-----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, AM2Vjc064hLyL9Im+K7o5TFANeUNpbQn0t5kN0krDFhYDy6NpLCKAD+fLvvQq/md pTeyOHJ4SEPQubW8aByW5w== 0001068800-02-000079.txt : 20020415 0001068800-02-000079.hdr.sgml : 20020415 ACCESSION NUMBER: 0001068800-02-000079 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 20011231 FILED AS OF DATE: 20020328 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GARDNER DENVER 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-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 001-13215 FILM NUMBER: 02591705 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 FORMER COMPANY: FORMER CONFORMED NAME: GARDNER DENVER MACHINERY INC DATE OF NAME CHANGE: 19931221 10-K405 1 gard10k.txt GARDNER DENVER, INC. FORM 10-K ============================================================================== UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-K [X] Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934: For the fiscal year ended December 31, 2001 [ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934: For the transition period from -------------- to -------------- Commission file number 1-13215 ------------------------------------- GARDNER DENVER, 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, IL 62301 - ---------------------------------------- ------------------------- (Address of Principal Executive Offices) (Zip Code) (217) 222-5400 - ------------------------------------------------------------------------------ (Registrant's Telephone Number, Including Area Code) Securities registered pursuant to Section 12(b) of the Act: Common Stock, $0.01 par value - ------------------------------------------------------------------------------ (Title of Class) Rights to Purchase Preferred Stock - ------------------------------------------------------------------------------ (Title of Class) Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] The aggregate market value of the registrant's voting stock held by non-affiliates as of March 22, 2002 was $385,940,481. The number of shares outstanding of the registrant's Common Stock, as of March 22, 2002 was 15,810,753. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Gardner Denver, Inc. Proxy Statement, dated March 22, 2002 (incorporated into Part III of this Annual Report on Form 10-K). Portions of the 2001 Annual Report to Stockholders (incorporated into Parts I and II of this Annual Report on Form 10-K). ============================================================================== PART I ITEM 1. BUSINESS GENERAL Gardner Denver, Inc. ("Gardner Denver" or the "Company") believes, based on total sales in the United States, it is one of the leading manufacturers of stationary air compressors and blowers for industrial applications. Stationary air compressors are used in manufacturing, process applications and materials handling, and to power air tools and equipment. Blowers are used primarily in pneumatic conveying, wastewater aeration and engineered vacuum systems. Gardner Denver also believes that it is one of the leading manufacturers of pumps used in oil and natural gas production, well-servicing and drilling and water jetting systems. In 2001, Gardner Denver had revenues of $419.8 million, of which approximately 73 percent were derived from sales of compressed air products while approximately 27 percent were from sales of pump products. Approximately 70 percent of the total revenues in 2001 were derived from sales in the United States and approximately 30 percent were from sales to customers in various countries outside the United States. Of the total non-U.S. sales, 51 percent were to Europe, 19 percent to Canada, 14 percent to Latin America, 11 percent to Asia and the remainder to Africa, the Middle East and Australia. HISTORY The Company's business of manufacturing industrial and petroleum equipment began in 1859 when Robert W. Gardner redesigned the fly-ball governor to provide speed control for steam engines. By 1900, the then Gardner Company had expanded its product line to include steam pumps and vertical high-speed air compressors. In 1927, the Gardner Company merged with Denver Rock Drill, a manufacturer of equipment for oil wells and mining and construction, and became the Gardner-Denver Company. In 1979, the Gardner-Denver Company was acquired by Cooper Industries, Inc. ("Cooper") and operated as 10 unincorporated divisions. Two of these divisions, the Gardner-Denver Air Compressor Division and the Petroleum Equipment Division, were combined in 1985 to form the Gardner-Denver Industrial Machinery Division (the "Division"). The OPI(R) pump product line was purchased in 1985 and added to the Division. In 1987, Cooper acquired the Sutorbilt(R) and DuroFlow(R) blower product lines and the Joy(R) industrial compressor product line, which were also consolidated into the Division. Effective December 31, 1993, the assets and liabilities of the Division were transferred by Cooper to the Company, which had been formed as a wholly-owned subsidiary of Cooper. On April 15, 1994, the Company was spun-off as an independent company to the shareholders of Cooper. Gardner Denver has completed fourteen acquisitions since becoming an independent company. In 1996, Gardner Denver acquired NORAMPTCO, Inc., renamed Gardner Denver Holdings Inc., and its primary operating subsidiary Lamson Corporation ("Lamson"). Lamson designs, manufactures and sells multistage centrifugal blowers and exhausters used in various industrial and wastewater applications. Lamson's products complemented the Company's product offering by enabling it to expand its participation in environmental and industrial segments requiring air and gas management. Also in 1996, the Company acquired TCM Investments, Inc., an oilfield pump manufacturer based in Tulsa, Oklahoma. This acquisition extended the Company's well stimulation pump 1 product line, provided a physical presence in the oilfield market and allowed Gardner Denver to become a major supplier of repair parts and remanufacturing services to some of the Company's customers. In 1997, the Company acquired Oy Tamrotor Ab ("Tamrotor"), located in Tampere, Finland. Tamrotor designs and manufactures lubricated rotary screw compressor air ends and packages. The addition of Tamrotor provided the Company with a manufacturing base in Europe and growth opportunities through complementary product lines and international market penetration. In 1999, the Company liquidated Tamrotor and now conducts business in Finland as Gardner Denver OY. In January 1998, the Company purchased Champion Pneumatic Machinery Company, Inc. ("Champion"). Champion, located in Princeton, Illinois, is a leading manufacturer of low horsepower reciprocating compressors. Champion opened new market opportunities for Gardner Denver products and expanded the range of reciprocating compressors available to existing distributors. In January 1998, the Company also acquired Geological Equipment Corporation ("Geoquip"), a leading manufacturer of pumps, ranging from 350 to 2,400 horsepower, in Fort Worth, Texas. The operation also remanufactures pumps and provides repair services. The addition of Geoquip enhanced the Gardner Denver well servicing product line, expanded the Company's presence in remanufacturing and repair services and introduced the Company to the water jetting market. The Company purchased the Wittig Division of Mannesmann Demag AG ("Wittig") in March 1998. Wittig, located in Schopfheim, Germany, is a leading manufacturer of rotary sliding vane compressors and vacuum pumps. Wittig's products primarily serve the truck blower market for liquid and dry bulk conveyance, as well as other industrial applications. The acquisition of Wittig expanded the Company's manufacturing presence in Europe and provided distribution channels for its blower products, which are produced in the United States. In April 1999, the Company acquired Allen-Stuart Equipment Company, Inc. ("Allen-Stuart"), located in Houston, Texas. Allen-Stuart, which also conducts business as the Gardner Denver Engineered Packaging Center, designs, fabricates and services custom-engineered packages for blower and compressor equipment in air and gas applications. The addition of Allen-Stuart enhanced the Company's ability to supply engineered packages, incorporating the wide range of compressor and blower products manufactured by Gardner Denver. In April 1999, the Company also purchased Butterworth Jetting Systems, Inc., a manufacturer of water jet pumps and systems serving the industrial cleaning and maintenance market, located in Houston, Texas. This operation, which was renamed Gardner Denver Water Jetting Systems, Inc., expanded the Company's position in the rapidly growing water jet market. In October 1999, the Company acquired Air Relief, Inc. ("Air Relief"), located in Mayfield, Kentucky. Air Relief is an independent provider of replacement parts and service for centrifugal compressors. This operation enhanced the Company's ability to penetrate the centrifugal compressor market by adding key engineering, assembly, sales and service capabilities. In January 2000, the Company acquired Invincible Airflow Systems, Co. ("Invincible"). Invincible, located in Baltic, Ohio, manufactures single and fabricated multistage centrifugal 2 blowers and engineered vacuum systems. Invincible extends Gardner Denver's product offering for the industrial cleaning market and introduces the Company's centrifugal blowers to new markets. The Company acquired Jetting Systems & Accessories, Inc. ("JSA") in April 2000 and CRS Power Flow, Inc. ("CRS") in July 2000. JSA and CRS are located in Houston, Texas, and both manufacture aftermarket products for the water jetting industry. These two acquisitions complement the Company's product offering for the water jetting market and further leverage Gardner Denver's commitment to being a full service provider in the water jetting industry. In September 2001, the Company acquired Hamworthy Belliss & Morcom ("Belliss & Morcom"), headquartered in Gloucester, England. Belliss & Morcom manufactures and distributes reciprocating air compressors used for a variety of niche applications, such as polyethylene terephthalate ("PET") bottle blowing, breathing air equipment and compressed natural gas. The acquisition of Belliss & Morcom broadens the Company's range of product offerings, strengthens its distribution and service networks and increases its participation in sales of products with applications that have the potential to grow faster than the overall industrial economy. In September 2001, the Company also acquired Hoffman Air and Filtration Systems ("Hoffman"). Hoffman, headquartered in Syracuse, New York, manufactures and distributes multistage centrifugal blowers and vacuum systems, primarily for wastewater treatment and industrial applications. The acquisition of Hoffman expands Gardner Denver's product offering and distribution capabilities and enhances its position as a leading international supplier of centrifugal products to the air and gas handling industry. MARKETS AND PRODUCTS Gardner Denver designs, manufactures and markets compressed air products and pump products. A description of the particular products manufactured and sold by Gardner Denver in its two reportable segments is set forth below. Compressed Air Products Segment In the Compressed Air Products segment, Gardner Denver designs, manufactures, markets and services the following products and related aftermarket parts for industrial and commercial applications: rotary screw, reciprocating, sliding vane and centrifugal compressors, positive displacement and centrifugal blowers. Sales of compressed air products by Gardner Denver in 2001 were $308.0 million, of which approximately 65 percent were to customers in the United States. Reciprocating compressors range from 0.5 to 1,500 horsepower and are sold under the Gardner Denver(R), Champion(R), Commandair(R) and Belliss & Morcom(R) trademarks. Rotary screw compressors range from 5 to 680 horsepower and are sold under the Gardner Denver(R), Electra-Screw(R), Electra-Saver(R), Enduro(R), RotorChamp(R), Twistair(R), Tamrotor(R), and Tempest(R) trademarks. Centrifugal compressors range from 400 to 1,500 horsepower and are sold under the GD Turbo name. 3 Blowers are used to produce a high volume of air at low pressures and vacuums. Centrifugal blowers produce a constant level of pressure and varying volumes of airflow. Positive displacement blowers provide a constant volume of airflow at varying levels of pressure. The Company's positive displacement blowers range from 0 to 36 pounds per square inch gauge (PSIG) pressure and 0-28 inches of mercury ("Hg) vacuum and 0 to 43,000 cubic feet per minute (CFM) and are sold under the trademarks Sutorbilt(R), DuroFlow(R), CycloBlower(R) and TurboTron(R). The Company's multistage centrifugal blowers are sold under the tradenames Lamson(R) and Hoffman(R) and range from 0.5 to 25 PSIG pressure and 0-18 "Hg vacuum and 100 to 50,000 CFM. The Company's rotary sliding vane compressors and vacuum pumps range from 0 to 150 PSIG and 0 to 3,000 CFM and are sold under the trademark Wittig(R). The Company's engineered vacuum systems are used in industrial cleaning and maintenance and are sold under the Invincible(R) and Cat Vac(R) tradenames. Almost all domestic manufacturing plants and industrial facilities, as well as many service industries, utilize air compressors and/or blowers. The largest customers for Gardner Denver's compressor products are durable and non-durable goods manufacturers; process industries (petroleum, primary metals, pharmaceutical, food and paper); original equipment manufacturers ("OEMs"); manufacturers of carpet cleaning equipment, pneumatic conveying equipment, and dry and liquid bulk transports; wastewater treatment facilities; and automotive service centers and niche applications such as polyethylene terephthalate ("PET") bottle blowing, breathing air equipment and compressed natural gas. Manufacturers of machinery and related equipment use stationary compressors for automated systems, controls, materials handling and special machinery requirements. The petroleum, primary metals, pharmaceutical, food and paper industries require compressed air for process, instrumentation and control, packaging and pneumatic conveying. Blowers are instrumental to local utilities for aeration in treating industrial and municipal waste. Blowers are also used in service industries, for example, residential carpet cleaning to vacuum moisture from carpets during the shampooing and cleaning process. Blowers and rotary vane compressors are used on trucks to vacuum leaves and debris from street sewers and to unload liquid and dry bulk and powder materials such as cement, grain and plastic pellets. Additionally, blowers are used in numerous chemical process applications. Pump Products Segment Gardner Denver designs, manufactures, markets and services a diverse group of pumps, water jetting systems and related aftermarket parts used in oil and natural gas production, well servicing and drilling and industrial cleaning and maintenance. Sales of pump products in 2001 were $111.7 million, of which approximately 82 percent were to customers in the United States. Positive displacement reciprocating pumps are marketed under the Gardner Denver(R), Geoquip(R), Ajax(R) and OPI(R) trademarks. Typical applications of Gardner Denver(R) pumps in oil and natural gas production include oil transfer, water flooding, salt water disposal, pipeline testing, ammine pumping for gas processing, re-pressurizing, enhanced oil recovery, hydraulic 4 power and other liquid transfer applications. Gardner Denver's production pumps range from 16 to 600 horsepower and consist of horizontal and vertical designed pumps. Gardner Denver markets one of the most complete product lines of well servicing pumps. Well servicing operations include general workover service, completions (bringing wells into production after drilling), and plugging and abandonment of wells. Gardner Denver's well servicing products consist of high pressure plunger pumps ranging from 165 to 400 horsepower. Gardner Denver also manufactures intermittent duty triplex and quintuplex plunger pumps ranging from 250 to 3,000 horsepower for well cementing and stimulation, including reservoir fracturing or acidizing. Duplex pumps, ranging from 16 to 135 horsepower, are produced for shallow drilling, which includes water well drilling, seismic drilling and mineral exploration. Continuous duty triplex mud pumps for oil and natural gas drilling rigs range from 275 to 2,000 horsepower. A small portion of Gardner Denver(R) and Ajax(R) pumps are sold for use in industrial applications. The Company's water jetting systems are used in industrial cleaning and maintenance and are sold under the Liqua-Blaster(R) and American Water Blaster(R) trademarks. Applications in this market include runway and shiphull cleaning, concrete demolition and metal surface preparation. For financial information over the past three years on the Company's performance by industry segment and the Company's international sales, refer to Note 14 of the Notes to Consolidated Financial Statements included in Gardner Denver's 2001 Annual Report to Stockholders and incorporated herein by reference. CUSTOMERS AND CUSTOMER SERVICE Gardner Denver sells its products through independent distributors and sales representatives and directly to OEMs, engineering firms and end users. Gardner Denver uses a direct sales force to service OEM and engineering firm accounts because these typically require more technical assistance, shipment scheduling and product service. As a majority of Gardner Denver's products are marketed through independent distribution, Gardner Denver is committed to developing and supporting its distribution network of over 1,500 distributors and representatives. Gardner Denver has a Master Distribution Center in Memphis, Tennessee that stocks parts, accessories, blowers and small compressor products in order to provide adequate and timely availability. Gardner Denver also provides its distributors with sales and product literature, technical assistance and training programs, advertising and sales promotions, order-entry and tracking systems and an annual restocking program. Gardner Denver participates in major trade shows and has a telemarketing department to generate sales leads and support the distributors' sales staffs. The Company's distributors maintain an inventory of complete units and parts and provide aftermarket service to end users. There are several hundred field service representatives for Gardner Denver products in the distributor network. Gardner Denver's service personnel and product engineers provide the distributors' service representatives with technical assistance and 5 field training, particularly with respect to installation and repair of equipment. Gardner Denver also provides aftermarket support through its remanufacturing facilities in Indianapolis, Indiana; Tulsa, Oklahoma; and Mayfield, Kentucky. The Indianapolis operation remanufactures and repairs air ends for rotary screw compressors, blowers and reciprocating compressors. The Tulsa facility repairs and remanufactures well servicing pumps. The Mayfield operation provides aftermarket parts and repairs for centrifugal compressors. Outside the United States, Gardner Denver markets its products through a network of sales representatives, as well as distributors and direct sales persons. As a result of the Lamson, Wittig and Hoffman acquisitions, the Company operates blower packaging operations in Canada, France, Germany and the United Kingdom. As a result of the Tamrotor and Bellis & Morcom acquisitions, the Company operates compressor manufacturing and packaging facilities in Canada, Finland and the United Kingdom. COMPETITION Gardner Denver's principal competitors in sales of compressed air products include Ingersoll-Rand, Sullair (owned by United Technologies Corporation), Atlas Copco, Quincy Compressor (owned by En Pro Industries, a subsidiary of Goodrich Corporation), CompAir (owned by Invensys P.L.C.) and Roots (owned by Dresser Inc.). The principal competitors in sales of petroleum pump products include National-Oilwell and SPM Flow Control, Inc. The principal competitors in sales of water jetting systems include NLB Corp., WOMA Apparatebau GmbH and Hammelmann Maschinenfabrik GmbH. Each of the Company's business segments has a strong reputation and the Company's trademarks are recognized both domestically and internationally. Demand for compressed air products is dependent upon capital spending by manufacturing and process industries, and general economic conditions. Demand for pump products is primarily tied to the number of working and available drilling rigs and oil and natural gas prices. The principal competitive factors in both segments are quality, performance, price and availability. The relative importance of each of these factors varies depending on the specific type of product. Compressed air and pump products are best characterized as mature, with steady and slow technological advances. Technological trends in compressed air products include, among others, development of oil-free air compressors, increased product efficiency, reduction of noise levels, and advanced control systems to upgrade the flexibility and precision of regulating pressure and capacity. Emerging compressed air products market niches result from new technologies in plastics extrusion, oil and natural gas well drilling, field gas gathering, mobile and stationary vacuum applications, utility and fiber optic installation, environmental impact minimization, as well as other factors. Trends in pump products include, among others, development of larger horsepower and lighter weight pumps. 6 RESEARCH AND DEVELOPMENT The Company actively engages in a continuing research and development program. The Gardner Denver research and development centers are dedicated to various activities, including new product development, product performance improvement and new product applications. Gardner Denver's products are designed to satisfy the safety and performance standards set by various industry groups and testing laboratories. Care is exercised throughout the manufacturing and final testing process to ensure that products conform to industry, government and customer specifications. Gardner Denver has representatives on the American Petroleum Institute's working committee and the Company has relationships with standard enforcement organizations such as Underwriters Laboratories (U.L.), Det Norske Veritas (DNV) and the Canadian Standard Association (C.S.A.). The Company maintains ISO 9001 certification on the quality systems at a majority of its manufacturing and design locations. Expenditures for research and development sponsored by the Company were $2.5 million in 2001, $3.0 million in 2000 and $2.8 million in 1999. MANUFACTURING Gardner Denver has twenty manufacturing facilities that utilize a broad variety of processes. At its manufacturing locations, the Company maintains advanced manufacturing, quality assurance and testing equipment geared to the specific products that it manufactures, and uses extensive process automation in its manufacturing operations. Most of the manufacturing facilities utilize computer aided numerical control tools and manufacturing techniques that concentrate the equipment necessary to produce similar products in one area of the plant (cell manufacturing). One operator using cell manufacturing can monitor and operate several machines, as well as assemble and test products made by such machines, thereby improving operating efficiency and product quality while reducing the amount of work-in-process and finished product inventories. RAW MATERIALS The primary raw materials used by Gardner Denver are cast iron and steel. Such materials are generally available from a number of suppliers. The Company does not currently have long-term contracts with its suppliers of raw materials, but believes that its sources of raw materials are reliable and adequate for its needs. The Company utilizes single sources of supply for certain iron castings and other selected components. A disruption in deliveries from a given supplier could therefore have an adverse effect on the Company's ability to meet its commitments to customers. Nevertheless, the Company believes that it has appropriately balanced this risk against the cost of sustaining a greater number of suppliers. Moreover, the Company has sought, and will continue to seek, cost reductions in its purchases of materials and supplies by consolidating its purchases, pursuing alternate sources of supply and using online bidding competitions among potential suppliers. Historically, the Company has not experienced any significant supply problems in its operations; however, there can be no assurance that this will be the case in the future. 7 BACKLOG The Company's backlog was approximately $79.2 million at December 31, 2001 as compared to approximately $60.3 million at December 31, 2000. This increase was due to acquisitions and increased demand of petroleum pump products partially offset by a decline in demand for compressed air products. Backlog consists of orders believed to be firm for which a customer purchase order has been received or communicated and which are scheduled for shipment within twelve months. Since orders may be rescheduled or canceled, backlog does not necessarily reflect future sales levels. PATENTS, TRADEMARKS AND OTHER INTELLECTUAL PROPERTY The Company believes that the success of its business depends more on the technical competence, creativity and marketing abilities of its employees than on any individual patent, trademark or copyright. Nevertheless, as part of its ongoing research, development and manufacturing activities, the Company has a policy of seeking appropriate patents concerning new products and product improvements. In the aggregate, patents and trademarks are of considerable importance to the manufacturing and marketing of many of the Company's products. However, the Company does not consider any single patent or trademark, or group of patents or trademarks, to be material to its business as a whole, except for the Gardner Denver(R) trademark. Other important trademarks used by Gardner Denver include DuroFlow(R), Sutorbilt(R), CycloBlower(R), Wittig(R), Lamson(R), Tamrotor(R), OPI(R), Champion(R), Geoquip(R), Bellis & Morcom(R) and Hoffman(R). Joy(R) is a registered trademark of Joy Technologies, Inc. Gardner Denver has the right to use the Joy(R) trademark on aftermarket parts until November 2027. The Company's right to use this trademark on air compressors expired in November 1995. Pursuant to trademark license agreements, Cooper has rights to use the Gardner Denver(R) trademark for certain power tools and Gardner Denver has rights to use the Ajax(R) trademark for petroleum pump products. Gardner Denver has registered its trademarks in the countries where it is deemed necessary. The Company also relies upon trade secret protection for its confidential and proprietary information. The Company routinely enters into confidentiality agreements with its employees. There can be no assurance, however, that others will not independently obtain similar information and techniques or otherwise gain access to the Company's trade secrets or that the Company can effectively protect its trade secrets. EMPLOYEES As of February 2002, the Company had approximately 2,000 full-time employees, of which approximately 700, including most of the employees in Finland, Germany and the United Kingdom, were represented by labor unions. The Company believes its current relations with employees are satisfactory. The Company's five-year labor contract with the union at the Quincy, Illinois plant expires in May 2002. Management has no reason to believe that a new agreement will not be finalized prior to the expiration date. 8 ENVIRONMENTAL MATTERS The Company is subject to numerous federal, state, local and foreign laws and regulations relating to the storage, handling, emission, disposal and discharge of materials into the environment. The Company believes that its existing environmental control procedures are adequate and it has no current plans for substantial capital expenditures in this area. Gardner Denver has an environmental policy that confirms its commitment to a clean environment and to compliance with environmental laws. Gardner Denver has an active environmental management program aimed at compliance with existing environmental regulations and developing methods to eliminate or significantly reduce the generation of pollutants in the manufacturing processes. The Company has been identified as a potentially responsible party ("PRP") with respect to eight sites designated for cleanup under federal "Superfund" or similar state laws, which impose liability for cleanup of certain waste sites and for related natural resource damages. Persons potentially liable for such costs and damages generally include the site owner or operator and persons that disposed or arranged for the disposal of hazardous substances found at those sites. Although these laws impose joint and several liability, in application, the PRPs typically allocate the investigation and cleanup costs based upon the volume of waste contributed by each PRP. Based on currently available information, Gardner Denver was only a small contributor to six of these waste sites and has reached, or is attempting to negotiate, de minimus settlements for their cleanup. The clean-up of the remaining two sites is substantially complete and the Company's future obligations entail a share of the sites' ongoing operating and maintenance expense. The Company has an accrued liability on its balance sheet to the extent costs are known or can be estimated for its remaining financial obligations. Based upon consideration of currently available information, the Company does not anticipate any materially adverse effect on its results of operations, financial condition, liquidity or competitive position as a result of compliance with federal, state, local or foreign environmental laws or regulations or cleanup costs relating to the sites discussed above. ITEM 2. PROPERTIES As of December 31, 2001, Gardner Denver has twenty manufacturing plants, three of which are remanufacturing operations, one distribution center, several warehouses, a packaging operation and numerous sales offices. The significant facilities are as follows:
Owned Location Facility Type Sq. Feet or Leased -------- ------------- -------- --------- Quincy, Illinois Executive, Administrative 604,000 Owned and Sales Offices; Manufacturing - pump and compressed air products Sedalia, Missouri Manufacturing - 325,000 Owned compressor products Princeton, Illinois Manufacturing - compressed 130,000 Owned air products 9 Peachtree City, Georgia Administrative and Sales 120,000 Leased Offices; Manufacturing - compressed air products Syracuse, New York Administrative and Sales 120,000 Owned Offices; Manufacturing - compressed air products Memphis, Tennessee Distribution Center 98,000 Owned and Warehouse Houston, Texas Manufacturing - pump 61,000 Leased products Fishers, Indiana Remanufacturing - 60,000 Leased compressed air products Houston, Texas Manufacturing - compressed 57,200 Leased air products Baltic, Ohio Manufacturing-compressed 48,000 Owned air products Tulsa, Oklahoma Manufacturing - 46,000 Owned pump products Fort Worth, Texas Manufacturing - 42,000 Owned pump products Mayfield, Kentucky Remanufacturing - compressed 41,200 Owned air products Tulsa, Oklahoma Remanufacturing - 24,000 Leased pump products Manteca, California Manufacturing - compressed 19,200 Owned air products Chicago, Illinois Sales Office and 10,000 Leased Warehouse Oklahoma City, Oklahoma Sales Office and 8,000 Owned Warehouse Schopfheim, Germany Administrative and Sales 423,000 Owned Offices; Manufacturing - compressed air products Gloucester, United Kingdom Administrative and Sales 196,000 Owned Offices; Manufacturing - compressed air products Tampere, Finland Administrative and Sales 112,500 Leased Offices; Manufacturing - compressed air products Ipswich, United Kingdom Administrative and Sales 10,000 Leased Offices; Manufacturing - compressed air products Toronto, Canada Administrative and Sales 10,000 Leased Offices; Manufacturing - Compressed air products Sao Paulo, Brazil Administrative and Sales 10,000 Leased Offices 10 Toronto, Canada Administrative and Sales 9,000 Leased Offices; Manufacturing - compressed air products Bezons, France Packaging and Warehouse 6,300 Leased
The Peachtree City, Georgia facility is currently leased from the Fayette County Development Authority in connection with industrial revenue bond financing. The Company has an option to purchase the property at a nominal price when the bonds are repaid in 2018. The Company leases sales office space in various U.S. locations and foreign countries, and warehouse space in Singapore and Finland. ITEM 3. LEGAL PROCEEDINGS The Company is a party to various legal proceedings and administrative actions, all of which are of an ordinary or routine nature, incidental to the operations of the Company. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS During the fourth quarter of the fiscal year covered by this report, no matters were submitted to a vote of the stockholders. EXECUTIVE OFFICERS OF REGISTRANT The executive officers of the Company, their positions with the Company, business history and certain other information, as of March 10, 2002, are set forth below. These officers serve at the pleasure of the Board of Directors.
Name Office Age ---- ------ --- Ross J. Centanni Chairman, President and Chief Executive Officer 56 Michael Carney Vice President and General Manager, 44 Blower Division Helen W. Cornell Vice President, Strategic Planning and Operations Support 43 Steven M. Krivacek Vice President, Human Resources 53 Tracy D. Pagliara Vice President, General Counsel and Secretary 39 Philip R. Roth Vice President, Finance and Chief Financial Officer 51 J. Dennis Shull Vice President and General Manager, 53 Compressor Division Richard C. Steber Vice President and General Manager, 51 Pump Division
Ross J. Centanni, age 56, has been President and Chief Executive Officer and a director of Gardner Denver since its incorporation in November 1993. He has been Chairman of Gardner Denver's Board of Directors since November 1998. Prior to Gardner Denver's spin-off from Cooper, he was Vice President and General Manager of Gardner Denver's predecessor, the Gardner-Denver Industrial Machinery Division, where he also served as Director of Marketing 11 from August 1985 to June 1990. He has a B.S. degree in industrial technology and an M.B.A. degree from Louisiana State University. Mr. Centanni is a director of Esterline Technologies, a publicly held manufacturer of components for avionics, propulsion and guidance systems, and Denman Services, Inc., a privately held supplier of medical products. He is also a member of the Petroleum Equipment Suppliers Association Board of Directors and the Quincy University Board of Trustees. Michael S. Carney, age 44, joined the Company as Vice President and General Manager, Gardner Denver Blower Division in November 2001. Prior to joining Gardner Denver, Mr. Carney worked for Woods Equipment Company from 1995 to May 2001. The last position he held with Woods was Vice President, Construction Business. From 1979 to 1995, Mr. Carney worked for General Electric Company in various management positions. Mr. Carney has a B.S.M.E. from the University of Notre Dame, a M.S.E.E. from the University of Cincinnati, and an M.S.I.A. from Purdue University. Helen W. Cornell, age 43, has been Vice President, Strategic Planning and Operations Support of the Company since August 2001. She served as Vice President, Compressor Operations for the Compressor and Pump Division from April 2000 until being appointed to her present position. From November 1993 until accepting her operations role, Ms. Cornell held positions of increasing responsibility as the Corporate Secretary and Treasurer of the Company, serving in the role of Vice President, Corporate Secretary and Treasurer from April 1996 until April 2000. She holds a B.S. degree in accounting from the University of Kentucky and an M.B.A. from Vanderbilt University. She is a Certified Public Accountant and a Certified Management Accountant. Steven M. Krivacek, age 53, has been Vice President, Human Resources for Gardner Denver since March 1995. He previously served the Company as Director of Human Resources from 1986 until his promotion. Mr. Krivacek has a B.A. in economics from California University of Pennsylvania and an M.A. in industrial relations from St. Francis University. Tracy D. Pagliara, age 39, has been Vice President, General Counsel and Secretary of Gardner Denver since August 2000. Prior to joining Gardner Denver, Mr. Pagliara held positions of increasing responsibility in the legal departments of Verizon Communications/GTE Corporation from August 1996 to August 2000 and Kellwood Company from May 1993 to August 1996, ultimately serving in the role of Assistant General Counsel for each company. Mr. Pagliara, a Certified Public Accountant, has a B.S. degree in accounting and Juris Doctorate degree from the University of Illinois. Philip R. Roth, age 51, joined the Company as Vice President, Finance and Chief Financial Officer in May 1996. Prior to joining Gardner Denver, Mr. Roth was employed by Emerson Electric Co. for fifteen years, most recently as the Vice President, Finance and Chief Financial Officer of the Wiegand Industrial Division. Mr. Roth, a Certified Public Accountant, received his B.S. degree in Business Administration from the University of Missouri and an M.B.A. from the Olin School of Business at Washington University. J. Dennis Shull, age 53, has been Vice President and General Manager, Gardner Denver Compressor and Pump Division since its organization in August 1997. He previously served the 12 Company as Vice President, Sales and Marketing since the Company's incorporation in November 1993. From August 1990 until November 1993, Mr. Shull was the Director of Marketing for the Division. Mr. Shull has a B.S. degree in business from Northeast Missouri State University and an M.A. in business from Webster University. Richard C. Steber, age 51, joined the Company as Vice President and General Manager of the Gardner Denver Pump Division in January 2002. Prior to his appointment at Gardner Denver, he was employed by Goulds Pumps, a division of ITT Industries. Since 1998, Mr. Steber has held the position of President and General Manager for Goulds Pumps, headquartered in London. Joining Goulds in 1977, he has previously held positions of Vice President for both the sales and marketing organizations, with domestic and international responsibility. Mr. Steber has a B.S. degree in engineering from S.U.N.Y. College of Environmental Science and Forestry. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The information under "Stock Information" and "Dividends," contained on page 36 of Gardner Denver's 2001 Annual Report to Stockholders, is hereby incorporated herein by reference. ITEM 6. SELECTED FINANCIAL DATA The information under "Financial History," contained on page 12 of Gardner Denver's 2001 Annual Report to Stockholders, is hereby incorporated herein by reference. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The information under "Management's Discussion and Analysis," contained on pages 13 through 18 of Gardner Denver's 2001 Annual Report to Stockholders, is hereby incorporated herein by reference. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The information under "Management's Discussion and Analysis - Market Risk," contained on page 17 of Gardner Denver's 2001 Annual Report to Stockholders, is hereby incorporated herein by reference. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The information under "Report of Independent Public Accountants" and "Consolidated Financial Statements and Notes," contained on pages 19 through 35 of Gardner Denver's 2001 Annual Report to Stockholders, is hereby incorporated herein by reference. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 13 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information concerning the Company's directors contained under "Election of Directors," "Nominees for Election," and "Directors Whose Terms of Office Will Continue After the Meeting" contained on pages 5 through 7 of the Gardner Denver Proxy Statement, dated March 22, 2002, is hereby incorporated herein by reference. Information concerning the Company's executive officers is contained in Part I of this Annual Report on Form 10-K. ITEM 11. EXECUTIVE COMPENSATION The information related to executive compensation contained under "Committees, Compensation and Governance of the Board of Directors" on pages 7 through 9, "Executive Management Compensation" on pages 12 through 14 and "Employee and Executive Benefit Plans" contained on pages 19 through 20 of the Gardner Denver Proxy Statement, dated March 22, 2002, is hereby incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information under "Security Ownership of Management and Certain Beneficial Owners" contained on pages 10 through 12 of the Gardner Denver Proxy Statement, dated March 22, 2002, is hereby incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Not applicable. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) Documents filed as part of this Annual Report --------------------------------------------- 1. Financial Statements and the related report of independent public accountants are incorporated by reference to the pages shown below in Gardner Denver's 2001 Annual Report to Stockholders. 14 Page No. -------- Report of Independent Public Accountants 19 Consolidated Statement of Operations for Each of the Three Years in the Period Ended December 31, 2001 20 Consolidated Balance Sheet as of December 31, 2001 and December 31, 2000 21 Consolidated Statement of Stockholders' Equity for Each of the Three Years in the Period Ended December 31, 2001 22 Consolidated Statement of Cash Flows for Each of the Three Years in the Period Ended December 31, 2001 23 Notes to Consolidated Financial Statements 24-35 The financial statement schedules listed below should be read in conjunction with the financial statements listed above. Financial statement schedules not included in this Annual Report on Form 10-K have been omitted because they are not applicable or the required information is shown in the financial statements or notes hereto. 2. Schedules --------- Report of Arthur Andersen LLP S-1 Schedule II - Valuation and Qualifying Accounts S-2 3. Exhibits -------- 3.1 Certificate of Incorporation of Gardner Denver, Inc., as amended on May 5, 1998, filed as Exhibit 3.1 to Gardner Denver, Inc.'s Quarterly Report on Form 10-Q, dated August 13, 1998, and incorporated herein by reference. 3.2 ByLaws of Gardner Denver, Inc., as amended on July 31, 2001, filed as Exhibit 3.2 to Gardner Denver, Inc.'s Quarterly Report on Form 10-Q, dated August 13, 2001, and incorporated herein by reference. 4.1 Rights Agreement dated as of January 18, 1995, between Gardner Denver Machinery Inc. and First Chicago Trust Company of New York as Rights Agent, filed as Exhibit 4.0 to Gardner Denver Machinery Inc.'s Current Report on Form 8-K, dated January 18, 1995, (File No. 001-12215) and incorporated herein by reference. 4.2 Note Purchase Agreement, dated as of September 26, 1996, filed as Exhibit 4.0 15 to Gardner Denver Machinery Inc.'s Quarterly Report on Form 10-Q, dated November 14, 1996, and incorporated herein by reference. 4.2.1 Second Amendment dated August 31, 2001, to the Note Purchase Agreement dated as of September 26, 1996 filed as Exhibit 4.2.1 on Form 10-Q, dated November 13, 2001, and incorporated herein by reference. 10.0+ Amended and Restated Credit Agreement dated March 6, 2002, among Bank One, NA (formerly known as The First National Bank of Chicago) and the lenders named therein. 10.1* Gardner Denver, Inc. Long-Term Stock Incentive Plan, as amended and filed as Exhibit 10.1 on Gardner Denver, Inc's Form 10-K, dated March 22, 2001, and incorporated herein by reference. 10.2* Gardner Denver Machinery Inc. Supplemental Excess Defined Benefit Plan filed as Exhibit 10.9 to Gardner Denver Machinery Inc.'s Registration Statement on Form 10, effective on March 31, 1994, and incorporated herein by reference. 10.3* Gardner Denver Machinery Inc. Supplemental Excess Defined Contribution Plan, filed as Exhibit 10.10 to Gardner Denver Machinery Inc.'s Registration Statement on Form 10, effective on March 31, 1994, and incorporated herein by reference. 10.4* Amended and Restated Form of Indemnification Agreement entered into between Gardner Denver, Inc. and its directors, officers or representatives. 10.5* Form of Management Continuity Agreement between Gardner Denver Machinery Inc. and each of its executive officers, filed as Exhibit 10.12 to Gardner Denver Machinery Inc.'s Registration Statement on Form 10, effective on March 31, 1994, and incorporated herein by reference. 10.6* Gardner Denver, Inc. Phantom Stock Plan for Outside Directors, as amended May 4, 1998 and March 7, 2000, with an effective date of April 1, 2000, and incorporated herein by reference. 10.7* Gardner Denver, Inc. Executive Stock Repurchase Program, as filed as Exhibit 16 10.7 to Gardner Denver, Inc.'s Form 10-K dated March 22, 2001, and incorporated herein by reference. 10.8* Gardner Denver, Inc. Incentive Stock Option Agreement, as filed as Exhibit 10.8 to Gardner Denver, Inc.'s Form 10-K dated March 22, 2001, and incorporated herein by reference. 10.9* Gardner Denver, Inc. Nonstatutory Stock Option Agreement, as filed as Exhibit 10.9 to Gardner Denver, Inc.'s Form 10-K dated March 22, 2001, and incorporated herein by reference. 10.10* Gardner Denver, Inc. Nonemployee Director Stock Option Agreement, as filed as Exhibit 10.10 to Gardner Denver, Inc.'s Form 10-K dated March 22, 2001, and incorporated herein by reference. 10.11* Gardner Denver, Inc. Management Annual Incentive Plan dated January 2, 2001, filed as Exhibit 10.11 to Gardner Denver, Inc.'s Quarterly Report on Form 10-Q, dated May 14, 2001, and incorporated herein by reference. 10.12* Form of Gardner Denver Inc. Long-Term Cash Bonus Agreement between Gardner Denver, Inc. and executive bonus award participants. 13.0 The following portions of the Gardner Denver, Inc. 2001 Annual Report to Stockholders. Page No. -------- Financial History 12 Management's Discussion and Analysis 13-18 Report of Independent Public Accountants 19 Consolidated Statements of Operations 20 Consolidated Balance Sheets 21 Consolidated Statements of Stockholders' Equity 22 Consolidated Statements of Cash Flows 23 Notes to Consolidated Financial Statements 24-35 Stock Information 36 Dividends 36 17 21.0 Subsidiaries of Gardner Denver, Inc. 23.0 Consent of Arthur Andersen LLP. 24.0 Powers of Attorney from members of the Gardner Denver Inc. Board of Directors. 99.0 Letter from Gardner Denver, Inc. to the Securities and Exchange Commission in accordance with Temporary Note 3T. + The Registrant hereby agrees to furnish supplementally a copy of any omitted schedules to this Agreement to the SEC upon request. * Indicates management contract or compensatory plan or arrangement. (b) Reports on Form 8-K. ------------------- There were no reports on Form 8-K during the quarter ended December 31, 2001. 18 SIGNATURES Pursuant to the requirements of Section 13 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, INC. By /s/Ross J. Centanni ----------------------------------- Name: Ross J. Centanni Title: Chairman, President and CEO Date: March 28, 2002 ------------------------------ Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated.
Signature Title Date --------- ----- ---- /s/Ross J. Centanni Chairman, President and CEO March 28, 2002 - ----------------------------- (Principal Executive Officer) (Ross J. Centanni) and Director /s/Philip R. Roth Vice President, Finance and CFO March 28, 2002 - ----------------------------- (Principal Financial Officer) (Philip R. Roth) /s/Daniel C. Rizzo, Jr. Vice President and Corporate March 28, 2002 - ----------------------------- Controller (Chief Accounting (Daniel C. Rizzo, Jr.) Officer) *Donald G. Barger, Jr. Director March 28, 2002 (Donald G. Barger, Jr.) *Frank J. Hansen Director March 28, 2002 (Frank J. Hansen) *Raymond R. Hipp Director March 28, 2002 (Raymond R. Hipp) *Thomas M. McKenna Director March 28, 2002 (Thomas M. McKenna) *Diane K. Schumacher Director March 28, 2002 (Diane K. Schumacher) *Richard L. Thompson Director March 28, 2002 (Richard L. Thompson) *By /s/Tracy D. Pagliara -------------------- (Tracy D. Pagliara, as Attorney-In-Fact for each of the persons indicated)
19 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To Gardner Denver, Inc. We have audited in accordance with auditing standards generally accepted in the United States, the consolidated financial statements included in Gardner Denver, Inc.'s. 2001 Annual Report to Stockholders incorporated by reference in this Form 10-K, and have issued our report thereon dated February 6, 2002 (except with respect to the matter discussed in Note 9, as to which the date is March 6, 2002). Our audit was made for the purpose of forming an opinion on those statements taken as a whole. Schedule II included in this Form 10-K is the responsibility of the Company's management and is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in our audit of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. ARTHUR ANDERSEN LLP St. Louis, Missouri February 6, 2002 (except with respect to the matter discussed in Note 9, as to which the date is March 6, 2002) S-1 20 GARDNER DENVER, INC. SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS FOR THE YEAR ENDED DECEMBER 31, (dollars in thousands)
BALANCE AT CHARGED TO CHARGED TO BALANCE AT BEGINNING OF COSTS AND OTHER END OF DESCRIPTION YEAR EXPENSES ACCOUNTS (1) DEDUCTIONS YEAR ----------- ------------ ---------- ------------ ---------- ---------- 2001 - ---- Allowance for doubtful accounts $ 5,169 $ 708 $ 454 $ (1,102) $5,229 2000 - ---- Allowance for doubtful accounts $ 4,838 $ 635 $ 108 $ (412) $5,169 1999 - ---- Allowance for doubtful accounts $ 4,371 $ 380 $ 551 $ (464) $4,838 (1) Includes the allowance for doubtful accounts of acquired businesses at the dates of acquisition and the effect of foreign currency translation adjustments for those companies whose functional currency is not the U.S. dollar.
S-2 21 GARDNER DENVER, INC. EXHIBIT INDEX EXHIBIT NO. DESCRIPTION 3.1 Certificate of Incorporation of Gardner Denver, Inc., as amended on May 5, 1998, filed as Exhibit 3.1 to Gardner Denver, Inc.'s Quarterly Report on Form 10-Q, dated August 13, 1998, and incorporated herein by reference. 3.2 ByLaws of Gardner Denver, Inc., as amended on May 5, 1998, filed as Exhibit 3.2 to Gardner Denver, Inc.'s Quarterly Report on Form 10-Q, dated August 13, 1998, and incorporated herein by reference. 4.1 Rights Agreement dated as of January 18, 1995, between Gardner Denver Machinery Inc. and First Chicago Trust Company of New York as Rights Agent, filed as Exhibit 4.0 to Gardner Denver Machinery Inc's Current Report on Form 8-K, dated January 18, 1995, (File No. 001-13215) and incorporated herein by reference. 4.2 Note Purchase Agreement, dated as of September 26, 1996, filed as Exhibit 4.0 to Gardner Denver Machinery Inc.'s Quarterly Report on Form 10-Q, dated November 14, 1996, and incorporated herein by reference. 4.2.1 Second Amendment dated August 31, 2001, to the Note Purchase Agreement dated as of September 26, 1996 filed as Exhibit 4.2.1 on Form 10-Q, dated November 13, 2001, and incorporated herein by reference. 10.0+ Amended and Restated Credit Agreement dated March 6, 2002, among Bank One, NA (formerly known as The First National Bank of Chicago) and the lenders named therein. 10.1* Gardner Denver, Inc. Long-Term Stock Incentive Plan, as amended and filed as Exhibit 10.1 to Gardner Denver, Inc.'s Form 10-K dated March 22, 2001, and incorporated herein by reference. 10.2* Gardner Denver Machinery Inc. Supplemental Excess Defined Benefit Plan filed as 22 Exhibit 10.9 to Gardner Denver Machinery Inc.'s Registration Statement on Form 10, effective on March 31, 1994, and incorporated herein by reference. 10.3* Gardner Denver Machinery Inc. Supplemental Excess Defined Contribution Plan, filed as Exhibit 10.10 to Gardner Denver Machinery Inc.'s Registration Statement on Form 10, effective on March 31, 1994, and incorporated herein by reference. 10.4* Amended and Restated Form of Indemnification Agreement entered into between Gardner Denver, Inc. and its directors, officers or representatives. 10.5* Form of Management Continuity Agreement between Gardner Denver Machinery Inc. and each of its executive officers, filed as Exhibit 10.12 to Gardner Denver Machinery Inc.'s Registration Statement on Form 10, effective on March 31, 1994, and incorporated herein by reference. 10.6* Gardner Denver, Inc. Phantom Stock Plan for Outside Directors, as amended May 4, 1998 and March 7, 2000, with an effective date of April 1, 2000, and incorporated herein by reference. 10.7* Gardner Denver, Inc. Executive Stock Repurchase Program, filed as Exhibit 10.7 to Gardner Denver, Inc.'s Form 10-K dated March 22, 2001, and incorporated herein by reference. 10.8* Gardner Denver, Inc. Incentive Stock Option Agreement, filed as Exhibit 10.8 to Gardner Denver, Inc.'s Form 10-K dated March 22, 2001, and incorporated herein by reference. 10.9* Gardner Denver, Inc. Nonstatutory Stock Option Agreement, filed as Exhibit 10.9 to Gardner Denver, Inc.'s Form 10-K dated March 22, 2001, and incorporated herein by reference. 10.10* Gardner Denver, Inc. Nonemployee Director Stock Option Agreement, filed as Exhibit 10.10 to Gardner Denver, Inc.'s Form 10-K dated March 22, 2001, and incorporated herein by reference. 10.11* Gardner Denver, Inc. Management Annual Incentive Plan dated January 2, 2001, filed as Exhibit 10.11 to Gardner Denver, Inc.'s Quarterly Report on Form 10-Q, dated May 14, 2001, and incorporated herein by reference. 23 10.12* Form of Gardner Denver, Inc. Long-Term Cash Bonus Agreement between Gardner Denver, Inc. and executive bonus award participants. 13.0 The following portions of the Gardner Denver, Inc. 2001 Annual Report to Stockholders. Page No. -------- Financial History 12 Management's Discussion and Analysis 13-18 Report of Independent Public Accountants 19 Consolidated Statements of Operations 20 Consolidated Balance Sheets 21 Consolidated Statements of Stockholders' Equity 22 Consolidated Statements of Cash Flows 23 Notes to Consolidated Financial Statements 24-35 Stock Information 36 Dividends 36 21.0 Subsidiaries of Gardner Denver, Inc. 23.0 Consent of Arthur Andersen LLP. 24.0 Powers of Attorney from members of the Gardner Denver, Inc. Board of Directors. 99.0 Letter from Gardner Denver, Inc. to the Securities and Exchange Commission in accordance with Temporary Note 3T. + The Registrant hereby agrees to furnish supplementally a copy of any omitted schedules to this Agreement to the SEC upon request. * Indicates management contract or compensatory plan or arrangement. 24 EX-10.0 3 ex10.txt AMENDED AND RESTATED CREDIT AGREEMENT Exhibit 10.0 EXECUTION COPY AMENDED & RESTATED CREDIT AGREEMENT Dated as of March 6, 2002 among GARDNER DENVER, INC., THE NON-U.S. SUBSIDIARY BORROWER THAT IS OR MAY HEREAFTER BECOME A PARTY HERETO, THE INSTITUTIONS FROM TIME TO TIME PARTIES HERETO AS LENDERS BANK ONE, NA (MAIN OFFICE CHICAGO), (formerly known as The First National Bank of Chicago) individually, as LC Issuer, the Swing Line Lender and as Agent for the Lenders and U.S. BANK NATIONAL ASSOCIATION, individually and as Syndication Agent for the Lenders ============================================================================== BANC ONE CAPITAL MARKETS, INC. as Lead Arranger and Sole Book Runner ============================================================================== Sidley Austin Brown & Wood Bank One Plaza 10 South Dearborn Street Chicago, Illinois 60603 TABLE OF CONTENTS ARTICLE I: DEFINITIONS.........................................................................1 ARTICLE II: THE CREDITS.......................................................................23 2.1. Revolving Loans.....................................................................23 2.2. Swing Line Loans....................................................................24 2.3. Term Loan...........................................................................26 2.4. Repayments and Prepayments of Advances..............................................27 2.5. Ratable Loans.......................................................................29 2.6. Types of Advances...................................................................29 2.7. Facility Fee; Reductions in Aggregate Revolving Loan Commitment.....................29 2.8. Minimum Amount of Each Advance; Maximum Interest Periods............................29 2.9. Method of Selecting New Advances....................................................30 2.10. Conversion and Continuation of Outstanding Advances................................30 2.11. Changes in Interest Rate, etc......................................................31 2.12. Rates Applicable After Default.....................................................32 2.13. Method of Payment..................................................................32 2.14. Noteless Agreement; Evidence of Indebtedness.......................................33 2.15. Telephonic Notices.................................................................33 2.16. Interest Payment Dates; Interest and Fee Basis.....................................34 2.17. Notification of Advances, Interest Rates, Prepayments and Commitment Reductions.......................................................................34 2.18. Lending Installations..............................................................34 2.19. Non-U.S. Subsidiary Borrower.......................................................35 2.20. Non-Receipt of Funds by the Agent..................................................35 2.21. Extension of Revolving Loan Termination Date.......................................35 2.22. Withholding Tax Exemption..........................................................36 2.23. Facility LCs.......................................................................37 2.24. Transitional Letter of Credit Provisions...........................................43 2.25. Judgment Currency..................................................................43 2.26. Market Disruption..................................................................43 ARTICLE III: CHANGE IN CIRCUMSTANCES..........................................................44 3.1. Yield Protection....................................................................44 3.2. Changes in Capital Adequacy Regulations.............................................44 3.3. Availability of Types of Advances...................................................45 3.4. Funding Indemnification.............................................................45 3.5. Lender Statements; Survival of Indemnity............................................45 3.6. Replacement Lenders.................................................................46 3.7. Payments by Non-U.S. Subsidiary Borrower............................................46 i ARTICLE IV: CONDITIONS PRECEDENT..............................................................46 4.1. Initial Credit Extension............................................................46 4.2. Initial Advance to the Non-U.S. Subsidiary Borrower.................................48 4.3. Each Credit Extension...............................................................49 ARTICLE V: REPRESENTATIONS AND WARRANTIES.....................................................50 5.1. Existence and Standing..............................................................50 5.2. Authorization and Validity..........................................................50 5.3. No Conflict; Government Consent.....................................................50 5.4. Financial Statements................................................................51 5.5. Material Adverse Change.............................................................51 5.6. Taxes...............................................................................51 5.7. Litigation and Contingent Obligations...............................................51 5.8. Subsidiaries........................................................................51 5.9. ERISA...............................................................................51 5.10. Accuracy of Information............................................................52 5.11. Regulation U.......................................................................52 5.12. Material Agreements................................................................52 5.13. Compliance With Laws...............................................................52 5.14. Ownership of Property..............................................................52 5.15. Labor Matters......................................................................53 5.16. Investment Company Act.............................................................53 5.17. Public Utility Holding Company Act.................................................53 5.18. Insurance..........................................................................53 5.19. Special Representations and Warranties of the Non-U.S. Subsidiary Borrower.........53 ARTICLE VI: COVENANTS.........................................................................55 6.1. Financial Reporting.................................................................55 6.2. Use of Proceeds.....................................................................56 6.3. Notice of Default...................................................................57 6.4. Conduct of Business.................................................................57 6.5. Taxes...............................................................................57 6.6. Insurance...........................................................................57 6.7. Compliance with Laws................................................................57 6.8. Maintenance of Property.............................................................58 6.9. Inspection..........................................................................58 6.10. Subsidiaries.......................................................................58 6.11. Dividends..........................................................................58 6.12. Indebtedness.......................................................................59 6.13. Merger.............................................................................59 6.14. Sale of Assets.....................................................................60 6.15. Investments and Acquisitions; Guaranty or Pledge Documentation for New Subsidiaries.....................................................................60 6.16. Contingent Obligations and Off Balance Sheet Liabilities...........................63 6.17. Liens..............................................................................63 ii 6.18. Rentals............................................................................65 6.19. Affiliates.........................................................................65 6.20. Minimum Consolidated Interest Coverage Ratio.......................................66 6.21. Minimum Consolidated Net Worth.....................................................66 6.22. Maximum Leverage Ratio.............................................................66 6.23. Capital Expenditures...............................................................66 6.24. Pledge Agreements..................................................................66 ARTICLE VII: DEFAULTS.........................................................................66 ARTICLE VIII: ACCELERATION, DEFAULTING LENDERS, WAIVERS, AMENDMENTS AND REMEDIES..............69 8.1. Remedies............................................................................69 8.2. Defaulting Lender...................................................................70 8.3. Amendments..........................................................................71 8.4. Preservation of Rights..............................................................72 ARTICLE IX: GENERAL PROVISIONS................................................................72 9.1. Survival of Representations.........................................................72 9.2. Governmental Regulation.............................................................73 9.3. Taxes...............................................................................73 9.4. Headings............................................................................73 9.5. Entire Agreement....................................................................73 9.6. Several Obligations; Benefits of this Agreement.....................................73 9.7. Expenses; Indemnification...........................................................73 9.8. Numbers of Documents................................................................74 9.9. Accounting..........................................................................74 9.10. Prior Agreement....................................................................74 9.11. Severability of Provisions.........................................................75 9.12. Nonliability of Lenders............................................................75 9.13. CHOICE OF LAW......................................................................75 9.14. CONSENT TO JURISDICTION............................................................75 9.15. WAIVER OF JURY TRIAL...............................................................75 9.16. Agent for Service of Process.......................................................76 9.17. Confidentiality....................................................................76 ARTICLE X: THE AGENT..........................................................................76 10.1. Appointment........................................................................76 10.2. Powers.............................................................................76 10.3. General Immunity...................................................................76 10.4. No Responsibility for Loans, Recitals, etc.........................................76 10.5. Action on Instructions of Lenders..................................................77 10.6. Employment of Agents and Counsel...................................................77 10.7. Reliance on Documents; Counsel.....................................................77 10.8. Agent's Reimbursement and Indemnification..........................................77 iii 10.9. Rights as a Lender.................................................................78 10.10. Lender Credit Decision............................................................78 10.11. Successor Agent...................................................................78 10.12. Agent's Fees......................................................................79 10.13. Execution of Guaranty Collateral Documents........................................79 10.14. Collateral and Guaranty Releases..................................................79 10.15. No Duties Imposed on Syndication Agent or Arranger................................79 ARTICLE XI: SETOFF; RATABLE PAYMENTS..........................................................79 11.1. Setoff.............................................................................79 11.2. Ratable Payments...................................................................80 11.3. Relations Among Lenders............................................................80 ARTICLE XII: BENEFIT OF AGREEMENT; ASSIGNMENTS; PARTICIPATION.................................80 12.1. Successors and Assigns.............................................................80 12.2. Participation......................................................................81 12.2.1. Permitted Participants; Effect...............................................81 12.2.2. Voting Rights................................................................81 12.2.3. Benefit of Setoff............................................................81 12.3. Assignments........................................................................81 12.3.1. Permitted Assignments........................................................81 12.3.2. Effect; Effective Date.......................................................82 12.3.3. Register.....................................................................82 12.4. Dissemination of Information.......................................................82 12.5. Tax Treatment......................................................................83 ARTICLE XIII: NOTICES.........................................................................83 13.1. Giving Notice......................................................................83 13.2. Change of Address..................................................................83 ARTICLE XIV: COUNTERPARTS.....................................................................83
iv EXHIBITS AND SCHEDULES ---------------------- Exhibit A -- Form of Assumption Letter Exhibit B -- Form of Parent Guaranty Exhibit C -- Form of Subsidiary Guaranty Exhibit D -- Forms of Notes (if requested) Exhibit E -- Forms of Legal Opinion Exhibit F -- Form of Compliance Certificate Exhibit G -- Loan/Credit Related Money Transfer Instructions Exhibit H -- List of Closing Documents Exhibit I -- Form of Assignment Agreement Schedule 1 -- Commitments Schedule 2 -- Eurocurrency Payment Offices Schedule 3 -- Existing LCs Schedule 4 -- Litigation Schedule 5 -- Subsidiaries Schedule 6 -- Environmental Matters Schedule 7 -- Existing Indebtedness Schedule 8 -- Existing Investments Schedule 9 -- Existing Liens v AMENDED AND RESTATED CREDIT AGREEMENT This Amended and Restated Credit Agreement (this "AGREEMENT"), dated as of March 6, 2002, is among Gardner Denver, Inc., a Delaware corporation (formerly known as Gardner Denver Machinery Inc.) (the "BORROWER"), a Foreign Subsidiary of the Borrower that is, or may hereafter become, a party hereto (whether now existing or hereafter formed, the "NON-U.S. SUBSIDIARY BORROWER" and, together with the Borrower, collectively referred to as the "BORROWERS"), the institutions from time to time parties hereto as Lenders, Bank One, NA (formerly known as The First National Bank of Chicago), having its principal place of business in Chicago, Illinois, as an LC Issuer, the Swing Line Lender and as Agent for the Lenders and U.S. Bank National Association, as Syndication Agent for the Lenders. The parties hereto agree as follows: WHEREAS, the Borrower, certain of the Lenders party hereto, certain other lenders and the Agent are parties to that certain Credit Agreement, dated as of January 20, 1998 (as amended, restated, supplemented or otherwise modified prior to the date hereof, the "EXISTING CREDIT AGREEMENT") and that certain Interim Credit Agreement, dated as of August 31, 2001 (as amended, restated, supplemented or otherwise modified prior to the date hereof, the "INTERIM CREDIT AGREEMENT"); and WHEREAS, the Borrower, the Lenders, and the Agent desire to amend and restate the Existing Credit Agreement in certain respects and to terminate the Interim Credit Agreement; NOW THEREFORE, the Borrower, the Lenders, and the Agent have agreed to amend and restate the Existing Credit Agreement on the terms and conditions set forth herein: ARTICLE I: DEFINITIONS As used in this Agreement: "ACQUISITION" means any transaction, or any series of related transactions, consummated on or after the date of this Agreement, by which the Borrower or any of its Subsidiaries (i) acquires any going business concern or all or substantially all of the assets of any firm, corporation or other business entity, or division thereof (other than the Borrower or any of its Subsidiaries), whether through purchase of assets, a reorganization, merger or otherwise or (ii) directly or indirectly acquires (in one transaction or as the most recent transaction in a series of transactions) at least a majority (in number of votes) of the securities of a corporation which have ordinary voting power for the election of directors (other than securities having such power only by reason of the happening of a contingency) or a majority (by percentage or voting power) of the outstanding ownership interests of a partnership or limited liability company (other than a Subsidiary formed for the purpose of carrying forward a business theretofore operated by the Borrower or any of its Subsidiaries). "ADVANCE" means a borrowing hereunder consisting of the aggregate amount of the several Loans made by the Lenders on the same Borrowing Date to any Borrower of the same Type and, in the case of Eurocurrency Advances, in the same currency and for the same Eurocurrency Interest Period. "AFFILIATE" of any Person means any other Person directly or indirectly controlling, controlled by or under common control with such Person. A Person shall be deemed to control another Person if the controlling Person owns 10% or more of any class of voting securities (or other ownership interests) of the controlled Person or possesses, directly or indirectly, the power to direct or cause the direction of the management or policies of the controlled Person, whether through ownership of stock, by contract or otherwise. "AGENT" means Bank One in its capacity as contractual representative for the Lenders pursuant to Article X, and not in its --------- individual capacity as a Lender, and any successor Agent appointed pursuant to Article X. --------- "AGGREGATE OUTSTANDING CREDIT EXPOSURE" means, as of any day, the aggregate of the Outstanding Credit Exposure of all the Lenders. "AGGREGATE OUTSTANDING LC EXPOSURE" means, as of any day, the aggregate of the Outstanding LC Exposure of all the Lenders. "AGGREGATE REVOLVING LOAN COMMITMENT" means the aggregate of the Revolving Loan Commitments of all the Lenders, as may be adjusted from time to time pursuant to the terms hereof. The initial Aggregate Revolving Loan Commitment is One Hundred Fifty Million and 00/100 Dollars ($150,000,000). "AGGREGATE REVOLVING LOAN COMMITMENT REDUCTION NOTICE" is defined in Section 2.7. ------------ "AGGREGATE TERM LOAN COMMITMENT" means the aggregate of the Term Loan Commitments of all of the Term Loan Lenders, which shall equal $50,000,000 on the Closing Date. "AGREED CURRENCIES" means (i) Dollars, (ii) so long as such currencies remain Eligible Currencies, Pounds Sterling, Canadian Dollars and euro; and (iii) with respect to Facility LCs, any other Eligible Currency which the Borrower requests the Agent to include as an Agreed Currency hereunder and which is acceptable to the Agent and one-hundred percent (100%) of the Lenders; provided, that the Agent shall promptly notify each -------- ---- Lender of each such request and each Lender shall be deemed not to have agreed to each such request unless its written consent thereto has been received by the Agent within five (5) Business Days from the date of such notification by the Agent to such Lender. "AGREEMENT" means this Amended and Restated Credit Agreement, as it may be amended or modified and in effect from time to time. 2 "AGREEMENT ACCOUNTING PRINCIPLES" means generally accepted accounting principles as in effect in the United States from time to time; provided, however, that if the Borrower notifies the Agent that the Borrower - -------- ------- wishes to amend any covenant in Article VI to eliminate the effect of any ---------- change in generally accepted accounting principles on the operation of such covenant (or if the Agent notifies the Borrower that the Required Lenders wish to amend Article VI for such purpose), then the Borrower's compliance ---------- with such covenant shall be determined on the basis of generally accepted accounting principles in effect immediately before the relevant change in generally accepted accounting principles became effective, until either such notice is withdrawn or such covenant is amended in a manner satisfactory to the Borrower and the Required Lenders. "ALTERNATE BASE RATE" means, for any day, a rate of interest per annum equal to the higher of (i) the Prime Rate for such day and (ii) the sum of Federal Funds Effective Rate for such day plus 1/2% per annum. "APPLICABLE COMMERCIAL FACILITY LC MARGIN" means, with respect to any commercial Facility LC, for any day, the percentage rate per annum set forth below opposite the Leverage Ratio in effect on such day:
LEVERAGE APPLICABLE RATIO: COMMERCIAL FACILITY LC MARGIN: GREATER THAN BUT LESS THAN OR EQUAL TO -- 1.5 0.375% 1.5 2.0 0.50% 2.0 2.5 0.625% 2.5 3.0 0.75% 3.0 -- 0.875%
The Applicable Commercial Facility LC Margin shall be adjusted (upward or downward) effective five Business Days after the Agent has received (and such adjustment, if any, shall be based upon) the Borrower's compliance certificate delivered with the Borrower's financial statements pursuant to clauses (i) and (ii) of Section 6.1; provided, however, that before receipt - ----------- ---- ----------- -------- ------- by the Agent of the Borrower's compliance certificate delivered with the Borrower's financial statements pursuant to clauses (i) and (ii) of Section ----------- ---- ------- 6.1 for the fiscal quarter ended on December 31, 2001, the Applicable - --- Commercial Facility LC Margin shall be 0.75% per annum or higher; and provided, further, that if the Borrower fails to deliver to the Agent a - -------- ------- compliance certificate and financial statements pursuant to clauses (i) and ----------- (ii) of Section 6.1 for any reason, then the Applicable Commercial Facility - ---- ----------- LC Margin shall be 0.875%, effective until five Business Days after such compliance certificate and financial statements are received by the Agent. "APPLICABLE FACILITY FEE" means for any day, the percentage rate per annum set forth below opposite the Leverage Ratio in effect on such day: 3
LEVERAGE APPLICABLE RATIO: FACILITY FEE: GREATER THAN BUT LESS THAN OR EQUAL TO -- 1.5 0.175% 1.5 2.0 0.20% 2.0 2.5 0.225% 2.5 3.0 0.25% 3.0 -- 0.30%
The Applicable Facility Fee shall be adjusted (upward or downward) effective five Business Days after the Agent has received (and such adjustment, if any, shall be based upon) the Borrower's compliance certificate delivered with the Borrower's financial statements pursuant to clauses (i) and (ii) of ----------- ---- Section 6.1; provided, however, that before receipt by the Agent of the - ----------- -------- ------- Borrower's compliance certificate delivered with the Borrower's financial statements pursuant to clauses (i) and (ii) of Section 6.1 for the fiscal ----------- ---- ----------- quarter ended on December 31, 2001, the Applicable Facility Fee shall be 0.25% per annum or higher; and provided, further, that if the Borrower fails -------- ------- to deliver to the Agent a compliance certificate and financial statements pursuant to clauses (i) and (ii) of Section 6.1 for any reason, then the ----------- ---- ----------- Applicable Facility Fee shall be 0.30%, effective until five Business Days after such compliance certificate and financial statements are received by the Agent. "APPLICABLE MARGIN" means, with respect to a Eurocurrency Advance for any day, the percentage rate per annum set forth below opposite the Leverage Ratio in effect on such day:
LEVERAGE RATIO: APPLICABLE MARGIN: GREATER THAN BUT LESS THAN EUROCURRENCY LOANS OR EQUAL TO -- 1.5 0.575% 1.5 2.0 0.80% 2.0 2.5 1.025% 2.5 3.0 1.25% 3.0 -- 1.45%
The Applicable Margin for new as well as outstanding Eurocurrency Advances shall be adjusted (upward or downward) effective five Business Days after the Agent has received (and such adjustment, if any, shall be based upon) the Borrower's compliance certificate delivered with the Borrower's financial statements pursuant to clauses (i) and (ii) of Section 6.1; ----------- ---- ----------- provided, however, that before receipt by the Agent of the Borrower's - -------- ------- compliance certificate delivered with the Borrower's financial statements pursuant to clauses (i) and (ii) of Section 6.1 for the fiscal quarter ended ----------- ---- ----------- on December 31, 2001, the Applicable Margin shall be 1.25% or higher; and provided, further, that if the Borrower fails to deliver to the Agent a - -------- ------- compliance certificate and 4 financial statements pursuant to clauses (i) and (ii) of Section 6.1 for any ----------- ---- ----------- reason, then the Applicable Margin shall be 1.45%, effective until five Business Days after such compliance certificate and financial statements are received by the Agent. "APPLICABLE STAND-BY FACILITY LC MARGIN" means, with respect to any stand-by Facility LC, for any day, the percentage rate per annum set forth below opposite the Leverage Ratio in effect on such day:
LEVERAGE APPLICABLE RATIO: STAND-BY FACILITY LC MARGIN: GREATER THAN BUT LESS THAN OR EQUAL TO -- 1.5 0.75% 1.5 2.0 1.00% 2.0 2.5 1.25% 2.5 3.0 1.50% 3.0 -- 1.75%
The Applicable Stand-by Facility LC Margin shall be adjusted (upward or downward) effective five Business Days after the Agent has received (and such adjustment, if any, shall be based upon) the Borrower's compliance certificate delivered with the Borrower's financial statements pursuant to clauses (i) and (ii) of Section 6.1; provided, however, that before receipt - ----------- ---- ----------- -------- ------- by the Agent of the Borrower's compliance certificate delivered with the Borrower's financial statements pursuant to clauses (i) and (ii) of Section ----------- ---- ------- 6.1 for the fiscal quarter ended on December 31, 2001, the Applicable - --- Stand-by Facility LC Margin shall be 1.50% per annum or higher; and provided, further, that if the Borrower fails to deliver to the Agent a - -------- ------- compliance certificate and financial statements pursuant to clauses (i) and ----------- (ii) of Section 6.1 for any reason, then the Applicable Stand-by Facility LC - ---- ----------- Margin shall be 1.75%, effective until five Business Days after such compliance certificate and financial statements are received by the Agent. "APPROXIMATE EQUIVALENT AMOUNT" of any currency with respect to any amount of Dollars shall mean the Equivalent Amount of such currency with respect to such amount of Dollars at such date, rounded up to the nearest amount of such currency as determined by the Agent from time to time. "ARRANGER" means Banc One Capital Markets, Inc. "ARTICLE" means an article of this Agreement unless another document is specifically referenced. "ASSUMPTION LETTER" means a letter of a Foreign Subsidiary of the Borrower, addressed to the Lenders in substantially the form of Exhibit A --------- hereto pursuant to which such Subsidiary 5 agrees to become the "Non-U.S. Subsidiary Borrower" and agrees to be bound by the terms and conditions hereof. "AUTHORIZED OFFICER" means (i) with respect to the Borrower, any of the President, the Chief Executive Officer or the Chief Financial Officer of the applicable Borrower, acting singly; provided, that with respect to -------- Borrowing Notices, Conversion/Continuation Notices, requests for the issuance or modifications of Facility LCs, commitment reduction notices and prepayment notices, the Treasurer, Assistant Treasurer or Corporate Controller of the applicable Borrower, acting singly, shall also be deemed an Authorized Officer and (ii) with respect to the Non-U.S. Subsidiary Borrower, such officers of the Non-U.S. Subsidiary Borrower as the President, the Chief Executive Officer or the Chief Financial Officer of the Borrower may designate in the Assumption Letter to which such Non-U.S. Subsidiary Borrower is a party. "BANK ONE" means Bank One, NA, with its main office in Chicago, Illinois, in its individual capacity, and its successors. "BORROWER" means Gardner Denver, Inc. (formerly known as Gardner Denver Machinery Inc.), a Delaware corporation, and its successors and permitted assigns. "BORROWER CREDIT DOCUMENTS" means this Agreement, the Parent Guaranty, any Pledge Agreements executed by the Borrower and any and all Facility LC Application Agreements executed by the Borrower. "BORROWERS" means, collectively, the Borrower and, after it has become a party hereto, the Non-U.S. Subsidiary Borrower. "BORROWING DATE" means a date on which an Advance or a Swing Line Loan is made hereunder. "BORROWING NOTICE" is defined in Section 2.9. ----------- "BUSINESS DAY" means (i) with respect to any borrowing, payment or rate selection of Eurocurrency Advances, a day (other than a Saturday or Sunday) on which banks generally are open in Chicago and New York for the conduct of substantially all of their commercial lending activities, and on which dealings in United States Dollars and the other Agreed Currencies are carried on in the London interbank market and (ii) for all other purposes, a day (other than a Saturday or Sunday) on which banks generally are open in Chicago and New York for the conduct of substantially all of their commercial lending activities. "CAPITALIZED LEASE" of a Person means any lease of Property by such Person as lessee which would be capitalized on a balance sheet of such Person prepared in accordance with Agreement Accounting Principles. "CAPITALIZED LEASE OBLIGATIONS" of a Person means the amount of the obligations of such Person under Capitalized Leases which would be shown as a liability on a balance sheet of such Person prepared in accordance with Agreement Accounting Principles. 6 "CHANGE" is defined in Section 3.2. ----------- "CHANGE IN CONTROL" means the acquisition by any Person, or two or more Persons acting in concert, of beneficial ownership (within the meaning of Rule 13d-3 of the Securities and Exchange Commission under the Securities Exchange Act of 1934) of 30% or more of the outstanding shares of voting stock of either Borrower. "CLOSING DATE" means March 6, 2002. "CODE" means the Internal Revenue Code of 1986, as amended, reformed or otherwise modified from time to time. "COLLATERAL DOCUMENTS" means, collectively, each of the Pledge Agreements and the Intercreditor Agreement, together with the documents, instruments and agreements executed in connection therewith. "COMMISSION" means the Securities and Exchange Commission, an agency of the United States government, or its successor. "COMMITMENT" means, for each Lender, the obligation of such Lender to make Revolving Loans and Term Loans and participate in Facility LCs and Swing Line Loans in the aggregate not exceeding the amount set forth opposite its name on Schedule 1 hereto or as set forth in any Notice of ---------- Assignment relating to any assignment that has become effective pursuant to Section 12.3.2, as such amount may be modified from time to time pursuant to - -------------- the terms hereof. "CONDEMNATION" is defined in Section 7.8. ----------- "CONSOLIDATED ADJUSTED EBITDA" means, for any period of four consecutive fiscal quarters of the Borrower, on a consolidated basis for the Borrower and its Subsidiaries in accordance with Agreement Accounting Principles, the sum of the amounts for such period, without duplication, of (i) Consolidated EBIT, plus (ii) depreciation expense to the extent deducted ---- in computing Net Income, plus (iii) amortization expense, including, without ---- limitation, amortization of goodwill and other intangible assets, to the extent deducted in computing Net Income, plus (iv) other non-cash charges to ---- the extent deducted in computing Net Income, plus (v) extraordinary losses ---- incurred other than in the ordinary course of business to the extent deducted in computing Net Income, minus (vi) extraordinary gains realized ----- other than in the ordinary course of business to the extent added in computing Net Income (vii) plus (minus) any increases (decreases) in the ---- ----- LIFO reserve to the extent deducted (added) in computing Net Income. "Consolidated Adjusted EBITDA" for any period shall be calculated to be the actual amount for such period for the Borrower and its Subsidiaries; provided, upon the consummation of any Acquisition, for calculations made - -------- from and after such Acquisition, Consolidated Adjusted EBITDA shall be calculated on a pro forma basis including the target's historical --- ----- Consolidated Adjusted EBITDA for the applicable period using historical financial statements obtained from the seller, broken down by fiscal quarter in the Borrower's reasonable judgment 7 (the amounts from which may be adjusted solely as may be necessary to comply with Agreement Accounting Principals). "CONSOLIDATED CAPITAL EXPENDITURES" means, for any period of four consecutive fiscal quarters of the Borrower, the aggregate of all expenditures (whether paid in cash or accrued as liabilities and including that portion of Capital Leases which is capitalized on the consolidated balance sheet of the Borrower and its Subsidiaries) by the Borrower and its Subsidiaries during that period that, in conformity with Agreement Accounting Principles, are required to be included in or reflected by the property, plant or equipment or similar fixed asset accounts reflected in the consolidated balance sheet of the Borrower and its Subsidiaries. "CONSOLIDATED EBIT" means, for any period of four consecutive fiscal quarters of the Borrower, on a consolidated basis for the Borrower and its Subsidiaries in accordance with Agreement Accounting Principles, the sum of the amounts for such period, without duplication, of (i) Consolidated Net Income, plus (ii) Consolidated Interest Expense to the extent deducted ---- in computing Net Income, plus (iii) charges against income for all domestic ---- and foreign, federal, state and local taxes to the extent deducted in computing Net Income. "CONSOLIDATED INTEREST COVERAGE RATIO" means, for any period of four consecutive fiscal quarters of the Borrower, the ratio of (i) Consolidated EBIT for such period to (ii) Consolidated Interest Expense for such period. "CONSOLIDATED INTEREST EXPENSE" means, for any period of four consecutive fiscal quarters of the Borrower, total interest expense (whether paid or accrued) of the Borrower and its Subsidiaries for such period determined in accordance with Agreement Accounting Principles including, without limitation, such interest expense as may be attributable to Capitalized Leases, Receivables Facility Financing Costs, the discount or implied interest component of Off-Balance Sheet Liabilities as well as all commissions, discounts and other fees and charges owed with respect to Letters of Credit and net costs (net of any revenues) under any interest rate swap, exchange or cap agreements. "CONSOLIDATED NET INCOME" means, for any fiscal quarter of the Borrower, the positive consolidated net income of the Borrower and its Subsidiaries for such quarter determined in accordance with Agreement Accounting Principles; provided, that there shall be excluded (i) the income -------- (or loss) of any Affiliate of the Borrower or other Person (other than a Subsidiary of the Borrower) in which any Person (other than the Borrower or any of its Subsidiaries) has a joint interest, except to the extent of the amount of dividends or other distributions actually paid to the Borrower, or any of its Subsidiaries by such Affiliate or other Person during such period, (ii) the income (or loss) of any Person accrued prior to the date it becomes a Subsidiary of the Borrower or is merged into or consolidated with the Borrower or any of its Subsidiaries or that Person's assets are acquired by the Borrower or any of its Subsidiaries and (iii) the income of any Subsidiary to the extent that the declaration or payment of dividends or similar distributions by that Subsidiary of that income is not at the time permitted by operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to that Subsidiary. 8 "CONSOLIDATED NET WORTH" means, as of any date of determination, the consolidated total stockholders' equity (including capital stock, additional paid-in capital and retained earnings) of the Borrower and its Subsidiaries determined in accordance with Agreement Accounting Principles. "CONSOLIDATED TOTAL DEBT" means the aggregate amount of all Indebtedness (other than Hedging Obligations) on a consolidated basis for the Borrower and its Subsidiaries as of a referenced date. "CONTINGENT OBLIGATION" of a Person means any agreement, undertaking or arrangement by which such Person assumes, guarantees, endorses, contingently agrees to purchase or provide funds for the payment of, or otherwise becomes or is contingently liable upon, the obligation or liability of any other Person, or agrees to maintain the net worth or working capital or other financial condition of any other Person, or otherwise assures any creditor of such other Person against loss, including, without limitation, any contingent reimbursement obligations of such Person with respect to any Letter of Credit, as well as any comfort letter, operating agreement or take-or-pay contract (but, in the case of each such Contingent Obligation, only to the extent that a monetary value can reasonably be attributed thereto; it being understood, for the avoidance of doubt, however, that with respect to any Contingent Obligation which is either a guaranty of a monetary obligation of another Person or a reimbursement obligation with respect to a Letter of Credit, the amount of such Contingent Obligation shall be deemed equal to the amount of such monetary obligation or Letter of Credit, as the case may be). "CONVERSION/CONTINUATION NOTICE" is defined in Section 2.10. ------------ "CONTROLLED GROUP" means all members of a controlled group of corporations or other business entities and all trades or businesses (whether or not incorporated) under common control which, together with the Borrower or any of its Subsidiaries, are treated as a single employer under Section 414 of the Code. "COOPER" means Cooper Industries, Inc., an Ohio corporation. "CREDIT DOCUMENTS" means, collectively, the Borrower Credit Documents, the Non-U.S. Subsidiary Borrower Credit Documents, the Collateral Documents, the Parent Guaranty and the Subsidiary Guaranties and any other instruments, agreements or documents delivered pursuant thereto or in connection therewith, in each case, as the same has been amended, restated, supplemented or otherwise modified from time to time. "CREDIT EXTENSION" means either the funding of an Advance or Swing Line Loan or the issuance of or amendment to a Facility LC hereunder. "CREDIT EXTENSION DATE" means the Borrowing Date for an Advance or Swing Line Loan or the issuance date for a Facility LC. "CURE LOAN" is defined in Section 8.2 hereof. ----------- 9 "DEFAULT" means an event described in Article VII. ----------- "DISQUALIFIED STOCK" means any capital stock that, by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable), or upon the happening of any event, matures or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at the option of the holder thereof, in whole or in part, on or prior to the date that is ninety-one (91) days after the Revolving Loan Termination Date. "DOLLAR" and "$" means the lawful currency of the United States of - America. "DOLLAR AMOUNT" of any currency at any date shall mean (i) the amount of such currency if such currency is Dollars or (ii) the Equivalent Amount of Dollars if such currency is any currency other than Dollars, calculated on the basis of the arithmetical mean of the buy and sell spot rates of exchange of the Agent for such currency on the London market at 11:00 a.m., London time, two Business Days prior to the date on which such amount is to be determined. "ELIGIBLE CURRENCY" means any currency other than Dollars that is readily available, freely traded, in which deposits are customarily offered to banks in the London interbank market, convertible into Dollars in the international interbank market available to the Lenders in such market and as to which an Equivalent Amount may be readily calculated. If, after the designation by the Lenders of any currency as an Agreed Currency, currency control or other exchange regulations are imposed in the country in which such currency is issued with the result that different types of such currency are introduced, such country's currency is, in the determination of the Agent, (i) no longer readily available or freely traded or (ii) as to which, in the determination of the Agent, an Equivalent Amount is not readily calculable ((i) and (ii) a "DISQUALIFYING EVENT"), then the Agent shall promptly notify the Lenders and the Borrowers, and such country's currency shall no longer be an Agreed Currency until such time as the Disqualifying Event(s) no longer exist, but in any event within five (5) Business Days of receipt of such notice from the Agent, each Borrower shall repay all Loans in such currency to which the Disqualifying Event applies or convert such Loans into the Equivalent Amount of Loans in Dollars or another Agreed Currency, subject to the other terms contained in Article II (it ---------- being understood and agreed that the Non-U.S. Subsidiary Borrower shall not be liable to repay any Loans made to the Borrower). "EQUIVALENT AMOUNT" of any Agreed Currency with respect to any amount of Dollars at any date shall mean the equivalent in such Agreed Currency of such amount of Dollars, calculated on the basis of the arithmetical mean of the buy and sell spot rates of exchange of the Agent for such other Agreed Currency at 11:00 a.m., London time, two Business Days prior to the date on which such amount is to be determined. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time, and any rule or regulation issued thereunder. "EUROCURRENCY ADVANCE" means an Advance which bears interest at a Eurocurrency Rate. 10 "EUROCURRENCY BASE RATE" means, with respect to a Eurocurrency Advance for the relevant Eurocurrency Interest Period, the applicable British Bankers' Association Interest Settlement Rate for deposits in the applicable Agreed Currency appearing on Reuters Screen FRBD or the applicable Reuters Screen for such Agreed Currency as of 11:00 a.m. (London time) two Business Days prior to the first day of such Eurocurrency Interest Period, and having a maturity equal to such Eurocurrency Interest Period, provided that, (i) if Reuters Screen FRBD or the applicable Reuters Screen - -------- for such Agreed Currency is not available to the Agent for any reason, the applicable Eurocurrency Base Rate for the relevant Eurocurrency Interest Period shall instead be the applicable British Bankers' Association Interest Settlement Rate for deposits in the applicable Agreed Currency as reported by any other generally recognized financial information service as of 11:00 a.m. (London time) two Business Days prior to the first day of such Eurocurrency Interest Period, and having a maturity equal to such Eurocurrency Interest Period, and (ii) if no such British Bankers' Association Interest Settlement Rate is available, the applicable Eurocurrency Base Rate for the relevant Eurocurrency Interest Period shall instead be the rate determined by the Agent to be the rate at which Bank One offers to place deposits in the applicable Agreed Currency with first-class banks in the London interbank market at approximately 11:00 a.m. (London time) two Business Days prior to the first day of such Eurocurrency Interest Period, in the approximate amount of Bank One's relevant Eurocurrency Loan and having a maturity equal to such Eurocurrency Interest Period. "EUROCURRENCY INTEREST PERIOD" means, with respect to a Eurocurrency Advance, a period as the applicable Borrower may choose, of one week, one, two, three or six months, or of nine or twelve months if the Agent determines that a nine or twelve month period, as the case may be, is reasonably available, each such period to commence on a Business Day selected by the applicable Borrower on which a Eurocurrency Advance is made to such Borrower pursuant to this Agreement. Such Eurocurrency Interest Period shall end on (but exclude) the day which corresponds numerically to such date one week or one, two, three, six, nine or twelve months thereafter, as the case may be, provided, however, that if there is no such -------- ------- numerically corresponding day in such next week or next, second, third, sixth, ninth or twelfth succeeding month, as applicable, such Eurocurrency Interest Period shall end on the last Business Day of such next week or next, second, third, sixth, ninth or twelfth succeeding month, as applicable. If a Eurocurrency Interest Period would otherwise end on a day which is not a Business Day, such Eurocurrency Interest Period shall end on the next succeeding Business Day, provided, however, that if said next -------- ------- succeeding Business Day falls in a new calendar month, such Eurocurrency Interest Period shall end on the immediately preceding Business Day. "EUROCURRENCY LOAN" means a Loan which bears interest at a Eurocurrency Rate. "EUROCURRENCY PAYMENT OFFICE" of the Agent shall mean, for each of the Agreed Currencies, the office, branch or affiliate of the Agent, specified as the "EUROCURRENCY PAYMENT OFFICE" for such Agreed Currency in Schedule 2 hereto or such other office, branch, affiliate or correspondent - ---------- bank of the Agent, as it may from time to time specify to the Borrower and each Lender as its Eurocurrency Payment Office. 11 "EUROCURRENCY RATE" means, with respect to a Eurocurrency Advance for the relevant Eurocurrency Interest Period, a rate per annum equal to the sum of (i) the quotient of (a) the Eurocurrency Base Rate applicable to such Eurocurrency Interest Period, divided by (b) one minus the Reserve ------- ----- Requirement (expressed as a decimal) applicable to such Eurocurrency Interest Period, plus (ii) the then Applicable Margin, changing as and when ---- the Applicable Margin changes. The Eurocurrency Rate shall be rounded to the next higher multiple of 1/16 of 1% if the rate is not such a multiple. "EXISTING CREDIT AGREEMENT" is defined in the first recital. "EXISTING INDEBTEDNESS" means any and all Indebtedness of the Borrower and its Subsidiaries under the Existing Credit Agreement. "EXISTING LCS" means each of the stand-by or commercial Letters of Credit issued under and pursuant to the Existing Credit Agreement and which are described in Schedule 3 hereto. ---------- "FACILITY FEE" is defined in Section 2.7. ----------- "FACILITY LC" means each Existing LC and each stand-by or commercial Letter of Credit issued under Section 2.23(a). --------------- "FACILITY LC APPLICATION AGREEMENT" means each and every application agreement or other instrument or agreement requested by the LC Issuer pursuant to Section 2.23(c). --------------- "FEDERAL FUNDS EFFECTIVE RATE" means, for any day, an interest rate per annum equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers on such day, as published for such day (or, if such day is not a Business Day, for the immediately preceding Business Day) by the Federal Reserve Bank of New York, or, if such rate is not so published for any day which is a Business Day, the average of the quotations at approximately 10:00 a.m. (Chicago time) on such day on such transactions received by the Agent from three Federal funds brokers of recognized standing selected by the Agent in its sole discretion. "FLOATING RATE" means, for any day, a rate per annum equal to the Alternate Base Rate for such day, changing when and as the Alternate Base Rate changes. "FLOATING RATE ADVANCE" means an Advance which bears interest at the Floating Rate. "FLOATING RATE LOAN" means a Loan which bears interest at the Floating Rate. "FOREIGN SUBSIDIARY" is defined in Section 6.10. ------------ "HEDGING OBLIGATIONS" of a Person means any and all obligations of such Person, whether absolute or contingent and howsoever and whensoever created, arising, evidenced or acquired (including all renewals, extensions and modifications thereof and substitutions therefor), under (i) any and all agreements, devices or arrangements designed to protect at least 12 one of the parties thereto from the fluctuations of interest rates, exchange rates or forward rates applicable to such party's assets, liabilities or exchange transactions, including, but not limited to, dollar-denominated or cross-currency interest rate exchange agreements, forward currency exchange agreements, interest rate cap or collar protection agreements, forward rate currency or interest rate options, puts and warrants, and (ii) any and all cancellations, buy backs, reversals, terminations or assignments of any of the foregoing. "HOME COUNTRY" is defined in Section 5.19(a). --------------- "INDEBTEDNESS" of a Person means, without duplication, such Person's (i) obligations for borrowed money, (ii) obligations representing the deferred purchase price of Property or services (other than accounts payable arising in the ordinary course of such Person's business payable on terms customary in the trade), (iii) obligations, whether or not assumed, secured by Liens or payable out of the proceeds or production from property now or hereafter owned or acquired by such Person, (iv) obligations which are evidenced by notes, acceptances, or other instruments, (v) Capitalized Lease Obligations, (vi) Hedging Obligations, (vii) Contingent Obligations and (viii) Off Balance Sheet Liabilities, (ix) Receivables Facility Attributed Indebtedness and (x) Disqualified Stock. "INTELLECTUAL PROPERTY" means (i) any and all intangible personal property consisting of intellectual property, whether or not registered with any governmental entity, including, without limitation, franchises, licenses, patents, technology and know-how, copyrights, trademarks, trade secrets, service marks, logos and trade names and (ii) any and all contract rights (including, without limitation, applications for governmental registrations, license agreements, trust agreements and assignment agreements) creating, evidencing or conveying an interest or right in or to any of the intellectual property described in the preceding clause (i). ---------- "INTERCREDITOR AGREEMENT" means that certain Intercreditor Agreement, dated as of October 31, 2001, among the Agent (on behalf of itself and the Lenders), the Senior Noteholders and Bank One, in its capacity as "Collateral Agent" for the Agent, the Lenders and the Senior Noteholders, as the same may be amended, restated, supplemented or otherwise modified and in effect from time to time. "INTERIM CREDIT AGREEMENT" is defined in the first recital. "INVESTMENT" of a Person means any loan, advance (other than commission, travel and similar advances to officers and employees made in the ordinary course of business), extension of credit, deposit account (in the nature of, or similar to, a bank account) or contribution of capital by such Person to any other Person or any investment in, or purchase or other acquisition of, the stock, partnership interests, notes, debentures or other securities of any other Person made by such Person. "LC DRAFT" means a draft, or other form of demand, drawn or made on a LC Issuer pursuant to a Facility LC. 13 "LC ISSUER" means (i) Bank One or any of its Lending Installations or Affiliates in its capacity as LC Issuer hereunder with respect to each Facility LC issued by Bank One or such Lending Installation or Affiliate and (ii) any Lender (other than Bank One or any Lending Installation or Affiliate thereof) reasonably acceptable to the Agent, in such Lender's capacity as LC Issuer hereunder with respect to any and all Facility LCs issued by such Lender in its sole discretion upon the applicable Borrower's request. All references contained in this Agreement and the other Credit Documents to the "LC Issuer" shall be deemed to apply equally to each of the institutions referred to in clauses (i) and (ii) of this definition in their ----------- ---- respective capacities as LC Issuer of any and all Facility LCs issued by each such institution. "LC OBLIGATIONS" means, at any time, the sum, without duplication, of (i) the aggregate amount then available for drawing under all Facility LCs outstanding at such time plus (ii) the face amount of all LC Drafts ---- corresponding to the Facility LCs, which drafts have been accepted by the applicable LC Issuer plus (iii) the aggregate unpaid amount at such time of ---- all Reimbursement Obligations in respect of previous drawings made under Facility LCs. "LC PAYMENT DATE" is defined in Section 2.23(e). --------------- "LENDERS" means the lending institutions listed on the signature pages of this Agreement and their respective successors and permitted assigns. "LENDING INSTALLATION" means, with respect to a Lender, LC Issuer or the Agent, any office, branch, subsidiary or affiliate of such Lender, the LC Issuer or the Agent. "LETTER OF CREDIT" of a Person means a letter of credit or similar instrument which is issued upon the application of such Person or upon which such Person is an account party or for which such Person is in any way liable. "LEVERAGE RATIO" means, as of the last day of any fiscal quarter of the Borrower, the ratio of (i) Consolidated Total Debt to (ii) Consolidated Adjusted EBITDA. The Leverage Ratio shall be calculated based upon (a) for Consolidated Total Debt, Consolidated Total Debt as of the last day of each such fiscal quarter, and (b) for Consolidated Adjusted EBITDA, the actual amount for the period of four consecutive fiscal quarters of the Borrower ending on such day. "LIEN" means any lien (statutory or other), mortgage, pledge, hypothecation, assignment, deposit arrangement, encumbrance or preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever (including, without limitation, the interest of a vendor or lessor under any conditional sale, Capitalized Lease or other title retention agreement). "LOAN" means, with respect to a Lender, such Lender's portion of any Advance made pursuant to Section 2.1, and in the case of the Swing Line ----------- Lender, any Swing Line Loan made pursuant to Section 2.2 hereof, and ----------- collectively all Term Loans, Revolving Loans and Swing Line Loans, whether made or continued as or converted to Floating Rate Loans, Eurocurrency Loans or otherwise. 14 "MATERIAL ADVERSE EFFECT" means a material adverse effect on (a) the business, Property, condition (financial or otherwise) or results of operations of the Borrower and its Subsidiaries taken as a whole, (b) the ability of either Borrower or any Subsidiary to perform its respective obligations under the Credit Documents to which it is a party or (c) the validity or enforceability of any of the Credit Documents or any material rights or remedies of the Agent, the Swing Line Lender, the LC Issuer or the Lenders thereunder. "MATERIAL FOREIGN SUBSIDIARY(IES)" means (i) the Non-U.S. Subsidiary Borrower and (ii) each other Foreign Subsidiary of the Borrower (other than any SPV), the total assets of which exceed, at any time, ten percent (10.0%) of the consolidated total assets of the Borrower and its consolidated Subsidiaries (other than SPVs); provided, however, in the event that one of more of such Foreign Subsidiaries are owned through another Foreign Subsidiary, then the Agent shall notify the Borrower whether the "Material Foreign Subsidiary" shall be the holding company Foreign Subsidiary or such holding company's Foreign Subsidiary or Subsidiaries, it being the intention of the parties that the Agent and the Lenders shall be provided with the maximum collateral protection without resulting in any undistributed earnings of any such Foreign Subsidiary being deemed to have been repatriated under the provisions of the Code. "MATERIAL INDEBTEDNESS" means any Indebtedness, or group of different Indebtedness, in an aggregate principal amount of at least $10,000,000. "MAXIMUM EUROCURRENCY AMOUNT" means the Equivalent Amount of $75,000,000 or such other greater amount as the Borrower may from time to time designate in writing to the Agent provided such designated amount shall be agreed to by the Required Lenders. "MAXIMUM NON-U.S. SUBSIDIARY BORROWER AMOUNT" means the Equivalent Amount of $75,000,000 or such other greater amount as the Borrower may from time to time designate in writing to the Agent provided such designated amount shall be agreed to by the Required Lenders. "MULTIEMPLOYER PLAN" means a Plan maintained pursuant to a collective bargaining agreement or any other arrangement to which the Borrower or any member of the Controlled Group is a party to which more than one employer is obligated to make contributions. "NEW SUBSIDIARY" is defined in Section 6.15. ------------ "NON PRO RATA LOAN" is defined in Section 8.2 hereof. ----------- "NON-U.S. SUBSIDIARY BORROWER" means, upon satisfaction of the requirements set forth in Section 2.19, a Subsidiary of the Borrower, ------------ whether now existing or hereafter formed, which shall have delivered to the Agent an Assumption Letter in accordance with Section 2.19 and such other ------------ documents, instruments and agreements as may be required pursuant to the terms of this Agreement (including Section 4.2), together with its ----------- successors and permitted assigns. "NON-U.S. SUBSIDIARY BORROWER CREDIT DOCUMENTS" means this Agreement or, as the case may be, the Assumption Letter pursuant to which the Non-U.S. Subsidiary Borrower 15 becomes a party to this Agreement, any Pledge Agreements executed by the Non-U.S. Subsidiary Borrower and any and all Facility LC Application Agreements executed by the Non-U.S. Subsidiary Borrower. "NOTE PURCHASE AGREEMENT" means that certain Note Purchase Agreement dated as of September 26, 1996 with respect to the Borrower's $35,000,000 7.32% Senior Notes due September 26, 2006 (the "SENIOR NOTES"), as such Note Purchase Agreement may be amended from time to time. "NOTICE OF ASSIGNMENT" is defined in Section 12.3.2. -------------- "OBLIGATIONS" means all unpaid principal of and accrued and unpaid interest on the Loans, all LC Obligations, all accrued and unpaid fees and all expenses, reimbursements, indemnities and other obligations of each Borrower, respectively, to the Lenders or to any Lender (including the Swing Line Lender), the LC Issuer, the Agent or any indemnified party hereunder arising under the Credit Documents (whether or not allowed as a claim in any insolvency proceeding of either Borrower). "OBLIGOR SUBSIDIARY" means (i) a Subsidiary which is a party to a Subsidiary Guaranty or (ii) a Material Foreign Subsidiary in connection with which a Pledge Agreement has been executed. "OFF BALANCE SHEET LIABILITIES" of a Person means (a) any Receivables Facility Attributed Indebtedness, (b) any repurchase obligation or liability of such Person or any of its Subsidiaries with respect to accounts or notes receivable sold by such Person or any of its Subsidiaries, including pursuant to any Receivables Purchase Facility, (c) any liability under any sale and leaseback transactions which do not create a liability on the consolidated balance sheet of such Person prepared in accordance with the Agreement Accounting Principles, (d) any liability under any financing lease or so-called "synthetic" lease transaction, or (e) any obligations arising with respect to any other transaction which is the functional equivalent of or takes the place of borrowing but which does not constitute a liability on the consolidated balance sheets of such Person and its Subsidiaries, prepared in accordance with Agreement Accounting Principles. "ORIGINATORS" means the Borrower and/or any of its Subsidiaries in their respective capacities as parties to any Receivables Purchase Documents, as sellers or transferors of any Receivables and Related Security in connection with a Permitted Receivables Transfer. "OUTSTANDING CREDIT EXPOSURE" means, as to any Lender at any time, the sum of (i) the aggregate principal amount of its Loans outstanding at such time plus (ii) its Outstanding LC Exposure at such time. "OUTSTANDING LC EXPOSURE" means, as to any Lender at any time, an amount equal to its Revolving Loan Percentage of the LC Obligations at such time. 16 "PARENT GUARANTY" means a Guaranty, substantially in the form of Exhibit B hereto, duly executed and delivered by the Borrower to and in - --------- favor of the Agent, the LC Issuer and the Lenders, as it may from time to time be amended, supplemented or otherwise modified. "PARTICIPANTS" is defined in Section 12.2.1. -------------- "PAYMENT DATE" means the last day of each March, June, September and December, commencing June 30, 2002. "PBGC" means the Pension Benefit Guaranty Corporation, or any successor thereto. "PERCENTAGE" means, with respect to any Lender, (i) at any time prior to the Closing Date, the percentage obtained by dividing (A) such Lender's Commitments at such time (in each case, as adjusted from time to time in accordance with the provisions of this Agreement) by (B) the sum of the Aggregate Term Loan Commitment and the Aggregate Revolving Loan Commitment at such time and (ii) at any time after the Closing Date, the percentage obtained by dividing (A) the sum of such Lender's Term Loans and Revolving Loan Commitment at such time (in each case, as adjusted from time to time in accordance with the provisions of this Agreement) by (B) the sum of the aggregate amount of all of the Term Loans and the Aggregate Revolving Loan Commitment at such time; provided, however, if all of the Commitments -------- ------- are terminated pursuant to the terms of this Agreement, then "Percentage" means the percentage obtained by dividing (i) the sum of (a) such Lender's Term Loans and the Dollar Amount of such Lender's Revolving Loans, plus (b) ---- such Lender's share of the obligation to purchase participations in Swing Line Loans, plus (c) such Lender's share of the obligation to purchase ---- participations in Facility LCs by (ii) the sum of (a) the aggregate amount of all Term Loans and the Dollar Amount of Revolving Loans plus (b) the ---- aggregate amount of all Swing Line Loans, plus (c) the aggregate outstanding ---- Dollar Amount of all Facility LCs. "PERMITTED RECEIVABLES TRANSFER" means (i) a sale or other transfer by an Originator to a SPV of Receivables and Related Security for fair market value and without recourse (except for limited recourse typical of such structured finance transactions), and/or (ii) a sale or other transfer by a SPV to (a) purchasers of or other investors in such Receivables and Related Security or (b) any other Person (including a SPV) in a transaction in which purchasers or other investors purchase or are otherwise transferred such Receivables and Related Security, in each case pursuant to and in accordance with the terms of the Receivables Purchase Documents. "PERSON" means any natural person, corporation, firm, joint venture, partnership, limited liability company, association, enterprise, trust or other entity or organization, or any government or political subdivision or any agency, department or instrumentality thereof. "PLAN" means an employee pension benefit plan which is covered by Title IV of ERISA or subject to the minimum funding standards under Section 412 of the Code as to which the Borrower or any member of the Controlled Group may have any liability. "PLEDGE AGREEMENT" means a Pledge Agreement on terms and conditions reasonably acceptable to the Agent duly executed and delivered by the Borrower and/or any of its 17 Subsidiaries to and in favor of the Agent, the Swing Line Lender, the LC Issuer and the Lenders, as it may from time to time be amended, supplemented or otherwise modified with respect to sixty-five percent (65%) of the outstanding capital stock of each of the Borrower's Material Foreign Subsidiaries including, but not limited to, after it has become a party hereto, the Non-U.S. Subsidiary Borrower. "PREPAYMENT NOTICE" is defined in Section 2.4(b). -------------- "PRIME RATE" means a rate per annum equal to the prime rate of interest announced by the Agent or its parent from time to time (which is not necessarily the lowest rate of interest charged to any customer), changing when and as said prime rate changes. "PROPERTY" of a Person means any and all property, whether real, personal, tangible, intangible, or mixed, of such Person, or other assets owned, leased or operated by such Person, including, without limitation, Intellectual Property. "PURCHASERS" is defined in Section 12.3.1. -------------- "RECEIVABLE(S)" means and includes all of the applicable Originator's or SPV's presently existing and hereafter arising or acquired accounts, accounts receivable, and all present and future rights of such Originator or SPV, as applicable, to payment for goods sold or leased or for services rendered (except those evidenced by instruments or chattel paper), whether or not they have been earned by performance, and all rights in any merchandise or goods which any of the same may represent, and all rights, title, security and guaranties with respect to each of the foregoing, including, without limitation, any right of stoppage in transit. "RECEIVABLES AND RELATED SECURITY" means the Receivables and the related security and collections with respect thereto which are sold or transferred by any Originator or SPV in connection with any Permitted Receivables Transfer. "RECEIVABLES FACILITY ATTRIBUTED INDEBTEDNESS" means the amount of obligations outstanding under a Receivables Purchase Facility on any date of determination that would be characterized as principal if such facility were structured as a secured lending transaction rather than as a purchase. "RECEIVABLES FACILITY FINANCING COST" means such portion of the cash fees, service charges, and other costs, as well as all collections or other amounts retained by purchasers of Receivables pursuant to a Receivables Purchase Facility, which are in excess of amounts paid to the Borrower and its consolidated Subsidiaries under any Receivables Purchase Facility for the purchase of Receivables pursuant to such facility and are the equivalent of the interest component of the financing if the transaction were characterized as an on-balance sheet transaction. "RECEIVABLES PURCHASE DOCUMENTS" means any series of receivables purchase or sale agreements generally consistent with terms contained in comparable structured finance transactions pursuant to which an Originator or Originators sell or transfer to SPVs all of their 18 respective right, title and interest in and to certain Receivables and Related Security for further sale or transfer to other purchasers of or investors in such assets (and the other documents, instruments and agreements executed in connection therewith), as any such agreements may be amended, restated, supplemented or otherwise modified from time to time, or any replacement or substitution therefor. "RECEIVABLES PURCHASE FACILITY" means the securitization facility made available to the Borrower, pursuant to which the Receivables and Related Security of the Originators are transferred to one or more SPVs, and thereafter to certain investors, pursuant to the terms and conditions of the Receivables Purchase Documents. "REGULATION D" means Regulation D of the Board of Governors of the Federal Reserve System as from time to time in effect and any successor thereto or other regulation or official interpretation of said Board of Governors relating to reserve requirements applicable to member banks of the Federal Reserve System. "REGULATION U" means Regulation U of the Board of Governors of the Federal Reserve System as from time to time in effect and any successor or other regulation or official interpretation of said Board of Governors relating to the extension of credit by banks for the purpose of purchasing or carrying margin stocks applicable to member banks of the Federal Reserve System. "REIMBURSEMENT OBLIGATIONS" means, at any time, the aggregate of all obligations of each Borrower then outstanding under Section 2.23 to ------------ reimburse any LC Issuer for amounts paid by any such LC Issuer in respect of any one or more drawings under Facility LCs. "RENTALS" of a Person means the aggregate fixed amounts payable by such Person under any lease of Property having an original term (including any required renewals or any renewals at the option of the lessor or lessee) of one year or more (but does not include any amounts payable under Capitalized Leases of such Person). "REPORTABLE EVENT" means a reportable event as defined in Section 4043 of ERISA and the regulations issued under such section, with respect to a Plan, excluding, however, such events as to which the PBGC has by regulation waived the requirement of Section 4043(a) of ERISA that it be notified within 30 days of the occurrence of such event, provided, however, -------- ------- that a failure to meet the minimum funding standard of Section 412 of the Code and of Section 302 of ERISA shall be a Reportable Event regardless of the issuance of any such waiver of the notice requirement in accordance with either Section 4043(a) of ERISA or Section 412(d) of the Code. "REQUIRED LENDERS" means, as of the date of determination thereof, Lenders having, in the aggregate, Percentages of at least 51%; provided, -------- however, that, if any of the Lenders shall have failed to fund its Revolving - ------- Loan Percentage of (i) any Revolving Loan requested by either Borrower, (ii) any Revolving Loans required to be made in connection with reimbursement for any LC Obligations, or (iii) any participation in any Swing Line Loan as requested by the Agent, which such Lenders are obligated to fund under the terms of this Agreement and any such failure 19 has not been cured, then for so long as such failure continues, "REQUIRED LENDERS" means Lenders (excluding all Lenders whose failure to fund their respective Revolving Loan Percentages of such Revolving Loans or to purchase participations have not been so cured) whose Percentages equal at least 51% of the aggregate Percentages of such Lenders; provided, further, however, -------- ------- ------- that, if the Commitments have been terminated pursuant to the terms of this Agreement, "REQUIRED LENDERS" means Lenders (without regard to such Lenders' performance of their respective obligations hereunder) in the aggregate holding at least 51% of the Aggregate Outstanding Credit Exposure. "RESERVE REQUIREMENT" means, with respect to and during a Eurocurrency Interest Period, the maximum aggregate reserve requirement (including all basic, supplemental, marginal and other reserves) which is imposed under Regulation D on Eurocurrency liabilities. For purposes of this definition, all Eurocurrency Loans shall be deemed to be "Eurocurrency liabilities" as defined in Regulation D. "REVOLVING CREDIT AVAILABILITY" means, at any particular time, the amount by which (i) the Aggregate Revolving Loan Commitment at such time exceeds (ii) the Dollar Amount of the Revolving Credit Obligations outstanding at such time. "REVOLVING CREDIT OBLIGATIONS" means, at any particular time, the sum of (i) the Dollar Amount of the Revolving Loans outstanding at such time, plus (ii) the amount of the Swing Line Loans outstanding at such time, ---- plus (iii) the Dollar Amount of LC Obligations outstanding at such time. - ---- "REVOLVING LOAN" is defined in Section 2.1(a). -------------- "REVOLVING LOAN COMMITMENT" means, for each Lender, the obligation of such Lender to make Revolving Loans and to purchase participations in Facility LCs and to participate in Swing Line Loans in an amount not exceeding the amount set forth opposite its name on Schedule 1 hereto under ---------- the heading "Revolving Loan Commitment" or in the Assignment Agreement by which it became a Lender, as such amount may be modified from time to time pursuant to the terms of this Agreement, or to give effect to any applicable Assignment Agreement. "REVOLVING LOAN PERCENTAGE" means, with respect to any Lender, the percentage obtained by dividing (A) the amount of such Lender's Revolving Loan Commitment (as adjusted from time to time in accordance with the provisions of this Agreement) by (B) the Aggregate Revolving Loan Commitment at such time; provided, however, if all of the Commitments are terminated -------- ------- pursuant to the terms of this Agreement, then "Revolving Loan Percentage" means the percentage obtained by dividing (i) the sum of (a) the Dollar Amount of such Lender's Revolving Loans, plus (b) such Lender's share of the ---- obligation to purchase participations in Swing Line Loans, plus (c) such ---- Lender's share of the obligation to purchase participations in Facility LCs by (ii) the sum of (a) the aggregate Dollar Amount of all Revolving Loans, plus (b) the aggregate amount of all Swing Line Loans, plus (c) the - ---- ---- aggregate outstanding Dollar Amount of all Letters of Credit. 20 "REVOLVING LOAN TERMINATION DATE" means March 6, 2005, as such date may be extended pursuant to Section 2.21. ------------ "RISK-BASED CAPITAL GUIDELINES" is defined in Section 3.2. ----------- "SECTION" means a numbered section of this Agreement, unless another document is specifically referenced. "SENIOR NOTES" is defined in the definition of Note Purchase Agreement above. "SENIOR NOTEHOLDERS" means each of the holders of the Senior Notes. "SINGLE EMPLOYER PLAN" means a Plan maintained by the Borrower or any member of the Controlled Group for employees of the Borrower or any member of the Controlled Group. "SPV" means any special purpose entity established for the purpose of purchasing Receivables in connection with a receivables securitization transaction permitted under the terms of this Agreement. "SUBSIDIARY" of a Person means (i) any corporation more than 50% of the outstanding securities having ordinary voting power of which shall at the time be owned or controlled, directly or indirectly, by such Person or by one or more of its Subsidiaries or by such Person and one or more of its Subsidiaries, or (ii) any partnership, limited liability company, association, joint venture or similar business organization more than 50% of the ownership interests having ordinary voting power of which shall at the time be so owned or controlled. Unless otherwise expressly provided, all references herein to a "Subsidiary" shall mean a Subsidiary of the Borrower. "SUBSIDIARY GUARANTY" means a Guaranty, substantially in the form of Exhibit C hereto, duly executed and delivered by each domestic Subsidiary --------- of the Borrower to and in favor of the Agent, the LC Issuer and the Lenders, as it may from time to time be amended, supplemented or otherwise modified. "SUBSTANTIAL PORTION" means, with respect to the Property of any Person and its Subsidiaries, Property which (i) represents more than 10% of the consolidated assets of such Person and its Subsidiaries as would be shown in the consolidated financial statements of such Person and its Subsidiaries as at the beginning of the twelve-month period ending with the month in which such determination is made, or (ii) is responsible for more than 10% of the consolidated net sales or of the consolidated net income of such Person and its Subsidiaries as reflected in the financial statements referred to in clause (i) above. ---------- "SWING LINE COMMITMENT" means the obligation of the Swing Line Lender to make Swing Line Loans up to a maximum principal amount of $5,000,000 at any one time outstanding. 21 "SWING LINE LENDER" means Bank One or any other Lender as a successor Swing Line Lender. "SWING LINE LOAN" means a Loan made available to the Borrower by the Swing Line Lender pursuant to Section 2.2(a) hereof. -------------- "TERM LOAN" is defined in Section 2.3(a) hereof. -------------- "TERM LOAN COMMITMENT" means, for each Lender, the obligation of such Lender to make its Term Loan pursuant to the terms and conditions of this Agreement, and which shall not exceed the principal amount set forth opposite its name on Schedule 1 hereto under the heading "Term Loan ---------- Commitment," as such amount may be modified from time to time pursuant to the terms hereof. "TERM LOAN FINAL MATURITY DATE" means March 6, 2007. "TERM LOAN LENDER" means any Lender with a Term Loan Commitment. "TERM LOAN PERCENTAGE" means, with respect to any Term Loan Lender, (i) at any time prior to the Closing Date, the percentage obtained by dividing (A) such Term Loan Lender's Term Loan Commitment by (B) the Aggregate Term Loan Commitment, and (ii) at any time after the Closing Date, the percentage obtained by dividing (A) the sum of such Term Loan Lender's Term Loans at such time by (B) the sum of the aggregate amount of all of the Term Loans at such time. "TRANSFEREE" is defined in Section 12.4. ------------ "TYPE" means, with respect to any Advance or Loan, its nature as a Floating Rate Advance or Floating Rate Loan, as applicable, or a Eurocurrency Advance or Eurocurrency Loan. "UNFUNDED LIABILITIES" means the amount (if any) by which the present value of all vested nonforfeitable benefits under all Single Employer Plans exceeds the fair market value of all such Plan assets allocable to such benefits, all determined as of the then most recent valuation date for such Plans, but only to the extent that such excess represents a potential liability of the Borrower or a member of the Controlled Group to the PBGC or such Plan under Title IV of ERISA. "UNMATURED DEFAULT" means an event which but for the lapse of time or the giving of notice, or both, would constitute a Default. "WHOLLY-OWNED SUBSIDIARY" of a Person means (i) any Subsidiary all of the outstanding voting securities (except securities required as directors' qualifying shares) of which shall at the time be owned or controlled, directly or indirectly, by such Person or one or more Wholly-Owned Subsidiaries of such Person, or by such Person and one or more Wholly-Owned Subsidiaries of such Person, or (ii) any partnership, association, joint venture or similar business 22 organization 100% of the ownership interests having ordinary voting power of which shall at the time be so owned or controlled. The foregoing definitions shall be equally applicable to both the singular and plural forms of the defined terms. ARTICLE II: THE CREDITS 2.1. Revolving Loans. (a) Amount of Revolving Loans. Upon the --------------- ------------------------- satisfaction of the conditions precedent contained in Section 4.1, Section ----------- ------- 4.3, and, with respect to the Non-U.S. Subsidiary Borrower, Section 4.2, - --- ----------- from and including the date of this Agreement and prior to the Revolving Loan Termination Date (or, if earlier, the date of termination in whole of the Aggregate Revolving Loan Commitment pursuant to Section 2.7 hereof or ----------- the Commitments pursuant to Section 8.1 hereof), each Lender severally ----------- agrees, on the terms and conditions set forth in this Agreement, to make revolving loans to the applicable Borrower from time to time in Agreed Currencies in an aggregate Dollar Amount with respect to any such Loan not to exceed such Lender's Revolving Loan Percentage of Revolving Credit Availability, or, if less, such Lender's Revolving Loan Commitment, at such time (each individually, a "REVOLVING LOAN" and, collectively, the "REVOLVING LOANS"); provided, however, that (i) at no time shall the -------- ------- Revolving Credit Obligations exceed the Aggregate Revolving Loan Commitment, (ii) upon giving effect to each Revolving Loan, the aggregate outstanding principal Dollar Amount of all Eurocurrency Advances and Facility LCs in Agreed Currencies other than Dollars shall not exceed the Maximum Eurocurrency Amount and (iii) upon giving effect to each Revolving Loan, the aggregate outstanding principal Dollar Amount of all Revolving Loans and Facility LCs made to or issued for the account of the Non-U.S. Subsidiary Borrower shall not exceed the Maximum Non-U.S. Subsidiary Borrower Amount. Subject to the terms of this Agreement, a Borrower may borrow, repay and reborrow Revolving Loans at any time prior to the Revolving Loan Termination Date (or, if earlier, the date of termination in whole of the Aggregate Revolving Loan Commitment pursuant to Section 2.7 hereof or the Commitments ----------- pursuant to Section 8.1 hereof). The Revolving Loan Commitments to lend ----------- hereunder shall expire on the Revolving Loan Termination Date (or, if earlier, the date of termination in whole of the Aggregate Revolving Loan Commitment pursuant to Section 2.7 hereof or the Commitments pursuant to ----------- Section 8.1 hereof). On the Revolving Loan Termination Date (or, if earlier, - ----------- the date of termination in whole of the Aggregate Revolving Loan Commitment pursuant to Section 2.7 hereof or the Commitments pursuant to Section 8.1 ----------- ----------- hereof), each Borrower shall repay in full the outstanding principal balance of its Revolving Loans (it being understood and agreed that the Non-U.S. Subsidiary Borrower shall be liable only to repay Loans made to the Non-U.S. Subsidiary Borrower). Each Advance under this Section 2.1 shall consist of ----------- Revolving Loans made by each Lender ratably in proportion to such Lender's Revolving Loan Percentage. (b) Dollar Equivalent Calculations. For so long as the aggregate ------------------------------ outstanding amount of Revolving Loans, Swing Line Loans and the Aggregate Outstanding LC Exposure is less than 95% of the Aggregate Revolving Loan Commitment, the Dollar Amount of each Eurocurrency Advance and Facility LC in an Agreed Currency other than Dollars for all 23 purposes under this Agreement (other than Section 2.25) shall be the Dollar ------------ Amount thereof as of the date such Eurocurrency Advance was made or Facility LC was issued. For so long as the aggregate outstanding amount of Revolving Loans, Swing Line Loans and the Aggregate Outstanding LC Exposure is equal to or greater than 95% of the Aggregate Revolving Loan Commitment, the Agent shall determine the Dollar Amount of all Eurocurrency Advances and Facility LCs in Agreed Currencies other than Dollars as of the first Business Day in each week, and the availability of Loans and Facility LCs under this Agreement shall be determined on the basis of such Dollar Amount most recently determined. (c) Borrowing Notice. In connection with each Revolving Loan ---------------- request, the applicable Borrower shall deliver to the Agent a Borrowing Notice, signed by it, in accordance with the terms of Section 2.9. ----------- (d) Making of Revolving Loans. Promptly after receipt of the ------------------------- Borrowing Notice under Section 2.9 in respect of Revolving Loans, the Agent ----------- shall notify each Lender with a Revolving Loan Commitment greater than zero by telecopy, or other similar form of transmission, of the requested Revolving Loan. Each Lender with a Revolving Loan Commitment greater than zero shall make available its Revolving Loan in accordance with the terms of Section 2.9 and the Agent will promptly make the funds so received from the - ----------- Lenders available to the applicable Borrower in accordance with Section 2.9. ----------- The failure of any Lender to deposit the amount described above with the Agent on the applicable Borrowing Date shall not relieve any other Lender of its obligations hereunder to make its Revolving Loan on such Borrowing Date. 2.2. Swing Line Loans. (a) Amount of Swing Line Loans. Upon the ---------------- -------------------------- satisfaction of the conditions precedent set forth in Section 4.1 and 4.3, ----------- --- from and including the date of this Agreement and prior to the Revolving Loan Termination Date (or, if earlier, the date of termination in whole of the Aggregate Revolving Loan Commitment pursuant to Section 2.7 hereof or ----------- the Commitments pursuant to Section 8.1 hereof), the Swing Line Lender ----------- agrees, on the terms and conditions set forth in this Agreement, to make swing line loans to the Borrower (but not to the Non-U.S. Subsidiary Borrower) from time to time, in Dollars, in an aggregate amount outstanding at any time not to exceed the Swing Line Commitment (each, individually, a "SWING LINE LOAN" and collectively, the "SWING LINE LOANS"); provided, -------- however, that at no time shall the amount of Revolving Credit Obligations - ------- exceed the Aggregate Revolving Loan Commitment; and provided, further, that -------- ------- at no time shall the sum of (a) the outstanding amount of the Swing Line Loans made by the Swing Line Lender and not risk participated to other Lenders in accordance with Section 2.2(d) of this Agreement, plus (b) the -------------- ---- outstanding amount of Revolving Loans made by the Swing Line Lender pursuant to Section 2.1 (after giving effect to any concurrent repayment of Loans) ----------- plus (c) the Swing Line Lender's Outstanding LC Exposure, exceed the Swing - ---- Line Lender's Revolving Commitment at such time. Subject to the terms of this Agreement, the Borrower may borrow, repay and reborrow Swing Line Loans at any time prior to the Revolving Loan Termination Date (or, if earlier, the date of termination in whole of the Aggregate Revolving Loan Commitment pursuant to Section 2.7 hereof or the Commitments pursuant to Section 8.1 ----------- ----------- hereof). 24 (b) Borrowing Notice; Applicable Interest Rate; Minimums. The ---------------------------------------------------- Borrower shall deliver to the Agent and the Swing Line Lender a Borrowing Notice, signed by it, not later than 11:00 a.m. (Chicago time) on the Borrowing Date of each Swing Line Loan, specifying (i) the applicable Credit Extension Date (which shall be a Business Day), and (ii) the aggregate amount of the requested Swing Line Loan. The Swing Line Loans shall bear interest at such rate as shall have been agreed to between the Borrower and the Swing Line Lender or, if no such rate has been agreed to, at the Floating Rate but, in any case, shall otherwise be subject to the terms applicable to Floating Rate Loans hereunder. The Swing Line Loans shall be in an amount not less than $250,000 and multiples of $100,000 in excess thereof. (c) Making of Swing Line Loans. Promptly after receipt of the -------------------------- Borrowing Notice under Section 2.2(b) in respect of Swing Line Loans, the -------------- Agent shall notify each Lender by telex or telecopy, or other similar form of transmission, of the requested Swing Line Loan. Not later than 2:00 p.m. (Chicago time) on the applicable Borrowing Date, the Swing Line Lender shall make available its Swing Line Loan, in funds immediately available in Chicago to the Agent at its address specified pursuant to Article XIV. The ----------- Agent will promptly make the funds so received from the Swing Line Lender available to the Borrower at the Agent's aforesaid address. (d) Repayment of Swing Line Loans. Each Swing Line Loan shall be ----------------------------- paid in full by the Borrower on or before the fifth (5th) Business Day after the Borrowing Date for such Swing Line Loan (it being understood and agreed that the Non-U.S. Subsidiary Borrower shall not be liable to repay any Swing Line Loans). The Borrower may at any time repay or prepay, without penalty or premium, all outstanding Swing Line Loans or, in a minimum amount of $100,000 (with increments of $100,000 in excess thereof), any portion of the outstanding Swing Line Loans, upon notice to the Agent and the Swing Line Lender. In addition, the Agent (i) may at any time in its sole discretion with respect to any outstanding Swing Line Loan, or (ii) shall on the fifth (5th) Business Day after the Borrowing Date of any Swing Line Loan, require each Lender (including the Swing Line Lender in its capacity as a Lender) to make a Revolving Loan under Section 2.1 in the amount of such Lender's ----------- Revolving Loan Percentage of such Swing Line Loan, for the purpose of repaying such Swing Line Loan. Not later than 3:00 p.m. (Chicago time) on the date of any notice received pursuant to this Section 2.2(d), each Lender -------------- shall make available its required Revolving Loan or Revolving Loans, in funds immediately available in Chicago to the Agent at its address specified pursuant to Article XIV. Revolving Loans made pursuant to this Section ----------- ------- 2.2(d) shall be Floating Rate Loans. Unless a Lender shall have notified the - ------ Swing Line Lender, prior to its making any Swing Line Loan, that any applicable condition precedent set forth in Section 4.1 or 4.3 had not then ----------- --- been satisfied, such Lender's obligation to make Revolving Loans pursuant to this Section 2.2(d) to repay Swing Line Loans shall be unconditional, -------------- continuing, irrevocable and absolute and shall not be affected by any circumstances, including, without limitation, (A) any set-off, counterclaim, recoupment, defense or other right which such Lender may have against the Agent, the Swing Line Lender or any other Person, (B) the occurrence or continuance of a Default or Unmatured Default, (C) any adverse change in the condition (financial or otherwise) of the Borrower or any of its Subsidiaries, or (D) any other circumstances, happening or event whatsoever. In the event that any Lender fails to make payment to the Agent of any amount due under this Section 2.2(d), the Agent shall be entitled to -------------- receive, retain and apply against such obligation the principal and 25 interest otherwise payable to such Lender hereunder until the Agent receives such payment from such Lender or such obligation is otherwise fully satisfied. In addition to the foregoing, if for any reason any Lender fails to make payment to the Agent of any amount due under this Section 2.2(d), -------------- such Lender shall be deemed, at the option of the Agent, to have unconditionally and irrevocably purchased from the Swing Line Lender, without recourse or warranty, an undivided interest and participation in the applicable Swing Line Loan in the amount of such Revolving Loan, and such interest and participation may be recovered from such Lender together with interest thereon at the Federal Funds Effective Rate for each day during the period commencing on the date of demand and ending on the date such amount is received. On the Revolving Loan Termination Date (or, if earlier, the date of termination in whole of the Aggregate Revolving Loan Commitment pursuant to Section 2.7 hereof or the Commitments pursuant to Section 8.1 ----------- ----------- hereof), the Borrower shall repay in full the outstanding principal balance of the Swing Line Loans (it being understood and agreed that the Non-U.S. Subsidiary Borrower shall not be liable to repay any Swing Line Loans). 2.3. Term Loan. --------- (a) Amounts of Term Loans. Subject to the terms and conditions set --------------------- forth in this Agreement, each Term Loan Lender on the Closing Date severally agrees to make on the Closing Date a term loan in Dollars to the Borrower in an aggregate amount equal to such Lender's Term Loan Commitment (each individually, a "TERM LOAN" and, collectively, the "TERM LOANS"). All Term Loans shall be made by the Term Loan Lenders on the Closing Date simultaneously and proportionately to their respective Term Loan Percentages, it being understood that no Term Loan Lender shall be responsible for any failure by any other Term Loan Lender to perform its obligation to make any Term Loan hereunder nor shall the Term Loan Commitment of any Lender be increased or decreased as a result of any such failure. (b) Borrowing Notice. The Borrower shall execute and deliver to the ---------------- Agent a Borrowing Notice on the Closing Date. Such Borrowing Notice shall specify (i) the aggregate amount of the Term Loans being requested (which shall be equal to the Aggregate Term Loan Commitment) and (ii) instructions for the disbursement of proceeds of such Term Loans. Any Borrowing Notice given pursuant to this Section 2.3(b) shall be irrevocable. -------------- (c) Making of Term Loans. Promptly after receipt of the Borrowing -------------------- Notice under Section 2.3(b) in respect of the Term Loans, the Agent shall -------------- notify each Term Loan Lender by telecopy, or other similar form of transmission, of the proposed Advance. Each Term Loan Lender shall deposit an amount equal to its Term Loan Percentage of the Term Loans with the Agent at its office in Chicago, Illinois, in immediately available funds, on the Closing Date, as specified in the Borrowing Notice. Subject to the fulfillment of the conditions precedent set forth in Sections 4.1 and 4.3, ------------ --- as applicable, the Agent shall make the proceeds of such amounts received by it available to the Borrower at the Agent's office in Chicago, Illinois on such date and shall disburse such proceeds in accordance with the Borrower's disbursement instructions set forth in such Borrowing Notice. The failure of any Term Loan Lender to deposit the amount described above with the Agent on such date shall not relieve any other Term Loan Lender of its obligations hereunder to make its Term Loan on such date. 26 (d) Repayment of the Term Loans. The Term Loans shall be repaid in --------------------------- nineteen (19) consecutive quarterly installments (it being understood and agreed that the Non-U.S. Subsidiary Borrower shall not be liable to repay any Term Loans). Each payment shall be due and payable on the last Business Day of the applicable calendar quarter. The first Term Loan installment shall be due and payable on the last Business Day of the calendar quarter ending June 30, 2002 and such installments shall continue on the last Business Day of each calendar quarter thereafter through and including the Term Loan Final Maturity Date. The Term Loans shall be permanently reduced by the amount of each installment on the date payment thereof is made hereunder. The installments shall be in the aggregate amounts set forth below:
Installment Amount Due and Payable on the Last ---------------------------------------------- Calendar Quarter Ended: Business Day of such Calendar Quarter: ---------------------- ------------------------------------- June 30, 2002 $625,000 September 30, 2002 $625,000 December 31, 2002 $625,000 March 31, 2003 $625,000 June 30, 2003 $625,000 September 30, 2003 $625,000 December 31, 2003 $625,000 March 31, 2004 $625,000 June 30, 2004 $3,750,000 September 30, 2004 $3,750,000 December 31, 2004 $3,750,000 March 31, 2005 $3,750,000 June 30, 2005 $3,750,000 September 30, 2005 $3,750,000 December 31, 2005 $3,750,000 March 31, 2006 $3,750,000 June 30, 2006 $3,750,000 September 30, 2006 $3,750,000 December 31, 2006 $3,750,000 Term Loan Final Maturity Date Balance of the Term Loans
No installment of any Term Loan shall be reborrowed once repaid. (e) Voluntary Prepayments. In addition to the scheduled payments on --------------------- the Term Loans, the Borrower may make the voluntary prepayments described in Section 2.4(b), with such prepayments applied ratably to reduce all - -------------- outstanding installments under the Term Loans. 2.4. Repayments and Prepayments of Advances. -------------------------------------- (a) Repayment at Maturity. Any outstanding Advances and Loans --------------------- (other than the Term Loans) and all other unpaid Obligations shall be paid in full by the applicable Borrower on the Revolving Loan Termination Date (or, if earlier, the date of termination in whole of the 27 Aggregate Revolving Loan Commitment pursuant to Section 2.7 hereof or the ----------- Commitments pursuant to Section 8.1 hereof) (it being understood and agreed ----------- that the Non-U.S. Subsidiary Borrower shall be obligated to repay only the Loans made to it and to pay only the other Obligations incurred by it). (b) Optional Prepayments. Subject to Section 3.4 and the -------------------- ----------- requirements of this Section 2.4(b), either Borrower may (a) following -------------- notice given to the Agent by such Borrower, by not later than 10:00 a.m. (Chicago time) one Business Day prior to the date of the proposed prepayment, such notice specifying the aggregate principal amount of and the proposed date of the prepayment (the "PREPAYMENT NOTICE"), and if such notice is given such Borrower shall, prepay in an aggregate minimum amount of $3,000,000 the outstanding principal amounts of the Floating Rate Loans comprising part of the same Advance in whole or ratably in part without penalty or premium and (b) following notice given to the Agent by either Borrower by not later than 10:00 a.m. (Chicago time) on, if the Advance to be prepaid is a Eurocurrency Advance, the third Business Day preceding the date of the proposed prepayment, such notice specifying the Eurocurrency Advance to be prepaid and the proposed date of the prepayment, and, if such notice is given, such Borrower shall, prepay in a minimum amount of $3,000,000 and in multiples of $1,000,000 in excess thereof the outstanding principal amounts of the Eurocurrency Loans comprising a Eurocurrency Advance without penalty or premium, except as otherwise provided in Section ------- 3.4, together with accrued interest to the date of such prepayment on the - --- principal amount prepaid. (c) Mandatory Prepayments. If at any time, (a) the Dollar Amount of --------------------- the Revolving Credit Obligations exceeds 105% of the Aggregate Revolving Loan Commitment, (b) the Dollar Amount of all Eurocurrency Loans and Facility LCs in Agreed Currencies other than Dollars exceeds 105% of the Maximum Eurocurrency Amount (utilizing the exchange rates determined in accordance with Section 2.1), (c) the aggregate amount of the outstanding ----------- Swing Line Loans exceeds 105% of the Swing Line Commitment or (d) the Dollar Amount of Revolving Loans and Facility LCs made to or issued for the account of the Non-U.S. Subsidiary Borrower exceeds 105% of the Maximum Non-U.S. Subsidiary Borrower Amount, the applicable Borrower for the ratable benefit of the Lenders shall immediately prepay Revolving Loans (to be applied to such Loans as the applicable Borrower shall direct at the time of such payment) in an aggregate amount such that after giving effect thereto (w) the Dollar Amount of the Revolving Credit Obligations is less than or equal to the Aggregate Revolving Loan Commitment, (x) the Dollar Amount of all Eurocurrency Loans and Facility LCs in Agreed Currencies other than Dollars is less than or equal to the Maximum Eurocurrency Amount, (y) the amount of outstanding Swing Line Loans is less than or equal to the Swing Line Commitment and (z) the Dollar Amount of Revolving Loans and Facility LCs made to or issued for the account of the Non-U.S. Subsidiary Borrower is less than or equal to the Maximum Non-U.S. Subsidiary Borrower Amount (it being understood and agreed that the Non-U.S. Subsidiary Borrower shall not be liable for any Loans made to, or Obligations incurred by, the Borrower). (d) Subject to the terms and conditions of this Agreement, any amount paid or prepaid before the Revolving Loan Termination Date (or, if earlier, the date of termination in whole of the Aggregate Revolving Loan Commitment pursuant to Section 2.7 hereof or the ----------- 28 Commitments pursuant to Section 8.1 hereof) with respect to Loans other than ----------- the Term Loans may be borrowed, repaid and borrowed again prior to the Revolving Loan Termination Date (or, if earlier, the date of termination in whole of the Aggregate Revolving Loan Commitment pursuant to Section 2.7 ----------- hereof or the Commitments pursuant to Section 8.1 hereof). ----------- 2.5. Ratable Loans. Each Advance hereunder shall consist of Loans ------------- made from the several Lenders ratably in proportion to their respective Revolving Loan Percentages or Term Loan Percentages, as applicable. 2.6. Types of Advances. The Advances may be Floating Rate Advances ----------------- or Eurocurrency Advances, or a combination thereof, selected by the applicable Borrower in accordance with Sections 2.8 and 2.9. ------------ --- 2.7. Facility Fee; Reductions in Aggregate Revolving Loan ---------------------------------------------------- Commitment. The Borrowers agree to pay to the Agent for the pro rata account - ---------- of the Lenders according to their Percentages (except as set forth in Section 8.2), a facility fee accruing at the rate of the Applicable Facility - ----------- Fee per annum based on the sum of the Aggregate Revolving Loan Commitment (without regards to usage thereof) plus the Aggregate Term Loan Commitment as of the Closing Date, from the date hereof to and including the Revolving Loan Termination Date (or, if earlier, the date of termination in whole of the Aggregate Revolving Loan Commitment pursuant to Section 2.7 hereof or ----------- the Commitments pursuant to Section 8.1 hereof), payable on each Payment ----------- Date hereafter and on the Revolving Loan Termination Date (or, if earlier, the date of termination in whole of the Aggregate Revolving Loan Commitment pursuant to Section 2.7 hereof or the Commitments pursuant to Section 8.1 ----------- ----------- hereof) (it being understood and agreed that the Non-U.S. Subsidiary Borrower shall not be liable to pay any Facility Fees determined to be attributable to the Borrower). The Borrower may permanently reduce the Aggregate Revolving Loan Commitment in whole, or in part ratably among the Lenders in integral multiples of $5,000,000 upon at least three Business Days' written notice to the Agent, which notice shall specify the amount of any such reduction (the "AGGREGATE REVOLVING LOAN COMMITMENT REDUCTION NOTICE"); provided, that the amount of the Aggregate Revolving Loan -------- Commitment may not be reduced below the Dollar Amount of the Aggregate Outstanding Credit Exposure not attributable to Term Loans. All accrued Facility Fees shall be payable on the effective date of any termination of the Revolving Loan Commitments of the Lenders and the obligation of the Borrowers to pay facility fees with respect to any Revolving Loan Commitments shall terminate on the date of any termination of the Revolving Loan Commitments. 2.8. Minimum Amount of Each Advance; Maximum Interest Periods. Each -------------------------------------------------------- Eurocurrency Advance shall be in the minimum amount of $3,000,000 or the Approximate Equivalent Amount of any Agreed Currency other than Dollars (and in multiples of $1,000,000 or the Approximate Equivalent Amount of any Agreed Currency other than Dollars if in excess thereof), and each Floating Rate Advance (other than an Advance to repay Swing Line Loans or Reimbursement Obligations) shall be in the minimum amount of $3,000,000 (and a multiple of $1,000,000 if in excess thereof); provided, that any Floating -------- Rate Advance may be in the amount of the Revolving Credit Availability. In addition, the Borrowers shall select Eurocurrency 29 Interest Periods under Sections 2.9 and 2.10 so that no more than ten (10) ------------ ---- Eurocurrency Interest Periods shall be outstanding at any one time. 2.9. Method of Selecting New Advances. The applicable Borrower -------------------------------- shall select the Type of Advance and, in the case of each Eurocurrency Advance, the Eurocurrency Interest Period and Agreed Currency applicable to each Advance from time to time. The applicable Borrower shall give the Agent irrevocable notice (a "BORROWING NOTICE") or, in the case of the Non-U.S. Subsidiary Borrower, the Borrower may give the Agent a Borrowing Notice on its behalf, by telephone or telefax not later than 9:00 a.m. (Chicago time) on the proposed Borrowing Date of each Floating Rate Advance and four Business Days before the Borrowing Date for each Eurocurrency Advance, specifying: (i) the applicable Borrower; (ii) Borrowing Date, which shall be a Business Day, of such Advance, (iii) the aggregate amount of such Advance, (iv) the Type of Advance selected, and (v) in the case of each Eurocurrency Advance, the Agreed Currency and the Eurocurrency Interest Period applicable thereto. With respect to the Term Loans, the Borrower may not select a Eurocurrency Interest Period that ends after the Term Loan Final Maturity Date. With respect to the Revolving Loans, the applicable Borrower may not select a Eurocurrency Interest Period that ends after the Revolving Loan Termination Date. Not later than (i) 1:00 p.m. (Chicago time) on each Borrowing Date with respect to Floating Rate Advances and (ii) noon (Chicago time) on each Borrowing Date for Eurocurrency Advances, each Lender shall make available its Loan or Loans, in funds immediately available funds in the Agreed Currency to the Agent at its address specified pursuant to Article XIII, ------------ unless the Agent has notified the Lenders that such Loan is to be made available to the applicable Borrower at the Agent's Eurocurrency Payment Office, in which case each Lender shall make available its Loan or Loans, in funds immediately available to the Agent at its Eurocurrency Payment Office, not later than 1:00 p.m. (local time in the city of the Agent's Eurocurrency Payment Office) in the Agreed Currency designated by the Agent. The Agent will make the funds so received from the Lenders available to the applicable Borrower at the Agent's aforesaid address. 2.10. Conversion and Continuation of Outstanding Advances. Floating --------------------------------------------------- Rate Advances shall continue as Floating Rate Advances unless and until such Floating Rate Advances are converted into Eurocurrency Advances. Each Eurocurrency Advance shall continue as a Eurocurrency Advance of such Type until the end of the then applicable Eurocurrency Interest Period therefor, at which time such Eurocurrency Advance (other than Eurocurrency Advances in Agreed Currencies other than Dollars) shall be automatically converted into a Floating Rate Advance unless the applicable Borrower shall have given the Agent a Conversion/Continuation Notice (which, in the case of the Non-U.S. Subsidiary Borrower, may be delivered the Borrower 30 may on its behalf) Conversion/Continuation Notice, in accordance with the terms of this Section 2.10 requesting that, at the end of such Eurocurrency ------------ Interest Period, such Eurocurrency Advance continue as a Eurocurrency Advance for the same or another Eurocurrency Interest Period. Unless a Conversion/Continuation Notice shall have timely been given in accordance with the terms of this Section 2.10, Eurocurrency Advances in an Agreed ------------ Currency other than Dollars shall automatically continue as Eurocurrency Advances in the same Agreed Currency with an Eurocurrency Interest Period of one (1) month. Subject to the terms of Section 2.8, the applicable Borrower ----------- may elect from time to time to convert all or any part of the Term Loan or the Revolving Loans from any Type into any other Type of Loan or Types of Loans; provided that any conversion of any Eurocurrency Advance shall be -------- made on, and only on, the last day of the Eurocurrency Interest Period applicable thereto. The applicable Borrower shall give the Agent irrevocable notice (a "CONVERSION/CONTINUATION NOTICE") or, in the case of the Non-U.S. Subsidiary Borrower, the Borrower may give the Agent a Conversion/ Continuation Notice on its behalf, of each conversion of a Floating Rate Advance or continuation of a Eurocurrency Advance not later than 10:00 a.m. (Chicago time) at least four Business Days prior to the date of the requested conversion or continuation, specifying: (i) the requested date, which shall be a Business Day, of such conversion or continuation; (ii) the aggregate amount and Type of the Advance which is to be converted or continued; and (iii) the amount and Type(s) of Advance(s) into which such Advance is to be converted or continued and, in the case of a conversion into or continuation of a Eurocurrency Advance, the duration of the Eurocurrency Interest Period applicable thereto. Notwithstanding anything herein to the contrary, Eurocurrency Advances in an Agreed Currency may be converted and/or continued as Eurocurrency Advances only in the same Agreed Currency. Promptly after receipt of any Conversion/Continuation Notice, the Agent shall provide the Lenders with notice thereof. 2.11. Changes in Interest Rate, etc. Each Floating Rate Advance and ------------------------------ Swing Line Loan shall bear interest on the outstanding principal amount thereof, for each day from and including the date such Advance or Swing Line Loan is made or, in the case of a Floating Rate Advance, is converted from a Eurocurrency Advance into a Floating Rate Advance pursuant to Section 2.10 ------------ to but excluding the date it becomes due or, in the case of a Floating Rate Advance, is converted into a Eurocurrency Advance pursuant to Section 2.10 ------------ hereof, at a rate per annum equal to the Floating Rate for such day or, in the case of the Swing Line Loans, such other rate as may have been agreed to between the Borrower and the Swing Line Lender. Changes in the rate of interest on that portion of any Advance maintained as a Floating Rate Advance and each Swing Line Loan bearing interest by reference to the Floating Rate will take effect simultaneously with each change in the Alternate Base Rate. Each Eurocurrency Advance shall bear interest from and including the first day of the Eurocurrency Interest Period applicable thereto to (but not 31 including) the last day of such Eurocurrency Interest Period at the Eurocurrency Rate determined as applicable to such Eurocurrency Advance. Changes in the rate of interest on any Eurocurrency Advance will take effect simultaneously with each change in the Applicable Margin. No Eurocurrency Interest Period may end after the Revolving Loan Termination Date (or, if earlier, the date of termination in whole of the Aggregate Revolving Loan Commitment pursuant to Section 2.7 hereof or the Commitments pursuant to ----------- Section 8.1 hereof). - ----------- 2.12. Rates Applicable After Default. Notwithstanding anything to ------------------------------ the contrary contained in Section 2.9 or 2.10, during the continuance of a ----------- ---- Default or Unmatured Default the Required Lenders may, at their option, by notice to the Borrowers, declare that no Advance may be made as, converted into or continued as a Eurocurrency Advance. During the continuance of any Default under Section 7.2, the Required Lenders may, at their option, by ----------- notice to the Borrowers, declare that each Advance shall bear interest at a rate per annum equal to the Floating Rate plus 2% per annum. 2.13. Method of Payment. All payments of the Obligations hereunder ----------------- shall be made, without setoff, deduction, or counterclaim, to the Agent (i) at the Agent's address specified pursuant to Article XIII in immediately ------------ available funds with respect to Advances or other Obligations denominated in Dollars and (ii) at the Agent's Eurocurrency Payment Office in immediately available funds with respect to any Advance or other Obligations denominated in an Agreed Currency other than Dollars, or at any other Lending Installation of the Agent specified in writing by the Agent to the Borrowers, by noon (local time) on the date when due and shall be applied ratably by the Agent among the Lenders (unless such amount is not to be shared ratably in accordance with the express terms hereof). Any payment received by the Agent after such time shall be deemed to have been received on the next Business Day. Each Advance shall be repaid or prepaid in the Agreed Currency in which it was made in the amount borrowed and interest payable thereon shall also be paid in such Agreed Currency. Each payment delivered to the Agent for the account of any Lender shall be delivered promptly by the Agent to such Lender in the same type of funds that the Agent received at its address specified pursuant to Article XIII or at any ------------ Lending Installation specified in a notice received by the Agent from such Lender. The Agent is hereby authorized to charge the account of the applicable Borrower maintained with Bank One for each payment of principal, interest and fees as it becomes due hereunder (it being understood and agreed that the Agent shall not charge the account of the Non-U.S. Subsidiary Borrower for any payment of principal or interest on Loans made to the Borrower, or for fees incurred by the Borrower). Any payment by either Borrower to the Agent for the account of the Lenders in accordance with the terms hereof shall, to the extent of such payment, discharge such Borrower's obligation to make such payment to the Lenders. Each reference to the Agent in this Section 2.13 shall also be deemed to refer, and shall ------------ apply equally, to the LC Issuer, in the case of payments required to be made by either Borrower to the LC Issuer pursuant to Section 2.23. ------------ Notwithstanding the foregoing provisions of this Section, if, after the making of any Advance in any currency other than Dollars, currency control or exchange regulations are imposed in the country which issues such currency with the result that different types of such Agreed Currency (the "NEW CURRENCY") are introduced and the type of currency in which the Advance was made (the "ORIGINAL CURRENCY") no longer exists or the applicable Borrower is not able to make payment to the Agent for the account of the Lenders in such Original Currency, then all 32 payments to be made by such Borrower hereunder in such currency shall be made to the Agent in such amount and such type of the New Currency or Dollars as shall be equivalent to the amount of such payment otherwise due hereunder in the Original Currency, it being the intention of the parties hereto that the applicable Borrower take all risks of the imposition of any such currency control or exchange regulations. In addition, notwithstanding the foregoing provisions of this Section, if, after the making of any Advance in any currency other than Dollars, either Borrower is not able to make payment to the Agent for the account of the Lenders in the type of currency in which such Advance was made because of the imposition of any such currency control or exchange regulation, then such Advance shall instead be repaid when due in Dollars in a principal amount equal to the Dollar Amount (as of the date of repayment) of such Advance. 2.14. Noteless Agreement; Evidence of Indebtedness. -------------------------------------------- (i) Each Lender shall maintain in accordance with its usual practice an account or accounts evidencing the indebtedness of each Borrower to such Lender resulting from the Loans made by such Lender from time to time, including the amounts of principal and interest payable and paid to such Lender from time to time hereunder. (ii) The Agent shall also maintain accounts in which it will record (a) the amount of each Loan made hereunder, the Type thereof and the Eurocurrency Interest Period with respect thereto, (b) the amount of any principal or interest due and payable or to become due and payable from each Borrower, respectively, to each Lender hereunder and (c) the amount of any sum received by the Agent hereunder from each Borrower and each Lender's share thereof. (iii) The entries maintained in the accounts maintained pursuant to paragraphs (i) and (ii) above shall be binding and conclusive evidence, absent manifest error, of the existence and amounts of the Obligations therein recorded; provided, however, -------- ------- that the failure of the Agent or any Lender to maintain such accounts or any error therein shall not in any manner affect the obligation of the applicable Borrower to repay the Obligations incurred by it in accordance with their terms. (iv) Any Lender may request that its Loans be evidenced by a promissory note in substantially the form of Exhibit D hereto. In --------- such event, the Borrowers shall execute and deliver to such Lender promissory notes payable to the order of such Lender in a form approved by the Agent and consistent with the terms of this Agreement. Thereafter, the Loans evidenced by such promissory notes and interest thereon shall at all times (including after any assignment pursuant to Section 12.3) be represented by one or more ------------ promissory notes payable to the order of the payee named therein or any assignee pursuant to Section 12.3, except to the extent that ------------ any such Lender or assignee subsequently returns any such promissory note for cancellation and requests that such Loans once again be evidenced as described in paragraphs (i) and (ii) above. 2.15. Telephonic Notices. Each Borrower hereby authorizes the ------------------ Lenders and the Agent to extend, convert or continue Advances and Swing Line Loans, as applicable, effect selections 33 of Types of Advances and to transfer funds based on telephonic notices made by any person or persons the Agent, the Swing Line Lender or any Lender in good faith believes to be an Authorized Officer of such Borrower. Each Borrower agrees to deliver promptly to the Agent a written confirmation, if such confirmation is requested by the Agent, the Swing Line Lender or any Lender, of each telephonic notice, signed by an Authorized Officer. If the written confirmation differs in any material respect from the action taken by the Agent, the Swing Line Lender and the Lenders, the records of the Agent, the Swing Line Lender and the Lenders shall govern absent manifest error. 2.16. Interest Payment Dates; Interest and Fee Basis. Interest ---------------------------------------------- accrued on each Floating Rate Advance and Swing Line Loan shall be payable on each Payment Date, commencing with the first such date to occur after the date hereof, on any date on which the Floating Rate Advance or Swing Line Loan is prepaid and at maturity (whether due to acceleration or otherwise). Interest accrued on that portion of the outstanding principal amount of any Floating Rate Advance converted into a Eurocurrency Advance on a day other than a Payment Date shall be payable on the date of conversion. Interest accrued on each Eurocurrency Advance shall be payable on the last day of its applicable Eurocurrency Interest Period, on any date on which the Eurocurrency Advance is prepaid, whether by acceleration or otherwise, and at maturity. Interest accrued on each Eurocurrency Advance having an Eurocurrency Interest Period longer than three months shall also be payable on the last Business Day of each three-month interval during such Eurocurrency Interest Period. Interest accrued on all Loans for which the Prime Rate is the basis shall be calculated for actual days elapsed on the basis of a year of 365 or, when appropriate, 366 days. Interest accrued on all Loans for which the Eurocurrency Rate is the basis and all fees shall be calculated for actual days elapsed on the basis of a year of 360 days. Interest shall be payable for the day an Advance or Swing Line Loan is made but not for the day of any payment on the amount paid if payment is received prior to noon (local time) at the place of payment. If any payment of principal of or interest on an Advance or Swing Line Loan or any fee shall become due on a day which is not a Business Day, such payment shall be made on the next succeeding Business Day and, in the case of a principal payment, such extension of time shall be included in computing interest in connection with such payment. 2.17. Notification of Advances, Interest Rates, Prepayments and --------------------------------------------------------- Commitment Reductions. The Agent will promptly notify each Lender of the - --------------------- contents of each Aggregate Revolving Loan Commitment Reduction Notice, Borrowing Notice, Conversion/Continuation Notice, and Prepayment Notice received by it hereunder. The Agent will notify each Lender of the interest rate applicable to each Eurocurrency Advance promptly upon determination of such interest rate and will give each Borrower and each Lender prompt notice of each change in the Alternate Base Rate. 2.18. Lending Installations. Each Lender may book its Loans at any --------------------- Lending Installation selected by such Lender and may change its Lending Installation from time to time. All terms of this Agreement shall apply to any such Lending Installation and any promissory notes requested to be issued hereunder shall be deemed held by each Lender for the benefit of such Lending Installation. Each Lender may, by written or facsimile notice to the Agent and the Borrowers, 34 designate a Lending Installation through which Loans will be made by it and for whose account Loan payments and/or payments of LC Obligations are to be made. 2.19. Non-U.S. Subsidiary Borrower. The Borrower may at any time, ---------------------------- with the consent of the Agent, add as a party to this Agreement a Foreign Subsidiary to be the "Non-U.S. Subsidiary Borrower" hereunder by (a) the execution and delivery to the Agent of a duly completed Assumption Letter by such Subsidiary, with the written consent of the Borrower at the foot thereof and (b) the execution and delivery to the Agent of such other guaranties, security documents, pledge agreements and legal opinions from counsel as may be reasonably required by the Agent. Upon such execution, delivery and consent, such Subsidiary shall for all purposes be a party hereto as the Non-U.S. Subsidiary Borrower as fully as if it had executed and delivered this Agreement. 2.20. Non-Receipt of Funds by the Agent. Unless either Borrower or --------------------------------- a Lender, as the case may be, notifies the Agent prior to the date on which it is scheduled to make payment to the Agent of (i) in the case of a Lender, the proceeds of a Loan or (ii) in the case of either Borrower, a payment of principal, interest or fees to the Agent for the account of any of the Lenders or, in the case of the Borrower, the Swing Line Lender, that it does not intend to make such payment, the Agent may assume that such payment has been made. The Agent may, but shall not be obligated to, make the amount of such payment available to the intended recipient in reliance upon such assumption. If such Lender or such Borrower, as the case may be, has not in fact made such payment to the Agent, the recipient of such payment shall, on demand by the Agent, repay to the Agent the amount so made available together with interest thereon in respect of each day during the period commencing on the date such amount was so made available by the Agent until the date the Agent recovers such amount at a rate per annum equal to (i) in the case of payment by a Lender, the Federal Funds Effective Rate for such day or (ii) in the case of payment by such Borrower, the interest rate applicable to the relevant Loan. 2.21. Extension of Revolving Loan Termination Date. (a) The -------------------------------------------- Borrower may request two extensions of the Revolving Loan Termination Date by submitting a request for an extension to the Agent (an "EXTENSION REQUEST") not more than 180 days and not less than 60 days prior to the then effective Revolving Loan Termination Date. The Extension Request must specify the new Revolving Loan Termination Date requested by the Borrower, which shall be the day that is one year after the then Effective Revolving Loan Termination Date. The new Revolving Loan Termination Date shall be effective as of the then effective Revolving Loan Termination Date (the "EXTENSION DATE"). The Revolving Loan Termination Date may not be extended more than two times hereunder. Promptly upon receipt of an Extension Request, the Agent shall notify each Lender of the contents thereof and shall request each Lender to approve the Extension Request. Each Lender approving the Extension Request shall deliver its written consent no later than the Extension Date. If and only if the consent of Lenders having, in the aggregate, Revolving Loan Percentages of greater than 75% is received by the Agent, and no Default or Unmatured Default has occurred and is continuing on the Extension Date, such date specified in the Extension Request as the new Revolving Loan Termination Date shall become effective on the Extension Date, but only with respect to each Lender that has approved the Extension Request. The Agent shall promptly notify the Borrower and each Lender of the new Revolving 35 Loan Termination Date. If any of the conditions precedent to a Credit Extension set forth in Section 4.3 have not been satisfied on the Extension ----------- Date, then such Extension Request shall be deemed withdrawn and terminated on such date. Failure of a Lender to respond to an Extension Request after such Lender's receipt of the Extension Request from the Agent shall be deemed a denial of such request. (b) If any Lender denies the Extension Request, then on the then effective Revolving Loan Termination Date (without giving effect to the Extension Request), (i) each Borrower shall pay to such Lender all amounts of principal, interest and fees accrued to the Extension Date that are payable to such Lender under this Agreement (it being understood and agreed that the Non-U.S. Subsidiary Borrower shall not be liable to pay to such Lender any amounts in respect of Obligations incurred by the Borrower), (ii) the Extension Date shall also be deemed to be such Lender's Revolving Loan Termination Date and the Loans provided for in Section 2 hereof will not be --------- available to either Borrower from such Lender and (iii) such Lender's Commitments shall terminate. (c) The Borrower shall have the right, upon at least five (5) Business Days' notice to the Agent (i) to increase the Revolving Loan Commitment of one or more Lenders and (ii) to add one or more financial institutions as new Lenders (any such addition being referred to as a "LENDER ADDITION"); provided, however, that in order for any increase in the -------- ------- Revolving Loan Commitments or any Lender Addition to be effective, the applicable Lender or financial institution and the Agent must consent to any such increase and/or Lender Addition (such consent by the Agent not to be unreasonably withheld); and provided, further, that no such increase in any -------- ------- Revolving Loan Commitment or any Lender Addition shall result in an Aggregate Revolving Loan Commitment in excess of that in effect prior to the Extension Date. 2.22. Withholding Tax Exemption. (i) At least five Business Days ------------------------- prior to the first date on which interest or fees are payable hereunder for the account of any Lender, each Lender that is not incorporated or otherwise organized under the laws of the United States of America, or a state thereof (a "NON-U.S. LENDER") agrees that it will deliver to each of the Borrower and the Agent two duly completed copies of United States Internal Revenue Service Form W-8BEN or W-8ECI, certifying in either case that such Non-U.S. Lender is entitled to receive payments under this Agreement without deduction or withholding of any United States federal income taxes, and (ii) deliver to each of the Borrower and the Agent a United States Internal Revenue Form W-8 or W-9, as the case may be, and certify that it is entitled to an exemption from United States backup withholding tax. Each Non-U.S. Lender further undertakes to deliver to each of the Borrower and the Agent (x) two renewals or additional copies of such form (or a successor form) on or before the date that such form expires or becomes obsolete, and (y) after the occurrence of any event requiring a change in the most recent forms so delivered by it, such amendments thereto as may be reasonably requested by the Borrower or the Agent. All forms or amendments described in the preceding sentence shall certify that such Lender is entitled to receive payments under this Agreement without deduction or withholding of any United States federal income taxes, unless an event (including without limitation ------ any change in treaty, law or regulation) has occurred prior to the date on which any such delivery would otherwise be required which renders all such forms inapplicable or which would prevent such Non-U.S. 36 Lender from duly completing and delivering any such form with respect to it and such Non-U.S. Lender advises the Borrower and the Agent that it is not capable of receiving payments without any deduction or withholding of United States federal income tax. For any period during which a Non-U.S. Lender has failed to provide the Borrower with an appropriate form pursuant to this Section 2.22, above (unless such failure is due to a change in treaty, law - ------------ or regulation, or any change in the interpretation or administration thereof by any governmental authority, occurring subsequent to the date on which a form originally was required to be provided), such Non-U.S. Lender shall not be entitled to indemnification with respect to taxes imposed by the United States; provided that, should a Non-U.S. Lender which is otherwise exempt from or subject to a reduced rate of withholding tax become subject to taxes because of its failure to deliver a form required under this Section 2.22, ------------ the Borrowers, respectively, shall take such steps as such Non-U.S. Lender shall reasonably request to assist such Non-U.S. Lender to recover such taxes. 2.23. Facility LCs. ------------ (a) The LC Issuer hereby agrees, on the terms and conditions set forth in this Agreement, to issue stand-by and commercial Facility LCs in Dollars or an Agreed Currency for the account of the applicable Borrower (each, a "FACILITY LC") and to renew, extend, increase, decrease or otherwise modify each Facility LC (each a "MODIFICATION"), from time to time from and including the date of this Agreement and prior to the Revolving Loan Termination Date (or, if earlier, the date of termination in whole of the Aggregate Revolving Loan Commitment pursuant to Section 2.7 hereof or ----------- the Commitments pursuant to Section 8.1 hereof) upon the request of the ----------- applicable Borrower or, in the case of the Non-U.S. Subsidiary Borrower, upon the request of the Borrower on its behalf; provided, that immediately -------- after each such Facility LC is issued or Modified, (i) the aggregate Dollar Amount of the outstanding LC Obligations shall not exceed $20,000,000, (ii) the Dollar Amount of all Eurocurrency Loans and Facility LCs in Agreed Currencies other than Dollars is less than or equal to the Maximum Eurocurrency Amount, (iii) the Revolving Credit Obligations shall not exceed the Aggregate Revolving Loan Commitment, (iv) the aggregate outstanding principal Dollar Amount of all Revolving Loans and Facility LCs made to or issued for the account of the Non-U.S. Subsidiary Borrower shall not exceed the Maximum Non-U.S. Subsidiary Borrower Amount and (v) the conditions precedent set forth in Section 4.3 shall have been satisfied; provided, ----------- -------- further, that if the applicable Borrower has requested a Lender other than - ------- Bank One to act as LC Issuer with respect to the issuance or Modification of a particular Facility LC, such issuance or Modification shall be made only in the sole discretion of such Lender. No Facility LC shall have an expiry date later than the day which is two years after the Revolving Loan Termination Date (which, for purposes of clarification, shall include any and all extensions pursuant to Section 2.21 hereof). ------------ (b) On the date hereof with respect to the Existing LCs and upon the issuance or Modification by the LC Issuer of a Facility LC in accordance with this Section 2.23, the LC Issuer shall be deemed, without further ------------ action by any party hereto, to have sold to each Lender, and each Lender shall be deemed, without further action by any party hereto, to have purchased from the LC Issuer, a participation in such Facility LC (and each Modification thereof) and the related LC Obligations in an amount equal to the stated amount available for drawing under the applicable Facility LC and any such related LC Obligations, multiplied by such Lender's 37 Revolving Loan Percentage, provided, however, that no Lender's participation -------- ------- shall extend to Reimbursement Obligations or amounts available for drawing under outstanding Facility LCs (i) to the extent such Obligations and amounts have been cash collateralized in accordance with the terms of Section 2.23(m) or (ii) if such Lender's Revolving Loan Commitment has been - --------------- terminated pursuant to Section 2.21(b). Such participation shall constitute --------------- usage of each such Lenders' Revolving Loan Commitment. (c) Subject to subsection (a), the applicable Borrower (or in the case of the Non-U.S. Subsidiary Borrower, the Borrower on its behalf) shall give the LC Issuer notice prior to 10:00 a.m. (Chicago time) at least (i) three Business Days for Dollar denominated Facility LCs and (ii) five Business Days for Facility LCs denominated in any Agreed Currency other than Dollars prior to the proposed date of issuance or Modification of each Facility LC, specifying the beneficiary, the Agreed Currency in which the Facility LC is to be denominated, the proposed date of issuance (or Modification) and the expiry date of such Facility LC, and describing the proposed terms of such Facility LC and the nature of the transactions proposed to be supported thereby. Upon receipt of such notice, the LC Issuer shall promptly notify the Agent, and the Agent shall promptly notify each Lender, of the contents thereof and of the amount of such Lender's participation in such proposed Facility LC. The issuance or Modification by the LC Issuer of any Facility LC shall, in addition to the conditions precedent set forth in Article IV (the satisfaction of which the LC Issuer ---------- shall have no duty to ascertain), be subject to the conditions precedent that such Facility LC shall be satisfactory to the LC Issuer and that the applicable Borrower shall have executed and delivered such application agreement and/or such other instruments and agreements relating to such Facility LC as the LC Issuer shall have reasonably requested (each, a "FACILITY LC APPLICATION AGREEMENT"). In the event of any conflict between the terms of this Agreement and the terms of any Facility LC Application Agreement, the terms of this Agreement shall control. (d) The Borrowers shall pay to the Agent, for the account of the Lenders ratably in accordance with their respective Revolving Loan Percentages (except as provided in Section 8.2), a letter of credit fee ----------- equal to (i) a percentage per annum equal to the Applicable Stand-by Facility LC Margin in effect from time to time on the average daily aggregate amount available for drawings under all stand-by Facility LCs outstanding during such quarter and (ii) a percentage per annum equal to the Applicable Commercial Facility LC Margin in effect from time to time on the average daily aggregate amount available for drawings under all commercial Facility LCs outstanding during such quarter (it being understood and agreed that the Non-U.S. Subsidiary Borrower shall be liable to pay such fees only with respect to Facility LCs issued for its account). Each such fee under clauses (i) and (ii) shall be payable in arrears on each Payment Date and on - ----------- ---- the Revolving Loan Termination Date (or, if earlier, the date of termination in whole of the Aggregate Revolving Loan Commitment pursuant to Section 2.7 ----------- hereof or the Commitments pursuant to Section 8.1 hereof). The applicable ----------- Borrower shall pay to the LC Issuer on the date of issuance of each Facility LC, a Facility LC fronting fee equal to 0.125% of the stated amount available for drawing under each such Facility LC, and such additional fees and expenses relating to the issuance, Modification, and payment of Facility LCs in the amounts and at the times agreed between the Borrower and the LC Issuer (it being understood and agreed that the Non-U.S. Subsidiary Borrower shall be liable to pay such fronting fee only with respect 38 to Facility LCs issued for its account). The LC Issuer shall furnish to the Agent upon request its calculations with respect to the amount of any fee payable under this subsection (d). (e) Upon receipt from the beneficiary of any Facility LC of any demand for payment under such Facility LC, the LC Issuer shall notify the Agent and the Agent shall promptly notify the applicable Borrower and each other Lender as to the amount to be paid by the LC Issuer as a result of such demand and the proposed payment date (the "LC PAYMENT DATE"). The responsibility of the LC Issuer to the applicable Borrower and each Lender shall be only to determine that the documents (including each demand for payment) delivered under each Facility LC in connection with such presentment shall be in conformity in all material respects with such Facility LC. The LC Issuer shall endeavor to exercise the same care in the issuance and administration of the Facility LCs as it does with respect to letters of credit in which no participations are granted, it being understood that in the absence of any gross negligence or willful misconduct by the LC Issuer, each Lender shall be unconditionally and irrevocably liable without regard to the occurrence of any Default or any condition precedent whatsoever, to reimburse the LC Issuer on demand for (i) such Lender's Revolving Loan Percentage of the amount of each payment made by the LC Issuer under each Facility LC to the extent such amount is not reimbursed by the applicable Borrower pursuant to subsection (f) below plus (ii) interest on the foregoing amount to be reimbursed by such Lender, for each day from the date of the LC Issuer's demand for such reimbursement (or, if such demand is made after 11:00 a.m. (Chicago time) on such date, from the next succeeding Business Day) to the date on which such Lender pays the amount to be reimbursed by it, at a rate of interest per annum equal to the Federal Funds Effective Rate for such day; provided, however, that upon any -------- ------- such demand by the LC Issuer for reimbursement from the Lenders of the amounts described in clauses (i) and (ii) above (the "LC REIMBURSEMENT ----------- ---- AMOUNTS"), the LC Reimbursement Amounts shall be immediately and automatically converted to and redenominated in Dollars equal to the Dollar Amount of such LC Reimbursement Amounts determined as of the date of such conversion. (f) The applicable Borrower shall be irrevocably and unconditionally obligated to reimburse the LC Issuer on or by the applicable LC Payment Date for any amounts to be paid by the LC Issuer upon any drawing under any Facility LC, without presentment, demand, protest or other formalities of any kind (it being understood and agreed that the Non-U.S. Subsidiary Borrower shall not be liable to reimburse any LC Issuer for any amounts attributable to drawings under Facility LCs issued for the account of the Borrower); provided, that neither the Borrowers nor any Lender shall -------- hereby be precluded from asserting any claim for direct (but not consequential) damages suffered by the applicable Borrower or such Lender to the extent, but only to the extent, caused by (i) the willful misconduct or gross negligence of the LC Issuer in determining whether a request presented under any Facility LC issued by it complied with the terms of such Facility LC or (ii) the LC Issuer's failure to pay under any Facility LC issued by it after the presentation to it of a request strictly complying with the terms and conditions of such Facility LC. All such amounts paid by the LC Issuer and remaining unpaid by the applicable Borrower after the applicable LC Payment Date shall bear interest, payable on demand, for each day until paid, at a rate per annum equal to the sum of 2% plus the rate applicable to Floating Rate Advances for such day. The LC Issuer will pay to each Lender ratably in accordance with its Revolving Loan Percentage all amounts received by it from the applicable Borrower for 39 application in payment, in whole or in part, of the Reimbursement Obligation in respect of any Facility LC issued by the LC Issuer, but only to the extent such Lender has made payment to the LC Issuer in respect of such Facility LC pursuant to subsection (e). Subject to the terms and conditions of this Agreement (including without limitation the submission of a Borrowing Notice in compliance with Section 2.9 and the satisfaction of the ----------- applicable conditions precedent set forth in Article IV), either Borrower ---------- may request an Advance or, in the case of the Borrower only, a Swing Line Loan hereunder for the purpose of satisfying any Reimbursement Obligation. (g) If after the date hereof, the adoption of any applicable law, rule or regulation, or any change in any applicable law, rule or regulation, or any change in the interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by the LC Issuer or any Lender with any request or directive (whether or not having the force of law) of any such authority, central bank or comparable agency shall impose, modify or deem applicable any tax, reserve, special deposit or similar requirement against or with respect to or measured by reference to Facility LCs issued or to be issued hereunder or participation therein, and the result shall be to increase the cost to the LC Issuer or any Lender of issuing or maintaining any Facility LC or any participation therein, or reduce any amount receivable hereunder by the LC Issuer or any Lender in respect of any Facility LC (which increase in cost, or reduction in amount receivable, shall be the result of such Lender's or the LC Issuer's reasonable allocation of the aggregate of such increases or reductions resulting from such event), then, upon demand by the LC Issuer or such Lender, each Borrower agrees, as applicable, to pay to the LC Issuer or such Lender, from time to time as specified by the LC Issuer or such Lender, such additional amounts as shall be sufficient to compensate the LC Issuer or such Lender for such increased costs or reductions in amounts received by the LC Issuer or such Lender (it being understood and agreed that the Non-U.S. Subsidiary Borrower shall not be liable to compensate any LC Issuer for any such costs or reductions in amounts received with respect to Facility LCs issued for the account of the Borrower). A certificate of the LC Issuer or such Lender submitted by the LC Issuer or such Lender to the applicable Borrower shall be conclusive as to the amount thereof in the absence of manifest error. (h) The Borrowers' obligations under this Section 2.23 shall be ------------ absolute and unconditional under any and all circumstances and irrespective of any set off, counterclaim or defense to payment which the applicable Borrower may have or have had against the LC Issuer, any Lender or any beneficiary of a Facility LC. Each Borrower further agrees with the LC Issuer and the Lenders that the LC Issuer and the Lenders shall not be responsible for, and such Borrower's Reimbursement Obligation in respect of any Facility LC shall not be affected by, among other things, the validity or genuineness of documents or of any endorsements thereon, even if such documents should in fact prove to be in any or all respects invalid, fraudulent or forged, or any dispute between or among such Borrower, any of its Subsidiaries, the beneficiary of any Facility LC or any financing institution or other party to whom any Facility LC may be transferred or any claims or defenses whatsoever of such Borrower or of any of its Subsidiaries against the beneficiary of any Facility LC or any such transferee. Absent willful misconduct or gross negligence, the LC Issuer shall not be liable for any error, omission, interruption or delay in transmission, dispatch or delivery of any message or advice, however transmitted, in 40 connection with any Facility LC. Each Borrower agrees that any action taken or omitted by the LC Issuer or any Lender under or in connection with each Facility LC and the related drafts and documents, if done without gross negligence or willful misconduct, shall be binding upon such Borrower and shall not put the LC Issuer or any Lender under any liability to such Borrower. Nothing in this subsection (h) is intended to limit the right of either Borrower to make a claim against the LC Issuer for damages as contemplated by the proviso to the first sentence of subsection (f) above. (i) To the extent not inconsistent with subsection (h) above, the LC Issuer shall be entitled to rely, and shall be fully protected in relying upon, any Facility LC, draft, writing, resolution, notice, consent, certificate, affidavit, letter, cablegram, telegram, telecopy, telex or teletype message, statement, order or other document believed by it to be genuine and correct and to have been signed, sent or made by the proper Person or Persons, and upon advice and statements of legal counsel, independent accountants and other experts selected by the LC Issuer. The LC Issuer shall be fully justified in failing or refusing to take any action under this Agreement unless it shall first have received such advice or concurrence of the Required Lenders as it reasonably deems appropriate or it shall first be indemnified to its reasonable satisfaction by the Lenders against any and all liability and expense which may be incurred by it by reason of taking or continuing to take any such action. Notwithstanding any other provision of this Section 2.23, the LC Issuer shall in all cases be ------------ fully protected in acting, or in refraining from acting, under this Agreement in accordance with a request of the Required Lenders (or all of the Lenders, if required hereunder), and such request and any action taken or failure to act pursuant thereto shall be binding upon the Lenders and all future holders of participations in any Facility LCs. (j) Each Borrower hereby agrees to indemnify and hold harmless each Lender, the LC Issuer and the Agent, and their respective directors, officers, agents and employees from and against any and all claims and damages, losses, liabilities, costs or expenses which such Lender, the LC Issuer or the Agent may incur (or which may be claimed against such Lender, the LC Issuer or the Agent by any Person whatsoever) by reason of or in connection with the execution and delivery or transfer of or payment or failure to pay under any Facility LC or any actual or proposed use of any Facility LC, including, without limitation, any claims, damages, losses, liabilities, costs or expenses which the LC Issuer may incur by reason of or in connection with (i) the failure of any other Lender to fulfill or comply with its obligations to the LC Issuer hereunder (but nothing herein contained shall affect any rights such Borrower may have against any defaulting Lender) or (ii) by reason of or on account of the LC Issuer issuing any Facility LC which specifies that the term "Beneficiary" included therein includes any successor by operation of law of the named Beneficiary, but which Facility LC does not require that any drawing by any such successor Beneficiary be accompanied by a copy of a legal document, satisfactory to the LC Issuer, evidencing the appointment of such successor Beneficiary (it being understood and agreed that the Non-U.S. Subsidiary Borrower shall not be liable pursuant to this subsection (j) with respect to any Facility LCs issued for the account of the Borrower); provided, that -------- such Borrower shall not be required to indemnify the LC Issuer for any claims, damages, losses, liabilities, costs or expenses to the extent, but only to the extent, caused by (i) the willful misconduct or gross negligence of the LC Issuer in determining whether a request presented 41 under any Facility LC complied with the terms of such Facility LC or (ii) the LC Issuer's failure to pay under any Facility LC after the presentation to it of a request strictly complying with the terms and conditions of such Facility LC. Nothing in this subsection (j) is intended to limit the obligations of either Borrower under any other provision of this Agreement. (k) Each Lender shall, ratably in accordance with its Revolving Loan Percentage, indemnify the LC Issuer, its affiliates and their respective directors, officers, agents and employees (to the extent not reimbursed by the applicable Borrower) against any cost, expense (including reasonable counsel fees and disbursements), claim, demand, action, loss or liability (except such as result from such indemnitees' gross negligence or willful misconduct or the LC Issuer's failure to pay under any Facility LC after the presentation to it of a request strictly complying with the terms and conditions of the Facility LC) that such indemnitees may suffer or incur in connection with this Section 2.19 or any action taken or omitted by such ------------ indemnitees hereunder. (l) In its capacity as a Lender, the LC Issuer shall have the same rights and obligations as any other Lender. (m) Notwithstanding anything to the contrary herein or in any application for a Facility LC, the applicable Borrower shall, not later than the Revolving Loan Termination Date (or, if earlier, the date of termination in whole of the Aggregate Revolving Loan Commitment pursuant to Section 2.7 ----------- hereof or the Commitments pursuant to Section 8.1 hereof) or on any earlier ----------- Business Day after the occurrence and continuance of a Default or Unmatured Default that it receives the Agent's demand, deliver to the Agent for the benefit of the Lenders and the LC Issuer, cash having a value, as determined by the Agent, equal to one hundred and five percent (105%) of each of the aggregate amount of the outstanding Reimbursement Obligations and the aggregate amount available for drawing under Facility LCs that are outstanding. Any such collateral shall be held by the Agent in a separate account appropriately designated as a cash collateral account in relation to this Agreement and the Facility LCs and retained by the Agent for the benefit of the Lenders and the LC Issuer as collateral security for such Borrower's obligations in respect of this Agreement and each of the Facility LCs and LC Drafts. Such amounts shall be applied to reimburse the LC Issuer for drawings or payments under or pursuant to Facility LCs or LC Drafts, or if no such reimbursement is required, to payment of such of the other Obligations as the Agent shall determine (it being understood and agreed that the Non-U.S. Subsidiary Borrower shall not be required to provide collateral in connection with any Facility LCs issued for the account of the Borrower, nor shall any collateral provided by the Non-U.S. Subsidiary Borrower pursuant to this subsection (m) be applied toward drawings or payments under or in connection with Facility LCs issued for the account of the Borrower or Obligations incurred by the Borrower). Amounts remaining in any cash collateral account established pursuant to this Section 2.23 which ------------ are not to be applied to reimburse the Agent or any LC Issuer for amounts actually paid or to be paid by the Agent or any LC Issuer in respect of Obligations hereunder shall be promptly returned to the applicable Borrower upon the payment in full of all Obligations hereunder, after deduction of the Agent's reasonable expenses incurred in connection with such cash collateral account. 42 2.24. Transitional Letter of Credit Provisions. From and after the ---------------------------------------- Closing Date, the Existing LCs shall be deemed to constitute Facility LCs issued pursuant to Section 2.23 in which the Lenders participate. Fees shall ------------ accrue in respect of the Existing LCs as provided in Section 2.23(d) --------------- beginning as of the date of this Agreement. 2.25. Judgment Currency. If, for the purposes of obtaining judgment ----------------- in any court, it is necessary to convert a sum due from either Borrower hereunder in the currency expressed to be payable herein (the "SPECIFIED CURRENCY") into another currency, the parties hereto agree, to the fullest extent that they may effectively do so, that the rate of exchange used shall be that at which in accordance with normal banking procedures the Agent could purchase the specified currency with such other currency at the Agent's main office in Chicago, Illinois on the Business Day preceding that on which the final, non-appealable judgment is given. The obligations of the applicable Borrower in respect of any sum due to any Lender or the Agent hereunder shall, notwithstanding any judgment in a currency other than the specified currency, be discharged only to the extent that on the Business Day following receipt by such Lender or the Agent (as the case may be) of any sum adjudged to be so due in such other currency such Lender or the Agent (as the case may be) may in accordance with normal, reasonable banking procedures purchase the specified currency with such other currency. If the amount of the specified currency so purchased is less than the sum originally due to such Lender or the Agent, as the case may be, in the specified currency, such Borrower agrees, to the fullest extent that it may effectively do so, as a separate obligation and notwithstanding any such judgment, to indemnify such Lender or the Agent, as the case may be, against such loss, and if the amount of the specified currency so purchased exceeds (a) the sum originally due to any Lender or the Agent, as the case may be, in the specified currency and (b) any amounts shared with other Lenders as a result of allocations of such excess as a disproportionate payment to such Lender under Section 11.2, such Lender or the Agent, as the case may be, ------------ agrees to remit such excess to the applicable Borrower (it being understood and agreed that the Non-U.S. Subsidiary Borrower shall not be liable under this Section 2.25 in connection with any Obligations incurred by the ------------ Borrower). 2.26. Market Disruption. Notwithstanding the satisfaction of all ----------------- conditions referred to in Article II with respect to any Advance in any ---------- Agreed Currency other than Dollars, if there shall occur on or prior to the date of such Advance any change in national or international financial, political or economic conditions or currency exchange rates or exchange controls which would in the reasonable opinion of the applicable Borrower, the Agent or the Required Lenders make it impracticable for the Eurocurrency Loans comprising such Advance to be denominated in the Agreed Currency specified by the applicable Borrower, then the Agent shall forthwith give notice thereof to such Borrower and the Lenders or such Borrower shall give notice thereof to the Lenders, as the case may be, and such Eurocurrency Loans shall not be denominated in such currency but shall be made on such Borrowing Date in Dollars, in an aggregate principal amount equal to the Dollar Amount of the aggregate principal amount specified in the related Borrowing Notice, as Floating Rate Loans, unless the applicable Borrower notifies the Agent at least one Business Day before such date that (i) it elects not to borrow on such date or (ii) it elects to borrow on such date in a different Agreed Currency, as the case may be, in which the denomination of such Eurocurrency Loans would in the opinion of the Agent and the Required 43 Lenders be practicable and in an aggregate principal amount equal to the Dollar Amount of the aggregate principal amount specified in the related Borrowing Notice. ARTICLE III: CHANGE IN CIRCUMSTANCES 3.1. Yield Protection. If, after the date of this Agreement, the ---------------- adoption of or change in, any law or any governmental or quasi-governmental rule, regulation, policy, guideline or directive (whether or not having the force of law), or any interpretation thereof, or the compliance of any Lender therewith, (i) subjects any Lender or any applicable Lending Installation to any tax, duty, charge or withholding on or from payments due from either Borrower (excluding taxation of the overall net income of any Lender or applicable Lending Installation), or changes the basis of taxation of payments to any Lender in respect of its Revolving Loan Commitment, Loans, LC Obligations or other amounts due it hereunder, or (ii) imposes or increases or deems applicable any reserve, assessment, insurance charge, special deposit or similar requirement against assets of, deposits with or for the account of, or credit extended by, any Lender or any applicable Lending Installation (other than reserves and assessments taken into account in determining the interest rate applicable to Eurocurrency Advances) in respect of its Revolving Loan Commitment, Loans, LC Obligations or other amounts due it hereunder, or (iii) imposes any other condition the result of which is to increase the cost to any Lender or any applicable Lending Installation of making, funding or maintaining its Revolving Loan Commitment, Loans or LC Obligations or reduces any amount receivable by any Lender or any applicable Lending Installation in connection with Loans under this Agreement or its LC Obligations, or requires any Lender or any applicable Lending Installation to make any payment calculated by reference to the amount of its Revolving Loan Commitment, Loans or LC Obligations held or interest received by it, by an amount deemed material by such Lender, then, within 15 days of demand by such Lender, the applicable Borrower shall pay such Lender that portion of such increased expense incurred or reduction in an amount received which such Lender determines is attributable to making, funding and maintaining its Loans, LC Obligations and its Revolving Loan Commitment. 3.2. Changes in Capital Adequacy Regulations. If a Lender --------------------------------------- determines the amount of capital required or expected to be maintained by such Lender, any Lending Installation of such Lender or any corporation controlling such Lender is increased as a result of a "Change" (as defined below), then, within 15 days of demand by such Lender the applicable Borrower shall pay such Lender the amount necessary to compensate, on an after-tax basis, for any shortfall in the rate of return on the portion of such increased capital which such Lender reasonably determines is attributable to this Agreement, its Outstanding Credit Exposure or its Commitments (after taking into account such Lender's policies as to capital adequacy and the 44 Change). "CHANGE" means (i) any change after the date of this Agreement in the "Risk-Based Capital Guidelines" (as defined below) or (ii) any adoption of or change in any other law, governmental or quasi-governmental rule, regulation, policy, guideline, interpretation, or directive (whether or not having the force of law) after the date of this Agreement which affects the amount of capital required or expected to be maintained by any Lender or any Lending Installation or any corporation controlling any Lender. "RISK-BASED CAPITAL GUIDELINES" means (i) the risk-based capital guidelines in effect in the United States on the date of this Agreement, including transition rules, and (ii) the corresponding capital regulations promulgated by regulatory authorities outside the United States implementing the July 1988 report of the Basle Committee on Banking Regulation and Supervisory Practices Entitled "International Convergence of Capital Measurements and Capital Standards," including transition rules, and any amendments to such regulations adopted prior to the date of this Agreement. 3.3. Availability of Types of Advances. If any Lender determines --------------------------------- that maintenance of any of its Eurocurrency Loans at a suitable Lending Installation would violate any applicable law, rule, regulation or directive, whether or not having the force of law, such Lender shall promptly give notice thereof to the Borrowers and the Agent shall suspend the availability of Eurocurrency Advances and require any and all outstanding Eurocurrency Advances to be repaid. If the Required Lenders determine that (i) deposits of a type, currency or maturity appropriate to match fund Eurocurrency Advances are not available or (ii) the interest rate applicable to Eurocurrency Advance does not accurately reflect the cost of making Eurocurrency Advances, then the Agent shall promptly give notice thereof to the Borrowers and the Lenders shall suspend the availability of Eurocurrency Advances until such time as the circumstances giving rise to such suspension no longer exist. 3.4. Funding Indemnification. If any payment of a Eurocurrency ----------------------- Advance occurs on a date which is not the last day of the applicable Eurocurrency Interest Period, whether because of acceleration, prepayment or otherwise (but excluding any such prepayment arising pursuant to Section ------- 3.3), or a Eurocurrency Advance is not made or prepaid on the date specified - --- by the applicable Borrower for any reason other than default by the Lenders, the applicable Borrower will indemnify each Lender for any loss or cost incurred by it resulting therefrom, including, without limitation, any loss or cost in liquidating or employing deposits acquired to fund or maintain such Advance. 3.5. Lender Statements; Survival of Indemnity. To the extent ---------------------------------------- reasonably possible, each Lender shall designate an alternate Lending Installation with respect to its Eurocurrency Loans to reduce any liability of either Borrower to such Lender under Sections 3.1 and 3.2 or to avoid the ------------ --- unavailability of a Type of Advance under Section 3.3, so long as such ----------- designation is not disadvantageous to such Lender. Each Lender shall deliver to the applicable Borrower a written statement of such Lender as to the amount due, if any, under Sections 3.1, 3.2 or 3.4. Such written statement ------------ --- --- shall set forth in reasonable detail the calculations upon which such Lender determined such amount and shall be final, conclusive and binding on the applicable Borrower in the absence of manifest error. Determination of amounts payable under such Sections in connection with a Eurocurrency Loan shall be calculated as though each Lender funded its Eurocurrency Loan through the purchase of a deposit of the type, currency and maturity 45 corresponding to the deposit used as a reference in determining the Eurocurrency Rate applicable to such Loan, whether in fact that is the case or not. Unless otherwise provided herein, the amount specified in the written statement or certificate shall be payable on demand after receipt by the applicable Borrower of the written statement. The obligations of the Borrowers under Sections 3.1, 3.2 and 3.4 shall survive payment of the ------------ --- --- Obligations and termination of this Agreement. 3.6. Replacement Lenders. If any Lender either (i) failed to fund ------------------- its Revolving Loan Percentage or Term Loan Percentage, as applicable, of any Advance requested by either Borrower, or to fund a Revolving Loan in order to repay Swing Line Loans or Reimbursement Obligations or participations with respect to Letters of Credit, which such Lender is obligated to fund under the terms of this Agreement and which failure has not been cured; (ii) makes a demand for compensation pursuant to Section 2.23(g), Section 3.1 or --------------- ----------- Section 3.2, (iii) is unable to fund at the Eurocurrency Rate or determines - ----------- that such rate is unavailable or does not accurately reflect its cost of making or maintaining any Eurocurrency Loan pursuant to Section 3.3 for ----------- reasons not generally applicable to the other Lenders or (iv) invokes the provisions of Section 9.2, the Borrower may require and have such Lender ----------- transfer, pursuant to and in accordance with Section 12.3, all of its rights ------------ and obligations under the Credit Documents to one or more Purchasers selected by the Borrower, acceptable to the Agent and the LC Issuer, and willing to accept such assignment provided such Lender is paid upon such assignment all amounts of principal, interest and fees accrued hereunder to the date of such assignment. No such assignment shall affect (a) any liability or obligation of either Borrower or any other Lender to such replaced Lender, which accrued on or prior to the date of such assignment or (b) such replaced Lender's rights or obligations hereunder in respect of any such liability or obligation. 3.7. Payments by Non-U.S. Subsidiary Borrower. Notwithstanding ---------------------------------------- anything herein to the contrary, the Non-U.S. Subsidiary Borrower shall not be liable under Sections 3.1, 3.2 and 3.4 with respect to payments required ------------ --- --- in connection with Loans made to, or Obligations incurred by or on behalf of, the Borrower. ARTICLE IV: CONDITIONS PRECEDENT 4.1. Initial Credit Extension. The Lenders shall not be required to ------------------------ make the Term Loans or any initial Revolving Credit Advance, the Swing Line Lender shall not be required to make Swing Line Loans and no LC Issuer shall be required to issue a Facility LC hereunder, unless the Borrower has furnished to the Agent, with sufficient copies for the Lenders, all in form and substance satisfactory to the Agent: (a) Copies of the articles or certificate of incorporation (or other comparable constituent document) of each of the Borrower and its Subsidiaries, together, in each case, with all amendments, and a certificate of good standing, both certified by the appropriate governmental officer in its jurisdiction of organization. 46 (b) Copies, certified by the Secretary or Assistant Secretary of each of the Borrower and its Subsidiaries, of its by-laws (or other comparable governing document) and of its Board of Directors' resolutions (and resolutions of other bodies, if any are deemed necessary by counsel for any Lender) authorizing the execution of the Borrower Credit Documents and Subsidiary Guaranties, as applicable. (c) An incumbency certificate, executed by the Secretary or Assistant Secretary of each of the Borrower and its Subsidiaries, which shall identify by name and title and bear the signature of the officers of the Borrower and each Subsidiary, as applicable, authorized to sign the Borrower Credit Documents and Subsidiary Guaranties, as applicable, and, in the case of the Borrower, to make Credit Extensions hereunder, upon which certificate the Agent and, the LC Issuer, the Swing Line Lender and the Lenders shall be entitled to rely until informed of any change in writing by the Borrower. (d) A certificate, signed by the chief financial officer of the Borrower, stating that on the initial Credit Extension Date (i) no Default or Unmatured Default has occurred and is continuing and (ii) no material adverse change in the business, financial condition, operations or prospects of the Borrower's or any of the Borrower's Subsidiaries' has occurred since the Borrower's consolidated financial statements as of December 31, 2000. (e) The written opinions of Bryan Cave LLP, U.S. counsel to the Borrower and its Subsidiaries, and each Material Foreign Subsidiary's foreign counsel (if any), in the forms of the opinions attached hereto as Exhibit E, in each case --------- addressed to the Agent and the Lenders, with respect to the (without limitation) due authorization, execution and enforceability of this Agreement and the other Credit Documents, as applicable. (f) A written opinion of foreign counsel with respect to each Pledge Agreement (if any) to be delivered on the Closing Date, addressed to the Agent and the Lenders, in form and substance satisfactory to the Agent. (g) A compliance certificate in substantially the form of Exhibit F hereto signed by the Borrower's chief financial --------- officer showing the calculations necessary to determine compliance with Sections 6.20, 6.21 and 6.22 of this ------------- ---- ---- Agreement. (h) Written money transfer instructions, in substantially the form of Exhibit G hereto, addressed to the Agent and signed --------- by an Authorized Officer, together with such other related money transfer authorizations as the Agent may have reasonably requested. (i) Evidence satisfactory to the Agent and its counsel that, concurrently with the Borrower's receipt of the initial Advance hereunder: (1) the entire principal amount (together with accrued interest and premium, if any) of the Existing 47 Indebtedness shall be repaid in full (other than the Existing LCs) and (2) any and all lender commitments under the Existing Credit Agreement shall have been terminated. (j) Evidence satisfactory to the Agent and its counsel that, concurrently with the Borrower's receipt of the initial Advances hereunder: (1) the entire principal amount (together with accrued interest and premium, if any) of Indebtedness of the Borrower and its Subsidiaries under the Interim Credit Agreement shall be repaid in full and (2) any and all lender commitments under the Interim Credit Agreement shall have been terminated. (k) Promissory notes payable to each of the Lenders requesting promissory notes pursuant to Section 2.14(iv) hereof. ---------------- (l) Such other documents as the Agent or any Lender or its counsel may have reasonably requested including, without limitation, the Parent Guaranty, the Subsidiary Guaranty, Pledge Agreements, and each other document reflected on the List of Closing Documents attached in Exhibit H to this --------- Agreement. 4.2. Initial Advance to the Non-U.S. Subsidiary Borrower. The --------------------------------------------------- Lenders shall not be required to make a Revolving Credit Advance hereunder and no LC Issuer shall be required to issue a Facility LC hereunder, in each case, to or with respect to the Non-U.S. Subsidiary Borrower, which may be a party hereto or which may become a party hereto after the Closing Date, unless (a) all such documents, instruments and agreements required by the Agent granting a first priority security interest in 65% of the issued and outstanding capital stock or other ownership interests in the Non-U.S. Subsidiary Borrower in favor of the Agent on behalf of the Lenders shall have been executed and ready to be filed in the appropriate jurisdictions and (b) the Borrower or the Non-U.S. Subsidiary Borrower has furnished or caused to be furnished to the Agent with sufficient copies for the Lenders: (i) The Assumption Letter executed and delivered by the Non-U.S. Subsidiary Borrower and containing the written consent of the Borrower at the foot thereof, as contemplated by Section 2.19. ------------ (ii) Copies, certified by the Secretary or Assistant Secretary of the Non-U.S. Subsidiary Borrower, of its Board of Directors' resolutions (and resolutions of other bodies, if any are deemed necessary by counsel for any Lender) approving the Assumption Letter and the other Non-U.S. Subsidiary Borrower Credit Documents. (iii) An incumbency certificate, executed by the Secretary or Assistant Secretary of the Non-U.S. Subsidiary Borrower, which shall identify by name and title and bear the signature of the officers of the Non-U.S. Subsidiary Borrower authorized to sign the Assumption Letter and the other Non-U.S. Subsidiary Borrower Credit Documents, upon which certificate the Agent and the Lenders shall be entitled to rely until informed of any change in writing by the Borrower. 48 (iv) An opinion of counsel to the Non-U.S. Subsidiary Borrower, with respect to the laws of its jurisdiction of organization, addressed to the Agent and the Lenders, substantially in the pertinent form attached as part of Exhibit E hereto. --------- (v) Promissory notes payable to each of the Lenders requesting promissory notes pursuant to Section 2.14(iv) hereof. ---------------- 4.3. Each Credit Extension. The Lenders shall not be required to --------------------- make any Advance (other than an Advance that, after giving effect thereto and to the application of the proceeds thereof, does not increase the aggregate amount of outstanding Advances), the Swing Line Lender shall not be obligated to make a Swing Line Loan, and no LC Issuer shall be required to issue any Facility LC, unless on the applicable Credit Extension Date, both immediately prior to, and immediately after giving effect to, such Credit Extension: (a) Either (i) in the case of an Advance, the Agent shall have received a Notice of Borrowing in compliance with Section ------- 2.9, (ii) in the case of a Swing Line Loan, the Swing Line --- Lender shall have received a notice of borrowing in compliance with Section 2.2(b) or (iii) in the case of a -------------- Facility LC, the LC Issuer shall have received a request for the issuance of a Facility LC in compliance with Section 2.23 ------------ (together with any Facility LC Application Agreement requested by the LC Issuer pursuant to Section 2.23(c)). --------------- (b) The Revolving Credit Obligations do not and would not exceed the Aggregate Revolving Loan Commitment. (c) The aggregate outstanding principal Dollar Amount of all Eurocurrency Advances in currencies other than Dollars does not and would not exceed the Maximum Eurocurrency Amount. (d) In the case of an Advance proposed to be made to the Non-U.S. Subsidiary Borrower, the aggregate principal Dollar Amount of Revolving Loans and Facility LCs made to or issued for the account of the Non-U.S. Subsidiary Borrower do not and would not exceed the Maximum Non-U.S. Subsidiary Borrower Amount. (e) There exists no Default or Unmatured Default. (f) The representations and warranties contained in Article V are --------- true and correct as of such Borrowing Date except to the extent any such representation or warranty is stated to relate solely to an earlier date, in which case such representation or warranty shall have been true and correct on and as of such earlier date. (g) There exists no material adverse change in the business, financial condition, operations or prospects of the Borrowers or any of the Borrower's Subsidiaries since the Borrower's consolidated financial statements as of December 31, 2000. 49 (h) There exists no litigation which would reasonably be expected to result in a Material Adverse Effect. (i) All legal matters incident to the making of such Credit Extension shall be reasonably satisfactory to the Lenders and their counsel. Each Borrowing Notice with respect to each such Advance, each notice of borrowing with respect to any Swing Line Loan and each request for the issuance of a Facility LC pursuant to Section 2.23, shall constitute a ------------ representation and warranty by the applicable Borrower that the conditions contained in Sections 4.3(b), (c), (d), (e) and (f) have been satisfied. --------------- --- --- --- --- ARTICLE V: REPRESENTATIONS AND WARRANTIES The Borrower represents and warrants to the Lenders that: 5.1. Existence and Standing. Each of the Borrower and its ---------------------- Subsidiaries is a corporation or limited liability company duly incorporated or organized, as the case may be, validly existing and (to the extent such concept applies to such entity) in good standing under the laws of its jurisdiction of incorporation or organization and has all requisite authority to conduct its business in each jurisdiction in which its business is conducted. 5.2. Authorization and Validity. The Borrower has the corporate -------------------------- power and authority and legal right to execute and deliver the Borrower Credit Documents and to perform its obligations thereunder. The execution and delivery by the Borrower of the Borrower Credit Documents and the performance of its obligations thereunder have been duly authorized by proper corporate proceedings, and the Borrower Credit Documents constitute legal, valid and binding obligations of the Borrower enforceable against the Borrower in accordance with their terms, except as enforceability may be limited by bankruptcy, insolvency or similar laws affecting the enforcement of creditors' rights generally. 5.3. No Conflict; Government Consent. Neither the execution and ------------------------------- delivery by the Borrower of the Borrower Credit Documents, nor the consummation of the transactions therein contemplated, nor compliance with the provisions thereof will violate (i) any law, rule, regulation, order, writ, judgment, injunction, decree or award binding on the Borrower or any of its Subsidiaries or (ii) the Borrower's or any Subsidiary's articles or certificate of incorporation (or other comparable constituent document) or by-laws (or other comparable governing document) or (iii) the provisions of any indenture, instrument or agreement to which the Borrower or any of its Subsidiaries is a party or is subject, or by which it, or its Property, is bound, or conflict with or constitute a default thereunder, or result in the creation or imposition of any Lien in, of or on the Property of the Borrower or a Subsidiary pursuant to the terms of any such indenture, instrument or agreement. No order, consent, approval, license, authorization, or validation of, or filing, recording or registration with, or exemption by, any governmental or public body or authority, or any subdivision thereof, is required to authorize, or is required in connection with the execution, delivery and performance of, or the legality, validity, binding effect or enforceability of, any of the Borrower Credit Documents. 50 5.4. Financial Statements. The December 31, 2000 audited and -------------------- September 30, 2001 unaudited consolidated financial statements of the Borrower and its Subsidiaries heretofore delivered to the Lenders were prepared in accordance with generally accepted accounting principles in effect on the respective dates such statements were prepared and fairly present the consolidated financial condition and operations of the Borrower and its Subsidiaries at such dates and the consolidated results of their operations for the respective periods then ended. 5.5. Material Adverse Change. Since December 31, 2000, there has ----------------------- been no change in the business, Property, condition (financial or otherwise) or results of operations of the Borrower and its Subsidiaries which could reasonably be expected to have a Material Adverse Effect. 5.6. Taxes. The Borrower and its Subsidiaries have filed all United ----- States federal tax returns and all other tax returns which are required to be filed and have paid all taxes due pursuant to said returns or pursuant to any assessment received by the Borrower or any of its Subsidiaries, except such taxes, if any, as are being contested in good faith and as to which adequate reserves have been provided. As of the date of this Agreement, the United States income tax returns of the Borrower and its Subsidiaries have been audited by the Internal Revenue Service through the fiscal year ended December 31, 1996. No tax liens have been filed and no claims are being asserted with respect to any such taxes. The charges, accruals and reserves on the books of the Borrower and its Subsidiaries in respect of any taxes or other governmental charges are adequate. 5.7. Litigation and Contingent Obligations. Except as set forth on ------------------------------------- Schedule 4 hereto, there is no litigation, arbitration, governmental - ---------- investigation, proceeding or inquiry pending or, to the knowledge of any of their officers, threatened against or affecting the Borrower or any of its Subsidiaries which, if adversely determined, could have a Material Adverse Effect. Other than any liability incident to any litigation, arbitration or proceedings which could not reasonably be expected to have a Material Adverse Effect, neither Borrower has material contingent obligations not provided for or disclosed in the financial statements referred to in Section 5.4. ----------- 5.8. Subsidiaries. Schedule 5 hereto contains an accurate list of ------------ ---------- all of the presently existing Subsidiaries of the Borrower, setting forth their respective jurisdictions of organization and the percentage of their respective capital stock or other ownership interests owned by the Borrower or other Subsidiaries together with a calculation, in the case of Foreign Subsidiaries, as of the quarter ended immediately prior to the Closing Date, of such Subsidiaries' total assets as a percentage of consolidated total assets. All of the issued and outstanding shares of capital stock or other ownership interests of such Subsidiaries have been (to the extent such concepts are relevant with respect to such ownership interests) duly authorized and issued and are fully paid and non-assessable. 5.9. ERISA. The Unfunded Liabilities of all Single Employer Plans ----- do not in the aggregate exceed $1,000,000. Neither the Borrower nor any other member of the Controlled Group has failed to make a required contribution or payment to any Multiemployer Plan or made a complete or partial withdrawal from a Multiemployer Plan. Each Plan complies in all material respects with all applicable requirements of law and regulations, no Reportable Event has 51 occurred with respect to any Plan, neither the Borrower nor any other members of the Controlled Group has withdrawn from any Plan or initiated steps to do so, and no steps have been taken to reorganize or terminate any Plan. 5.10. Accuracy of Information. No information, exhibit or report ----------------------- furnished by the Borrower or any of its Subsidiaries to the Agent, the LC Issuer, the Swing Line Lender or to any Lender in connection with the negotiation of, or compliance with, the Credit Documents contained any material misstatement of fact or omitted to state a material fact or any fact necessary to make the statements contained therein not misleading. 5.11. Regulation U. Margin stock (as defined in Regulation U) ------------ constitutes less than 25% of those assets of the Borrower and its Subsidiaries which are subject to any limitation on sale, pledge, or other restriction hereunder. 5.12. Material Agreements. Neither the Borrower nor any Subsidiary ------------------- is a party to any agreement or instrument or subject to any charter or other corporate restriction which could reasonably be expected to have a Material Adverse Effect. Neither the Borrower nor any Subsidiary is in default in the performance, observance or fulfillment of any of the obligations, covenants or conditions contained in (i) any agreement to which it is a party, which default could reasonably be expected to have a Material Adverse Effect or (ii) any agreement or instrument evidencing or governing Indebtedness. 5.13. Compliance With Laws. The Borrower and its Subsidiaries have -------------------- complied in all material respects with all applicable statutes, rules, regulations, orders and restrictions of any domestic or foreign government or any instrumentality or agency thereof, having jurisdiction over the conduct of their respective businesses or the ownership of their respective Property. Except for matters identified on Schedule 6 hereto, neither the ---------- Borrower nor any Subsidiary has received any notice to the effect that its operations are not in material compliance with any of the requirements of applicable federal, state and local environmental, health and safety statutes and regulations or the subject of any federal or state investigation evaluating whether any remedial action is needed to respond to a release of any toxic or hazardous waste or substance into the environment, which non-compliance or remedial action could reasonably be expected to have a Material Adverse Effect. 5.14. Ownership of Property. On the date of this Agreement, the --------------------- Borrower and its Subsidiaries have good title, free of all Liens other than those permitted by Section 6.17, to all of the Property and assets reflected ------------ in the financial statements referred to in Section 5.4 as owned by it. The ----------- Borrower and each of its Subsidiaries owns (or is licensed to use) all Intellectual Property which is necessary or appropriate in any material respect for the conduct of its respective business as conducted on the date of this Agreement, without any material conflict with the rights of any other Person. Neither the Borrower nor any Subsidiary is aware of (i) any material existing or threatened infringement or misappropriation of any of its Intellectual Property by any third party or (ii) any material third party claim that any aspect of the business of the Borrower or any Subsidiary (as conducted on the date of this Agreement) infringes or will infringe upon, any Intellectual Property or other property right of any other Person. 52 5.15. Labor Matters. There are no labor controversies pending ------------- against the Borrower or any Subsidiary which could reasonably be expected to have a Material Adverse Effect. The Borrower and each of its Subsidiaries are in substantial compliance in all material respects with the Fair Labor Standards Act, as amended. 5.16. Investment Company Act. Neither the Borrower nor any ---------------------- Subsidiary thereof is an "investment company" or a company "controlled" by an "investment company", within the meaning of the Investment Company Act of 1940, as amended. 5.17. Public Utility Holding Company Act. Neither the Borrower nor ---------------------------------- any Subsidiary is a "holding company" or a "subsidiary company" of a "holding company", or an "affiliate" of a "holding company" or of a "subsidiary company" of a "holding company", within the meaning of the Public Utility Holding Company Act of 1935, as amended. 5.18. Insurance. The Borrower and its Subsidiaries maintain with --------- financially sound and reputable insurance companies insurance for property, casualty, business interruption and liability losses in such amounts and covering such risks as is consistent with sound business practice. 5.19. Special Representations and Warranties of the Non-U.S. ------------------------------------------------------ Subsidiary Borrower. The Non-U.S. Subsidiary Borrower which may be a party - ------------------- hereto or which may become a party hereto after the Closing Date represents and warrants to the Lenders as provided in this Section 5.19 that: ------------ (a) Existence and Standing. Such Non-U.S. Subsidiary ---------------------- Borrower is a company duly organized and validly existing and in good standing under the laws of its jurisdiction of organization (hereinafter referred to as its "HOME COUNTRY") and has all requisite authority to conduct its business as it is now being conducted except where the failure to have such requisite authority would not have a Material Adverse Effect. (b) Authorization and Validity. The Non-U.S. Subsidiary -------------------------- Borrower has the requisite power and authority and legal right to execute and deliver the Non-U.S. Subsidiary Borrower Credit Documents and to perform its obligations thereunder. The execution and delivery by the Non-U.S. Subsidiary Borrower of the Non-U.S. Subsidiary Borrower Credit Documents and the performance by it of its obligations thereunder have been duly authorized by proper corporate proceedings, and such Non-U.S. Subsidiary Borrower Credit Documents constitute legal, valid and binding obligations of the Non-U.S. Subsidiary Borrower enforceable against the Non-U.S. Subsidiary Borrower in accordance with their respective terms, except as enforceability may be limited by bankruptcy, insolvency or similar laws affecting the enforcement of creditors' rights generally and general equitable principles. (c) No Conflict; Government Consent. Neither the execution ------------------------------- and delivery by the Non-U.S. Subsidiary Borrower of the Non-U.S. Subsidiary Borrower Credit Documents, nor the consummation by it of the transactions therein contemplated to be consummated by it, nor compliance by the Non-U.S. Subsidiary Borrower with the provisions thereof will violate any 53 law, rule, regulation, order, writ, judgment, injunction, decree or award binding on the Non-U.S. Subsidiary Borrower or any of its Subsidiaries or the Non-U.S. Subsidiary Borrower's or any of its Subsidiaries' articles of association (or other comparable constituent documents) or the provisions of any indenture, instrument or agreement to which the Non-U.S. Subsidiary Borrower or any of its Subsidiaries is a party or is subject, or by which it, or its Property, is bound, or conflict with or constitute a default thereunder, or result in the creation or imposition of any Lien in, of or on the Property of the Non-U.S. Subsidiary Borrower or any of its Subsidiaries pursuant to the terms of any such indenture, instrument or agreement in any such case which violation, conflict, default, creation or imposition could reasonably be expected to have a Material Adverse Effect. No order, consent, approval, license, authorization, or validation of, or filing, recording or registration with, or exemption by, any governmental agency is required to authorize, or is required in connection with the execution, delivery and performance of, or the legality, validity, binding effect or enforceability of, any of the Non-U.S. Subsidiary Borrower Credit Documents. (d) Filing. To ensure the enforceability or admissibility ------ in evidence of this Agreement and any promissory notes requested to be issued hereunder by the Non-U.S. Subsidiary Borrower in its Home Country, it is not necessary that this Agreement or any such promissory notes or any other document be filed or recorded with any court or other authority in its Home Country or that any stamp or similar tax be paid to or in respect of this Agreement or any such promissory notes of the Non-U.S. Subsidiary Borrower. The qualification by any Lender or the Agent for admission to do business under the laws of its Home Country does not constitute a condition to, and the failure to so qualify does not affect, the exercise by any Lender or the Agent of any right, privilege, or remedy afforded to any Lender or the Agent in connection with the Non-U.S. Subsidiary Borrower Credit Documents or the enforcement of any such right, privilege, or remedy against the Non-U.S. Subsidiary Borrower. The performance by any Lender or the Agent of any action required or permitted under the Credit Documents will not (i) violate any law or regulation of the Non-U.S. Subsidiary Borrower's Home Country or any political subdivision thereof, (ii) result in any tax (including any withholding tax) or other monetary liability to such party pursuant to the laws of the Non-U.S. Subsidiary Borrower's Home Country or political subdivision or taxing authority thereof or otherwise (provided that, should any such action result in any such tax or other monetary liability to the Lender or the Agent, the Borrower hereby agrees to indemnify such Lender or the Agent, as the case may be, against (x) any such tax or other monetary liability and (y) any increase in any tax or other monetary liability which results from such action by such Lender or the Agent and, to the extent the Borrower makes such indemnification, the incurrence of such liability by the Agent or any Lender will not constitute a Default) or (iii) violate any rule or regulation of any federation or organization or similar entity of which the Non-U.S. Subsidiary Borrower's Home Country is a member. (e) No Immunity. Neither the Non-U.S. Subsidiary Borrower ----------- nor any of its assets is entitled to immunity from suit, execution, attachment or other legal process. The Non-U.S. Subsidiary Borrower's execution and delivery of the Non-U.S. Subsidiary Borrower Credit Documents constitute, and the exercise of its rights and performance of and compliance with its 54 obligations under such Credit Documents will constitute, private and commercial acts done and performed for private and commercial purposes. ARTICLE VI: COVENANTS During the term of this Agreement, unless the Required Lenders shall otherwise consent in writing: 6.1. Financial Reporting. The Borrower will maintain, for itself ------------------- and each Subsidiary, a system of accounting established and administered in accordance with generally accepted accounting principles, and furnish to the Agent (which shall promptly provide copies to the Lenders): (i) Within 90 days after the close of each of its fiscal years, an unqualified (except for qualifications relating to changes in accounting principles or practices reflecting changes in generally accepted principles of accounting and required or approved by the Borrower's independent certified public accountants) audit report certified by independent certified public accountants, acceptable to the Lenders, prepared in accordance with Agreement Accounting Principles on a consolidated and consolidating basis (consolidating statements need not be certified by such accountants) for itself and the Subsidiaries, including balance sheets as of the end of such period, related profit and loss and reconciliation of surplus statements, and a statement of cash flows, accompanied by (a) any management letter prepared by said accountants and (b) a certificate of said accountants that, in the course of their examination necessary for their certification of the foregoing, they have obtained no knowledge of any Default or Unmatured Default, or if, in the opinion of such accountants, any Default or Unmatured Default shall exist, stating the nature and status thereof. (ii) Within 45 days after the close of the first three quarterly periods of each of its fiscal years, for itself and the Subsidiaries, consolidated and consolidating unaudited balance sheets as at the close of each such period and consolidated and consolidating profit and loss and reconciliation of surplus statements and a statement of cash flows for the period from the beginning of such fiscal year to the end of such quarter, all certified by its chief financial officer as being prepared, to the best of his or her knowledge in accordance with Agreement Accounting Principles, consistently applied, subject to normal year-end audit adjustments. (iii) Together with the financial statements required hereunder, a compliance certificate in substantially the form of Exhibit F --------- hereto signed by its chief financial officer showing the calculations necessary to determine compliance with Sections -------- 6.20, 6.21 and 6.22 of this Agreement and stating that no ---- ---- ---- Default or 55 Unmatured Default exists, or if any Default or Unmatured Default exists, stating the nature and status thereof. (iv) As soon as possible and in any event not later than January 31 of each fiscal year commencing with the fiscal year beginning January 1, 2003, a copy of the plan and forecast (including a projected balance sheet, income statement and statement of cash flow) of the Borrower and its Subsidiaries for the upcoming fiscal year prepared in such detail as shall be reasonably satisfactory to the Agent. (v) As soon as possible and in any event within 10 days after the Borrower knows that any Reportable Event has occurred with respect to any Plan, a statement, signed by the chief financial officer of the Borrower, describing said Reportable Event and the action which the Borrower proposes to take with respect thereto. (vi) As soon as possible and in any event within 10 days after receipt by the Borrower, a copy of (a) any notice or claim to the effect that the Borrower or any of its Subsidiaries is or may be liable to any Person as a result of the release by the Borrower, any of its Subsidiaries, or any other Person of any toxic or hazardous waste or substance into the environment, and (b) any notice alleging any violation of any federal, state or local environmental, health or safety law or regulation by the Borrower or any of its Subsidiaries, which, in either case, could reasonably be expected to have a Material Adverse Effect. (vii) Promptly upon the furnishing thereof to the shareholders of the Borrower, copies of all financial statements, reports and proxy statements so furnished. (viii) Promptly upon the filing thereof, copies of all registration statements and annual, quarterly, monthly or other regular reports which the Borrower or any of its Subsidiaries files with the Commission (other than routine filings relating solely to employee benefit plans and filings on Forms 3, 4 or 5 regarding insider trading activities). In the event the Borrower is no longer required to file reports with the Commission, the Borrower need not furnish such reports to the Agent, but nonetheless shall provide the Agent the financial statements previously contained in such reports. (ix) Promptly after the execution thereof, copies of all material amendments to the Note Purchase Agreement or any of the Receivables Purchase Documents. (x) Such other information (including non-financial information) as the Agent or any Lender may from time to time reasonably request. 6.2. Use of Proceeds. The Borrower will, and will cause each --------------- Subsidiary to, use the proceeds of the Advances, Swing Line Loans and Facility LCs to repay certain existing Indebtedness, for general corporate purposes, including, without limitation, for Acquisitions permitted by Section 6.15 hereof, and to repay outstanding Advances and Reimbursement - ------------ Obligations. After it has become a party hereto, the Non-U.S. Subsidiary Borrower will use the 56 proceeds of the Revolving Credit Advances and Facility LCs for general corporate purposes, including, without limitation, for Acquisitions permitted by Section 6.15 hereof, and to repay its outstanding Advances and ------------ Reimbursement Obligations. The Borrower and the Non-U.S. Subsidiary Borrower will not, nor will they permit any Subsidiary to, use any of the proceeds of the Advances either (i) to purchase or carry any "margin stock" (as defined in Regulation U) or (ii) to make any other Acquisition (except as specifically permitted by Section 6.15). Notwithstanding anything herein to ------------ the contrary, Facility LCs may be applied for by the Borrower hereunder for the benefit of the Borrower's Subsidiaries. 6.3. Notice of Default. After knowledge thereof shall have come to ----------------- the attention of an Authorized Officer of either Borrower, such Borrower will give prompt notice in writing to the Agent, and the Agent shall promptly notify each other Lender, of the occurrence of any Default or Unmatured Default and of any other development, financial or otherwise, which could reasonably be expected to have a Material Adverse Effect. 6.4. Conduct of Business. The Borrower will, and will cause each ------------------- Subsidiary to, carry on and conduct its business in substantially the same manner and in substantially the same fields of enterprise as conducted on the date of this Agreement, or as conducted on the date of its formation, in the case of the Non-U.S. Subsidiary Borrower or other Subsidiary that may be formed after the Closing Date, and to do all things necessary to remain duly incorporated, validly existing and in good standing as a domestic corporation in its jurisdiction of incorporation and maintain all requisite authority to conduct its business in each jurisdiction in which its business is conducted. 6.5. Taxes. The Borrower will, and will cause each Subsidiary to, ----- pay when due all taxes, assessments and governmental charges and levies upon it or its income, profits or Property, except those which are being contested in good faith by appropriate proceedings and with respect to which adequate reserves have been set aside. 6.6. Insurance. The Borrower will, and will cause each Subsidiary --------- to, maintain with financially sound and reputable insurance companies insurance for property, casualty, business interruption and liability losses in such amounts and covering such risks as is consistent with sound business practice, and the Borrower will furnish to Agent, upon request of the Agent or any Lender, a certificate setting forth in summary form, the nature and extent of the insurance maintained pursuant to this provision and such other information as shall be reasonably requested. The Borrower will, within ten (10) Business Days of its receipt of notice of termination or cancellation of any products liability or other liability insurance policy insuring the Borrower or any of its Subsidiaries (other than any such notice with respect to the expiration of any such policy at the end of its stated term when renewal of such policy, or the obtaining of a substantially equivalent policy with a different insurer, is not expected to be a problem), give written notice thereof to the Lenders. 6.7. Compliance with Laws. The Borrower will, and will cause each -------------------- Subsidiary to, comply with all laws, rules, regulations, orders, writs, judgments, injunctions, decrees or awards to which it may be subject including, without limitation, all applicable federal, state and local 57 environmental, health and safety statutes and regulations; provided, -------- however, neither the Borrower nor any Subsidiary shall be required to comply - ------- with any such laws, rules, regulations, orders, writs, judgments, injunctions, decrees or awards if its failure to comply therewith could not, in the aggregate, have a Material Adverse Effect. 6.8. Maintenance of Property. The Borrower will, and will cause ----------------------- each Subsidiary to, do all things necessary to maintain, preserve, protect and keep all of its tangible personal and real Property in good repair, working order and condition, and make all necessary and proper repairs, renewals and replacements so that its business carried on in connection therewith may be properly conducted at all times. The Borrower will, and will cause each Subsidiary to, do all things necessary to maintain, preserve, protect all of its Intellectual Property including, without limitation, perform each of its respective obligations under any and all license agreements and other contracts and agreements evidencing or relating to Intellectual Property, using the same in interstate or foreign commerce, properly marking such Intellectual Property and maintaining all necessary and appropriate governmental registrations (both domestic and foreign). 6.9. Inspection. The Borrower will, and will cause each Subsidiary ---------- to, permit the Lenders, at their cost, by their respective representatives and agent, during normal business hours, to inspect any of the Property, corporate books and financial records of the Borrower and each Subsidiary, to examine and make copies of the books of accounts and other financial records of the Borrower and each Subsidiary, and to discuss the affairs, finances and accounts of the Borrower and each Subsidiary with, and to be advised as to the same by, their respective officers at such reasonable times and intervals as the Lenders may reasonably designate. 6.10. Subsidiaries. The Borrower will cause each Person (other than ------------ a SPV) that becomes a direct or indirect Subsidiary of the Borrower after the date of this Agreement (whether as the result of an Acquisition, creation, or otherwise) to execute and deliver a Subsidiary Guaranty to and in favor of the Agent, the Swing Line Lender, the LC Issuer and the Lenders (together with an opinion of counsel, corporate resolutions and such other corporate documentation as the Agent may reasonably request, all in form and substance satisfactory to the Agent), in each case within 30 days after becoming a direct or indirect Subsidiary of the Borrower. Notwithstanding the foregoing, no Subsidiary either (i) organized under the laws of a jurisdiction other than the United States of America, or (ii) more than 80% of the sales, earnings and assets of which are derived from operations in territories of the United States and jurisdictions outside of the United States (a "FOREIGN SUBSIDIARY") shall be required to give, execute and deliver a Subsidiary Guaranty if the delivery of such Subsidiary Guaranty would cause the undistributed earnings of that Foreign Subsidiary to be treated as a deemed dividend to the Borrower for federal income tax purposes, in which event the terms of Section 6.15 shall be applicable. ------------ 6.11. Dividends. The Borrower will not, nor will it permit any --------- Subsidiary to, declare or pay any dividends on its capital stock (other than dividends payable in its own capital stock) or redeem, repurchase or otherwise acquire or retire any of its capital stock at any time outstanding, except that: 58 (i) Any Subsidiary may declare and pay dividends to the Borrower or to a Wholly-Owned Subsidiary. (ii) Any Subsidiary may declare and pay dividends to a Subsidiary other than a Wholly-Owned Subsidiary so long as at the time of and upon giving effect to each such dividend (a) the Borrower shall be in compliance with Section 6.22 ------------ and (b) no other Default or Unmatured Default shall exist. (iii) The Borrower may declare or pay any dividends on its capital stock or redeem, repurchase or otherwise acquire or retire any of its capital stock at any time outstanding so long as at the time of and upon giving effect to each such dividend, repurchase, acquisition or retirement, (a) the Borrower shall be in compliance with Section 6.22 and (b) ------------ no other Default or Unmatured Default shall exist. 6.12. Indebtedness. The Borrower will not, nor will it permit any ------------ Subsidiary to, create, incur or suffer to exist any Indebtedness, except: (i) The Loans. (ii) Indebtedness existing on the date hereof and described in Schedule 7 hereto. ---------- (iii) Contingent Obligations permitted by Section 6.16. ------------ (iv) Hedging Obligations entered into in the ordinary course of business as bona fide hedges against interest rate or commodity price fluctuations and not for speculative purposes. (v) Indebtedness of one or more Subsidiaries to the Borrower, but only to the extent permitted by clauses (vi) and (x) of ------------ --- Section 6.15. ------------ (vi) Indebtedness incurred in connection with the Receivables Purchase Documents, provided, that Receivables Facility -------- Attributed Indebtedness incurred in connection therewith does not exceed $75,000,000 in the aggregate at any time. (vii) Indebtedness incurred by Foreign Subsidiaries of the Borrower (excluding Obligations incurred hereunder) in an amount not to exceed $10,000,000 in the aggregate at any time. (viii) Additional Indebtedness of the Borrower and its Subsidiaries in an aggregate principal amount at any one time outstanding not to exceed the greater of (a) $15,000,000 or (b) ten percent (10%) of Consolidated Net Worth. 6.13. Merger. The Borrower will not, nor will it permit any ------ Subsidiary to, merge or consolidate with any other Person, except that: 59 (i) A Subsidiary may merge with the Borrower (so long as the Borrower is the surviving corporation). (ii) A Subsidiary may merge with a Wholly-Owned Subsidiary (so long as a Wholly-Owned Subsidiary is the surviving corporation). (iii) The Borrower may merge with any other Person subject to the terms and conditions of clause (xi) of Section 6.15. ----------- ------------ 6.14. Sale of Assets. The Borrower will not, nor will it permit any -------------- Subsidiary to, lease, sell or otherwise dispose of its Property, to any other Person except for (i) sales of inventory in the ordinary course of business, (ii) the sale, discount, or transfer of delinquent accounts receivable in the ordinary course of business for purposes of collection only, (iii) occasional sales, leases or other dispositions of immaterial assets for consideration not less than fair market value, (iv) sales, leases or other dispositions of assets that are obsolete or have negligible fair market value; (v) sales of equipment for a fair and adequate consideration (but if replacement equipment is necessary for the proper operation of the business of the seller, the seller must promptly replace the sold equipment); and (vi) any transfer of an interest in Receivables, Receivables and Related Security, accounts or notes receivable on a limited recourse basis under the Receivables Purchase Documents, provided that such transfer -------- qualifies as a legal sale and as a sale under Agreement Accounting Principles and that the amount of Receivables Facility Attributed Indebtedness does not exceed $75,000,000 at any one time outstanding; provided, however, that the aggregate amount of Property of the Borrower and - -------- ------- its Subsidiaries leased, sold or disposed of pursuant to any of clauses (ii) ------------ through (vi) of this Section (excluding any equipment which has been ---- promptly replaced) during the twelve-month period ending with the month in which any such lease, sale or other disposition occurs shall not constitute a Substantial Portion of the Property of the Borrower and its Subsidiaries. 6.15. Investments and Acquisitions; Guaranty or Pledge ------------------------------------------------ Documentation for New Subsidiaries. The Borrower will not, nor will it - ---------------------------------- permit any Subsidiary to, make or suffer to exist any Investments (including without limitation, loans and advances to, and other Investments in, Subsidiaries), or commitments therefor, or to create any Subsidiary or to become or remain a partner in any partnership or joint venture, or to make any Acquisition of any Person, except: (i) Short-term obligations (i.e., maturing within one year) of, or fully guaranteed by, the United States of America. (ii) Commercial paper rated A-l or better by Standard and Poor's Ratings Group, a division of McGraw Hill Corporation or P-l or better by Moody's Investors Service, Inc. (iii) Certificates of deposit issued by and time deposits with commercial banks (whether domestic or foreign) having capital and surplus in excess of $100,000,000. 60 (iv) Money-market funds or money-market mutual funds which (a) seek to maintain a constant net asset value, (b) maintain fund assets under management having an aggregate market value of at least $500,000,000 and (c) invest primarily in Investments referred to in clauses (i) through (iii) above. ----------- ----- (v) Demand deposit accounts maintained in the ordinary course of business. (vi) Investments in existence on the date of this Agreement and described in Schedule 8 hereto. ---------- (vii) Current trade and customer accounts receivable that are for goods furnished or services rendered in the ordinary course of business and that are payable on terms customary in the trade, including the existing floor plan program offered to distributors of the Borrower's products. (viii) Investments evidenced by promissory notes executed by customers of the Borrower and payable to the Borrower in an aggregate principal amount not to exceed $500,000 at any one time outstanding. (ix) Investments in the SPVs (a) required in connection with the Receivables Purchase Documents and (b) resulting from the transfers permitted by Section 6.14 (vi). ----------------- (x) Loans, capital contributions and other Investments made subsequent to the date of this Agreement, whether in existing Subsidiaries, new Subsidiaries or Persons which are not Subsidiaries of the Borrower; provided, that (a) -------- the aggregate amount of such Investments to Persons which are not Obligor Subsidiaries or the Non-U.S. Subsidiary Borrower of Borrower made during the term of this Agreement does not exceed $20,000,000 and (b) the Borrower shall have complied with Section 6.10 in respect of each Subsidiary ------------ not identified on Schedule 5 hereto. ---------- (xi) Acquisitions of other Persons made by the Borrower subsequent to the date of this Agreement; provided, that -------- (a) except with respect to a proposed Acquisition where the aggregate consideration to be paid by the Borrower plus any ---- consideration paid in connection with Acquisitions made by the Borrower during the immediately preceding twelve month period (or, if the date of such Acquisition is prior to the first anniversary of the Closing Date, the period from such date extending back to the Closing Date) is less than $20,000,000, the Borrower shall have supplied the Lenders, at least 15 days prior to any such proposed Acquisition, with historic financial statements for the Person to be acquired (which financial statements shall include the four most recently completed fiscal quarters of such Person, but which need not be audited) and pro forma financial statements for such Person and the Borrower on a combined and consolidated basis, in a manner acceptable to the Agent, which shall demonstrate to the reasonable satisfaction of the Agent that, if the Acquisition were to be 61 consummated, together with Acquisitions made by the Borrower in the twelve months preceding the proposed Acquisition, the Leverage Ratio of the Borrower would not exceed 3.10 to 1.0, provided, however, that if such -------- ------- historic and pro forma financial statements demonstrate, in the reasonable judgment of the Agent, that the Leverage Ratio of the Borrower would exceed 3.10 to 1.0 but would not exceed 3.25 to 1.0, the Required Lenders' consent shall be required for consummation of the proposed Acquisition; (b) upon giving effect to each such Acquisition (1) the Person so acquired by the Borrower shall have either been merged into the Borrower (with the Borrower as the surviving entity) or such Person shall have become a Wholly-Owned Subsidiary of the Borrower (and the Borrower shall have complied with Section 6.10 in respect of such ------------ Subsidiary) and (2) no Default or Unmatured Default does exist or would exist after giving effect to the proposed Acquisition; (c) prior to the date of such Acquisition, such Acquisition shall have been approved by the board of directors and, if applicable, the shareholders of the Person whose stock or assets are being acquired in connection with such Acquisition and no claim or challenge has been asserted or threatened by any shareholder or director of such Person which could reasonably be expected to have a material adverse effect on such Acquisition or a Material Adverse Effect; and (d) as of the date of any such Acquisition, all approvals required in connection with such Acquisition shall have been obtained. (xii) Loans, capital contributions and other Investments among the Borrower, the Non-U.S. Subsidiary Borrower and the Obligor Subsidiaries. For the purposes of this Section 6.15, Investments and Acquisitions shall be ------------ valued at their initial principal amount, or cost, as the case may be, without giving effect to any interest or dividends paid thereon or any appreciation or depreciation in the market value thereof; provided, however, that Investments consisting of loans and advances shall be valued at the principal amount thereof then remaining unpaid. In addition to the foregoing provisions, the Borrower will not, nor will it permit any consolidated Subsidiary to, create or acquire a Subsidiary (a "NEW SUBSIDIARY") other than in connection with an Acquisition permitted hereunder or pursuant to any transaction that is permitted by or not otherwise prohibited by this Agreement; provided that (1) upon the creation or acquisition of each New Subsidiary which is not a Foreign Subsidiary, the Borrower shall cause each such New Subsidiary (other than a SPV) to promptly (but in any event within 30 days) deliver to the Agent an executed Subsidiary Guaranty; (2) upon the creation or acquisition of each New Subsidiary which is a Material Foreign Subsidiary (other than a SPV), the Borrower shall or shall cause its applicable domestic Subsidiary promptly (but in any event within 60 days following the creation or acquisition thereof, subject, in the case of the Non-U.S. Subsidiary Borrower, to the conditions set forth in Section 4.2) to execute a Pledge Agreement with ----------- respect to the stock of such material Foreign Subsidiary, provided the Lien created under such Pledge Agreement shall be extended equally and ratably to the Senior Noteholders pursuant to the Intercreditor Agreement; and (3) in either case, shall deliver appropriate corporate resolutions, opinions and other documentation in form and substance satisfactory to the Agent in connection therewith. In 62 addition to the foregoing provisions, if any Foreign Subsidiary becomes a Material Foreign Subsidiary (whether through investment, add-on acquisitions, growth or otherwise), the Borrower shall or shall cause its applicable domestic Subsidiary promptly (but in any event within 60 days following the end of the fiscal quarter during which such Foreign Subsidiary becomes a Material Foreign Subsidiary) to execute a Pledge Agreement with respect to the stock of such Material Foreign Subsidiary, provided the Lien created under such Pledge Agreement shall be extended equally and ratably to the Senior Noteholders pursuant to a the Intercreditor Agreement; and shall deliver appropriate corporate resolutions, opinions and other documentation in form and substance satisfactory to the Agent in connection therewith; provided, however, that the provisions of this sentence shall not be - -------- ------- applicable to Gardner Denver Wittig GmbH, provided the Borrower is in compliance with the provisions of Section 6.24. ------------ 6.16. Contingent Obligations and Off Balance Sheet Liabilities. The -------------------------------------------------------- Borrower will not, nor will it permit any Subsidiary to, make or suffer to exist any Contingent Obligation (including, without limitation, any Contingent Obligation with respect to the obligations of a Subsidiary) or Off Balance Sheet Liabilities, except (i) by endorsement of instruments for deposit or collection in the ordinary course of business, (ii) Facility LCs issued hereunder, (iii) the Parent Guaranty and the Subsidiary Guaranties, (iv) litigation indemnities in favor of Cooper existing on the date of this Agreement, (v) an additional aggregate amount not to exceed $10,000,000 at any one time outstanding consisting of Letters of Credit (excluding all Facility LCs, but including all Existing LCs) issued upon the application of the Borrower (but not any Subsidiary); (vi) Contingent Obligations of the Borrower with respect to the obligations of any Subsidiary or other Person in which the Borrower has a direct or indirect Investment, provided that the aggregate amount of all such Contingent Obligations, when added to the aggregate amount of all outstanding Investments permitted by clause (x) of ---------- Section 6.15, shall not at any time exceed $20,000,000; (vii) Contingent - ------------ Obligations of any Obligor Subsidiary which is a party to a Subsidiary Guaranty consisting of a guaranty by such Obligor Subsidiary of the Indebtedness evidenced by the Senior Notes; provided, (y) such guaranty to the Senior Noteholders shall be on substantially the same terms as the applicable Subsidiary Guaranty, with such changes thereto as shall not in any manner be adverse to the interests of the Agent or the Lenders, and (z) such guaranty of the Senior Notes shall provide for its automatic release upon the release of the applicable Obligor Subsidiary of the Subsidiary Guaranty; (viii) Off Balance Sheet Liabilities which are included in the definition of Consolidated Total Debt provided the Borrower is in compliance with the financial covenants of this Agreement; (ix) Contingent Obligations of the Borrower or any of its Subsidiaries arising under the Receivables Purchase Documents; and (x) Contingent Obligations of the Borrower or any of its Subsidiaries consisting of a guaranty of any Hedging Obligations of the Borrower or its Subsidiaries owing to any Lender or Affiliate of a Lender it its separate capacity as the hedge counterparty or provider thereunder, but only to the extent such Hedging Obligations are permitted under Section ------- 6.12(iv). - -------- 6.17. Liens. The Borrower will not, nor will it permit any ----- Subsidiary to, create, incur, or suffer to exist any Lien in, of or on the Property of the Borrower or any of its Subsidiaries, except: 63 (i) Liens for taxes, assessments or governmental charges or levies on its Property if the same shall not at the time be delinquent or thereafter can be paid without penalty, or are being contested in good faith and by appropriate proceedings and for which adequate reserves in accordance with generally accepted principles of accounting shall have been set aside on its books. (ii) Liens imposed by law, such as carriers', warehousemen's and mechanics' liens and other similar liens arising in the ordinary course of business which secure payment of obligations not more than 60 days past due or which are being contested in good faith by appropriate proceedings and for which adequate reserves shall have been set aside on its books. (iii) Liens arising out of pledges or deposits under worker's compensation laws, unemployment insurance, old age pensions, or other social security or retirement benefits, or similar legislation. (iv) Utility easements, building restrictions and such other encumbrances or charges against real property as are of a nature generally existing with respect to properties of a similar character and which do not in any material way affect the marketability of the same or interfere with the use thereof in the business of the Borrower or the Subsidiaries. (v) Good faith deposits incurred in the ordinary course of business to secure public or statutory obligations, to secure or in lieu of surety bonds, or in connection with bids or contracts (including, without limitation, the purchase or lease of real estate). (vi) Liens securing judgments or orders for the payment of money, or surety or appeal bonds with respect to any such judgment or order, in an aggregate amount not exceeding $1,000,000, so long as no Default exists with respect thereto under Section 7.9. ----------- (vii) The interest of a lessor under any conditional sale or Capitalized Lease to the Borrower so long as the related Indebtedness is permitted by Section 6.12. ------------ (viii) Any Lien on any asset securing Indebtedness permitted by Section 6.12 which is incurred or assumed for the purpose ------------ of financing all or any part of the cost of acquiring such asset, provided that such Lien attaches to such asset concurrently with or within 90 days after the acquisition thereof. (ix) Any Lien existing on any asset of any Person at the time such Person becomes a Subsidiary or is merged or consolidated with or into the Borrower or a Subsidiary, provided that the Indebtedness secured by each such Lien is permitted by Section 6.12. ------------ 64 (x) Liens existing on the date hereof and described in Schedule -------- 9 hereto which secure Indebtedness in existence on the date - of this Agreement. (xi) Liens arising out of any renewal, extension or refinancing of any Indebtedness secured by any Lien permitted by any of clauses (vii), (viii), (ix) or (x) above, so long as the ------------- ------ ---- --- principal amount of such Indebtedness in not increased thereby and such Indebtedness is not secured by any additional Property. (xii) Liens in favor of the United States of America or any state thereof, or any department, agency or instrumentality or political subdivision thereof, in favor of any other country or political subdivision, to secure partial, progress, advance or other payments pursuant to any contract or statute or to secure any Indebtedness permitted by Section 6.12 and incurred or guaranteed for the purpose ------------ of financing or refinancing all or any part of the purchase price of Property subject to such Liens, or the cost of constructing or improving the Property subject to such Liens, including, without limitation, Liens incurred in connection with pollution control, industrial revenue or similar tax-advantaged financings; provided the aggregate amount of Indebtedness secured under this clause (xii) ------------ shall not exceed $20,000,000. (xiii) Liens in favor of the Agent granted pursuant to any Collateral Document. (xiv) Liens on any collateral covered by any of the Collateral Documents, which Liens have been extended for the equal and ratable benefit of the Senior Noteholders to secure the Indebtedness of the Borrower under the Note Purchase Agreement and the Senior Notes and which Liens are governed by the Intercreditor Agreement and which Liens, pursuant to the terms of the Note Purchase Agreement, shall be automatically released without any action on the part of any Noteholder, if the Lien thereon under the Collateral Documents in favor of the Agent for the benefit of itself, the LC Issuer and the Lenders shall be released. (xv) Liens arising under the Receivables Purchase Documents, so long as the related Indebtedness is permitted by Section ------- 6.12. ---- 6.18. Rentals. The Borrower will not, nor will it permit any ------- Subsidiary to, create, incur or suffer to exist obligations for Rentals in excess of $6,000,000 during any one fiscal year on a non-cumulative basis in the aggregate for the Borrower and its Subsidiaries. 6.19. Affiliates. The Borrower will not, and will not permit any ---------- Subsidiary to, enter into any transaction (including, without limitation, the purchase or sale of any Property or service) with, or make any payment or transfer to, any Affiliate except (i) Permitted Receivables Transfers and (ii) transactions in the ordinary course of business and pursuant to the reasonable requirements of the Borrower's or such Subsidiary's business and upon fair and reasonable terms no less favorable to the Borrower or such Subsidiary than the Borrower or such Subsidiary would obtain in a comparable arms-length transaction. 65 6.20. Minimum Consolidated Interest Coverage Ratio. The Borrower -------------------------------------------- will not, as of the last day of any fiscal quarter of the Borrower, commencing with the fiscal quarter ending March 31, 2002, permit the Consolidated Interest Coverage Ratio for the period of four fiscal quarters ending on such day, to be less than 3.5 to 1.0. 6.21. Minimum Consolidated Net Worth. The Borrower will not at any ------------------------------ time subsequent to the initial Credit Extension hereunder permit Consolidated Net Worth to be less than the sum of (i) $164,201,300 plus (ii) ---- 50% of Consolidated Net Income (if positive) for each fiscal quarter of the Borrower commencing with the fiscal quarter ending December 31, 2001 and concluding with the fiscal quarter ending most recently prior to the date of determination, but without deduction for any fiscal quarter in which there is a loss. Without otherwise limiting the foregoing, the initial determination of the Borrower's compliance with this Section 6.21 shall ------------ occur on March 31, 2002. 6.22. Maximum Leverage Ratio. The Borrower will not, as of the last ---------------------- day of any fiscal quarter of the Borrower, commencing with the fiscal quarter ending March 31, 2002, permit the Leverage Ratio for the period of four consecutive fiscal quarters ending on such day, to be greater than 3.25 to 1.0. 6.23. Capital Expenditures. The Borrower will not, nor will it -------------------- permit any Subsidiary to, expend, or be committed to expend, during any period of twelve consecutive months on a non-cumulative basis an amount for Capital Expenditures in the aggregate for the Borrower and its Subsidiaries which exceeds five percent (5%) of consolidated revenues for such twelve-month period, calculated in each case as of the end of each fiscal-quarter for the twelve months then ended. 6.24. Pledge Agreements. The Borrower shall not at any time permit ------------------ the aggregate assets of all of the Borrower's Foreign Subsidiaries in connection with which the Agent has not received a Pledge Agreement to exceed fifteen percent (15%) of consolidated total assets. ARTICLE VII: DEFAULTS The occurrence of any one or more of the following events shall constitute a Default: 7.1. Any representation or warranty made (or deemed made pursuant to either Section 4.3 of this Agreement or Section 2 of any Subsidiary Guaranty) by the Borrower or any Subsidiary to the Lenders, the Swing Line Lender, the LC Issuer or the Agent under or in connection with this Agreement, any Credit Extension, any Subsidiary Guaranty, or any certificate or information delivered in connection with this Agreement, any Credit Extension or any other Credit Document shall be materially false on the date as of which made. 7.2. Nonpayment of (a) any Reimbursement Obligation or the principal of any Loan when due, or (b) interest upon any Loan or Reimbursement Obligation or of any fee payable pursuant to Section 2.7 or ----------- Section 2.23(d) within five days after the same becomes due, or (c) any - --------------- other obligations under any of the Credit Documents not referred to in clauses (a) and (b) - ----------- --- 66 above within five days after receipt by the applicable Borrower of a written demand therefor from the Agent or any Lender, as applicable. 7.3. The breach by the Borrower of any of the terms or provisions of Section 6.2, 6.3 or any of Sections 6.10 through 6.19. ----------- --- ------------- ---- 7.4. The breach by either Borrower (other than a breach which constitutes a Default under Section 7.1, 7.2 or 7.3) of any of the terms or ----------- --- --- provisions of this Agreement, and such breach continues for 30 days after the first to occur of (i) the date the applicable Borrower first knows of such breach or (ii) the date the applicable Borrower receives written notice from any Lender (acting through the Agent) of such breach. 7.5. Failure of the Borrower or any of its Subsidiaries to pay any Material Indebtedness when due; or either (i) the Borrower or any of its Subsidiaries shall default in the performance of any term, provision or condition contained in any agreement or agreements under which any Material Indebtedness was created or is governed (and any applicable grace period(s) expressly set forth therein shall have expired) or (ii) any other event shall occur or condition exist (including any "Amortization Event" or event of like import in connection with the Receivables Purchase Facility), (a) the effect of which (under either clause (i) or (ii), as the case may be) is ---------- ---- to cause, or to permit the holder or holders of such Material Indebtedness to cause, such Material Indebtedness to become due prior to its stated maturity; or any Material Indebtedness of the Borrower or any of its Subsidiaries shall be declared to be due and payable or required to be prepaid (other than by a regularly scheduled payment) prior to the stated maturity thereof or (b) if such event or condition shall occur under any Receivables Purchase Documents, the effect thereof is to (x) terminate the reinvestment of collections or proceeds of Receivables and Related Security under any Receivables Purchase Document (other than a termination resulting solely from the request of the Borrower or any of its Subsidiaries), or (y) cause the replacement of, or permit the investors thereunder to replace, the Person then acting as servicer for the related Receivables Purchase Facility; or the Borrower or any of its Subsidiaries shall not pay, or shall admit in writing its inability to pay, its debts generally as they become due. 7.6. The Borrower or any of its Subsidiaries shall (i) have an order for relief entered with respect to it under the Federal bankruptcy laws as now or hereafter in effect, (ii) make an assignment for the benefit of creditors, (iii) apply for, seek, consent to, or acquiesce in, the appointment of a receiver, custodian, trustee, examiner, liquidator or similar official for it or any Substantial Portion of its Property, (iv) institute any proceeding seeking an order for relief with respect to it under the Federal bankruptcy laws as now or hereafter in effect or seeking to adjudicate it a bankrupt or insolvent, or seeking dissolution, winding up, liquidation, reorganization, arrangement, adjustment or composition of it or its debts under any law relating to bankruptcy, insolvency or reorganization or relief of debtors or fail to file an answer or other pleading denying the material allegations of any such proceeding filed against it, (v) take any corporate action to authorize or effect any of the foregoing actions set forth in this Section 7.6 or (vi) fail to contest in ----------- good faith any appointment or proceeding described in Section 7.7. ----------- 67 7.7. Without the application, approval or consent of the Borrower or any of its Subsidiaries, a receiver, trustee, examiner, liquidator or similar official shall be appointed for the Borrower or any of its Subsidiaries or any Substantial Portion of its Property; or a proceeding described in Section 7.6(iv) shall be instituted against the Borrower or any --------------- of its Subsidiaries and such appointment continues undischarged or such proceeding continues undismissed or unstayed for a period of 60 consecutive days. 7.8. Any court, government or governmental agency shall condemn, seize or otherwise appropriate, or take custody or control (each a "CONDEMNATION"), of all or any portion of the Property of the Borrower or any of its Subsidiaries, which, when taken together with all other Property of the Borrower and its Subsidiaries, or any of them, so Condemned during the twelve-month period ending with the month in which any such Condemnation occurs, constitutes a Substantial Portion of the consolidated Property of the Borrower and its Subsidiaries. 7.9. The Borrower or any of its Subsidiaries shall fail within 30 days to pay, bond or otherwise discharge any one or more judgments or orders for the payment of money in excess of $1,000,000 (other than any judgment for which a financially sound and reputable insurer has admitted in writing liability) in the aggregate, which are not stayed on appeal or otherwise being appropriately contested in good faith with adequate reserves set aside on its books in accordance with generally accepted accounting principles. 7.10. The Unfunded Liabilities of all Single Employer Plans shall exceed in the aggregate $1,000,000; or any Reportable Event shall occur in connection with any Plan; or the Borrower or any of its Subsidiaries or any other member of the Controlled Group shall become party to any Multiemployer Plan. 7.11. Except for matters identified on Schedule 6 hereto, the ---------- Borrower or any of its Subsidiaries shall be the subject of any proceeding or investigation pertaining to the release by the Borrower or any of its Subsidiaries or any other Person of any toxic or hazardous waste or substance into the environment, or any violation of any federal, state or local environmental, health or safety law or regulation, which, in either case, could reasonably be expected to have a Material Adverse Effect. 7.12. Any Change in Control shall occur. 7.13. Other than in connection with any transactions which shall be permitted by the terms hereof or of any other Credit Document or which shall otherwise have been approved in writing by Required Lenders (or, if required by the terms of Section 8.3 all of the Lenders), the Borrower shall cease ----------- to own at least 80% of the capital stock of each Obligor Subsidiary and the Non-U.S. Subsidiary Borrower. 7.14. The Parent Guaranty or any Subsidiary Guaranty shall fail to remain in full force or effect; or any action shall be taken to discontinue or to assert the invalidity or unenforceability of the Parent Guaranty or any Subsidiary Guaranty; or the Borrower or any Subsidiary shall fail to comply with any of the terms or provisions of the Parent Guaranty or any Subsidiary Guaranty 68 to which it is a party; or the Borrower or any Subsidiary denies that it has any further liability under the Parent Guaranty or any Subsidiary Guaranty to which it is a party, or gives notice to such effect. 7.15. Any of the following shall occur: (i) any Credit Document shall for any reason fail to create a valid and perfected first priority security interest in any collateral purported to be covered thereby, except as permitted by the terms of any Credit Document, (ii) any Credit Document shall fail to remain in full force or effect, (iii) any action shall be taken to discontinue or to assert the invalidity or unenforceability of any Credit Document, or (iv) either Borrower shall fail to comply with any of the terms or provisions of any Credit Document. ARTICLE VIII: ACCELERATION, DEFAULTING LENDERS, WAIVERS, AMENDMENTS AND REMEDIES 8.1. Remedies. -------- (a) If any Default described in Section 7.6 or 7.7 occurs with ----------- --- respect to either Borrower, the Commitments of the Lenders hereunder (and the obligation of the Swing Line Lender to make Swing Line Loans and the obligation of a LC Issuer to issue Facility LCs) shall automatically terminate and the Obligations shall immediately become due and payable without any election or action on the part of the Agent, the Swing Line Lender, the LC Issuer or any Lender. If any other Default occurs and is continuing, the Required Lenders may terminate or suspend the Commitments of the Lenders (and the obligation of the Swing Line Lender to make Swing Line Loans and the obligation of a LC Issuer to issue Facility LCs), or declare the Obligations to be due and payable, or both, whereupon the Obligations shall become immediately due and payable, without presentment, demand, protest or notice of any kind, all of which each Borrower hereby expressly waives. The Agent shall notify the Borrowers of any action taken by the Required Lenders pursuant to the preceding sentence. (b) In addition, each Borrower agrees that upon the occurrence and during the continuance of any Default, it shall, if requested at any time by the Agent upon instruction from the Required Lenders, pay (and, in the case of any of the Defaults specified in Section 7.6 or 7.7 with respect ----------- --- to either Borrower, forthwith, without any demand or the taking of any other action by the Agent or any Lender, it shall pay) to the Agent an amount in immediately available funds equal to the then aggregate amount of the LC Obligations attributable to it (in the applicable currency or currencies of the Facility LCs under which such LC Obligations arose) to be held as security therefor for the benefit of the Lenders and the LC Issuer (it being understood and agreed that the Non-U.S. Subsidiary Borrower shall not be required to make any such payments with respect to any LC Obligations incurred by the Borrower). (c) If, within 30 days after acceleration of the maturity of the Obligations or termination of the Commitments of the Lenders hereunder (and the obligation of the Swing Line Lender to make Swing Line Loans and the obligation of the LC Issuer to issue Facility LCs) as a result of any Default (other than any Default as described in Section 7.6 or 7.7 with ----------- --- respect to 69 either Borrower) and before any judgment or decree for the payment of the Obligations due shall have been obtained or entered, the Required Lenders (in their sole discretion) shall so direct, the Agent shall, by notice to the Borrowers, rescind and annul such acceleration and/or termination. 8.2. Defaulting Lender. In the event that any Lender fails to fund ----------------- its Revolving Loan Percentage or Term Loan Percentage, as applicable, of any Advance requested or deemed requested by either Borrower which such Lender is obligated to fund under the terms of this Agreement (the funded portion of such Advance being hereinafter referred to as a "NON PRO RATA LOAN"), until the earlier of such Lender's cure of such failure and the termination of the Commitments, the proceeds of all amounts thereafter repaid to the Agent by the applicable Borrower and otherwise required to be applied to such Lender's share of all other Obligations pursuant to the terms of this Agreement shall be advanced to the applicable Borrower by the Administrative Agent ("CURE LOANS") on behalf of such Lender to cure, in full or in part, such failure by such Lender, but shall nevertheless be deemed to have been paid to such Lender in satisfaction of such other Obligations. Notwithstanding anything in this Agreement to the contrary: (i) the foregoing provisions of this Section 8.2 shall ----------- apply only with respect to the proceeds of payments of Obligations and shall not affect the conversion or continuation of Loans pursuant to Section 2.10; ------------ (ii) any such Lender shall be deemed to have cured its failure to fund its Revolving Loan Percentage or Term Loan Percentage of any Advance at such time as an amount equal to such Lender's original Revolving Loan Percentage or Term Loan Percentage, as applicable, of the requested principal portion of such Advance is fully funded to the applicable Borrower, whether made by such Lender itself or by operation of the terms of this Section 8.2, and whether or not the Non Pro Rata Loan with respect ----------- thereto has been repaid, converted or continued; (iii) amounts advanced to the applicable Borrower to cure, in full or in part, any such Lender's failure to fund its Revolving Loan Percentage or Term Loan Percentage, as applicable, of any Advance shall bear interest at the rate applicable to Loans which are Floating Rate Loans, in effect from time to time, and for all other purposes of this Agreement shall be treated as if they were Floating Rate Loans; (iv) regardless of whether or not a Default has occurred or is continuing, and notwithstanding the instructions of the applicable Borrower as to its desired application, all repayments of principal which, in accordance with the other terms of this Agreement, would be applied to the outstanding Floating Rate Loans shall be applied first, ratably to all Floating Rate Loans ----- constituting Non Pro Rata Loans, second, ratably to Floating Rate ------ Loans other than those constituting Non Pro Rata Loans or Cure Loans and, third, ratably to Floating Rate Loans constituting Cure ----- Loans (it being understood and agreed that all payments of principal made by the Non-U.S. Subsidiary Borrower shall be applied as set forth above only to Loans made to the Non-U.S. Subsidiary Borrower); 70 (v) for so long as and until the earlier of any such Lender's cure of the failure to fund its Revolving Loan Percentage or Term Loan Percentage, as applicable, of any Advance and the termination of the Commitments, the term "Required Lenders" for purposes of this Agreement shall mean Lenders (excluding all Lenders whose failure to fund their respective applicable Percentages of such Advance have not been so cured) whose Percentage represents at least fifty-one percent (51%) of the aggregate Percentages of such Lenders; and (vi) for so long as and until any such Lender's failure to fund its Revolving Loan Percentage or Term Loan Percentage, as applicable, of any Advance is cured in accordance with Section ------- 8.2(ii), (A) such Lender shall not be entitled to and the Borrowers ------- shall not be required to pay any facility fees with respect to its Commitments and (B) such Lender shall not be entitled to and the Borrowers shall not be required to pay any letter of credit fees which would otherwise be payable to such Lender. 8.3. Amendments. Subject to the provisions of this Article VIII, ---------- ------------ the Required Lenders (or the Agent with the consent in writing of the Required Lenders), the Borrower and (after it has become a party hereto) the Non-U.S. Subsidiary Borrower may enter into agreements supplemental hereto for the purpose of adding or modifying any provisions to the Credit Documents or changing in any manner the rights of the Lenders or the Borrowers hereunder or thereunder or waiving any Default hereunder; provided, that no such supplemental agreement shall, without the consent of - -------- each Lender: (a) Increase or decrease the amount of, the Commitment of any Lender (except for a ratable decrease in the Commitments of all Lenders) or otherwise subject any Lender to any additional obligation; or (b) Reduce the principal of or rate of interest on any Loan, any Reimbursement Obligation or any fees hereunder; or (c) Postpone the date fixed for any payment of principal of or interest on any Loan, any Reimbursement Obligation or any fees hereunder; or (d) Extend the Revolving Loan Termination Date, or otherwise extend the term of the Commitment of any Lender, except as provided in Section 2.21; or ------------ (e) Change the definition of Required Lenders or the percentage of the Commitments, the Outstanding Credit Exposures or the Outstanding LC Exposures, or the number of Lenders, which shall be required for the Lenders or any of them to take any action under this Section 8.3 or any other provision of ----------- the Credit Documents; or (f) Permit either Borrower to assign any of its rights or obligations under this Agreement; or 71 (g) Other than in connection with any transactions which shall be permitted by the terms hereof or of any other Credit Document or which shall otherwise have been approved in writing by Required Lenders (or, if required by the other terms of this Section 8.3 all of the Lenders), release the ----------- Borrower or any Subsidiary from all or any portion of its guaranty liability under its respective Parent Guaranty or Subsidiary Guaranty; or (h) Other than in connection with any transactions which shall be permitted by the terms hereof or of any other Credit Document or which shall otherwise have been approved in writing by Required Lenders (or, if required by the other terms of this Section 8.3, all of the Lenders), release any ----------- of the collateral pledged pursuant to the Pledge Agreements; (i) Waive the requirements of Section 4.1(i) or 4.1(j); or -------------- ------ (j) Amend or waive any of the provisions of this Section 8.3. ----------- No amendment of any provision of this Agreement relating to the Agent, the Swing Line Lender or the LC Issuer shall be effective without the written consent of the Agent, the Swing Line Lender or the LC Issuer, as the case may be. The Agent may waive payment of the fee required under Section ------- 12.3.2 without obtaining the consent of any other party to this Agreement. - ------ 8.4. Preservation of Rights. No delay or omission of the Lenders, ---------------------- the Swing Line Lender or the Agent to exercise any right under the Credit Documents shall impair such right or be construed to be a waiver of any Default or Unmatured Default or an acquiescence therein, and the making of a Loan or issuance of a Letter of Credit notwithstanding the existence of a Default or Unmatured Default or the inability of the applicable Borrower to satisfy the conditions precedent to such Loan shall not constitute any waiver or acquiescence. Any single or partial exercise of any such right shall not preclude other or further exercise thereof or the exercise of any other right, and no waiver, amendment or other variation of the terms, conditions or provisions of the Credit Documents whatsoever shall be valid unless in writing signed by the Lenders required pursuant to Section 8.3, ----------- and then only to the extent in such writing specifically set forth. All remedies contained in the Credit Documents or by law afforded shall be cumulative and all shall be available to the Agent and the Lenders until the Obligations have been paid in full. ARTICLE IX: GENERAL PROVISIONS 9.1. Survival of Representations. All representations and --------------------------- warranties of the Borrowers contained in this Agreement shall survive delivery of this Agreement and the making of the Loans herein contemplated. 72 9.2. Governmental Regulation. Anything contained in this Agreement ----------------------- to the contrary notwithstanding, no Lender shall be obligated to extend credit to either Borrower in violation of any limitation or prohibition provided by any applicable statute or regulation. 9.3. Taxes. Any taxes (excluding federal income taxes on the ----- overall net income of any Lender and except as otherwise provided in Section ------- 2.22) or other similar assessments or charges made by any governmental or - ---- revenue authority in respect of the Credit Documents shall be paid by the applicable Borrower, together with interest and penalties, if any. As of the date of this Agreement, neither the Borrower nor any Lender is aware of any such taxes, assessments or charges. 9.4. Headings. Section headings in the Credit Documents are for -------- convenience of reference only, and shall not govern the interpretation of any of the provisions of the Credit Documents. 9.5. Entire Agreement. The Credit Documents embody the entire ---------------- agreement and understanding among the Borrowers, the Agent and the Lenders and supersede all prior agreements and understandings among the Borrowers, the Agent and the Lenders relating to the subject matter thereof including, without limitation, the Existing Credit Agreement and the Interim Credit Agreement (other than contingent indemnity obligations which are stated to survive the termination thereof). 9.6. Several Obligations; Benefits of this Agreement. The ----------------------------------------------- respective obligations of the Lenders hereunder are several and not joint and no Lender shall be the partner or agent of any other (except to the extent to which the Agent is authorized to act as such). The failure of any Lender to perform any of its obligations hereunder shall not relieve any other Lender from any of its obligations hereunder. This Agreement shall not be construed so as to confer any right or benefit upon any Person other than the parties to this Agreement and their respective successors and assigns; provided, however, that the parties hereto expressly agree that the Arranger - -------- ------- shall enjoy the benefits of the provisions of Sections 9.7, 9.12 and 10.10 ------------ ---- ----- to the extent specifically set forth therein and shall have the right to enforce such provisions on its own behalf and in its own name to the same extent as if it were a party to this Agreement. 9.7. Expenses; Indemnification. The Borrower and the Non-U.S. ------------------------- Subsidiary Borrower shall reimburse the Agent and the Arranger for any costs, internal charges and out-of-pocket expenses (including reasonable attorneys' fees and time charges of attorneys for the Agent and Arranger, which attorneys may be employees of the Agent or the Arranger) paid or incurred by the Agent or the Arranger in connection with the preparation, negotiation, execution, delivery, syndication, amendment, modification and administration of the Credit Documents. The Borrower and the Non-U.S. Subsidiary Borrower also agree to reimburse the Agent, the Swing Line Lender, any LC Issuer, the Arranger and the Lenders for any costs, internal charges and out-of-pocket expenses (including reasonable attorneys' fees and time charges of attorneys for the Agent, the Swing Line Lender, any LC Issuer, the Arranger and the Lenders, which attorneys may be employees of the Agent, the Swing Line Lender, any LC Issuer, the Arranger or the Lenders and other advisors and professionals engaged by the Agent or the Arranger) paid or 73 incurred by the Agent, the Swing Line Lender, any LC Issuer, the Arranger or any Lender in connection with the collection and enforcement of the Credit Documents. The Borrower and the Non-U.S. Subsidiary Borrower further agree to indemnify the Agent, the Swing Line Lender, any LC Issuer, the Arranger and each Lender, its directors, officers and employees against all losses, claims, damages, penalties, judgments, liabilities and expenses (including, without limitation, all expenses of litigation or preparation therefor whether or not the Agent, the Swing Line Lender, an LC Issuer, the Arranger or any Lender is a party thereto) (collectively "LOSSES") which any of them may pay or incur arising out of or relating to this Agreement, the other Credit Documents, the transactions contemplated hereby or the direct or indirect application or proposed application of the proceeds of any Credit Extension hereunder. The obligations of each Borrower under this Section shall survive the termination of this Agreement; provided, however, that -------- ------- neither Borrower shall be obligated to indemnify any Lender, the Agent, the Swing Line Lender, the Arranger or any LC Issuer with respect to Losses which arise solely from such Lender's, Agent's Swing Line Lender's, Arranger's or LC Issuer's gross negligence or willful misconduct. Notwithstanding anything to the contrary herein, neither Borrower shall be liable to reimburse the Agent, the Swing Line Lender, the LC Issuers, the Arranger or any of the Lenders in respect of disputes which arise or Losses which are incurred by the Agent, the Swing Line Lender, the LC Issuers, the Arranger or any of the Lenders which arise solely as a result of an action or failure to act on the part of the Agent, the Swing Line Lender, an LC Issuer, the Arranger or a Lender and which do not relate in any way to actions or failures to act on the part of the applicable Borrower or any of the Borrower's Subsidiaries. Without otherwise limiting the foregoing, it is understood and agreed that the Non-U.S. Subsidiary Borrower shall not be obligated to indemnify any Lender, the Agent, the Swing Line Lender, the Arranger or any LC Issuer with respect to any amounts determined to be attributable to Loans made to, or Obligations incurred by or on behalf of, the Borrower. 9.8. Numbers of Documents. All statements, notices, closing -------------------- documents, and requests hereunder shall be furnished to the Agent with sufficient counterparts so that the Agent may furnish one to each of the Lenders. 9.9. Accounting. Except as provided to the contrary herein, all ---------- accounting terms used herein shall be interpreted and all accounting determinations hereunder shall be made in accordance with Agreement Accounting Principles. 9.10. Prior Agreement. The Borrower, the Lenders and the Agent --------------- agree that, upon (i) the execution and delivery of this Agreement by each of the parties hereto and (ii) the satisfaction (or waiver by the aforementioned parties) of the conditions precedent set forth in Section ------- 4.1, the terms and provisions of the Existing Credit Agreement shall be and - --- hereby are amended, superseded and restated in their entirety by the terms and provisions of this Agreement, and the Interim Credit Agreement shall be and hereby is terminated. This Agreement is not intended to and shall not constitute a novation of the Existing Credit Agreement or the Interim Credit Agreement or the indebtedness created thereunder. The commitment of each Lender that is a party to the Existing Credit Agreement shall, on the effective date hereof, automatically be deemed amended and the only Commitments shall be those hereunder; provided, however, that the commitment -------- ------- of each Lender under the Existing Credit Agreement that is not party to this 74 Agreement, and the commitment of each Lender under the Interim Credit Agreement shall terminate on the date hereof. 9.11. Severability of Provisions. Any provision in any Credit -------------------------- Document that is held to be inoperative, unenforceable, or invalid in any jurisdiction shall, as to that jurisdiction, be inoperative, unenforceable, or invalid without affecting the remaining provisions in that jurisdiction or the operation, enforceability, or validity of that provision in any other jurisdiction, and to this end the provisions of all Credit Documents are declared to be severable. 9.12. Nonliability of Lenders. The relationship between the ----------------------- Borrowers on the one hand and the Lenders, the Swing Line Lender, the LC Issuers and the Agent on the other hand shall be solely that of borrower and lender. Neither the Agent, the Arranger, the Swing Line Lender, the LC Issuers nor any Lender shall have any fiduciary responsibilities to either Borrower or vice versa. Neither the Agent, the Arranger, the Swing Line Lender, the LC Issuers nor any Lender undertakes any responsibility to the Borrowers to review or inform either Borrower of any matter in connection with any phase of the Borrowers' business or operations. 9.13. CHOICE OF LAW. THE CREDIT DOCUMENTS (OTHER THAN THOSE ------------- CONTAINING A CONTRARY EXPRESS CHOICE OF LAW PROVISION) 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 NATIONAL BANKS. 9.14. CONSENT TO JURISDICTION. THE BORROWERS, THE AGENT, THE LC ----------------------- ISSUER AND EACH LENDER EACH HEREBY IRREVOCABLY SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF ANY UNITED STATES FEDERAL OR ILLINOIS STATE COURT SITTING IN CHICAGO IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO ANY CREDIT DOCUMENTS AND EACH SUCH PARTY HEREBY IRREVOCABLY AGREES THAT ALL CLAIMS IN RESPECT OF SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN ANY SUCH COURT AND IRREVOCABLY WAIVES ANY OBJECTION IT MAY NOW OR HEREAFTER HAVE AS TO THE VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN SUCH A COURT OR THAT SUCH COURT IS AN INCONVENIENT FORUM. NOTHING HEREIN SHALL LIMIT THE RIGHT OF THE AGENT, THE LC ISSUER OR ANY LENDER TO BRING PROCEEDINGS AGAINST EITHER BORROWER IN THE COURTS OF ANY OTHER JURISDICTION. ANY JUDICIAL PROCEEDING BY EITHER BORROWER AGAINST THE AGENT, THE LC ISSUER OR ANY LENDER OR ANY AFFILIATE OF THE AGENT, THE LC ISSUER OR ANY LENDER INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER IN ANY WAY ARISING OUT OF, RELATED TO, OR CONNECTED WITH ANY CREDIT DOCUMENT SHALL BE BROUGHT ONLY IN A COURT IN CHICAGO, ILLINOIS. 9.15. WAIVER OF JURY TRIAL. THE BORROWERS, THE AGENT, THE LC ISSUER -------------------- AND EACH LENDER HEREBY WAIVE TRIAL BY JURY IN ANY JUDICIAL PROCEEDING INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER (WHETHER 75 SOUNDING IN TORT, CONTRACT OR OTHERWISE) IN ANY WAY ARISING OUT OF, RELATED TO, OR CONNECTED WITH ANY CREDIT DOCUMENT OR THE RELATIONSHIP ESTABLISHED THEREUNDER. 9.16. Agent for Service of Process. Upon becoming a party hereto, ---------------------------- the Non-U.S. Subsidiary Borrower hereby irrevocably appoints the Borrower as its agent for service of process in any proceeding referred to in Section ------- 9.14 of this Agreement and agrees that service of process in any such - ---- proceeding may be made by mailing or delivering a copy thereof to it care of Borrower at its address for notices set forth in Article XIII of this ------------ Agreement. 9.17. Confidentiality. Each Lender agrees to hold any confidential --------------- information which it may receive from either Borrower pursuant to this Agreement in confidence, except for disclosure (i) to other Lenders and their respective Affiliates, (ii) to legal counsel, accountants, and other professional advisors to that Lender or to a Transferee, (iii) to regulatory officials exercising regulatory functions over or with respect to any Lender, (iv) to any Person as required by law, regulation, or legal process, (v) to any Person in connection with any legal proceeding to which that Lender is a party, and (vi) as permitted by Section 12.4. ------------ ARTICLE X: THE AGENT 10.1. Appointment. Bank One is hereby appointed Agent hereunder and ----------- under each other Credit Document, and each of the Lenders irrevocably authorizes the Agent to act as the contractual representative of such Lender with the rights and duties as expressly set forth herein. The Agent agrees to act as such upon the express conditions contained in this Article X. The --------- Agent shall not have a fiduciary relationship in respect of either Borrower or any Lender by reason of this Agreement. 10.2. Powers. The Agent shall have and may exercise such powers ------ under the Credit Documents as are specifically delegated to the Agent by the terms of each thereof, together with such powers as are reasonably incidental thereto. The Agent shall have no implied duties to the Lenders, or any obligation to the Lenders to take any action thereunder except any action specifically provided by the Credit Documents to be taken by the Agent. 10.3. General Immunity. Neither the Agent nor any of its directors, ---------------- officers, agents or employees shall be liable to either Borrower, the Lenders or any Lender for any action taken or omitted to be taken by it or them hereunder or under any other Credit Document or in connection herewith or therewith except for its or their own gross negligence or willful misconduct. 10.4. No Responsibility for Loans, Recitals, etc. Neither the Agent ------------------------------------------- nor any of its directors, officers, agents or employees shall be responsible for or have any duty to ascertain, inquire into, or verify (i) any statement, warranty or representation made in connection with any Credit Document or any borrowing hereunder; (ii) the performance or observance of any of the covenants or agreements of any obligor under any Credit Document, including, without limitation, any agreement by either Borrower to furnish information directly to each Lender; (iii) the satisfaction of any condition specified in Article IV, except receipt of items required to be ---------- 76 delivered to the Agent; (iv) the value, sufficiency, creation, perfection or priority of any Lien in any collateral security; or (v) the validity, effectiveness or genuineness of any Credit Document or any other instrument or writing furnished in connection therewith. The Agent shall have no duty to disclose to the Lenders information that is not required to be furnished by a Borrower to the Agent at such time, but is voluntarily furnished by a Borrower to the Agent (either in its capacity as Agent or in its individual capacity). 10.5. Action on Instructions of Lenders. The Agent shall in all --------------------------------- cases be fully protected in acting, or in refraining from acting, hereunder and under any other Credit Document in accordance with written instructions signed by the Required Lenders (except to the extent Section 8.3 requires ----------- the unanimous consent of all Lenders), and such instructions and any action taken or failure to act pursuant thereto shall be binding on all of the Lenders. The Agent shall be fully justified in failing or refusing to take any action hereunder and under any other Credit Document unless it shall first be indemnified to its satisfaction by the Lenders pro rata against any and all liability, cost and expense that it may incur by reason of taking or continuing to take any such action. 10.6. Employment of Agents and Counsel. The Agent may execute any -------------------------------- of its duties as Agent hereunder and under any other Credit Document by or through employees, agents, and attorneys-in-fact and shall not be answerable to the Lenders, except as to money or securities received by it or its authorized agents, for the default or misconduct of any such agents or attorneys-in-fact selected by it with reasonable care. The Agent shall be entitled to advice of counsel concerning all matters pertaining to the agency hereby created and its duties hereunder and under any other Credit Document. 10.7. Reliance on Documents; Counsel. The Agent shall be entitled ------------------------------ to rely upon any notice, consent, certificate, affidavit, letter, telegram, statement, paper or document believed by it to be genuine and correct and to have been signed or sent by the proper person or persons, and, in respect to legal matters, upon the opinion of counsel selected by the Agent, which counsel may be employees of the Agent. 10.8. Agent's Reimbursement and Indemnification. The Lenders agree ----------------------------------------- to reimburse and indemnify the Agent ratably in proportion to their respective Commitments or, if the Commitments have terminated, their Outstanding Credit Exposure (i) for any amounts not reimbursed by either Borrower for which the Agent is entitled to reimbursement by the applicable Borrower pursuant to Section 9.7, (ii) for any other expenses incurred by ----------- the Agent on behalf of the Lenders, in connection with the collection and enforcement of the Credit Documents and (iii) for any liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind and nature whatsoever which may be imposed on, incurred by or asserted against the Agent in any way relating to or arising out of the Credit Documents or any other document delivered in connection therewith or the transactions contemplated thereby, or the enforcement of any of the terms thereof or of any such other documents, provided that no Lender shall be liable for any of the foregoing to the extent any of the foregoing arise from the gross negligence or willful misconduct of the Agent. The 77 obligations of the Lenders under this Section 10.8 shall survive payment of ------------ the Obligations and termination of this Agreement. 10.9. Rights as a Lender. In the event the Agent is a Lender, the ------------------ Agent shall have the same rights and powers hereunder and under any other Credit Document as any Lender and may exercise the same as though it were not the Agent, and the term "Lender" or "Lenders" shall, at any time when the Agent is a Lender, unless the context otherwise indicates, include the Agent in its individual capacity. The Agent may accept deposits from, lend money to, and generally engage in any kind of trust, debt, equity or other transaction, in addition to those contemplated by this Agreement or any other Credit Document, with the Borrowers or any of the Borrower's Subsidiaries in which such Borrower or such Subsidiary is not restricted hereby from engaging with any other Person. The Agent, in its individual capacity, is not obligated to remain a Lender. 10.10. Lender Credit Decision. Each Lender acknowledges that it ---------------------- has, independently and without reliance upon the Agent, the Arranger or any other Lender and based on the financial statements prepared by the Borrower and such other documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement and the other Credit Documents. Each Lender also acknowledges that it will, independently and without reliance upon the Agent, the Arranger or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement and the other Credit Documents. 10.11. Successor Agent. The Agent may resign at any time by giving --------------- written notice thereof to the Lenders and the Borrower, such resignation to be effective upon the appointment of a successor Agent or, if no successor Agent has been appointed, forty-five days after the retiring Agent gives notice of its intention to resign. The Agent may be removed at any time with or without cause by written notice received by the Agent from the Required Lenders, such removal to be effective on the date specified by the Required Lenders. Upon any such resignation or removal, the Required Lenders shall have the right to appoint a successor Agent on behalf of the Lenders and the Borrowers, with the Borrower's consent (provided such consent may not be unreasonably withheld or delayed and provided further no such consent shall be required if a Default shall have occurred and be continuing). If no successor Agent shall have been so appointed by the Required Lenders or consented to by the Borrower (if such consent is required) within thirty days after the resigning Agent's giving notice of its intention to resign, then the resigning Agent may appoint, on behalf of the Borrowers and the Lenders, a successor Agent. If the Agent has resigned or been removed and no successor Agent has been appointed, the Lenders may perform all the duties of the Agent hereunder and each Borrower shall make all payments in respect of its respective Obligations to the applicable Lender and for all other purposes shall deal directly with the Lenders. No successor Agent shall be deemed to be appointed hereunder until such successor Agent has accepted the appointment. Any such successor Agent shall be a commercial bank having capital and retained earnings of at least $100,000,000. Upon the acceptance of any appointment as Agent hereunder by a successor Agent, such successor Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the resigning or removed Agent. Upon the effectiveness of the resignation or removal of the Agent, the resigning or removed Agent shall be discharged from its 78 duties and obligations hereunder and under the Credit Documents. After the effectiveness of the resignation or removal of an Agent, the provisions of this Article X shall continue in effect for the benefit of such Agent in --------- respect of any actions taken or omitted to be taken by it while it was acting as the Agent hereunder and under the other Credit Documents. 10.12. Agent's Fees. The Borrowers agree to pay to the Agent and ------------ the Lenders, for their own respective accounts, the fees agreed to by the Borrower pursuant to that certain letter agreement dated January 29, 2002, or as otherwise agreed from time to time (it being understood and agreed that the Non-U.S. Subsidiary Borrower shall not be liable for payment of any fees determined to be attributable to the Borrower). 10.13. Execution of Guaranty Collateral Documents. The Lenders, the ------------------------------------------ Swing Line Lender and the LC Issuers hereby empower and authorize the Agent to execute and deliver to the applicable Borrower on their behalf the Parent Guaranty, Subsidiary Guaranties, Pledge Agreement(s) and all related agreements, documents or instruments as shall be necessary of appropriate to effect the purposes of the Parent Guaranty, Subsidiary Guaranties and Pledge Agreement(s). 10.14. Collateral and Guaranty Releases. The Lenders, the Swing -------------------------------- Line Lender and the LC Issuers hereby empower and authorize the Agent to execute and deliver to the applicable Borrower on their behalf any agreements, documents or instruments as shall be necessary or appropriate to effect any releases of any entities' liability with respect to the Parent Guaranty or any Subsidiary Guaranty or release of any collateral pledged pursuant to any Pledge Agreement in connection with any transactions which shall be permitted by the terms hereof or of any other Credit Document or which shall otherwise have been approved in writing by the Required Lenders (or, if required by the terms of Section 8.3, all of the Lenders). ----------- 10.15. No Duties Imposed on Syndication Agent or Arranger. Except -------------------------------------------------- as specifically provided otherwise herein with respect to the rights and benefits of the Arranger hereunder, none of the Persons identified on the cover page to this Agreement, the signature pages to this Agreement or otherwise in this Agreement as a "Syndication Agent" or "Arranger" shall have any right, power, obligation, liability, responsibility or duty under this Agreement other than if such Person is a Lender, those applicable to all Lenders as such. Without limiting the foregoing, none of the Persons identified on the cover page to this Agreement, the signature pages to this Agreement or otherwise in this Agreement as a "Syndication Agent" or "Arranger" shall have or be deemed to have any fiduciary duty to or fiduciary relationship with any Lender. In addition to the agreement set forth in Section 10.10, each of the Lenders acknowledges that it has not ------------- relied, and will not rely, on any of the Persons so identified in deciding to enter into this Agreement or in taking or not taking action hereunder. ARTICLE XI: SETOFF; RATABLE PAYMENTS 11.1. Setoff. In addition to, and without limitation of, any rights ------ of the Lenders under applicable law, if any Default or Unmatured Default occurs, any and all deposits (including all 79 account balances, whether provisional or final and whether or not collected or available) and any other Indebtedness at any time held or owing by any Lender to or for the credit or account of the applicable Borrower may be offset and applied toward the payment of the Obligations owing to such Lender, whether or not the Obligations, or any part hereof, shall then be due (it being understood and agreed that no deposits of the Non-U.S. Subsidiary Borrower or Indebtedness held by or owing to the Non-U.S. Subsidiary Borrower shall be offset by any Lender and applied toward any Obligations incurred by or on behalf of the Borrower); it being understood ------------------- that, in order to effect such setoff, any Lender may combine currencies at the then-effective buy and sell spot rate of exchange of such Lender with respect to such currencies. 11.2. Ratable Payments. If any Lender, whether by setoff or ---------------- otherwise, has payment made to it upon its share of any Advance (other than payments received pursuant to Sections 3.1, 3.2 or 3.4) in a greater ------------ --- --- proportion than that received by any other Lender, such Lender agrees, promptly upon demand, to purchase a portion of the Loans comprising that Advance held by the other Lenders so that after such purchase each Lender will hold its ratable proportion of Loans comprising that Advance. If any Lender, whether in connection with setoff or amounts which might be subject to setoff or otherwise, receives collateral or other protection for its Obligations or such amounts which may be subject to setoff, such Lender agrees, promptly upon demand, to take such action necessary such that all Lenders share in the benefits of such collateral ratably in proportion to their Loans. In case any such payment is disturbed by legal process, or otherwise, appropriate further adjustments shall be made. 11.3. Relations Among Lenders. The Lenders are not partners or ----------------------- co-venturers, and no Lender shall be liable for the acts or omissions of or (except as otherwise set forth herein with respect to the Agent) authorized to act for or on behalf of any other Lender. ARTICLE XII: BENEFIT OF AGREEMENT; ASSIGNMENTS; PARTICIPATION 12.1. Successors and Assigns. The terms and provisions of the ---------------------- Borrower Credit Documents and the Non-U.S. Subsidiary Credit Documents shall be binding upon and inure to the benefit of the Borrower and the Non-U.S. Subsidiary Borrower, respectively, and the Lenders and their respective successors and assigns, except that (i) neither the Borrower nor the Non-U.S. Subsidiary Borrower shall have the right to assign its rights or obligations under the Borrower Credit Documents or the Non-U.S. Subsidiary Borrower Credit Documents, respectively, and (ii) any assignment by any Lender must be made in compliance with Section 12.3. Notwithstanding clause ------------ ------ (ii) of this Section, any Lender may at any time, without the consent of the - ---- Borrower, the Non-U.S. Subsidiary Borrower or the Agent, assign all or any portion of its rights under the Credit Documents to a Federal Reserve Bank; provided, however, that no such assignment shall release the transferor Lender from its obligations hereunder. The Agent may treat any Lender as the owner of the Loans made by such Lender hereunder for all purposes hereof unless and until such payee complies with Section 12.3 in the case of an ------------ assignment thereof or, in the case of any other transfer, a written notice of the transfer is filed with the Agent. Any assignee or transferee of a Loan agrees by acceptance thereof to be bound by all the terms and provisions of the Credit Documents. Any request, authority or consent of any Person, who at the time of making such 80 request or giving such authority or consent is the owner of any Loan, shall be conclusive and binding on any subsequent holder, transferee or assignee of such Loan. 12.2. Participation. ------------- 12.2.1. Permitted Participants; Effect. Any Lender may, in ------------------------------ the ordinary course of its business and in accordance with applicable law, at any time sell to one or more banks or other entities ("Participants") participating interests in any Outstanding Credit Exposure owing to such Lender, any Loans owned by such Lender, any Commitment of such Lender or any other interest of such Lender under the Credit Documents. In the event of any such sale by a Lender of participating interests to a Participant, such Lender's obligations under the Credit Documents shall remain unchanged, such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations, such Lender shall remain the owner of all Loans made by it for all purposes under the Credit Documents, all amounts payable by each Borrower under this Agreement shall be determined as if such Lender had not sold such participating interests, and each Borrower, the LC Issuer and the Agent shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under the Credit Documents. 12.2.2. Voting Rights. Each Lender shall retain the sole ------------- right to approve, without the consent of any Participant, any amendment, modification or waiver of any provision of the Credit Documents, other than any such amendment, modification or waiver which requires the unanimous consent of the Lenders under Section 8.3. ----------- 12.2.3. Benefit of Setoff. Each Borrower agrees that each ----------------- Participant shall be deemed to have the right of setoff provided in Section ------- 11.1 in respect of its participating interest in amounts owing under the - ---- Credit Documents to the same extent as if the amount of its participating interest were owing directly to it as a Lender under the Credit Documents, provided that each Lender shall retain the right of setoff provided in Section 11.1 with respect to the amount of participating interests sold to - ------------ each Participant. The Lenders agree to share with each Participant, and each Participant, by exercising the right of setoff provided in Section 11.1, ------------ agrees to share with each Lender, any amount received pursuant to the exercise of its right of setoff, such amounts to be shared in accordance with Section 11.2 as if each Participant were a Lender. ------------ 12.3. Assignments. ----------- 12.3.1. Permitted Assignments. Any Lender may, in the --------------------- ordinary course of its business and in accordance with applicable law, at any time assign to one or more banks or other entities ("Purchasers") all or any part of its rights and obligations under the Credit Documents; provided, -------- that, unless the Agent and the Borrower shall otherwise agree, each such assignment shall be in the minimum principal amount of not less than the lesser of (i) $5,000,000 and (ii) the amount of such Lender's Commitments as of the proposed date of such assignment, and each such assignment shall be of a constant, and not a varying, percentage of the assigning Lender's rights and obligations under this Agreement and the assignment shall cover the same percentage 81 of such Lender's commitment, Loans and interest in Facility LCs. Each such assignment shall be substantially in the form of Exhibit I hereto or in such --------- other form as may be agreed to by the Agent and the parties thereto. The consent of the Borrower and the Agent shall be required prior to an assignment becoming effective with respect to a Purchaser which is not a Lender or an Affiliate thereof (none of which consents may be unreasonably withheld); provided, that if (i) a Default has occurred and is continuing or -------- (ii) the assignment is pursuant to the physical settlement of credit derivative transactions, the consent of the Borrower shall not be required. 12.3.2. Effect; Effective Date. Upon Purchaser's (i) ---------------------- delivery to the Agent of a notice of assignment, substantially in the form attached as Exhibit "A" to Exhibit I hereto (a "Notice of Assignment"), --------- together with any consents required by Section 12.3.1, and (ii) payment of a -------------- $3,500 fee to the Agent for processing such assignment, such assignment shall become effective on the effective date specified in such Notice of Assignment. On and after the effective date of such assignment, such Purchaser shall for all purposes be a Lender party to this Agreement and any other Credit Document executed by the Lenders and shall have all the rights and obligations of a Lender under the Credit Documents, to the same extent as if it were an original party hereto, and no further consent or action by either Borrower, the Lenders, the LC Issuer or the Agent shall be required to release the transferor Lender with respect to the percentage of the Aggregate Revolving Loan Commitment and Outstanding Credit Exposure assigned to such Purchaser. Upon the consummation of any assignment to a Purchaser pursuant to this Section 12.3.2, the transferor Lender, the Agent and the -------------- Borrowers shall make appropriate arrangements so that, to the extent promissory notes have been issued to evidence any of the transferred Loans, replacement promissory notes are issued to the transferor Lender and a new promissory notes or, as appropriate, replacement promissory notes are issued to such Purchaser, in each case in principal amounts reflecting their Commitment, as adjusted pursuant to such assignment. Upon the Purchaser's receipt of new or replacement promissory notes, the transferor Lender shall return its old promissory notes to the applicable Borrower appropriately legended. 12.3.3. Register. The Agent shall maintain at its address -------- referred to in Section 13.1 a copy of each assignment delivered to and ------------ accepted by it pursuant to this Section 12.3 and a register (the "REGISTER") ------------ for the recordation of the names and addresses of the Lenders and the Commitments of and principal amount of the Loans owing to, each Lender from time to time and whether such Lender is an original Lender or the assignee of another Lender pursuant to an assignment under this Section 12.3. The ------------ entries in the Register shall be conclusive and binding for all purposes, absent manifest error, and each Borrower, the Agent and the Lenders may treat each Person whose name is recorded in the Register as a Lender hereunder for all purposes of this Agreement. The Register shall be available for inspection by either Borrower or any Lender at any reasonable time and from time to time upon reasonable prior notice. 12.4. Dissemination of Information. Each Borrower authorizes each ---------------------------- Lender to disclose to any Participant or Purchaser or any other Person acquiring an interest in the Credit Documents by operation of law (each a "Transferee") and any prospective Transferee any and all information in such Lender's possession concerning the creditworthiness of the Borrower and its 82 Subsidiaries; provided, that each Transferee and prospective Transferee -------- agrees to be bound by Section 9.16 of this Agreement. ------------ 12.5. Tax Treatment. If any interest in any Credit Document is ------------- transferred to any Transferee which is organized under the laws of any jurisdiction other than the United States or any State thereof, the transferor Lender shall cause such Transferee, concurrently with the effectiveness of such transfer, to comply with the provisions of Section ------- 2.18. - ---- ARTICLE XIII: NOTICES 13.1. Giving Notice. Except as otherwise permitted by Section 2.13 ------------- ------------ with respect to borrowing notices, all notices and other communications provided to any party hereto under this Agreement or any other Credit Document shall be given either in writing or by facsimile and addressed or delivered to such party at its address or facsimile number, as the case may be, set forth below its signature hereto or at such other address or facsimile number as may be designated by such party in a notice to the other parties. Any notice, if mailed and properly addressed with postage prepaid, shall be deemed given when received; any notice, if properly transmitted by facsimile, shall be deemed given when transmitted. 13.2. Change of Address. Each Borrower, the Agent, the LC Issuer ----------------- and any Lender may each change the address and/or facsimile number for service of notice upon it by a notice in writing to the other parties hereto. ARTICLE XIV: COUNTERPARTS This Agreement 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 Agreement by signing any such counterpart. This Agreement shall be effective when it has been executed by the Borrower, the Agent, the LC Issuer and the Lenders and each party has notified the Agent by facsimile or telephone, that it has taken such action. 83 IN WITNESS WHEREOF, the Borrower, the Lenders, the LC Issuer and the Agent have executed this Agreement as of the date first above written. Commitments - ----------- GARDNER DENVER, INC. (formerly known as Gardner Denver Machinery Inc.) By: ______________________________________________ Print Name: ______________________________________ Title: ___________________________________________ 1800 Gardner Expressway Quincy, Illinois 62301 Attention: [_______________________] = = [_______________________] = = [_______________________] = = Telephone: [(___) ___-____] = = Facsimile: [(___) ___-____] = = BANK ONE, NA (Main Office Chicago) (formerly known as The First National Bank of Chicago), Individually as a Lender, as a LC Issuer, the Swing Line Lender and as Agent By: ______________________________________________ Print Name: ______________________________________ Title: ___________________________________________ One Bank One Plaza Chicago, Illinois 60670 Attention: [_______________________] = = [_______________________] = = Telephone: [(___) ___-____] = = Facsimile: [(___) ___-____] = = 84 EX-10.4 4 ex10p4.txt AMENDED AND RESTATED FORM OF INDEMNIFICATION AGREE. Exhibit 10.4 INDEMNIFICATION AGREEMENT AGREEMENT between Gardner Denver, Inc., a Delaware corporation (the "Company") and (the "Indemnitee"). ----------------------- WHEREAS, it is essential to the Company to retain and attract as directors, officers and representatives the most capable persons available; and WHEREAS, Indemnitee is a director, officer or representative of the Company; and WHEREAS, both the Company and Indemnitee recognize the increased risk of litigation and other claims being asserted against directors, officers and representatives of public companies in today's environment; and WHEREAS, in recognition of the Indemnitee's need for substantial protection against personal liability in order to enhance Indemnitee's continued service to the Company in an effective manner, the Company wishes to provide in this Agreement for the indemnification of and the advancing of expenses to Indemnitee to the full extent (whether partial or complete) permitted by law and as set forth in this Agreement, and, to the extent insurance is maintained, for the continued coverage of Indemnitee under the Company's directors' and officers' liability insurance policies; NOW, THEREFORE, in consideration of the premises and of Indemnitee continuing to serve the Company directly or, at its request, with another enterprise, and intending to be legally bound hereby, the parties hereto agree as follows: 1. Certain Defined Terms. As used in this Agreement, the following terms shall have the following meanings: (a) Change in Control shall be deemed to have occurred if (i) any "person" (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended), other than a trustee or other fiduciary holding securities under an employee benefit plan of the Company or a corporation owned directly or indirectly by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company, is or becomes the "beneficial owner" (as defined in Rule 13d-3 under said Act), directly or indirectly, of securities of the Company representing 20% or more of the total voting power represented by the Company's then outstanding Voting Securities without the prior approval of the Board of Directors, or (ii) during any period of two consecutive years, individuals who at the beginning of such period constitute the Board of Directors of the Company and any new director whose election by the Board of Directors or nomination for election by the Company's stockholders was approved by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof, or (iii) the stockholders of the Company approve a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the Voting Securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into Voting Securities of the surviving entity) at least 80% of the total voting power represented by the Voting Securities of the Company or such surviving entity outstanding immediately after such merger or consolidation, or the stockholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all the Company's assets. (b) Claim shall mean any threatened, pending or completed action, suit or proceeding, or any inquiry or investigation, whether conducted by the Company or any other party, that Indemnitee in good faith believes might lead to the institution of any such action, suit or proceeding, whether civil, criminal, administrative, investigative or other. - 1 - (c) Expenses shall mean all costs, expenses (including attorneys' fees) and obligations paid or incurred in connection with investigating, defending, being a witness in or participating in (including on appeal) or preparing to defend, be a witness in or participate in any Claim relating to any Indemnifiable Event (including all interest, assessments and other charges paid or payable in connection with or in respect of any of the foregoing). (d) Judgments shall mean judgments, fines, penalties and amounts paid in settlement that are paid or payable in connection with any Claim relating to any Indemnifiable Event (including all interest, assessments and other charges paid or payable in connection with or in respect of any of the foregoing). (e) Indemnifiable Event shall mean any event or occurrence related to the fact that Indemnitee is or was a director, director nominee, officer or representative of the Company, or is or was serving at the request of the Company as a director, trustee, officer, employee, agent or representative of another corporation, domestic or foreign, nonprofit or for profit, partnership, joint venture, employee benefit plan, trust or other enterprise, or by reason of anything done or not done by Indemnitee in any such capacity. (f) Reviewing Party shall mean any appropriate person or body under Section 145 of the Delaware General Corporation Law, including a body consisting of a member or members of the Company's Board of Directors or any other person or body appointed by the Board (including the special, independent counsel referred to in Section 3) who is not a party to the particular Claim for which Indemnitee is seeking indemnification. (g) Voting Securities shall mean any securities of the Company that vote generally in the election of directors. 2. Scope of Indemnification. (a) Indemnification for Judgments and Expenses. In the event Indemnitee was, is or becomes a party to or witness or other participant in, or is threatened to be made a party to or witness or other participant in, a Claim by reason of (or arising in part out of) an Indemnifiable Event, the Company shall indemnify Indemnitee to the fullest extent permitted by law against any and all Expenses and Judgments arising from or relating to such Claim. Except as otherwise provided in Section 2(b), such indemnification shall be made as soon as practicable, but in any event not later than thirty (30) days, after written demand therefor is presented to the Company by or on behalf of the Indemnitee. (b) Indemnification and Advance Payment of Expenses. Any and all Expenses and any and all expenses referred to in Section 2(c) shall be paid by the Company promptly as they are incurred by Indemnitee (any such payment of expenses by the Company is hereinafter referred to as an "Expense Advance"). Indemnitee shall be obligated, and hereby agrees, to repay the amount of Expenses so paid in the event that Indemnitee shall have been adjudged to be liable to the Company, unless and only to the extent that the Delaware Court of Chancery or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Delaware Court of Chancery or such other court shall deem proper. Indemnitee hereby further agrees to cooperate reasonably with the Company concerning any Claim. (c) Indemnification for Additional Expenses. The Company shall indemnify Indemnitee against any and all expenses (including attorneys' fees) that are incurred by Indemnitee in connection with any claim asserted against or action brought by Indemnitee for (i) indemnification of Expenses or Judgments or advance payment of Expenses by the Company under this Agreement or under any other agreement, the Company's Certificate of Incorporation, statute or rule of law now or hereafter in effect relating to Claims for Indemnifiable Events and (ii) recovery under any directors' and officers' liability insurance policy or policies maintained by the Company, regardless of whether Indemnitee ultimately is determined to be entitled to such indemnification, advance expense payment or insurance recovery, as the case may be. - 2 - (d) Partial Indemnity. If Indemnitee is entitled under any provision of this Agreement to indemnification by the Company for some or a portion of the Judgments and Expenses arising from or relating to a Claim but not, however, for all of the total amount thereof, the Company shall nevertheless indemnify Indemnitee for the portion thereof to which Indemnitee is entitled. (e) Indemnification of Successful Defense Expenses. Notwithstanding any other provision of this Agreement, to the extent that Indemnitee has been successful on the merits or otherwise in defense of any or all Claims relating in whole or in part to an Indemnifiable Event or in defense of any issue or matter therein, including dismissal without prejudice, Indemnitee shall be indemnified against all Expenses incurred in connection therewith. 3. Reviewing Party Determinations. (a) General Rules. Notwithstanding the provisions of Section 2, the obligations of the Company under Section 2(a) shall be subject to the condition that the Reviewing Party shall not have determined (in a written opinion, in any case in which the special, independent counsel referred to in Section 4 hereof is involved) that Indemnitee would not be permitted to be indemnified under applicable law; provided, however, that if Indemnitee has commenced legal proceedings in a court of competent jurisdiction to secure a determination that Indemnitee should be indemnified under applicable law, any determination made by the Reviewing Party that Indemnitee would not be permitted to be indemnified under applicable law shall not be binding until a final judicial determination is made with respect thereto (as to which all rights of appeal therefrom have been exhausted or lapsed) and any such determination by the Reviewing Party shall be modified, to the extent necessary, to conform to such final judicial determination. (b) Selection of Reviewing Party. If there has not been a Change in Control, the Reviewing Party shall be selected by the Board of Directors. If there has been such a Change in Control, the Reviewing Party shall be the special, independent counsel referred to in Section 4 hereof. (c) Judicial Review. If there has been no determination by the Reviewing Party or if the Reviewing Party determines that Indemnitee substantially would not be permitted to be indemnified in whole or in part under applicable law, Indemnitee shall have the right to commence litigation in any court in the State of Delaware having subject matter jurisdiction thereof and in which venue is proper seeking an initial determination by the court or challenging any such determination by the Reviewing Party or any aspect thereof, and the Company hereby consents to service of process and to appear in any such proceeding. Any determination by the Reviewing Party otherwise shall be conclusive and binding on the Company and Indemnitee. (d) Burden of Proof. In connection with any determination by the Reviewing Party pursuant to Section 3(a), or by a court of competent jurisdiction pursuant to Section 3(c) or otherwise, as to whether Indemnitee is entitled to be indemnified hereunder, the burden of proof shall be on the Company to establish by clear and convincing evidence that Indemnitee is not so entitled. 4. Change in Control. The Company agrees that if there is a Change in Control of the Company then with respect to all matters thereafter arising concerning the rights of Indemnitee to indemnity payments under this Agreement or under any other agreement, the Company's Certificate of Incorporation, statute or rule of law now or hereafter in effect relating to Claims for Indemnifiable Events, the Company shall seek legal advice only from special, independent counsel selected by Indemnitee and approved by the Company (which approval shall not be unreasonably withheld), and who has not otherwise performed services for the Company or Indemnitee within the last five years (other than in connection with such matters); provided, however, a majority of the Company's Board of Directors, which majority were directors immediately prior to such Change in Control, may waive this requirement. The Company agrees to pay the reasonable fees of the special, independent counsel referred to above and to indemnify fully such counsel against any and all expenses (including attorneys' fees), claims, liabilities and damages arising out of or relating to this Agreement or its engagement pursuant hereto. - 3 - 5. No Presumption. For purposes of this Agreement, the termination of any claim, action, suit or proceeding, by judgment, order, settlement (whether with or without court approval) or conviction, or upon a plea of nolo contendere, or its equivalent, shall not create a presumption that Indemnitee did not meet any particular standard of conduct or have any particular belief or that a court has determined that indemnification is not permitted by applicable law. 6. Nonexclusivity. The rights of the Indemnitee hereunder shall be in addition to any other rights Indemnitee may now or hereafter have to indemnification by the Company. More specifically, the Parties intend that Indemnitee shall be entitled to indemnification to the maximum extent permitted by any or all of the following: (a) The fullest benefits provided by the Company's Certificate of Incorporation in effect on the date hereof, a copy of the relevant portions of which are attached hereto as Exhibit A; (b) The fullest benefits provided by the Company's Certificate of Incorporation and Bylaws or their equivalent of the Company in effect at the time the Indemnifiable Event occurs or at the time Expenses are incurred by Indemnitee; (c) The fullest benefits allowable under Delaware law in effect at the date hereof or as the same may be amended to the extent that such benefits are increased thereby; (d) The fullest benefits allowable under the law of the jurisdiction under which the Company exists at the time the Indemnifiable Event occurs or at the time Expenses are incurred by the Indemnitee; and (e) Such other benefits as are or may be otherwise available to Indemnitee pursuant to this Agreement, any other agreement or otherwise. The parties intend that combination of two or more of the benefits referred to in (a) through (e) shall be available to Indemnitee to the extent that the document or law providing for such benefits does not require that the benefits provided therein be exclusive of other benefits. The Company hereby undertakes to use its best efforts to assist Indemnitee, in all proper and legal ways, to obtain all such benefits to which Indemnitee is entitled. 7. Liability Insurance. The rights of the Indemnitee hereunder shall also be in addition to any other rights Indemnitee may now or hereafter have under policies of insurance maintained by the Company or otherwise. To the extent the Company maintains an insurance policy or policies providing directors' and officers' liability insurance, Indemnitee shall be covered by such policy or policies, in accordance with its or their terms, to the maximum extent of the coverage available for any Company director, officer or representative. The Company shall maintain such insurance coverage for so long as Indemnitee's services are covered hereunder, provided and to the extent that such insurance is available on a basis acceptable to the Company. In the event that such insurance becomes unavailable in the amount of the present policy limits or in the present scope of coverage at premium costs and on other terms acceptable to the Company, then the Company may forego maintenance of all or a portion of such insurance coverage. However, in the event of any reduction in (or cancellation of) such insurance coverage (whether voluntary or involuntary), the Company shall, and hereby agrees to, stand as a self-insurer with respect to the coverage, or portion thereof, not retained, and shall indemnify the Indemnitee against any loss arising out of the reduction in or cancellation of such insurance coverage. 8. Period of Limitations. No legal action shall be brought and no cause of action shall be asserted by or on behalf of the Company or any affiliate of the Company against Indemnitee, Indemnitee's spouse, heirs, executors or personal or legal representatives after the expiration of two years from the date of accrual of such cause of action, and any claim or cause of action of the Company or its affiliate shall be extinguished and deemed released unless asserted by the timely filing of legal action within such two-year period; provided, however, that if any shorter period of limitations is otherwise applicable to any such cause of action, such shorter period shall govern. - 4 - 9. Amendments. No supplement, modification or amendment of this Agreement shall be binding unless executed in writing by both 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 provisions thereof (whether or not similar) nor shall such waiver constitute a continuing waiver. 10. Subrogation. In the event of payment under this Agreement, the Company shall be subrogated to the extent of such payment to all of the rights of recovery of Indemnitee, who shall execute all papers required and shall do everything that may be necessary to secure such rights, including the execution of such documents necessary to enable the Company effectively to bring suit to enforce such rights. 11. No Duplication of Payments. The Company shall not be liable under this Agreement to make any payment in connection with any claim made against Indemnitee to the extent Indemnitee has otherwise actually received payment (under any insurance policy, article or otherwise) of the amounts otherwise indemnifiable hereunder. 12. Binding Effect. This Agreement shall be binding upon and inure to the benefit of and be enforceable by the parties hereto and their respective successors, assigns, including any direct or indirect successor by purchase, merger, consolidation or otherwise to all or substantially all of the business and/or assets of the Company, spouses, heirs, and personal and legal representatives. This Agreement shall continue in effect regardless of whether Indemnitee continues to serve as a director, officer or representative of the Company or any other enterprise at the Company's request. 13. Severability. The provisions of this Agreement shall be severable in the event that any of the provisions hereof (including any provision within a single section, paragraph or sentence) are held by a court of competent jurisdiction to be invalid, void or otherwise unenforceable, and the remaining provisions shall remain enforceable to the fullest extent permitted by law. 14. Governing Law. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of Delaware applicable to contracts made and to be performed in such state without giving effect to the principles of conflicts of laws. Executed and effective as of this day of 2002. -------- ------------ GARDNER DENVER, INC. By: -------------------------------- Name: Ross J. Centanni Title: Chairman, President and Chief Executive Officer INDEMNITEE: ------------------------------------- Name: Title: - 5 - EX-10.12 5 ex10p12.txt FORM OF LONG-TERM CASH BONUS AGREEMENT Exhibit 10.12 GARDNER DENVER, INC. LONG-TERM CASH BONUS AWARD AGREEMENT LONG-TERM INCENTIVE PLAN THIS LONG-TERM CASH BONUS AWARD AGREEMENT ("Agreement"), made effective as of the Grant Date (as defined in paragraph 1), by and between (hereinafter the "Participant") and Gardner Denver, Inc. - ---------------- (hereinafter the "Company"); WITNESSETH THAT: WHEREAS, the Company maintains the Long-Term Incentive Plan (the "Plan") and the Participant has been selected by the committee administering the Plan (the "Committee") to receive a Long-Term Cash Bonus Award ("Award") under the Plan: NOW, THEREFORE, IT IS AGREED, by and between the Company and the Participant, as follows: 1. Benefits. Participant shall be eligible to receive any and -------- all benefits to which he is entitled to receive for the Long Term Cash Bonus Award under the terms and subject to the conditions of the Plan, as amended from time to time, which terms and conditions are hereby made a part hereof and are incorporated herein by reference. In the event of any inconsistency or conflict between the terms of the Plan and those of this Award Agreement, the terms of the Plan shall prevail. Terms which are not specifically defined herein shall have the meanings ascribed to them in the Plan. 2. Terms of Award. The following terms used in this Agreement -------------- shall have the meanings set forth below: (a) Grant Date. The "Grant Date" is . ---------- ---------------- (b) Performance Period. The "Performance Period" is ------------------ the period beginning on the Grant Date and ending on the third anniversary of the Grant Date. (c) Base Salary Factor. The "Base Salary Factor" to ------------------ be used in calculating the Participant's Award granted hereunder by application to the Participant's Base Salary in effect as of the end of the Performance Period, is . ------------- (d) Performance Targets. The "Performance Targets" ------------------- which must be met by the end of the Performance Period in order for the Participant to receive an Award hereunder are the following percentage increases in the compound growth rate of earnings before taxes for the Company's industrial businesses (i.e., excluding petroleum products) (the "Earnings Growth Rate"): Threshold Performance Target Performance Maximum Performance 8% 10% 12% - 1 - (e) Payment Opportunity. The Participant's "Payment ------------------- Opportunity" is determined by the extent to which the Performance Targets set forth in this paragraph 1(d) are met by the end of the Performance Period in accordance with the following table: Performance Target Achieved Payment Opportunity --------------------------- ------------------- Threshold Performance 50% Target Performance 100% Maximum Performance 150% The Payment Opportunity for an Earnings Growth Rate occurring between stated Performance Targets at the end of any Performance Period shall be determined through simple interpolation. An Earnings Growth Rate below the Threshold Performance in any Performance Period will result in no Award payment for that Performance Period. (f) Date of Termination. The Participant's "Date of ------------------- Termination" shall be the first day occurring on or after the Grant Date on which the Participant is no longer employed by the Company or any Subsidiary or Affiliate of the Company, regardless of the reason for the termination of employment; provided that a termination of employment shall not be deemed to occur by reason of a transfer of the Participant between the Company and a Subsidiary or between two Subsidiaries. All determinations regarding employment shall be made by the Committee. (g) Target Performance. Target Performance means the ------------------- Earnings Growth Rate Performance Target for the Performance Period, the attainment of which is necessary for the payment of a 100% Payment Opportunity. (h) Threshold Performance. Threshold Performance --------------------- means the Earnings Growth Rate Performance Target for the Performance Period, the attainment of which is necessary for the payment of a 50% Payment Opportunity and for the payment of any Award at the conclusion of a Performance Period. (i) Maximum Performance. Maximum Performance means ------------------- the Earnings Growth Rate Performance Target for the Performance Period, the attainment of which is necessary for the payment of a 150% Payment Opportunity. 3. Award. The Participant is hereby awarded a Long-Term Cash ----- Bonus Award under the Plan in an amount to be determined in accordance with the terms set forth in paragraph 2 above, subject to the achievement of the Performance Targets set forth therein. The Committee shall compute the specific amount of Long-Term Cash Bonus Award payable to the Participant hereunder by applying the Base Salary Factor set forth above to the Participant's Base Salary in effect as of the end of the Performance Period and multiplying that product by the applicable payment opportunity as of the end of the Performance Period in accordance with the following formula: - 2 - Payment Opportunity X (Base Salary Factor X Base Salary) In the event the Award calculated in accordance with the provisions of paragraph 2 above exceeds the maximum Award permissible under the terms of the Plan, then such Award shall automatically be reduced to the maximum permitted under the terms of the Plan. 4. Payment. Unless the Participant's Date of Termination ------- occurs during the Performance Period, then, as soon as practicable following the end of the Performance Period, the Participant shall be paid in a lump sum in either cash or Restricted Stock, at the sole and absolute discretion of the Committee, an Award calculated in accordance with the terms and methodology set forth in paragraph 2 hereof. In the event the Participant's Date of Termination occurs prior to the end of the Performance Period for any reason other than death, Disability, or Retirement, the Award granted hereunder, if any, shall be forfeited as of the Date of Termination, unless the Committee determines otherwise in its sole and absolute discretion. In the event the Participant's Date of Termination occurs prior to the end of the Performance Period due to the Participant's death, Disability, or Retirement, then the Participant shall receive a pro-rata payment of the Award payable hereunder, if any, at the end of the Performance Period, based on the portion of the Performance Period elapsed as of the Date of Termination and the achievement of the Performance Targets as of the end of the Performance Period unless the Committee determines otherwise in its role and absolute discretion. 5. Assignment and Transfer. Participant shall not sell, ----------------------- transfer, assign, hypothecate, pledge, grant a security interest in, or in any other way alienate any Award granted hereunder, or any interest or right therein, except by will or the laws of descent and distribution, and any such attempted transfer, assignment, hypothecation, pledge or grant of a security interest shall be null and void and of no legal force or effect. 6. Acceleration of Payment Upon Change of Control. In the ---------------------------------------------- event of a Change of Control, the Award granted hereunder shall be deemed to have been earned in full at the Target Payment Opportunity set forth in paragraph 2(e) above and shall be immediately payable to the Participant in a lump sum in cash. 7. Withholding. All payments and distributions under this ----------- Agreement are subject to withholding of all applicable taxes. 8. Miscellaneous. This Agreement contains the entire ------------- agreement of the parties with respect to its subject matter. This Agreement shall be binding upon and inure to the benefit of the respective parties, the successors and assigns of the Company, and the heirs and personal representatives of the Participant. 9. Governing Law. This Agreement shall be governed by and ------------- construed and enforced in accordance with the laws of the State of Illinois without reference to its principles of conflict of laws. - 3 - 10. Heirs and Successors. This Agreement shall be binding -------------------- upon, and inure to the benefit of, the Company and its successors and assigns, and upon any person acquiring, whether by merger, consolidation, purchase of assets or otherwise, all or substantially all of the Company's assets and business. If any rights exercisable by the Participant or benefits deliverable to the Participant under this Agreement have not been exercised or delivered, respectively, at the time of the Participant's death, such rights shall be exercisable by the Designated Beneficiary, and such benefits shall be delivered to the Designated Beneficiary, in accordance with the provisions of this Agreement and the Plan. The "Designated Beneficiary" shall be the beneficiary or beneficiaries designated by the Participant in a writing filed with the Committee in such form and at such time as the Committee shall require. If a deceased Participant fails to designate a beneficiary, or if the Designated Beneficiary does not survive the Participant, any benefits distributable to the Participant hereunder shall be distributed to the legal representative or the estate of the Participant. If a deceased Participant designates a beneficiary but the Designated Beneficiary dies before the complete distribution of benefits to the Designated Beneficiary under this Agreement, then any benefits that would have been distributed to the Designated Beneficiary shall be distributed to the legal representative or the estate of the Designated Beneficiary. 11. Administration. The authority to manage and control the -------------- operation and administration of this Agreement shall be vested in the Committee, and the Committee shall have all powers with respect to this Agreement as it has with respect to the Plan. Any interpretation of the Agreement by the Committee and any decision made by it with respect to the Agreement is final and binding on all persons. 12. Not an Employment Contract. This Agreement will not -------------------------- confer on the Participant any right with respect to continuance of employment or other service with the Company or any Subsidiary, nor will it interfere in any way with any right the Company or any Subsidiary would otherwise have to terminate or modify the terms of such Participant's employment or other service at any time. 13. Amendment. This Agreement may be amended by written --------- agreement of the Participant and the Company, without the consent of any other person. 14. Entire Agreement. This Agreement sets forth the entire ---------------- agreement, and supersedes all other agreements and understandings, whether oral or written, by and between the parties relating to the subject matter hereof. IN WITNESS WHEREOF, the Participant has executed this Agreement, and the Company has caused these presents to be executed in its name and on its behalf, all as of the Grant Date. Participant ---------------------------------- Gardner Denver, Inc. By: ------------------------------- Its: ------------------------------ - 4 - EX-13.0 6 ex13.txt PORTIONS OF ANNUAL REPORT Exhibit 13.0 12 2001 Gardner Denver Annual Report financial history - ------------------------------------------------------------------------------ (dollars in thousands, except per share amounts)
Year ended December 31, -------------------------------------------------------------------- 2001 2000 1999 1998 1997 - ------------------------------------------------------------------------------------------------------------------ INCOME STATEMENT DATA: Revenues $419,770 379,358 327,067 386,859 293,134 Costs and Expenses: Cost of sales (excluding depreciation and amortization) 294,249 268,290 226,550 256,936 194,438 Depreciation and amortization 17,567 15,881 14,222 12,978 9,662 Selling and administrative expenses 69,678 59,784 53,080 52,986 39,731 Interest expense 6,796 7,669 5,934 4,849 3,937 Other income, net (3,203) (2,160) (1,876) (784) (785) - ------------------------------------------------------------------------------------------------------------------ 385,087 349,464 297,910 326,965 246,983 - ------------------------------------------------------------------------------------------------------------------ Income before income taxes 34,683 29,894 29,157 59,894 46,151 Provision for income taxes 12,659 11,210 11,109 23,089 18,500 - ------------------------------------------------------------------------------------------------------------------ Net income $ 22,024 18,684 18,048 36,805 27,651 ================================================================================================================== Basic earnings per share $ 1.42 1.22 1.20 2.29 1.84 ================================================================================================================== Diluted earnings per share $ 1.40 1.21 1.18 2.22 1.74 ================================================================================================================== December 31, -------------------------------------------------------------------- 2001 2000 1999 1998 1997 - ------------------------------------------------------------------------------------------------------------------ BALANCE SHEET DATA: Total assets $488,688 403,881 379,419 342,130 268,269 Long-term debt (excluding current maturities) 160,230 115,808 114,200 81,058 51,227 Other long-term obligations 45,153 48,682 53,001 55,128 56,237 Stockholders' equity 198,728 171,148 152,609 142,686 103,611 ================================================================================================================== This Income Statement and Balance Sheet Data should be read in conjunction with Management's Discussion and Analysis and the Consolidated Financial Statements and notes thereto.
2001 Gardner Denver Annual Report 13 management's discussion and analysis - ------------------------------------------------------------------------------ The following discussion should be read in conjunction with the Consolidated Financial Statements and notes thereto. Overview The Company is organized based on the products and services it offers. Under this organizational structure, the Company has three operating divisions: Compressor, Blower and Pump. These divisions comprise two reportable segments, Compressed Air Products and Pump Products. The Compressor and Blower Divisions are aggregated into one reportable segment (Compressed Air Products) since the long-term financial performance of these businesses are affected by similar economic conditions, coupled with the similar nature of their products, manufacturing processes and other business characteristics. The Pump Products segment was formerly the Petroleum Products segment. The name was changed in 2001 due to the inclusion of the Company's water jetting operations within this segment (and the Pump Division), which expanded its scope beyond petroleum-related products. The Company's water jetting operations were previously included in the Compressed Air Products segment. Prior period segment information has been restated to conform with the current year presentation. In the Compressed Air Products segment, the Company designs, manufactures, markets and services the following products and related aftermarket parts for industrial and commercial applications: rotary screw, reciprocating, sliding vane and centrifugal compressors; and positive displacement and centrifugal blowers. The primary customers and applications for Gardner Denver's compressed air products are durable and non-durable goods manufacturers; process industries such as petroleum, primary metals, pharmaceuticals, food and paper; original equipment manufacturers; manufacturers of carpet cleaning equipment, pneumatic conveying equipment and dry bulk trailers; wastewater treatment facilities; automotive service centers; and niche applications such as polyethylene terephthalate ("PET") bottle blowing, breathing air equipment and compressed natural gas. Revenues of the Compressed Air Products segment constituted approximately 73% of total revenues in 2001. In the Pump Products segment, the Company designs, manufactures, markets and services a diverse group of pumps, water jetting systems and related aftermarket parts used in oil and natural gas production, well servicing and drilling, and industrial cleaning and maintenance. Typical applications for pumps include oil transfer, saltwater disposal, ammine pumping for gas processing, enhanced oil recovery, hydraulic power and other liquid transfer applications. Applications for water jetting systems include runway and shiphull cleaning, concrete demolition and metal surface preparation. Revenues of the Pump Products segment constituted approximately 27% of total revenues in 2001. The Company sells its products through independent distributors, sales representatives and directly to original equipment manufacturers, engineering firms and end users. In September 2001, the Company acquired Hoffman Air and Filtration Systems ("Hoffman") and Hamworthy Belliss & Morcom ("Belliss & Morcom"). Hoffman, headquartered in Syracuse, New York, manufactures and distributes multistage centrifugal blowers and vacuum systems, primarily for wastewater treatment and industrial applications. The acquisition of Hoffman expands Gardner Denver's product offering and distribution capabilities and enhances its position as a leading international supplier of centrifugal products to the air and gas handling industry. Belliss & Morcom, headquartered in Gloucester, England, manufactures and distributes reciprocating air compressors used for a variety of niche applications, such as PET bottle blowing, breathing air equipment and compressed natural gas. The acquisition of Belliss & Morcom broadens the Company's range of product offerings, strengthens its distribution and service networks and increases its participation in sales of products with applications that have the potential to grow faster than the overall industrial economy. The Company acquired CRS Power Flow, Inc. ("CRS") in July 2000 and Jetting Systems & Accessories, Inc. ("JSA") in April 2000. CRS and JSA were located in Houston, Texas, and both manufactured aftermarket products for the water jetting industry. These two acquisitions complemented the Company's product offering for the water jetting market and further leveraged Gardner Denver's commitment to being a full- service provider in the water jetting industry. During 2001, these businesses were merged into Gardner Denver Water Jetting Systems and are now operating at one consolidated facility in Houston, Texas. In January 2000, the Company acquired Invincible Airflow Systems, Co. ("Invincible"). Invincible, located in Baltic, Ohio, manufactures single and fabricated multistage centrifugal blowers and engineered vacuum systems. The acquisition of Invincible extended Gardner Denver's product offering for the industrial cleaning market and introduced the Company's centrifugal blowers to new markets. In October 1999, the Company acquired Air Relief, Inc. ("Air Relief"). Air Relief, located in Mayfield, Kentucky, is an independent provider of replacement parts and service for centrifugal compressors. Air Relief enhanced Gardner Denver's ability to penetrate the centrifugal compressor market by adding key centrifugal compressor engineering, assembly, sales and service capabilities. In April 1999, the Company acquired Allen-Stuart Equipment Co., Inc. ("Allen-Stuart"). Allen-Stuart, located in Houston, Texas, designs and fabricates custom-engineered packages for compressor and blower equipment in air and gas applications. Allen-Stuart serves a wide variety of industrial markets, including petrochemical, power generation, oil and natural gas production and refining. The addition of Allen-Stuart enhanced Gardner Denver's ability to supply engineered packages, incorporating the wide range of compressor and blower products manufactured by Gardner Denver. It also enabled Gardner Denver to establish a service center near key Southwestern customers. Also in April 1999, the Company acquired Butterworth Jetting Systems, Inc. ("Butterworth"). Butterworth, also located in Houston, Texas, is a manufacturer of water jet pumps and systems serving the industrial cleaning and maintenance market. Applications in this market include runway and shiphull cleaning, concrete demolition and metal surface preparation. This acquisition, which was renamed Gardner Denver Water Jetting Systems, enabled Gardner Denver to expand its position in the rapidly-growing water jet market. The Hoffman, Belliss & Morcom, Invincible, Air Relief and Allen-Stuart acquisitions are included in the Company's Compressed Air Products segment. The CRS, JSA and Butterworth acquisitions are 14 2001 Gardner Denver Annual Report management's discussion and analysis - ------------------------------------------------------------------------------ included in the Company's Pump Products segment. The acquisitions completed in 2001, 2000 and 1999 provide growth opportunities through synergistic product lines and domestic and international market penetration. The following table sets forth percentage relationships to revenues of certain income statement items for the years presented.
Year ended December 31, ----------------------------------- 2001 2000 1999 - ------------------------------------------------------------------------------------ REVENUES 100.0% 100.0 100.0 Costs and Expenses: Cost of sales (excluding depreciation and amortization) 70.1 70.7 69.3 Depreciation and amortization 4.2 4.2 4.4 Selling and administrative expenses 16.6 15.8 16.2 Interest expense 1.6 2.0 1.8 Other income, net (0.8) (0.6) (0.6) - ------------------------------------------------------------------------------------ 91.7 92.1 91.1 - ------------------------------------------------------------------------------------ Income before income taxes 8.3 7.9 8.9 Provision for income taxes 3.0 3.0 3.4 - ------------------------------------------------------------------------------------ NET INCOME 5.3% 4.9 5.5 ====================================================================================
Year ended December 31, 2001, compared with year ended December 31, 2000 Revenues Revenues increased $40.4 million (11%) to $419.8 million in 2001, compared to $379.4 million in 2000. Excluding incremental revenue from acquisitions completed since June 2000, which added $29.5 million to revenues in 2001, revenues increased $10.9 million (3%) as compared to 2000. Revenues in the Compressed Air Products segment increased slightly to $308.0 million in 2001, compared to $306.7 million in 2000. Excluding incremental revenue from acquisitions, revenues decreased $24.9 million (8%) due to a decline in the overall U.S. economy (exacerbated by the impact of the September 11th attack) which weakened demand for domestic rotary screw compressors and blowers. Unfavorable foreign currency exchange rates also contributed to the revenue reduction. These negative factors were partially offset by sales growth in European markets. Revenues in the Pump Products segment increased $39.1 million (54%) to $111.7 million in 2001, compared to $72.7 million in 2000. This increase resulted primarily from heightened demand for petroleum products, due to the continued high level of oil and natural gas prices from late 2000 through the first half of 2001. Incremental revenues from acquisitions completed since June 2000 also accounted for approximately $3.2 million of the revenue increase. Costs and Expenses Gross margin (defined as revenues less cost of sales) in 2001 increased $14.4 million (13%) to $125.5 million, from $111.1 million in 2000. This increase resulted primarily from the higher revenue volume and partially from an increase in the gross margin as a percentage of revenues (gross margin percentage). Gross margin percentage increased to 29.9% in 2001 from 29.3% in 2000, due to increased sales of higher margin drilling pumps and improved performance at well stimulation and water jetting production facilities, partially offset by unfavorable sales mix in the Compressed Air Products segment. In 2001, gross margin was enhanced $0.5 million as a result of the liquidation of LIFO inventory layers, compared to $0.7 million in 2000. Depreciation and amortization increased 11% to $17.6 million in 2001, compared to $15.9 million in 2000. This increase was due to ongoing capital expenditures and goodwill amortization associated with acquisitions completed prior to June 30, 2001. Depreciation and amortization expense, as a percentage of revenues, was 4.2% in both years. Selling and administrative expenses increased in 2001 by 17% to $69.7 million from $59.8 million for 2000. Excluding the impact of acquisitions, selling and administrative expenses increased $3.6 million (6%) from 2000 levels, primarily due to higher payroll and fringe benefit related expenses. As a percentage of revenues, selling and administrative expenses were 16.6% in 2001, compared to 15.8% in 2000. The increase in this ratio was attributable to the factors mentioned above, combined with the impact of acquisitions completed since June 2000, which in the aggregate have higher selling and administrative expenses relative to revenues than the Company's previously existing operations. Compressed Air Products' operating earnings (defined as revenues less cost of sales, depreciation and amortization, and selling and administrative expenses) decreased $8.8 million (28%) to $22.2 million, compared to $30.9 million in 2000. This decline was primarily attributable to decreased leverage of the segment's fixed and semi-fixed costs over a lower revenue base (excluding acquisitions) combined 2001 Gardner Denver Annual Report 15 - ------------------------------------------------------------------------------ with higher payroll and fringe benefit related expenses and an unfavorable sales mix. As a percentage of revenues, operating earnings declined to 7.2% in 2001, compared to 10.1% in 2000 as a result of the factors noted above. Operating earnings for the Pump Products segment increased $11.6 million to $16.1 million in 2001, a 261% increase from $4.5 million in 2000, primarily due to higher revenues. As a percentage of revenues, operating earnings for this segment increased to 14.4% in 2001, compared to 6.1% in 2000. This increase was primarily attributable to the positive impact of increased leverage of the segment's fixed and semi-fixed costs over a higher revenue base combined with improved operational performance at well stimulation and water jetting production facilities. Interest expense decreased $0.9 million (11%) to $6.8 million for 2001, compared to $7.7 million in 2000 due to lower average rates, partially offset by slightly higher average borrowings in 2001. The average interest rate for 2001 was 5.4%, compared to 6.3% for 2000. See Note 9 to the Consolidated Financial Statements for further information on the Company's borrowing arrangements. In 2001, other income, net includes approximately $2.1 million from litigation settlement proceeds and $0.5 million from interest income related to finalization of an income tax settlement with the Internal Revenue Service. Other income, net in 2000 includes a $1.0 million gain from litigation settlement proceeds, a $0.7 million gain from the sale of the Company's idle facility in Syracuse, New York, and a $1.5 million charge for expenses associated with an unconsummated acquisition. Excluding the impact of these non-recurring items, the majority of the remaining decline in other income is due to lower foreign currency transaction gains generated from U.S. dollar denominated cash and receivable balances of foreign subsidiaries in 2001, compared to 2000. Income Income before income taxes increased $4.8 million (16%) to $34.7 million in 2001 from $29.9 million in 2000. This improvement was due to increased leverage of the Pump Products segment's fixed and semi-fixed costs on higher revenue volume, the non-recurring items included in other income mentioned above, acquisitions and improved operational performance at the well stimulation and water jetting production facilities. These increases were partially offset by a decline in the Compressed Air Products segment's operating earnings. The provision for income taxes increased by $1.4 million to $12.7 million in 2001, compared to $11.2 million in 2000, as a result of higher income before taxes, partially offset by a lower overall effective tax rate. The Company's effective tax rate was 36.5% in 2001 compared to 37.5% in 2000. The lower effective tax rate in 2001 was primarily due to a higher proportion of income in countries with lower statutory income tax rates, increased savings from the Company's foreign sales corporation and the implementation of other tax strategies. Net income increased $3.3 million (18%) to $22.0 million ($1.40 diluted earnings per share) in 2001, compared to $18.7 million ($1.21 diluted earnings per share) in 2000. In 2001, net income included $0.3 million in after-tax LIFO income ($0.02 diluted earnings per share), compared with $0.4 million ($0.03 diluted earnings per share) in 2000. Excluding the after-tax benefit of LIFO income, net income increased primarily due to the factors that resulted in the increased income before taxes noted above. Net income from acquisitions completed since June 2000 was approximately $0.8 million ($0.05 diluted earnings per share) in 2001. Outlook Demand for petroleum pump products is primarily related to market expectations for oil and natural gas prices. Orders for pump products were $117.4 million in 2001, an increase of $39.2 million (50%), compared to $78.2 million in 2000. Order backlog for the Pump Products segment was $20.5 million at December 31, 2001, compared to $14.5 million as of December 31, 2000, representing a 41% increase. The increase in orders can primarily be attributed to the continued high level of oil and natural gas prices in late 2000 through the first half of 2001. However, recent order and backlog trends indicate a slowdown in this segment as oil and natural gas prices have fallen off their highs of late 2000. Future increases in demand for these products will likely be dependent upon oil and natural gas prices, which the Company cannot predict. In 2001, orders for compressed air products, including $25.8 million from acquisitions, were $296.0 million, compared to $301.7 million in 2000. Order backlog for the Compressed Air Products segment, including $22.5 million from acquisitions, was $58.7 million as of December 31, 2001, compared to $45.7 million as of December 31, 2000. Excluding acquisitions, the decreases in order activity in this segment are primarily the result of a slowing U.S. economy and unfavorable foreign currency rates, partially offset by growth in European markets. Because air is often used as a fourth utility in the manufacturing process, demand for compressed air products is generally correlated to manufacturing capacity utilization rates and the rate of change of industrial equipment production. These indicators have been relatively weak in both 2001 and 2000. Over longer time periods, demand also follows economic growth patterns indicated by the rates of change in the Gross Domestic Product, which has also slowed in the second half of 2001 and early 2002. As a result, orders for compressed air products are anticipated to remain flat or grow only modestly through at least the first half of 2002. The Company anticipates that the financial benefits of completing acquisition integration projects will enhance profitability in 2002. Based upon the current economic environment and activity levels in both reporting segments, the Company anticipates that diluted earnings per share will be approximately $1.40 to $1.60 in 2002. This projection includes the favorable impact related to the cessation of goodwill amortization, as prescribed in SFAS 142, "Goodwill and Other Intangible Assets," which should add approximately $0.24 to diluted earnings per share in 2002. When comparing the estimate for 2002 to 2001, it is important to note that earnings for 2001 were favorably impacted by other income items aggregating approximately $0.10 per share that are not expected to recur in 2002. Expenses for pension and other postretirement benefits are also expected to negatively impact diluted EPS in 2002 by nearly $0.10 per share compared to 2001, due to lower investment performance, lower interest rates and higher retiree medical costs. 16 2001 Gardner Denver Annual Report management's discussion and analysis - ------------------------------------------------------------------------------ Year ended December 31, 2000, compared with year ended December 31, 1999 Revenues Revenues increased $52.3 million (16%) to $379.4 million in 2000, compared to $327.1 million in 1999. Excluding incremental revenue from acquisitions completed since March 1999, which added $27.9 million in 2000, revenues increased $24.4 million (7%) as compared to 1999. Revenues in the Compressed Air Products segment, including $21.7 million from acquisitions, increased $17.6 million (6%) to $306.7 million in 2000, compared to $289.1 million in 1999. Excluding incremental revenue from acquisitions and the negative impact of unfavorable foreign currency exchange rates (3%), compressed air product revenues increased $3.7 million (1%) from 1999, due to increased sales of rotary screw and lower horsepower reciprocating compressors. The significant increase in the price of oil and natural gas in 1999 and 2000 caused an increase in demand for well servicing pumps and drilling pumps in 2000. As a result, revenues in the Pump Products segment increased $34.7 million (91%) to $72.7 million in 2000, compared to $38.0 million in 1999. Incremental revenue from acquisitions also accounted for $6.2 million (18%) of the increase. Costs and Expenses Gross margin in 2000 increased $10.6 million (11%) to $111.1 million, from $100.5 million in 1999. This increase resulted primarily from the higher revenue volume, offset partially by a decrease in the gross margin as a percentage of revenues. Gross margin percentage decreased to 29.3% in 2000 from 30.7% in 1999, principally attributable to an unfavorable sales mix (including a lower proportion of aftermarket products in both segments), increased manufacturing overhead spending and increased manufacturing variances on well servicing pumps and water jetting related products. In 2000, gross margin was enhanced $0.7 million as a result of the liquidation of LIFO inventory layers, compared to $0.4 million in 1999. Depreciation and amortization increased 12% to $15.9 million in 2000, compared to $14.2 million in 1999. The increase in depreciation and amortization expense was due to goodwill amortization associated with acquisitions and ongoing depreciation from capital programs to reduce costs, improve efficiency and expand capacity. Depreciation and amortization expense decreased as a percentage of revenues to 4.2% in 2000 from 4.4% in 1999, due to higher revenues. Selling and administrative expenses increased in 2000 by 13% to $59.8 million from $53.1 million for 1999. Excluding the impact of acquisitions, selling and administrative expenses increased $2.4 million (5%) from 1999 due to expenses stemming from the higher revenue volume such as commissions, payroll and customer service initiatives. As a percentage of revenues, selling and administrative expenses decreased to 15.8% in 2000 from 16.2% in 1999, due to higher revenues. Compressed Air Products' operating earnings were $30.9 million in both 2000 and 1999. Operating earnings were flat despite the increase in revenues due to an unfavorable sales mix, increased manufacturing overhead spending and increased commissions, payroll and customer service initiatives, as noted above. As a percentage of revenues, operating earnings declined to 10.1% in 2000, compared to 10.7% in 1999. This decrease was attributable to the factors noted above and the effect of operations acquired during the period that generated lower operating earnings (after amortization of goodwill associated with the acquisitions) as a percentage of revenues, than the Company's previously existing operations. Operating earnings for the Pump Products segment increased $2.1 million to $4.5 million in 2000, an 89% increase from $2.4 million in 1999, due to higher revenues. As a percentage of revenues, operating earnings for this segment declined slightly to 6.1% in 2000, compared to 6.2% in 1999. The positive impact from leveraging the segment's fixed and semi- fixed costs over a higher revenue base was offset by an unfavorable sales mix (including an increased proportion of well servicing and stimulation pumps as opposed to higher margin replacement parts) and increased manufacturing variances on well servicing pumps and water jetting related products. Interest expense increased $1.7 million (29%) to $7.7 million for 2000, compared to $5.9 million in 1999 due primarily to higher average debt outstanding in 2000, combined with higher average interest rates. The average interest rate for 2000 was 6.3%, compared to 5.9% for 1999. See Note 9 to the Consolidated Financial Statements for further information on the Company's borrowing arrangements. In 2000, other income, net includes $1.0 million as a result of litigation settlement proceeds received in the fourth quarter, a $0.7 million gain from the first quarter sale of the Company's idle facility in Syracuse, New York, and a fourth quarter $1.5 million charge to write-off expenses associated with an unconsummated acquisition. The increase in other income, net from 1999 to 2000 is principally the result of these three items. Income Income before income taxes increased $0.7 million (3%) to $29.9 million in 2000 from $29.2 million in 1999. This increase was primarily the result of higher revenues partially offset by the lower gross margin percentage and increased selling and administrative expenses in 2000, as discussed above. The provision for income taxes increased by $0.1 million to $11.2 million in 2000, compared to $11.1 million in 1999, as a result of the higher income before taxes, partially offset by a lower overall effective tax rate. The Company's effective tax rate was 37.5% in 2000, compared to 38.1% in 1999. The lower effective tax rate in 2000 was primarily due to increased savings from the Company's foreign sales corporation and the implementation of other tax strategies. Net income increased $0.6 million (4%) to $18.7 million ($1.21 diluted earnings per share) in 2000, compared to $18.0 million ($1.18 diluted earnings per share) in 1999. In 2000, net income included $0.4 million in after-tax LIFO income ($0.03 diluted earnings per share), compared with $0.3 million ($0.02 diluted earnings per share) in 1999. Excluding the after-tax benefit of LIFO income, net income increased primarily due to the factors that resulted in the increased income before taxes noted above. Acquisitions completed since the beginning of 1999 were slightly accretive to the Company's net income in 2000. 2001 Gardner Denver Annual Report 17 - ------------------------------------------------------------------------------ Liquidity and Capital Resources Operating Working Capital During 2001, operating working capital (defined as receivables plus inventories, less accounts payable and accrued liabilities) increased $6.1 million. Excluding acquisitions and the impact of changes in foreign currency exchange rates, operating working capital declined $3.0 million due to decreases in receivables and inventory, partially offset by a decrease in accounts payable and accrued liabilities. These changes in receivables, inventory and accounts payable and accrued liabilities were a direct result of the decreased sales volume in the fourth quarter of 2001 (excluding acquisitions) in the Compressed Air Products segment, partially offset by the increased sales volume in the Pump Products segment in the fourth quarter of 2001. Cash Flows During 2001, the Company generated cash flows from operations totaling $44.9 million, an increase of $13.8 million (44%) compared to 2000. This increase was primarily the result of a more favorable change in operating working capital and higher net income in 2001. During 2001, the Company had net borrowings of $48.8 million under its credit facilities. These funds, along with cash generated from operating activities, were used to fund acquisitions valued at $82.9 million (net of cash) and capital projects. The cash flows provided by operating and financing activities and used for investing activities, combined with the effect of changes in foreign currency exchange rates, resulted in a net cash decrease of $0.3 million during 2001. Capital Expenditures and Commitments Capital projects designed to reduce costs and increase production capacity, operating efficiency and product quality resulted in expenditures of $11.5 million in 2001, compared to $13.5 million in 2000. This decrease was primarily due to the timing of capital projects. Commitments for capital expenditures at December 31, 2001 totaled $3.5 million. Capital expenditures related to environmental projects have not been significant in the past and are not expected to be significant in the foreseeable future. In October 1998, Gardner Denver's Board of Directors authorized the repurchase of up to 1,600,000 shares of the Company's common stock to be used for general corporate purposes. Approximately 200,000 shares remain available for repurchase under this program. The Company has also established a Stock Repurchase Program for its executive officers to provide a means for them to sell Gardner Denver common stock and obtain sufficient funds to meet alternative minimum tax obligations which arise from the exercise of incentive stock options. The Gardner Denver Board has authorized up to 400,000 shares for repurchase under this program, and of this amount, approximately 200,000 shares remain available for repurchase. During 2001, no shares were repurchased under these repurchase programs. As of December 31, 2001, a total of 1,572,542 shares have been repurchased at a cost of $22.8 million under both repurchase programs. In 2001, the Company also acquired 49,570 shares of its common stock, valued at $1.1 million, which were tendered for the exercise of stock options. Liquidity The Company has a Revolving Line of Credit Agreement with an aggregate $125 million borrowing capacity (the "Credit Line") and an Unsecured Senior Note Agreement. Effective September 10, 2001, these agreements were amended to allow for the Interim Credit Agreement discussed below. On December 31, 2001, the Credit Line had an outstanding balance of $84.0 million, leaving $41.0 million available for future use or to issue as letters of credit. The Credit Line requires no principal payments during the term of the agreement, which expires in January 2003. On September 10, 2001, the Company borrowed $50.0 million under an Interim Credit Agreement, most of which was used to complete the Hoffman acquisition. The Interim Credit Agreement expires in March 2002. On March 6, 2002, the Company amended and restated the Credit Line, increasing the aggregate borrowing capacity to $150 million and extending the maturity date to March 6, 2005. Subject to approval by lenders holding more than 75% of the debt, the Company may request up to two, one-year extensions. The total debt balance will be due upon final maturity. The amended and restated agreement also provided for an additional $50.0 million Term Loan. Proceeds from the Term Loan were used to retire debt outstanding under the Interim Credit Agreement. The five-year term loan requires principal payments of $2.5 million in years one and two, and $15.0 million in years three through five. Other terms and conditions of the Term Loan are similar to those of the Credit Line. The long-term classification and maturities of the Credit Line and the Interim Credit Agreement reflect the completion of this refinancing. The Company's borrowing arrangements are generally unsecured and permit certain investments and dividend payments. There are no material restrictions on the Company as a result of its credit arrangements, other than customary covenants regarding certain earnings, liquidity and capital ratios. Management currently expects the Company's cash flows in 2002 to be sufficient to fund its scheduled debt service and provide required resources for working capital and capital investments. Market Risk The Company is exposed to market risk related to changes in interest rates as well as European and other foreign currency exchange rates, and selectively uses derivative financial instruments, including forwards and swaps, to manage these risks. The Company does not hold derivatives for trading purposes. The value of market-risk sensitive derivatives and other financial instruments is subject to change as a result of movements in market rates and prices. Sensitivity analysis is one technique used to evaluate these impacts. Based on a hypothetical ten percent change in interest rates or ten percent weakening in the U.S. Dollar across relevant foreign currencies, principally the Euro and Pound Sterling, the potential losses in future earnings, fair value and cash flows are not material to the Company. 18 2001 Gardner Denver Annual Report management's discussion and analysis - ------------------------------------------------------------------------------- New Accounting Standards In July 2001, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 141 ("SFAS 141"), "Business Combinations," and No. 142 ("SFAS 142"), "Goodwill and Other Intangible Assets." SFAS No. 141 requires that all business combinations be accounted for using the purchase method of accounting and requires separate recognition of intangible assets that meet certain criteria. This statement applies to all business combinations completed after June 30, 2001. The adoption of SFAS 141 did not have a significant impact on the Company's financial statements. SFAS 142 requires that an intangible asset that is acquired shall be initially recognized and measured based on its fair value. This statement also provides that goodwill should not be amortized, but shall be tested for impairment annually, or more frequently if circumstances indicate potential impairment, through a comparison of fair value to its carrying amount. SFAS No. 142 is effective for fiscal periods beginning after December 15, 2001. As a result of this new standard, the Company continued to amortize goodwill which existed prior to June 30, 2001, through December 31, 2001, at which time amortization ceased. The Company did not record any amortization expense related to the goodwill recognized in the Belliss & Morcom and Hoffman acquisitions. During the first half of 2002, the Company will perform the first of the required impairment tests of goodwill. Management is currently reviewing the new standard and evaluating the impact on its future consolidated financial statements and accounting policies and practices. Amortization of goodwill for 2001 totaled $4.4 million. In August 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations" and in October 2001 issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." These standards will be adopted by the Company on January 1, 2003 and January 1, 2002, respectively. Management believes that the adoption of SFAS No. 143 and SFAS No. 144 will not have a material impact on its future consolidated financial statements. Critical Accounting Policies Management has evaluated the accounting policies used in the preparation of the Company's financial statements and related notes and believes those policies to be reasonable and appropriate. Certain of these accounting policies require the application of significant judgment by management in selecting the appropriate assumptions for calculating financial estimates. By their nature, these judgments are subject to an inherent degree of uncertainty. These judgments are based on historical experience, trends in the industry, information provided by customers and information available from other outside sources, as appropriate. Management believes that the most critical accounting policies applied in preparation of the Company's financial statements relate to inventories, warranties, pensions and other postretirement benefits. Management also believes that the amounts recorded in the accompanying financial statements related to these areas are based on their best estimates and judgments, although actual outcomes could differ from these estimates. Cautionary Statements Regarding Forward-Looking Statements All of the statements in this Annual Report to Stockholders, other than historical facts, are forward-looking statements made in reliance upon the safe harbor of the Private Securities Litigation Reform Act of 1995, including, without limitation, statements made in the Chairman's Letter, the remainder of the narrative/non-financial portions of this Annual Report and in Management's Discussion and Analysis, particularly under the caption "Outlook." As a general matter, forward-looking statements are those focused upon anticipated events or trends and expectations and beliefs relating to matters that are not historical in nature. Such forward-looking statements are subject to uncertainties and factors relating to Gardner Denver's operations and business environment, all of which are difficult to predict and many of which are beyond the control of the Company. These uncertainties and factors could cause actual results to differ materially from those matters expressed in or implied by such forward-looking statements. The following uncertainties and factors, among others, could affect future performance and cause actual results to differ materially from those expressed in or implied by forward-looking statements: the ability to identify, negotiate and complete future acquisitions; the speed with which the Company is able to integrate its recent acquisitions and realize the related financial benefit; the domestic and/or worldwide level of oil and natural gas prices and oil and gas drilling and production, which affect demand for the Company's petroleum products; changes in domestic and/or worldwide industrial production and industrial capacity utilization rates, which affect demand for the Company's compressed air products; pricing of Gardner Denver products; the degree to which the Company is able to penetrate niche markets; the ability to maintain and to enter into key purchasing and supply relationships; the ability to attract and retain quality management personnel; and the continued successful implementation of cost reduction efforts. 2001 Gardner Denver Annual Report 19 report of management - ----------------------------------------------------------------------------- The Company's management is responsible for the integrity and accuracy of the financial statements. Management believes that the financial statements have been prepared in conformity with appropriate accounting principles generally accepted in the United States. In preparing the financial statements, management makes informed judgments and estimates, where necessary, to reflect the expected effects of events and transactions that have not been completed. In meeting its responsibility for the reliability of the financial statements, management relies on a system of internal accounting controls. This system is designed to provide reasonable assurance that assets are safeguarded and transactions are executed in accordance with management's authorization and recorded properly to permit the preparation of financial statements in accordance with accounting principles generally accepted in the United States. The design of this system recognizes that errors or irregularities may occur and that estimates and judgments are required to assess the relative cost and expected benefits of the controls. Management believes that the Company's accounting controls provide reasonable assurance that errors or irregularities that could be material to the financial statements are prevented or would be detected within a timely period. The Audit and Finance Committee of the Board of Directors (the "Committee"), which is comprised solely of Directors who are not employees of the Company, is responsible for monitoring the Company's accounting and reporting practices. The Committee meets with management periodically to review its activities and ensure that it is properly discharging its responsibilities. The Committee also meets periodically with the independent public accountants, who have free access to the Committee and the Board of Directors, to discuss internal accounting control and auditing, financial reporting and tax matters. The independent public accountants are engaged to express an opinion on the Company's consolidated financial statements. Their opinion is based on procedures which they believe to be sufficient to provide reasonable assurance that the financial statements contain no material errors. /s/ Ross J. Centanni /s/ Philip R. Roth Ross J. Centanni Philip R. Roth Chairman, President and Vice President, Finance and Chief Executive Officer Chief Financial Officer report of independent public accountants - ----------------------------------------------------------------------------- To the Board of Directors and Stockholders of Gardner Denver, Inc. We have audited the accompanying consolidated balance sheets of Gardner Denver, Inc. (a Delaware corporation) and subsidiaries as of December 31, 2001 and 2000, and the related consolidated statements of operations, stockholders' equity and cash flows for each of the three years in the period ended December 31, 2001. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Gardner Denver, Inc. and subsidiaries as of December 31, 2001 and 2000, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2001, in conformity with accounting principles generally accepted in the United States. /s/ Arthur Andersen LLP St. Louis, Missouri February 6, 2002 (except with respect to the matter discussed in Note 9, as to which the date is March 6, 2002) 20 2001 Gardner Denver Annual Report consolidated statements of operations - ----------------------------------------------------------------------------- (dollars in thousands, except per share amounts)
Year ended December 31, -------------------------------------- 2001 2000 1999 - ------------------------------------------------------------------------------------------ Revenues $419,770 379,358 327,067 Costs and Expenses: Cost of sales (excluding depreciation and amortization) 294,249 268,290 226,550 Depreciation and amortization 17,567 15,881 14,222 Selling and administrative expenses 69,678 59,784 53,080 Interest expense 6,796 7,669 5,934 Other income, net (3,203) (2,160) (1,876) - ------------------------------------------------------------------------------------------ 385,087 349,464 297,910 - ------------------------------------------------------------------------------------------ Income before income taxes 34,683 29,894 29,157 Provision for income taxes 12,659 11,210 11,109 - ------------------------------------------------------------------------------------------ Net income $ 22,024 18,684 18,048 ========================================================================================== Basic earnings per share $ 1.42 1.22 1.20 ========================================================================================== Diluted earnings per share $ 1.40 1.21 1.18 ========================================================================================== The accompanying notes are an integral part of these statements.
2001 Gardner Denver Annual Report 21 consolidated balance sheets - ------------------------------------------------------------------------------ (dollars in thousands, except per share amounts)
December 31, ------------------------ 2001 2000 - --------------------------------------------------------------------------------------- ASSETS Current assets: Cash and equivalents $ 29,980 30,239 Receivables (net of allowances of $5,229 in 2001 and $5,169 in 2000) 85,538 79,448 Inventories, net 76,650 61,942 Deferred income taxes 4,956 4,887 Other current assets 4,011 3,400 - --------------------------------------------------------------------------------------- Total current assets 201,135 179,916 - --------------------------------------------------------------------------------------- Property, plant and equipment, net 74,097 67,104 Intangibles, net 208,837 151,579 Deferred income taxes 2,093 2,855 Other assets 2,526 2,427 - --------------------------------------------------------------------------------------- Total assets $488,688 403,881 ======================================================================================= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Short-term borrowings and current maturities of long-term debt $ 7,375 5,781 Accounts payable and accrued liabilities 77,202 62,462 - --------------------------------------------------------------------------------------- Total current liabilities 84,577 68,243 - --------------------------------------------------------------------------------------- Long-term debt, less current maturities 160,230 115,808 Postretirement benefits other than pensions 36,890 39,496 Other liabilities 8,263 9,186 - --------------------------------------------------------------------------------------- Total liabilities 289,960 232,733 - --------------------------------------------------------------------------------------- Stockholders' equity: Common stock, $0.01 par value; 50,000,000 shares authorized; 15,690,607 and 15,371,491 shares outstanding in 2001 and 2000, respectively 174 170 Capital in excess of par value 166,262 160,343 Treasury stock at cost, 1,707,611 and 1,658,041 shares in 2001 and 2000, respectively (25,602) (24,508) Retained earnings 62,062 40,038 Accumulated other comprehensive loss (4,168) (4,895) - --------------------------------------------------------------------------------------- Total stockholders' equity 198,728 171,148 - --------------------------------------------------------------------------------------- Total liabilities and stockholders' equity $488,688 403,881 ======================================================================================= The accompanying notes are an integral part of these statements.
22 2001 Gardner Denver Annual Report consolidated statements of stockholders' equity - ------------------------------------------------------------------------------ (dollars in thousands)
Accumulated Capital In Other Total Common Excess of Treasury Retained Comprehensive Stockholders' Comprehensive Stock Par Value Stock Earnings Loss Equity Income - ----------------------------------------------------------------------------------------------------------------------------------- Balance January 1, 1999 $163 153,656 (12,259) 3,306 (2,180) 142,686 ===================================================================================================================== Stock issued for benefit plans and options 4 3,711 3,715 Treasury stock (11,282) (11,282) Net income 18,048 18,048 18,048 Foreign currency translation adjustments (558) (558) (558) - ----------------------------------------------------------------------------------------------------------------------------------- 17,490 ====== Balance December 31, 1999 $167 157,367 (23,541) 21,354 (2,738) 152,609 ===================================================================================================================== Stock issued for benefit plans and options 3 2,976 2,979 Treasury stock (967) (967) Net income 18,684 18,684 18,684 Foreign currency translation adjustments (2,157) (2,157) (2,157) - ----------------------------------------------------------------------------------------------------------------------------------- 16,527 ====== Balance December 31, 2000 $170 160,343 (24,508) 40,038 (4,895) 171,148 ===================================================================================================================== Stock issued for benefit plans and options 4 5,919 5,923 Treasury stock (1,094) (1,094) Net income 22,024 22,024 22,024 Foreign currency translation adjustments 727 727 727 - ----------------------------------------------------------------------------------------------------------------------------------- 22,751 ====== Balance December 31, 2001 $174 166,262 (25,602) 62,062 (4,168) 198,728 ===================================================================================================================== The accompanying notes are an integral part of these statements.
2001 Gardner Denver Annual Report 23 consolidated statements of cash flows - ------------------------------------------------------------------------------ (dollars in thousands)
Year ended December 31, -------------------------------- 2001 2000 1999 - ------------------------------------------------------------------------------------------------------ Cash flows from operating activities: Net income $ 22,024 18,684 18,048 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 17,567 15,881 14,222 Net loss/(gain) on asset dispositions 46 (917) - LIFO liquidation income (502) (683) (407) Stock issued for employee benefit plans 2,471 2,071 2,261 Deferred income taxes 615 1,772 6,157 Changes in assets and liabilities: Receivables 6,105 (5,987) 1,437 Inventories 1,200 1,627 (1,977) Accounts payable and accrued liabilities (4,294) 3,164 (8,330) Other assets and liabilities, net (339) (4,484) (4,792) - ------------------------------------------------------------------------------------------------------ Net cash provided by operating activities 44,893 31,128 26,619 - ------------------------------------------------------------------------------------------------------ Cash flows from investing activities: Business acquisitions, net of cash acquired (82,907) (20,323) (41,003) Capital expenditures (11,524) (13,549) (11,941) Disposals of property, plant and equipment 97 1,125 728 Foreign currency hedging transactions (31) 3,416 1,749 - ------------------------------------------------------------------------------------------------------ Net cash used in investing activities (94,365) (29,331) (50,467) - ------------------------------------------------------------------------------------------------------ Cash flows from financing activities: Principal payments on long-term debt (90,151) (59,342) (24,554) Proceeds from long-term borrowings 139,000 61,528 62,103 Purchase of treasury stock (1,094) (967) (11,282) Proceeds from stock options 3,452 908 1,454 Other (1,161) (492) - - ------------------------------------------------------------------------------------------------------ Net cash provided by financing activities 50,046 1,635 27,721 - ------------------------------------------------------------------------------------------------------ Effect of exchange rate changes on cash and equivalents (833) (510) (1,030) - ------------------------------------------------------------------------------------------------------ (Decrease)/increase in cash and equivalents (259) 2,922 2,843 Cash and equivalents, beginning of year 30,239 27,317 24,474 - ------------------------------------------------------------------------------------------------------ Cash and equivalents, end of year $ 29,980 30,239 27,317 ====================================================================================================== The accompanying notes are an integral part of these statements.
24 2001 Gardner Denver Annual Report notes to consolidated financial statements - ------------------------------------------------------------------------------ (dollars in thousands, except per share amounts) Note 1: Summary of Significant Accounting Policies Basis of Presentation The accompanying consolidated financial statements reflect the operations of Gardner Denver, Inc. ("Gardner Denver" or the "Company") and its subsidiaries. Certain prior year amounts have been reclassified to conform with current year presentation. Principles of Consolidation The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany transactions and accounts have been eliminated. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the 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. Foreign Currency Translation Assets and liabilities of the Company's foreign operations are translated at the exchange rate in effect at the balance sheet date, while revenues and expenses are translated at average rates prevailing during the year. Translation adjustments are reported in accumulated other comprehensive loss, a separate component of stockholders' equity. Revenue Recognition The Company recognizes revenues when goods are shipped to the customer. The Company has recorded outbound freight billed to customers as revenues and outbound freight expenses in cost of sales. Cash Equivalents Cash equivalents are highly liquid investments (valued at cost, which approximates fair value) acquired with an original maturity of three months or less. Inventories Inventories, which consist of materials, labor and manufacturing overhead, are carried at the lower of cost or market value. As of December 31, 2001, approximately two-thirds of the Company's inventory is accounted for on a first-in, first-out (FIFO) basis with the remainder accounted for on a last-in, first-out (LIFO) basis. Property, Plant and Equipment Property, plant and equipment are carried at cost. Depreciation is provided using the straight-line method over the estimated useful lives of the assets: buildings - 10 to 45 years; machinery and equipment - 10 to 12 years; office furniture and equipment - 3 to 10 years; and tooling, dies, patterns, etc. - 3 to 7 years. Intangibles Intangibles consist primarily of goodwill related to the various acquisitions completed by the Company. Goodwill for acquisitions prior to June 30, 2001 has been amortized on a straight-line basis over the period estimated to be benefited. In accordance with Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets," the Company has not amortized goodwill related to its acquisitions completed after June 30, 2001. The Company reviews long- lived assets, including goodwill and other intangibles, for impairment whenever conditions indicate that carrying value of the assets may not be fully recoverable. Such impairment tests are based on a comparison of undiscounted cash flows to the recorded value of the asset. If impairment is indicated, the asset value is written down to its fair market value. Income Taxes The Company has determined tax expense and other deferred tax information based on the liability method. Deferred income taxes are provided to reflect temporary differences between financial and tax reporting. Research and Development Costs for research and development are expensed as incurred and were $2,476, $3,045 and $2,754 for the years ended December 31, 2001, 2000 and 1999, respectively. Financial Instruments Included in the 2000 consolidated statement of cash flows are the proceeds received upon settlement of a foreign currency hedging transaction. This foreign currency forward contract, denominated in Finnish Markka, was used to hedge the foreign exchange translation risk associated with the Company's investment in its Finnish subsidiary, Gardner Denver Oy. The contract was marked to market and both unrealized and realized gains were included as a component of accumulated other comprehensive loss in stockholders' equity in 2000. There were no off- balance sheet derivative financial instruments as of December 31, 2001 or 2000. Comprehensive Income Items impacting the Company's comprehensive income, but not included in net income, consist of translation adjustments, including realized and unrealized gains and losses (net of income taxes) on the foreign currency hedge of the Company's investment in a foreign subsidiary. - ------------------------------------------------------------------------------ Note 2: Acquisitions During 2001, the Company's Compressed Air Products segment completed two acquisitions. Effective September 10, 2001, the Company acquired certain assets and stock of Hoffman Air and Filtration Systems ("Hoffman"). Hoffman, headquartered in Syracuse, New York, manufactures and distributes multistage centrifugal blowers and vacuum systems, primarily for wastewater treatment and industrial applications. Effective September 1, 2001, the Company also acquired certain assets and stock of the Hamworthy Belliss & 2001 Gardner Denver Annual Report 25 - ------------------------------------------------------------------------------ Morcom compressor business ("Belliss & Morcom"). Belliss & Morcom is headquartered in Gloucester, England and manufactures and distributes lubricated and oil-free reciprocating air compressors for a variety of applications. The aggregate purchase price, net of cash acquired, was approximately $83 million for these acquisitions. There are no additional contingent payments or commitments related to these acquisitions. The purchase price of each acquisition has been allocated primarily to receivables ($13,698); inventory ($15,765); property, plant and equipment ($7,509); intangible assets ($63,620); and accounts payable and accrued liabilities ($19,518), based on their estimated fair values at the date of acquisition. The following table summarizes the preliminary intangible asset values assigned for the Hoffman and Belliss & Morcom acquisitions:
December 31, 2001 -------------------------------- Gross Carrying Accumulated Amount Amortization - ------------------------------------------------------------------------ Amortized intangible assets: Customer lists and relationships $ 5,000 $(111) Other 625 (142) Unamortized intangible assets: Goodwill $42,000 Trademarks 11,850 Other 4,145 ========================================================================
Substantially all of the goodwill recorded as a result of these acquisitions is anticipated to be deductible for tax purposes. The following table summarizes supplemental pro forma information as if the Hoffman and Belliss & Morcom acquisitions had been completed on January 1, 2000:
Year ended December 31, (Unaudited) ----------------------- 2001 2000 - --------------------------------------------------------------------- Revenues $481,285 477,923 Net income 23,618 22,878 Diluted earnings per share $ 1.50 1.48 =====================================================================
The unaudited pro forma information has been presented for comparative purposes and does not purport to be indicative of the consolidated results of operations had these transactions been completed as of the assumed date or which may be attained in the future. During 2000, the Company completed three acquisitions. Effective July 1, 2000, the Company acquired 100% of the issued and outstanding stock of CRS Power Flow, Inc. ("CRS"). On April 5, 2000, the Company acquired 100% of the issued and outstanding stock of Jetting Systems & Accessories, Inc. ("JSA"). CRS and JSA are both located in Houston, Texas. On January 1, 2000, the Company acquired substantially all of the assets and assumed certain agreed upon liabilities of Invincible Airflow Systems, Co., located in Baltic, Ohio. The aggregate purchase price of these acquisitions was approximately $20 million. The purchase price of each acquisition has been allocated primarily to receivables, inventory and property, plant and equipment, based on their respective fair values at the date of acquisition and resulted in aggregate costs in excess of net assets acquired of approximately $15 million. During 1999, the Company completed three acquisitions. On October 25, 1999, the Company purchased 100% of the issued and outstanding stock of Air Relief, Inc., located in Mayfield, Kentucky. On April 5, 1999, the Company purchased 100% of the issued and outstanding stock of Butterworth Jetting Systems, Inc., located in Houston, Texas. On April 1, 1999, the Company purchased 100% of the issued and outstanding stock of Allen-Stuart Equipment Co., Inc., also located in Houston, Texas. The aggregate purchase price for these three acquisitions was approximately $42 million (including contingent consideration paid in 2000) and was allocated to assets and liabilities based on their respective fair values at the dates of acquisition. This allocation resulted in aggregate costs in excess of net assets acquired of approximately $31 million. All acquisitions have been accounted for by the purchase method and, accordingly, their results are included in the Company's consolidated financial statements from the respective dates of acquisition. Under the purchase method, the purchase price is allocated based on the fair value of assets received and liabilities assumed as of the acquisition date. The purchase price allocations for Hoffman and Belliss & Morcom, used in preparation of the December 31, 2001 consolidated financial statements, are preliminary and subject to adjustment in 2002, when the valuation of certain intangible assets are finalized. As a result of the relative stability of the product technology, markets and customers associated with the acquisitions completed prior to June 30, 2001, the cost in excess of net assets acquired was being amortized over 40 years, using the straight-line method. The cost in excess of net assets acquired related to acquisitions completed since June 30, 2001, has not been amortized. 26 2001 Gardner Denver Annual Report notes to consolidated financial statements - ------------------------------------------------------------------------------ (dollars in thousands, except per share amounts) Note 3: Inventories
December 31, ------------------------------- 2001 2000 - ------------------------------------------------------------------------------------------ Raw materials, including parts and subassemblies $33,156 31,147 Work-in-process 15,908 9,334 Finished goods 30,942 24,987 Perishable tooling and supplies 2,328 2,443 - ------------------------------------------------------------------------------------------ 82,334 67,911 Excess of FIFO costs over LIFO costs (5,684) (5,969) - ------------------------------------------------------------------------------------------ Inventories, net $76,650 61,942 ==========================================================================================
During 2001, 2000 and 1999, reductions in inventory quantities (net of acquisitions) resulted in liquidations of LIFO inventory layers carried at lower costs prevailing in prior years. The effect was to increase net income in 2001, 2000 and 1999 by $319, $427 and $252, respectively. It is the Company's policy to record the earnings effect of LIFO inventory liquidations in the quarter in which a decrease for the entire year becomes certain. In each of the years 1999 through 2001, the LIFO liquidation income was recorded in the fourth quarter. Note 4: Property, Plant and Equipment and Intangibles
December 31, --------------------------------- 2001 2000 - ------------------------------------------------------------------------------------------ Property, plant and equipment: Land and land improvements $ 6,871 5,608 Buildings 40,424 38,521 Machinery and equipment 102,193 90,986 Tooling, dies, patterns, etc. 10,640 10,570 Office furniture and equipment 10,977 9,506 Other 5,323 4,695 Construction in progress 4,199 5,035 - ------------------------------------------------------------------------------------------ 180,627 164,921 Accumulated depreciation (106,530) (97,817) - ------------------------------------------------------------------------------------------ Property, plant and equipment, net $ 74,097 67,104 ========================================================================================== Intangibles Goodwill $ 215,969 175,004 Other 33,654 11,170 Accumulated amortization (40,786) (34,595) - ------------------------------------------------------------------------------------------ Intangibles, net $ 208,837 151,579 ==========================================================================================
- ------------------------------------------------------------------------------ Note 5: Accounts Payable and Accrued Liabilities
December 31, ------------------------------- 2001 2000 - ------------------------------------------------------------------------------------------ Accounts payable - trade $36,997 32,019 Accrued warranty 7,578 5,887 Salaries, wages and related fringe benefits 6,833 5,481 Product liability, workers' compensation and other insurance 4,246 4,547 Other 21,548 14,528 - ------------------------------------------------------------------------------------------ Total accounts payable and accrued liabilities $77,202 62,462 ==========================================================================================
2001 Gardner Denver Annual Report 27 - ------------------------------------------------------------------------------ Note 6: Pension and Other Postretirement Benefits The Company sponsors retirement plans covering substantially all employees. Benefits are provided to employees under defined benefit pay- related and service-related plans, which are generally noncontributory. Annual Company contributions to domestic retirement plans equal or exceed the minimum funding requirements of the Employee Retirement Income Security Act of 1974. Consistent with the practice in Germany, the retirement plans covering the employees of the Company's Wittig operation in Germany are unfunded and the full amount of the pension benefit obligation is included as an accrued benefit liability on the Consolidated Balance Sheets. With respect to the 2001 Hoffman acquisition, the accumulated benefit obligation and plan assets related to the defined benefit plans, covering substantially all full-time employees, were transferred to the Company pursuant to the purchase agreement. With regard to the 2001 Belliss & Morcom acquisition, the majority of the employees are based in the United Kingdom and are provided retirement benefits under a contributory defined benefit pay and service related plan. Under the Company's purchase agreement, these employees are allowed to continue to participate in the seller's benefit plan for a period of up to one year from the acquisition date. Within this one-year timeframe, the Company will establish a similar retirement plan arrangement allowing employees the option of transferring their accumulated benefit. The purchase agreement also requires the transfer from the seller's plan of plan assets in excess of the transferred accumulated benefit obligation. Funding required by the Company related to its employees' temporary participation in the seller's plan subsequent to the acquisition date has been, and is anticipated to be, a de minimus amount. The Company also sponsors defined contribution plans. Benefits are determined and funded annually based on terms of the plans or as stipulated in a collective bargaining agreement. Certain of the Company's full-time salaried and nonunion hourly employees are eligible to participate in Company-sponsored defined contribution savings plans, which are qualified plans under the requirements of Section 401(k) of the Internal Revenue Code. The Company's matching contributions to the savings plans are in the form of the Company's common stock. The full-time salaried and hourly employees of the Company's operations in Finland have pension benefits which are guaranteed by the Finnish government. Although the plans are similar to defined benefit plans, the guarantee feature of the government causes the substance of the plans to be defined contribution. Therefore, the discounted future liability of these plans is not included in the liability for defined benefit plans, but the expense for the Company's contribution is included in the pension benefit cost for defined contribution plans. Salaried employees who retired prior to 1989, as well as certain other employees who were near retirement and elected to receive certain benefits, have retiree medical, prescription and life insurance benefits. All other active salaried employees do not have postretirement medical benefits. The hourly employees have separate plans with varying benefit formulas. In all cases, however, currently active hourly employees, except for certain employees who are near retirement, will not receive healthcare benefits after retirement. All of the Company's postretirement medical plans are unfunded. The following tables provide a reconciliation of the changes in both the pension and other postretirement plans benefit obligations and fair value of assets over the two-year period ending December 31, 2001, and a statement of the funded status as of December 31, 2001 and 2000:
Other Pension Benefits Postretirement Benefits ---------------------------------------------- 2001 2000 2001 2000 - ------------------------------------------------------------------------------------------------ RECONCILIATION OF BENEFIT OBLIGATION Obligation at January 1 $50,701 48,860 $ 25,963 25,261 Service cost 2,072 1,819 23 13 Interest cost 3,701 3,671 2,083 1,894 Actuarial loss 1,848 1,779 4,167 2,380 Plan amendments - - - (1,100) Benefit payments (3,957) (5,206) (2,355) (2,485) Acquisitions 3,158 - 490 - Effect of foreign currency exchange rate changes (141) (222) - - - ------------------------------------------------------------------------------------------------ Obligation at December 31 $57,382 50,701 $ 30,371 25,963 ================================================================================================ RECONCILIATION OF FAIR VALUE OF PLAN ASSETS Fair value of plan assets at January 1 $50,874 56,082 Actual return on plan assets (1,425) (255) Acquisitions 3,386 - Employer contributions 1,320 253 Benefit payments (3,957) (5,206) - ------------------------------------------------------------------------------------------------ Fair value of plan assets at December 31 $50,198 50,874 $ - - ================================================================================================ FUNDED STATUS Funded status at December 31 $(7,184) 173 $(30,371) (25,963) Unrecognized transition liability 22 32 - - Unrecognized prior-service cost (709) (795) (2,555) (3,861) Unrecognized loss (gain) 1,917 (4,471) (6,842) (12,040) - ------------------------------------------------------------------------------------------------ Accrued benefit liability at December 31 $(5,954) (5,061) $(39,768) (41,864) ================================================================================================
28 2001 Gardner Denver Annual Report notes to consolidated financial statements - ------------------------------------------------------------------------------ (dollars in thousands, except per share amounts) The aggregate accumulated benefit obligation and fair value of plan assets for pension plans with accumulated benefit obligations in excess of plan assets at December 31, 2001 and 2000 are as follows:
December 31, ----------------------- 2001 2000 - ------------------------------------------------------------------------------------------------ Accumulated benefit obligation $55,077 8,521 ================================================================================================ Fair value of plan assets $48,770 3,469 ================================================================================================
The following table provides the components of net periodic benefit expense (income) for the plans for the years ended December 31, 2001, 2000 and 1999.
Pension Benefits Other Postretirement Benefits ------------------------------- ------------------------------- Year ended December 31, Year ended December 31, ------------------------------------------------------------------- 2001 2000 1999 2001 2000 1999 - ------------------------------------------------------------------------------------------------------------------ Service cost $ 2,072 1,819 1,721 $ 23 13 24 Interest cost 3,701 3,671 3,453 2,083 1,894 1,877 Expected return on plan assets (4,441) (4,480) (4,424) - - - Amortization of transition liability (asset) 10 10 (206) - - - Amortization of prior-service cost (86) (85) 167 (1,307) (1,279) (1,200) Amortization of net loss (gain) 2 (422) 4 (1,030) (2,023) (1,673) - ------------------------------------------------------------------------------------------------------------------ Net periodic benefit expense (income) 1,258 513 715 $ (231) (1,395) (972) =============================== Defined contribution plans 3,688 3,230 3,471 - ------------------------------------------------------------------------------ Total retirement plan expense $ 4,946 3,743 4,186 ==============================================================================
Computational Assumptions Pension and Other Postretirement Benefits ---------------------------------------------------- Net Periodic Expense Benefit Obligation ---------------------------- ------------------ Year ended December 31, December 31, ---------------------------------------------------- 2001 2000 1999 2001 2000 - ------------------------------------------------------------------------------------------------------------------ Discount rate 7.75% 8.25% 6.75% 7.25% 7.75% Pension Benefits ---------------------------------------------------- Rate of increase in compensation levels 5.00% 5.00% 5.00% 5.00% 5.00% Expected long-term rate of return on assets 9.00% 9.00% 8.50% -% -% ==================================================================================================================
For measurement purposes, the annual rate of increase in the per capita cost of covered healthcare benefits assumed for 2002 was 8.5% for all participants. The rates were assumed to decrease gradually each year to a rate of 5.5% for 2007 and remain at that level thereafter. Assumed healthcare cost trend rates have a significant effect on the amounts reported for the postretirement medical plans. A one percentage point change in assumed healthcare cost trend rates would have the following effects:
One Percentage Point --------------------- Increase Decrease - ------------------------------------------------------------------------------------------- Effect on total of service and interest cost components of net periodic other postretirement benefit cost - increase (decrease) 7.3% (6.5%) Effect on the postretirement benefit obligation - increase (decrease) 7.9% (7.0%) ===========================================================================================
2001 Gardner Denver Annual Report 29 - ----------------------------------------------------------------------------- Note 7: Stock-Based Compensation Plans Under the Company's Long-Term Incentive Plan (the "Incentive Plan"), designated employees are eligible to receive awards in the form of stock options, stock appreciation rights, restricted stock grants or performance shares, as determined by the Management Development and Compensation Committee of the Board of Directors. An aggregate of 3,500,000 shares of common stock has been authorized for issuance under the Incentive Plan. Through December 31, 2001, the Company has granted options on 2,857,309 shares. Under the Incentive Plan, the option exercise price equals the fair market value of the common stock on the date of grant. Under the terms of existing awards, one-third of employee options granted become vested and exercisable on each of the first three anniversaries of the date of grant. The options granted to employees in 1999, 2000 and 2001 expire ten years after the date of grant. Under the Incentive Plan, each nonemployee director is automatically granted an option to purchase 3,000 shares of common stock on the day after each annual meeting of stockholders. These options are granted at the fair market value of the common stock on the date of grant, become exercisable on the first anniversary of the date of grant (or upon retirement, death or cessation of service due to disability, if earlier) and expire five years after the date of grant. The Company also has an employee stock purchase plan (the "Stock Purchase Plan"), a qualified plan under the requirements of Section 423 of the Internal Revenue Code, and has reserved 900,000 shares for issuance. In November 1999, the Stock Purchase Plan was amended to permit eligible employees to purchase shares at the lesser of 90% of the fair market price of the common stock on either the offering date or the exercise date. At that time, the Stock Purchase Plan was also amended to require participants to have the purchase price of their options withheld from their pay over a one-year period. The exercise date for the 1999 offering was January 2, 2001, at which time employees elected to purchase 118,136 shares at an offering price of $10.74 per share, the fair market price on the offering date. In November 2000, the Stock Purchase Plan was amended to permit eligible employees to purchase shares at the lesser of 85% of the fair market price of the common stock on either the offering date or the exercise date. The exercise date for the 2000 offering was January 2, 2002. As of December 31, 2001, employees had enrolled to purchase 69,642 shares at an offering price of $15.36 per share under the 2000 offering. In November 2001, the Stock Purchase Plan was again offered to eligible employees under the same provisions as the 2000 offering. The exercise date for the 2001 offering is January 2, 2003. As of December 31, 2001, employees had enrolled to purchase 74,453 shares under the 2001 offering. The Company accounts for both the Incentive Plan and the Stock Purchase Plan using the intrinsic value methodology prescribed by APB Opinion No. 25, "Accounting for Stock Issued to Employees." Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123" or the "Statement"), requires pro forma disclosure of the impact on earnings as if the compensation costs for these plans had been determined consistent with the fair value methodology of this Statement. The Company's net income and earnings per share would have been reduced to the following pro forma amounts under SFAS 123:
Year ended December 31, ------------------------------- 2001 2000 1999 - ------------------------------------------------------------------------------------------ Net income As reported $22,024 18,684 18,048 Pro forma 20,731 17,393 17,043 Basic earnings per share As reported $ 1.42 1.22 1.20 Pro forma 1.33 1.14 1.13 Diluted earnings per share As reported $ 1.40 1.21 1.18 Pro forma 1.31 1.12 1.11 ==========================================================================================
A summary of the status of the Company's Incentive Plan at December 31, 2001, 2000 and 1999, and changes during the years then ended, is presented in the table and narrative below (underlying shares in thousands):
2001 2000 1999 - ------------------------------------------------------------------------------------------------------------------ WTD. AVG. Wtd. Avg. Wtd. Avg. EXERCISE Exercise Exercise SHARES PRICE Shares Price Shares Price ------------------------------------------------------------------ Options outstanding, beginning of year 1,071 $16.60 1,072 $13.99 1,077 $12.36 Granted 204 19.78 275 17.42 223 13.00 Exercised (145) 15.08 (225) 4.03 (219) 4.76 Forfeited (24) 23.75 (51) 20.72 (9) 19.36 ----- ----- ----- Options outstanding, end of year 1,106 17.26 1,071 16.60 1,072 13.99 ===== ===== ===== Options exercisable, end of year 690 16.93 621 16.09 647 11.11 ==================================================================================================================
30 2001 Gardner Denver Annual Report notes to consolidated financial statements - ------------------------------------------------------------------------------ (dollars in thousands, except per share amounts) The following table summarizes information about fixed-price stock options outstanding at December 31, 2001 (underlying shares in thousands):
Options Outstanding Options Exercisable ----------------------------------------------------------- Wtd. Avg. Number Remaining Wtd. Avg. Number Wtd. Avg. Range of Outstanding Contractual Exercise Exercisable Exercise Exercise Prices at 12/31/01 Life Price at 12/31/01 Price - ------------------------------------------------------------------------------------------------------------------ $ 5.00 - 10.00 206 4.4 years $ 8.74 206 $ 8.74 10.01 - 15.00 192 7.4 12.74 117 12.65 15.01 - 20.00 460 7.6 18.27 136 17.09 20.01 - 30.00 248 5.4 25.96 231 26.33 ==================================================================================================================
The fair value of each option granted under the Incentive Plan and the Stock Purchase Plan is estimated on the date of grant using the Black- Scholes option pricing model. The following weighted average assumptions were used for grants in 2001, 2000 and 1999, respectively: risk-free interest rates of 3.9%, 6.5% and 5.4%; expected volatility of 36%, 38% and 38%; and expected lives of 3.5, 3.3 and 2.9 years. The valuations assume no dividends are paid. The weighted average fair values of options granted in 2001, 2000 and 1999 were $6.67, $6.34 and $4.07, respectively. - ------------------------------------------------------------------------------ Note 8: Stockholders' Equity and Earnings Per Share At December 31, 2001 and 2000, 50,000,000 shares of $0.01 par value common stock and 10,000,000 shares of $0.01 par value preferred stock were authorized. Shares of common stock outstanding at December 31, 2001 and 2000, were 15,690,607 and 15,371,491, respectively. No shares of preferred stock were issued or outstanding at December 31, 2001 or 2000. The shares of preferred stock, which may be issued without further stockholder approval (except as may be required by applicable law or stock exchange rules), may be issued in one or more series, with the number of shares of each series and the rights, preferences and limitations of each series to be determined by the Board of Directors. The Company has a Stockholders' Rights Plan, under which each share of Gardner Denver's outstanding common stock has an associated preferred share purchase right. The rights are exercisable only under certain circumstances and allow holders of such rights to purchase common stock of Gardner Denver or an acquiring company at a discounted price, which generally would be 50% of the respective stock's current fair market value. The following table details the calculation of basic and diluted earnings per share:
Year ended December 31, --------------------------------------------------------------------------------------------------- 2001 2000 1999 - ----------------------------------------------------------------------------------------------------------------------------------- NET WTD. AVG. AMT. PER Net Wtd. Avg. Amt. Per Net Wtd. Avg. Amt. Per INCOME SHARES SHARE Income Shares Share Income Shares Share - ----------------------------------------------------------------------------------------------------------------------------------- BASIC EARNINGS PER SHARE: Income available to common stockholders $22,024 15,552,543 $1.42 $18,684 15,300,222 $1.22 $18,048 15,018,219 $1.20 ===== ===== ===== DILUTED EARNINGS PER SHARE: Effect of dilutive securities: Stock options granted and outstanding - 230,582 - 189,188 - 340,057 - ----------------------------------------------------------------------------------------------------------------------------------- Income available to common stockholders and assumed conversions $22,024 15,783,125 $1.40 $18,684 15,489,410 $1.21 $18,048 15,358,276 $1.18 ===================================================================================================================================
2001 Gardner Denver Annual Report 31 - ------------------------------------------------------------------------------ Note 9: Long-term Debt and Other Borrowing Arrangements
December 31, -------------------------------- 2001 2000 - ------------------------------------------------------------------------------------------ Credit Line, due 2003(1) $ 84,000 81,082 Interim Credit Agreement, due 2002(2) 50,000 - Unsecured Senior Note, due 2006(3) 25,000 30,000 Variable Rate Industrial Revenue Bonds, due 2018(4) 8,000 9,500 Other 605 1,007 - ------------------------------------------------------------------------------------------ Long-term debt, including current maturities 167,605 121,589 Current maturities of long-term debt 7,375 5,781 - ------------------------------------------------------------------------------------------ Long-term debt, less current maturities $160,230 115,808 ========================================================================================== (1) The facility was effective January 20, 1998. The loans under the facility may be denominated in U.S. Dollars or several foreign currencies. At December 31, 2001, the outstanding balance consisted of one U.S. Dollar loan of $84,000. Loans of DEM 20,000 and EUR 27,000, which were outstanding at December 31, 2000, were repaid as of July 13 and July 27, 2001, respectively. The interest rates under the facility vary and are based on prime, federal funds and/or LIBOR for the applicable currency, and the Company's debt to adjusted income ratio. As of December 31, 2001, the rate for the U.S. Dollar loan was 3.2%, and averaged 4.5% and 5.4% for the U.S. Dollar loan and the foreign denominated loans, respectively, for the year ended December 31, 2001. (2) On September 10, 2001, the Company entered into an Interim Credit Agreement due upon maturity in March 2002. The interest rate varies with prime, federal funds and/or LIBOR. As of December 31, 2001, this rate was 4.1% and averaged 4.5% for the year ended December 31, 2001. (3) On September 26, 1996, the Company entered into an Unsecured Senior Note Agreement at a fixed interest rate of 7.3%. This debt matures in 2006 and requires equal annual principal payments from 2000 to 2006. (4) The interest rate varies with market rates for tax-exempt industrial revenue bonds. As of December 31, 2001, this rate was 1.7% and averaged 2.9% for the year ended December 31, 2001.
On January 20, 1998, the Company entered into a Revolving Line of Credit Agreement with an aggregate $125,000 borrowing capacity (the "Credit Line") and terminated the previous agreement. On December 31, 2001, the Credit Line had an outstanding balance of $84,000, leaving $41,000 available for future use or to issue as letters of credit. The total debt balance will mature on January 20, 2003. In September 1996, the Company obtained fixed rate financing by entering into an unsecured senior note agreement for $35,000. This note has a ten-year final, seven-year average maturity with principal payments that began in 2000. Both of these borrowing agreements are unsecured and permit certain investments and dividend payments. There are no material restrictions on the Company as a result of these agreements, other than customary covenants regarding certain earnings, liquidity and capital ratios. On April 23, 1998, the Fayette County Development Authority issued $9,500 in industrial revenue bonds, on behalf of the Company, to finance the cost of constructing and equipping a new manufacturing facility in Peachtree City, Georgia. On July 2, 2001, the Company prepaid $1,500 of principal from unused funds. The remaining principal for these industrial revenue bonds is to be repaid in full on March 1, 2018. These industrial revenue bonds are secured by a letter of credit. On September 10, 2001, the Company borrowed $50,000 under an Interim Credit Agreement, most of which was used to complete the Hoffman acquisition. The Interim Credit Agreement expires in March 2002. On March 6, 2002, the Company amended and restated the Credit Line, increasing the aggregate borrowing capacity to $150,000 and extending the maturity date to March 6, 2005. Subject to approval by lenders holding more than 75% of the debt, the Company may request up to two, one-year extensions. The total debt balance will be due upon final maturity. The amended and restated agreement also provided for an additional $50,000 Term Loan. Proceeds from the Term Loan were used to retire debt outstanding under the Interim Credit Agreement. The five- year term loan requires principal payments of $2,500 in years one and two, and $15,000 in years three through five. Other terms and conditions of the Term Loan are similar to those of the Credit Line. The long-term classification and maturities of the Credit Line and the Interim Credit Agreement reflect the completion of this refinancing. Maturities of long-term debt for the five years subsequent to December 31, 2001 and thereafter, are $7,375, $7,500, $16,875, $104,000, $20,000 and $11,855, respectively. Cash paid for interest in 2001, 2000 and 1999 was $6,900, $8,483 and $5,489, respectively. The rentals for all operating leases were $2,981, $2,453, and $2,437 in 2001, 2000 and 1999, respectively. Future minimum rental payments for operating leases for the five years subsequent to December 31, 2001 and thereafter are $3,083, $2,229, $1,671, $476, $379 and $909, respectively. 32 2001 Gardner Denver Annual Report notes to consolidated financial statements - ------------------------------------------------------------------------------ (dollars in thousands, except per share amounts) Note 10: Income Taxes The following table details the components of the provision for income taxes. A portion of these income taxes will be payable within one year and are therefore classified as current, while the remaining balance is deferred.
Year ended December 31, ------------------------------- 2001 2000 1999 - ------------------------------------------------------------------------------------------------------ Income taxes Current: U.S. federal $ 9,708 7,130 5,298 U.S. state and local 1,109 815 605 Non-U.S. 1,149 1,192 404 - ------------------------------------------------------------------------------------------------------ Current 11,966 9,137 6,307 - ------------------------------------------------------------------------------------------------------ Deferred: U.S. federal 622 1,860 4,309 U.S. state and local 71 213 493 - ------------------------------------------------------------------------------------------------------ Deferred 693 2,073 4,802 - ------------------------------------------------------------------------------------------------------ Provision for income taxes $12,659 11,210 11,109 ======================================================================================================
The following table reconciles the statutory U.S. federal corporate income tax rate to the Company's effective tax rate (as a percentage of the Company's income before income taxes):
Year ended December 31, ---------------------------- 2001 2000 1999 - ------------------------------------------------------------------------------------------------------ U.S. federal income tax rate 35.0% 35.0 35.0 Changes in the tax rate resulting from: State and local income taxes 3.1 3.4 3.4 Nondeductible goodwill 3.5 4.2 3.5 Foreign sales corporation benefit (2.3) (3.0) (2.5) Other, net (2.8) (2.1) (1.3) - ------------------------------------------------------------------------------------------------------ Effective income tax rate 36.5 37.5 38.1 ======================================================================================================
December 31, -------------------------------- 2001 2000 - ------------------------------------------------------------------------------------------------------ Components of deferred tax balances: Deferred tax assets: Reserves and accruals $ 11,608 10,748 Postretirement benefits other than pensions 15,502 16,327 Other 1,824 955 - ------------------------------------------------------------------------------------------------------ Total deferred tax assets 28,934 28,030 - ------------------------------------------------------------------------------------------------------ Deferred tax liabilities: LIFO inventory (3,502) (3,569) Plant and equipment (5,577) (5,933) Intangibles (3,951) (2,289) Other (8,855) (8,497) - ------------------------------------------------------------------------------------------------------ Total deferred tax liabilities (21,885) (20,288) - ------------------------------------------------------------------------------------------------------ Net deferred tax assets $ 7,049 7,742 ======================================================================================================
2001 Gardner Denver Annual Report 33 - ------------------------------------------------------------------------------ For U.S. income tax purposes, the Foreign Sales Corporation (FSC) has been replaced by the Extraterritorial Income Exclusion (EIE) on the Company's U.S. export sales for 2002 and beyond. Consistent with the FSC, the EIE will lower the effective tax rate on income from U.S. export sales. U.S. deferred income taxes are not provided on certain undistributed earnings of non-U.S. subsidiaries because the Company intends to reinvest such earnings indefinitely. The estimated amount of income taxes that would be incurred should such earnings be distributed is not significant due to available foreign tax credits and earnings and profit levels. Cash paid for income taxes in 2001, 2000 and 1999 were $13,814, $9,189 and $7,234, respectively. - ------------------------------------------------------------------------------ Note 11: Off-Balance Sheet Risk, Concentrations of Credit Risk and Fair Value of Financial Instruments Off-Balance Sheet Risk and Concentrations of Credit Risk There were no off-balance sheet derivative financial instruments as of December 31, 2001 and 2000. Concentrations of credit risk with respect to trade receivables are limited due to the wide variety of customers and industries to which the Company's products are sold, as well as their dispersion across many different geographic areas. As a result, the Company does not consider itself to have any significant concentrations of credit risk as of December 31, 2001. Fair Value of Financial Instruments The Company's financial instruments consist primarily of cash and equivalents, trade receivables, trade payables and debt instruments. The book values of these instruments are not materially different from their respective fair values. - ------------------------------------------------------------------------------ Note 12: Contingencies The Company has been identified as a potentially responsible party with respect to various sites designated for cleanup under various state and federal laws. The Company does not own any of these sites. The Company is also a party to various other legal proceedings and administrative actions, which are of an ordinary or routine nature. The Company believes that the costs related to these sites and other litigation will not have a materially adverse effect on its consolidated financial position, results of operations or liquidity. - ------------------------------------------------------------------------------ Note 13: Quarterly Financial Information (Unaudited)
2001 QUARTER ENDED --------------------------------------------- MARCH 31, JUNE 30, SEPT. 30, DEC. 31,(4) - ------------------------------------------------------------------------------------------------------ Revenues $100,896 104,554 103,426 110,894 Gross margin(1) 29,442 31,247 30,882 33,950 Net income(2) 4,799 6,444 5,552 5,229 Basic earnings per share $ 0.31 0.41 0.36 0.33 Diluted earnings per share $ 0.31 0.41 0.35 0.33 ====================================================================================================== 2000 Quarter Ended --------------------------------------------- March 31,(3) June 30, Sept. 30, Dec. 31,(4) - ------------------------------------------------------------------------------------------------------ Revenues $ 89,166 94,888 91,614 103,690 Gross margin(1) 26,259 28,201 25,568 31,040 Net income 3,951 4,648 4,026 6,059 Basic earnings per share $ 0.26 0.30 0.26 0.39 Diluted earnings per share $ 0.26 0.30 0.26 0.39 ====================================================================================================== (1) Gross margin equals revenues less cost of sales. (2) Includes gains of $466, $439 and $385 in quarters ended March 31, June 30 and Sept. 30, respectively, for litigation settlement proceeds. Includes $337 gain from interest income on a tax settlement in quarter ended June 30. (3) Includes a gain of $413 in net income related to the sale of the Company's idle facility in Syracuse, NY. (4) Includes an increase in net income in 2001 and 2000 of $319 and $427, respectively, related to LIFO inventory liquidations. Net income in 2000 also includes a gain of $605 for litigation settlement proceeds and a charge of $906 for expenses associated with an unconsummated acquisition.
34 2001 Gardner Denver Annual Report notes to consolidated financial statements - ----------------------------------------------------------------------------- (dollars in thousands, except per share amounts) Note 14: Segment Information The Company is organized based on the products and services it offers. Under this organizational structure, the Company has three operating divisions: Compressor, Blower and Pump. These divisions comprise two reportable segments, Compressed Air Products and Pump Products. The Compressor and Blower Divisions are aggregated into one reportable segment (Compressed Air Products) since the long-term financial performance of these businesses are affected by similar economic conditions, coupled with the similar nature of their products, manufacturing processes and other business characteristics. The Pump Products segment was formerly the Petroleum Products segment. The name was changed in 2001 due to the inclusion of the Company's water jetting operations within this segment (and the Pump Division), which expanded its scope beyond petroleum-related products. The Company's water jetting operations were previously included in the Compressed Air Products segment. Prior period segment information has been restated to conform with the current year presentation. In the Compressed Air Products segment, the Company designs, manufactures, markets and services the following products and related aftermarket parts for industrial and commercial applications: rotary screw, reciprocating, sliding vane and centrifugal compressors; and positive displacement and centrifugal blowers. The markets served are primarily in the United States, but a growing portion of revenue is from exports and expanding European operations. The Pump Products segment designs, manufactures, markets and services a diverse group of pumps, water jetting systems and related aftermarket products used in oil and natural gas production, well servicing and drilling, and industrial cleaning and maintenance. The accounting policies of the segments are the same as those described in Note 1. The Company evaluates the performance of its segments based on income before interest expense, other income, net and income taxes. Certain assets attributable to corporate activity are not allocated to the segments. Unallocated assets primarily consist of cash and equivalents and deferred tax assets. Intersegment sales and transfers are not significant.
Revenues Operating Earnings Identifiable Assets -------------------------------------------------------------------------------------------- Year ended December 31, Year ended December 31, December 31, -------------------------------------------------------------------------------------------- 2001 2000 1999 2001 2000 1999 2001 2000 - --------------------------------------------------------------------------------------------------------------------------------- Compressed Air Products $308,028 306,679 289,091 $22,176 30,938 30,858 $368,775 289,674 Pump Products 111,742 72,679 37,976 16,100 4,465 2,357 82,884 76,226 -------------------------------------------------------------------------------------------- Total $419,770 379,358 327,067 38,276 35,403 33,215 451,659 365,900 ================================ Interest expense (6,796) (7,669) (5,934) Other income, net 3,203 2,160 1,876 ------------------------------- Income before income taxes $34,683 29,894 29,157 =============================== General corporate 37,029 37,981 -------------------- Total assets $488,688 403,881 ====================
2001 Gardner Denver Annual Report 35 - ----------------------------------------------------------------------------
Year ended December 31, ------------------------------- 2001 2000 1999 - ------------------------------------------------------------------------------------------------------------------ Income from reductions of inventory quantities resulting in liquidations of LIFO inventory layers, included in operating earnings above: Compressed Air Products $ 459 610 369 Pump Products 43 73 38 - ------------------------------------------------------------------------------------------------------------------ Total $ 502 683 407 ================================================================================================================== Depreciation and amortization, included in operating earnings above: Compressed Air Products $14,281 13,478 12,286 Pump Products 3,286 2,403 1,936 - ------------------------------------------------------------------------------------------------------------------ Total $17,567 15,881 14,222 ================================================================================================================== Capital expenditures: Compressed Air Products $ 8,856 11,141 10,381 Pump Products 2,668 2,408 1,560 - ------------------------------------------------------------------------------------------------------------------ Total $11,524 13,549 11,941 ================================================================================================================== Year ended December 31, -------------------------------- 2001 2000 1999 - ------------------------------------------------------------------------------------------------------------------ Revenues outside the United States were comprised of sales to unaffiliated companies in: Europe $ 65,511 53,877 49,647 Canada 24,315 21,838 14,300 Latin America 18,186 13,214 12,268 Asia 14,048 13,745 6,904 Other 5,844 4,554 11,252 - ------------------------------------------------------------------------------------------------------------------ Total $127,904 107,228 94,371 ================================================================================================================== December 31, -------------------- 2001 2000 - ------------------------------------------------------------------------------------------------------ Net long-lived assets by geographic area are as follows: United States $254,271 197,775 Europe 25,909 20,908 Other 2,754 - - ------------------------------------------------------------------------------------------------------ Total $282,934 218,683 ======================================================================================================
36 2001 Gardner Denver Annual Report stockholder information - ----------------------------------------------------------------------- Stock Information Gardner Denver's common stock has traded on the New York Stock Exchange since August 14, 1997, under the ticker symbol GDI. Prior to this date, the Company's common stock traded on the Nasdaq National Market tier of the Nasdaq Stock Market under the symbol GDMI. The quarterly high and low sales prices for the Company's common stock for the two most recent years, as reported by the New York Stock Exchange, are as follows:
2001 QUARTER ENDED ------------------------------------------------------ MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, - -------------------------------------------------------------------------------------------------- HIGH 21.20 20.99 24.00 22.93 LOW 17.00 17.65 19.65 20.00 ================================================================================================== 2000 Quarter Ended ------------------------------------------------------ March 31, June 30, September 30, December 31, - -------------------------------------------------------------------------------------------------- High 20.75 19.63 17.94 21.30 Low 16.00 16.81 14.25 14.94 ==================================================================================================
As of March 1, 2002, there were approximately 8,400 holders of record of Gardner Denver's common stock. Dividends Gardner Denver has not paid a cash dividend since its spin-off from Cooper Industries, Inc. in April 1994. The cash flow generated by the Company is currently utilized for debt service and capital accumulation and reinvestment. Transfer Agent and Registrar EquiServe P.O. Box 2500 Jersey City, NJ 07303-2500 (800) 519-3111 (201) 324-1225 (201) 222-4955 (for the hearing impaired) E-mail address: equiserve@equiserve.com News Releases by Fax Gardner Denver's news releases, including the quarterly earnings release, are available by fax, without charge, by calling (800) 758-5804, extension 303875, or by visiting our website at www.gardnerdenver.com. Form 10-K A copy of the annual report on Form 10-K filed with the Securities and Exchange Commission is available, without charge, upon written request to the Corporate Secretary at the Company's address indicated below. Annual Meeting The 2002 Annual Meeting of Stockholders will be held on May 7 at the Holiday Inn, 201 South Third Street, Quincy, IL, starting at 1:30 p.m. Corporate Offices Gardner Denver, Inc. 1800 Gardner Expressway Quincy, IL 62305 (217) 222-5400 E-mail address: mktg@gardnerdenver.com website address: www.gardnerdenver.com Internet Access For access to information on your Gardner Denver investment via the Internet, registered stockholders may contact the Company's transfer agent at (877) 843-9327 for a personal identification number and then visit their website at www.equiserve.com. 2001 Gardner Denver Annual Report 37 board of directors and corporate officers - ---------------------------------------------------------- BOARD OF DIRECTORS Ross J. Centanni Chairman, President and Chief Executive Officer Gardner Denver, Inc. Donald G. Barger, Jr. Senior Vice President and Chief Financial Officer Yellow Corporation Frank J. Hansen President and Chief Executive Officer (retired) IDEX Corporation Raymond R. Hipp Chairman, President and Chief Executive Officer Alternative Resources Corporation Thomas M. McKenna President United Sugars Corporation Diane K. Schumacher Senior Vice President, General Counsel and Secretary Cooper Industries, Inc. Richard L. Thompson Group President and Executive Office Member Caterpillar Inc. CORPORATE OFFICERS Ross J. Centanni Chairman, President and Chief Executive Officer Michael S. Carney Vice President and General Manager, Blower Division Helen W. Cornell Vice President, Strategic Planning and Operations Support Steven M. Krivacek Vice President, Human Resources Tracy D. Pagliara Vice President, General Counsel and Secretary Daniel C. Rizzo, Jr. Vice President and Corporate Controller Philip R. Roth Vice President, Finance and Chief Financial Officer J. Dennis Shull Vice President and General Manager, Compressor Division Richard C. Steber Vice President and General Manager, Pump Division Gardner Denver, Gardner Denver Water Jetting Systems, Air Relief, Inc., Air Relief, Allen-Stuart Equipment Co., Allen-Stuart, Champion, CRS Power Flow, CRS, Hamworthy Belliss & Morcom, Belliss & Morcom, Hoffman Air and Filtration Systems, Hoffman, Invincible Air Flow Systems, Jetting Systems & Accessories, JSA, Lamson, Tamrotor, TCM, Wittig and their related trademark designs and logotypes are service/trademarks and/or trade names of Gardner Denver, Inc., its subsidiaries or investments. Bang and Olufsen, Coca-Cola, Chelsea Milling Co., General Motors, Electro-Motive Division, IBM, Intel, Jiffy, Nokia, Pneumatic, Saab, Sprite, Western Container and their related trademarks and logotypes used within this Annual Report are the trade names, service/trademarks and/or logotypes of the respective companies. EX-21.0 7 ex21.txt SUBSIDIARIES OF COMPANY Exhibit 21.0 GARDNER DENVER, INC. SCHEDULE OF SUBSIDIARIES YEAR ENDED DECEMBER 31, 2001
Name Subsidiary Uses Subsidiary Name Incorporation for Doing Business --------------- ------------- -------------------- Air Relief, Inc. Kentucky Air Relief, Inc. Air Relief South Africa South Africa Air Relief South Africa (Pty.) Ltd. (Pty.) Ltd. Allen-Stuart Equipment Texas Gardner Denver Engineered Company, Inc. Packaging Center Bellis & Morcom (USA) Inc. Delaware Bellis & Morcom (USA) Inc. Bellis & Morcom Limited United Kingdom Bellis & Morcom Limited Gardner Denver Export, Inc. Barbados Gardner Denver Export, Inc. Gardner Denver GmbH Germany Gardner Denver Deutschland GmbH Gardner Denver Holdings Inc. Delaware Gardner Denver Holdings Inc. Gardner Denver Hoffman Ltd. United Kingdom Gardner Denver Hoffman Ltd. Gardner Denver International, Inc. Delaware Gardner Denver International, Inc. Gardner Denver Kompressoren Germany Gardner Denver Kompressoren GmbH GmbH Gardner Denver Ky Finland Gardner Denver Ky Gardner Denver, Ltd. United Kingdom Gardner Denver, Ltd. Gardner Denver Nova Scotia, Nova Scotia Gardner Denver Nova Scotia, ULC ULC Gardner Denver SA France Gardner Denver SA Gardner Denver Oy Finland Gardner Denver Oy Gardner Denver Water Jetting Texas Gardner Denver Water Jetting Systems, Inc. Systems, Inc. Gardner Denver Wittig GmbH Germany Gardner Denver Wittig GmbH Hamworthy Bellis & Morcom Sao Paulo, Brazil Bellis & Morcom Brasil Ltd Brasil Ltda. Hamworthy Bellis & Morcom United Kingdom Hamworthy Bellis & Morcom Limited Limited Hoffman Air Filtration Licensco, Inc. Delaware Hoffman Air Filtration Licensco Inc. Kompressorit Oy Finland Kompressorit Oy Lamson Corporation New York Lamson Corporation TCM Investments, Inc. Oklahoma TCM Investments, Inc.
EX-23.0 8 ex23.txt CONSENT OF EXPERT Exhibit 23.0 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our reports included or incorporated by reference in this Form 10-K for the year ended December 31, 2001, into the Company's previously filed Registration Statements, File Numbers 33-91088, 333-24921 and 333-83397. ARTHUR ANDERSEN LLP St. Louis, Missouri March 26, 2002 EX-24.0 9 ex24.txt POWERS OF ATTORNEY Exhibit 24.0 GARDNER DENVER, INC. ANNUAL REPORT ON FORM 10-K POWER OF ATTORNEY OF DIRECTORS The undersigned, a director of Gardner Denver, Inc., a Delaware corporation (the "Company"), which anticipates filing with the Securities and Exchange Commission (the "Commission") under the provisions of the Securities Exchange Act of 1934 (the "Act") an Annual Report on Form 10-K (the "Annual Report") for the fiscal year ended December 31, 2001 (together with any and all subsequent amendments) does hereby constitute and appoint Ross J. Centanni and Tracy D. Pagliara, and each of them, with full power of substitution and resubstitution, as attorney or attorneys to execute and file on behalf of the undersigned, in his capacity as a director of the Company, the Annual Report and any and all other documents to be filed with the Commission pertaining to the Annual Report with full power and authority to do and perform any and all acts and things whatsoever required or necessary to be done in the premises, as fully as to all intents and purposes as he could do if personally present, hereby ratifying and approving the acts of said attorneys and any of them and any such substitution. Executed at St. Louis , Missouri this 26 day of February 2002. ------------- ------------ ------ /s/Thomas M. McKenna -------------------- Thomas M. McKenna Exhibit 24.0 GARDNER DENVER, INC. ANNUAL REPORT ON FORM 10-K POWER OF ATTORNEY OF DIRECTORS The undersigned, a director of Gardner Denver, Inc., a Delaware corporation (the "Company"), which anticipates filing with the Securities and Exchange Commission (the "Commission") under the provisions of the Securities Exchange Act of 1934 (the "Act") an Annual Report on Form 10-K (the "Annual Report") for the fiscal year ended December 31, 2001 (together with any and all subsequent amendments) does hereby constitute and appoint Ross J. Centanni and Tracy D. Pagliara, and each of them, with full power of substitution and resubstitution, as attorney or attorneys to execute and file on behalf of the undersigned, in his capacity as a director of the Company, the Annual Report and any and all other documents to be filed with the Commission pertaining to the Annual Report with full power and authority to do and perform any and all acts and things whatsoever required or necessary to be done in the premises, as fully as to all intents and purposes as he could do if personally present, hereby ratifying and approving the acts of said attorneys and any of them and any such substitution. Executed at St. Louis , Missouri this 26 day of February 2002. ------------- ------------ ------ /s/Diane K. Schumacher ---------------------- Diane K. Schumacher Exhibit 24.0 GARDNER DENVER, INC. ANNUAL REPORT ON FORM 10-K POWER OF ATTORNEY OF DIRECTORS The undersigned, a director of Gardner Denver, Inc., a Delaware corporation (the "Company"), which anticipates filing with the Securities and Exchange Commission (the "Commission") under the provisions of the Securities Exchange Act of 1934 (the "Act") an Annual Report on Form 10-K (the "Annual Report") for the fiscal year ended December 31, 2001 (together with any and all subsequent amendments) does hereby constitute and appoint Ross J. Centanni and Tracy D. Pagliara, and each of them, with full power of substitution and resubstitution, as attorney or attorneys to execute and file on behalf of the undersigned, in his capacity as a director of the Company, the Annual Report and any and all other documents to be filed with the Commission pertaining to the Annual Report with full power and authority to do and perform any and all acts and things whatsoever required or necessary to be done in the premises, as fully as to all intents and purposes as he could do if personally present, hereby ratifying and approving the acts of said attorneys and any of them and any such substitution. Executed at St. Louis , Missouri this 26 day of February 2002. ------------- ------------ ------ /s/Donald G. Barger, Jr. ------------------------ Donald G. Barger, Jr. Exhibit 24.0 GARDNER DENVER, INC. ANNUAL REPORT ON FORM 10-K POWER OF ATTORNEY OF DIRECTORS The undersigned, a director of Gardner Denver, Inc., a Delaware corporation (the "Company"), which anticipates filing with the Securities and Exchange Commission (the "Commission") under the provisions of the Securities Exchange Act of 1934 (the "Act") an Annual Report on Form 10-K (the "Annual Report") for the fiscal year ended December 31, 2001 (together with any and all subsequent amendments) does hereby constitute and appoint Ross J. Centanni and Tracy D. Pagliara, and each of them, with full power of substitution and resubstitution, as attorney or attorneys to execute and file on behalf of the undersigned, in his capacity as a director of the Company, the Annual Report and any and all other documents to be filed with the Commission pertaining to the Annual Report with full power and authority to do and perform any and all acts and things whatsoever required or necessary to be done in the premises, as fully as to all intents and purposes as he could do if personally present, hereby ratifying and approving the acts of said attorneys and any of them and any such substitution. Executed at St. Louis , Missouri this 26 day of February 2002. ------------- ------------ ------ /s/Frank J. Hansen ------------------ Frank J. Hansen Exhibit 24.0 GARDNER DENVER, INC. ANNUAL REPORT ON FORM 10-K POWER OF ATTORNEY OF DIRECTORS The undersigned, a director of Gardner Denver, Inc., a Delaware corporation (the "Company"), which anticipates filing with the Securities and Exchange Commission (the "Commission") under the provisions of the Securities Exchange Act of 1934 (the "Act") an Annual Report on Form 10-K (the "Annual Report") for the fiscal year ended December 31, 2001 (together with any and all subsequent amendments) does hereby constitute and appoint Ross J. Centanni and Tracy D. Pagliara, and each of them, with full power of substitution and resubstitution, as attorney or attorneys to execute and file on behalf of the undersigned, in his capacity as a director of the Company, the Annual Report and any and all other documents to be filed with the Commission pertaining to the Annual Report with full power and authority to do and perform any and all acts and things whatsoever required or necessary to be done in the premises, as fully as to all intents and purposes as he could do if personally present, hereby ratifying and approving the acts of said attorneys and any of them and any such substitution. Executed at St. Louis , Missouri this 26 day of February 2002. ------------- ------------ ------ /s/Richard L. Thompson ---------------------- Richard L. Thompson Exhibit 24.0 GARDNER DENVER, INC. ANNUAL REPORT ON FORM 10-K POWER OF ATTORNEY OF DIRECTORS The undersigned, a director of Gardner Denver, Inc., a Delaware corporation (the "Company"), which anticipates filing with the Securities and Exchange Commission (the "Commission") under the provisions of the Securities Exchange Act of 1934 (the "Act") an Annual Report on Form 10-K (the "Annual Report") for the fiscal year ended December 31, 2001 (together with any and all subsequent amendments) does hereby constitute and appoint Ross J. Centanni and Tracy D. Pagliara, and each of them, with full power of substitution and resubstitution, as attorney or attorneys to execute and file on behalf of the undersigned, in his capacity as a director of the Company, the Annual Report and any and all other documents to be filed with the Commission pertaining to the Annual Report with full power and authority to do and perform any and all acts and things whatsoever required or necessary to be done in the premises, as fully as to all intents and purposes as he could do if personally present, hereby ratifying and approving the acts of said attorneys and any of them and any such substitution. Executed at St. Louis , Missouri this 26 day of February 2002. ------------- ------------ ------ /s/Raymond R. Hipp ------------------ Raymond R. Hipp EX-99.0 10 exh99.txt LETTER TO SEC Exhibit 99.0 GARDNER DENVER, INC. 1800 Gardner Expressway Quincy, IL 62301 Securities and Exchange Commission 450 Fifth Street, N.W. Washington, D.C. 20549-0408 Re: Letter to Commission pursuant to Temporary Note 3T Ladies and Gentlemen: Pursuant to Temporary Note 3T to Article 3 of Regulation S-X, Gardner Denver, Inc. has obtained a letter of representation from Arthur Andersen LLP ("Andersen") stating that the December 31, 2001 audit was subject to their quality control system for the U.S. accounting and auditing practice to provide reasonable assurance that the engagement was conducted in compliance with professional standards, that there was appropriate continuity of Andersen personnel working on the audit, availability of national office consultation, and availability of personnel at foreign affiliates of Andersen to conduct the relevant portions of the audit. Very truly yours, GARDNER DENVER, INC. /s/ Philip R. Roth Philip R. Roth Vice President, Finance and Chief Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----