS WITH MANAGEMENT. Schedule 3.6.5 ---------------------------- -------------- contains a description, by name, amount and type, of all outstanding contracts with or commitments to present shareholders or former shareholders, directors, officers, employees or agents, including any business directly or indirectly controlled by any such person (other than contracts or commitments relating to services to be performed by an officer, director, or employee as a currently employed employee of TCM or one of its Subsidiaries and other than contracts or commitments with former shareholders, directors, officers, employees or agents on an arm's length basis). There are neither any outstanding loans due and owing by any Shareholder to TCM or one of its Subsidiaries nor any outstanding loans due and owing from TCM or one of its Subsidiaries to any Shareholder. Except as set forth in Schedule 3.6.5, there are no inter-company obligations between TCM ----- and its Subsidiaries that were not entered into or incurred on an arms length basis. 3.7 OTHER. ----- 3.7.1 APPROVALS AND CONSENTS. Schedule 3.7.1 lists ---------------------- -------------- all consents or other approvals necessary in order for TCM and the Holders, and each of them to consummate the transactions contemplated by this Agreement, including but not limited to all governmental and other regulatory approvals and consents of suppliers including, without limitation, that of Dowell, lenders, lessors, landlords and governmental entities. 3.7.2 TAXES. All federal, state, local and ----- foreign tax returns and reports of TCM and its Subsidiaries required by law to be filed have been filed, and all federal, state, local, foreign and any other taxes, assessments, fees and other governmental charges with respect to the employees, properties, assets, income or franchises of TCM and its Subsidiaries shown on such returns and reports to be due and payable, or which are otherwise due and payable, have been paid by TCM or its Subsidiaries or accrued or reserved against on TCM's or its Subsidiaries' financial statements or will be properly accrued or reserved against on the books and records of TCM and its Subsidiaries as of the Closing Date. Each of TCM and its Subsidiaries has withheld and paid all taxes required to have been withheld, and paid in connection with amounts paid to an employee, independent contractor, creditor, stockholder or other third party. No authority is expected to assess any additional taxes for any period for which tax returns have been filed. There is no dispute or claim concerning any tax liability of either TCM or any of its Subsidiaries, based upon either (a) claims raised by any authority in writing or (b) based upon personal contact by any agent of such authority. Neither TCM nor any of its Subsidiaries has waived any statute of limitation with respect to taxes 35 20 or agreed to any extension of time with respect to a federal income tax assessment or deficiency. Neither TCM nor any of its Subsidiaries is currently the beneficiary of any extension of time within which to file any tax return. 3.7.3 PRODUCT WARRANTY. Except as set forth in ---------------- Schedule 3.7.3, to the knowledge of TCM and its Subsidiaries: - -------------- (a) The reserve for product warranty claims set forth on the face of the Final April 30, 1996 Financial Statements as adjusted for the passage of time through the Closing Date is in accordance with the past practice of TCM and its Subsidiaries and is adequate to cover all known, and incurred but not recognized, product warranty claims and, as stated thereon, in accordance with GAAP; (b) There are no facts which TCM or its Subsidiaries believe will lead to a voluntary or involuntary recall of any pumps, compressors or other goods sold, leased or delivered by any of TCM or its Subsidiaries. 3.7.4 PRODUCT LIABILITY. Each product ----------------- manufactured or sold either by TCM or one of its Subsidiaries has been in conformity with all applicable contractual commitments and all express and implied warranties given therewith. Neither TCM nor its Subsidiaries has any known liability for replacement or repair of its goods or products or other damages in connection therewith, subject only to the reserve for product warranty claims set forth on the face of the Final April 30, 1996 Financial Statements as adjusted for the passage of time through the Closing Date in accordance with the past practices of TCM and its Subsidiaries. 3.7.5 BROKERS. Neither TCM nor any of its ------- Subsidiaries has retained any broker, finder, investment banker or financial advisor in connection with this Agreement or any transaction contemplated hereby to which Buyer may be held liable for any fees or other compensation. 3.7.6 REPRESENTATIONS AND WARRANTIES. No ------------------------------ representation or warranty contained in this Section 3 or in any written statement delivered by or at the direction of TCM pursuant hereto or in connection with the transactions contemplated hereby contains or shall contain any untrue statement, nor shall such representations and warranties taken as a whole omit any statement necessary in order to make any statement not misleading. There is no material fact known to TCM or any of its Subsidiaries (other than facts relating to general business conditions), which adversely affects the business, operations, or assets or the condition, financial or otherwise, of TCM and its Subsidiaries in any respect which has not been disclosed in this Agreement or in the Schedules. 3.8 Representations and Warranties of Holders. ----------------------------------------- Each Holder represents and warrants for itself severally (and not jointly and severally with TCM or other Holders) that: (a) Each Holder holds, of record, the number of Common Shares and/or Option Shares as is set forth in Exhibit A --------- free and clear of any restrictions on transfer other than those imposed under federal and state securities laws, and free and clear of all security interests, liens, charges, encumbrances, options, warrants, purchase rights, contracts, commitments and claims, except for those agreements or restrictions which will be terminated prior to Closing. Other than as provided 36 21 in the ESOP and as provided herein relating to the termination of the Option Shares at Closing, no Holder or any other person is a party to any other option, warrant, purchase right or other contract or commitment that could require it to sell, transfer or otherwise dispose of any of its Common Shares or Option Shares. Other than as provided in the ESOP, no Holder is a party to any voting trust, proxy, buy/sell agreement or other contract or agreement or understanding with respect to the voting of his Common Shares or Options. (b) Cushair, Inc., Jalex Industries, Inc. and Design Directions, Inc. are duly organized, validly existing and in good standing under the laws of the jurisdiction of their incorporation. The ESOP is a qualified employee stock ownership plan under ERISA. (c) Each Holder has full power and authority and, in the case of (i) Cushair, Inc., Jalex Industries, Inc. and Design Directions, Inc., full corporate power and authority, and (ii) in the case of the ESOP, full approval and authorization in accordance with the ESOP, in each case, to execute and deliver this Agreement and to perform Holder's obligations hereunder. This Agreement constitutes the valid and legally binding obligation of such Holder, enforceable in accordance with its terms and conditions, except as such enforceability may be limited by bankruptcy, insolvency, moratorium, reorganization and other laws effecting creditors' rights generally and general principles of equity, regardless of whether asserted in equity or at law. No Holder is a debtor in a case commenced voluntarily or involuntarily under either federal or state bankruptcy or insolvency laws. (d) Neither the execution and the delivery of this Agreement by a Holder, nor the performance by Holder of its obligations hereunder, will (i) violate any constitution, statute, regulation, rule, injunction, judgment, order, decree, ruling, charge or other restriction of any government, governmental agency or court to which Holders are subject or, in the case of (x) Cushair, Inc., Jalex Industries, Inc. or Design Directions, Inc., any provision of their charter or bylaws, (y) the ESOP, the agreement under which it is established and all amendments thereto, or (ii) conflict with, result in a breach of, constitute a default under, result in the acceleration of, create in any third party the right to accelerate, terminate, modify or cancel, or require any notice under any agreement, contract, lease, license, instrument or other arrangement to which any Holder is a party or by which he or it is bound or to which any of his or its assets is subject, except for those agreements or restrictions which will be terminated prior to Closing, or (iii) with respect to the ESOP, violate any fiduciary duties the trustees may have to its participants. (e) Each Holder has determined that the consideration to be paid by Buyer for the Shares is fair. (g) No representations, warranties, promises, inducements, coercion or other pressures of any kind were brought to bear upon or influenced in any way Holder's decision to sell its Shares other than its determination that the Purchase Price and the terms of sale herein are fair; and (h) Each Holder hereby waives all rights, claims and entitlements that such Holder may have under all federal and state securities laws. (i) As of the Closing Date, each Holder has received from TCM or its Subsidiaries all 37 22 director's fees, dividends, bonuses or other compensation to which Holder or any entity controlled by Holder may be entitled from such entities. 4. REPRESENTATIONS AND WARRANTIES OF BUYER. --------------------------------------- Buyer hereby represents and warrants to the Holders as follows: 4.1 ORGANIZATION OF BUYER. Buyer is a --------------------- corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. 4.2 AUTHORIZATION. Buyer has all necessary power ------------- and authority and has taken all action necessary to enter into this Agreement and the other agreements, documents and instruments to be executed and delivered by Buyer in connection with or pursuant to this Agreement, to consummate the transactions contemplated hereby and thereby and to perform its obligations hereunder and thereunder. A certified copy of the Board of Directors resolution approving the consummation of the transactions contemplated hereby shall be delivered to TCM at Closing. This Agreement has been duly executed and delivered by Buyer and is a legal, valid and binding obligation of Buyer, enforceable against it in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency, moratorium, reorganization and other similar laws affecting creditors' rights generally and general principles of equity, regardless of whether asserted in a proceeding in equity or at law. The agreements, documents and instruments to be executed and delivered by Buyer in connection with or pursuant to this Agreement, when executed and delivered, will constitute the legal, valid and binding obligations of Buyer, enforceable against it in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency, moratorium, reorganization and other similar laws affecting creditors' rights generally and general principles of equity, regardless of whether asserted in a proceeding in equity or at law. 4.3 NO CONFLICT OR VIOLATION. Neither the ------------------------ execution and delivery of this Agreement and the other agreements, documents and instruments to be executed and delivered by Buyer in connection with or pursuant to this Agreement, nor the consummation of the transactions contemplated hereby or thereby will result in: (a) a violation of or a conflict with any provision of Buyer's Certificate of Incorporation or Bylaws; (b) a breach of, or a default under, any term or provision of any contract, agreement, indebtedness, lease, commitment, license, franchise, permit, authorization or concession to which Buyer is a party, which breach or default would have a material adverse effect on the business or financial condition of Buyer or its ability to consummate the transactions contemplated hereby; or (c) a violation by Buyer of any statute, rule, regulation, ordinance, code, order, judgment, writ, injunction, decree or award, which violation would have a material adverse effect on the business or financial condition of Buyer or its ability to consummate the transactions contemplated hereby. 4.4 CONSENTS AND APPROVALS. No consent, ---------------------- approval or authorization of, or declaration, filing or registration with, any governmental or regulatory authority, or any other person or entity, is required to be made or obtained by Buyer in connection with the execution, delivery and performance of this Agreement and the other agreements, documents and instruments to be executed 38 23 and delivered by Buyer in connection herewith or pursuant hereto and the consummation of the transactions contemplated hereby. 4.5 NO BROKER. Buyer has not retained any --------- broker, finder, investment banker or financial advisor in connection with this Agreement or any transaction contemplated hereby to which TCM will be held liable for any fees or other compensation. 5. COVENANTS OF TCM. ---------------- TCM and its Subsidiaries covenants and agrees that, from and after the date of this Agreement and until the Closing, TCM and its Subsidiaries will conduct its Business subject to the following provisions and limitations: 5.1 MAINTENANCE OF BUSINESSES PRIOR TO CLOSING. ------------------------------------------ TCM and its Subsidiaries shall continue to carry on the Business in the ordinary course and consistent with past practice and will not take any action inconsistent therewith or with the consummation of the transactions contemplated by this Agreement without the consent of Buyer. Without limiting the generality of the foregoing, TCM and its Subsidiaries shall: (a) maintain their assets in all material respects in their current state of repair, excepting normal wear and tear; (b) maintain insurance covering their assets similar to that in effect on the date hereof; (c) use their good faith efforts to preserve their current business organizations; (d) use their good faith efforts to keep available the services of the current material employees and other material personnel of the Business; and (e) use their good faith efforts to preserve the current business relationships with customers, suppliers and others having business dealings with TCM and its Subsidiaries. Neither TCM nor any of its Subsidiaries shall engage in any practice, take any action, embark on any course of inaction or enter into any transaction that would cause any of its representations and warranties set forth in Section 3 hereof to be untrue as of the Closing Date or result in any of such representations and warranties being untrue as of the Closing Date. Without limiting the generality of the foregoing, neither TCM nor any of its Subsidiaries shall take any of the following actions: (i) issue any shares of their common capital stock; (ii) except as contemplated by this Agreement, purchase or propose the purchase of any such shares including, without limitation, pursuant to any purchase option or put rights under the terms of the ESOP, or other equity interest or any class of securities convertible into, or rights, warrants or options to acquire, any such shares or other convertible securities or enter into any agreement with respect to the foregoing; or (iii) acquire by merging or consolidating with, or by purchasing a substantial portion of the assets or stock of, or by any other manner, any business or any corporation, partnership, association or other entity or division thereof; (iv) sell, mortgage, lease, buy or otherwise acquire, transfer or dispose of any real or personal property or any interest therein, except for the sale of inventory in the ordinary course; (v) except as may be disclosed in Schedule 5.1, materially increase the ------------ compensation payable or to become payable to any director, officer or employee of TCM or its Subsidiaries not in the ordinary course of business; (vi) incur any long-term liabilities or indebtedness outside the ordinary course of business or in excess of One Hundred Thousand Dollars ($100,000.00) without the prior written consent of Buyer; (vii) pay any claim or discharge or satisfy any lien or encumbrance or pay any obligation or liability other than in the ordinary course of business or as required by the terms of any instrument evidencing or governing 39 24 the same or by the terms hereof; (viii) except as may be disclosed in Schedule 5.1, enter into or amend, or make any contributions to, any - ------------ Plan or bonus, incentive compensation, deferred compensation, profit sharing, retirement, Pension Plan, group insurance or other benefit plan; or (ix) agree to do any of the foregoing. 5.2 INVESTIGATION OF BUYER. Between the date ---------------------- of this Agreement and the Closing, Buyer intends to continue to conduct a review of the business and financial condition of TCM and its Subsidiaries. In connection with such review by Buyer, TCM and its Subsidiaries shall allow Buyer and its representatives, during normal business hours to make such inspection of TCM's and its Subsidiaries' assets and to inspect and make copies of such books, records, contracts and other information reasonably requested by Buyer. TCM and its Subsidiaries shall furnish to Buyer promptly upon request all such additional documents and information with respect to the affairs of TCM and its Subsidiaries as Buyer or Buyer's Representatives may from time to time reasonably request and shall instruct such employees, customers and suppliers to cooperate with Buyer, and to provide such information as Buyer and Buyer's Representatives may reasonably request. 5.3 CONSENTS AND GOOD FAITH EFFORTS. As soon ------------------------------- as practicable after the date of this Agreement, TCM and its Subsidiaries shall commence all reasonable action and shall use its good faith efforts to obtain all material applicable permits, consents, approvals and agreements of, and to give all notices and make all filings with, any third parties or governmental authorities as may be necessary or appropriate to authorize, approve or permit the consummation of the transactions provided for hereby on or prior to the Closing Date. 5.4 NO SOLICITATION. Neither TCM, its --------------- Subsidiaries nor any of their directors, officers, employees, agents, representatives and affiliates shall solicit or request from third parties any offers to purchase all or substantially all of the assets or substantially all of the stock of TCM or any of its Subsidiaries, nor participate in any negotiations related to any such offers. 5.5 TITLE INSURANCE AND SURVEYS. --------------------------- 5.5.1 TITLE INSURANCE. TCM will obtain (and will --------------- cause its Subsidiaries to obtain) with respect to each parcel of Real Estate that any of TCM and its Subsidiaries owns, except for the Adex Property for which no Title Policy shall be required, an ALTA Owner's Policy of Title Insurance Form 1402.92 (or equivalent policy) (the "Title Policy"), in such amount as Buyer reasonably may determine to be the fair market value of such Real Estate (including all improvements located thereon), insuring title to such Real Estate to be in Buyer as of the Closing (subject only to the standard preprinted exceptions described in such Title Policy and in Schedule 5.5.1). Each Title Policy delivered hereunder -------------- shall (a) insure title to the Real Estate, and (b) contain an "extended coverage endorsement" insuring over the general exceptions contained customarily in such policies. 5.5.2 SURVEYS. With respect to each parcel of ------- Real Estate that any of TCM and its Subsidiaries owns, other than the Adex Property for which no Survey shall be required, and as to which a Title Policy is to be procured pursuant to Section 5.5.1 above, TCM will procure (and will cause its Subsidiaries to procure) in preparation for the Closing a current survey of the Real Estate 40 25 certified to Buyer, prepared by a licensed surveyor and conforming to current ALTA Minimum Detail Requirements for Land Title Surveys, disclosing the location of all improvements, easements, party walls, sidewalks, roadways, utility lines, and other matters shown customarily on such surveys, and showing access affirmatively to public streets and roads (the "Survey(s)"). The Survey(s) shall not disclose any survey defect or encroachment from or onto the Real Estate which has not been cured or insured over prior to the Closing. 5.6 NOTICE. TCM shall promptly give Buyer ------ written notice in the event TCM becomes aware of the existence or occurrence of any event or condition which would make any representation or warranty of TCM or its Subsidiaries contained herein untrue in any material respect or which might prevent the consummation of the transactions contemplated hereby. 6. CONDITIONS AND OBLIGATIONS TO CLOSE. ----------------------------------- 6.1 CONDITIONS TO OBLIGATIONS OF TCM, BUYER AND ------------------------------------------- THE HOLDERS. The obligations of TCM, Buyer and the Holders to - ----------- consummate the transactions to be performed by each of them in connection with the Closing are subject to the satisfaction of the following conditions: 6.1.1 Holder Approval. The Holders shall execute --------------- this Agreement, and deliver to Buyer the certificates representing the Common Shares and Termination Agreements evidencing the cancellation of the Option Shares. 6.1.2 AGREEMENTS BETWEEN BUYER AND ALEXANDER. -------------------------------------- Buyer and Alexander shall have entered into, effective as of the Closing: (A) the Consulting Agreement; and (B) the Non-Competition Agreement. In addition, Alexander shall assign, transfer and deliver to Buyer or its designee at Closing Stock Certificate No. 4 representing one (1) share of TCM Mfg. Int'l., Limited, a subsidiary of Twentieth Century. 6.1.3 DOWELL AND NECESSARY APPROVAL. The Dowell ----------------------------- Contract shall be in full force and effect, Twentieth Century shall not be in default thereunder, neither party thereto shall have given notice of termination to the other thereunder, and TCM shall have procured Dowell's approval or consent under Section 9.1 thereof, if necessary, in connection herewith. In addition, TCM and Buyer shall have received all other authorizations, consents and approvals of government and governmental agencies. 6.1.4 Final Determination of Net Worth. A final -------------------------------- determination of Net Worth of TCM and it Subsidiaries as of the Financial Statement Date and any resultant adjustment in the Purchase Price shall have been made in accordance with Section 1.4. 6.1.5 WAIVER. Any party may waive any condition ------ to its obligation to close specified in this Section 6.1 by executing a writing so stating at or prior to the Closing. 6.2 CONDITIONS TO OBLIGATIONS OF TCM AND HOLDERS. -------------------------------------------- In addition to the conditions set forth in Section 6.1, the obligations of TCM and Holders to consummate the Closing are subject to the satisfaction and fulfillment at or prior to the Closing of each of the following conditions, any of 41 26 which may be waived by TCM or the Holders: 6.2.1 REPRESENTATIONS, WARRANTIES AND COVENANTS. ----------------------------------------- All representations and warranties of Buyer contained in this Agreement shall be true and correct in all material respects on the date hereof and as of the Closing Date as though made on the Closing Date, and Buyer shall have performed or complied with all covenants and obligations to be performed or complied with by it under the terms of this Agreement at or prior to the Closing. 6.2.2 NO GOVERNMENTAL PROCEEDINGS OR LITIGATION. ----------------------------------------- No action by any governmental agency shall have been instituted or threatened for the purpose of enjoining or preventing the Closing or that questions the validity or legality of the transactions contemplated hereby. 6.2.3 CERTIFICATES. Buyer shall have delivered ------------ to TCM such certificates of its officers and others to evidence compliance with the conditions set forth in this Section 6 as may be reasonably requested by TCM, including, without limitation: (a) A Certificate of Good Standing for Buyer issued by the Delaware Secretary of State; (b) A certificate executed by the President or Secretary of Buyer certifying, as of the Closing Date to (i) a true and complete copy of the Certificate of Incorporation of Buyer; (ii) a true and complete copy of the Bylaws of Buyer; (iii) a true and correct copy of the resolution of the board of directors of Buyer authorizing the transactions contemplated hereby and the instruments and deliveries to be executed and made by Buyer in connection with the consummation of the transactions contemplated hereby; and (iv) incumbency matters; (c) TCM's and Holders' satisfaction as of the Closing Date of all of the conditions relative to Buyer set forth in this Section 6. 6.2.4 OTHER ACTIONS BY BUYER. All actions to be ---------------------- taken by Buyer in connection with the consummation of the transactions contemplated herein and all certificates, opinions, instruments and other documents which are to affect the transaction contemplated hereby shall be reasonably satisfactory in form and substance to TCM and the Holders. 6.3 CONDITIONS TO BUYER'S OBLIGATIONS. In --------------------------------- addition to the conditions set forth in Section 6.1, the obligations of Buyer to consummate the transactions contemplated by this Agreement are subject to the satisfaction and fulfillment at or prior to the Closing of each of the following conditions, any of which may be waived by Buyer: 6.3.1 REPRESENTATIONS, WARRANTIES AND COVENANTS. ----------------------------------------- All representations and warranties of TCM and the Holders contained in this Agreement shall be true and correct in all material respects on the date hereof and as of the Closing Date as though made on the Closing Date, and TCM shall have performed or complied with all covenants and obligations to be performed or complied with by it under the terms of this Agreement at or prior to the Closing. 6.3.2 NO GOVERNMENTAL PROCEEDINGS OR LITIGATION. ----------------------------------------- No action by any governmental 42 27 agency or other person or entity shall have been instituted or threatened for the purpose of enjoining or preventing the transactions contemplated by this Agreement or that questions the validity or legality of the transactions contemplated hereby or that has or could reasonably be expected to have, in the opinion of Buyer, a material adverse operation or financial condition of TCM. 6.3.3 RESIGNATIONS. Buyer shall have received ------------ the resignations effective as of the Closing of each director and officer of TCM and its Subsidiaries, other than those whom Buyer shall have specified in writing at least five (5) business days prior to the Closing and the trustees of the ESOP. 6.3.4 OTHER ACTIONS. All actions to be taken by ------------- TCM and the Holders in connection with the consummation of the transactions contemplated hereby and all certificates, instruments and other documents required to affect the transactions contemplated hereby will be reasonably satisfactory in form and substance to Buyer. 6.3.5 TERMINATION OF CONTRACTS. ------------------------ (a) The Contract(s) of Employment between TCM or any of its Subsidiaries and Alexander shall have been terminated as of the Closing Date. (b) The oral contract between TCM and any of its Subsidiaries and Joe Wyatt or Wyatt & Company, Inc., whereby the latter provides accounting and computer assistance to TCM and is Subsidiaries on a fee basis, shall be terminated and all fees due Joe Wyatt or Wyatt & Company, Inc. pursuant thereto shall have been paid and discharged. 6.3.6 HOLDBACK ESCROW AGREEMENT. Buyer, TCM, ------------------------- Holders' Agents and the Escrow Agent shall have entered into the Holdback Escrow Agreement. 6.3.7 CERTIFICATES. TCM shall have delivered to ------------ Buyer such certificates of its officers and others to evidence compliance with the conditions set forth in this Section 6 as may be reasonably requested by Buyer, including, without limitation: (a) A Certificate of Good Standing for TCM issued by the Oklahoma Secretary of State; (b) A certificate executed by the President or Secretary of TCM certifying to, as of the Closing Date: (i) a true and complete copy of the Certificate of Incorporation of TCM; (ii) a true and complete copy of the bylaws of TCM; (iii) a true and correct copy of resolutions of the board of directors of TCM authorizing the execution, delivery and performance of this Agreement by TCM, the execution, delivery and performance of the agreements, documents and instruments to be executed and delivered by TCM in connection herewith or pursuant hereto, and the consummation of the transactions contemplated hereby and thereby; and (iv) incumbency matters; and (c) Buyer's satisfaction as of the Closing Date of all conditions relative to TCM and the 43 28 Holders set forth in this Section 6. 6.3.8 NO MATERIAL ADVERSE CHANGE. From April 30, -------------------------- 1996 to the Closing Date there shall have been no material adverse change in the assets or liabilities, the business or condition (financial or otherwise) of TCM and its Subsidiaries, its relationships with its employees or customers regardless of reason, including, without limitation, any material adverse change in its relationship with Dowell, or any legislative or regulatory changes, revocation of any license or rights to do business, failure to obtain permits required by TCM or any of its Subsidiaries, fire, explosion, accident, casualty, labor trouble, flood, riot, storm, condemnation or act of God or otherwise. 7. TERMINATION. ----------- 7.1 TERMINATION. This Agreement and the ----------- transactions contemplated hereby may be terminated at any time prior to the Closing, as follows: 7.1.1 MUTUAL CONSENT. By mutual consent of TCM, -------------- Holders and Buyer; 7.1.2 REQUIRED CONSENTS. By Buyer, if any party, ----------------- including, without limitation, any governmental agency, whose consent or approval is required to permit the consummation of the transactions contemplated hereby on the part of TCM or its Subsidiaries, fails to consent to or approve such transactions; 7.1.3 HOLDER APPROVAL. By Buyer, if all Holders --------------- do not execute this Agreement; 7.1.4 MATERIAL INFORMATION. By Buyer, if TCM or -------------------- its Subsidiaries fail to disclose any material information about TCM or its Subsidiaries' assets or their Business or provides Buyer with any materially inaccurate or misleading information taken as a whole and not corrected about TCM or any of its Subsidiaries' assets or their Business; 7.1.5 HOLDERS' FAILURE TO CLOSE. By Buyer, if ------------------------- Buyer is prepared to close and all conditions to TCM's and Holders' obligations to close pursuant to Section 6 hereof have been satisfied and one or more Holders fail to close on the Closing Date; and 7.1.6 BUYER'S FAILURE TO CLOSE. By TCM or the ------------------------ Holders, if TCM and the Holders are prepared to close and all conditions to Buyer's obligations to close as set forth in Section 6 hereof have been satisfied and Buyer fails to close on the Closing Date. 7.2 CUT-OFF DATE. If the Closing shall not ------------ have occurred on or before August 15, 1996, this Agreement shall automatically terminate without further action of any party hereto. 7.3 EFFECT OF TERMINATION. If this Agreement --------------------- is terminated pursuant to Sections 7.1.1, 7.1.2 or 7.2 hereof, all rights and obligations of TCM, the Holders and Buyer hereunder shall terminate, and if this Agreement is terminated pursuant to Sections 7.1.3, 7.1.4, 7.1.5 or 7.1.6 hereof, the non-breaching party shall be entitled to exercise and pursue all rights and remedies available to 44 29 it hereunder, at law, in equity or otherwise, including the right to recover reasonable attorney fees and expenses expended to the date of breach and in pursuing such remedies. 8. INDEMNIFICATION. --------------- 8.1 INDEMNIFICATION BY HOLDERS. Each Holder -------------------------- severally (and not jointly) hereby agrees to indemnify, save, hold harmless and defend Buyer, its affiliates and subsidiaries, and their respective partners, officers, directors, shareholders, agents and representatives, and each of them, from and against any and all costs, losses, liabilities, damages, lawsuits, deficiencies, claims and expenses reasonably and actually incurred (whether or not arising out of third-party claims), including, without limitation, interest, penalties, additions, reasonable travel expenses, reasonable attorneys' fees and all amounts paid in connection with the defense or settlement of any of the foregoing (herein, the "Damages"), in connection with or arising out of or resulting from any one or more of the following: (a) any inaccuracy in any representation or warranty made by TCM and its Subsidiaries, herein or in any Exhibit, Schedule, tax return or other document provided pursuant to or in connection with this Agreement; (b) the breach of any covenant or agreement or any misrepresentation made by TCM and its Subsidiaries contained in this Agreement, including the Schedules and Exhibits hereto, or any other agreement, instrument or document executed by TCM or its Subsidiaries pursuant hereto or in connection herewith; (c) any failure of the Holders to duly perform or observe any term, provision, covenant or agreement herein on the part of such parties to be performed or observed; (d) any liability, breach, default, claim, accident, injury or damage of any kind occurring prior to the Closing Date; and (e) the release of Hazardous Substances at, on or from any facility used prior to Closing by either TCM or any of its Subsidiaries to process, recycle, reclaim, refine, transport, store, dispose of or otherwise handle Hazardous Substances generated by TCM and its Subsidiaries; provided, however, that no Holder shall be liable for any amount of Damages in excess of the amount received by it hereunder. 8.2 INDEMNIFICATION BY BUYER. Buyer hereby ------------------------ indemnifies and agrees to save and hold harmless the Holders from and against any and all Damages incurred in connection with or arising out of or resulting from any one or more of the following: (a) the breach of any covenant or agreement or any misrepresentation made by Buyer contained in this Agreement, including the Schedules and Exhibits hereto, or any other agreement, instrument or document executed by Buyer pursuant hereto or in connection herewith or (b) any failure of Buyer to duly perform or observe any term, provision, covenant or agreement herein on the part of Buyer to be performed or observed. 8.3 DEFENSE OF CLAIMS. If any action or ----------------- proceeding (including any governmental investigation or inquiry) shall be brought or asserted or threatened to be brought or asserted against a party (the "Indemnified Party") in respect of which indemnity may be sought from the other party (the "Indemnifying Party"), such Indemnified Party shall promptly notify the Indemnifying Party in writing, and the Indemnifying Party shall assume the defense thereof, including the employment of counsel satisfactory to such Indemnified Party and the payment of all expenses. The Indemnifying Party shall not, except with the written consent of the Indemnified Party, consent to the entry of a judgment or settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff to the Indemnified Party of an unconditional release from all 45 30 liability in respect of such third party claim or demand. The Indemnified Party shall have the right to employ separate counsel in any such action and to participate in the defense thereof, but the fees and expenses of such counsel shall be the expense of such Indemnified Party unless: (a) the Indemnifying Party has agreed to pay such fees and expenses; or (b) the Indemnifying Party shall have failed to assume the defense of such action or proceeding or shall have failed to employ counsel reasonably satisfactory to such Indemnified Party in any such action or proceeding; or (c) the named parties to any such action or proceeding (including any impleaded parties) include both such Indemnified Party and the Indemnifying Party, and such Indemnified Party shall have been advised by counsel that there may be one or more legal defenses available to such Indemnified Party that are different from or additional to those available to the Indemnifying Party (in which case, if such Indemnified Party notifies the Indemnifying Party in writing that it elects to employ separate counsel at the expense of the Indemnifying Party, the Indemnifying Party shall not have the right to assume the defense of such action or proceeding on behalf of such Indemnified Party, it being understood, however, that the Indemnifying Party shall not, in connection with any one such action or proceeding or separate but substantially similar or related actions or proceedings in the same jurisdiction arising out of the same general allegations or circumstances, be liable for the reasonable fees and expenses of more than one separate firm of attorneys at any time for such Indemnified Party). The Indemnifying Party shall not be liable for any settlement of any such action or proceeding effected without its written consent, but if settled with its written consent or if there be a final judgment for the plaintiff in any such action or proceeding, the Indemnifying Party agrees to indemnify and hold harmless such Indemnified Parties from and against any loss or liability by reason of such settlement or judgment. If either party shall claim indemnification for Damages hereunder for any claim other than a third party claim, the Indemnified Party shall promptly notify the Indemnifying Party of the nature of the claim and the amount of the Damages and payment therefor shall be made by the Indemnifying Party forthwith upon receipt of such notice. 8.4 LIMITATION ON INDEMNIFICATION. ----------------------------- Notwithstanding the provisions of Section 8.1, there will be an aggregate ceiling in the amount of Two Hundred Fifty Thousand Dollars ($250,000.00) on the obligation of the Holders to indemnify Buyer under this Agreement and, further, the Holders shall have no obligation to indemnify Buyer hereunder except strictly in accordance with the terms and limitations of the Holdback Escrow Agreement. 8.5 ESCROWING OF FUNDS. In order to have an ------------------ available source of funds for the Holders' indemnification of claims asserted by Buyer under this Section, TCM, Holders and Buyer agree that on or before the Closing Date, the Holdback Funds shall be deposited by Buyer in the Escrow Account to be held and disbursed pursuant to the terms of the Holdback Escrow Agreement. The Holders' liability to indemnify Buyer under this Agreement, absent fraud, shall be limited to the Holdback Funds and Buyer shall have no right to collect any Damages from any Holder, individually or collectively, but only out of the Holdback Funds and in accordance with the provisions of the Holdback Escrow Agreement. 8.6 DAMAGES. The term "Damages" as used in ------- this Section is not limited to matters asserted by third parties against TCM and its Subsidiaries or Buyer, as the case may be, but includes Damages incurred or sustained by TCM, Holders or Buyer, as the case may be, in the absence of third party claims. 46 31 9. ARBITRATION. Other than as provided in Section 1.4.2 ----------- which is excepted herefrom, the Parties hereto agree that any disputes, disagreements or claims for the breach by any party of any representations, warranties, agreements or covenants hereunder ("Disputes") shall be submitted to binding arbitration. The arbitration committee to whom any Disputes are submitted shall consist of an arbitrator chosen by Buyer, an arbitrator chosen by the Holders' Committee, and a third arbitrator chosen by the arbitrators selected by Buyer and Holders' Committee. The decision of the arbitration committee shall be based on majority rule and shall be final and binding on the parties hereto; provided, however, that any party shall be permitted to file suit in a court of appropriate jurisdiction to enforce any decision of the arbitration committee. The decision of the arbitration committee regarding any dispute, including one relating to a claim for indemnification, shall be communicated in writing to the Escrow Agent, Buyer and the Holders when rendered. Notwithstanding any other provision hereof, this Section shall survive the Closing and shall remain in effect until the Holdback Escrow Agreement terminates. 10. DEFINITIONS. The following terms when used herein ----------- shall have the following meanings; such terms to be equally applicable to both the singular and plural of the terms defined (capitalized terms defined elsewhere in this Agreement to have the meaning so ascribed to them in all provisions of this Agreement): "Affiliate" means any trade or business (whether incorporated or unincorporated) which is a member of a group described in Section 414(c) of the Code of which TCM is also a member. "Bank" means State Bank & Trust, N.A., a national banking association. "Code" means the Internal Revenue Code of 1986, as amended. "Disbursement Agent" means James G. Fehrle, Attorney at Law, or if he should resign, die or become disabled, the attorney selected by the Holders' Committee; provided a successor selected by the Holders' Committee shall have all the same powers and rights of the original Disbursement Agent hereunder. "Dowell" means Dowell, a division of Schlumberger Technology Corporation, a Texas corporation with its head office at Sugar Land, Texas. "Dowell Contract" means the Reciprocating Pump Service Agreement dated May 23, 1995 between Dowell and Twentieth Century. "Environmental Laws" means all applicable federal, state and local laws, statutes, decrees, ordinances, codes, rules, regulations and orders directed to TCM or any of its Subsidiaries relating to the Release or threatened Release into the environment (including, without limitation, ambient air, surface water, ground water and surface and subsurface soil) of any pollutant, contaminant, chemical or industrial, toxic, hazardous or regulated substances, materials or wastes, or relating to the manufacture, processing, distribution, use, generation, treatment, storage, disposal, transport, 47 32 reclamation, recycling, or handling of or exposure to pollutants, contaminants, chemicals or industrial, toxic, hazardous or regulated substances, materials, or wastes, including, without limiting the foregoing, the Resource Conservation and Recovery Act ("RCRA"), as amended, 42 U.S.C. Sections 6901 et seq., the Comprehensive -- --- Environmental Response, Compensation and Liability Act ("CERCLA"), as amended, 42 U.S.C. Sections 9601 et seq., the Toxic Substance -- --- Control Act ("TSCA"), as amended, 15 U.S.C. Sections 2601 et seq., -- --- the Clean Air Act, as amended, 42 U.S.C. Sections 7401 et seq., the -- --- Clean Water Act, as amended, 42 U.S.C. Sections 1251 et seq., the -- --- Occupational Safety and Health Act ("OSHA"), as amended, 29 U.S.C. Sections 651 et seq., all applicable analogous or similar state and -- --- local statutes, all other applicable federal, state and local so called "Superfund" or "Superlien" laws, and all applicable federal, state and local underground or aboveground storage tank laws, and all applicable regulations and rules promulgated pursuant to the aforementioned laws and statutes. "ESOP" means the Employee Stock Ownership Plan of TCM and its Subsidiaries effective May 1, 1989 and as amended thereafter. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended. "GAAP" means United States generally accepted accounting principles as in effect from time to time. "Hazardous Substances" means hazardous substances, toxic substances, hazardous wastes, hazardous materials, and other substances regulated under RCRA, CERCLA, TSCA, the Clean Air Act, the Clean Water Act, OSHA, and other Environmental Laws, including without limitation, asbestos, petroleum products, and waste and used oil. "Holdback Funds" means the sum of Two Hundred Fifty Thousand Dollars ($250,000.00). "Holders' Committee" means Jack L. Alexander, Joe Wyatt and Lawrence M. Cibula, whose consent, approval or authorization shall be deemed given by the act, consent, approval or authorization of a majority thereof. "Net Worth" means Total Shareholders' Equity of TCM and its Subsidiaries on a consolidated basis as of the Financial Statement Date, as determined by TCM's Auditors and as adjusted in accordance with the procedure outlined in Section 1.4. "Person" means an individual, a partnership, a corporation, an association, a limited liability company, a joint stock company, a trust, a joint venture, an unincorporated organization, or a governmental entity (or any department, agency, or political subdivision thereof). "Subsidiary" means any corporation with respect to which a specified Person (or a Subsidiary thereof) owns a majority of the common stock or has the power to vote or direct the voting of sufficient amounts to elect a majority of the directors. "Twentieth Century" means 20th Century Mfg. & Supply Co., an Oklahoma corporation, and wholly owned subsidiary of TCM. 48 33 11. PAYOFF OF BANK. Within thirty (30) days following the -------------- Closing, Buyer shall either pay in full or cause to be paid in full by TCM or one or more of its Subsidiaries, all debts and obligations owing from TCM and its Subsidiaries to the Bank, as disclosed to Buyer in Schedule 3.5.1, so as to permit the Bank -------------- to release Jack Alexander from any and all guarantees he may have given the Bank in connection therewith. 12. IRREVOCABLE APPOINTMENT OF HOLDERS' COMMITTEE. Pursuant --------------------------------------------- to the Holders' Agreement by and among the Holders, the Holders' Committee has been irrevocably appointed as agents for the Holders to act in the name, place and stead of the Holders to do or refrain from doing all things the Holders might do hereunder and under the Holdback Escrow Agreement with respect to the transfer and sale of the Shares, the payment and resolution of Indemnification Claims and the consummation of the transactions contemplated herein and therein. Buyer and any other Person may conclusively and absolutely rely, without inquiring, upon any action of the Holders' Committee, as the action of the Holders in all matters referred to herein or in the Holdback Escrow Agreement and the Holders confirm all that the Holders' Committee shall do or cause to be done by virtue of their appointment as agents of the Holders'. 13. MISCELLANEOUS. ------------- 13.1 SURVIVAL OF REPRESENTATIONS. All statements --------------------------- contained in any Exhibit, Schedule, certificate or instrument of conveyance delivered by or on behalf of the parties pursuant to this Agreement or in connection with the transactions contemplated hereby shall be deemed to be representations and warranties by the parties delivering the same hereunder. Subject to the provisions of Sections 8 and 9 hereof, the representations, warranties, covenants and agreements of TCM, the Holders and Buyer contained herein and as provided in the preceding sentence shall survive the Closing Date for a period of one (1) year without regard to any investigation made by any of the Parties hereto. 13.2 ASSIGNMENT. This Agreement shall be binding upon ---------- and shall inure to the benefit of the Parties and their respective successors and assigns; provided, however, that TCM may not assign its rights or obligations hereunder without the prior written consent of Buyer. 13.3 NOTICES. All notices, requests, demands and other ------- communications which are required or may be given under this Agreement shall be in writing and shall be deemed to have been duly given when received if personally delivered; on the next business day following receipt if transmitted by telecopy, electronic or digital transmission method; upon receipt, if sent for next day delivery to a domestic address by a recognized overnight delivery service; and upon receipt, if sent by certified or registered mail, return receipt requested. In each case notice shall be sent: If to Buyer: Gardner Denver Machinery Inc. 1800 Gardner Expressway P.O. Box 4024 49 34 Quincy, Illinois 62306-4024 ATTN: Ross J. Centanni Telecopy: (217) 228-8260 with a copy to: William M. McCleery, Jr., Esquire Schmiedeskamp, Robertson, Neu & Mitchell 525 Jersey P.O. Box 1069 Quincy, Illinois 62306 Telecopy: (217) 223-1005 If to TCM: TCM Investments, Inc. 4747 S. 83rd E Avenue Tulsa, Oklahoma 74147 ATTN: Jack L. Alexander Telecopy: (918) 664-6225 with a copy to: Charles Sublett, Esquire Sublett and Shafer, P.C. 320 South Boston Tulsa, Oklahoma 74103 Telecopy: (918) 587-0077 If to Holders: To each Holder at its respective address as set forth on the signature pages hereof. or to such other place and with such other copies as either party may designate as to itself by written notice to the others. 13.4 GOVERNING LAW. This Agreement shall be governed by ------------- and construed in accordance with the laws of the State of Oklahoma. To the extent jurisdiction exists, any claim arising pursuant to this Agreement shall be filed in a court located in the State of Oklahoma. 13.5 ENTIRE AGREEMENT; AMENDMENTS AND WAIVERS. This ---------------------------------------- Agreement, together with all Exhibits and Schedules hereto which are incorporated herein by this reference, constitutes the entire agreement among the parties hereto pertaining to the subject matter hereof and supersedes all prior agreements, understandings, negotiations and discussions, whether oral or written, among the parties. This Agreement may be amended, modified or supplemented only by a writing signed by all of the parties hereto. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provision hereof (whether or not similar), nor shall such waiver constitute a continuing waiver unless otherwise expressly provided. 13.6 MULTIPLE COUNTERPARTS. This Agreement may be --------------------- executed in one or more counterparts, including a facsimile thereof, each of which shall be deemed to be an original, including the signature thereon, but all of which together shall constitute one and the same 50 35 agreement. 13.7 EXPENSES. Except as set forth below or as otherwise -------- specified herein, each party hereto shall pay its own legal, accounting, out-of-pocket and other expenses incident to this Agreement and to any action taken by such party in preparation for carrying this Agreement into effect; provided, however, that TCM shall pay all reasonable fees and expenses accrued prior to Closing for legal services rendered to the Holders related to this Agreement and the transactions contemplated hereby. Itemized statements setting forth the legal services rendered, the time expended and the hourly fee charges shall be submitted to Buyer prior to Closing by each Holder or its attorney. 13.8 SEVERABILITY. In the event that any one or more of ------------ the provisions contained in this Agreement or in any other document referred to herein, shall, for any reason, be held to be invalid, illegal or unenforceable in any respect, then such invalidity, illegality or unenforceability shall not affect any other provision of this Agreement or any other such instrument. 13.9 TITLES. The titles, captions or headings of the ------ Sections herein are inserted for convenience of reference only and are not intended to be a part of or to affect the meaning or interpretation of this Agreement. 13.10 BINDING EFFECT. This Agreement shall be binding -------------- upon and shall inure to the benefit of the parties hereto and their respective successors and permitted assigns. 13.11 CUMULATIVE REMEDIES. All rights and remedies of ------------------- any party hereto are cumulative of each other and of every other right or remedy such party may otherwise have at law or in equity, and the exercise of one or more rights or remedies shall not prejudice or impair the concurrent or subsequent exercise of other rights or remedies. With respect to remedies for breaches of representations and warranties set forth herein, the foregoing provisions are subject to the provisions of Section 9 hereof. 36 IN WITNESS WHEREOF, the parties hereto have executed, or caused their respective duly authorized representatives to execute, this Agreement under seal as of the day and year first above written. "Buyer" GARDNER DENVER MACHINERY INC. By: ------------------------------------------- Title: ---------------------------------------- [CORPORATE SEAL] "TCM" TCM INVESTMENTS, INC. By: ------------------------------------------- Title: ---------------------------------------- [CORPORATE SEAL] "Holders": Cushair, Inc. By: ------------------------------------------- Name: Nancy L. Wyatt Title: President Address: 4150 S. 100th East Avenue Suite 308 Tulsa, Oklahoma 74146 ---------------------------------------------- Nancy L. Wyatt Address: 4150 S. 100th East Avenue Suite 308 Tulsa, Oklahoma 74146 ---------------------------------------------- Joe Wyatt Address: c/o Wyatt & Company 4150 S. 100th East Avenue Suite 308 Tulsa, Oklahoma 74146 [SIGNATURES CONTINUED ON NEXT PAGE] 52 37 SIGNATURE PAGE TO STOCK PURCHASE AGREEMENT AMONG GARDNER DENVER MACHINERY INC., TCM INVESTMENTS, INC. AND THE HOLDERS NAMED HEREIN Jalex Industries, Inc. By: ------------------------------------------- Name: Jack L. Alexander Title: President Address: 260 East 28th Street Tulsa, Oklahoma 74114 ---------------------------------------------- Jack L. Alexander Address: 260 East 28th Street Tulsa, Oklahoma 74114 ---------------------------------------------- Janice E. Alexander Address: 260 East 28th Street Tulsa, Oklahoma 74114 Design Directions, Inc. By: ------------------------------------------- Name: Lawrence W. Cibula Title: President Address: 10537 South 69th East Avenue Tulsa, Oklahoma 74133 ---------------------------------------------- Lawrence M. Cibula Address: 10537 South 69th East Avenue Tulsa, Oklahoma 74133 TCM Employee Stock Ownership Plan By: ------------------------------------------- Jack L. Alexander, Trustee By: ------------------------------------------- Joe Wyatt, Trustee By: ------------------------------------------- Lawrence M. Cibula, Trustee Address: c/o TCM Investments, Inc. 4747 South 83rd East Avenue Tulsa, Oklahoma 74147 [SIGNATURES CONTINUED ON NEXT PAGE] 53 38 SIGNATURE PAGE TO STOCK PURCHASE AGREEMENT AMONG GARDNER DENVER MACHINERY INC., TCM INVESTMENTS, INC. AND THE HOLDERS NAMED HEREIN ---------------------------------------------- Alan W. Carlton Address: 10770 South 77th E. Avenue Tulsa, Oklahoma 74136 By: ------------------------------------------- Joe Wyatt His Attorney-In-Fact Eugene F. Jacobs R-Trust By: ------------------------------------------- Eugene F. Jacobs, Trustee Address: 4150 S. 100th E. Avenue Suite 308 Tulsa, Oklahoma 74146 ---------------------------------------------- Sherry L. Cowett Address: 3701 S. 61st W. Avenue Tulsa, Oklahoma 74107 ---------------------------------------------- Norman Gougler, Jr. Address: Route 1, Box 1540 Talala, Oklahoma 74080 ---------------------------------------------- Thomas E. Yeldell, Jr. Address: 17309 E. 110th Street North Owasso, Oklahoma 74055 ---------------------------------------------- James P. Murphy Address: 219 Sherlyn Lane Sapulpa, Oklahoma 74066 ---------------------------------------------- Chester W. Blair Address: 4016 W. 42nd Street Tulsa, Oklahoma 74107 [SIGNATURES CONTINUED ON NEXT PAGE] 54 39 SIGNATURE PAGE TO STOCK PURCHASE AGREEMENT AMONG GARDNER DENVER MACHINERY INC., TCM INVESTMENTS, INC. AND THE HOLDERS NAMED HEREIN ---------------------------------------------- Marvin B. Jones Address: 7775 S. Hawthorne Broken Arrow, Oklahoma 74014 ---------------------------------------------- Dr. Feron G. Waters Address: 8754 S. Richmond Tulsa, Oklahoma 74137 By: ------------------------------------------- Joe Wyatt His Attorney-In-Fact ---------------------------------------------- David Booker Address: 2525 S. 104th E. Avenue Tulsa, Oklahoma 74129 ---------------------------------------------- James M. Pace Address: 29 E. Sherlyn Sapulpa, Oklahoma 74066 55 EX-4.0 3 NOTE PURCHASE AGREEMENT 1 Exhibit 4.0 GARDNER DENVER MACHINERY INC. $35,000,000 7.32% Senior Notes due September 26, 2006 ------------------- NOTE PURCHASE AGREEMENT ------------------- September 26, 1996 56 2 TABLE OF CONTENTS
Section Page SECTION 1. AUTHORIZATION OF NOTES . . . . . . . . . .1 SECTION 2. SALE AND PURCHASE OF NOTES . . . . . . . .1 SECTION 3. CLOSING. . . . . . . . . . . . . . . . . .1 SECTION 4 . CONDITIONS TO CLOSING. . . . . . . . . . .2 Section 4.1. Representations and Warranties . . . . . .2 Section 4.2. Performance; No Default. . . . . . . . . .2 Section 4.3. Compliance Certificates. . . . . . . . . .2 Section 4.4. Opinions of Counsel. . . . . . . . . . . .2 Section 4.5. Purchase Permitted By Applicable Law, etc . . . . . . . . . . . . . . . .2 Section 4.6. Payment of Special Counsel Fees. . . . . .3 Section 4.7. Private Placement Number . . . . . . . . .3 Section 4.8. Changes in Corporate Structure . . . . . .3 Section 4.9. Proceedings and Documents. . . . . . . . .3 SECTION 5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. . . . . . . . . . . . . . . . .3 Section 5.1. Organization; Power and Authority. . . . .3 Section 5.2. Authorization, etc.. . . . . . . . . . . .4 Section 5.3. Disclosure . . . . . . . . . . . . . . . .4 Section 5.4. Organization and Ownership of Shares of Subsidiaries; Affiliates . . .4 Section 5.5. Financial Statements . . . . . . . . . . .5 Section 5.6. Compliance with Laws, Other Instruments, etc.. . . . . . . . . . . .5 Section 5.7. Governmental Authorizations, etc.. . . . .5 Section 5.8. Litigation; Observance of Agreements, Statutes and Orders. . . . . . . . . . .6 Section 5.9. Taxes. . . . . . . . . . . . . . . . . . .6 Section 5.10. Title to Property; Leases. . . . . . . . .6 Section 5.11. Licenses, Permits, etc.. . . . . . . . . .6 Section 5.12. Compliance with ERISA. . . . . . . . . . .7 Section 5.13. Private Offering by the Company. . . . . .7 Section 5.14. Use of Proceeds; Margin Regulations. . . .8 Section 5.15. Existing Indebtedness; Future Liens. . . .8 Section 5.16. Foreign Assets Control Regulations, etc. .8 Section 5.17. Status under Certain Statutes. . . . . . .9 Section 5.18. Environmental Matters. . . . . . . . . . .9 57 3 SECTION 6. REPRESENTATIONS OF THE PURCHASER . . . . .9 Section 6.1. Purchase for Investment. . . . . . . . . .9 Section 6.2. Source of Funds. . . . . . . . . . . . . 10 SECTION 7. INFORMATION AS TO THE COMPANY. . . . . . 11 Section 7.1. Financial and Business Information . . . 11 Section 7.2. Officer's Certificate. . . . . . . . . . 14 Section 7.3. Inspection . . . . . . . . . . . . . . . 15 SECTION 8. PREPAYMENT OF THE NOTES. . . . . . . . . 15 Section 8.1. Required Prepayments . . . . . . . . . . 15 Section 8.2. Optional Prepayments with Make-Whole Amount . . . . . . . . . . 15 Section 8.3. Allocation of Partial Prepayments. . . . 16 Section 8.4. Maturity; Surrender, etc . . . . . . . . 16 Section 8.5. Purchase of Notes. . . . . . . . . . . . 16 Section 8.6. Make-Whole Amount. . . . . . . . . . . . 16 SECTION 9. AFFIRMATIVE COVENANTS. . . . . . . . . . 18 Section 9.1. Compliance with Law. . . . . . . . . . . 18 Section 9.2. Insurance. . . . . . . . . . . . . . . . 18 Section 9.3. Maintenance of Properties. . . . . . . . 18 Section 9.4. Payment of Taxes and Claims. . . . . . . 18 Section 9.5. Corporate Existence, etc.. . . . . . . . 19 Section 9.6. Nature of Business . . . . . . . . . . . 19 SECTION 10. NEGATIVE COVENANTS . . . . . . . . . . . 19 Section 10.1. Transactions with Affiliates . . . . . . 19 Section 10.2. Merger, Consolidation, etc.. . . . . . . 19 Section 10.3. Consolidated Net Worth . . . . . . . . . 20 Section 10.4. Incurrence of Debt . . . . . . . . . . . 20 Section 10.5. Incurrence of Subsidiary Debt. . . . . . 20 Section 10.6. Liens. . . . . . . . . . . . . . . . . . 21 Section 10.7. Investments. . . . . . . . . . . . . . . 23 Section 10.8. Sale of Assets, etc. . . . . . . . . . . 24 SECTION 11. EVENTS OF DEFAULT. . . . . . . . . . . . 24 SECTION 12. REMEDIES ON DEFAULT, ETC.. . . . . . . . 26 58 4 Section 12.1. Acceleration . . . . . . . . . . . . . . 26 Section 12.2. Other Remedies . . . . . . . . . . . . . 27 Section 12.3. Rescission . . . . . . . . . . . . . . . 27 Section 12.4. No Waivers or Election of Remedies, Expenses, etc. . . . . . . . 27 SECTION 13. REGISTRATION; EXCHANGE; SUBSTITUTION OF NOTES . . . . . . . . . . . . . . . 28 Section 13.1. Registration of Notes. . . . . . . . . . 28 Section 13.2. Transfer and Exchange of Notes . . . . . 28 Section 13.3. Replacement of Notes . . . . . . . . . . 28 SECTION 14. PAYMENTS ON NOTES. . . . . . . . . . . . 29 Section 14.1. Place of Payment . . . . . . . . . . . . 29 Section 14.2. Home Office Payment. . . . . . . . . . . 29 SECTION 15. EXPENSES, ETC. . . . . . . . . . . . . . 30 Section 15.1. Transaction Expenses . . . . . . . . . . 30 Section 15.2. Survival . . . . . . . . . . . . . . . . 30 SECTION 16. SURVIVAL OF REPRESENTATIONS AND WARRANTIES, ENTIRE AGREEMENT . . . . . 30 SECTION 17. AMENDMENT AND WAIVER . . . . . . . . . . 30 Section 17.1. Requirements . . . . . . . . . . . . . . 30 Section 17.2. Solicitation of Holders of Notes . . . . 31 Section 17.3. Binding Effect, etc. . . . . . . . . . . 31 Section 17.4. Notes held by Company, etc. . . . . . . 31 SECTION 18. NOTICES. . . . . . . . . . . . . . . . . 32 SECTION 19. REPRODUCTION OF DOCUMENTS. . . . . . . . 32 SECTION 20. CONFIDENTIAL INFORMATION . . . . . . . . 32 SECTION 21. SUBSTITUTION OF PURCHASER. . . . . . . . 33 SECTION 22. MISCELLANEOUS. . . . . . . . . . . . . . 34 Section 22.1. Successors and Assigns . . . . . . . . . 34 Section 22.2. Payments Due on Non-Business Days. . . . 34 Section 22.3. Severability . . . . . . . . . . . . . . 34 59 5 Section 22.4. Construction . . . . . . . . . . . . . . 34 Section 22.5. Counterparts . . . . . . . . . . . . . . 34 Section 22.6. Governing Law. . . . . . . . . . . . . . 35 Signature. . . . . . . . . . . . . . . . . . . . . . . . . 36 SCHEDULE A - Information Relating to Purchaser SCHEDULE B - Defined Terms SCHEDULE 4.8 - Changes in Corporate Structure SCHEDULE 5.3 - Disclosure Materials SCHEDULE 5.4 - Subsidiaries of the Company and Ownership of Subsidiary Stock SCHEDULE 5.5 - Financial Statements SCHEDULE 5.8 - Certain Litigation SCHEDULE 5.11 - Patents, etc. SCHEDULE 5.15 - Existing Indebtedness EXHIBIT 1 - Form of 7.32% Senior Note due September 26, 2006 EXHIBIT 4.4(a) - Form of Opinion of Special Counsel for the Company EXHIBIT 4.4(b) - Form of Opinion of Special Counsel for the Purchaser
60 6 GARDNER DENVER MACHINERY INC. 1800 GARDNER EXPRESSWAY QUINCY, ILLINOIS 7.32% SENIOR NOTES DUE SEPTEMBER 26, 2006 September 26, 1996 To the Purchaser Listed in the Attached Schedule A: Ladies and Gentlemen: Gardner Denver Machinery Inc., a Delaware corporation (the "Company"), agrees with you as follows: SECTION 1. AUTHORIZATION OF NOTES. The Company will authorize the issue and sale of $35,000,000 aggregate principal amount of its 7.32% Senior Notes due September 26, 2006 (the "Notes", such term to include any such notes issued in substitution therefor pursuant to Section 13 of this Agreement. The Notes shall be substantially in the form set out in Exhibit 1, with such changes therefrom, if any, as may be approved by you and the Company. Certain capitalized terms used in this Agreement are defined in Schedule B; references to a "Schedule" or an "Exhibit" are, unless otherwise specified, to a Schedule or an Exhibit attached to this Agreement. SECTION 2. SALE AND PURCHASE OF NOTES. Subject to the terms and conditions of this Agreement, the Company will issue and sell to you and you will purchase from the Company, at the Closing provided for in Section 3, the entire $35,000,000 principal amount of Notes at the purchase price of l00% of the principal amount thereof. SECTION 3. CLOSING. The sale and purchase of the Notes shall occur at the offices of Chapman and Cutler, 111 West Monroe Street, Chicago, Illinois 60603, at 10:00 a.m., Chicago time, at a closing (the "Closing") on September 26, 1996 or on such other Business Day thereafter as maybe agreed upon by the Company and you. At the Closing the Company will deliver to you the Notes to be purchased by you in the form of a single Note (or such greater number of Notes in 61 7 denominations of at least $100,000 as you may request) dated the date of the Closing and registered in your name (or in the name of your nominee), against delivery by you to the Company or its order of immediately available funds for the account of the Company to account number 100101236963 at Boatmen's National Bank of St. Louis (ABA #081000032), One Boatmen's Plaza, 800 Market Street, St. Louis, Missouri. If at the Closing the Company shall fail to tender such Notes to you as provided above in this Section 3, or any of the conditions specified in Section 4 shall not have been fulfilled to your satisfaction, you shall, at your election, be relieved of all further obligations under this Agreement, without thereby waiving any rights you may have by reason of such failure or such nonfulfillment. SECTION 4. CONDITIONS TO CLOSING. Your obligation to purchase and pay for the Notes to be sold to you at the Closing is subject to the fulfillment to your satisfaction, prior to or at the Closing of the following conditions: Section 4.1. Representations and Warranties. The representations and warranties of the Company in this Agreement shall be correct when made and at the time of the Closing. Section 4.2. Performance; No Default'. The Company shall have performed and complied with all agreements and conditions contained in this Agreement required to be performed or complied with by it prior to or at the Closing and after giving effect to the issue and sale of the Notes (and the application of the proceeds thereof as contemplated by Section 5.14) no Default or Event of Default shall have occurred and be continuing. Neither the Company nor any Subsidiary shall have entered into any transaction since the date of the Memorandum that would have been prohibited by Sections 10.1, 10.4, 10.5 or 10.6 hereof had such Sections applied since such date. Section 4.3. Compliance Certificates (a) Officer's Certificate. The Company shall have delivered to you an Officer's Certificate, dated the date of the Closing, certifying that the conditions specified in Sections 4.1, 4.2 and 4.8 have been fulfilled. (b) Secretary's Certificate. The Company shall have delivered to you a certificate certifying as to the resolutions attached thereto and other corporate proceedings relating to the authorization, execution and delivery of the Notes and the Agreement. Section 4.4. Opinions of Counsel. You shall have received opinions in form and substance satisfactory to you, dated the date of the Closing (a) from Squire, Sanders & Dempsey, special counsel for the Company, covering the matters set forth in Exhibit 4.4(a) and covering such other matters incident to the transactions contemplated hereby as you or your counsel may reasonably request (and the Company hereby instructs its counsel to deliver such opinion to you) and (b) from Chapman and Cutler, your special counsel in connection with such transactions, covering the matters set forth in Exhibit 4.4(b) and covering such other matters incident to such transactions as you may reasonably request. 62 8 Section 4.5. Purchase Permitted By Applicable Law, etc. On the date of the Closing your purchase of Notes shall (i) be permitted by the laws and regulations of each jurisdiction to which you are subject, without recourse to provisions (such as Section 1405(a)(8) of the New York Insurance Law) permitting limited investments by insurance companies without restriction as to the character of the particular investment, (ii) not violate any applicable law or regulation (including, without limitation, Regulation G, T or X of the Board of Governors of the Federal Reserve System) and (iii) not subject you to any tax, penalty or liability under or pursuant to any applicable law or regulation, which law or regulation was not in effect on the date hereof. If requested by you, you shall have received an Officer's Certificate certifying as to such matters of fact as you may reasonably specify to enable you to determine whether such purchase is so permitted. Section 4.6. Payment of Special Counsel Fees. Without limiting the provisions of Section 15. 1, the Company shall have paid on or before the Closing the fees, charges and disbursements of your special counsel referred to in Section 4.4 to the extent reflected in a statement of such counsel rendered to the Company at least one Business Day prior to the Closing. Section 4.7. Private Placement Number. A Private Placement number issued by Standard & Poor's CUSIP Service Bureau (in cooperation with the Securities Valuation Office of the National Association of Insurance Commissioners) shall have been obtained for the Notes. Section 4.8 Changes in Corporate Structure. Except as specified in Schedule 4.8, the Company shall not have changed its jurisdiction of incorporation or been a party to any merger or consolidation and shall not have succeeded to all or any substantial part of the liabilities of any other entity, at any time following the date of the most recent financial statements referred to in Schedule 5.5. Section 4.9. Proceedings and Documents. All corporate and other proceedings in connection with the transactions contemplated by this Agreement and all documents and instruments incident to such transactions shall be satisfactory to you and your special counsel, and you and your special counsel shall have received all such counterpart originals or certified or other copies of such documents as you or they may reasonably request. SECTION 5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents and warrants to you that: Section 5.1. Organization; Power and Authority. The Company is a corporation duly organized, validly existing and in good standing under the laws of its Jurisdiction of incorporation, and is duly qualified as a foreign corporation and is in good standing in each jurisdiction in which such qualification is required by law, other than those jurisdictions as to 63 9 which the failure to be so qualified or in good standing could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. The Company has the corporate power and authority to own or hold under lease the properties it purports to own or hold under lease, to transact the business it transacts and proposes to transact, to execute and deliver this Agreement and the Notes and to perform the provisions hereof and thereof. Section 5.2. Authorizations, etc. This Agreement and the Notes have been duly authorized by all necessary corporate action on the part of the Company, and this Agreement constitutes, and upon execution and delivery thereof each Note will constitute, a legal, valid and binding obligation of the Company enforceable against the Company in accordance with its terms, except as such enforceability may be limited by (i) applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the enforcement of creditors' rights generally and (ii) general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law). Section 5.3. Disclosure. The Company, through its agent, First Chicago Capital Markets, Inc., has delivered to you a copy of a Confidential Offering Memorandum, dated August, 1996 including each appendix thereto (the "Memorandum"), relating to the transactions contemplated hereby. The Memorandum fairly describes, in all material respects, the general nature of the business and principal properties of the Company and its Subsidiaries. Except as disclosed in Schedule 5.3, this Agreement, the Memorandum, the documents, certificates or other writings delivered to you by or on behalf of the Company in connection with the transactions contemplated hereby and the financial statements listed in Schedule 5.5, taken as a whole, do not contain any untrue statement of a material fact or omit to state any material fact necessary to make the statements therein not misleading in light of the circumstances under which they were made for the purposes of disclosure to Institutional Investors. Except as disclosed in the Memorandum or as expressly described in Schedule 5.3, or in one of the documents, certificates or other writings identified therein, or in the financial statements listed in Schedule 5.5, since December 31, 1995, there has been no change in the financial condition, operations, business, properties or prospects of the Company or any Subsidiary except changes that individually or in the aggregate could not reasonably be expected to have a Material Adverse Effect. There is no fact known to the Company that could reasonably be expected to have a Material Adverse Effect that has not been set forth herein or in the Memorandum or in the other documents, certificates and other writings delivered to you by or on behalf of the Company specifically for use in connection with the transactions contemplated hereby. Section 5.4. Organization and Ownership of Shares of Subsidiaries; Affiliates. (a) Schedule 5.4 contains (except as noted therein) complete and correct lists (i) of the Company's Subsidiaries, showing, as to each Subsidiary, the correct name thereof, the jurisdiction of its organization, the percentage of shares of each class of its capital stock or similar equity interests outstanding owned by the Company and each other Subsidiary and whether such Subsidiary is a Restricted Subsidiary or an Unrestricted Subsidiary, (ii) of the Company's Affiliates, other than Subsidiaries, and (iii) of the Company's directors and senior officers. 64 10 (b) All of the outstanding shares of capital stock or similar equity interests of each Subsidiary shown in Schedule 5.4 as being owned by the Company and its Subsidiaries have been validly issued, are fully paid and nonassessable and are owned by the Company or another Subsidiary free and clear of any Lien (except as otherwise disclosed in Schedule 5.4). (c) Each Subsidiary identified in Schedule 5.4 is a corporation or other legal entity duly organized, validly existing and in good standing under the laws of its jurisdiction of organization, and is duly qualified as a foreign corporation or other legal entity and is in good standing in each jurisdiction in which such qualification is required by law, other than those jurisdictions as to which the failure to be so qualified or in good standing could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. Each such Subsidiary has the corporate or other power and authority to own or hold under lease the properties it purports to own or hold under lease and to transact the business it transacts and proposes to transact. (d) No Subsidiary is a party to, or otherwise subject to any legal restriction or any agreement (other than this Agreement, the agreements listed on Schedule 5.4 and customary limitations imposed by corporate law statutes) restricting the ability of such Subsidiary to pay dividends out of profits or make any other similar distributions of profits to the Company or any of its Subsidiaries that owns outstanding shares of capital stock or similar equity interests of such Subsidiary. Section 5.5. Financial Statements. The Company has delivered to each Purchaser copies of the financial statements of the Company and its Subsidiaries listed on Schedule 5.5. All of said financial statements (including in each case the related schedules and notes) fairly present in all material respects the consolidated financial position of the Company and its Subsidiaries as of the respective dates specified in such Schedule and the consolidated results of their operations and cash flows for the respective periods so specified and have been prepared in accordance with GAAP consistently applied throughout the periods involved except as set forth in the notes thereto (subject, in the case of any interim financial statements, to normal year-end adjustments). Section 5.6. Compliance with Laws, Other Instruments, etc. The execution, delivery and performance by the Company of this Agreement and the Notes will not (i) contravene, result in any breach of, or constitute a default under, or result in the creation of any Lien in respect of any property of the Company or any Subsidiary under, any indenture, mortgage, deed of trust, loan, purchase or credit agreement, lease, corporate charter or by-laws, or any other agreement or instrument to which the Company or any Subsidiary is bound or by which the Company or any Subsidiary or any of their respective properties may be bound or affected, (ii) conflict with or result in a breach of any of the terms, conditions or provisions of any order, judgment, decree, or ruling of any court, arbitrator or Governmental Authority applicable to the Company or any Subsidiary or (iii) violate any provision of any statute or other rule or regulation of any Governmental Authority applicable to the Company or any Subsidiary. 65 11 Section 5.7. Governmental Authorizations, etc. No consent, approval or authorization of, or registration, filing or declaration with, any Governmental Authority is required in connection with the execution, delivery or performance by the Company of this Agreement or the Notes. Section 5.8. Litigation; Observance of Agreements, Statutes and Orders. (a) Except as disclosed in Schedule 5.8, there are no actions, suits or proceedings pending or, to the knowledge of the Company, threatened against or affecting the Company or any Subsidiary or any property of the Company or any Subsidiary in any court or before any arbitrator of any kind or before or by any Governmental Authority that, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect. (b) Neither the Company nor any Subsidiary is in default under any term of any agreement or instrument to which it is a party or by which it is bound, or any order, judgment, decree or ruling of any court, arbitrator or Governmental Authority or is in violation of any applicable law, ordinance, rule or regulation (including without limitation Environmental Laws) of any Governmental Authority, which default or violation, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect. Section 5.9. Taxes. The Company and its Subsidiaries have filed all tax returns that are required to have been filed in any jurisdiction, and have paid all taxes shown to be due and payable on such returns and all other taxes and assessments levied upon them or their properties, assets, income or franchises, to the extent such taxes and assessments have become due and payable and before they have become delinquent, except for any taxes and assessments (i) the amount of which is not individually or in the aggregate Material or (ii) the amount, applicability or validity of which is currently being contested in good faith by appropriate proceedings and with respect to which the Company or a Subsidiary, as the case may be, has established adequate reserves in accordance with GAAP. The Company knows of no basis for any other tax or assessment that could reasonably be expected to have a Material Adverse Effect. The charges, accruals and reserves on the books of the Company and its Subsidiaries in respect of Federal, state or other taxes for all fiscal periods are adequate. The Federal income tax liabilities of the Company and its Subsidiaries have not been determined by the Internal Revenue Service but have been paid for all fiscal years up to and including the fiscal year ended December 31, 1995. Section. 5.10. Title to Property; Leases. The Company and its Subsidiaries have good and sufficient title to their respective properties that individually or in the aggregate are Material, including all such properties reflected in the most recent audited balance sheet referred to in Section 5.5 or purported to have been acquired by the Company or any Subsidiary after said date (except as sold or otherwise disposed of in the ordinary course of business), in each case free and clear of Liens prohibited by this Agreement. All leases that individually or in the aggregate are Material are valid and subsisting and are in full force and effect in all material respects. 66 12 Section 5.11. Licenses, Permits, etc. Except as disclosed in Schedule 5.11, (a) the Company and its Subsidiaries own or possess all licenses, permits, franchises, authorizations, patents, copyrights, service marks, trademarks and trade names, or rights thereto, that individually or in the aggregate are Material, without known conflict with the rights of others; (b) to the best knowledge of the Company, no product of the Company infringes in any material respect any license, permit, franchise, authorization, patent, copyright, service mark, trademark, trade name or other right owned by any other Person; and (c) to the best knowledge of the Company, there is no Material violation by any Person of any right of the Company or any of its Subsidiaries with respect to any patent, copyright, service mark, trademark, trade name or other right owned or used by the Company or any of its Subsidiaries. Section 5.12. Compliance with ERISA. (a) The Company and each ERISA Affiliate have operated and administered each Plan in compliance with all applicable laws except for such instances of noncompliance as have not resulted in and could not reasonably be expected to result in a Material Adverse Effect. Neither the Company nor any ERISA Affiliate has incurred any liability pursuant to Title I or IV of ERISA or the penalty or excise tax provisions of the Code relating to employee benefit plans (as defined in Section 3 of ERISA), and no event, transaction or condition has occurred or exists that could reasonably be expected to result in the incurrence of any such liability by the Company or any ERISA Affiliate, or in the imposition of any Lien on any of the rights, properties or assets of the Company or any ERISA Affiliate, in either case pursuant to Title I or IV of ERISA or to such penalty or excise tax provisions or to Section 401(a)(29) or 412 of the Code, other than such liabilities or Liens as would not be individually or in the aggregate Material. (b) The present value of the aggregate benefit liabilities under each of the Plans (other than Multiemployer Plans), determined as of the end of such Plan's most recently ended plan year on the basis of the actuarial assumptions specified for funding purposes in such Plan's most recent actuarial valuation report, did not exceed the aggregate current value of the assets of such Plan allocable to such benefit liabilities by more than $4,000,000 in the case of any single Plan and by more than $6,000,000 in the aggregate for all Plans. The term "benefit liabilities" has the meaning specified in section 4001 of ERISA and the terms "current value" and "present value" have the meaning specified in section 3 of ERISA. (c) The Company and its ERISA Affiliates have not incurred withdrawal liabilities (and are not subject to contingent withdrawal liabilities) under section 4201 or 4204 of ERISA in respect of Multiemployer Plans that individually or in the aggregate are Material. (d) The execution and delivery of this Agreement and the issuance and sale of the Notes hereunder will not involve any transaction that is subject to the prohibitions of section 406 of ERISA or in connection with which a tax could be imposed pursuant to section 67 13 4975(c)(1)(A)-(D) of the Code. The representation by the Company in the first sentence of this Section 5.12(d) is made in reliance upon and subject to the accuracy of your representation in Section 6.2 as to the sources of the funds used to pay the purchase price of the Notes to be purchased by you. Section 5.13. Private Offering by the Company. Neither the Company nor anyone acting on its behalf has offered the Notes or any similar securities for sale to, or solicited any offer to buy any of the same from, or otherwise approached or negotiated in respect thereof with, any person other than you and not more than 40 other Institutional Investors, each of which has been offered the Notes at a private sale for investment. Neither the Company nor anyone acting on its behalf has taken, or will take, any action that would subject the issuance or sale of the Notes to the registration requirements of Section 5 of the Securities Act. Section 5.14. Use of Proceeds; Margin Regulations. The Company will apply the proceeds of the sale of the Notes (i) to the repayment of Indebtedness to banks (including Indebtedness incurred to provide funds for the acquisition of TCM Investments, Inc. and Noramptco (collectively, the "Acquisitions"), (ii) to, directly or indirectly, provide funds for future acquisitions or (iii) for general corporate purposes. The Company has made all filings, if any, required to be made under, and has no reason to believe that the Acquisitions were in violation of, the Hart-Scott-Rodino Antitrust Improvements Act of 1976. No part of the proceeds from the sale of the Notes hereunder will be used, directly or indirectly, for the purpose of buying or carrying any margin stock within the meaning of Regulation G of the Board of Governors of the Federal Reserve System (12 CFR 207), or for the purpose of buying or carrying or trading in any securities under such circumstances as to involve the Company in a violation of Regulation X of said Board (12 CFR 224) or to involve any broker or dealer in a violation of Regulation T of said Board (12 CFR 220). Margin stock does not constitute more than 5% of the value of the consolidated assets of the Company and its Subsidiaries and the Company does not have any present intention that margin stock will constitute more than 5% of the value of such assets. As used in this Section, the terms "margin stock" and "purpose of buying or carrying" shall have the meanings assigned to them in said Regulation G. Section 5.15. Existing Indebtedness; Future Liens. (a) Except as described therein, Schedule 5.15 sets forth a complete and correct list of all outstanding Indebtedness of the Company and its Subsidiaries as of June 30, 1996, since which date there has been no Material change in the amounts, interest rates, sinking funds, installment payments or maturities of the Indebtedness of the Company or its Subsidiaries. Neither the Company nor any Subsidiary is in default and no waiver of default is currently in effect, in the payment of any principal or interest on any Indebtedness of the Company or such Subsidiary and no event or condition exists with respect to any Indebtedness of the Company or any Subsidiary that would permit (or that with notice or the lapse of time, or both, would permit) one or more Persons to cause such Indebtedness to become due and payable before its stated maturity or before its regularly scheduled dates of payment. 68 14 (b) Except as disclosed in Schedule 5.15, neither the Company nor any Subsidiary has agreed or consented to cause or permit in the future (upon the happening of a contingency or otherwise) any of its property, whether now owned or hereafter acquired, to be subject to a Lien not permitted by Section 10.6. Section 5.16. Foreign Assets Control Regulations, etc. Neither the sale of the Notes by the Company hereunder nor its use of the proceeds thereof will violate the Trading with the Enemy Act, as amended, or any of the foreign assets control regulations of the United States Treasury Department (31 CFR, Subtitle B, Chapter V, as amended) or any enabling legislation or executive order relating thereto. Section 5.17. Status under Certain Statutes. Neither the Company nor any Subsidiary is subject to regulation under the Investment Company Act of 1940, as amended, the Public Utility Holding Company Act of 1935, as amended, the Interstate Commerce Act, as amended, or the Federal Power Act, as amended. Section 5.18. Environmental Matters. Neither the Company nor any Subsidiary has knowledge of any claim or has received any notice of any claim, and no proceeding has been instituted raising any claim against the Company or any of its Subsidiaries or any of their respective real properties now or formerly owned, leased or operated by any of them or other assets, alleging any damage to the environment or violation of any Environmental Laws, except, in each case, such as could not reasonably be expected to result in a Material Adverse Effect. Except as otherwise disclosed to you in writing, (a) neither the Company nor any Subsidiary has knowledge of any facts which would give rise to any claim, public or private, or violation of Environmental Laws or damage to the environment emanating from, occurring on or in any way related to real properties now or formerly owned, leased or operated by any of them or to other assets or their use, except, in each case, such as could not reasonably be expected to result in a Material Adverse Effect; (b) neither the Company nor any of its Subsidiaries has stored any Hazardous Materials on real properties now or formerly owned, leased or operated by any of them and has not disposed of any Hazardous Materials in a manner contrary to any Environmental Laws in each case in any manner that could reasonably be expected to result in a Material Adverse Effect; and (c) all buildings on all real properties now owned, leased or operated by the Company or any of its Subsidiaries are in compliance with applicable Environmental Laws, except where failure to comply could not reasonably be expected to result in a Material Adverse Effect. 69 15 SECTION 6. REPRESENTATIONS OF THE PURCHASER. Section 6.1. Purchase for Investment. You represent that you are purchasing the Notes for your own account or for one or more separate accounts maintained by you or for the account of one or more pension or trust funds and not with a view to the distribution thereof, provided that the disposition of your or their property shall at all times be within your or their control. You understand that the Notes have not been registered under the Securities Act and may be resold only if registered pursuant to the provisions of the Securities Act or if an exemption from registration is available, except under circumstances where neither such registration nor such an exemption is required by law, and that the Company is not required to register the Notes. Section 6.2. Source of Funds. You represent that at least one of the following statements is an accurate representation as to each source of funds (a "Source") to be used by you to pay the purchase price of the Notes to be purchased by you hereunder: (a) if you are an insurance company, the Source does not include assets allocated to any separate account maintained by you in which any employee benefit plan (or its related trust) has any interest, other than a separate account that is maintained solely in connection with your fixed contractual obligations under which the amounts payable, or credited, to such plan and to any participant or beneficiary of such plan (including any annuitant) are not affected in any manner by the investment performance of the separate account (within the meaning of Department of Labor Regulation 2510.3-l0l(h)(i)); or (b) if you are an insurance company, the source is an "insurance company general account" within the meaning of Department of Labor Prohibited Transactions Exemption ("PTE") 95-60 (issued July 12, 1995) and the purchase of Notes by you is eligible for and satisfies the requirements of PTE 95-60; or (c) the Source is either (i) an insurance company pooled separate account, within the meaning of PTE 90-1 (issued January 29, 1990), or (ii) a bank collective investment fund, within the meaning of PTE 91-38 (issued July 12, 1991) and, except as you have disclosed to the Company in writing pursuant to this paragraph (c), no employee benefit plan or group of plans maintained by the same employer or employee organization beneficially owns more than 10% of all assets allocated to such pooled separate account or collective investment fund; or (d) the Source constitutes assets of an "investment fund" (within the meaning of Part V of the QPAM Exemption) managed by a "qualified professional asset manager" or "QPAM" (within the meaning of Part V of the QPAM Exemption), no employee benefit plan's assets that are included in such investment fund, when combined with the assets of all other employee benefit plans established or maintained by the same employer or by an affiliate (within the meaning of Section V(c)(l) of the QPAM Exemption) of such employer or by the same employee organization and managed by such QPAM, exceed 20% of the total client assets managed by such QPAM, the conditions of Part l(c) and 70 16 (g) of the QPAM Exemption are satisfied, neither the QPAM nor a person controlling or controlled by the QPAM (applying the definition of "control" in Section V(e) of the QPAM Exemption) owns a 5% or more interest in the Company and (i) the identity of such QPAM and (ii) the names of all employee benefit plans whose assets are included in such investment fund have been disclosed to the Company in writing pursuant to this paragraph (d); or (e) the Source is a governmental plan; or (f) the Source is one or more employee benefit plans, or a separate account or trust fund comprised of one or more employee benefit plans, each of which has been identified to the Company in writing pursuant to this paragraph (e); or (g) the Source does not include assets of any employee benefit plan, other than a plan exempt from the coverage of ERISA. If you or any subsequent transferee of the Notes indicates that you or such transferee is relying on any representation contained in paragraph (c), (d) or (f) above, the Company shall deliver a certificate on the date of the Closing, with respect to you and on or prior to the date of any transfer of the Notes, with respect to any subsequent holder of the Notes, which certificate shall state whether (i) with respect to any plan identified pursuant to paragraph (c) or (f) above, it is a "party in interest" (as defined in Title I, Section 3(14) of ERISA) or a "disqualified person" (as defined in Section 4975(e)(2) of the Code), or (ii) with respect to any plan identified pursuant to paragraph (c) above, it or any "affiliate" (as defined in Section V(c) of the QPAM Exemption) has at such time, and during the immediately preceding one year, exercised the authority to appoint or terminate said QPAM as manager of the assets of any plan identified in writing pursuant to paragraph (d) above or to negotiate the terms of said QPAM's management agreement on behalf of any such identified plans. As used in this Section 6.2, the terms "employee benefit plan", "governmental plan", "party in interest" and "separate account" shall have the respective meanings assigned to such terms in Section 3 of ERISA. SECTION 7. INFORMATION AS TO COMPANY. Section 7.1 Financial and Business Information. The Company shall deliver to each holder of Notes that is an Institutional Investor: (a) Quarterly Statements - within 60 days after the end of each quarterly fiscal period in each fiscal year of the Company (other than the last quarterly fiscal period of each such fiscal year), duplicate copies of, (i) a consolidated balance sheet of the Company and its Subsidiaries as at the end of such quarter, 71 17 (ii) consolidated statements of income, changes in shareholders' equity and cash flows of the Company and its Subsidiaries, for such quarter and (in the case of the second and third quarters) for the portion of the fiscal year ending with such quarter, (iii) a consolidated balance sheet of the Company and its Restricted Subsidiaries as at the end of such quarter, and (iv) consolidated statements of income, changes in shareholders' equity and cash flows of the Company and its Restricted Subsidiaries, for such quarter and (in the case of the second and third quarters) for the portion of the fiscal year ending with such quarter, setting forth in each case in comparative form the figures for the corresponding periods in the previous fiscal year, all in reasonable detail, prepared in accordance with GAAP applicable to quarterly financial statements generally, and certified by a Senior Financial Officer as fairly presenting, in all material respects, the financial position of the companies being reported on and their results of operations and cash flows, subject to changes resulting from year-end adjustments, provided that delivery within the time period specified above of copies of the Company's Quarterly Report on Form 10-Q prepared in compliance with the requirements therefor and filed with the Securities and Exchange Commission shall be deemed to satisfy the requirements of clauses (i) and (ii) of this Section 7.l(a); (b) Annual Statements - within 105 days after the end of each fiscal year of the Company, duplicate copies of, (i) a consolidated balance sheet of the Company and its Subsidiaries, as at the end of such year, (ii) consolidated statements of income, changes in shareholders' equity and cash flows of the Company and its Subsidiaries, for such year, (iii) a consolidated balance sheet of the Company and its Restricted Subsidiaries, as at the end of such year, and (iv) consolidated statements of income, changes in shareholders' equity and cash flows of the Company and its Restricted Subsidiaries, for such year, setting forth in each case in comparative form the figures for the previous fiscal year, all in reasonable detail, prepared in accordance with GAAP, and accompanied (A) by an opinion thereon of independent certified public accountants of recognized national standing, which opinion shall state that such financial statements present fairly, in all material respects, the financial position of the companies being 72 18 reported upon and their results of operations and cash flows and have been prepared in conformity with GAAP, and that the examination of such accountants in connection with such financial statements has been made in accordance with generally accepted auditing standards, and that such audit provides a reasonable basis for such opinion in the circumstances, and (B) a certificate of such accountants stating that they have reviewed this Agreement and stating further whether, in making their audit, they have become aware of any condition or event that then constitutes a Default or an Event of Default, and, if they are aware that any such condition or event then exists, specifying the nature and period of the existence thereof (it being understood that such accountants shall not be liable, directly or indirectly, for any failure to obtain knowledge of any Default or Event of Default unless such accountants should have obtained knowledge thereof in making an audit in accordance with generally accepted auditing standards or did not make such an audit), provided that the delivery within the time period specified above of the Company's Annual Report on Form 10-K for such fiscal year (together with the Company's annual report to shareholders, if any, prepared pursuant to Rule 14a-3 under the Exchange Act) prepared in accordance with the requirements therefor and filed with the Securities and Exchange Commission, together with the accountant's certificate described in clause (B) above, shall be deemed to satisfy the requirements of clauses (i) and (ii) of this Section 7.l(b); (c) SEC and Other Reports - promptly upon their becoming available, one copy of (i) each financial statement, report, notice or proxy statement sent by the Company or any Subsidiary to public securities holders generally, and (ii) each regular or periodic report in the nature of an 8K, 10Q, 10K or report of a similar nature, each registration statement (without exhibits except as expressly requested by such holder and other than registration statements relating solely to employee plans of the Company), and each prospectus and all amendments thereto filed by the Company or any Subsidiary with the Securities and Exchange Commission and of all press releases and other statements made available generally by the Company or any Subsidiary to the public concerning developments that are Material; (d) Notice of Default or Event of Default - promptly, and in any event within five days after a Responsible Officer becoming aware of the existence of any Default or Event of Default or that any Person has given any notice or taken any action with respect to a claimed default hereunder or that any Person has given any notice or taken any action with respect to a claimed default of the type referred to in Section ll(f), a written notice specifying the nature and period of existence thereof and what action the Company is taking or proposes to take with respect thereto; 73 19 (e) ERISA Matters - promptly, and in any event within five days after a Responsible Officer becoming aware of any of the following, a written notice setting forth the nature thereof and the action, if any, that the Company or an ERISA Affiliate proposes to take with respect thereto: (i) with respect to any Plan, any reportable event, as defined in section 4043(b) of ERISA and the regulations thereunder, for which notice thereof has not been waived pursuant to such regulations as in effect on the date hereof; or (ii) the taking by the PBGC of steps to institute, or the threatening by the PBGC of the institution of, proceedings under section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Plan, or the receipt by the Company or any ERISA Affiliate of a notice from a Multiemployer Plan that such action has been taken by the PBGC with respect to such Multiemployer Plan; or (iii) any event, transaction or condition that could result in the incurrence of any liability by the Company or any ERISA Affiliate pursuant to Title I or IV of ERISA or the penalty or excise provisions of the Code relating to employee benefit plans, or in the imposition of any Lien on any of the rights, properties or assets of the Company or any ERISA Affiliate pursuant to Title I or IV of ERISA or such penalty or excise tax provisions, if such liability or Lien, taken together with any other such liabilities or Liens then existing, could reasonably be expected to have a Material Adverse Effect; (f) Notices from Governmental Authority - Promptly, and in any event within 30 days of receipt thereof, copies of any notice to the Company or any Subsidiary from any Federal or state Governmental Authority relating to any order, ruling, statute or other law or regulation that could reasonably be expected to have a Material Adverse Effect; and (g) Requested Information - with reasonable promptness, such other data and information relating to the business, operations, affairs, financial condition, assets or properties of the Company or any of its Subsidiaries or relating to the ability of the Company to perform its obligations hereunder and under the Notes as from time to time may be reasonably requested by any such holder of Notes. Section 7.2. Officer's Certificate. Each set of financial statements delivered to a holder of Notes pursuant to Section 7.l(a) or Section 7.l(b) hereof shall be accompanied by a certificate of a Senior Financial Officer setting forth: (a) Covenant Compliance - the information (including detailed calculations) required in order to establish whether the Company was in compliance with the requirements of Section 10.3 through Section 10.8 hereof, inclusive, during the quarterly or annual period covered by the statements then being furnished (including with respect to each 74 20 such Section, where applicable, the calculations of the maximum or minimum amount, ratio or percentage, as the case may be, permissible under the terms of such Sections, and the calculation of the amount, ratio or percentage then in existence; and (b) Event of Default - a statement that such officer has reviewed the relevant terms hereof and has made, or caused to be made, under his or supervision a review of the transactions and conditions of the Company and its Subsidiaries from the beginning of the quarterly or annual period covered by the statements then being furnished to the date of the certificate and that such review shall not have disclosed the existence during such period of any condition or event that constitutes a Default or an Event of Default or, if any such condition or event existed or exists (including, without limitation, any such event or condition resulting from the failure of the Company or any Subsidiary to comply with any Environmental Law), specifying the nature and period of existence thereof and what action the Company shall have taken or proposes to take with respect thereto. Section 7.3. Inspection. The Company shall permit the representatives of each holder of Notes that is an Institutional Investor: (a) No Default - if no Default or Event of Default then exists, at the expense of such holder and upon reasonable prior notice to the Company, to visit the principal executive office of the Company, to discuss the affairs, finances and accounts of the Company and its Subsidiaries with the Company's officers, and (with the consent of the Company, which consent will not be unreasonably withheld) its independent public accountants, and (with the consent of the Company, which consent will not be unreasonably withheld) to visit the other offices and properties of the Company and each Subsidiary, all at such reasonable times and as often as may be reasonably requested in writing; and (b) Default - if a Default or Event of Default then exists, at the expense of the Company to visit and inspect any of the offices or properties of the Company or any Subsidiary, to examine all their respective books of account, records, reports and other papers, to make copies and extracts therefrom, and to discuss their respective affairs, finances and accounts with their respective officers and independent public accountants (and by this provision the Company authorizes said accountants to discuss the affairs, finances and accounts of the Company and its Subsidiaries), all at such times and as often as may be requested. SECTION 8. PREPAYMENT OF THE NOTES. Section 8.1. Required Prepayments. On September 26, 2000, and on each September 26 thereafter to and including September 26, 2005, the Company will prepay $5,000,000 principal amount (or such lesser principal amount as shall then be outstanding) of the Notes at par and without payment of the Make-Whole Amount or any premium, provided that upon any partial prepayment of the Notes pursuant to Section 8.2 or purchase of the Notes permitted by 75 21 Section 8.5 the principal amount of each required prepayment of the Notes becoming due under this Section 8.1 on and after the date of such prepayment or purchase shall be reduced in the same proportion as the aggregate unpaid principal amount of the Notes is reduced as a result of such prepayment or purchase. Section 8.2. Optional Prepayments with Make-Whole Amount. The Company may, at its option, upon notice as provided below, prepay at any time all, or from time to time any part of, the Notes, in an amount not less than 5% of the aggregate principal amount of the Notes then outstanding in the case of a partial prepayment, at 100% of the principal amount so prepaid, plus the Make-Whole Amount determined for the prepayment date with respect to such principal amount. The Company will give each holder of Notes written notice of each optional prepayment under this Section 8.2 not less than 30 days and not more than 60 days prior to the date fixed for such prepayment. Each such notice shall specify such date, the aggregate principal amount of the Notes to be prepaid on such date, the principal amount of each Note held by such holder to be prepaid (determined in accordance with Section 8.3), and the interest to be paid on the prepayment date with respect to such principal amount being prepaid, and shall be accompanied by a certificate of a Senior Financial Officer as to the estimated Make-Whole Amount due in connection with such prepayment (calculated as if the date of such notice were the date of the prepayment), setting forth the details of such computation. Two Business Days prior to such prepayment, the Company shall deliver to each holder of Notes a certificate of a Senior Financial Officer specifying the calculation of such Make-Whole Amount as of the specified prepayment date. Section 8.3. Allocation of Partial Prepayments. In the case of each partial prepayment of the Notes, the principal amount of the Notes to be prepaid shall be allocated among all of the Notes at the time outstanding in proportion, as nearly as practicable, to the respective unpaid principal amounts thereof not theretofore called for prepayment. Section 8.4. Maturity; Surrender, etc. In the case of each prepayment of Notes pursuant to this Section 8, the principal amount of each Note to be prepaid shall mature and become due and payable on the date fixed for such prepayment, together with interest on such principal amount accrued to such date and the applicable Make-Whole Amount, if any. From and after such date, unless the Company shall fail to pay such principal amount when so due and payable, together with the interest and Make-Whole Amount, if any, as aforesaid, interest on such principal amount shall cease to accrue. Any Note paid or prepaid in full shall be surrendered to the Company and canceled and shall not be reissued, and no Note shall be issued in lieu of any prepaid principal amount of any Note. Section 8.5. Purchase of Notes. The Company will not and will not permit any Affiliate to purchase, redeem, prepay or otherwise acquire, directly or indirectly, any of the outstanding Notes except upon the payment or prepayment of the Notes in accordance with the terms of this Agreement and the Notes. The Company will promptly cancel all Notes acquired by it or any Affiliate pursuant to any payment, prepayment or purchase of Notes pursuant to any provision of this Agreement and no Notes may be issued in substitution or exchange for any such Notes. 76 22 Section 8.6. Make-Whole Amount. The term "Make-Whole Amount" means, with respect to any Note, an amount equal to the excess, if any, of the Discounted Value of the Remaining Scheduled Payments with respect to the Called Principal of such Note over the amount of such Called Principal, provided that the Make-Whole Amount may in no event be less than zero. For the purposes of determining the Make-Whole Amount, the following terms have the following meanings: "Called Principal" means, with respect to any Note, the principal of such Note that is to be prepaid pursuant to Section 8.2 or has become or is declared to be immediately due and payable pursuant to Section 12.1, as the context requires. "Discovered Value" means, with respect to the Called Principal of any Note, the amount obtained by discounting all Remaining Scheduled Payments with respect to such Called Principal from their respective scheduled due dates to the Settlement Date with respect to such Called Principal, in accordance with accepted financial practice and at a discount factor (applied on the same periodic basis as that on which interest on the Notes is payable) equal to the Reinvestment Yield with respect to such Called Principal. "Reinvestment Yield" means, with respect to the Called Principal of any Note, the sum of (x) 0.50% plus (y) yield to maturity- implied by (i) the yields reported, as of 10:00 A.M. (New York City time) on the second Business Day preceding the Settlement Date with respect to such Called Principal, on the display designated as "Page 500" on the Telerate Access Service (or such other display as may replace Page 500 on Telerate Access Service) for actively traded U.S. Treasury securities having a maturity equal to the Remaining Average Life of such Called Principal as of such Settlement Date, or (ii) if such yields are not reported as of such time or the yields reported as of such time are not ascertainable, the Treasury Constant Maturity Series Yields reported, for the latest day for which such yields have been so reported as of the second Business Day preceding the Settlement Date with respect to such Called Principal, in Federal Reserve Statistical Release H. 15 (519) (or any comparable successor publication) for actively traded U.S. Treasury securities having a constant maturity equal to the Remaining Average Life of such Called Principal as of such Settlement Date. Such implied yield will be determined, if necessary, by (a) converting U.S. Treasury bill quotations to bond-equivalent yields in accordance with accepted financial practice and (b) interpolating linearly between (1) the actively traded U.S. Treasury security with the maturity closest to and greater than the Remaining Average Life and (2) the actively traded U.S. Treasury security with the maturity closest to and less than the Remaining Average Life. "Remaining Average Life" means, with respect to any Called Principal, the number of years (calculated to the nearest one-twelfth year) obtained by dividing (i) such Called Principal into (ii) the sum of the products obtained by multiplying (a) the principal component of each Remaining Scheduled Payment with respect to such Called Principal by (b) the number of years (calculated to the nearest one-twelfth year) that will elapse 77 23 between the Settlement Date with respect to such Called Principal and the scheduled due date of such Remaining Scheduled Payment. "Remaining Scheduled Payments" means, with respect to the Called Principal of any Note, all payments of such Called Principal and interest thereon that would be due after the Settlement Date with respect to such Called Principal if no payment of such Called Principal were made prior to its scheduled due date, provided that if such Settlement Date is not a date on which interest payments are due to be made under the terms of the Notes, then the amount of the next succeeding scheduled interest payment will be reduced by the amount of interest accrued to such Settlement Date and required to be paid on such Settlement Date pursuant to Section 8.2 or 12.1. "Settlement Date" means, with respect to the Called Principal of any Note, the date on which such Called Principal is to be prepaid pursuant to Section 8.2 or has become or is declared to be immediately due and payable pursuant to Section 12.1, as the context requires. SECTION 9. AFFIRMATIVE COVENANTS. The Company covenants that so long as any of the Notes are outstanding: Section 9.1. Compliance with Law. The Company will and will cause each of its Subsidiaries to comply with all laws, ordinances or governmental rules or regulations to which each of them is subject, including, without limitation, Environmental Laws, and will obtain and maintain in effect all licenses, certificates, permits, franchises and other governmental authorizations necessary to the ownership of their respective properties or to the conduct of their respective businesses, in each case to the extent necessary to ensure that non-compliance with such laws, ordinances or governmental rules or regulations or failures to obtain or maintain in effect such licenses, certificates, permits, franchises and other governmental authorizations could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. Section 9.2 Insurance. The Company will and will cause each of its Subsidiaries to maintain, with financially sound and reputable insurers, insurance with respect to their respective properties and businesses against such casualties and contingencies, of such types, on such terms and in such amounts (including deductibles, co-insurance and self-insurance, if adequate reserves are maintained with respect thereto) as is customary in the case of entities of established reputations engaged in the same or a similar business and similarly situated. Section 9.3. Maintenance of Properties. The Company will and will cause each of its Subsidiaries to maintain and keep, or cause to be maintained and kept, their respective properties in good repair, working order and condition (other than ordinary wear and tear), so that the business carried on in connection therewith may be properly conducted at all times, provided that this Section shall not prevent the Company or any Subsidiary from discontinuing the operation and the maintenance of any of its properties if such discontinuance is desirable 78 24 in the conduct of its business and the Company has concluded that such discontinuance could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. Section 9.4. Payment of Taxes and Claims. The Company will and will cause each of its Subsidiaries to file all tax returns required to be filed in any jurisdiction and to pay and discharge all taxes shown to be due and payable on such returns and all other taxes, assessments, governmental charges, or levies imposed on them or any of their properties, assets, income or franchises, to the extent such taxes and assessments have become due and Payable and before they have become delinquent and all claims for which sums have become due and payable that have or might become a Lien (not permitted by Section 10.6) on properties or assets of the Company or any Subsidiary, provided that neither the Company nor any Subsidiary need pay any such tax or assessment or claims if (i) the amount, applicability or validity thereof is contested by the Company or such Subsidiary on a timely basis in good faith and in appropriate proceedings, and the Company or a Subsidiary has established adequate reserves therefor in accordance with GAAP on the books of the Company or such Subsidiary or (ii) the nonpayment of all such taxes and assessments in the aggregate could not reasonably be expected to have a Material Adverse Effect. Section 9.5. Corporate Existence, etc. The Company will at all times preserve and keep in full force and effect its corporate existence. Subject to Sections 10.2 and 10.8, the Company will at all times preserve and keep in full force and effect the corporate existence of each of its Subsidiaries (unless merged into the Company or a Subsidiary) and all rights and franchises of the Company and its Subsidiaries unless, in the good faith judgment of the Company, the termination of or failure to preserve and keep in full force and effect such corporate existence, right or franchise could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. Section 9.6. Nature of Business. Neither the Company nor any Subsidiary will engage in any business if, as a result, the general nature of the business, taken on a consolidated basis, which would then be engaged in by the Company and its Subsidiaries would be substantially changed from the general nature of the business engaged in by the Company and its Subsidiaries on the date of this Agreement. SECTION 10. NEGATIVE COVENANTS. The Company covenants that so long as any of the Notes are outstanding: Section 10.1. Transactions with Affiliates. The Company will not and will not permit any Subsidiary to enter into directly or indirectly any transaction or Material group of related transactions (including without limitation the purchase, lease, sale or exchange of properties of any kind or the rendering of any service) with any Affiliate (other than the Company or another Subsidiary), except in the ordinary course and pursuant to the reasonable requirements of the Company's or such Subsidiary's business and upon fair and reasonable terms no less favorable to the Company or such Subsidiary than would be obtainable in a comparable 79 25 arm's-length transaction with a Person not an Affiliate. Section 10.2. Merger, Consolidation, etc. The Company shall not consolidate with or merge with any other corporation or convey, transfer or lease substantially all of its assets in a single transaction or series of transactions to any Person unless: (a) the successor formed by such consolidation or the survivor of such merger or the Person that acquires by conveyance, transfer or lease substantially all of the assets of the Company as an entirety, as the case may be, shall be a solvent corporation organized and existing under the laws of the United States or any State thereof (including the District of Columbia), and, if the Company is not such corporation, (i) such corporation shall have executed and delivered to each holder of any Notes its assumption of the due and punctual performance and observance of each covenant and condition of this Agreement and the Notes and (ii) shall have caused to be delivered to each holder of any Notes an opinion of nationally recognized independent counsel, or other independent counsel reasonably satisfactory to the Required Holders, to the effect that all agreements or instruments effecting such assumption are enforceable in accordance with their terms and comply with the terms hereof; or (b) immediately after giving effect to such transaction, no Default or Event of Default shall have occurred and be continuing. No such conveyance, transfer or lease of substantially all of the assets of the Company shall have the effect of releasing the Company or any successor corporation that shall theretofore have become such in the manner prescribed in this Section 10.2 from its liability under this Agreement or the Notes. Section 10.3 Consolidated Net Worth. The Company will not, on the last day of each fiscal quarter of the Company, permit Consolidated Net Worth to be less than the sum of (a) $41,000,000, plus (b) an aggregate amount equal to 50% of Consolidated Net Income (but, in each case, only if a positive number) for each completed fiscal quarter of the Company beginning with the fiscal quarter ended September 30, 1996. Section 10.4. Incurrence of Debt. The Company will not, and will not permit any Restricted Subsidiary to, directly or indirectly, create, incur, assume, guarantee, or otherwise become directly or indirectly liable with respect to, any Debt, unless on the date the Company or such Restricted Subsidiary becomes liable with respect to any such Debt and immediately after giving effect thereto and to the concurrent retirement of any other Debt, (a) no Default or Event of Default exists, and (b) Consolidated Total Debt does not exceed 350% of Operating Cash Flow for the then most recently ended period of four consecutive fiscal quarters of the Company. 80 26 For the purposes of this Section 10.4, (x) Operating Cash Flow shall be calculated after giving pro forma effect for any period to all acquisitions and dispositions completed during such period as if such transactions had occurred on the first day of such period; and (y) Any Person becoming a Restricted Subsidiary after the date hereof shall be deemed, at the time it becomes a Restricted Subsidiary, to have incurred all of its then outstanding Debt, and any Person extending, renewing or refunding any Debt shall be deemed to have incurred such Debt at the time of such extension, renewal or refunding. Section 10.5. Incurrence of Subsidiary Debt. The Company will not permit any Restricted Subsidiary to, directly or indirectly, create, incur, assume, guarantee or otherwise become liable with respect to, any Debt other than: (a) Debt of a Restricted subsidiary owed to the Company or to a Wholly-Owned Restricted Subsidiary; and (b) Debt of a Restricted Subsidiary in addition to that otherwise permitted by the foregoing provision of this Section 10.5, provided that on the date the Restricted Subsidiary incurs or otherwise becomes liable with respect to any such additional Debt and immediately after giving effect thereto and to the concurrent retirement of any other Debt, (i) no Default or Event of Default exists, and (ii) the total amount of all outstanding Debt of Restricted Subsidiaries incurred pursuant to this paragraph (b) does not exceed 15% of Consolidated Capitalization determined at such time. For purposes of this Section 10.5, any Person becoming a Restricted Subsidiary after the date hereof shall be deemed, on the first to occur of the March 31, June 30, September 30 or December 31 next succeeding the date on which it becomes a Restricted Subsidiary, to have incurred all of its then outstanding Debt, and any Restricted Subsidiary extending, renewing or refunding any Debt shall be deemed to have incurred such Debt at the time of such extension, renewal or refunding. Section 10.6. Liens. The Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly create, incur, assume or permit to exist (upon the happening of a contingency or otherwise) any Lien on or with respect to any property or asset (including, without limitation, any document or instrument in respect of goods or accounts receivable) of the Company or any such Subsidiary, whether now owned or held or hereafter acquired, or any income or profits therefrom, or assign or otherwise convey any right to receive income or profits, except: 81 27 (a) Liens for taxes, assessments or other governmental charges which are not yet due and Payable or the payment of which is not at the time required by Section 9.4; (b) Statutory Liens of landlords and Liens of carriers, warehousemen, mechanics, materialmen and other similar Liens, in each case, incurred in the ordinary course of business for sums not yet due and payable or the payment of which is not at the time required by Section 9.4; (c) Liens (other than any Lien imposed by ERISA) incurred or deposits made in the ordinary course of business (i) in connection with workers' compensation, unemployment insurance and other types of social security or retirement benefits, or (ii) to secure (or to obtain letters of credit that secure) the performance of tenders, statutory obligations, surety bonds, appeal bonds, bids, leases (other than Capital Leases), performance bonds, purchase, construction or sales contracts and other similar obligations, in each case not incurred or made in connection with the borrowing of money, the obtaining of advances or credit or the payment of the deferred purchase price of property; d) Any attachment or judgment Lien, unless the judgment it secures shall not, within 30 days after the entry thereof, have been discharged or execution thereof stayed pending appeal, or shall not have been discharged within 30 days after the expiration of any such stay; (e) Leases or subleases granted to others, easements, rights-of-way, restrictions and other similar charges or encumbrances, in each case incidental to, and not interfering with, the ordinary conduct of the business of the Company or any of its Restricted Subsidiaries, provided that such Liens do not, in the aggregate, materially detract from the value of such property; (f) Liens on Property or assets of the Company or any of its Restricted Subsidiaries securing Debt owing to the Company or to any of its Wholly-Owned Restricted Subsidiaries; (g) Liens existing on the date of this Agreement and securing the Debt of the Company and its Restricted Subsidiaries referred to in items (b) and (c) of Schedule 5.15 and items (a)(l), (a)(2), (a)(3), (a)(5), (b)(l), (b)(2), (b)(3), (b)(4), (b)(5) and (b)(6) of the Supplement to said Schedule 5.15; (h) Any Lien created to secure all or any part of the purchase price, or to secure Debt incurred or assumed to pay all or any part of the purchase price or cost of construction, of property (or any improvement hereon) acquired or constructed by the Company or a Restricted Subsidiary after the date of the Closing, provided that (i) any such Lien shall extend solely to the item or items of such property (or 82 28 improvement thereon) so acquired or constructed and, if required by the terms of the instrument originally creating such Lien, other property (or improvement thereon) which is an improvement to or is acquired for specific use in connection with such acquired or constructed property (or improvement thereon) or which is real property being improved by such acquired or constructed property (or improvement thereon), (ii) the principal amount of the Debt secured by any such Lien shall at no time exceed an amount equal to 100% of the lesser of (A) the cost to the Company or such Subsidiary of the property (or improvement thereon) so acquired or constructed and (B) the Fair Market Value (as determined in good faith by the board of directors of the Company) of such property (or improvement thereon) at the time of such acquisition or construction, and (iii) any such Lien shall be created contemporaneously with, or within 30 days after, the acquisition or construction of such property. (i) Liens created in connection with industrial revenue bonds related to the Sedalia, Missouri facility and Liens created in connection with the Illinois Large Business Development Program; and (j) Other Liens (in addition to those permitted by paragraphs (a) through (i) of this Section 10.6) provided that (i) the aggregate amount of all outstanding Debt secured by Liens pursuant to this paragraph (j) shall not at any time exceed 10% of Consolidated Capitalization, and (ii) after giving effect to such other Liens, no Event of Default shall have occurred and be continuing and the Company shall have the capacity to incur at least $1 of additional Debt pursuant to the provisions of Section 10.4. Section 10.7. Investments. The Company will not, and will not permit any Restricted Subsidiary to, make any Investments, other than: (a) Investments by the Company and its Restricted Subsidiaries in and to Restricted Subsidiaries, including any Investment in a corporation which, after giving effect to such Investment, will become a Restricted Subsidiary; (b) Investments in commercial paper maturing in 270 days or less from the date of issuance which, at the time of acquisition by the Company or any Restricted Subsidiary, is accorded the highest rating by Standard & Poor's Rating Group, a division of McGraw-Hill, Inc. or Moody's Investors Service, Inc.; (c) Investments in direct or indirect obligations of the United States of America or any agency or instrumentality of the United States of America, the payment or guarantee of which constitutes a full faith and credit obligation of the United States of America, in either case, maturing in twelve months or less from the date of acquisition thereof; 83 29 (d) Investments in certificates of deposit maturing within one year from the date of acquisition thereof, issued by a bank or trust company organized under the laws of the United States or any state thereof, having capital, surplus and undivided profits aggregating at least $50,000,000; (e) Receivables arising from the sale of goods and services in the ordinary course of business of the Company and its Restricted Subsidiaries; and (f) Other Investments (in addition to those Permitted by Paragraphs (a) through (e) of this Section 10.7), provided that (i) the aggregate amount of all Investments outstanding pursuant to the provision of this paragraph (f) shall not at any time exceed 10% of Consolidated Capitalization, and (ii) after giving effect to such other Investments, no Event of Default shall have occurred and be continuing. In valuing any Investments for the purpose of applying the limitations set forth in this Section 10.7, such Investments shall be taken at the lesser of the original cost thereof or the book value thereof, without allowance for any subsequent appreciation therein, but less any amount repaid or recovered on account of capital or principal. For purposes of this Section 10.7, at any time when a corporation becomes a Restricted Subsidiary, all Investments of such corporation at such time shall be deemed to have been made by such corporation, as a Restricted Subsidiary, at such time. Section 10.8. Sale of Assets, etc. Except as permitted under Section 10.2, the Company will not, and will not permit any of its Restricted Subsidiaries to, make any Asset Disposition unless: (a) in the good faith opinion of the Company, the Asset Disposition is in exchange for consideration having a Fair Market Value at least equal to that of the property exchanged and is in the best interest of the Company or such Restricted Subsidiary; and (b) immediately after giving effect to the Asset Disposition, no Default or Event of Default would exist and the Company would have the capacity to incur at least $1 of additional Debt pursuant to the provisions of Section 10.4; and (c) immediately after giving effect to the Asset Disposition, the Disposition Value of all property that was the subject of any Asset Disposition occurring in the then fiscal year of the Company would not exceed 15% of Consolidated Assets as of the end of the then most recently ended fiscal quarter of the Company. SECTION 11. EVENTS OF DEFAULT. An "Event of Default" shall exist if any of the following conditions or events shall occur and be continuing: 84 30 (a) the Company defaults in the payment of any principal or Make-Whole Amount, if any, on any Note when the same becomes due and payable, whether at maturity or at a date fixed for prepayment or by declaration or otherwise; or (b) the Company defaults in the payment of any interest on any Note for more than five Business Days after the same becomes due and payable; or (c) the Company defaults in the performance of or compliance with any term contained in Section 10.2 through Section 10.8 for more than 10 Business Days after the earlier of (i) a Responsible Officer obtaining actual knowledge of such default and (ii) the Company receiving written notice of such default from any holder of a Note (any such written notice to be identified as a "notice of default" and to refer specifically to this paragraph (c) of Section 11); or (d) the Company defaults in the performance of or compliance with any term contained herein (other than those referred to in paragraphs (a), (b) and (c) of this Section 11) and such default is not remedied within 30 days after the earlier of (i) a Responsible Officer obtaining actual knowledge of such default and (ii) the Company receiving written notice of such default from any holder of a Note (any such written notice to be identified as a "notice of default" and to refer specifically to this paragraph (d) of Section 11); or (e) any representation or warranty made in writing by or on behalf of the Company or by any officer of the Company in this Agreement or in any writing furnished in connection with the transactions contemplated hereby proves to have been false or incorrect in any material respect on the date as of which made; or (f) (i) the Company or any Subsidiary is in default (as Principal or as guarantor or other surety) in the payment of any principal of or premium or make-whole amount or interest on any Indebtedness that is outstanding in an aggregate principal amount of at least $1,000,000 beyond any period of grace provided with respect thereto, or (ii) the Company or any Subsidiary is in default in the performance of or compliance with any term of any evidence of any Indebtedness in an aggregate outstanding principal amount of at least $ 1,000,000 or of any mortgage, indenture or other agreement relating thereto or any other condition exists, and as a consequence of such default or condition such Indebtedness has become, or has been declared, due and payable before its stated maturity or before its regularly scheduled dates of payment, or (iii) as a consequence of the occurrence or continuation of any event or condition (other than the passage of time or the right of the holder of Indebtedness to convert such Indebtedness into equity interests or the uncoerced exercise by the Company of an option to prepay such Indebtedness), (x) the Company or any Subsidiary has become obligated to purchase or repay Indebtedness before its regular maturity or before its regularly scheduled dates of payment in an aggregate outstanding principal amount of at least $1,000,000, or (y) one or more Persons have the right to require the Company or any Subsidiary so to purchase or repay such Indebtedness; or 85 31 (g) the Company or any Subsidiary (i) is generally not paying, or admits in writing its inability to pay, its debts as they become due, (ii) files, or consents by answer or otherwise to the filing against it of, a petition for relief or reorganization or arrangement or any other petition in bankruptcy, for liquidation or to take advantage of any bankruptcy, insolvency, reorganization, moratorium or other similar law of any jurisdiction, (iii) makes an assignment for the benefit of its creditors, (iv) consents to the appointment of a custodian, receiver, trustee or other officer with similar powers with respect to it or with respect to any substantial part of its property, (v) is adjudicated as insolvent or to be liquidated, or (vi) takes corporate action for the purpose of any of the foregoing; or (h) a court or governmental authority of competent jurisdiction enters an order appointing, without consent by the Company or any of its Subsidiaries, a custodian, receiver, trustee or other officer with similar powers with respect to it or with respect to any substantial part of its property, or constituting an order for relief or approving a petition for relief or reorganization or any other petition in bankruptcy or for liquidation or to take advantage of any bankruptcy or insolvency law of any jurisdiction, or ordering the dissolution, winding-up or liquidation of the Company or any of its Subsidiaries, or any such petition shall be filed against the Company or any of its Subsidiaries and such petition shall not be dismissed or stayed within 60 days; or (i) a final judgment or judgments for the payment of money aggregating in excess of $1,000,000 are rendered against one or more of the Company and its Subsidiaries and which judgments are not, within 60 days after entry thereof, bonded, discharged or stayed pending appeal, or are not discharged within 60 days after the expiration of such stay; or (j) if (i) any Plan shall fail to satisfy the minimum funding standards of ERISA or the Code for any plan year or part thereof or a waiver of such standards or extension of any amortization period is sought or granted under section 412 of the Code, (ii) a notice of intent to terminate any Plan shall have been or is reasonably expected to be filed with the PBGC or the PBGC shall have instituted proceedings under ERISA section 4042 to terminate or appoint a trustee to administer any Plan or the PBGC shall have notified the Company or any ERISA Affiliate that a Plan may become a subject of any such proceedings, (iii) the aggregate "amount of unfunded benefit liabilities" (within the meaning of section 4001(a)(18) of ERISA) under all Plans, determined in accordance with Title IV of ERISA, shall exceed $6,000,000, (iv) the Company or any ERISA Affiliate shall have incurred or is reasonably expected to incur any liability pursuant to Title I or IV of ERISA or the penalty or excise tax provisions of the Code relating to employee benefit plans, (v) the Company or any ERISA Affiliate withdraws from any Multiemployer Plan, or (vi) the Company or any Subsidiary establishes or amends any employee welfare benefit plan that provides post-employment welfare benefits in a manner that would increase the liability of the Company or any Subsidiary thereunder; and any such event or events described in clauses (i) through (vi) above, either 86 32 individually or together with any other such event or events, could reasonably be expected to have a Material Adverse Effect. As used in Section 11(j), the terms "employee benefit plan" and "employee welfare benefit plan" shall have the respective meanings assigned to such terms in Section 3 of ERISA. SECTION 12. REMEDIES ON DEFAULT, ETC. Section 12.1. Acceleration. (a) If an Event of Default with respect to the Company described in paragraph (g) or (h) of Section 11 (other than an Event of Default described in clause (i) of paragraph (g) or described in clause (vi) of paragraph (g) by virtue of the fact that such clause encompasses clause (i) of paragraph (g)) has occurred, all the Notes then outstanding shall automatically become immediately due and payable. (b) If any other Event of Default has occurred and is continuing, any holder or holders of more than 50% in principal amount of the Notes at the time outstanding may at any time at its or their option, by notice or notices to the Company, declare all the Notes then outstanding to be immediately due and payable. (c) If any Event of Default described in paragraph (a) or (b) of Section 11 has occurred and is continuing, any holder or holders of Notes at the time outstanding affected by such Event of Default may at any time, at its or their option, by notice or notices to the Company, declare all the Notes held by it or them to be immediately due and payable. Upon any Notes becoming due and payable under this Section 12.1, whether automatically or by declaration, such Notes will forthwith mature and the entire unpaid principal amount of such Notes, plus (x) all accrued and unpaid interest thereon and (y) the Make-Whole Amount determined in respect of such principal amount (to the full extent permitted by applicable law), shall all be immediately due and payable, in each and every case without presentment, demand, protest or further notice, all of which are hereby waived. The Company acknowledges, and the parties hereto agree, that each holder of a Note has the right to maintain its investment in the Notes free from repayment by the Company (except as herein specifically provided for) and that the provision for payment of a Make-Whole Amount by the Company in the event that the Notes are prepaid or are accelerated as a result of an Event of Default, is intended to provide compensation for the deprivation of such right under such circumstances. Section 12.2 Other Remedies. If any Default or Event of Default has occurred and is continuing, and irrespective of whether any Notes have become or have been declared immediately due and payable under Section 12.1, the holder of any Note at the time outstanding may proceed to protect and enforce the rights of such holder by an action at law, suit in equity or other appropriate proceeding, whether for the specific performance of any agreement contained herein or in any Note, or for an injunction against a violation of any of the terms hereof or thereof, or in aid of the exercise of any power granted hereby or thereby or by law or otherwise. 87 33 Section 12.3. Rescission. At any time after any Notes have been declared due and payable pursuant to clause (b) or (c) of Section 12.1, the holders of more than 50% in Principal amount of the Notes then outstanding, by written notice to the Company, may rescind and annul any such declaration and its consequences if (a) the Company has paid all overdue interest on the Notes, all principal of and Make-Whole Amount, if any, on any Notes that are due and payable and are unpaid other than by reason of such declaration, and all interest on such overdue principal and Make-Whole Amount, if any, and (to the extent permitted by applicable law) any overdue interest in respect of the Notes, at the Default Rate, (b) all Events of Default and Defaults, other than non-payment of amounts that have become due solely by reason of such declaration, have been cured or have been waived pursuant to Section 17, and (c) no judgment or decree has been entered for the payment of any monies due pursuant hereto or to the Notes. No rescission and annulment under this Section 12.3 will extend to or affect any subsequent Event of Default or Default or impair any right consequent thereon. Section 12.4. No Waivers or Election of Remedies, Expenses, etc. No course of dealing and no delay on the part of any holder of any Note in exercising any right, power or remedy shall operate as a waiver thereof or otherwise prejudice such holder's rights, powers or remedies. No right, power or remedy conferred by this Agreement or by any Note upon any holder thereof shall be exclusive of any other right, power or remedy referred to herein or therein or now or hereafter available at law, in equity, by statute or otherwise. Without limiting the obligations of the Company under Section 15, the Company will pay to the holder of each Note on demand such further amount as shall be sufficient to cover all costs and expenses of such holder incurred in any enforcement or collection under this Section 12, including, without limitation, reasonable attorneys' fees, expenses and disbursements. SECTION 13. REGISTRATION; EXCHANGE; SUBSTITUTION OF NOTES Section 13.1 Registration of Notes. The Company shall keep at its principal executive office a register for the registration and registration of transfers of Notes. The name and address of each holder of one or more Notes, each transfer thereof and the name and address of each transferee of one or more Notes shall be registered in such register. Prior to due presentment for registration of transfer, the Person in whose name any Note shall be registered shall be deemed and treated as the owner and holder thereof for all purposes hereof, and the Company shall not be affected by any notice or knowledge to the contrary. The Company shall give to any holder of a Note that is an Institutional Investor promptly upon request therefor, a complete and correct copy of the names and addresses of all registered holders of Notes. Section 13.2. Transfer and Exchange of Notes. Upon surrender of any Note at the principal executive office of the Company for registration of transfer or exchange (and in the case of a surrender for registration of transfer, duly endorsed or accompanied by a written instrument of transfer duly executed by the registered holder of such Note or his attorney duly authorized in writing and accompanied by the address for notices of each transferee of such Note or part thereof), the Company shall execute and deliver, at the Company's expense (except as provided below), one or more new Notes (as requested by the holder thereof) in exchange 88 34 therefor, in an aggregate principal amount equal to the unpaid principal amount of the surrendered Note. Each such new Note shall be payable to such Person as such holder may request and shall be substantially in the form of Exhibit I. Each such new Note shall be dated and bear interest from the date to which interest shall have been paid on the surrendered Note or dated the date of the surrendered Note if no interest shall have been paid thereon. The Company may require payment of a sum sufficient to cover any stamp tax or governmental charge imposed in respect of any such transfer of Notes. Notes shall not be transferred in denominations of less than $100,000, provided that if necessary to enable the registration of transfer by a holder of its entire holding of Notes, one Note may be in a denomination of less than $100,000. Any transferee, by its acceptance of a Note registered in its name (or the name of its nominee), shall be deemed to have made the representations set forth in Sections 6.1 and 6.2. Section 13.3. Replacement of Notes. Upon receipt by the Company of evidence reasonably satisfactory to it of the ownership of and the loss, theft, destruction or mutilation of any Note (which evidence shall be, in the case of an Institutional Investor, notice from such Institutional Investor of such ownership and such loss, theft, destruction or mutilation), and (a) in the case of loss, theft or destruction, of indemnity reasonably satisfactory to it (provided that if the holder of such Note is, or is a nominee for, the original Purchaser or another holder of a Note with a minimum net worth of at least $10,000,000, such Person's own unsecured agreement of indemnity shall be deemed to be satisfactory), or (b) in the case of mutilation, upon surrender and cancellation thereof, the Company at its own expense shall execute and deliver, in lieu thereof, a new Note, dated and bearing interest from the date to which interest shall have been paid on such lost, stolen, destroyed or mutilated Note or dated the date of such lost, stolen, destroyed or mutilated Note if no interest shall have been paid thereon. SECTION 14. PAYMENTS ON NOTES. Section 14.1. Place of Payment. Subject to Section 14.2, payments of principal, Make-Whole Amount, if any, and interest becoming due and payable on the Notes shall be made in Quincy, Illinois at the principal office of the Company in such jurisdiction. The Company may at any time, by notice to each holder of a Note, change the place of payment of the Notes so long as such place of payment shall be either the principal office of the Company in such jurisdiction or the principal office of a bank or trust company in such jurisdiction. Section 14.2. Home Office Payment. So long as you or your nominee shall be the holder of any Note, and notwithstanding anything contained in Section 14.1 or in such Note to the contrary, the Company will pay all sums becoming due on such Note for principal, Make-Whole Amount, if any, and interest by the method and at the address specified for such purpose below your name in Schedule A, or by such other method or at such other address as 89 35 you shall have from time to time specified to the Company in writing for such purpose, without the presentation or surrender of such Note or the making of any notation thereon, except that upon written request of the Company made concurrently with or reasonably promptly after payment or prepayment in full of any Note, you shall surrender such Note for cancellation, reasonably promptly after any such request, to the Company at its principal executive office or at the place of payment most recently designated by the Company pursuant to Section 14.1. Prior to any sale or other disposition of any Note held by you or your nominee you will, at your election, either endorse thereon the amount of principal paid thereon and the last date to which interest has been paid thereon or surrender such Note to the Company in exchange for a new Note or Notes pursuant to Section 13.2. The Company will afford the benefits of this Section 14.2 to any Institutional Investor that is the direct or indirect transferee of any Note purchased by you under this Agreement and that has made the same agreement relating to such Note as you have made in this Section 14.2. SECTION 15. EXPENSES, ETC. Section 15.1. Transaction Expenses. Whether or not the transactions contemplated hereby are consummated, the Company will pay all costs and expenses (including reasonable attorneys' fees of a special counsel and, if reasonably required, local or other counsel) incurred by you and each other holder of a Note in connection with such transactions and in connection with any amendments, waivers or consents under or in respect of this Agreement or the Notes (whether or not such amendment, waiver or consent becomes effective), including, without limitation: (a) the costs and expenses incurred in enforcing or defending (or determining whether or how to enforce or defend) any rights under this Agreement or the Notes or in responding to any subpoena or other legal process or informal investigative demand issued in connection with this Agreement or the Notes, or by reason of being a holder of any Note, and (b) the costs and expenses, including financial advisors' fees, incurred in connection with the insolvency or bankruptcy of the Company or any Subsidiary or in connection with any work-out or restructuring of the transactions contemplated hereby and by the Notes. The Company will pay, and will save you and each other holder of a Note harmless from, all claims in respect of any fees, costs or expenses if any, of brokers and finders (other than those retained by you). Section 15.2. Survival. The obligations of the Company under this Section 15 will survive the payment or transfer of any Note, the enforcement, amendment or waiver of any provision of this Agreement or the Notes, and the termination of this Agreement. SECTION 16. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ENTIRE AGREEMENT. All representations and warranties contained herein shall survive the execution and delivery of this Agreement and the Notes, the purchase or transfer by you of any Note or portion thereof or interest therein and the payment of any Note, and may be relied upon by any subsequent holder of a Note, regardless of any investigation made at any time by or on behalf of you or any other holder of a Note. All statements contained in any certificate or other 90 36 instrument delivered by or on behalf of the Company pursuant to this Agreement shall be deemed representations and warranties of the Company under this Agreement. Subject to the preceding sentence, this Agreement and the Notes embody the entire agreement and understanding between you and the Company and supersede all prior agreements and understandings relating to the subject matter hereof. SECTION 17. AMENDMENT AND WAIVER. Section 17.1. Requirements. This Agreement and the Notes may be amended, and the observance of any term hereof or of the Notes may be waived (either retroactively or prospectively), with (and only with) the written consent of the Company and the Required Holders, except that (a) no amendment or waiver of any of the provisions of Section 1, 2, 3, 4, 5, 6 or 21 hereof, or any defined term (as it is used therein), will be effective as to you unless consented to by you in writing, and (b) no such amendment or waiver may, without the written consent of the holder of each Note at the time outstanding affected thereby, (i) subject to the provisions of Section 12 relating to acceleration or rescission, change the amount or time of any prepayment or payment of principal of, or reduce the rate or change the time of payment or method of computation of interest or of the Make-Whole Amount on, the Notes, (ii) change the percentage of the principal amount of the Notes the holders of which are required to consent to any such amendment or waiver, or (iii) amend any of Sections 8, ll(a), ll(b), 12, 17 or 20. Section 17.2. Solicitation of Holders of Notes. (a) Solicitation. The Company will provide each holder of the Notes (irrespective of the amount of Notes then owned by it) with sufficient information, sufficiently far in advance of the date a decision is required, to enable such holder to make an informed and considered decision with respect to any proposed amendment, waiver or consent in respect of any of the provisions hereof or of the Notes. The Company will deliver executed or true and correct copies of each amendment, waiver or consent effected pursuant to the provisions of this Section 17 to each holder of outstanding Notes promptly following the date on which it is executed and delivered by, or receives the consent or approval of, the requisite holders of Notes. (b) Payment. The Company will not directly or indirectly pay or cause to be paid any remuneration, whether by way of supplemental or additional interest, fee or otherwise, or grant any security, to any holder of Notes as consideration for or as an inducement to the entering into by any holder of Notes or any waiver or amendment of any of the terms and provisions hereof unless such remuneration is concurrently paid, or security is concurrently granted, on the same terms, ratably to each holder of Notes then outstanding even if such holder did not consent to such waiver or amendment. Section 17.3. Binding, Effect, etc. Any amendment or waiver consented to as provided in this Section 17 applies equally to all holders of Notes and is binding upon them and upon each future holder of any Note and upon the Company without regard to whether such Note has 91 37 been marked to indicate such amendment or waiver. No such amendment or waiver will extend to or affect any obligation, covenant, agreement, Default or Event of Default not expressly amended or waived or impair any right consequent thereon. No course of dealing between the Company and the holder of any Note nor any delay in exercising any rights hereunder or under any Note shall operate as a waiver of any rights of any holder of such Note. As used herein, the term "this Agreement" and references thereto shall mean this Agreement as it may from time to time be amended or supplemented. Section 17.4. Notes held by Company, etc. Solely for the purpose of determining whether the holders of the requisite percentage of the aggregate principal amount of Notes then outstanding approved or consented to any amendment, waiver or consent to be given under this Agreement or the Notes, or have directed the taking of any action provided herein or in the Notes to be taken upon the direction of the holders of a specified percentage of the aggregate principal amount of Notes then outstanding, Notes directly or indirectly owned by the Company or any of its Affiliates shall be deemed not to be outstanding. SECTION 18. Notices. All notices and communications provided for hereunder shall be in writing and sent (a) by telecopy if the sender on the same day sends a confirming copy of such notice by a recognized overnight delivery service (charges prepaid), or (b) by registered or certified mail with return receipt requested (postage prepaid), or (c) by a recognized overnight delivery service (with charges prepaid). Any such notice must be sent: (i) if to you or your nominee, to you or it at the address specified for such communications in Schedule A, or at such other address as you or it shall have specified to the Company in writing, (ii) if to any other holder of any Note, to such holder at such address as such other holder shall have specified to the Company in writing, or (iii) if to the Company, to the Company at its address set forth at the beginning hereof to the attention of the Treasurer, or at such other address as the Company shall have specified to the holder of each Note in writing. Notices under this Section 18 will be deemed given only when actually received. SECTION 19. REPRODUCTION OF DOCUMENTS. This Agreement and all documents relating thereto, including, without limitation, (a) consents, waivers and modifications that may hereafter be executed, (b) documents received by you at the Closing (except the Notes themselves), and (c) financial statements, certificates and other information previously or hereafter furnished to you, may be reproduced by you by any photographic, photostatic, microfilm, microcard, miniature photographic or other similar 92 38 process and you may destroy any original document so reproduced. The Company agrees and stipulates that, to the extent permitted by applicable law, any such reproduction shall be admissible in evidence as the original itself in any judicial or administrative proceeding (whether or not the original is in existence and whether or not such reproduction was made by you in the regular course of business) and any enlargement, facsimile or further reproduction of such reproduction shall likewise be admissible in evidence. This Section 19 shall not prohibit the Company or any other holder of Notes from contesting any such reproduction to the same extent that it could contest the original, or from introducing evidence to demonstrate the inaccuracy of any such reproduction. SECTION 20. CONFIDENTIAL INFORMATION. For the purposes of this Section 20, "Confidential Information" means information delivered to you by or on behalf of the Company or any Subsidiary in connection with the transactions contemplated by or otherwise pursuant to this Agreement that is proprietary in nature and that was clearly marked or labeled or otherwise adequately identified when received by you as being confidential information of the Company or such Subsidiary, provided that such term does not include information that (a) was publicly known or otherwise known to you prior to the time of such disclosure, (b) subsequently becomes publicly known through no act or omission by you or any person acting on your behalf, (c) otherwise becomes known to you other than through disclosure by the Company or any Subsidiary or (d) constitutes financial statements delivered to you under Section 7.1 that are otherwise publicly available. You will maintain the confidentiality of such Confidential Information in accordance with procedures adopted by you in good faith to protect confidential information of third parties delivered to you, provided that you may deliver or disclose Confidential Information to (i) your directors, officers, employees, agents, attorneys and affiliates (to the extent such disclosure reasonably relates to the administration of the investment represented by your Notes), (ii) your financial advisors and other professional advisors who agree to hold confidential the Confidential Information substantially in accordance with the terms of this Section 20, (iii) any other holder of any Note, (iv) any Institutional Investor to which you sell or offer to sell such Note or any part thereof or any participation therein (if such Person has agreed in writing prior to its receipt of such Confidential Information to be bound by the provisions of this Section 20), (v) any Person from which you offer to purchase any security of the Company (if such Person has agreed in writing prior to its receipt of such Confidential Information to be bound by the provisions of this Section 20), (vi) any federal or state regulatory authority having jurisdiction over you, (vii) the National Association of Insurance Commissioners or any similar organization, or any nationally recognized rating agency that requires access to information about your investment portfolio or (viii) any other Person to which such delivery or disclosure may be necessary or appropriate (w) to effect compliance with any law, rule, regulation or order applicable to you, (x) in response to any subpoena or other legal process, (y) in connection with any litigation to which you are a party or (z) if an Event of Default has occurred and is continuing, to the extent you may reasonably determine such delivery and disclosure to be necessary or appropriate in the enforcement or for the protection of the rights and remedies under your Notes and this Agreement. Each holder of a Note, by its acceptance of a Note, will 93 39 be deemed to have agreed to be bound by and to be entitled to the benefits of this Section 20 as though it were a party to this Agreement. On reasonable request by the Company in connection with the delivery to any holder of a Note of information required to be delivered to such holder under this Agreement or requested by such holder (other than a holder that is a party to this Agreement or its nominee), such holder will enter into an agreement with the Company embodying the provisions of this Section 20. SECTION 21. SUBSTITUTION OF PURCHASER. You shall have the right to substitute any one of your Affiliates as the purchaser of the Notes that you have agreed to purchase hereunder, by written notice to the Company, which notice shall be signed by both you and such Affiliate, shall contain such Affiliate's agreement to be bound by this Agreement and shall contain a confirmation by such Affiliate of the accuracy with respect to it of the representations set forth in Section 6. Upon receipt of such notice, wherever the word "you" is used in this Agreement (other than in this Section 21), such word shall be deemed to refer to such Affiliate in lieu of you. In the event that such Affiliate is so substituted as a purchaser hereunder and such Affiliate thereafter transfers to you all of the Notes then held by such Affiliate, upon receipt by the Company of notice of such transfer, wherever the word "you" is used in this Agreement (other than in this Section 21), such word shall no longer be deemed to refer to such Affiliate, but shall refer to you, and you shall have all the rights of an original holder of the Notes under this Agreement. SECTION 22. MISCELLANEOUS. Section 22.1. Successors and Assigns. All covenants and other agreements contained in this Agreement by or on behalf of any of the parties hereto bind and inure to the benefit of their respective successors and assigns (including, without limitation, any subsequent holder of a Note) whether so expressed or not. Section 22.2. Payments Due on Non-Business Days. Anything in this Agreement or the Notes to the contrary notwithstanding, any payment of principal of or Make-Whole Amount or interest on any Note that is due on a date other than a Business Day shall be made on the next succeeding Business Day without including the additional days elapsed in the computation of the interest payable on such next succeeding Business Day. Section 22.3. Severability. Any provision of this Agreement that is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall (to the full extent permitted by law) not invalidate or render unenforceable such provision in any other jurisdiction. Section 22.4 Construction. Each covenant contained herein shall be construed (absent express provision to the contrary) as being independent of each other covenant contained herein, so that compliance with any one covenant shall not (absent such an express contrary 94 40 provision) be deemed to excuse compliance with any other covenant. Where any provision herein refers to action to be taken by any Person, or which such Person is prohibited from taking, such provision shall be applicable whether such action is taken directly or indirectly by such Person. Section 22.5. Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be an original but all of which together shall constitute one instrument. Each counterpart may consist of a number of copies hereof, each signed by less than all, but together signed by all, of the parties hereto. Section 22.6 Governing Law. This Agreement shall be construed and enforced in accordance with, and the rights of the parties shall be governed by, the law of the State of Illinois excluding choice-of-law principles of the law of such State that would require the application of the laws of a jurisdiction other than such State. * * * * * 95 41 If you are in agreement with the foregoing, please sign the form of agreement on the accompanying counterpart of this Agreement and return it to the Company, whereupon the foregoing shall become a binding agreement between you and the Company. Very truly yours, GARDNER DENVER MACHINERY INC. By ---------------------------------------- Its President and Chief Executive Officer The foregoing is hereby agreed to as of the date thereof. METROPOLITAN LIFE INSURANCE COMPANY By ---------------------------------- Its 96 42 INFORMATION RELATING TO PURCHASER METROPOLITAN LIFE INSURANCE COMPANY Fixed Income Investments - Private Placement Unit 334 Madison Avenue Convent Station, New Jersey 07961 Attention: Vice President Telecopier Number: (201) 254-3050 Payments All payments on or in respect of the Notes to be by bank wire transfer of Federal or other immediately available funds (identifying each payment as "Gardner Denver Machinery Inc., 7.32% Senior Notes due September 26, 2006, PPN 365558 A*6, principal or interest") to: The Chase Manhattan Bank, N.A. (ABA #021000021) Metropolitan Branch 33 East 23rd Street New York, New York 10010 for credit to: Metropolitan Life Insurance Company-Corporate Investments Account Number 002-2-410591 Notices All notices and communications, including notices with respect to payments and written confirmation of each such payment, to be addressed as first provided above. Name of Nominee in which Notes are to be issued: None Taxpayer I.D. Number: 13-5581829 SCHEDULE A (to Note Purchase Agreement) 97 43 DEFINED TERMS As used herein, the following terms have the respective meanings set forth below or set forth in the Section hereof following such term: "Affiliate" means, at any time, and with respect to any Person, (a) any other Person that at such time directly or indirectly through one or more intermediaries Controls, or is Controlled by, or is under common Control with, such first Person, and (b) any Person beneficially owning or holding, directly or indirectly, 10% or more of any class of voting or equity interests of the Company or any Subsidiary or any corporation of which the Company and its Subsidiaries beneficially own or hold, in the aggregate, directly or indirectly, 10% or more of any class of voting or equity interests. As used in this definition, "Control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise. Unless the context otherwise clearly requires, any reference, to an "Affiliate" is a reference to an Affiliate of the Company. "Asset Disposition" means any Transfer except: (a) any (i) Transfer from a Restricted Subsidiary to the Company or to a Wholly-Owned Restricted Subsidiary; (ii) Transfer from the Company to a Wholly-Owned Restricted Subsidiary; so long as immediately before and immediately after the consummation of any such Transfer and after giving effect thereto, no Default or Event of Default exists; and (b) any Transfer made in the ordinary course of business and involving only property that is either (i) inventory held for sale or (ii) equipment, fixtures, supplies or materials no longer required in the operation of the business of the Company or any of its Restricted Subsidiaries or that is obsolete. "Business Day" means (a) for the purposes of Section 8.6 only, any day other than a Saturday, a Sunday or a day on which commercial banks in New York, New York are required or authorized to be closed, and (b) for the purposes of any other provision of this Agreement, any day other than a Saturday, a Sunday or a day on which commercial banks in Chicago, Illinois or New York, New York are required or authorized to be closed. SCHEDULE B (to Note Purchase Agreement) 98 44 "Capital Lease" means, at any time, a lease with respect to which the lessee is required concurrently to recognize the acquisition of an asset and the incurrence of a liability in accordance with GAAP. "Capitalized Rentals" means, as of the date of any determination, the amount at which the aggregate Rentals due and to become due under all Capital Leases under which the Company or any Restricted Subsidiary is a lessee would be reflected as a liability on a consolidated balance sheet of the Company and its Restricted Subsidiaries prepared in accordance with GAAP. "Closing" is defined in Section 3. "Code" means the Internal Revenue Code of 1986, as amended from time to time, and the rules and regulations promulgated thereunder from time to time. "Company" means Gardner Denver Machinery Inc., a Delaware corporation. "Confidential Information" is defined in Section 20. "Consolidated Assets" means, at any time, the total assets of the Company and its Restricted Subsidiaries which would be shown as assets on a consolidated balance sheet of the Company and its Restricted Subsidiaries as of such time prepared in accordance with GAAP, after eliminating all amounts properly attributable to minority interests, if any, in the stock and surplus of Subsidiaries. "Consolidated Capitalization" means, at any time, the sum of Consolidated Total Debt and Consolidated Net Worth. "Consolidated Net Income" means, for any period for which the amount thereof is to be determined, the net income and net losses of the Company and its Restricted Subsidiaries for such period determined on a consolidated basis in accordance with GAAP, but excluding therefrom the sum of any nonrecurring or extraordinary items. "Consolidated Net Worth" means the stockholders equity of the Company and its Restricted Subsidiaries determined in accordance with GAAP. "Consolidated Total Debt" means, as of any date of determination, the total of all Debt of the Company and its Restricted Subsidiaries outstanding on such date, after eliminating all offsetting debits and credits between the Company and its Restricted Subsidiaries and all other items required to be eliminated in the course of the preparation of consolidated financial statements of the Company and its Restricted Subsidiaries in accordance with GAAP. "Debt" means, with respect to any Person, without duplication, 99 45 (a) its liabilities for borrowed money; (b) its liabilities for the deferred purchase price of property acquired by such Person (excluding accounts payable arising in the ordinary course of business but including, without limitation, all liabilities created or arising under any conditional sale or other title retention agreement with respect to any such property); (c) its liabilities for Capitalized Rentals; (d) all liabilities for borrowed money secured by any Lien with respect to any property owned by such Person (whether or not it has assumed or otherwise become liable for such liabilities); and (e) any Guaranty of such Person with respect to liabilities of a type described in any clauses (a) through (d) hereof. Debt of any Person shall include all obligations of such Person of the character described in clauses (a) through (e) to the extent such Person remains legally liable in respect thereof notwithstanding that any such obligation is deemed to be extinguished under GAAP. "Default" means an event or condition the occurrence or existence of which would, with the lapse of time or the giving of notice or both, become an Event of Default. "Default Rate" means that rate of interest that is the greater of (i) 9.32% or (ii) l% over the rate of interest publicly announced by The Chase Manhattan Bank in New York, over the rate of interest publicly announced by New York as its "base" or "prime" rate. "Disposition Value" means, at any time, with respect to any property. (a) In the case of property that does not constitute Subsidiary Stock, the book value thereof, determined at the time of such disposition in good faith by the Company and (b) in the case of property that does not constitute Subsidiary Stock, an amount equal to that percentage of book value of the assets of the Subsidiary that issued such stock as is equal to the percentage that the book value of such Subsidiary Stock represents of the book value of all of the outstanding capital stock of such Subsidiary (assuming, in making such calculations, that all Securities convertible into such capital stock are so converted and giving full effect to all transactions that would occur or be required in connection with such conversion) determined at the time of the disposition thereof, in good faith by the Company. "Environmental Laws" means any and all Federal, state, local, and foreign statutes, laws, regulations, ordinances, rules, judgments, orders, decrees, permits, concessions, grants, franchises, licenses, agreements or governmental restrictions relating to pollution and the 100 46 protection of the environment or the release of any materials into the environment, including but not limited to those related to hazardous substances or wastes, air emissions and discharges to waste or public systems. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time, and the rules and regulations promulgated thereunder from time to time in effect. "ERISA Affiliate" means any trade or business (whether or not incorporated) that is treated as a single employer together with the Company under Section 414 of the Code. "Event of Default" is defined in Section 11. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Fair Market Value" means, at any time and with respect to any property, the sale value of such property that would be realized in an arm's-length sale at such time between an informed and willing buyer and an informed and willing seller (neither being under a compulsion to buy or sell). "GAAP" means generally accepted accounting principles as in effect from time to time in the United States of America. "Government Authority" means (a) the government of (i) the United States of America or any State or other political subdivision thereof, or (ii) any jurisdiction in which the Company or any Subsidiary conducts all or any part of its business, or which asserts jurisdiction over any properties of the Company or any Subsidiary, or (b) any entity exercising executive, legislative, judicial, regulatory or administrative functions of, or pertaining to, any such government. "Guaranty" means, with respect to any Person, any obligation (except the endorsement in the ordinary course of business of negotiable instruments for deposit or collection) of such Person guaranteeing or in effect guaranteeing (whether by being a general partner of a Partnership, or otherwise) any indebtedness, dividend or other obligation of any other Person in any manner, whether directly or indirectly, including (without limitation) obligations incurred through an agreement, contingent or otherwise, by such Person: 101 47 (a) to purchase such indebtedness or obligation or any property constituting security therefor; (b) to advance or supply funds (i) for the purchase or payment of such indebtedness or obligation, or (ii) to maintain any working capital or other balance sheet condition or any income statement condition of any other Person or otherwise to advance or make available funds for the purchase or payment of such indebtedness or obligation; (c) to lease properties or to purchase properties or services primarily for the purpose of assuring the owner of such indebtedness or obligation of the ability of any other Person to make payment of the indebtedness or obligation; or (d) otherwise to assure the owner of such indebtedness or obligation against loss in respect thereof. In any computation of the indebtedness or other liabilities of the obligor under any Guaranty, the indebtedness or other obligations that are the subject of such Guaranty shall be assumed to be direct obligations of such obligor. "Hazardous Material" means any and all pollutants, toxic or hazardous wastes or any other substances that might pose a hazard to health or safety, the removal of which may be required or the generation, manufacture, refining, production, processing, treatment, storage, handling, transportation, transfer, use, disposal, release, discharge, spillage, seepage, or filtration of which is or shall be restricted, prohibited or penalized by any applicable law (including, without limitation, asbestos, urea formaldehyde foam insulation and polycholorinated biphenyls). "holder" means, with respect to any Note, the Person in whose name such Note is registered in the register maintained by the Company pursuant to Section 13.1. "Indebtedness" with respect to any Person means, at any time, without duplication, (a) its liabilities for borrowed money and its redemption obligations in respect of mandatorily redeemable Preferred Stock; (b) its liabilities for the deferred purchase price of property acquired by such Person (excluding accounts payable arising in the ordinary course of business but including all liabilities created or arising under any conditional sale or other title retention agreement with respect to any such property); (c) its liabilities for Capitalized Rentals; (d) all liabilities for borrowed money secured by any Lien with respect to any property owned by such Person (whether or not it has assumed or otherwise become liable for such liabilities); 102 48 (e) all its liabilities in respect of letters of credit or instruments serving a similar function issued or accepted for its account by banks and other financial institutions (whether or not representing obligations for borrowed money); (f) Swaps of such Person; and (g) any Guaranty of such Person with respect to liabilities of a type described in any of clauses (a) through (f) hereof. Indebtedness of any Person shall include all obligations of such Person of the character described in clauses (a) through (g) to the extent such Person remains legally liable in respect thereof notwithstanding that any such obligation is deemed to be extinguished under GAAP. "Institutional Investor" means (a) the original purchaser of a Note, (b) any holder of a Note holding more than 5% of the aggregate principal amount of the Notes then outstanding, and (c) any bank, trust company, savings and loan association or other financial institution, any pension plan, any investment company, any insurance company, any broker or dealer, or any other similar financial institution or entity, regardless of legal form. "Interest Expense " means, for any period, the sum of all interest charges on Consolidated Total Debt, as determined in accordance with GAAP. "Investments" shall mean all investments, in cash or by delivery of property, made, directly or indirectly, in any Person, whether by acquisition of shares of capital stock, Indebtedness or other obligations or Securities or by loan, advance, capital contribution or otherwise; provided, however, that "Investments" shall not mean or include routine investments in property to be used or consumed in the ordinary course of business. "Lien" means, with respect to any Person, any mortgage, lien, pledge, charge, security interest or other encumbrance, or any interest or title of any vendor, lessor, lender or other secured party to or of such Person under any conditional sale or other title retention agreement or Capital Lease, upon or with respect to any property or asset of such Person (including in the case of stock, stockholder agreements, voting trust agreements and all similar arrangements). "Make-Whole Amount" is defined in Section 8.6. "Material" means material in relation to the business, operations, affairs, financial condition, assets, properties, or prospects of the Company and its Restricted Subsidiaries taken as a whole. "Material Adverse Effect" means a material adverse effect on (a) the business, operations, affairs, financial condition, assets or properties of the Company and its Restricted Subsidiaries taken as a whole, or (b) the ability of the Company to perform its obligations under this Agreement and the Notes, or (c) the validity or enforceability of this Agreement or the Notes. 103 49 "Memorandum" is defined in Section 5.3. "Multiemployer Plan" means any Plan that is a "multiemployer plan" (as such term is defined in section 4001(a)(3) of ERISA). "Net Proceeds Amount" means, with respect to any Transfer of any property by any Person, an amount equal to the difference of (a) the aggregate amount of the consideration (valued at the Fair Market Value of such consideration at the time of the consummation of such Transfer) received by such Person in respect of such Transfer, minus (b) all ordinary and reasonable out-of-pocket costs and expenses actually incurred by such Person in connection with such Transfer. "Notes" is defined in Section 1. "Officer's Certificate" means a certificate of a Senior Financial Officer or of any other officer of the Company whose responsibilities extend to the subject matter of such certificate. "Operating Cash Flow" means, for any period for which the amount thereof is to be determined, Consolidated Net Income for such period plus: (i) provisions for federal, state, and local income taxes; (ii) Interest Expense; (iii) nonrecurring items to the extent deducted to calculate Consolidated Net Income and (iv) depreciation and amortization, all in accordance with GAAP. "PBGC " means the Pension Benefit Guaranty Corporation referred to and defined in ERISA or any successor thereto. "Person" means an individual, partnership, corporation, limited liability company, association, trust, unincorporated organization, or a government or agency or political subdivision thereof. "Plan" means an "employee benefit plan" (as defined in section 3(3) of ERISA) that is or, within the preceding five years, has been established or maintained, or to which contributions are or, within the preceding five years, have been made or required to be made, by the Company or any ERISA Affiliate or with respect to which the Company or any ERISA Affiliate may have any liability. "Preferred Stock" means any class of capital stock of a corporation that is preferred over any other class of capital stock of such corporation as to the payment of dividends or the payment of any amount upon liquidation or dissolution of such corporation. 104 50 "property" or "properties" means, unless otherwise specifically limited, real or personal property of any kind, tangible or intangible, choate or inchoate. "QPAM Exemption" means Prohibited Transaction Class Exemption 84-14 issued by the United States Department of Labor. "Rentals" means and includes all fixed rents (including as such all payments which the lessee is obligated to make to the lessor on termination of the lease or surrender of the property) payable by the Company or a Restricted Subsidiary, as lessee or sublessee under a lease of real or personal property, but shall be exclusive of any amounts required to be paid by the Company or a Restricted Subsidiary (whether or not designated as rents or additional rents) on account of maintenance, repairs, insurance, taxes and similar charges. Fixed rents under any so-called, "percentage leases" shall be computed solely on the basis of the minimum rents, if any, required to be paid by the lessee regardless of sales volume or gross revenues. "Required Holders" means, at any time, the holders of at least 50% in principal amount of the Notes at the time outstanding (exclusive of Notes then owned by the Company or any of its Affiliates). "Responsible Officer" means any Senior Financial Officer and any other officer of the Company with responsibility for the administration of the relevant portion of this Agreement. "Restricted Subsidiary" shall mean any Subsidiary (i) designated as such in Schedule 5.4, or subsequently designated as such by resolution of the Board of Directors of the Company, provided that such designation would not result in the violation of any of the terms of this Agreement and provided that such Subsidiary has not previously been designated as a Restricted Subsidiary, and (ii) more than 50% of the Voting Stock of which is owned by the Company and its Restricted Subsidiaries. A Restricted Subsidiary may be designated an Unrestricted Subsidiary by resolution of the Board of Directors of the Company provided that, at the time of such designation, (i) such Subsidiary does not own any Indebtedness, shares of capital stock or other Securities of the Company or any Restricted Subsidiary, (ii) no Default or Event of Default exists, (iii) such designation would not result in the violation of any of the terms of this Agreement, and (iv) the Company would then have the capacity to incur at least $1 of additional Debt pursuant to the provisions of Section 10.4. "Securities Act" means the Securities Act of 1933, as amended from time to time. "Security" shall have the same meaning as in Section 2(1) of the Securities Act. "Senior Financial Officer" means the chief financial officer, principal accounting officer, treasurer or comptroller of the Company. 105 51 "Subsidiary" means, as to any Person, any corporation, association or other business entity in which such Person or one or more of its Subsidiaries or such Person and one or more of its Subsidiaries owns more than 50% of the Voting Stock, and any partnership or joint venture if more than a 50% interest in the profits or capital thereof is owned by such Person or one or more of its Subsidiaries or such Person and one or more of its Subsidiaries (unless such partnership can and does ordinarily take major business actions without the prior approval of such Person or one or more of its Subsidiaries). Unless the context otherwise clearly requires, any reference to a "Subsidiary" is a reference to a Subsidiary of the Company. "Subsidiary Stock" means, with respect to any Person, the stock (or any options or warrants to purchase stock or other Securities exchangeable for or convertible into stock) of any Subsidiary of such Person. "Swaps" means, with respect to any Person, payment obligations with respect to interest rate swaps, currency swaps and similar obligations obligating such Person to make payments, whether periodically or upon the happening of a contingency. For the purposes of this Agreement, the amount of the obligation under any Swap shall be the amount determined in respect thereof as of the end of the then most recently ended fiscal quarter of such Person, based on the assumption that such Swap had terminated at the end of such fiscal quarter, and in making such determination, if any agreement relating to such Swap provides for the netting of amounts payable by and to such Person thereunder or if any such agreement provides for the simultaneous payment of amounts by and to such Person, then in each such case, the amount of such obligation shall be the net amount so determined. "Transfer" means, with respect to any Person, any transaction in which such Person sells, conveys, transfers or leases (as lessor) any of its property, including, without limitation, Subsidiary Stock. For purposes of determining the application of the Net Proceeds Amount in respect of any Transfer, the Company may designate any Transfer as one or more separate Transfers each yielding a separate Net Proceeds Amount. In any such case, the Disposition Value of any property subject to each such separate Transfer shall be determined by ratably allocating the aggregate Disposition Value of all property subject to all such separate Transfers to each such separate Transfer on a proportionate basis. "Unrestricted Subsidiary" is any Subsidiary which, at the time of determination, is not a Restricted Subsidiary. "Voting Stock" means Securities of any class or classes, the holders of which are ordinarily, in the absence of contingencies, entitled to elect a majority of the corporate directors (or Persons performing similar functions). "Wholly-Owned Subsidiary" means, at any time, any Subsidiary one hundred percent (100%) of all of the equity interests (except directors' qualifying shares) and voting interests of which are owned by any one or more of the Company and the Company's other Wholly-Owned Subsidiaries at such time. 106 52 CHANGES IN CORPORATE STRUCTURE None SCHEDULE 4.8 (to Note Purchase Agreement) 107 53 DISCLOSURE MATERIALS 1. On August 9, 1996, the Company acquired all of the issued and outstanding capital stock of Gardner Denver Holdings Inc. (f.k.a. NORAMPTCO, Inc.), a Delaware corporation, and its subsidiaries, and a related company, Lamcor, Ltd., a U.K. corporation. The aggregate purchase price was approximately $30.5 million in cash, subject to adjustment based upon a closing balance sheet. 2. On August 14, 1996, the Company acquired all of the issued and outstanding capital stock of TCM Investments, Inc., an Oklahoma corporation, and its subsidiaries. The aggregate purchase price was approximately $7.2 million. SCHEDULE 5.3 (to Note Purchase Agreement) 108 54 SUBSIDIARIES OF THE COMPANY AND OWNERSHIP OF SUBSIDIARY STOCK, AFFILIATES AND DIRECTORS AND SENIOR OFFICERS 1. Subsidiaries of the Company and Ownership of Subsidiary Stock.
PERCENTAGE OF CAPITAL STOCK OR SIMILAR EQUITY INTERESTS OWNED BY NATURE AND THE COMPANY AND JURISDICTION OF EACH OTHER NAME OF SUBSIDIARY INCORPORATION SUBSIDIARY Gardner Denver International, Inc. Delaware; Restricted 100% by the Company ("GDII") Gardner Denver Canada, Inc. Ontario, Canada; Restricted l00% by GDII Gardner Denver Export, Inc. Barbados; Restricted 100% by the Company TCM Investments, Inc. ("TCMI") Oklahoma; Restricted 100% by the Company 2Oth Century Mfg. & Supply Co. Oklahoma; Restricted 100% by TCMI ("CMS") TCM Mfg. Int'l Limited Jamaica, Restricted 99% by CMS 1% by R. Centanni Adex, Inc. Oklahoma; Restricted l00% by TCMI TCM Compressors, Inc. Oklahoma; Restricted 100% by TCMI Future Fuels, Inc. ( "FFI") Oklahoma; Restricted 100% by TCMI Fuel, L.L.C. Oklahoma; Restricted 22.8% by TCMI 77.2% by FFI Gardner Denver Holdings Inc. Delaware; Restricted l00% by the Company ("GDHI") (f.k.a. NORAMPTCO, Inc.) Lamson Corporation ( "Lamson") New York; Restricted 85% by GDHI 15% by the Company Lamson Canada, Inc. Quebec, Canada; Restricted 100% by Lamson Beneficially owned by the Company
SCHEDULE 5.4 (to Note Purchase Agreement) 109 55 Lamson Europe S.A. France; Restricted 99.6% by GDHI 0.3% by the Company 0.1% by Lamson, U.S.T., GDII P. Van Rymenam, and R. Centanni U.S. Turbine Corporation Delaware; Restricted 100% by GDHI ("U.S.T.") Lamcor, Ltd. U.K.; Restricted 100% by the Company
2. Affiliates of the Company GVM Gesellschaft fur Schraubenverdichter und Schraubenmotorentechnologie mbH ("GVM") The Company owns 25% of the common stock of GVM, a privately held German company. The remaining 75% of the common stock is held by one individual. As part of the investment agreement, the Company has committed to loan GVM a total of $0.9 million over the remainder of 1996. As of June 30, 1996, the Company has loaned its affiliate $0.6 million of this commitment. The agreement specifies the payment of market interest rates and the repayment of the loan at the end of five years. The Company has the option to acquire an additional 24% of GVM's aggregate authorized capital by converting part of its claim to any payments of principal and accrued interest under the loan to such capital interest.
3. DIRECTORS AND SENIOR OFFICERS OF THE COMPANY OFFICE Alan E, Riedel Chairman Ross J. Centanni President and Chief Executive Officer; Director Donald G. Barger, Jr. Director Michael J. Sebastian Director Thomas M. McKenna Director Jay R. Buehler Vice President, Manufacturing Helen W. Cornell Vice President, Corporate Secretary and Treasurer Roger A. Finnamore Vice President, Engineering and Quality Assurance Steven M. Krivacek Vice President, Human Resources Philip R. Roth Vice President, Finance and Chief Financial Officer J. Dennis Shull Vice President, Sales and Marketing
110 56 FINANCIAL STATEMENTS 1. For each of the fiscal years ended December 31, 1993 through 1995, the financial statements contained in : (i) 1995 Annual Report to Stockholders, (ii) 1994 Annual Report to Stockholders, and (iii) Financial Statement excerpt from the Gardner Denver Machinery Inc. Registration Statement on Form 10, effective on March 31, 1994. 2. For the six month fiscal period ended June 30, 1996, the financial statements contained in: (i) Gardner Denver Machinery Inc. Periodic Report on Form 10-Q for the Quarterly Period ended June 30, 1996. SCHEDULE 5.5 (to Note Purchase Agreement) 111 57 CERTAIN LITIGATION (i) Dresser-Rand Company and Bernard A suit alleging misappropriation of Zimmern v. Cooper Industries et al. trade secrets and interference with contractual relations, filed in the Eighth Judicial Circuit Court of Illinois (Case Number 95-L-4-7) (ii) Waste Inc. Superfund Site The Company is named as a potentially Michigan City, IN responsible party. (iii) Quincy Landfill Superfund Site The Company is named as a potentially Quincy, IL responsible party. SCHEDULE 5.8 (to Note Purchase Agreement) 112 58 PATENTS, ETC. None SCHEDULE 5.11 (to Note Purchase Agreement) 113 59 EXISTING INDEBTEDNESS AS OF JUNE 30, 1996
Indebtedness of the Company and its Subsidiaries as of June 30, 1996 was as follows:
FINAL OUTSTANDING OBLIGOR LENDER NATURE MATURITY BALANCE (a) Gardner Denver The First Revolving Credit November 30, $23,000,000 Machinery Inc. National Bank of Agreement and 1998 Chicago as Agent Letter of Credit for itself and Facility the Other Lenders (b) Cooper City of Sedalia, Variable Rate March 1, $900,000 Industries, Inc. MO Industrial Revenue 1997 (assumed by the Refunding Bonds, Company) secured by property, plant and equipment (c) Cooper Illinois Industrial December 15, $1,098,836 Industries, Inc. Department of Development 2001 (assumed by the Commerce and Loans, secured by Company) Community property, plant and Affairs equipment (d) Gardner Denver City of Quincy, Unsecured July 15, 2001 $384,629 Machinery Inc. Illinois Industrial Development Loans - ------------------------- The purchase price of TCMI and the balance of the purchase price of GDHI were funded from cash equivalents of the Company. Outstanding balance increased to $51,000,000 on 8/9/96 to facilitate the acquisition of GDHI. Outstanding balance reduced to $600,000 on 9/3/96 due to scheduled principal payment.
SCHEDULE 5.15 (to Note Purchase Agreement) 114 60 SUPPLEMENT While Indebtedness of the Company and its Subsidiaries outstanding as of June 30, 1996 set forth on Schedule 5.15 is accurately described on said Schedule 5.15, for your information, the Company hereby advises you of two Subsidiaries of the Company acquired after June 30, 1996 which have Indebtedness outstanding as at the dates indicated below: (a) Gardner Denver Holdings Inc. (f.k.a. NORAMPTCO, Inc.) (as of September 1, 1996)
FINAL OUTSTANDING OBLIGOR LENDER NATURE MATURITY BALANCE (1) Lamson Onondoga County Secured Industrial November, $1,688,406 Industrial Development Revenue Bonds 2000 Authority (2) Lamson Key Bank Secured Notes April, 2000 $ 614,286 Payable (3) Lamson Key Bank Secured Notes April, 2000 $ 366,667 Payable (4) Lamson Key Bank Revolving Line of Annual $ 955,000 Credit (5) U.S. Key Bank Secured Notes February, 2005 $ 420,833 Turbine Payable (6) Lamson Credit du Nord Notes Payable $ 18,743 Europe SA under line of credit (b) TCM Investments, Inc. ("TCMI") (as of August 25, 1996) FINAL OUTSTANDING OBLIGOR LENDER NATURE MATURITY BALANCE (1) TCMI State Bank & Trust Secured Notes January, 2002 $297,565 Payable (2) TCMI State Bank & Trust Secured Notes April, 1998 $110,995 Payable (3) TCMI State Bank & Trust Secured Notes April, 2000 $293,335 Payable - ------------------------- Guarantee by Gardner Denver Holdings Inc. SUPPLEMENT TO SCHEDULE 5.15 (to Note Purchase Agreement) 115 61 (4) TCMI State Bank & Trust Secured Notes October, 1998 $123,524 Payable (5) TCMI State Bank & Trust Secured Notes December, $ 14,579 Payable 1997 (6) TCMI State Bank & Trust Secured Line of September, $400,000 Credit 1996
116 62 FORM OF NOTE GARDNER DENVER MACHINERY INC. 7.32% Senior Notes due September 26, 2006 No. [ ] [Date] ------------- ----------------------------------- $[ ] PPN 365558 A* 6 ---------------- FOR VALUE RECEIVED, the undersigned, GARDNER DENVER MACHINERY INC. (herein called the "Company"), a Delaware corporation, hereby promises to pay to [ ], or registered -------------------------- assigns, the principal sum of [ ] DOLLARS ------------------------- on September 26, 2006, with interest (computed on the basis of a 360-day year of twelve 30-day months) (a) on the unpaid balance thereof at the rate of 7.32% per annum from the date hereof, payable semiannually on the 26th day of March and September in each year, commencing on the first of such dates after the date hereof, until the principal hereof shall have become due and payable, and (b) to the extent permitted by law, on any overdue payment (including any overdue prepayment) of principal, any overdue payment of interest and any overdue payment of any Make-Whole Amount (as defined in the Note Purchase Agreement referred to below), payable semiannually as aforesaid (or, at the option of the registered holder hereof, on demand), at a rate per annum from time to time equal to the greater of (i) 9.32% or (ii) 1% over the rate of interest publicly announced by The Chase Manhattan Bank, from time to time in New York, New York, as its "base" or "prime" rate. Payments of principal of, interest on and any Make-Whole Amount with respect to this Note are to be made in lawful money of the United States of America at the principal office of the Company in Quincy, Illinois, or at such other place as the Company shall have designated by written notice to the holder of this Note as provided in the Note Purchase Agreement referred to below. This Note is one of a series of Senior Notes (herein called the "Notes") issued pursuant to the Note Purchase Agreement, dated as of September 26, 1996 (as from time to time amended, the "Note Purchase Agreement"), between the Company and the Purchaser named therein and is entitled to the benefits thereof. Each holder of this Note will be deemed, by its acceptance hereof, (i) to have agreed to the confidentiality provisions set forth in Section 20 of the Note Purchase Agreement and (ii) to have made the representations set forth in Section 6.1 and Section 6.2 of the Note Purchase Agreement. This Note is a registered Note and, as provided in the Note Purchase Agreement, upon surrender of this Note for registration of transfer, duly endorsed, or accompanied by a written instrument of transfer duly executed, by the registered holder hereof or such holder's attorney duly authorized in writing, a new Note for a like principal amount will be issued to, and registered in the name of, the transferee. Prior to due presentment for registration of transfer, the Company may treat the person in whose name this Note is EXHIBIT 1 (to Note Purchase Agreement) 117 63 registered as the owner hereof for the purpose of receiving payment and for all other purposes, and the Company will not be affected by any notice to the contrary. The Company will make required prepayments of principal on the dates and in the amounts specified in the Note Purchase Agreement. This Note is also subject to optional prepayment, in whole or from time to time in part, at the times and on the terms specified in the Note Purchase Agreement, but not otherwise. If an Event of Default, as defined in the Note Purchase Agreement, occurs and is continuing, the principal of this Note may be declared or otherwise become due and payable in the manner, at the price (including any applicable Make-Whole Amount) and with the effect provided in the Note Purchase Agreement. This Note shall be construed and enforced in accordance with, and the rights of the parties shall be governed by, the law of the State of Illinois excluding choice-of-law principles of the law of such State that would require the application of the laws of a jurisdiction other than such State. GARDNER DENVER MACHINERY INC. By ------------------------------------ Title Exhibit 1-2 118 64 DESCRIPTION OF OPINION OF SPECIAL COUNSEL FOR THE COMPANY September , 1996 -- Metropolitan Life Insurance Company Fixed Income Investments-Private Placement Unit 334 Madison Avenue Convent Station, New Jersey 07961 Attention: Vice President Gentlemen/Ladies: We have served as special counsel for Gardner Denver Machinery Inc., a Delaware corporation (the "Company") in connection with its execution and delivery of a Note Purchase Agreement dated as of September 26, 1996 between you and the Company, providing for the issuance and sale of Notes in the principal amount of $35,000,000 (the "Note Purchase Agreement"). All capitalized terms used in this opinion and not otherwise defined shall have the meanings attributed to them in the Note Purchase Agreement. This opinion is being delivered to you in accordance with Section 4.4 of the Note Purchase Agreement. We have examined originals or copies, certified or otherwise identified to our satisfaction, of (i) the Note Purchase Agreement, (ii) the Notes, (iii) the Certificate of Incorporation and By-laws of the Company, (iv) certificates of public officials and officers of the Company, and (v) other certificates and documents relating to the transaction contemplated by the Note Purchase Agreement. We have assumed (i) the genuineness of all signatures (other than on behalf of the Company), (ii) the authenticity of all documents submitted to us as originals, (iii) the conformity to original documents of all documents submitted to us as copies, and (iv) the due authorization, execution and delivery of all documents by you. Based upon the foregoing and subject to the qualifications expressed herein, we are of the opinion that: 1. The Company is a corporation validly existing and in good standing under the laws of the State of Delaware, has the corporate power and the corporate authority to execute and perform the Note Purchase Agreement, and to issue the Notes and has the corporate power and the corporate authority to conduct the activities in which it is now engaged. 2. The Company is duly licensed or qualified and is in good standing as a foreign corporation in each of the states of Illinois, Indiana, Missouri, Tennessee andOklahoma. EXHIBIT 4.4(a) (to Note Purchase Agreement) 119 65 3. Based solely upon advice of an officer of the Company to that effect, without independent inquiry by us, the only Subsidiaries of the Company which either own more than 5% of the assets of the Company on a consolidated basis or, on a most recent historical pro forma basis, account for more than 10% of the consolidated net income of the Company, are Gardner Denver Holdings Inc., a Delaware corporation, and Lamson Corporation, a New York corporation (collectively, the "Relevant Subsidiaries"). Each Relevant Subsidiary is a corporation validly existing and in good standing under the laws of its jurisdiction of incorporation and, based solely upon advice of an officer of the Company as to the character of the properties owned or leased by each such Relevant Subsidiary and the nature of the respective businesses transacted by them, is not required to be licensed or qualified in any other jurisdiction as a foreign corporation and all of the issued and outstanding shares of capital stock of each such Relevant Subsidiary have been validly issued, are fully paid and nonassessable and are owned by the Company, by one or more Relevant Subsidiaries, or by the Company and one or more Relevant Subsidiaries. 4. The Note Purchase Agreement has been duly authorized by all necessary corporate action on the part of the Company, has been duly executed and delivered by the Company and constitutes the legal, valid and binding contract of the Company enforceable in accordance with its terms, subject to bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or similar laws affecting creditors' rights generally, and general principles of equity (regardless of whether the application of such principles is considered in a proceeding in equity or at law). 5. The Notes have been duly authorized by all necessary corporate action on the part of the Company, and the Notes being delivered on the date hereof have been duly executed and delivered by the Company and constitute the legal, valid and binding obligations of the Company enforceable in accordance with their terms, subject to bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or similar laws affecting creditors' rights generally, and general principles of equity (regardless of whether the application of such principles is considered in a proceeding in equity or at law). 6. No approval, consent or withholding of objection on the part of, or filing, registration or qualification with, any Governmental Authority, is necessary in connection with the execution, delivery or performance by the Company of the Note Purchase Agreement or the Notes. 7. The issuance and sale of the Notes and the execution, delivery and performance by the Company of the Note Purchase Agreement do not conflict with or result in any breach of any of the provisions of or constitute a default under or result in the creation or imposition of any Lien upon any of the property of the Company pursuant to the provisions of (i) the Certificate of Incorporation or the By-laws of the Company, (ii) to the extent known to us after due inquiry of the Company, any indenture, mortgage, deed of trust, loan, purchase or credit agreement, lease or other agreement or instrument to which the Company is a party or by which the Company or any of its properties may be bound or affected, (iii) 120 66 to the extent known to us (there being none such known to us), any order, judgment, decree or ruling of any court, arbitrator or Governmental Authority applicable to the Company, or (iv) any statute or other rule or regulation of any Governmental Authority applicable to the Company. 8. The issuance of the Notes and the use of the proceeds of the sale of the Notes in accordance with the provisions of and contemplated by the Note Purchase Agreement do not violate or conflict with Regulation G, T, U or X of the Board of Governors of the Federal Reserve System. 9. Based solely upon advice of an officer of the Company to that effect, without independent inquiry by us, there are no proceedings pending or threatened against or affecting the Company or any Subsidiary in any court or before any Governmental Authority which, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect. 10. The issuance, sale and delivery of the Notes under the circumstances contemplated by the Note Purchase Agreement do not, under existing law, require the registration of the Notes under the Securities Act of 1933, as amended, or the qualification of an indenture under the Trust Indenture Act of 1939, as amended. The opinion is being rendered to you in connection with the transactions contemplated by the Note Purchase Agreement, is solely for your benefit and for the benefit of any subsequent permitted holders of the Notes, and may not be relied upon by any other person, or referred to, in whole or in part, in any document, in each case without our prior written consent. The foregoing opinion is limited by, and subject to, the following: (a) The opinions expressed herein are given as of the date hereof. We assume no obligation to update or supplement such opinions to reflect any fact or circumstance that may hereafter come to our attention or any change in law that may hereafter become effective. (b) This opinion is limited to the matters expressly set forth herein and no opinion is to be implied or may be inferred beyond the matters expressly stated herein. (c) We do not express any opinion as to the laws of any jurisdiction other than the corporate laws of the State of Delaware, the Federal law of the United States and the laws of the State of Ohio. To the extent that any of the opinions contained herein require knowledge of or interpretation of the laws of any state other than the State of Ohio or the corporate laws of the State of Delaware, we have assumed that the laws of such state are the 121 67 same as the laws of the State of Ohio. (d) The enforcement of the remedies set forth in the Note Purchase Agreement is subject to the effect of any requirement that the holders of the Notes act reasonably and in good faith and in a commercially reasonable manner. (e) We express no opinion with respect to (i) the enforcement of any provision requiring the payment of attorney fees incurred in enforcing rights under the Note Purchase Agreement or the Notes or (ii) any waiver of rights by the Company beyond those permitted by applicable law. (f) We express no opinion as to the rights of the holders of the Notes to exercise the remedies available to them upon the happening of a non-material breach of the Note Purchase Agreement. Respectfully submitted, 122 68 DESCRIPTION OF OPINION OF SPECIAL COUNSEL TO THE PURCHASER The closing opinion of Chapman and Cutler, special counsel to the Purchaser, called for by Section 4.4(b) of the Note Purchase Agreement, shall be dated the date of Closing and addressed to the Purchaser, shall be satisfactory in form and substance to the Purchaser and shall be to the effect that: 1. The Company is a corporation validly existing and in good standing under the laws of the State of Delaware, and has the corporate power and the corporate authority to execute and deliver the Note Purchase Agreement and to issue the Notes. 2. The Note Purchase Agreement has been duly authorized by all necessary corporate action on the part of the Company, has been duly executed and delivered by the Company and constitutes the legal, valid and binding obligation of the Company enforceable in accordance with its terms, subject to bankruptcy, insolvency, fraudulent conveyance and similar laws affecting creditors' rights generally, and general Principles of equity (regardless of whether the application of such principles is considered in a proceeding in equity or at law). 3. The Notes have been duly authorized by all necessary corporate action on the part of the Company, and the Notes being delivered on the date hereof have been duly executed and delivered by the Company and constitute the legal, valid and binding obligations of the Company enforceable in accordance with their terms, subject to bankruptcy, insolvency, fraudulent conveyance and similar laws affecting creditors' rights generally, and general principles of equity (regardless of whether the application of such principles is considered in a proceeding in equity or at law). 4. The issuance, sale and delivery of the Notes under the circumstances contemplated by the Note Purchase Agreement do not, under existing law, require the registration of the Notes under the Securities Act of 1933, as amended, or the qualification of an indenture under the Trust Indenture Act of 1939, as amended. The opinion of Chapman and Cutler shall also state that the opinion of Squire, Sanders & Dempsey, special counsel for the Company, is satisfactory in scope and form to Chapman and Cutler and that, in their opinion, the Purchaser is justified in relying thereon. With respect to matters of fact upon which such opinion is based, Chapman and Cutler may rely on appropriate certificates of public officials and officers of the Company and upon representations of the Company and the Purchaser delivered in connection with the issuance and sale of the Notes. The opinion of Chapman and Cutler may be limited to the laws of the State of Illinois, the general business laws of the State of Delaware and the Federal laws of the United States. EXHIBIT 4.4(b) (to Note Purchase Agreement) 123 EX-10.0 4 FIRST AMENDMENT TO THE CREDIT AGREEMENT 1 Exhibit 10.0 AMENDMENT NO. 1 AMENDMENT NO. 1 dated as of September 10, 1996 (this "Amendment") to the Credit Agreement dated as of dated as of November 30, 1995 (the "Credit Agreement") among Gardner Denver Machinery Inc. (the "Borrower"), the Lenders party thereto and The First National Bank of Chicago, as LC Issuer and as Agent for the Lenders. The parties hereto wish to amend the Credit Agreement in certain respects and accordingly hereby agree as follows: 1. Definitions. Unless the context otherwise requires, ----------- all terms used herein which are defined in the Credit Agreement shall have the meanings assigned to them therein. 2. Amendment. Effective upon the satisfaction of the --------- conditions precedent set forth in Section 4 of this Amendment, the Credit Agreement shall be amended as follows: (a) Clause (vi) of Section 6.12 of the Credit Agreement is hereby amended in its entirety to read as follows: "(vi) Senior unsecured notes issued by the Borrower from time to time in an aggregate principal amount not to exceed $35,000,000 at any one time outstanding and which have (y) an initial weighted average life in excess of three (3) years and (z) a final maturity date which is subsequent to November 30, 1998." 3. Representations and Warranties. The Borrower hereby ------------------------------ confirms, reaffirms and restates as of the date hereof the representations and warranties set forth in Article V of the Credit Agreement provided that such representations and warranties shall be and hereby are amended as follows: each reference therein to "this Agreement", including, without limitation, such a reference included in the term "Credit Documents", shall be deemed to be a collective reference to the Credit Agreement, this Amendment and the Credit Agreement as amended by this Amendment. A Default under and as defined in the Credit Agreement as amended by this Amendment shall be deemed to have occurred if any representation or warranty made pursuant to the foregoing sentence of this Section 3 shall be materially false as of the date on which made. 4. Conditions Precedent. This Amendment and the -------------------- amendment to the Credit Agreement provided for herein shall become effective as of the date hereof when this Amendment shall have been duly executed and delivered by the Agent and the Borrower on one counterpart and Lenders constituting the Required Lenders shall have signed a counterpart or counterparts hereof and notified the Agent by facsimile or telephone that such action has been taken and that such executed counterpart or counterparts will be mailed or otherwise delivered to the Agent. 124 2 5. Effect on the Existing Agreement. Except as -------------------------------- expressly amended hereby, all of the representations, warranties, terms, covenants and conditions of the Credit Agreement and the other Credit Documents (a) shall remain unaltered, (b) shall continue to be, and shall remain, in full force and effect in accordance with their respective terms, and (c) are hereby ratified and confirmed in all respects. Upon the effectiveness of this Amendment, all references in the Credit Agreement (including references in the Credit Agreement as amended by this Amendment) to "this Agreement" (and all indirect references such as "hereby", "herein", "hereof" and "hereunder") shall be deemed to be references to the Credit Agreement as amended by this Amendment. 6. Expenses. The Borrower shall reimburse the Agent for -------- any and all reasonable costs, internal charges and out-of-pocket expenses (including attorneys' fees and time charges of attorneys for the Agent, which attorneys may be employees of the Agent) paid or incurred by the Agent in connection with the preparation, review, execution and delivery of this Amendment. 7. Entire Agreement. This Amendment, the Credit ---------------- Agreement as amended by this Amendment and the other Credit Documents embody the entire agreement and understanding between the parties hereto and supersede any and all prior agreements and understandings between the parties hereto relating to the subject matter hereof. 8. GOVERNING LAW. THIS AMENDMENT SHALL BE CONSTRUED IN ------------- ACCORDANCE WITH THE INTERNAL LAWS (AND NOT THE LAW OF CONFLICTS) OF THE STATE OF ILLINOIS, BUT GIVING EFFECT TO FEDERAL LAWS APPLICABLE TO A NATIONAL BANKING ASSOCIATION LOCATED IN THE STATE OF ILLINOIS. 9. Counterparts. This Amendment may be executed in any ------------ number of counterparts, all of which taken together shall constitute one agreement, and any of the parties hereto may execute this Amendment by signing any such counterpart. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed as of the date first above written. GARDNER DENVER MACHINERY INC. By: ------------------------------------ Title: --------------------------------- THE FIRST NATIONAL BANK OF CHICAGO, Individually as a Lender and as Agent By: ------------------------------------ Title: --------------------------------- 125 3 THE BANK OF NEW YORK By: ------------------------------------ Title: --------------------------------- CAISSE NATIONAL DE CREDIT AGRICOLE By: ------------------------------------ Title: --------------------------------- HARRIS TRUST & SAVINGS BANK By: ------------------------------------ Title: --------------------------------- THE BOATMEN'S NATIONAL BANK OF ST. LOUIS By: ------------------------------------ Title: --------------------------------- 126 EX-11.1 5 COMPUTATION OF EARNINGS PER SHARE 1 Exhibit 11.1 COMPUTATION OF EARNINGS PER COMMON SHARE (in thousands, except per share amounts)
THREE MONTHS ENDED SEPTEMBER 30, 1996 1995 ------ ------ Primary earnings Net Income $3,735 $1,882 ====== ====== Shares Weighted average number of common shares outstanding 4,889 4,771 Assuming conversion of options issued and outstanding 234 170 ------ ------ Weighted average number of common shares outstanding as adjusted 5,123 4,941 ====== ====== Primary earnings per common share $0.73 $0.38 ====== ====== Fully diluted earnings Net Income $3,735 $1,882 ====== ====== Shares Weighted average number of common shares outstanding 4,889 4,771 Assuming conversion of options issued and outstanding 251 173 ------ ------ Weighted average number of common shares outstanding as adjusted 5,140 944 ====== ====== Fully diluted earnings per common share $0.73 $0.38 ====== ====== This calculation is submitted in accordance with Securities Exchange Act of 1934 Release No. 9083 although not required by footnote 2 to paragraph 14 of APB Opinion No. 15 because it results in dilution of less than 3%.
127 EX-11.2 6 COMPUTATION OF EARNINGS PER SHARE 1 Exhibit 11.2 COMPUTATION OF EARNINGS PER COMMON SHARE (in thousands, except per share amounts)
NINE MONTHS ENDED SEPTEMBER 30, 1996 1995 ------- ------ Primary earnings Net Income $11,287 $7,155 ======= ====== Shares Weighted average number of common shares outstanding 4,861 4,747 Assuming conversion of options issued and outstanding 212 118 ------- ------ Weighted average number of common shares outstanding as adjusted 5,073 4,865 ======= ====== Primary earnings per common share $2.23 $1.47 ======= ====== Fully diluted earnings Net Income $11,287 $7,155 ======= ====== Shares Weighted average number of common shares outstanding 4,861 4,747 Assuming conversion of options issued and outstanding 231 137 ------- ------ Weighted average number of common shares outstanding as adjusted 5,092 4,884 ======= ====== Fully diluted earnings per common share $2.22 $1.47 ======= ====== This calculation is submitted in accordance with Securities Exchange Act of 1934 Release No. 9083 although not required by footnote 2 to paragraph 14 of APB Opinion No. 15 because it results in dilution of less than 3%.
128 EX-27 7 FINANCIAL DATA SCHEDULE
5 THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED FINANCIAL STATEMENTS OF GARDNER DENVER MACHINERY INC. FOR THE YEAR-TO-DATE PERIOD ENDED SEPTEMBER 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 9-MOS DEC-31-1996 JAN-01-1996 SEP-30-1996 16,012 0 49,575 (2,806) 47,800 115,133 131,373 (97,023) 245,705 52,486 69,956 49 0 0 67,836 245,705 152,980 154,002 106,480 106,509 0 66 2,000 19,074 7,629 11,287 0 0 0 11,287 2.23 2.22
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