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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 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, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 1-13179
FLOWSERVE CORPORATION
(Exact name of registrant as specified in its charter)
NEW YORK 31-0267900
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
222 W. LAS COLINAS BOULEVARD
SUITE 1500
IRVING, TEXAS 75039
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (972) 443-6500
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SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
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COMMON STOCK, $1.25 PAR VALUE NEW YORK STOCK EXCHANGE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
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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 Common Stock held by non-affiliates of the
registrant as of February 13, 1998 (based on the closing sale price as reported
on the New York Stock Exchange on such date) was $1,257,906,020.
The number of shares outstanding of the registrant's Common Stock as of February
13, 1998: 40,616,082 shares
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Company's Proxy Statement for the Annual Meeting of Shareholders
to be held on or about May 21, 1998, are incorporated by reference into Part III
of this Form 10-K.
Portions of the Company's Annual Report to Shareholders for the fiscal year
ended December 31, 1997, are incorporated by reference into Parts I, II and IV
of this Form 10-K.
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PART I
ITEM 1. BUSINESS
Flowserve Corporation ("Flowserve") was incorporated under the laws of the State
of New York on May 1, 1912. On July 22, 1997, Flowserve (formerly known as Durco
International Inc. and The Duriron Company, Inc.) merged with BW/IP, Inc.
("BW/IP") in a stock-for-stock merger of equals, accounted for as a pooling of
interests, with BW/IP becoming a wholly owned subsidiary of Flowserve
("Merger"). The Merger created one of the world's leading providers of
industrial flow management services. All references herein to the "Company" or
"Flowserve" refer collectively to Flowserve and its subsidiaries unless
otherwise indicated by the context.
Flowserve is principally engaged in the design, manufacture, distribution and
service of industrial flow management equipment throughout the world. The
Company provides pumps, valves and mechanical seals primarily for the refinery
and pipeline segments of the petroleum industry, the chemical processing
industry and the power generation industry. Flowserve manufactures certain
standard products, but specializes in the development of precision engineered
equipment for critical service applications where high reliability is required.
The Company's materials expertise, design and engineering capabilities and
applications know-how have enabled it to develop product lines that are
responsive to customers needs for manufacturing efficiency, reduced maintenance
cost, and avoidance of premature equipment failure.
An important element of Flowserve's business is its successful emphasis on
providing aftermarket products and services. These consist of supplying parts,
making repairs and providing a variety of technical services for the upgrade or
retrofit of equipment to extend its useful life or improve its operating
characteristics.
The Company operates in one business segment that includes three types of
products: Rotating Equipment, Flow Control and Fluid Sealing. Included at Note
12 of the Financial Statements, provided as part of Item 8 of this Form 10-K and
incorporated herein by reference, is information concerning the Company's
revenues, operating profit and identifiable assets by geographic area for each
year in the three-year period ended December 31, 1997. For a significant portion
of its products, the Company's domestic operations supply each other and the
Company's foreign manufacturing subsidiaries with components and subassemblies.
ROTATING EQUIPMENT DIVISION
PRODUCTS
Through its Rotating Equipment Division, the Company designs, manufactures,
distributes and services pumps and related equipment. Pump products and services
accounted for approximately 45%, 44% and 43% of the Company's 1997, 1996 and
1995 sales, respectively. Pumps are manufactured to industry-recognized
standards, including those set by the American Petroleum Institute (API) and the
American National Standards Institute (ANSI).
Pump products for the petroleum industry include horizontal double case pumps
used especially for hot oils under high pressure, horizontal multi-stage pumps
used in pipelines, vertical pumps used for low temperature processes, vertical
circulating pumps used for cooling water, submersible pumps used for water or
brine injection in oil fields, and submersible water pumps used on offshore
platforms to supply water for fire fighting.
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Pump products for chemical processing industries include metallic and
non-metallic pumps, varying in size, capacity, material components and sealant
specifications. These pumps are used primarily to move liquids during processing
activities, but also in auxiliary services such as waste removal, water
treatment and pollution control. The pumps are modular in design and
manufactured to withstand the abrasive and/or corrosive service fluids being
processed by customers in these industries.
Pump products for the power generating industry include a variety of pumps used
in both nuclear and fossil fuel facilities to generate steam. Products for the
fossil fuel power generation industry are horizontal double case pumps for high
pressure boiler feed, horizontal multi-stage pumps for low pressure boiler feed,
vertical double case pumps and vertical circulating pumps.
The Company supplies pumps for other industrial uses, including industrial
production, utility services, pollution control, mining operations and municipal
water transport.
MARKETING AND DISTRIBUTION
Pumps or pump components are produced in plant facilities in the United States
(two in California, one in Oklahoma, one in Ohio, two in New Mexico), Mexico,
Argentina, Belgium and two in the Netherlands. Pump manufacturing facilities in
The Netherlands and Belgium are key sources of pumps sold in Europe, Africa and
the Middle East. The Argentine facility provides products primarily for
Argentine customers, but also serves customers in other South American
countries. The Company's Mexican operation manufactures pumps for export and for
Mexican customers. Large vertical circulating pumps manufactured in Mexico are
distributed worldwide. A majority-owned joint venture in India, which began
production in late 1997, manufactures ANSI pumps for export to U.S., Asian and
European markets.
The two specialized component manufacturing facilities in New Mexico provide a
significant portion of pump components (except for ANSI pump components)
previously manufactured at the Company's integrated U.S. pump plants. The
integrated plants were reconfigured to focus on the engineering, assembly and
testing of pumps with machining of components concentrated into two facilities.
The component facilities also supply components to other Company plants outside
of the U.S. on an economically selective basis.
The Company's pump products are primarily marketed to end-users and engineering
contractors through the Company's worldwide pump sales force, regional service
centers, independent distributors and representatives and for modular pumps a
national parts distribution center. Service centers stock a full array of
critical pump parts and have machining and product modification capabilities.
The majority of the Company's sales of pump products in the nuclear power market
are in the United States and Japan, where the Company's large installed base of
equipment provides a continuing market for products and services to ensure
safety and reliability, major customer concerns. A significant characteristic of
the nuclear market worldwide is the stringent requirements that must be met in
order to sell products to nuclear power plants. For example, the Company
maintains a Nuclear Stamp ("N Stamp") from the American Society of Mechanical
Engineers, which is required for qualification to supply certain kinds of
products to the U.S. nuclear industry.
The Company could face liability in excess of its own commercial or government
provided insurance if any of its products were found to contribute to an
accident at a nuclear power facility or at other industrial facilities. The
Company does not maintain nuclear liability insurance for the United States or
Canada, but maintains an aggregate of $15 million in nuclear liability insurance
for all other countries. The Federal Price-Anderson Act of 1954 provides U.S.
nuclear utilities with a system of no-fault
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insurance coverage in an amount up to about $8.7 billion for third party losses
or damages resulting from a nuclear incident. Canada's Nuclear Liability Act
provides for a system of insurance coverage that generally makes the operator of
a nuclear installation absolutely liable for third party claims arising as a
result of a nuclear incident, up to a maximum liability of (C)$75 million.
FLOW CONTROL DIVISION
PRODUCTS
Through its Flow Control Division, the Company designs, manufactures,
distributes and services mechanical and quarter-turn valves, automatic control
valves, actuators, and related components. Valve products and services accounted
for approximately 27%, 28% and 28% of the Company's 1997, 1996 and 1995 sales,
respectively. Valves are used to control the flow of liquids and gases. Valve
products for industrial processing systems include plug and butterfly valves
made of various metals, alloys and plastics and lined ball valves. Actuators and
other control accessories manufactured by the Company are either sold
independently or mounted on valves to move them from open to closed positions
and to various specified positions in between. Valve products for the nuclear
power market include a complete line of gate, globe and check valves (including
valve actuators). Automatic control valves include high pressure valves, rotary
valves, anti-noise and anti-cavitation valves and are generally sold with an
actuator.
MARKETING AND DISTRIBUTION
Valves are produced at facilities in the United States (one in Utah, one in
Pennsylvania, one in Tennessee), Australia, Canada, France, Germany and
Switzerland. Actuators are produced at facilities in the United States (Utah and
Ohio), Canada, France, and Italy. Two Company majority-owned joint ventures in
India (which began production in late 1997) manufacture valves for export to
U.S., Asian and European markets.
Manual valve products and valve actuators are distributed through the Company's
sales personnel, service centers and through a network of independent stocking
distributors. Automatic control valves are marketed through specialized sales
offices with engineers and service centers or on a commission basis through
independent manufacturing representatives in principal marketing centers
throughout the United States and other countries.
FLUID SEALING DIVISION
PRODUCTS
Through its Fluid Sealing Division, the Company designs, manufactures,
distributes and services mechanical seals and sealing systems. Mechanical seal
products and services accounted for approximately 28%, 28% and 29% of the
Company's 1997, 1996 and 1995 sales, respectively. The mechanical seal is
critical to the smooth operation of centrifugal pumps, compressors and mixers
because mechanical seals help prevent leakage between a rotating shaft and a
stationary casing. In doing so, mechanical seals reduce shaft wear on pumps,
compressors and mixers used in many industries. The need to reduce or eliminate
the leakage of liquids and gases due to increasingly stringent environmental
regulations and safety concerns has expanded the market for mechanical seals.
The Company's seals are used on a variety of pumps, mixers, compressors, steam
turbines and specialty equipment, principally in the oil refining and chemical
processing industries. The Company also manufactures a dry gas seal used in gas
transmission and oil and gas production markets.
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MARKETING AND DISTRIBUTION
Mechanical seals are produced in facilities in the United States (one in
California, one in Michigan), The Netherlands, Germany, Mexico, Argentina,
Brazil, Singapore, New Zealand and Japan. Seal manufacturing facilities in The
Netherlands and Germany are key sources of seals sold in Europe, Africa and the
Middle East. The Argentine facility provides products primarily for Argentine
markets, but also serves markets in other South American countries. The Japanese
plant provides products for Japan and parts of Southeast Asia.
The Company's mechanical seal products are primarily marketed through the
Company's worldwide seals sales force directly to end users and engineering and
construction firms. A portion of the Company's seal products is sold directly to
original equipment ("OE") manufacturers for pumps, compressors, mixers or other
rotary equipment requiring seals. Distributors, dealers, commissioned
representatives and sales agents are also used in the distribution and sale of
mechanical seal products.
GENERAL BUSINESS
SERVICE AND REPAIR
The Company has established certain facilities throughout the world which have
the capability to provide service and repair functions for all Company products
from the Rotating Equipment, Fluid Sealing and Flow Control Divisions. The
Company believes that these consolidated service and repair facilities provide a
substantial growth opportunity and has established a special management team to
focus on this effort.
BACKLOG
The Company's backlog of orders at December 31, 1997, was $291.6 million
compared to $287.1 million at December 31, 1996. The Company believes that a
high percentage of the current backlog will be shipped by December 31, 1998.
COMPETITION
The markets for the Company's products are highly competitive. Competition
occurs on the basis of price, technical expertise, delivery, previous
installation history and reputation for quality. Delivery speed and the
proximity of service centers are particularly important with respect to
aftermarket products. Customers are more likely to rely on the Company than
competitors for aftermarket products relating to its more highly engineered and
customized products than for its standard products. Price competition tends to
be more significant for OE manufacturers than aftermarket services and has been
increasing with ongoing overcapacity in pump markets.
In the aftermarket portion of its pump business, the Company competes against
both large and well-established national or global competitors and, in some
markets, against smaller regional and local companies, as well as the in-house
maintenance departments of the Company's end-user customers. In the sale of
aftermarket products and services, the Company benefits from the large installed
base of pumps which require maintenance, repair and replacement parts.
In the petroleum industry the competitors for aftermarket services tend to be
the customers themselves because of their sophisticated in-house capabilities.
In other industries, except the nuclear power industry, the competitors for
aftermarket services tend to be low cost replicators of spare parts and local
repair shops for the Company's products. The Company has certain competitive
advantages in the
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nuclear power industry because it maintains the N stamp that is required to
service customers in that industry, and because the Company has a considerable
base of proprietary knowledge.
Customers for the Company's products are attempting to reduce the number of
vendors from which they purchase in order to reduce the size and diversity of
inventory. Although vendor reduction programs could adversely affect the
Company's business, the Company has been successful in entering into "alliance"
arrangements with a number of customers both in the United States and overseas
which provide competitive advantages to the Company.
RESEARCH AND DEVELOPMENT
The Company conducts research and development at its own facilities in various
locations. In 1997, 1996, and 1995, the Company spent approximately $14.8
million, $13.9 million, and $13.6 million, respectively, on Company-sponsored
research and development, primarily for new product development
The Company's research and development group consists of engineers involved in
new product development as well as the support and improvement of existing
products. Additionally, the Company sponsors consortium programs for research
with various universities and conducts limited development work jointly with
certain of its vendors, licensees and customers. Management believes current
expenditures are adequate to sustain ongoing research and development
activities.
CUSTOMERS
The Company sells to a wide variety of customers. No individual customer
accounted for more than 10% of the Company's 1997 net sales.
RISKS OF INTERNATIONAL BUSINESS
Approximately 48% of the Company's sales are to customer locations outside the
United States. The Company's activities thus are subject to the customary risks
of operating in an international environment, such as unstable political
situations, local laws, the potential imposition of trade restrictions or tariff
increases and the relationship of the U.S. dollar to other currencies. The
impact of these conditions is mitigated somewhat by the strength and diversity
of the Company's product lines and geographic coverage. To minimize the impact
of foreign exchange rate movements on its operating results, the Company enters
into forward exchange contracts to hedge specific foreign currency denominated
transactions. See Note 1 to Consolidated Financial Statements on pages 23 and 24
of the 1997 Annual Report to Shareholders, which is incorporated by reference in
this Form 10-K. The Company conducts substantial business activities in the
Middle East.
INTELLECTUAL PROPERTY
The Company owns a number of trademarks and patents relating to the name and
design of its products. The Company considers its trademarks Byron Jackson(R),
Durco(R), United Centrifugal(R), Byron Jackson/United(R), Durametallic(R), BW
Seals(R), GASPAC(R), Pacific Wietz(TM), Five Star Seal(R), Wilson-Snyder(R),
Valtek(R), Kammer(R), Sereg(TM) and Automax(R) to be important to its business.
The patents underlying much of the technology for the Company's products have
been in the public domain for many years. Surviving patents are not considered,
either individually or in the aggregate, material to the Company's business.
However, the Company's pool of proprietary information, consisting of know-how
and trade secrets relating to the design, manufacture and operation of its
products and their use, is considered particularly important and valuable.
Accordingly the Company protects such proprietary information.
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The Company, in general, is the owner of the rights to the products which it
manufactures and sells, and the Company is not dependent in any material way
upon any license or franchise to operate.
RAW MATERIALS
The principal raw materials used by the Company in the manufacture of its
products are normally readily available. While substantially all raw materials
are purchased from outside sources, the Company has been able to obtain an
adequate supply of raw materials, and no shortage of such materials is currently
anticipated. The Company intends to expand its use of worldwide sourcing to
capitalize on low cost sources of purchased goods.
The Company is a vertically-integrated manufacturer of certain products. Certain
corrosion-resistant castings for Company pumps and quarter-turn valves are
manufactured at the Dayton, Ohio foundries; other metal castings are purchased
from outside sources.
The Company also produces most of its highly engineered corrosion resistant
plastic parts for certain pump and valve product lines. This includes
rotomolding as well as injection and compression molding of a variety of
fluorocarbon and other plastic materials.
Suppliers of raw materials for nuclear markets must be qualified by the American
Society of Mechanical Engineers and, accordingly, are limited in number.
However, the Company to date has experienced no significant difficulty in
obtaining such materials.
EMPLOYEES AND LABOR RELATIONS
The Company and its subsidiaries employ approximately 7,200 persons of whom
approximately 59% work in the United States. The Company's hourly employees at
its four principal U.S. pump manufacturing plants in Los Angeles, California,
San Jose, California (to be closed in mid-1998), Dayton, Ohio, and Tulsa,
Oklahoma, at its valve manufacturing plant in Williamsport, Pennsylvania and at
its foundry in Dayton, Ohio are represented by unions. The Company's operations
in Mexico, The Netherlands, Germany and Belgium are unionized. The Company
believes employee relations throughout its operations are satisfactory.
ENVIRONMENTAL REGULATIONS AND PROCEEDINGS
The Company is subject to environmental laws and regulations in all
jurisdictions in which it has operating facilities and periodically makes
capital expenditures for pollution abatement and control to meet environmental
requirements. At present the Company has no plans for any material capital
expenditures for environmental control facilities. However, the Company has
experienced and continues to experience operating costs relating to
environmental matters, although certain costs have been offset in part by the
Company's successful waste minimization programs.
The Company believes that future environmental compliance expenditures will not
have a material adverse effect on its financial position and has established
allowances which it believes to be adequate to cover potential environmental
liabilities.
EXPORT LICENSES
Licenses are required from U.S. government agencies to export certain of the
Company's products from the United States. In particular, products with nuclear
applications are restricted, although limitations are placed on the export of
certain other pump, valve and seal products as well.
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ITEM 2. PROPERTIES
The Company's corporate headquarters is a leased facility in Irving, Texas
encompassing approximately 34,000 square feet.
The location, size and products manufactured at the Company's principal
manufacturing facilities are as follows:
LOCATION SQUARE FOOTAGE PRODUCTS MANUFACTURED
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DOMESTIC:
Dayton, Ohio 600,000 Castings and pumps
Cookeville, Tennessee 190,000 Valves
Springville, Utah 140,000 Valves and actuators
Springboro, Ohio 50,000 Plastic components for pumps and valves
Kalamazoo, Michigan 137,000 Mechanical seals
Temecula, California 64,000 Mechanical seals
Los Angeles, California 273,000 Pumps
Williamsport, Pennsylvania 141,000 Valves
Tulsa, Oklahoma 320,000 Pumps
Albuquerque, New Mexico 50,000 Components for pumps
San Jose, California 99,000 Pumps
INTERNATIONAL:
Mendoza, Argentina 81,000 Pumps and mechanical seals
Petit Rechain, Belgium 65,000 Pumps and valves
Ahaus, Germany 68,000 Valves
Dortmund, Germany 70,000 Mechanical seals
Essen, Germany 50,000 Valves and actuators
Santa Clara, Mexico 154,000 Pumps and mechanical seals
Etten-Leur, The Netherlands 175,000 Pumps
Hengelo, The Netherlands 49,400 Pumps
Roosendaal, The Netherlands 48,400 Mechanical seals
All of the Company's principal manufacturing facilities are owned with the
exception of the facilities in Cookeville, Tennessee; Springboro, Ohio; Hengelo,
The Netherlands; and Dortmund, Germany.
On the average, the Company utilizes approximately 80% to 90% of its
manufacturing capacity, although there is a variation in usage rate among the
facilities. The Company could, in general, increase its capacity through the
purchase of new or additional manufacturing equipment without obtaining
additional facilities.
The Company maintains a substantial network of domestic and foreign service
centers and sales offices most of which are leased.
The Company is leasing its former manufacturing facility in Van Nuys, California
to a third party with an option to purchase. In November 1997, the Company
announced the closing of its San Jose pump manufacturing facility in 1998 and
has entered into a letter of intent to sell this property.
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ITEM 3. LEGAL PROCEEDINGS
The Company is involved in ordinary routine litigation incidental to its
business, none of which it believes to be material to its financial condition.
For further information about such litigation, see Note 9 of the Financial
Statements, provided as part of Item 8 of this Form 10-K and incorporated herein
by reference.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The common stock of the Company (FLS) is traded on the New York Stock Exchange.
In January 1998, the Company's records showed approximately 2,500 shareholders
of record. Based on these records plus requests from brokers and nominees listed
as shareholders of record, the Company estimates there are approximately 13,200
beneficial owners of its common stock. During 1997, the Company paid a dividend
of fourteen cents per share each calendar quarter, and, in 1996, a dividend of
thirteen cents per share each calendar quarter.
PRICE RANGE OF FLOWSERVE COMMON STOCK
(HIGH/LOW PRICES)
1997 1996
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First Quarter $27.12/$21.88 $29.25/$20.50
Second Quarter $30.00/$21.25 $29.38/$23.00
Third Quarter $36.63/$28.81 $27.50/$19.25
Fourth Quarter $30.56/$26.38 $28.50/$25.25
During 1997, 1996 and 1995, the Company issued 21,700, 29,900 and 4,100 shares
of restricted common stock, respectively, pursuant to an exemption from
registration under Section 4(2) of the Securities Act of 1933. Shares were
issued for the benefit of directors and officers of the Company subject to
restrictions on transfer.
ITEM 6. SELECTED FINANCIAL DATA
Selected financial data for the five years ended December 31, 1997, which
appears on page 18 of the 1997 Annual Report to Shareholders, is incorporated
herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
Management's Discussion and Analysis appears on pages 14 through 17 of the 1997
Annual Report to Shareholders and is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements together with the report thereon of Ernst & Young LLP
dated February 20, 1998, and supplementary data appearing on pages 19 through 38
of the 1997 Annual Report to Shareholders are incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.
Not applicable.
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information contained under the heading "Election of Directors" in the
definitive Proxy Statement for the Annual Meeting of Shareholders to be held on
or about May 21, 1998, (the "1998 Proxy Statement") is incorporated herein by
reference. The executive officers of the Company, all positions and offices
presently held by each person named, their ages as of March 1, 1998, and their
business experience during the last five years are stated below. Executive
officers serve at the discretion of the Board of Directors.
Name and Position Age Principal Occupation During Past Five Years
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Bernard G. Rethore 56 Chairman of the Board of Directors and Chief Executive
Chairman of the Board of Directors and Officer since July 1997; Chairman of the Board of
Chief Executive Officer Directors of BW/IP from February 1997 to July 1997 and
President and Chief Executive Officer and a Director of
BW/IP from 1995 to July 1997; Senior Vice President of
Phelps Dodge Corporation and President of Phelps
Dodge Industries, its diversified international
manufacturing business, from 1989 to 1995.
William M. Jordan 54 President and a Director since 1991 and Chief
President and Chief Operating Officer Operating Officer since July 1997; Chairman of the
Board from 1996 to July 1997 and Chief Executive Officer
from 1993 to July 1997; Chief Operating Officer from
1990 to 1993.
Renee J. Hornbaker 45 Vice President and Chief Financial Officer since
Vice President and December 1997; Vice President, Business Development
Chief Financial Officer from July 1997 to December 1997. Vice President,
Finance and Chief Financial Officer of BW/IP from May
1997 to July 1997; Vice President, Business Development
of BW/IP from 1996 to May 1997. Director-Business
Analysis and Planning of Phelps Dodge Industries, the
diversified international manufacturing business of
Phelps Dodge Corporation, from February to April 1996
and Director Financial Analysis and Control from July
1991 to February 1996.
Rick L. Johnson 45 Vice President, Business Development since January
Vice President, 1998; Vice President and Controller of the
Business Development Industrial Products Division from July 1997 to January
1998; Industrial Products Group Vice President and
Controller from 1995 to July 1997; President Durco
Valtek (Singapore) from 1993 to 1995; Corporate
Controller 1991 to 1993.
Rory E. MacDowell 47 Vice President and Chief Information Officer since
Vice President and March 1998; Chief Information Officer of Keystone
Chief Information Officer International, Inc., a manufacturer and distributor of
flow control products from 1993 to September 1997;
various information technology management positions in
the oilfield services division of Schlumberger from 1985
to 1993.
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Cheryl D. McNeal 47 Vice President, Human Resources since 1996;
Vice President, Assistant Vice President, Human Resources and other
Human Resources Human Resource management positions at NCR from 1978
to 1996.
George A. Shedlarski 54 President, Fluid Sealing Division since October 1997.
President, Fluid Sealing Division President, Service Repair Division from July 1997 to
October 1997. President Rotating Equipment Group from
March 1997 to July 1997. Group Vice President,
Industrial Products Group from 1994 to March 1997;
Vice President U.S. Operations from 1990 to 1994.
Ronald F. Shuff 45 Vice President since 1990 and Secretary and General
Vice President, Secretary and Counsel since 1989 .
General Counsel
Mark E. Vernon 45 President, Flow Control Division since October 1997
President, Flow Control Division and President, Industrial Products Division from July
1997 to October 1997. Group Vice President, Flow Control
Group from 1993 to July 1997. President of the Company's
Valtek, Inc. subsidiary from 1991 to 1993.
Reid B. Wayman 45 President, Service Repair Division since October 1997;
President, Service Repair Division President Flow Control Division from July 1997 to
October 1997; Group Vice President, Flow Control Group
from March 1997 to July 1997; Vice President, Sales and
European Operations of the Rotating Equipment Group from
1996 to March 1997; Vice President -European Operations
of the Flow Control Group from December 1992 to April
1996.
Howard D. Wynn 51 President, Rotating Equipment Division since July
President, Rotating Equipment Division 1997; Vice President of BW/IP and President, Pump
Division from August 1996 to July 1997; Vice President
of the BW/IP Pump Division from 1993 to August 1996;
Operations Manager, Service of BW/IP from 1988 to 1993.
Charles F. Cargile 33 Corporate Controller since July 1997; Corporate
Corporate Controller Controller of BW/IP from December 1996 to July 1997;
Director Corporate Accounting of BW/IP from March 1996
to December 1996; Manager Operations and Financial
Analysis from 1992 to March 1996.
Scott E. Messel 39 Treasurer since January 1998; Vice President and
Treasurer Director, International Treasury from 1994 to December
1997 and other increasingly responsible management
positions from 1983 to 1994 at Ralston Purina Company, a
manufacturer of pet foods, food-related products and
battery products.
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ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item 11 is set forth in the 1998 Proxy
Statement and is incorporated herein by this reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item 12 is set forth in the 1998 Proxy
Statement and is incorporated herein by this reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item 13 is set forth to the extent applicable
in the 1998 Proxy Statement and is incorporated herein by this reference.
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. Financial Statements
The financial statements, together with the report thereon of Ernst &
Young LLP dated February 20, 1998, appearing on pages 19 through 38 of
the 1997 Annual Report to Shareholders, listed in the accompanying
index on page F-1, are incorporated herein by reference.
2. Financial Statement Schedules
The required financial statement schedules together with the report
thereon of Ernst & Young LLP dated February 20, 1998, listed in the
accompanying index on page F-1, are filed as part of this Form 10-K.
3. Exhibits
The exhibits listed on the accompanying index to exhibits on pages 14
through 19 are filed as part of this Form 10-K.
(b) Reports on Form 8-K
None.
(c) See Item 14(a) 3 above.
(d) See Item 14(a) 2 above.
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INDEX TO EXHIBITS*
EXHIBIT DESCRIPTION
NO.
2.1 Agreement and Plan of Merger dated as of May 6, 1997, among the
Company, Bruin Acquisition Corp. and BW/IP, Inc. ("BW/IP") was
filed as Annex I to the Joint Proxy Statement/Prospectus which is
part of the Registration Statement on Form S-4, dated June 19,
1997.
3.1 1988 Restated Certificate of Incorporation of The Duriron Company,
Inc. was filed as Exhibit 3.1 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1988.
3.2 1989 Amendment to Certificate of Incorporation was filed as
Exhibit 3.2 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1989.
3.3 By-Laws of The Duriron Company, Inc. (as restated) were filed with
the Commission as Exhibit 3.2 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1987.
3.4 1996 Certificate of Amendment of Certificate of Incorporation was
filed as Exhibit 3.4 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1995.
3.5 Amendment No. 1 to Restated Bylaws was filed as Exhibit 3.5 to the
Company's Annual Report on Form 10-K for the year ended December
31, 1995.
3.6 April 1997 Certificate of Amendment of Certificate of
Incorporation was filed as part of Annex VI to the Joint Proxy
Statement/Prospectus which is part of the Registration Statement
on Form S-4, dated June 19, 1997.
3.7 July 1997 Certificate of Amendment of Certificate of Incorporation
was filed as Exhibit 3.6 to the Company's Quarterly Report on Form
10-Q, for the Quarter ended June 30, 1997.
4.1 Lease agreement, indenture of mortgage and deed of trust, and
guarantee agreement, all executed on June 1, 1978 in connection
with 9-1/8% Industrial Development Revenue Bonds, Series A, City
of Cookeville, Tennessee. +
4.2 Lease agreement, indenture of trust, and guaranty agreement, all
executed on June 1, 1978 in connection with 7-3/8% Industrial
Development Revenue Bonds, Series B, City of Cookeville,
Tennessee. +
14
16
4.3 Lease agreement and indenture, dated as of January 1, 1995 and
bond purchase agreement dated January 27, 1995, in connection with
an 8% Taxable Industrial Development Revenue Bond, City of
Albuquerque, New Mexico.+
4.4 Rights Agreement dated as of August 1, 1986 between the Company
and BankOne, N.A., as Rights Agent, which includes as Exhibit B
thereto the Form of Rights Certificate which was filed as Exhibit
1 to the Company's Registration Statement on Form 8-A on August
13, 1986.
4.5 Amendment to Rights Agreement dated August 1, 1996 was filed as
Exhibit 4.5 to the Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1996.
4.6 Interest Rate and Currency Exchange Agreement between the Company
and Barclays Bank PLC dated November 17, 1992 in the amount of
$25,000,000 was filed as Exhibit 4.9 to Company's Annual Report on
Form 10-K for year ended December 31, 1992.
4.7 Loan Agreement in the amount of $25,000,000 between the Company
and Metropolitan Life Insurance Company dated November 12, 1992
was filed as Exhibit 4.10 to the Company's Annual Report on Form
10-K for the year ended December 31, 1992.
4.8 Revolving Credit Agreement between the Company and First of
America Bank - Michigan, N.A. in the amount of $20,000,000 and
dated August 22, 1995 was filed as Exhibit 4.11 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1995.
4.9 Credit Agreement dated as of November 26, 1997, among Flowserve
Corporation, Bank of America National Trust and Savings
Association as Agent and Letter of Credit Issuing Bank and the
other Financial Institutions Party thereto. (filed herewith)
4.10 Material Subsidiary Guarantee, dated as of November 26, 1997, by
BW/IP International, Inc. in favor of and for the benefit of Bank
of America National Trust and Savings Association, as Agent.
(filed herewith).
4.11 Rate Swap Agreement in the amount of $25,000,000 between the
Company and National City Bank dated November 14, 1996 was filed
as Exhibit 4.9 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1996.
4.12 Rate Swap Agreement in the amount of $25,000,000 between the
Company and Key Bank National Association dated October 28, 1996
was filed as Exhibit 4.10 to the Company's Annual Report on Form
10-K for the year ended December 31, 1996.
4.13 Guaranty, dated August 1, 1997 between Flowserve Corporation and
ABN-AMRO Bank N.V. was filed as Exhibit 4.12 to the Company's
Quarterly Report on Form 10-Q for the quarter ended September 30,
1997.
15
17
4.14 Credit Agreement, dated as of September 10, 1993, between BW/IP
International B.V. and ABN/AMRO was filed as Exhibit 10.dd to
BWIP's Annual Report on Form 10-K for the year ended December 31,
1993.
4.15 Note Agreement, dated as of November 15, 1996, between BW/IP
International, Inc. and the Note Purchasers named therein, with
respect to $30,000,000 principal amount of 7.14% Senior Notes,
Series A, due November 15, 2006, and $20,000,000 principal amount
of 7.17% Senior Notes, Series B, due March 31, 2007, was filed as
Exhibit 4.1 to BW/IP's Registration Statement on Form S-8
(Registration No. 333-21637) as filed February 12, 1997.
4.16 Note Agreement, dated as of April 15, 1992, between BW/IP
International, Inc. and the Note Purchasers named therein, with
respect to $50,000,000 principal amount of 7.92% Senior Notes due
May 15, 1999, filed as Exhibit 4.a to BW/IP's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1992.
10.1 The Duriron Company, Inc. Incentive Compensation Plan (the
"Incentive Plan") for Senior Executives, as amended and restated
effective January 1, 1994, was filed as Exhibit 10.1 to the
Company's Annual Report on Form 10-K for the year ended December
31, 1993. **
10.2 Amendment No. 1 to the Incentive Plan was filed as Exhibit 10.2 to
the Company's Annual Report on Form 10-K for the year ended
December 31, 1995. **
10.3 The Duriron Company, Inc. Supplemental Pension Plan for Salaried
Employees was filed with the Commission as Exhibit 10.4 to the
Company's Annual Report on Form 10-K for the year ended December
31, 1987. **
10.4 The Duriron Company, Inc. amended and restated Director Deferral
Plan was filed as Attachment A to the Company's definitive 1996
Proxy Statement filed with the Commission on March 10, 1996. **
10.5 Form of Change in Control Agreement between all executive officers
and the Company was filed as Exhibit 10.6 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1996. **
10.6 The Duriron Company, Inc. First Master Benefit Trust Agreement
dated October 1, 1987 was filed as Exhibit 10.24 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1987.**
10.7 Amendment #1 to the First Master Benefit Trust Agreement dated
October 1, 1987 was filed as Exhibit 10.24 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1993.**
10.8 Amendment #2 to First Master Benefit Trust Agreement was filed as
Exhibit 10.25 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1993.**
16
18
10.9 The Duriron Company, Inc. Second Master Benefit Trust Agreement
dated October 1, 1987 was filed as Exhibit 10.12 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1987.**
10.10 First Amendment to Second Master Benefit Trust Agreement was filed
as Exhibit 10.26 to the Company's Annual Report on Form 10-K for
the year ended December 31, 1993.**
10.11 The Duriron Company, Inc. Long-Term Incentive Plan (the "Long-Term
Plan"), as amended and restated effective November 1, 1993 was
filed as Exhibit 10.8 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1993.**
10.12 Amendment No. 1 to the Long-Term Plan was filed as Exhibit 10.13
to the Company's Annual Report on Form 10-K for the year ended
December 31, 1995.**
10.13 The Duriron Company, Inc. 1989 Stock Option Plan as amended and
restated effective January 1, 1997 was filed as Exhibit 10.14 to
the Company's Annual Report on Form 10-K for the year ended
December 31, 1996.**
10.14 The Duriron Company, Inc. 1989 Restricted Stock Plan (the
"Restricted Stock Plan") as amended and restated effective January
1, 1997 was filed as Exhibit 10.15 to the Company's Annual Report
on Form 10-K for the year ended December 31, 1996.**
10.15 The Duriron Company, Inc. Retirement Compensation Plan for
Directors ("Director Retirement Plan") was filed as Exhibit 10.15
to the Company's Annual Report to Form 10-K for the year ended
December 31, 1988.**
10.16 Amendment No. 1 to Director Retirement Plan was filed as Exhibit
10.21 to the Company's Annual Report on Form 10-K for the year
ended December 31, 1995.**
10.17 The Company's Benefit Equalization Pension Plan (the "Equalization
Plan") was filed as Exhibit 10.16 to the Company's Annual Report
on Form 10-K for the year ended December 31, 1989.**
10.18 Amendment #1 dated December 15, 1992 to the Equalization Plan was
filed as Exhibit 10.18 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1992.**
10.19 The Company's Equity Incentive Plan as amended and restated
effective July 21, 1995 was filed as Exhibit 10.25 to the
Company's Annual Report on Form 10-K for the year ended December
31, 1995.**
10.20 Supplemental Pension Agreement between the Company and William M.
Jordan dated January 18, 1993 was filed as Exhibit 10.15 to the
Company's Annual Report on Form 10-K for the year ended December
31, 1992.**
10.21 1979 Stock Option Plan, as amended and restated April 23, 1991,
and Amendment #1 thereto dated December 15, 1992, was filed as
Exhibit 10.17 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1992.**
17
19
10.22 Deferred Compensation Plan for Executives was filed as Exhibit
10.19 to the Company's Annual Report on Form 10-K for the year
ended December 31, 1992.**
10.23 Executive Life Insurance Plan of The Duriron Company, Inc. was
filed as Exhibit 10.29 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1995.**
10.24 Executive Long-Term Disability Plan of The Duriron Company, Inc.
was filed as Exhibit 10.30 to the Company's Annual Report on Form
10-K for the year ended December 31, 1995.**
10.25 Employee Protection Plan, as revised effective March 1, 1997
(which provides certain severance benefits to employees upon a
change of control of the Company) was filed as Exhibit 10.32 to
the Company's Annual Report on Form 10-K for the year ended
December 31, 1996.**
10.26 1997 Stock Option Plan was included as Exhibit A to the Company's
1997 Proxy Statement which was filed with the Commission on March
17, 1997.**
10.27 Supplemental Executive Retirement Plan was filed as Exhibit
10.rrrr to BW/IP's Registration Statement on Form S-1
(Registration No. 33-45165) as filed February 18, 1992.**
10.28 Amendment Number One to the Supplemental Executive Retirement Plan
was filed as Exhibit 10.ee to BW/IP's Annual Report on Form 10-K
for the year ended December 31, 1993.**
10.29 Amendment to the BW/IP International, Inc. Supplemental Executive
Retirement Plan was filed as Exhibit 10.nn to BW/IP's Annual
Report on Form 10-K for the year ended December 31, 1994.**
10.30 Amendment to the BW/IP International, Inc. Supplemental Executive
Retirement Plan was filed as Exhibit 10.z to BW/IP's Annual Report
on Form 10-K for the year ended December 31, 1995.**
10.31 Form of Employment Agreement between the Company and certain
executive officers (filed herewith).**
10.32 Amendment No. 1 to the amended and restated Director Deferral Plan
(filed herewith).**
10.33 Amendment # 1 to the 1989 Restricted Stock Plan as amended and
restated (filed herewith). **
10.34 BW/IP International, Inc. 1997 Management Incentive Plan was filed
as Exhibit 10.kk to BW/IP's Annual Report on Form 10-K for the
year ended December 31, 1996.**
18
20
10.35 Employment Agreement, effective July 22, 1997, between the Company
and Bernard G. Rethore was filed as Exhibit 10.53 to the Company's
Quarterly Report on Form 10-Q for the quarter ended September 30,
1997.**
10.36 Employment Agreement, effective July 22, 1997, between the Company
and William M. Jordan was filed as Exhibit 10.54 to the Company's
Quarterly Report on Form 10-Q for the quarter ended September 30,
1997.**
13.1 1997 Annual Report to Shareholders (filed herewith as part of this
report to the extent incorporated herein by reference).
21.1 Subsidiaries of the Company (filed herewith).
23.1 Consent of Ernst & Young LLP (filed herewith).
23.2 Consent of Price Waterhouse LLP (filed herewith).
27.1 Financial Data Schedule submitted to the SEC in electronic format
(filed herewith).
- -----------
"*" For exhibits of the Company incorporated by reference into this
Annual Report on Form 10-K from a previous filing with the
Commission, the Company's file number with the Commission since
July 1997 is "1-13179" and the previous file number was "0-325".
All filings of BW/IP incorporated by reference in this Annual
Report on Form 10-K cover the periods prior to the Merger.
"+" Indicates that the document relates to a class of indebtedness
that does not exceed 10% of the total assets of the Company and
subsidiaries and that the Company will furnish a copy of the
document to the Commission upon request.
"**" Management contracts and compensatory plans and arrangements
required to be filed as exhibits to this Annual Report on Form
10-K pursuant to Item 14(c) of this Form 10-K. Compensatory plans
of BW/IP were assumed by the Company in accordance with the
Agreement and Plan of Merger.
19
21
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized on this 19th day of
February 1998.
FLOWSERVE CORPORATION
(Registrant)
By: /s/ Bernard G. Rethore
---------------------------
Bernard G. Rethore
Chairman and Chief Executive
Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed by the following persons in the capacities and on the dates
indicated.
SIGNATURE TITLE DATE
- --------- ----- ----
/s/ BERNARD G. RETHORE Chairman, February 19, 1998
- --------------------------------- Chief Executive Officer and Director
Bernard G. Rethore (Principal Executive Officer)
/s/ WILLIAM M. JORDAN President, Chief Operating Officer and Director February 19, 1998
- ---------------------------------
William M. Jordan
/s/ RENEE J. HORNBAKER Vice President and Chief Financial Officer February 19, 1998
- --------------------------------- (Principal Financial Officer)
Renee J. Hornbaker
/s/ CHARLES F. CARGILE Corporate Controller February 19, 1998
- --------------------------------- (Principal Accounting Officer)
Charles F. Cargile
/s/ WILLIAM C. RUSNACK Director, Chairman of Audit/Finance Committee February 19, 1998
- ---------------------------------
William C. Rusnack
/s/ DIANE C. HARRIS Director, Member Audit/Finance Committee February 19, 1998
- ---------------------------------
Diane C. Harris
/s/ JAMES O. ROLLANS Director, Member Audit/Finance Committee February 19, 1998
- ---------------------------------
James O. Rollans
/s/ R. ELTON WHITE Director, Member Audit/Finance Committee February 19, 1998
- ---------------------------------
R. Elton White
20
22
FLOWSERVE CORPORATION
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
ITEM 14(a)(1) AND (2)
ANNUAL REPORT ANNUAL REPORT
TO ON
SHAREHOLDERS FORM 10-K
------------ ----------
Flowserve Corporation Consolidated Financial Statements
Reports of Independent Auditors 38 F-2
Consolidated Balance Sheets at
December 31, 1997 and 1996 20
For the three years ended December 31, 1997:
Consolidated Statements of Income 19
Consolidated Statements of Shareholders' Equity 21
Consolidated Statements of Cash Flows 22
Notes to Consolidated Financial Statements 23-37
Flowserve Corporation Financial Statement Schedules
for the three years ended December 31, 1997
Report of Independent Auditors on
Financial Statement Schedules F-3
Schedule II - Valuation and Qualifying Accounts F-4
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 consolidated financial statements or notes thereto.
F-1
23
REPORT OF INDEPENDENT ACCOUNTANTS
In our opinion, the consolidated balance sheet and the related consolidated
statements of income and retained earnings and of cash flows of BW/IP, Inc. (not
presented separately herein) present fairly, in all material respects, the
financial position of BW/IP, Inc. and its subsidiaries at December 31, 1996 and
the results of their operations and their cash flows for each of the two years
in the period ended December 31, 1996, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
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, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Los Angeles, California
January 28, 1997
F-2
24
REPORT OF INDEPENDENT AUDITORS
ON FINANCIAL STATEMENT SCHEDULES
To the Board of Directors and Shareholders
Flowserve Corporation
We have audited the consolidated financial statements of Flowserve Corporation
and subsidiaries as of December 31, 1997 and 1996, and for each of the three
years in the period ending December 31, 1997, and have issued our report thereon
dated February 20, 1998 appearing on page 38 of the 1997 Annual Report (which
report and consolidated financial statements are incorporated by reference in
this Form 10-K). Our audits also included the financial statement schedules
listed in Item 14(a) of this Form 10-K. These schedules are the responsibility
of the Company's management. Our responsibility is to express an opinion based
on our audits. We did not audit the 1996 and 1995 financial statements of BW/IP,
Inc., a wholly owned subsidiary, which statements reflect total assets
constituting 49% of the related consolidated total as of December 31, 1996, and
total revenues constituting 45% and 46% of the related totals for the years
ended December 31, 1996 and 1995, respectively. We have been furnished with the
report of other auditors with respect to Schedule 14(a) of BW/IP, Inc.
In our opinion, based on our audits and the report of other auditors, the
financial statement schedules referred to above, when considered in relation to
the basic financial statements taken as a whole, presents fairly in all material
respects the information set forth therein.
Ernst & Young LLP
Dallas, Texas
February 20, 1998
F-3
25
FLOWSERVE CORPORATION
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(DOLLARS IN THOUSANDS)
Column A Column B Column C Column D Column E
-------- -------- -------- -------- --------
Balance at Additions Deductions Balance at
beginning charged to from reserve end of
Description of year earnings year
- ------------
Year ended December 31, 1997:
Allowance for doubtful accounts (a): $ 4,826 $ 2,458 $ 2,225 $ 5,059
============ ============= =============== =============
Year ended December 31, 1996:
Allowance for doubtful accounts (a): $ 5,183 $ 1,786 $ 2,143 4,826
============ ============= =============== =============
Year ended December 31, 1995:
Allowance for doubtful accounts (a): $ 4,437 $ 2,650 $ 1,904 5,183
============ ============= =============== =============
Year ended December 31, 1997:
Inventory reserves (b): $ 13,716 $ 4,308 $ 619 $ 17,405
============ ============= =============== =============
Year ended December 31, 1996:
Inventory reserves (b): $ 16,252 $ 860 $ 3,396 13,716
============ ============= =============== =============
Year ended December 31, 1995:
Inventory reserves (b): $ 13,759 $ 3,075 $ 582 $ 16,252
============ ============= =============== =============
(a) Deductions from reserve represent accounts written off net of recoveries.
(b) Deductions from reserve represent inventory written off.
F-4
26
INDEX TO EXHIBITS*
EXHIBIT DESCRIPTION
NO.
2.1 Agreement and Plan of Merger dated as of May 6, 1997, among the
Company, Bruin Acquisition Corp. and BW/IP, Inc. ("BW/IP") was
filed as Annex I to the Joint Proxy Statement/Prospectus which is
part of the Registration Statement on Form S-4, dated June 19,
1997.
3.1 1988 Restated Certificate of Incorporation of The Duriron Company,
Inc. was filed as Exhibit 3.1 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1988.
3.2 1989 Amendment to Certificate of Incorporation was filed as
Exhibit 3.2 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1989.
3.3 By-Laws of The Duriron Company, Inc. (as restated) were filed with
the Commission as Exhibit 3.2 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1987.
3.4 1996 Certificate of Amendment of Certificate of Incorporation was
filed as Exhibit 3.4 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1995.
3.5 Amendment No. 1 to Restated Bylaws was filed as Exhibit 3.5 to the
Company's Annual Report on Form 10-K for the year ended December
31, 1995.
3.6 April 1997 Certificate of Amendment of Certificate of
Incorporation was filed as part of Annex VI to the Joint Proxy
Statement/Prospectus which is part of the Registration Statement
on Form S-4, dated June 19, 1997.
3.7 July 1997 Certificate of Amendment of Certificate of Incorporation
was filed as Exhibit 3.6 to the Company's Quarterly Report on Form
10-Q, for the Quarter ended June 30, 1997.
4.1 Lease agreement, indenture of mortgage and deed of trust, and
guarantee agreement, all executed on June 1, 1978 in connection
with 9-1/8% Industrial Development Revenue Bonds, Series A, City
of Cookeville, Tennessee. +
4.2 Lease agreement, indenture of trust, and guaranty agreement, all
executed on June 1, 1978 in connection with 7-3/8% Industrial
Development Revenue Bonds, Series B, City of Cookeville,
Tennessee. +
27
4.3 Lease agreement and indenture, dated as of January 1, 1995 and
bond purchase agreement dated January 27, 1995, in connection with
an 8% Taxable Industrial Development Revenue Bond, City of
Albuquerque, New Mexico.+
4.4 Rights Agreement dated as of August 1, 1986 between the Company
and BankOne, N.A., as Rights Agent, which includes as Exhibit B
thereto the Form of Rights Certificate which was filed as Exhibit
1 to the Company's Registration Statement on Form 8-A on August
13, 1986.
4.5 Amendment to Rights Agreement dated August 1, 1996 was filed as
Exhibit 4.5 to the Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1996.
4.6 Interest Rate and Currency Exchange Agreement between the Company
and Barclays Bank PLC dated November 17, 1992 in the amount of
$25,000,000 was filed as Exhibit 4.9 to Company's Annual Report of
Form 10-K for year ended December 31, 1992.
4.7 Loan Agreement in the amount of $25,000,000 between the Company
and Metropolitan Life Insurance Company dated November 12, 1992
was filed as Exhibit 4.10 to the Company's Annual Report on Form
10-K for the year ended December 31, 1992.
4.8 Revolving Credit Agreement between the Company and First of
America Bank - Michigan, N.A. in the amount of $20,000,000 and
dated August 22, 1995 was filed as Exhibit 4.11 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1995.
4.9 Credit Agreement dated as of November 26, 1997, among Flowserve
Corporation, Bank of America National Trust and Savings
Association as Agent and Letter of Credit Issuing Bank and the
other Financial Institutions Party hereto. (filed herewith)
4.10 Material Subsidiary Guarantee, dated as of November 26, 1997, by
BW/IP International, Inc. in favor of and for the benefit of Bank
of America National Trust and Savings Association, as agent.
(filed herewith).
4.11 Rate Swap Agreement in the amount of $25,000,000 between the
Company and National City Bank dated November 14, 1996 was filed
as Exhibit 4.9 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1996.
4.12 Rate Swap Agreement in the amount of $25,000,000 between the
Company and Key Bank National Association dated October 28, 1996
was filed as Exhibit 4.10 to the Company's Annual Report on Form
10-K for the year ended December 31, 1996.
4.13 Guaranty, dated August 1, 1997 between Flowserve Corporation and
ABN-AMRO Bank N.V. was filed as Exhibit 4.12 to the Company's
Quarterly Report on Form 10-Q for the quarter ended September 30,
1997.
28
4.14 Credit Agreement, dated as of September 10, 1993, between BW/IP
International B.V. and ABN/AMRO was filed as Exhibit 10.dd to
BWIP's Annual Report on Form 10-K for the year ended December 31,
1993.
4.15 Note Agreement, dated as of November 15, 1996, between BW/IP
International, Inc. and the Note Purchasers named therein, with
respect to $30,000,000 principal amount of 7.14% Senior Notes,
Series A, due November 15, 2006, and $20,000,000 principal amount
of 7.17% Senior Notes, Series B, due March 31, 2007, was filed as
Exhibit 4.1 to BW/IP's Registration Statement on Form S-8
(Registration No. 333-21637) as filed February 12, 1997.
4.16 Note Agreement, dated as of April 15, 1992, between BW/IP
International, Inc. and the Note Purchasers named therein, with
respect to $50,000,000 principal amount of 7.92% Senior Notes due
May 15, 1999, filed as Exhibit 4.a to BW/IP's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1992.
10.1 The Duriron Company, Inc. Incentive Compensation Plan (the
"Incentive Plan") for Senior Executives, as amended and restated
effective January 1, 1994, was filed as Exhibit 10.1 to the
Company's Annual Report on Form 10-K for the year ended December
31, 1993. **
10.2 Amendment No. 1 to the Incentive Plan was filed as Exhibit 10.2 to
the Company's Annual Report on Form 10-K for the year ended
December 31, 1995. **
10.3 The Duriron Company, Inc. Supplemental Pension Plan for Salaried
Employees was filed with the Commission as Exhibit 10.4 to the
Company's Annual Report on Form 10-K for the year ended December
31, 1987. **
10.4 The Duriron Company, Inc. amended and restated Director Deferral
Plan was filed as Attachment A to the Company's definitive 1996
Proxy Statement filed with the Commission on March 10, 1996. **
10.5 Form of Change in Control Agreement between all executive officers
and the Company was filed as Exhibit 10.6 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1996. **
10.6 The Duriron Company, Inc. First Master Benefit Trust Agreement
dated October 1, 1987 was filed as Exhibit 10.24 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1987.**
10.7 Amendment #1 to the First Master Benefit Trust Agreement dated
October 1, 1987 was filed as Exhibit 10.24 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1993.**
10.8 Amendment #2 to First Master Benefit Trust Agreement was filed as
Exhibit 10.25 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1993.**
29
10.9 The Duriron Company, Inc. Second Master Benefit Trust Agreement
dated October 1, 1987 was filed as Exhibit 10.12 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1987.**
10.10 First Amendment to Second Master Benefit Trust Agreement was filed
as Exhibit 10.26 to the Company's Annual Report on Form 10-K for
the year ended December 31, 1993.**
10.11 The Duriron Company, Inc. Long-Term Incentive Plan (the "Long-Term
Plan"), as amended and restated effective November 1, 1993 was
filed as Exhibit 10.8 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1993.**
10.12 Amendment No. 1 to the Long-Term Plan was filed as Exhibit 10.13
to the Company's Annual Report on Form 10-K for the year ended
December 31, 1995.**
10.13 The Duriron Company, Inc. 1989 Stock Option Plan as amended and
restated effective January 1, 1997 was filed as Exhibit 10.14 to
the Company's Annual Report on Form 10-K for the year ended
December 31, 1996.**
10.14 The Duriron Company, Inc. 1989 Restricted Stock Plan (the
"Restricted Stock Plan") as amended and restated effective January
1, 1997 was filed as Exhibit 10.15 to the Company's Annual Report
on Form 10-K for the year ended December 31, 1996.**
10.15 The Duriron Company, Inc. Retirement Compensation Plan for
Directors ("Director Retirement Plan") was filed as Exhibit 10.15
to the Company's Annual Report to Form 10-K for the year ended
December 31, 1988.**
10.16 Amendment No. 1 to Director Retirement Plan was filed as Exhibit
10.21 to the Company's Annual Report on Form 10-K for the year
ended December 31, 1995.**
10.17 The Company's Benefit Equalization Pension Plan (the "Equalization
Plan") was filed as Exhibit 10.16 to the Company's Annual Report
on Form 10-K for the year ended December 31, 1989.**
10.18 Amendment #1 dated December 15, 1992 to the Equalization Plan was
filed as Exhibit 10.18 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1992.**
10.19 The Company's Equity Incentive Plan as amended and restated
effective July 21, 1995 was filed as Exhibit 10.25 to the
Company's Annual Report on Form 10-K for the year ended December
31, 1995.**
10.20 Supplemental Pension Agreement between the Company and William M.
Jordan dated January 18, 1993 was filed as Exhibit 10.15 to the
Company's Annual Report on Form 10-K for the year ended December
31, 1992.**
10.21 1979 Stock Option Plan, as amended and restated April 23, 1991,
and Amendment #1 thereto dated December 15, 1992, was filed as
Exhibit 10.17 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1992.**
30
10.22 Deferred Compensation Plan for Executives was filed as Exhibit
10.19 to the Company's Annual Report on Form 10-K for the year
ended December 31, 1992.**
10.23 Executive Life Insurance Plan of The Duriron Company, Inc. was
filed as Exhibit 10.29 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1995.**
10.24 Executive Long-Term Disability Plan of The Duriron Company, Inc.
was filed as Exhibit 10.30 to the Company's Annual Report on Form
10-K for the year ended December 31, 1995.**
10.25 Employee Protection Plan, as revised effective March 1, 1997
(which provides certain severance benefits to employees upon a
change of control of the Company) was filed as Exhibit 10.32 to
the Company's Annual Report on Form 10-K for the year ended
December 31, 1996.**
10.26 1997 Stock Option Plan was included as Exhibit A to the Company's
1997 Proxy Statement which was filed with the Commission on March
17, 1997.**
10.27 Supplemental Executive Retirement Plan was filed as Exhibit
10.rrrr to BW/IP's Registration Statement on Form S-1
(Registration No. 33-45165) as filed February 18, 1992.**
10.28 Amendment Number One to the Supplemental Executive Retirement Plan
was filed as Exhibit 10.ee to BW/IP's Annual Report on Form 10-K
for the year ended December 31, 1993.**
10.29 Amendment to the BW/IP International, Inc. Supplemental Executive
Retirement Plan was filed as Exhibit 10.nn to BW/IP's Annual
Report on Form 10-K for the year ended December 31, 1994.**
10.30 Amendment to the BW/IP International, Inc. Supplemental Executive
Retirement Plan was filed as Exhibit 10.z to BW/IP's Annual Report
on Form 10-K for the year ended December 31, 1995.**
10.31 Form of Employment Agreement between the Company and certain
executive officers (filed herewith).**
10.32 Amendment No. 1 to the amended and restated Director Deferral Plan
(filed herewith).**
10.33 Amendment # 1 to the 1989 Restricted Stock Plan as amended and
restated (filed herewith). **
10.34 BW/IP International, Inc. 1997 Management Incentive Plan was filed
as Exhibit 10.kk to BW/IP's Annual Report on Form 10-K for the
year ended December 31, 1996.**
31
10.35 Employment Agreement, effective July 22, 1997, between the Company
and Bernard G. Rethore was filed as Exhibit 10.53 to the Company's
Quarterly Report on Form 10-Q for the quarter ended September 30,
1997.**
10.36 Employment Agreement, effective July 22, 1997, between the Company
and William M. Jordan was filed as Exhibit 10.54 to the Company's
Quarterly Report on Form 10-Q for the quarter ended September 30,
1997.**
13.1 1997 Annual Report to Shareholders (filed herewith as part of this
report to the extent incorporated herein by reference).
21.1 Subsidiaries of the Company (filed herewith).
23.1 Consent of Ernst & Young LLP (filed herewith).
23.2 Consent of Price Waterhouse LLP (filed herewith).
27 Financial Data Schedule submitted to the SEC in electronic format
(filed herewith).
27.1 Restated Financial Data Schedule (filed herewith).
- -----------
"*" For exhibits of the Company incorporated by reference into this
Annual Report on Form 10-K from a previous filing with the
Commission, the Company's file number with the Commission since
July 1997 is "1-13179" and the previous file number was "0-325".
All filings of BW/IP incorporated by reference in this Annual
Report on Form 10-K cover the periods prior to the Merger.
"+" Indicates that the document relates to a class of indebtedness
that does not exceed 10% of the total assets of the Company and
subsidiaries and that the Company will furnish a copy of the
document to the Commission upon request.
"**" Management contracts and compensatory plans and arrangements
required to be filed as exhibits to this Annual Report on Form
10-K pursuant to Item 14(c) of this Form 10-K. Compensatory plans
of BW/IP were assumed by the Company in accordance with the
Agreement and Plan of Merger.
1
EXHIBIT 4.9
================================================================================
CREDIT AGREEMENT
Dated as of November 26, 1997
among
FLOWSERVE CORPORATION
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION
as Agent,
and
Letter of Credit Issuing Bank
and
THE OTHER FINANCIAL
INSTITUTIONS PARTY HERETO
Arranged by
BANCAMERICA ROBERTSON STEPHENS
[BANK OF AMERICA LOGO]
================================================================================
2
TABLE OF CONTENTS
Page
----
SECTION 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 DEFINED TERMS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 USE OF DEFINED TERMS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
1.3 ACCOUNTING TERMS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
1.4 ROUNDING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
1.5 EXHIBITS AND SCHEDULES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
1.6 REFERENCES TO "BORROWER AND ITS SUBSIDIARIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
1.7 MISCELLANEOUS TERMS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
1.8 DOLLAR EQUIVALENT AMOUNTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
SECTION 2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
2.1 COMMITTED LOANS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
2.2 BORROWINGS, CONVERSIONS AND CONTINUATIONS OF COMMITTED LOANS . . . . . . . . . . . . . . . . . . . . 24
2.3 COMPETITIVE LOANS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
2.4 LETTERS OF CREDIT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
2.5 PREPAYMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
2.6 MANDATORY AND VOLUNTARY REDUCTION OR TERMINATION OF COMMITMENTS . . . . . . . . . . . . . . . . . . 33
2.7 OPTIONAL INCREASE OF THE COMMITMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
2.9 FEES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
(a) Facility Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
(b) Agency Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
2.10 COMPUTATION OF INTEREST AND FEES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
2.11 MANNER AND TREATMENT OF PAYMENTS AMONG THE BANKS, BORROWER AND THE AGENT . . . . . . . . . . . . . . 36
2.12 FUNDING SOURCES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
2.13 EXTENSION OF MATURITY DATE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
SECTION 3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
3.1 TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
3.2 INCREASED COSTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
3.3 CAPITAL ADEQUACY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
3.4 ILLEGALITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
3.5 INABILITY TO DETERMINE RATES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
3.6 BREAKFUNDING COSTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
3.7 MATTERS APPLICABLE TO ALL REQUESTS FOR COMPENSATION . . . . . . . . . . . . . . . . . . . . . . . . 39
SECTION 4 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
4.1 INITIAL EXTENSION OF CREDIT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
4.2 ANY EXTENSION OF CREDIT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
SECTION 5 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
5.1 DUE INCORPORATION, ETC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
5.2 AUTHORIZATION OF BORROWING, ETC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
5.3 FINANCIAL CONDITION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
5.4 ABSENCE OF LITIGATION; LITIGATION DESCRIPTION . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
5.5 PAYMENT OF TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
5.6 GOVERNMENTAL REGULATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
5.7 NOT A PURPOSE CREDIT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
5.8 ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
5.9 DISCLOSURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
5.10 INSURANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
5.11 ENVIRONMENTAL MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
-i-
3
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5.12 PERFORMANCE OF AGREEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
5.13 SOLVENCY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
SECTION 6 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
6.1 REPORTING REQUIREMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
6.2 CERTIFICATES, NOTICES AND OTHER INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
6.3 MATERIAL SUBSIDIARY GUARANTY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
6.4 CORPORATE EXISTENCE, ETC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
6.5 ACCESS AND VISITATION RIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
6.6 PAYMENT OF TAXES, ETC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
6.7 MAINTENANCE OF PROPERTIES, ETC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
6.8 COMPLIANCE WITH LAWS, ETC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
6.9 MAINTENANCE OF INSURANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
6.10 EMPLOYMENT OF TECHNOLOGY, DISPOSAL OF HAZARDOUS WASTE, ETC . . . . . . . . . . . . . . . . . . . . . 49
6.11 KEEPING OF BOOKS, ETC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
6.12 FURTHER ASSURANCES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
6.13 USE OF PROCEEDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
SECTION 7 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
7.1 DEBT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
7.2 LIENS AND RELATED MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
7.3 NEGATIVE PLEDGES; RESTRICTIONS ON DIVIDENDS, ETC . . . . . . . . . . . . . . . . . . . . . . . . . . 53
7.4 INVESTMENTS AND ACQUISITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
7.5 CONTINGENT OBLIGATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
7.6 RESTRICTIONS ON FUNDAMENTAL CHANGES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
7.7 FINANCIAL COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
7.8 DIVIDENDS, ETC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
7.9 CHANGE IN BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
7.11 PLAN TERMINATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
7.13 CHARTER AND BYLAWS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
7.14 TRANSACTIONS WITH SHAREHOLDERS AND AFFILIATES . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
7.13 SALES OF ACCOUNTS RECEIVABLE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
SECTION 8 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
8.1 EVENTS OF DEFAULT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
8.2 REMEDIES UPON EVENT OF DEFAULT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
SECTION 9 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
9.1 APPOINTMENT AND AUTHORIZATION; "AGENT". . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
9.2 DELEGATION OF DUTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
9.3 LIABILITY OF AGENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
9.4 RELIANCE BY AGENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
9.5 NOTICE OF DEFAULT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
9.6 CREDIT DECISION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
9.7 INDEMNIFICATION OF AGENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
9.8 AGENT IN INDIVIDUAL CAPACITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
9.9 SUCCESSOR AGENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
SECTION 10 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
10.1 CUMULATIVE REMEDIES; NO WAIVER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
10.2 AMENDMENTS; CONSENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
10.3 ATTORNEY COSTS, EXPENSES AND TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
10.4 NATURE OF BANKS' OBLIGATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
10.5 SURVIVAL OF REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
10.6 NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
10.7 EXECUTION OF LOAN DOCUMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
10.8 BINDING EFFECT; ASSIGNMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
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----
10.9 RIGHT OF SETOFF . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
10.10 SHARING OF SETOFFS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
10.11 INDEMNITY BY BORROWER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
10.12 NONLIABILITY OF THE BANKS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
10.13 NO THIRD PARTIES BENEFITED . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
10.14 CONFIDENTIALITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
10.15 FURTHER ASSURANCES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
10.16 INTEGRATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
10.17 FAILURE TO CHARGE NOT SUBSEQUENT WAIVER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
10.18 GOVERNING LAW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
10.19 SEVERABILITY OF PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
10.20 HEADINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
10.21 TIME OF THE ESSENCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
10.22 FOREIGN BANKS AND PARTICIPANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
10.23 REMOVAL OF A BANK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
10.24 WAIVER OF RIGHT TO TRIAL BY JURY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
10.25 PURPORTED ORAL AMENDMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
-iii-
5
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EXHIBITS
Form of
A REQUEST FOR EXTENSION OF CREDIT
B COMPLIANCE CERTIFICATE
C COMMITTED LOAN NOTE
D NOTICE OF ASSIGNMENT AND ACCEPTANCE
E-1 COMPETITIVE BID REQUEST
E-2 COMPETITIVE BID
E-3 COMPETITIVE LOAN NOTE
E-4 COMPETITIVE LOAN DESIGNATED BIDDER JOINDER AGREEMENT
F MATERIAL SUBSIDIARY GUARANTY
G INCREASED COMMITMENT ACCEPTANCE
H NEW COMMITMENT ACCEPTANCE
I SUBORDINATION PROVISIONS
J OPINION OF COUNSEL
SCHEDULES
2.1 COMMITMENTS AND PRO RATA SHARES
5.1 SUBSIDIARIES
7.1 EXISTING DEBT, EXISTING LETTERS OF CREDIT AND SURETY AND PERFORMANCE BONDS
7.4 EXISTING JOINT VENTURES
10.6 LENDING OFFICERS AND NOTICE ADDRESSES
-iv-
6
CREDIT AGREEMENT
This CREDIT AGREEMENT dated as of November 26, 1997 is entered
into by and among FLOWSERVE CORPORATION, a New York corporation ("Borrower"),
each lender whose name is set forth on the signature pages of this Agreement
and each lender which may hereafter become a party to this Agreement
(collectively, the "Banks" and individually, a "Bank"), Bank of America
National Trust and Savings Association, as Agent, and the Issuing Bank.
In consideration of the mutual covenants and agreements herein
contained, the parties hereto covenant and agree as follows:
SECTION 1
DEFINITIONS AND ACCOUNTING TERMS
1.1 Defined Terms. As used in this Agreement, the following
terms have the meanings set forth below:
"Absolute Rate" means a fixed rate of interest for a Competitive
Loan determined from an Absolute Rate Bid that has been accepted by Borrower.
"Absolute Rate Bid" has the meaning set forth in Section 2.3(b).
"Accepted Bank" has the meaning specified in Section 2.7.
"Affiliate" means, as to any Person, any other Person which
directly or indirectly controls, or is under common control with, or is
controlled by, such Person. As used in this definition, "control" (and the
correlative terms, "controlled by" and "under common control with") shall mean
possession, directly or indirectly, of power to direct or cause the direction
of management or policies (whether through ownership of securities or
partnership or other ownership interests, by contract or otherwise); provided
that, in any event, any Person that owns, directly or indirectly, 10% or more
of the securities having ordinary voting power for the election of directors or
other governing body of a corporation that has more than 100 record holders of
such securities, or 10% or more of the partnership or other ownership interests
of any other Person that has more than 100 record holders of such interests,
will be deemed to control such corporation, partnership or other Person.
"Agent" means BofA, when acting in its capacity as the Agent under
any of the Loan Documents, or any successor Agent.
"Agent's Office" means the Agent's address and, as appropriate,
account as set forth on Schedule 10.6, or such other address or account as the
Agent hereafter may designate by written notice to Borrower and the Banks.
"Agent-Related Persons" means the Agent (including any successor
agent), together with their respective Affiliates, and the officers, directors,
employees, agents and attorneys-in-fact of such Persons and Affiliates.
-1-
7
"Agreement" means this Agreement, either as originally executed or
as it may from time to time be supplemented, modified, amended, restated or
extended.
"Applicable Amount" means:
(a) for any Pricing Period when Borrower has no Debt Ratings, the
per annum amounts set forth below under Applicable Amount opposite the
applicable Ratio of Consolidated Funded Debt to Total Capitalization; provided,
however, that until the Agent's receipt of the first Compliance Certificate
after the Closing Date, such interest rates, fees and commissions shall be
those indicated for a ratio of Consolidated Funded Debt to Total Capitalization
of greater than or equal to 0.30 but less than 0.40:
(a) Pricing Based on Ratio of Consolidated Funded Debt to Total Capitalization
- -------------------------------------------------------------------------------------------------
Applicable Amount
(in basis points per annum)
Ratio of Consolidated
Funded Debt to Total
Capitalization
------------------------------------------------------------------
Financial Letters of
Facility Fee Credit Base Rate +
--------
Offshore Rate +
- -------------------------------------------------------------------------------------------------
<0.30 7.5 20.0 0
- -------------------------------------------------------------------------------------------------
> or = 0.30 but < 0.40 10.0 22.5 0
- -------------------------------------------------------------------------------------------------
> or = 0.40 but < 0.50 12.5 30.0 0
- -------------------------------------------------------------------------------------------------
> or = 0.50 15.0 45.0 0
- -------------------------------------------------------------------------------------------------
(b) for any Pricing Period when Borrower has Debt
Rating(s), the per annum amounts set forth below under Applicable Amount
opposite the applicable Debt Ratings:
-2-
8
(b) Pricing Based on Debt Ratings
- -----------------------------------------------------------------------------------------------------------
Applicable Amount
(in basis points per annum)
Debt
Ratings
- -----------------------------------------------------------------------------------------------------------
Financial Letters of
Facility Fee Credit Base Rate +
----------
Offshore Rate +
- -----------------------------------------------------------------------------------------------------------
A/A2 or better 6.5 16.0 0
- -----------------------------------------------------------------------------------------------------------
A-/A3 7.5 15.0 0
- -----------------------------------------------------------------------------------------------------------
BBB+/Baa1 8.5 16.5 0
- -----------------------------------------------------------------------------------------------------------
BBB/Baa2 11.0 21.5 0
- -----------------------------------------------------------------------------------------------------------
BBB-/Baa3 13.5 26.5 0
- -----------------------------------------------------------------------------------------------------------
BB+/Ba1 or lower 15.0 45.0 0
- -----------------------------------------------------------------------------------------------------------
As used in this definition:
"Applicable Amount Change Date" means:
(a) when the Applicable Amount is based upon the Ratio of
Consolidated Funded Debt to Total Capitalization, the last date of the period
covered by the financial statements delivered by Borrower pursuant to Section
6.1 reflecting such change in the ratio of Consolidated Funded Debt to Total
Capitalization; provided that there shall not be a change in the Applicable
Amount for any Offshore Rate Loan, the Interest Period of which ends prior to
date of delivery of such financial statements; and
(b) when the Applicable Amount is or will be based upon Debt
Rating(s), any date upon which the Agent has received evidence reasonably
satisfactory to it of new or changed Debt Rating(s).
-3-
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"Debt Rating" means, as of any date of determination, the
rating of Borrower's senior unsecured long-term debt, as determined
by either S&P or Moody's; provided, that if Borrower's senior
unsecured long- term debt is rated by both of such rating agencies,
and there is a "split" rating, then the higher of such credit
ratings shall be used to determine the Applicable Margin unless the
split in credit ratings is more than one level, in which case the
level one level higher than the lower rating shall be used to
determine the Applicable Margin.
"Pricing Period" means (a) the period commencing on the
Closing Date and ending on the first Applicable Amount Change Date
to occur thereafter and (b) each subsequent period commencing on
each Applicable Amount Change Date and ending the day prior to the
next Applicable Amount Change Date.
"Applicable Taxes" means any and all present or future taxes
(including documentary taxes), levies, assessments, imposts, duties,
deductions, fees, withholdings or similar charges, and all liabilities with
respect thereto imposed by a Governmental Authority relating to any Loan
Document, including any liabilities imposed on amounts paid by Borrower to
indemnify or reimburse any Person for such amounts, excluding Bank Taxes.
"Approved Offshore Currency" means Canadian Dollars, Pounds
Sterling, Deutsche Marks, and Japanese Yen and any other currency that in the
opinion of all Banks is freely traded in the offshore interbank foreign
exchange markets and is freely transferable and freely convertible into Dollars
and in which dealings in deposits are carried out on the London interbank
market.
"Arranger" means BancAmerica Robertson Stephens.
"Attorney Costs" means and includes all fees and disbursements of
any law firm or other external counsel and the allocated cost of internal legal
services and all disbursements of internal counsel.
"Availability Period" means the period commencing on the Closing
Date and ending on the day before the Maturity Date.
"Bank" means each lender from time to time party hereto and the
Issuing Bank.
"Bank Taxes" means, in the case of each Bank, the Agent and each
Eligible Assignee, and any Affiliate, the Issuing Bank or Lending Office
thereof: (a) taxes imposed on or measured in whole or in part by its overall
net income, gross income or gross receipts or capital and franchise taxes
imposed on it, by (i) any jurisdiction (or political subdivision thereof) in
which it is organized or maintains its principal office or Lending Office or
(ii) any jurisdiction (or political subdivision thereof) in which it is "doing
business" (unless it would not be doing business in such jurisdiction (or
political subdivision thereof) absent the transactions contemplated hereby),
(b) any withholding taxes or other taxes based on gross income imposed by the
United States of America (other than withholding taxes and taxes based on gross
income resulting from or attributable to any change in any law, rule or
regulation or any change in the interpretation or administration of any law,
rule or regulation by any Governmental Authority)
-4-
10
or (c) any withholding taxes or other taxes based on gross income imposed by
the United States of America for any period with respect to which it has failed
to provide Borrower with the appropriate form or forms required by Section
10.22, to the extent such forms are then required by applicable Laws.
"Base Rate" means, for any day, the higher of: (a) 0.50% per
annum above the latest Federal Funds Rate; and (b) the rate of interest in
effect for such day as publicly announced from time to time by BofA in San
Francisco, California, as its "reference rate." The "reference rate" is a rate
set by BofA based upon various factors including BofA's costs and desired
return, general economic conditions and other factors, and is used as a
reference point for pricing some loans, which may be priced at, above, or below
such announced rate.
"Base Rate Loan" means a Loan which bears interest based on the
Base Rate.
"BofA" means Bank of America National Trust and Savings
Association, a national banking association.
"Borrower" means Flowserve Corporation, a New York corporation,
formed by the merger of BW/IP International, Inc. and Durco International Inc.
"Borrowing" and "Borrow" each mean a borrowing hereunder
consisting of Loans of the same type made on the same day and, other than in
the case of Base Rate Loans, having the same Interest Period.
"Borrowing Date" means the date that a Loan is made by the Banks,
which shall be a Business Day.
"Business Day" means any day other than a Saturday, Sunday or
other day on which commercial banks in New York City or San Francisco are
authorized or required by law to close and, if the applicable Business Day
relates to any Offshore Rate Loan, means any such day on which dealings are
carried on in the London interbank market in Dollars or, with respect to
Offshore Currency Loans, any such day on which dealings carried on in the
London interbank market in the Approved Offshore Currency of such Offshore
Currency Loan.
"Capital Lease Obligation" means, with respect to any lease of
property which, in accordance with GAAP, should be capitalized on the lessee's
balance sheet or for which the amount of the assets and liabilities thereunder,
if so capitalized, should be disclosed in a note to such balance sheet, the
amount of the liability which should be so capitalized or disclosed.
"Cash Equivalents" means:
(a) cash;
(b) Securities with maturities of one year or less from the
date of acquisition issued or fully guaranteed or insured by the United States
Government or any agency thereof or Securities of comparable credit quality
issued by foreign governments;
-5-
11
(c) bank instruments, each with maturities of one year or less
from the date of acquisition of any Bank or any other commercial bank having
capital and surplus in excess of $300,000,000 and having a rating on commercial
paper issued by such commercial bank of at least A-2 by S&P or P-2 by Moody's
(or if at such time neither is issuing ratings, then a comparable rating of
such other nationally recognized rating agency as shall be approved by
Requisite Banks) or a comparable credit in a foreign country;
(d) commercial paper of an issuer rated at least A-2 by S&P or
P-2 by Moody's (or if at such time neither is issuing ratings, then a
comparable rating of such other nationally recognized rating agency as shall be
approved by Requisite Banks);
(e) repurchase agreements fully collateralized by any
obligation referred to above obligating any Bank or any other commercial bank
having capital and surplus in excess of $300,000,000 and having a rating on
commercial paper issued by such commercial bank of at least A-2 by S&P or P-2
by Moody's (or if at such time neither is issuing ratings, then a comparable
rating of such other nationally recognized rating agency as shall be approved
by Requisite Banks) or a comparable credit in a foreign country to repurchase
such obligation not later than 90 days after the purchase of such obligation;
(f) Securities of Borrower and its Subsidiaries held in their
respective treasuries;
(g) preferred stock commonly known as Dutch Auction Preferred
Stock, Capital Market Preferred Stock, Remarketable Preferred Stock, Variable
Rate Preferred Stock or other similar terms; provided that in each case such
preferred stock has the highest rating given by S&P or Moody's (or if at such
time neither is issuing ratings, then the highest rating of such other
nationally recognized rating agency as shall be approved by Requisite Banks);
and
(h) money market programs of investment companies regulated
under the Investment Company Act of 1940, as amended, which, at the time of
acquisition by Borrower or a Subsidiary, if rated, are (or if such money market
programs are not rated the underlying investments of which are) rated A-1 by
S&P or P-1 by Moody's (or if at such time neither is issuing ratings, then a
comparable rating of such other nationally recognized rating agency as shall be
approved by Requisite Banks); provided that such money market programs invest
only in investments of the type described in this definition.
"Change of 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 Exchange Act) of 40% or more of the outstanding shares of
voting stock of Borrower.
"Closing Date" means the time and Business Day on which the
conditions set forth in Section 4.1 are satisfied or waived. The Agent shall
notify Borrower and the Banks of the date that is the Closing Date.
"Code" means the Internal Revenue Code of 1986, as amended or
replaced and as in effect from time to time.
-6-
12
"Commercial Letter of Credit" means any letter of credit issued
for the account of Borrower for the purpose of providing the principal payment
mechanism in connection with the purchase of goods by Borrower or any of its
Subsidiaries in the ordinary course of business.
"Commitment" means, for each Bank, the amount set forth as such
opposite such Bank's name on Schedule 2.1, as such amount may be reduced
pursuant to the terms of this Agreement (collectively, the "combined
Commitments"). The respective Pro Rata Shares of the Banks are set forth in
Schedule 2.1.
"Committed Loan" means a Loan of any type made to Borrower by any
Bank in accordance with its Pro Rata Share pursuant to Section 2.1.
"Committed Loan Note" means the promissory note made by Borrower
to a Bank evidencing Committed Loans made by such Bank, substantially in the
form of Exhibit C, either as originally executed or as the same may from time
to time be supplemented, modified, amended, renewed, extended or supplanted
(collectively, the "Committed Loan Notes").
"Competitive Bid" means (a) a written bid delivered to the Agent
to provide Competitive Loans, substantially in the form of Exhibit E-2, duly
completed and signed by a Bank, or (b) a telephonic bid made by a Bank to the
Agent to provide Competitive Loans including the substance of Exhibit E-2,
promptly confirmed by a written Competitive Bid.
"Competitive Bid Maximum" means the maximum amount(s) a Bank is
willing to bid under a Competitive Bid for all Competitive Loans included
therein and/or individual Competitive Loans included therein.
"Competitive Bid Request" means a written request, or telephonic
request followed by a written request substantially in the form of Exhibit E-1,
duly completed and signed by a Responsible Officer.
"Competitive Loan" means an Loan denominated in Dollars made by
any Bank not determined by that Bank's Pro Rata Share pursuant to Section 2.3.
"Competitive Loan Designated Bidder" means (a) an Eligible
Assignee or (b) a special purpose corporation that is engaged in making,
purchasing or otherwise investing in commercial loans in the ordinary course of
its business and that issues (or the parent of which issues) commercial paper
rated at least "Prime-1" (or the then equivalent grade) by Moody's or "A-1" (or
the equivalent grade) by S&P that, in either case, (x) is organized under the
laws of the United States or any state thereof, (y) shall have been designated
as such pursuant to Section 2.3(m) and (z) shall have been consented to by
Borrower, which consent shall not be unreasonably withheld.
"Competitive Loan Minimum Amount" means, with respect to each of
the following actions with respect to each type of Competitive Loan, the
following amounts set forth opposite such action under such type of Competitive
Loan (a reference to "Competitive Loan Minimum Amount" shall also be deemed a
reference to the multiples in excess thereof set forth on the last line below):
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13
Absolute Offshore
Type of Action Rate Minimum Rate Minimum
----------------- ------------ ------------
Competitive Bid
Requests $5,000,000 $1,000,000
Competitive Bids $1,000,000 $1,000,000
Competitive Loans $1,000,000 $1,000,000
Multiples in excess
of above amounts $1,000,000 $1,000,000
"Competitive Loan Note" means the promissory note made by Borrower
in favor of a Bank to evidence the Competitive Loans made by that Bank,
substantially in the form of Exhibit E-3, either as originally executed or as
the same may from time to time be supplemented, modified, amended, renewed,
extended or supplanted (collectively, the "Competitive Loan Notes").
"Competitive Loan Requisite Time" means, with respect to any of
the actions listed below, the time set forth opposite such action (all times
are California time):
Date
Action Time Absolute Rate Bid Offshore Rate Bid
- ------------------------------------ ----------- ----------------------- -------------------------
Delivery of Competitive Bid Request 9:00 a.m. 1 Business Day prior 4 Business Days prior to
to Borrowing Date Borrowing Date
Delivery of Competitive Bid 7:30 a.m. Borrowing Date 3 Business Days prior to
Borrowing Date
Bid by BofA 7:15 a.m. Borrowing Date 3 Business Days prior to
Borrowing Date
Borrower's acceptance of Competitive Bids 8:30 a.m. Borrowing Date 3 Business Days prior to
Borrowing Date
"Compliance Certificate" means a certificate in the form of
Exhibit B, properly completed and signed by a Responsible Officer.
"Consolidated EBITDA" means, for any period, (a) the sum of (i)
Consolidated Net Income, plus (ii) interest expense (including any interest
expense or discount of Borrower or any of its Subsidiaries associated with any
sale or other financing of accounts permitted under Section 7.13), plus (iii)
depreciation expense, plus (iv) amortization expense of goodwill and financing
costs, plus (v) extraordinary losses, plus (vi) Federal, state, local and
foreign income tax expense, plus (vii) other non-cash extraordinary charges
that could never be converted to cash to the extent deducted from Consolidated
Net Income, plus (viii) Durco Integration and
-8-
14
Restructuring Expenses to the extent deducted from Consolidated Net Income,
minus (b) extraordinary gains on asset sales, minus (c) noncash extraordinary
income; all of the foregoing shall be on a consolidated basis for Borrower and
its Subsidiaries.
"Consolidated Funded Debt," means, as of any date, the sum of (a)
items (a), (b), (c) and (d) of the definition of Debt plus (b) all drawn but
not reimbursed letters of credit (including Letters of Credit issued hereunder)
and, without duplication, plus (c) the greater of aggregate amount of liability
assumed and net cash proceeds received with respect to outstanding accounts
receivables subject to a Receivables Program in a sale or other financing of
accounts permitted by Section 7.13, all on a consolidated basis for Borrower
and its Subsidiaries.
"Consolidated Net Income" means, for any period, the net income of
Borrower and its Subsidiaries on a consolidated basis for such period
determined in accordance with GAAP.
"Consolidated Tangible Net Worth" of any Person means the
consolidated shareholders' equity of such Person and its consolidated
Subsidiaries determined in accordance with GAAP (but without taking into
account any adjustments for the effects of foreign currency translation
pursuant to Statement No. 52 of the Financial Accounting Standards Board, or
any similar statement issued in substitution therefor), minus, without
duplication, the carrying value of goodwill, debt issuance costs and any
covenant not to compete, capitalized organizational expenses, intellectual
property and licenses therefor and rights therein, and other similar
intangibles, and any other items which are treated as intangibles in conformity
with GAAP (except for prepaid expenses).
"Consolidated Total Assets" means, as of any date of
determination, all assets that should be reflected as assets on a consolidated
balance sheet of Borrower and its Subsidiaries on such date prepared in
accordance with GAAP.
"Contingent Obligation", as applied to any Person, means any
direct or indirect liability, contingent or otherwise, of the Person (a) with
respect to any Debt, lease, dividend, letter of credit or other obligation of
another, including, without limitation, any such obligation directly or
indirectly guarantied, endorsed (other than for collection or deposit in the
ordinary course of business), co-made, or discounted or sold with recourse by
that Person, or in respect of which that Person is otherwise directly or
indirectly liable, including without limitation, any such obligation for which
that Person is in effect liable through any agreement (contingent or otherwise)
to purchase, repurchase or otherwise acquire such obligation or any security
therefor, or to provide funds for the payment or discharge of such obligation
(whether in the form of loans, advances, stock purchases, capital contributions
or otherwise), or to maintain the solvency or any balance sheet item, level of
income or other financial condition of the obligor of such obligation, or to
make payment for any products, materials or supplies or for any transportation,
services or lease regardless of the non-delivery or non-furnishing thereof, in
any case if the purpose or intent of such agreement is to provide assurance
that such obligation will be paid or discharged, or that any agreements
relating thereto will be complied with, or that the holders of such obligation
will be protected (in whole or in part) against loss in respect thereof; the
amount of any Contingent Obligation shall be equal to the amount of the
obligation so guarantied or otherwise supported and (b) net obligations under
any Swap Agreement in an
-9-
15
amount equal to (i) if such Swap Agreement has been closed out, the termination
value thereof, or (ii) if such Swap Agreement has not been closed out, the
mark-to-market value thereof determined on the basis of readily available
quotations provided by any recognized dealer in such Swap Agreements.
"Continuation" and "Continue" each mean, with respect to any Committed
Loan other than a Base Rate Loan, the continuation of such Loan as the same
type of Loan in the same principal amount and in the same currency, but with a
new Interest Period and an interest rate determined as of the first day of such
new Interest Period. Continuations must occur on the last day of the Interest
Period for such Loan.
"Conversion" and "Convert" each mean, with respect to any
Committed Loan, the conversion of one type of Loan in one currency into another
type of Loan in the same currency. With respect to Loans other than Base Rate
Loans, Conversions must occur on the last day of the Interest Period for such
Loan.
"Contractual Obligation" means, as to any Person, any provision of
any outstanding security issued by that Person or of any material agreement,
instrument or undertaking to which that Person is a party or by which it or any
of its property is bound.
"Debt" means, without duplication, (a) indebtedness for borrowed
money, (b) obligations evidenced by bonds (other than performance bonds),
debentures, notes or other similar instruments, (c) obligations to pay the
deferred purchase price of property or services (other than trade payables
incurred in the ordinary course of business and not more than 60 days past due
or being contested in good faith by appropriate proceedings), (d) Capital Lease
Obligations, (e) obligations under direct or indirect guaranties in respect of,
and obligations (contingent or otherwise) to purchase or otherwise acquire, or
otherwise to assure a creditor against loss in respect of, indebtedness or
obligations of others of the kinds referred to in clauses (a) through (d)
above, and (f) liabilities in respect of unfunded vested benefits under plans
covered by Title IV of ERISA.
"Debtor Relief Laws" means the Bankruptcy Code of the United
States of America, as amended from time to time, and all other applicable
liquidation, conservatorship, bankruptcy, assignment for the benefit of
creditors, moratorium, rearrangement, receivership, insolvency, reorganization,
or similar debtor relief Laws from time to time in effect affecting the rights
of creditors generally.
"Default" means any event that, with the giving of any applicable
notice or passage of time specified in Section 8.1, or both, would be an Event
of Default.
"Default Rate" means an interest rate equal to the Base Rate plus
the Applicable Amount, if any, applicable to the Base Rate plus 2%, to the
fullest extent permitted by applicable Laws.
"Designated Deposit Account" means a deposit account to be
maintained by Borrower with BofA, as from time to time designated by Borrower
by written notification to the Agent.
-10-
16
"Disposition" means the sale, transfer, or other disposition of
any asset of Borrower or any of its Subsidiaries, including without limitation
any sale, assignment, pledge, hypothecation, transfer or other disposal with or
without recourse of any notes or accounts receivable or any rights and claims
associated therewith.
"Dollars" or "$" means United States dollars.
"Dollar Equivalent" means the equivalent in Dollars of the
applicable currency calculated at the Spot Rate as of (a) the date of any
Extension of Credit, (b) the last Business day of each month, (c) the date any
payment is made with respect to any Obligation denominated in an Approved
Offshore Currency, and (d) any date selected from time to time by the Agent in
its sole discretion or at the direction of the Requisite Banks.
"Durco Merger" means the merger of BW/IP, Inc. and Borrower
pursuant to the Agreement and Plan of Merger dated as of May 6, 1997 among
Durco International Inc., Bruin Acquisition Crop. and BW/IP, Inc.
"Durco Integration and Restructuring Expenses" means integration
expenses incurred by Borrower in connection with the Durco Merger in an amount
not exceeding (a) $30,000,000 in the fourth Fiscal Quarter of 1997 and (b) an
aggregate of $70,000,000 during Fiscal Years 1998, 1999 and 2000, in each case
to the extent deducted from Consolidated Net Income.
"Dutch Facility" means the unsecured Dutch Guilder 50,000,000
Credit Agreement, dated July 5, 1991, as amended, between BW/IP International
B.V. and ABN AMRO Bank N.V. (formerly Algemene Bank Nederland N.V.) and the
guaranty executed and delivered in connection therewith by Borrower.
"Eligible Assignee" means (a) a financial institution organized
under the laws of the United States, or any state thereof, and having a
combined capital and surplus of at least $100,000,000; (b) a commercial bank
organized under the laws of any other country which is a member of the
Organization for Economic Cooperation and Development, or a political
subdivision of any such country, and having a combined capital and surplus of
at least $100,000,000, provided that such bank is acting through a branch or
agency located in the United States; (c) a Person that is primarily engaged in
the business of commercial banking and that is (i) a Subsidiary of a Bank, (ii)
a Subsidiary of a Person of which a Bank is a Subsidiary, or (iii) a Person of
which a Bank is a Subsidiary and (d) another Bank.
"Environmental Law" means any and all statutes, laws, regulations,
ordinances, rules, judgments, orders, decrees, permits, concessions, grants,
franchises, licenses, agreements or other governmental restrictions of any
federal, state or local governmental authority within the United States or any
State or Territory thereof and which relate to the environment or the release
of any materials into the environment.
"Equity Proceeds" means, as of any date of determination, the
aggregate amount of the net proceeds received by Borrower from the sale or
sales of, or capital contributions with respect to, its common stock, preferred
stock or other capital stock or rights, options or warrants
-11-
17
therefor, after deduction of costs, discounts and commissions incurred in
connection with such sale or sales, to such date of determination.
"ERISA" means the Employee Retirement Income Security Act of 1974,
as amended from time to time, and the regulations promulgated and rulings
issued thereunder.
"ERISA Affiliate" means any Person who for purposes of Title IV of
ERISA is a member of Borrower's controlled group, or under common control with
Borrower, within the meaning of Section 414 of the Code and the regulations
promulgated and rulings issued thereunder.
"ERISA Event" means (i) the occurrence of a reportable event,
within the meaning of Section 4043 of ERISA, unless the 30-day notice
requirement with respect thereto has been waived by the PBGC; (ii) the
provision by the administrator of any Pension Plan of a notice of intent to
terminate such Pension Plan, pursuant to Section 4041(a)(2) of ERISA (including
any such notice with respect to a plan amendment referred to in Section 4041(e)
of ERISA); (iii) the cessation of operations at a facility in the circumstances
described in Section 4068(f) of ERISA; (iv) the withdrawal by Borrower or an
ERISA Affiliate from a Multiemployer Plan during a plan year for which it was a
substantial employer, as defined in Section 4001(a)(2) of ERISA; (v) the
failure by Borrower or any ERISA Affiliate to make a payment to a Pension Plan
required under Section 302(f)(1) of ERISA, which Section imposes a lien for
failure to make required payments; (vi) the adoption of an amendment to a
Pension Plan requiring the provision of security to such Pension Plan, pursuant
to Section 307 of ERISA; or (vii) the institution by the PBGC of proceedings to
terminate a Pension Plan, pursuant to Section 4042 of ERISA, or the occurrence
of any event or condition which, in the reasonable judgment of Borrower, might
constitute grounds under Section 4042 of ERISA for the termination of, or the
appointment of a trustee to administer, a Pension Plan.
"Event of Default" has the meaning provided in Section 8.1.
"Excess Net Proceeds" has the meaning provided in Section 7.6(g).
"Existing Credit Agreements" means (a) the Credit Agreement dated
as of December 1, 1995 among BW/IP International, Inc., the lenders named
therein and Citicorp USA, Inc., as agent, as amended to the date hereof, and
(b) the Credit Agreement dated as of December 6, 1996 among The Duriron
Company, Inc., the lenders named therein and National City Bank, as agent, as
amended to the date hereof.
"Extension of Credit" means (a) the Borrowing of any Loans, (b)
the Conversion or Continuation of any Loans or (c) the issuance, renewal,
increase continuation, amendment or other credit action with respect to any
Letter of Credit, including the Banks acquiring a participation in such Letters
of Credit (collectively, the "Extensions of Credit").
"Federal Funds Rate" means, for any day, the rate set forth in the
weekly statistical release designated as H.15(519), or any successor
publication, published by the Federal Reserve Bank of New York (including any
such successor, "H.15(519)") on the preceding Business Day opposite the caption
"Federal Funds (Effective)"; or, if for any relevant day such rate is not so
-12-
18
published on any such preceding Business Day, the rate for such day will be the
arithmetic mean as determined by the Agent of the rates for the last
transaction in overnight Federal funds arranged prior to 9:00 a.m. (New York
City time) on that day by each of three leading brokers of Federal funds
transactions in New York City selected by the Agent.
"Financial Standby Letter of Credit" means any Standby Letter of
Credit that is not a Performance Standby Letter of Credit.
"Fiscal Quarter" means the fiscal quarter of Borrower consisting
of a three-month fiscal period ending on each March 31, June 30, September 30
and December 31.
"Fiscal Year" means the fiscal year of Borrower consisting of a
twelve-month period ending on each December 31.
"FRB" means the Board of Governors of the Federal Reserve System
or any governmental authority succeeding to its functions.
"Generally Accepted Accounting Principles" means, as of any date
of determination, accounting principles (a) set forth as generally accepted in
then currently effective Opinions of the Accounting Principles Board of the
American Institute of Certified Public Accountants, (b) set forth as generally
accepted in then currently effective Statements of the Financial Accounting
Standards Board or (c) that are then approved by such other entity as may be
approved by a significant segment of the accounting profession in the United
States of America. The term "consistently applied," as used in connection
therewith, means that the accounting principles applied are consistent in all
material respects with those applied at prior dates or for prior periods.
"Governmental Authority" means (a) any international, foreign,
federal, state, county or municipal government, or political subdivision
thereof, (b) any governmental or quasi-governmental agency, central bank or
comparable authority, authority, board, bureau, commission, department,
instrumentality or public body, or (c) any court or administrative tribunal of
competent jurisdiction.
"Increase Date" has the meaning specified in Section 2.7.
"Increased Commitment Acceptance" means an acceptance of a
Proposed Increased Commitment entered into by a Bank and accepted by the Agent,
in substantially the form of Exhibit G.
"Increase Remainder" has the meaning specified in Section 2.7.
"Interest Payment Date" means, (a) with respect to any Base Rate
Loan, the last Business day of each calendar quarter and the Maturity Date, and
(b) with respect to any other type of Loan, (i) any date that such Loan is
prepaid in whole or in part, (ii) the last day of each Interest Period
applicable to, or the maturity of, such Loan; provided, however, that if any
Interest Period or the maturity of any such Loan exceeds three months or 90
days, the date(s) that fall, as applicable, three, six or nine months, or 90,
180 or 270 days, respectively, after the
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beginning of such Interest Period, shall also be Interest Payment Dates, and
(iii) the Maturity Date.
"Interest Period" means, as to any Committed Loans other than Base
Rate Loans, the period commencing on the date specified by Borrower in its
Request for Extension of Credit and ending one, two, three or six (or if
available to all Banks, 12 months) thereafter (as selected by Borrower in the
Request for Extension of Credit relating thereto; provided that:
(a) The first day of any Interest Period shall be a Business
Day;
(b) Any Interest Period that would otherwise end on a day that
is not a Business Day shall be extended to the next succeeding Business Day
unless, in the case of an Offshore Rate Loan, such Business Day falls in
another calendar month, in which case such Interest Period shall end on the
next preceding Business Day; and
(c) No Interest Period shall extend beyond the Maturity Date.
"Investment", as applied to any Person means any direct or
indirect purchase or other acquisition by that Person of, or a beneficial
interest in, stock or other Securities of any other Person, or any direct or
indirect loan, advance (other than advances to employees or consultants for
moving and travel expenses, drawing accounts and similar expenditures in the
ordinary course of business) or capital contribution by that Person to any
other Person, including all Debt and accounts receivable from that other Person
which are not current assets or did not arise from sales to that other Person
in the ordinary course of business. The amount of any Investment shall be the
original cost of such Investment plus the cost of all additions thereto,
without any adjustments for increases or decreases in value, or write-ups,
write-downs or write-offs with respect to such Investment.
"IRS" means the Internal Revenue Service.
"Issuing Bank" means Bank of America National Trust and Savings
Association.
"Joint Venture" means a joint venture, partnership or other
similar arrangement, whether in corporate, partnership or other legal form;
provided that in no event shall any corporate Subsidiary of any Person be
considered to be a Joint Venture to which such Person is a party.
"Laws" means, collectively, all international, foreign, federal,
state and local statutes, treaties, rules, guidelines, regulations,
ordinances, codes and administrative or judicial precedents, including without
limitation the interpretation thereof by any Governmental Authority charged
with the enforcement thereof.
"Lending Office" means, as to any Bank, the office or offices of
such Bank specified as its "Lending Office" or "Domestic Lending Office" or
"Offshore Lending Office", as the case may be, on Schedule 10.6, or such other
office or offices as such Bank may from time to time notify Borrower and the
Agent.
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"Letter of Credit" means any of the standby letters of credit
issued by the Issuing Bank hereunder, either as originally issued or as the
same may be supplemented, amended, renewed or extended.
"Letter of Credit Application" means an application for issuances
of, or amendments to, letters of credit as shall at any time be in use at the
Issuing Bank.
"Letter of Credit Usage" means, as at any date of determination,
the undrawn face amount of outstanding Letters of Credit plus the aggregate
amount of all drawings under the Letters of Credit honored by the Issuing Bank
and not theretofore reimbursed or converted into Committed Loans.
"Leverage Ratio" means as of any date of determination, the ratio
of (a) Consolidated Funded Debt as of such date to (b) Consolidated EBITDA for
the four Fiscal Quarters ending on such date.
"Lien" means any lien, mortgage, pledge, security interest,
charge, encumbrance, easement, exception or assessment of any kind (including
any conditional sale or other title retention agreement, any lease in the
nature thereof, and, with respect to an asset or assets that are material, any
agreement to give any security interest in the future).
"Loan" means any advance made or to be made by any Bank to
Borrower as provided in Section 2, and includes each Committed Loan and
Competitive Loan.
"Loan Documents" means, collectively, this Agreement, the Notes,
the Letters of Credit, the Material Subsidiary Guaranty, any Request for
Extension of Credit, any Letter of Credit Application, any Compliance
Certificate and any other agreements of any type or nature hereafter executed
and delivered by Borrower or any of its Subsidiaries or Affiliates to the
Agent, the Issuing Bank or to any Bank in any way relating to or in furtherance
of this Agreement, in each case either as originally executed or as the same
may from time to time be supplemented, modified, amended, restated, extended or
supplanted.
"Long-Term Debt" means, as of any date of determination, senior,
unsecured debt securities of Borrower with a scheduled maturity in excess of
twelve months from such determination date.
"Material Adverse Effect" means a material adverse effect,
individually or in the aggregate, upon (i) the business, operations,
properties, prospects, assets or condition (financial or otherwise) of Borrower
and its Subsidiaries, taken as a whole, or (ii) the financial ability of
Borrower and its Subsidiaries, taken as a whole, or otherwise Borrower or any
Subsidiary (if a party thereto) to perform or of the Banks to enforce the
Obligations under the Loan Documents.
"Material Subsidiary" means any domestic Subsidiary of Borrower
having (a) Consolidated Total Assets which account 10% or more of the
Consolidated Total Assets of Borrower and its Subsidiaries, or (b) revenue
which is 10% or more of the total revenue of Borrower and its Subsidiaries on a
consolidated basis, in each case determined based upon the most recent
financial statements delivered pursuant to Section 6.1.
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"Material Subsidiary Guaranty" means the Material Subsidiary
Guaranty substantially in the form of Exhibit F, as amended, supplemented,
restated or otherwise modified from time to time.
"Maximum Permitted Combined Commitments" means $200,000,000;
provided that at any time the combined Commitments are reduced in accordance
with Section 2.6, the Maximum Permitted Combined Commitments shall be reduced
by the aggregate amount of such reduction of the combined Commitments.
"Maturity Date" means the earlier of (a) November 1, 2002, and (b)
the date of termination in whole of the Commitments pursuant to Section 2.6 or
8.2.
"Minimum Amount" means, with respect to each of the following
actions, the following amounts set forth opposite such action (a reference to
"Minimum Amount" shall also be deemed a reference to the multiples in excess
thereof set forth below):
Minimum
Multiples
Minimum in excess of
Type of Action Amount Minimum Amount
---------------- ----------- --------------
Borrowing of, $ 500,000 $ 500,000
prepayment of
or Conversion into,
Base Rate Loans
Borrowing of, $ 1,000,000 $ 1,000,000
prepayment of,
Continuation of,
or Conversion into,
Offshore Rate Loans
Reduction in $ 1,000,000 $ 500,000
Commitments
Increase in $10,000,000 $10,000,000
Commitments
Assignments $10,000,000
"Minority Interest Subsidiary Debt" means the portion of the Debt
of a Subsidiary of Borrower which is allocable to third-party owners of the
capital stock of such Subsidiary based on the ownership interest of such third
party owners in relation to the ownership interests of Borrower and its
Subsidiaries.
"Moody's" means Moody's Investors Service, Inc.
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"Multiemployer Plan" means a "multiemployer plan" as defined in
Section 4001(a)(3) of ERISA to which Borrower or any ERISA Affiliate of
Borrower is making, or is obligated to make, contributions or has within any of
the preceding five plan years made or accrued an obligation to make
contributions.
"Net Proceeds" means, with respect to any Disposition, the gross
sales proceeds received by Borrower and its Subsidiaries from such Disposition
(including cash, property and the assumption by the purchaser of any liability
of Borrower or its Subsidiaries) net of brokerage commissions, legal expenses
and other transactional costs payable by Borrower and its Subsidiaries with
respect to such Disposition and net of an amount determined in good faith by
Borrower to be the estimated amount of income taxes payable by Borrower
attributable to such Disposition.
"New Commitment Acceptance" means an acceptance of a Proposed New
Commitment entered into by an Accepted Bank and accepted by the Agent, in
substantially the form of Exhibit H hereto.
"Non-Hostile Acquisition" means an acquisition (whether by
purchase of capital stock or assets, merger or otherwise) which has been
approved by resolutions of the Board of Directors of the Person being acquired
or by similar action if the Person is not a corporation and as to which such
approval has not been withdrawn.
"Non-Recourse Debt" means, as applied to any Receivables Program,
Debt under the terms of which no personal recourse may be had against Borrower
or any of its Subsidiaries for the payment of the principal of or interest or
premium on such Debt solely as a result of a default by one or more account
debtors in the payment of any accounts receivable included in such Receivables
Program.
"Notes" means, collectively, the Committed Loan Notes and the
Competitive Loan Notes.
"Notice of Assignment and Acceptance" means a Notice of Assignment
and Acceptance substantially in the form of Exhibit D.
"Obligations" means all loans, advances, debts, reimbursement
obligations, liabilities, obligations, covenants and duties owing by Borrower
or any of its Subsidiaries to any Bank, the Agent, the Issuing Banks, any
affiliate of any Bank or the Agent, or any Person entitled to indemnification
pursuant to Section 10.11, of any kind or nature, present or future, whether or
not evidenced by any note, guaranty or other instrument, arising under this
Agreement or under any guaranties executed by any of Borrower's Subsidiaries in
favor of the Agent on behalf of the Banks, whether or not for the payment of
money, whether arising by reason of an extension of credit, loan, guaranty,
indemnification, letter of credit transactions or bankers' acceptance
transactions or in any other manner, whether direct or indirect (including
those acquired by assignment), absolute or contingent, due or to become due,
now existing or hereafter arising and however acquired. The term includes,
without limitation, all interest, charges, expenses, fees, attorneys' fees and
disbursements and any other sum chargeable to Borrower or any of its
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Subsidiaries under this Agreement or any guaranties executed by any of
Borrower's Subsidiaries in favor of the Agent on behalf of the Banks.
"Offshore Base Rate" has the meaning set forth in the definition
of Offshore Rate.
"Offshore Rate Bid" has the meaning set forth in Section 2.3(b).
"Offshore Currency Loan" means a Loan denominated in an Approved
Offshore Currency that bears interest based on the Offshore Rate.
"Offshore Currency Overnight Rate" means, for any day, the rate of
interest per annum at which overnight deposits in an Approved Offshore
Currency, in an amount approximately equal to the amount with respect to which
such rate is being determined, would be offered for such day by BofA's
principal office in London to major banks in the London or other applicable
offshore interbank market.
"Offshore Rate" means, for any Interest Period, with respect to
Offshore Rate Loans comprising part of the same Borrowing, the rate of interest
per annum (rounded upward to the next 1/16th of 1%) determined by the Agent as
follows:
Offshore Rate = Offshore Base Rate
-----------------------------------
1.00 - EURODOLLAR RESERVE PERCENTAGE
Where,
"Eurodollar Reserve Percentage" means for any day for any Interest
Period the maximum reserve percentage (expressed as a decimal, rounded upward
to the next 1/100th of 1%) in effect on such day (whether or not applicable to
any Bank) under regulations issued from time to time by the FRB for determining
the maximum reserve requirement (including any emergency, supplemental or other
marginal reserve requirement) with respect to Eurocurrency funding (currently
referred to as "Eurocurrency liabilities"); and
"Offshore Base Rate" means the rate of interest per annum
determined by the Agent to be the arithmetic mean (rounded upward to the next
1/16th of 1%) of the rates of interest per annum notified to the Agent by BofA
as the rate of interest at which deposits in Dollars or the applicable Approved
Offshore Currency, as the case may be, in (a) in the case of a Committed Loans,
an amount approximately equal to BofA's Offshore Rate Loan comprising part of
such Borrowing, and (b) in the case of a Competitive Loans, in an amount
substantially equal to the aggregate amount of such Competitive Loans requested
by the Borrower, and having a maturity comparable to the Interest Period of
such Loans would be offered to major banks in the London or interbank market at
their request at approximately 11:00 a.m. (London time) two Business Days prior
to the commencement of such Interest Period.
"Offshore Rate Loan" means a Committed Loan that bears interest
based on the Offshore Rate or a Competitive Loan that bears interest based on
the Offshore Base Rate.
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"Opinion of Counsel" means the favorable written legal opinion of
John M. Nanos, Esq., Sr. Associate General Counsel of Borrower and its
Subsidiaries, substantially in the form of Exhibit J, together with copies of
all factual certificates and legal opinions upon which such counsel has relied.
"Outstanding Obligations" means, as of any date, and giving effect
to making any Extensions of Credit requested on such date and all payments,
repayment and prepayments made on such date, the sum of (a) the aggregate
outstanding principal of all Loans, and (b) all Letter of Credit Usage.
"PBGC" means the Pension Benefit Guaranty Corporation or any
successor thereto established under ERISA.
"Pension Plan" means any "employee pension benefit plan" (as such
term is defined in Section 3(2) of ERISA), other than a Multiemployer Plan,
which is subject to Title IV of ERISA and is sponsored or maintained by
Borrower or any ERISA Affiliates or to which Borrower or any ERISA Affiliate
contributes or has an obligation to contribute, or in the case of a multiple
employer plan (as described in Section 4064(a) of ERISA) has made contributions
at any time during the immediately preceding five plan
"Performance Standby Letter of Credit" means a Standby Letter of
Credit covering potential default by the Person for whose account the Standby
Letter of Credit is issued of performance-related, non-financial contractual
obligations. By way of example, and not by limitation, performance-related
contractual obligations include construction, bid or performance bonds,
performance warranties payable upon breach, releases of funds retained to cover
performance and refunds of advance payments on contractual obligations where
default of a performance related contract has occurred.
"Person" means any individual or entity, including a trustee,
corporation, limited liability company, general partnership, limited
partnership, joint stock company, trust, estate, unincorporated organization,
business association, firm, joint venture, Governmental Authority, or other
entity.
"Plan" means an employee benefit plan, as defined in Section 3(3)
of ERISA, which Borrower or any ERISA Affiliate sponsors or maintains, or to
which Borrower or any ERISA Affiliate makes, is making or is obligated to make,
contributions; and includes any Pension Plan or Multiemployer Plan.
"Proposed Combined Commitments Increase" has the meaning specified
in Section 2.7.
"Proposed Increased Commitment" has the meaning specified in
Section 2.7.
"Proposed New Commitment" has the meaning specified in Section
2.7.
"Pro Rata Share" means, with respect to each Bank, the percentage
of the combined Commitments set forth opposite the name of that Bank on
Schedule 2.1.
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"Quarterly Payment Date" means each June 30, September 30,
December 31 and March 31.
"Receivables Program" has the meaning specified in Section 7.13.
"Request for Extension of Credit" means a written request
substantially in the form of Exhibit A duly completed and signed by a
Responsible Officer, or a telephonic request followed by such a written
request, in each case delivered to the Agent by Requisite Notice.
"Requisite Banks" means (a) as of any date of determination if the
Commitments are then in effect, Banks having in the aggregate 51% or more of
the combined Commitments then in effect and (b) as of any date of determination
if the Commitments have then been terminated and there are Loans and Letter of
Credit Usage outstanding, Banks holding Loans aggregating 51% or more of the
aggregate outstanding principal amount of the Loans and Letter of Credit Usage.
"Requisite Notice" means, unless otherwise provided herein, (a)
irrevocable written notice to the intended recipient or (b) irrevocable
telephonic notice to the intended recipient, promptly followed by a written
notice to such recipient. Such notices shall be (i) delivered or made to such
recipient at the address, telephone number or facsimile number set forth on
Schedule 10.6 or as otherwise designated by such recipient by Requisite Notice
to the Agent and (ii) if made by Borrower, given or made by a Responsible
Officer. Any written notice shall be in the form, if any, prescribed in the
applicable section herein and may be given by facsimile provided such facsimile
is promptly confirmed by a telephone call to such recipient.
"Requisite Time" means, with respect to any of the actions listed
below, the time set forth opposite such action on or prior to the date (the
"relevant date") set forth below (all times are California time) :
Action Time Date of Action
- ------ ---- --------------
Delivery of Request for Extension of Credit for,
or notice for:
Borrowing of, prepayment of, or Conversion 8:00 a.m. Same date as such Borrowing, prepayment or
into, Base Rate Loans: Conversion
Borrowing of, prepayment of, Continuation 10:00 a.m. 3 Business Days prior to such Borrowing, prepayment
of, or Conversion into, Offshore Rate Loans or Conversion
(other than Offshore Currency Loans)
Borrowing of, prepayment of, Continuation 10:00 a.m. 3 Business Days prior to such Borrowing, prepayment
of, or Conversion into, Offshore Currency or Conversion action
Loans
Letter of Credit action 10:00 a.m. 5 Business Days prior to such action
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Voluntary reduction or termination of Commitments 10:00 a.m. 2 Business Days prior to such reduction
or termination
Borrower's request for increase in Commitments 11:00 a.m. 30 days prior to Increase Date
Bank's response to request for increase in 11:00 a.m. 5 days prior to Increase Date
Commitments
Bank's commitment to Increase Remainder 11:00 a.m. 1 Business Day prior to Increase Date
Funds made available by Banks or Borrower to 11:00 a.m. On date due
Agent
"Responsible Officer" means the chief executive officer,
president, chief financial officer, treasurer or assistant treasurer of
Borrower, or any other officer or partner having substantially the same
authority and responsibility. Any document or certificate hereunder that is
signed or executed by a Responsible Officer shall be conclusively presumed to
have been authorized by all necessary corporate, partnership and/or other
action on the part of Borrower and to have acted on behalf of Borrower.
"S&P" means Standard & Poor's Ratings Services, a division of The
McGraw-Hill Companies, Inc.
"Securities" means any stock, shares, partnership interests,
voting trust certificates, bonds, debentures, notes, or other evidences of
indebtedness, secured or unsecured, convertible, subordinated or otherwise, or
in general any instruments commonly known as "securities" or any certificates
of interest, shares or participations in temporary or interim certificates for
the purchase or acquisition of, or any right to subscribe to, purchase or
acquire, any of the foregoing.
"Senior Debt Documents" means collectively (a) Borrower's 7.02%
Senior Notes due 2002 issued in the aggregate principal amount of $25,000,000
and (b) BW/IP International, Inc.'s 7.92% Senior Notes due 1999 issued in the
original principal amount of $50,000,000 and (c) BW/IP International, Inc.'s
7.14% Senior Notes due 2006 and 2007 in the original principal amount of
$50,000,000, in each case together with any and all agreements and instruments
executed in connection with the issuance of such Senior Notes, as in effect
from time to time and after giving effect to any waivers thereunder.
"Solvent" means, with respect to any Person that: (a) the total
present fair value and fair salable value of such Person's assets on a going
concern basis is in excess of the total amount of such Person's liabilities,
including contingent liabilities; (b) such Person is able to pay its
liabilities and contingent liabilities as they become due; and (c) such Person
does not have unreasonably small capital with which to engage in such Person's
business as theretofore operated and as proposed to be operated.
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"Spot Rate" for a currency means the rate quoted by BofA to the
Agent, rounded upward to the nearest 1/100 of 1%, as the spot rate for the
purchase by BofA of such currency with another currency through its FX Trading
Office at approximately 8:00 a.m. (San Francisco time) on the date two Business
Days prior to the date as of which the foreign exchange computation is made.
"Standby Letter of Credit" means any standby letter of credit or
similar instrument issued for the account of Borrower for the purpose of
supporting performance, payment, deposit or surety obligations of Borrower or
any of its Subsidiaries.
"Swap Agreement" means any agreement relating to any transaction
that is a rate swap, basis swap, forward rate transaction, commodity swap,
commodity option, equity or equity index swap or option, bond, note or bill
option, interest rate option, forward foreign exchange transaction, cap, collar
or floor transaction, currency swap, cross-currency rate swap, swaption,
currency option or any other, similar transaction (including any option to
enter into any of the foregoing).
"Subsidiary" of any Person means any corporation, association,
partnership or other business entity of which at least 50% of the total voting
power of shares of stock or other Securities entitled to vote in the election
of directors, managers or trustees thereof is at the time owned or controlled,
directly or indirectly, by such Person or one or more of the other Subsidiaries
of that Person or a combination thereof.
"Subsidiary Debt" means Debt of a Subsidiary of Borrower owed to
any Person other than Borrower or a Subsidiary of Borrower and reimbursement
obligations under letters of credit issued for the account of a Subsidiary of
Borrower, except for (i) Debt of any Material Subsidiary under the Material
Subsidiary Guaranty, (ii) Debt of Subsidiaries set forth on Schedule 7.1) and
any refinancings thereof permitted pursuant to Section 7.1(e), (iii) Debt of
Subsidiaries permitted by Section 7.1(j), and (iv) Contingent Obligations of
Subsidiaries permitted by Sections 7.5)(a), 7.5(d), 7.5(f), 7.5(j) (other than
in respect of letters of credit) and Contingent Obligations constituting
performance bonds.
"Third Party" has the meaning specified in Section 2.7.
"Total Utilization of Commitments" means at any date of
determination the sum of (i) the aggregate principal amount of all Committed
Loans outstanding at such date plus (ii) the aggregate principal amount of all
Competitive Loans outstanding at such date plus (iii) the Letter of Credit
Usage determined as of such date.
"type" of Loan means (a) a Base Rate Loan, (b) an Offshore Rate
Loan, (c) a Competitive Loan bearing interest at an Absolute Rate and (d) a
Competitive Loan bearing interest based on the Offshore Base Rate.
"Unfunded Pension Liability" means the excess of a Pension Plan's
benefit liabilities under Section 4001(a)(16) of ERISA, over the current value
of that Pension Plan's assets, determined in accordance with the assumptions
used for funding the Pension Plan pursuant to Section 412 of the Code for the
applicable plan year.
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"Wholly-Owned Subsidiary" has the meaning specified in Section
7.8(b).
"Withdrawal Liability" has the meaning given such term under Part
I of Subtitle E of Title IV of ERISA.
1.2 Use of Defined Terms. Any defined term used in the plural
shall refer to all members of the relevant class, and any defined term used in
the singular shall refer to any one or more of the members of the relevant
class.
1.3 Accounting Terms. All accounting terms not specifically
defined in this Agreement shall be construed in conformity with, and all
financial data required to be submitted by this Agreement shall be prepared in
conformity with, Generally Accepted Accounting Principles applied on a
consistent basis, except as otherwise specifically prescribed herein. In the
event that Generally Accepted Accounting Principles change during the term of
this Agreement such that the financial covenants would then be calculated in a
different manner or with different components, (a) Borrower and the Banks agree
to amend this Agreement in such respects as are necessary to conform those
covenants as criteria for evaluating Borrower's financial condition to
substantially the same criteria as were effective prior to such change in
Generally Accepted Accounting Principles and (b) Borrower shall be deemed to be
in compliance with the covenants contained in the aforesaid Sections during the
90-day period following any such change in Generally Accepted Accounting
Principles if and to the extent that Borrower would have been in compliance
therewith under Generally Accepted Accounting Principles as in effect
immediately prior to such change.
1.4 Rounding. Any financial ratios required to be maintained
by Borrower pursuant to this Agreement shall be calculated by dividing the
appropriate component by the other component, carrying the result to one place
more than the number of places by which such ratio is expressed in this
Agreement and rounding the result up or down to the nearest number (with a
rounding up if there is no nearest number) to the number of places by which
such ratio is expressed in this Agreement.
1.5 Exhibits and Schedules. All Exhibits and Schedules to this
Agreement, either as originally existing or as the same may from time to time
be supplemented, modified or amended, are incorporated herein by this
reference. A matter disclosed on any Schedule shall be deemed disclosed on all
Schedules.
1.6 References to "Borrower and its Subsidiaries". Any
reference herein to "Borrower and its Subsidiaries" or the like shall refer
solely to Borrower during such times, if any, as Borrower shall have no
Subsidiaries.
1.7 Miscellaneous Terms. The term "or" is disjunctive; the
term "and" is conjunctive. The term "shall" is mandatory; the term "may" is
permissive. Masculine terms also apply to females; feminine terms also apply
to males. The term "including" is by way of example and not limitation.
1.8 Dollar Equivalent Amounts. Any provisions in this Agreement
setting forth amounts in Dollars shall be deemed to refer to the Dollar
Equivalent of such currency on the
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date of determination pursuant to the definition thereof. The Agent shall
determine the Dollar Equivalent of Obligations from time to time in accordance
with the definition of "Dollar Equivalent."
SECTION 2
COMMITMENTS; INTEREST, FEES, PAYMENT PROCEDURES
2.1 Committed Loans.
(a) Subject to the terms and conditions set forth in this
Agreement, each Bank severally agrees, to make, Convert and Continue Committed
Loans in Dollars or in Approved Offshore Currencies during the Availability
Period as Borrower may request; provided, however, that the Outstanding
Obligations of each Bank (excluding any outstanding Competitive Loans of such
Bank) shall not exceed such Bank's Commitment and the Outstanding Obligations
of all the Banks shall not exceed the combined Commitments at any time.
Subject to the foregoing and other terms and conditions hereof, Borrower may
borrow, Convert, Continue, prepay and reborrow Committed Loans as set forth
herein without premium or penalty.
(b) Loans made by each Bank shall be evidenced by one or more
loan accounts or records maintained by such Bank in the ordinary course of
business. Upon the request of any Bank made through the Agent, such Bank's
Loans may be evidenced by one or more Notes, instead of or in addition to loan
accounts. Each such Bank may attach schedules to its Note(s) and endorse
thereon the date, currency, amount and maturity of its Committed Loans and
payments with respect thereto. Such loan accounts, records or Notes shall be
conclusive absent manifest error of the amount of such Loans and payments
thereon. Any failure so to record or any error in doing so shall not, however,
limit or otherwise affect the obligation of Borrower to pay any amount owing
with respect to the Loans.
2.2 Borrowings, Conversions and Continuations of Committed
Loans.
(a) Borrower may irrevocably request a Borrowing, Conversion or
Continuation of Committed Loans in a Minimum Amount therefor by delivering a
duly completed Request for Extension of Credit therefor by Requisite Notice to
the Agent not later than the Requisite Time therefor. All Borrowings,
Conversions or Continuations shall constitute Base Rate Loans unless properly
and timely otherwise designated as set forth in the preceding sentence.
(b) Promptly following receipt of a Request for Extension of
Credit, the Agent shall notify each Bank of its Pro Rata Share thereof by
Requisite Notice. If any Bank promptly notifies the Agent that it is unable,
in its sole discretion, to fund an Offshore Currency Loan in the requested
currency, such request for Extension of Credit shall be deemed withdrawn. In
the case of a Borrowing of Loans, each Bank shall make the funds for its Loan
available to the Agent in the currency of such Loan at the Agent's Office not
later than the Requisite Time therefor on the Business Day specified in such
Request for Extension of Credit. Upon satisfaction or waiver of the applicable
conditions set forth in Section 4, all funds so received shall be made
available to Borrower in like funds received.
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(c) The Agent shall promptly notify Borrower and the Banks of
the Offshore Rate and, if an Offshore Currency Loan, the Dollar Equivalent
thereof, applicable to any Offshore Rate Loan upon determination thereof.
(d) Unless the Agent and the Requisite Banks otherwise consent,
Loans with no more than ten different Interest Periods shall be outstanding at
any one time.
(e) No Loans other than Base Rate Loans may be requested or
continued during the existence of a Default or Event of Default. During the
existence of a Default or Event of Default, the Requisite Banks may determine
that any or all of the then outstanding Committed Loans other than Base Rate
Loans shall be Converted to Base Rate Loans. Such Conversion shall be
effective upon notice to Borrower from the Agent and shall continue so long as
such Default or Event of Default continues to exist.
(f) If a Loan is to be made on the same date that another Loan
is due and payable, Borrower or the Banks, as the case may be, shall make
available to the Agent the net amount of funds giving effect to both such Loans
and the effect for purposes of this Agreement shall be the same as if separate
transfers of funds had been made with respect to each such Loan.
(g) The failure of any Bank to make any Loan on any date shall
not relieve any other Bank of any obligation to make a Loan on such date, but
no Bank shall be responsible for the failure of any other Bank to so make its
Loan.
2.3 Competitive Loans.
(a) Subject to the terms and conditions hereof, at any time and
from time to time during the Availability Period, each Bank may in its sole and
absolute discretion make Competitive Loans to Borrower in such principal
amounts as Borrower may request; provided, however, that the Outstanding
Obligations of all the Banks shall not exceed the combined Commitments at any
time; provided, further, that the outstanding Competitive Loans made by any
Bank may exceed its Commitment. The Competitive Loans shall be deemed to
utilize the combined Commitments by an amount equal to the aggregate
outstanding principal amount thereof.
(b) Borrower may irrevocably request Competitive Loans in
Dollars in a Competitive Loan Minimum Amount therefor by delivering a duly
completed Competitive Bid Request by Requisite Notice to the Agent not later
than the Competitive Loan Requisite Time therefor. Each Competitive Bid
Request shall state whether a Competitive Bid is requested on the basis of a
fixed interest rate (an "Absolute Rate Bid") or on the basis of a margin above
or below the Offshore Base Rate (an "Offshore Rate Bid"). Borrower may not
request Competitive Bids for more than three maturities nor request more than
one type of Competitive Loan in a single Competitive Bid Request. Unless the
Agent otherwise agrees, in its sole and absolute discretion, Borrower may not
submit a Competitive Bid Request if it has submitted another Competitive Bid
Request within the prior five Business Days.
(c) No Competitive Bid Request shall be made for an Absolute
Bid with a maturity of less than 30 days or more than 180 days, for an Offshore
Rate Bid with a maturity of
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less than one month or more than six months, or in any case with a maturity
date subsequent to the Maturity Date. No more than ten different maturities
for Competitive Loans may be outstanding at any time.
(d) The Agent shall promptly notify the Banks of a Competitive
Bid Request by delivering a written copy thereof to the Banks. Each Bank may,
in its sole and absolute discretion, bid or not bid on all or a portion of the
Competitive Loans requested in such Competitive Bid Request by delivering by
Requisite Notice an irrevocable, duly completed Competitive Bid to the Agent by
the Competitive Loan Requisite Time for delivering Competitive Bids. Any
Competitive Bid received after such Competitive Loan Requisite Time, that is in
a form other than a duly completed Competitive Bid Request, or that is
otherwise not responsive to the Competitive Bid Request shall be disregarded.
A Bank may subsequently correct any Competitive Bid containing a manifest error
if it does so by the Competitive Loan Requisite Time for delivering Competitive
Bids. The Agent may, but shall not be required to, notify any Bank of any
manifest error it detects in such Bank's Competitive Bid.
(e) The Competitive Bid Maximum offered by a Bank for any
Competitive Loan(s) requested in a Competitive Bid may be less than the
principal amount of such Competitive Loan(s) requested by Borrower, but shall
not be less than the Competitive Loan Minimum Amount for any Competitive Loan
for which such Bank is bidding. Each Competitive Bid shall expire unless
accepted by Borrower prior to the Competitive Loan Requisite Time for accepting
Competitive Bids.
(f) The Agent shall promptly notify Borrower of the names of
the Banks providing conforming Competitive Bids and the terms of such
Competitive Bids. Borrower may, in its sole and absolute discretion, accept or
reject any Competitive Bid, or any portion thereof, provided, that if Borrower
accepts any Competitive Bid, or any portion thereof, the following shall apply:
(i) Borrower must notify the Agent of its acceptance of any Competitive Bids
not later than the Competitive Loan Requisite Time for doing so, (ii) Borrower
must accept all Absolute Rate Bids at all lower fixed interest rates before
accepting any portion of Absolute Rate Bids at a higher fixed interest rate,
(iii) Borrower must accept all Offshore Rate Bids at all lower margins over the
Offshore Base Rate before accepting any portion of Offshore Rate Bids at a
higher margin over the Offshore Base Rate, (iv) each Competitive Loan to be
made must be in a Competitive Loan Minimum Amount therefor, (v) if two or more
Banks have submitted a Competitive Bid at the same fixed interest rate or
margin, then Borrower must accept either all of such Competitive Bids or accept
such Competitive Bids in the same proportion as the Competitive Bid Maximum of
each Bank for such Competitive Loan bears to the aggregate Competitive Bid
Maximums of all such Banks for such Competitive Loans (subject to clause (iv)
above) and (vi) Borrower may not accept Competitive Bids for an aggregate
amount in excess of the Competitive Loans requested in its Competitive Bid
Request.
(g) The Agent shall promptly notify each of the Banks whose
Competitive Bid, or any portion thereof, has been accepted or rejected by
Borrower by telephone, which notification shall promptly be confirmed in
writing, delivered in person or by telecopier to such Banks. Any Competitive
Bid, or portion thereof, not timely accepted by Borrower and/or timely notified
by the Agent to a Bank as having been accepted shall be deemed rejected.
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(h) In the case of a Offshore Rate Bid, the Agent shall
determine the Offshore Base Rate on the date which is two Business Days prior
to the date of the proposed Competitive Loan, and shall promptly thereafter
notify Borrower and the Banks whose Offshore Rate Bids were accepted by
Borrower of such Offshore Base Rate.
(i) Each Bank which has had a Competitive Bid, or portion
thereof, accepted by Borrower shall make the funds for its Competitive Loan(s)
available to the Agent at the Agent's Office not later than the Requisite Time
for making such funds available on the Business Day specified in such
Competitive Loan Request. Upon satisfaction or waiver of the applicable
conditions set forth in Section 4, all funds so received shall be made
available to Borrower.
(j) The Agent shall notify all Banks promptly after each
Competitive Bid auction of the ranges of bids submitted and accepted for each
Competitive Loan and the aggregate amount of Competitive Loans borrowed.
(k) Each Bank's Competitive Loan shall be evidenced by that
Bank's Competitive Loan Note or by one or more loan accounts or records
maintained by such Bank in the ordinary course of business, in each case
subject to Section 2.1(b).
(l) Each Competitive Loan shall be due and payable on the
maturity date of such Competitive Loan.
(m) Any Bank may designate one or more Competitive Loan
Designated Bidders to have a right, in addition to itself, to offer and make
Competitive Loans Bid Loans hereunder by causing such Competitive Loan
Designated Bidders to become a party to this Agreement by duly executing and
delivering to the Agent a Competitive Loan Designated Bidder Joinder Agreement
substantially in the form of Exhibit E-4 hereto. The Agent shall notify
Borrower of any such Competitive Loan Designated Bidders. Upon the Agent
accepting an appropriately completed Competitive Loan Designated Bidder Joinder
Agreement, the Designated Bidder shall be deemed to be a direct party to this
Agreement subject to the following:
(i) a Competitive Loan Designated Bidder shall have the
rights and obligations of a Bank under this Section 2.3, including
being solely liable for the performance of its obligations relating to
its Competitive Loans, except that the designating Bank may retain
some or all of such rights, such as receiving and giving notices
directly from and to the Agent and funding and receiving payments
directly through the Agent, as provided in a Competitive Loan
Designated Bidder Joinder Agreement; and
(ii) except as aforesaid, a Competitive Loan Designated
Bidder shall have only the rights of a participant with respect to its
Competitive Loans as set forth in Section 10.8(e); provided, however,
that notwithstanding Section 10.8(e)(iii), a Competitive Loan
Designated Bidder shall have rights only under Sections 3.1, 3.5 and
3.6 and Section 10.9, unless the Competitive Loan Designated Bidder
Joinder Agreement provides that the Competitive Loan Designated Bidder
shall have fewer rights.
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Upon the request of a Competitive Loan Designated Bidder made
through the Agent, Borrower shall execute and deliver a Competitive Loan Note
to evidence Competitive Loans made by such Competitive Loan Designated Bidder.
A Bank may revoke any designation of a Competitive Loan Designated Bidder at
any time upon written notice to the Agent, but such revocation shall not affect
the rights and obligations of a Competitive Loan Designated Bidder as to any of
its outstanding Competitive Loans.
(n) Borrower shall pay to the Agent for its own account an
administration fee in an amount set forth in a letter agreement dated August
22, 1997 between Borrower and the Agent for each Competitive Bid Request
submitted (whether or not any bids are submitted or accepted) which fee shall
be payable quarterly in arrears on each Quarterly Payment Date and on the
Maturity Date.
2.4 Letters of Credit.
(a) Subject to the terms and conditions hereof, at any time and
from time to time from the Closing Date through the Maturity Date, the Issuing
Bank shall issue, supplement, modify, amend, renew, or extend Letters of Credit
in Dollars or in Approved Offshore Currencies under the Commitments as
Borrower may request; provided, however, that (i) the Outstanding Obligations
of each Bank (excluding any outstanding Competitive Loans of such Bank) shall
not exceed such Bank's Commitment and the Outstanding Obligations of all the
Banks shall not exceed the combined Commitments at any time and (ii) the
aggregate outstanding Letter of Credit Usage shall not exceed the Dollar
Equivalent of $100,000,000 at any time. Each Letter of Credit shall be in a
form reasonably acceptable to the Issuing Bank and shall not violate any
policies of the Issuing Bank. The Issuing Bank shall not be obligated to issue
a Letter of Credit denominated in a foreign currency if and so long as the
Issuing Bank determines that foreign currency market circumstances make it
unlawful, impossible or impracticable for the Issuing bank to issue such Letter
of Credit. Unless all the Banks, the Agent and the Issuing Bank otherwise
consent in a writing delivered to the Agent, and subject to permitting
"evergreen" Letters of Credit as provided in subsection (b) below, no Letter of
Credit shall expire later than the earlier of (x) the Maturity Date and (y)
five years after its date of original issuance.
(b) Borrower may irrevocably request the issuance, supplement,
modification, amendment, renewal, or extension of a Letter of Credit by
delivering a duly completed Letter of Credit Application therefor to the
Issuing Bank, with a copy to the Agent, by Requisite Notice not later than the
Requisite Time therefor. Unless the Administrative Agent notifies the Issuing
Bank that such Letter of Credit Action is not permitted hereunder or the
Issuing Bank determines that such Letter of Credit Action is contrary to any
Laws or policies of the Issuing Bank or does not otherwise conform to the
requirements of this Agreement, the Issuing Bank shall effect such Letter of
Credit Action. Letters of Credit may have automatic extension or renewal
provisions ("evergreen" Letters of Credit) so long as the Issuing Bank has the
right to terminate such evergreen Letters of Credit no less frequently than
annually within a notice period to be agreed upon at the time each such Letter
of Credit is issued. This Agreement shall control in the event of any conflict
with any Letter of Credit Application.
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(c) Upon the issuance of a Letter of Credit, each Bank shall be
deemed to have purchased a pro rata participation in such Letter of Credit, as
from time to time supplemented, amended, renewed, or extended, from the Issuing
Bank in an amount equal to that Bank's Pro Rata Share. Without limiting the
scope and nature of each Bank's participation in any Letter of Credit, to the
extent that the Issuing Bank has not been reimbursed by Borrower for any
payment required to be made by the Issuing Bank under any Letter of Credit,
each Bank shall, pro rata according to its Pro Rata Share, reimburse the
Issuing Bank through the Agent promptly upon demand for the amount of such
payment. The obligation of each Bank to so reimburse the Issuing Bank shall be
absolute and unconditional and shall not be affected by the occurrence of an
Event of Default or any other occurrence or event. Any such reimbursement
shall not relieve or otherwise impair the obligation of Borrower to reimburse
the Issuing Bank for the amount of any payment made by the Issuing Bank under
any Letter of Credit together with interest as hereinafter provided.
(d) Borrower agrees to pay to the Issuing Bank through the
Agent an amount equal to any payment made by the Issuing Bank with respect to
each Letter of Credit within one Business Day after demand made by the Issuing
Bank therefor. The principal amount of any such payment shall be used to
reimburse the Issuing Bank for the payment made by it under the Letter of
Credit. Each Bank that has reimbursed the Issuing Bank for its Pro Rata Share
of any payment made by the Issuing Bank under a Letter of Credit shall
thereupon acquire a pro rata participation, to the extent of such
reimbursement, in the claim of the Issuing Bank against Borrower under this
Section and shall share, in accordance with that pro rata participation, in any
payment made by Borrower with respect to such claim.
(e) If Borrower fails to make the payment required by
subsection (d) above within the time period therein set forth, in lieu of the
reimbursement to the Issuing Bank under such subsection, the Issuing Bank may
(but is not required to), without notice to or the consent of Borrower,
instruct the Agent to cause Loans to be made by the Banks in an aggregate
amount equal to the amount paid by the Issuing Bank with respect to that Letter
of Credit and, for this purpose, the conditions precedent set forth in Section
4 shall not apply. The proceeds of such Loans shall be paid to the Issuing
Bank to reimburse it for the payment made by it under the Letter of Credit.
Such Loans shall be payable upon demand and shall bear interest at the Default
Rate.
(f) Once an evergreen Letter of Credit is issued, Borrower
shall not be required to annually request that the Issuing Bank permit the
renewal thereof. Borrower, the Agent and the Banks authorize (but may not
require) the Issuing Bank to, in its sole discretion, permit the renewal of
such evergreen Letter of Credit if such Letter of Credit could be issued in the
first instance at such time.
(g) The obligation of Borrower to pay to the Issuing Bank the
amount of any payment made by the Issuing Bank under any Letter of Credit shall
be absolute, unconditional, and irrevocable. Without limiting the foregoing,
Borrower's obligations shall not be affected by any of the following
circumstances:
(i) any lack of validity or enforceability of the Letter
of Credit, this Agreement, or any other agreement or instrument
relating thereto;
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(ii) any amendment or waiver of or any consent to
departure from the Letter of Credit, this Agreement, or any other
agreement or instrument relating thereto, with the consent of
Borrower;
(iii) the existence of any claim, setoff, defense, or other
rights which Borrower may have at any time against the Issuing Bank,
the Agent or any Bank, any beneficiary of the Letter of Credit (or any
persons or entities for whom any such beneficiary may be acting) or
any other Person, whether in connection with the Letter of Credit,
this Agreement, or any other agreement or instrument relating thereto,
or any unrelated transactions;
(iv) any demand, statement, or any other document
presented under the Letter of Credit proving to be forged, fraudulent,
invalid, or insufficient in any respect or any statement therein being
untrue or inaccurate in any respect whatsoever so long as any such
document appeared to comply with the terms of the Letter of Credit;
(v) payment by the Issuing Bank in good faith under the
Letter of Credit against presentation of a draft or any accompanying
document which does not strictly comply with the terms of the Letter
of Credit;
(vi) the existence, character, quality, quantity,
condition, packing, value or delivery of any property purported to be
represented by documents presented in connection with any Letter of
Credit or for any difference between any such property and the
character, quality, quantity, condition, or value of such property as
described in such documents;
(vii) the time, place, manner, order or contents of shipments
or deliveries of property as described in documents presented in
connection with any Letter of Credit or the existence, nature and
extent of any insurance relative thereto;
(viii) the solvency or financial responsibility of any party
issuing any documents in connection with a Letter of Credit;
(ix) any failure or delay in notice of shipments or
arrival of any property;
(x) any error in the transmission of any message relating
to a Letter of Credit not caused by the Issuing Bank, or any delay or
interruption in any such message;
(xi) any error, neglect or default of any correspondent
of the Issuing Bank in connection with a Letter of Credit;
(xii) any consequence arising from acts of God, wars,
insurrections, civil unrest, disturbances, labor disputes, emergency
conditions or other causes beyond the control of the Issuing Bank;
(xiii) so long as the Issuing Bank in good faith determines
that the contract or document appears to comply with the terms of the
Letter of Credit, the form, accuracy,
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genuineness or legal effect of any contract or document referred to in
any document submitted to the Issuing Bank in connection with a Letter
of Credit; and
(xiv) where the Issuing Bank has acted in good faith and
observed general banking usage, any other circumstances whatsoever.
(h) To the extent not inconsistent with applicable Laws, each
Letter of Credit shall also be governed by the most recent version of the
Uniform Customs and Practice for Documentary Credits published by the
International Chamber of Commerce in effect when such Letter of Credit was
issued.
(i) With respect to each outstanding Letter of Credit, Borrower
shall pay to the Agent, for the account of each of the Banks in accordance with
its Pro Rata Share, a fee equal to the following percent of the average daily
maximum amount available to be drawn under such Letter of Credit, calculated in
accordance with the following table:
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Type of Letter of Credit Fee
------------------------ ---
Performance Standby Letters of Credit Greater of (i) Applicable Amount p.a. less 10.b.p.
and (ii) 15 b.p, payable in arrears
FINANCIAL STANDBY LETTERS OF CREDIT Applicable Amount therefor, payable in arrears
COMMERCIAL LETTERS OF CREDIT Greater of (i) 0.125% of face amount and (ii) $400,
payable upon issuance
Letter of Credit fees for Performance Standby Letters of Credit
and Financial Standby Letters of Credit shall accrue from the issuance of such
Letter of Credit until its expiration or termination and shall be payable
quarterly in arrears on each Quarterly Payment Date and such termination or
expiration date. Such fees shall be calculated quarterly in arrears; if there
is any change in the Applicable Amount during any quarter, the average daily
undrawn face amount shall be computed and multiplied by the Applicable Amount
separately for each period that such Applicable Amount was in effect during
such quarter. These fees are nonrefundable.
(j) Borrower shall pay to the Agent for the sole account of the
Issuing Bank a fronting fee equal to 10 basis points. In addition, Borrower
shall pay directly to the Issuing Bank for its sole account its customary
documentary and processing charges in accordance with its standard schedule, as
from time to time in effect, for any issuance, amendment, transfer, supplement,
modification, renewal, extension or other action relating to a Letter of
Credit.
2.5 Prepayments.
(a) Upon Requisite Notice to the Agent not later than the
Requisite Time therefor, Borrower may at any time and from time to time
voluntarily prepay Committed Loans in the Minimum Amount therefor in the
currency of such Committed Loan. The Agent will promptly notify each Bank of
such Bank's Pro Rata Share of such prepayment.
(b) On any date that Borrower or any of its Subsidiaries
receives any Excess Net Proceeds which are not reinvested as set forth in
Section 7.6(g), Borrower shall apply an amount equal to such Excess Net
Proceeds first to prepay Committed Loans in full, second to deposit cash to be
held by the Agent in an interest-bearing cash collateral account as collateral
for any Letter of Credit Usage, and third to prepay outstanding Competitive
Loans. The combined Commitments shall also be reduced by an amount equal to
such Excess Net Proceeds in accordance with Section 2.6(a).
(c) If for any reason the Outstanding Obligations exceed the
combined Commitments (including, without limitation, by reason of the Agent
from time to time determining the Dollar Equivalent of Outstanding Obligations
in accordance with Section 1.8) as in effect or as reduced or because of any
limitation set forth in this Agreement or otherwise, Borrower shall immediately
first prepay Committed Loans in full, second deposit cash to be held by the
Agent in an interest-bearing cash collateral account as collateral for any
Letter of
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Credit Usage, and third prepay outstanding Competitive Loans in an aggregate
amount equal to such excess.
(d) Any prepayment of a Loan other than a Base Rate Loan shall
be accompanied by all accrued interest thereon, together with the costs set
forth in Section 3.6.
(e) Each payment or prepayment of outstanding Committed Loans
must be made ratably among all Banks. Each payment or prepayment of
Competitive Loans must be made ratably among all outstanding Competitive Loans
of the same type borrowed on the same day; provided, however, that, except as
set forth in subsection (b) above, no Competitive Loan may be prepaid without
the prior written consent of the Bank making such Competitive Loan.
2.6 Mandatory and Voluntary Reduction or Termination of
Commitments.
(a) Upon any date that the Loans are required to be prepaid
pursuant to Section 2.5(b) (whether or not Loans are, in fact, so prepaid), the
combined Commitments shall automatically be reduced as of the date of such
required prepayment by an amount equal to such prepayment requirement (whether
or not Loans are, in fact, so prepaid in such amount).
(b) Upon Requisite Notice to the Agent not later than the
Requisite Time therefor, Borrower shall have the right, at any time and from
time to time, without penalty or charge, to permanently and irrevocably, reduce
the combined Commitments in a Minimum Amount therefor, or terminate the then
unused portion of the combined Commitments.
(c) The Agent shall promptly notify the Banks of any reduction
or the termination of the Commitments under this Section. Any mandatory or
voluntary reduction or termination of the combined Commitments shall be
accompanied by payment of all accrued and unpaid facility fees with respect to
the portion of the combined Commitments being reduced or terminated. Each
Bank's Commitment shall be reduced by an amount equal to such Bank's Pro Rata
Share times the amount of such reduction.
2.7 Optional Increase of the Commitments.
(a) Not more than once in any calendar year, Borrower may
propose to increase the combined Commitments by an aggregate amount of not less
than the Minimum Amount therefor (a "Proposed Combined Commitments Increase")
in the manner set forth below; provided that (i) the then current combined
Commitments plus the Proposed Combined Commitments Increase shall not be
greater than the Maximum Permitted Combined Commitments; (ii) immediately prior
to and after giving effect to the Proposed Combined Commitments Increase no
event has occurred and is continuing that constitutes an Event of Default or
Default; and (iii) Borrower shall pay any costs payable under Section 3.6 if
and to the extent any Offshore Rate Loans are prepaid on the effective date of
such increase (the "Increase Date").
(b) Borrower may request a Proposed Combined Commitments
Increase by delivering to the Agent, by Requisite Notice not later than the
Requisite Time therefor. Such notice (i) shall specify the Proposed Combined
Commitments Increase and the proposed
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Increase Date, and (ii) may specify Eligible Assignees that are not Banks (the
"Third Parties"), to whom Borrower desires to offer all or a portion of the
Proposed Combined Commitments Increase, to the extent not committed to by the
existing Banks. The Agent shall in turn promptly notify each Bank by sending
each Bank a copy of such notice.
(c) Each Bank, in its sole discretion, may irrevocably offer to
commit to all or a portion of the Proposed Combined Commitments Increase in
increments of $1,000,000 (the "Proposed Increased Commitment") by notifying the
Agent (which shall give prompt notice thereof to Borrower) by Requisite Notice
not later than the Requisite Time therefor. If the amount of Proposed
Increased Commitments exceeds the Proposed Combined Commitments Increase, such
Proposed Increased Commitments shall be allocated on a pro rata basis based on
the ratio of each Bank's Proposed Increased Commitment, if any, to the
aggregate of all Proposed Increased Commitments. Each Bank that submits a
Proposed Increased Commitment shall execute and deliver to the Agent an
Increased Commitment Acceptance therefor.
(d) If any portion of the Proposed Combined Commitments
Increase not committed to by existing Banks equals or exceeds $5,000,000 (the
"Increase Remainder"), the Agent shall notify each Third Party thereof four
Business Days before the Increase Date. Each Third Party may irrevocably
commit to all or a portion of the Increase Remainder in a minimum principal
amount of $5,000,000 (a "Proposed New Commitment") by notifying the Agent by
Requisite Notice (who shall give prompt notice thereof to Borrower) by the
Requisite Time therefor. If there are Third Parties willing to commit to more
than the Increase Remainder, Borrower, in consultation with the Agent, may
allocate the Increase Remainder in its sole discretion, but keeping the
$5,000,000 minimum requirement. Each Third Party that submits a Proposed New
Commitment shall execute and deliver to the Agent a New Commitment Acceptance
therefor. By executing and delivering a New Commitment Acceptance, each Third
Party shall be deemed to have agreed with the matters set forth in Section
10.8(c)(iii)-(vi).
(e) If the commitments of the Banks and Third Parties to the
Proposed Combined Commitments Increase equal the Proposed Combined Commitments
Increase, the combined Commitments shall be increased by the Proposed Combined
Commitment Increase on the Increase Date provided the Agent shall have received
on or before the Increase Date certified copies of the resolutions of the
Executive Committee of the Board of Directors of Borrower approving such
increase of the combined Commitments, and of all documents evidencing other
necessary corporate action, if any, with respect to such increase. Upon any
Third Party paying an assignment fee of $3,000 to the Agent, any Third Parties
shall become a Bank hereunder, and the Agent shall, promptly following the
effective date thereof, provide to Borrower and the Banks a revised Schedule
10.6 giving effect thereto. Borrower agrees that it shall execute and deliver
upon request to such Third Party, one or more Notes evidencing that assignee
Bank's Pro Rata Share.
(f) If, after giving effect to the Proposed Combined
Commitments Increase, any Bank's revised Pro Rata Share of the combined
Commitments is different than its share of Outstanding Obligations, the
Outstanding Obligations shall be reallocated among the Banks as follows. On
the Increase Date Borrower shall be deemed to have prepaid all outstanding
Committed Loans in accordance with Section 2.5 and reborrowed all Committed
Loans in accordance with Section 2.2 from all Banks ratably in accordance with
their revised Pro Rata
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Shares. Each Bank having a decreased Pro Rata Share (a "Selling Bank") agrees
to sell and assign to each other Bank (each a "Buying Bank"), and each Buying
Bank hereby agrees to ratably purchase and assume, without recourse, from each
Selling Bank, a ratable portion of each Selling Bank's Letter of Credit Usage
such that, after giving effect to such assignments, each Bank's share of all
Outstanding Obligations (except Competitive Loans) equals its revised Pro Rata
Share. The Agent shall distribute to each Selling Bank an amount equal to the
difference between its Committed Loans so prepaid and the new Committed Loans
deemed to have been made by it. Such payments shall be deemed to be a payment
of the Committed Loans by Borrower on the date such payment is received. The
Selling Bank acknowledges and agrees to the matters set forth in Section
10.8(c) as to the Letter of Credit Usage it has acquired. Interest and fees
accruing on the Letter of Credit Usage for the period prior to the Increase
Date shall be for the account of each Selling Bank, and interest and fees
accruing on the Letter of Credit Usage for the period from and after the
Increase Date shall be for the account of each Buying Bank.
(g) If the commitments of the Banks and Third Parties to the
Proposed Combined Commitments Increase are less than the Proposed Combined
Commitments Increase, the combined Commitments shall not be increased;
provided, however, that, unless the combined Proposed Increased Commitments and
Proposed New Commitments is zero, Borrower may within the same calendar year
again propose to increase the combined Commitments pursuant to the terms of
this Section 2.7.
2.8 Principal and Interest.
(a) If not sooner paid, Borrower shall pay, and promises to
pay, the outstanding principal amount of each Committed Loan in the currency of
such Committed Loan on the Maturity Date.
(b) Subject to subsection (c), Borrower shall pay interest on
the unpaid principal amount of the Loans (before and after default, before and
after maturity, before and after judgment, and before and after the
commencement of any proceeding under any Debtor Relief Law) in the currency of
such Loan from the date borrowed until paid in full (whether by acceleration or
otherwise) on each Interest Payment Date for each type of Loan at a rate per
annum equal to the applicable interest rate determined in accordance with the
definition thereof, plus, if applicable, the Applicable Amount.
(c) If any amount payable by Borrower under any Loan Document
is not paid when due (without regard to any applicable grace periods), it shall
thereafter bear interest at a fluctuating interest rate per annum at all times
equal to the Default Rate. Accrued and unpaid interest on past due amounts
(including, without limitation, interest on past due interest) shall be
compounded monthly, on the last day of each calendar month, to the fullest
extent permitted by applicable Laws and payable upon demand.
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2.9 Fees.
(a) Facility Fee. Borrower shall pay to the Agent, for the
ratable accounts of the Banks pro rata according to their Pro Rata Share, a
facility fee equal to the Applicable Amount times the combined Commitments,
regardless of usage. The facility fee shall accrue from the Closing Date until
the Maturity Date and shall be payable quarterly in arrears on each Quarterly
Payment Date and on the Maturity Date. The facility fee shall be calculated
quarterly in arrears; if there is any change in the Applicable Amount during
any quarter, the average daily amount shall be computed and multiplied by the
Applicable Amount separately for each period that such Applicable Amount was in
effect during such quarter.
(b) Agency Fees. Borrower shall pay to the Agent an agency fee
in such amounts and at such times as heretofore agreed upon by letter agreement
dated August 22, 1997 between Borrower and the Agent. The agency fee is for
the services to be performed by the Agent in acting as Agent and is fully
earned on the date paid. The agency fee paid to the Agent is solely for its
own account and is nonrefundable.
2.10 Computation of Interest and Fees. Computation of interest
on Base Rate Loans shall be calculated on the basis of a year of 365 or 366
days, as the case may be, and the actual number of days elapsed; computation of
interest on all other types of Loans and all fees under this Agreement shall be
calculated on the basis of a year of 360 days and the actual number of days
elapsed, which results in a higher yield to the Banks than a method based on a
year of 365 or 366 days. Interest shall accrue on each Loan for the day on
which the Loan is made; interest shall not accrue on a Loan, or any portion
thereof, for the day on which the Loan or such portion is paid. Any Loan that
is repaid on the same day on which it is made shall bear interest for one day.
Notwithstanding anything in this Agreement to the contrary, interest in excess
of the maximum amount permitted by applicable Laws shall not accrue or be
payable hereunder, and any amount paid as interest hereunder which would
otherwise be in excess of such maximum permitted amount shall instead be
treated as a payment of principal.
2.11 Manner and Treatment of Payments among the Banks, Borrower
and the Agent.
(a) Unless otherwise provided herein, all payments by Borrower
or any Bank hereunder shall be made to the Agent at the Agent's Office not
later than the Requisite Time for such type of payment without condition or
deduction for, any counterclaim, defense, recoupment or setoff. All payments
received after such Requisite Time shall be deemed received on the next
succeeding Business Day. All payments shall be made in immediately available
funds in lawful money of the United States of America.
(b) Upon satisfaction of any applicable terms and conditions
set forth herein, the Agent shall promptly make any amounts received in
accordance with the prior subsection available in like funds received as
follows: (i) if payable to Borrower, by crediting the Designated Deposit
Account, and (ii) if payable to any Bank, by wire transfer to such Bank at the
address specified in Schedule 10.6. The Agent's determination, or any Bank's
determination not contradictory thereto, of any amount payable hereunder shall
be conclusive in the absence of manifest error.
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(c) Subject to the definition of "Interest Period," if any
payment to be made by Borrower shall come due on a day other than a Business
Day, payment shall instead be considered due on the next succeeding Business
Day and the extension of time shall be reflected in computing interest and
fees.
(d) Unless Borrower or any Bank has notified the Agent prior to
the date any payment to be made by it is due, that it does not intend to remit
such payment, the Agent may, in its discretion, assume that Borrower or the
Bank, as the case may be, has timely remitted such payment and may, in its
discretion and in reliance thereon, make available such payment to the Person
entitled thereto. If such payment was not in fact remitted to the Agent, then:
(i) if Borrower failed to make such payment, each
Bank shall forthwith on demand repay to the Agent the amount of
such assumed payment made available to such Bank, together with
interest thereon in respect of each day from and including the date
such amount was made available by the Agent to such Bank to the
date such amount is repaid to the Agent at the Federal Funds Rate
or, in the case of a payment in an Approved Offshore Currency, the
Offshore Currency Overnight Rate; and
(ii) if any Bank failed to make such payment, such Bank
shall on the Business Day following such Borrowing Date pay to the
Agent the amount of such assumed payment made available to
Borrower, together with interest thereon in respect of each day
from and including the date such amount was made available by the
Agent to Borrower to the date such amount is paid to the Agent at
the Federal Funds Rate or, in the case of a payment in an Approved
Offshore Currency, the Offshore Currency Overnight Rate. Nothing
herein shall be deemed to relieve any Bank from its obligation to
fulfill its Commitment or to prejudice any rights which the Agent
or Borrower may have against any Bank as a result of any default by
such Bank hereunder.
2.12 Funding Sources. Nothing in this Agreement shall be deemed
to obligate any Bank to obtain the funds for any Loan in any particular place
or manner or to constitute a representation by any Bank that it has obtained or
will obtain the funds for any Loan in any particular place or manner.
2.13 Extension of Maturity Date. (a) At the request of Borrower
and with the written consent of all of the Banks (which may be given or
withheld in the sole and absolute discretion of each Bank) pursuant to this
Section the Maturity Date may be extended for one-year periods, provided no
Default or Event of Default has occurred and is continuing at the time of such
request. Not earlier than three months prior to, nor later than 30 days prior
to, each anniversary of the Closing Date, Borrower may request by Requisite
Notice made to the Agent (who shall promptly notify the Banks) a one year
extension of the Maturity Date. Such request shall include a certificate
signed by a Responsible Officer stating that (i) the representations and
warranties contained in Section 5 shall be true and correct on and as of the
date of such certificate and (ii) no Default or Event of Default has occurred
and is continuing. Each Bank shall, within 20 Business days of the Agent
delivering such notice to such Bank, notify in writing the Agent whether it
consents to or declines such request.
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(b) The Agent shall, after receiving the notifications from all
of the Banks or the expiration of such period, whichever is earlier, notify
Borrower and the Banks of the results thereof. If all of the Banks have
consented, then the Maturity Date shall be extended for one year.
SECTION 3
TAXES, YIELD PROTECTION AND ILLEGALITY
3.1 Taxes. Each payment of any amount payable by Borrower
under this Agreement or any other Loan Document shall be made free and clear
of, and without reduction by reason of, any Applicable Taxes. To the extent
that Borrower is obligated by applicable Laws to make any deduction or
withholding on account of Applicable Taxes from any amount payable to any Bank
or the Issuing Bank under this Agreement, Borrower shall promptly notify the
Agent of such fact and shall (a) make such deduction or withholding and pay the
same to the relevant Governmental Authority and (b) pay such additional amount
directly to that Bank or the Issuing Bank as is necessary to result in that
Bank or the Issuing Bank receiving a net after-Applicable Tax amount equal to
the amount to which that Bank or the Issuing Bank would have been entitled
under this Agreement absent such deduction or withholding. Within 30 days
after the date of any payment by Borrower of any amounts pursuant to this
section, Borrower shall furnish to the Agent the original or a certified copy
of a receipt evidencing payment thereof, or other evidence of payment
satisfactory to the Agent.
3.2 Increased Costs. If any Bank or the Issuing Bank
determines that any Laws or guidelines (whether or not having the force of
law), or compliance therewith, have the effect of increasing its cost of
agreeing to make or making, to issue or participating in, funding or
maintaining any Loans or Letters of Credit, then Borrower shall, upon demand by
such Bank or the Issuing Bank (with a copy of such demand to the Agent), pay to
the Agent for the account of such Bank or the Issuing Bank additional amounts
sufficient to compensate such Bank or the Issuing Bank for such increased cost.
3.3 Capital Adequacy. If any Bank or the Issuing Bank
determines that any Laws regarding capital adequacy, or compliance by such Bank
or the Issuing Bank (or its Lending Office) or any corporation controlling the
Bank or the Issuing Bank, with any request, guideline or directive regarding
capital adequacy (whether or not having the force of law) of any Governmental
Authority not imposed as a result of the Issuing Bank's, such Bank's or such
corporation's failure to comply with any other Laws, affects or would affect
the amount of capital required or expected to be maintained by such Bank, the
Issuing Bank or any corporation controlling such Bank or the Issuing Bank and
(taking into consideration such Bank's or such corporation's policies with
respect to capital adequacy and such Bank's and the Issuing Bank's desired
return on capital) determines in good faith that the amount of such capital is
increased, or the rate of return on capital is reduced, as a consequence of its
obligations under this Agreement, then upon demand of such Bank or the Issuing
Bank (with a copy to the Agent), Borrower shall pay to such Bank or the Issuing
Bank, from time to time as specified in good faith by such Bank or the Issuing
Bank, additional amounts sufficient to compensate such Bank or the Issuing Bank
in light of such circumstances, to the extent reasonably allocable to such
obligations under this Agreement.
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3.4 Illegality. If any Bank determines that any Laws has made
it unlawful, or that any Governmental Authority has asserted that it is
unlawful, for any Bank or its applicable Lending Office to make, maintain or
fund Offshore Rate Loans, or materially restricts the authority of such Bank to
purchase or sell, or to take deposits of, Dollars in the Offshore Rate
Designated Market, or to determine or charge interest rates based upon the
Offshore Rate, then, on notice thereof by the Bank to Borrower through the
Agent, any obligation of that Bank to make Offshore Rate Loans shall be
suspended until the Bank notifies the Agent and Borrower that the circumstances
giving rise to such determination no longer exist. Upon receipt of such
notice, Borrower shall, upon demand from such Bank (with a copy to the Agent),
prepay or Convert all Offshore Rate Loans of that Bank, either on the last day
of the Interest Period thereof, if the Bank may lawfully continue to maintain
such Offshore Rate Loans to such day, or immediately, if the Bank may not
lawfully continue to maintain such Offshore Rate Loan. Each Bank agrees to
designate a different Lending Office if such designation will avoid the need
for such notice and will not, in the good faith judgment of such Bank,
otherwise be materially disadvantageous to such Bank.
3.5 Inability to Determine Rates. If, in connection with any
Request for Extension of Credit, the Agent determines that (a) deposits in the
relevant currency are not being offered to Banks in the London interbank market
for the applicable amount and Interest Period of the requested Loan, (b)
adequate and reasonable means do not exist for determining the underlying
interest rate (other than the Base Rate) for the Loans requested therein, or
(c) such underlying interest rates do not adequately and fairly reflect the
cost to the Banks of funding such Loan, the Agent will promptly so notify
Borrower and each Bank. Thereafter, the obligation of the Banks to make or
maintain Loans based upon such affected interest rate or such currency shall be
suspended until the Agent revokes such notice. Upon receipt of such notice,
Borrower may revoke any pending Request for Extension of Credit for such type
of Loan or, failing that, be deemed to have converted such Request for
Extension of Credit into a request for Base Rate Loans in the amount specified
therein.
3.6 Breakfunding Costs. Upon Continuation, Conversion, payment
or prepayment of any Loan other than a Base Rate Loan on a day other than the
last day in the applicable Interest Period (whether voluntary, mandatory,
automatic, by reason of acceleration, or otherwise and including any such
action required under this Section 3), or upon the failure of Borrower (for a
reason other than the failure of a Bank to make a Loan) to borrow, Continue or
Convert any Loan other than a Base Rate Loan on the date or in the amount
specified in any Request for Extension of Credit, then Borrower shall, upon
demand made by any Bank (with a copy to the Agent), reimburse each Bank and
hold each Bank harmless from any loss or expense which the Bank may sustain or
incur as a consequence thereof, including any such loss or expense arising from
the liquidation or reemployment of funds obtained by it to maintain such Loan
or from fees payable to terminate the deposits from which such funds were
obtained.
3.7 Matters Applicable to all Requests for Compensation.
(a) The Agent and any Bank shall provide reasonable detail to
Borrower regarding the manner in which the amount of any payment to the Agent
or that Bank under this Section 3 has been determined, concurrently with demand
for such payment. The Agent's or any Bank's
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determination of any amount payable under this Section 3 shall be conclusive in
the absence of manifest error.
(b) For purposes of calculating amounts payable under this
Section 3 any Loan shall be deemed to have been funded at the applicable
interest rate set forth in the definition thereof whether or not such Loan was,
in fact, so funded.
(c) All of Borrower's obligations under this Section 3 shall
survive termination of the Commitments and payment in full of all Outstanding
Obligations.
SECTION 4
CONDITIONS
4.1 Initial Extension of Credit. The obligation of each Bank
to make the initial Loan to be made by it, or the obligation of the Issuing
Bank to issue the initial Letter of Credit (as applicable), is subject to the
following conditions precedent, each of which shall be satisfied prior to the
making of the initial Loans (unless all of the Banks, in their sole and
absolute discretion, shall agree otherwise):
(a) The Agent shall have received all of the following, each of
which shall be originals unless otherwise specified, each properly executed by
a Responsible Officer, each dated as of the Closing Date and each in form and
substance satisfactory to the Agent and its legal counsel (unless otherwise
specified or, in the case of the date of any of the following, unless the Agent
otherwise agrees or directs):
(1) at least one executed counterpart of this
Agreement, together with arrangements satisfactory to the Agent for
additional executed counterparts, sufficient in number for
distribution to the Banks and Borrower;
(2) Committed Loan Notes executed by Borrower in
favor of each Bank requesting a Committed Loan Note, each in a
principal amount equal to that Bank's Pro Rata Share;
(3) Competitive Loan Notes executed by Borrower
in favor of each Bank;
(4) the Material Subsidiary Guaranty executed by
each Material Subsidiary;
(5) with respect to Borrower and each Material
Subsidiary, such documentation as the Agent may require to
establish the due organization, valid existence and good standing
of Borrower and each such Material Subsidiary, its qualification to
engage in business in each material jurisdiction in which it is
engaged in business or required to be so qualified, its authority
to execute, deliver and perform any Loan Documents to which it is a
party, the identity, authority and capacity of each Responsible
Officer thereof authorized to act on its behalf, including
certified copies of articles of incorporation and amendments
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thereto, bylaws and amendments thereto, certificates of good
standing and/or qualification to engage in business, tax clearance
certificates, certificates of corporate resolutions, incumbency
certificates, certificates of Responsible Officers, and the like;
(6) the Opinion of Counsel;
(7) a certificate signed by a Responsible Officer
setting forth the Ratio of Consolidated Funded Debt to Total
Capitalization as of the last day of the most recently ended Fiscal
Quarter and/or the Debt Rating as of the Closing Date, as
applicable ;
(8) a certificate signed by a Responsible Officer
certifying that the conditions specified in Sections 4.1(d) and
4.1(e) have been satisfied; and
(9) such other assurances, certificates,
documents, consents or opinions as the Agent reasonably may
require.
(b) The fees payable on the Closing Date shall have been paid.
(c) Attorney Costs of BofA to the extent invoiced prior to or
on the Closing Date, plus such additional amounts of Attorney Costs as shall
constitute BofA's reasonable estimate of Attorney Costs incurred or to be
incurred by it through the closing proceedings (provided that such estimate
shall not thereafter preclude final settling of accounts between Borrower and
BofA).
(d) The representations and warranties of Borrower contained in
Section 5 shall be true and correct.
(e) Borrower and each Material Subsidiary shall be in
compliance with all the terms and provisions of the Loan Documents, and giving
effect to the initial Loan (or initial Letter of Credit, as applicable) no
Default or Event of Default shall have occurred and be continuing.
4.2 Any Extension of Credit. The obligation of each Bank to
make any Extension of Credit is subject to the following conditions precedent:
(a) the representations and warranties of Borrower contained in
Section 5 are true and correct in all material respects as though made on and
as of the above date (except (i) to the extent that such representations and
warranties expressly relate solely to an earlier date and then shall be correct
as of such date and (ii) that the representation and warranty set forth in
Section 5.3 as to lack of material adverse change is made since the date of the
then most recent financial statement delivered pursuant to Section 6.1 (b),
before and after giving effect to such Borrowing and to the application of the
proceeds therefrom, as though made on and as of such date;
(b) no Default or Event of Default has occurred and is
continuing, or would result from such proposed Extension of Credit.
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(c) the Agent shall have timely received a duly completed
Request for Extension of Credit or Letter of Credit Application, as applicable,
by Requisite Notice by the Requisite Time therefor;
(d) on the date of the first Extension of Credit hereunder,
evidence that the Existing Credit Agreements have been, or concurrently
therewith are being, terminated and that all amounts owing thereunder have
been, or concurrently therewith are being, paid in full; provided, however,
that letters of credit issued thereunder set forth on Schedule 7.1 may remain
outstanding so long as the commitments and covenants (except for those
covenants and agreements relating to such outstanding letters of credit and
reimbursement of drawings thereunder) under the Existing Credit Agreements are
otherwise terminated; and
(e) the Agent shall have received, in form and substance
satisfactory to the Agent, such other assurances, certificates, documents or
consents related to the foregoing as the Agent or Requisite Banks reasonably
may require.
SECTION 5
REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants to the Agent and the Banks that:
5.1 Due Incorporation, Etc. Each of Borrower and the Material
Subsidiaries are corporations duly organized, validly existing and in good
standing under the laws of the jurisdiction of their organization and have all
requisite corporate power and authority to own or lease and operate their
respective properties and to carry on their businesses as now conducted, and to
execute and deliver, and to perform all of their obligations under, any Loan
Document to which they are a party, and the transactions and documents
contemplated hereby to which they are a party. Each of Borrower and its
Subsidiaries are duly qualified or licensed to do business as foreign
corporations in good standing in all jurisdictions in which they own or lease
assets and property or in which the conduct of their businesses requires them
to so qualify or be licensed, except where the failure to so qualify or be
licensed would not have a Material Adverse Effect. Each Subsidiary of Borrower
on the date hereof is set forth on Schedule 5.1.
5.2 Authorization of Borrowing, Etc.
(a) Authorization of Borrowing, No Conflict. The execution,
delivery and performance by Borrower and each Material Subsidiary of Borrower
that is a party to a Loan Document of the Loan Documents, the payment and
performance of all Obligations, and the issuance, delivery and payment of the
Letters of Credit and the consummation of the transactions contemplated hereby
are within each such entity's corporate powers, have been duly authorized by
all necessary corporate action by Borrower and each Material Subsidiary of
Borrower which is a party to a Loan Document, do not contravene (i) Borrower's
and such Material Subsidiary's certificate of incorporation or by-laws, or (ii)
any law, rule, regulation (including, without limitation, Regulation G, U or X
of the Board of Governors of the Federal Reserve System), order, writ,
judgment, injunction, decree, determination or award or any contractual
restriction binding on or affecting Borrower or such Material Subsidiary or any
of its properties, and do not result in or require the creation of any lien,
security interest or other
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charge or encumbrance upon or with respect to any of its properties; neither
Borrower nor any of its Subsidiaries is in default under any such law, rule,
regulation, order, writ, judgment, injunction, decree, determination, award or
restriction, in any respect which is likely to have a Material Adverse Effect.
(b) Governmental Consents. No authorization, consent, approval
or other action by, and no notice to or filing with, any governmental authority
or regulatory body is currently or is reasonably expected to be required on the
part of Borrower or any Material Subsidiary of Borrower that is a party to a
Loan Document for the due execution, delivery or performance by Borrower or any
of its Material Subsidiaries of any Loan Document, the payment and performance
of the Obligations by Borrower or any of its Subsidiaries, and the issuance,
delivery and payment of the Letters of Credit and the consummation of the
transactions contemplated hereby, except such authorizations, consents,
approvals, other actions, notices or filings which, if not obtained, either (i)
would not adversely affect the ability of Borrower and each of its Subsidiaries
that is a party to a Loan Document to perform the transactions contemplated by
the Loan Documents, or (ii) would not have a Material Adverse Effect.
(c) Due Execution and Delivery; Binding Obligations. This
Agreement and each other Loan Document, if any, have been, or will be, duly
executed and delivered by Borrower and each of its Material Subsidiaries which
is a party thereto. This Agreement and each other Loan Document, if any, and
the Obligations are, or will be, legally valid and binding obligations of
Borrower and each of its Material Subsidiaries which is a party thereto,
enforceable against Borrower or such Material Subsidiary in accordance with
their respective terms, except as may be limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws or equitable principles relating to
or limiting creditors' rights generally or by equitable principles relating to
enforceability.
5.3 Financial Condition. The unaudited combined consolidated
balance sheet of Borrower and its Subsidiaries dated September 30, 1997 and the
related combined statements of income and cash flows, copies of which have been
furnished to each Bank, were prepared in conformity with GAAP. All financial
statements delivered to Banks pursuant to Section 6.1 hereof after the Closing
Date will fairly present the consolidated financial position of Borrower and
its Subsidiaries as at the respective dates thereof and the consolidated
results of operations and cash flows of Borrower and its Subsidiaries for each
of the periods covered thereby, subject, in the case of any unaudited interim
financial statements, to changes resulting from normal year-end adjustments.
Except for Durco Integration and Restructuring Expenses, since September 30,
1997 there has been no material adverse change in the business, condition
(financial or otherwise), operations or properties of Borrower or Borrower and
its Subsidiaries taken as a whole.
5.4 Absence of Litigation; Litigation Description. No actions,
suits, investigations, litigation or proceedings are pending or, to the
knowledge of Borrower, threatened against or affecting Borrower or any of its
Subsidiaries or the properties of Borrower or any such Subsidiary before any
court, arbitrator or governmental agency, department, commission, board, bureau
or instrumentality, domestic or foreign, (a) that would have a Material Adverse
Effect, or (b) which purports to affect the legality, validity or
enforceability of this Agreement and any other Loan Document.
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5.5 Payment of Taxes. Borrower and each of its Subsidiaries
have filed or caused to be filed all tax returns (Federal, state, local and
foreign) required to be filed and paid all amounts of taxes shown thereon to be
due, including interest and penalties, except for (a) such taxes as are being
contested in good faith and by proper proceedings and with respect to which
appropriate reserves are being maintained by Borrower or any such Subsidiary,
as the case may be or (b) those the failure to pay which would not have a
Material Adverse Effect.
5.6 Governmental Regulation. Borrower is not subject to
regulation under the Public Utility Holding Company Act of 1935, the Federal
Power Act, the Interstate Commerce Act or the Investment Company Act of 1940,
each as amended, or to any Federal or state statute or regulation limiting its
ability to incur indebtedness for money borrowed. No Subsidiary is subject to
any regulation that would limit the ability of Borrower to enter into or
perform its obligations under this Agreement.
5.7 Not a Purpose Credit. Borrower and its Subsidiaries are
not engaged in the business of extending credit for the purpose of purchasing
or carrying margin stock (within the meaning of Regulation G, U or X issued by
the Board of Governors of the Federal Reserve System), and no proceeds of any
Loan or Letter of Credit, will be used to purchase or carry any margin stock or
to extend credit to others for the purpose of purchasing or carrying any margin
stock.
5.8 ERISA.
(a) Each Plan is in compliance in all material respects with
the applicable provisions of ERISA, the Code and other federal or state law.
Each Plan which is intended to qualify under Section 401(a) of the Code has
received a favorable determination letter from the IRS or an application for
such a letter is currently being processed by the IRS with respect thereto and,
to the best knowledge of Borrower, nothing has occurred which would prevent, or
cause the loss of, such qualification. Borrower and each ERISA Affiliate has
made all required contributions to any Plan subject to Section 412 of the Code,
and no application for a funding waiver or an extension of any amortization
period pursuant to Section 412 of the Code has been made with respect to any
Plan.
(b) There are no pending or, to the best knowledge of
Borrower, threatened claims, actions or lawsuits, or action by any Governmental
Authority, with respect to any Plan which has resulted or could reasonably be
expected to result in a Material Adverse Effect. There has been no prohibited
transaction or violation of the fiduciary responsibility rules with respect to
any Plan which has resulted or could reasonably be expected to result in a
Material Adverse Effect.
(c) (i) No ERISA Event has occurred or is reasonably
expected to occur; (ii) no Plan has any Unfunded Pension Liability; (iii)
neither Borrower nor any ERISA Affiliate has incurred, or reasonably expects to
incur, any liability under Title IV of ERISA with respect to any Plan (other
than premiums due and not delinquent under Section 4007 of ERISA); (iv) neither
Borrower nor any ERISA Affiliate has incurred, or reasonably expects to incur,
any liability (and no event has occurred which, with the giving of notice under
Section 4219 of ERISA, would result in such liability) under Section 4201 or
4243 of ERISA with respect to a
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Multiemployer Plan; and (v) neither Borrower nor any ERISA Affiliate has
engaged in a transaction that could be subject to Section 4069 or 4212(c) of
ERISA.
5.9 Disclosure. No representation or warranty of Borrower or
any Subsidiary of Borrower contained in any Loan Document (including any
Schedule furnished in connection herewith) or any other document, certificate
or written statement furnished to the Agent or any Bank by or on behalf of
Borrower for use in connection with the transactions contemplated by this
Agreement contains any untrue statement of a material fact or omits to state a
material fact (known to Borrower in the case of any documents not furnished by
it) necessary in order to make the statements contained herein or therein not
misleading in light of the circumstances under which the same were made. The
projections and pro forma financial information contained in such materials are
based upon good faith estimates and assumptions believed by the Persons
responsible for preparing such projections and pro forma financial information
to be reasonable at the time made, it being recognized by the Banks that such
projections as to future events are not to be viewed as facts and that actual
results during the period or periods covered by any such projections may differ
from the projected results. There are no facts known to Borrower (other than
matters of a general economic nature) that have had or could reasonably be
expected to have a Material Adverse Effect that have not been disclosed herein
or in the other documents, certificates and written statements referred to in
this Section 5.9.
5.10 Insurance. Borrower and its Subsidiaries have in full
force insurance coverage of their respective properties, assets and business
(including casualty, general liability, products liability and business
interruption insurance) that is (a) no less protective in any material respect
than the insurance Borrower and its Subsidiaries have carried in accordance
with their past practices or (b) prudent given the nature of the business of
Borrower and its Subsidiaries and the prevailing practice among companies
similarly situated.
5.11 Environmental Matters. (a) Borrower and each of its
Subsidiaries is in compliance in all material respects with all Environmental
Laws the non-compliance with which can reasonably be expected to have a
Material Adverse Effect and (b) there has been no "release or threatened
release of a hazardous substance" (as defined by the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended, 42
U.S.C. Section 9601 et seq.) or any other release, emission or discharge into
the environment of any hazardous or toxic substance, pollutant or other
materials from Borrower's or its Subsidiaries' property other than as permitted
under applicable Environmental Law and other than those which would not have a
Material Adverse Effect. Other than disposals for which Borrower has been
indemnified in full or disposals prior to the Closing Date which would not have
a Material Adverse Effect, all "hazardous waste" (as defined by the Resource
Conservation and Recovery Act, 42 U.S.C. Section 6901 et seq. (1976) and the
regulations thereunder, 40 CFR Part 261 ("RCRA")) generated at Borrower's or
any Subsidiaries' properties and removed for disposal have in the past been and
shall continue to be disposed of at sites which maintain valid permits under
RCRA and any applicable state or local Environmental Law.
5.12 Performance of Agreements. Neither Borrower nor any of its
Subsidiaries is in default in the performance, observance or fulfillment of any
of the obligations, covenants, or conditions contained in any contractual
obligation of Borrower or of such Subsidiary, except where the consequences,
direct or indirect, of such default or defaults, if any, has not had and
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could not reasonably be expected to have a Material Adverse Effect and no
condition exists that, with the giving of due notice or the lapse of time or
both, would constitute such a default, except where the consequences, direct or
indirect, of such default, if any, has not had and could not reasonably be
expected to have a Material Adverse Effect.
5.13 Solvency. After giving effect to the transactions
contemplated by the Loan Documents and the payment of all fees related thereto
and hereto, as of the Closing Date Borrower and its Subsidiaries on a
consolidated basis are Solvent and each of the Material Subsidiaries is
Solvent.
SECTION 6
AFFIRMATIVE COVENANTS
So long as any Loan remains unpaid, or any other Obligation
remains unpaid or unperformed, or any portion of the Commitments remains in
force, Borrower shall, and shall cause each of its Subsidiaries to:
6.1 Reporting Requirements. Deliver to the Agent in form and
detail satisfactory to the Agent and the Requisite Banks, with sufficient
copies for each Bank:
(a) as soon as available and in any event within 50 days after
the end of each of the first three Fiscal Quarters of each Fiscal Year of
Borrower, the consolidated balance sheet of Borrower and its Subsidiaries as of
the end of such Fiscal Quarter and the consolidated statements of income and
cash flows of Borrower and its Subsidiaries for the period commencing at the
end of the previous Fiscal Year and ending with the end of such Fiscal Quarter,
certified by the chief accounting officer of Borrower as fairly presenting the
financial condition of Borrower and its Subsidiaries as at the dates indicated
and the results of their operations for the periods indicated, subject to
changes resulting from audit and normal year-end adjustment;
(b) as soon as available and in any event within 120 days after
the end of each Fiscal Year of Borrower, a copy of the annual audit report for
such Fiscal Year for Borrower and its Subsidiaries, containing financial
statements (including a consolidated balance sheet, consolidated statements of
income and shareholders' equity and cash flows of Borrower and its
Subsidiaries) for such year certified by Ernst & Young LLP or other nationally
recognized independent public accountants acceptable to the Requisite Banks.
The certification shall be unqualified (as to going concern, scope of audit and
disagreements over the accounting or other treatment of offsets) and shall
state that such consolidated financial statements present fairly the financial
position of Borrower and its Subsidiaries as at the dates indicated and the
results of their operations and cash flow for the periods indicated in
conformity with GAAP applied on a basis consistent with prior years (except as
otherwise stated therein) and that the examination by such accountants in
connection with such consolidated financial statements has been made in
accordance with generally accepted auditing standards; and
(c) together with each delivery of the reports of Borrower and
its Subsidiaries pursuant to subsections (a) and (b) above, a Compliance
Certificate for the Fiscal Quarter or Fiscal Year, as applicable, executed by
the chief accounting officer of Borrower.
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6.2 Certificates, Notices and Other Information. Deliver to
the Agent in form and detail satisfactory to the Agent and the Requisite Banks,
with sufficient copies for each Bank:
(a) as soon as possible and in any event within five days after
any Responsible Officer of Borrower becoming aware of the occurrence of any
Change of Control and of each Event of Default and of each Default continuing
on the date of such statement, a statement of the chief accounting officer of
Borrower setting forth details of such Event of Default or event and the action
which Borrower has taken and proposes to take with respect thereto;
(b) promptly after any significant change in accounting
policies or reporting practices, notice and a description in reasonable detail
of such change;
(c) promptly and in any event within 30 days after Borrower or
any ERISA Affiliate becomes aware that any ERISA Event referred to in clause
(i) of the definition of ERISA Event with respect to any Pension Plan has
occurred which might result in liability to the PBGC a statement of the chief
accounting officer of Borrower describing such ERISA Event and the action, if
any, that Borrower or such ERISA Affiliate has taken or proposes to take with
respect thereto;
(d) promptly and in any event within 10 days after Borrower or
any ERISA Affiliate becomes aware that any ERISA Event (other than an ERISA
Event referred to in (c) above) with respect to any Pension Plan has occurred
which might result in liability to the PBGC, a statement of the chief
accounting officer of Borrower describing such ERISA Event and the action, if
any, that Borrower or such ERISA Affiliate has taken or proposes to take with
respect thereto;
(e) promptly and in any event within five Business Days after
receipt thereof by Borrower or any ERISA Affiliate from the PBGC, copies of
each notice from the PBGC of its intention to terminate any Pension Plan or to
have a trustee appointed to administer any Pension Plan;
(f) promptly and in any event within seven Business Days after
receipt thereof by Borrower or any ERISA Affiliate from the sponsor of a
Multiemployer Plan, a copy of each notice received by Borrower or any ERISA
Affiliate concerning (w) the imposition of Withdrawal Liability by a
Multiemployer Plan, (x) the determination that a Multiemployer Plan is, or is
expected to be, in reorganization within the meaning of Title IV of ERISA, (y)
the termination of a Multiemployer Plan within the meaning of Title IV of ERISA
or (z) the amount of liability incurred, or expected to be incurred, by
Borrower or any ERISA Affiliate in connection with any event described in
clause (w), (x) or (y) above;
(g) promptly after the commencement thereof, notice of
all material actions, suits and proceedings before any court or governmental
department, commission, board, bureau, agency or instrumentality, domestic or
foreign, affecting Borrower or any of its Subsidiaries, of the type described in
Section 5.4;
(h) promptly after the sending or filing thereof, copies of all
proxy statements, financial statements and reports that Borrower or any of its
Subsidiaries sends to its
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stockholders generally, and copies of all regular, periodic and special reports,
and all registration statements, that Borrower or any of its Subsidiaries files
with the Securities and Exchange Commission or any governmental authority that
may be substituted therefor, or with any national securities exchange;
(i) promptly after the furnishing thereof, copies of any
material correspondence, statement or report furnished to any other holder of
the securities of Borrower or any of its Subsidiaries pursuant to the terms of
any indenture, loan or credit or similar agreement and not otherwise required
to be furnished to the Banks pursuant to any other clause of this Section 6.2;
(j) promptly after the occurrence thereof, notice of the
receipt by Borrower or any of its Subsidiaries of any notice, order, directive
or other communication from a governmental authority alleging violations of or
noncompliance with any Environmental Law which could reasonably be expected to
have a Material Adverse Effect; and
(k) such other information respecting the condition or
operations, financial or otherwise, of Borrower or any of its Subsidiaries as
any Bank through the Agent may from time to time reasonably request.
6.3 Material Subsidiary Guaranty. Borrower will cause each of
its Material Subsidiaries promptly to execute and deliver an instrument of
joinder to the Material Subsidiary Guaranty, together with such other documents
and agreements including, without limitation, legal opinions and resolutions as
the Agent or the Requisite Banks may reasonably request.
6.4 Corporate Existence, Etc. Borrower will, and will cause
each of its Subsidiaries to, at all times maintain its fundamental business and
preserve and keep in full force and effect its corporate existence (except as
permitted under Section 7.6) and all rights, franchises and licenses necessary
or desirable in the normal conduct of its business; provided, however, that
Borrower shall not be required to maintain any such rights, franchises or
licenses or the corporate existence of any Subsidiary (other than any Material
Subsidiary) if the failure to do so could not reasonably be expected to have a
Material Adverse Effect.
6.5 Access and Visitation Rights. Borrower will and will cause
each of its Subsidiaries to, upon reasonable notice and at any reasonable time
during normal business hours and from time to time, permit the Agent or any of
the Banks or any agents or representatives thereof to examine and make copies
of and abstracts from the records and books of account of, and visit the
properties of, Borrower and any of its Subsidiaries, and to discuss the
affairs, finances and accounts of Borrower and any of its Subsidiaries with any
of their officers or directors and independent public accountants (and by this
provision Borrower authorizes said accountants to discuss with the Banks the
finances and affairs of Borrower and its Subsidiaries), provided that Borrower
shall have the right to have a representative of Borrower present at any such
discussion with such officers, directors and independent public accountants.
6.6 Payment of Taxes, Etc. Borrower will and will cause each
of its Subsidiaries to pay and discharge, before the same shall become
delinquent, (a) all taxes, assessments and governmental charges or levies
imposed upon it or upon its property and (b) all lawful claims that, if unpaid,
might by law become a lien upon their property, provided, however, that neither
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Borrower nor any such Subsidiary shall be required to pay or discharge any such
tax, assessment, charge or claim (i) that is being contested in good faith and
by proper proceedings and for which appropriate reserves are being maintained,
or (ii) the failure to pay or discharge which would not have a Material Adverse
Effect.
6.7 Maintenance of Properties, Etc. Borrower will and will
cause each of its Subsidiaries to maintain and preserve, all of its properties
with respect to which failure to so maintain and preserve would have a Material
Adverse Effect.
6.8 Compliance with Laws, Etc. Borrower will, and will cause
each of its Subsidiaries to, perform and promptly comply with the requirements
of all applicable laws, rules, regulations and orders of any governmental
authority (including, without limitation, all Environmental Laws and ERISA)
other than those with which the failure to comply would not have a Material
Adverse Effect.
6.9 Maintenance of Insurance. Borrower will and will cause
each of its Subsidiaries to maintain insurance with responsible and reputable
insurance companies or associations in such amounts and covering such risks (a)
as are usually insured by companies engaged in similar businesses and owning
similar properties in the same general areas in which Borrower or such
Subsidiary operates, (b) with responsible and reputable insurance companies or
associations reasonably satisfactory to Banks and (c) subject to market
availability and reasonable price, in amounts no less protective than past
practices.
6.10 Employment of Technology, Disposal of Hazardous Waste, Etc.
Borrower will and will cause each of its Subsidiaries to (a) employ in
connection with its use of its property appropriate technology (including,
without limitation, appropriate secondary containment) to maintain compliance
with any applicable Environmental Law, (b) take all actions identified as
necessary to comply with Environmental Law, (c) dispose of any and all
"hazardous waste" generated at any of its properties only at facilities and
with carriers maintaining valid permits under RCRA and any applicable state and
local Environmental Law, and (d) use best efforts to obtain certificates of
disposal from all contractors employed by Borrower in connection with the
transport or disposal of any "hazardous waste" generated at any of its
properties except, with respect to each of the foregoing clauses (a) through
(d) where the failure to perform or comply with any of the foregoing would not
have a Material Adverse Effect.
6.11 Keeping of Books, Etc. Borrower will, and will cause each
of its Subsidiaries to, keep proper books of record and accounts, in which full
and correct entries shall be made of all financial transactions and the assets
and business of Borrower and each of its Subsidiaries in accordance with GAAP
consistently applied and consistent with prudent business practices.
6.12 Further Assurances. Borrower will and will cause each of
its Subsidiaries to promptly, upon request by the Agent or any Bank through the
Agent, correct, any defect or error that may be discovered in any Loan Document
or in the execution, acknowledgment or recordation thereof. Promptly upon
request by the Agent or any Bank through the Agent, Borrower also will, and
will cause each Subsidiary to, do, execute, acknowledge, deliver, record, and
will cause any such Subsidiary to promptly do, execute, acknowledge, deliver,
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record, re-record any and all such further acts, termination statements,
certificates, assurances and other instruments as the Agent or any Bank through
the Agent may reasonably require from time to time in order (a) to carry out
more effectively the purposes of this Agreement or any other Loan Document, and
(b) to better assure, convey, grant, assign, transfer, preserve, protect and
confirm unto the Agent and the Banks the rights granted or now or hereafter
intended to be granted to the Agent and/or the Banks under any Loan Document or
under any other instrument executed in connection with any Loan Document to
which Borrower is or may become a party.
6.13 Use of Proceeds. Borrower may use the proceeds of Loans to
refinance existing Debt and for working capital and other general purposes,
including Non-Hostile Acquisitions permitted by Section 7.4(c).
SECTION 7
NEGATIVE COVENANTS
So long as any Loan remains unpaid, or any other Obligation
remains unpaid or unperformed, or any portion of the Commitments remains in
force, Borrower shall not, and shall not permit any of its Subsidiaries to,
directly or indirectly:
7.1 Debt. Borrower will not, and will not permit any of its
Subsidiaries to, directly or indirectly, create, incur, assume, or otherwise
become or remain directly or indirectly liable with respect to, any Debt,
except:
(a) Debt incurred pursuant to this Agreement;
(b) any Material Subsidiary Guaranty;
(c) Debt in respect of Capital Lease Obligations;
(d) Contingent Obligations permitted by Section 7.5;
(e) Borrower and its Subsidiaries may remain liable with
respect to any Debt of Borrower and its Subsidiaries existing on the Closing
Date (all of which Debt that consists of letters of credit and surety and
performance bonds outstanding on the Closing Date and all other of such Debt
that is in excess of $1,000,000 in outstanding principal amount is described in
Schedule 7.1) and refinancing thereof; provided that such refinanced Debt shall
be on terms no less favorable to Borrower (other than in respect to market
interest rate changes) and its Subsidiaries than the Debt being replaced and
after giving effect thereto would not result in a Default or Event of Default;
(f) Borrower and its Subsidiaries may become and remain liable
with respect to intercompany Debt; provided that all of the intercompany Debt
of Borrower to any Subsidiary of Borrower shall be subordinated to the
Obligations in accordance with the terms set forth in Exhibit I;
(g) Debt of any Person which becomes a Subsidiary of Borrower or
is merged into Borrower or any Subsidiary of Borrower in an amount permitted
under Section 7.4(c); and provided such Debt existed at the time such Person
became a Subsidiary of Borrower or was so
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merged and was not created in contemplation of such event and before and
immediately after giving effect to such event no Event of Default shall exist
and Borrower shall be in compliance with Section 7.7); provided further that
any Debt of a Person that is merged into Borrower, is only permitted to the
extent it is unsecured unless after giving effect to such merger Borrower is in
compliance with Section 7.2;
(h) without duplication of subsections (c), (e) and (g) of this
Section 7.1, Borrower and its Subsidiaries may become and remain liable with
respect to purchase money Debt in an aggregate principal amount outstanding at
any time not in excess of 15% of Consolidated Tangible Net Worth of Borrower
and its Subsidiaries (as shown on the most recent financial statements
delivered pursuant to Section 6.1(a) or (b); provided that such Debt is secured
only by the property purchased with such Debt; provided further that the
loan-to-value ratio of such Debt does not exceed 100% with respect to personal
property and 80% with respect to real property, in each case, at the time of
incurrence of any such Debt;
(i) the Subsidiaries of Borrower may become and remain liable
with respect to Debt if such Debt is permitted by the last proviso of this
Section 7.1;
(j) Borrower and its Subsidiaries may become and remain liable
in respect of industrial revenue bonds issued on behalf of Borrower or its
Subsidiaries;
(k) Debt permitted by Section 7.13; and
(l) without duplication of any of the foregoing clauses,
Borrower may create, incur, assume or suffer to exist Debt; provided that such
Debt is not secured by any assets of Borrower or any of its Subsidiaries other
than as permitted by Section 7.2;
provided that, notwithstanding subsections (a) through (l) of this
Section 7.1, the Subsidiaries of Borrower may not create, incur, assume or
suffer to exist any Subsidiary Debt in an aggregate principal amount
outstanding at any time exceeding 15% of Consolidated Tangible Net Worth of
Borrower and its Subsidiaries (as shown on the most recent financial statements
delivered pursuant to Section 6.1(a) or (b); provided further that,
transactions of the type permitted by Section 7.13 shall not count against any
of the quantitative baskets set forth in this Section 7.1.
7.2 Liens and Related Matters. Borrower will not, and will not
permit any of its Subsidiaries to, directly or indirectly, create, incur,
assume or permit to exist any Lien, or file or execute or agree to the
execution of any financing statement, on or with respect to, the assets of
Borrower or any Subsidiary (including any document or instrument in respect of
goods or accounts receivable), whether now owned or hereafter acquired, or any
income or profits therefrom, except:
(a) Liens for taxes, assessments or other governmental charges
or levies not yet due and payable, and not required to be paid by Borrower or
any of its Subsidiaries under Section 6.6;
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(b) statutory Liens of landlords and Liens of carriers,
warehousemen, mechanics, workmen, employees, materialmen and other Liens
imposed by law and not required to be paid by Borrower or any of its
Subsidiaries under Section 6.6;
(c) Liens (other than any Lien imposed by ERISA) incurred or
deposits made in the ordinary course of business in connection with workers'
compensation, unemployment insurance and other types of social security, or to
secure the performance of tenders, statutory obligations, surety and appeal
bonds, bids, leases, government contracts, performance and return-of-money
bonds and other similar obligations (exclusive of obligations for the payment
of borrowed money);
(d) minor Liens on the property or assets of Borrower or any of
its Subsidiaries which do not in the aggregate materially detract from the
value of such property or assets or materially impair their use in the
operation of the business of Borrower or such Subsidiary, as the case may be;
(e) the rights of set-off and banker's liens granted or
confirmed to the Banks under this Agreement or any other Loan Document and
rights of set-off and banker's liens granted or confirmed to the holders of
other Debt permitted under this Agreement or any other Loan Document;
(f) any Liens in existence on property of any Person at the
time such Person becomes a Subsidiary of Borrower or is merged into any
Subsidiary of Borrower and not created in contemplation of such event;
(g) attachment, judgment and other similar Liens arising in
connection with legal proceedings, provided that the execution or other
enforcement of such Liens is effectively stayed and the claims secured thereby
are being contested in good faith by appropriate proceedings; and provided that
any such judgment does not constitute an Event of Default;
(h) Liens created by (i) any Subsidiary of Borrower in favor of
Borrower or (ii) any Subsidiary of Borrower in favor of another Subsidiary of
Borrower, securing obligations of such Subsidiary owing to Borrower or another
Subsidiary of Borrower (which Liens by their terms may not be transferred
except to Borrower or another Subsidiary of Borrower);
(i) Liens created hereunder or under any other Loan Document;
(j) Easements, rights-of-way, zoning and similar restrictions
and other similar charges or encumbrances now or hereafter existing not
interfering with the ordinary conduct of business of Borrower or any of its
Subsidiaries;
(k) Liens and security interests securing purchase money Debt
permitted under Section 7.1(h) and Liens and security interests which are
Capital Lease Obligations; provided, however, that no Lien or security interest
referred to in this subsection (k) shall extend to or cover any property other
than the related property being acquired or leased (as the case may be);
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(l) Liens on real or personal property required in connection
with the issuance of industrial revenue bonds on behalf of Borrower or its
Subsidiaries;
(m) Liens existing on the Closing Date securing Debt listed on
Schedule 7.1 and any refinancings thereof permitted pursuant to Section 7.1(e);
(n) Liens created or incurred in connection with transactions
permitted by Section 7.13; and
(o) without duplication of any of the foregoing clauses, other
Liens securing obligations of Borrower or its Subsidiaries in an aggregate
outstanding principal amount not exceeding $10,000,000 at any time.
7.3 Negative Pledges; Restrictions on Dividends, Etc. Borrower
will not, and will not permit any of its Subsidiaries to, directly or
indirectly:
(a) enter into or remain a party to any agreement prohibiting
the creation, incurrence or assumption of any Lien on or with respect to any
assets of Borrower, or any Subsidiary, whether now owned or hereafter acquired,
or any income or profits therefrom, except for such prohibitions contained in
(A) this Agreement and (B) instruments governing any Debt permitted under
Section 7.1.
(b) Create or permit to exist or become effective any
restriction of any kind on the ability of any Subsidiary to (i) pay dividends
or make any other distribution on or with respect to any of its stock or other
ownership interests owned by Borrower or any Subsidiary of Borrower, (ii) pay
any Debt owed to Borrower or any Subsidiary of Borrower, (iii) make loans or
advances to Borrower or any other Subsidiary of Borrower, or (iv) transfer any
of its assets to Borrower or any Subsidiary of Borrower, except for such
prohibitions contained in this Agreement and for such prohibitions contained in
the Senior Debt Documents, and with respect to clause (iv) only, such
prohibitions contained in the Dutch Facility.
7.4 Investments and Acquisitions. Borrower will not, and will
not permit any of its Subsidiaries to, directly or indirectly, make or own any
Investment in any Person or make, or commit to make any acquisition (whether by
purchase of capital stock or assets, merger or otherwise), except:
(a) Cash Equivalents;
(b) Investments that constitute intercompany Debt and are
otherwise permitted by Section 7.1; provided that all of the Debt of Borrower
to any Subsidiary of Borrower shall be expressly subordinated to the
Obligations in accordance with the terms set forth in Exhibit O;
(c) Non-Hostile Acquisitions by Borrower or any of its
Subsidiaries of assets constituting a business unit or the capital stock of any
Person provided that (i) Borrower is the surviving entity following such
acquisition of assets or capital stock, (ii) Borrower continues in the same
type of business currently conducted without material changes in the nature of
its business and (iii) Borrower is capable of incurring additional Debt in
connection with such
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acquisition of assets or capital stock without violating any debt or covenant
restrictions and without creating an Event of Default;
(d) Borrower and its Subsidiaries may make and maintain
Investments in Subsidiaries;
(e) Investments in Joint Ventures existing on the Closing Date
and set forth on Schedule 7.4, and after the Closing Date Investments in Joint
Ventures not listed on Schedule 7.4 ("Additional Joint Ventures"); provided
that (i) any such Joint Venture is in and continues in the same type of
business as is conducted by Borrower on the Closing Date, (ii) none of Borrower
or any Material Subsidiary is a general partner (or would be liable to the
extent of a general partner) of any such Joint Venture, and (iii) at the time
of any Investment in an Additional Joint Venture the aggregate Investments made
by Borrower and its Subsidiaries in Additional Joint Ventures (after giving
effect to the Investment to be made) shall not exceed 15% of the Consolidated
Tangible Net Worth of Borrower and its Subsidiaries;
(f) Investments in connection with transactions permitted by
Section 7.13; and
(g) without duplication of any of the foregoing clauses, other
Investments in an aggregate principal amount not exceeding $10,000,000 in any
Fiscal Year; provided that any acquisition must be a Non-Hostile Acquisition.
7.5 Contingent Obligations. Borrower will not, and will not
permit any of its Subsidiaries to, directly or indirectly, create or become or
be liable with respect to any Contingent Obligation, except:
(a) Borrower and its Subsidiaries may become and remain liable
with respect to guaranties resulting from endorsement of negotiable instruments
for collection or deposit in the ordinary course of business;
(b) any Material Subsidiary of Borrower may create and become
liable with respect to the Material Subsidiary Guaranty;
(c) Borrower may become and remain liable with respect to
reimbursement obligations under the Letters of Credit and Borrower may become
and remain liable with respect to any other Contingent Obligation created
hereunder or under any other Loan Document;
(d) Borrower and its Subsidiaries may become and remain liable
with respect to any swap agreement, cap agreement, collar agreement or other
similar agreement or arrangement designed to protect Borrower or any of its
Subsidiaries against fluctuations in interest rates or commodity prices;
(e) Borrower may become and remain liable with respect to
guaranties relating to (x) any Debt of its Subsidiaries set forth on Schedule
7.1 and any refinancings thereof permitted pursuant to Section 7.1(e) and (y)
without duplication, Debt of its Subsidiaries in an aggregate
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outstanding amount not to exceed at any time 15% of Consolidated Tangible Net
Worth (as shown on the most recent financial statements delivered pursuant to
Section 6.1(a) or (b);
(f) Borrower and its Subsidiaries may become and remain liable
with respect to Contingent Obligations relating to advance payment guaranties,
rent guaranties with respect to leases and performance guaranties;
(g) Borrower and its Subsidiaries may become and remain liable
with respect to reimbursement obligations under letters of credit other than
Letters of Credit issued hereunder;
(h) the Subsidiaries of Borrower may become and remain liable
with respect to Contingent Obligations of the type described in clause (e) of
the definition of "Debt" in respect of Debt of Borrower or a Subsidiary of
Borrower if such Contingent Obligation is permitted by the provisos following
subsection (j) of this Section 7.5;
(i) Contingent Obligations created in connection with
transactions permitted by Section 7.13; and
(j) Borrower and its Subsidiaries may create, incur, assume or
suffer to exist any obligations, contingent or otherwise (including, without
limitation, obligations as account party under any unsecured letters of credit
other than the Letters of Credit), solely in respect of surety and performance
bonds and similar obligations; provided that the aggregate amount of all such
obligations (including those outstanding on the date hereof) does not exceed
$150,000,000 for Borrower and its Subsidiaries; provided further that such
obligations are incurred in the ordinary course of the business of Borrower and
its Subsidiaries. The surety and performance bonds in effect on the date
hereof are set forth on Schedule 7.1;
provided that, notwithstanding clauses (a) through (j) of this
Section 7.5, the Subsidiaries of Borrower may not create, incur, assume or
suffer to exist any Subsidiary Debt in an aggregate principal amount
outstanding at any time exceeding 15% of Consolidated Tangible Net Worth of
Borrower and its Subsidiaries (as shown on the most recent financial statements
delivered pursuant to Section 6.1(a) or (b)); provided further that,
transactions of the type permitted by Section 7.13 shall not count against any
of the quantitative baskets set forth in this Section 7.5.
7.6 Restrictions on Fundamental Changes. Borrower will not,
and will not permit any of its Subsidiaries to merge or consolidate with or
into, or convey, transfer, lease or otherwise dispose of (whether in one
transaction or in a series of transactions) all or any portion of its assets or
the assets of any division (whether now owned or hereafter acquired) to any
Person, except if no Event of Default or Default has occurred and is continuing
or would result from the following:
(a) Borrower or any Subsidiary of Borrower may merge or
consolidate with or into another entity (including any Subsidiary of Borrower);
provided that with respect to any merger with Borrower, Borrower shall be the
continuing or surviving corporation and with respect to all other mergers, the
continuing or surviving corporation shall be a Subsidiary of Borrower;
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(b) Borrower and its Subsidiaries may sell or otherwise dispose
of inventory in the ordinary course of business;
(c) Borrower and its Subsidiaries may dispose of used,
obsolete, worn out or surplus property in the ordinary course of business;
(d) any Wholly-Owned Subsidiary may transfer any assets to
Borrower or to another Wholly-Owned Subsidiary and any other Subsidiary may
transfer any assets to Borrower or to another Wholly-Owned Subsidiary;
(e) Borrower may transfer any assets to another Wholly-Owned
Subsidiary which has executed and delivered the Material Subsidiary Guaranty,
or instrument of joinder with respect thereto, and has otherwise complied with
Section 6.3;
(f) Borrower and its Subsidiaries may sell or dispose of assets
permitted by Section 7.13 provided that, transactions of the type permitted by
Section 7.13 shall not count against any of the quantitative baskets set forth
in this Section 7.6; and
(g) without duplication of any of the foregoing clauses,
Borrower or any of its Subsidiaries may dispose of up to 15% of its
Consolidated Total Assets during any 12-month period or, up to 30% of its
Consolidated Total Assets from Closing until the date of such Disposition, and,
if the Net Proceeds from any Disposition are in excess of 15% of Consolidated
Total Assets of Borrower and its Subsidiaries (as shown on the most recent
financial statements delivered pursuant to Section 6.1(a) or (b)) ("Excess Net
Proceeds"), such Excess Net Proceeds shall, at Borrower's election, either be:
(i) reinvested in the business of Borrower or such Subsidiary within 12 months
from the date of the receipt of the proceeds from such disposition, or (ii)
applied to prepay Outstanding Obligations as provided in Section 2.5 and to
reduce the combined Commitments as provided in Section 2.6.
7.7 Financial Covenants.
(a) Minimum Consolidated Tangible Net Worth. Borrower will
not permit Consolidated Tangible Net Worth at the end of any Fiscal Quarter to
be less than (i) 80% of Borrower's Consolidated Tangible Net Worth at
September 30, 1997 plus (ii) 50% of the sum of Consolidated Net Income for each
Fiscal Quarter beginning with the fourth Fiscal Quarter of Fiscal Year 1997
(without reduction for losses, but adding back Durco Integration and
Restructuring Expenses on an after-tax basis) plus (iii) 50% of Equity Proceeds
received by Borrower after the Closing Date.
(b) Leverage Ratio. Borrower will not permit the Leverage
Ratio to exceed 3.25:1.00 at the end of any Fiscal Quarter.
7.8 Dividends, Etc. Borrower will not, and will not permit
any of its Subsidiaries to, declare or pay any dividends, purchase, redeem,
retire or otherwise acquire for value any of its capital stock now or hereafter
outstanding, or any warrants or other rights to acquire such stock, return any
capital to its stockholders as such, or make any distribution of assets to its
stockholders as such, or permit any of its Subsidiaries to purchase, redeem,
retire or otherwise
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acquire for value any stock of Borrower or any warrants or other rights to
acquire such stock, except that:
(a) Borrower may declare and deliver dividends and
distributions payable in common stock of Borrower;
(b) Subsidiaries wholly-owned by Borrower except for directors'
qualifying shares or foreign qualifying shares (each a "Wholly-Owned
Subsidiary") may declare , pay and deliver dividends and distributions payable
in cash, common stock or other assets to Borrower or any other Subsidiary of
Borrower; and
(c) so long as no Event of Default or Default has occurred and
is continuing or would be caused thereby, Borrower or any Subsidiary of
Borrower may purchase, redeem, retire or otherwise acquire for value its
capital stock and may declare and pay dividends payable in cash on its capital
stock.
7.9 Change in Business. Subject to Section 7.6, Borrower will
not and will not permit any division or Subsidiary to make, any material change
in the nature or conduct of their respective businesses as carried on at the
date hereof, except as a result of any sales of assets permitted under this
Agreement.
7.10 ERISA. Borrower will not (a)permit any Pension Plan to:
(i) engage in any non-exempt "prohibited transaction" (as defined in Section
4975 of the Code); (ii) fail to comply with ERISA or any other applicable Laws;
(iii) incur any material "accumulated funding deficiency" (as defined in
Section 302 of ERISA); or (iv) terminate in any manner, which, with respect to
each event listed above, could reasonably be expected to result in liability
exceeding $10,000,000, or (b) withdraw, completely or partially, from any
Multiemployer Plan if to do so could reasonably be expected to result in
liability exceeding $10,000,000.
7.11 Charter and Bylaws. Borrower will not and will not permit
any Material Subsidiary to amend, modify or change in any manner, the
Certificate of Incorporation or the Bylaws of Borrower or any such Subsidiary
other than an amendment to the Certificate of Incorporation or Bylaws which
would not materially impair the interests or the rights of the Banks under any
Loan Document.
7.12 Transactions with Shareholders and Affiliates. Borrower
will not, and will not permit any of its Subsidiaries to, directly or
indirectly, enter into or permit to exist any transaction (including, without
limitation, the purchase, sale, lease or exchange of any property or the
rendering of any service) with any direct or indirect holder of 5% or more of
any class of equity Securities of Borrower or any Subsidiary, on terms that are
less favorable to Borrower or that Subsidiary, as the case may be, then those
that might be obtained at the time from Persons who are not such a holder or
affiliate; provided that the foregoing restriction shall not apply to (a) any
transaction between Borrower and any Wholly-Owned Subsidiary or between any of
its Wholly-Owned Subsidiaries or (b) reasonable and customary fees paid to
members of the Boards of Directors, officers, employees or consultants of
Borrower and its Subsidiaries for services rendered to Borrower or any such
Subsidiary in the ordinary course of business, together with customary
indemnities in connection therewith and in accordance with applicable
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law, (c) amounts payable under agreements with affiliates existing on the
Closing Date (d) contributions to employee benefit plans of Borrower or its
Subsidiaries, and (e) dividends and distributions permitted under Section 7.8).
7.13 Sales of Accounts Receivable. Borrower may, and may
permit its Subsidiaries to: (a) in any calendar year, sell, without recourse,
accounts receivable arising in the ordinary course of business in an aggregate
face amount not exceeding $25,000,000, (b) in any calendar year, sell, with
recourse, accounts receivable arising in the ordinary course of business in an
amount not exceeding 10% of Consolidated Tangible Net Worth as at the beginning
of such calendar year and (c) enter into one or more transactions or programs
(each such transaction or program being referred to herein as a "Receivables
Program") involving (i) the sale or other financing by Borrower or any of its
Subsidiaries, without recourse based solely upon a default by one or more
account debtors in the payment of any accounts receivable included in the
applicable Receivables Program, of accounts receivable arising in the ordinary
course of business of Borrower or any of its Subsidiaries or (ii) the
incurrence by Borrower or any of its Subsidiaries of Non- Recourse Debt secured
by Liens on accounts receivable arising in the ordinary course of business of
Borrower or any of its Subsidiaries if Borrower shall have delivered to each
Bank, at least 15 Business Days prior to the consummation of any Receivables
Program, a copy of the proposed terms and conditions of such Receivables
Program and, if within the 15 Business Day period the Requisite Banks shall not
have objected; provided that in the case of clauses (a) and (b) above, such
sale of accounts receivable shall be for a net cash sales price of no less than
70% of the face amount thereof; and provided, further, that Borrower and its
Subsidiaries shall not sell or otherwise finance any accounts receivable
pursuant to a Receivables Program if the aggregate amount of the Receivables
Programs at the time of any such sale or financing would exceed 50% of the
aggregate amount of the accounts receivable of Borrower and its Subsidiaries at
such time (after giving effect to any sales permitted by clauses (a) and (b)
but without giving effect to sales made under such Receivables Programs).
SECTION 8
EVENTS OF DEFAULT AND REMEDIES UPON EVENT OF DEFAULT
8.1 Events of Default. The existence or occurrence of any one
or more of the following events, whatever the reason therefor and under any
circumstances whatsoever, shall constitute an Event of Default:
(a) Failure to Make Payments When Due. Borrower shall fail to
pay any principal of any Loan when the same becomes due and payable, whether at
stated maturity, by acceleration, by notice of prepayment or otherwise; failure
to pay when due any amount payable to the Issuing Bank in reimbursement of any
drawing under any Letter of Credit; or failure to pay any interest on any Loan
or any other fees or other Obligations due under this Agreement within three
Business Days of the date due; or
(b) Breach of Warranty. Any representation or warranty made by
Borrower herein (or any of its officers) in connection with this Agreement
shall prove to have been incorrect in any material respect when made or deemed
made; or
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(c) Breach of Certain Covenants.
(i) Borrower shall fail to perform or observe any term,
covenant or agreement contained in Section 6.4, 7.1, 7.2, 7.3, 7.4, 7.5, 7.6,
7.8, 7.9, 7.10, 7.12, or 7.13; or
(ii) Borrower shall fail to perform or observe any term,
covenant or agreement contained in Section 6.8, 6.9, 6.10, 7.7 or 7.11 if such
failure shall remain unremedied for 10 days after the earlier of (A) the day on
which a Responsible Officer of Borrower first obtains knowledge of such
failure, or (B) the day on which written notice thereof shall have been given
to Borrower by the Agent or any Bank; or
(iii) Borrower or any of its Subsidiaries shall fail to
perform or observe any other term, covenant or agreement contained in this
Agreement or in any other Loan Document, on its part to be performed or
observed if such failure shall remain unremedied for 30 days after the earlier
of (A) the day on which a Responsible Officer of Borrower first obtains
knowledge of such failure, or (B) the day on which written notice thereof shall
have been given to Borrower by the Agent or any Bank; or
(d) Default in Other Agreements. Borrower or any of its
Subsidiaries shall fail to pay any principal of or premium or interest on any
Debt which is outstanding in a principal amount of at least $10,000,000 (or its
equivalent in any Approved Offshore Currency) in the aggregate (but excluding
Debt arising under this Agreement) of such Borrower or such Subsidiary (as the
case may be), when the same becomes due and payable (whether by scheduled
maturity, required prepayment, acceleration, demand or otherwise), and such
failure shall continue after the applicable grace period, if any, specified in
the agreement or instrument relating to such Debt; or any other event shall
occur or condition shall exist under any agreement or instrument relating to
any such Debt and shall continue after the applicable grace period, if any,
specified in such agreement or instrument, if the effect of such event or
condition is to accelerate, or to permit the acceleration of, the maturity of
such Debt; or any such Debt shall be declared to be due and payable, or
required to be prepaid (other than by a regularly scheduled required
prepayment), redeemed, purchased or defeased, or an offer to prepay, redeem,
purchase or defease such Debt shall be required to be made, in each case prior
to the stated maturity thereof; or
(e) Debtor Relief Laws, Etc. Borrower or any of Material
Subsidiaries institutes or consents to the institution of any proceeding under
a Debtor Relief Law relating to it or to all or any material part of its
property, or is unable or admits in writing its inability to pay its debts as
they mature, or makes an assignment for the benefit of creditors; or applies
for or consents to the appointment of any receiver, trustee, custodian,
conservator, liquidator, rehabilitator or similar officer for it or for all or
any material part of its property; or any receiver, trustee, custodian,
conservator, liquidator, rehabilitator or similar officer is appointed without
the application or consent of that Person and the appointment continues
undischarged or unstayed for 30 days; or any proceeding under a Debtor Relief
Law relating to any such Person or to all or any part of its property is
instituted without the consent of that Person and continues undismissed or
unstayed for 30 days; or
(f) Judgments and Attachments. Any judgment or order for the
payment of money in excess of $10,000,000 (or its equivalent in any Approved
Offshore Currency) shall be rendered against Borrower or any of its
Subsidiaries, such judgment or order shall remain
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unsatisfied for a period of at least 30 days and either (i) enforcement
proceedings shall have been commenced by any creditor upon such judgment or
order or (ii) there shall be any period of 10 consecutive days during which a
stay of enforcement of such judgment or order, by reason of a pending appeal or
otherwise, shall not be in effect. Any non- monetary judgment or order shall
be rendered against Borrower or any or its Subsidiaries that is materially
adverse to Borrower and its Subsidiaries taken as a whole, such judgment or
order shall remain unsatisfied for a period of at least 30 days and either (i)
enforcement proceedings shall have been commenced by any Person upon such
judgment or order or (ii) there shall be any period of 10 consecutive days
during which a stay of enforcement of such judgment or order, by reason of a
pending appeal or otherwise, shall not be in effect; or
(g) Guaranties. Any provision of the Material Subsidiary
Guaranty after delivery thereof or otherwise shall for any reason cease to be
valid and binding on any Material Subsidiary executing the Material Subsidiary
Guaranty or such Material Subsidiary shall so state in writing; or
(h) ERISA. An ERISA Event shall occur with respect to a
Pension Plan or Multiemployer Plan which has resulted or could reasonably be
expected to result in liability of Borrower under Title IV of ERISA to the
Pension Plan, Multiemployer Plan or the PBGC in an aggregate amount in excess
of the Threshold Amount; (ii) the aggregate amount of Unfunded Pension
Liability among all Pension Plans at any time exceeds the Threshold Amount; or
(iii) Borrower or any ERISA Affiliate shall fail to pay when due, after the
expiration of any applicable grace period, any installment payment with respect
to its withdrawal liability under Section 4201 of ERISA under a Multiemployer
Plan in an aggregate amount in excess of $10,000,000; or
(i) Change of Control. A Change of Control shall have
occurred.
8.2 Remedies Upon Event of Default. Without limiting any other
rights or remedies of the Agent or the Banks provided for elsewhere in this
Agreement, or the other Loan Documents, or by applicable Laws, or in equity, or
otherwise:
(a) Upon the occurrence, and during the continuance, of any
Event of Default other than an Event of Default described in Section 8.1(e):
(1) the Commitments and all other obligations of
the Agent or the Banks and all rights of Borrower and any Material
Subsidiaries under the Loan Documents shall be suspended without
notice to or demand upon Borrower, which are expressly waived by
Borrower, except that all of the Banks or the Requisite Banks, as
required hereunder, may waive an Event of Default or, without waiving,
determine, upon terms and conditions satisfactory to the Banks or
Requisite Banks, as the case may be, to reinstate the Commitments and
make further Extensions of Credit, which waiver or determination shall
apply equally to, and shall be binding upon, all the Banks;
(2) the Issuing Bank may, with the approval of
the Agent on behalf of the Requisite Banks, demand immediate payment
by Borrower of an amount equal to the aggregate amount of all
outstanding Letters of Credit to be held by the Issuing Bank in an
interest-bearing cash collateral account as collateral hereunder; and
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(3) the Requisite Banks may request the Agent to,
and the Agent thereupon shall, terminate the Commitments and/or
declare all or any part of the unpaid principal of all Loans, all
interest accrued and unpaid thereon and all other amounts payable
under the Loan Documents to be forthwith due and payable, whereupon
the same shall become and be forthwith due and payable, without
protest, presentment, notice of dishonor, demand or further notice of
any kind, all of which are expressly waived by Borrower.
(b) Upon the occurrence of any Event of Default described in
Section 8.1(e):
(1) the Commitments and all other obligations of
the Agent or the Banks and all rights of Borrower and any Material
Subsidiary under the Loan Documents shall terminate without notice to
or demand upon Borrower, which are expressly waived by Borrower,
except that all the Banks may waive the Event of Default or, without
waiving, determine, upon terms and conditions satisfactory to all the
Banks, to reinstate the Commitments and make further Extensions of
Credit, which determination shall apply equally to, and shall be
binding upon, all the Banks;
(2) an amount equal to the aggregate amount of
all outstanding Letters of Credit shall be immediately due and payable
to the Issuing Bank without notice to or demand upon Borrower, which
are expressly waived by Borrower, to be held by the Issuing Bank in an
interest-bearing cash collateral account as collateral hereunder; and
(3) the unpaid principal of all Loans, all
interest accrued and unpaid thereon and all other amounts payable
under the Loan Documents shall be forthwith due and payable, without
protest, presentment, notice of dishonor, demand or further notice of
any kind, all of which are expressly waived by Borrower.
(c) Upon the occurrence of any Event of Default, the Banks and
the Agent, or any of them, without notice to (except as expressly provided for
in any Loan Document) or demand upon Borrower, which are expressly waived by
Borrower (except as to notices expressly provided for in any Loan Document),
may proceed (but only with the consent of the Requisite Banks) to protect,
exercise and enforce their rights and remedies under the Loan Documents against
Borrower and any Material Subsidiary and such other rights and remedies as are
provided by Laws or equity.
(d) The order and manner in which the Banks' rights and
remedies are to be exercised shall be determined by the Requisite Banks in
their sole discretion, and all payments received by the Agent and the Banks, or
any of them, shall be applied first to Attorney Costs incurred by the Agent or
any Bank, and thereafter paid pro rata to the Banks in the same proportions
that the aggregate Obligations owed to each Bank under the Loan Documents bear
to the aggregate Obligations owed under the Loan Documents to all the Banks,
without priority or preference among the Banks. Regardless of how each Bank
may treat payments for the purpose of its own accounting, for the purpose of
computing Borrower's Obligations hereunder, payments shall be applied first, to
the costs and expenses of the Agent and the Banks, as set forth above, second,
to the payment of accrued and unpaid interest due under any Loan Documents to
and including the date of such application (ratably, and without duplication,
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according to the accrued and unpaid interest due under each of the Loan
Documents), and third, to the payment of all other amounts (including principal
and fees) then owing to the Agent or the Banks under the Loan Documents. No
application of payments will cure any Event of Default, or prevent
acceleration, or continued acceleration, of amounts payable under the Loan
Documents, or prevent the exercise, or continued exercise, of rights or
remedies of the Banks hereunder or thereunder or at Laws or in equity.
SECTION 9
THE AGENT
9.1 Appointment and Authorization; "Agent". (a) Each Bank hereby
irrevocably (subject to Section 9.9) appoints, designates and authorizes the
Agent to take such action on its behalf under the provisions of this Agreement
and each other Loan Document and to exercise such powers and perform such
duties as are expressly delegated to it by the terms of this Agreement or any
other Loan Document, together with such powers as are reasonably incidental
thereto. Notwithstanding any provision to the contrary contained elsewhere in
this Agreement or in any other Loan Document, the Agent shall not have any
duties or responsibilities, except those expressly set forth herein, nor shall
the Agent have or be deemed to have any fiduciary relationship with any Bank,
and no implied covenants, functions, responsibilities, duties, obligations or
liabilities shall be read into this Agreement or any other Loan Document or
otherwise exist against the Agent. Without limiting the generality of the
foregoing sentence, the use of the term "agent" in this Agreement with
reference to the Agent is not intended to connote any fiduciary or other
implied (or express) obligations arising under agency doctrine of any
applicable law. Instead, such term is used merely as a matter of market
custom, and is intended to create or reflect only an administrative
relationship between independent contracting parties.
(b) The Issuing Bank shall act on behalf of the Banks with
respect to any Letters of Credit issued by it and the documents associated
therewith until such time and except for so long as the Agent may agree at the
request of the Requisite Banks to act for such Issuing Bank with respect
thereto; provided, however, that the Issuing Bank shall have all of the
benefits and immunities (i) provided to the Agent in this Section 9 with
respect to any acts taken or omissions suffered by the Issuing Bank in
connection with Letters of Credit issued by it or proposed to be issued by it
and the application and agreements for letters of credit pertaining to the
Letters of Credit as fully as if the term "Agent", as used in this Section 9,
included the Issuing Bank with respect to such acts or omissions, and (ii) as
additionally provided in this Agreement with respect to the Issuing Bank.
9.2 Delegation of Duties. The Agent may execute any of its
duties under this Agreement or any other Loan Document by or through agents,
employees or attorneys-in-fact and shall be entitled to advice of counsel
concerning all matters pertaining to such duties. The Agent shall not be
responsible for the negligence or misconduct of any agent or attorney-in-fact
that it selects with reasonable care.
9.3 Liability of Agent. None of the Agent-Related Persons shall
(a) be liable for any action taken or omitted to be taken by any of them under
or in connection with this Agreement or any other Loan Document or the
transactions contemplated hereby (except for its own gross negligence or
willful misconduct), or (b) be responsible in any manner to any of the Banks
for
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any recital, statement, representation or warranty made by Borrower or any
Subsidiary or Affiliate of Borrower, or any officer thereof, contained in this
Agreement or in any other Loan Document, or in any certificate, report,
statement or other document referred to or provided for in, or received by the
Agent under or in connection with, this Agreement or any other Loan Document,
or the validity, effectiveness, genuineness, enforceability or sufficiency of
this Agreement or any other Loan Document, or for any failure of Borrower or
any other party to any Loan Document to perform its obligations hereunder or
thereunder. No Agent-Related Person shall be under any obligation to any Bank
to ascertain or to inquire as to the observance or performance of any of the
agreements contained in, or conditions of, this Agreement or any other Loan
Document, or to inspect the properties, books or records of Borrower or any of
Borrower's Subsidiaries or Affiliates.
9.4 Reliance by Agent. (a) The Agent shall be entitled to rely,
and shall be fully protected in relying, upon any writing, resolution, notice,
consent, certificate, affidavit, letter, telegram, facsimile, telex or
telephone message, statement or other document or conversation believed by it
to be genuine and correct and to have been signed, sent or made by the proper
Person or Persons, and upon advice and statements of legal counsel (including
counsel to Borrower), independent accountants and other experts selected by the
Agent. The Agent shall be fully justified in failing or refusing to take any
action under this Agreement or any other Loan Document unless it shall first
receive such advice or concurrence of the Requisite Banks as it deems
appropriate and, if it so requests, it shall first be indemnified to its
satisfaction by the Banks against any and all liability and expense which may
be incurred by it by reason of taking or continuing to take any such action.
The Agent shall in all cases be fully protected in acting, or in refraining
from acting, under this Agreement or any other Loan Document in accordance with
a request or consent of the Requisite Banks or all Banks, if required
hereunder, and such request and any action taken or failure to act pursuant
thereto shall be binding upon all of the Banks.
(b) For purposes of determining compliance with the conditions
specified in Section 4.1, each Bank that has executed this Agreement shall be
deemed to have consented to, approved or accepted or to be satisfied with, each
document or other matter either sent by the Agent to such Bank for consent,
approval, acceptance or satisfaction, or required thereunder to be consented to
or approved by or acceptable or satisfactory to the Bank.
9.5 Notice of Default. The Agent shall not be deemed to have
knowledge or notice of the occurrence of any Default or Event of Default,
except with respect to defaults in the payment of principal, interest and fees
required to be paid to the Agent for the account of the Banks, unless the Agent
shall have received written notice from a Bank or Borrower referring to this
Agreement, describing such Default or Event of Default and stating that such
notice is a "notice of default". The Agent will notify the Banks of its
receipt of any such notice. The Agent shall take such action with respect to
such Default or Event of Default as may be requested by the Requisite Banks in
accordance with Section 8; provided, however, that unless and until the Agent
has received any such request, the Agent may (but shall not be obligated to)
take such action, or refrain from taking such action, with respect to such
Default or Event of Default as it shall deem advisable or in the best interest
of the Banks.
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9.6 Credit Decision. Each Bank acknowledges that none of the
Agent-Related Persons has made any representation or warranty to it, and that
no act by the Agent hereinafter taken, including any review of the affairs of
Borrower and its Subsidiaries, shall be deemed to constitute any representation
or warranty by any Agent-Related Person to any Bank. Each Bank represents to
the Agent that it has, independently and without reliance upon any
Agent-Related Person and based on such documents and information as it has
deemed appropriate, made its own appraisal of and investigation into the
business, prospects, operations, property, financial and other condition and
creditworthiness of Borrower and its Subsidiaries, and all applicable bank
regulatory laws relating to the transactions contemplated hereby, and made its
own decision to enter into this Agreement and to extend credit to Borrower
hereunder. Each Bank also represents that it will, independently and without
reliance upon any Agent-Related Person and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
credit analysis, appraisals and decisions in taking or not taking action under
this Agreement and the other Loan Documents, and to make such investigations as
it deems necessary to inform itself as to the business, prospects, operations,
property, financial and other condition and creditworthiness of Borrower.
Except for notices, reports and other documents expressly herein required to be
furnished to the Banks by the Agent, the Agent shall not have any duty or
responsibility to provide any Bank with any credit or other information
concerning the business, prospects, operations, property, financial and other
condition or creditworthiness of Borrower which may come into the possession of
any of the Agent-Related Persons.
9.7 Indemnification of Agent. Whether or not the transactions
contemplated hereby are consummated, the Banks shall indemnify upon demand the
Agent-Related Persons (to the extent not reimbursed by or on behalf of Borrower
and without limiting the obligation of Borrower to do so), pro rata, from and
against any and all Indemnified Liabilities; provided, however, that no Bank
shall be liable for the payment to the Agent-Related Persons of any portion of
such Indemnified Liabilities resulting solely from such Person's gross
negligence or willful misconduct. Without limitation of the foregoing, each
Bank shall reimburse the Agent upon demand for its ratable share of any costs
or out-of-pocket expenses (including Attorney Costs) incurred by the Agent in
connection with the preparation, execution, delivery, administration,
modification, amendment or enforcement (whether through negotiations, legal
proceedings or otherwise) of, or legal advice in respect of rights or
responsibilities under, this Agreement, any other Loan Document, or any
document contemplated by or referred to herein, to the extent that the Agent is
not reimbursed for such expenses by or on behalf of Borrower. The undertaking
in this Section shall survive the payment of all Obligations hereunder and the
resignation or replacement of the Agent.
9.8 Agent in Individual Capacity. BofA and its Affiliates may
make loans to, issue letters of credit for the account of, accept deposits
from, acquire equity interests in and generally engage in any kind of banking,
trust, financial advisory, underwriting or other business with Borrower and its
Subsidiaries and Affiliates as though BofA were not the Agent or the Issuing
Bank hereunder and without notice to or consent of the Banks. The Banks
acknowledge that, pursuant to such activities, BofA or its Affiliates may
receive information regarding Borrower or its Affiliates (including information
that may be subject to confidentiality obligations in favor of Borrower or such
Subsidiary) and acknowledge that the Agent shall be under no obligation to
provide such information to them. With respect to its Loans, BofA shall have
the same rights
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and powers under this Agreement as any other Bank and may exercise the same as
though it were not the Agent or the Issuing Bank.
9.9 Successor Agent. The Agent may, and at the request of the
Requisite Banks shall, resign as Agent upon 30 days' notice to the Banks. If
the Agent resigns under this Agreement, the Requisite Banks shall appoint from
among the Banks a successor Agent for the Banks which successor agent shall be
approved by Borrower. If no successor agent is appointed prior to the
effective date of the resignation of the Agent, the Agent may appoint, after
consulting with the Banks and Borrower, a successor agent from among the Banks.
Upon the acceptance of its appointment as successor agent hereunder, such
successor agent shall succeed to all the rights, powers and duties of the
retiring Agent and the term "Agent" shall mean such successor agent and the
retiring Agent's appointment, powers and duties as Agent shall be terminated.
After any retiring Agent's resignation hereunder as Agent, the provisions of
this Section 9 and Sections 10.3 and 10.11 shall inure to its benefit as to any
actions taken or omitted to be taken by it while it was Agent under this
Agreement. If no successor agent has accepted appointment as Agent by the date
which is 30 days following a retiring Agent's notice of resignation, the
retiring Agent's resignation shall nevertheless thereupon become effective and
the Banks shall perform all of the duties of the Agent hereunder until such
time, if any, as the Requisite Banks appoint a successor agent as provided for
above. Notwithstanding the foregoing, however, BofA may not be removed as the
Agent at the request of the Requisite Banks unless BofA shall also
simultaneously be replaced as "Issuing Bank" hereunder pursuant to
documentation in form and substance reasonably satisfactory to BofA.
SECTION 10
MISCELLANEOUS
10.1 Cumulative Remedies; No Waiver. The rights, powers,
privileges and remedies of the Agent and the Banks provided herein or other
Loan Document are cumulative and not exclusive of any right, power, privilege
or remedy provided by Laws or equity. No failure or delay on the part of the
Agent or any Bank in exercising any right, power, privilege or remedy may be,
or may be deemed to be, a waiver thereof; nor may any single or partial
exercise of any right, power, privilege or remedy preclude any other or further
exercise of the same or any other right, power, privilege or remedy. The terms
and conditions of Section 9 are inserted for the sole benefit of the Agent and
the Banks; the same may be waived in whole or in part, with or without terms or
conditions, in respect of any Loan or Letter of Credit without prejudicing the
Agent's or the Banks' rights to assert them in whole or in part in respect of
any other Loan.
10.2 Amendments; Consents. No amendment, modification,
supplement, extension, termination or waiver of any provision of this Agreement
or any other Loan Document, no approval or consent thereunder, and no consent
to any departure by Borrower therefrom, may in any event be effective unless in
writing signed by the Requisite Banks (and, in the case of any amendment,
modification or supplement of or to any Loan Document to which Borrower is a
party, signed by Borrower and, in the case of any amendment, modification or
supplement to Section 9, signed by the Agent), and then only in the specific
instance and for the specific purpose given; and, without the approval in
writing of all Banks affected thereby, no amendment, modification, supplement,
termination, waiver or consent may be effective:
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(a) To reduce the principal of, or the amount of principal,
principal prepayments or the rate of interest payable on, any Loan, or the
amount of the Commitment or the Pro Rata Share of any Bank or the amount of any
facility fee payable to any Bank, or any other fee or amount payable to any
Bank under the Loan Documents or to waive an Event of Default consisting of the
failure of Borrower to pay when due principal, interest or any facility fee;
(b) To postpone any date fixed for any payment of principal of,
prepayment of principal of or any installment of interest on, any Loan or any
installment of any facility fee, or to extend the term of the Commitments or
increase the Commitments, or to release any Material Subsidiary from the
Material Subsidiary Guaranty;
(c) To amend the provisions of the definition of "Requisite
Banks", Sections 4 or 9 or this Section; or
(d) To amend any provision of this Agreement that expressly
requires the consent or approval of all the Banks.
Any amendment, modification, supplement, termination, waiver or
consent pursuant to this Section shall apply equally to, and shall be binding
upon, all the Banks and the Agent.
10.3 Attorney Costs, Expenses and Taxes. Borrower shall pay
within five Business Days after demand, accompanied by an invoice therefor, the
reasonable costs and expenses of the Agent in connection with the negotiation,
preparation, syndication, execution and delivery of the Loan Documents (subject
to any limitations set forth in a letter agreement between Borrower and the
Arranger entered into prior to the Closing Date) and any amendment thereto or
waiver thereof. Borrower shall also pay on demand, accompanied by an invoice
therefor, the reasonable costs and expenses of the Agent and the Banks in
connection with the reorganization (including a bankruptcy reorganization) and
enforcement or attempted enforcement of the Loan Documents, and any matter
related thereto. The foregoing costs and expenses shall include filing fees,
recording fees, title insurance fees, appraisal fees, search fees, and other
out-of-pocket expenses and Attorney Costs incurred by the Agent or any Bank,
and independent public accountants and other outside experts retained by the
Agent or any Bank, whether or not such costs and expenses are incurred or
suffered by the Agent or any Bank in connection with or during the course of
any bankruptcy or insolvency proceedings of Borrower or any Subsidiary thereof.
Such costs and expenses shall also include the administrative costs of the
Agent reasonably attributable to the administration of this Agreement and the
other Loan Documents. Borrower shall pay any and all Applicable Taxes and all
costs, expenses, fees and charges payable or determined to be payable in
connection with the filing or recording of this Agreement, any other Loan
Document or any other instrument or writing to be delivered hereunder or
thereunder, or in connection with any transaction pursuant hereto or thereto,
and shall reimburse, hold harmless and indemnify the Agent and the Banks from
and against any and all loss, liability or legal or other expense with respect
to or resulting from any delay in paying or failure to pay any such tax, cost,
expense, fee or charge or that any of them may suffer or incur by reason of the
failure of Borrower to perform any of its Obligations.
10.4 Nature of Banks' Obligations. The obligations of the Banks
hereunder are several and not joint or joint and several. Nothing contained in
this Agreement or any other
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Loan Document and no action taken by the Agent or the Banks or any of them
pursuant hereto or thereto may, or may be deemed to, make the Banks a
partnership, an association, a joint venture or other entity, either among
themselves or with Borrower or any Affiliate of Borrower. Each Bank's
obligation to make any Loan pursuant hereto is several and not joint or joint
and several, and in the case of the initial Loan only is conditioned upon the
performance by all other Banks of their obligations to make initial Loans. A
default by any Bank will not increase the Pro Rata Share attributable to any
other Bank. Any Bank not in default may, if it desires, assume in such
proportion as the nondefaulting Banks agree the obligations of any Bank in
default, but is not obligated to do so.
10.5 Survival of Representations and Warranties. All
representations and warranties contained herein or in any other Loan Document,
or in any certificate or other writing delivered by or on behalf of Borrower or
any Material Subsidiary will survive the making of the Loans hereunder and the
execution and delivery of any Notes, and have been or will be relied upon by
the Agent and each Bank, notwithstanding any investigation made by the Agent or
any Bank or on their behalf.
10.6 Notices. Except as otherwise expressly provided in the
Loan Documents, all notices, requests, demands, directions and other
communications provided for therein shall be given by Requisite Notice and
shall be effective as follows:
Effective on earlier of
Mode of Delivery actual receipt and :
---------------- -----------------------------------
Courier On scheduled delivery date
Facsimile When transmission complete
Mail Fourth Business Day after
deposit in u.s. mail
Personal delivery When received
Telephone When answered
provided, however, that notice to the Agent pursuant to Section 2 or 9
shall not be effective until actually received by the Agent. The Agent and any
Bank shall be entitled to rely and act on any notice purportedly given by or on
behalf of Borrower even if such notice (a) was not made in a manner specified
herein, (b) was incomplete, (c) was not preceded or followed by any other
notice specified herein, or (d) the terms of such notice as understood by the
recipient varied from any subsequent related notice provided for herein.
Borrower shall indemnify the Agent and any Bank from any loss, cost, expense or
liability as a result of relying on any notice permitted herein.
10.7 Execution of Loan Documents. Unless the Agent otherwise
specifies with respect to any Loan Document, (a) this Agreement and any other
Loan Document may be executed in any number of counterparts and any party
hereto or thereto may execute any
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counterpart, each of which when executed and delivered will be deemed to be an
original and all of which counterparts of this Agreement or any other Loan
Document, as the case may be, when taken together will be deemed to be but one
and the same instrument and (b) execution of any such counterpart may be
evidenced by a telecopier transmission of the signature of such party. The
execution of this Agreement or any other Loan Document by any party hereto or
thereto will not become effective until counterparts hereof or thereof, as the
case may be, have been executed by all the parties hereto or thereto.
10.8 Binding Effect; Assignment.
(a) This Agreement and the other Loan Documents to which Borrower
is a party will be binding upon and inure to the benefit of Borrower, the
Agent, each of the Banks, and their respective successors and assigns, except
that, Borrower may not assign their rights hereunder or thereunder or any
interest herein or therein without the prior written consent of all the Banks.
Each Bank represents that it is not acquiring its Loans with a view to the
distribution thereof within the meaning of the Securities Act of 1933, as
amended (subject to any requirement that disposition of such Loans must be
within the control of such Bank). Any Bank may at any time pledge its Note or
any other instrument evidencing its rights as a Bank under this Agreement to a
Federal Reserve Bank, but no such pledge shall release that Bank from its
obligations hereunder or grant to such Federal Reserve Bank the rights of a
Bank hereunder absent foreclosure of such pledge.
(b) From time to time following the Closing Date, each Bank may
assign to one or more Eligible Assignees all or any portion of its Pro Rata
Share; provided that (i) such assignment shall be of a constant, and not a
varying, percentage of all of the assigning Bank's rights and obligations under
this Agreement (other than any right to make Competitive Loans or Competitive
Loans owing to it), (ii), if not to a Bank or an Affiliate of the assigning
Bank, shall be consented to by Borrower at all times other than during the
existence of an Event of Default and the Agent (which approval of Borrower
shall not be unreasonably withheld or delayed), (iii) a copy of a Notice of
Assignment and Acceptance shall be delivered to the Agent, (iv) except in the
case of an assignment to an Affiliate of the assigning Bank, to another Bank or
of the entire remaining Commitment of the assigning Bank, the assignment shall
not assign a Pro Rata Share equivalent to less than the Minimum Amount
therefor, and (v) the effective date of any such assignment shall be as
specified in the Notice of Assignment and Acceptance, but not earlier than the
date which is five Business Days after the date the Agent has received the
Notice of Assignment and Acceptance. Upon acceptance by the Agent of such
Notice Assignment and Acceptance, the Eligible Assignee named therein shall be
a Bank for all purposes of this Agreement, with the Pro Rata Share therein set
forth and, to the extent of such Pro Rata Share, the assigning Bank shall be
released from its further obligations under this Agreement. Borrower agrees
that it shall execute and deliver upon request (against delivery by the
assigning Bank to Borrower of any Note) to such assignee Bank, one or more
Notes evidencing that assignee Bank's Pro Rata Share, and to the assigning Bank
if requested, one or more Notes evidencing the remaining balance Pro Rata Share
retained by the assigning Bank.
(c) By executing and delivering a Notice of Assignment and
Acceptance, the Eligible Assignee thereunder acknowledges and agrees that: (i)
other than the representation and warranty that it is the legal and beneficial
owner of the Pro Rata Share being assigned thereby
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free and clear of any adverse claim, the assigning Bank has made no
representation or warranty and assumes no responsibility with respect to any
statements, warranties or representations made in or in connection with this
Agreement or the execution, legality, validity, enforceability, genuineness or
sufficiency of this Agreement or any other Loan Document; (ii) the assigning
Bank has made no representation or warranty and assumes no responsibility with
respect to the financial condition of Borrower or the performance by Borrower
of the Obligations; (iii) it has received a copy of this Agreement, together
with copies of the most recent financial statements delivered pursuant to
Section 6.1 and such other documents and information as it has deemed
appropriate to make its own credit analysis and decision to enter into such
Assignment and Acceptance; (iv) it will, independently and without reliance
upon the Agent or any Bank and based on such documents and information as it
shall deem appropriate at the time, continue to make its own credit decisions
in taking or not taking action under this Agreement; (v) it appoints and
authorizes the Agent to take such action and to exercise such powers under this
Agreement as are delegated to the Agent by this Agreement; and (vi) it will
perform in accordance with their terms all of the obligations which by the
terms of this Agreement are required to be performed by it as a Bank.
(d) After receipt of a completed Notice of Assignment and
Acceptance, and receipt of an assignment fee of $3,000 from such Eligible
Assignee, the Agent shall, promptly following the effective date thereof,
provide to Borrower and the Banks a revised Schedule 10.6 giving effect
thereto.
(e) Each Bank may from time to time grant participations to one or
more banks or other financial institutions (including another Bank) in a
portion of its Pro Rata Share; provided, however, that (i) such Bank's
obligations under this Agreement shall remain unchanged, (ii) such Bank shall
remain solely responsible to the other parties hereto for the performance of
such obligations, (iii) the participating banks or other financial institutions
shall not be a Bank hereunder for any purpose except, if the participation
agreement so provides, for the purposes of Section 3 (but only to the extent
that the cost of such benefits to Borrower does not exceed the cost which
Borrower would have incurred in respect of such Bank absent the participation)
and Section 10.9 (subject to Section 10.10), (iv) Borrower, the Agent and the
other Banks shall continue to deal solely and directly with such Bank in
connection with such Bank's rights and obligations under this Agreement, (v)
the participation shall not restrict an increase in the Commitment or in the
granting Bank's Pro Rata Share, so long as the amount of the participation
interest is not affected thereby and (vi) the consent of the holder of such
participation interest shall not be required for amendments or waivers of
provisions of the Loan Documents other than those which (A) extend the Maturity
Date as to such participant or any other date upon which any payment of money
is due to such participant, (B) reduce the rate of interest owing to such
participant, any fee or any other monetary amount owing to such participant,
(C) reduce the amount of any installment of principal owing to such participant
or (D) release any guarantor.
10.9 Right of Setoff. If an Event of Default has occurred and is
continuing, the Agent or any Bank may exercise its rights under Section 9 of
the Uniform Commercial Code and other applicable Laws and, to the extent
permitted by applicable Laws, apply any funds in any deposit account maintained
with it by Borrower and/or any property of Borrower in its possession against
the Obligations.
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10.10 Sharing of Setoffs. Each Bank severally agrees that if it,
through the exercise of any right of setoff, banker's lien or counterclaim
against Borrower, or otherwise, receives payment of the Obligations held by it
that is ratably more than any other Bank, through any means, receives in
payment of the Obligations held by that Bank, then, subject to applicable Laws:
(a) the Bank exercising the right of setoff, banker's lien or counterclaim or
otherwise receiving such payment shall purchase, and shall be deemed to have
simultaneously purchased, from the other Bank a participation in the
Obligations held by the other Bank and shall pay to the other Bank a purchase
price in an amount so that the share of the Obligations held by each Bank after
the exercise of the right of setoff, banker's lien or counterclaim or receipt
of payment shall be in the same proportion that existed prior to the exercise
of the right of setoff, banker's lien or counterclaim or receipt of payment;
and (b) such other adjustments and purchases of participations shall be made
from time to time as shall be equitable to ensure that all of the Banks share
any payment obtained in respect of the Obligations ratably in accordance with
each Bank's share of the Obligations immediately prior to, and without taking
into account, the payment; provided that, if all or any portion of a
disproportionate payment obtained as a result of the exercise of the right of
setoff, banker's lien, counterclaim or otherwise is thereafter recovered from
the purchasing Bank by Borrower or any Person claiming through or succeeding to
the rights of Borrower, the purchase of a participation shall be rescinded and
the purchase price thereof shall be restored to the extent of the recovery, but
without interest. Each Bank that purchases a participation in the Obligations
pursuant to this Section shall from and after the purchase have the right to
give all notices, requests, demands, directions and other communications under
this Agreement with respect to the portion of the Obligations purchased to the
same extent as though the purchasing Bank were the original owner of the
Obligations purchased. Borrower expressly consents to the foregoing
arrangements and agrees that any Bank holding a participation in an Obligation
so purchased may exercise any and all rights of setoff, banker's lien or
counterclaim with respect to the participation as fully as if the Bank were the
original owner of the Obligation purchased.
10.11 Indemnity by Borrower. Borrower agrees to indemnify, save and
hold harmless the Agent and each Bank and their respective Affiliates,
directors, officers, agents, attorneys and employees (collectively the
"Indemnitees") from and against: (a) any and all claims, demands, actions or
causes of action (except a claim, demand, action, or cause of action for Bank
Taxes) if the claim, demand, action or cause of action arises out of or relates
to any act or omission (or alleged act or omission) of Borrower, its Affiliates
or any of their officers, directors or stockholders relating to the Commitment,
the use or contemplated use of proceeds of any Loan, or the relationship of
Borrower and the Banks under this Agreement; (b) any administrative or
investigative proceeding by any Governmental Authority arising out of or
related to a claim, demand, action or cause of action described in subsection
(a) above; and (c) any and all liabilities, losses, costs or expenses
(including Attorney Costs) that any Indemnitee suffers or incurs as a result of
the assertion of any foregoing claim, demand, action or cause of action;
provided that no Indemnitee shall be entitled to indemnification for any loss
caused by its own gross negligence or willful misconduct or for any loss
asserted against it by another Indemnitee.
10.12 Nonliability of the Banks. Borrower acknowledges and agrees
that:
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(a) Any inspections of any property of Borrower made by or through
the Agent or the Banks are for purposes of administration of the Loan only and
Borrower is not entitled to rely upon the same (whether or not such inspections
are at the expense of Borrower);
(b) By accepting or approving anything required to be observed,
performed, fulfilled or given to the Agent or the Banks pursuant to the Loan
Documents, neither the Agent nor the Banks shall be deemed to have warranted or
represented the sufficiency, legality, effectiveness or legal effect of the
same, or of any term, provision or condition thereof, and such acceptance or
approval thereof shall not constitute a warranty or representation to anyone
with respect thereto by the Agent or the Banks;
(c) The relationship between Borrower and the Agent and the Banks
is, and shall at all times remain, solely that of Borrower and lenders; neither
the Agent nor the Banks shall under any circumstance be construed to be
partners or joint venturers of Borrower or their Affiliates; neither the Agent
nor the Banks shall under any circumstance be deemed to be in a relationship of
confidence or trust or a fiduciary relationship with Borrower or their
Affiliates, or to owe any fiduciary duty to Borrower or their Affiliates;
neither the Agent nor the Banks undertake or assume any responsibility or duty
to Borrower or their Affiliates to select, review, inspect, supervise, pass
judgment upon or inform Borrower or their Affiliates of any matter in
connection with their property or the operations of Borrower or their
Affiliates; Borrower and their Affiliates shall rely entirely upon their own
judgment with respect to such matters; and any review, inspection, supervision,
exercise of judgment or supply of information undertaken or assumed by the
Agent or the Banks in connection with such matters is solely for the protection
of the Agent and the Banks and neither Borrower nor any other Person is
entitled to rely thereon; and
(d) The Agent and the Banks shall not be responsible or liable to
any Person for any loss, damage, liability or claim of any kind relating to
injury or death to Persons or damage to property caused by the actions,
inaction or negligence of Borrower and/or its Affiliates and Borrower hereby
indemnify and hold the Agent and the Banks harmless from any such loss, damage,
liability or claim.
10.13 No Third Parties Benefited. This Agreement is made for the
purpose of defining and setting forth certain obligations, rights and duties of
Borrower, the Agent and the Banks in connection with the Loans, and is made for
the sole benefit of Borrower, the Agent and the Banks, and the Agent's and the
Banks' successors and assigns. Except as provided in Sections 10.8 and 10.11,
no other Person shall have any rights of any nature hereunder or by reason
hereof.
10.14 Confidentiality. Each Bank agrees to hold any confidential
information that it may receive from Borrower pursuant to this Agreement in
confidence, except for disclosure: (a) to a Bank's Affiliates; (b) to other
Banks and their Affiliates; (c) to legal counsel and accountants for Borrower
or any Bank; (d) to other professional advisors to Borrower or any Bank,
provided that the recipient has accepted such information subject to a
confidentiality agreement substantially similar to this Section; (e) to
regulatory officials having jurisdiction over that Bank; (f) as required by
Laws or legal process or in connection with any legal proceeding to which that
Bank and Borrower is adverse parties; and (g) to another financial
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institution in connection with a disposition or proposed disposition to that
financial institution of all or part of that Bank's interests hereunder or a
participation interest in its Loans, provided that the recipient has agreed to
treat such information confidentially on a basis similar to the foregoing. For
purposes of the foregoing, "confidential information" shall mean any
information respecting Borrower or its Subsidiaries reasonably considered by
Borrower to be confidential, other than (i) information previously filed with
any Governmental Authority and available to the public, (ii) information
previously published in any public medium from a source other than, directly or
indirectly, that Bank, and (iii) information previously disclosed by Borrower
to any Person not associated with Borrower without a confidentiality agreement
or obligation substantially similar to this Section. Nothing in this Section
shall be construed to create or give rise to any fiduciary duty on the part of
the Agent or the Banks to Borrower.
10.15 Further Assurances. Borrower and its Subsidiaries shall, at
their expense and without expense to the Banks or the Agent, do, execute and
deliver such further acts and documents as any Bank or the Agent from time to
time reasonably requires for the assuring and confirming unto the Banks or the
Agent of the rights hereby created or intended now or hereafter so to be, or
for carrying out the intention or facilitating the performance of the terms of
any Loan Document.
10.16 Integration. This Agreement, together with the other Loan
Documents and any letter agreements referred to herein, comprises the complete
and integrated agreement of the parties on the subject matter hereof and
supersedes all prior agreements, written or oral, on the subject matter hereof.
In the event of any conflict between the provisions of this Agreement and those
of any other Loan Document, the provisions of this Agreement shall control and
govern; provided that the inclusion of supplemental rights or remedies in favor
of the Agent or the Banks in any other Loan Document shall not be deemed a
conflict with this Agreement. Each Loan Document was drafted with the joint
participation of the respective parties thereto and shall be construed neither
against nor in favor of any party, but rather in accordance with the fair
meaning thereof.
10.17 Failure to Charge Not Subsequent Waiver. Any decision by the
Agent or any Bank not to require payment of any interest (including Default
Interest), fee, cost or other amount payable under any Loan Document, or to
calculate any amount payable by a particular method, on any occasion shall in
no way limit or be deemed a waiver of the Agent's or such Bank's right to
require full payment of any interest (including Default Interest), fee, cost or
other amount payable under any Loan Document, or to calculate an amount payable
by another method that is not inconsistent with this Agreement, on any other or
subsequent occasion.
10.18 Governing Law. Except to the extent otherwise provided
therein, each Loan Document shall be governed by, and construed and enforced in
accordance with, the local Laws of California.
10.19 Severability of Provisions. Any provision in any Loan
Document that is held to be inoperative, unenforceable or invalid as to any
party or in any jurisdiction shall, as to that party or jurisdiction, be
inoperative, unenforceable or invalid without affecting the remaining
provisions or the operation, enforceability or validity of that provision as to
any other
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party or in any other jurisdiction, and to this end the provisions of all Loan
Documents are declared to be severable.
10.20 Headings. Section headings in this Agreement and the other
Loan Documents are included for convenience of reference only and are not part
of this Agreement or the other Loan Documents for any other purpose.
10.21 Time of the Essence. Time is of the essence of the Loan
Documents.
10.22 Foreign Banks and Participants. Each Bank, and each holder of
a participation interest herein, that is a "foreign corporation, partnership or
trust" within the meaning of the Code shall deliver to the Agent, within 20
days after the Closing Date (or after accepting an assignment or receiving a
participation interest herein) two duly signed completed copies of either Form
1001 (relating to such Person and entitling it to a complete exemption from
withholding on all payments to be made to such Person by Borrower pursuant to
this Agreement) or Form 4224 (relating to all payments to be made to such
Person by Borrower pursuant to this Agreement) of the United States Internal
Revenue Service or such other evidence (including, if reasonably necessary,
Form W-9) satisfactory to Borrower and the Agent that no withholding under the
federal income tax laws is required with respect to such Person. Thereafter
and from time to time, each such Person shall (a) promptly submit to the Agent
such additional duly completed and signed copies of one of such forms (or such
successor forms as shall be adopted from time to time by the relevant United
States taxing authorities) as may then be available under then current United
States laws and regulations to avoid, or such evidence as is satisfactory to
Borrower and the Agent of any available exemption from, United States
withholding taxes in respect of all payments to be made to such Person by
Borrower pursuant to this Agreement and (b) take such steps as shall not be
materially disadvantageous to it, in the reasonable judgment of such Bank, and
as may be reasonably necessary (including the re- designation of its Lending
Office, if any) to avoid any requirement of applicable Laws that Borrower make
any deduction or withholding for taxes from amounts payable to such Person. If
such Persons fails to deliver the above forms or other documentation, then the
Agent may withhold from any interest payment to such Person an amount
equivalent to the applicable withholding tax imposed by Sections 1441 and 1442
of the Code, without reduction. If any Governmental Authority asserts that the
Agent did not properly withhold any tax or other amount from payments made in
respect of such Person, such Person shall indemnify the Agent therefor,
including all penalties and interest and costs and expenses (including Attorney
Costs) of the Agent. The obligation of the Banks under this subsection shall
survive the payment of all Obligations and the resignation or replacement of
the Agent.
10.23 Removal of a Bank. Under any circumstances set forth in this
Agreement providing that Borrower shall have the right to remove a Bank as a
party to this Agreement, such Bank shall, upon notice from Borrower, execute
and deliver a Notice of Assignment and Acceptance covering that Bank's Pro Rata
Share of the Commitments in favor of an Eligible Assignee acceptable to the
Agent as Borrower may designate, subject to (a) payment in full by such
Eligible Assignee of all principal, interest and fees owing to such Bank
through the date of assignment and (b) delivery by such Eligible Assignee of
such appropriate assurances and indemnities (which may include letters of
credit) as such Bank may reasonably require with respect to its participation
interest in any Letters of Credit then outstanding or any Swing Line
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Outstandings. Alternatively, Borrower may reduce the Commitments (and, for
this purpose, the Minimum Amounts for Commitment reductions shall not apply) by
an amount equal to that Bank's Pro Rata Share of the Commitments, pay and
provide to such Bank the amounts, assurances and indemnities described in (a)
and (b) above and release such Bank from its Pro Rata Share of the Commitments.
10.24 WAIVER OF RIGHT TO TRIAL BY JURY. EACH PARTY TO THIS
AGREEMENT HEREBY EXPRESSLY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM,
DEMAND, ACTION OR CAUSE OF ACTION ARISING UNDER ANY LOAN DOCUMENT OR IN ANY WAY
CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTY HERETO OR
ANY OF THEM WITH RESPECT TO ANY LOAN DOCUMENT, OR THE TRANSACTIONS RELATED
THERETO, IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER
SOUNDING IN CONTRACT OR TORT OR OTHERWISE; AND EACH PARTY HEREBY AGREES AND
CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE
DECIDED BY COURT TRIAL WITHOUT A JURY, AND THAT ANY PARTY TO THIS AGREEMENT MAY
FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS SECTION WITH ANY COURT AS
WRITTEN EVIDENCE OF THE CONSENT OF THE SIGNATORIES HERETO TO THE WAIVER OF
THEIR RIGHT TO TRIAL BY JURY.
10.25 PURPORTED ORAL AMENDMENTS. BORROWER EXPRESSLY ACKNOWLEDGE
THAT THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS MAY ONLY BE AMENDED OR
MODIFIED, OR THE PROVISIONS HEREOF OR THEREOF WAIVED OR SUPPLEMENTED, BY AN
INSTRUMENT IN WRITING THAT COMPLIES WITH SECTION 10.2. BORROWER AGREES THAT IT
WILL NOT RELY ON ANY COURSE OF DEALING, COURSE OF PERFORMANCE, OR ORAL OR
WRITTEN STATEMENTS BY ANY REPRESENTATIVE OF THE AGENT OR ANY BANK THAT DOES NOT
COMPLY WITH SECTION 10.2 TO EFFECT AN AMENDMENT, MODIFICATION, WAIVER OR
SUPPLEMENT TO THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
FLOWSERVE CORPORATION,
A NEW YORK CORPORATION
By: /s/ ZOHAR ZIV
----------------------------------
Name: Zohar Ziv
--------------------------------
Title: Assistant Treasurer
-------------------------------
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BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION, AS
AGENT
By: /s/ JANICE HAMMOND
----------------------------------
VICE PRESIDENT
Janice Hammond
Vice President
Agency Specialist
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BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION, AS
ISSUING BANK AND A BANK
By: /s/ RICHARD BERNAL
----------------------------------
Richard Bernal
Assistant Vice President
By: /s/ GINA WEST
----------------------------------
Gina West
Vice President
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NATIONAL CITY BANK
By: /s/ BRIAN CULLINEO
----------------------------------
Title: Vice President
--------------------------------
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BANK ONE TEXAS, NATIONAL ASSOCIATION
By: /s/ GINA A. NORRIS
----------------------------------
Title: Vice President
--------------------------------
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NATIONSBANK N.A.
By: /s/ BARBARA A. GILLEY
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Title: Vice President
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THE FIFTH THIRD BANK
By: /s/ K. DOUGLAS COMPTON
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Title: Vice President
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EXHIBIT 4.10
MATERIAL SUBSIDIARY GUARANTY
This Material Subsidiary Guaranty is entered into as of November 26,
1997 by BW/IP INTERNATIONAL, INC., a Delaware corporation ("Subsidiary
Guarantor"), in favor of and for the benefit of Bank of America National Trust
and Savings Association, as agent for and representative of (in such capacity
herein called "Agent") itself, the Banks and the Issuing Bank (as each such term
is defined in the Credit Agreement referenced below).
RECITALS
A. Flowserve Corporation, a New York corporation (the "Borrower") is
entering into that certain Credit Agreement dated as of November 26, 1997 among,
Borrower, the banks from time to time party thereto, and Bank of America
National Trust and Savings Association, as Agent and Issuing Bank (said Credit
Agreement, as it may hereafter be amended, supplemented, restated or otherwise
modified from time to time, being the "Credit Agreement"; capitalized terms
defined therein and not otherwise defined herein being used herein as therein
defined).
B. A portion of the proceeds of the Loans may be loaned to Subsidiary
Guarantor and Letters of Credit may be issued for the benefit of Subsidiary
Guarantor and thus the Guarantied Obligations (as hereinafter defined) are being
incurred for and will inure to the benefit of Subsidiary Guarantor (which
benefits are hereby acknowledged).
C. It is a condition precedent to the making of the Loans and issuance
of Letters of Credit that Borrower's obligations under the Credit Agreement be
guarantied by Subsidiary Guarantor.
D. Subsidiary Guarantor is willing irrevocably and unconditionally to
guaranty such obligations of Borrower.
NOW, THEREFORE, based upon the foregoing and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, and
in order to induce Banks, the Issuing Bank and Agent to make the Loans and issue
Letters of Credit, Subsidiary Guarantor hereby agrees as follows:
SECTION 1. DEFINITIONS
1.1 Certain Defined Terms. As used in this Subsidiary Guaranty, the
following terms shall have the following meanings unless the context otherwise
requires:
"Guarantied Obligations" has the meaning assigned to that term in
Section 2.1.
"Payment in full", "paid in full" or any similar term means payment in
full of the Guarantied Obligations including, without limitation, all principal,
interest, costs, fees and expenses (including, without limitation, legal fees
and expenses) of Banks and Agent as required under the Loan Documents.
"Subsidiary Guaranty" means this Subsidiary Guaranty.
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1.2 Interpretation.
(a) References to "Sections" shall be to Sections of this Subsidiary
Guaranty unless otherwise specifically provided. All accounting terms not
otherwise defined herein shall have the meanings assigned to them under
generally accepted accounting principles.
(b) In the event of any conflict or inconsistency between the terms,
conditions and provisions of this Subsidiary Guaranty and the terms, conditions
and provisions of the Credit Agreement, the terms, conditions and provisions of
this Subsidiary Guaranty shall prevail.
SECTION 2. THE GUARANTY
2.1 Guaranty of the Guarantied Obligations. Subsidiary Guarantor hereby
irrevocably and unconditionally guaranties, as primary obligor and not merely as
surety, the due and punctual payment in full of all Guarantied Obligations when
the same shall become due, whether at stated maturity, by required prepayment,
declaration, acceleration, demand or otherwise (including amounts that would
become due but for the operation of the automatic stay under Section 362(a) of
the Bankruptcy Code, 11 U.S.C. ss. 362(a)). The term "Guarantied Obligations" is
used herein in its most comprehensive sense and includes:
(a) any and all Obligations of Borrower now or hereafter made, incurred
or created, whether absolute or contingent, liquidated or unliquidated, whether
due or not due, and however arising under or in connection with the Credit
Agreement and the other Loan Documents, including those arising under successive
borrowing transactions under the Credit Agreement which shall either continue
the Obligations of Borrower or from time to time renew them after they have been
satisfied; and
(b) those expenses set forth in Section 2.9 hereof.
2.2 Limitation on Amount Guarantied; Contribution by Subsidiary
Guarantor.
(a) Anything contained in this Subsidiary Guaranty to the contrary
notwithstanding, if any Fraudulent Transfer Law (as hereinafter defined) is
determined by a court of competent jurisdiction to be applicable to the
obligations of Subsidiary Guarantor under this Subsidiary Guaranty, such
obligations of Subsidiary Guarantor hereunder shall be limited to a maximum
aggregate amount equal to the largest amount that would not render its
obligations hereunder subject to avoidance as a fraudulent transfer or
conveyance under Section 548 of Title 11 of the United States Code or any
applicable provisions of comparable state law (collectively, the "Fraudulent
Transfer Laws"), in each case after giving effect to all other liabilities of
Subsidiary Guarantor, contingent or otherwise, that are relevant under the
Fraudulent Transfer Laws (specifically excluding, however, any liabilities of
Subsidiary Guarantor (x) in respect of intercompany indebtedness to Borrower or
other affiliates of Borrower to the extent that such indebtedness would be
discharged in an amount equal to the amount paid by Subsidiary Guarantor
hereunder and (y) under any guaranty of Subordinated Indebtedness which guaranty
contains a limitation as to maximum amount similar to that set forth in this
Section 2.2(a), pursuant to which the liability of Subsidiary Guarantor
hereunder is included in the liabilities taken into account in determining such
maximum amount) and after giving effect as assets to the value (as determined
under the applicable provisions of the Fraudulent Transfer Laws) of any
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rights to subrogation, reimbursement, indemnification or contribution of
Subsidiary Guarantor pursuant to applicable law or pursuant to the terms of any
agreement (including without limitation any such right of contribution under a
Related Guaranty (as hereinafter defined) as contemplated by Section 2.2(b)).
(b) Subsidiary Guarantor under this Subsidiary Guaranty, and each
guarantor under other guaranties, if any, relating to the Credit Agreement (the
"Related Guaranties") which contain a contribution provision similar to that set
forth in this Section 2.2(b), together desire to allocate among themselves
(collectively, the "Contributing Guarantors"), in a fair and equitable manner,
their obligations arising under this Subsidiary Guaranty and the Related
Guaranties. Accordingly, in the event any payment or distribution is made on any
date by Subsidiary Guarantor under this Subsidiary Guaranty or a guarantor under
a Related Guaranty (a "Funding Guarantor") that exceeds its Fair Share (as
defined below) as of such date, that Funding Guarantor shall be entitled to a
contribution from each of the other Contributing Guarantors in the amount of
such other Contributing Guarantor's Fair Share Shortfall (as defined below) as
of such date, with the result that all such contributions will cause each
Contributing Guarantor's Aggregate Payments (as defined below) to equal its Fair
Share as of such date. "Fair Share" means, with respect to a Contributing
Guarantor as of any date of determination, an amount equal to (i) the ratio of
(x) the Adjusted Maximum Amount (as defined below) with respect to such
Contributing Guarantor to (y) the aggregate of the Adjusted Maximum Amounts with
respect to all Contributing Guarantors, multiplied by (ii) the aggregate amount
paid or distributed on or before such date by all Funding Guarantors under this
Subsidiary Guaranty and the Related Guaranties in respect of the obligations
guarantied. "Fair Share Shortfall" means, with respect to a Contributing
Guarantor as of any date of determination, the excess, if any, of the Fair Share
of such Contributing Guarantor over the Aggregate Payments of such Contributing
Guarantor. "Adjusted Maximum Amount" means, with respect to a Contributing
Guarantor as of any date of determination, the maximum aggregate amount of the
obligations of such Contributing Guarantor under this Subsidiary Guaranty and
the Related Guaranties, determined as of such date in accordance with Section
2.2(a) or, if applicable, a similar provision contained in a Related Guaranty;
provided that, solely for purposes of calculating the "Adjusted Maximum Amount"
with respect to any Contributing Guarantor for purposes of this Section 2.2(b),
any assets or liabilities of such Contributing Guarantor arising by virtue of
any rights to subrogation, reimbursement or indemnification or any rights to or
obligations of contribution hereunder or under any similar provision contained
in a Related Guaranty shall not be considered as assets or liabilities of such
Contributing Guarantor. "Aggregate Payments" means, with respect to a
Contributing Guarantor as of any date of determination, an amount equal to (i)
the aggregate amount of all payments and distributions made on or before such
date by such Contributing Guarantor in respect of this Subsidiary Guaranty and
the Related Guaranties (including, without limitation, in respect of this
Section 2.2(b) or any similar provision contained in a Related Guaranty) minus
(ii) the aggregate amount of all payments received on or before such date by
such Contributing Guarantor from the other Contributing Guarantors as
contributions under this Section 2.2(b) or any similar provision contained in a
Related Guaranty. The amounts payable as contributions hereunder and under
similar provisions in the Related Guaranties shall be determined as of the date
on which the related payment or distribution is made by the applicable Funding
Guarantor. The allocation among Contributing Guarantors of their obligations as
set forth in this Section 2.2(b) or any similar provision contained in a Related
Guaranty shall not be construed in any way to limit the liability of any
Contributing Guarantor hereunder or under a
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Related Guaranty. Each Contributing Guarantor under a Related Guaranty is a
third party beneficiary to the contribution agreement set forth in this Section
2.2(b).
2.3 Liability of Subsidiary Guarantor. Subsidiary Guarantor agrees that
its obligations hereunder are irrevocable, absolute, independent and
unconditional and shall not be affected by any circumstance which constitutes a
legal or equitable discharge of a guarantor or surety other than indefeasible
payment in full of the Guarantied Obligations, the termination of the
Commitments, and the expiration or cancellation of all Letters of Credit. In
furtherance of the foregoing and without limiting the generality thereof,
Subsidiary Guarantor agrees as follows:
(a) This Subsidiary Guaranty is a guaranty of payment when due and
not of collectibility.
(b) Agent may enforce this Subsidiary Guaranty upon the occurrence of
an Event of Default under the Credit Agreement notwithstanding the existence of
any dispute between Banks and Borrower with respect to the existence of such
Event of Default.
(c) The obligations of Subsidiary Guarantor hereunder are independent
of the obligations of Borrower under the Loan Documents and the obligations of
any other guarantor of the obligations of Borrower under the Loan Documents, and
a separate action or actions may be brought and prosecuted against Subsidiary
Guarantor whether or not any action is brought against Borrower or any of such
other guarantors and whether or not Borrower is joined in any such action or
actions.
(d) Subsidiary Guarantor's payment of a portion, but not all, of the
Guarantied Obligations shall in no way limit, affect, modify or abridge
Subsidiary Guarantor's liability for any portion of the Guarantied Obligations
which has not been paid. Without limiting the generality of the foregoing, if
Agent is awarded a judgment in any suit brought to enforce Subsidiary
Guarantor's covenant to pay a portion of the Guarantied Obligations, such
judgment shall not be deemed to release Subsidiary Guarantor from its covenant
to pay the portion of the Guarantied Obligations that is not the subject of such
suit.
(e) Agent or any Bank, upon such terms as it deems appropriate,
without notice or demand and without affecting the validity or enforceability of
this Subsidiary Guaranty or giving rise to any reduction, limitation,
impairment, discharge or termination of Subsidiary Guarantor's liability
hereunder, from time to time may (i) renew, extend, accelerate, increase the
rate of interest on, or otherwise change the time, place, manner or terms of
payment of the Guarantied Obligations, (ii) settle, compromise, release or
discharge, or accept or refuse any offer of performance with respect to, or
substitutions for, the Guarantied Obligations or any agreement relating thereto
and/or subordinate the payment of the same to the payment of any other
obligations; (iii) request and accept other guaranties of the Guarantied
Obligations and take and hold security for the payment of this Subsidiary
Guaranty or the Guarantied Obligations; (iv) release, surrender, exchange,
substitute, compromise, settle, rescind, waive, alter, subordinate or modify,
with or without consideration, any security for payment of the Guarantied
Obligations, any other guaranties of the Guarantied Obligations, or any other
obligation of any Person with respect to the Guarantied Obligations; (v) enforce
and apply any security now or
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hereafter held by or for the benefit of Agent or any Bank in respect of this
Subsidiary Guaranty or the Guarantied Obligations and direct the order or manner
of sale thereof, or exercise any other right or remedy that Agent or Banks, or
any of them, may have against any such security, as Agent in its discretion may
determine consistent with the Credit Agreement and any applicable security
agreement, including foreclosure on any such security pursuant to one or more
judicial or nonjudicial sales, whether or not every aspect of any such sale is
commercially reasonable, and even though such action operates to impair or
extinguish any right of reimbursement or subrogation or other right or remedy of
Subsidiary Guarantor against Borrower or any security for the Guarantied
Obligations; and (vi) exercise any other rights available to it under the Loan
Documents.
(f) This Subsidiary Guaranty and the obligations of Subsidiary
Guarantor hereunder shall be valid and enforceable and shall not be subject to
any reduction, limitation, impairment, discharge or termination for any reason
(other than indefeasible payment in full of the Guarantied Obligations, the
termination of the Commitments, and the expiration or cancellation of all
Letters of Credit), including without limitation the occurrence of any of the
following, whether or not Subsidiary Guarantor shall have had notice or
knowledge of any of them: (i) any failure or omission to assert or enforce or
agreement or election not to assert or enforce, or the stay or enjoining, by
order of court, by operation of law or otherwise, of the exercise or enforcement
of, any claim or demand or any right, power or remedy (whether arising under the
Loan Documents, at law, in equity or otherwise) with respect to the Guarantied
Obligations or any agreement relating thereto, or with respect to any other
guaranty of or security for the payment of the Guarantied Obligations; (ii) any
rescission, waiver, amendment or modification of, or any consent to departure
from, any of the terms or provisions (including without limitation provisions
relating to events of default) of the Credit Agreement, any of the other Loan
Documents or any agreement or instrument executed pursuant thereto, or of any
other guaranty or security for the Guarantied Obligations, in each case whether
or not in accordance with the terms of the Credit Agreement or such Loan
Document or any agreement relating to such other guaranty or security; (iii) the
Guarantied Obligations, or any agreement relating thereto, at any time being
found to be illegal, invalid or unenforceable in any respect; (iv) the
application of payments received from any source (other than payments received
pursuant to the other Loan Documents or from the proceeds of any security for
the Guarantied Obligations, except to the extent such security also serves as
collateral for indebtedness other than the Guarantied Obligations) to the
payment of indebtedness other than the Guarantied Obligations, even though Agent
or Banks, or any of them, might have elected to apply such payment to any part
or all of the Guarantied Obligations; (v) any Bank's or Agent's consent to the
change, reorganization or termination of the corporate structure or existence of
Borrower or any of its Subsidiaries and to any corresponding restructuring of
the Guarantied Obligations; (vi) any failure to perfect or continue perfection
of a security interest in any collateral which secures any of the Guarantied
Obligations; (vii) any defenses, set-offs or counterclaims which Borrower may
allege or assert against Agent or any Bank in respect of the Guarantied
Obligations, including but not limited to failure of consideration, breach of
warranty, payment, statute of frauds, statute of limitations, accord and
satisfaction and usury; and (viii) any other act or thing or omission, or delay
to do any other act or thing, which may or might in any manner or to any extent
vary the risk of Subsidiary Guarantor as an obligor in respect of the Guarantied
Obligations.
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2.4 Waivers by Subsidiary Guarantor. Subsidiary Guarantor hereby
waives, for the benefit of Banks and Agent:
(a) any right to require Agent or Banks, as a condition of payment or
performance by Subsidiary Guarantor, to (i) proceed against Borrower, any other
guarantor of the Guarantied Obligations or any other Person, (ii) proceed
against or exhaust any security held from Borrower, any other guarantor of the
Guarantied Obligations or any other Person, (iii) proceed against or have resort
to any balance of any deposit account or credit on the books of Agent or any
Bank in favor of Borrower or any other Person, or (iv) pursue any other remedy
in the power of Agent or any Bank whatsoever;
(b) any defense arising by reason of the incapacity, lack of authority
or any disability or other defense of Borrower including, without limitation,
any defense based on or arising out of the lack of validity or the
unenforceability of the Guarantied Obligations or any agreement or instrument
relating thereto or by reason of the cessation of the liability of Borrower from
any cause other than indefeasible payment in full of the Guarantied Obligations,
the termination of the Commitments, and the expiration or cancellation of all
Letters of Credit;
(c) any defense based upon any statute or rule of law which provides
that the obligation of a surety must be neither larger in amount nor in other
respects more burdensome than that of the principal;
(d) any defense based upon Agent's or any Bank's errors or omissions in
the administration of the Guarantied Obligations, except behavior which amounts
to bad faith;
(e) (i) any principles or provisions of law, statutory or otherwise,
which are or might be in conflict with the terms of this Subsidiary Guaranty and
any legal or equitable discharge of Subsidiary Guarantor's obligations
hereunder, (ii) the benefit of any statute of limitations affecting Subsidiary
Guarantor's liability hereunder or the enforcement hereof, (iii) any rights to
set-offs, recoupments and counterclaims, and (iv) promptness, diligence and any
requirement that Agent or any Bank protect, secure, perfect or insure any
security interest or lien or any property subject thereto;
(f) notices, demands, presentments, protests, notices of protest,
notices of dishonor and notices of any action or inaction, including acceptance
of this Subsidiary Guaranty, notices of default under the Credit Agreement or
any agreement or instrument related thereto, notices of any renewal, extension
or modification of the Guarantied Obligations or any agreement related thereto,
notices of any extension of credit to Borrower and notices of any of the matters
referred to in Section 2.3 and any right to consent to any thereof; and
(g) any defenses or benefits that may be derived from or afforded by
law which limit the liability of or exonerate guarantors or sureties, or which
may conflict with the terms of this Subsidiary Guaranty.
2.5 Payment by Subsidiary Guarantor; Application of Payments.
Subsidiary Guarantor hereby agrees, in furtherance of the foregoing and not in
limitation of any other right which Agent or any other Person may have at law or
in equity against Subsidiary Guarantor by virtue hereof, upon the failure of
Borrower to pay any of the Guarantied Obligations when and as
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the same shall become due, whether at stated maturity, by required prepayment,
declaration, acceleration, demand or otherwise (including amounts that would
become due but for the operation of the automatic stay under Section 362(a) of
the Bankruptcy Code, 11 U.S.C. ss. 362(a)), Subsidiary Guarantor will forthwith
pay, or cause to be paid, in cash, to Agent for the ratable benefit of Banks, an
amount equal to the sum of the unpaid principal amount of all Guarantied
Obligations then due as aforesaid, accrued and unpaid interest on such
Guarantied Obligations (including, without limitation, interest which, but for
the filing of a petition in bankruptcy with respect to Borrower, would have
accrued on such Guarantied Obligations, whether or not a claim is allowed
against Borrower for such interest in any such bankruptcy proceeding) and all
other Guarantied Obligations then owed to Agent and/or Banks as aforesaid. All
such payments shall be applied promptly from time to time by Agent:
First, to the payment of the costs and expenses of any collection or
other realization under this Subsidiary Guaranty, including reasonable
compensation to Agent and its agents and counsel, and all expenses, liabilities
and Loans made or incurred by Agent in connection therewith;
Second, to the payment of all other Guarantied Obligations; and
Third, after payment in full of all Guarantied Obligations, to the
payment to Subsidiary Guarantor, or its successors or assigns, or to whomsoever
may be lawfully entitled to receive the same or as a court of competent
jurisdiction may direct, of any surplus then remaining from such payments.
2.6 Subrogation. Until the Guarantied Obligations shall have been
indefeasibly paid in full and the Commitments shall have terminated and all
Letters of Credit shall have expired or been cancelled or cash collateralized
pursuant to the terms of the Credit Agreement, Subsidiary Guarantor shall
withhold exercise of (a) any right of subrogation, (b) any right of contribution
Subsidiary Guarantor may have against any other guarantor of the Guarantied
Obligations, (c) any right to enforce any remedy which Agent or any Bank now has
or may hereafter have against Borrower or (d) any benefit of, and any right to
participate in, any security now or hereafter held by Agent or any Bank.
Subsidiary Guarantor further agrees that, to the extent the waiver of its rights
of subrogation and contribution as set forth herein is found by a court of
competent jurisdiction to be void or voidable for any reason, any rights of
subrogation Subsidiary Guarantor may have against Borrower or against any
collateral or security, and any rights of contribution Subsidiary Guarantor may
have against any other guarantor, shall be junior and subordinate to any rights
Agent or Banks may have against Borrower, to all right, title and interest Agent
or Banks may have in any such collateral or security, and to any right Agent or
Banks may have against such other guarantor. Agent, on behalf of Banks, may use,
sell or dispose of any item of collateral or security as it sees fit without
regard to any subrogation rights Subsidiary Guarantor may have, and upon any
such disposition or sale any rights of subrogation Subsidiary Guarantor may have
shall terminate. If any amount shall be paid to Subsidiary Guarantor on account
of such subrogation rights at any time when all Guarantied Obligations shall not
have been paid in full, such amount shall be held in trust for Agent on behalf
of Banks and shall forthwith be paid over to Agent for the benefit of Banks to
be credited and applied against the Guarantied Obligations, whether matured or
unmatured, in accordance with the terms of the Credit Agreement or any
applicable security agreement.
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2.7 Subordination of Other Obligations. Any indebtedness of Borrower
now or hereafter held by Subsidiary Guarantor is hereby subordinated in right of
payment to the Guarantied Obligations, and any such indebtedness of Borrower to
Subsidiary Guarantor collected or received by Subsidiary Guarantor after an
Event of Default has occurred and is continuing shall be held in trust for Agent
on behalf of Banks and shall forthwith be paid over to Agent for the benefit of
Banks to be credited and applied against the Guarantied Obligations but without
affecting, impairing or limiting in any manner the liability of Subsidiary
Guarantor under any other provision of this Subsidiary Guaranty.
2.8 Real Property Security. Subsidiary Guarantor agrees that, if all or
a portion of the Guarantied Obligations are at any time secured by a deed of
trust or mortgage covering interests in real property, Agent or its designee, in
its sole discretion, without notice or demand and without affecting the
liability of Subsidiary Guarantor under this Subsidiary Guaranty, may foreclose,
pursuant to the terms of the Loan Documents or otherwise, on such deed of trust
or mortgage and the interests in real property secured thereby by nonjudicial or
other sale. Subsidiary Guarantor understands that the exercise by Banks or
Agent, or any of them, of certain rights and remedies contained in the Credit
Agreement and such deed of trust or mortgage may affect or eliminate Subsidiary
Guarantor's right of subrogation against Borrower and that Subsidiary Guarantor
may therefore incur a partially or totally nonreimbursable liability hereunder.
Nevertheless, Subsidiary Guarantor hereby authorizes and empowers Agent and any
Bank to exercise, in its sole discretion, any rights and remedies, or any
combination thereof, which may then be available, since it is the intent and
purpose of Subsidiary Guarantor that the obligations hereunder shall be
absolute, independent and unconditional under any and all circumstances.
Notwithstanding any foreclosure of the lien of such deed of trust or mortgage
with respect to any or all real or personal property secured thereby, whether by
the exercise of the power of sale contained therein, by an action for judicial
foreclosure or by an acceptance of a deed in lieu of foreclosure, Subsidiary
Guarantor shall remain bound under this Subsidiary Guaranty, including its
obligation to pay any deficiency after a nonjudicial foreclosure.
2.9 Expenses. Subsidiary Guarantor agrees to pay, or cause to be paid,
and to save Agent and Banks harmless against liability for, any and all costs
and expenses (including fees and disbursements of counsel and the allocated cost
of inhouse counsel) incurred or expended by Agent or any Bank in connection with
the enforcement of or preservation of any rights under this Subsidiary Guaranty.
2.10 Continuing Guaranty; Termination of Subsidiary Guaranty. This
Subsidiary Guaranty is a continuing guaranty and shall remain in effect until
all of the Guarantied Obligations shall have been indefeasibly paid in full, the
Commitments shall have terminated and all Letters of Credit shall have expired
or been cancelled or cash collateralized pursuant to the terms of the Credit
Agreement. Anything contained in this Subsidiary Guaranty to the contrary
notwithstanding, this Subsidiary Guaranty shall not apply to Guarantied
Obligations created after actual receipt by Agent of written notice (delivered
in accordance with Section 5.2) from Subsidiary Guarantor of its revocation as
to future transactions; provided, however, that any such revocation shall not
affect Subsidiary Guarantor's liability for any Guarantied Obligations
outstanding at the time of receipt of such notice or any extension or renewal of
such Guarantied Obligations.
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2.11 Authority of Subsidiary Guarantor or Borrower. It is not necessary
for Banks or Agent to inquire into the capacity or powers of Subsidiary
Guarantor or Borrower or the officers, directors or any agents acting or
purporting to act on behalf of any of them.
2.12 Financial Condition of Borrower. Any Loans may be granted to
Borrower or continued from time to time without notice to or authorization from
Subsidiary Guarantor regardless of the financial or other condition of Borrower
at the time of any such grant or continuation. Banks and Agent shall have no
obligation to disclose or discuss with Subsidiary Guarantor their assessment, or
Subsidiary Guarantor's assessment, of the financial condition of Borrower.
Subsidiary Guarantor has adequate means to obtain information from Borrower on a
continuing basis concerning the financial condition of Borrower and its ability
to perform its obligations under the Credit Agreement, and Subsidiary Guarantor
assumes the responsibility for being and keeping informed of the financial
condition of Borrower and of all circumstances bearing upon the risk of
nonpayment of the Guarantied Obligations. Subsidiary Guarantor hereby waives and
relinquishes any duty on the part of Agent or any Bank to disclose any matter,
fact or thing relating to the business, operations or conditions of Borrower now
known or hereafter known by Agent or any Bank.
2.13 Rights Cumulative. The rights, powers and remedies given to Banks
and Agent by this Subsidiary Guaranty are cumulative and shall be in addition to
and independent of all rights, powers and remedies given to Banks and Agent by
virtue of any statute or rule of law or in any of the other Loan Documents or
any agreement between Subsidiary Guarantor and Banks and/or Agent or between
Borrower and Banks and/or Agent. Any forbearance or failure to exercise, and any
delay by any Bank or Agent in exercising, any right, power or remedy hereunder
shall not impair any such right, power or remedy or be construed to be a waiver
thereof, nor shall it preclude the further exercise of any such right, power or
remedy.
2.14 Bankruptcy; Post-Petition Interest; Reinstatement of
Subsidiary Guaranty.
(a) The obligations of Subsidiary Guarantor under this Subsidiary
Guaranty shall not be reduced, limited, impaired, discharged, deferred,
suspended or terminated by any proceeding, voluntary or involuntary, involving
the bankruptcy, insolvency, receivership, reorganization, liquidation or
arrangement of Borrower or by any defense which Borrower may have by reason of
the order, decree or decision of any court or administrative body resulting from
any such proceeding.
(b) Subsidiary Guarantor acknowledges and agrees that any interest on
any portion of the Guarantied Obligations which accrues after the commencement
of any proceeding referred to in clause (a) above (or, if interest on any
portion of the Guarantied Obligations ceases to accrue by operation of law by
reason of the commencement of said proceeding, such interest as would have
accrued on such portion of the Guarantied Obligations if said proceedings had
not been commenced) shall be included in the Guarantied Obligations because it
is the intention of Subsidiary Guarantor and Agent that the Guarantied
Obligations which are guarantied by Subsidiary Guarantor pursuant to this
Subsidiary Guaranty should be determined without regard to any rule of law or
order which may relieve Borrower of any portion of such Guarantied Obligations.
Subsidiary Guarantor will permit any trustee in bankruptcy, receiver, debtor in
possession, assignee for the benefit of creditors or similar person to pay
Agent, or allow the
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claim of Agent in respect of, any such interest accruing after the date on which
such proceeding is commenced.
(c) In the event that all or any portion of the Guarantied Obligations
are paid by Borrower, the obligations of Subsidiary Guarantor hereunder shall
continue and remain in full force and effect or be reinstated, as the case may
be, in the event that all or any part of such payment(s) are rescinded or
recovered directly or indirectly from Agent or any Bank as a preference,
fraudulent transfer or otherwise, and any such payments which are so rescinded
or recovered shall constitute Guarantied Obligations for all purposes under this
Subsidiary Guaranty.
2.15 Set Off. In addition to any other rights any Bank or Agent may
have under law or in equity, if any amount shall at any time be due and owing by
Subsidiary Guarantor to any Bank or Agent under this Subsidiary Guaranty, such
Bank or Agent is authorized at any time or from time to time, without notice
(any such notice being hereby expressly waived), to set off and to appropriate
and to apply any and all deposits (general or special, including but not limited
to indebtedness evidenced by certificates of deposit, whether matured or
unmatured) and any other indebtedness of any Bank or Agent owing to Subsidiary
Guarantor and any other property of Subsidiary Guarantor held by any Bank or
Agent to or for the credit or the account of Subsidiary Guarantor against and on
account of the Guarantied Obligations and liabilities of Subsidiary Guarantor to
any Bank or Agent under this Subsidiary Guaranty.
2.16 Discharge of Subsidiary Guaranty Upon Sale of Subsidiary
Guarantor. If all of the stock of Subsidiary Guarantor or any of its successors
in interest under this Subsidiary Guaranty shall be sold or otherwise disposed
of (including by merger or consolidation) in an asset sale not prohibited by
Section 5.02(e) of the Credit Agreement or otherwise consented to by Requisite
Banks, the Subsidiary Guaranty of Subsidiary Guarantor or such successor in
interest, as the case may be, hereunder shall automatically be discharged and
released without any further action by Agent or any Bank or any other Person
effective as of the time of such asset sale. Notwithstanding the foregoing, so
long as the Subsidiary Guarantor or its successor shall remain a Subsidiary of
the Borrower and any Guarantied Obligations remain outstanding, such Subsidiary
Guarantor or successor shall enter into a new Subsidiary Guaranty with the Agent
for the benefit of the Banks.
SECTION 3. REPRESENTATIONS AND WARRANTIES
In order to induce Banks and Agent to accept this Subsidiary Guaranty
and to enter into the Credit Agreement and to make the Loans thereunder,
Subsidiary Guarantor hereby represents and warrants to Banks that the following
statements are true and correct:
3.1 Corporate Existence. Subsidiary Guarantor is duly organized,
validly existing and in good standing under the laws of the state of its
incorporation, has the corporate power to own its assets and to transact the
business in which it is now engaged and is duly qualified as a foreign
corporation and in good standing under the laws of each jurisdiction where its
ownership or lease of property or the conduct of its business requires such
qualification, except for failures to be so qualified, authorized or licensed
that would not in the aggregate have a material adverse effect on the business,
operations, assets or financial condition of Subsidiary Guarantor.
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3.2 Corporate Power; Authorization; Enforceable Obligations. Subsidiary
Guarantor has the corporate power, authority and legal right to execute, deliver
and perform this Subsidiary Guaranty and all obligations required hereunder and
has taken all necessary corporate action to authorize its Subsidiary Guaranty
hereunder on the terms and conditions hereof and its execution, delivery and
performance of this Subsidiary Guaranty and all obligations required hereunder.
No consent of any other Person including, without limitation, stockholders and
creditors of Subsidiary Guarantor (other than those which have been obtained),
and no license, permit, approval or authorization of, exemption by, notice or
report to, or registration, filing or declaration with, any governmental
authority is required by Subsidiary Guarantor in connection with this Subsidiary
Guaranty or the execution, delivery, performance, validity or enforceability of
this Subsidiary Guaranty and all obligations required hereunder except such
consents licenses, permits, approvals or authorizations which, if not obtained,
either (i) would not adversely affect the ability of the Subsidiary Guarantor to
perform the transactions contemplated by this Subsidiary Guaranty, or (ii) would
not have a Material Adverse Effect. This Subsidiary Guaranty has been, and each
instrument or document required hereunder will be, executed and delivered by a
duly authorized officer of Subsidiary Guarantor, and this Subsidiary Guaranty
constitutes, and each instrument or document required hereunder when executed
and delivered hereunder will constitute, the legally valid and binding
obligation of Subsidiary Guarantor, enforceable against Subsidiary Guarantor in
accordance with its terms, except as enforcement may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws or
equitable principles relating to or limiting creditors' rights generally.
3.3 No Legal Bar to this Subsidiary Guaranty. The execution, delivery
and performance of this Subsidiary Guaranty and the documents or instruments
required hereunder, and the use of the proceeds of the borrowings, and the
issuance of the Letters of Credit will not violate any provision of any existing
law or regulation binding on Subsidiary Guarantor, or any order, judgment, award
or decree of any court, arbitrator or governmental authority binding on
Subsidiary Guarantor, or the certificate of incorporation or bylaws of
Subsidiary Guarantor or any securities issued by Subsidiary Guarantor, or any
mortgage, indenture, lease, contract or other agreement, instrument or
undertaking to which Subsidiary Guarantor is a party or by which Subsidiary
Guarantor or any of its assets may be bound, the violation of which would have a
material adverse effect on the business, operations, assets or financial
condition of Subsidiary Guarantor and will not result in, or require, the
creation or imposition of any Lien on any of its property, assets or revenues
pursuant to the provisions of any such mortgage, indenture, lease, contract or
other agreement, instrument or undertaking.
SECTION 4. AFFIRMATIVE COVENANTS.
So long as any Loan shall remain unpaid or any Bank shall have any
Commitment hereunder and until the expiration, the cancellation and the payment
in full or cash collateralization of all Letters of Credit, Subsidiary Guarantor
covenants and agrees, unless Requisite Banks shall otherwise consent in writing:
4.1 Corporate Existence, Etc. Except as permitted under Section 5.02(c)
of the Credit Agreement, Subsidiary Guarantor shall at all times preserve and
keep in full force and effect its corporate existence and all rights and
franchises material to its business.
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4.2 Compliance with Laws, Etc. Subsidiary Guarantor shall perform and
promptly comply with the requirements of all applicable laws, rules, regulations
and orders other than those with which the failure to comply would not have a
Material Adverse Effect, such compliance to include, without limitation, paying
when due all taxes, assessments and governmental charges imposed upon it or upon
any of its properties or assets or in respect of any of its franchises,
businesses, income or property in accordance with Section 5.01(e) of the Credit
Agreement.
4.3 Books and Records. Subsidiary Guarantor shall keep and maintain
books of record and account with respect to its operations in accordance with
generally accepted accounting principles and shall permit Agent or any Bank and
their respective officers, employees and authorized agents, to the extent Agent
in good faith deems necessary for the proper administration of this Subsidiary
Guaranty, to examine, copy and make excerpts from the books and records of
Subsidiary Guarantor and its Subsidiaries and to inspect the properties of
Subsidiary Guarantor and its Subsidiaries, both real and personal, at such
reasonable times as Agent may request.
SECTION 5. MISCELLANEOUS
5.1 Survival of Warranties. All agreements, representations and
warranties made herein shall survive the execution and delivery of this
Subsidiary Guaranty.
5.2 Notices. Any communications between Agent and Subsidiary Guarantor
and any notices or requests provided herein to be given may be given by mailing
the same, postage prepaid, or by telex, facsimile transmission or cable to each
such party at its address set forth in the Credit Agreement, on the signature
pages hereof or to such other addresses as each such party may in writing
hereafter indicate. Any notice, request or demand to or upon Agent or Banks or
Subsidiary Guarantor shall not be effective until received.
5.3 Severability. In case any provision in or obligation under this
Subsidiary Guaranty shall be invalid, illegal or unenforceable in any
jurisdiction, the validity, legality and enforceability of the remaining
provisions or obligations, or of such provision or obligation in any other
jurisdiction, shall not in any way be affected or impaired thereby.
5.4 Amendments and Waivers. No amendment, modification, termination or
waiver of any provision of this Subsidiary Guaranty, or consent to any departure
by Subsidiary Guarantor therefrom, shall in any event be effective without the
written concurrence of Requisite Banks under the Credit Agreement; provided,
however, that no amendment, waiver or consent shall, unless in writing and
signed by all Banks change the number of Banks required to take any action
hereunder. Any waiver or consent shall be effective only in the specific
instance and for the specific purpose for which it was given.
5.5 Headings. Section and Section headings in this Subsidiary Guaranty
are included herein for convenience of reference only and shall not constitute a
part of this Subsidiary Guaranty for any other purpose or be given any
substantive effect.
5.6 APPLICABLE LAW. THIS SUBSIDIARY GUARANTY AND THE RIGHTS AND
OBLIGATIONS OF SUBSIDIARY GUARANTOR, AGENT AND BANKS HEREUNDER
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AND ALL OTHER ASPECTS HEREOF SHALL BE DEEMED TO BE MADE UNDER, SHALL BE GOVERNED
BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE
OF CALIFORNIA APPLICABLE TO CONTRACTS MADE AND PERFORMED IN SUCH STATE.
5.7 Successors and Assigns. This Subsidiary Guaranty is a continuing
guaranty and shall be binding upon Subsidiary Guarantor and its successors and
assigns. This Subsidiary Guaranty shall inure to the benefit of Banks, Agent and
their respective successors and assigns. Subsidiary Guarantor shall not assign
this Subsidiary Guaranty or any of the rights or obligations of Subsidiary
Guarantor hereunder without the prior written consent of all Banks. Any Bank
may, without notice or consent, assign its interest in this Subsidiary Guaranty
in whole or in part in conjunction with the assignment of its interest in the
Guarantied Obligations. The terms and provisions of this Subsidiary Guaranty
shall inure to the benefit of any assignee or transferee permitted under the
Credit Agreement, and in the event of such transfer or assignment the rights and
privileges herein conferred upon Banks and Agent shall automatically extend to
and be vested in such transferee or assignee, all subject to the terms and
conditions hereof.
5.8 Consent to Jurisdiction; Waiver of Immunities. Subsidiary Guarantor
hereby irrevocably submits to the jurisdiction of any California state or
Federal court sitting in Los Angeles, California, in any action or proceeding
arising out of or relating to this Subsidiary Guaranty, and Subsidiary Guarantor
hereby irrevocably agrees that all claims in respect of such action or
proceeding may be heard and determined in such California state or Federal
court. Subsidiary Guarantor hereby irrevocably waives, to the fullest extent it
may effectively do so, the defense of an inconvenient forum to the maintenance
of such action or proceeding. Subsidiary Guarantor hereby irrevocably appoints
Borrower as its agent to receive, on behalf of Subsidiary Guarantor and its
property, service of copies of the summons and complaint and any other process
which may be served in any such action or proceeding. Such service may be made
by mail or by delivering a copy of such process to Subsidiary Guarantor in care
of the agent named above, and Subsidiary Guarantor hereby irrevocably authorizes
and directs such agent to accept such service on its behalf. As an alternative
method of service, Subsidiary Guarantor also irrevocably consents to the service
of any and all process in any such action or proceeding by the mailing of copies
of such process to Subsidiary Guarantor at its address specified in Section 5.2
in accordance with the procedures for service by mail under California.
Subsidiary Guarantor agrees that a final judgment in any such action or
proceeding shall be conclusive and may be enforced in other jurisdictions by
suit on the judgment or in any other manner provided by law. Nothing in this
Section 5.8 shall affect the right of any Bank or Agent to serve legal process
in any other manner permitted by law or affect the right of any Bank or Agent to
bring any action or proceeding against Subsidiary Guarantor or its property in
the courts of any other jurisdiction.
5.9 Waiver of Trial by Jury. SUBSIDIARY GUARANTOR AND, BY ITS
ACCEPTANCE OF THE BENEFITS HEREOF, AGENT EACH HEREBY AGREES TO WAIVE ITS
RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR
ARISING OUT OF THIS SUBSIDIARY GUARANTY. The scope of this waiver is intended to
be all-encompassing of any and all disputes that may be filed in any court and
that relate to the subject matter of this transaction, including without
limitation contract claims, tort claims, breach of duty claims and all other
common law and statutory claims. Subsidiary Guarantor and, by its acceptance of
the benefits hereof, Agent each
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(i) acknowledges that this waiver is a material inducement for Subsidiary
Guarantor and Agent to enter into a business relationship, that Subsidiary
Guarantor and Agent have already relied on this waiver in entering into this
Subsidiary Guaranty or accepting the benefits thereof, as the case may be, and
that each will continue to rely on this waiver in their related future dealings
and (ii) further warrants and represents that each has reviewed this waiver with
its legal counsel, and that each knowingly and voluntarily waives its jury trial
rights following consultation with legal counsel. THIS WAIVER IS IRREVOCABLE,
MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING, AND THIS WAIVER
SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS
TO THIS SUBSIDIARY GUARANTY. In the event of litigation, this Subsidiary
Guaranty may be filed as a written consent to a trial by the court.
5.10 No Other Writing. This writing is intended by Subsidiary Guarantor
and Agent as the final expression of this Subsidiary Guaranty and is also
intended as a complete and exclusive statement of the terms of their agreement
with respect to the matters covered hereby. No course of dealing, course of
performance or trade usage, and no parole evidence of any nature, shall be used
to supplement or modify any terms of this Subsidiary Guaranty. There are no
conditions to the full effectiveness of this Subsidiary Guaranty.
5.11 Further Assurances. At any time or from time to time, upon the
request of Agent or Requisite, Subsidiary Guarantor shall execute and deliver
such further documents and do such other acts and things as Agent or Banks may
reasonably request in order to effect fully the purposes of this Subsidiary
Guaranty.
IN WITNESS WHEREOF, Subsidiary Guarantor has executed this Subsidiary
Guaranty by its duly authorized officer as of the date first above written.
BW/IP INTERNATIONAL, INC.
By: /s/ ZOHAR ZIV
-----------------------------
Name: Zohar Ziv
---------------------------
Title: Treasurer
--------------------------
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1
Exhibit 10.31
EMPLOYMENT AGREEMENT
[Executed by R.J. Hornbaker, C.D. McNeal, G.A. Shedlarski, R.F. Shuff,
M.E. Vernon, R.B. Wayman, and H.D. Wynn.]
EMPLOYMENT AGREEMENT, dated August 1, 1997 by and between Flowserve
Corporation (the "Company") and , (the "Executive").
This Agreement summarizes the terms and conditions of employment
between the Company and the Executive and cancels and supersedes all other
employment related agreements between the parties (including any such agreements
by and between the Executive and BW/IP, Inc.).
1. Term. This Agreement is effective as of August 1, 1997 and
terminates on July 31, 2001 (the "Term").
2. Position and Primary Place of Employment. During the Term, the
Executive shall serve as , or such other position assigned by the
Company. Beginning January 1, 1998 (or such later date set by the Company), you
will perform your services for the Company at its headquarters in Dallas, Texas.
3. Base Salary. During the Term, your base salary shall be determined
by the Company but shall in any event be no less than that in effect on August
1, 1997 ("Base Salary"). The Company shall review your Base Salary annually and
make such adjustments as it, in its discretion, determines.
4. Bonus. During the Term, your annual bonus opportunity shall be an
amount or percentage of your Base Salary equal to that provided to other peer
executives of the Company but shall in any event be no less than your annual
bonus opportunity in effect on August 1, 1997 ("Annual Bonus Opportunity").
5. Other Benefits. You shall be eligible for long term incentive
opportunities, equity-based compensation and retirement, welfare and fringe
benefits equal to those provided to other peer executives of the Company.
6. Termination Benefits. If (i) the Company terminates you without
Cause or (ii) you terminate with Good Reason (together, a "Qualifying
Termination"), you shall be eligible for the benefits described in Section 7(a).
If your employment with the Company is terminated for any other reason
(including Disability), you shall be entitled to the benefits described in
Section 7(b).
(a) For purposes of this Agreement, "Cause" means your (i)
willful and continued failure to perform your duties after you have
been requested to do so by the Chief Executive Officer of the Company
or (ii) engaging in illegal conduct or gross misconduct that is
materially injurious to the Company.
(b) For purposes of this Agreement, "Good Reason" means (i) a
substantial, detrimental change in your position, duties or status that
the
Page 1
2
Company fails to promptly remedy after you provided written notice to
the Company's Chief Executive Officer, (ii) a decrease in Base Salary
that is not part of a general reduction applied to other peer officers
of the Company, (iii) the Company's material failure to comply with
its obligations under this Agreement or (iv) the Company terminates
your employment without Cause.
(c) Your employment with the Company shall be terminated due
to Disability if you are unable to perform the primary duties of your
position for 180 days due to a physical or mental impairment.
7. Termination Benefits.
(a) If your employment with the Company is terminated in a
Qualifying Termination you shall receive the following benefits: (i)
accrued but unpaid Base Salary to the date of your termination, (ii)
any earned but unpaid bonus, (iii) any benefits for which you are
eligible under the terms of any Company benefit plan or arrangement,
(iv) a pro rata portion of your Annual Bonus Opportunity for the year
of termination and (v) Severance Benefits. For purposes of this
Agreement, "Severance Benefits" means the product of (X) the sum of
your Annual Base Salary as of the date of your termination and the
average of the annual bonus actually paid to you during the last two
calendar years and (Y) a multiple, which shall be three (3) if your
termination occurs before August 1,1998, two (2) if your termination
occurs after July 31, 1998 and before August 1, 1999 or one (1) if
your termination occurs on or after August 1, 1999 and on or before
July 31, 2001. Subject to Section 8, Severance Benefits shall be paid
in equal monthly payments over the number of years equal to the
applicable multiple (i.e., 3,2, or 1 depending on the date of your
termination) used to calculate the amount of your Severance Benefits.
Subject to Section 8, Severance Benefits shall not be offset or
reduced by compensation received from any other source after your
Qualifying Termination.
(b) If your employment is terminated before August 1, 2001 in
other than a Qualifying Termination, you shall only receive the
benefits described in Clauses (i), (ii) and (iii) of Section 7 (a).
(c) By executing this Agreement you acknowledge your
ineligibility for, and waive any other right you may have to receive,
any other severance or termination benefits provided by the Company or
its subsidiaries, except for such benefits as are provided under your
contract with the Company which provides severance benefits to you
subsequent to and contingent upon a change of control of the Company
(the "CIC Benefits"). In the event that you receive any CIC benefits,
then you shall be eligible to receive no benefits hereunder.
Page 2
3
8. Non-Competition and Non-Solicitation. During the period in which
Severance Benefits are payable, in the case of any Qualifying Termination, or
during the one year period following your termination for any other reason, you
agree not to (i) engage, anywhere in the world, in any business activity or
render any services or advice to any business, activity, person or entity that
competes in any material manner with the Company or its subsidiaries or (ii)
solicit or otherwise encourage employees of the Company or its subsidiaries to
accept employment with or provide services to any other business or entity. If
you violate this Section 8, all Severance Benefits shall immediately cease and
shall be irrevocably forfeited. In addition, you (i) acknowledge that the
Company and its subsidiaries will not have any adequate remedy at law and would
be irreparably harmed if you violate this Section 8 and (ii) agree that the
Company and its subsidiaries will be entitled to injunctive or equitable relief
in the event of any actual or threatened breach of this Section 8. The
provisions of this Section 8 will survive the termination of this Agreement.
9. Mandatory Release. In order to receive the severance benefits
hereunder, you must execute a general release of all claims against the Company,
its officers, its directors, its affiliates and its employees in a form
satisfactory to the Company, immediately prior to the receipt of your first
payment of any such benefits. If you fail to execute such release within thirty
(30) days of your termination from the Company, you will forfeit the right to
such benefits.
10. Choice of Law. This Agreement shall be governed by the law of New
York, without regard to its choice of law provisions.
IN WITNESS WHEREOF, the Executive and the Company have entered into
this Agreement as of the date first written above.
EXECUTIVE FLOWSERVE CORPORATION
By:
- --------------------------- -----------------------------
Bernard G. Rethore
Chairman and CEO
1
Exhibit 10.32
FLOWSERVE CORPORATION
AMENDMENT #1
TO
AMENDED AND RESTATED DIRECTOR DEFERRAL PLAN
Pursuant to Section 9 of the Amended and Restated Director Deferral
Plan (the "Plan") of Flowserve Corporation, the Plan is hereby amended,
effective October ___, 1997, by authorization of the Board of Directors, as
follows:
1. The penultimate sentence of Section 4(a) is amended by inserting a
period after the words "July 1, 1995" and deleting the remainder of the
sentence.
2. Section 4(e) is amended by inserting a period after the words
"calendar quarter" in the first sentence and deleting the remainder of the
Section.
3. Exhibit A, Director's Election to Defer, is amended as follows:
A. Election item 2 is amended by deleting the asterisk and the
words "*cash deferral required for the six months immediately following
election to comply with law; stock deferral then starts."
B. Acknowledgement item 2 is amended by inserting a period
after the words "is paid" and deleting the remainder of the item.
C. Acknowledgement item 5 is deleted in its entirety, and
former acknowledgement item 6 is renumbered as 5.
CONFIRMED:
FLOWSERVE CORPORATION
By: R.F. Shuff
-------------------------------
Ronald F. Shuff
Vice President, General Counsel
and Secretary
1
EXHIBIT 10.33
FLOWSERVE CORPORATION
AMENDMENT #1
TO
1989 RESTRICTED STOCK PLAN
(AS AMENDED AND RESTATED OCTOBER 23, 1996)
Pursuant to Article IV, Section 3 of the 1989 Restricted Stock Plan, as
amended and restated October 23, 1996 (the "Plan"), of Flowserve Corporation,
the Plan is hereby amended, effective October 23, 1997, by authorization of the
Board of Directors, as follows:
1. Article I, Section 2(k) is amended to read as follows:
(k) "Restriction Period" means, (i) in the case of
Eligible Employees, a period of whole years, not less
than one nor more than ten, as determined by the
Committee at the time of grant, from the date the
Restricted Shares are granted and, (ii) in the case
of Eligible Directors, the period between the Grant
Date and,
(1) in the case of an Eligible Director who
received 600 Restricted Shares (or 900
Restricted Shares after giving effect to the
1994 share dividend that had the effect of a
three-for-two stock split, hereinafter
referred to as the "1994 Share Dividend") at
any Meeting from 1993 to 1997, inclusive,
(i) the immediately following Meeting for
one-third of the shares, (ii) the second
immediately following Meeting for one-third
of the shares, and (iii) the third
immediately following Meeting for the
balance of the shares;
(2) in the case of an Eligible Director who
received 400 Restricted Shares (or 600
Restricted Shares after giving effect to the
1994 Share Dividend) at any Meeting from
1993 to 1997, inclusive, (i) the immediately
following Meeting for one-half of the
shares, and (ii) the second immediately
following Meeting for the balance of the
shares;
(3) in the case of an Eligible Director who
received 200 Restricted Shares (or 300
Restricted Shares after giving effect to the
1994 Share Dividend) at any Meeting from
1993 to 1997, inclusive, the immediately
following Meeting for all such Restricted
Shares;
(4) in the case of an Eligible Director who
received 212 Restricted Shares at the 1993
Meeting, (i) the 1994 Meeting for 106 of
such Restricted Shares and (ii) the 1995
Meeting for the remaining 106 Restricted
Shares;
2
(5) in the case of an Eligible Director who
received 96 Restricted Shares at the 1993
Meeting, the 1994 Meeting for all such 96
Restricted Shares;
(6) in the case of an Eligible Director who
received either 300 Restricted Shares or 600
Restricted Shares in December 1997, the
first anniversary of the grant of such
shares;
(7) in the case of an Eligible Director who
received a grant of Restricted Shares prior
to the 1993 Annual Meeting, the date
determined under this Article I, Section
2(k) in its form prior to the 1993 Annual
Meeting, which prior form is incorporated
herein by reference for and as applicable to
such prior grants; and
(8) in the case of an Eligible Director who
receives a grant pursuant to Article II,
Section 1(b), the first anniversary of the
Grant Date.
2. Article II, Section 1(a) is amended to read as follows:
Section 1. Grant of Restricted Shares to Eligible Directors.
(a) The Company has granted Restricted Shares to Eligible
Directors prior to the 1993 Annual Meeting pursuant
to the provisions of this Article II, Section 1 in
effect prior to the 1993 Annual Meeting, which
provisions are incorporated by reference as
applicable to such prior grants. On the date of the
1993 Meeting and on the date of each Annual Meeting
thereafter to and including the 1997 Meeting, the
Company, in consideration of past and future service
by the Eligible Director, granted 600 Restricted
Shares (900 Restricted Shares after giving effect to
the 1994 Share Dividend) to each then Eligible
Director who was elected to a three year term of the
Board of Directors on the Grant Date. Additionally,
on the date of the 1993 Meeting, the Company granted
212 Restricted Shares to each then Eligible Director
who had two years remaining in his term of office at
that time. The Company similarly granted, on the date
of the 1993 Meeting, 96 Restricted Shares to each
then Eligible Director who had one year remaining in
his term of office at that time. The Company granted,
at each Meeting from 1993 to 1997, inclusive, 400
Restricted Shares (600 Restricted Shares after giving
effect to the 1994 Share Dividend) to each then
Eligible Director who was elected to a two year term
at the Meeting, and 200 Restricted Shares (300
Restricted Shares after giving effect to the 1994
Share dividend) to each then Eligible Director who
was then elected to a one year term at such Meeting.
Finally, in December 1997 the Company made a one-time
grant (i) of 300 Restricted Shares to each Eligible
Director who had already received 300 Restricted
Shares at the 1997 Meeting and (ii) 600 Restricted
Shares to each Eligible Director who became a
director after the 1997 Meeting.
3
3. Article II, Section 1(b), reading as follows, is added to the
Plan:
(b) At the 1998 Meeting, the Company, in consideration of
past and future services by the Eligible Director,
shall grant 600 Restricted Shares to each then
Eligible Director whose term in office commences at,
or continues after, the Meeting. Unless otherwise
determined by the Board of Directors, certificates
for such Restricted Shares shall be issued and
delivered one month after such Meeting.
CONFIRMED:
FLOWSERVE CORPORATION
By /s/ Ronald F. Shuff
--------------------
Ronald F. Shuff
Vice President, General
Counsel and Secretary
1
EXHIBIT 13.1
The World's Premier Provider of Industrial Flow Management Services
[FLOWSERVE LOGO]
FLOWSERVE 1997 ANNUAL REPORT
2
ABOUT THE COMPANY
Flowserve Corporation (NYSE:FLS) was formed in July 1997 by the merger of BW/IP,
Inc. and Durco International Inc. Operating in 28 countries, with approximately
7,200 employees, Flowserve is one of the world's leading providers of industrial
flow management services. The company produces engineered pumps for the process
industries, precision mechanical seals, automated and manual quarter-turn
valves, control valves actuators, and a range of related flow management
services.
CONTENTS
1 Financial Highlights
2 Letter to Stockholders
4 Broad Geographic Coverage
6 Attractive Markets
8 Balanced Product Mix
10 Focus on Service
12 Worldwide Locations
14 Management's Discussion and Analysis
18 Five Year Selected Financial Data
19 Consolidated Statements of Income
20 Consolidated Balance Sheets
21 Consolidated Statements of Shareholders' Equity
22 Consolidated Statements of Cash Flows
23 Notes to Consolidated Financial Statements
38 Report of Independent Auditors
39 Market Information
40 Board of Directors and Officers
41 Stockholder Information
3
FINANCIAL HIGHLIGHTS
(Historical financial information has been restated to reflect the merger of
Durco International Inc. and BW/IP, Inc. under the pooling of interests method
of accounting. See notes to Consolidated Financial Statements)
(Amounts in thousands except ratios and per share data) 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------
RESULTS OF OPERATIONS
Net sales $ 1,152,196 $ 1,097,645 $ 983,917
Net earnings $ 51,566(a) $ 71,097(b) $ 54,021(c)
Average shares outstanding 40,896 41,363 41,652
Net earnings per share (diluted and basic) $ 1.26(a) $ 1.72(b) $ 1.30(c)
Dividends paid per share $ 0.65 $ 0.57 $ 0.51
Bookings $ 1,172,431 $ 1,141,614 $ 1,013,861
Backlog $ 291,568 $ 287,076 $ 249,562
PERFORMANCE RATIOS (AS A PERCENT OF NET SALES)
Gross profit margin 39.0% 39.1% 39.9%
Selling and administrative expense 24.8% 25.8% 26.9%
Research, engineering and development expense 2.3% 2.2% 2.5%
Earnings before income taxes 7.8%(a) 9.9%(b) 9.0%(c)
Net earnings 4.5%(a) 6.5%(b) 5.5%(c)
FINANCIAL CONDITION
Cash and cash equivalents $ 58,602 $ 38,933 $ 28,596
Working capital $ 284,220 $ 279,972 $ 251,774
Total assets $ 880,025 $ 829,776 $ 801,120
Capital expenditures $ 39,560 $ 35,691 $ 39,928
Depreciation and amortization $ 38,933 $ 36,665 $ 34,451
Long-term debt $ 128,936 $ 143,962 $ 125,931
Shareholders' equity $ 395,273 $ 388,624 $ 375,246
FINANCIAL RATIOS
Return on average shareholders' equity 13.0%(a) 18.6%(b) 15.1%(c)
Return on average net assets 9.0%(a) 12.5%(b) 10.4%(c)
Debt to capital ratio 27.1% 30.0% 27.9%
Current ratio 2.2 2.5 2.3
Book value per share $ 9.67 $ 9.40 $ 9.01
The following "special items" are included in the financial highlights shown
above:
(a) Financial results in 1997 include restructuring and merger expenses of
$51,513 and gain on sale of subsidiary of $11,376 resulting in a reduction
in net earnings of $30,483, or $.75 per share after tax.
(b) Financial results in 1996 include restructuring expenses of $5,778 resulting
in a reduction in net earnings of $3,025, or $.07 per share after tax.
(c) Financial results in 1995 include merger transaction expenses of $5,042
resulting in a reduction in net earnings of $4,399, or $.10 per share after
tax.
NET SALES
In millions of dollars
[BAR GRAPH]
1993 1994 1995 1996 1997
$ 849.0 $ 909.2 $ 983.9 $1,097.6 $1,152.2
EARNINGS PER SHARE
(DILUTED AND BASIC)
[BAR GRAPH]
1993 1994 1995 1996 1997
Before special items $ 1.32 $ 1.23 $ 1.40 $ 1.79 $ 2.01
After special items $ 0.53 $ 1.23 $ 1.30 $ 1.72 $ 1.26
FLOWSERVE 1997 ANNUAL REPORT 1
4
DEAR FELLOW STOCKHOLDER:
In July 1997, two independently successful companies, BW/IP, Inc. and Durco
International Inc., merged their respective strengths and specialties in the
flow management industry to create a powerful new global leader -- Flowserve
Corporation. The merger of these two well-established corporations has created a
more balanced, financially stronger, dynamic new Company with a fresh identity,
a streamlined organization and greater competitive capabilities worldwide.
Flowserve was formed through a merger of equals, a strategic business alliance
with a broadened vision for the new millennium -- to be a single-source,
quick-response solution for all of our customers' flow management needs, no
matter where in the world that need exists.
The merger has produced immediate results, as the combined Company reported
record sales, bookings and earnings before special items last year. This
excellent performance is especially noteworthy because it was achieved at the
same time we were launching a broad program of merger integration initiatives
that will produce significant tangible benefits for stockholders and customers
alike in the future.
The Company reported combined income before special items of $82.1 million
compared with $74.1 million in 1996. Income before special items per diluted
share increased to $2.01 compared with income before special items per diluted
share of $1.79 for the combined predecessor companies in 1996. This represents a
12 percent increase, which met our ongoing goal of double-digit growth in annual
earnings.
Net income for the year, after recognizing the effect of special items, was
$1.26 per diluted share. Special items included one-time merger transaction
expenses of $11.9 million, a one-time restructuring charge of $32.6 million in
the fourth quarter, merger integration expenses of $7.0 million, and a pre-tax
gain on the sale of the Metal Fab Machine Corporation subsidiary of $11.4
million.
Sales for the year were a record $1.15 billion, an increase of five percent over
combined sales of $1.10 billion in 1996. This result was achieved despite an
adverse currency translation effect of four percent, which reduced sales by $46
million.
Bookings, an important measure of the progress of the Company and the strength
of its markets, reached a record $1.17 billion, a three-percent increase over
combined bookings of $1.14 billion in 1996. Bookings for the year also were
lowered by four percent due to currency translation effects.
An important advantage as we plan for the future is the fact that the merger was
done as a pooling, with no debt added to the balance sheet. We ended the year in
a strong financial condition, with a conservative debt to capital ratio, strong
cash flow, ample borrowing reserves and the ability to fulfill our growth
strategies as we move forward.
Following approval by shareholders on July 22, the merger got off to a rapid
start. The Company's Board of Directors approved a merger integration program
that includes a total investment of approximately $92 million. This program is
far ranging, with more than 45 projects that will make us much more efficient
and improve capacity utilization. We estimate the program will produce cost
savings and revenue increases that will result in benefits in a range of $45-$55
million annually in operating income at the end of three years.
In addition to the merger itself, 1997 included a number of significant
accomplishments. Important organizational changes were completed, creating major
cost savings potential, generating a wealth of new marketing and sales
opportunities, and facilitating communications, coordination and customer
service company-wide. We combined the two companies' prior pump businesses into
a Rotating Equipment Division, combined the prior seal businesses into a Fluid
Sealing Division and combined the prior valve businesses into a Flow Control
Division. We broadened our operating approach by establishing ServiceRepair as a
new area of emphasis, providing customers a broad array of pump, seal, valve and
service alternatives united under a strong global brand.
Combining business units is one part of the formula. Facility and business
rationalization has been an equally important thrust to build value. We closed
the corporate headquarters of Durco in Dayton, Ohio and BW/IP in Long Beach,
California and united corporate and division managements in a new international
headquarters in Dallas, Texas. We closed a high-cost pump manufacturing plant in
Charleroi, Belgium and transferred production to plants in Hengelo and
Etten-Leur, The Netherlands. We announced plans to phase
FLOWSERVE 1997 ANNUAL REPORT 2
5
out the Company's San Jose, California pump assembly and test facility by
mid-1998 and transfer production to an existing facility in Los Angeles,
California. We sold the company's Metal Fab Machine Corporation subsidiary, a
non-core business, for approximately $19 million in cash. Combined, these
programs allow a net headcount reduction of more than 450.
A number of additional efforts will supplement the merger integration program
and improve our operational, financial, and sales and marketing capabilities. We
have initiated a 50 percent expansion of capacity of the large-component
manufacturing center in Albuquerque, New Mexico. We started multiple procurement
savings initiatives, including a global sourcing program. We negotiated a new
five-year revolving credit line of $150 million, with an option for an
additional $50 million, and launched a project to reduce the Company's 1998 tax
rate. We are preparing a plan for a large-scale, multi-year upgrade of the
Company's information systems. In the fourth quarter, the Company opened two new
valve plants and a pump plant in India. The low-cost, high-quality output from
these plants provides a model for improving our ability to source competitively
to Asia and Europe.
In 1997, BW/IP and Durco also completed initiatives prior to the merger that
will prove beneficial to the company going forward. These included the
acquisitions of the assets of Anchor-Darling Valve in Williamsport, Pennsylvania
and the engineered pumps group of Stork Pompen in The Netherlands, both of which
contributed to 1997's sales and profit growth, and the divestiture of the
Filtration Systems Division, each with results that exceeded objectives.
Of course, as is true with any large, goal-oriented enterprise, there were also
some disappointments that went along with the successes. Last year we
experienced a business environment characterized by declining currency values
outside the United States and market demand that was not as robust as we had
expected when 1997 began. As a result, we fell short of our internal growth
objectives. The merger process also forced us to postpone projects for building
internal excellence and these will be resumed as the merger integration
proceeds.
As we look ahead to 1998, it is clear the merger is on a fast track, and we
already have begun to realize the benefits from reducing expenses and
cross-selling products and services to customers. The synergies created by the
merger, the fundamental soundness of our markets, and our recent financial
results make us confident about the future. Flowserve is a well-focused company
with many opportunities to grow on a strong financial base.
As always, all the planning, forecasting and implementation associated with a
merger of this magnitude would not be possible without the dedication and
enthusiasm of our employees around the world and we would like to give them
special thanks. Flowserve's employees have stayed focused on their principal
activities of serving customers and running the business well while
energetically taking on the many critical projects that are necessary to make
the merger successful.
We would also like to recognize the support of our exceptional Board of
Directors. In addition to the five Durco Directors and four BW/IP Directors who
remained on the Flowserve Board, we added George T. Haymaker, Jr., Chairman and
Chief Executive Officer of Kaiser Aluminum Corporation, and Charles M. Rampacek,
President and Chief Executive Officer of Lyondell-Citgo Refining Company. Both
bring valuable perspective to a diverse and dedicated Director group.
We thank you as stockholders for sharing our faith in the ability of our people
to be successful. The new company created significant value for shareholders
during 1997. We are committed to having Flowserve build even greater value in
the future.
/s/ BERNARD G. RETHORE
Bernard G. Rethore
Chairman and Chief Executive Officer
/s/ WILLIAM M. JORDAN
William M. Jordan
President and Chief Operating Officer
[CHAIRMAN AND CHIEF EXECUTIVE OFFICER AND PRESIDENT AND
CHIEF OPERATING OFFICER PICTURED HERE]
FLOWSERVE 1997 ANNUAL REPORT 3
6
BROAD GEOGRAPHIC COVERAGE
The merger of BW/IP and Durco has propelled Flowserve to first position among
publicly traded flow control companies in the United States, creating one of the
largest competitors in the global flow management industry. Moving forward into
the 21st century, Flowserve plans to build on this large competitive platform as
it pursues growth in markets around the world. Expanding geographic market
coverage, with emphasis on markets outside Europe and North America, is a
critical component of the Company's strategic efforts to serve our customers and
assure future success.
With a geographic reach that spans several continents, Flowserve is well
prepared to compete successfully against challenging worldwide competition. Many
of Flowserve's customers are large, global companies that require a full
complement of industrial flow management services wherever they are located. The
new Company can serve the needs of the largest companies in the global process
industries, offering many more products and services than smaller regional and
local competitors, and delivering them to more locations.
Nearly one-half of the Company's sales in 1997 were to destinations outside the
United States, including Europe and the Middle East (24 percent), Asia/Pacific
(11 percent) and Latin America, Canada and other destinations (13 percent).
The Company operates 44 manufacturing facilities and 88 service and quick
response centers in 28 countries (see map, page 13). Flowserve also relies on a
wide network of sales offices, distributors and licensees to expand sales reach
and customer service access. Products and services were sold in 80 countries
last year.
A primary contributor to the Company's growth is the demand for servicing the
large installed base of Flowserve equipment with aftermarket parts and services.
An important Company strategy is to enlarge Flowserve's network of free-standing
service centers, upgrade existing centers to provide the most comprehensive and
convenient repair and maintenance services for all flow control products, and
establish on-site service capabilities at customer operations. In addition,
Flowserve will continue to expand its diagnostics capabilities.
As the merger integration process continues forward, Flowserve will follow the
practice of sourcing raw materials, components and production from the countries
and plants that provide the best combination of cost and capability from the
customer's standpoint. Using an integrated manufacturing strategy, a number of
Company plants are producing machined parts, components and subassemblies that
are shipped to other locations for final assembly, test and shipment to the
customer.
Based on expectations for increased demand for energy and basic chemicals in the
emerging economies, Flowserve will continue to invest in the Latin America and
Asia/Pacific regions. Despite possible short-term setbacks for some projects in
the Asia/Pacific area, long-term business drivers in these regions include: the
need for emerging countries to expand their infrastructure; privatization of
their economies; transportation growth; and, to power it all, increasing energy
demand. Growth in these markets will be supported by the addition of new
facilities, strategic alliances, joint ventures, acquisitions, and joint
licensing and marketing agreements.
FLOWSERVE 1997 ANNUAL REPORT 4
7
[NORTH AMERICAN/SOUTH AMERICA GLOBAL MAP]
[ASIA/PACIFIC GLOBAL MAP]
[EUROPE/MIDDLE EAST GLOBAL MAP]
[BROAD GEOGRAPHIC COVERAGE PIE CHART]
Other 13%
Asia/Pacific 11%
Europe/Middle East 24%
USA 52%
8
[PICTURE OF PIPES]
[PICTURE OF PLANT]
[PICTURE OF POWER LINES]
[ATTRACTIVE MARKETS PIE CHART]
Food/Beverage 4%
Pharmaceuticals 5%
Power 15%
Chemicals 32%
Petroleum 32%
Other Industry 12%
9
ATTRACTIVE MARKETS
Flowserve serves the worldwide process industries -- primarily petroleum (32
percent of sales), chemicals (32 percent of sales) and power generation (15
percent of sales). As these markets historically tend to follow different
cycles, the Company is less vulnerable to economic changes than were its
predecessor companies individually.
The process industries are characterized by global companies with large
investments in major areas of the world. Because of this geographic diversity,
the Company is less subject to economic pressures in any one region.
Flowserve specializes in products for severe service applications where
operating environments require precision-engineered equipment that can withstand
extremes of temperature, pressure, horsepower, speed and corrosiveness. These
products must have robust designs, extreme reliability and exceptional operating
performance.
The petroleum market is characterized by strong capital and maintenance
expenditures by the oil companies, high worldwide refinery utilization rates,
increased spending on new refinery capacity in the Middle East and Latin
America, and continued growth in the worldwide demand for petroleum products.
Privatization of the oil industry in selected emerging countries is expected to
attract financing that will provide even greater opportunities for additional
investments in this sector. However, customers' expectations of movements in the
price of oil may influence their decisions regarding the timing of investments.
Flowserve's participation includes supplying process equipment principally to
the refining and pipeline segments of the petroleum industry, which represent
approximately 60 percent of worldwide oil industry spending. Total oil industry
capital spending was up five percent in 1997, and maintenance expenditures alone
increased nine percent.
The chemical market, especially over the longer term, is being driven by higher
spending on operating and efficiency improvements and increasingly strict
environmental requirements. However, current economic conditions in Asia have
reduced growth expectations in worldwide polyethylene and polypropylene markets
and are expected to lead to lower chemical industry profitability in 1998.
Flowserve is a leading supplier of corrosion-resistant fluid movement and
control equipment to the basic chemical industry, which represents 52 percent of
the worldwide chemical market.
In the power market, energy demand remains strong, particularly in emerging
markets, but the timing and funding of new projects remains uncertain.
Currently, more than 100 countries are supporting the expansion of their private
power industries, which could lead to the sale of additional equipment,
particularly for cogeneration projects.
The relatively low level of maintenance spending in the power industry in North
America and Europe in recent years has created the potential for increased
upgrade and retrofit of a large, aging equipment base. The economic forces of
deregulation, however, have temporarily suppressed capital spending in these
markets.
Flowserve maintains a world leadership position in nuclear power equipment
design and manufacturing, and retains a solid market franchise in selling
replacement parts for nuclear pumps and valves.
Accelerating customer outsourcing of repair and maintenance activities in the
process industries is giving rise to new strategic supplier alliances between
Flowserve and its largest customers, and adding greater momentum to the
higher-margin service and repair business.
FLOWSERVE 1997 ANNUAL REPORT 7
10
BALANCED PRODUCT MIX
Flowserve is remarkable within the flow management industry in its exceptionally
balanced and complementary product mix. Flowserve's 1997 sales were comprised of
45 percent pumps, 28 percent seals and 27 percent valve products. Major product
categories include American Petroleum Institute (API), American National
Standards Institute (ANSI) and International Standards Organization (ISO) pumps,
mechanical and dry gas seals, and manual and automated quarter-turn valves,
control valves and valve actuators.
As the world's premier provider of industrial flow management services,
Flowserve delivers equipment and services covering a broad spectrum of
customers' flow management needs.
The Rotating Equipment Division manufactures engineered pumps for the process
industries including horizontal split-case pumps, barrel pumps, specialty pumps,
and nuclear pumps and pump parts.
The Flow Control Division produces a broad line of valve products, from manual
and automated quarter-turn valves to automatic control valves, nuclear valves
and valve actuators.
The Fluid Sealing Division manufactures a complete line of precision-engineered
mechanical seals, sealing systems and accessories, and technologically advanced
dry gas seals.
Combining materials expertise, advanced design and engineering capabilities, and
applications experience, the Company develops and manufactures products that are
responsive to the process industries' mandate to achieve greater manufacturing
efficiencies, extend mean-time-between-failure, and reduce overall maintenance
costs.
Product reliability is further endorsed through compliance with many
industry-recognized standards, including those set by API, ANSI and ISO. In
support of its advanced capabilities in the design and production of nuclear
pumps and valves, Flowserve maintains a Nuclear Stamp quality certification from
the American Society of Mechanical Engineers (ASME). In addition, a majority of
the Company's manufacturing facilities hold standards qualifications from ISO,
certifying that quality-management systems conform with international standards
regarding product testing, employee training, record keeping and quality
control.
The Company's future growth will be propelled, in part, by market-oriented
technology improvements. Flowserve is investing in research and development and
engineering initiatives that will reduce the cost of producing current products,
extend product lines, and lead to new products for existing and new markets.
Technical expertise, innovative research in pump, valve and seal design, and
knowledge of applied engineering techniques make Flowserve a technological
leader in the industry.
FLOWSERVE 1997 ANNUAL REPORT 8
11
[PICTURE OF ROTATING EQUIPMENT PRODUCTS]
[PICTURE OF FLOW CONTROL PRODUCTS]
[PICTURE OF SEALING PRODUCTS]
[BALANCED PRODUCT MIX PIE CHART]
Valves 27%
Pumps 45%
Seals 28%
12
[PICTURE OF OUTSOURCING SERVICES]
[PICTURE OF REPAIR AND MAINTENANCE]
[CHART]
[PICTURE OF FLOWSERVICE CENTER]
13
FOCUS ON SERVICE
Flowserve's new ServiceRepair Division represents a new concept in service for
Flowserve and for the flow management industry, and is a fundamental part of the
Company's growth strategy. The ServiceRepair Division is focused on providing
world-class service and repair support under a strong global brand.
The ServiceRepair concept offers an outstanding opportunity to build closer
relationships with established customers, create new sources of recurring
revenue, and expand the Company's overall served market. This new concept is
facilitated by the merger, which provides the opportunity to combine expertise
across products used by the Company's customers. Through a multifaceted
strategy, Flowserve is positioning itself to become a leader in providing
service, repair and diagnostics to the process industries.
ServiceRepair places more emphasis on service activities that represent
typically higher-margin and more-stable portions of the flow management market.
Traditional business practice in the industry has been to first sell original
equipment to customers and then service that installed base of equipment with
replacement parts, maintenance and repairs over its lifetime. While remaining an
important part of Flowserve's total business, this type of growth is largely
limited by the Company's ability to increase its sales of original equipment.
The ServiceRepair Division is a conduit to expanding beyond simply servicing the
Company's installed base. Taking over non-core competencies of our customers --
for example, in maintenance -- can create a new and larger market that draws on
the Company's depth of technical and product knowledge. This growth strategy is
designed to generate higher-margin business that builds customer value and can
be developed with relatively low capital expenditures.
One important part of the strategy is to enlarge Flowserve's global network of
88 service and quick response centers located in 24 countries. The network will
be expanded to include new locations, while markets that currently have multiple
centers because of overlap from the merger will be consolidated. In the future,
Flowserve service centers will be unique in the industry, offering "one-stop
shopping" for repair and maintenance of all flow control products, including
pumps, valves, seals, and related products and systems.
ServiceRepair both supports and is supported by the Company's product
manufacturing businesses. Parts sales and cross-selling revenues are generated
by the ServiceRepair Division while, at the same time, the division provides
full-service support to the customers of the product divisions.
Opportunities also exist to develop new service businesses in areas such as
diagnostics, equipment upgrade, and the application of smart technologies to
existing process control systems. For example, through a grant from the European
Community, Flowserve is building the tools required for highly accurate
diagnostics, and is quickly developing a business base for these technologies in
Europe and the United States.
The ServiceRepair Division plans to take full, global advantage of the trend
toward increased outsourcing of maintenance, service and repair. In some cases,
this will involve placing Flowserve service centers directly inside customers'
facilities.
ServiceRepair is a response to customers' desire to increase their
mean-time-between-failure and keep their products operating efficiently, while
reducing maintenance costs and receiving a high level of service. The
ServiceRepair Division provides real value to customers and places Flowserve on
the cutting edge of the industry.
FLOWSERVE 1997 ANNUAL REPORT 11
14
WORLDWIDE LOCATIONS
The engineered segments of the pump, seal and valve markets, which require
sophisticated equipment to move fluids in environments that span extremes of
temperature, pressure, horsepower and speed, are the most global of the market
segments in terms of customers, applications and suppliers. These are the arenas
in which the Company concentrates, making Flowserve's extensive worldwide
coverage one of its primary strengths.
PLANTS
SERVICE AND QUICK
RESPONSE CENTERS
UNITED STATES INTERNATIONAL UNITED STATES
Los Angeles, California Birmingham, Alabama
Temecula, California Mendoza, Argentina Wasilla, Alaska
Burr Ridge, Illinois Botany, NSW, Australia El Dorado, Arkansas
Kalamazoo, Michigan Scoresby, Victoria, Australia Benicia, California
Lake Ann, Michigan Petit Rechain, Belgium Carson, California
Albuquerque, New Mexico Sao Paulo, Brazil Chico, California
Santa Fe, New Mexico Edmonton, Alberta, Canada Los Angeles, California
Cincinnati, Ohio Woodbridge, Ontario, Canada Tampa, Florida
Dayton, Ohio Lille, France Burr Ridge, Illinois
Springboro, Ohio Thiers, France Elgin, Illinois
Tulsa, Oklahoma Ahaus, Germany Posen, Illinois
Williamsport, Pennsylvania Dortmund, Germany Ashland, Kentucky
Cookeville, Tennessee Essen, Germany Baton Rouge, Louisiana
Provo, Utah Limburg, Germany Midland, Michigan
Springville, Utah Bangalore, India Bridgeport, New Jersey
Hubli, India Charlotte, North Carolina
Madras, India Cincinnati, Ohio
Cormano, Italy Tulsa, Oklahoma
Osaka, Japan Boothwyn, Pennsylvania
Seoul, Korea Pittsburgh, Pennsylvania
Santa Clara, Mexico Florence, South Carolina
Tlaxcala, Mexico Kingsport, Tennessee
Etten-Leur, The Netherlands Beaumont, Texas
Hengelo, The Netherlands Corpus Christi, Texas
Roosendaal, The Netherlands Freeport, Texas
Auckland, New Zealand Houston, Texas
Dammam, Saudi Arabia Plainview, Texas
Singapore Texas City, Texas
La-Chaux-de-Fonds, Switzerland Salt Lake City, Utah
Milton Keynes, United Kingdom Dunbar, West Virginia
FLOWSERVE 1997 ANNUAL REPORT 12
15
[MAP OF COUNTRIES]
o Plants
o Service and Quick Response Centers
SERVICE AND QUICK
RESPONSE CENTERS
CONTINUED
INTERNATIONAL
Buenos Aires, Argentina Augusta, Sicily, Italy Manati, Puerto Rico
Mendoza, Argentina Cormano, Italy Al-Khobar, Saudi Arabia
Botany, NSW, Australia Milan, Italy Singapore
Perth, Australia San Giovanni, Italy Madrid, Spain
South Fremantle, Western Australia Tokyo, Japan Tarragona, Spain
Sydney, NSW, Australia Kemaman, Kuala Terengganu, Malaysia Oensingen, Switzerland
Antwerp, Belgium Selangor, Malaysia Yen Chao, Kaohsiung, Taiwan
Edmonton, Alberta, Canada Coatzacoalcos, Veracruz, Mexico Bangkok, Thailand
Leduc, Alberta, Canada Monterrey, Mexico Rayong, Thailand
Scarborough, Ontario, Canada Santa Clara, Mexico Abu Dhabi, United Arab Emirates
St. Thomas, Ontario, Canada Etten-Leur, The Netherlands Manchester, United Kingdom
Woodbridge, Ontario, Canada Hengelo, The Netherlands Salford, United Kingdom
Martigues, France Roosendaal, The Netherlands Maracaibo, Venezuela
Friedland-Reiffenhausen, Germany Manila, Philippines Punto Fijo, Venezuela
Horneburg, Germany
Batam Island, Indonesia
FLOWSERVE 1997 ANNUAL REPORT 13
16
MANAGEMENT'S DISCUSSION AND ANALYSIS
The following discussion and analysis is provided to increase understanding of,
and should be read in conjunction with, the consolidated financial statements
and accompanying notes.
OVERVIEW
Flowserve Corporation (the Company or Flowserve) was created on July 22, 1997,
through a merger of equals between BW/IP, Inc. and Durco International Inc.
accounted for under "pooling of interests" accounting. Accordingly, all
historical information has been restated giving effect to the transaction as if
the two companies had been combined at the beginning of all periods presented.
In addition, certain other historical information has been reclassified for
consistency with the 1997 presentation.
Flowserve produces engineered pumps for the process industries, precision
mechanical seals, manual and automated quarter-turn valves, control valves and
valve actuators, and provides a range of related flow management services to a
diverse customer base worldwide. Equipment manufactured and serviced by the
Company is used in industries that utilize difficult to handle and often
corrosive fluids in environments with extreme temperature, pressure, horsepower
and speed. Flowserve's businesses are affected by economic conditions in the
U.S. and other countries where its products are sold and serviced, and by the
relationship of the U.S. dollar to other currencies, and demand and pricing for
customers' products. The impact of these conditions is mitigated to some degree
by the strength and diversity of Flowserve's product lines and geographic
coverage.
RESULTS OF OPERATIONS
The Company's condensed consolidated financial results for the last three years
are summarized below:
(Dollar amounts in millions, except per share data) 1997 1996 1995
- ---------------------------------------------------------------------------------------------
Net sales $ 1,152.2 $ 1,097.6 $ 983.9
Gross profit 448.9 428.9 392.4
Selling and administrative expense 285.9 283.3 264.4
Research, engineering and development expense 26.9 24.5 24.7
Merger and restructuring expenses 51.5 5.8 5.0
Operating income 84.6 115.3 98.3
Net earnings $ 51.6 $ 71.1 $ 54.0
Per share data (diluted and basic):
Net earnings $ 1.26 $ 1.72 $ 1.30
Special items .75 .07 .10
Earnings before special items 2.01 1.79 1.40
Bookings $ 1,172.4 $ 1,141.6 $ 1,013.9
Backlog $ 291.6 $ 287.1 $ 249.6
Net sales increased to $1,152.2 million, and favorably compared with sales of
$1,097.6 million in 1996 and $983.9 million in 1995. The increase in net sales
in 1997 reflects stronger global demand for pump products, mechanical seals,
engineered valves, and sales from recently acquired entities. Partially
offsetting the increase in sales in 1997 was the translation impact of the
strong U.S. dollar against foreign currencies, which negatively impacted net
sales by approximately $46 million and the sale of the filtration systems
business in May of 1997, which contributed $9 million in additional sales in
1996. Sales increases in 1996 compared with 1995 reflected strong shipments
across all geographic regions as the Company's major customers had high levels
of capital spending. In addition, the Company benefitted from a more competitive
pricing position as a result of a restructuring of its North American engineered
pump operations which was initiated in 1993 and completed in 1996.
Net sales to international customers, including export sales from the U.S., were
48.0% in 1997, 52.2% in 1996 and 49.5% in 1995. The reduction in international
contributions in 1997 primarily reflected the currency translation impact of the
weaker European and Asian currencies.
Gross profit margin as a percent of net sales of 39.0% in 1997, was relatively
flat compared with 39.1% in 1996 and slightly less than the 39.9% in 1995. The
reduction from 1995 to 1996 was related to a less
FLOWSERVE 1997 ANNUAL REPORT 14
17
favorable product mix, including a higher percentage of lower-margin engineered
pump original equipment sales, lower sales of profitable nuclear aftermarket
products and competitive pricing pressures in the industry. These factors
continued in 1997, but were offset by cost controls which kept the margin in
1997 relatively flat compared with 1996. Selling and administrative expenses as
a percent of net sales were 24.8% in 1997, compared with 25.8% in 1996 and 26.9%
1995. In part, the reduction in selling and administrative expenses as a
percentage of net sales compared with prior years was a result of restructuring
programs completed in the U.S. and Europe in 1997 and 1996. Additionally, the
Company continued to leverage selling and administrative expense as a percent of
net sales.
Research, engineering and development expenses were $26.9 million in 1997,
compared with $24.5 million in 1996 and $24.6 million in 1995. Whereas the
spending level increased in 1997, as a percentage of sales it was 2.3%, which
was consistent with 1996 and slightly lower than in 1995.
The effective tax rate for 1997, including special items, was 42.6%, compared
with 34.4% in 1996 and 38.9% in 1995. The increase in the effective tax rate
resulted from merger transaction expenses, some of which are not tax deductible,
partially offset by the utilization of certain tax benefits recognized on the
sale of its subsidiary Metal Fab Machine Corporation ("Metal Fab"). Excluding
the tax impact of the merger transaction expenses and the sale of Metal Fab, the
effective tax rate was 36.9% for 1997. The tax rate of 34.4% in 1996 was reduced
due to one-time benefits associated with restructuring of certain of the
Company's European entities and significantly higher utilization of tax loss
carry-forwards in the Company's Asia/Pacific and European operations than in the
prior year.
Net earnings, after merger transaction, integration and restructuring expenses
and a gain on sale of Metal Fab ("special items"), were $51.6 million in 1997,
compared with $71.1 million in 1996 and $54.0 million 1995. The related net
earnings per diluted share, after special items, were $1.26 in 1997, compared
with $1.72 per diluted share and $1.30 per diluted share in 1996 and 1995,
respectively. The Company's potentially dilutive common stock equivalents were
immaterial in 1997 and all previous years. Accordingly, diluted earnings per
share were equal to basic earnings per share for all periods presented.
Earnings before special items were $82.1 million in 1997, compared with $74.1
million in 1996 and $58.4 million in 1995. Earnings per diluted share before
special items were $2.01 in 1997, compared with $1.79 in 1996 and $1.40 in 1995.
Bookings of $1,172.4 million in 1997 compared with $1,141.6 million in 1996 and
$1,013.9 million in 1995. The Company acquired Anchor/Darling Valves in December
1996 and the engineered pump business of Stork Pompen in The Netherlands in
January 1997. These two acquisitions contributed approximately $45 million of
bookings in 1997. In addition, bookings for automated valves and mechanical
seals were stronger in 1997 than 1996. These increases were offset by adverse
effects of foreign exchange translation, which reduced total bookings by
approximately $48 million (or 4%) and weaknesses in the chemical industry in the
second half of the year. Bookings in 1996 exceeded 1995 levels due primarily to
aggressive capital spending by the worldwide processing industries. Petroleum
market original equipment was especially strong in 1996 compared to 1995 (up
30.4% year-over-year) with strength specifically in North America and Europe.
MERGER INTEGRATION PROGRAM
In the fourth quarter of 1997, the Company announced its merger integration
program. This $92.4 million program includes investments of approximately $22.2
million for capital expenditures and approximately $70.2 million for integration
expenses. Of this $70.2 million, $32.6 million was recognized as a one-time
restructuring charge in the fourth quarter of 1997. The balance will be
recognized as incurred over the three-year life of the program, including $7.0
million recorded in the fourth quarter of 1997. The Company's program includes
facility rationalizations in North America and Europe, organizational
realignments at the corporate and division levels, procurement initiatives,
investments in training, and support for the service and repair operations. The
integration program is expected to result in a net reduction of approximately
300 employees at a cost of $22.4 million with an additional 150 employee
reduction due to the divestiture of Metal Fab. In addition, exit costs
associated with the facilities closings are estimated at $10.2 million. The
integration program is expected to be funded through operating cash flows and
available credit facilities. Through December 31, 1997, severance costs of $3.4
million and exit costs of $1.7 million were paid. The remainder of the costs are
expected to be incurred over the life of the program.
FLOWSERVE 1997 ANNUAL REPORT 15
18
Other
(Dollar amounts in millions) Severance Exit Costs Total
- -------------------------------------------------------------------------------
Balance at October 27, 1997 $ 22.4 $ 10.2 $ 32.6
Cash expenditures (3.4) (.5) (3.9)
Non-cash expenditures -- (1.2) (1.2)
---------------------------------
Balance at December 31, 1997 $ 19.0 $ 8.5 $ 27.5
=================================
The Company believes the program will produce $45-$55 million annually in
operating income at the end of three years. This income is expected to be
produced by eliminating cost redundancies, capturing procurement savings, and
realizing earnings increases from sales synergies.
In addition to the restructuring charge and the integration expenses incurred in
the fourth quarter of 1997, Flowserve also incurred $11.9 million relating to
merger transaction costs. This amount was comprised of severance and other
expenses triggered by the merger and investment banking, accounting, legal, and
other costs required to effect the merger. Also in the fourth quarter of 1997,
the Company sold substantially all the assets of its Metal Fab operation for a
pretax gain of $11.4 million. The gain relating to Metal Fab sale along with all
the merger transaction, restructure and integration expenses comprised the
"special items" the Company highlighted for ease in comparing 1997 to future and
prior periods. In 1996, a $5.8 million restructuring charge was recorded
relating to the consolidation of certain operations in Europe and Asia. In 1995,
a $5.0 million charge was recorded for transaction costs relating to the merger
between Durco and Durametallic.
FINANCIAL POSITION AND LIQUIDITY
(Dollar amounts in millions) 1997 1996 1995
- -------------------------------------------------------------------------------
Cash flows from operations $ 90.0 $ 88.4 $ 58.0
Capital expenditures $ 39.6 $ 35.7 $ 39.9
Total long-term debt $ 128.9 $ 144.0 $ 125.9
Debt to capital ratio 27.1% 30.0% 27.9%
Current ratio 2.2 2.5 2.3
Cash flows from operations and financing available under existing credit
agreements are the Company's primary sources of short-term liquidity. Cash flows
from operating activities in 1997 increased to $90.0 million compared with $88.4
million in 1996 and $58.0 million in 1995. The slight increase in cash flows in
1997 was primarily due to increased earnings before non-cash portion of
restructure reserve, offset somewhat by cash outlays related to the merger and
increases in accounts receivable due to strong shipments at the end of 1997. The
increase in cash flows from operations in 1996 over 1995 resulted primarily from
increased earnings and enhanced inventory management.
Cash flows from operations were sufficient to fund capital expenditures of $39.6
million, $35.7 million, and $39.9 million during 1997, 1996 and 1995,
respectively. For each of the three years, capital expenditures were invested in
machinery and equipment, replacements and upgrades. In 1997, the amount
increased over 1996 predominately due to investment in low-cost manufacturing
facilities in India.
The Company's capital structure, consisting of long-term debt and shareholders'
equity, continued to enable the Company to finance short- and long-range
business objectives. At December 31, 1997, total debt was 27.1% of the Company's
capital structure compared to 30.0% at December 31, 1996. The interest coverage
ratio of the Company's indebtedness was 7.8 times interest at December 31, 1997,
compared with 9.9 times interest at December 31, 1996.
The Company has a $150,000 revolving credit agreement with the option to
increase the availability to $200,000. At December 31, 1997, $50,000 was
outstanding. The Company also had other short-term credit facilities with $42.8
million available for borrowing thereunder.
The return on average net assets for 1997, before special items, was 13.7%,
compared with 12.9% for 1996. Including the impact of special items, the return
on average net assets was 9.0% for 1997, compared with 12.5% for 1996. The
return on average shareholder equity, before special items, was 20.4% for 1997,
compared with 19.3% for 1996. Return on average shareholders' equity including
special items was 13.0% for 1997 versus 18.6% for 1996.
The Company will continue to allocate resources to activities consistent with
its core business. Accordingly, in 1997 the Company acquired 100% of its joint
venture in Argentina (previously 51% owned
FLOWSERVE 1997 ANNUAL REPORT 16
19
by the Company) and also acquired the engineered pump business of Stork
Pompen. In addition, the sale of Metal Fab, which generated approximately
$18.8 million in cash and an $11.4 million pretax gain, will allow resources
formerly allocated to that operation to be used in activities more consistent
with Flowserve's core business.
Flowserve believes that cash flow generated by operations and amounts
available under borrowing arrangements will be adequate to fund normal
operating needs, the integration plans, capital expenditures, required debt
payments and dividends through the remainder of the year.
Inflation during the past three years had little impact on the Company's
consolidated financial performance. Foreign currency translation effect did
have a significant impact on the Company's financial performance in 1997 --
reducing bookings, sales, backlog and earnings each by approximately 4%.
YEAR 2000 COSTS
The Year 2000 Issue is the result of computer programs being written using two
digits rather than four to define the applicable year. Any of the Company's
programs that have time-sensitive software may recognize a date using "00" as
the year 1900 rather than the year 2000, which could potentially result in a
major system failure or miscalculations.
Flowserve has conducted a review of its computer systems to identify the
systems that could be affected by the Year 2000 issue. To address this issue,
the Company is developing a plan for a combined approach of upgrade to Year
2000 compliant systems and code modifications to existing systems. Flowserve
continues to evaluate appropriate courses of corrective action, including
replacement of certain systems. The Company estimates that such costs, to be
charged to expense over the next two years, could be as much as $7 million.
Flowserve presently believes that, with modifications to existing software and
conversions to new software, the Year 2000 issue will not pose a significant
operational problem for the Company's computer systems so modified and
converted. The Company is also developing a plan for the implementation of a
new corporate-wide computer system to provide significant operational benefits
and cost savings to the Company. The cost of a new system, with preliminary
estimates ranging from $60 - $80 million over three years, would generally be
recorded as capitalized assets and amortized over the software's useful life.
Costs to address the Year 2000 issue and for a new system would be funded
through a combination of operating cash flows and funds available under
borrowing arrangements.
ACCOUNTING PRONOUNCEMENTS
In 1997, the Company adopted Statement of Financial Accounting Standards
No.128, "Earnings Per Share" (SFAS No.128), which established standards for
computing and presenting earnings per share. SFAS 128 requires dual
presentation of basic and diluted earnings per share on the face of the income
statement and requires a reconciliation of the numerator and denominator of
the basic earnings per share computation to the numerator and denominator of
the diluted earnings per share computation. The Company's potentially dilutive
common stock equivalents were immaterial in 1997 and all previous years.
Accordingly, diluted earnings per share is equal to basic earnings per share
and is presented on the same line for income statement presentation.
In 1997, the Financial Accounting Standards Board also issued SFAS No. 130,
"Reporting Comprehensive Income," SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information," and SFAS No. 132, "Employers'
Disclosure about Pensions and Other Post Retirement Benefits." All three
standards are effective for years beginning after December 15, 1997. These
standards modify or expand current disclosure requirements and, accordingly,
are not expected to impact Flowserve's reported financial position, results of
operations, or cash flows. The Company is assessing the impact of SFAS No. 131
on its reporting segments.
SAFE HARBOR STATEMENT
This document contains various forward-looking statements and includes
assumptions about the Company's future market conditions, operations, and
results. These statements are based on current expectations and are subject to
significant risks and uncertainties. They are made pursuant to safe harbor
provisions of the Private Securities Litigation Reform Act of 1995. Among the
many factors that could cause actual results to differ materially from the
forward-looking statements are: further changes in the already competitive
environment for the Company's products or competitors' responses to the
Company's strategies; political risks or trade embargoes affecting important
country markets; foreign currency fluctuations; continued economic turmoil in
Asian markets; and prolonged periods where the price of oil is below
historical levels. Net earnings for future periods are uncertain and dependent
on general worldwide economic conditions in the Company's major markets and
their strong impact on the level of incoming business activity.
FLOWSERVE 1997 ANNUAL REPORT 17
20
FIVE YEAR SELECTED FINANCIAL DATA
December 31
--------------------------------------------------------------------------------
(Amounts in thousands, except per
share data and ratios) 1997 1996 1995 1994 1993
- ----------------------------------------------------------------------------------------------------------------------------------
RESULTS OF OPERATIONS
Net sales $ 1,152,196 $ 1,097,645 $ 983,917 $ 909,226 $ 849,030
Cost of sales 703,319 668,718 591,550 554,707 508,936
--------------------------------------------------------------------------------
Gross profit 448,877 428,927 392,367 354,519 340,094
Selling and administrative expense 285,890 283,360 264,426 241,131 221,556
Research, engineering and development expense 26,893 24,522 24,649 24,528 25,172
Merger transaction and restructuring expenses 44,531 5,778 5,042 -- 22,728
Merger integration expense 6,982 -- -- -- --
--------------------------------------------------------------------------------
Operating income 84,581 115,267 98,250 88,860 70,638
Interest expense 13,275 12,144 12,293 12,214 10,643
Other income (7,107) (5,228) (2,455) (4,187) (2,425)
Gain on sale of subsidiary (11,376) -- -- -- --
--------------------------------------------------------------------------------
Earnings before income taxes 89,789 108,351 88,412 80,833 62,420
Provision for income taxes 38,223 37,254 34,391 29,601 22,875
--------------------------------------------------------------------------------
Earnings from continuing operations 51,566 71,097 54,021 51,232 39,545
Loss on discontinued operation -- -- -- -- 16,447
Cumulative effect of change in accounting
principle -- -- -- -- 945
--------------------------------------------------------------------------------
Net earnings $ 51,566 $ 71,097 $ 54,021 $ 51,232 $ 22,153
================================================================================
Average shares outstanding (diluted and basic) 40,896 41,363 41,652 41,626 41,624
Net earnings per share (diluted and basic) $ 1.26 $ 1.72 $ 1.30 $ 1.23 $ 0.53
Dividends paid per share $ 0.65 $ 0.57 $ 0.51 $ 0.45 $ 0.39
Bookings $ 1,172,431 $ 1,141,614 $ 1,013,861 $ 930,863 $ 820,110
Ending backlog $ 291,568 $ 287,076 $ 249,562 $ 237,598 $ 234,852
PERFORMANCE RATIOS (AS A PERCENT OF NET SALES)
Cost of sales 61.0% 60.9% 60.1% 61.0% 59.9%
Gross profit margin 39.0% 39.1% 39.9% 39.0% 40.1%
Selling and administrative expense 24.8% 25.8% 26.9% 26.5% 26.1%
Research, engineering and development expense 2.3% 2.2% 2.5% 2.7% 3.0%
Earnings before income taxes 7.8% 9.9% 9.0% 8.9% 7.4%
Net earnings 4.5% 6.5% 5.5% 5.6% 2.6%
FINANCIAL CONDITION
Cash and cash equivalents $ 58,602 $ 38,933 $ 28,596 $ 28,777 $ 33,924
Working capital $ 284,220 $ 279,972 $ 251,774 $ 222,798 $ 231,682
Net property, plant and equipment $ 209,509 $ 211,738 $ 209,974 $ 197,844 $ 186,005
Intangibles and other assets $ 155,852 $ 149,003 $ 139,204 $ 113,824 $ 81,398
Total assets $ 880,025 $ 829,776 $ 801,120 $ 712,160 $ 655,796
Capital expenditures $ 39,560 $ 35,691 $ 39,928 $ 26,506 $ 28,444
Depreciation and amortization $ 38,933 $ 36,665 $ 34,451 $ 34,054 $ 27,814
Long-term debt $ 128,936 $ 143,962 $ 125,931 $ 95,971 $ 89,756
Postretirement benefits and deferred items $ 125,372 $ 108,127 $ 99,775 $ 98,228 $ 101,086
Shareholders' equity $ 395,273 $ 388,624 $ 375,246 $ 340,267 $ 308,243
FINANCIAL RATIOS
Return on average shareholders' equity 13.0% 18.6% 15.1% 15.8% 7.2%
Return on average net assets 9.0% 12.5% 10.4% 11.2% 5.8%
Debt to capital ratio 27.1% 30.0% 27.9% 25.9% 26.4%
Current ratio 2.2 2.5 2.3 2.3 2.4
Interest coverage ratio 7.8 9.9 8.2 7.6 6.9
Cash dividends paid as a percent of ending
shareholders' equity 6.6% 6.0% 5.6% 5.5% 5.4%
FLOWSERVE 1997 ANNUAL REPORT 18
21
CONSOLIDATED STATEMENTS OF INCOME
For the year ended December 31
---------------------------------------------
(Amounts in thousands, except per share data) 1997 1996 1995
- -------------------------------------------------------------------------------------------------
Net sales $ 1,152,196 $ 1,097,645 $ 983,917
Cost of sales 703,319 668,718 591,550
---------------------------------------------
Gross profit 448,877 428,927 392,367
Selling and administrative expense 285,890 283,360 264,426
Research, engineering and development expense 26,893 24,522 24,649
Merger transaction and restructuring expenses 44,531 5,778 5,042
Merger integration expense 6,982 -- --
---------------------------------------------
Operating income 84,581 115,267 98,250
Interest expense 13,275 12,144 12,293
Other income (7,107) (5,228) (2,455)
Gain on sale of subsidiary (11,376) -- --
---------------------------------------------
Earnings before income taxes 89,789 108,351 88,412
Provision for income taxes 38,223 37,254 34,391
---------------------------------------------
Net earnings $ 51,566 $ 71,097 $ 54,021
=============================================
Earnings per share (diluted and basic) $ 1.26 $ 1.72 $ 1.30
Average shares outstanding 40,896 41,363 41,652
See accompanying notes to consolidated financial statements.
FLOWSERVE 1997 ANNUAL REPORT 19
22
CONSOLIDATED BALANCE SHEETS
December 31
------------------------
(Amounts in thousands, except per share data) 1997 1996
- --------------------------------------------------------------------------------------------------
ASSETS
Current assets:
Cash and cash equivalents $ 58,602 $ 38,933
Accounts receivable, net 234,437 223,274
Inventories 184,944 182,423
Prepaids and other current assets 36,681 24,405
------------------------
Total current assets 514,664 469,035
Property, plant and equipment, net 209,509 211,738
Intangible assets, net 79,748 87,884
Other assets 76,104 61,119
------------------------
Total assets $ 880,025 $ 829,776
========================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 68,241 $ 68,011
Notes payable 5,644 5,784
Income taxes 15,548 4,961
Accrued liabilities 128,802 93,695
Long-term debt due within one year 12,209 16,612
------------------------
Total current liabilities 230,444 189,063
Long-term debt due after one year 128,936 143,962
Postretirement benefits and deferred items 125,372 108,127
Shareholders' equity:
Serial preferred stock, $1.00 par value, no shares issued -- --
Common stock, $1.25 par value, 41,484 and 41,482 shares issued and
outstanding at December 31, 1997 and 1996, respectively 51,856 51,854
Capital in excess of par value 70,895 72,628
Retained earnings 326,681 298,563
------------------------
449,432 423,045
Treasury stock at cost, 881 shares in 1997, 1,081 shares in 1996 (23,145) (27,455)
Foreign currency and other equity adjustments (31,014) (6,966)
------------------------
Total shareholders' equity 395,273 388,624
------------------------
Total liabilities and shareholders equity $ 880,025 $ 829,776
========================
See accompanying notes to consolidated financial statements.
FLOWSERVE 1997 ANNUAL REPORT 20
23
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Foreign
currency Total
Capital in and other share-
(Amounts in thousands, except Common excess of Retained Treasury equity holders'
share and per share data) stock par value earnings stock adjustments equity
- ---------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1994 $ 51,571 $ 69,828 $ 217,934 $ (59) $ 993 $ 340,267
Net earnings -- -- 54,021 -- -- 54,021
Cash dividends declared ($.51 per share) -- -- (21,168) -- -- (21,168)
Retirement of common stock (6) (14) (21) -- -- (41)
Stock activity under stock plans 85 459 (4) -- 117 657
Foreign currency translation adjustment -- -- -- -- 1,600 1,600
Nonqualified pension plan adjustment -- -- -- -- 61 61
Net treasury stock activity (4,700) -- -- -- (151) -- (151)
------------------------------------------------------------------------------------
Balance at December 31, 1995 $ 51,650 $ 70,273 $ 250,762 $ (210) $ 2,771 $ 375,246
Net earnings -- -- 71,097 -- -- 71,097
Cash dividends declared ($.57 per share) -- -- (23,296) -- -- (23,296)
Stock activity under stock plans 204 2,355 -- -- (590) 1,969
Foreign currency translation adjustment -- -- -- -- (8,918) (8,918)
Nonqualified pension plan adjustment -- -- -- -- (229) (229)
Net treasury stock activity (1,073,000) -- -- -- (27,245) -- (27,245)
------------------------------------------------------------------------------------
Balance at December 31, 1996 $ 51,854 $ 72,628 $ 298,563 $ (27,455) $ (6,966) $ 388,624
Net earnings -- -- 51,566 -- -- 51,566
Cash dividends declared ($.58 per share) -- -- (23,451) -- -- (23,451)
Stock activity under stock plans 2 (1,733) 3 4,310 (46) 2,536
Foreign currency translation adjustment -- -- -- -- (24,002) (24,002)
------------------------------------------------------------------------------------
Balance at December 31, 1997 $ 51,856 $ 70,895 $ 326,681 $ (23,145) $ (31,014) $ 395,273
====================================================================================
See accompanying notes to consolidated financial statements.
FLOWSERVE 1997 ANNUAL REPORT 21
24
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the year ended December 31
------------------------------------
(Amounts in thousands) 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
Operating activities:
Net earnings $ 51,566 $ 71,097 $ 54,021
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation 35,277 33,452 29,803
Amortization 3,656 3,213 4,648
Gain on sale of subsidiary, net of income taxes (7,417) -- --
Loss on the sale of fixed assets 33 551 193
Change in assets and liabilities, net of effects of acquisitions:
Accounts receivable (18,401) (8,645) (11,741)
Inventories (9,943) (1,565) (30,532)
Prepaid expenses (10,287) (1,014) (2,184)
Other current assets (13,232) 103 (332)
Accounts payable 1,574 (7,239) 9,524
Accrued liabilities 48,806 (5,677) 7,776
Income taxes (2,005) 147 2,031
Postretirement benefits and deferred items 13,195 5,855 (200)
Net deferred taxes (1,477) 1,901 (1,932)
Other (1,342) (3,824) (3,041)
------------------------------------
Net cash flows from operating activities 90,003 88,355 58,034
------------------------------------
Investing activities:
Capital expenditures (39,560) (35,691) (39,928)
Payments for acquisitions, net of cash acquired (10,461) (13,240) (21,523)
Proceeds from sale of subsidiary 18,793 -- --
Other 1,777 (258) 1,618
------------------------------------
Net cash flows used by investing activities (29,451) (49,189) (59,833)
------------------------------------
Financing activities:
Net repayments under lines of credit 576 (12,720) 27,277
Payments on long-term debt (15,760) (71) (14,521)
Proceeds from long-term debt 929 36,296 12,061
Repurchase of common stock -- (27,838) (41)
Proceeds from issuance of common stock 2,584 2,333 567
Dividends paid (26,121) (23,296) (20,926)
Other -- 134 (2,963)
------------------------------------
Net cash flows (used by) from financing activities (37,792) (25,162) 1,454
------------------------------------
Effect of exchange rate changes (3,091) (3,667) 164
------------------------------------
Net change in cash and cash equivalents 19,669 10,337 (181)
Cash and cash equivalents at beginning of year 38,933 28,596 28,777
------------------------------------
Cash and cash equivalents at end of year $ 58,602 $ 38,933 $ 28,596
====================================
Taxes paid $ 27,636 $ 31,493 $ 28,084
Interest paid $ 13,420 $ 12,269 $ 13,039
See accompanying notes to consolidated financial statements.
FLOWSERVE 1997 ANNUAL REPORT 22
25
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data.)
NOTE 1
SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
its wholly and majority-owned subsidiaries. All significant intercompany
transactions have been eliminated. Investments in unconsolidated affiliated
companies, which represent all non-majority ownership interests, are carried on
the equity basis, which approximates the Company's equity interest in their
underlying net book value.
BUSINESS COMBINATIONS
Business combinations which have been accounted for under the pooling of
interests method of accounting combine the assets, liabilities, and
stockholders' equity of the acquired entity with the Company's respective
accounts at recorded values. Prior period financial statements have been
restated to give effect to the transactions as if they occurred at the beginning
of all periods presented.
Business combinations which have been accounted for under the purchase method of
accounting include the results of operations of the acquired business from the
date of acquisition. Net assets of the companies acquired are recorded at their
fair value to the Company at the date of acquisition and any excess of purchase
price over fair value is recorded as goodwill.
CASH EQUIVALENTS
Cash equivalents represent short-term investments with an original maturity of
three months or less when purchased which are highly liquid with principal
values not subject to significant risk of change due to interest rate
fluctuations.
ACCOUNTS RECEIVABLE
Accounts receivable are stated net of the allowance for doubtful accounts of
$5,059 and $4,826 at December 31, 1997 and 1996, respectively.
INVENTORIES
Inventories are stated at the lower-of-cost or market. Cost is determined for
certain inventories by the last-in, first-out (LIFO) method and for other
inventories by the first-in, first-out (FIFO) method.
FINANCIAL INSTRUMENTS
Gains and losses on hedges of existing assets or liabilities are included in the
carrying amounts of those assets or liabilities and are ultimately recognized in
income as part of those carrying amounts. Gains and losses related to hedges of
anticipated transactions are recognized in income as the transactions occur.
The carrying amounts in the Company's financial instruments approximate fair
value as defined under Statement of Financial Accounting Standards (SFAS) No.
107, "Disclosures About Fair Value of Financial Instruments." Fair value is
estimated by reference to quoted prices by financial institutions.
PROPERTY, PLANT AND EQUIPMENT AND DEPRECIATION
Property, plant and equipment are stated on the basis of cost. Depreciation is
computed by the straight-line method based on the estimated useful lives of the
depreciable assets for financial statement purposes and by accelerated methods
for income tax purposes. The estimated useful lives of the assets are as
follows:
Buildings, improvements, furniture and fixtures 5 to 35 years
Machinery and equipment 3 to 12 years
Capital leases 5 to 25 years
INTANGIBLES
Excess cost over the fair value of net assets acquired (goodwill) generally is
amortized on a straight-line basis over 15-40 years. The carrying value of
goodwill will be reviewed if the facts and circumstances suggest that it may be
impaired. If this review indicates that goodwill will not be recoverable, as
FLOWSERVE 1997 ANNUAL REPORT 23
26
determined based on the undiscounted cash flows of the entity acquired over the
remaining amortization period, the Company's carrying value of the goodwill will
be adjusted accordingly. Intangibles are stated net of accumulated amortization
of $5,266 and $5,079 as of December 31, 1997 and 1996, respectively.
HEDGING/FORWARD CONTRACTS
The Company is party to forward contracts for purposes of hedging certain
transactions denominated in foreign currencies. The Company has a
risk-management and derivatives policy statement outlining the conditions in
which the Company can enter into hedging or forward transactions. No foreign
exchange or financial derivative product above $5,000 can be entered into
without executive management's approval. Gains and losses on forward contracts
qualifying as hedges are deferred and included in the measurement of the related
foreign currency transaction. The Company is exposed to credit-related losses in
the event of nonperformance by counterparties to financial instruments, but it
expects all counterparties to meet their obligations given their high credit
ratings. As of December 31, 1997, the Company had no significant outstanding
hedges or forward contracts with third parties.
FOREIGN CURRENCY TRANSLATION
Assets and liabilities of the Company's foreign affiliates, other than those
located in highly inflationary countries, are translated at current exchange
rates, while income and expenses are translated at average rates for the period.
For entities in highly inflationary countries, a combination of current and
historical rates is used to determine currency gains and losses resulting from
financial statement translation and those resulting from transactions.
Translation gains and losses are reported as a component of shareholders'
equity, except for those associated with highly inflationary countries, which
are reported directly in the consolidated statements of income.
REVENUE RECOGNITION
Revenues and costs are generally recognized as units are shipped. Progress
billings are generally shown as a reduction of inventory unless such billings
are in excess of accumulated costs, in which case, such balances are included in
accrued liabilities.
STOCK-BASED COMPENSATION
The Company follows Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees" (APB 25), and related interpretations in accounting
for its employee stock options. Under APB No. 25, no compensation expense is
recorded if the exercise price of the Company's stock options equals the market
price of the underlying stock on the date of grant. Accordingly, the Company has
no compensation expense recorded. Note 4 reflects the estimated impact on
earnings per share as if the Company had used the fair value accounting as
provided under SFAS No. 123, "Accounting for Stock Based Compensation."
USE OF ESTIMATES
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
CONCENTRATION OF CREDIT RISK
The Company places its temporary cash investments with financial institutions
and, by policy, limits the amount of credit exposure to any one financial
institution. Credit risk is also limited due to the large number of customers
comprising the Company's customer base, the Company's diverse product line and
the dispersion of the Company's customers across many different geographic
regions. As of December 31, 1997, the Company does not believe that it had
significant concentrations of credit risk.
BASIS OF COMPARISON
Certain amounts in 1996 and 1995 have been reclassified or restated to conform
with the 1997 presentation.
FLOWSERVE 1997 ANNUAL REPORT 24
27
NOTE 2
MERGER
On July 22, 1997, shareholders of Durco International Inc. (Durco) and BW/IP,
Inc. (BW/IP) voted to approve a merger between Durco and BW/IP in a
stock-for-stock merger of equals that was accounted for as a pooling of
interests transaction (the "merger"). As part of the merger agreement, the
Company changed its name from Durco to Flowserve Corporation. The Company issued
approximately 16,914,000 shares of common stock in connection with the merger.
BW/IP shareholders received .6968 shares of the Company's common stock for each
previously owned share of BW/IP stock.
The consolidated financial statements, including the accompanying notes thereto,
have been restated for all periods prior to the merger to include the financial
position, results of operations, and cash flows of BW/IP and Durco as if the
merger had occurred at the beginning of all periods presented.
In connection with the merger, the Company recorded a one-time charge of $11,900
for merger-related expenses in 1997. These expenses included severance and other
expenses triggered by the merger and investment banking fees, legal fees, and
other costs related to the merger, which are primarily non-deductible for tax
purposes.
In the fourth quarter, the Company announced its merger integration program.
This $92,400 program includes investments of approximately $22,200 for capital
expenditures and approximately $70,200 for integration expenses. Of this
$70,200, $32,600 was recognized as a one-time restructuring charge in the fourth
quarter of 1997, $7,000 was recognized as an integration expense in the fourth
quarter of 1997, and the balance will be recognized as incurred over the
three-year life of the program. The program includes facility rationalizations
in North America and Europe, organizational realignments at the corporate and
division levels, procurement initiatives, investments in training, and support
for the service and repair operations. The integration program is expected to
result in a net reduction of approximately 300 employees at the cost of $22,400.
In addition, exit costs associated with the facilities closings are estimated at
$10,200. Through December 31, 1997, the Company paid $3,400 for severance of
approximately 50 employees and $1,700 for other exit costs.
Other
Severance Exit Costs Total
- -------------------------------------------------------------------------------
Balance at October 27, 1997 $ 22,400 $ 10,200 $ 32,600
Cash expenditures (3,400) (500) (3,900)
Non cash expenditures -- (1,200) (1,200)
------------------------------------------
Balance at December 31, 1997 $ 19,000 $ 8,500 $ 27,500
==========================================
Net sales and net earnings for Durco and BW/IP stated individually for prior
periods were as follows:
Six Months
Ended Years ended December 31
June 30,1997 -------------------------
(unaudited) 1996 1995
- ---------------------------------------------------------------------------------
Net sales
BW/IP $ 252,701 $ 492,191 $ 451,191
Durco 310,468 605,454 532,726
----------------------------------------
Consolidated net sales $ 563,169 $1,097,645 $ 983,917
========================================
Net earnings
BW/IP $ 15,062 $ 27,846 $ 23,349
Durco 26,618 43,251 30,672
----------------------------------------
Consolidated net earnings $ 41,680 $ 71,097 $ 54,021
========================================
FLOWSERVE 1997 ANNUAL REPORT 25
28
NOTE 3
ACQUISITIONS AND DISPOSITIONS
In 1997, the Company purchased the 49% remaining shares of its joint venture in
Argentina, Byron Jackson Argentina I.C.S.A. and purchased the engineered pump
business of Stork Pompen, B.V. In 1996, the Company acquired certain assets and
liabilities of Anchor/Darling Valves. In 1995, the Company purchased Pac-Seal
and two affiliated companies and certain product lines of Wilson-Snyder. These
acquisitions did not have a significant impact on the Company's consolidated
financial position or results of operations. In 1995, the Company exchanged
approximately 5,345,000 shares of common stock for all outstanding shares of
Durametallic. The merger was accounted for under the pooling of interests method
of accounting.
In 1997, the Company sold its wholly owned subsidiary Metal Fab Machine
Corporation ("Metal Fab") for $18,793 resulting in a pretax gain of $11,376.
Metal Fab had approximately 150 employees. In addition, in 1997, the Company
sold its Filtration Systems Division ("FSD"). The sale of FSD did not have a
significant impact on the Company's consolidated financial position or results
of operations.
Note 4
STOCK PLANS
The Company maintains a shareholder approved stock option plan, which provides
for the grant of 1,500,000 options to purchase shares of the Company's common
stock. At December 31, 1997, approximately 1,233,000 options remain available
for grant. Options have been granted to officers and employees to purchase
shares of common stock at a price not less than the fair market value at the
date of grant. Generally, these options, whether granted from the current or
prior plans, become exercisable over staggered periods, but may not be exercised
after 10 years from the date of the grant. The plan provides that any option may
include a stock appreciation right, however, none have been granted since 1989.
The aggregate number of shares exercisable was 1,707,677 at December 31, 1997,
915,509 at December 31, 1996 and 741,490 at December 31, 1995.
Option price per share
---------------------------
Stock options Average ($) Range($)
- ---------------------------------------------------------------------------------
Outstanding at December 31, 1994 1,126,186 17.61 5.95-39.20
Options granted 514,972 26.32 5.95-35.88
Options exercised (72,863) 8.45 5.95-16.75
Options canceled (10,176) 11.57 5.95-16.75
------------
Outstanding at December 31, 1995 1,558,119 20.98 5.95-39.20
Options granted 433,591 24.85 22.97-30.14
Options exercised (149,471) 9.37 5.95-16.75
------------
Outstanding at December 31, 1996 1,842,239 22.83 5.95-39.20
Options granted 690,270 26.53 22.87-30.00
Options exercised (285,952) 14.30 5.95-27.99
------------
Outstanding at December 31, 1997 2,246,557 25.05 5.95-39.20
------------
The weighted average contractual life of options outstanding is 8.1 years.
Additional information relating to the ranges of options outstanding at December
31, 1997 is as follows:
Options Outstanding Options Exercisable
------------------------------ --------------------------------
Weighted Weighted Weighted
Average Average Number Average
Range of Exercise Remaining Number Exercise Price Exercisable at Exercise Price
Prices Per Share Contractual Life Outstanding Per Share December 31,1997 Per Share
- --------------------------------------------------------------------------------------------------------
$ 5.95-$14.92 3.30 150,136 $ 12.10 140,736 $ 11.91
$15.00-$24.88 7.74 956,856 $ 21.23 956,856 $ 21.24
$25.65-$39.20 8.03 1,139,565 $ 29.96 610,085 $ 30.86
----------- -----------
2,246,557 1,707,677
=========== ===========
FLOWSERVE 1997 ANNUAL REPORT 26
29
Pro forma information regarding net earnings and earnings per share is required
by SFAS No. 123, which also requires that the information be determined as if
the Company had accounted for its stock options granted subsequent to December
31, 1994 under the fair value method of that Statement. The "fair value" for
these options at the date of grant was estimated using a binomial option pricing
model (a modified Black-Scholes model). The range of assumptions used in this
valuation:
For the year ended December 31 1997 1996 1995
- -------------------------------------------------------------------------------
Risk-free interest rate 5.5% 6.2% 6.2%
Dividend yield 2.0% 2.1% 2.1%
Stock volatility 35.5% 36.6% 36.6%
Average expected life 8.1 yrs. 6.7 yrs. 6.7 yrs.
The options granted had a weighted average "fair value" per share on date of
grant of $10.69 in 1997, $10.42 in 1996, and $10.68 in 1995. For purposes of pro
forma disclosure, the estimated fair value of the options is amortized to
expense over the options vesting periods. The Company's pro forma information
follows (in thousands except for per share information):
For the year ended December 31 1997 1996 1995
- ------------------------------------------------------------------------------------
Net earnings
As reported $ 51,566 $ 71,097 $ 54,021
Pro forma 48,224 69,156 53,101
Earnings per share (diluted and basic):
As reported $ 1.26 $ 1.72 $ 1.30
Pro forma 1.18 1.67 1.27
Because the determination of the fair value of all options granted includes an
expected volatility factor and, because additional option grants are expected to
be made each year, the above pro forma disclosures are not representative of pro
forma effects for future years. The restricted stock plan approved by
shareholders authorized the grant of up to 337,500 shares of the Company's
common stock. In general, the shares cannot be transferred for a period of at
least one but not more than ten years and are subject to forfeiture during the
restriction period. The fair value of the shares is amortized to compensation
expense over the periods in which the restrictions lapse. Restricted stock
grants were 21,700 shares in 1997, 29,900 shares in 1996 and 4,100 shares in
1995. The weighted average fair value of the restricted stock grants at date of
grant was $27.73 in 1997, $25.84 in 1996, and $22.28 in 1995. Total compensation
expense recognized in the income statement for all stock based awards was $510
in 1997, $584 in 1996, and $193 in 1995.
NOTE 5
DEBT AND LEASE OBLIGATIONS
Long-term debt, including capital lease obligations, at December 31 was as
follows:
1997 1996
- --------------------------------------------------------------------------------
Senior Notes, interest of 7.14% to 7.92% $ 66,667 $ 55,000
Revolving credit agreement, interest at 7.04% 50,000 36,000
Loan, due annually through 2001, interest at 8.94% 14,438 19,836
Floating rate revolving notes 5,952 5,900
Credit agreements, average interest rate 6.0%
in 1997 and 6.5% in 1996 678 34,678
Capital lease obligations and other 3,410 9,160
---------------------
141,145 160,574
Less amounts due within one year 12,209 16,612
---------------------
Total long-term debt $128,936 $143,962
=====================
FLOWSERVE 1997 ANNUAL REPORT 27
30
Maturities of long-term debt, including capital lease obligations, for each of
the five years subsequent to 1997, are as follows:
1998 $ 12,209
1999 13,657
2000 6,985
2001 3,476
2002 4,387
Thereafter 100,431
--------
$141,145
========
In 1997, the Company entered into a $150,000 revolving credit agreement with the
option to increase up to $200,000. As of December 31, 1997, $50,000 was
outstanding. This facility will be used to provide for future capital needs and
general corporate purposes.
The 8.94% loan is a U.S. dollar private placement which was effectively
converted to a deutsche mark obligation through a currency swap agreement. The
currency swap is a hedge of the net investment in a German subsidiary.
Unrealized gains and losses on the hedge are not recognized in income, but are
shown in the cumulative translation adjustment account included in shareholders'
equity with the related amounts due to and from the counterparty included in
long-term debt. The maturity and repayment terms of the swap match precisely the
maturity and repayment term of the underlying debt. In addition, during 1996,
the Company entered into swap agreements to fix an interest rate of 7.04% for 10
years on $50,000 usage of the revolving credit.
In 1992, the Company issued $50,000 Senior Notes requiring annual payments of
$8,333 through 1999, bearing interest of 7.92%, of which $16,667 was outstanding
at December 31, 1997. In 1996, the Company issued $30,000 Senior Notes requiring
annual principal payments of $6,000 commencing in 2002 bearing interest of
7.14%. In 1997, the Company issued $20,000 in Senior Notes, bearing interest of
7.17% with principal payments of $4,000 due annually, commencing in 2003.
The provisions of the credit agreements require the Company to meet or exceed
specified financial covenants that are defined in the agreements. The agreements
also contain limitations or restrictions relating to new indebtedness and liens,
disposition of assets, and payment of dividends or other distributions. Under
the covenants, approximately $80,611 of consolidated retained earnings were
unrestricted for the payment of dividends at December 31, 1997. All such
covenants were met in each of the years presented. The most restrictive of these
include a debt to capital ratio and a minimum tangible net worth requirement.
At December 31, 1997 and 1996, the Company had short-term credit facilities
available from banks under which it could borrow, at local market rates, up to
$61,521 and $59,641, respectively. Under these facilities, the Company had
borrowings outstanding of $5,644 at December 31, 1997 and $5,784 at December 31,
1996. The weighted average interest rate on these borrowings at December 31,
1997 and 1996 was 4.8% and 4.3%, respectively. In both years, these borrowings
were used primarily to support the operations of foreign subsidiaries.
As of December 31, 1997, the Company had $12,993 of contingent obligations
relating to bank guarantees and performance bonds outstanding.
FLOWSERVE 1997 ANNUAL REPORT 28
31
OPERATING LEASES
The Company has non-cancelable operating leases for certain offices, service and
quick response centers, certain manufacturing and operations facilities, and,
machinery, equipment and automobiles. Rental expense relating to operating
leases was $15,000 in 1997, $15,100 in 1996 and $13,200 in 1995.
The future minimum lease payments under non-cancelable operating leases as of
December 31, 1997, were as follows:
1998 $ 12,013
1999 8,673
2000 6,342
2001 5,219
2002 2,223
Thereafter 8,499
--------
$ 42,969
========
NOTE 6
INCOME TAXES
Income taxes attributable to continuing operations were provided as follows:
For the year ended December 31 1997 1996 1995
- -------------------------------------------------------------------------------
Current:
United States federal $ 30,461 $ 15,009 $ 16,448
Non-United States 17,752 15,643 13,157
State and local 5,485 4,127 3,129
--------------------------------------
Total current 53,698 34,779 32,734
--------------------------------------
Deferred:
United States federal (15,585) 3,446 (578)
Non-United States 1,012 (895) 1,821
State and local (902) (76) 414
--------------------------------------
Total deferred (15,475) 2,475 1,657
--------------------------------------
$ 38,223 $ 37,254 $ 34,391
======================================
Reconciliation of the effective income tax rate with the statutory federal
income tax rate is as follows:
For the year ended December 31 1997 1996 1995
- --------------------------------------------------------------------------------------------------
United States federal income tax rate 35.0% 35.0% 35.0%
Non-United States tax rate differential and utilization
of operating loss carryforwards 2.2 (0.5) 1.8
Merger transaction expenses 3.7 -- 1.3
State and local income taxes, net
of federal income tax benefit 3.2 2.4 2.9
Utilization of tax credits (2.7) (1.4) (2.7)
Other net 1.2 (1.1) 0.6
----------------------------------
Effective tax rate 42.6% 34.4% 38.9%
==================================
FLOWSERVE 1997 ANNUAL REPORT 29
32
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's consolidated deferred tax assets and liabilities at December 31
were as follows:
1997 1996
- --------------------------------------------------------------------------------
Deferred tax assets related to:
Postretirement benefits $ 24,824 $ 25,020
Compensation accruals 9,849 7,286
Restructuring charge 9,413 188
Net operating loss carryforwards 7,370 4,398
Warranty and accrued liabilities 4,666 3,959
Loss on dispositions 2,437 2,461
Inventories 1,278 526
Capital loss carryforwards -- 1,263
Other 6,749 9,123
------------------------
Total deferred tax assets 66,586 54,224
Less valuation allowances 9,007 8,354
------------------------
Net deferred tax assets 57,579 45,870
------------------------
Deferred tax liabilities related to:
Property, plant and equipment 13,511 14,822
Goodwill 5,071 5,894
Pension benefits 2,444 2,426
Other 3,692 3,904
------------------------
Total deferred tax liabilities 24,718 27,046
------------------------
Deferred tax assets, net $ 32,861 $ 18,824
========================
The Company has recorded valuation allowances to reflect the estimated amount of
deferred tax assets which may not be realized due to the expiration of net
operating loss, foreign tax credit and capital loss carryforwards. Changes in
the valuation allowances were as follows:
Net operating Foreign Capital
losses and other tax credits losses
--------------------------------------------------------------------------------
Balance at December 31, 1996 $ 6,142 $ 949 $ 1,263
Utilization of carryforwards (1,799) -- (1,263)
Increase in expected nonutilization 4,153 45 --
Expiration of carryforwards (103) (380) --
---------------------------------
Balance at December 31, 1997 $ 8,393 $ 614 $ --
=================================
FLOWSERVE 1997 ANNUAL REPORT 30
33
Earnings before income taxes was comprised as follows:
For the year ended December 31 1997 1996 1995
- --------------------------------------------------------------------------------
United States $ 48,897 $ 63,238 $ 51,828
Non-United States 40,892 45,113 36,584
----------------------------------
$ 89,789 $108,351 $ 88,412
==================================
Undistributed earnings of the Company's non-United States subsidiaries amounted
to approximately $145,000 at December 31, 1997. These earnings are considered to
be indefinitely reinvested and, accordingly, no additional United States income
taxes or non-U.S. withholding taxes have been provided. Determination of the
amount of additional taxes that would be payable if such earnings were not
considered indefinitely reinvested is not practical.
NOTE 7
SHAREHOLDERS' EQUITY
In 1997 the Company increased its authorized $1.25 par value common stock from
60,000,000 to 120,000,000 shares. The authorized shares were increased in
connection with the merger of Durco and BW/IP resulting in the formation of
Flowserve Corporation. At both December 31, 1997 and 1996, the Company had
authorized 1,000,000 shares of $1.00 par value preferred stock.
Each share of the Company's common stock contains a preferred stock purchase
right. These rights are not currently exercisable and trade in tandem with the
common stock. The rights, in general, become exercisable and trade separately in
the event of certain significant changes in common stock ownership or on the
commencement of certain tender offers which in either case, may lead to a change
of control of the Company. Upon becoming exercisable, the rights provide
shareholders the opportunity to acquire a new series of Company preferred stock
to be then automatically issued at a pre-established price. In the event of
certain forms of acquisition of the Company, the rights also provide Company
shareholders the opportunity to purchase shares of the acquiring company's
common stock from the acquirer at a 50% discount from the current market value.
The rights are redeemable for $.022 per right by the Company at any time prior
to becoming exercisable and will expire in August, 2006.
At December 31, 1997, approximately 3,643,000 shares of common stock were
reserved for exercise of stock options and for grants of restricted stock.
NOTE 8
RETIREMENT BENEFITS
The Company sponsors several noncontributory defined benefit pension plans,
covering approximately 60% of domestic employees, which provide benefits based
on years of service and compensation. Retirement benefits for all other
employees are provided through defined contribution pension plans and government
sponsored retirement programs. All defined benefit pension plans are funded
based on independent actuarial valuations to provide for current service and an
amount sufficient to amortize unfunded prior service over periods not to exceed
thirty years.
Net defined benefit pension expense was comprised as follows:
For the year ended December 31 1997 1996 1995
- ---------------------------------------------------------------------------------------
Service cost-benefits earned during the period $ 5,627 $ 5,481 $ 4,427
Interest cost on projected benefit obligations 13,931 13,179 12,516
Actual gain on plan assets (33,080) (21,908) (35,820)
Net amortization and deferral 16,945 6,460 20,427
------------------------------------
Net defined benefit pension expense $ 3,423 $ 3,212 $ 1,550
====================================
FLOWSERVE 1997 ANNUAL REPORT 31
34
The following table presents defined benefit pension plan funded status and
amounts recognized in the Company's consolidated balance sheets at December 31:
1997 1996
- ------------------------------------------------------------------------------------
Actuarial present value of:
Vested benefits $ 168,870 $ 146,893
Nonvested benefits 11,788 10,914
-------------------------
Accumulated benefit obligations 180,658 157,807
Projected future compensation increases 30,220 25,413
-------------------------
Projected benefit obligations 210,878 183,220
Plan assets, at fair value 219,860 197,523
-------------------------
Plan assets in excess of projected benefit obligations 8,982 14,303
Unrecognized net transition asset (1,735) (2,231)
Unrecognized net gain (10,047) (15,935)
Unrecognized prior service benefit 2,932 4,444
-------------------------
Net pension asset $ 132 $ 581
=========================
Discount rate 7.25% 7.5%-8.0%
Rate of increase in compensation levels 4.0%-8.0% 4.0%-8.0%
Long-term rate of return on assets 8.0%-10.0% 8.0%-10.0%
Plan assets include marketable equity securities, corporate and government debt
securities, insurance company contracts and real estate. The long-term rate of
return on assets ranged between 8.0% and 10.0% in 1995.
The Company sponsors several defined contribution pension plans covering
substantially all domestic and Canadian employees and certain other foreign
employees. Employees may contribute to these plans and these contributions are
matched in varying amounts by the Company. The Company may also make additional
contributions for eligible employees. Defined contribution pension expense for
the Company was $7,733 in 1997, $6,903 in 1996, and $6,766 in 1995.
The Company also sponsors several defined benefit postretirement health care
plans covering approximately 73% of future retirees and most current retirees in
the United States. These medical and dental benefits are provided through
insurance companies and health maintenance organizations, include participant
contributions, deductibles, co-insurance provisions and other limitations, and
are integrated with Medicare and other group plans. The plans are funded as
insured benefits and health maintenance organization premiums are incurred.
Net postretirement benefit expense was comprised as follows:
For the year ended December 31 1997 1996 1995
- --------------------------------------------------------------------------------------
Service cost - benefits earned during the period $ 916 $ 843 $ 833
Interest cost on accumulated postretirement
benefit obligations 3,652 3,556 3,739
Net amortization and deferral (2,012) (1,613) (1,550)
---------------------------------
Net postretirement benefit expense $ 2,556 $ 2,786 $ 3,022
=================================
FLOWSERVE 1997 ANNUAL REPORT 32
35
The following table presents postretirement benefit amounts recognized in the
Company's consolidated balance sheet at December 31:
1997 1996
- --------------------------------------------------------------------------------
Actuarial present value of accumulated
postretirement benefit obligations:
Retirees $27,060 $27,449
Active employees eligible to retire 8,348 7,552
Active employees not eligible to retire 17,664 14,702
----------------------
Total 53,072 49,703
Unrecognized prior service benefit 8,866 10,460
Unrecognized net gain 3,090 5,554
----------------------
Accrued postretirement benefits $65,028 $65,717
======================
Discount rate 7.25% 7.5%-8.0%
The assumed ranges for the annual rates of increase in per capita costs for
periods prior to Medicare were 7.5%-8.5% for 1997 with a gradual decrease to
6.0% for 2002 and future years and, for periods after Medicare, 7.5% for 1997
with a gradual decrease to 5.0% for 2000 and future years.
Increasing the assumed rate of increase in postretirement benefit costs by 1% in
each year would increase net postretirement benefit expense by approximately
$307 and accumulated postretirement benefit obligations by $4,046.
NOTE 9
CONTINGENCIES
As of December 31, 1997, the Company was involved as a "potentially responsible
party" (PRP) at five former public waste disposal sites which may be subject to
remediation under pending government procedures. The sites are in various stages
of evaluation by federal and state environmental authorities. The projected cost
of remediating these sites, as well as the Company's alleged "fair share"
allocation, is uncertain and speculative until all studies have been completed
and the parties have either negotiated an amicable resolution or the matter has
been judicially resolved. At each site, there are many other parties who have
similarly been identified, and the identification and location of additional
parties is continuing under applicable federal or state law. Many of the other
parties identified are financially strong and solvent companies which appear
able to pay their share of the remediation costs. Based on the Company's
preliminary information about the waste disposal practices at these sites and
the environmental regulatory process in general, the Company believes that it is
likely that ultimate remediation liability costs for each site will be
apportioned among all liable parties, including site owners and waste
transporters, according to the volumes and/or toxicity of the wastes shown to
have been disposed of at the sites.
The Company is a defendant in numerous pending lawsuits (which include, in many
cases, multiple claimants) which seek to recover damages for alleged personal
injury allegedly resulting from exposure to asbestos-containing products
formerly manufactured and distributed by the Company. All such products were
used within self-contained process equipment, and management does not believe
that there was any emission of ambient asbestos fiber during the use of this
equipment.
The Company is also a defendant in several other products liability lawsuits
which are insured, subject to the applicable deductibles, and certain other
non-insured lawsuits received in the ordinary course of business. Management
believes that the company has adequately accrued estimated losses for such
lawsuits. No insurance recovery has been projected for any of the insured claims
because management
FLOWSERVE 1997 ANNUAL REPORT 33
36
currently believes that all will be resolved within applicable deductibles. The
Company is also a party to other non-insured litigation which is incidental to
its business and which, in management's opinion, will be resolved without a
material impact on the Company's financial statements.
Although none of the aforementioned gives rise to any additional liability that
can now be reasonably estimated, the Company believes such costs will be
immaterial. The Company will continue to evaluate these contingent loss
exposures and, if they develop, recognize expense as soon as such losses can be
reasonably estimated.
NOTE 10
DETAILS OF CERTAIN CONSOLIDATED BALANCE SHEET CAPTIONS
INVENTORIES
Inventories at December 31 and the method of determining cost were as follows:
1997 1996
- ------------------------------------------------------------------------------
Raw materials $ 18,082 $ 16,813
Work in process and finished goods 216,377 210,856
Less: Progress billings (10,903) (7,207)
--------------------------
223,556 220,462
LIFO reserve 38,612 38,039
--------------------------
Net inventory $ 184,944 $ 182,423
==========================
Percent of inventory accounted for by LIFO 43% 42%
Percent of inventory accounted for by FIFO 57% 58%
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at December 31 were as follows:
1997 1996
- ----------------------------------------------------------------------------------------------
Land $ 18,703 $ 19,298
Buildings, improvements, furniture and fixtures 151,004 151,233
Machinery, equipment, capital leases and construction in progress 291,559 284,518
------------------------
461,266 455,049
Less: Accumulated depreciation (251,757) (243,311)
------------------------
Net property, plant and equipment $ 209,509 $ 211,738
========================
OTHER ASSETS
Other assets at December 31 were as follows:
1997 1996
- --------------------------------------------------------------------------------
Pension assets $ 8,695 $ 7,832
Deferred tax assets 25,903 16,435
Deferred compensation funding 9,229 6,999
Investments in unconsolidated affiliates 3,844 5,100
Patents 4,431 5,155
Other 24,002 19,598
--------------------
Total $76,104 $61,119
====================
FLOWSERVE 1997 ANNUAL REPORT 34
37
ACCRUED LIABILITIES
Accrued liabilities at December 31 were as follows:
1997 1996
- --------------------------------------------------------------------------------
Wages and other compensation $ 66,208 $ 56,928
Accrued restructuring, current portion 18,048 2,024
Other 44,546 34,743
---------------------
$128,802 $ 93,695
=====================
POSTRETIREMENT BENEFITS AND DEFERRED ITEMS
Postretirement benefits and deferred items at December 31 were as follows:
1997 1996
- --------------------------------------------------------------------------------
Postretirement benefits $ 65,028 $ 65,717
Deferred compensation 6,708 6,186
Deferred taxes 15,946 9,955
Other 37,690 26,269
---------------------------
$125,372 $108,127
===========================
NOTE 11
FOREIGN CURRENCY TRANSLATION
The foreign currency translation equity adjustment at December 31 consists of
the following:
1997 1996 1995
- --------------------------------------------------------------------------------
Beginning of year $ (5,564) $ 3,354 $ 1,754
Adjustment (24,002) (8,918) 1,600
--------------------------------------
End of year $(29,566) $ (5,564) $ 3,354
======================================
NOTE 12
OPERATIONS IDENTIFIED BY GEOGRAPHIC AREA
The Company operates in predominately one business segment, flow management.
Revenues by geographic location exclude intercompany sales. Transfers between
geographic areas are accounted for primarily at cost plus a profit margin.
Operating income consists of revenues less certain costs and expenses. In
determining operating income none of the following items have been added or
deducted: interest expense, other income, gain on sale of subsidiary and income
taxes. Identifiable assets are those assets of the Company that are identifiable
with the operations in each geographic area.
No individual geographic segment within the below listed geographic segments
represents 10% or more of the consolidated Company's revenues from sales to
unaffiliated customers or its identifiable assets. The Other geographic segment
includes Canada, Latin America and the Asia Pacific.
Export sales from the United States to foreign unaffiliated customers were
$146,704 in 1997, $140,842 in 1996 and $95,768 in 1995.
FLOWSERVE 1997 ANNUAL REPORT 35
38
Financial information by geographic area is as follows:
For the year ended December 31 1997 1996 1995
- ---------------------------------------------------------------------------------------------
Revenues:
United States $ 691,337 $ 654,581 $ 592,481
Europe 261,289 257,889 239,185
Other 199,570 185,175 152,251
----------------------------------------
Consolidated total $1,152,196 $1,097,645 $ 983,917
========================================
Inter-geographic transfers (not included above):
United States $ 70,825 $ 67,331 $ 59,400
Europe 19,315 21,007 24,036
Other 2,982 3,886 2,924
----------------------------------------
Consolidated total $ 93,122 $ 92,224 $ 86,360
========================================
Operating income:
United States $ 51,349 $ 71,982 $ 57,119
Europe 9,033 19,211 22,686
Other 24,199 24,074 18,445
----------------------------------------
Consolidated total $ 84,581 $ 115,267 $ 98,250
========================================
Identifiable assets:
United States $ 503,654 $ 448,743 $ 466,528
Europe 247,939 271,348 228,043
Other 128,432 109,685 106,549
----------------------------------------
Consolidated total $ 880,025 $ 829,776 $ 801,120
========================================
Foreign currency transaction gains included in earnings before tax were
approximately $1,121 in 1997, $229 in 1996, and $105 in 1995.
FLOWSERVE 1997 ANNUAL REPORT 36
39
NOTE 13
UNAUDITED QUARTERLY FINANCIAL DATA
1997
Earnings
(dollars in thousands Net Net per share
except per share data) sales earnings (diluted and basic)
- ---------------------------------------------------------------------------------
Quarter ended:
March 31, 1997 $ 262.5 $ 16.8 $ 0.41
June 30, 1997 300.5 24.8 0.61
September 30, 1997 282.0 7.1(a) 0.17(a)
December 31, 1997 307.2 2.9(a) 0.07(a)
----------------------------------------
$1,152.2 $ 51.6(a) $ 1.26(a)
========================================
1996
Earnings
(dollars in thousands Net Net per share
except per share data) sales earnings (diluted and basic)
- ---------------------------------------------------------------------------------
Quarter ended:
March 31, 1996 $ 271.1 $ 16.2 $ 0.39
June 30, 1996 270.8 15.9(b) 0.38(b)
September 30, 1996 271.1 18.2 0.44
December 31, 1996 284.6 20.8 0.51
----------------------------------------
$1,097.6 $ 71.1(b) $ 1.72(b)
========================================
(a) Net earnings in the third quarter of 1997 included restructuring and merger
expenses of $10.2 million before tax, or $.25 per share after tax. Excluding
merger expenses, third quarter net earnings were $17.3 million or $.42 per
share. Net earnings in the fourth quarter of 1997 included merger related
expenses and a gain on sale of subsidiary which together totalled $30.0
million before tax, or $.50 per share after tax. Excluding special items,
fourth quarter net earnings were $23.2 million, or $.57 per share, and net
earnings for the year ended December 31, 1997 were $82.1 million, or $2.01
per share. See Note 2 to Consolidated Financial Statements.
(b) Net earnings in the second quarter of 1996 included restructuring expenses
of $5.8 million before tax, or $.07 per share after tax, related to
consolidating certain operations in Europe and Australia. Excluding
restructuring expenses, second quarter net earnings were $18.9 million, or
$.45 per share, and net earnings for the year ended December 31, 1996 were
$74.1 million, or $1.79 per share.
FLOWSERVE 1997 ANNUAL REPORT 37
40
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Flowserve Corporation
We have audited the accompanying consolidated balance sheets of Flowserve
Corporation and subsidiaries as of December 31, 1997 and 1996 and the related
consolidated statements of income, shareholders' equity, and cash flows for each
of the three years in the period ended December 31, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits. We did not audit the 1996 and 1995 financial statements of BW/IP,
Inc., a wholly owned subsidiary, which statements reflect total assets
constituting 49% of the related consolidated total as of December 31, 1996, and
total revenues constituting 45% and 46% of the related totals for the years
ended December 31, 1996 and 1995, respectively. Those statements were audited by
other auditors whose report thereon dated January 28, 1997 has been furnished to
us, and our opinion, insofar as it relates to data included for BW/IP, Inc., is
based solely on the report of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of other auditors, the
financial statements referred to above present fairly, in all material respects,
the consolidated financial position of Flowserve Corporation and subsidiaries at
December 31, 1997 and 1996, and the consolidated results of their operations and
their cash flows for each of the three years in the period ended December 31,
1997, in conformity with generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
Ernst & Young LLP
Dallas, Texas
February 20, 1998
REPORT OF MANAGEMENT
The Company's management is responsible for preparation of the accompanying
consolidated financial statements. These statements have been prepared in
conformity with generally accepted accounting principles and include amounts
that are based on management's best estimates and business judgment. Management
maintains a system of internal controls, which in management's opinion provides
reasonable assurance that assets are safeguarded and transactions properly
recorded and executed in accordance with management's authorization. The
internal control system is supported by internal audits and is tested and
evaluated by the independent accountants in connection with their annual audit.
The Board of Directors pursues its responsibility for financial information
through an Audit and Finance Committee comprised entirely of independent
directors. This committee regularly meets not only with management, but also
separately with representatives of the independent accountants.
/s/ BERNARD G. RETHORE /s/ RENEE J. HORNBAKER
Bernard G. Rethore Renee J. Hornbaker
Chairman and Chief Executive Officer Vice President and Chief
Financial Officer
FLOWSERVE 1997 ANNUAL REPORT 38
41
MARKET INFORMATION
Flowserve Corporation has facilities in 28 countries and approximately 7,200
worldwide employees. Flowserve Corporation is one of the world's largest
providers of industrial flow management equipment, systems and services.
Flowserve Corporation is also the largest publicly traded company in the United
States operating exclusively in the flow control management industry. The
Company's shares of common stock are traded on the New York Stock Exchange under
the symbol "FLS."
The Company's records show that at March 1, 1998 there were approximately
41,484,000 shares of Flowserve issued and outstanding. Based on these records
plus requests from brokers and nominees listed as shareholders of record, the
Company estimates there are approximately 13,200 shareholders of its common
stock.
During 1997, Durco declared a dividend of $0.14 cents per share for the first
two calendar quarters, and in 1996, paid a dividend of $0.13 cents per share
each calendar quarter.
During 1997, BW/IP declared a dividend of $0.11 cents per share for the first
two calendar quarters, and in 1996, paid a dividend of $0.11 cents per share
each calendar quarter.
During 1997, Flowserve declared a dividend of $0.14 cents per share for the last
two calendar quarters.
The Flowserve Board declared a dividend of $0.14 cents per share on February 20,
1998, which will be paid on March 20, 1998 to stockholders of record on March 5,
1998.
HISTORICAL PRICE RANGE OF DURCO COMMON STOCK
Sales Prices
----------------------------- Cash Dividends
(Prices through July 22, 1997) High Low Declared
- -----------------------------------------------------------------------------------------------------
1st Quarter $ 27.12 $ 21.88 $ 0.14
2nd Quarter $ 30.00 $ 21.25 $ 0.14
3rd Quarter (Through July 22, 1997) $ 35.50 $ 28.81
HISTORICAL PRICE RANGE OF BW/IP COMMON STOCK
Sales Prices
----------------------------- Cash Dividends
(Prices through July 22, 1997) High Low Declared
- -----------------------------------------------------------------------------------------------------
1st Quarter $ 17.38 $ 14.63 $ 0.11
2nd Quarter $ 20.75 $ 15.00 $ 0.11
3rd Quarter (Through July 22, 1997) $ 23.88 $ 20.25
HISTORICAL PRICE RANGE OF FLOWSERVE CORPORATION COMMON STOCK
Sales Prices
----------------------------- Cash Dividends
(Prices from July 23, 1997) High Low Declared
- -----------------------------------------------------------------------------------------------------
3rd Quarter (From July 23, 1997) $ 36.63 $ 29.81 $ 0.14
4th Quarter $ 30.56 $ 26.38 $ 0.14
FLOWSERVE 1997 ANNUAL REPORT 39
42
BOARD OF DIRECTORS
[PICTURE]
R. Elton White, Diane C. Harris, George T. Haymaker, Jr., Kevin E. Sheehan,
Bernard G. Rethore, William M. Jordan, Michael F. Johnston, William C. Rusnack,
Hugh K. Coble and James O. Rollans. Not pictured: Charles M. Rampacek
OFFICERS
[PICTURE]
Mark E. Vernon, Michael S. Dunn, George A. Shedlarski, Reid D. Wayman, Howard D.
Wynn, Renee J. Hornbaker, Bernard G. Rethore, William M. Jordan, Ronald F.
Shuff, Scott E. Messel, Rick L. Johnson, Cheryl D. McNeal and Charles F.
Cargile. Not pictured: Rory E. MacDowell
FLOWSERVE 1997 ANNUAL REPORT 40
43
BOARD OF DIRECTORS OFFICERS
BERNARD G. RETHORE(3) BERNARD G. RETHORE
Chairman of the Board and Chairman of the Board and
Chief Executive Officer Chief Executive Officer
Flowserve Corporation
WILLIAM M. JORDAN
HUGH K. COBLE(1),(3) President and
Retired Chief Operating Officer
Vice Chairman Emeritus
Fluor Corporation RENEE J. HORNBAKER
Vice President and
DIANE C. HARRIS(2) Chief Financial Officer
President
Hypotenuse Enterprises, Inc. RICK L. JOHNSON
Vice President,
GEORGE T. HAYMAKER, JR.(1) Business Development
Chairman and
Chief Executive Officer RORY E. MACDOWELL
Kaiser Aluminum and Vice President and
Chemical Corporation Chief Information Officer
MICHAEL F. JOHNSTON(1) CHERYL D. MCNEAL
President Vice President,
North America Automotive Group Human Resources
Johnson Controls, Inc.
GEORGE A. SHEDLARSKI
WILLIAM M. JORDAN Vice President
President and Division President
Chief Operating Officer Fluid Sealing Division
Flowserve Corporation
RONALD F. SHUFF
CHARLES M. RAMPACEK Vice President,
President and Secretary and
Chief Executive Officer General Counsel
Lyondell-Citgo Refining Company
MARK E. VERNON
JAMES O. ROLLANS(2) Vice President
Senior Vice President and Division President
Chief Administrative Officer Flow Control Division
Fluor Corporation
REID D. WAYMAN
WILLIAM C. RUSNACK(2),(3) Vice President
Retired Division President
Former Senior Vice President Service Repair Division
Atlantic Richfield Company and
President HOWARD D. WYNN
ARCO Products Company Vice President
Division President
KEVIN E. SHEEHAN(1),(3) Rotating Equipment Division
General Partner
CID Equity Partners CHARLES F. CARGILE
Corporate Controller and
R. ELTON WHITE(2) Chief Accounting Officer
Retire
Former President SCOTT E. MESSEL
NCR Corporation Corporate Treasurer
MICHAEL S. DUNN
(1) Compensation Committee Assistant Vice President and
(2) Audit and Finance Committee Director of Taxes
(3) Executive Committee
STOCKHOLDER INFORMATION
CORPORATE HEADQUARTERS
222 W. Las Colinas Blvd., Suite 1500
Irving, Texas 75039
Telephone 972.443.6500
Facsimile 972.443.6800
TRANSFER AGENT
For stock and legal transfers, changes of
address, non-receipt of dividends, lost stock
certificates, elimination of duplicate mailings
of stockholder information, or general
inquiries about stock ownership, contact:
National City Bank
Corporate Trust Operations
P.O. Box 92301
Cleveland, Ohio 44193
Telephone 800.622.6757
DIVIDEND REINVESTMENT SERVICE
A dividend investment and stock purchase
plan is available. For information, contact
the Transfer Agent.
ANNUAL MEETING
The annual meeting of stockholders
will be held at 9:00 a.m. on Thursday,
May 21, 1998, at the:
Omni Mandalay Hotel
221 E. Las Colinas Blvd.
Irving, Texas 75039
STOCK EXCHANGE
Flowserve Corporation common stock is
listed on the New York Stock Exchange
under the symbol FLS.
FORMS 10-K AND 10-Q
A copy of the Annual Report on Form 10-K
and quarterly reports on Form 10-Q, as
filed with the Securities and Exchange
Commission, can be downloaded from the
company's Web site at www.flowserve.com
or are available without charge by writing to:
Investor Relations
Flowserve Corporation
222 W. Las Colinas Blvd., Suite 1500
Irving, Texas 75039
WORLD WIDE WEB SITE
Learn more about Flowserve Corporation
and take advantage of our special investor
Relations Web page at the following address:
www.flowserve.com
44
[FLOWSERVE LOGO]
Flowserve Corporation
222 West Las Colinas Boulevard
Suite 1500
Irving, Texas 75039-5421
1
EXHIBIT 21.1
FLOWSERVE CORPORATION
LIST OF SUBSIDIARIES
NAME OF SUBSIDIARY JURISDICTION OF INCORPORATION PERCENTAGE OWNED
------------------ ----------------------------- ----------------
Byron Jackson Argentina I.C.S.A. Argentina 100%
Durametallic Argentina S.A. Argentina 100%
Durametallic Corporation Australia Pty. Ltd. Australia 100%
Valtek Australia Pty. Ltd. Australia 100%
BW/IP Pacific Dichtungstechnik Gesellschaft MbH Austria 100%
BW/IP International (Barbados), Ltd. Barbados 100%
BW/IP International S.A. Belgium 100%
Durametallic Europe N.V. Belgium 100%
Durco Europe Coordinator Center Belgium 100%
S.A. Durco Europe N.V. Belgium 100%
Durametallic do Brazil Brazil 100%
BW/IP International Ltd. Canada 100%
Durametallic Canada Inc. Canada 100%
Duriron Canada Inc. Canada 100%
Valtek Controls Ltd. Canada 100%
Automax S.A.R.L. France 100%
BW/IP International S.A.R.L. France 100%
Durco France S.A.R.L. France 100%
Sereg Vannes S.A. France 100%
BW/IP International GmbH Germany 100%
BW/IP Pacific Weitz Verwaltungs GmbH Germany 100%
BW/IP Pacific Weitz GmbH & Co. KG Germany 100%
Durametallic GmbH Germany 100%
Durco GmbH Germany 100%
Kammer Ventile GmbH Germany 100%
Durco-Microfinish Private Limited India 76%
Valtek International Private Limited India 95%
Durametallic (India) Ltd. India 40%
PT BW Mechanical Seals Indonesia Indonesia 75%
Durco Ireland Ltd. Ireland 100%
Automax S.r.l. Italy 100%
1
2
NAME OF SUBSIDIARY JURISDICTION OF INCORPORATION PERCENTAGE OWNED
------------------ ----------------------------- ----------------
BW/IP International S.r.l. Italy 100%
Durco Italia S.r.l. Italy 100%
Byron Jackson K.K. Japan 100%
BW Mechanical Seals K.K. Japan 100%
Ebara-ByronJackson K.K. Japan 50%
Korea Seal Master Co., Ltd. Korea 40%
Durametallic Malaysia Sdn. Bhd. Malaysia 40%
BW Mechanical Seals (Malaysia) Sdn. Bhd. Malaysia 70%
Duriron (Mauritius) Corporation Mauritius 100%
Bombas y Refacciones Saimsa, S.A. de C.V. Mexico 100%
Byron Jackson Co., S.A. de C.V. Mexico 100%
Durametallic Mexicana S.A. de C.V. Mexico 100%
BW/IP International B.V. Netherlands 100%
BW/IP Services B.V. Netherlands 100%
Durco B.V. Netherlands 100%
Durametallic Pty. Ltd. New Zealand 100%
BW Abahsain Seal Company Limited. Saudi Arabia 60%
Arabian Seals Co. Ltd. Saudi Arabia 60%
BW Mechanical Seals (S.E.A.) Pte. Ltd. Singapore 100%
Durametallic Asia Pte. Ltd. Singapore 51%
Durco Valtek Asia Pacific Pte. Ltd. Singapore 100%
BW/IP International S.A. Spain 100%
Durco Valtek S.A. Spain 100%
BW/IP Pacific Weitz Dichtungstechnik AG Switzerland 100%
Kammer Vannes S.A. Switzerland 100%
BW/IP - Siam Co., Ltd. Thailand 60%
Automax Ltd. United Kingdom 100%
BW/IP International Limited United Kingdom 100%
Durco Process Equipment Ltd. United Kingdom 100%
Automax Inc. U.S. - Ohio 100%
BW/IP International, Inc. U.S. - Delaware 100%
BW/IP International (GP), Inc. U.S. - California 100%
BW/IP International (IP), Inc. U.S. - California 100%
BW/IP International of Texas L.L.P. U.S. - Texas 100%
BW/IP New Mexico, Inc. U.S. - New Mexico 100%
2
3
NAME OF SUBSIDIARY JURISDICTION OF INCORPORATION PERCENTAGE OWNED
------------------ ----------------------------- ----------------
Davco Equipment Inc. U.S. - Ohio 100%
Durametallic Corporation U.S. - Michigan 100%
Durametallic Australia Holding Company U.S. - Michigan 100%
Durametallic Europe Holding Company U.S. - Michigan 100%
Flowserve Holdings, Inc. U.S. - Delaware 100%
Flowserve Management Company U.S. - Delaware 100%
(Business Trust)
Valtek Incorporated U.S. - Utah 100%
Durametallic Uruguay 100%
BW/IP de Venezuela S.A. Venezuela 100%
Duriron Foreign Sales Corporation Virgin Islands 100%
3
1
Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report (Form 10-K)
of Flowserve Corporation of our report dated February 20, 1998, included in the
1997 Annual Report to Shareholders of Flowserve Corporation.
We also consent to the incorporation by reference in the Registration Statements
pertaining to the 1979 and 1989 Stock Option Plans, The Duriron Company, Inc.
Savings and Thrift Plan and Valtek Incorporated Retirement Plan and Trust (Forms
S-8 No. 2-66089, 33-28497 and 33-72372, respectively) of our reports dated
February 20, 1998, with respect to the consolidated financial statements and
schedules included or incorporated by reference herein.
Ernst & Young LLP
Dallas, Texas
March 27, 1998
1
Exhibit 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (No. 2-66089, 33-28497 and 33-72372) of Flowserve
Corporation of our report (relating to BW/IP, Inc. and its subsidiaries)
dated January 28, 1997 appearing on page F-2 in this Annual Report on
Form 10-K.
PRICE WATERHOUSE LLP
Los Angeles, California
March 27, 1998
5
1,000
YEAR
DEC-31-1997
DEC-31-1997
58,602
0
234,437
5,059
184,944
514,664
461,266
251,757
880,025
230,444
128,936
0
0
51,856
343,417
880,025
1,152,196
1,152,196
703,319
1,016,102
33,030
0
13,275
89,789
38,223
51,566
0
0
0
51,566
1.26
1.26
5
1,000
YEAR YEAR
DEC-31-1996 DEC-31-1995
DEC-31-1996 DEC-31-1995
38,933 28,596
0 0
223,274 214,178
4,826 5,183
182,423 178,536
469,035 451,942
455,049 427,517
243,311 217,543
829,776 801,120
189,063 200,168
143,962 125,931
0 0
0 0
51,854 51,650
336,770 323,596
829,776 801,120
1,097,645 983,917
1,097,645 983,917
668,718 591,550
976,600 880,625
550 2,587
0 0
12,144 12,293
108,351 88,412
37,254 34,391
71,097 54,021
0 0
0 0
0 0
71,097 54,021
1.72 1.30
1.72 1.30
