<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
UNITED STATES
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
FOR THE TRANSITION PERIOD FROM _______________ TO _______________
COMMISSION FILE NUMBER 1-7568
------------------------
COLTEC INDUSTRIES INC
(Exact name of registration as specified in its charter)
PENNSYLVANIA 13-1846375
(State of Incorporation) (I.R.S. Employer
Identification No.)
3 COLISEUM CENTRE
2550 WEST TYVOLA ROAD
CHARLOTTE, NC 28217
(Address of principal (Zip Code)
executive offices)
Registrant's telephone number, including area code: (704) 423-7000
------------------------
Securities registered pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
- --------------------------------------- --------------------------
Common Stock, par value $.01 per share New York Stock Exchange
Pacific Exchange
Securities registered pursuant to Section 12(g) of the Act: None
------------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/ No / /
------------------------
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by referenced in Part III of this Form 10-K or any
amendment to this Form 10-K. /X/
On March 10, 1998, there were outstanding 65,943,010 shares of the
registrant's Common Stock, par value $.01 per share. On March 10, 1998, the
aggregate market value of the registrant's voting stock (based on a closing
price of $25.50 per share) held by non-affiliates was $1,661,859,939. For
purposes of the foregoing calculation, all directors and officers of the
registrant have been deemed to be affiliates, but the registrant disclaims that
any of such directors or officers is an affiliate.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's 1997 Annual Report to its shareholders are
incorporated by reference into Part I (Item 1), Part II (Items 6, 7 and 8) and
Part IV (Item 14) hereof. Portions of the registrant's Proxy Statement for its
1998 Annual Meeting of Shareholders are incorporated by reference into Part III
(Items 10, 11 and 12) hereof.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
Statements in this Annual Report on Form 10-K that reflect projections or
expectations of future financial or economic performance of the Registrant, and
statements of the Registrant's plans and objectives for future operations,
including those in the 'Business' and 'Legal Proceedings' sections or relating
to future capital expenditures or estimated costs to resolve and the
corresponding effect on the Registrant of certain litigation and environmental
matters, are 'forward looking' statements within the meaning of Section 27A of
the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. No assurance can be given that actual results
or events will not differ materially from those projected, estimated, assumed or
anticipated in any such forward looking statements. Important factors that could
result in such differences in addition to other factors noted with such forward
looking statements, include: general economic conditions in the Registrant's
markets, including inflation, recession, interest rates and other economic
factors; casualty to or other disruption of the Registrant's facilities and
operations; and other factors that generally affect the business of aerospace
and industrial companies.
<PAGE>
PART 1
ITEM 1. BUSINESS.
Coltec Industries Inc and its consolidated subsidiaries (together referred
to as 'Coltec') manufacture and sell a diversified range of highly-engineered
aerospace and industrial products in the United States and, to a lesser extent,
abroad. Coltec's operations are conducted through two principal segments: its
Aerospace and Industrial Segments. Set forth below is a description of the
business conducted by the respective divisions within Coltec's two industry
segments. The tabular five-year presentation of financial information in respect
of each industry segment under the caption 'Industry Segment Information' of
Coltec's 1997 Annual Report to its shareholders and the information in note 17
of the Notes to Consolidated Financial Statements of Coltec's 1997 Annual Report
to its shareholders are incorporated herein by reference.
AEROSPACE
Through its Aerospace Segment, Coltec is a leading manufacturer of landing
gear systems, engine fuel controls, flight attendant and cockpit seats, turbine
blades, fuel injectors, nozzles and related components for commercial and
military aircraft. The operating units and principal products, markets and
competitors of the Aerospace Segment are as follows:
<TABLE>
<CAPTION>
OPERATING UNITS PRINCIPAL PRODUCTS PRINCIPAL MARKETS PRINCIPAL COMPETITORS
- --------------------------- --------------------------- --------------------------- ---------------------------
<S> <C> <C> <C>
Menasco Aircraft landing gear and Commercial and military B.F. Goodrich,
flight control actuators, aircraft manufacturers, Messier-Dowty
landing gear parts, airlines, U.S. Government
repairs and overhaul
Walbar Aircraft and industrial gas Aircraft and stationary gas Chromalloy, Howmet
turbine engine and turbine engine
services, turbocharger manufacturers, diesel
rotating assemblies engine manufacturers
Chandler Evans Control Aircraft fuel pump and Aircraft engine Argotech, Hamilton
control systems manufacturers, U.S. Standard, Sunstrand,
Government and AlliedSignal Controls and
aftermarket Accessories
Delavan Gas Turbine Aircraft engine fuel Aircraft engine Parker-Hannifin, Textron
Products nozzles, valves and manufacturers, U.S.
afterburner spray bars Government and
aftermarket
Lewis Engineering Aircraft instrumentation, Commercial and military Ametek, Rogerson, Rosemont,
temperature sensors, and aircraft, engine Norwich Aerospace
level control products manufacturers and process
and electrical harnasses industries
AMI Industries, Inc. Aircraft flight attendant Commercial aircraft IPECO, Sicma
and cockpit seats manufacturers and
airlines
</TABLE>
Menasco is one of the leading suppliers of landing gear systems for
medium-to-heavy commercial and military aircraft. The design, manufacture and
test of aircraft landing gear and components, and related overhaul and repair
comprise 90% of Menasco's sales volume. Landing gear and precision components
are highly engineered and manufactured to customer specifications and sold to
aircraft
1
<PAGE>
manufacturers, aircraft operators and to the United States Government ('U.S.
Government'), both as original equipment and as spare parts for existing
aircraft.
Menasco's historical concentration of landing gear sales among a limited
number of companies reflects the relatively small number of medium and heavy
aircraft manufacturers. Landing gear systems generally account for up to 2% of
the total cost of an aircraft. Menasco also provides spare parts for landing
gear and landing gear overhaul services. Aftermarket business represented 22% of
Menasco's total sales in 1997.
The remaining 10% of Menasco's sales are primarily flight control
actuators. Menasco produces large hydraulic and mechanical actuators and has the
capability to produce shock mitigation equipment for both military and
commercial applications.
Walbar is an original equipment manufacturer and coating and repair service
center for aircraft and industrial gas turbine engine components. Its product
base ranges from complex precision machined turbine parts to high-technology
protective coatings. The primary machined products are turbine blades, vanes and
other related turbine airfoil components. Walbar also manufactures disks,
integrally bladed rotors and complex impellers, as well as complete rotating
assemblies for flight and auxiliary power engines and locomotive turbochargers.
Following the reduction in U.S. Government appropriation for military aircraft
engines, Walbar has successfully increased its focus on non-aerospace
applications, and now enjoys significant market share in the locomotive
turbocharger market and the gas turbine power generation market.
Chandler Evans Control Systems Division ('CECO') produces gas turbine
engine fuel controls and pumps, and pneumatic and hydraulic components for use
on aircraft and helicopter engines and aircraft systems. CECO has carved a niche
market in the area of small engine fuel pumps and controls for both commercial
and military applications. CECO also supplies small turbine engines with Full
Authority Digital Electronic Control ('FADEC') systems. Computerized electronics
in a FADEC system make aircraft safer and less expensive to operate. In 1997, a
CECO FADEC was successfully operated in the first flight test of the U.S. Army's
Boeing/Sikorsky Rah-66 Comanche helicopter.
CECO continues to supply the military market with fuel pump technology. Its
combination main and afterburner centrifugal fuel pump for the Boeing F/A-18 E/F
fighter was successfully flight tested in 1997. Additionally in 1997, CECO's
latest metering fuel pump, the Variable Displacement Vane Pump, was selected as
a fueldraulic pump to be used for multinational advanced vectoring exhaust
nozzle applications.
During 1997, CECO's aftermarket sector contributed 49% of its revenues
compared to 42% in 1996. This was due in part, to increased Company focus on
this market coupled with the recovery in the worldwide airline and general
aviation market, and also an increase in U.S. Government contracts.
Delavan Gas Turbine Products Division ('Delavan') is a custom designer and
manufacturer of fuel injectors, flow control valves, fuel manifolds, afterburner
spray bars and other accessories for commercial and military gas turbine
engines. Product applications in the aerospace industry include products for
engines powering large commercial and regional airliners, business aircraft,
military and commercial helicopters, military fighters and transports and
auxiliary power units. In the industrial sector, Delavan fuel injectors and
valves are utilized in large land-based gas turbines found in electrical power
generation plants and natural gas pipeline installations.
Lewis Engineering designs, develops and produces electromechanical and
electronic instrumentation for aircraft cockpits, landing gear electrical
harnesses and temperature sensors for aircraft and engine systems. These
products are used in commercial transport, general aviation and military
markets.
AMI Industries, Inc. ('AMI'), a Colorado-based company, was acquired in the
third quarter of 1997. AMI is a leading designer and manufacturer of flight
attendant and cockpit seats and is recognized for supplying high comfort cabin
attendant seats.
2
<PAGE>
One customer (Boeing) in the Aerospace Segment represented approximately
14% of Coltec's 1997 total sales.
INDUSTRIAL
In the Industrial Segment, Coltec is a leading manufacturer of industrial
seals, gaskets, packing products, self-lubricating bearings and oil seals and
hubodometers for trucks and trailers. The Industrial Segment also produces spray
nozzles for agricultural, home heating and industrial applications, as well as
high-horsepower diesel engines for naval ships and diesel, gas and dual-fuel
engines for electric power plants. Coltec also produces air compressors and
automotive products. The operating units and principal products, markets and
competitors of the Industrial Segment are as follows:
<TABLE>
<CAPTION>
OPERATING UNITS PRINCIPAL PRODUCTS PRINCIPAL MARKETS PRINCIPAL COMPETITORS
- --------------------------- --------------------------- --------------------------- ---------------------------
<S> <C> <C> <C>
Garlock Sealing Seals, gaskets, packings Chemical, pulp and paper, Applied Industrial
Technologies and expansion joints, refining, utilities, Technologies, CR
butterfly valves, PTFE industrial and Industries, A.W.
sheet and film, OEM parts electronics Chesterton, Richard
and gaskets Klinger, AMRI, Durco,
Neotecha, Dewal, W. Gore,
Durametallic, John Crane
Quincy Compressor Air compressors and vacuum Manufacturing, climate Gardner-Denver, Sullair,
pumps control, oil and gas Ingersoll-Rand, Champion
industries
Garlock Bearings Self-lubricated bearings Automotive and equipment Kolbenschmidt, Rexnord
manufacturers
Fairbanks Morse Engine Diesel, gas and dual-fuel U.S. Navy, marine, Caterpillar, Cooper
engines locomotive and stationary Industries, General
power markets Motors
Holley Performance Products New, replacement, Automotive manufacturers, Edelbrock, Echlin, Standard
remanufactured and wholesale distributors, Motor Products, Federal-
performance carburetors, retailers in replacement Mogul, Tommco, Champion
E.F.I. components, markets and stationary Parts Rebuilders, MSD
ignition systems, gas engine users
induction components,
resale of special
performance automotive
chemicals
Stemco Heavy duty wheel-end Fleet truck operators, CR Industries, Federal
systems, oil seals, truck parts distributors Mogul, Nelson, Donaldson
hubcaps and hubodometers, and vehicle assemblers
hubnuts
Delavan Spray Technologies Spray nozzles, accessories, Home heating, industrial Spraying Systems, Danfoss
pumps and systems and agriculture
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
OPERATING UNITS PRINCIPAL PRODUCTS PRINCIPAL MARKETS PRINCIPAL COMPETITORS
- --------------------------- --------------------------- --------------------------- ---------------------------
<S> <C> <C> <C>
France Compressor Products Compressor valves and seals Compressor manufacturers Hoerbiger, C. Lee Cook
and end users
Haber Tool Cold-forming dies Fastener and automotive Form Flow
manufacturers
Danti Tool Details, jigs, fixtures, Machinery builders, Uclid, Burdette
precision machining automotive parts
manufacturers, other
production facilities
Sterling Die Thread-rolling dies Fastener manufacturers Reed Rico
Ortman Fluid Power Hydraulic and pneumatic Fluid power market Parker-Hannifin, Miller
cylinders Fluid Power
Plastomer Products PTFE tape Industrial manufacturers Fluoroglas, W. Gore
Garlock Rubber Technologies Sheet Rubber Products Steel mills, chemical B.F. Goodrich
processing, refineries
and paper mills
Coltec Specialty Products* Engineered polytetraflu- Semiconductor, petro- Furon, EGC
oroethylene (PTFE) chemical refining plants
products
Cefilac* Seals, gaskets and packing Chemical, power, John Crane, Laddy
metal-o-rings and spiral petro-chemical refining
wound gaskets plants
Helicoflex* Metal-o-rings, spring Power generation, Advanced Products
loaded seals petro-chemical refining
plants
</TABLE>
* Purchased in early 1998.
The more significant operating units in the Industrial Segment are
discussed below.
Garlock Sealing Technologies Division ('Garlock') produces and markets
fluid sealing devices that prevent leakage and exclude contaminants from
rotating and reciprocating machinery. Garlock produces seal joints for high
temperatures and corrosive environment applications.
The newest Garlock products are positioned to meet current emission
standards for valves, pumps and flanges. To assist customers in complying with
more stringent global regulations for fugitive volatile organic compound
emissions, Garlock has developed a variety of products using traditional and
newly developed materials. Garlock products include compression packings,
gaskets and gasketing materials, hydraulic seals, oil seals, mechanical seals,
elastomeric expansion joints, industrial textiles, metallic gaskets and other
specialized industrial products.
Sophisticated Garlock products protect equipment in industry applications
where performance is vital to safety and environmental concerns. These
applications include natural resource recovery, petroleum refining, chemicals,
primary metals, food and pharmaceuticals, power generation, mining, pulp and
paper, water and waste treatment, construction and transportation.
In October 1997, Coltec acquired the assets of the sheet rubber and
conveyor belt business of Dana Corporation's Boston Weatherhead Division. This
division, now known as Garlock Rubber Technologies, manufactures high-quality
rubber sheet products used for gasketing and other
4
<PAGE>
applications in steel mills, chemical processing, refineries and paper
production, including conveyor belts.
The single common characteristic of Garlock's products is that they are
consumable. Although the products are also purchased for use in original
equipment, in 1997 the maintenance and replacement aftermarket accounted for
approximately 80% of Garlock's total sales.
Quincy Compressor Division ('Quincy') is a manufacturer of a wide range of
helical screw and reciprocating air compressors and vacuum pumps. Quincy
products vary in size from one-third to 350 horsepower and are used in a variety
of industrial applications, including industrial base load, pneumatic
temperature and instrument control, diesel and gas engine starting, paint
spraying and emergency standby service. Much of Quincy's business is in the
highly competitive industrial and climate control compressor markets.
Garlock Bearings is a leading specialist in the field of self-lubricating
bearings, which consist of either steel or reinforced epoxy composite backings
with non-metallic bearing surfaces of polytetrafluoroethylene ('PTFE') fibers or
a mixture that includes PTFE. PTFE provides maintenance-free performance and
reduced friction. Garlock Bearings' products typically perform as sleeve
bearings or thrust washers under conditions of no lubrication, minimal
lubrication or pre-lubrication.
Garlock Bearings has a major share of the self-lubricating bearing market
in North America. In 1997 approximately 80% of sales were to original equipment
manufacturers, with major competition coming from companies in Japan and
Germany.
Fairbanks Morse Engine Division ('Fairbanks Morse') offers a broad range of
heavy-duty diesel engines. The division has the capacity to provide diesel
engines from 640 to 29,320 horsepower. In addition, Fairbanks Morse manufactures
dual-fuel, gas and diesel engines ranging in size from four to 18 cylinders.
Engines are offered in both conventional 'V' and in-line, four-cycle versions as
well as in-line, two-cycle opposed-piston configurations. They are used for
marine propulsion and marine power generation and in pump, compressor and
electrical power generation applications.
In September 1997, Fairbanks Morse acquired the assets related to the Alco
locomotive business from General Electric Company. The assets pertain to the
manufacture and sale of Alco locomotive engines, turbochargers and Alco
locomotive chassis components. Fairbanks Morse can now sell FM/ALCO(Registered)
locomotive products throughout the world except in India where General Electric
has retained rights to manufacture and sell such products.
Holley Performance Products Division ('Holley') markets a diversified line
of new and remanufactured replacement and performance carburetors, ignition
systems, fuel pumps, fuel injection systems, emission-control components, intake
manifolds and performance engine systems and accessories to the independent
automotive aftermarket. In addition to these products, the division manufactures
and sells replacement carburetors to Chrysler, Ford and General Motors.
Holley's aftermarket products are offered in a number of lines, each
designed for a specific segment of the market. The largest business segment is
performance products, which in 1997 accounted for approximately 50% of Holley's
total sales. The performance line of carburetors is designed for car enthusiasts
and racers. Other product lines consist of remanufactured carburetors and fuel
injection components, new replacement carburetors for U.S. passenger cars and
trucks, and fuel injection systems and service components, throttle body units
and a complete line of components for service.
Stemco Division is a developer and producer of unitized hub systems, hub
oil seals, hubcaps, axle nuts and distance-measuring devices for medium and
heavy-duty trucks.
Delavan Spray Technologies Division (formerly Delavan Commercial Products
Division) is a designer and producer of atomizers for combustion and industrial
applications and atomizers, pumps and accessories for agricultural, industrial
and oil burner metering applications.
In September 1997, Coltec acquired DM & T, Inc., which makes many of the
tooling products utilized by Haber Tool's existing customer base.
5
<PAGE>
SUBSEQUENT ACQUISITIONS
In January 1998, Coltec purchased Tex-o-Lon and Repro-Lon and certain
assets of Marine & Petroleum Mfg., Inc., Texas-based businesses. These
acquisitions were combined into one division, Coltec Specialty Products. Coltec
Specialty Products manufactures PTFE fluid sealing products for the
semiconductor industry and reprocesses PTFE compounds for the chemical and
semiconductor industry.
In February 1998, Coltec purchased the Sealing Division of Groupe Carbone
Lorraine which will be segregated into two divisions. Cefilac, based in Saint
Etienne and Montbrison, France, produces seals, gaskets and packings,
metal-o-rings and spiral-wound gaskets used in the chemical, power and refining
industries. Helicoflex, based in Columbia, South Carolina, produces
metal-o-rings and spring-loaded seals and metal c-rings. Helicoflex sealing
products are specifically designed for equipment and processes exposed to high
temperatures, cryogenic temperatures, high pressures, vacuum conditions,
radioactive environments or corrosive applications.
See Note 19 of the notes to the Consolidated Financial Statements
included in Coltec's 1997 Annual Report to its Shareholders.
INTERNATIONAL OPERATIONS
Coltec's international operations, mainly in Canada and France, are
conducted through foreign-based manufacturing or sales subsidiaries, or both,
and by export sales of domestic divisions to unrelated foreign customers. Export
sales of diesel engines are made either directly or through foreign
representatives. Compressors are sold through foreign distributors. Certain
products of the Industrial Segment are sold in foreign countries through
salesmen and sales representatives or sales agents.
Coltec's Canadian operations include the manufacture of landing gear
systems and aircraft flight controls, the provision of overhaul services for
these systems and controls for Canadian and other customers and the manufacture
of turbine components and turbine and compressor rotating parts primarily for
aircraft gas turbine engines. The Canadian operations also manufacture and
market seals, gasketing material, packings and truck products, and market parts
for Fairbanks Morse diesel engines and accessories and other products for use in
Canada and other countries.
Coltec operates 18 plants in Canada, Mexico, France, the United Kingdom,
Australia, Germany and Poland. In addition, Coltec occupies leased office and
warehouse space in various foreign countries.
Devaluations or fluctuations relative to the United States dollar in the
exchange rates of the currency of any country where Coltec has foreign
operations could adversely affect the profitability of such operations in the
future.
For financial information on operations by geographic segments, see note 17
of the Notes to Consolidated Financial Statements of Coltec's 1997 Annual Report
to its shareholders incorporated herein by reference.
Coltec's contracts with foreign nations for delivery of military equipment,
including components, are subject to deferral or cancellation by U.S. Government
regulation or orders regulating sales of military equipment abroad. Any such
action on the part of the U.S. Government could have an adverse effect on
Coltec.
SALES BY CLASS OF PRODUCTS
During the last three fiscal years, landing gear systems was the only class
of similar products that accounted for at least 10% of total Coltec sales. In
1997, 1996 and 1995, sales of landing gear systems constituted 18%, 15% and 14%,
respectively, of Coltec's total sales.
6
<PAGE>
BACKLOG
At December 31, 1997, Coltec's backlog of firm unfilled orders was $875.6
million compared with $678.3 million at December 31, 1996. Approximately $267.2
million of the 1997 year-end backlog is scheduled to be shipped after 1998.
CONTRACT RISKS
Coltec, through its various operating units, primarily Menasco, Chandler
Evans, Walbar and Delavan Gas Turbine Products, produces products for
manufacturers of commercial aircraft pursuant to contracts that generally call
for deliveries at predetermined prices over varying periods of time and that
provide for termination payments intended to compensate for certain costs
incurred in the event of cancellation. In addition, certain commercial aviation
contracts contain provisions for termination for convenience similar to those
contained in U.S. Government contracts described below. Longer-term agreements
normally provide for price adjustments intended to compensate for deferral of
delivery depending upon market conditions.
A portion of the business of Coltec's Menasco, Chandler Evans, Walbar and
Delavan Gas Turbine Products divisions has been as a subcontractor and as a
prime contractor in supplying products in connection with military programs.
Substantially all of Coltec's U.S. Government contracts are firm fixed-price
contracts. Under firm fixed-price contracts, Coltec agrees to perform certain
work for a fixed price and, accordingly, realizes all the benefit or detriment
occasioned by decreased or increased costs of performing the contracts. From
time to time, Coltec accepts fixed-price contracts for products that have not
been previously developed. In such cases, Coltec is subject to the risk of
delays and cost overruns. Under U.S. Government regulations, certain costs,
including certain financing costs, portions of research and development costs,
and certain marketing expenses related to the preparation of competitive bids
and proposals, are not allowable. The U.S. Government also regulates the methods
under which costs are allocated to U.S. Government contracts. With respect to
U.S. Government contracts that are obtained pursuant to an open bid process and
therefore result in a firm fixed price, the U.S. Government has no right to
renegotiate any profits earned thereunder. In U.S. Government contracts where
the price is negotiated at a fixed price rather than on a cost-plus basis, as
long as the financial and pricing information supplied to the U.S. Government is
current, accurate and complete, the U.S. Government similarly has no right to
renegotiate any profits earned thereunder. If the U.S. Government later conducts
an audit of the contractor and determines that such data were inaccurate or
incomplete and that the contractor thereby made an excessive profit, the U.S.
Government may take action to recoup the amount of such excessive profit, plus
treble damages, and take other enforcement actions.
U.S. Government contracts are, by their terms, subject to termination by
the U.S. Government either for its convenience or for default of the contractor.
Fixed-price type contracts provide for payment upon termination for items
delivered to and accepted by the U.S. Government, and, if the termination is for
convenience, for payment of the contractor's costs incurred plus the costs of
settling and paying claims by terminated subcontractors, other settlement
expenses, and a reasonable profit on its costs incurred. However, if a contract
termination is for default by the contractor (a) the contractor is paid such
amount as may be agreed upon for completed and partially-completed products and
services accepted by the U.S. Government, (b) the U.S. Government is not liable
for the contractor's costs with respect to unaccepted items, and is entitled to
repayment of advance payments and progress payments, if any, related to the
terminated portions of the contracts, and (c) the contractor may be liable for
excess costs incurred by the U.S. Government in procuring undelivered items from
another source.
In addition to the right of the U.S. Government to terminate, U.S.
Government contracts are conditioned upon the continuing availability of
Congressional appropriations. Congress usually appropriates funds on a
fiscal-year basis even though contract performance may take many years.
Consequently, at the outset of a major program, the contract is usually
partially funded, and additional monies are normally committed to the contract
by the procuring agency only as appropriations are made by Congress for future
fiscal years.
7
<PAGE>
CAPITAL EXPENDITURES
Capital expenditures were $81.2 million in 1997 compared to $44.6 million
in 1996 and $42.5 million in 1995, as Coltec continued to invest in capital
improvements to increase efficiency, reduce costs, pursue new opportunities,
expand product capacity and improve facilities. The level of capital
expenditures has and will vary from year to year, affected by the timing of
capital spending for production equipment for new products, periodic plant and
facility expansion as well as cost reduction and labor efficiency programs.
Capital expenditures during 1997 included amounts for the construction and
equipment purchases for significant production expansions at Menasco's original
equipment facilities. Coltec estimates capital expenditures for 1998 to
approximate $60.0 million, including amounts for equipment purchases related to
capacity expansions and upgrades.
RESEARCH AND PATENTS
Most divisions of Coltec maintain staffs of manufacturing and product
engineers whose activities are directed at improving the products and processes
of Coltec's operations. Manufactured and development products are subject to
extensive tests at various divisional plants. Total research and development
cost, including product development, was $46.5 million for 1997, $44.1 million
for 1996 and $45.1 million for 1995.
Coltec owns a number of United States and other patents and trademarks and
has granted licenses under some of such trademarks. Management does not consider
the business of Coltec as a whole to be materially dependent upon any patent,
patent right or trademark.
EMPLOYEE RELATIONS
As of December 31, 1997, Coltec had approximately 9,100 employees, of whom
approximately 3,700 were salaried. Approximately 41% of the hourly employees are
represented by unions for collective bargaining purposes. Union agreements
relate, among other things, to wages, hours and conditions of employment, and
the wages and benefits furnished are generally comparable to industry and area
practices.
In 1997, three collective bargaining agreements covering approximately 350
hourly employees were renegotiated. Coltec considers the labor relations of
Coltec to be satisfactory, although it has experienced work stoppages from time
to time in the past. One collective bargaining agreement covering approximately
200 employees was due to expire in 1998 and has been renegotiated for a five-
year term.
Coltec is subject to extensive U.S. Government regulations with respect to
many aspects of its employee relations, including increasingly important
occupational health and safety and equal employment opportunity matters. Failure
to comply with certain of these requirements could result in ineligibility to
receive U.S. Government contracts. These conditions are common to the various
industries in which Coltec participates and entail risks of financial and other
exposure.
For litigation relating to labor and other matters, see Item 3. 'Legal
Proceedings.--Other Litigation.'
ENVIRONMENTAL MATTERS
Coltec's operations are subject to extensive Environmental Laws. Coltec
takes a proactive approach in addressing the applicability of all Environmental
Laws as they relate to its manufacturing operations and in proposing and
implementing any remedial plans that may be necessary. Coltec believes it is
either in material compliance with all currently applicable regulations or is
operating in accordance with the appropriate variances and compliance schedules
or similar arrangements. Coltec has identified certain situations that will
require future capital and non-capital expenditures to maintain or improve
compliance with current Environmental Laws. The majority of the identified
situations relate to remediation projects at former operating sites which have
been sold or closed and primarily deal with soil and groundwater remediation.
Coltec has been notified that it is among potentially responsible parties
under the Environmental Laws, for the costs of investigating and, in some cases
remediating contamination by hazardous
8
<PAGE>
materials at approximately 28 sites. Such laws can impose joint and several
liability for the costs of investigating and remediating properties contaminated
by hazardous materials. Liability for these costs can be imposed on present and
former owners or operators of the properties or on parties who generated the
wastes that contributed to the contamination.
Coltec's policy is to accrue environmental remediation costs when it is
both probable that a liability has been incurred and the amount can be
reasonably estimated. The measurement of liability is based on an evaluation of
currently available facts with respect to each individual situation and takes
into consideration factors such as existing technology, presently enacted laws
and regulations and prior experience in remediation of contaminated sites. As
assessments and remediation progress at individual sites, these liabilities are
reviewed periodically and adjusted to reflect additional technical and legal
information. Coltec currently estimates that its future non-capital expenditures
related to environmental matters will range between $27.0 million and $50.0
million, representing management's best estimate of probable non-capital
expenditures. At December 31, 1997, Coltec had accrued $31.7 million for
expenditures which will be incurred over the next 10 to 20 years. In addition,
capital expenditures aggregating $5.0 million related to environmental matters,
may be required during the next two years. Although Coltec is pursuing
insurance recovery in connection with certain of the underlying matters, no
receivable has been recorded with respect to any potential recovery of costs in
connection with any environmental matter. During 1997, costs associated with
environmental remediation and ongoing assessment were not significant. Subject
to the imprecision in estimating future environmental costs, Coltec believes
that compliance with current Environmental Laws will not require significant
capital expenditures or have a material adverse effect on its consolidated
financial results of operations or financial position.
Actual costs to be incurred for identified situations in future periods may
vary from estimates, given inherent uncertainties in evaluating environmental
exposures due to unknown conditions, changing government regulations and legal
standards regarding liability and evolving related technologies. Subject to the
imprecision in estimating future environmental costs, Coltec believes that
compliance with current Environmental Laws, will not require significant capital
expenditures or have a material adverse effect on its consolidated results of
operations or financial position.
ITEM 2. PROPERTIES.
Coltec operates 62 manufacturing plants in 22 states in the U.S. and in
Canada, Mexico, France, the United Kingdom, Australia, Germany and Poland. In
addition, Coltec has other facilities throughout the United States and in
various foreign countries, which include sales offices, repair and service
shops, light manufacturing and assembly facilities, administrative offices and
warehouses.
Certain information with respect to Coltec's significant manufacturing
plants that are owned in fee, all of which (other than the Palmyra, New York and
Ontario facilities) are encumbered pursuant to a certain credit agreement
between Coltec and certain banks and related security documents, is set forth
below:
<TABLE>
<CAPTION>
APPROXIMATE
NUMBER OF APPROXIMATE
SEGMENT LOCATION SQUARE FEET ACREAGE
- ---------------------------------------------- ------------------------------ ----------- -----------
<S> <C> <C> <C>
Aerospace..................................... West Hartford, Connecticut (a) 538,000 71
Euless, Texas 442,000 42
Oakville, Ontario 280,000 14
Mississauga, Ontario 141,000 7
Industrial.................................... Palmyra, New York 677,000 137
Beloit, Wisconsin 856,000 73
Bowling Green, Kentucky 376,000 46
Longview, Texas 265,000 52
</TABLE>
- ------------------
(a) Approximately 239,000 square feet are utilized by the Aerospace Segment with
the balance leased to third parties.
In addition to the owned facilities, certain manufacturing activities of
some industry segments are conducted within leased premises, the largest of
which is in the Industrial Segment, located in Quincy, Illinois, and covers
approximately 173,000 square feet. Some of these leases provide for options to
purchase or to renew the lease with respect to the leased premises.
9
<PAGE>
Coltec's total manufacturing facilities presently being utilized aggregate
approximately 4,902,000 square feet of floor area of which approximately
4,230,000 square feet of area are owned in fee and the balance is leased from
third parties.
Coltec leases approximately 35,000 square feet at 3 Coliseum Centre, 2550
West Tyvola Road, Charlotte, North Carolina, for its executive offices, and has
renewal options under such lease through 2011.
In the opinion of management, Coltec's principal properties, whether owned
or leased, are suitable and adequate for the purposes for which they are used
and are suitably maintained for such purposes. See Item 1.
'Business.--Environmental Matters' for a description of proceedings under
applicable environmental laws regarding certain of Coltec's properties.
ITEM 3. LEGAL PROCEEDINGS.
ASBESTOS LITIGATION
As of December 31, 1997 and 1996, two subsidiaries of Coltec were among a
number of defendants (typically 15 to 40) in approximately 110,000 and 94,700
actions, respectively (including approximately 2,400 and 5,100 actions,
respectively, in advanced stages of processing), filed in various states by
plaintiffs alleging injury or death as a result of exposure to asbestos fibers.
During 1997, 1996 and 1995, these two subsidiaries of Coltec were named
defendants in approximately 38,200, 39,900 and 44,000 new actions, respectively.
Through December 31, 1997, approximately 199,000 of the approximately 309,000
total actions brought have been settled or otherwise disposed of.
The damages claimed for personal injury or death vary from case to case and
in many cases plaintiffs seek $1 million or more in compensatory damages and $2
million or more in punitive damages. Although the law in each state differs to
some extent, it appears, based on advice of counsel, that liability for
compensatory damages would be shared among all responsible defendants, thus
limiting the potential monetary impact of such judgments on any individual
defendant.
Following a decision of the Pennsylvania Supreme Court, in a case in which
neither Coltec nor any of its subsidiaries were parties, that held insurance
carriers are obligated to cover asbestos-related bodily injury actions if any
injury or disease process, from first exposure through manifestation, occurred
during a covered policy period (the 'continuous trigger theory of coverage'),
Coltec settled litigation with its primary and most of its first-level excess
insurance carriers, substantially on the basis of the Court's ruling. Coltec has
negotiated a final agreement with most of its excess carriers that are in the
layers of coverage immediately above its first layer. Coltec is currently
receiving payments pursuant to this agreement. Coltec believes that, with
respect to the remaining carriers, a final agreement can be achieved without
litigation and on substantially the same basis that it has resolved the issues
with its other carriers. Settlements are generally made on a group basis with
payments made to individual claimants over periods of one to four years.
Payments were made by Coltec with respect to asbestos liability and related
costs aggregating $59.2 million in 1997, $71.3 million in 1996 and $56.7 million
in 1995, substantially all of which were covered by insurance. Related to
payments not covered by insurance, Coltec recorded charges to operations
amounting to $8.0 million in 1997, $8.0 million in 1996 and $5.0 million in
1995.
In accordance with Coltec's internal procedures for the processing of
asbestos product liability actions and due to the proximity to trial or
settlement, certain outstanding actions have progressed to a stage where Coltec
can reasonably estimate the cost to dispose of these actions. As of December 31,
1997, Coltec estimates that the aggregate remaining cost of the disposition of
the settled actions for which payments remain to be made and actions in advanced
stages of processing, including associated legal costs, is approximately $47.3
million, and Coltec expects that this cost will be substantially covered by
insurance.
With respect to the 107,600 outstanding actions as of December 31, 1997
which are in preliminary procedural stages, Coltec lacks sufficient information
upon which judgments can be made as to the validity or ultimate disposition of
such actions, thereby making it difficult to estimate with reasonable certainty
the potential liability or costs to Coltec. When asbestos actions are received
they are typically
10
<PAGE>
forwarded to local counsel to ensure that the appropriate preliminary procedural
response is taken. The complaints typically do not contain sufficient
information to permit a reasonable evaluation as to their merits at the time of
receipt, and in jurisdictions encompassing a majority of the outstanding
actions, the practice has been that little or no discovery or other action is
taken until several months prior to the date set for trial. Accordingly, Coltec
generally does not have the information necessary to analyze the actions in
sufficient detail to estimate the ultimate liability or costs to Coltec, if any,
until the actions appear on a trial calendar. A determination to seek dismissal,
to attempt to settle or to proceed to trial is typically not made prior to the
receipt of such information.
It is also difficult to predict the number of asbestos lawsuits that
Coltec's subsidiaries will receive in the future. Coltec has noted that, with
respect to recently settled actions or actions in advanced stages of processing,
the mix of the injuries alleged and the mix of the occupations of the plaintiffs
have been changing from those traditionally associated with Coltec's
asbestos-related actions. Coltec is not able to determine with reasonable
certainty whether this trend will continue. Based upon the foregoing, and due to
the unique factors inherent in each of the actions, including the nature of the
disease, the occupation of the plaintiff, the presence or absence of other
possible causes of a plaintiff's illness, the availability of legal defenses,
such as the statute of limitations or state of the art, and whether the lawsuit
is an individual one or part of a group, management is unable to estimate with
reasonable certainty the cost of disposing of outstanding actions in preliminary
procedural stages or of actions that may be filed in the future. However, Coltec
believes that its subsidiaries are in a favorable position compared to many
other defendants because, among other things, the asbestos fibers in its
asbestos-containing products were encapsulated.
Insurance coverage of a small non-operating subsidiary formerly
distributing asbestos-bearing products is nearly depleted. Considering the
foregoing, as well as the experience of Coltec's subsidiaries and other
defendants, and given the substantial amount of other insurance coverage that
Coltec expects to be available from its solvent carriers to cover the majority
of its exposure, Coltec believes that pending and reasonably anticipated future
actions are not likely to have a materially adverse effect on Coltec's results
of operations and financial condition. Although the insurance coverage which
Coltec has is substantial, it should be noted that insurance coverage for
asbestos claims is not available to cover exposures initially occurring on and
after July 1, 1984. Coltec's subsidiaries continue to be named as defendants in
new cases, some of which allege initial exposure after July 1, 1984.
In addition to claims for personal injury, Coltec's subsidiaries have been
involved in an insignificant number of property damage claims based upon
asbestos-containing materials found in schools, public facilities and private
commercial buildings. Based upon the proceedings to date, the overwhelming
majority of these claims have been resolved without a material adverse impact on
Coltec. Likewise, the insignificant number of claims remaining to be resolved
are not expected to have a materially adverse effect on Coltec's results of
operations and financial condition.
Coltec has recorded an accrual for its liabilities for asbestos-related
matters that are deemed probable and can be reasonably estimated (settled
actions and actions in advanced states of processing), and has separately
recorded an asset equal to the amount of such liabilities that is expected to be
recovered by insurance. In addition, Coltec has recorded a receivable for that
portion of payments previously made for asbestos product liability actions and
related litigation costs that is recoverable from its insurance carriers.
Liabilities for asbestos-related matters and the receivable from insurance
carriers included in the Consolidated Balance Sheets were as follows at December
31, 1997 and 1996 (in thousands):
1997 1996
------- -------
Accounts and notes receivable............................ $56,039 $67,012
Other assets............................................. 16,249 18,728
Accrued expenses......................................... 50,688 60,659
Other liabilities........................................ 2,682 10,879
11
<PAGE>
OTHER LITIGATION
In September 1983, the local employees' union at Menasco Canada Ltee. (now
Coltec Aerospace Canada Ltd.) ('Menasco Canada'), a federation of trade unions
and several member-employees filed a complaint in the Province of Quebec
Superior Court against Menasco Canada, alleging, among other things, an illegal
lock-out, failure to negotiate in good faith, interference with the affairs of
the union and various violations of local law. The plaintiffs are collectively
seeking approximately Cdn. $14.0 million in damages, and Menasco Canada has
filed a cross-claim for Cdn. $21.0 million and has closed its operations in
Quebec Province. Coltec does not believe that this action will have a material
effect on Coltec's consolidated results of operations and financial condition.
On September 24, 1986, approximately 150 former salaried employees of
Crucible Inc (a former subsidiary of Coltec) commenced an action claiming
benefits under a corporate employment policy that had been established in 1962
and was terminated in 1972 by the corporation's Board of Directors. (George W.
Henglein, et al. v. Colt Industries Operating Corporation Informal Plan for
Plant Shutdown Benefits for Salaried Employees, et al., U.S. District Court for
the Western District of Pennsylvania, 86-cv-2021). Plaintiffs alleged that the
policy continued after the Board of Directors' action by reason of the Company's
failure to notify them of elimination of the employment policy. As a result of
that failure to notify, the policy was converted into a welfare or pension
benefit plan upon the passage of the Employee Retirement Income Security Act in
1974. Based upon the occurrence of this conversion, the plaintiffs were entitled
to benefits in 1982 when the Midland operations closed. Following a non-jury
trial in the U.S. District Court for the Western District of Pennsylvania,
defendant's motion to dismiss was granted and the plaintiffs appealed. The Court
of Appeals for the Third Circuit remanded the case to the District Court
directing it to make specific findings of fact and conclusions of law and also
found for the defendant on the jurisdiction of the District Court. The defendant
again moved for dismissal and again defendant's motion to dismiss was granted by
the District Court. This second decision of the District Court was appealed to
the Third Circuit Court of Appeals and the case was again remanded to the
District Court for additional findings as to the application of the law. On
February 10, 1994, the District Court for the third time dismissed the
plaintiffs' complaint and the plaintiffs appealed to the Third Circuit Court of
Appeals. On September 26, 1994, the Third Circuit Court of Appeals for the third
time remanded the case to the District Court. The Circuit Court held the record
established by plaintiffs in the District Court was insufficient so as to allow
the Court the ability to apply the appropriate legal standard. On November 4,
1994 the Court of Appeals for the Third Circuit denied the defendant's request
for a rehearing. The defendant petitioned the U.S. Supreme Court for a writ of
Certiorari; its petition was denied in 1995. The defendant again moved for
dismissal before the District Court based upon the holding of the Circuit Court
that plaintiffs had failed to establish their case at trial. The District Court
denied the motion and sua sponte ordered a new trial de novo. A trial was held
during July 1996 with both parties introducing evidence. A decision was rendered
in 1997 finding the existence of an informal plan. The District Court remanded
to the Plan Administrator the duties of calculating the benefits due to those
plaintiffs entitled. The District Court held that all but six of the named
plaintiffs' claims were time barred. Both the defendant and plaintiffs filed
timely notices of appeal. Notwithstanding its filing of a notice of appeal,
defendant has claimed and so notified the Circuit Court that it was of the
opinion that the District Court's order was not final and thus not now
appealable. As of December 1997, plaintiffs have concurred in defendant's
position. Coltec does not believe that this action will have a material effect
on Coltec's consolidated results of operations and financial condition.
In addition to the litigation described above, there are various pending
legal proceedings involving Coltec which are routine in nature and incidental to
the business of Coltec. Coltec does not believe that these proceedings will have
a material effect on Coltec's consolidated results of operations and financial
condition.
The U.S. Government conducts investigations into procurement of defense
contracts as a part of a continuing process. Under current federal law, if such
investigations establish the existence of improper activities, among other
matters, debarment or suspension of a company from participating in the
procurement of defense contracts could result. These conditions are common to
the aerospace and government industries in which Coltec participates and entail
the risk of financial and other exposure. See Item 1.
12
<PAGE>
'Business--Contract Risks.' Coltec is not aware of any such investigation, nor
is Coltec aware of any facts which, if known to investigators, might prompt any
investigation.
PRODUCT LIABILITY INSURANCE
Coltec has product liability insurance coverage for liabilities arising
from aircraft products which management believes to be adequate. In addition,
with respect to other products (exclusive of liability for exposure to asbestos
products), Coltec has product liability insurance in amounts exceeding $2.5
million per occurrence, which management believes to be adequate.
Coltec is self-insured (for claims arising after July 1984) with respect to
liability for exposure to asbestos products since third party insurance became
unavailable in July 1984.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Coltec's common stock (symbol COT) is listed on the New York Stock Exchange
and the Pacific Exchange. The high and low prices of the stock for each quarter
during 1997 and 1996 were as follows:
1997 1996
-------------- ------------
HIGH LOW HIGH LOW
---- --- ---- ---
First quarter............................ 20 7/8 18 1/8 14 1/4 10 7/8
Second quarter........................... 23 18 3/8 14 3/8 12 1/8
Third quarter............................ 23 15/16 19 1/2 16 1/8 12 7/8
Fourth quarter........................... 23 15/16 20 19 1/4 15 1/2
At December 31, 1997, there were 505 shareholders of record. No dividends
were paid in 1997 or 1996, and no dividends are expected to be paid in 1998.
ITEM 6. SELECTED FINANCIAL DATA.
The five year tabular presentation, and notes thereto, under the caption
'Selected Consolidated Financial Data' in Coltec's 1997 Annual Report to its
shareholders is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The information under the caption 'Management's Discussion and Analysis' in
Coltec's 1997 Annual Report to its shareholders is incorporated herein by
reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The information under the caption 'Quarterly Financial Data' in Coltec's
1997 Annual Report to its shareholders and the Consolidated Statements of
Earnings, the Consolidated Balance Sheets, the Consolidated Statements of Cash
Flows, the Consolidated Statements of Shareholders' Equity, the Notes to
Consolidated Financial Statements, the Report of Management and the Report of
Independent Public Accountants in Coltec's 1997 Annual Report to its
shareholders are incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
13
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information under the captions 'Election of Directors' and 'Executive
and Senior Officers of Coltec' in Coltec's Proxy Statement for its 1998 Annual
Meeting of Shareholders is herein incorporated by reference.
ITEM 11. EXECUTIVE COMPENSATION.
The text and tabular information under the caption 'Executive Compensation
and Other Information' in Coltec's Proxy Statement for its 1998 Annual Meeting
of Shareholders is herein incorporated by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information under the captions 'Security Ownership of Certain
Beneficial Owners' and 'Security Ownership of Management' in Coltec's Proxy
Statement for its 1998 Annual Meeting of Shareholders is herein incorporated by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
None.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) The following documents are filed as part of this report:
(1) Consolidated Financial Statements (incorporated by reference from
the 1997 Annual Report to Shareholders): Consolidated Statements of
Earnings for the Three Years ended December 31, 1997; Consolidated Balance
Sheets at December 31, 1997 and 1996; Consolidated Statements of Cash Flows
for the Three Years ended December 31, 1997; Consolidated Statements of
Shareholders' Equity for the Three Years ended December 31, 1997; Notes to
Consolidated Financial Statements; Report of Management; and Report of
Independent Public Accountants.
(2) Consolidated Financial Statement Schedules listed in the Index to
Consolidated Financial Statement Schedules on page S-1 hereof.
(3) The exhibits required by Item 601 of Regulation S-K as listed in
the accompanying exhibit index commencing on page I-1 hereof.
(b) During the quarter ending December 31, 1997, Coltec filed no reports on
Form 8-K.
(c) Exhibits 3.2, 4.22, 4.23, 4.24, 4.25, 4.26, 4.27, 4.28, 4.29, 10.2,
10.3, 10.4, 10.5, 10.6, 10.7, 10.8, 10.20, 10.22, 10.23, 10.25, 10.26, 12.1,
13.1, 21.1, 23.1 and 27.1, are filed herewith. All other exhibits listed on the
attached Index to Exhibits have been filed previously.
14
<PAGE>
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.
Coltec Industries Inc
Date: March 20, 1998
By: /s/ DAVID D. HARRISON
----------------------------------
DAVID D. HARRISON
Executive Vice President and
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant in the capacities noted on March 20, 1998.
<TABLE>
<CAPTION>
NAME AND TITLE NAME AND TITLE
-------------- --------------
<S> <C>
/s/ JOSEPH R. COPPOLA /s/ DAVID I. MARGOLIS
- ------------------------------------------------------ ------------------------------------------------------
Joseph R. Coppola David I. Margolis
Director Director
/s/ WILLIAM H. GRIGG /s/ JOHN W. GUFFEY, JR.
- ------------------------------------------------------ ------------------------------------------------------
William H. Grigg John W. Guffey, Jr.
Director Director, Chairman of the Board and
Chief Executive Officer
/s/ DAVID D. HARRISON /s/ JOEL MOSES
- ------------------------------------------------------ ------------------------------------------------------
David D. Harrison Joel Moses
Director, Executive Vice President Director
and Chief Financial Officer
(Principal Financial and Accounting Officer)
/s/ RICHARD A. STUCKEY /s/ NISHAN TESHOIAN
- ------------------------------------------------------ ------------------------------------------------------
Richard A. Stuckey Nishan Teshoian
Director Director, President and Chief
Operating Officer
</TABLE>
15
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
PAGE
CONSOLIDATED FINANCIAL STATEMENT SCHEDULES NUMBER
- ------------------------------------------ ------
<S> <C>
II--Valuation and Qualifying Accounts for the three years ended December 31, 1997....................... S-3
</TABLE>
S-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders of Coltec Industries Inc:
We have audited in accordance with generally accepted auditing standards,
the consolidated financial statements included in Coltec Industries Inc and
subsidiaries' annual report to shareholders incorporated by reference in this
Form 10-K, and have issued our report thereon dated February 2, 1998. Our audits
were made for the purpose of forming an opinion on the basic financial
statements taken as a whole. The schedule listed in the index to financial
statement schedules is the responsibility of the Company's management and is
presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic financial statements. This
schedule has been subjected to the auditing procedures applied in the audits of
the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Charlotte, North Carolina
February 2, 1998
S-2
<PAGE>
COLTEC INDUSTRIES INC AND SUBSIDIARIES
SCHEDULE II-VALUATION AND QUALIFYING ACCOUNTS
FOR THE THREE YEARS ENDED DECEMBER 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
-------- -------- -------- -------- --------
ADDITIONS
------------------------
BALANCE AT CHARGED TO CHARGED TO BALANCE OF
BEGINNING OF COST AND OTHER END OF
DESCRIPTION PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD
- ----------- ------------ ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
1997
Valuation account deducted from
assets--Allowance for doubtful
accounts............................... $2,007 $ 1,222 $ -- $ 335 $2,894
====== ======== ==== ====== ======
1996
Valuation account deducted from
assets--Allowance for doubtful
accounts............................... $4,174 $ 1,517 $ -- $3,684 $2,007
====== ======== ==== ====== ======
1995
Valuation account deducted from
assets--Allowance for doubtful
accounts............................... $4,124 $ 327 $ -- $ 277 $4,174
====== ======== ==== ====== ======
</TABLE>
- ------------------
Note:
(1) Deductions are for the purposes for which the valuation accounts were
created.
S-3
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<S> <C>
3.1 Amended and Restated Articles of Incorporation of Coltec, filed as Exhibit 3.1 to Coltec's
Registration Statement on Form S-2 (No. 33-44846) and incorporated herein by reference.
3.2 Amended and Restated By-Laws of Coltec.
4.1 Credit Agreement, dated as of March 24, 1992 (the 'Credit Agreement') among Coltec and the financial
institutions party thereto, Bankers Trust Company, Manufacturers Hanover Trust Company, Barclays Bank
PLC, New York Branch and Credit Lyonnais New York Branch, as Agents, and Bankers Trust Company, as
Administrative Agent, filed as Exhibit 4.13 to Coltec Holdings Inc.'s Annual Report on Form 10-K for
the year ended December 31, 1991 and incorporated herein by reference.
4.2 First Amendment, dated as of April 1, 1992, to the Credit Agreement, dated as of March 24, 1992, filed
as Exhibit 3 to Coltec's Current Report on Form 8-K, dated April 1, 1992 and incorporated herein by
reference.
4.3 Second Amendment, dated as of April 8, 1992, to the Credit Agreement, filed as Exhibit 4.7 to Coltec's
Annual Report on Form 10-K for the year ended December 31, 1993 and incorporated herein by reference.
4.4 Third Amendment and Waiver, dated as of September 3, 1992, to the Credit Agreement, filed as Exhibit
4.8 to Coltec's Annual Report on Form 10-K for the year ended December 31, 1993 and incorporated
herein by reference.
4.5 Fourth Amendment and Consent, dated as of September 25, 1992, to the Credit Agreement, filed as
Exhibit 4.9 to Coltec's Annual Report on Form 10-K for the year ended December 31, 1993 and
incorporated herein by reference.
4.6 Fifth Amendment, dated as of May 26, 1993, to the Credit Agreement, filed as Exhibit 4.10 to Coltec's
Annual Report on Form 10-K for the year ended December 31, 1993 and incorporated herein by reference.
4.7 Sixth Waiver, dated as of August 3, 1993, to the Credit Agreement, filed as Exhibit 4.11 to Coltec's
Annual Report on Form 10-K for the year ended December 31, 1993 and incorporated herein by reference.
4.8 Seventh Consent, dated as of October 27, 1993, to the Credit Agreement, filed as Exhibit 4.12 to
Coltec's Annual Report on Form 10-K for the year ended December 31, 1993 and incorporated herein by
reference.
4.9 Eighth Waiver, dated as of December 23, 1993, to the Credit Agreement, filed as Exhibit 4.13 to
Coltec's Annual Report on Form 10-K for the year ended December 31, 1993 and incorporated herein by
reference.
4.10 Credit Agreement among Coltec, Various Banks, The Co-Agents and Bankers Trust Company, as
Administrative Agent dated as of March 24, 1992 and Amended and Restated as of January 11, 1994 (the
'Amended Credit Agreement'), filed as Exhibit 4.14 to Coltec's Annual Report on Form 10-K for the year
ended December 31, 1993 and incorporated herein by reference.
4.11 First Waiver, dated as of December 15, 1994, to the Amended Credit Agreement, filed as Exhibit 4.15 to
Coltec's Annual Report on Form 10-K for the year ended December 31, 1994 and incorporated herein by
reference.
4.12 First Amendment, dated as of October 11, 1995, to the Amended Credit Agreement, filed as Exhibit 4.1
to Coltec's Current Report on Form 8-K, dated July 1, 1996 and incorporated herein by reference.
4.13 Second Waiver, dated as of June 5, 1995, to the Amended Credit Agreement, filed as Exhibit 4.16 to
Coltec's Annual Report on Form 10-K for the year ended December 31, 1995 and incorporated herein by
reference.
</TABLE>
I-1
<PAGE>
<TABLE>
<S> <S>
4.14 Second Amendment, dated as of November 17, 1995, to the Amended Credit Agreement, filed as Exhibit
4.17 to Coltec's Annual Report on Form 10-K for the year ended December 31, 1995 and incorporated
herein by reference.
4.15 Third Amendment, dated as of May 14, 1996, to the Amended Credit Agreement, filed as Exhibit 4.2 to
Coltec's Current Report on Form 8-K, dated July 1, 1996 and incorporated herein by reference.
4.16 Fourth Amendment, dated as of June 6, 1996, to the Amended Credit Agreement, filed as Exhibit 4.3 to
Coltec's Current Report on Form 8-K, dated July 1, 1996 and incorporated herein by reference.
4.17 Form of Indenture, dated as of October 26, 1992, between Coltec and United States Trust Company of New
York, as Trustee, relating to Coltec's 9-3/4% Senior Notes Due 1999 (including the form of 9-3/4%
Senior Note Due 1999), filed as Exhibit 4.1 to Coltec's Registration Statement on Form S-3 (No.
33-52414) and incorporated herein by reference.
4.18 Indenture, dated as of April 1, 1992, between Coltec and United States Trust Company of New York, as
Trustee, relating to Coltec's 9-3/4% Senior Notes Due 2000 (including the form of 9-3/4% Senior Note
Due 2000), filed as Exhibit 4 to Coltec's Current Report on Form 8-K, dated April 1, 1992 and
incorporated herein by reference.
4.19 Credit Agreement among Coltec, Various Banks, Bankers Trust Company, as Administrative Agent, and Bank
of America Illinois, as Documentation Agent, and The Chase Manhattan Bank, as Syndication Agent, dated
as of March 24, 1992 and Amended and Restated as of January 11, 1994 and further Amended and Restated
as of December 18, 1996, filed as Exhibit 4.20 to Coltec's Annual Report on Form 10-K for the year
ended December 31, 1996 and incorporated herein by reference.
4.20 First Amendment to Credit Agreement dated as of August 22, 1997 between Coltec and Bankers Trust
Company as Administrative Agent, Bank of America Illinois, as Documentation Agent and Chase Manhattan
Bank, as Syndication Agent, filed as an Exhibit to Coltec's Form 10-Q for the Quarter Ended September
28, 1997 and incorporated herein by reference.
4.21 Second Amendment to Credit Agreement dated October 14, 1997 between Coltec and Various Banks, Bankers
Trust Company as Administrative Agent, Bank of America Illinois, as Documentation Agent and Chase
Manhattan Bank, as Syndication Agent, filed as an Exhibit to Coltec's Form 10-Q for the Quarter Ended
September 28, 1997 and incorporated herein by reference.
4.22 Third Amendment to Credit Agreement dated December 18, 1997 between Coltec, Coltec Aerospace Canada
Ltd., and Various Banks, Bank of America National Trust and Savings Association (as successor by
merger to Bank of America Illinois), The Chase Manhattan Bank, as Syndication Agent, Bankers Trust
Company, as Administrative Agent and Bank of Montreal, as Canadian Paying Agent.
4.23 Fourth Amendment to Credit Agreement dated January 26, 1998 between Coltec and Various Banks, Bankers
Trust Company as Administrative Agent, Bank of America Illinois, as Documentation Agent and Chase
Manhattan Bank, as Syndication Agent.
4.24 Receivables Purchase Agreement dated September 19, 1997 between Coltec, CNC Finance LLC and Credit
Lyonnais, Atlantic Asset Securitization Corp., The Industrial Bank of Japan, Limited, Lloyds Bank PLC,
The Sumitomo Bank, Limited.
4.25 Receivables Transfer and Administration Agreement dated as of September 19, 1997 among Coltec, certain
subsidiaries and affiliates of Coltec and Coltec North Carolina Inc.
4.26 Receivables Transfer and Administration Agreement dated as of September 19, 1997 among Coltec, certain
Canadian subsidiaries and affiliates of Coltec and Coltec North Carolina Inc.
</TABLE>
I-2
<PAGE>
<TABLE>
<S> <C>
4.27 Receivables Purchase and Contribution Agreement dated as of September 19, 1997 between Coltec North
Carolina Inc and CNC Finance LLC.
4.28 First Amendment to Receivables Transfer and Administration Agreement dated as of December 15, 1997
among Coltec and Coltec North Carolina.
4.29 First Amendment to Receivables Purchase and Contribution Agreement dated as of December 15, 1997 among
Coltec, Coltec North Carolina Inc and CNC Finance LLC.
Pursuant to paragraph (4)(iii) of Item 601(b) of Regulation S-K, there are omitted certain agreements,
which the registrant hereby agrees to furnish to the Commission upon request.
10.1 Form of Family Protection Agreement used in connection with Coltec's Family Protection Program, filed
as Exhibit 3.5.1 to Coltec's Registration Statement on Form 8-B, filed with the Securities and
Exchange Commission on June 25, 1976 and incorporated herein by reference.
10.2 Form of Split Dollar Insurance Agreement dated May 8, 1997 between Coltec and certain executive
officers.
10.3 Benefits Equalization Plan of Coltec effective January 1, 1976 and Amended and Restated as of January
1, 1989.
10.4 First Restated Employment Agreement between Coltec and John W. Guffey, Jr., dated December 18, 1997.
10.5 First Restated Employment Agreement between Coltec and Laurence H. Polsky, dated December 18, 1997.
10.6 Second Restated Employment Agreement between Coltec and Robert J. Tubbs, dated December 18, 1997.
10.7 Form of First Restated Employment Agreement between Coltec and David D. Harrison, dated December 18,
1997.
10.8 Amended and Restated Employment Agreement between Coltec and Michael J. Burdulis, dated December 18,
1997.
10.9 The Incentive Plan for Certain Employees of Coltec and Subsidiaries (the 'Incentive Plan'), filed as
Exhibit 10.22 to Coltec's Registration Statement on Form S-2 (No. 33-44846) and incorporated herein by
reference.
10.10 Amendments to the Incentive Plan, filed as Exhibit 10.13 to Coltec's Annual Report on Form 10-K for
the year ended December 31, 1993 and incorporated herein by reference.
10.11 Coltec's 1992 Stock Option and Incentive Plan, filed as Exhibit 10.24 to Coltec's Annual Report on
Form 10-K for the year ended December 31, 1991 and incorporated herein by reference.
10.12 Amendment No. 1 to the Coltec 1992 Stock Option and Incentive Plan, filed as Exhibit 10.15 to Coltec's
Annual Report on Form 10-K for the year ended December 31, 1993 and incorporated herein by reference.
10.13 1994 Long-Term Incentive Plan of Coltec, filed as Exhibit 10.16 to Coltec's Annual Report on Form 10-K
for the year ended December 31, 1993 and incorporated herein by reference.
10.14 Resolutions of the Board of Directors of Coltec on July 13, 1995 amending Section 6(a) of the 1994
Long-Term Incentive Plan, filed as Exhibit 10.17 to Coltec's Annual Report on Form 10-K for the year
ended December 31, 1995 and incorporated herein by reference.
10.15 Annual Incentive Plan For Certain Employees of Coltec Industries Inc and Its Subsidiaries, filed as
Exhibit 10.17 to Coltec's Annual Report on Form 10-K for the year ended December 31, 1993 and
incorporated herein by reference.
</TABLE>
I-3
<PAGE>
<TABLE>
<S> <C>
10.16 1994 Stock Option Plan for Outside Directors, filed as Exhibit 10.18 to Coltec's Annual Report on Form
10-K for the year ended December 31, 1993 and incorporated herein by reference.
10.17 Deferred Compensation Plan For Non-Employee Directors, filed as Exhibit 10.20 to Coltec's Annual
Report on Form 10-K for the year ended December 31, 1995 and incorporated herein by reference.
10.18 Resolution of the Board of Directors of Coltec on May 30, 1995 establishing a Change-In-Control
arrangement for non-employee directors, filed as Exhibit 10.21 to Coltec's Annual Report on Form 10-K
for the year ended December 31, 1995 and incorporated herein by reference.
10.19 1997 Restricted Stock Plan for Outside Directors filed as Exhibit A to Coltec's 1997 Proxy Statement
and incorporated herein by reference.
10.20 Amendment No. 1 to the 1997 Restricted Stock Plan for Outside Directors.
10.21 Second Amendment dated July 10, 1997 to the 1992 Stock Option and Incentive Plan, filed as an Exhibit
to Coltec's Form 10-Q for the Quarter Ended September 28, 1997 and incorporated herein by reference.
10.22 Amendment No. 3 to Coltec's 1992 Stock Option and Incentive Plan.
10.23 Form of Employment Agreement between Coltec and Nishan Teshoian, dated January 1, 1998.
10.24 First Amendment dated July 10, 1997 to the 1994 Stock Option Plan for Outside Directors, filed as an
Exhibit to Coltec's Form 10-Q for the Quarter Ended September 28, 1997 and incorporated herein by
reference.
10.25 Second Amendment to 1994 Stock Option Plan for Outside Directors.
10.26 Amendment No. 3 to the 1994 Stock Option Plan for Outside Directors.
12.1 Computation of Ratio of Earnings to Fixed Charges.
13.1 Portions of Coltec's 1997 Annual Report to Shareholders.
21.1 List of Subsidiaries of Coltec.
23.1 Consent of Arthur Andersen LLP.
27.1 Consolidated Financial Data Schedule.
</TABLE>
I-4
<PAGE>
COLTEC INDUSTRIES INC
BY-LAWS
ARTICLE I
OFFICES
Section 1. Registered Office. The registered office of Coltec Industries
Inc (hereinafter called the "Corporation ") in the Commonwealth of Pennsylvania
shall be in care of CT Corporation System, Oliver Building, Mellon Square,
Pittsburgh, Pennsylvania 15222.
Section 2. Other Offices. The Corporation may also have offices at such
other places both within and without the Commonwealth of Pennsylvania as the
Board of Directors may from time to time determine or the business of the
Corporation may require.
ARTICLE II
MEETINGS OF SHAREHOLDERS
Section 1. Place of Meetings. All meetings of the shareholders for the
election of directors shall be held in the City of Charlotte, State of North
Carolina, at such place as may be fixed from time to time by the Board of
Directors, or at such other place either within or without the Commonwealth of
Pennsylvania as shall be designated from time to time by the Board of Directors
and specified in the notice of the meeting. Meetings of shareholders for any
other purpose may be held at such time and place, within or without the
Commonwealth of Pennsylvania, as shall be specified in the notice of the
meeting.
Section 2. Annual Meetings. Annual meetings of shareholders shall be held
on the first Thursday of May of each year, if not a legal holiday, and, if a
legal holiday, then on the next business day following, at 10:00 a.m., or at
such other date and time as shall be designated from time to time by the Board
of Directors and specified in the notice of the meeting. At the annual meeting,
the shareholders shall elect in the manner herein provided a Board of Directors
and transact such other business as may properly be brought before the meeting.
At the annual meeting, the shareholders shall elect by a plurality vote a Board
of Directors and transact other business that may be properly brought before the
meeting.
Section 3. Notice of Annual Meeting. Written notice of the annual meeting
stating the place, date and hour of the meeting shall be given not less than ten
days before the date of the meeting to each shareholder entitled to vote at such
meeting.
Section 4. Shareholders List. The officer who has charge of the transfer
books for shares of the Corporation shall prepare and make a complete list of
the shareholders entitled to vote at the meeting, arranged in alphabetical
order, and showing the address of each shareholder and the number of shares
registered in the name of each shareholder. The list shall be produced and kept
<PAGE>
open at the time and place of the meeting during the whole time thereof, and may
be inspected by any shareholder who is present. In lieu of making such list, the
Corporation may make the information therein available by any other means
permitted by statute.
Section 5. Action at Meetings. As provided in Article Sixth of the Amended
and Restated Articles of Incorporation of the Corporation (the "Articles") (i)
any action required or permitted to be taken at any annual or special meeting of
shareholders may be taken only upon the vote of the shareholders at an annual or
special meeting duly noticed and called, as provided in these By-Laws, and may
not be taken by a written consent of the shareholders and (ii) special meetings
of the shareholders of the Corporation for any purpose or purposes may be called
at any time by the Chairman of the Board of Directors or by a majority of the
members of the Board of Directors. Special meetings of shareholders of the
Corporation may not be called by any other person or persons.
Section 6. Notice of Special Meeting. Written notice of a special meeting
stating the place, date and hour of the meeting and the purpose or purposes for
which the meeting is called shall be given not less than ten days before the
date of the meeting to each shareholder entitled to vote at such meeting.
Section 7. Organization of Shareholders Meetings. At each meeting of the
shareholders the Chairman of the Board of Directors, or, in the absence of the
Chairman of the Board of Directors, the President, or, in the absence of the
President, a Vice Chairman of the Board of Directors, or, in their absence, a
chairman chosen by a majority vote of the shareholders present in person or by
proxy and entitled to vote thereat, shall act as chairman; and the Secretary,
or, in his absence, an Assistant Secretary, or, in the absence of the Secretary
and all Assistant Secretaries, a person whom the chairman of such meeting shall
appoint, shall act as Secretary of such meeting and keep the minutes thereof.
Section 8. Quorum. The presence, in person or represented by proxy, of
shareholders entitled to cast at least a majority of the votes which all
shareholders are entitled to cast on the particular matter shall constitute a
quorum for the purpose of considering such matter at a meeting of the
shareholders, except as otherwise provided by statute or by the Articles and in
this Section 8. If, however, a meeting of shareholders cannot be organized
because a quorum has not attended, the shareholders entitled to vote thereat,
present in person or represented by proxy, shall have power to adjourn the
meeting from time to time, without notice other than announcement at the meeting
at which the adjournment is taken of the time and place of the adjourned
meeting, until a quorum shall be present or represented. In case of a meeting
for the election of directors, such meeting may be adjourned only from day to
day or for such longer periods, not exceeding fifteen days each, until such
directors have been elected. At such adjourned meeting at which a quorum shall
be present or represented, any business may be transacted which might have been
transacted at the meeting as originally specified in the notice thereof. If the
adjournment is for more than thirty days, or if after the adjournment a new
record date is fixed for the adjourned meeting, notice of the adjourned meeting
shall be given to each shareholder of record entitled to vote at the meeting.
2
<PAGE>
Section 9. Vote Required. When a quorum is present at any meeting, the vote
of a majority of the votes cast by all shareholders entitled to vote on the
particular matter shall decide any question brought before such meetings, unless
the question is one upon which, by express provision of the laws of the
Commonwealth of Pennsylvania or of the Articles, a different vote is required,
in which case such express provision shall govern and control the decision of
such question, as in the case of the election of directors as provided in
Section 2 hereof and in the Articles.
Section 10. Proxies; Appointment and Revocation. As provided in Article
Fourth of the Articles, and in accordance with the provisions of Section 1763 of
the Pennsylvania Business Corporation Law of 1988 (the "BCL"), each shareholder
of record shall at every meeting of the shareholders be entitled to one vote for
each share of the capital stock having voting power held by such shareholder in
person or by proxy appointed by an instrument in writing, executed by such
shareholder or by his attorney thereunto authorized, or by a telegram, cable or
radiogram, filed with the Secretary of the Corporation; in no event shall a
proxy, unless coupled with an interest, be voted on after three years from the
date of its execution. A proxy, unless coupled with an interest, shall be
revocable at will, notwithstanding any other agreement or any provision in the
proxy to the contrary, but the revocation of a proxy shall not be effective
until notice thereof has been given to the Secretary of the Corporation. A proxy
shall not be revoked by the death or incapacity of the maker unless, before the
vote is counted or the authority is exercised, written notice of such death or
incapacity is given to the Secretary of the Corporation.
Section 11. Judges of Election. In advance of any meeting of shareholders,
the Board of Directors may appoint judges of election, who need not be
shareholders, to act at such meeting or any adjournment thereof. If judges of
election be not so appointed, the chairman of any such meeting may, and on the
request of any shareholder or his proxy shall, make such appointment at the
meeting. The number of judges shall be one or three as shall be determined by
the Board of Directors, except that, if appointed at the meeting on the request
of one or more shareholders or proxies, the holders of a majority of the shares
of the Corporation present and entitled to vote shall determine whether one or
three judges are to be appointed. No person who is a candidate for office shall
act as a judge.
In case any person appointed as a judge fails to appear or fails or refuses
to act, the vacancy may be filled by appointment made by the Board of Directors
in advance of the convening of the meeting, or at the meeting by the officer or
person acting as chairman.
The judges of election shall determine the number of shares outstanding and
the voting power of each, the shares represented at the meeting, the existence
of a quorum, the authenticity, validity and effect of proxies, receive votes or
ballots, hear and determine all challenges and questions in any way arising in
connection with the right to vote, count and tabulate all votes, determine the
result, and do such other acts as may be proper to conduct the election or vote
with fairness to all shareholders. The judges of election shall perform their
duties impartially, in good faith, to the best of their ability, and as
expeditiously as is practical. If there be three judges of election, the
decision, act or certificate of a majority shall be effective in all respects as
the decision, act or certificate of all.
3
<PAGE>
On request of the chairman of the meeting, or of any shareholder or his
proxy, the judges shall make a report in writing of any challenge or question or
matter determined by them, and execute a certificate of any fact found by them.
Any report or certificate made by them shall be prima facie evidence of the
facts stated therein.
Section 12. Advance Notification of Business to be Transacted at
Shareholder Meetings. To be properly brought before the annual meeting of
shareholders, or any special meeting of shareholder, business must be either (a)
specified in the notice of meeting (or any supplement thereto) given by or at
the direction of the Board of Directors (or any duly authorized committee
thereof), (b) otherwise properly brought before the annual meeting by or at the
direction of the Board of Directors (or any duly authorized committee thereof)
or (c) otherwise properly brought before the annual or special meeting by any
shareholder of the Corporation (i) who is a shareholder of record on the date of
the giving of the notice provided for in this Section 12 and on the record date
for the determination of shareholders entitled to vote at such annual or special
meeting and (ii) who complies with the notice procedures set forth in this
Section 12.
In addition to any other applicable requirements, for business to be
properly brought before an annual or special meeting by a shareholder, such
shareholder must have given timely notice thereto in proper written form to the
Secretary of the Corporation.
To be timely, a shareholder's notice to the Secretary must be delivered to
or mailed and received at the principal executive offices of the Corporation (a)
in the case of an annual meeting, not less than sixty (60) days nor more than
ninety (90) days prior to the anniversary date of the immediately preceding
annual meeting of shareholders provided, however, that in the event that the
annual meeting is called for a date that is not within thirty (30) days before
or after such anniversary date, notice by the shareholder in order to be timely
must be so received not later than the close of business on the tenth (10th) day
following the day on which such notice of the date of the annual meeting was
mailed or such public disclosure of the date of the annual meeting was made,
whichever first occurs; and (b) in the case of a special meeting of
shareholders, not later than the close of business on the tenth (10th) day
following the day on which notice of the date of the special meeting was mailed
or public disclosure of the date of the special meeting was made, whichever
first occurs.
To be in proper written form, a shareholder's notice to the Secretary must
set forth as to each matter such shareholder proposes to bring before the annual
or special meeting (i) a brief description of the business desired to be brought
before the meeting and the reasons for conducting such business at the meeting,
(ii) the name and record address of such shareholder, (iii) the class or series
and number of shares of capital stock of the Corporation which are owned
beneficially or of record by such shareholder, (iv) a description of all
arrangements or understandings between such shareholder and any other person or
persons (including their names) in connection with the proposal of such business
by such shareholder and any material interest of such shareholder in such
business and (v) a representation that such shareholder intends to appear in
person or by proxy at the meeting to bring such business before the meeting.
4
<PAGE>
Notwithstanding anything in these By-Laws to the contrary, no business
shall be conducted at the annual meeting of shareholders or any special meeting
of shareholders except business brought before such meeting in accordance with
the procedures set forth in this Section 12; provided, however, that, nothing in
this Section 12 shall be deemed to preclude discussion by any shareholder of any
business properly brought before the meeting. The Chairman or other officer of
the Corporation presiding at the meeting shall, if the facts warrant, determine
and declare to the meeting that business was not properly brought before the
meeting in accordance with the foregoing procedures, and if he should so
determine, the Chairman or other officer of the Corporation presiding at the
meeting shall so declare to the meeting that the business was not properly
brought before the meeting and such business shall not be transacted.
ARTICLE III
DIRECTORS
Section 1. Number of Directors. The number of directors which shall
constitute the whole board shall be not less than three nor more than fifteen.
Within the limit above specified, the number of directors shall be determined by
resolution of the Board of Directors. Except as provided in Section 2 of this
Article, the directors shall be elected at the annual meeting of the
shareholders in the manner provided in Article II, Section 2, of these By-Laws
and in the Articles, and each director elected shall hold office until his
successor is elected and qualified or until his death, resignation or removal.
Directors need not be shareholders.
Section 2. Vacancies; New Directorship. Vacancies and newly created
directorships resulting from any increase in the authorized number of directors
may be filled (subject to the provisions of Article III, Section 14, of these
By-Laws in the case of removal) by a majority of the directors then in office,
though less than a quorum, or by a sole remaining director, and each director so
chosen shall hold office until the next annual election and until his successor
is duly elected and shall qualify or until his death, resignation, removal or
disqualification. If there are no directors in office, then an election of
directors may be held in the manner provided by statute. When one or more
directors shall resign from the board effective at a future date, a majority of
the directors then in office including those who have so resigned, shall have
power to fill such vacancy or vacancies, the vote thereon to take effect when
such resignation or resignations shall become effective; and each such director
so chosen shall hold office as provided in this Section in the filling of other
vacancies.
Section 3. Management of Corporation. The business and affairs of the
Corporation shall be managed under the direction of its Board of Directors which
may exercise all such powers of the Corporation and do all such lawful acts and
things as are not by statute or by the Articles or by these By-Laws directed or
required to be exercised or done by the shareholders.
Section 4. Place of Meetings of the Board of Directors. The Board of
Directors of the Corporation may hold meetings, both regular and special, either
within or without the Commonwealth of Pennsylvania.
5
<PAGE>
Section 5. Annual Meetings of Board of Directors. After each annual
election of directors and on the same day, the Board of Directors shall meet for
the purpose of organization, the election of officers and the transaction of
other business, at the place where such annual election is held. Notice of such
meeting need not be given. Such meetings may be called and held at any other
time and place which shall be specified in a notice or waiver of notice thereof
as in the case of a special meeting of the Board of Directors.
Section 6. Regular Meetings of the Board of Directors. The regular meetings
of the Board of Directors shall be held quarterly at such time and place as
shall be designated by the Board of Directors from time to time or at such other
time and place as shall be set forth in a written notice given at least five
days prior to the meeting date. Notice of regular meetings of the Board shall
not be required to be given, except as otherwise expressly required herein or by
law, except that whenever the time or place of regular meetings shall be
initially fixed or changed, notice of such action shall be given promptly by
telephone or otherwise to each director not participating in such action.
Section 7. Special Meetings of the Board of Directors. Special meetings of
the Board of Directors may be called by the Chairman of the Board of Directors,
the President, a Vice Chairman of the Board of Directors or by a majority of the
Board of Directors on two days' notice to each director, either personally or by
mail, telegram, cable or radiogram. Special meetings shall be called by the
Chairman of the Board of Directors by the President, a Vice Chairman of the
Board of Directors or by the Secretary in like manner and on like notice on the
written request of a majority of directors and the place and time of such
special meeting shall be designated in the notice of such meetings.
Section 8. Quorum. At all meetings of the Board of Directors one-third of
the directors in office shall constitute a quorum for the transaction of
business and the act of a majority of the directors present and voting at any
meeting at which there is a quorum shall be the act of the Board of Directors,
except as may be otherwise specifically provided by statute or by the Articles
of by these By-Laws. If a quorum shall not be present at any meeting of the
Board of Directors, the directors present thereat may adjourn the meeting from
time to time, without notice other than announcement at the meeting, until a
quorum shall be present. The directors at a duly organized meeting can continue
to do business until adjournment notwithstanding the withdrawal of enough
directors to leave less than a quorum.
Section 9. Organization of Meetings of Board of Directors. At each meeting
of the Board of Directors the Chairman of the Board of Directors or, in his
absence, the President, or, in the absence of the President, a Vice Chairman of
the Board of Directors or, in their absence, a director chosen by a majority of
the directors present shall act as chairman. The Secretary or, in his absence,
an Assistant Secretary of the Corporation or, in the absence of the Secretary
and all Assistant Secretaries, a person whom the chairman of such meeting shall
appoint, shall act as secretary of such meeting and keep the minutes thereof.
6
<PAGE>
Section 10. Meetings by Telephone Conference. One or more directors of the
Corporation may participate in any meeting of the Board of Directors or of any
committee thereof by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other.
Section 11. Action by Written Consent. Unless otherwise restricted by the
Articles or these By-Laws, any action required or permitted to be taken at any
meeting of the Board of Directors or of any committee thereof may be taken
without a meeting, if, prior or subsequent to the action so taken, all members
of the Board or committee, as the case may be, sign a consent or consents in
writing setting forth the action so taken, and the writing or writings are filed
with the Secretary of the Corporation and the minutes of proceedings of the
Board or committee .
Section 12. Committees of Directors. The Board of Directors may, by
resolution passed by a majority of the whole board, designate one or more
committees, each committee to consist of one or more directors of the
Corporation, and to have all of the power and authority of the Board of
Directors except as limited by statute, and to perform such duties, as the
resolution designating the committee shall prescribe. The Board of Directors may
designate one or more directors as alternate members of any committee, who may
replace any absent or disqualified member at any meeting of the committee. In
the absence or disqualification of any member and alternate of such committee or
committees, the member or members thereof present at any meeting and not
disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any such absent or disqualified member. Such committee
shall have such name or names as may be determined from time to time by
resolution adopted by the Board of Directors.
Section 13. Minutes of Committee Meetings. Each committee shall keep
regular minutes of its meetings and report the same to the Board of Directors
when required.
Section 14. Removal of Directors. Any director or directors may be removed,
either with or without cause, at any time, by the affirmative vote of the
shareholders entitled to cast at least a majority of the votes which all
shareholders would be entitled to cast at any annual election of directors of
the Corporation, at a special meeting of the shareholders called and held for
that purpose; and the vacancy in the Board of Directors caused by any such
removal may be filled, by such shareholders at such meeting, or, if the
shareholders shall fail to fill such vacancy, as provided in these By-Laws.
Section 15. Compensation of Directors. The directors shall receive such
compensation for their services as the Board of Directors may from time to time
determine; provided, however, that directors who are also officers or employees
of the Corporation or a subsidiary of the Corporation shall not be entitled to
any such compensation as a director; and all directors shall be reimbursed for
their expenses of attendance at each regular or special meeting of the Board of
Directors. Members of any committee of directors may be allowed like
compensation and reimbursement for expenses for serving as members of any such
committee and for attending committee meetings.
7
<PAGE>
Section 16. Resignation. Any director of the Corporation may resign at any
time by giving written notice of his resignation to the Chairman of the Board of
Directors, to the President, to a Vice Chairman of the Board of Directors or to
the Secretary. Such resignation shall take effect at the date of receipt of such
notice by the Chairman of the Board of Directors, the President, a Vice Chairman
of the Board of Directors or the Secretary, or at any later time specified
therein; and, unless otherwise specified therein, the acceptance of such
resignation shall not be necessary to make it effective.
Section 17. Chairman of the Board Emeritus and Directors Emeritus. The
Board of Directors from time to time may name, for such period as the Board may
determine, a former Chairman of the Board of Directors to fill the honorary
position of Chairman of the Board emeritus and one or more former directors to
fill the honorary position of director emeritus. The positions of Chairman of
the Board emeritus and director emeritus are honorary and persons named to such
positions shall not be deemed officers or directors of the Corporation. The
persons holding such honorary positions shall not attend meetings of the Board
of Directors except as specifically invited by the Chairman of the Board. When
attending meetings at the request of the Chairman of the Board, they may advise
the Board of Directors of their views on such matters coming before the Board of
Directors for consideration as requested by the Chairman of such meeting, but
shall not be entitled to vote on any business coming before the Board of
Directors or to exercise any of the other responsibilities of directors. Notice
of meetings of the Board of Directors shall not be required to be given to the
Chairman of the Board emeritus or directors emeritus under the provisions of the
Articles of Incorporation or of these By-Laws nor shall the Chairman of the
Board emeritus or directors emeritus be counted as directors of the Corporation
for the purpose of determining a quorum of the Board of Directors. Chairman of
the Board emeritus or directors emeritus shall be reimbursed for their
reasonable expenses for attendance at meetings of the Board of Directors to
which they have specifically been invited.
Section 18. Interested Directors. No contract or transaction between the
Corporation and one or more of its directors or officers, or between the
Corporation and any other corporation, partnership, association, or other
organization in which one or more of its directors or officers are directors or
officers, or have a financial interest, shall be void or voidable solely for
this reason, or solely because the director or officer is present at or
participates in the meeting of the Board of Directors or committee thereof which
authorizes the contract or transaction, or solely because his or their votes are
counted for such purpose if (i) the material facts as to his or their
relationship or interest and as to the contract or transaction are disclosed or
are known to the Board of Directors or the committee, and the Board of Directors
or committee in good faith authorizes the contract or transaction by the
affirmative votes of a majority of the disinterested directors, even though the
disinterested directors be less than a quorum; or (ii) the material facts as to
his or their relationship or interest and as to the contract or transaction is
specifically approved in good faith by vote of the shareholders; or (iii) the
contract or transaction is fair as to the Corporation as of the time it is
authorized, approved or ratified, by the Board of Directors, a committee thereof
or the shareholders. Common or interested directors may be counted in
determining the presence of a quorum at a meeting of the Board of Directors or
of a committee which authorizes the contract or transaction.
8
<PAGE>
ARTICLE IV
NOTICES
Section 1. Method of Giving Notice. Whenever, under the provisions of the
statutes or of the Articles or of these By-Laws, notice is required to be given
to any director or shareholder, it shall not be construed to mean personal
notice, but such notice may be given either personally or by mail, or by
telegram (with messenger service specified), telex or TWX (with answer-back
received), cable or radiogram or courier service, charges prepaid or by
facsimile transmission, addressed to such director or shareholder, to his
address as it appears on the books of the Corporation or supplied by him to the
Corporation for the purpose of notice, and such notice shall be deemed to be
given at the time when the same shall be deposited in the United States mail or
with a telegraph office or courier service for transmission to such person.
Section 2. Waiver of Notice. Whenever any notice is required to be given
under the provisions of any statute, the Articles or these By-Laws, a waiver
thereof in writing, signed by the person or persons entitled to said notice,
whether given before or after the time stated therein, shall be deemed
equivalent thereto. Attendance of a person at a meeting of shareholders, in
person or by proxy, or at a meeting of the Board of Directors shall constitute a
waiver of notice of such meeting, except when a person attends such meeting for
the express purpose of objecting to the transaction of any business because the
meeting is not lawfully called or convened. Except in the case of a special
meeting of shareholders, neither the business to be transacted at, nor the
purpose of, any meeting need be specified in any written waiver of notice unless
so required by the Articles of these By-Laws.
ARTICLE V
OFFICERS
Section 1. Election. The officers of the Corporation shall be chosen by the
Board of Directors at its first meeting after each annual meeting of
shareholders and shall consist of a Chairman of the Board of Directors, a
President, one or more Executive Vice Presidents one or more Senior Vice
Presidents, one or more Vice Presidents, a Secretary and a Treasurer. Any number
of offices may be held by the same person, unless the Articles of these By-Laws
otherwise provide. Any Vice President may carry such further title as may be
designated by the Board of Directors or by the President.
Section 2. Term of Officer; Removal, Vacancies. The officers of the
Corporation shall hold office until their successors are chosen and qualify or
until their death, resignation or removal. Any officer elected or appointed by
the Board of Directors may be removed at any time by the affirmative vote of a
majority of the Board of Directors. Any vacancy occurring in any office of the
Corporation shall be filled by the Board of Directors.
9
<PAGE>
Section 3. Chairman of the Board of Directors. The Chairman of the Board of
Directors shall be chief executive officer of the Corporation and, subject to
the authority of the Board of Directors, shall have the general control and
management of the business and affairs of the Corporation. He shall preside at
all meetings of the Board of Directors
Section 4. President. The President shall be the chief operating officer of
the Corporation and he shall perform such duties and have such powers relating
to the general control and management of the business and affairs of the
Corporation as the Chairman of the Board of Directors shall determine, subject
to the authority of the Board of Directors.
Section 5. Executive Vice Presidents and Senior Vice Presidents. The
Executive Vice Presidents and Senior Vice Presidents shall perform such duties
and have such powers relating to general control and management of the business
and affairs of the Corporation as the President, subject to the authority of the
Board of Directors, shall determine.
Section 6. Vice Presidents. The Vice Presidents shall perform such duties
and have such powers relating to general control and management of the business
and affairs of the Corporation as the President, subject to the authority of the
Board of Directors, shall determine.
Section 7. Secretary. The Secretary shall attend all meetings of the Board
of Directors and all meetings of the shareholders and record all the proceedings
of the meetings of the Corporation and of the Board of Directors in a book to be
kept for that purpose and shall perform like duties for the standing committees
of the Board of Directors, when required. He shall give, or cause to be given,
notice of all meetings of the shareholders and special meetings of the Board of
Directors, and shall perform such other duties as may be prescribed by the Board
of Directors or by the Chairman of the Board as to matters relating to the Board
of Directors. He shall have custody of the corporate seal of the Corporation and
he, or an Assistant Secretary, shall have authority to affix the same to any
instrument requiring it and, when so affixed, it may be attested by his
signature or by the signature of such Assistant Secretary. The Board of
Directors may give general authority to any other officer to affix the seal of
the Corporation and to attest the affixing by his signature. The Secretary shall
also have such other powers and perform such other duties as from time to time
may be assigned to him by the President.
Section 8. Treasurer. The Treasurer shall have the custody of the corporate
funds and securities and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the Corporation and shall deposit all moneys
and other valuable effects in the name and to the credit of the Corporation in
such depositories as may be designated by the Board of Directors. He shall
disburse the funds of the Corporation as may be ordered by the Board of
Directors, taking proper vouchers for such disbursements, and shall render to
the Board of Directors, at its regular meetings or when the Board of Directors
so requires, and to the President and Chairman of the Board, an account of all
his transactions as Treasurer and of the financial condition of the Corporation.
If required by the Board of Directors, he shall give the Corporation a bond
(which shall be renewed every six years) in such sum and with such surety or
sureties as shall be satisfactory to the Board of Directors for the faithful
performance of the duties in his office and for the restoration to the
Corporation, in case of his death, resignation, retirement or
10
<PAGE>
removal from office, of all books, papers, vouchers, money and other property or
whatever kind in his possession or under his control belonging to the
Corporation.
Section 9. Subordinate Officer. In addition to the officers enumerated in
this Article V, the Corporation may have such other officers, agents and
employees as the Board of Directors may determine, including one or more
Assistant Secretaries and one or more Assistant Treasurers, each of whom shall
hold office for such period, have such authority and perform such duties as the
Board of Directors may from time to time determine. The Board of Directors may
delegate to any principal officer (that is, an officer whose office is
enumerated in Sections 3, 4, 5, 6, 7 or 8 of this Article V) the power to
appoint or remove any such subordinate officers, agents or employees.
Section 10. Removal. Any officer may be removed, either with or without
cause, by the vote of a majority of the directors then in office at a meeting
called for the purpose or, except in case of any officer elected by the Board of
Directors, by any officer upon whom the powers of removal may be conferred by
the Board of Directors.
Section 11. Resignation. Any officer may resign at any time by giving
written notice to the Board of Directors or to the Chairman of the Board of
Directors, the President, a Vice Chairman of the Board of Directors or the
Secretary of the Corporation. Such resignation shall take effect on the date of
receipt of such notice or at any later time specified therein; and unless
specified therein, the acceptance of such resignation shall not be necessary to
make it effective.
Section 12. Vacancies. A vacancy in any office because of death,
resignation, removal, disqualification or any other cause shall be filled for
the unexpired portion of the term in the manner prescribed in these By-Laws for
regular election or appointment to such office.
Section 13. Officers' Salaries. The salaries of the officers shall be fixed
from time to time by the Board of Directors, and none of such officers shall be
prevented from receiving a salary by reason of the fact that he is also a
director of the Corporation. The provisions of this Section 13 are subject to
the provisions of Section 15 of Article III of these By-Laws in the case of
officers who are also directors.
Section 14. Staff and Group Officers. In addition to the corporate officers
enumerated in this Article V (that is, officers whose offices are enumerated in
Sections 3, 4, 5, 6, 7, 8 or 9 of this Article V), the Corporation may have such
staff and group officers as the President may appoint including, but not by way
of limitation, one or more group vice presidents and staff vice presidents. Each
such staff and group officer appointed may carry such exact title as may be
designated by the President and shall hold office for such period, have such
executive authority as to a specific area designated by the President and
perform such duties as the President may from time to time determine.
11
<PAGE>
ARTICLE VI
CONTRACTS, CHECKS, DRAFTS, BANK ACCOUNTS, ETC.
Section 1. Authority of Officers. The Board of Directors, except as
otherwise provided in these By-Laws, may authorize any officer or officers,
agent or agents, or employee or employees of the Corporation to enter into any
contract or execute and deliver any instrument in the name and on behalf of the
Corporation, and such authority may be general or confined to specific
instances; and, unless so authorized by the Board of Directors, no officer,
agent or employee shall have any power or authority to bind the Corporation by
any contract or engagement or to pledge its credit or to render it liable
pecuniarily for any purpose or to any amount.
Section 2. Authorized Loan; Security. No loan shall be contracted on behalf
of the Corporation, and no negotiable paper shall be issued, endorsed or
accepted in its name, unless authorized by the Board of Directors. Such
authority may be general or confined to specific instances. When so authorized
the officer or officers thereunto authorized may effect loans and advances at
any time for the Corporation from any bank, trust company or other institution,
or from any firm, corporation or individual, and for such loans and advances may
make, execute and deliver promissory notes or other evidences of indebtedness of
the Corporation; and, when authorized as aforesaid, as security for the payment
of any and all loans, advances, indebtedness and liabilities of the Corporation,
such officers may mortgage, pledge, hypothecate or transfer any real or personal
property at any time owned or held by the Corporation, and to that end execute
instruments of mortgage or pledge or otherwise transfer such property.
Section 3. Endorsement of Checks, etc. All checks, drafts, bills of
exchange or other orders for the payment of money, obligations, notes or other
evidences of indebtedness, bills of lading, warehouse receipts and insurance
certificates of the Corporation shall be signed or endorsed by such officer or
officers, agent or agents, attorney or attorneys or employee or employees of the
Corporation as shall from time to time be determined by resolution of the Board
of Directors. Each of such officers and employees shall give such bond, if any,
as the Board of Directors may require.
Section 4. Deposit of Funds. All funds of the Corporation not otherwise
employed shall be deposited from time to time to the credit of the Corporation
in such banks, trust companies or other depositories as the Board of Directors
may from time to time designate, or as may be designated by any officer or
officers, agent or agents, attorney or attorneys or employee or employees of the
Corporation to whom such power may be delegated by the Board of Directors.
Section 5. Bank Accounts. The Board of Directors may from time to time
authorize the opening and keeping of general and special bank accounts with such
banks, trust companies or other depositories as it may designate or as may be
designated by any officer or officers, agent or agents, attorney or attorneys or
employee or employees of the Corporation to whom power in that respect shall
have been delegated by the Board of Directors. The Board may make such
12
<PAGE>
special rules and regulations with respect to such bank accounts, not
inconsistent with the provisions of these By-Laws, as it may deem expedient.
Section 6. Rights of Corporation as Stockholder. Unless otherwise provided
by resolution adopted by the Board of the Directors, the Chairman of the Board
of Directors, the President, a Vice Chairman of the Board of Directors or any
Vice President may from time to time appoint an attorney or attorneys, or agent
or agents, to exercise in the name and on behalf of the Corporation the powers
and rights which the Corporation may have as the holder of stock or other
securities in any other corporation, to vote or to consent in respect of such
stock or other securities; the Chairman of the Board of Directors, the
President, a Vice Chairman of the Board of Directors or any Vice President may
instruct the person or persons so appointed as to the manner of exercising such
powers rights and may execute or cause to be executed in the name and on behalf
of the Corporation and under its corporate seal, or otherwise, all such written
proxies, powers of attorney or other written instruments as he may deem
necessary in order that the Corporation may exercise such powers and rights.
ARTICLE VII
CERTIFICATES OF STOCK
Section 1. Shareholder Entitled to Certificates. Every holder of stock in
the Corporation shall be entitled to have a certificate, signed by, or in the
name of the Corporation by, the Chairman of the Board of Directors, the
President or a Vice Chairman of the Board of Directors and the Treasurer or an
Assistant Treasurer, or the Secretary or an Assistant Secretary of the
Corporation, certifying the number of shares owned by him in the Corporation.
Each such certificate shall be sealed with the corporate seal, which may be
facsimile, engraved or printed. If the Corporation shall be authorized to issue
more than one class or series of stock, every certificate representing shares
shall set forth upon the face or back of the certificate, or shall state that
the Corporation will furnish to any shareholder upon request and without charge,
a full or summary statement of the designations, voting rights, preferences,
limitations and relative rights of the shares of each class authorized to be
issued and, if the Corporation is authorized to issue any preferred or special
class in series, the variations in the relative rights and preferences between
the shares of each such series so far as the same have been fixed and determined
and the authority of the Board of Directors to fix and determine designations,
voting rights, preferences, limitations, and special rights of the classes and
series of shares of the Corporation.
Section 2. Facsimile Signatures. Where a certificate is countersigned (1)
by a transfer agent other than the Corporation or its employee or (2) by a
registrar other than the Corporation or its employee, any other signature on the
certificate may be facsimile, engraved or printed. In case any officer, transfer
agent or registrar who has signed or whose facsimile signature has been placed
upon a certificate, shall have ceased to be such officer, transfer agent or
registrar before such certificate is issued, it may be issued by the Corporation
with the same effect as if he were such officer, transfer agent or registrar at
the date of issue.
13
<PAGE>
Section 3. Lost Certificates. The Board of Directors may direct a new
certificate or certificates to be issued in place of any certificate or
certificates theretofore issued by the Corporation alleged to have been lost,
stolen or destroyed upon the making of an affidavit to that fact by the person
claiming the certificate of stock to be lost, stolen or destroyed. When
authorizing such issue of a new certificate or certificates, the Board of
Directors may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, stolen or destroyed certificates or
certificates, or his legal representative, to advertise the same in such manner
as it shall require and/or to give the Corporation a bond in such sum as it may
direct as indemnity against any claim that may be made against the Corporation
with respect to the certificate alleged to have been lost, stolen or destroyed.
Section 4. Transfers of Stock. Upon surrender to the Corporation or the
transfer agent or agents of the Corporation of a certificate for shares duly
endorsed or accompanied by proper evidence of succession, assignment or
authority to transfer, it shall by the duty of the Corporation to issue a new
certificate to the person entitled thereto, cancel the old certificate and
record the transaction upon its books.
Section 5. Fixing Record Date. In order that the Corporation may determine
the shareholders entitled to notice of or to vote at any meeting of shareholders
or any adjournment thereof, or entitled to receive payment of any dividend or
other distribution or allotment of any rights, or entitled to exercise any
rights in respect of any change, conversion or exchange of stock or for the
purpose of any other lawful action, the Board of Directors may fix, in advance,
a record date, which shall not be more than ninety days before the date of such
meeting or any other action. If no record date is fixed, then (a) the record
date for determining shareholders shall be at the close of business on the day
next preceding the day on which notice is given or, if notice is waived, at the
close of business on the day next preceding the day on which the meeting is held
and (b) the record date for determining shareholders for any other purpose shall
be at the close of business on the day on which the Board of Directors adopts
the resolution relating hereto. A determination of shareholders of record
entitled to notice of, or to vote at, a meeting of shareholders shall apply to
any adjournment of the meeting; provided, however, that the Board of Directors
may fix a new record date for the adjourned meeting in which case notice of the
adjourned meeting shall be given to each shareholder of record entitled to vote
at the meeting.
Section 6. Registered Shareholders. The Corporation shall be entitled to
recognize the exclusive right of a person registered on its books as the owner
of shares to receive dividends, and to vote as such owner, and to hold liable
for calls and assessments a person registered on its books as the owner of
shares, and shall not be bound to recognize any equitable or other claim to or
interest in such share or shares on the part of any other person, whether or not
it shall have express or other notice thereof, except as otherwise provided by
the laws of Pennsylvania.
14
<PAGE>
ARTICLE VIII
GENERAL PROVISIONS
Section 1. Dividends. Dividends upon the capital stock of the Corporation,
subject to the provisions of the Articles, if any, may be declared by the Board
of Directors at any regular or special meeting, pursuant to law. Dividends may
be paid in cash, in property, or in shares of the capital stock, subject to the
provisions of the Articles.
Section 2. Reserves. Before payment of any dividend, there may be set aside
out of any funds of the Corporation available for dividends such sum or sums as
the directors from time to time in their absolute discretion, think proper as a
reserve or reserves to meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the Corporation, or for such other
purposes as the directors shall think conductive to the interest of the
Corporation, and the directors may modify or abolish any such reserve in the
manner in which it was created.
Section 3. Fiscal Year. The fiscal year of the Corporation shall end on the
thirty-first day of December in each year.
Section 4. Seal. The corporate seal shall have inscribed thereon the name
of the Corporation, the year of its organization and the words "Corporate Seal,
Pennsylvania". The seal may be issued by causing it or a facsimile thereof to be
impressed or affixed or in any manner reproduced.
ARTICLE IX
AMENDMENTS
These By-Laws may be altered, amended or repealed and new By-Laws may be
adopted by the vote of shareholders entitled to cast at least a majority of the
votes which all shareholders are entitled to cast thereon or by the majority
vote of the members of the Board of Directors at any regular or special meeting
of the shareholders or the Board of Directors duly convened after notice to the
shareholders or directors of the purpose.
ARTICLE X
APPLICABILITY OF CERTAIN PENNSYLVANIA STATUTES
Subchapter 25E and Subchapters 25G through 25J of the BCL shall not be
applicable to the Corporation,
Subchapter 25F and all other provisions of the BCL which have not been
rendered inapplicable to the Corporation by the first paragraph of this Article
X shall be applicable to the Corporation.
15
<PAGE>
THIRD AMENDMENT TO CREDIT AGREEMENT; AMENDMENT TO SUBSIDIARIES GUARANTY;
AND ACKNOWLEDGEMENT WITH RESPECT TO VARIOUS OTHER CREDIT DOCUMENTS
THIRD AMENDMENT TO CREDIT AGREEMENT; AMENDMENT TO SUBSIDIARIES GUARANTY;
AND ACKNOWLEDGEMENT WITH RESPECT TO VARIOUS OTHER CREDIT DOCUMENTS (this
"Amendment"), dated as of December 18, 1997, among COLTEC INDUSTRIES INC, a
corporation organized and existing under the laws of the State of Pennsylvania
(the "Company"), Coltec Aerospace Canada Ltd., an Ontario corporation (the
"Canadian Borrower"), the various Subsidiaries of the Company that are Credit
Parties on the date of this Amendment, the various Banks party to the Credit
Agreement referred to below, BANK OF AMERICA NATIONAL TRUST AND SAVINGS
ASSOCIATION (as successor by merger to Bank of America Illinois), as the
Documentation Agent, THE CHASE MANHATTAN BANK, as Syndication Agent, BANKERS
TRUST COMPANY, as Administrative Agent, and BANK OF MONTREAL, as Canadian Paying
Agent. All capitalized terms used herein and not otherwise defined shall have
the respective meanings provided such terms in the Credit Agreement.
W I T N E S S E T H :
WHEREAS, the Company, the Banks, the Documentation Agent, the Syndication
Agent and the Administrative Agent are parties to a Credit Agreement, dated as
of March 24, 1992, amended and restated as of January 11, 1994 and further
amended and restated as of December 18, 1996, (as amended, modified or
supplemented to the date hereof, the "Credit Agreement");
WHEREAS, the Company has requested certain amendments to the Credit
Agreement as provided herein, including the extension of Loans to the Canadian
Borrower;
WHEREAS, in connection with the foregoing, the Subsidiaries Guaranty shall
be amended and agreements and acknowledgements are to be provided with respect
to the Security Documents; and
WHEREAS, the parties hereto wish to amend the Credit Agreement and various
other of the Credit Documents as herein provided;
- 1 -
<PAGE>
NOW, THEREFORE, it is agreed:
I. Amendments to Credit Agreement.
1. Section 1 of the Credit Agreement is hereby amended by deleting said
Section in its entirety and inserting in lieu thereof the following new Section
1:
"1.01 The Commitments. (a) Subject to and upon the terms and
conditions set forth herein, each Bank (other than Canadian Banks in their
capacities as such) severally agrees, at any time and from time to time on
and after the Restatement Effective Date and prior to the Final Maturity
Date, to make a revolving loan or revolving loans to the Company, and each
Canadian Bank severally agrees, at any time and from time to time on and
after the Third Amendment Effective Date and prior to the Final Maturity
Date, to make a revolving loan or revolving loans to the Canadian Borrower
(with the revolving loans made to the Company or the Canadian Borrower
pursuant to this Section 1.01(a) being each called a "Revolving Loan" and
collectively, the "Revolving Loans"), which Revolving Loans (i) shall, in
the case of Revolving Loans made to the Company, be made and maintained in
Dollars (each, a "Company Revolving Loan" and, collectively, the "Company
Revolving Loans"), which Company Revolving Loans shall, at the option of
the Company, be incurred and maintained as, and/or converted (in accordance
with Section 1.06) into, Base Rate Loans or Eurodollar Rate Loans; provided
that except as otherwise specifically provided in Section 1.10(b), all
Company Revolving Loans comprising the same Borrowing shall at all times be
of the same Type, (ii) shall, in the case of Revolving Loans made to the
Canadian Borrower, be made and maintained in, at the option of the Canadian
Borrower, either Canadian Dollars (each, a "Canadian Dollar Revolving Loan"
and, collectively, the "Canadian Dollar Revolving Loans") or Dollars (each,
a "Canadian Borrower U.S. Dollar Revolving Loan" and, collectively, the
"Canadian Borrower U.S. Dollar Revolving Loans"), which Canadian Dollar
Revolving Loans shall, at the option of the Canadian Borrower, be made by
each Canadian Bank either by means of (x) Canadian Prime Rate Loans in
Canadian Dollars or (y) the creation and discount of Bankers' Acceptances
in Canadian Dollars on the terms
- 2 -
<PAGE>
and conditions provided for herein and in Schedule XI hereto (the terms and
conditions of which shall be deemed incorporated by reference into this
Agreement), and which Canadian Borrower U.S. Dollar Revolving Loans shall,
at the option of the Canadian Borrower, be made by the Canadian Banks as,
and/or be converted (in accordance with Section 1.06) into, Base Rate Loans
or Eurodollar Rate Loans; provided that except as otherwise specifically
provided in Section 1.10(b), all Canadian Borrower Revolving Loans
comprised of the same Borrowing shall at all times be of the same Type,
(iii) may be repaid and re-borrowed in accordance with the provisions
hereof, (iv) shall not exceed for any Bank at the time of the making of any
such Revolving Loans, and after giving effect thereto, that aggregate
principal amount (for this purpose, using the Dollar Equivalent of the
outstanding principal or Face Amount, as the case may be, of each
outstanding Canadian Dollar Revolving Loan of such Bank or any Affiliate
thereof acting as a Canadian Bank) which, when added to the sum of (I) the
aggregate principal amount of all other Revolving Loans then outstanding
from such Bank (for this purpose, using the Dollar Equivalent of the
outstanding principal or Face Amount, as the case may be, of each Canadian
Dollar Revolving Loan then outstanding from such Bank or any Affiliate
thereof acting as a Canadian Bank) and (II) the product of (x) such Bank's
Adjusted Percentage and (y) the sum of (A) all Letter of Credit
Outstandings (exclusive of Unpaid Drawings which are repaid with the
proceeds of, and simultaneously with the incurrence of, the respective
incurrence of Revolving Loans) at such time and (B) the aggregate principal
amount of all Swingline Loans (exclusive of Swingline Loans which are
repaid with the proceeds of, and simultaneously with the incurrence of, the
respective incurrence of Revolving Loans) then outstanding, equals the
Commitment of such Bank at such time, (v) shall not, in the case of
Canadian Borrower Revolving Loans, exceed for any Canadian Bank at the time
of the making of any such Canadian Borrower Revolving Loan, and after
giving effect thereto, that aggregate principal amount (for this purpose,
using the Dollar Equivalent of the outstanding principal or Face Amount, as
the case may be, in the case of a Canadian Revolving Loan) which, when
added to the aggregate principal amount of all other Canadian Borrower
Revolving Loans then outstanding from such Canadian
- 3 -
<PAGE>
Bank (for this purpose, using the Dollar Equivalent of the outstanding
principal or Face Amount, as the case may be, of each outstanding Canadian
Dollar Revolving Loan of such Canadian Bank) equals the Canadian
Sub-Commitment of such Canadian Bank at such time, (vi) shall not, in the
case of all Canadian Borrower Revolving Loans, at any time exceed in
aggregate outstanding principal amount (for this purpose, using the Dollar
Equivalent of the outstanding principal or Face Amount, as the case may be,
of each outstanding Canadian Dollar Revolving Loan), the Total Canadian
Sub-Commitment at such time and (vii) shall not, in the case of all
Revolving Loans, at any time exceed in aggregate outstanding principal
amount (for this purpose, using the Dollar Equivalent of the outstanding
principal or Face Amount, as the case may be, of each outstanding Canadian
Dollar Revolving Loan), when added to the aggregate principal amount of
Swingline Loans then outstanding and the aggregate amount of all Letter of
Credit Outstandings (exclusive of any Unpaid Drawings with respect thereto
which are repaid with the proceeds of, and simultaneously with the
incurrence of, the respective incurrence of Revolving Loans) then
outstanding, an amount equal to the Total Commitment at such time. The
proceeds of each Company Revolving Loan shall be made available (in
Dollars) to the Company as directed by it (with the proceeds to be used by
the Company). The proceeds of each Canadian Borrower Revolving Loan shall
be made available (in Dollars or Canadian Dollars, as the case may be) to
the Canadian Borrower as directed by it (with the proceeds to be used by
the Canadian Borrower). The Canadian Borrower shall have no liability with
respect to any Borrower Revolving Loans which may be extended to, and which
shall constitute obligations of, the Company.
(b) Subject to and upon the terms and conditions herein set forth,
BTCo in its individual capacity agrees (A) to convert, on the Restatement
Effective Date, the Original Swingline Loans made by BTCo to the Company
pursuant to the Original Credit Agreement and outstanding on the
Restatement Effective Date into a Borrowing of Swingline Loans hereunder
(as so converted, together with all Swingline Loans made pursuant to the
following clause (B), the "Swingline Loans" and each, a "Swingline Loan")
and (B) to make at any time and from time to time after the
- 4 -
<PAGE>
Restatement Effective Date and prior to the Swingline Expiry Date, a loan
or loans to the Company (each a "Swingline Loan" and, collectively, the
"Swingline Loans"), which Swingline Loans (i) shall be made and maintained
as Base Rate Loans, (ii) may be repaid and reborrowed in accordance with
the provisions hereof, (iii) shall not exceed in aggregate principal amount
at any time outstanding, when combined with the aggregate principal amount
of all Revolving Loans made by Non-Defaulting Banks (for this purpose,
using the Dollar Equivalent of the outstanding principal or Face Amount, as
the case may be, of each outstanding Canadian Dollar Revolving Loan) then
outstanding and the Letter of Credit Outstandings at such time, an amount
equal to the Adjusted Total Commitment then in effect (after giving effect
to any reductions to the Adjusted Total Commitment on such date) and (iv)
shall not exceed at any time outstanding the Maximum Swingline Amount.
(c) On any Business Day, BTCo may, in its sole discretion, give notice
to the Banks that its outstanding Swingline Loans shall be funded with a
Borrowing of Company Revolving Loans (provided that such notice shall be
deemed to have been automatically given upon the occurrence of a Default or
Event of Default under Section 10.05 or upon the exercise of any of the
remedies provided in the last paragraph of Section 10), in which case a
Borrowing of Company Revolving Loans constituting Base Rate Loans (each
such Borrowing, a "Mandatory Borrowing") shall, to the maximum extent
permitted by applicable law, be made on the immediately succeeding Business
Day from all Banks (without giving effect to any reductions thereto
pursuant to the last paragraph of Section 10) pro rata on the basis of
their respective Adjusted Percentages (determined before giving effect to
any termination of the Commitments pursuant to the last paragraph of
Section 10) and the proceeds thereof shall be applied directly to BTCo to
repay BTCo for such outstanding Swingline Loans. All Company Revolving
Loans made pursuant to each Mandatory Borrowing shall constitute
obligations of the Company and not the Canadian Borrower. Each such Bank
hereby irrevocably agrees to make Company Revolving Loans upon one Business
Day's notice pursuant to each Mandatory Borrowing in the amount and in the
manner specified in the preceding sentence and on the date specified in
writing by BTCo,
- 5 -
<PAGE>
to the maximum extent permitted by applicable law, notwithstanding (i) the
amount of the Mandatory Borrowing may not comply with the minimum amount
for Borrowings otherwise required hereunder, (ii) whether any conditions
specified in Section 5 or 6 are then satisfied, (iii) whether a Default or
an Event of Default then exists, (iv) the date of such Mandatory Borrowing
and (v) any reduction in the Total Commitment or the Adjusted Total
Commitment after any such Swingline Loans were made. In the event that any
Mandatory Borrowing cannot for any reason be made on the date otherwise
required above (including, without limitation, as a result of the
commencement of a proceeding of the type referred to in Section 10.05 with
respect to the Company), then each such Bank hereby agrees that it shall
forthwith purchase (as of the date the Mandatory Borrowing would otherwise
have occurred, but adjusted for any payments received from the Company on
or after such date and prior to such purchase) from BTCo such
participations in the outstanding Swingline Loans as shall be necessary to
cause such Banks to share in such Swingline Loans ratably based upon their
respective Adjusted Percentages (determined before giving effect to any
termination of the Commitments pursuant to the last paragraph of Section
10); provided that (x) all interest payable on the Swingline Loans shall be
for the account of BTCo until the date as of which the respective
participation is required to be purchased and, to the extent attributable
to the purchased participation, shall be payable to the participant from
and after such date and (y) at the time any purchase of participations
pursuant to this sentence is actually made, the purchasing Bank shall be
required to pay BTCo interest on the principal amount of participation
purchased for each day from and including the day upon which the Mandatory
Borrowing would otherwise have occurred to but excluding the date of
payment for such participation, at the rate otherwise applicable to Company
Revolving Loans maintained as Base Rate Loans hereunder.
1.02 Minimum Amount of Each Borrowing. The aggregate principal amount
of each Borrowing of (i) Eurodollar Rate Loans shall not be less than
$5,000,000, (ii) Base Rate Loans shall not be less than $1,000,000, (iii)
Canadian Prime Rate Loans shall be not less than Cdn $1,000,000 and (iv)
Bankers'
- 6 -
<PAGE>
Acceptance Loans shall not be less than the amount specified in Schedule
XI. The aggregate principal amount of each Borrowing of Swingline Loans
shall be at least $500,000. More than one Borrowing may occur on the same
date, but at no time shall there be outstanding more than (x) fifteen
Borrowings of Eurodollar Rate Loans or (y) more than six different maturity
dates for all outstanding Bankers' Acceptance Loans.
1.03 Notice of Borrowing. (a) Whenever any Borrower desires to make a
Borrowing hereunder (excluding (x) Borrowings of Swingline Loans and
Mandatory Borrowings and (y) Borrowings of Canadian Prime Rate Loans to the
extent resulting from automatic conversions of Bankers' Acceptance Loans as
provided in clause (i) of Schedule XI), it shall give the Administrative
Agent at its Notice Office (and, in the case of Canadian Dollar Revolving
Loans, the Canadian Paying Agent at its Notice Office) at least one
Business Day's prior telex, telecopy or telephonic notice (confirmed in
writing) of each Base Rate Loan or Canadian Prime Rate Loan and at least
three Business Days' prior telex, telecopy or telephonic notice (confirmed
in writing) of each Eurodollar Rate Loan or Bankers' Acceptance Loan to be
made hereunder; provided that any such notice shall be deemed to have been
given on a certain day only if given before 12:00 Noon (New York time) on
such day. Each such notice (each a "Notice of Borrowing"), except as
otherwise expressly provided in Section 1.10, shall be irrevocable and
shall be given by the respective Borrower substantially in the form of
Exhibit A, appropriately completed to specify the aggregate principal
amount (or Face Amount, as the case may be) of the Loans to be made
pursuant to such Borrowing (stated in the Applicable Currency), the date of
such Borrowing (which shall be a Business Day), and (x) in the case of
Dollar Revolving Loans, whether the Loans being made pursuant to such
Borrowing are to be initially maintained as Base Rate Loans or Eurodollar
Rate Loans and, if Eurodollar Rate Loans, the initial Interest Period to be
applicable thereto and (y) in the case of Canadian Dollar Revolving Loans,
whether the Loans being made pursuant to such Borrowing are to be initially
maintained as Canadian Prime Rate Loans or Bankers' Acceptance Loans and,
if Bankers' Acceptance Loans, the term thereof (which shall comply
- 7 -
<PAGE>
with the requirements of clause (a) of Schedule XI). The Administrative
Agent shall promptly, and in any event within one Business Day of receipt
of such Notice of Borrowing, give each Bank notice of such proposed
Borrowing, of such Bank's proportionate share thereof and of the other
matters required by the immediately preceding sentence to be specified in
the Notice of Borrowing.
(b)(i) Whenever the Company desires to make a Borrowing of Swingline
Loans hereunder, it shall give BTCo not later than 12:00 Noon (New York
time) on the date that a Swingline Loan is to be made, written notice or
telephonic notice confirmed in writing of each Swingline Loan to be made
hereunder. Each such notice shall be irrevocable and specify in each case
(A) the date of Borrowing (which shall be a Business Day) and (B) the
aggregate principal amount of the Swingline Loans to be made pursuant to
such Borrowing.
(ii) Without in any way limiting the obligation of the Company to
confirm in writing any telephonic notice of such Borrowing of Swingline
Loans, BTCo may act without liability upon the basis of telephonic notice
of such Borrowing believed by BTCo in good faith to be from a President, an
Executive Vice President, a Senior Vice President, a Vice President, a
Treasurer or an Assistant Treasurer of the Company or any other individual
at the Company designated in writing by any two of the foregoing officers
prior to receipt of written confirmation. In each such case, the Company
hereby waives the right to dispute BTCo's record of the terms of such
telephonic notice of such Borrowing of Swingline Loans absent manifest
error.
(iii) Mandatory Borrowings shall be made upon the notice specified in
Section 1.01(c), with the Company irrevocably agreeing, by its incurrence
of any Swingline Loan, to the making of the Mandatory Borrowings as set
forth in Section 1.01(c) to the maximum extent permitted by applicable law.
1.04 Disbursement of Funds. Except as otherwise specifically provided
in the immediately succeeding sentence, no later than 12:00 Noon (New York
time) on the date specified in each Notice of Borrowing (or (x) in the case
of Swingline Loans, no later than 2:00 P.M. (New York time) on the date
specified pursuant to
- 8 -
<PAGE>
Section 1.03(b)(i) or (y) in the case of Mandatory Borrowings, not later
than 12:00 Noon (New York time) on the date specified in Section 1.01(c)),
each Bank will make available its pro rata portion (determined in
accordance with Section 1.07) of each such Borrowing requested to be made
on such date (or in the case of Swingline Loans, BTCo shall make available
the full amount thereof). All such amounts shall be made available in
Dollars (in the case of Dollar Revolving Loans) or Canadian Dollars (in the
case of Canadian Dollar Revolving Loans), as the case may be, and in
immediately available funds at the relevant Payment Office, and the
relevant Paying Agent will make available to the respective Borrower at the
respective Payment Office the aggregate of the amounts so made available by
the Banks. Unless the relevant Paying Agent shall have been notified by any
Bank prior to the date of Borrowing that such Bank does not intend to make
available to such Paying Agent such Bank's portion of any Borrowing to be
made on such date, such Paying Agent may assume that such Bank has made
such amount available to such Paying Agent on such date of Borrowing and
such Paying Agent may, in reliance upon such assumption, make available to
the relevant Borrower a corresponding amount. If such corresponding amount
is not in fact made available to the relevant Paying Agent by such Bank,
such Paying Agent shall be entitled to recover such corresponding amount on
demand from such Bank. If such Bank does not pay such corresponding amount
forthwith upon such Paying Agent's demand therefor, such Paying Agent shall
promptly notify the relevant Borrower and such Borrower shall immediately
pay such corresponding amount to such Paying Agent. The relevant Paying
Agent shall also be entitled to recover on demand from such Bank or the
respective Borrower, as the case may be, interest on such corresponding
amount in respect of each day from the date such corresponding amount was
made available by such Paying Agent to the respective Borrower until the
date such corresponding amount is recovered by such Paying Agent, at a rate
per annum equal to (i) if recovered from such Bank, the cost to such Paying
Agent of acquiring overnight Federal funds (or, in the case of Canadian
Dollar Revolving Loans, the cost to the Canadian Paying Agent of acquiring
overnight funds in Canadian Dollars) and (ii) if recovered from the
respective Borrower, the rate of interest applicable to the respective
- 9 -
<PAGE>
Borrowing, as determined pursuant to Section 1.08. Nothing in this Section
1.04 shall be deemed to relieve any Bank from its obligation to make Loans
hereunder or to prejudice any rights which the relevant Borrower may have
against any Bank as a result of any failure by such Bank to make Loans
hereunder.
1.05 Notes. (a) The Company's or, in the case of Canadian Borrower
Revolving Loans, the Canadian Borrower's obligation to pay the principal of
(and the Face Amount, as the case may be), and interest on, the Loans made
by each Bank shall be evidenced (i) if Company Revolving Loans, by a
promissory note duly executed and delivered by the Company substantially in
the form of Exhibit B-1 with blanks appropriately completed in conformity
herewith (each a "Company Revolving Note" and, collectively, the "Company
Revolving Notes"), (ii) if Canadian Dollar Revolving Loans, by a promissory
note duly executed and delivered by the Canadian Borrower substantially in
the form of Exhibit B-3, with blanks appropriately completed in conformity
herewith (each, a "Canadian Dollar Revolving Note" and, collectively, the
"Canadian Dollar Revolving Notes"), (iii) if Canadian Borrower U.S. Dollar
Revolving Loans, by a promissory note duly executed and delivered by the
Canadian Borrower substantially in the form of Exhibit B-4, with blanks
appropriately completed in conformity herewith (each a "Canadian Borrower
U.S. Dollar Revolving Note" and, collectively, the "Canadian Borrower U.S.
Dollar Revolving Notes") and (iv) if Swingline Loans, by a promissory note
duly executed and delivered by the Company substantially in the form of
Exhibit B-2, with blanks appropriately completed in conformity herewith
(the "Swingline Note").
(b) The Company Revolving Note issued to each Bank shall (i) be
executed by the Company, (ii) be payable to the order of such Bank and be
dated the Restatement Effective Date, (iii) be in a stated principal amount
equal to the Commitment of such Bank and be payable in Dollars in the
principal amount of the Company Revolving Loans evidenced thereby, (iv)
mature on the Final Maturity Date, (v) bear interest as provided in the
appropriate clause of Section 1.08 in respect of the Base Rate Loans and
Eurodollar Rate Loans, as the case may be, evidenced thereby, (vi) be
subject to
- 10 -
<PAGE>
mandatory repayment as provided in Section 4.02 and (vii) be entitled to
the benefits of this Agreement and the Subsidiaries Guaranty and be secured
by the Security Documents.
(c) The Canadian Dollar Revolving Note issued to each Bank that has a
Canadian Sub-Commitment or outstanding Canadian Dollar Revolving Loans
shall (i) be executed by the Canadian Borrower, (ii) be payable to the
order of such Canadian Bank or its registered assigns and be dated the
Third Amendment Effective Date (or, if issued thereafter, the date of
issuance), (iii) be in a stated principal amount (expressed in Canadian
Dollars) which exceeds by 25% the Canadian Dollar Equivalent (as of the
date of issuance) of the Canadian Sub-Commitment of such Canadian Bank;
provided that if, because of fluctuations in exchange rates after the Third
Amendment Effective Date, the amount of the Canadian Dollar Revolving Note
of any Canadian Bank would not be at least as great as the outstanding
principal amount of, and the Face Amount of, as applicable, Canadian Dollar
Revolving Loans made by such Canadian Bank at any time outstanding, the
respective Canadian Bank may request (and in such case the Canadian
Borrower shall promptly execute and deliver) a new Canadian Dollar
Revolving Note in an amount equal to the greater of (x) that amount
(expressed in Canadian Dollars) which at that time exceeds by 25% the
Canadian Dollar Equivalent of the Canadian Sub-Commitment of such Canadian
Bank or (y) the then outstanding principal amount of, and the Face Amount
of, as applicable, all Canadian Dollar Revolving Loans made by such
Canadian Bank, (iv) be payable in Canadian Dollars in the outstanding
principal amount of the Canadian Dollar Revolving Loans evidenced thereby,
(v) mature on the Final Maturity Date, (vi) bear interest as provided in
the appropriate clause of Section 1.08 in respect of the Canadian Prime
Rate Loans evidenced thereby, (vii) be subject to mandatory repayment as
provided in Section 4.02 and (viii) be entitled to the benefits of this
Agreement and the Subsidiaries Guaranty and be secured by the Security
Documents.
(d) The Canadian Borrower U.S. Dollar Revolving Note issued to each
Canadian Bank shall (i) be executed by the Canadian Borrower, (ii) be
payable to the order of such Canadian Bank and be dated the Third
- 11 -
<PAGE>
Amendment Effective Date (or, if issued thereafter, the date of issuance),
(iii) be in a stated principal amount, stated in Dollars, equal to the
Canadian Sub-Commitment of such Canadian Bank and be payable in Dollars in
the principal amount of the Canadian Borrower U.S. Dollar Revolving Loans
evidenced thereby, (iv) mature on the Final Maturity Date, (v) bear
interest as provided in the appropriate clause of Section 1.08 in respect
of the Base Rate Loans and Eurodollar Rate Loans, as the case may be,
evidenced thereby, (vi) be subject to mandatory repayment as provided in
Section 4.02 and (vii) be entitled to the benefits of this Agreement and
the Subsidiaries Guaranty and be secured by the Security Documents.
(e) The Swingline Note issued to BTCo shall (i) be executed by the
Company, (ii) be payable to the order of BTCo and be dated the Restatement
Effective Date, (iii) be in a stated principal amount equal to the Maximum
Swingline Amount and be payable in Dollars in the principal amount of the
outstanding Swingline Loans evidenced thereby from time to time, (iv)
mature on the Swingline Expiry Date, (v) bear interest as provided in the
appropriate clause of Section 1.08 in respect of the Base Rate Loans
evidenced thereby and (vi) be entitled to the benefits of this Agreement
and the Subsidiaries Guaranty and be secured by the Security Documents.
(f) Each Bank will note on its internal records the amount of each
Loan made by it and each payment in respect thereof and will prior to any
transfer of any of its Notes endorse on the reverse side thereof the
outstanding principal amount of Loans (including, without limitation, the
Face Amount of any outstanding Bankers' Acceptances) evidenced thereby.
Failure to make any such notation shall not affect the Company's or, in the
case of Canadian Borrower Revolving Loans, the Canadian Borrower's
obligations in respect of such Loans.
1.06 Conversions. (a) The respective Borrower shall have the option to
convert, on any Business Day, all or a portion equal to at least $5,000,000
of the outstanding principal amount of Dollar Revolving Loans made to such
Borrower pursuant to one or more Borrowings of one or more Types of Dollar
Revolving Loans into a Borrowing of another Type of Dollar Revolving
- 12 -
<PAGE>
Loan; provided that (i) except as otherwise provided in Section 1.10(b) or
4.02(b), Eurodollar Rate Loans may be converted into Loans of another Type
only on the last day of an Interest Period applicable to the Loans being
converted and no such partial conversion of Eurodollar Rate Loans shall
reduce the outstanding principal amount of such Eurodollar Rate Loans made
pursuant to a single Borrowing to less than $5,000,000, (ii) Base Rate
Loans may only be converted into Eurodollar Rate Loans if no Default or
Event of Default is in existence on the date of the conversion and (iii) no
conversion pursuant to this Section 1.06 shall result in a greater number
of Borrowings of Eurodollar Rate Loans than is permitted under Section
1.02. Each such conversion shall be effected by the respective Borrower by
giving the Administrative Agent at its Notice Office prior to 12:00 Noon
(New York time) at least three Business Days' prior notice (each a "Notice
of Conversion") specifying the Dollar Revolving Loans to be so converted,
the Borrowing(s) pursuant to which such Dollar Revolving Loans were made
and, if to be converted into Eurodollar Rate Loans, the Interest Period to
be initially applicable thereto. The Administrative Agent shall give each
Bank prompt notice of any such proposed conversion affecting any of its
Dollar Revolving Loans.
(b) Mandatory conversions of Bankers' Acceptance Loans into Canadian
Prime Rate Loans shall be made in the circumstances, and to the extent,
provided in clause (i) of Schedule XI.
(c) Canadian Dollar Revolving Loans shall not be permitted to be
converted into Canadian Borrower U.S. Dollar Revolving Loans, and Canadian
Borrower U.S. Dollar Revolving Loans shall not be permitted to be converted
into Canadian Dollar Revolving Loans. However, subject to compliance with
the terms and conditions of this Agreement, the Canadian Borrower may from
time to time repay Canadian Borrower Revolving Loans (in the respective
Applicable Currency) and, concurrently therewith, may borrow other Types
(and pursuant to the respective Applicable Currency) of Canadian Borrower
Revolving Loans.
1.07 Pro Rata Borrowings. All Borrowings of Company Revolving Loans
under this Agreement shall be incurred from the Banks pro rata on the basis
of their
- 13 -
<PAGE>
RL Percentages; provided that all Borrowings of Company Revolving Loans
made pursuant to a Mandatory Borrowing shall be incurred from the Banks pro
rata on the basis of their Adjusted Percentages. All Borrowings of Canadian
Borrower Revolving Loans under this Agreement shall be incurred from the
Canadian Banks pro rata on the basis of their Canadian Percentages. It is
understood that no Bank shall be responsible for any default by any other
Bank of its obligation to make Loans hereunder and that each Bank shall be
obligated to make the Loans provided to be made by it hereunder regardless
of the failure of any other Bank to make its Loans hereunder.
1.08 Interest. (a) Each Borrower agrees to pay interest in respect of
the unpaid principal amount of each Base Rate Loan made to such Borrower
from the date the proceeds thereof are made available to such Borrower
until the maturity thereof (whether by acceleration or otherwise) at a rate
per annum which shall be equal to the sum of the Applicable Margin for Base
Rate Loans plus the Base Rate, each as in effect from time to time.
(b) Each Borrower agrees to pay interest in respect of the unpaid
principal amount of each Eurodollar Rate Loan made to such Borrower from
the date the proceeds thereof are made available to the such Borrower until
the maturity thereof (whether by acceleration or otherwise) at a rate per
annum which shall, during each Interest Period applicable thereto, be equal
to the sum of the Applicable Margin for Eurodollar Rate Loans as from time
to time in effect plus the Quoted Rate for such Interest Period.
(c) The Canadian Borrower hereby agrees to pay interest in respect of
the unpaid principal amount of each Canadian Prime Rate Loan from the date
the proceeds thereof are made available to the Canadian Borrower (which
shall, in the case of a conversion pursuant to clause (i) of Schedule XI,
be deemed to be the date upon which a maturing Bankers' Acceptance is
converted into a Canadian Prime Rate Loan pursuant to said clause (i), with
the proceeds thereof to be equal to the full Face Amount of the maturing
Bankers' Acceptances), until the maturity thereof (whether by acceleration,
or otherwise) at a rate per annum which shall be equal to the sum of the
Applicable Margin for
- 14 -
<PAGE>
Canadian Prime Rate Loans plus the Canadian Prime Rate, each as in effect
from time to time.
(d) With respect to Bankers' Acceptance Loans, Acceptance Fees shall
be payable in connection therewith as provided in clause (g) of Schedule
XI. Until the maturity of the respective Bankers' Acceptances, interest
shall not otherwise be payable with respect thereto.
(e) Overdue principal and, to the extent permitted by law, overdue
interest in respect of each Loan and any other overdue amount payable
hereunder shall, in each case, bear interest at a rate per annum (1) in the
case of overdue principal of, and interest or other amounts owing with
respect to, Canadian Dollar Revolving Loans and any other amounts owing in
Canadian Dollars, equal to 2% per annum in excess of the Applicable Margin
for Canadian Prime Rate Loans plus the Canadian Prime Rate, each as in
effect from time to time, and (2) in all other cases, equal to the greater
of (x) the sum of the Base Rate in effect from time to time plus 2-1/4% and
(y) the rate which is 2% in excess of the rate otherwise applicable to the
respective Loans at the time of the occurrence of the payment default with
respect thereto, in each case with such interest to be payable on demand
(for all purposes of this clause (e), calculations of the respective
Applicable Margin for Loans of the respective Type shall be calculated as
if the Leverage Ratio were at Level 5 as shown in the table appearing in
the definition of "Applicable Margin" contained herein).
(f) Accrued (and theretofore unpaid) interest shall be payable (i) in
respect of each Base Rate Loan and Canadian Prime Rate Loan, quarterly in
arrears on each Quarterly Payment Date, (ii) in respect of each Eurodollar
Rate Loan, on the last day of each Interest Period applicable thereto and,
in the case of an Interest Period in excess of three months, on each date
occurring at three-month intervals after the first day of such Interest
Period and (iii) in respect of each Loan (other than Bankers' Acceptances),
on the date of any repayment (on the amount repaid), on any conversion
pursuant to Section 1.10(b) or 4.02(b) (on the amount converted), at
maturity (whether by
- 15 -
<PAGE>
acceleration or otherwise) and, after such maturity, on demand.
(g) Upon each Interest Determination Date, the Administrative Agent
shall determine the Quoted Rate for each Interest Period applicable to
Eurodollar Rate Loans and shall promptly notify the respective Borrower and
the Banks thereof. Each such determination shall, absent manifest error, be
final and conclusive and binding on all parties hereto.
1.09 Interest Periods. At the time it gives any Notice of Borrowing or
Notice of Conversion in respect of the making of, or conversion into, any
Eurodollar Rate Loan (in the case of the initial Interest Period applicable
thereto) or on the third Business Day prior to the expiration of an
Interest Period applicable to such Eurodollar Rate Loan (in the case of any
subsequent Interest Period), the relevant Borrower shall have the right to
elect, by giving the Administrative Agent notice thereof, the interest
period (each an "Interest Period") applicable to such Eurodollar Rate Loan,
which Interest Period shall, at the option of such Borrower, be a one, two,
three or six month period; provided that:
(i) all Eurodollar Rate Loans comprising a Borrowing shall at all
times have the same Interest Period;
(ii) the initial Interest Period for any Eurodollar Rate Loan
shall commence on the date of Borrowing of such Loan (including the
date of any conversion thereto from a Loan of a different Type) and
each Interest Period occurring thereafter in respect of such Loan
shall commence on the day on which the next preceding Interest Period
applicable thereto expires;
(iii) if any Interest Period relating to a Eurodollar Rate Loan
begins on a day for which there is no numerically corresponding day in
the calendar month at the end of such Interest Period, such Interest
Period shall end on the last Business Day of such calendar month;
(iv) if any Interest Period would otherwise expire on a day which
is not a Business Day, such
- 16 -
<PAGE>
Interest Period shall expire on the next succeeding Business Day;
provided, however, that if any Interest Period for a Eurodollar Rate
Loan would otherwise expire on a day which is not a Business Day but
is a day of the month after which no further Business Day occurs in
such month, such Interest Period shall expire on the next preceding
Business Day;
(v) no Interest Period may be selected at any time when any
Default or Event of Default is then in existence;
(vi) no Interest Period shall be selected which extends beyond
the Final Maturity Date;
(vii) no Interest Period shall extend beyond any date upon which
a Scheduled Reduction is to be made if, after giving effect to the
selection of such Interest Period, the aggregate amount of Revolving
Loans maintained as Eurodollar Rate Loans with Interest Periods ending
after such date of Scheduled Reduction would exceed the Total
Commitment after giving effect to the reduction thereto resulting from
such Scheduled Reduction; and
(viii) no Interest Period shall be greater than one month for any
Borrowing of Eurodollar Rate Loans prior to the earlier of (x) the
60th day following the Restatement Effective Date or, if on such 60th
day a Borrowing of Eurodollar Loans remains outstanding which has an
Interest Period which extends beyond such 60th day, the last day of
such Interest Period and (y) the Syndication Date.
If upon the expiration of any Interest Period applicable to a
Borrowing of Eurodollar Rate Loans, the relevant Borrower has failed to
elect a new Interest Period to be applicable to such Eurodollar Rate Loans
as provided above, such Borrower shall be deemed to have elected to convert
such Eurodollar Rate Loans into Base Rate Loans effective as of the
expiration date of such current Interest Period.
1.10 Increaded Costs, Illegality, etc. (a) In the event that any Bank
shall have determined (which determination shall, absent manifest error, be
final and conclusive and binding upon all parties hereto
- 17 -
<PAGE>
but, with respect to clauses (i) and (iv) below, may be made only by the
Administrative Agent):
(i) on any Interest Determination Date that, by reason of any
changes arising after the Restatement Effective Date affecting the
interbank market, adequate and fair means do not exist for
ascertaining the applicable interest rate on the basis provided for in
the definition of Quoted Rate; or
(ii) at any time, that such Bank shall incur increased costs or
reductions in the amounts received or receivable hereunder with
respect to any Eurodollar Rate Loan because of (x) any change since
the Restatement Effective Date in any applicable law or governmental
rule, regulation, order, guideline or request (whether or not having
the force of law) or in the interpretation or administration thereof
and including the introduction of any new law or governmental rule,
regulation, order, guideline or request, such as, for example, but not
limited to: (A) a change in the basis of taxation of payments to any
Bank of the principal of or interest on the Notes or any other amounts
payable hereunder (except for changes in the rate of tax on, or
determined by reference to, the net income or profits of such Bank
imposed by the jurisdiction in which its principal office or
applicable lending office is located) or (B) a change in official
reserve requirements (but, in all events, excluding reserves required
under Regulation D to the extent included in the computation of the
Quoted Rate) and/or (y) other circumstances affecting such Bank or the
interbank Eurodollar market or the position of such Bank in such
market; or
(iii) at any time, that the making or continuance of any
Eurodollar Rate Loan has been made (x) unlawful by any law or
governmental rule, regulation or order, (y) impossible by compliance
by any Bank in good faith with any governmental request (whether or
not having force of law) or (z) impracticable as a result of a
contingency occurring after the Restatement Effective Date which
materially and adversely affects the interbank Eurodollar market; or
(iv) at any time that Canadian Dollars are not available in
sufficient amounts, as determined in
- 18 -
<PAGE>
good faith by the Administrative Agent, to fund any Borrowing of
Canadian Dollar Revolving Loans requested pursuant to Section 1.01;
then, and in any such event, such Bank (or the Administrative Agent,
in the case of clauses (i) and (iv) above) shall promptly give notice
(by telephone confirmed in writing) to the Company and any affected
Borrower and, except in the case of clauses (i) and (iv) above, to the
Administrative Agent of such determination (which notice the
Administrative Agent shall promptly transmit to each of the other
Banks). Thereafter (w) in the case of clause (i) above, Eurodollar
Rate Loans shall no longer be available until such time as the
Administrative Agent notifies the Company and the Banks that the
circumstances giving rise to such notice by the Administrative Agent
no longer exist (which notice the Administrative Agent shall provide
promptly after obtaining actual knowledge that such circumstances no
longer exist), and any Notice of Borrowing or Notice of Conversion
given by the Company with respect to Eurodollar Rate Loans which have
not yet been incurred (including by way of conversion) shall be deemed
rescinded by the Company, (x) in the case of clause (ii) above, the
respective Borrower or Borrowers shall pay to such Bank, upon written
demand therefor, such additional amounts (in the form of an increased
rate of, or a different method of calculating, interest or otherwise
as such Bank in its sole discretion shall determine) as shall be
required to compensate such Bank for such increased costs or
reductions in amounts received or receivable hereunder (a written
notice as to the additional amounts owed to such Bank, showing the
basis for the calculation thereof, submitted to the respective
Borrower or Borrowers by such Bank shall, absent manifest error, be
final and conclusive on and binding on all the parties hereto), (y) in
the case of clause (iii) above, the respective Borrower or Borrowers
shall take one of the actions specified in Section 1.10(b) as promptly
as possible and, in any event, within the time period required by law
and (z) in the case of clause (iv) above, Canadian Dollar Revolving
Loans (exclusive of Canadian Dollar Revolving Loans which have
theretofore been funded) shall no longer be available until such time
as the Administrative Agent notifies the Canadian Borrower and the
Banks that the circumstances giving rise to
- 19 -
<PAGE>
such notice by the Administrative Agent no longer exists, and any
Notice of Borrowing given by the Canadian Borrower with respect to
such Canadian Dollar Revolving Loans which have not been incurred
shall be deemed rescinded by the Canadian Borrower.
(b) At any time that any Eurodollar Rate Loan is affected by the
circumstances described in Section 1.10(a)(ii) or (iii), the respective
Borrower or Borrowers may (and in the case of a Eurodollar Rate Loan
affected by the circumstances described in Section 1.10(a)(iii) shall)
either (i) if the affected Eurodollar Rate Loan is then being made
initially or pursuant to a conversion, by giving the Administrative Agent
telephonic notice (confirmed in writing) on the same date that the Company
was notified by the affected Bank or the Administrative Agent pursuant to
Section 1.10(a)(ii) or (iii), cancel the respective Borrowing, or (ii) if
the affected Eurodollar Rate Loan is then outstanding, upon at least three
Business Days' written notice to the Administrative Agent, require the
affected Bank to convert such Eurodollar Rate Loan into a Base Rate Loan;
provided that if more than one Bank is affected at any time, then all
affected Banks must be treated the same pursuant to this Section 1.10(b).
(c) If at any time after the Restatement Effective Date, the
introduction of or any change in any applicable law or governmental rule,
regulation, order, guideline or request (whether or not having the force of
law, and including, without limitation, changes in those announced or
published prior to the Restatement Effective Date) concerning capital
adequacy, or in the interpretation or administration thereof by any
governmental authority, central bank or comparable agency, will have the
effect of increasing the amount of capital required or expected to be
maintained by such Bank or any corporation controlling such Bank based on
the existence of such Bank's Commitments hereunder or its obligations
hereunder, then the Company (or to the extent directly relating to the
Canadian Sub-Commitments, the Canadian Borrower) shall pay to such Bank,
upon its written demand therefor, such additional amounts as shall be
required to compensate such Bank or such other corporation for the
increased cost to such Bank or such other corporation or the reduction in
the rate of
- 20 -
<PAGE>
return to such Bank or such other corporation as a result of such increase
of capital. In determining such additional amounts, each Bank will act
reasonably and in good faith and will use averaging and attribution methods
which are reasonable; provided that such Bank's determination of
compensation owing under this Section 1.10(c) shall, absent manifest error,
be final and conclusive and binding on all the parties hereto. Each Bank,
upon determining that any additional amounts will be payable pursuant to
this Section 1.10(c), will give prompt written notice thereof to the
relevant Borrower, which notice shall show the basis for calculation of
such additional amounts, although the failure to give any such notice
(unless the respective Bank has intentionally withheld or delayed such
notice, in which case the respective Bank shall not be entitled to receive
additional amounts pursuant to this Section 1.10(c) for periods occurring
prior to the 180th day before the giving of such notice) shall not release
or diminish any of the relevant Borrower's obligations to pay additional
amounts pursuant to this Section 1.10(c).
1.11 Compensation. The respective Borrower shall compensate each Bank,
upon its written request (which request shall set forth the basis for
requesting such compensation), for all reasonable losses, expenses and
liabilities (including, without limitation, any loss, expense or liability
incurred by reason of the liquidation or reemployment of deposits or other
funds required by such Bank to fund its Eurodollar Rate Loans) which such
Bank may sustain: (i) if for any reason (other than a default by such Bank
or the Administrative Agent) a Borrowing of, or conversion from or into,
Eurodollar Rate Loans does not occur on a date specified therefor in a
Notice of Borrowing or Notice of Conversion (whether or not withdrawn by
such Borrower or deemed withdrawn pursuant to Section 1.10(a)); (ii) if any
repayment (including any repayment made pursuant to Section 4.02) or
conversion of any of its Eurodollar Rate Loans occurs on a date which is
not the last day of an Interest Period with respect thereto; (iii) if any
repayment (including any repayment made pursuant to Section 4.02) of any
Bankers' Acceptance Loan occurs on a date which is not the maturity date of
the respective Bankers' Acceptance; (iv) if any prepayment of any of its
Eurodollar Rate Loans or Bankers'
- 21 -
<PAGE>
Acceptance Loans is not made on any date specified in a notice of
prepayment given by such Borrower; or (v) as a consequence of (x) any other
default by such Borrower to repay its Loans when required by the terms of
this Agreement or any Note held by such Bank or (y) any election made
pursuant to Section 1.10(b).
- 22 -
<PAGE>
- 23 -
<PAGE>
1.12 Replacement of Banks. (x) If any Bank becomes a Defaulting Bank
or otherwise defaults in its obligations to make Loans or fund Unpaid
Drawings, (y) upon the occurrence of any event giving rise to the operation
of Section 1.10(a)(ii) or (iii), Section 1.10(c), Section 2.05 or Section
4.04 with respect to any Bank which results in such Bank charging to the
Company increased costs in excess of those being generally charged by the
other Banks, or (z) as provided in Section 13.12(b) in the case of certain
refusals by a Bank to consent to certain proposed changes, waivers,
discharges or terminations with respect to this Agreement which have been
approved by the Required Banks, the Company shall have the right, if no
Default or Event of Default then exists, to replace such Bank (the
"Replaced Bank") with one or more other Eligible Transferees, none of which
shall constitute a Defaulting Bank at the time of such replacement
(collectively, the "Replacement Bank") reasonably acceptable to the
Administrative Agent; provided that (i) at the time of any replacement
pursuant to this Section 1.12, the Replacement Bank shall enter into one or
more Assignment and Assumption Agreements pursuant to Section 13.04(b) (and
with all fees payable pursuant to said Section 13.04(b) to be paid by the
Replacement Bank) pursuant to which the Replacement Bank shall acquire all
of the Commitments (and related Canadian Sub-Commitments, if any) and
outstanding Loans of, and in each case participation in Letters of Credit
by, the Replaced Bank and, in connection therewith, shall pay to (x) the
Replaced Bank in respect thereof an amount equal to the sum of (A) an
amount equal to the principal of, and all accrued interest on, all
outstanding Loans (including the Face Amount of any outstanding Bankers'
Acceptances) of the Replaced Bank, (B) an amount equal to all Unpaid
Drawings that have been funded by (and not reimbursed to) such Replaced
Bank, together with all then unpaid interest with respect thereto at such
time and (C) an amount equal to all accrued, but theretofore unpaid, Fees
owing to the Replaced Bank pursuant to Section 3.01 and (y) BTCo an amount
equal to such Replaced Bank's Adjusted Percentage (for this purpose,
determined as if the adjustment described in clause (y) of the immediately
succeeding sentence had been made with respect to such Replaced Bank) of
any Unpaid Drawing (which at such time remains an Unpaid Drawing) to the
extent such amount was not theretofore
- 24 -
<PAGE>
funded by such Replaced Bank, (ii) all obligations of the Borrowers due and
owing to the Replaced Bank at such time (other than those specifically
described in clause (i) above in respect of which the assignment purchase
price has been, or is concurrently being, paid) shall be paid in full to
such Replaced Bank concurrently with such replacement and (iii) if the
respective Replaced Bank has a related Canadian Bank, or if the Replaced
Bank is a Canadian Bank which has a related Bank, all of the actions
specified above in this Section 1.12 shall be taken with respect to both
the respective Bank and Canadian Bank (who shall be treated collectively as
a Replaced Bank). Upon the execution of the respective Assignment and
Assumption Agreements, the payment of amounts referred to in clauses (i)
and (ii) above and, if so requested by the Replacement Bank, delivery to
the Replacement Bank of the appropriate Note or Notes executed by the
respective Borrowers, (x) the Replacement Bank shall become a Bank
hereunder and the Replaced Bank shall cease to constitute a Bank hereunder,
except with respect to indemnification provisions under this Agreement,
which shall survive as to such Replaced Bank and (y) the Adjusted
Percentages of the Banks shall be automatically adjusted at such time to
give effect to such replacement (and to give effect to the replacement of a
Defaulting Bank with one or more Non-Defaulting Banks).
1.13 Change of Lending Office. Each Bank agrees that on the occurrence
of any event giving rise to the operation of Section 1.10(a)(ii) or (iii),
Section 1.10(c), Section 2.05 or Section 4.04 with respect to such Bank, it
will, if requested by the applicable Borrower or Borrowers, use reasonable
efforts (subject to overall policy considerations of such Bank) to
designate another lending office for any Loans or Letters of Credit
affected by such event; provided that such designation is made on such
terms that such Bank and its lending office suffer no economic, legal or
regulatory disadvantage as a result thereof, with the object of avoiding
the consequence of the event giving rise to the operation of such Section.
Nothing in this Section 1.13 shall affect or postpone any of the
obligations of any Borrower or the right of any Bank provided in Sections
1.10, 2.05 and 4.04.
- 25 -
<PAGE>
1.14 Bankers' Acceptance Provisions. The parties hereto agree that the
provision of Schedule XI shall apply to all Bankers' Acceptances and
Bankers' Acceptance Loans created hereunder, and that the provisions of
Schedule XI shall be deemed incorporated by reference into this Agreement
as if such provisions were set forth in their entirety herein.
1.15 Canadian Paying Agent. Notwithstanding anything to the contrary
contained elsewhere in this Agreement, it is acknowledged and agreed that,
unless and until otherwise directed by the Administrative Agent or the
Required Banks, Bank of Montreal shall act as Canadian Paying Agent and
Canadian Documentation Agent (in such capacities, the "Canadian Paying
Agent") with respect to all Bankers' Acceptances and Bankers' Acceptance
Loans, and all Canadian Borrower Revolving Loans incurred under this
Agreement. Unless and until otherwise directed by the Administrative Agent
or the Required Banks, the Canadian Paying Agent shall receive all
payments, and make all disbursements, with respect to Canadian Borrower
Revolving Loans at or from its Payment Office. In connection therewith, the
Canadian Paying Agent shall perform such duties as would otherwise be
performed by the Administrative Agent or Paying Agent in connection
therewith and shall be entitled to the protections afforded pursuant to
Section 12. It is understood and agreed that the Canadian Paying Agent may
resign at any time from its duties hereunder upon ten (10) Business Days'
prior written notice to the Administrative Agent and the Borrowers, at
which time the duties of the Canadian Paying Agent shall be performed by
the Administrative Agent (or an affiliate thereof designated by the
Administrative Agent). At all times when the Canadian Paying Agent is not
the Administrative Agent, the Canadian Paying Agent (as opposed to the
Administrative Agent) shall take all actions otherwise required to be taken
by the Administrative Agent pursuant to Schedule XI."
1.16 Certain Override Provisions Regarding Utilizations of Total
Canadian Sub-Commitment. (a) Notwithstanding anything to the contrary
contained in preceding Section 1.01, succeeding Section 2.01 or elsewhere
in this Agreement, it is agreed by the parties hereto that, at all times
from and after the Third Amendment Effective Date, to the extent any
- 26 -
<PAGE>
Credit Event results in a utilization of all or any portion of the Total
Canadian Sub-Commitment, an amount equal to the Canadian Borrower
Percentage (as in effect from time to time) of the Total Canadian
Sub-Commitment shall only be available for the making of Canadian Borrower
Revolving Loans and an amount equal to the Company Percentage of the Total
Canadian Sub-Commitment may only be utilized for extensions of credit to
the Company as otherwise provided in this Agreement. Notwithstanding
anything to the contrary contained elsewhere in this Agreement, at no time
shall the Company be permitted to request an extension of credit pursuant
to this Agreement (whether in the form of Company Revolving Loans,
Swingline Loans or Letters of Credit) if, after giving effect thereto, the
sum of the aggregate principal amount and Face Amount, as applicable, of
outstanding Company Revolving Loans and Swingline Loans and the amount of
Letter of Credit Outstandings at such time would exceed an amount equal to
the Total Commitment as then in effect less the Canadian Borrower
Percentage as then in effect of the Total Canadian Sub-Commitment as then
in effect. Furthermore, the Canadian Borrower will at no time be permitted
to request an extension of credit (in the form of Canadian Borrower
Revolving Loans) if the aggregate principal amount and Face Amount, as
applicable, of outstanding Canadian Borrower Revolving Loans would at any
time exceed the Canadian Borrower Percentage as then in effect of the Total
Canadian Sub-Commitment as then in effect.
(b)(i) The Company Percentage and Canadian Borrower Percentage of the
Total Canadian Sub-Commitment shall, from and after the Third Amendment
Effective Date (and until adjusted as described in the immediately
succeeding sentence) be 50% and 50%, respectively. The Company, not more
than thirty days and not less than five Business Days prior to the last day
of each calendar month, shall give written notice to the Administrative
Agent (with a copy to each Paying Agent) either (x) requesting an
adjustment, effective as of the first Business Day of the immediately
following calendar month (each such date an "Adjustment Date") to the
Company Percentage and Canadian Borrower Percentage (although the sum of
such percentages must equal 100%) or (y) confirming that there will be no
adjustment to the Company Percentage or the Canadian Borrower Percentage at
such time;
- 27 -
<PAGE>
provided that (i) no adjustment to the Company Percentage and Canadian
Borrower Percentage may be made as otherwise provided above if, after
giving effect to any reduction to the Canadian Borrower Percentage, the
Canadian Borrower Percentage of the Total Canadian Sub-Commitment as then
in effect would be less than the aggregate Face Amount of all Bankers'
Acceptance Loans then outstanding (other than any such Bankers' Acceptance
Loans which will mature, and be converted into Canadian Prime Rate Loans,
on or prior to the respective Adjustment Date) and (ii) the failure by the
Company to deliver any such written notice (or the delivery by the Company
of any written notice which does not comply with the requirements contained
above in this clause (b)) to the Administrative Agent within the period
required above will be deemed to be delivery by the Company to the
Administrative Agent of a written notice that there will be no adjustment
to the Company Percentage or the Canadian Borrower Percentage as at the
applicable Adjustment Date. If any adjustment is made on an Adjustment Date
as described above, then on the respective Adjustment Date all repayments
required by Section 4.02(a)(iii) and (iv) shall be made on such date to the
extent required as a result of such adjustments.
(ii) Notwithstanding anything to the contrary contained in clause
(b)(i) above or Section 13.02, at any time during a month the Company
shall, with the consent of each Canadian Bank, be permitted to adjust the
Company Percentage and Canadian Borrower Percentage by designating an
Adjustment Date effective as of any Business Day during such month.
(c) In connection with any Borrowings and/or repayments made as a
result of adjustments to the Company Percentage and Canadian Borrower
Percentage as required above, then, so long as arrangements satisfactory to
the Paying Agents (including, without limitation, by way of (x) direct
transfers of funds between the Paying Agents or (y) indirect transfers of
funds between the Paying Agents through the operating accounts of the
Borrowers, either of which shall be considered to be satisfactory
arrangements) are made for the repayment of all amounts which will be due
on the respective Adjustment Date as a result thereof, Borrowings shall be
permitted to be made by the
- 28 -
<PAGE>
Company or Canadian Borrower, as the case may be, as a result of any
increase to the Company Percentage or Canadian Borrower Percentage, as the
case may be, on such date (subject to satisfaction of the other terms and
conditions of this Agreement) so long as arrangements satisfactory to the
Paying Agents (including, without limitation, by way of (x) direct
transfers of funds between the Paying Agents or (y) indirect transfers of
funds between the Paying Agents through the operating accounts of the
Borrowers, either of which shall be considered to be satisfactory
arrangements) are made so that, by the time required by Section 4.03, all
payments will be made by the Company or the Canadian Borrower on such
Adjustment Date as a result of any decrease on such date in the Company
Percentage or Canadian Borrower Percentage, as the case may be. It is
understood and agreed that none of the Administrative Agent nor any Paying
Agent shall have any liability to any Banks if the payments contemplated
above in this clause (c) are not actually made on the Adjustment Date, and
that any failure to make the payments required to be made on an Adjustment
Date pursuant to Section 4.02(a) shall constitute an Event of Default in
accordance with the terms of Section 10.01.
2. Section 2.01 of the Credit Agreement is hereby amended by (i) deleting
the text ", any of its Foreign Subsidiaries" appearing in clause (x) of Section
2.01(b) and (ii) inserting the text "(for this purpose, using the Dollar
Equivalent of the outstanding principal or Face Amount, as the case may be, of
each outstanding Canadian Dollar Revolving Loan)" immediately preceding the text
"made by Non-Defaulting Banks" appearing in clause (c)(i)(y) of said Section.
3. Section 3.01 of the Credit Agreement is hereby amended by (i) inserting
at the end of clause (a) thereof the following new proviso:
"; provided that the portion of Commitment Commission attributable to the
unutilized portion of the Canadian Borrower Percentage (as in effect from
time to time) of the Total Canadian Sub-Commitment shall be paid by the
Canadian Borrower to the Canadian Paying Agent for distribution to each
Canadian Bank that is a Non-Defaulting Bank";
- 29 -
<PAGE>
(ii) redesignating clause "(e)" to "(f)" and (iii) inserting the following
clause (e):
"(e)At the time of the incurrence of each Bankers' Acceptance Loan,
Acceptance Fees shall be paid by the Canadian Borrower as required by, and
in accordance with, clause (g) of Schedule XI."
4. Section 3.02 of the Credit Agreement is hereby amended by deleting in
its entirety such Section and inserting in lieu thereof the following new
Section 3.02:
"3.02 Voluntary Termination of Unutilized Commitments. The Company
shall have the right, without premium or penalty and upon at least two
Business Days' prior notice to the Administrative Agent at its Notice
Office, which notice the Administrative Agent shall promptly transmit to
each of the Banks, to terminate the Total Unutilized Commitment, in whole
or in part, in integral multiples of $5,000,000 in the case of partial
reductions to the Total Unutilized Commitment; provided that each such
reduction to the Total Unutilized Commitment pursuant to this Section 3.02
shall apply (i) first, in an amount equal to the lesser of the reduction to
the Total Unutilized Commitment then being effected or the Total
Non-Canadian Sub-Commitment then in effect, to reduce the Commitment (and
the Non-Canadian Sub-Commitment) of each Bank, pro rata based on the
relative Non-Canadian Sub-Commitments of the various Banks (or their
respective affiliates) and (ii) to the extent in excess of the amount to be
applied pursuant to preceding clause (i), to reduce the remaining
Commitments (and the Canadian Sub-Commitments) of the various Banks pro
rata based on the Canadian Sub-Commitments of the various Banks.
Notwithstanding anything to the contrary contained in the immediately
preceding sentence, at the time of any reduction to the Total Unutilized
Commitment pursuant to this Section 3.02, the Company may, but shall not be
required to, elect that all or a portion of such reduction first be applied
as provided in clause (ii) of the immediately preceding sentence, with any
excess over the amount of the Total Canadian Sub-Commitment as then in
effect to be applied as provided in clause (i) of the immediately preceding
sentence."
- 30 -
<PAGE>
5. Section 3.03 of the Credit Agreement is hereby amended by (i) deleting
the word "proviso" in Section 3.03(f)(y) and inserting in lieu thereof the word
"provision" and (ii) deleting Section 3.02(g) in its entirety and inserting in
lieu thereof the following new Section 3.02(g):
"(g) Each reduction to the Total Commitment pursuant to this Section
3.03 shall be applied (i) first, in an amount equal to the lesser of the
reduction to the Total Commitment then being effected or the Total
Non-Canadian Sub-Commitment then in effect, to reduce the Commitment (and
the Non-Canadian Sub-Commitment) of each Bank, pro rata based on the
relative Non-Canadian Sub-Commitments of the various Banks (or their
respective affiliates) and (ii) to the extent in excess of the amount to be
applied pursuant to preceding clause (i), to reduce the remaining
Commitments (and the Canadian Sub-Commitments) of the various Banks pro
rata based on the Canadian Sub-Commitments of the various Banks.
Notwithstanding anything to the contrary contained in the immediately
preceding sentence, at the time of any reduction to the Total Commitment
pursuant to this Section 3.03, the Company may, but shall not be required
to, elect that all or a portion of such reduction first be applied as
provided in clause (ii) of the immediately preceding sentence, with any
excess over the amount of the Total Canadian Sub-Commitment as then in
effect to be applied as provided in clause (i) of the immediately preceding
sentence."
6. Section 4 of the Credit Agreement is hereby amended by deleting said
Section in its entirety and inserting in lieu thereof the following new Section
4:
"4.01 Voluntary Prepayments. Each Borrower shall have the right to
prepay the Loans made to such Borrower, without premium or penalty, in
whole or in part from time to time on the following terms and conditions:
(i) such Borrower shall give the Administrative Agent prior to 11:00 A.M.
(New York time) at its Notice Office (x) at least one Business Day's prior
written notice (or telephonic notice confirmed in writing) of its intent to
prepay Base Rate Loans or Canadian Dollar Revolving Loans maintained as
Canadian Prime Rate Loans (or same day notice in the case of
- 31 -
<PAGE>
Swingline Loans provided such notice is given prior to 11:00 A.M. (New York
time) on such Business Day and (y) at least three Business Days' prior
written notice (or telephonic notice confirmed in writing) of its intent to
prepay Eurodollar Rate Loans, whether Company Revolving Loans, Canadian
Borrower Revolving Loans or Swingline Loans shall be prepaid, the amount of
such prepayment and the Types of Loans to be prepaid and, in the case of
Eurodollar Rate Loans or Bankers' Acceptance Loans, the specific Borrowing
or Borrowings pursuant to which made, which notice the Administrative Agent
shall promptly transmit to each of the Banks; (ii) each prepayment shall be
in an aggregate principal amount of at least $1,000,000 (or Cdn $1,000,000
in the case of Canadian Dollar Revolving Loans); provided that if any
partial prepayment of Eurodollar Rate Loans made pursuant to any Borrowing
shall reduce the outstanding Eurodollar Rate Loans made pursuant to such
Borrowing to an amount less than $5,000,000, then such Borrowing may not be
continued as a Borrowing of Eurodollar Rate Loans and any election of an
Interest Period with respect thereto given by such Borrower shall have no
force or effect (it being understood that such Borrowing shall convert to a
Borrowing of Base Rate Loans or be repaid); (iii) prepayments of Eurodollar
Rate Loans made pursuant to this Section 4.01 may only be made on the last
day of an Interest Period applicable thereto; (iv) prepayments of Bankers'
Acceptance Loans may not be made prior to the maturity date of the
respective Bankers' Acceptances; and (v) each prepayment in respect of any
Loans made pursuant to a Borrowing shall be applied pro rata among such
Loans, provided that (x) so long as no Default --- ---- or Event of Default
is then in existence, at any time when the sum of the aggregate principal
amount of Company Revolving Loans, Swingline Loans and Letter of Credit
Outstandings exceeds the Total Non-Canadian Sub-Commitment (with the amount
of such excess being herein called the "Total Non-Canadian Sub-Commitment
Excess"), the Company may, to the extent of such Total Non-Canadian
Sub-Commitment Excess, make prepayments of principal of Company Revolving
Loans to the Banks which have, or have Affiliates that have, Canadian
Sub-Commitments on the basis of their Canadian Percentages (with the
Company to designate the Borrowing or Borrowings, or portions thereof,
being prepaid), with the intent of creating availability for
- 32 -
<PAGE>
subsequent Canadian Borrower Revolving Loans and (y) at the respective
Borrower's election in connection with any prepayment pursuant to this
Section 4.01, any prepayment in respect of Revolving Loans shall not be
applied to any Revolving Loan of a Defaulting Bank.
4.02 Mandatory Repayments and Commitment Reductions. (a) (i) On any
day on which the sum of the aggregate outstanding principal amount of the
Revolving Loans (for this purpose, using the Dollar Equivalent of the
outstanding principal or Face Amount, as the case may be, thereof in the
case of outstanding Canadian Dollar Revolving Loans) made by Non-Defaulting
Banks, Swingline Loans and the Letter of Credit Outstandings exceeds the
Adjusted Total Commitment as then in effect, the Company shall prepay
principal of Swingline Loans and, after the Swingline Loans have been
repaid in full, the Company shall repay the principal of outstanding
Company Revolving Loans and/or the Canadian Borrower shall repay the
principal of outstanding Canadian Borrower Revolving Loans other than
Bankers' Acceptance Loans where the underlying Bankers' Acceptances have
not yet matured (with such repayment of Revolving Loans to be allocated
between Company Revolving Loans and Canadian Borrower Revolving Loans as
the Borrowers may elect) in an amount equal to such excess. If, after
giving effect to the prepayment of all outstanding Swingline Loans and
Revolving Loans (other than Bankers' Acceptance Loans as referenced in the
immediately preceding sentence) of Non-Defaulting Banks, the sum of the
outstanding Bankers' Acceptance Loans of Non-Defaulting Banks (for this
purpose, using the Dollar Equivalent of the Face Amounts thereof) and
Letter of Credit Outstandings exceed the Adjusted Total Commitment then in
effect, (i) an amount equal to the lesser of such excess and the then
outstanding Face Amount of all Bankers' Acceptances shall be deposited by
the Canadian Borrower with the Administrative Agent to cash collateralize
Bankers' Acceptances in substantially the same manner as provided in clause
(j) of Schedule XI and (ii) to the extent such excess exceeds the amount
applied pursuant to preceding clause (i), the Company shall pay to the
Administrative Agent at the Payment Office on such date an amount of cash
or Cash Equivalents equal to the amount of such excess (less the amount
applied pursuant to preceding clause (i)) (up to a maximum
- 33 -
<PAGE>
amount equal to the Letter of Credit Outstandings at such time), such cash
or Cash Equivalents to be held as security for all obligations of the
Company to the Non-Defaulting Banks hereunder in a cash collateral account
(which shall permit the investment of funds held therein in Cash
Equivalents satisfactory to the Administrative Agent, with remittances of
excess funds (including investment income), if any, on deposit in said cash
collateral account to be made from time to time, so long as no Event of
Default then exists, on a basis satisfactory to the Administrative Agent)
to be established by the Administrative Agent.
(ii) On any day on which the aggregate outstanding principal amount of
the Revolving Loans (for this purpose, using the Dollar Equivalent of the
outstanding principal or Face Amount, as the case may be, of outstanding
Canadian Dollar Revolving Loans) made by any Defaulting Bank exceeds the
Commitment of such Defaulting Bank, the Company or the Canadian Borrower,
as the case may be, shall prepay principal of Revolving Loans of such
Defaulting Bank in an amount equal to such excess.
(iii) On any day on which the aggregate outstanding principal amount
of Canadian Borrower Revolving Loans (for this purpose, using the Dollar
Equivalent of the outstanding principal or Face Amount, as the case may be,
of outstanding Canadian Dollar Revolving Loans) exceeds the Canadian
Borrower Percentage as then in effect of the Total Canadian Sub-Commitment
as then in effect, the Canadian Borrower shall repay on such day principal
of outstanding Canadian Borrower Revolving Loans (other than Bankers'
Acceptance Loans prior to the maturity of the related Bankers' Acceptances)
in an amount equal to such excess. If, after giving effect to the
prepayment in full of all outstanding Canadian Borrower Revolving Loans
other than the Bankers' Acceptance Loans referenced in the immediately
preceding sentence, the aggregate outstanding Face Amount of Bankers'
Acceptance Loans exceeds the Canadian Borrower Percentage as then in effect
of the Total Canadian Sub-Commitment as then in effect, the Canadian
Borrower shall pay to the Administrative Agent (or Canadian Paying Agent)
at the relevant Payment Office on such date an amount of cash or Cash
Equivalents equal to the amount of such excess, such
- 34 -
<PAGE>
cash or Cash Equivalents to be held as security for the obligations of the
Canadian Borrower hereunder on substantially the same basis as contemplated
by clause (j) of Schedule XI. The payments required by preceding clause
(iii) shall be without duplication of payments required to be made pursuant
to Sections 4.02(a)(i) and (ii).
(iv) On any day on which the aggregate outstanding principal amount of
Company Revolving Loans and Swingline Loans and the amount of Letter of
Credit Outstandings exceeds an amount equal to (x) the Total Commitment as
then in effect less (y) the Canadian Borrower Percentage as then in effect
of the Total Canadian Sub-Commitment as then in effect, the Company shall
repay on such day principal of outstanding Company Revolving Loans and/or
Swingline Loans in an amount equal to such excess. If, after giving effect
to the prepayment in full of all outstanding Company Revolving Loans and
Swingline Loans, the aggregate amount of Letter of Credit Outstandings at
such time exceeds an amount equal to (x) the Total Commitment as then in
effect less (y) the Canadian Borrower Percentage as then in effect of the
Total Canadian Sub-Commitment as then in effect, the Company shall pay to
the Administrative Agent at the relevant Payment Office on such date an
amount of cash or Cash Equivalents equal to the amount of such excess, such
cash or Cash Equivalents to be held as security for the obligations of the
Company hereunder on substantially the same basis as contemplated by clause
(i) above. The payments required by preceding clause (iv) shall be without
duplication of payments required to be made pursuant to Sections 4.02(a)(i)
and (ii).
(b) With respect to each repayment of Loans required by this Section
4.02, the respective Borrower may designate the Types of Loans of the
respective Tranche which are to be repaid and, in the case of Eurodollar
Rate Loans and Bankers' Acceptance Loans, the specific Borrowing or
Borrowings pursuant to which made; provided that: (i) repayments of
Eurodollar Rate Loans by either Borrower pursuant to this Section 4.02 may
only be made on the last day of an Interest Period applicable thereto
unless all Eurodollar Rate Loans to such Borrower with Interest Periods
ending on such date of required repayment and all Base Rate
- 35 -
<PAGE>
Loans to such Borrower and, in the case of the Canadian Borrower, all
Canadian Prime Rate Loans have been paid in full; (ii) if any repayment of
Eurodollar Rate Loans made pursuant to a single Borrowing shall reduce the
outstanding Loans made pursuant to such Borrowing to an amount less than
$5,000,000, such Borrowing shall immediately be converted into Base Rate
Loans; (iii) each repayment of any Loans made pursuant to a Borrowing shall
be applied pro rata among such Loans; (iv) notwithstanding the provisions
of the preceding clause (iii), no prepayment of Revolving Loans made
pursuant to Section 4.02(a)(i) shall be applied to the Revolving Loans of
any Defaulting Bank and prepayments pursuant to Section 4.02(a)(ii) shall
only be applied to the Revolving Loans of the respective Defaulting Bank;
and (v) no repayment of Bankers' Acceptance Loans may be made prior to the
maturity date of the related Bankers' Acceptances. In the absence of a
designation by the respective Borrower as described in the preceding
sentence, the Administrative Agent shall, subject to the above, make such
designation in its sole discretion.
(c) Notwithstanding anything to the contrary contained elsewhere in
this Agreement, all then outstanding Loans shall be repaid in full on the
Final Maturity Date.
4.03 Method and Place of Payment. Except as otherwise specifically
provided herein, all payments under this Agreement or any Note shall be
made to the relevant Paying Agent for the account of the Bank or Banks
entitled thereto not later than 12:00 Noon (New York time) on the date when
due and shall be made in immediately available funds at the respective
Payment Office, with all such payments to be made (x) in all cases not
expressly covered by following clause (y), in Dollars and (y) in Canadian
Dollars in cases where the respective payment is made in respect of (i)
principal of, or Face Amount of, as the case may be, or interest on
Canadian Dollar Revolving Loans or (ii) any increased costs, indemnities or
other amounts owing with respect to Canadian Dollar Revolving Loans (or
Commitments relating thereto) to the extent the respective Bank which is
charging same denominates the amounts owing in Canadian Dollars. Whenever
any payment to be made hereunder or under any Note shall be stated to be
due on a day which is not a Business
- 36 -
<PAGE>
Day, the due date thereof shall be extended to the next succeeding Business
Day and, with respect to payments of principal, interest shall be payable
at the applicable rate during such extension.
4.04 Net Payments. (a) All payments made by each Borrower hereunder or
under any Note will be made without setoff, counterclaim or other defense.
Except as provided in Section 4.04(b), all such payments will be made free
and clear of, and without deduction or withholding for, any present or
future taxes, levies, imposts, duties, fees, assessments or other charges
of whatever nature now or hereafter imposed by any jurisdiction or by any
political subdivision or taxing authority thereof or therein with respect
to such payments (but excluding, except as provided in the second
succeeding sentence, any tax imposed on or measured by the net income or
net profits of a Bank pursuant to the laws of the jurisdiction in which it
is organized or the jurisdiction in which the principal office or
applicable lending office of such Bank is located or any subdivision
thereof or therein) and all interest, penalties or similar liabilities with
respect to such non-excluded taxes, levies, imposts, duties, fees,
assessments or other charges (all such non-excluded taxes, levies, imposts,
duties, fees, assessments or other charges being referred to collectively
as "Taxes"). If any Taxes are so levied or imposed, the respective Borrower
agrees to pay the full amount of such Taxes, and such additional amounts as
may be necessary so that every payment of all amounts due under this
Agreement or under any Note, after withholding or deduction for or on
account of any Taxes, will not be less than the amount provided for herein
or in such Note. If any amounts are payable in respect of Taxes pursuant to
the preceding sentence, the respective Borrower agrees to reimburse each
Bank, upon the written request of such Bank, for taxes imposed on or
measured by the net income or net profits of such Bank pursuant to the laws
of the jurisdiction in which such Bank is organized or in which the
principal office or applicable lending office of such Bank is located or
under the laws of any political subdivision or taxing authority of any such
jurisdiction in which such Bank is organized or in which the principal
office or applicable lending office of such Bank is located and for any
withholding of taxes as such Bank shall determine are payable by,
- 37 -
<PAGE>
or withheld from, such Bank, in respect of such amounts so paid to or on
behalf of such Bank pursuant to the preceding sentence and in respect of
any amounts paid to or on behalf of such Bank pursuant to this sentence.
The respective Borrower will furnish to the Administrative Agent within 45
days after the date the payment of any Taxes is due pursuant to applicable
law certified copies of tax receipts evidencing such payment by the
respective Borrower. Each Borrower agrees to indemnify and hold harmless
each Bank, and reimburse such Bank upon its written request, for the amount
of any Taxes so levied or imposed and paid by such Bank.
(b) Each Bank that is not a United States person (as such term is
defined in Section 7701(a)(30) of the Code) for U.S. Federal income tax
purposes and that makes Loans to the Company agrees to deliver to the
Company and the Administrative Agent on or prior to the Restatement
Effective Date, or in the case of a Bank that is an assignee or transferee
of an interest under this Agreement pursuant to Section 1.12 or 13.04
(unless the respective Bank was already a Bank hereunder immediately prior
to such assignment or transfer), on the date of such assignment or transfer
to such Bank, (i) two accurate and complete original signed copies of
Internal Revenue Service Forms 4224 or 1001 (or successor forms) certifying
to such Bank's entitlement as of such date to a complete exemption from
United States withholding tax with respect to payments to be made by the
Company under this Agreement and under any Note, or (ii) if the Bank is not
a "bank" within the meaning of Section 881(c)(3)(A) of the Code and cannot
deliver either Internal Revenue Service Form 1001 or 4224 pursuant to
clause (i) above, (x) a certificate substantially in the form of Exhibit D
(any such certificate, a "Section 4.04(b)(ii) Certificate") and (y) two
accurate and complete original signed copies of Internal Revenue Service
Form W-8 (or successor form) certifying to such Bank's entitlement to a
complete exemption from United States withholding tax with respect to
payments of interest to be made by the Company under this Agreement and
under any Note. In addition, each Bank agrees that from time to time after
the Restatement Effective Date, when a lapse in time or change in
circumstances renders the previous certification obsolete or inaccurate in
any material
- 38 -
<PAGE>
respect or upon reasonable written request of Company, it will deliver to
the Company and the Administrative Agent two new accurate and complete
original signed copies of Internal Revenue Service Form 4224 or 1001, or
Form W-8 and a Section 4.04(b)(ii) Certificate, as the case may be, and
such other forms as may be required in order to confirm or establish the
entitlement of such Bank to a continued exemption from or reduction in
United States withholding tax with respect to payments by the Company under
this Agreement and any Note, or it shall immediately notify the Company and
the Administrative Agent of its inability to deliver any such Form or
Certificate, in which case such Bank shall not be required to deliver any
such Form or Certificate pursuant to this Section 4.04(b). Notwithstanding
anything to the contrary contained in Section 4.04(a), but subject to
Section 13.04(b) and the immediately succeeding sentence, (x) the Company
shall be entitled, to the extent it is required to do so by law, to deduct
or withhold income or similar taxes imposed by the United States (or any
political subdivision or taxing authority thereof or therein) from
interest, Fees or other amounts payable by the Company hereunder for the
account of any Bank which is not a United States person (as such term is
defined in Section 7701(a)(30) of the Code) for U.S. Federal income tax
purposes to the extent that such Bank has not provided to the Company U.S.
Internal Revenue Service forms, certificates or documentation that
establish a complete exemption from such deduction or withholding and (y)
except with respect to payments required to be made by the Company pursuant
to Section 14 hereof, the Company shall not be obligated pursuant to
Section 4.04(a) hereof to gross-up payments to be made to a Bank in respect
of income or similar taxes imposed by the United States if (I) such Bank
has not provided to the Company the Internal Revenue Service Forms required
to be provided to the Company pursuant to this Section 4.04(b) or (II) in
the case of a payment, other than interest, to a Bank described in clause
(ii) above, to the extent that such Forms do not establish a complete
exemption from withholding of such taxes. Notwithstanding anything to the
contrary contained in the preceding sentence or elsewhere in this Section
4.04 and except as set forth in Section 13.04(b), the Company agrees to pay
any additional amounts and to indemnify each Bank in the manner set forth
in Section 4.04(a)
- 39 -
<PAGE>
(without regard to the identity of the jurisdiction requiring the deduction
or withholding) in respect of any Taxes deducted or withheld by it as
described in the immediately preceding sentence as a result of any changes
that are effective after the Restatement Effective Date in any applicable
law, treaty, governmental rule, regulation, guideline or order, or in the
interpretation thereof, relating to the deducting or withholding of such
Taxes.
(c) If any Borrower pays any additional amount under this Section 4.04
to a Bank and such Bank determines in its sole discretion that it has
actually received in connection therewith any refund of Tax in or with
respect to the taxable year in which the additional amount is paid, such
Bank shall pay to such Borrower an amount that the Bank shall, in its sole
discretion, determine is equal to the net benefit, after tax, which was
obtained by the Bank in such year as a consequence of such refund."
7. Section 6 of the Credit Agreement is hereby amended by deleting the text
"the Company" in the final paragraph of said Section and inserting in lieu
thereof the text "each Borrower."
8. Section 7 of the Credit Agreement is hereby amended by deleting the text
"the Company" appearing in the introductory paragraph therein and inserting lieu
thereof the text "each Borrower".
9. Section 7.08(a)(ii) of the Credit Agreement is hereby amended by (i)
inserting the text "by the respective Borrower" immediately after the text
"shall be used" appearing therein and (ii) deleting the parenthetical appearing
therein and inserting in lieu thereof the following new parenthetical:
"(including acquisitions and, in the case of the Canadian Borrower, the
payment of dividends or distributions to the Company)".
10. Section 8.01 of the Credit Agreement is hereby amended by (i) deleting
clause (a) in its entirety and redesignating clauses (b), (c), (d), (e), (f),
(g), (h), (i), (j), (k), (l), and (m) as (a), (b), (c),(d), (e), (f), (g), (h),
(i), (j), (k) and (l), respectively, (ii) deleting the text "8.01(b) or (c)" in
each place it appears in
- 40 -
<PAGE>
Section 8.01(e) and (j) (as so redesignated) and inserting in lieu thereof the
text "8.01(a) or (b)".
11. Section 8.14 of the Credit Agreement is hereby amended by (i) deleting
the amount "$30,000,000" appearing therein and inserting in lieu thereof the
amount "$60,000,000" and (ii) deleting the amount "$50,000,000" appearing
therein and inserting in lieu thereof the amount "$100,000,000".
12. Section 8.15 of the Credit Agreement is hereby amended by inserting in
appropriate order the following new clause (h):
"(h) In the event that the Canadian Borrower at any time owns,
acquires or establishes any Subsidiary organized under the laws of Canada
or any province or territory thereof (each a "Canadian Borrower Canadian
Subsidiary"), the Canadian Borrower shall (within thirty days after the
Third Amendment Effective Date or, if later, the date of the creation,
acquisition or establishment of the respective Canadian Borrower Canadian
Subsidiary) cause each such Canadian Borrower Canadian Subsidiary to
execute and deliver an unconditional guaranty of all obligations of the
Canadian Borrower under this Agreement, each of which guaranties shall be
in form and substance satisfactory to the Administrative Agent (which each
such guaranty being herein called a "Canadian Guaranty")."
13. Section 9.01 of the Credit Agreement is hereby amended by (i)
redesignating clause (xxii) in Section 9.01 as clause (xiii) and inserting in
lieu thereof the following new clause (xxii):
"(xxii) Liens placed on equipment or machinery securing Indebtedness
incurred pursuant to Section 9.04(xx), provided that the respective Lien
does not secure any other Indebtedness; and"
and (ii) deleting the references to "(xxi)" and "(xxii)" in Section 9.01(xxiii)
(as so redesignated) and inserting in lieu thereof the references "(xxii)" and
"(xxiii)", respectively.
14. Section 9.02 of the Credit Agreement as hereby amended by (i) deleting
the word "and" appearing at the
- 41 -
<PAGE>
end of clause (xx), (ii) deleting the period appearing at the end of clause
(xxi) and inserting in lieu thereof the text "; and" and (iii) inserting in the
appropriate order the following new clause (xxii):
"(xxii) the Company shall be permitted to transfer the assets of its
Haber Tool division to DM&T, Inc. (d/b/a Danti Tool & Die) so long as DM&T,
Inc. is both a Domestic Subsidiary and a Subsidiary Guarantor."
15. Section 9.04 of the Credit Agreement is hereby amended by inserting in
the appropriate order the following new clause (xx):
"(xx) Indebtedness that is owed to, guaranteed by or otherwise
subsidized by a federal, provincial or local governmental or
quasi-governmental authority, in an aggregate principal amount outstanding
at any one time not in excess of $7,000,000 (or the Canadian Dollar
Equivalent thereof)."
16. Section 9.05 of the Credit Agreement is hereby amended by (i) deleting
the amount "$20,000,000" appearing in clause (v) thereof and inserting in lieu
thereof the amount "$60,000,000", (ii) deleting the word "and" appearing at the
end of clause (xix) thereof, (iii) deleting the period appearing at the end of
clause (xx) and inserting in lieu thereof the text "; and" and (iv) inserting in
the appropriate order the following new clause (xxi):
"(xxi) the Company may make investments in any Wholly-Owned Subsidiary
of the Company that is both a Domestic Subsidiary and a Subsidiary
Guarantor."
17. Section 9.07 of the Credit Agreement is hereby amended by deleting the
table appearing therein and inserting in lieu thereof the following new table:
"Fiscal Year Ending Amount
------------------- ------
December 31, 1997 $90 million
December 31, 1998 $75 million
December 31, 1999 $65 million
December 31, 2000 $65 million
December 31, 2001 $70 million"
18. Section 10.01 of the Credit Agreement is hereby amended by (i) deleting
the text "The Company" in
- 42 -
<PAGE>
said Section and inserting in lieu thereof the text "Any Borrower", (ii)
deleting the text "the Company" in said Section and inserting in lieu thereof
the text "such Borrower" and (iii) inserting the text "or Face Amount of, as the
case may be," immediately after the text "of any principal of" appearing in
clause (i) of said Section.
19. Section 10.03 of the Credit Agreement is hereby amended by (i) deleting
the text "The Company" in said Section and inserting in lieu thereof the text
"Any Borrower", (ii) deleting the text "the Company" in said Section and
inserting in lieu thereof the text "such Borrower" and (iii) deleting the
Section reference "8.01(g)(i)" in said Section and inserting in lieu thereof the
Section reference "8.01(f)(i)".
20. Section 10.05 of the Credit Agreement is hereby amended by deleting the
text "or the Company or any "Specified Subsidiary commences any other proceeding
under any reorganization, arrangement, adjustment of debt, relief of debtors,
dissolution, insolvency or liquidation" in said Section and inserting in lieu
thereof the new text "or the Company or any Specified Subsidiary commences any
other proceeding (including, without limitation, any plan of compromise or
arrangement or other corporate proceeding involving or affecting its creditors)
under any reorganization, arrangement, adjustment of debt, relief of debtors,
dissolution, bankruptcy, insolvency or liquidation".
21. The last paragraph of Section 10 of the Credit Agreement is hereby
amended by (i) deleting the text "the Company" appearing in the first proviso
thereof and in the parenthetical appearing in clause (iv) and, in each case,
inserting the text "any Borrower" in lieu thereof, (ii) redesignating clause (v)
as clause (vi) and (iii) inserting the following new clause (v):
"(v) direct the Canadian Borrower to pay (and the Canadian Borrower agrees
that upon receipt of such notice, or upon the occurrence of an Event of
Default specified in Section 10.05 with respect to any Borrower, it will
pay) to the Administrative Agent all amounts required to be paid pursuant
to clause (j) of Schedule XI regarding the outstanding Bankers
Acceptances;".
- 43 -
<PAGE>
22. Section 11 of the Credit Agreement is hereby amended by inserting the
following new definitions in appropriate alphabetical order:
"Acceptance Fee" shall mean, in respect of a Bankers' Acceptance, a
fee calculated on the Face Amount of such Bankers' Acceptance at a rate per
annum equal to the Applicable Margin that would be payable with respect to
a Eurodollar Loan drawn on the Drawing Date of such Bankers' Acceptance.
Acceptance Fees shall be calculated on the basis of the term to maturity of
the Bankers' Acceptance and a year of 365 days.
"Adjustment Date" shall have the meaning provided in Section 1.16(b).
"Aggregate Non-Canadian Exposure" at any time shall mean the aggregate
principal amount of all Company Revolving Loans and Swingline Loans then
outstanding and the aggregate amount of all U.S. Letter of Credit
Outstandings at such time.
"Applicable Currency" shall mean Dollars or Canadian Dollars, as the
case may be.
"BA Discount Proceeds" shall mean, in respect of any Bankers'
Acceptance to be purchased by a Canadian Bank on any date pursuant to
Section 1.01 and Schedule XI hereto, an amount rounded to the nearest whole
Canadian cent, and with one-half of one Canadian cent being rounded up
calculated on such day by dividing:
(a) the Face Amount of such Bankers' Acceptance; by
(b) the sum of one plus the product of:
(i) the Reference Discount Rate (expressed as a decimal)
applicable to such Bankers' Acceptance; and
(ii) a fraction, the numerator of which is the number of days in
the term of such Bankers' Acceptance and the denominator of
which is 365;
- 44 -
<PAGE>
with such product being rounded up or down to the fifth
decimal place and .000005 being rounded up.
"Bankers' Acceptance" means a Draft accepted by a Canadian Bank
pursuant to Section 1.01 and Schedule XI hereto.
"Bankers' Acceptance Loans" shall mean the creation and discount of
Bankers' Acceptances as contemplated in Section 1.01 hereof and Schedule XI
hereto.
"Borrowers" shall mean each of the Company and the Canadian Borrower.
"Canadian Bank" means (i) each Person listed on Part B of Schedule I,
and (ii) each additional Person that becomes a Canadian Bank party hereto
in accordance with Section 1.13 and/or 13.04. It is understood and agreed
that each Canadian Bank shall either be a Bank, or be an affiliate of a
Bank, with a Commitment pursuant to this Agreement which equals or exceeds
the Canadian Sub-Commitment of the respective Canadian Bank. A Canadian
Bank shall cease to be a "Canadian Bank" when it has assigned all of its
Canadian Sub-Commitments in accordance with Section 1.13 and/or 13.04. For
purposes of this Agreement, "Bank" includes each Canadian Bank unless the
context otherwise requires.
"Canadian Borrower" shall mean Coltec Aerospace Canada Ltd., an
Ontario corporation.
"Canadian Borrower Canadian Subsidiary" shall have the meaning
provided in Section 8.15(h).
"Canadian Borrower Percentage" at any time shall mean the Canadian
Borrower Percentage as determined in accordance with Section 1.16(b).
"Canadian Borrower Revolving Loans" shall mean and include all
Canadian Dollar Revolving Loans and all Canadian Borrower U.S. Dollar
Revolving Loans.
"Canadian Borrower U.S. Dollar Revolving Loan" shall have the meaning
provided in Section 1.01(a).
- 45 -
<PAGE>
"Canadian Borrower U.S. Dollar Revolving Note" shall have the meaning
provided in Section 1.05(a).
"Canadian Dollar Equivalent" shall mean, at any time for the
determination thereof, the amount of Canadian Dollars which could be
purchased with the amount of Dollars involved in such computation at the
spot rate of exchange therefor as quoted by the Canadian Paying Agent as of
11:00 A.M. (New York time) on the date two Business Days prior to the date
of any determination thereof for purchase on such date.
"Canadian Dollars" and "Cdn" shall mean freely transferable lawful
money of Canada.
"Canadian Dollar Revolving Loan" shall have the meaning provided in
Section 1.01(a).
"Canadian Dollar Revolving Note" shall have the meaning provided in
Section 1.05(a).
"Canadian Guaranteed Obligations" shall mean the principal and
interest on each Revolving Note issued by the Canadian Borrower to any Bank
or Canadian Bank, and all Canadian Borrower Revolving Loans made under this
Agreement, together with all the other obligations (including obligations
which, but for any automatic stay under Section 362(a) of the Bankruptcy
Code, or any other stay under applicable law, would become due) and
liabilities (including, without limitation, indemnities, fees and interest
thereon) of the Canadian Borrower to each Bank, each Canadian Bank, the
Agents and the Collateral Agent now existing or hereafter incurred under,
arising out of or in connection with this Agreement or any other Credit
Document and the due performance and compliance with all the terms,
conditions and agreements contained in the Credit Documents by the Canadian
Borrower.
"Canadian Guaranty" shall have the meaning provided in Section
8.15(h).
"Canadian Paying Agent" shall have the meaning provided in Section
1.15.
"Canadian Percentage" of any Canadian Bank at any time shall mean a
fraction (expressed as a percentage) the numerator of which is the Canadian
Sub-Commitment
- 46 -
<PAGE>
of such Canadian Bank at such time and the denominator of which is the
aggregate amount of Canadian Sub-Commitments of all Canadian Banks at such
time, provided that if the Canadian Percentage of any Canadian Bank is to
be determined after the Total Commitment has been terminated, then the
Canadian Percentages of the Canadian Banks shall be determined immediately
prior (and without giving effect) to such termination.
"Canadian Prime Rate" means, at any time, the greater of (i) the per
annum rate of interest quoted, published and commonly known as the "prime
rate" of the Canadian Paying Agent which the Canadian Paying Agent
establishes at its main office in Toronto, Ontario as the reference rate of
interest in order to determine interest rates for loans in Canadian Dollars
to its Canadian borrowers, adjusted automatically with each quoted or
published change in such rate, all without the necessity of any notice to
the Canadian Borrower or any other Person, and (ii) the sum of (x) the
average of the rates per annum for Canadian Dollar bankers' acceptances
having a term of 30 days that appears on the Reuters Screen CDOR Page as of
10:00 a.m. (Toronto time) on the date of determination, as reported by the
Canadian Paying Agent (and if such screen is not available, any successor
or similar service as may be selected by the Canadian Paying Agent), and
(y) 0.75%.
"Canadian Prime Rate Loans" shall mean any Canadian Dollar Revolving
Loan designated or deemed designated as such by the Canadian Borrower at
the time of the incurrence thereof or conversion thereto.
"Canadian Sub-Commitment" means, as to any Canadian Bank, (i) the
amount set forth, in Dollars, opposite such Canadian Bank's name in Part B
of Schedule I directly below the column entitled "Canadian Sub-Commitment",
as same may be (x) reduced from time to time pursuant to Section 3.02, 3.03
and/or 10 or (y) adjusted from time to time as a result of assignments to
or from such Bank pursuant to Section 1.13 or 13.04(b). The Canadian
Sub-Commitment of each Canadian Bank is a sub-limit of the Commitment of
the respective Canadian Bank (or its respective Affiliate which is a Bank
with the related Commitment) and not an additional commitment and, in no
event, may
- 47 -
<PAGE>
exceed at any time the amount of the Commitment of such Canadian Bank (or
its respective Affiliate which is a Bank with the related Commitment).
"Company Guaranty" shall mean the guaranty of the Company pursuant to
Section 14 of this Agreement.
"Company Percentage" at any time shall mean the Company Percentage as
determined in accordance with the provisions of Section 1.16(b).
"Company Revolving Loan" shall have the meaning provided in Section
1.01(a).
"Company Revolving Note" shall have the meaning provided in Section
1.05(a).
"Dollar Equivalent" of an amount denominated in a currency other than
Dollars (the "Other Currency") shall mean, at any time for the
determination thereof, the amount of Dollars which could be purchased with
the amount of Other Currency involved in such computation at the spot
exchange rate therefor as quoted by the Administrative Agent as of 11:00
A.M. (New York time) on the date two Business Days prior to the date of any
determination thereof for purchase on such date; provided that for purposes
of (x) determining compliance with Sections 1.01, 2.01 and 4.02(a) and (y)
calculating Commitment Commission pursuant to Section 3.01(a), the Dollar
Equivalent of any amounts outstanding in Canadian Dollars shall be revalued
on a quarterly basis using the spot exchange rate therefor quoted in the
Wall Street Journal on the last Business Day of each calendar quarter;
provided, however, that the Administrative Agent may revalue the Dollar
Equivalent of any such amounts outstanding in Canadian Dollars described in
the preceding proviso of this definition at any time, at its sole
discretion or at the direction of the Required Banks, when the Dollar
Equivalent of the aggregate principal amount or Face Amount, as the case
may be, of all Canadian Dollar Revolving Loans outstanding on the date of
any revaluation pursuant to this proviso would change by at least 5% of the
Total Canadian Sub-Commitment at such time as a result of the revaluation
made pursuant to this proviso.
- 48 -
<PAGE>
"Dollar Loan" shall mean each Dollar Revolving Loan and each Swingline
Loan.
"Dollar Revolving Loans" shall mean each Base Rate Loan and each
Eurodollar Rate Loan.
"Dollar Revolving Note" shall have the meaning provided in Section
1.05(a).
"Draft" means at any time a blank bill of exchange, within the meaning
of the Bills of Exchange Act (Canada), drawn by the Canadian Borrower on a
Canadian Bank and bearing such distinguishing letters and numbers as such
Canadian Bank may determine, but which at such time has not been completed
or accepted by such Canadian Bank.
"Drawing Date" means any Business Day fixed pursuant to Schedule XI
for the creation and purchase of Bankers' Acceptances by a Canadian Bank
pursuant to Schedule XI.
"Face Amount" means, in respect of a Bankers' Acceptance, the amount
payable to the holder thereof on its maturity. The Face Amount of any
Bankers' Acceptance Loan shall be equal to the Face Amounts of the
underlying Bankers' Acceptances.
"Guaranteed Creditors" shall mean and include each Bank, each Canadian
Bank, the Agents and the Collateral Agent.
"Judgment Currency" shall have the meaning provided in Section
13.21(a).
"Judgment Currency Conversion Date" shall have the meaning provided in
Section 13.21(a).
"Non-Canadian Sub-Commitment" means, for any Bank at any time, such
Bank's Commitment minus, in the case of a Bank that is, or whose Affiliate
is, a Canadian Bank, such Bank's or such Affiliate's Canadian
Sub-Commitment.
"Obligation Currency" shall have the meaning provided in Section
13.21(a).
- 49 -
<PAGE>
"Over-Allotted Lender" shall have the meaning provided in clause (e)
of Schedule XI.
"Paying Agent" shall mean (i) in respect of Company Revolving Loans,
Letters of Credit, Fees (other than Acceptance Fees) and, except as
provided in clause (ii) below, all other amounts owing under this Agreement
and the other Credit Documents, the Administrative Agent and (ii) in the
case of Canadian Borrower Revolving Loans, the Canadian Paying Agent.
"Reference Discount Rate" means, in respect of any Bankers'
Acceptances to be purchased by a Canadian Bank pursuant to Section 1.01 and
Schedule XI hereto, the arithmetic average of the discount rates
(calculated on an annual basis and rounded to the nearest one-hundredth of
1%, with five-thousandths of 1% being rounded up) quoted by each Reference
Lender at 10:00 a.m. (Toronto time) as the discount rate at which such
Reference Lender would purchase, on the relevant Drawing Date, its own
bankers' acceptances having an aggregate Face Amount equal to and with a
term to maturity the same as the Bankers' Acceptances to be acquired by
such Canadian Bank on such Drawing Date.
"Reference Lenders" means in respect of Bankers' Acceptances,
collectively, BT Bank of Canada and Bank of Montreal; and "Reference
Lender" means any one of them, as the context requires.
"Revolving Note" shall mean and include each Company Revolving Note,
each Canadian Dollar Revolving Note and each Canadian Borrower U.S. Dollar
Revolving Note.
"RL Percentage" of any Bank at any time shall mean a fraction
(expressed as a percentage) the numerator of which is the Non-Canadian
Sub-Commitment of such Bank at such time and the denominator of which is
the aggregate amount of Non-Canadian Sub-Commitments of all Banks at such
time, or, in the case of a Bank that is, or whose Affiliate is, a Canadian
Bank, at any time when (and then only to the extent that) the Aggregate
Non-Canadian Exposure equals or exceeds the aggregate of the Non-Canadian
Sub-Commitments, such Bank's or such Affiliate's Canadian Percentage.
Notwithstanding anything to the contrary
- 50 -
<PAGE>
contained above, if the RL Percentage of any Bank is to be determined after
the Total Commitment has been terminated, then the RL Percentages of the
Banks shall be determined immediately prior (and without giving effect) to
such termination (and without giving effect to the termination of the
Non-Canadian Sub-Commitments).
"Third Amendment" shall mean the Third Amendment, dated as of December
18, 1997, to this Agreement.
"Third Amendment Effective Date" shall mean the date the Third
Amendment becomes effective in accordance with its terms.
"Total Canadian Sub-Commitment" at any time shall mean the sum of the
Canadian Sub-Commitments of all the Canadian Banks; provided that at no
time shall the Total Canadian Sub-Commitment exceed the Total Commitment as
then in effect.
"Total Non-Canadian Sub-Commitment" at any time shall mean the sum of
the Non-Canadian Sub-Commitments of all the Banks; provided that at no time
shall the Total Non-Canadian Sub-Commitment exceed the Total Commitment as
then in effect.
"Total Non-Canadian Sub-Commitment Excess" shall have the meaning
provided in Section 4.01.
23. The definition of "Additional Permitted Acquisition Amount" appearing
in Section 11 of the Credit Agreement is hereby amended by deleting the numbers
"25", "33", "39" and "45" in said Section and inserting in lieu thereof the
numbers "35", "40", "50" and "50", respectively.
24. The definition of "Adjusted Percentage" appearing in Section 11 of the
Credit Agreement is hereby amended by deleting such definition in its entirety
and inserting in lieu thereof the following new definition:
"Adjusted Percentage" shall mean (x) at a time when no Bank Default
exists, for each Bank such Bank's RL Percentage and (y) at a time when a
Bank Default exists (i) for each Bank that is a Defaulting Bank, zero and
(ii) for each Bank that is a Non-Defaulting Bank, such Bank's RL Percentage
as same would be determined if the Commitments (and Non-Canadian
Sub-
- 51 -
<PAGE>
Commitments and Canadian Sub-Commitments ) of all Defaulting Banks did not
exist and as if the Total Commitment (and Total Non-Canadian Sub-Commitment
and Total Canadian Sub-Commitment) were reduced thereby; provided that (A)
no Bank's Adjusted Percentage shall change upon the occurrence of a Bank
Default from that in effect immediately prior to such Bank Default if after
giving effect to such Bank Default, and any repayment of Revolving Loans
and Swingline Loans at such time pursuant to Section 4.02(a) or otherwise,
the sum of (i) the aggregate outstanding principal amount of Revolving
Loans of all Non-Defaulting Banks (for this purpose, using the Dollar
Equivalent of the outstanding principal amount or Face Amount, as the case
may be, of all Canadian Dollar Revolving Loans) plus (ii) the aggregate
principal amount of Swingline Loans plus (iii) the Letter of Credit
Outstandings, would exceed the Adjusted Total Commitment; (B) the changes
to the Adjusted Percentage that would have become effective upon the
occurrence of a Bank Default but that did not become effective as a result
of the preceding clause (A) shall become effective on the first date after
the occurrence of the relevant Bank Default on which the sum of (i) the
aggregate outstanding principal amount of the Revolving Loans of all
Non-Defaulting Banks (for this purpose, using the Dollar Equivalent of the
outstanding principal amount or Face Amount, as the case may be, of all
Canadian Dollar Revolving Loans) plus (ii) the aggregate outstanding
principal amount of the Swingline Loans plus (iii) the Letter of Credit
Outstandings is equal to or less than the Adjusted Total Commitment; and
(C) if (i) a Non-Defaulting Bank's Adjusted Percentage is changed pursuant
to the preceding clause (B) and (ii) any repayment of such Bank's Revolving
Loans, or of Unpaid Drawings with respect to Letters of Credit or of
Swingline Loans, that were made during the period commencing after the date
of the relevant Bank Default and ending on the date of such change to its
Adjusted Percentage must be returned to either Borrower as a preferential
or similar payment in any bankruptcy or similar proceeding of either
Borrower, then the change to such Non-Defaulting Bank's Adjusted Percentage
effected pursuant to said clause (B) shall be reduced to that positive
change, if any, as would have been made to its Adjusted Percentage if (x)
such repayments had not been made and (y) the maximum change to its
Adjusted Percentage would have resulted in the sum of
- 52 -
<PAGE>
the outstanding principal of Revolving Loans made by such Bank (for this
purpose, using the Dollar Equivalent of the outstanding principal amount or
Face Amount, as the case may be, of all Canadian Dollar Revolving Loans)
plus such Bank's new Adjusted Percentage of the outstanding principal
amount of Swingline Loans and Letter of Credit Outstandings equalling such
Bank's Commitment at such time.
25. The definition of "Agent" appearing in Section 11 of the Credit
Agreement is hereby amended by deleting said definition in its entirety and
inserting in lieu thereof the following new definition:
"Agent" shall mean any of the Administrative Agent, the Documentation
Agent, the Syndication Agent and the Canadian Paying Agent.
26. The definition of "Applicable Commitment Commission Percentage" and
"Applicable Margin" appearing in Section 11 of the Credit Agreement is hereby
amended by deleting said definition in its entirety and inserting in lieu
thereof the following new definition:
"Applicable Commitment Commission Percentage" and "Applicable Margin"
shall mean (i) for the period from the Restatement Effective Date to but
not including the first Start Date after the Restatement Effective Date,
the percentage per annum set forth below:
Applicable Applicable Margin Applicable Margin
Commitment for for
Percentage Base Rate Loans Eurodollar Rate Loans
---------- --------------- ---------------------
.375% 0% .875%
and (ii) during each Margin Adjustment Period beginning after the Restatement
Effective Date, the percentage per annum set forth below opposite the Leverage
Ratio indicated to have been achieved on the applicable Test Date for such
Margin Adjustment Period (as shown on the respective officer's certificate
delivered pursuant to Section 8.01(e)):
- 53 -
<PAGE>
<TABLE>
<CAPTION>
Applicable
Margin for
Applicable Base Rate Applicable
Commitment Loans and Margin for
Commission Canadian Prime Eurodollar Rate
Level Leverage Ratio Percentage Rate Loans Loans
----- -------------- ---------- ---------- -----
<S> <C> <C> <C> <C>
1 Less than 2.50:1.00 0.1875% 0% 0.50%
2 Greater than or equal to 0.250% 0% 0.625%
2.50:1.00 but less than 3.00:1.00
3 Greater than or equal to 0.250% 0% 0.75%
3.00:1.00 but less than 3.25:1.00
4 Greater than or equal to 0.375% 0% 0.875%
3.25:1.00 but less than 3.75:1.00
5 Greater than or equal to 3.75:1.00 0.375% .25% 1.25%
</TABLE>
; provided, however, that (i) if by the last day of any Margin Adjustment
Period, the Borrower has failed to deliver the financial statements required to
be delivered pursuant to Section 8.01(a) or (b) (accompanied by the officer's
certificate required by Section 8.01(e) showing the applicable Leverage Ratio on
the relevant Test Date) as at the end of the fiscal quarter or year, as the case
may be, ended immediately prior to such date, the Applicable Commitment
Commission Percentage and Applicable Margin for the immediately succeeding
Margin Adjustment Period shall be computed as if the Leverage Ratio were at
Level 5 until such time, if any, as the financial statements required as set
forth above and the accompanying officer's certificate have been delivered
showing that the Leverage Ratio for the respective Margin Adjustment Period is
at a Level which is less than Level 5 (it being understood that, in the case of
any late delivery of the financial statements and officer's certificate as so
required, the reduced Applicable Commitment Commission Percentage and Applicable
Margin, if any, shall apply only from and after the date of the delivery of the
complying financial statements and officer's certificate). Notwithstanding
anything to the contrary contained above in this definition, at any time
- 54 -
<PAGE>
that a Default or Event of Default shall exist, the Applicable Commitment
Commission Percentage and the Applicable Margin shall be computed as if the
Leverage Ratio were at Level 5.
27. The definition of "Bank" appearing in Section 11 of the Credit
Agreement is amended hereby by deleting said definition in its entirety and
inserting in lieu thereof the following new definition:
"Bank" shall mean each financial institution with a Commitment listed
on Schedule I (as amended from time to time), as well as any Person which
becomes a "Bank" hereunder pursuant to Section 1.13 and/or 13.04(b). Unless
the context otherwise requires, each reference in this Agreement to a Bank
and in each other Credit Document to a Bank includes each Canadian Bank
and, if the reference is to a specific Bank which has a Commitment
hereunder, shall include references to any Affiliate of any Bank which is
acting as a Canadian Bank.
28. The definition of "Borrowing" in Section 11 of the Credit Agreement is
hereby amended by deleting said definition in its entirety and inserting in lieu
thereof the following new definition:
"Borrowing" shall mean the borrowing of one Type of Loan of a single
Tranche by a single Borrower from all the Banks (or from BTCo in the case
of Swingline Loans or from all the Canadian Banks in the case of Canadian
Borrower Revolving Loans) on a given date (or resulting from a conversion
or conversions on such date) having (x) in the case of Eurodollar Rate
Loans the same Interest Period and (y) in the case of Bankers' Acceptance
Loans, having underlying Bankers' Acceptances with the same maturities;
provided that Base Rate Loans incurred pursuant to Section 1.10(b) shall be
considered part of the related Borrowing of Eurodollar Rate Loans.
29. The definition of "Business Day" appearing in Section 11 of the Credit
Agreement is hereby amended by deleting said definition in its entirety and
inserting in lieu thereof the following new definition:
"Business Day" shall mean (i) for all purposes other than as covered
by clauses (ii) and (iii) below,
- 55 -
<PAGE>
any day except Saturday, Sunday and any day which shall be in New York City
a legal holiday or a day on which banking institutions are authorized or
required by law or other government action to close and (ii) with respect
to all notices and determinations in connection with, and payments of
principal and interest on, Eurodollar Rate Loans, any day which is a
Business Day described in clause (i) above and which is also a day for
trading by and between banks in the New York interbank Eurodollar market
and (iii) with respect to all notices and determinations in connection
with, and payments of principal and interest on, Canadian Borrower
Revolving Loans, any day which is a Business Day described in clauses (i)
and, if relevant, (ii) above and which is also a day which is not a legal
holiday or a day on which banking institutions are authorized or required
by law or other government action to close in Toronto, Ontario and, if
different, in the city where the applicable Payment Office of the
Administrative Agent or Canadian Paying Agent is located in respect of
Canadian Borrower Revolving Loans.
30. The definition of "Credit Party" appearing in Section 11 of the Credit
Agreement is hereby amended by deleting such definition in its entirety and
inserting in lien thereof the following new definition:
"Credit Party" shall mean the Company, the Canadian Borrower and each
other Subsidiary of the Company party to any Credit Document.
31. The definition of "Eurodollar Rate Loan" appearing in Section 11 of the
Credit Agreement is hereby amended by deleting the word "Company" and inserting
in lieu thereby the phrase "respective Borrower".
32. The definition of "Guaranties" appearing in Section 11 of the Credit
Agreement is hereby amended by deleting said definition in its entirety and
inserting in lieu thereof the following text of a new definition:
"Guaranties" shall mean (i) the Subsidiaries Guaranty, (ii) each
Canadian Guaranty (if any) and (iii) the Company Guaranty and each
additional guaranty executed and delivered pursuant to Section 8.14(b);
provided that after the date on which any of the foregoing agreements shall
terminate in accordance
- 56 -
<PAGE>
with its terms, such agreement shall cease to constitute a Guaranty
hereunder.
33. The definition of "Guarantor" appearing in Section 11 of the Credit
Agreement is hereby amended by deleting such definition in its entirety and
inserting in lieu thereby the following new definition:
"Guarantor" shall mean the Company and each Subsidiary of the Company
which executes and delivers a Guaranty.
34. The definition of "Leverage Ratio" appearing in Section 11 of the
Credit Agreement is hereby amended by deleting the text "EBIDTA" appearing
therein and inserting in lieu thereof the text "EBITDA".
35. The definition of "Margin Adjustment Period" appearing in Section 11 of
the Credit Agreement is hereby amended by deleting the text "8.01(b) or (c)" in
each place it appears in said Section and inserting in lieu thereof the text
"8.01(a) or (b)".
36. The definition of "Notice Office" appearing in Section 11 of the Credit
Agreement is hereby amended by deleting such definition in its entirety and
inserting in lieu thereby the following new definition:
"Notice Office" shall mean the office of the Administrative Agent
located at 130 Liberty Street, New York, New York 10006, Attention: Mary
Kay Coyle, or such other office as the Administrative Agent may hereafter
designate in writing as such to the other parties hereto; provided that in
the case of Canadian Borrower Revolving Loans, the "Notice Office" shall
mean the office specified above, with a copy of the respective notice to be
delivered at the same time as otherwise required pursuant to the terms of
this Agreement to the office of the Canadian Paying Agent located at First
Canadian Place, Toronto, Ontario, Canada M5X1A4, Attention: Virginia
Contreras.
37. The definition of "Obligations" appearing in Section 11 of the Credit
Agreement is hereby amended by deleting such definition in its entirety and
inserting in lieu thereby the following new definition:
- 57 -
<PAGE>
"Obligations" shall mean all amounts owing to the Administrative
Agent, the Documentation Agent, the Syndication Agent, the Canadian Paying
Agent, the Collateral Agent or any Bank or Canadian Bank pursuant to the
terms of this Agreement or any other Credit Document.
38. The definition of "Payment Office" appearing in Section 11 of the
Credit Agreement is hereby amended by deleting said definition in its entirety
and inserting in lieu thereof the following text of a new definition:
"Payment Office" shall mean (i) in respect of Company Revolving Loans,
Letters of Credit, Fees (other than Acceptance Fees and, except as provided
in clause (ii) below, all other amounts owing under this Agreement and the
other Credit Documents, the office of the Administrative Agent located at
One Bankers Trust Plaza, New York, New York 10006, and (ii) in the case of
Canadian Borrower Revolving Loans the office of the Canadian Paying Agent
located at First Canadian Place, Toronto, Ontario, Canada M5X1A4, or, in
each case, such other office as the Administrative Agent or Canadian Paying
Agent, as the case may be, may hereafter designate in writing as such to
the other parties hereto.
39. The definition of "Percentage" appearing in Section 11 of the Credit
Agreement is hereby amended by deleting said definition in its entirety.
40. The definition of "Required Banks" appearing in Section 11 of the
Credit Agreement is hereby amended by deleting said definition in its entirety
and inserting in lieu thereof the following text of a new definition:
"Required Banks" shall mean Non-Defaulting Banks the sum of whose
outstanding Commitments (or after the termination thereof, outstanding
Revolving Loans (for this purpose, using the Dollar Equivalent of the
outstanding principal amount or Face Amount, as the case may be of all
Canadian Dollar Revolving Loans) and Adjusted Percentage of outstanding
Swingline Loans and Letter of Credit Outstandings) represent an amount
equal to or greater than a majority of the Adjusted Total Commitment (or
after the termination thereof, the sum of the then total outstanding
Revolving Loans (for the purpose, using the Dollar Equivalent of the
- 58 -
<PAGE>
outstanding principal amount or Face Amount, as the case may be, of all
Canadian Dollar Revolving Loans) of all Non-Defaulting Banks, and the sum
of the Adjusted Percentages and/or Canadian Adjusted Percentages, as the
case may be, of all Non-Defaulting Banks of all outstanding Swingline Loans
and Letter of Credit Outstandings). For purposes of determining Required
Banks, all outstanding Revolving Loans and Commitments, as the case may be,
that are denominated in Dollars will be calculated in Dollars and all
Revolving Loans and Commitments, as the case may be, denominated in
Canadian Dollar will be calculated according to the Dollar Equivalent
thereof.
41. The definition of "Restatement Effective Date" in Section 11 of the
Credit Agreement is hereby amended by deleting said definition in its entirety
and inserting in lieu thereof the following new definition:
"Restatement Effective Date" shall mean December 18, 1996.
42. The definition of "Section 8.01(b) or (c) Financial Statements"
appearing in Section 11 of the Credit Agreement is hereby amended by deleting
said definition in its entirety and inserting in lieu thereof the following text
of a new definition:
"Section 8.01(a) or (b) Financial Statements" shall mean the financial
statements delivered, or to be delivered, pursuant to Section 8.01(a) or
(b), together with their accompanying officer's certificate delivered, or
to be delivered, pursuant to Section 8.01(e).
43. The definition of "Specified Subsidiary" appearing in Section 11 of the
Credit Agreement is hereby amended by inserting the following text at the end
thereof: "; provided that the Canadian Borrower shall in all cases constitute a
Specified Subsidiary."
44. The definition of "Stated Amount" appearing in Section 11 of the Credit
Agreement is hereby amended by deleting said definition in its entirety and
inserting in lieu thereof the following text of a new definition:
"Stated Amount" of each Letter of Credit or Non-Facility Letter of
Credit shall, at any time, mean the
- 59 -
<PAGE>
maximum amount available to be drawn thereunder (in each case determined
without regard to whether any conditions to drawing could then be met).
45. The definition of "Total Unutilized Commitment" appearing in Section 11
of the Credit Agreement is hereby amended by deleting said definition in its
entirety and inserting in lieu thereof the following text of a new definition:
"Total Unutilized Commitment" shall mean, at any time, an amount equal
to the remainder of (x) the then Total Commitment, less (y) the sum of (I)
the aggregate principal amount of Revolving Loans then outstanding (using
the Dollar Equivalent of the principal amount or Face Amount, as the case
may be, thereof in the case of Canadian Dollar Revolving Loans then
outstanding) plus (II) the aggregate principal amount of Swingline Loans
then outstanding plus (III) the then aggregate amount of Letter of Credit
Outstandings.
46. The definition of "Type" in Section 11 of the Credit Agreement is
hereby amended by (i) deleting the word "or" and inserting in lieu thereof a
comma and (ii) inserting at the end of said definition the following text", a
Canadian Prime Rate Loan or a Bankers' Acceptance Loan".
47. The definition of "Unutilized Commitment" appearing in Section 11 of
the Credit Agreement is hereby amended by deleting said definition in its
entirety and inserting in lieu thereof the following text of a new definition:
"Unutilized Commitment" with respect to any Bank, at any time, shall
mean such Bank's Commitment at such time less the sum of (i) the aggregate
outstanding principal amount of all Revolving Loans made by such Bank
(including any Affiliate of any such Bank acting as a Canadian Bank)
(taking the Dollar Equivalent of the principal amount of Face Amount, as
the case may be, in the case of any Canadian Dollar Revolving Loans then
outstanding), and (ii) such Bank's Adjusted Percentage of the Letter of
Credit Outstandings at such time.
- 60 -
<PAGE>
48. Section 12.01 of the Credit Agreement is hereby amended by (i) deleting
the text "Bank of America Illinois" appearing therein and inserting in lieu
thereof the text "Bank of America National Trust and Savings Association (as
successor by merger to Bank of America Illinois)", (ii) deleting the word "and"
immediately after the phrase "Documentation Agent" appearing in the first
sentence of Section 12.01 and inserting in lieu thereof a comma, (iii) inserting
the text "and Bank of Montreal as Canadian Paying Agent" immediately after the
phrase "Syndication Agent" appearing in the first sentence of Section 12.01,
(iv) deleting the word "and" immediately after the phrase "Documentation Agent"
appearing in the second sentence in Section 12.01 and inserting in lieu thereof
a comma, (v) inserting the text "and the Canadian Paying Agent" immediately
after the text "Syndication Agent" in each place it appears in the second
sentence of Section 12.01 and (vi) deleting the word "or" immediately after the
phrase "Documentation Agent" where it appears for the second time in the second
sentence of Section 12.01 and inserting in lieu thereof a comma.
49. Section 12.09 of the Credit Agreement is hereby amended by inserting
the following new clause (g) in appropriate order:
"(g) The Canadian Paying Agent may resign as provided in Section
1.15."
50. Section 13.04(b) of the Credit Agreement is hereby amended by deleting
said Section in its entirety and inserting in lieu thereof the following text:
"(b) Notwithstanding the foregoing, any Bank (or any Bank together with one
or more other Banks) may (x) (A) pledge its Loans and/or Notes hereunder to
a Federal Reserve Bank in support of borrowings made by such Bank from such
Federal Reserve Bank or (B) assign all or a portion of its Commitments and
related outstanding Obligations hereunder to its parent company and/or any
affiliate of such Bank which is at least 50% owned by such Bank or its
parent company or to one or more other Banks or (y) assign all, or if less
than all, a portion equal to at least $5,000,000 in the aggregate for the
assigning Bank or assigning Banks of such Commitments and related
outstanding Obligations hereunder to one or more Eligible Transferees, each
of which assignees shall become a party to this Agreement
- 61 -
<PAGE>
as a Bank by execution of an Assignment and Assumption Agreement
(appropriately completed); provided that, (i) the assignment by any Bank
(or Canadian Bank) of its Canadian Sub-Commitment (or any portion thereof)
shall constitute the assignment of a like amount of such Bank's (or its
respective Affiliate's) Commitment, (ii) any assignment of all or any
portion of the Commitment of any Bank shall be required to be accompanied
by the assignment of all or such portion of the Canadian Sub-Commitment
and/or Non-Canadian Sub-Commitment of such Bank (or its respective
Affiliate) as is equal, in the aggregate, to the amount of the Commitment
being so assigned, (iii) any assignment of all or any portion of the
Commitment and related outstanding Obligations (or, if the Commitment has
terminated, any assignment of Obligations originally extended pursuant to
the Commitments) shall be made on a basis such that the respective assignee
participates in Loans, and in Letter of Credit Outstandings, in accordance
with the Commitment (and Sub-Commitments described above) so assigned (or
if the Commitment has terminated, on the same basis as participated in by
the Banks with Commitments (and Sub-Commitments described above) prior to
the termination thereof), (iv) at such time Schedule I shall be deemed
modified to reflect the Commitments and Sub-Commitments of such new Bank
and of the existing Banks (and their respective affiliates), (v) new Notes
will be issued to such new Bank and to the assigning Bank upon the request
of such new Bank or assigning Bank, such new Notes to be in conformity with
the requirements of Section 1.05 to the extent needed to reflect the
revised Commitments and Sub-Commitments; provided, that the respective
Borrower shall not be obligated to execute any new Note or replacement Note
until it has received the original Note or Notes issued by the respective
Borrower to the assigning Bank or an indemnity with respect to such
original Notes, which indemnity shall be reasonably satisfactory to the
respective Borrower, (vi) the consent of the Administrative Agent shall be
required in connection with any assignment, which consent shall not be
unreasonably withheld, (vii) the consent of the Company shall be required
in connection with any assignment, which consent shall not be unreasonably
withheld and (viii) the Administrative Agent shall receive at the time of
each such assignment (but not in connection with any pledge to a Federal
Reserve
- 62 -
<PAGE>
Bank), from the assigning Bank, the payment of a non-refundable assignment
fee of $3,500, provided that in the case of an assignment by a Bank to
another Bank, such assignment fee shall be $1,500. To the extent of any
assignment pursuant to this Section 13.04(b), the assigning Bank shall be
relieved of its obligations hereunder with respect to its assigned
Commitments (and Sub-Commitments). After receipt of notice of any
assignment pursuant to this Section 13.04(b) the Administrative Agent shall
give notice thereof to the Company. To the extent that at the time of any
assignment pursuant to this Section 13.04(b) to a Person not already a Bank
hereunder, if the Person purchasing such assignment (the "Assignee") would
be entitled to charge the Company for increased costs under Section 1.10,
or for the reimbursement of Taxes pursuant to Section 4.04, in either case
in excess of the aggregate such amounts permitted to be charged by the
assigning Bank immediately prior to such assignment (which differences may
arise because of differences between the Assignee and the assigning Bank,
or because of the different laws, treaties or regulations, or
interpretations thereof, applicable to such Persons), the Company shall not
be obligated to pay such excess increased costs or Taxes, it being
understood and agreed, however, that the Company shall be obligated to pay
to such Assignee all other increased costs or Taxes which are otherwise
required to be reimbursed pursuant to said Sections 1.10 and 4.04
(including, without limitation, all such increased costs or Taxes payable
as a result of events occurring after the date of the respective
assignment). At the time of each assignment of any Commitment or an
interest in Loans made to the Company pursuant to this Section 13.04(b) to
a Person which is not already a Bank hereunder and which is not a United
States person (as such term is defined in Section 7701(a)(30) of the Code)
for Federal income tax purposes, the respective Assignee shall, to the
extent legally entitled to do so, provide to the Company (x) in the case of
a Bank described in clause (i) of Section 4.04(b), the forms described in
such clause (i) and (y) in the case of a Bank described in clause (ii) of
Section 4.04(b), the forms described in such clause (ii)."
51. Section 13.05 of the Credit Agreement is hereby amended by deleting the
text "no course of dealing
- 63 -
<PAGE>
between the Company or any other Credit Party" appearing therein and inserting
in lieu thereof the text "no course of dealing between any Borrower or any other
Credit Party".
52. Section 13.07 of the Credit Agreement is hereby amended by (i)
inserting the text "(other than Acceptance Fees, which shall be determined as
provided in the definition thereof)" immediately after the word "Fees" the first
place it appears in clause (b)(y) of said Section and (ii) inserting in
appropriate order the following new clause (d):
"(d) For purposes of the Interest Act (Canada), (i) whenever any
interest or fee under this Agreement is calculated using a rate based on a
year of 360 days or 365 days, as the case may be, the rate determined
pursuant to such calculation, when expressed as an annual rate, is
equivalent to (x) the applicable rate based on a year of 360 days or 365
days, as the case may be, (y) multiplied by the actual number of days in
the calendar year in which the period for which such interest or fee is
payable (or compounded) ends, and (z) divided by 360 or 365, as the case
may be; (ii) the principle of deemed reinvestment or interest does not
apply to any interest calculation under this Agreement; and (iii) the rates
of interest stipulated in this Agreement are intended to be nominal rates
and not effective rates or yields."
53. Section 13.08 of the Credit Agreement is hereby amended by deleting the
text "THE COMPANY" in each place it appears in Section 13.08 and inserting in
lieu thereof the text "EACH BORROWER".
54. Section 13.10 of the Credit Agreement is hereby amended by deleting the
text of said Section in its entirety and inserting in lieu thereof the following
new text:
"This Agreement became effective on the Restatement Effective Date."
55. Section 13.12 of the Credit Agreement is hereby amended by inserting
the text "and 13.04(b)" immediately after the Section reference "Section 1.12"
appearing therein.
- 64 -
<PAGE>
56. Section 13.14 of the Credit Agreement is hereby amended by (i)
inserting the text "(and not already reflected on Schedule IX)" immediately
after the Section reference "Section 13.14" appearing therein and (ii) deleting
the word "Company" each place it appears therein and inserting in lieu thereof
the word "Borrowers".
57. Section 13 of the Credit Agreement is hereby further amended by
inserting in appropriate order the following new Sections 13.21, 13.22 and
13.23:
"13.21 (a) Judgment Currency. The Credit Parties' obligations
hereunder and under the other Credit Documents to make payments in the
respective Applicable Currency (the "Obligation Currency") shall not be
discharged or satisfied by any tender or recovery pursuant to any judgment
expressed in or converted into any currency other than the Obligation
Currency, except to the extent that such tender or recovery results in the
effective receipt by the Administrative Agent, the Collateral Agent or the
respective Bank of the full amount of the Obligation Currency expressed to
be payable to the Administrative Agent, the Collateral Agent or such Bank
under this Agreement or the other Credit Documents. If for the purpose of
obtaining or enforcing judgment against any Credit Party in any court or in
any jurisdiction, it becomes necessary to convert into or from any currency
other than the Obligation Currency (such other currency being hereinafter
referred to as the "Judgment Currency") an amount due in the Obligation
Currency, the conversion shall be made at the Canadian Dollar Equivalent or
the Dollar Equivalent thereof, as the case may be, and, in the case of
other currencies, the rate of exchange (as quoted by the Administrative
Agent or if the Administrative Agent does not quote a rate of exchange on
such currency, by a known dealer in such currency designated by the
Administrative Agent) determined, in each case, as of the day immediately
preceding the day on which the judgment is given (such Business Day being
hereinafter referred to as the "Judgment Currency Conversion Date").
(b) If there is a change in the rate of exchange prevailing between
the Judgment Currency Conversion Date and the date of actual payment of the
amount due, the Borrowers covenant and agree to pay, or cause to be paid,
such additional amounts, if any (but in any
- 65 -
<PAGE>
event not a lesser amount), as may be necessary to ensure that the amount
paid in the Judgment Currency, when converted at the rate of exchange
prevailing on the date of payment, will produce the amount of the
Obligation Currency which could have been purchased with the amount of
Judgment Currency stipulated in the judgment or judicial award at the rate
or exchange prevailing on the Judgment Currency Conversion Date.
(c) For purposes of determining the Canadian Dollar Equivalent or the
Dollar Equivalent or any other rate of exchange for this Section, such
amounts shall include any premium and costs payable in connection with the
purchase of the Obligation Currency.
13.22 Phase-In Provisions Regarding Loans Outstanding on the Third
Amendment . The parties hereto acknowledge and agree that, on the Third
Amendment Effective Date, various Loans were theretofore outstanding
pursuant to this Agreement from the various Banks, which were made to the
Company in accordance with the Percentages of the Banks as in effect before
the effectiveness of the Third Amendment, and which were not based on the
RL Percentages of the various Banks. The parties hereto hereby agree that,
notwithstanding anything to the contrary contained elsewhere in this
Agreement, (i) on the date of the first incurrence of Loans on or after the
Third Amendment Effective Date, all theretofore outstanding Company
Revolving Loans then maintained as Base Rate Loans shall be repaid and/or
reborrowed in such amounts so that, after giving effect thereto, such Base
Rate Loans are outstanding from the various Banks based upon their RL
Percentages and (ii) with respect to all Eurodollar Rate Loans which were
outstanding on the Third Amendment Effective Date, such Loans shall remain
outstanding until the end of the Interest Period applicable thereto on the
Third Amendment Effective Date in the amounts made by the Banks pursuant to
the Agreement (before giving effect to the Third Amendment); provided that
as Interest Periods expire with respect to such Eurodollar Rate Loans,
repayments and reborrowings with respect thereto shall be required in such
amounts so that, with respect to any subsequent Interest Periods applicable
thereto (or any Base Rate Loans resulting from a Conversion thereof), each
Bank will make its
- 66 -
<PAGE>
portion of the respective Borrowing based upon its RL Percentage as then in
effect.
13.23 Acknowledgement and Agreement of Credit Parties. Each of the
Credit Parties, by executing the Third Amendment or becoming a Credit Party
after the Third Amendment Effective Date, consents to the extensions of
credit to the Canadian Borrower pursuant to this Agreement. All such
extensions of credit, as well as all extensions of credit to the Company,
(in each case pursuant to this Agreement, as same may be further amended
from time to time) shall be entitled to all benefits of (and shall be fully
guaranteed pursuant to) each of the Guaranties and shall be fully secured
pursuant to, and in accordance with the terms of, the various Security
Documents."
58. The Credit Agreement is hereby amended by inserting in appropriate
order the following new Section 14:
- 67 -
<PAGE>
"SECTION 14. Company Guaranty
14.01 Company Guaranty. In order to induce the Banks to enter into
this Agreement and to extend credit to the Canadian Borrower hereunder and
in recognition of the direct benefits to be received by the Company from
the proceeds of the Canadian Borrower Revolving Loans, the Company hereby
agrees with the Banks (which shall include the Canadian Banks) as follows:
the Company hereby unconditionally and irrevocably guarantees, as primary
obligor and not merely as surety, the full and prompt payment when due,
whether upon maturity, acceleration or otherwise, of any and all of the
Canadian Guaranteed Obligations to the Guaranteed Creditors. If any or all
of the Canadian Guaranteed Obligations to the Guaranteed Creditors becomes
due and payable hereunder, the Company unconditionally promises to pay such
indebtedness to the Guaranteed Creditors, or order, on demand, together
with any and all expenses which may be incurred by the Guaranteed Creditors
in collecting any of the Canadian Guaranteed Obligations. If claim is ever
made upon any Guaranteed Creditor for repayment or recovery of any amount
or amounts received in payment or on account of any of the Canadian
Guaranteed Obligations and any of the aforesaid payees repays all or part
of said amount by reason of (i) any judgment, decree or order of any court
or administrative body having jurisdiction over such payee or any of its
property or (ii) any settlement or compromise of any such claim effected by
such payee with any such claimant (including the Canadian Borrower), then
and in such event the Company agrees that any such judgment, decree, order,
settlement or compromise shall be binding upon the Company, notwithstanding
any revocation of this Company Guaranty or any other instrument evidencing
any liability of the Canadian Borrower, and the Company shall be and remain
liable to the aforesaid payees hereunder for the amount so repaid or
recovered to the same extent as if such amount had never originally been
received by any such payee.
14.02 Bankruptcy. Additionally, the Company unconditionally and
irrevocably guarantees the payment of any and all of the Canadian
Guaranteed Obligations to the Guaranteed Creditors whether or not due or
- 68 -
<PAGE>
payable by the Canadian Borrower upon the occurrence of any of the events
specified in Section 10.05, and unconditionally promises to pay such
indebtedness to the Guaranteed Creditors, or order, on demand, in the
Applicable Currency
14.03 Nature of Liability. The liability of the Company hereunder is
exclusive and independent of any security for or other guaranty of the
Canadian Guaranteed Obligations whether executed by the Company, any other
guarantor or by any other party, and the liability of the Company hereunder
is not affected or impaired by (a) any direction as to application of
payment by the Canadian Borrower or by any other party, or (b) any other
continuing or other guaranty, undertaking or maximum liability of a
guarantor or of any other party as to the Canadian Guaranteed Obligations,
or (c) any payment on or in reduction of any such other guaranty or
undertaking, or (d) any dissolution, termination or increase, decrease or
change in personnel by the Canadian Borrower, or (e) any payment made to
the Guaranteed Creditors on the Canadian Guaranteed Obligations which any
such Guaranteed Creditor repays to the Canadian Borrower pursuant to court
order in any bankruptcy, insolvency, reorganization, arrangement,
moratorium or other debtor relief proceeding, and the Company waives any
right to the deferral or modification of its obligations hereunder by
reason of any such proceeding.
14.04 Independent Obligation. The obligations of the Company hereunder
are independent of the obligations of any other guarantor, any other party
or the Canadian Borrower, and a separate action or actions may be brought
and prosecuted against the Company whether or not action is brought against
any other guarantor, any other party or the Canadian Borrower and whether
or not any other guarantor, any other party or the Canadian Borrower be
joined in any such action or actions. The Company waives, to the full
extent permitted by law, the benefit of any statute of limitations
affecting its liability hereunder or the enforcement thereof. Any payment
by the Canadian Borrower or other circumstance which operates to toll any
statute of limitations as to the Canadian Borrower shall operate to toll
the statute of limitations as to the Company.
- 69 -
<PAGE>
14.05 Authorization. The Company authorizes the Guaranteed Creditors
without notice or demand (except as shall be required by applicable statute
and cannot be waived), and without affecting or impairing its liability
hereunder, from time to time to:
(a) change the manner, place or terms of payment of, and/or change or
extend the time of payment of, renew, increase, accelerate or alter, any of
the Canadian Guaranteed Obligations (including any increase or decrease in
the rate of interest thereon), any security therefor, or any liability
incurred directly or indirectly in respect thereof, and this Company
Guaranty made shall apply to the Canadian Guaranteed Obligations as so
changed, extended, renewed or altered;
(b) take and hold security for the payment of the Canadian Guaranteed
Obligations and sell, exchange, release, surrender, realize upon or
otherwise deal with in any manner and in any order any property by
whomsoever at any time pledged or mortgaged to secure, or howsoever
securing, the Canadian Guaranteed Obligations or any liabilities (including
any of those hereunder) incurred directly or indirectly in respect thereof
or hereof, and/or any offset thereagainst;
(c) exercise or refrain from exercising any rights against the
Canadian Borrower or others or otherwise act or refrain from acting;
(d) release or substitute any one or more endorses, guarantors, the
Canadian Borrower or other obligors;
(e) settle or compromise any of the Canadian Guaranteed Obligations,
any security therefor or any liability (including any of those hereunder)
incurred directly or indirectly in respect thereof or hereof, and may
subordinate the payment of all or any part thereof to the payment of any
liability (whether due or not) of the Canadian Borrower to its creditors
other than the Guaranteed Creditors;
(f) apply any sums by whomsoever paid or howsoever realized to any
liability or liabilities of
- 70 -
<PAGE>
the Canadian Borrower to the Guaranteed Creditors regardless of what
liability or liabilities of the Canadian Borrower remain unpaid;
(g) consent to or waive any breach of, or any act, omission or default
under, this Agreement, any other Credit Document or any of the instruments
or agreements referred to herein or therein, or otherwise amend, modify or
supplement this Agreement, any other Credit Document or any of such other
instruments or agreements; and/or
(h) take any other action which would, under otherwise applicable
principles of common law, give rise to a legal or equitable discharge of
any Company from its liabilities under this Company Guaranty.
14.06 Reliance. It is not necessary for the Guaranteed Creditors to
inquire into the capacity or powers of the Canadian Borrower or the
officers, directors, partners or agents acting or purporting to act on
their behalf, and any Canadian Guaranteed Obligations made or created in
reliance upon the professed exercise of such powers shall be guaranteed
hereunder.
14.07 Subordination. Upon the occurrence and during the continuance
of an Event of Default, any of the indebtedness of the Canadian Borrower
now or hereafter owing to the Company is hereby subordinated to the
Canadian Guaranteed Obligations owing to the Guaranteed Creditors; and if
the Administrative Agent so requests at a time when an Event of Default
exists, all such indebtedness of the Canadian Borrower to the Company shall
be collected, enforced and received by the Company for the benefit of the
Guaranteed Creditors and be paid over to the Administrative Agent on behalf
of the Guaranteed Creditors on account of the Canadian Guaranteed
Obligations to the Guaranteed Creditors, but without affecting or impairing
in any manner the liability of any Company under the other provisions of
this Company Guaranty. Prior to the transfer by any Company of any note or
negotiable instrument evidencing any of the indebtedness of the Canadian
Borrower to the Company, the Company shall mark such note or negotiable
instrument with a legend that the same is subject to this subordination.
Without limiting the generality of the foregoing, the
- 71 -
<PAGE>
Company hereby agrees with the Guaranteed Creditors that it will not
exercise any right of subrogation which it may at any time otherwise have
as a result of the Company Guaranty (whether contractual, under Section 509
of the Bankruptcy Code or otherwise) until all Canadian Guaranteed
Obligations have been irrevocably paid in full in cash.
14.08 Waiver. (a) The Company waives any right (except as shall be
required by applicable statute and cannot be waived) to require any
Guaranteed Creditor to (i) proceed against the Canadian Borrower, any other
guarantor or any other party, (ii) proceed against or exhaust any security
held from the Canadian Borrower, any other guarantor or any other party or
(iii) pursue any other remedy in any Guaranteed Creditor's power
whatsoever. The Company waives any defense based on or arising out of any
defense of the Canadian Borrower, any other guarantor or any other party,
other than payment in full of the Canadian Guaranteed Obligations, based on
or arising out of the disability of the Canadian Borrower, any other
guarantor or any other party, or the unenforceability of the Canadian
Guaranteed Obligations or any part thereof from any cause, or the cessation
from any cause of the liability of the Canadian Borrower other than payment
in full of the Canadian Guaranteed Obligations. The Guaranteed Creditors
may, at their election, foreclose on any security held by the
Administrative Agent, the Collateral Agent or any other Guaranteed Creditor
by one or more judicial or nonjudicial sales, whether or not every aspect
of any such sale is commercially reasonable (to the extent such sale is
permitted by applicable law), or exercise any other right or remedy the
Guaranteed Creditors may have against the Canadian Borrower or any other
party, or any security, without affecting or impairing in any way the
liability of the Company hereunder except to the extent the Canadian
Guaranteed Obligations have been paid. The Company waives any defense
arising out of any such election by the Guaranteed Creditors, even though
such election operates to impair or extinguish any right of reimbursement
or subrogation or other right or remedy of the Company against the Canadian
Borrower or any other party or any security.
(b) The Company waives all presentments, demands for performance,
protests and notices, including,
- 72 -
<PAGE>
without limitation, notices of nonperformance, notices of protest, notices
of dishonor, notices of acceptance of this Guaranty, and notices of the
existence, creation or incurring of new or additional Canadian Guaranteed
Obligations. The Company assumes all responsibility for being and keeping
itself informed of the Canadian Borrower's financial condition and assets,
and of all other circumstances bearing upon the risk of nonpayment of the
Canadian Guaranteed Obligations and the nature, scope and extent of the
risks which the Company assumes and incurs hereunder, and agrees that the
Guaranteed Creditors shall have no duty to advise the Company of
information known to it regarding such circumstances or risks."
59. The Credit Agreement is hereby amended by deleting Schedules I and IX
thereto in their entirety and by inserting in lieu thereof the new Schedules I
and IX in the form of Schedules I and IX attached hereto.
60. The Credit Agreement is hereby amended by adding new Schedule XI
thereto in the form attached hereto as Schedule XI.
61. The Credit Agreement is hereby amended by deleting Exhibits A, B-1 and
H thereto in their entirety and by inserting in lieu thereof new Exhibits A, B-1
and H, respectively, in the forms of the respective such Exhibits attached
hereto.
62. The Credit Agreement is hereby further amended by inserting new
Exhibits B-3 and B-4 in the forms attached hereto as Exhibits B-3 and B-4,
respectively.
- 73 -
<PAGE>
II. Amendment to Subsidiaries Guaranty.
Section 1 of the Subsidiaries Guaranty is hereby amended by, in clause (i)
thereof, deleting the phrase "the Company" in each of the three places it
appears therein and by inserting in lieu thereof (in each such place) the phrase
"each Borrower".
III. Acknowledgement with respect to Various Credit
Documents.
Each Credit Party, by its execution and delivery of a copy of this Third
Amendment, hereby consents to the extension of credit to the Canadian Borrower
pursuant to the Credit Agreement. Each Credit Party further acknowledges and
agrees that all extensions of credit to the Canadian Borrower, as well as all
extensions of credit to the Company, in each case pursuant to the Credit
Agreement (as same is amended by this Amendment, and as same may be further
amended, modified or supplemented from time to time), shall be entitled to all
benefits of (and shall be fully guaranteed pursuant to) each of the Guaranties
and shall be fully secured pursuant to, and in accordance with the terms of, all
the Security Documents.
IV. Miscellaneous.
1. In order to induce the Banks to enter into this Amendment, the Company
and the Canadian Borrower hereby represent and warrant that (i) all
representations and warranties contained in Section 7 of the Credit Agreement
are true and correct in all material respects on and as of the Third Amendment
Effective Date and after giving effect to the Amendment (unless such
representations and warranties relate to a specific earlier date, in which case
such representations and warranties shall be true and correct as of such earlier
date) and (ii) there exists no Default or Event of Default on the Third
Amendment Effective Date after giving effect to this Amendment.
2. This Amendment is limited as specified and shall not constitute a
modification, acceptance or waiver of any other provision of the Credit
Agreement or any other Credit Document.
3. This Amendment may be executed in any number of counterparts and by the
different parties hereto on
- 74 -
<PAGE>
separate counterparts, each of which counterparts when executed and delivered
shall be an original, but all of which shall together constitute one and the
same instrument. A complete set of counterparts shall be lodged with the Company
and the Administrative Agent.
4. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER
SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAW OF THE STATE OF
NEW YORK.
5. This Amendment shall become effective on the date (the "Third Amendment
Effective Date") when:
(a) Each Credit Party (including without limitation, the Company, the
Canadian Borrower and each Subsidiary Guarantor), the Required Banks and
each Canadian Bank shall have signed a counterpart hereof (whether the same
or different counterparts) and shall have delivered (including by usage of
facsimile transmission) the same to the Administrative Agent at its Notice
Office;
(b) The Administrative Agent shall have received from U.S. and
Canadian counsel to the various Credit Parties (each of which counsel shall
be reasonably satisfactory to the Administrative Agent) opinions, addressed
to each of the Agents and each of the Banks, in form and substance
satisfactory to the Administrative Agent, and covering such matters
incident to this Amendment and the transactions contemplated herein as the
Administrative Agent and the Required Banks may reasonably request;
(c) The Administrative Agent shall have received resolutions of the
Board of Directors of the Canadian Borrower, which resolutions shall be
certified by the Secretary or any Assistant Secretary of the Canadian
Borrower and shall authorize the execution, delivery and performance by the
Canadian Borrower of this Amendment and the consummation of the
transactions contemplated hereby, and the foregoing shall be reasonably
acceptable to the Administrative Agent in its reasonable discretion;
(d) There shall have been delivered to the Administrative Agent for
the account of each of the
- 75 -
<PAGE>
Banks new Notes meeting the requirements of Section 1.05 of the Credit
Agreement as modified by this Amendment;
(e) Each Canadian Borrower Canadian Subsidiary, if any, shall have
authorized, executed and delivered a Canadian Guaranty, in form and
substance satisfactory to the Administrative Agent.
6. Promptly following any request from the Administrative Agent (and in any
event within sixty (60) days after receiving any such request) the Company, the
Canadian Borrower and the other Credit Parties shall take such action or actions
as may be reasonably requested by the Administrative Agent to protect and
preserve any security interests created, or intended to be created, pursuant to
the various Security Documents. Without limiting the foregoing, if requested by
the Administrative Agent, the various Credit Parties shall execute and deliver
mortgage amendments, in form and substance satisfactory to the Administrative
Agent, with respect to the various Mortgages, and shall take such of the actions
as specified in Section 5.10 of the Credit Agreement as were taken in connection
with the occurrence of the Restatement Effective Date. It is understood and
agreed by the parties hereto that the provisions of this Section 6 shall
constitute a covenant and agreement for purposes of the Credit Agreement.
7. From and after the Third Amendment Effective Date, all references in the
Credit Agreement and each of the Credit Documents to the Credit Agreement shall
be deemed to be references to the Credit Agreement as amended hereby.
* * *
- 76 -
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused a
counterpart of this Amendment to be duly executed and delivered as of the date
first above written.
COLTEC INDUSTRIES INC
By _______________________________
Title:
COLTEC AEROSPACE CANADA LTD.
By _______________________________
Title:
BANKERS TRUST COMPANY,
Individually and as
Administrative Agent
By _______________________________
Title:
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION
Individually and as
Documentation Agent
By _______________________________
Title:
<PAGE>
THE CHASE MANHATTAN BANK,
Individually and as
Syndication Agent
By _______________________________
Title:
BANK OF MONTREAL,
Individually and as Canadian
Paying Agent and Canadian
Documentation Agent
By _______________________________
Title:
ALLIED IRISH BANK, PLC,
CAYMAN ISLANDS BRANCH
By _______________________________
Title:
BANK OF IRELAND
By _______________________________
Title:
BANK COMMERCIALE ITALIANA
NEW YORK BRANCH
By _______________________________
Title:
By _______________________________
Title:
<PAGE>
BANK LEUMI TRUST COMPANY
OF NEW YORK
By _______________________________
Title:
THE BANK OF NEW YORK
By _______________________________
Title:
BANK OF SCOTLAND
By _______________________________
Title:
BANK OF TOKYO-MITSUBISHI TRUST
COMPANY
By _______________________________
Title:
<PAGE>
NATEXIS BANQUE BFCE, formerly
BANQUE FRANCAISE
DU COMMERCE EXTERIEUR
By _______________________________
Title:
CIBC INC.
By _______________________________
Title:
COMMERCIAL LOAN FUNDING TRUST I
By Lehman Commercial Paper
Inc.,
not in its individual
capacity but solely as
administrative agent.
By _______________________________
Title:
CORESTATES BANK
By _______________________________
Title:
<PAGE>
CREDIT LYONNAIS ATLANTA AGENCY
By _______________________________
Title:
CREDIT LYONNAIS NEW YORK
BRANCH
By _______________________________
Title:
THE DAI-ICHI KANGYO BANK, LTD.
By _______________________________
Title:
FIRST UNION NATIONAL BANK
(f/k/a First Union National
Bank of North Carolina)
By _______________________________
Title:
THE FUJI BANK, LIMITED,
ATLANTA AGENCY
By _______________________________
Title:
<PAGE>
ERSTE BANK DER
OESTERREICHISCHEN SPARKASSEN
AG (f/k/a Girocredit Bank AG
Der Sparkassen, Grand Cayman
Island Branch)
By _______________________________
Title:
THE INDUSTRIAL BANK OF JAPAN,
LIMITED
By _______________________________
Title:
LEHMAN COMMERCIAL PAPER INC.
By _______________________________
Title:
LLOYDS BANK PLC
By _______________________________
Title:
MELLON BANK, N.A.
By _______________________________
Title:
<PAGE>
NATIONSBANK, N.A.
By _______________________________
Title:
THE SAKURA BANK, LTD.
By _______________________________
Title:
THE SANWA BANK, LIMITED
By _______________________________
Title:
SOCIETE GENERALE
By _______________________________
Title:
THE SUMITOMO BANK, LIMITED
By _______________________________
Title:
THE TOKAI BANK, LIMITED
NEW YORK BRANCH
By _______________________________
Title:
<PAGE>
WACHOVIA BANK, N.A.
By _______________________________
Title:
<PAGE>
BT BANK OF CANADA
By _______________________________
Title:
BANK OF AMERICA CANADA
By _______________________________
Title:
THE CHASE MANHATTAN BANK OF
CANADA
By _______________________________
Title:
CREDIT LYONNAIS CANADA
By _______________________________
Title:
CANADIAN IMPERIAL BANK OF
COMMERCE
By _______________________________
Title:
MELLON BANK CANADA
By _______________________________
Title:
<PAGE>
Acknowledged and agreed:
AMI INDUSTRIES INC.
CII HOLDINGS INC
COLTEC CANADA INC
COLTEC INDUSTRIAL PRODUCTS INC
COLTEC INTERNATIONAL SERVICES CO.
COLTEC NORTH CAROLINA INC.
COLTEC TECHNICAL SERVICES INC
DELAVAN-DELTA INC.
DELAVAN INC (Iowa)
DELAVAN NEWCO INC (Delaware)
DM&T, INC.
GARLOCK INC
GARLOCK INTERNATIONAL INC
GARLOCK OVERSEAS CORPORATION
HOLLEY PERFORMANCE PRODUCTS INC
MENASCO AEROSYSTEMS INC
STEMCO INC
WALBAR INC
By__________________________
Title:
On behalf of each of the above
Subsidiary Guarantors
<PAGE>
FOURTH AMENDMENT TO CREDIT AGREEMENT
FOURTH AMENDMENT TO CREDIT AGREEMENT (this "Amendment"), dated as of
January 26, 1998, among COLTEC INDUSTRIES INC, a corporation organized and
existing under the laws of the State of Pennsylvania (the "Company"), Coltec
Aerospace Canada Ltd., an Ontario corporation (the "Canadian Borrower"), the
various Subsidiaries of the Company that are Credit Parties on the date of this
Amendment, the various Banks party to the Credit Agreement referred to below,
BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION (as successor by merger
to Bank of America Illinois), as the Documentation Agent, THE CHASE MANHATTAN
BANK, as Syndication Agent, BANKERS TRUST COMPANY, as Administrative Agent, and
BANK OF MONTREAL, as Canadian Paying Agent. All capitalized terms used herein
and not otherwise defined shall have the respective meanings provided such terms
in the Credit Agreement.
W I T N E S S E T H :
WHEREAS, the Company, the Canadian Borrower, the Banks, the Documentation
Agent, the Syndication Agent and the Administrative Agent are parties to a
Credit Agreement, dated as of March 24, 1992, amended and restated as of January
11, 1994 and further amended and restated as of December 18, 1996, (as amended,
modified or supplemented to the date hereof, the "Credit Agreement");
WHEREAS, the Company has requested that the Total Commitment be increased
by $50,000,000; and
WHEREAS, the parties hereto have agreed to amend the Credit Agreement as
herein provided;
NOW, THEREFORE, it is agreed:
I. Amendments to Credit Agreement.
-1-
<PAGE>
1. On and after the Fourth Amendment Effective Date (as defined below),
Schedule I to the Credit Agreement shall be hereby amended by deleting said
Schedule in its entirety and inserting in lieu thereof Schedule I attached
hereto, which new Schedule I reflects an increase in the Total Commitment of
$50,000,000 (the "Incremental Commitment"). The Company and the Banks hereby
agree to the Incremental Commitment. Each Bank hereby acknowledges and agrees
that from and after the Fourth Amendment Effective Date its Commitment shall be
the amount set forth opposite such Bank's name on Schedule I attached hereto, as
such amount may be adjusted from time to time in accordance with the terms of
the Credit Agreement. Notwithstanding anything to the contrary contained in the
Credit Agreement, it is acknowledged and agreed that, as of the Fourth Amendment
Effective Date (as defined below), various Borrowings of Eurodollar Rate Loans
are outstanding pursuant to the Credit Agreement with Interest Periods which end
after the Fourth Amendment Effective Date and on or prior to July 23, 1998 (with
each such Borrowing being herein called an "Existing Eurodollar Rate
Borrowing"). The parties hereto agree that the Existing Eurodollar Rate
Borrowings may remain outstanding (with such Existing Eurodollar Rate Borrowings
maintaining the RL Percentages existing immediately before the Fourth Amendment
Effective Date) until the end of the respective Interest Periods applicable
thereto, without any modifications as a result of the Incremental Commitment
(which will have the effect, on a prospective basis, of changing the RL
Percentages of the various Banks); provided that as each Interest Period
applicable to an Existing Eurodollar Rate Borrowing expires, such Borrowing
shall be repaid in full and, to the extent the Company desires to reborrow such
amounts, such reborrowings shall be made in accordance with the provisions of
the Credit Agreement (and giving effect to the RL Percentages of the various
Banks as same exist at the time of any such reborrowing). Furthermore, until the
first to occur of July 23, 1998 or the first date upon which the last Interest
Period applicable to an Existing Eurodollar Rate Borrowing terminates (or the
respective Loans made pursuant thereto have been repaid in full), to the extent
the Company requests a Borrowing of Revolving Loans at any time when (or to the
extent that) the Non-Canadian Subcommitments of those Banks other than the
Increasing Banks (the "Non-Increasing Banks") are fully utilized, at its option
(x) the Company, in coordination with the Administrative Agent and the Banks,
may, before incurring such new Revolving Loans, repay outstanding Revolving
Loans of the Banks (which repayments
-2-
<PAGE>
shall be made pro rata to the Banks participating in the respective Borrowing or
Borrowings) and, immediately thereafter, incur Revolving Loans from the Banks
(with the Banks to participate in each such Borrowing pro rata on the basis of
their RL Percentages after giving effect to this Amendment) (with any breakage
or similar costs of the type described in Section 1.11 of the Credit Agreement
incurred by the Banks to be for the account of the Company); (y) the Company may
incur Base Rate Loans from the Increasing Banks (as defined below), which
Borrowings shall be made by the Increasing Banks pro rata on the basis of their
respective commitments under the Incremental Commitment (which Base Rate Loans
shall be deemed to be made pursuant to, and shall constitute part of, one or
more outstanding Existing Eurodollar Rate Borrowings (as determined by the
Administrative Agent) and shall be required to be repaid at the end of the
respective Interest Periods applicable to such Existing Eurodollar Rate
Borrowings (and with any such Base Rate Loans in any event to be repaid not
later than July 23, 1998)); or (z) to the extent that the Company and the
Administrative Agent agree, the Company may incur Eurodollar Rate Loans from the
Increasing Banks, which Borrowings shall be made pro rata on the basis of their
respective commitments under the Incremental Commitment, and such Eurodollar
Rate Loans shall have Interest Periods (otherwise determined in accordance with
the provisions of the Credit Agreement) to be agreed upon by the Company and the
Administrative Agent (with such Interest Periods to be required to end prior to
or substantially concurrently with Interest Periods relating to one or more
Existing Eurodollar Rate Borrowings on such basis as the Administrative Agent
determines is reasonable, with a view toward causing such new Borrowings by the
Company pursuant to the Incremental Commitment to match-up (as closely as is
reasonably practicable) with the various Existing Eurodollar Rate Borrowings,
provided that in any event all Interest Periods as selected pursuant to this
clause (z) shall end prior to July 23, 1998). Notwithstanding anything to the
contrary contained above, at all times after July 23, 1998, each Borrowing by
the Company pursuant to the Credit Agreement shall be required to be made (and
be participated in) by the various Banks pro rata based on their respective RL
Percentages as same then exist (and if any outstanding Borrowing does not meet
the foregoing requirements, same shall be required to be repaid in full on July
23, 1998, with any subsequent reborrowings to be made pursuant to the Credit
Agreement as then in effect).
-3-
<PAGE>
2. Each Credit Party hereby agrees that, (i) upon the reasonable request of
the Required Banks, such Credit Party will execute such amendments to the
Mortgages as the Collateral Agent shall reasonably require in connection with
the transactions contemplated by this Amendment and (ii) all Revolving Loans,
Swingline Loans, Letters of Credit and other extensions of credit incurred
pursuant to the additional Total Commitment effected hereby shall also be
entitled to the benefits of the Security Documents and the Guaranties. In
connection with the foregoing, to the extent requested by the Required Banks,
the Credit Parties will furnish such title endorsements, opinions of counsel or
take such other actions as may be requested by the Collateral Agent and/or
Administrative Agent, all at the expense of the Credit Parties.
3. Notwithstanding anything to the contrary contained in Section 1.02 of
the Credit Agreement, during the period from the Fourth Amendment Effective Date
to July 23, 1998 up to twenty-seven Borrowings of Eurodollar Rate Loans shall be
permitted to be outstanding at any one time, provided that such maximum amount
of Borrowings shall be reduced (but to an amount not less than fifteen) by one
on each date on which each Interest Period in respect of an Existing Eurodollar
Rate Borrowing ends.
4. Section 3.03(c) of the Credit Agreement is hereby amended by deleting
the number "$675,000,000" appearing in the table in said Section and inserting
in lieu thereof the text "Remaining amount of Total Commitment".
II. Miscellaneous.
1. In order to induce the Banks to enter into this Amendment, the Company
and the Canadian Borrower hereby represent and warrant that (i) all
representations and warranties contained in Section 7 of the Credit Agreement
are true and correct in all material respects on and as of the Fourth Amendment
Effective Date and after giving effect to the Amendment (unless such
representations and warranties relate to a specific earlier date, in which case
such representations and warranties shall be true and correct as of such earlier
date) and (ii) there exists no Default or Event of Default on the Fourth
Amendment Effective Date after giving effect to this Amendment.
-4-
<PAGE>
2. This Amendment is limited as specified and shall not constitute a
modification, acceptance or waiver of any other provision of the Credit
Agreement or any other Credit Document.
3. This Amendment may be executed in any number of counterparts and by the
different parties hereto on separate counterparts, each of which counterparts
when executed and delivered shall be an original, but all of which shall
together constitute one and the same instrument. A complete set of counterparts
shall be lodged with the Company and the Administrative Agent.
4. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER
SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAW OF THE STATE OF
NEW YORK.
5. This Amendment shall become effective on the date (the "Fourth Amendment
Effective Date") when:
(a) Each Credit Party (including without limitation, the Company, the
Canadian Borrower and each Subsidiary Guarantor), the Required Banks and
each Bank with a commitment under the Incremental Commitment (each, an
"Increasing Bank") shall have signed a counterpart hereof (whether the same
or different counterparts) and shall have delivered (including by usage of
facsimile transmission) the same to the Administrative Agent at its Notice
Office;
(b) The Administrative Agent shall have received from U.S. and
Canadian counsel to the various Credit Parties (each of which counsel shall
be reasonably satisfactory to the Administrative Agent) opinions, addressed
to each of the Agents and each of the Banks, in form and substance
satisfactory to the Administrative Agent, and covering such matters
incident to this Amendment and the transactions contemplated herein as the
Administrative Agent and the Required Banks may reasonably request;
(c) The Administrative Agent shall have received resolutions of the
Board of Directors of each Borrower, which resolutions shall be certified
by the Secretary or any Assistant Secretary of such Credit Party and shall
authorize the execution, delivery and
-5-
<PAGE>
performance by such Credit Party of this Amendment and the consummation of
the transactions contemplated hereby, and the foregoing shall be reasonably
acceptable to the Administrative Agent in its reasonable discretion; and
(d) There shall have been delivered to the Administrative Agent for
the benefit of each Bank whose Commitment is being increased pursuant to
Section 1 of this Amendment (each such Bank, an "Increasing Bank") a new
Company Revolving Note reflecting the increased Commitment of such Bank,
and the Increasing Banks shall surrender to the Company the Company
Revolving Notes so replaced.
6. From and after the Fourth Amendment Effective Date, all references in
the Credit Agreement and each of the Credit Documents to the Credit Agreement
shall be deemed to be references to the Credit Agreement as amended hereby.
-6-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused a counterpart of this
Amendment to be duly executed and delivered as of the date first above written.
COLTEC INDUSTRIES INC
By __________________________________
Title:
COLTEC AEROSPACE CANADA LTD.
By __________________________________
Title:
BANKERS TRUST COMPANY,
Individually and as
Administrative Agent
By __________________________________
Title:
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION
Individually and as
Documentation Agent
By __________________________________
Title:
-7-
<PAGE>
THE CHASE MANHATTAN BANK,
Individually and as
Syndication Agent
By __________________________________
Title:
BANK OF MONTREAL,
Individually and as Canadian
Paying Agent and Canadian
Documentation Agent
By __________________________________
Title:
ALLIED IRISH BANK, PLC,
CAYMAN ISLANDS BRANCH
By __________________________________
Title:
BANK OF IRELAND
By __________________________________
Title:
-8-
<PAGE>
BANK COMMERCIALE ITALIANA
NEW YORK BRANCH
By __________________________________
Title:
By __________________________________
Title:
BANK LEUMI TRUST COMPANY
OF NEW YORK
By __________________________________
Title:
THE BANK OF NEW YORK
By __________________________________
Title:
BANK OF SCOTLAND
By __________________________________
Title:
BANK OF TOKYO-MITSUBISHI TRUST
COMPANY
By __________________________________
Title:
-9-
<PAGE>
NATEXIS BANQUE BFCE, formerly
BANQUE FRANCAISE DU COMMERCE
EXTERIEUR
By __________________________________
Title:
CIBC INC.
By __________________________________
Title:
COMMERCIAL LOAN FUNDING TRUST I
By Lehman Commercial
Paper Inc., not in its
individual capacity but
solely as administrative
agent.
By __________________________________
Title:
CORESTATES BANK
By __________________________________
Title:
CREDIT LYONNAIS ATLANTA AGENCY
By __________________________________
Title:
-10-
<PAGE>
CREDIT LYONNAIS NEW YORK
BRANCH
By __________________________________
Title:
THE DAI-ICHI KANGYO BANK, LTD.
By __________________________________
Title:
FIRST UNION NATIONAL BANK
(f/k/a First Union National
Bank of North Carolina)
By __________________________________
Title:
THE FUJI BANK, LIMITED,
ATLANTA AGENCY
By __________________________________
Title:
ERSTE BANK DER
OESTERREICHISCHEN SPARKASSEN
AG (f/k/a Girocredit Bank AG
Der Sparkassen, Grand Cayman
Island Branch)
By __________________________________
Title:
-11-
<PAGE>
THE INDUSTRIAL BANK OF JAPAN,
LIMITED
By __________________________________
Title:
LEHMAN COMMERCIAL PAPER INC.
By __________________________________
Title:
LLOYDS BANK PLC
By __________________________________
Title:
MELLON BANK, N.A.
By __________________________________
Title:
NATIONSBANK, N.A.
By __________________________________
Title:
THE SAKURA BANK, LTD.
By __________________________________
Title:
-12-
<PAGE>
THE SANWA BANK, LIMITED
By __________________________________
Title:
SOCIETE GENERALE
By __________________________________
Title:
THE SUMITOMO BANK, LIMITED
By __________________________________
Title:
THE TOKAI BANK, LIMITED
NEW YORK BRANCH
By __________________________________
Title:
WACHOVIA BANK, N.A.
By __________________________________
Title:
BT BANK OF CANADA
By __________________________________
Title:
-13-
<PAGE>
BANK OF AMERICA CANADA
By __________________________________
Title:
THE CHASE MANHATTAN BANK OF
CANADA
By __________________________________
Title:
CREDIT LYONNAIS CANADA
By __________________________________
Title:
CANADIAN IMPERIAL BANK OF
COMMERCE
By __________________________________
Title:
MELLON BANK CANADA
By __________________________________
Title:
-14-
<PAGE>
Acknowledged and agreed:
AMI INDUSTRIES INC.
CII HOLDINGS INC
COLTEC CANADA INC
COLTEC INDUSTRIAL PRODUCTS INC
COLTEC INTERNATIONAL SERVICES CO
COLTEC NORTH CAROLINA INC.
COLTEC TECHNICAL SERVICES INC
DELAVAN INC (F/K/A DELAVAN NEWCO INC.)
GARLOCK INC
GARLOCK INTERNATIONAL INC
GARLOCK OVERSEAS CORPORATION
HABER TOOL COMPANY INC
HOLLEY PERFORMANCE PRODUCTS INC
JAMCO PRODUCTS, LLC
MENASCO AEROSYSTEMS INC
STEMCO INC
WALBAR INC
By__________________________
Title:
On behalf of each of the above
Subsidiary Guarantors
-15-
<PAGE>
SCHEDULE I
A. COMMITMENTS
Bank Commitment
- ---- ----------
Bankers Trust Company $115,000,000
Bank of America National Trust and Savings Association 55,000,000
The Chase Manhattan Bank 45,000,000
NationsBank, N.A. 33,750,000
First Union National Bank of North Carolina 43,750,000
Lehman Commercial Paper Inc. 13,750,000
Commercial Loan Funding Trust I 20,000,000
CIBC Inc. 43,750,000
Bank of Tokyo - Mitsubishi Trust Company 23,750,000
The Bank of New York 43,750,000
Bank of Montreal 48,750,000
Cr~dit Lyonnais 53,750,000
Bank of Scotland 30,000,000
Societe Generale 30,000,000
Wachovia Bank, N.A. 30,000,000
CoreStates Bank 30,000,000
Industrial Bank of Japan 20,000,000
The Sanwa Bank Ltd. 20,000,000
The Sakura Bank, Ltd. 20,000,000
The Dai-Ichi Kangyo Bank, Ltd. 20,000,000
Banca Commerciale Italiana 20,000,000
The Sumitomo Bank, Limited 20,000,000
The Fuji Bank, Limited 20,000,000
Mellon Bank, N.A. 20,000,000
Lloyds Bank Plc 20,000,000
Natexis Banque 10,000,000
Tokai Bank 10,000,000
Bank Leumi Trust 10,000,000
Allied Irish Bank, Plc 10,000,000
Bank of Ireland 10,000,000
Erste Bank 10,000,000
TOTAL $900,000,000
============
<PAGE>
SCHEDULE I
Page 2
B. CANADIAN SUB-COMMITMENTS
Bank Canadian Sub-Commitment
- ---- -----------------------
BT Bank of Canada $ 10,000,000
Bank of America Canada 15,000,000
The Chase Manhattan Bank of Canada 10,000,000
Bank of Montreal 20,000,000
Canadian Imperial Bank of Commerce 7,500,000
Credit Lyonnais Canada 10,000,000
Mellon Bank Canada 7,500,000
TOTAL $ 80,000,000
============
<PAGE>
BANK DISTRIBUTION LIST
ABN AMRO Bank N.V. New York Branch
500 Park Avenue
2nd Floor
New York, New York 10022
Tel: (212) 446-4319
Fax: (212) 832-7129
Attn: Michael Kowalczk
Allied Irish Bank, Plc, Cayman Islands Branch
405 Park Avenue
New York, NY 10022
Tel: (212) 339-8018
Fax: (212) 339-8007
Attn: Marcia Meeker
Banca Conimerciale Italiana New York Branch
One William Street
New York, NY 10004
Tel: (212) 607-3629
Fax: (212) 809-2124
Attn: Andrew Kresse
Bank of Leumi Trust Company of New York
579 Fifth Avenue
3rd Floor
New York, NY 10017
Tel: (212)
Fax: (212)
Attn: Gloria Buchor
The Bank of New York
One Wall Street
New York, New York 10286
Tel: (212) 635-1339
Fax: (212) 635-6434
Attn: Ann Marie Hughes
Bank of Tokyo - Mitsubishi Trust Company
1251 Avenue of the Americas
New York, New York 10020
Tel: (212) 782-4341
Fax: (212) 782-6445
Attn: Friedrich Wilms
Pamela Donnelly
<PAGE>
Bank of America National Trust and Savings Association
1230 Peachtree Street, Suite 3800
Atlanta, GA 30309
Tel: (404) 249-6973
Fax: (404) 249-6938
Attn: Michael McKenney
Frank English
Bank of America Canada (an affiliate of Bank of America
National Trust and Savings Association)
200 Front Street West, Suite 27th
Toronto, Ontario
Canada MSXlA4
Tel: (416) 349-4008
Fax: (416) 349-4283
Attn: Richard Hall
Bank of Scotland
565 Fifth Avenue
New York, New York 10017
Tel: (212) 450-0832
Fax: (212) 682-5720
Attn: Andrew Chamberlain
Bank of Montreal
430 Park Avenue
New York, New York 10022
Tel: (212) 605-1462
Fax: (212) 605-1454
Attn: Glen A. Pole
Bank of Montreal
Global Distribution Canada
First Canadian Place 22nd Floor
Toronto, Ontario
Canada MSX1A1
Tel: (416) 867-5612
Fax: (416) 867-5718
Attn: Virginia Contreras
Bank of Ireland
Head Office, Lower Bagott Street
Dublin, Ireland
Tel: 011-353-1604-4947
Fax: 011-353-1661-5330
Attn: Michael Doyle
-4-
<PAGE>
Bankers Trust Company
130 Liberty Street
New York, New York 109006
Tel: (212) 250-9094
Fax: (212) 250-7218
Attn: Mary Kay-Coyle
BT Bank of Canada (an affiliate of Bankers Trust Company)
Royal Bank Plaza, North Tower
Suite 1700
Toronto, Ontario
Canada M5J2J2
Tel: (416) 865-2278
Fax: (416) 941-9587
Attn: Marcellus Leung
The Chase Manhattan Bank
270 Park Avenue
New York, New York 10017
Tel: (212) 270-5732
Fax: (212) 270-5127
Attn: Andris G. Kalnins
The Chase Manhattan Bank of Canada
(an affiliate of The Chase Manhattan Bank)
One First Canadian Place
100 King Street West
Suite 6900
Toronto, Ontario
Canada MSX1A4
Tel: (416) 216-4133
Fax (416) 216-4161
Attn: Christine Chan
CIBC Inc.
Two Paces West
2727 Paces Ferry Road, Suite 1200
Atlanta, Georgia 30339
Tel: (770) 319-4902
Fax: (770) 319-4954
Attn: Roger Colden
Canadian Imperial Bank of Commerce
(an affiliate of CIBC Inc.)
Commerce Court West
7th Floor
Toronto, Ontario
Canada MSL1A2
Tel: (416) 980-5312
Fax: (416) 980-8384
-5-
<PAGE>
Attn: Brian Metler
CoreStates Bank
1339 Chestnut Avenue
Philadelphia, PA 19101
Tel: (215) 973-6540
Fax: (215) 973-6745
Attn: Karen Leaf
Credit Lyonnais Atlanta Agency
303 Peachtree Street NE
Suite 4400
Atlanta, Georgia 30308
Tel: (404) 524-3700
Fax: (404) 584-5249
Attn: David Edge
Credit Lyonnais New York Branch
1301 Avenue of the Americas
New York, NY 10019
Tel: (212) 261-7050
Fax: (212) 459-3187
Attn: Ron Finn, Esq.
Credit Lyonnais Canada
(an affiliate of Credit Lyonnais New York Branch)
One Financial Place
One Adelaide Street East
Suite 2505
Toronto, Ontario
Canada M5C2V9
Tel: (416) 202-6510
Fax: (416) 202-6525
Attn: Rob Dyck
The Dai-Ichi Kangyo Bank, Ltd.
One World Trade Center - 49th Floor
New York, NY 10048
Tel: (212) 488-0592
Fax: (212) 524-0579
Attn: Yusuke Yanagana
First Union National Bank of North Carolina
301 South College Street
Charlotte, NC 28288-0145
Tel: (704) 374-6919
Fax: (704) 374-4000
Attn: David Trotter
-6-
<PAGE>
The Fuji Bank Limited, Atlanta Agency
Marquis One Tower, Suite 2100
245 Peachtree Center Avenue NE
Atlanta, GA 30303
Tel: (404) 215-3317
Fax: (404) 623-2119
Attn: Scott Keller
Erste Bank Der Oesterreichischen Sparkassen AG
65 East 55th Street
New York, NY 10022
Tel: (212) 909-0635
Fax: (212) 644-0644
Attn: Anca Trifan
Industrial Bank of Japan, Limited
194 Peachtree Street NE
Suite 3600
Atlanta, Georgia 30303
Tel: (404) 420-3323
Fax: (404) 524-8509
Attn: Harry La Count
245 Park Avenue
New York, New York 10167
Tel: (212) 557-3500, ext. 452
Fax: (212) 692-9075
Attn: Mikihide Katsumata
Lehman Commercial Paper Inc.
Three World Financial Center
10th Floor
New York, NY 10285
Tel: (212) 526-0330
Fax: (212) 528-6600
Attn: Michele Swanson
Lloyds Bank PLC
2 South Biscayne Boulevard
Suite 3200
Miami, FL 33131
Tel: (212) 930-8914
Fax: (212) 930-5098
Attn: Pat Killian
575 Fifth Avenue
New York, New York 10017
Tel: (212) 930-8909
Fax: (212) 930-5098
Attn: Windsor Davies
-7-
<PAGE>
Mellon Bank, N.A.
One Mellon Bank Center, Room 4530
Pittsburgh, PA 15258
Tel: (412) 234-1068
Fax: (412) 236-1914
Attn: Charles Staub
Mellon Bank Canada
(an affiliate of Mellon Bank, N.A.)
77 King Street West, Suite 3200
Toronto, Ontario
Canada M5K1K2
Tel: (416) 860-2436
Fax: (416) 860-2439
Attn: Lisa Daily
Natexis Banque BFCE
645 Fifth Avenue
20th Floor
New York, New York 10022
Tel: (212)
Fax: (212)
Attn: Kevin Dooley
NationsBank, N.A.
100 North Tryon Street
NC 1-007-08-07
Charlotte, NC 28255
Tel: (704) 386-1828
Fax: (704) 386-1270
Attn: Dick Parkhurst
The Sanwa Bank Ltd.
4950 Georgia-Pacific Center
133 Peachtree Street NE
Atlanta, GA 30303
Tel: (404) 586-6883
Fax: (404) 589-1629
Attn: William Plough
Societe Generale
303 Peachtree Street NE
Suite 3840
Atlanta, GA 30308
Tel:
Fax:
Attn: Nick Gurins
-8-
<PAGE>
The Sakura Bank, Ltd.
277 Park Avenue
New York, NY 10172
Tel: (212) 756-6801
Fax: (212) 888-7651
Attn: Arifumi Hirata
The Sumitomo Bank, Limited
277 Park Avenue
New York, New York 10172
Tel: (212) 224-4129
Fax: (212) 224-5188
Attn: Suresh Tata
The Tokai Bank, Limited New York Branch
55 East 52nd Street
New York, NY 10055
Tel: (212)
Fax (212)
Attn: Haruyo Niki
Wachovia Bank, N.A.
400 5. Tryon Street
Charlotte, North Carolina 28202
Tel: (404)
Fax: (404)
Attn: Tim Hileman
-9-
<PAGE>
================================================================================
RECEIVABLES PURCHASE AGREEMENT
Dated As Of September 19, 1997
Among
CNC FINANCE LLC,
As Seller,
COLTEC INDUSTRIES INC,
As Collection Agent,
ATLANTIC ASSET SECURITIZATION CORP.,
As Issuer,
And
CREDIT LYONNAIS NEW YORK BRANCH,
As a Bank and as Agent
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
PRELIMINARY STATEMENTS............................................................................................1
ARTICLE I - AMOUNTS AND TERMS OF THE PURCHASES...................................................................1
SECTION 1.01. Purchase Facility......................................................................1
SECTION 1.02. Making Purchases.......................................................................2
SECTION 1.03. Receivable Interest Computation........................................................3
SECTION 1.04. Settlement Procedures..................................................................4
SECTION 1.05. Fees. .................................................................................7
SECTION 1.06. Payments and Computations, Etc.........................................................7
SECTION 1.07. Dividing or Combining Receivable Interests.............................................8
SECTION 1.08. Increased Costs........................................................................8
SECTION 1.09. Additional Yield on Receivable Interests Bearing a Eurodollar Rate.....................9
SECTION 1.10. Inability to Determine Eurodollar Rate................................................10
SECTION 1.11. Requirements of Law...................................................................10
SECTION 1.12. Security Interest.....................................................................11
ARTICLE II - REPRESENTATIONS AND WARRANTIES;
COVENANTS; EVENTS OF TERMINATION....................................................................12
SECTION 2.01. Representations and Warranties; Covenants.............................................12
SECTION 2.02. Events of Termination.................................................................12
ARTICLE III - INDEMNIFICATION....................................................................................13
SECTION 3.01. Indemnities by the Seller.............................................................13
</TABLE>
<PAGE>
<TABLE>
<S> <C>
ARTICLE IV - ADMINISTRATION AND COLLECTION OF POOL RECEIVABLES..................................................15
SECTION 4.01. Designation of Collection Agent.......................................................15
SECTION 4.02. Duties of Collection Agent............................................................16
SECTION 4.03. Certain Rights of the Agent...........................................................17
SECTION 4.04. Rights and Remedies...................................................................18
SECTION 4.05. Further Actions Evidencing Purchases..................................................18
SECTION 4.06. Covenants of the Collection Agent and the Originators.................................19
SECTION 4.07. Indemnities by the Collection Agent...................................................20
ARTICLE V - THE AGENT..........................................................................................22
SECTION 5.01. Authorization and Action..............................................................22
SECTION 5.02. Agent's Reliance, Etc.................................................................22
SECTION 5.03. Credit Lyonnais and Affiliates........................................................26
SECTION 5.04. Bank's Purchase Decision..............................................................26
ARTICLE VI - MISCELLANEOUS......................................................................................26
SECTION 6.01. Amendments, Etc.......................................................................26
SECTION 6.02. Notices, Etc..........................................................................27
SECTION 6.03. Assignability.........................................................................28
SECTION 6.04. Costs, Expenses and Taxes.............................................................31
SECTION 6.05. No Proceedings........................................................................31
SECTION 6.06. Confidentiality.......................................................................31
SECTION 6.07. Construction of the Agreement.........................................................32
SECTION 6.08. GOVERNING LAW.........................................................................32
SECTION 6.09. Execution in Counterparts.............................................................33
SECTION 6.10. No Recourse...........................................................................33
SECTION 6.11. Survival of Termination...............................................................33
</TABLE>
-ii-
<PAGE>
EXHIBITS
EXHIBIT I -- Definitions
EXHIBIT II -- Conditions of Purchases
EXHIBIT III -- Representations and Warranties
EXHIBIT IV -- Covenants
EXHIBIT V -- Events of Termination
ANNEXES
ANNEX A -- Credit and Collection Policy
ANNEX B -- Lock-Box Agreement
ANNEX C -- Monthly Report
ANNEX D -- Special Obligors
ANNEX E -- Form of Opinion of Counsel for Seller
ANNEX F -- Lock-Box Banks
ANNEX G -- Form of Assignment and Acceptance Agreement
-iii-
<PAGE>
RECEIVABLES PURCHASE AGREEMENT
Dated as of September 19, 1997
CNC FINANCE LLC, a North Carolina limited liability company (the "Seller"),
COLTEC INDUSTRIES INC, a Pennsylvania corporation (the "Collection Agent"),
ATLANTIC ASSET SECURITIZATION CORP., a Delaware corporation (the "Issuer"), THE
INDUSTRIAL BANK OF JAPAN, LIMITED ("IBJ"), LLOYDS BANK PLC ("Lloyds"), THE
SUMITOMO BANK, LIMITED ("Sumitomo") and CREDIT LYONNAIS, a French banking
corporation acting through its New York Branch ("Credit Lyonnais"), individually
and as agent (the "Agent") for the Investors and the Banks (as defined herein),
agree as follows:
PRELIMINARY STATEMENTS
Certain terms that are capitalized and used throughout this Agreement are
defined in Exhibit I to this Agreement. References in the Exhibits to "the
Agreement" refer to this Agreement, as amended, modified or supplemented from
time to time.
The Seller has acquired, and may continue to acquire, Receivables from
Coltec North Carolina Inc, which has acquired, and may continue to acquire, such
Receivables from various Originators (as defined herein), either by purchase or
by contribution. The Seller is prepared to sell undivided fractional ownership
interests (referred to herein as "Receivable Interests") in the Receivables. The
Issuer may, in its sole discretion, purchase such Receivable Interests, and the
Banks are prepared to purchase such Receivable Interests, in each case on the
terms set forth herein. Accordingly, the parties agree as follows:
ARTICLE I
AMOUNTS AND TERMS OF THE PURCHASES
SECTION 1.01. Purchase Facility. (a) On the terms and conditions
hereinafter set forth, the Issuer may, in its sole discretion, and the Banks
shall, ratably in accordance with their respective Bank Commitments, purchase
Receivable Interests from the Seller from time to time during the period
<PAGE>
from the date hereof to the Facility Termination Date, in the case of the
Issuer, and to the Commitment Termination Date, in the case of the Banks. Under
no circumstances shall the Issuer make any such purchase, or the Banks be
obligated to make any such purchase, if after giving effect to such purchase the
aggregate outstanding Capital of Receivable Interests would exceed the Purchase
Limit.
(b) The Seller may, upon at least five Business Days' notice to the Agent,
terminate this purchase facility in whole or, from time to time, reduce in part
the unused portion of the Purchase Limit; provided that each partial reduction
shall be in the amount of at least $1,000,000 or an integral multiple thereof.
(c) Until the Agent gives the Seller the notice provided in Section
2(b)(iv) of Exhibit II to this Agreement, the Agent, on behalf of the Investors
which own Receivable Interests, shall have the proceeds of Collections
attributable to such Receivable Interests automatically reinvested pursuant to
Section 1.04(b)(ii) in additional undivided percentage interests in the Pool
Receivables by making an appropriate readjustment of the Receivable Interest
percentage. The Agent, on behalf of the Banks which own Receivable Interests,
shall have the Collections attributable to such Receivable Interests
automatically reinvested pursuant to Section 1.04(b)(ii) in additional undivided
percentage interests in the Pool Receivables by making an appropriate
readjustment of the Receivable Interest percentage.
SECTION 1.02. Making Purchases (a) Each purchase of a Receivable Interest
shall be made on at least two Business Days' notice from the Seller to the
Agent. Each such notice of a purchase shall specify (i) the amount requested to
be paid to the Seller (such amount, which shall not be less than $500,000, being
referred to herein as the initial "Capital" of each Receivable Interest then
being purchased), (ii) the Settlement Date on which such Purchase is to be made
and (iii) the desired duration of the initial Fixed Period for each such
Receivable Interest. The Agent shall promptly thereafter notify the Seller
whether the Issuer has determined to make a purchase and, if so, whether all of
the terms specified by the Seller are acceptable to the Issuer. If the Issuer
has determined not to make a proposed purchase, the Agent shall promptly send
notice of the proposed purchase to all of the Banks concurrently specifying the
date of such purchase (which shall be the Settlement Date if Yield will be
calculated based on the Alternate Base Rate or not more than three Business Days
after the Settlement Date if Yield will be calculated based on the Eurodollar
Rate, as specified by the
2
<PAGE>
Seller for such purchase), each Bank's Percentage multiplied by the aggregate
amount of Capital of the Receivable Interests being purchased, whether the Yield
for the Fixed Period for such Receivable Interest is calculated based on the
Eurodollar Rate (which may be selected only if such notice is given at least
three Business Days prior to the purchase date) or the Alternate Base Rate, and
the duration of the Fixed Period for such Receivable Interest (which shall be
one day if the Seller has not selected another period).
(b) On the date of each such purchase of a Receivable Interest, the Issuer
or the Banks, as the case may be, shall, upon satisfaction of the applicable
conditions set forth in Exhibit II hereto, make available to the Seller in same
day funds, at Account No. 3750711743 at NationsBank of Texas ABA No.
111-000-012, an amount equal to the initial Capital of such Receivable Interest.
(c) Effective on the date of each purchase pursuant to this Section 1.02
and each reinvestment pursuant to Section 1.04, the Seller hereby sells and
assigns to the Agent, for the benefit of the parties making such purchase, an
undivided percentage ownership interest, to the extent of the Receivable
Interest then being purchased, in each Pool Receivable then existing and in the
Related Security and Collections with respect thereto.
(d) Notwithstanding the foregoing, a Bank shall not be obligated to make
purchases under this Section at any time in an amount which would exceed such
Bank's Bank Commitment less the outstanding and unpaid purchase price of any
purchases made by such Bank under the Liquidity Asset Purchase Agreement. Each
Bank's obligation shall be several, such that the failure of any Bank to make
available to the Seller any funds in connection with any purchase shall not
relieve any other Bank of its obligation, if any, hereunder to make funds
available on the date of such purchase, and if any Bank shall fail to make funds
available, each remaining Bank shall (subject to the limitation in the preceding
sentence) make available its pro rata portion of the funds required for such
purchase.
SECTION 1.03. Receivable Interest Computation. Each Receivable Interest
shall be initially computed on its date of purchase based on the most recent
Monthly Report required to be delivered on or prior to the Settlement Date.
Thereafter until the Termination Date for such Receivable Interest, such
Receivable Interest shall be deemed recomputed on each day other than a
Liquidation Day. Any Receivable Interest, as computed (or deemed recomputed) as
of the day immediately preceding the Termination Date for such Receivable
3
<PAGE>
Interest, shall thereafter remain constant. Such Receivable Interest shall
become zero when Capital thereof and Yield thereon shall have been paid in full,
all other amounts owed by the Seller hereunder to the Investors, the Banks or
the Agent are paid in full and the Collection Agent shall have received the
accrued Collection Agent Fee thereon.
SECTION 1.04. Settlement Procedures. (a) Collection of the Pool Receivables
shall be administered by a Collection Agent, in accordance with the terms of
Article IV of this Agreement. The Seller shall provide to the Collection Agent
on a timely basis all information needed for such administration, including
notice of the occurrence of any Liquidation Day and current computations of each
Receivable Interest.
(b) The Collection Agent shall, on each day on which Collections of Pool
Receivables are received by it with respect to any Receivable Interest:
(i) identify and hold in trust for the Investors or the Banks that
hold such Receivable Interest, out of the percentage of such Collections
represented by such Receivable Interest, an amount equal to the Yield and
Collection Agent Fee accrued through such day for such Receivable Interest
and not previously set aside;
(ii) if such day is not a Liquidation Day, reinvest with the Seller,
on behalf of the Investors or the Banks that hold such Receivable Interest,
the remainder of such percentage of Collections, to the extent representing
a return of Capital, by recomputation of such Receivable Interest pursuant
to Section 1.03;
(iii) if such day is a Liquidation Day (other than a Liquidation Day
resulting from a Termination Date occurring (x) because notice has been
given by either the Agent or the Seller pursuant to clauses (i)(a) and
(ii)(a) of the definition of Termination Date or (y) because a Facility
Termination Date or a Commitment Termination Date has occurred as a result
of the operation of clause (a) of the definitions of Facility Termination
Date or Commitment Termination Date, respectively), set aside and hold in
trust (and, at the request of the Agent, within five days after such
request, segregate into a separate account into which no other funds are
deposited) for the Investors or the Banks that hold such Receivable
Interest the entire remainder of such percentage of Collections; if such
day is a Liquidation Day as a result of the situations described in the
first parenthetical of this clause (iii), identify and hold in trust for
the Investors or the Banks that hold such Receivable Interest the entire
remainder of
4
<PAGE>
such percentage of Collections (and if such Liquidation Day occurs because
notice has been given by the Seller, then the Seller will, at the Agent's
request, within five days after such request, segregate such remainder into
a separate account into which no other funds are deposited); and
(iv) during such times as amounts are required to be reinvested in
accordance with the foregoing paragraph (ii), release to the Seller for its
own account any Collections in excess of such amounts and the amounts that
are required to be set aside pursuant to paragraph (i) above.
(c) The Collection Agent shall deposit into the Agent's Account, on the
last day of each Settlement Period for a Receivable Interest, Collections held
for the Investors or the Banks that relate to such Receivable Interest pursuant
to Section 1.04(b).
(d) Upon receipt of funds deposited into the Agent's Account, the Agent,
after converting any Canadian dollars received into U.S. dollars, shall
distribute them as follows:
(i) if such distribution occurs on a day that is not a Liquidation
Day, first to the Investors or the Banks that hold the relevant Receivable
Interest in payment in full of all accrued Yield and then to the Collection
Agent in payment in full of all accrued Collection Agent Fee for such
Receivable Interest.
(ii) if such distribution occurs on a Liquidation Day, first to the
Investors or the Banks that hold the relevant Receivable Interest in
payment in full of all accrued Yield, second , if Coltec or an Affiliate of
Coltec is not the Collection Agent, to the Collection Agent in payment in
full of all accrued Collection Agent Fees for all Receivable Interests,
third to such Investors or Banks in reduction to zero of all Capital,
fourth to such Investors or Banks or the Agent in payment of any other
amounts owed by the Seller hereunder and fifth
5
<PAGE>
if Coltec or an Affiliate of Coltec is the Collection Agent, to the
Collection Agent in payment in full of all accrued Collection Agent Fees.
After the Capital and Yield and Collection Agent Fee with respect to a
Receivable Interest, and any other amounts payable by the Seller to the
Investors, the Banks or the Agent hereunder, have been paid in full, all
additional Collections with respect to such Receivable Interest shall be paid to
the Seller for its own account.
(e) For the purposes of this Section 1.04:
(i) if on any day the Outstanding Balance of any Pool Receivable is
reduced or adjusted as a result of any defective, rejected, returned,
repossessed or foreclosed merchandise or services, or any cash discount or
other adjustment made by the Seller or any Originator, or any setoff or
dispute between the Seller or an Originator and an Obligor due to a claim
arising out of the same or any other transaction, the Seller shall be
deemed to have received on such day a Collection of such Pool Receivable in
the amount of such reduction or adjustment;
(ii) if on any day any of the representations or warranties in
paragraph (h) of Exhibit III is no longer true with respect to any Pool
Receivable, the Seller shall be deemed to have received on such day a
Collection of such Pool Receivable in full;
(iii) if and to the extent the Agent, the Investors or the Banks shall
be required for any reason to pay over to an Obligor any amount received on
its behalf hereunder, such amount shall be deemed not to have been so
received but rather to have been retained by the Seller and, accordingly,
the Agent, the Investors or the Banks, as the case may be, shall have a
claim against the Seller for such amount, payable when and to the extent
that any distribution from or on behalf of such Obligor is made in respect
thereof.
(f) Except as provided in paragraph (i) or (ii) of Section 1.04(e), or as
otherwise required by applicable law or the relevant Contract, all Collections
received from an Obligor of any Receivables shall be applied to the Receivables
of
6
<PAGE>
such Obligor in the order of the age of such Receivables, starting with the
oldest such Receivable, unless such Obligor designates its payment for
application to specific Receivables.
(g) The Seller shall forthwith deliver to the Collection Agent an amount
equal to all Collections deemed received by the Seller pursuant to Section
1.04(e)(i) or (ii) above and the Collection Agent shall hold or distribute such
Collections in accordance with Section 1.04(b). If Collections are then being
paid to the Agent, or Lock-Box Accounts directly or indirectly owned or
controlled by the Agent, the Collection Agent shall forthwith cause such deemed
Collections to be paid to the Agent or such Lock-Box Accounts. So long as the
Seller shall hold any Collections or deemed Collections required to be paid to
the Collection Agent or the Agent, it shall hold such Collections in trust and
separate and apart from its own funds and shall clearly mark its records to
reflect such trust.
SECTION 1.05. Fees. (a) Each Investor and Bank shall pay to the Collection
Agent its pro rata share (based on outstanding Capital of Receivable Interests
owned) of a fee (the "Collection Agent Fee") with respect to each Receivable
Interest equal to the product of (i) 1% per annum of the Outstanding Balance of
the Pool Receivables as of the last day of the immediately preceding Fiscal
Month (as shown on the Monthly Report), (ii) the decimal equivalent of the
relevant Receivable Interest and (iii) the decimal equivalent of a fraction the
numerator of which is the number of days in the related Settlement Period and
the denominator of which is 360. The Collection Agent Fee shall be payable on
the last day of each Settlement Period only from Collections pursuant to, and
subject to the priority of payment set forth in, Section 1.04.
(b) The Seller agrees to pay to the Agent certain fees in the amounts and
on the dates set forth in the Fee Agreement.
SECTION 1.06. Payments and Computations, Etc. (a) All amounts to be paid or
deposited by the Seller or the Collection Agent hereunder to or for the account
of the Agent, the Issuer or any other Investor or the Banks shall be paid or
deposited no later than 11:00 A.M. (New York City time) on the day when due in
same day funds in United States dollars to the Agent's Account.
7
<PAGE>
(b) The Seller shall, to the extent permitted by law, pay interest on any
amount not paid or deposited by the Seller (whether as Collection Agent or
otherwise) when due hereunder, at an interest rate per annum equal to 2% per
annum above the Alternate Base Rate, payable on demand.
(c) All computations of interest under subsection (b) above and all
computations of Yield, fees, and other amounts hereunder shall be made on the
basis of a year of 360 days for the actual number of days elapsed. Whenever any
payment or deposit to be made hereunder shall be due on a day other than a
Business Day, such payment or deposit shall be made on the next succeeding
Business Day and such extension of time shall be included in the computation of
such payment or deposit.
SECTION 1.07. Dividing or Combining Receivable Interests.
The Agent, on notice to the Seller on or prior to the last day of any Fixed
Period, may either (i) divide any Receivable Interest into two or more
Receivable Interests having aggregate Capital equal to the Capital of such
divided Receivable Interest, or (ii) combine any two or more Receivable
Interests originating on such last day or having Fixed Periods ending on such
last day into a single Receivable Interest having Capital equal to the aggregate
of the Capital of such Receivable Interests.
SECTION 1.08. Increased Costs. (a) If Credit Lyonnais, the Agent, any
Investor, any Bank, any entity which enters into a commitment to purchase
Receivable Interests or interests therein or any entity which provides liquidity
or credit enhancement (each an "Affected Person") determines that compliance
with any change in law or regulation or any change in any guideline or
interpretation of any central bank or other governmental authority (whether or
not having the force of law) affects or would affect the amount of capital
required or expected to be maintained by such Affected Person and such Affected
Person determines that the amount of such capital is increased by or based upon
the existence of any commitment to make purchases of or to lend against or
otherwise to maintain the investment in Pool Receivables or interests therein,
hereunder or under any commitments to an Investor related to this Agreement or
to the funding thereof or any related liquidity facility or credit enhancement
facility (or any participation therein), then, upon demand by such Affected
Person (with a copy to the Agent), the Seller shall immediately pay to the
Agent, for the account of such Affected Person (as a third-party beneficiary),
from time to time as specified by such
8
<PAGE>
Affected Person, additional amounts sufficient to compensate such Affected
Person in the light of such circumstances, to the extent that such Affected
Person reasonably determines such increase in capital to be allocable to the
existence of any of such commitments. A certificate as to such amounts that
explains in reasonable detail the basis for such amounts submitted to the Seller
and the Agent by such Affected Person shall be conclusive and binding for all
purposes, absent manifest error.
(b) If, due to either (i) the introduction of or any change (other than any
change by way of imposition or increase of reserve requirements referred to in
Section 1.09) in or in the interpretation of any law or regulation or (ii)
compliance with any guideline or request from any central bank or other
governmental authority (whether or not having the force of law), there shall be
any increase in the cost to an Investor or Bank of agreeing to purchase or
purchasing, or maintaining the ownership of Receivable Interests in respect of
which Yield is computed by reference to the Eurodollar Rate, then, upon demand
by such Investor or Bank (with a copy to the Agent), the Seller shall
immediately pay to the Agent, for the account of such Investor or Bank (as a
third-party beneficiary), from time to time as specified by such Investor or
Bank, additional amounts sufficient to compensate such Investor or Bank for such
increased costs. A certificate as to such amounts that explains in reasonable
detail the basis for such amounts submitted to the Seller and the Agent by such
Investor or Bank shall be conclusive and binding for all purposes, absent
manifest error.
(c) Upon request of the Seller, the Affected Person requesting such
additional amounts shall use its best efforts to assign its interests in this
Agreement and in any Receivable Interests owned by it hereunder to a third party
which is not subject to such increased costs.
SECTION 1.09. Additional Yield on Receivable Interests Bearing a Eurodollar
Rate.
The Seller shall pay to each Investor or Bank, so long as such Investor or
Bank shall be required under regulations of the Board of Governors of the
Federal Reserve System to maintain reserves with respect to liabilities or
assets consisting of or including Eurocurrency Liabilities, additional Yield on
the unpaid Capital of each Receivable Interest of such Investor or Bank during
each Fixed Period in respect of which Yield is computed by reference to the
Eurodollar Rate, for such Fixed Period, at a rate per annum equal at all times
during such Fixed
9
<PAGE>
Period to the remainder obtained by subtracting (i) the Eurodollar Rate for such
Fixed Period from (ii) the rate obtained by dividing such Eurodollar Rate
referred to in clause (i) above by that percentage equal to 100% minus the
Eurodollar Rate Reserve Percentage of such Investor or Bank for such Fixed
Period, payable on each date on which Yield is payable on such Receivable
Interest. Such additional Yield shall be determined by such Investor or Bank and
notice thereof given to the Seller through the Agent within 60 days after any
Yield payment is made with respect to which such additional Yield is requested.
A certificate as to such additional Yield that explains in reasonable detail the
basis for such amounts submitted to the Seller and the Agent by such Investor or
Bank shall be conclusive and binding for all purposes, absent manifest error.
Upon request of the Seller, the Investor or Bank requesting such additional
amounts shall use its best efforts to assign its interests in this Agreement and
in any Receivable Interests owned by it hereunder to a third party which is not
subject to such additional Yield.
SECTION 1.10. Inability to Determine Eurodollar Rate.
In the event that the Agent shall have determined prior to the first day of
any Fixed Period (which determination shall be conclusive and binding upon the
parties hereto) by reason of circumstances affecting the interbank Eurodollar
market, either (a) dollar deposits in the relevant amounts and for the relevant
Fixed Period are not available or (b) adequate and reasonable means do not exist
for ascertaining the Eurodollar Rate for such Fixed Period, the Agent shall
promptly give telephonic notice of such determination, confirmed in writing, to
the Seller prior to the first day of such Fixed Period. If such notice is given,
the Assignee Rate applicable to the relevant Receivable Interest shall be
determined without reference to the Eurodollar Rate.
SECTION 1.11. Requirements of Law.
In the event that any requirement of law or any change therein or in the
interpretation or application thereof by the relevant governmental authority to
an Affected Person after the date hereof or compliance by an Affected Person
with any request or directive (whether or not having the force of law) from any
central bank or other governmental authority:
(a) does or shall subject such Affected Person to any tax of any kind
whatsoever with respect to this Agreement or change the basis of taxation of
payments to such Affected Person on account of Collections, Yield or any other
10
<PAGE>
amounts payable hereunder (excluding taxes imposed on the income of such
Affected Person, and franchise taxes imposed on such Affected Person);
(b) does or shall impose, modify or hold applicable any reserve, special
deposit, compulsory loan or similar requirement against assets held by, or
deposits or other liabilities in or for the account of, purchases, advances or
loans by, or other credit extended by, or any other acquisition of funds by,
such Affected Person which are not otherwise included in the determination of
the Eurodollar Rate or the Alternate Base Rate hereunder; or
(c) does or shall impose on such Affected Person any other condition;
and the result of any of the foregoing is to increase the cost to such Affected
Person of maintaining a Receivable Interest funded by reference to the
Eurodollar Rate or the Alternate Base Rate or to reduce any amount receivable
hereunder funded by reference to the Eurodollar Rate or the Alternate Base Rate,
then, in any such case, the Seller shall pay such Affected Person, upon its
demand, any additional amounts necessary to compensate such Affected Person for
such additional cost or reduced amount receivable with regard to such Affected
Person's Receivable Interest funded by reference to the Eurodollar Rate or the
Alternate Base Rate. All such amounts shall be payable as incurred. A
certificate from such Affected Person or the Agent, as the case may be, to the
Seller certifying, in reasonably specific detail, the basis for, calculation of,
and amount of such additional costs shall be conclusive in the absence of
manifest error. Upon request of the Seller, the Investor or Bank requesting such
additional amounts shall use its best efforts to assign its interests in this
Agreement and in any Receivable Interests owned by it hereunder to a third party
which is not subject to such additional amounts.
SECTION 1.12. Security Interest.
As collateral security for the performance by the Seller of all the terms,
covenants and agreements on the part of the Seller (whether as Seller or
otherwise) to be performed under this Agreement or any document delivered in
connection with this Agreement in accordance with the terms thereof, including
the punctual payment when due of all obligations of the Seller hereunder or
thereunder, whether for indemnification payments, fees, expenses or otherwise,
the Seller hereby assigns to the Agent for its benefit and the ratable benefit
of the
11
<PAGE>
Investors and the Banks, and hereby grants to the Agent for its benefit and the
ratable benefit of the Investors and the Banks, a security interest in, all of
the Seller's right, title and interest in and to (a) the CNCI Purchase
Agreement, including, without limitation, (i) all rights of the Seller to
receive moneys due or to become due under or pursuant to the CNCI Purchase
Agreement, (ii) all security interests and property subject thereto from time to
time purporting to secure payment of monies due or to become due under or
pursuant to the CNCI Purchase Agreement, (iii) all rights of the Seller to
receive proceeds of any insurance, indemnity, warranty or guaranty with respect
to the CNCI Purchase Agreement, (iv) claims of the Seller for damages arising
out of or for breach of or default under the CNCI Purchase Agreement, and (v)
the right of the Seller to compel performance and otherwise exercise all
remedies thereunder, (b) all Receivables, the Related Security with respect
thereto and the Collections and all other assets, including, without limitation,
accounts, instruments and general intangibles (as those terms are defined in the
UCC) owned by the Seller and not otherwise purchased or scheduled to be
purchased under this Agreement and (c) to the extent not included in the
foregoing, all proceeds of any and all of the foregoing.
ARTICLE II
REPRESENTATIONS AND WARRANTIES; COVENANTS;
EVENTS OF TERMINATION
SECTION 2.01. Representations and Warranties; Covenants.
The Seller hereby makes the representations and warranties, and hereby
agrees to perform and observe the covenants, set forth in Exhibits III and IV,
respectively, hereto.
SECTION 2.02. Events of Termination.
If any of the Events of Termination set forth in Exhibit V hereto shall
occur and be continuing, the Agent may, and at the request of the Majority Banks
shall, by notice to the Seller, take any or all of the following actions: (x)
declare the Facility Termination Date and the Commitment Termination Date to
have occurred (in which case the Facility Termination Date and the Commitment
Termination Date shall be deemed to have occurred) and (y) without limiting any
right under this Agreement to replace the Collection Agent, designate another
Person to succeed the Collection Agent; provided that, automatically upon the
12
<PAGE>
occurrence of any event (without any requirement for the passage of time or the
giving of notice) described in paragraph (g) of Exhibit V, the Facility
Termination Date and the Commitment Termination Date shall occur. Upon any such
declaration or designation or upon any such automatic termination, the
Investors, the Banks and the Agent shall have (a) the rights of a "Purchaser"
under the Originator Purchase Agreement, the Canadian Purchase Agreement and the
CNCI Purchase Agreement, to the extent expressly provided for in such agreements
and (b), in addition to the rights and remedies which they may have under this
Agreement, all other rights and remedies provided after default under the UCC of
the appropriate jurisdiction or jurisdictions and under other applicable law,
which rights and remedies shall be cumulative.
ARTICLE III
INDEMNIFICATION
SECTION 3.01. Indemnities by the Seller.
Without limiting any other rights that the Agent, the Investors, the Banks
or any of their respective Affiliates or agents (each, an "Indemnified Party")
may have hereunder or under applicable law, the Seller hereby agrees to
indemnify each Indemnified Party from and against any and all claims, losses and
liabilities (including reasonable attorneys' fees) (all of the foregoing being
collectively referred to as "Indemnified Amounts") arising out of or resulting
from this Agreement or in respect of any Receivable or any Contract, excluding,
however, (a) Indemnified Amounts to the extent resulting from gross negligence
or willful misconduct on the part of such Indemnified Party, (b) recourse
(except as otherwise specifically provided in this Agreement) for uncollectible
Receivables or (c) any income taxes or franchise taxes imposed on such
Indemnified Party, arising out of or as a result of this Agreement or the
ownership of Receivable Interests or in respect of any Receivable or any
Contract. Without limiting or being limited by the foregoing, the Seller shall
pay on demand to each Indemnified Party any and all amounts necessary to
indemnify such Indemnified Party from and against any and all Indemnified
Amounts relating to or resulting from any of the following:
13
<PAGE>
(a) the creation of an undivided percentage ownership interest in any
Receivable which purports to be part of the Net Receivables Pool Balance but
which is not at the date of the creation of such interest an Eligible
Receivable;
(b) any representation or warranty or statement made or deemed made by the
Seller (or any of its members) under or in connection with this Agreement and
the other Transaction Documents to which the Seller is a party which shall have
been incorrect in any material respect when made;
(c) the failure by the Seller to comply with any applicable law, rule or
regulation with respect to any Pool Receivable; or the failure of any Pool
Receivable or the related Contract to conform to any such applicable law, rule
or regulation;
(d) the failure to vest in the Agent on behalf of the Investors and the
Banks (a) a perfected undivided percentage ownership interest, to the extent of
each Receivable Interest, in the Receivables in, or purporting to be in, the
Receivables Pool and the Related Security and Collections in respect thereof or
(b) a perfected security interest as provided in Section 1.12, in each case free
and clear of any Adverse Claim;
(e) the failure to have filed, or any delay in filing, financing statements
or other similar instruments or documents under the UCC of any applicable
jurisdiction or other applicable laws with respect to any Receivables in, or
purporting to be in, the Receivables Pool and the Related Security and
Collections in respect thereof, whether at the time of any purchase or
reinvestment or at any subsequent time;
(f) any dispute, claim, offset or defense (other than discharge in
bankruptcy of the Obligor) of the Obligor to the payment of any Receivable in,
or purporting to be in, the Receivables Pool (including, without limitation, a
defense based on such Receivable or the related Contract not being a legal,
valid and binding obligation of such Obligor enforceable against it in
accordance with its terms), or any other claim resulting from the sale of the
merchandise or services related to such Receivable or the furnishing or failure
to furnish such merchandise or services;
(g) any failure of the Seller to perform its duties or obligations in
accordance with the provisions hereof or of the CNCI Purchase Agreement;
14
<PAGE>
(h) any products liability or other claim (including claims for unpaid
sales or excise taxes) arising out of or in connection with merchandise,
insurance or services which are the subject of any Contract;
(i) the commingling by the Seller of Collections of Pool Receivables at any
time with other funds or the failure of Collections to be deposited into
Lock-Box Accounts;
(j) any investigation, litigation or proceeding related solely to the
Seller or the Transaction Documents to which the Seller is a party or the
transactions contemplated hereby and thereby or the ownership of Receivable
Interests or in respect of any Receivable, Related Security or Contract;
(k) any failure of the Seller to comply with its covenants contained in
Exhibit IV;
(l) any claim brought by any Person other than an Indemnified Party arising
from any activity by the Seller with respect to any Receivable.
ARTICLE IV
ADMINISTRATION AND COLLECTION
OF POOL RECEIVABLES
SECTION 4.01. Designation of Collection Agent.
The servicing, administration and collection of the Pool Receivables shall
be conducted by the Collection Agent so designated hereunder from time to time.
Until the Agent gives notice to the Seller of the designation of a new
Collection Agent, Coltec is hereby designated as, and hereby agrees to perform
the duties and obligations of, the Collection Agent pursuant to the terms
hereof. The Agent at any time, after the occurrence of an Event of Termination,
may designate as Collection Agent any Person (including itself) to succeed
Coltec or any successor Collection Agent, if such Person shall consent and agree
to the terms hereof. The Collection Agent may subcontract with any Originator of
Receivables for the servicing, administration or collection of the Pool
Receivables or, with the prior consent of the Agent, subcontract with any other
Person. Any such subcontract shall not affect the Collection Agent's liability
for performance of its duties and obligations pursuant to the terms hereof.
15
<PAGE>
SECTION 4.02. Duties of Collection Agent.
(a) The Collection Agent shall take or cause to be taken all such actions
as may be necessary or advisable to collect each Pool Receivable (including
obtaining proceeds under any related insurance policy) from time to time, all in
accordance with applicable laws, rules and regulations, with reasonable care and
diligence, and in accordance with the Credit and Collection Policy. The Seller
and the Agent hereby appoint the Collection Agent, from time to time designated
pursuant to Section 4.01, as agent for themselves and for the Investors and the
Banks to enforce their respective rights and interests in the Pool Receivables,
the Related Security and the related Contracts. In performing its duties as
Collection Agent, the Collection Agent shall exercise the same care and apply
the same policies as it would exercise and apply if it owned such Receivables
and shall act in the best interests of the Seller, the Investors and the Banks.
(b) The Collection Agent shall administer the Collections in accordance
with the procedures described in Section 1.04.
(c) If no Event of Termination or an event that but for notice or lapse of
time or both would constitute an Event of Termination shall have occurred and be
continuing, the Collection Agent may, in accordance with the Credit and
Collection Policy, extend the maturity or adjust the Outstanding Balance or
otherwise modify the payment terms of any Receivable as the Collection Agent
deems appropriate to maximize Collections thereof.
(d) The Collection Agent shall hold in trust for the Seller and each
Investor and Bank, in accordance with their respective interests, all documents,
instruments and records (including without limitation, computer tapes or disks)
which evidence or relate to Pool Receivables.
(e) The Collection Agent shall, as soon as practicable following receipt,
turn over to the Seller any cash collections or other cash proceeds received
with respect to Receivables not constituting Pool Receivables and any cash
collections representing payment of GST.
16
<PAGE>
(f) The Collection Agent shall, from time to time at the request of the
Agent, furnish to the Agent (promptly after any such request) a calculation of
the amounts set aside for the Investors and the Banks as of the last day of each
Settlement Period pursuant to Section 1.04.
(g) On or before the tenth Business Day after the end of each Fiscal Month,
the Collection Agent shall prepare and forward to the Agent a Monthly Report
relating to the Receivable Interests outstanding on the last day of such Fiscal
Month.
SECTION 4.03. Certain Rights of the Agent.
(a) The Agent is authorized at any time, after the occurrence of an Event
of Termination or an event that but for notice or lapse of time or both would
constitute an Event of Termination, to deliver to the Lock-Box Banks the notices
provided for in the Lock Box Agreements. The Seller hereby transfers to the
Agent, effective when the Agent delivers such notices, the exclusive ownership
and control of the Lock-Box Accounts to which the Obligors of Pool Receivables
shall make payments. The Seller shall take any actions reasonably requested by
the Agent to effect such transfer. All amounts in the Lock-Box Accounts which
represent Collections of Receivables may, in accordance with this Agreement, be
deposited into the Agent's Account, pro rata in accordance with outstanding
Capital, as the Agent may determine. The Agent, after the occurrence of an Event
of Termination, also may notify the Obligors of Pool Receivables, at any time
and at the Seller's expense, of the ownership of Receivable Interests under this
Agreement.
(b) At any time after the occurrence of an Event of Termination:
(i) The Agent may direct the Obligors of Pool Receivables that all
payments thereunder be made directly to the Agent or its designee; and
(ii) Upon the appointment of a successor Collection Agent, at the
Agent's request and at the Seller's expense, the Seller and the Collection
Agent shall (x) provide such successor Collection Agent with copies of all
instruments and other records (including, without limitation, computer
tapes and disks) that evidence or relate to the Pool Receivables and the
related Contracts (including Long Term
17
<PAGE>
Contracts provided that such successor Collection Agent shall comply with
the confidentiality and non-disclosure obligations set forth in such Long
Term Contracts), and Related Security and that are otherwise necessary or
desirable to collect the Pool Receivables and (y) segregate all cash,
checks and other instruments received by it from time to time constituting
Collections of Pool Receivables in a manner acceptable to the Agent and,
promptly upon receipt, remit all such cash, checks and instruments, duly
endorsed or with duly executed instruments of transfer, to the Agent or its
designee.
SECTION 4.04. Rights and Remedies.
(a) If the Collection Agent fails to perform any of its obligations under
this Agreement, the Agent may (but shall not be required to) itself perform, or
cause performance of, such obligation; and the Agent's costs and expenses
incurred in connection therewith shall be payable by the Seller (if the
Collection Agent that fails to so perform is Coltec, the Seller or its
designee).
(b) The Seller and the Originators shall perform their respective
obligations under the Contracts related to the Pool Receivables to the same
extent as if Receivable Interests had not been sold and the exercise by the
Agent on behalf of the Investors and the Banks of their rights under this
Agreement shall not release the Collection Agent or the Seller from any of their
duties or obligations with respect to any Pool Receivables or related Contracts.
Neither the Agent, the Investors nor the Banks shall have any obligation or
liability with respect to any Pool Receivables or related Contracts, nor shall
any of them be obligated to perform any obligations thereunder.
SECTION 4.05. Further Actions Evidencing Purchases.
The Seller will ensure that each Originator from time to time, at its
expense, will promptly execute and deliver all further instruments and
documents, and take all further actions, that may be reasonably necessary or
desirable, or that the Agent may reasonably request, to perfect, protect or more
fully evidence the Receivable Interests purchased hereunder, or to enable the
Investors, the Banks or the Agent to exercise and enforce their respective
rights and remedies hereunder. Without limiting the foregoing, the Seller will
ensure that each Originator will:
18
<PAGE>
(a) upon the request of the Agent execute and file such financing or
continuation statements, or amendments thereto, and such other instruments and
documents, that may be reasonably necessary or desirable, or that the Agent may
reasonably request, to perfect, protect or evidence such Receivable Interests;
and
(b) mark its master data processing records evidencing such Pool
Receivables with such a legend.
SECTION 4.06. Covenants of the Collection Agent and the Originators.
(a) Audits. The Collection Agent will, and will ensure that the Originators
will, from time to time during regular business hours upon five Business Days
prior notice as requested by the Agent, permit the Agent, or its agents or
representatives (including independent public accountants, which may be the
Collection Agent's independent public accountants);
(i) to conduct an annual audit (or more frequently if an Event of
Termination occurs) of the Receivables, the Related Security and the
related books and records and collections systems of the Collection Agent
and the Originators, the first of which audits will occur prior to March 1,
1998,
(ii) semi-annually (or more frequently if an Event of Termination
occurs), to examine and make copies of and abstracts from all books,
records and documents (including, without limitation, computer tapes and
disks) in the possession or under the control of the Collection Agent
relating to Pool Receivables and the Related Security, including, without
limitation, the Contracts (unless such Contract is a Long-Term Contract),
and
19
<PAGE>
(iii) semi-annually (or more frequently if an Event of Termination
occurs), to visit the offices and properties of the Collection Agent and
the Originators for the purpose of examining such materials described in
clause (ii) above, and to discuss matters relating to Pool Receivables and
the Related Security or the Collection Agent's performance hereunder with
any of the officers or employees of the Collection Agent having knowledge
of such matters.
(b) Change in Credit and Collection Policy. Coltec will ensure that no
Originator will make any change in the Credit and Collection Policy that would
materially adversely impair the collectibility of any Pool Receivable or the
ability of Coltec (if it is acting as Collection Agent) to perform its
obligations under this Agreement.
SECTION 4.07. Indemnities by the Collection Agent.
Without limiting any other rights that the Agent, any Investor or any Bank
(each, a "Special Indemnified Party") may have hereunder or under applicable
law, and in consideration of its appointment as Collection Agent, the Collection
Agent hereby agrees to indemnify each Special Indemnified Party from and against
any and all claims, losses and liabilities (including reasonable attorneys'
fees) (all of the foregoing being collectively referred to as "Special
Indemnified Amounts") arising out of or resulting from any of the following
(excluding, however, (a) Special Indemnified Amounts to the extent resulting
from gross negligence or willful misconduct on the part of such Special
Indemnified Party, (b) recourse for uncollectible Receivables or (c) any income
taxes or any other tax or fee measured by income incurred by such Special
Indemnified Party arising out of or as a result of this Agreement or the
ownership of Receivable Interests or in respect of any Receivable or any
Contract):
(i) any representation or warranty or statement made or deemed made by
the Collection Agent under or in connection with this Agreement which shall
have been incorrect in any material respect when made;
(ii) the failure by the Collection Agent to comply with any applicable
law, rule or regulation with respect to any Pool Receivable or Contract;
20
<PAGE>
(iii) any failure of the Collection Agent to perform its duties or
obligations in accordance with the provisions of this Agreement;
(iv) the commingling of Collections of Pool Receivables at any time by
the Collection Agent with other funds;
(v) any action or omission by the Collection Agent reducing or
impairing the rights of the Investors or the Banks with respect to any Pool
Receivable or the value of any Pool Receivable (without duplication for any
amount received as a deemed collection);
(vi) any claim brought by any Person other than a Special Indemnified
Party arising from any activity by the Collection Agent in servicing or
collecting any Pool Receivable;
(vii) any dispute, claim, offset or defense of the Obligor to the
payment of any Receivable in, or purporting to be in, the Receivables Pool
as a result of the collection activities with respect to such Receivable by
the Collection Agent; or
(viii) any investigation, litigation or proceeding related to the
conduct of due diligence in connection with this Agreement or the
Transaction Documents or the transactions contemplated hereby and thereby.
SECTION 4.08. Representations and Warranties of the Collection Agent. The
Collection Agent represents and warrants as follows:
(a) The Collection Agent is a corporation duly incorporated, validly
existing and in good standing under the laws of its jurisdiction of
incorporation, and is duly qualified to do business, and is in good standing, in
every jurisdiction where the nature of its business requires it to be so
qualified.
(b) The execution, delivery and performance by the Collection Agent of this
Agreement and the other documents to be delivered by it hereunder (i) are within
the Collection Agent's corporate powers, (ii) have been duly authorized by all
necessary corporate action and (iii) do not contravene (1) the Collection
Agent's charter or by-laws, (2) any law, rule or regulation applicable to the
Collection Agent, (3) any contractual restriction binding on or affecting the
Collection Agent or its property or (4) any order, writ, judgment, award,
injunction
21
<PAGE>
or decree binding on or affecting the Collection Agent or its property. This
Agreement has been duly executed and delivered by the Collection Agent.
(c) No authorization or approval or other action by, and no notice to or
filing with, any governmental authority or regulatory body is required for the
due execution, delivery and performance by the Collection Agent of this
Agreement or any other document to be delivered by it hereunder.
(d) This Agreement constitutes the legal, valid and binding obligation of
the Collection Agent enforceable against the Collection Agent in accordance with
its terms subject to applicable bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting the enforcement of rights of
creditors generally and except to the extent that enforcement of rights and
remedies set forth herein may be limited to judicial discretion regarding the
enforcement of, or by applicable laws affecting, remedies (whether considered in
a court of law or a proceeding in equity.
(e) Each Monthly Report (if prepared by Coltec or one of its Affiliates, or
to the extent that information contained therein is supplied by Coltec, the
Seller or an Affiliate), information, exhibit, financial statement, document,
book, record or report furnished or to be furnished at any time by or on behalf
of Coltec to the Agent, the Investors or the Banks in connection with this
Agreement is correct in all material respects as of its date or (except as
otherwise disclosed to the Agent, the Investors or the Banks, as the case may
be, at such time) as of the date so furnished, and no such document contains any
untrue statement of a material fact or omits to state a material fact necessary
in order to make the statements contained therein, in the light of the
circumstances under which they were made, not misleading.
ARTICLE V
THE AGENT
SECTION 5.01. Authorization and Action.
Each Investor and each Bank hereby appoints and authorizes the Agent to
take such action as agent on its behalf and to exercise such powers under this
Agreement as are delegated to the Agent by the terms hereof, together with such
powers as are reasonably incidental thereto.
22
<PAGE>
SECTION 5.02. Agent's Reliance, Etc.
Neither the Agent nor any of its directors, officers, agents or employees
shall be liable for any action taken or omitted to be taken by it or them as
Agent under or in connection with this Agreement (including, without limitation,
the Agent's servicing, administering or collecting Pool Receivables as
Collection Agent), except for its or their own gross negligence or willful
misconduct. Without limiting the generality of the foregoing, the Agent:
(a) may consult with legal counsel (including counsel for the Seller and
the Collection Agent), independent certified public accountants and other
experts selected by it and shall not be liable for any action taken or omitted
to be taken in good faith by it in accordance with the advice of such counsel,
accountants or experts;
(b) makes no warranty or representation to any Investor or Bank (whether
written or oral) and shall not be responsible to any Investor or Bank for any
statements, warranties or representations (whether written or oral) made in or
in connection with this Agreement;
(c) shall not have any duty to ascertain or to inquire as to the
performance or observance of any of the terms, covenants or conditions of this
Agreement on the part of the Seller or the Collection Agent or to inspect the
property (including the books and records) of the Seller or the Collection
Agent;
(d) shall not be responsible to any Investor or Bank for the due execution,
legality, validity, enforceability, genuineness, sufficiency or value of this
Agreement or any other instrument or document furnished pursuant hereto;
(e) shall incur no liability under or in respect of this Agreement by
acting upon any notice (including notice by telephone), consent, certificate or
other instrument or writing (which may be by telecopier or telex) believed by it
to be genuine and signed or sent by the proper party or parties; and
(f) may treat the Bank which funded any purchase of a Receivable Interest
as the owner of such Receivable Interest until the Agent receives and accepts an
Assignment and Acceptance entered into by such Bank, as assignor, and an
Eligible Assignee, as assignee, as provided in Section 6.03.
23
<PAGE>
SECTION 5.03. Rights of the Agent. The Agent reserves the right, in its
sole discretion (subject to the next sentence), to exercise any rights and
remedies available under this Agreement or pursuant to applicable law, and also
to agree to any amendment, modification or waiver of the provisions of this
Agreement or any instrument or document delivered pursuant thereto.
Notwithstanding the foregoing, the Agent agrees that it shall not
(a) without the prior written consent of each Bank,
(i) amend the definitions of Eligible Receivable, Delinquent
Receivable or Defaulted Receivable contained in this Agreement or
(ii) amend, modify or waive any provision of this Agreement in any way
which would
A. reduce the amount of Capital or Yield that is payable on
account of any Receivable Interest or delay any scheduled date for
payment thereof or impair any rights expressly granted to an assignee
or participant under this Agreement or reduce fees payable by the
Seller to the Agent which relate to payments to Banks or delay the
dates on which such fees are payable or
B. modify any provisions relating to reserves for uncollectible
Receivables, Yield or the Collection Agent Fee or
(iii) amend or waive the Event of Termination relating to the
bankruptcy of the Seller or an Originator or
(iv) extend the Commitment Termination Date, and
(b) without the prior written consent of the Majority Banks (defined
below),
(i) amend the definitions of Default Ratio, Delinquency Ratio, Net
Receivables Pool Balance, Monthly Default Ratio or Monthly Delinquency
Ratio or
24
<PAGE>
(ii) amend the Events of Termination to increase the maximum permitted
Default Ratio, Delinquency Ratio, Dilution Ratio, Monthly Default Ratio or
Monthly Delinquency Ratio or reduce the minimum required Receivable
Interest percentage or
(iii) increase any Special Concentration Percentage, establish any new
Special Concentration Percentage or modify the then existing Normal
Concentration Percentage and
(c) without the prior written consent of the applicable Bank, amend this
Agreement to increase such Bank's Bank Commitment.
As to any matters not expressly provided for by this Agreement (including,
without limitation, enforcement of the Agreement), the Agent shall not be
required to exercise any discretion or take any action, but shall be required to
act or to refrain from acting (and shall be fully protected in so acting or
refraining from acting) upon the instructions of the Majority Banks and such
instructions shall be binding upon all Banks; provided, however, that the Agent
shall not be required to take any action which exposes the Agent to personal
liability or which is contrary to the Agreement or applicable law.
SECTION 5.04. Indemnification of Agent. Each Bank agrees to indemnify the
Agent (to the extent not reimbursed by the Seller), ratably in accordance with
its Percentage, from and against any and all liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or disbursements
of any kind or nature whatsoever which may be imposed on, incurred by, or
asserted against the Agent in any way relating to or arising out of this
Agreement or any action taken or omitted by the Agent under this Agreement,
provided that no Bank shall be liable for any portion of such liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements resulting from the Agent's gross negligence or willful
misconduct.
25
<PAGE>
SECTION 5.05. Credit Lyonnais and Affiliates.
With respect to any Receivable Interest or interest therein owned by it,
Credit Lyonnais shall have the same rights and powers under this Agreement as
any Bank and may exercise the same as though it were not the Agent. Credit
Lyonnais and any of its Affiliates may generally engage in any kind of business
with the Seller, the Collection Agent, any Originator or any Obligor, any of
their respective Affiliates and any Person who may do business with or own
securities of the Seller, the Collection Agent, any Originator or any Obligor or
any of their respective Affiliates, all as if Credit Lyonnais were not the Agent
and without any duty to account therefor to the Investors or the Banks.
SECTION 5.06. Bank's Purchase Decision.
Each Bank acknowledges that it has, independently and without reliance upon
the Agent, any of its Affiliates or any other Bank and based on such documents
and information as it has deemed appropriate, made its own evaluation and
decision to enter into this Agreement. Each Bank also acknowledges that it will,
independently and without reliance upon the Agent, any of its Affiliates or any
other Bank and based on such documents and information as it shall deem
appropriate at the time, continue to make its own decisions in taking or not
taking action under this Agreement.
ARTICLE VI
MISCELLANEOUS
SECTION 6.01. Amendments, Etc.
No amendment or waiver of any provision of this Agreement and no consent to
any departure by the Seller or the Collection Agent therefrom shall be effective
unless in a writing signed by the Agent, as agent for the Investors and the
Banks, and, in the case of any amendment, also signed by the Seller, and then
such amendment, waiver or consent shall be effective only in the specific
instance and for the specific purpose for which given; provided, however, that
no amendment shall, unless in writing and signed by the Collection Agent in
addition to the Agent, affect the rights or duties of the Collection Agent under
this Agreement. Notwithstanding the foregoing, no amendment or waiver of any
provision of this Agreement or consent to any departure by the Seller or the
Collection Agent
26
<PAGE>
therefrom shall be effective unless a written statement is obtained from each of
the Relevant Rating Agencies that the rating of the Issuer's commercial paper
notes will not be downgraded or withdrawn solely as a result of such amendment,
waiver or consent. No failure on the part of the Investors, the Banks or the
Agent to exercise, and no delay in exercising, any right hereunder shall operate
as a waiver thereof; nor shall any single or partial exercise of any right
hereunder preclude any other or further exercise thereof or the exercise of any
other right.
SECTION 6.02. Notices, Etc.
All notices, demands and other communications provided for hereunder shall,
unless otherwise stated herein, be in writing (which shall include electronic
transmission), shall be personally delivered, express couriered, electronically
transmitted or mailed by registered or certified mail and shall, unless
otherwise expressly provided herein, be effective when received at the address
specified below for the listed parties or at such other address as shall be
specified in a written notice furnished to the other parties hereunder.
If to the Seller:
CNC FINANCE LLC
3 Coliseum Centre
2550 West Tyvola
Charlotte, NC 28217
Attention: Treasury
Tel. No.: (704) 423-7028
Facsimile No.: (704) 423-7069
If to Coltec:
COLTEC INDUSTRIES INC
3 Coliseum Centre
2550 West Tyvola
Charlotte, NC 28217
Attention: Treasury
Tel. No.: (704) 423-7028
Facsimile No.: (704) 423-7069
27
<PAGE>
If to the Agent:
CREDIT LYONNAIS NEW YORK BRANCH
1301 Avenue of the Americas
New York, NY 10019
Tel. No.: (212) 261-7812
Facsimile No.: (212) 459-3258
If to the Issuer:
ATLANTIC ASSET SECURITIZATION CORP.
c/o Lord Securities Corporation
Two Wall Street, 19th Floor
New York, NY 10005
Tel. No.: (212) 346-9000
Facsimile No.: (212) 346-9012
If to the Banks:
CREDIT LYONNAIS NEW YORK BRANCH
1301 Avenue of the Americas
New York, NY 10019
Tel. No.: (212) 261-7812
Facsimile No.: (212) 459-3258
THE INDUSTRIAL BANK OF JAPAN, LIMITED
1251 Avenue of the Americas
New York, NY 10020-1104
Attn: Mr. Takuya Honjo
Senior Vice President
Tel: (212) 282-3320
Fax: (212) 282-4490
28
<PAGE>
LLOYDS BANK PLC
575 Fifth Avenue, 18th Floor
New York, NY 10017
Attn: Mr. Peter Kernick
Director
Tel: (212) 930-8913
Fax: (212) 930-5098
THE SUMITOMO BANK, LIMITED
277 Park Avenue
New York, NY 10172
Attn: Ms. Carolyn Schembri
Vice President
Tel: (212) 224-4025
Fax: (212) 224-5191
SECTION 6.03. Assignability.
(a) This Agreement and the Investors' rights and obligations herein
(including ownership of each Receivable Interest) shall be assignable by the
Investors and their successors and assigns with the prior written consent of the
Seller, which consent shall not be unreasonably withheld. Each assignor of a
Receivable Interest or any interest therein shall notify the Agent and the
Seller of any such assignment. Each assignor of a Receivable Interest may, in
connection with the assignment or participation, disclose to the assignee or
participant any information, relating to the Seller or the Receivables, which
was furnished to such assignor by or on behalf of the Seller or by the Agent;
provided that, prior to any such disclosure, the assignee or participant agrees
to preserve the confidentiality of any confidential information relating to the
Seller received by it from any of the foregoing entities.
(b) Each Bank may, with the prior written consent of the Seller, which
shall not be unreasonably withheld, assign to any Eligible Assignee or to any
other Bank all or a portion of its rights and obligations under this Agreement
(including, without limitation, all or a portion of its Bank Commitment and any
Receivable Interests or interests therein owned by it). The parties to each such
assignment shall execute and deliver to the Agent an Assignment and Acceptance.
In addition, Credit Lyonnais or any of its Affiliates may assign any of its
rights
29
<PAGE>
(including, without limitation, rights to payment of Capital and Yield) under
this Agreement to any Federal Reserve Bank without notice to or consent of the
Seller or the Agent.
(c) This Agreement and the rights and obligations of the Agent herein shall
be assignable by the Agent and its successors and assigns.
(d) The Seller may not assign its rights or obligations hereunder or any
interest herein without the prior written consent of the Agent.
(e) Without limiting any other rights that may be available under
applicable law, the rights of the Investors may be enforced through them or by
their agents.
(f) Any assignment proposed to be made hereunder by a Bank shall be void
unless the assignee shall deliver to the Collection Agent either the certificate
or the opinion referred to in the definition of Eligible Assignee; provided
however, that, that each assignee organized under the laws of a jurisdiction
outside the United States agrees that it will deliver to the Seller and the
Collection Agent (i) two duly completed copies of United States Internal Revenue
Service Form 1001 or 4224 or successor applicable form, as the case may be, (ii)
an Internal Revenue Service Form W-8 or W-9 or successor applicable form and
(iii) promptly upon the request of the Seller or the Collection Agent therefor,
such other forms or similar documentation as may be required from time to time
by any applicable law, treaty, rule or regulation in order to establish such
assignee's tax status for withholding purposes. If such assignee delivers a Form
1001 or 4224 and Form W-8 or W-9 pursuant to the preceding sentence, it shall
further undertake to deliver to the Seller and the Collection Agent two further
copies of such Form 1001 or 4224 and Form W-8 or W-9, or successor applicable
forms or other manner of certification, as the case may be on or before the date
that any such form expires or becomes obsolete or after the occurrence of any
event requiring a change in the most recent form previously delivered by it to
the Seller and the Collection Agent, and such extensions or renewals thereof as
may be requested by the Seller or the Collection Agent, unless in any such case
an event (including, without limitation, any change in treaty, law or
regulation) has occurred prior to the date on which any such delivery would
otherwise be required which renders all such forms inapplicable or which would
prevent such assignee from duly completing and delivering any such form with
respect to it and such assignee so advises the Seller and the Collection Agent.
Such assignee shall
30
<PAGE>
certify (x) in the case of a Form 1001 or 4224, that it is entitled to receive
payments under this Agreement without deduction or withholding of any United
States federal income taxes and (y) in the case of a Form W-8 or W-9, that it is
entitled to an exemption from United States backup withholding tax.
SECTION 6.04. Costs, Expenses and Taxes.
(a) In addition to the rights of indemnification granted under Section 3.01
hereof, the Seller agrees to pay on demand all costs and expenses in connection
with advising the Agent, the Issuer, Credit Lyonnais and their respective
Affiliates and agents as to their rights and remedies under this Agreement, and
all costs and expenses, if any (including reasonable counsel fees and expenses),
of the Agent, the Investors, the Banks and their respective Affiliates and
agents, in connection with the enforcement of this Agreement and the other
documents and agreements to be delivered hereunder.
(b) In addition, the Seller shall pay any and all stamp and other taxes and
fees payable in connection with the execution, delivery, filing and recording of
this Agreement or the other documents or agreements to be delivered hereunder.
The Seller agrees to save each Indemnified Party harmless from and against any
liabilities with respect to or resulting from any delay in paying or omission to
pay such taxes and fees, any and all stamp and other taxes and fees payable in
connection with the execution, delivery, filing and recording of this Agreement
or the other documents or agreements to be delivered hereunder.
SECTION 6.05. No Proceedings.
Each of the Seller, the Agent, the Collection Agent, each Investor, each
Bank, each assignee of a Receivable Interest or any interest therein and each
entity which enters into a commitment to purchase Receivable Interests or
interests therein hereby agrees that it will not institute against, or join any
other person in instituting against, the Issuer any proceeding of the type
referred to in paragraph (g) of Exhibit V for one year and one day after the
latest maturing commercial paper note issued by the Issuer is paid.
SECTION 6.06. Confidentiality
Unless otherwise required by applicable law, regulation or court or
regulatory body order, the Seller, the Issuer, the Collection Agent and the
Agent
31
<PAGE>
agree to maintain the confidentiality of this Agreement (and all drafts thereof)
in communications with third parties and otherwise; provided that this Agreement
(and drafts thereof) may be disclosed (a) to third parties to the extent such
disclosure is made pursuant to a written agreement of confidentiality, (b) to
the Seller's, the Collection Agent's and the Originators' legal counsel and
accountants, (c) to the financial institutions from time to time parties to the
Credit Agreement and their respective legal counsel, (d) in the event this
Agreement is or becomes public information (other than as a result of the
violation of the provisions of this Section 6.06 by the person making such
disclosure) and (e) to any of their officers, directors, managers, employees or
agents, provided that the person making such disclosure shall ensure that any
such officer, director, manager, employee or agent shall agree to keep this
Agreement confidential.
SECTION 6.07. Construction of the Agreement.
The parties hereto intend that the purchase and sale of Receivable
Interests from the Seller be treated as a sale of such Receivable Interests and
the proceeds thereof. However, if a determination is made that such transfer
shall not be so treated, this Agreement shall be deemed to constitute a security
agreement and the transactions effected hereby shall be deemed to constitute a
secured financing in each case under applicable law and to that end, the Seller
hereby grants to the Agent, for the benefit of the Investors and the Banks, a
security interest in the Receivable Interests so transferred to secure its
obligations hereunder.
SECTION 6.08. GOVERNING LAW.
THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE
LAW OF THE STATE OF NEW YORK (WITHOUT GIVING EFFECT TO THE CONFLICT OF LAWS
PRINCIPLES THEREOF), EXCEPT TO THE EXTENT THAT THE PERFECTION OF THE INTERESTS
OF THE INVESTORS AND THE BANKS IN THE RECEIVABLES, THE CNCI PURCHASE AGREEMENT,
THE ORIGINATOR PURCHASE AGREEMENT, THE CANADIAN PURCHASE AGREEMENT OR REMEDIES
HEREUNDER, IN RESPECT THEREOF, ARE GOVERNED BY THE LAWS OF A JURISDICTION OTHER
THAN THE STATE OF NEW YORK.
32
<PAGE>
SECTION 6.09. Execution in Counterparts.
This Agreement may be executed in any number of counterparts, each of which
when so executed shall be deemed to be an original and all of which when taken
together shall constitute one and the same agreement. Delivery of an executed
counterpart of a signature page to this Agreement by facsimile shall be
effective as delivery of a manually executed counterpart of this Agreement.
SECTION 6.10. No Recourse.
The obligations of the Issuer under this Agreement are solely the corporate
obligations of the Issuer. No recourse shall be had for the payment of any
amount owing by the Issuer under this Agreement, or for the payment by the
Issuer of any fee in respect hereof or any other obligation or claim of or
against the Issuer arising out of or based on this Agreement, against Lord
Securities Corporation, a Delaware corporation ("Lord") or against any
stockholder, employee, officer, director or incorporator of the Issuer. For
purposes of this Section, the term "Lord" shall mean and include Lord and all
affiliates thereof and any employee, officer, director, incorporator,
stockholder or beneficial owner of any of them; provided, however, that the
Issuer shall not be considered to be an affiliate of Lord for purposes of this
Section.
SECTION 6.11. Termination and Survival of Termination.
This Agreement shall terminate after the Capital, Yield and Collection
Agent Fees with respect to all Receivable Interests have been paid in full and
any other amounts payable by the Seller or the Collection Agent to the
Investors, the Banks or the Agent under this Agreement have been paid in full.
Upon termination of this Agreement, the Agent, as Agent for the Investors and
the Banks, shall execute appropriate termination statements prepared by the
Seller for any outstanding financing statements filed with respect to this
Agreement. The provisions of Sections 1.08, 1.09, 3.01, 6.04, 6.05 and 6.06
shall survive any termination of this Agreement.
Section 6.12. Revisions of Triggers.
The Default Ratio and Delinquency Ratio trigger percentages set forth in
clause (e) of Exhibit V hereof represent, in each case, a multiple of Pool
Receivables that are more than 60 days past due. If the Originators institute
33
<PAGE>
reporting system enhancements reasonably acceptable to the Agent that enable the
Originators to report delinquencies in buckets of 1-30 days past due, 31-60 days
past due, 61-90 days past due, 91-120 days past due and over 120 days past due,
the Agent will use its best efforts to secure all necessary consents and
approvals from the Relevant Rating Agencies to revise these trigger percentages
to reflect the additional information available, it being understood that such
revised triggers will be derived from the multiples of the Default Ratio and the
Delinquency Ratio used to arrive at the triggers set forth in clause (e) of
Exhibit V.
34
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
by their respective officers thereunto duly authorized, as of the date first
above written.
SELLER: CNC FINANCE LLC
By: CNC MEMBER INC.
By: _________________________
Name:
Title:
By: COLTEC NORTH CAROLINA INC
By: _________________________
Name:
Title:
COLLECTION AGENT: COLTEC INDUSTRIES INC
By: _________________________
Name:
Title:
ISSUER: ATLANTIC ASSET SECURITIZATION CORP.
By: CREDIT LYONNAIS NEW YORK BRANCH,
as Attorney-in-Fact
By: ____________________________
Name: David C. Fink
Title: First Vice President
<PAGE>
BANKS: CREDIT LYONNAIS NEW YORK BRANCH
By: _______________________________
Name: David C. Fink
Title: First Vice President
Bank Commitment $30,000,000
Percentage 35.294118%
THE INDUSTRIAL BANK OF JAPAN,
LIMITED
By: _______________________________
Name: Takuya Honjo
Title: Senior Vice President
Bank Commitment $15,000,000
Percentage 17.647059%
LLOYDS BANK PLC
By: _______________________________
Name: Peter Kernick
Title: Director
By: _______________________________
Name:
Title:
Bank Commitment $25,000,000
Percentage 29.411765%
<PAGE>
THE SUMITOMO BANK, LIMITED
By: _______________________________
Name: Takeo Yamori
Title: Joint General Manager
Bank Commitment $15,000,000
Percentage 17.647059%
AGENT: CREDIT LYONNAIS NEW YORK BRANCH
By: ________________________________
Name: David C. Fink
Title: First Vice President
<PAGE>
EXHIBIT I
DEFINITIONS
As used in the Agreement (including its Exhibits), the following terms
shall have the following meanings (such meanings to be equally applicable to
both the singular and plural forms of the terms defined):
"Adverse Claim" means a lien, security interest or other charge or
encumbrance, or any other type of preferential arrangement other than inchoate
liens, such as for taxes not yet done.
"Affiliate" means, as to any Person, any other Person that, directly or
indirectly, is in control of, is controlled by or is under common control with
such Person or is a director or officer of such Person.
"Affiliated Obligor" means any Obligor that is an Affiliate of another
Obligor.
"Agent's Account" means the special account (account number
01-25680-0001-00-001) of the Agent maintained at the office of the Agent, ABA
No. 026-008073, in New York, New York.
"Alternate Base Rate" means a fluctuating interest rate per annum as shall
be in effect from time to time, which rate shall be at all times equal to the
lower of:
(a) the rate of interest announced publicly by Credit Lyonnais in New
York, New York, from time to time as its prime rate, less 1.50% and
(b) the Federal Funds Rate plus 0.50%.
"Assignee Rate" for any Fixed Period for any Receivable Interest means an
interest rate per annum equal to 0.40% per annum above the Eurodollar Rate for
such Fixed Period; provided, however, that in the case of
(a) any Fixed Period on or prior to the first day of which an Investor
or Bank shall have notified the Agent that the introduction of or any
change in or in the interpretation of any law or regulation makes it
unlawful, or any central bank or other governmental authority asserts that
it
I-1
<PAGE>
is unlawful, for such Investor or Bank to fund such Receivable Interest at
the Assignee Rate set forth above (and such Investor or Bank shall not have
subsequently notified the Agent that such circumstances no longer exist),
(b) any Fixed Period of one to and including 29 days (other than a
Fixed Period which corresponds to the month of February or which begins on
a day in the month of February and runs to the numerically corresponding
day of the following month),
(c) any Fixed Period as to which the Agent does not receive notice, by
no later than 12:00 noon (New York City time) on the third Business Day
preceding the first day of such Fixed Period, that the related Receivable
Interest will not be funded by issuance of commercial paper, or
(d) any Fixed Period for a Receivable Interest the Capital of which
allocated to the Investors or the Banks is less than $500,000,
the Assignee Rate for each such Fixed Period shall be an interest rate per annum
equal to the Alternate Base Rate in effect on the first day of such Fixed Period
and provided further, that during the continuance of an Event of Termination,
the Assignee Rate shall be an interest rate per annum equal to 2% per annum
above the Alternate Base Rate then in effect.
"Assignment and Acceptance" means an assignment and acceptance agreement
substantially in the form of Annex G to the Agreement, which is entered into by
a Bank, an Eligible Assignee and the Agent, pursuant to which such Eligible
Assignee may become a party to the Agreement as a Bank.
"Bank Commitment" of any Bank means (a) with respect to Credit Lyonnais and
each of the other Banks which have executed the Agreement, the amount set forth
beneath its name on the signature page of the Agreement or (b) with respect to a
Bank that has entered into an Assignment and Acceptance, the amount set forth
therein as such Bank's Bank Commitment, in each case as such amount may be
reduced by an Assignment and Acceptance entered into between a Bank and an
Eligible Assignee, and as may be further reduced (or terminated) pursuant to the
next sentence. Any reduction (or termination) of the Purchase Limit pursuant to
the terms of the Agreement shall reduce ratably (or terminate) each Bank's Bank
Commitment.
I-2
<PAGE>
"Banks" means Credit Lyonnais, The Industrial Bank of Japan, Limited,
Lloyds Bank PLC, The Sumitomo Bank, Limited and each Eligible Assignee that
shall become a party to the Agreement pursuant Section 6.03.
"Business Day" means any day on which (i) banks are not authorized or
required to close in New York City and (ii) if this definition of "Business Day"
is utilized in connection with the Eurodollar Rate, dealings are carried out in
the London interbank market.
"Canadian Exchange Rate" means the rate for the last Business Day of the
most recently ended Fiscal Month specified in the Wall Street Journal in the
table entitled "Currency Trading - Exchange Rates" under the heading "Canada -
(Dollar)" and the column "U.S. $ equiv."
"Canadian Purchase Agreement" means the (Canadian Subsidiaries) Receivables
Transfer and Administration Agreement, dated the date of the Agreement, among
Coltec, as sellers' agent, certain Originators, as sellers, and CNCI, as
purchaser, as the same may be amended, modified or restated from time to time.
"Capital" of each Receivable Interest means the original amount paid to the
Seller for such Receivable Interest at the time of its purchase by the Issuer or
a Bank pursuant to the Agreement, or such amount divided or combined in
accordance with Section 1.07, in each case reduced from time to time by
Collections paid to the Agent's Account for distribution to the Investors or the
Banks on account of such Capital pursuant to Section 1.04(d) of the Agreement;
provided that if such Capital shall have been reduced by any distribution and
thereafter all or a portion of such distribution is rescinded or must otherwise
be returned for any reason, such Capital shall be increased by the amount of
such rescinded or returned distribution, as though it had not been made.
"CNCI" means Coltec North Carolina Inc, a North Carolina corporation.
"CNCI Purchase Agreement" means the Receivables Purchase and Contribution
Agreement, dated as of the date of the Agreement, between CNCI, as seller, and
the Seller, as purchaser, as the same may be amended, modified or restated from
time to time.
I-3
<PAGE>
"Collection Agent" means at any time the Person then authorized pursuant to
Article IV to administer and collect Pool Receivables.
"Collection Agent Fee" has the meaning specified in Section 1.05(a).
"Collection Agent Fee Reserve" for any Receivable Interest at any time
means the sum of (i) the unpaid Collection Agent Fee relating to such Receivable
Interest accrued to such time, plus (ii) an amount equal to the product of (a)
the Outstanding Balance of the Pool Receivables as of the last day of the
immediately preceding Fiscal Month (as shown on the Monthly Report), (b) the
decimal equivalent of the relevant Receivable Interest and (c) the product of
(x) the percentage per annum at which the Collection Agent Fee is accruing on
such date and (y) a fraction having the product of two times Days Sales
Outstanding as its numerator and 360 as its denominator.
"Collections" means, with respect to any Receivable, (a) all funds which
are received by the Seller or the Collection Agent in payment of any amounts
owed in respect of such Receivable (including, without limitation, purchase
price, finance charges, interest and all other charges), or applied to amounts
owed in respect of such Receivable (including, without limitation, insurance
payments and net proceeds of the sale or other disposition of repossessed goods
or other collateral or property of the related Obligor or any other party
directly or indirectly liable for the payment of such Receivable and available
to be applied thereon), (b) all Collections deemed to have been received
pursuant to Section 1.04 and (c) all other proceeds of such Receivable.
"Coltec" means Coltec Industries Inc, a Pennsylvania corporation.
"Commitment Termination Date" means the earliest of (a) September 14, 1998,
unless, prior to such date (or the date so extended pursuant to this clause),
upon the Seller's request, made not more than 90 nor less than 45 days prior to
the then Commitment Termination Date, one or more Banks having Bank Commitments
equal to 100% of the Purchase Limit shall in their sole discretion consent,
which consent shall be given not less than 30 days prior to the then Commitment
Termination Date, to the extension of the Commitment Termination Date to the
date occurring 360 days after the then Commitment Termination Date; provided,
however, that any failure of any Bank to respond to the Seller's request
I-4
<PAGE>
for such extension shall be deemed a denial of such request by such Bank, (b)
the Facility Termination Date and (c) the date determined pursuant to Section
2.02.
"Contract" means an open account or other agreement between the Originator
and any Obligor, pursuant to or under which such Obligor shall be obligated to
pay for merchandise or services from time to time.
"Credit Agreement" means the credit agreement, dated as of March 24, 1992,
as amended and restated as of January 11, 1994 and further amended and restated
as of December 18, 1996, as the same may be further amended, supplemented or
restated from time to time, among Coltec, various banks, Bankers Trust Company,
as administrative agent, Bank of America Illinois, as documentation agent, and
The Chase Manhattan Bank, as syndication agent.
"Credit and Collection Policy" means those receivables credit and
collection policies and practices of the Originators and the Seller in effect on
the date of the Agreement and described in Annex A hereto, as modified in
compliance with the Agreement.
"Days Sales Outstanding" means the product of (i) the number of days in the
Fiscal Month most recently ended and (ii) the amount obtained by dividing (a)
the Outstanding Balance of Pool Receivables for the Fiscal Month most recently
ended by (b) the aggregate dollar amount of Pool Receivables created for the
Fiscal Month most recently ended.
"Default Ratio" means for any Fiscal Month the ratio (expressed as a
percentage) computed as of the last day of such Fiscal Month by dividing (i) the
sum of the aggregate Outstanding Balance of all Pool Receivables that were
Defaulted Receivables as of the last day of each of the preceding six Fiscal
Months or that would have been Defaulted Receivables on such day had they not
been written off the books of an Originator or the Seller during such month by
(ii) the sum of the aggregate Outstanding Balance of all Pool Receivables as of
the last day of each such six Fiscal Months.
"Defaulted Receivable" means a Receivable:
(a) as to which any payment, or part thereof, remains unpaid for 60 or
more days from the original due date for such payment (or 90 days, subject
to receipt by the Agent of all appropriate approvals and consents
I-5
<PAGE>
from the Relevant Rating Agencies, after the Originators revise their
reporting systems to further specify the aging of Receivables);
(b) as to which the Obligor thereof or any other Person obligated
thereon or owning any Related Security in respect thereof has taken any
action, or suffered any event to occur, of the type described in paragraph
(g) of Exhibit V; or
(c) which, consistent with the Credit and Collection Policy, would be
written off as uncollectible.
"Delinquency Ratio" means for any Fiscal Month the ratio (expressed as a
percentage) computed as of the last day of such Fiscal Month by dividing (i) the
sum of the aggregate Outstanding Balance of all Pool Receivables that were
Delinquent Receivables as of the last day of each of the preceding six Fiscal
Months by (ii) the sum of the aggregate Outstanding Balance of all Pool
Receivables as of the last day of each such six Fiscal Months.
"Delinquent Receivable" means a Receivable that is not a Defaulted
Receivable (other than as a result of the operation of clause (a) of the
definition thereof) and:
(a) as to which any payment, or part thereof, remains unpaid for 60 or
more days from the original due date for such payment; or
(b) which, consistent with the Credit and Collection Policy, would be
classified as delinquent.
"Dilution" means, with respect to any Receivable, the aggregate amount of
any reductions or adjustments in the Outstanding Balance of such Receivable as a
result of any defective, rejected, returned, repossessed or foreclosed
merchandise or services or any cash discount or other adjustment or setoff.
"Dilution Ratio" means for any Fiscal Month the ratio (expressed as a
percentage) computed as of the last day of such Fiscal Month, by dividing (i)
the sum of the aggregate reduction or adjustment in the Outstanding Balance of
any Pool Receivable as a result of any Dilution during each of the preceding six
Fiscal
I-6
<PAGE>
Months by (ii) the aggregate Outstanding Balance of all Pool Receivables as of
the last day of each such six Fiscal Months.
"Eligible Assignee" means a Person (a) residing in or formed under the laws
of the United States of America or any state or territory thereof, the short
term debt of which is rated A-1 by Standard & Poor's and P-1 by Moody's
Investors Service, Inc. and which is otherwise acceptable to the Agent, or (b)
not residing in or formed under the laws of the United States of America or any
state or territory thereof that
(i) represents and warrants to the Seller as follows in a certificate
delivered to the Collection Agent on the date such Person becomes an assignee
hereunder:
(x) the amount received by such assignee hereunder will be effectively
connected with the conduct of a trade or business within the United States
(without reference to the Agreement), within the meaning of the Internal
Revenue Code of 1986, as amended (hereinafter the "Code") section 881(a);
or
(y) it is not a banking institution making a loan in the ordinary
course of its business; it is not a "ten percent shareholder" of either the
Seller or the Collection Agent within the meaning of section 871 (h)(3)(B)
of the Code and it is not a controlled foreign corporation, as defined in
Code section 881(c)(3)(C); or
(ii) delivers to the Collection Agent an opinion of independent counsel to
the effect that no payment made or to be made hereunder by the Seller or the
Collection Agent will be subject to any United States withholding tax, such
opinion to be in form and substance satisfactory to the Collection Agent and
delivered on or before the date on which such Person becomes an Investor or
assignee hereunder.
"Eligible Receivable" means, at the relevant time of determination,
(a) the export Receivables of Garlock-Sealing Technologies covered by
an Export Insurance Policy or
(b) a Receivable:
I-7
<PAGE>
(i) the Obligor of which is a United States resident (provided
that up to 15% of Eligible Receivables may be due from Obligors
located within Canada), is not an Affiliate of any of the parties
hereto and is not a government or a governmental subdivision or agency
(provided that up to 10% of Eligible Receivables may be due from the
United States, state or local government within the United States);
(ii) the Obligor of which, at the time of the initial creation of
an interest therein under the Agreement is not the subject of
bankruptcy proceedings;
(iii) which is not a Defaulted or Delinquent Receivable;
(iv) which, according to the Contract related thereto, is
required to be paid in full within 60 days of the original billing
date therefor (provided that up to 15% of the Eligible Receivables may
be required to be paid in full within 120 days of the original billing
date therefor);
(v) which is an "account" within the meaning of the UCC of the
applicable jurisdictions governing the perfection of the interest
created by a Receivable Interest;
(vi) which is denominated and payable in United States dollars in
the United States or Canada (provided that up to 10% of the Eligible
Receivables may be payable in Canadian dollars, converted at the then
current Canadian Exchange Rate, subject to a further discount of 15%);
(vii) which was originated in the normal course of an
Originator's business and arises under a Contract which
(x) does not require the Obligor thereunder to consent to
the transfer, sale or assignment of the rights and duties of the
Seller or the Originator thereunder (unless such Contract is a
Long-Term Contract),
I-8
<PAGE>
(y) together with such Receivable, is in full force and
effect, constitutes the legal, valid and binding obligation of
the Obligor of such Receivable to pay a determinable amount and
(z) does not contain a confidentiality provision that
purports to restrict the ability of the Investors, the Banks or
their assignees to exercise their rights under the Agreement,
including, without limitation, their right to review the Contract
(unless such Contract is a Long-Term Contract);
(viii) which, together with the Contract related thereto, does
not contravene in any material respect any laws, rules or regulations
applicable thereto (including, without limitation, laws, rules and
regulations relating to usury) and with respect to which none of the
Seller, the Originator or the Obligor is in violation of any such law,
rule or regulation in any material respect;
(ix) which satisfies all applicable requirements of the Credit
and Collection Policy; and
(x) the transfer, sale or assignment of which does not contravene
any applicable law, rule or regulation (unless such Contract is
subject to the federal Assignment of Claims Act).
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and the regulations promulgated and rulings issued
thereunder.
"Eurocurrency Liabilities" has the meaning assigned to that term in
Regulation D of the Board of Governors of the Federal Reserve System, as in
effect from time to time.
"Eurodollar Rate" means, for any Fixed Period, an interest rate per annum
(expressed as a decimal and rounded upwards, if necessary, to the nearest one
hundredth of a percentage point) equal to the offered rate per annum for
deposits in U.S. dollars in a principal amount of not less than $1,000,000 for
such Fixed Period as of 11:00 A.M., London time, two Business Days before the
first day of such Fixed Period, which appears on the display designated as "Page
3750" on the Telerate Service (or such other page as may replace "Page 3750" on
that
I-9
<PAGE>
service for the purpose of displaying London interbank offered rates of major
banks) (the "Telerate LIBO Page"); provided that if on any Business Day on which
the Eurodollar Rate is to be determined, no offered rate appears on the Telerate
LIBO Page, the Agent will request the principal London office of Credit Lyonnais
(the "Eurodollar Reference Bank"), to provide the Agent with its quotation at
approximately 11:00 A.M., London time, on such date of the rate per annum it
offers to prime banks in the London interbank market for deposits in U.S.
dollars for the requested Fixed Period in an amount substantially equal to the
Capital associated with such Fixed Period; if the Eurodollar Reference Bank does
not furnish timely information to the Agent for determining the Eurodollar Rate,
then the Eurodollar Rate shall be considered to be the Alternate Base Rate for
such Fixed Period.
"Eurodollar Rate Reserve Percentage" of any Investor or any Bank for any
Fixed Period in respect of which Yield is computed by reference to the
Eurodollar Rate means the reserve percentage applicable two Business Days before
the first day of such Fixed Period under regulations issued from time to time by
the Board of Governors of the Federal Reserve System (or any successor) (or if
more than one such percentage shall be applicable, the daily average of such
percentages for those days in such Fixed Period during which any such percentage
shall be so applicable) for determining the maximum reserve requirement
(including, without limitation, any emergency, supplemental or other marginal
reserve requirement) for such Investor or Bank with respect to liabilities or
assets consisting of or including Eurocurrency Liabilities (or with respect to
any other category of liabilities that includes deposits by reference to which
the interest rate on Eurocurrency Liabilities is determined) having a term equal
to such Fixed Period.
"Event of Termination" has the meaning specified in Exhibit V.
"Export Insurance Policy" means the short term comprehensive multi-buyer
credit insurance policy no. MB-118388 between Foreign Credit Insurance
Association and Garlock Inc Mechanical Packing Division or such comparable
insurance policy that may be in place from time to time subject to the review
and approval by the Agent.
"Facility Termination Date" means the earliest of (a) September 19, 2000,
as such date may be extended by the Seller (for additional one year periods
I-10
<PAGE>
until the year 2005) with the consent of the Agent, or (b) the date determined
pursuant to Section 2.02 or (c) the date (not earlier than September 19, 1998)
the Purchase Limit reduces to zero pursuant to Section 1.01(b).
"Federal Funds Rate" means, for any period, a fluctuating interest rate per
annum equal for each day during such period to the weighted average of the rates
on overnight federal funds transactions with members of the Federal Reserve
System arranged by federal funds brokers, as published for such day (or, if such
day is not a Business Day, for the next preceding Business Day) by the Federal
Reserve Bank of New York, or, if such rate is not so published for any day which
is a Business Day, the average of the quotations for such day on such
transactions received by the Agent from three federal funds brokers of
recognized standing selected by it.
"Fee Agreement" means the separate fee agreement, of even date herewith,
between the Seller and the Agent, as the same may be amended or restated from
time to time.
"Fiscal Month" means the period specified as such by Coltec to the Agent
based on a schedule provided as of the beginning of each fiscal year of Coltec.
"Fixed Period" means with respect to any Receivable Interest:
(a) initially the period commencing on the date of purchase of such
Receivable Interest and ending such number of days as the Seller shall
select and the Agent shall approve pursuant to Section 1.02, up to 45 days
from such date; and
(b) thereafter each period commencing on the last day of the
immediately preceding Fixed Period for such Receivable Interest and ending
such number of days (not to exceed 45 days) as the Seller shall select and
the Agent shall approve on notice by the Seller received by the Agent
(including notice by telephone, confirmed by facsimile transmission only)
not later than 11:00 A.M. (New York City time) on such last day, except
that if the Agent shall not have received such notice or approved such
period on or before 11:00 A.M. (New York City time) on such last day, such
period shall be one day;
I-11
<PAGE>
provided that
(i) any Fixed Period in respect of which Yield is computed by
reference to the Assignee Rate shall be a period from one to and including
29 days, or a period of one, two or three months, as the Seller may select
pursuant to notice given to the Agent as provided above in clause (b);
(ii) any Fixed Period (other than of one day) which would otherwise
end on a day which is not a Business Day shall be extended to the next
succeeding Business Day (provided, however, that if Yield in respect of
such Fixed Period is computed by reference to the Eurodollar Rate, and such
Fixed Period would otherwise end on a day which is not a Business Day, and
there is no subsequent Business Day in the same calendar month as such day,
such Fixed Period shall end on the next preceding Business Day);
(iii) in the case of any Fixed Period of one day, (A) if such Fixed
Period is the initial Fixed Period for a Receivable Interest, such Fixed
Period shall be the day of purchase of such Receivable Interest; (B) any
subsequently occurring Fixed Period which is one day shall, if the
immediately preceding Fixed Period is more than one day, be the last day of
such immediately preceding Fixed Period, and, if the immediately preceding
Fixed Period is one day, be the day next following such immediately
preceding Fixed Period; and (C) if such Fixed Period occurs on a day
immediately preceding a day which is not a Business Day, such Fixed Period
shall be extended to the next succeeding Business Day; and
(iv) in the case of any Fixed Period for any Receivable Interest which
commences before the Termination Date for such Receivable Interest and
would otherwise end on a date occurring after such Termination Date (other
than a Termination Date occurring because notice has been given by the
Agent pursuant to clause (i)(a) of the definition of Termination Date or
because a Facility Termination Date or a Commitment Termination Date has
occurred as a result of the operation of clause (a) of the definition of
Facility Termination Date or Commitment Termination Date, respectively),
I-12
<PAGE>
such Fixed Period shall end on such Termination Date and the duration of
each Fixed Period which commences on or after the Termination Date for such
Receivable Interest shall be of such duration as shall be selected by the
Agent.
"GST" means any tax imposed under Part IX of the Excise Tax Act (Canada)
and any other similar goods and services tax or value added tax or other sales
tax imposed by a Canadian province including Quebec Sales Tax.
"Indemnified Amounts" has the meaning specified in Section 3.01 of the
Agreement.
"Indemnified Party" has the meaning specified in Section 3.01 of the
Agreement.
"Investor" means the Issuer and all other owners by assignment or otherwise
of a Receivable Interest originally purchased by the Issuer or any interest
therein and, to the extent of the undivided interests so purchased, shall
include any participants.
"Investor Rate" for any Fixed Period for any Receivable Interest means, to
the extent the Issuer funds such Receivable Interest for such Fixed Period by
issuing commercial paper, the rate (or if more than one rate, the weighted
average of the rates) at which commercial paper notes of the Issuer having a
term equal to such Fixed Period and to be issued to fund such Receivable
Interest may be sold by any placement agent or commercial paper dealer selected
by the Agent on behalf of the Issuer, as agreed between each such agent or
dealer and the Agent and notice of which has been given by the Agent to the
Collection Agent; provided if the rate (or rates) as agreed between any such
agent or dealer and the Agent for any Fixed Period for any Receivable Interest
is a discount rate (or rates), then such rate shall be the rate (or if more than
one rate, the weighted average of the rates) resulting from converting such
discount rate (or rates) to an interest-bearing equivalent rate per annum.
"Issuer" means Atlantic Asset Securitization Corp. and any successor or
assign of the Issuer that is a receivables investment company which in the
ordinary course of its business issues commercial paper or other securities to
fund its acquisition and maintenance of receivables.
I-13
<PAGE>
"Liquidation Day" means, for any Receivable Interest, (i) each day during a
Settlement Period for such Receivable Interest on which the conditions set forth
in paragraph 2 of Exhibit II are not satisfied, and (ii) each day which occurs
on or after the Termination Date for such Receivable Interest.
"Liquidation Fee" means, for any Fixed Period during which a Liquidation
Day occurs (other than a Liquidation Day resulting from a Termination Date
occurring because notice has been given by the Agent pursuant to clause (i)(a)
of the definition of Termination Date or because a Facility Termination Date or
a Commitment Termination Date has occurred as a result of the operation of
clause (a) of the definition of Facility Termination Date or Commitment
Termination Date, respectively), the amount, if any, by which (i) the additional
Yield (calculated without taking into account any Liquidation Fee or any
shortened duration of such Fixed Period pursuant to clause (iv) of the
definition thereof) which would have accrued during such Fixed Period on the
reductions of Capital of the Receivable Interest relating to such Fixed Period
had such reductions remained as Capital, exceeds (ii) the income, if any,
received by the Investors' or Banks' investing the proceeds of such reductions
of Capital.
"Liquidity Asset Purchase Agreement" means the liquidity asset purchase
agreement entered into by each Bank concurrently with this Agreement or the
Assignment and Acceptance pursuant to which it became a party to this Agreement.
"Lock-Box Account" means an account maintained at a bank or other financial
institution for the purpose of receiving Collections.
"Lock-Box Agreement" means an agreement, in substantially the form of Annex
B (or as approved by the Agent), between the Seller and each Lock-Box Bank.
"Lock-Box Bank" means any of the banks or other financial institutions
holding one or more Lock-Box Accounts.
"Long-Term Contract" means any Contract, the term of which exceeds 12
months.
"Loss and Dilution Reserve" means, for any Receivable Interest on any date,
an amount equal to the outstanding Capital multiplied by the greater of
I-14
<PAGE>
(a) 10% and (b) the sum of (i) 1.5 multiplied by the highest three Fiscal Month
rolling average of the Aged Receivables Ratio during the most recent six Fiscal
Month period and (ii) 1.5 multiplied by the highest three Fiscal Month rolling
average of the Dilution Reserve Ratio for the most recent six Fiscal Month
Period. For purposes of this definition,
(x) "Aged Receivables Ratio" means a fraction, the numerator of which
is the Outstanding Balance of Pool Receivables which were 60 or more days
past due for the most recent Fiscal Month-end and the denominator of which
is the aggregate dollar amount of Pool Receivables created during the
Fiscal Month ended three Fiscal Months prior to the most recent Fiscal
Month-end and
(y) "Dilution Reserve Ratio" means a fraction, the numerator of which
is the amount of any reductions or adjustments of the Outstanding Balance
of any Pool Receivable as a result of any defective, rejected or returned,
repossessed or foreclosed merchandise or services or any cash discount or
other adjustment made by the Seller, an Originator or the Collection Agent
or any setoff for the most recent Fiscal Month-end, and the denominator of
which is the aggregate dollar amount of Pool Receivables created during the
Fiscal Month prior to the most recent Fiscal Month-end.
"Majority Banks" means, at any time, Banks with Percentages aggregating
more than 50%.
"Monthly Default Ratio" means for any Fiscal Month the ratio (expressed as
a percentage) computed as of the last day of such Fiscal Month by dividing (i)
the aggregate Outstanding Balance of all Pool Receivables that were Defaulted
Receivables as of the last day of such Fiscal Month or that would have been
Defaulted Receivables on such day had they not been written off the books of an
Originator or the Seller during such month by (ii) the Outstanding Balance of
all Pool Receivables as of the last day of such Fiscal Month.
"Monthly Delinquency Ratio" means for any Fiscal Month the ratio (expressed
as a percentage) computed as of the last day of such Fiscal Month by dividing
(i) the sum of the aggregate Outstanding Balance of all Pool Receivables that
were Delinquent Receivables as of the last day of such Fiscal Month by
I-15
<PAGE>
(ii) the Outstanding Balance of all Pool Receivables as of the last day of such
Fiscal Month.
"Monthly Report" means a report, in substantially the form of Annex C
hereto, furnished by the Collection Agent to the Agent pursuant to Article IV of
the Agreement.
"Net Receivables Pool Balance" means at any time the Outstanding Balance of
Eligible Receivables then in the Receivables Pool reduced by the aggregate
amount by which the Outstanding Balance of Eligible Receivables of each Obligor
then in the Receivables Pool exceeds the product of (a) the Normal Concentration
Percentage for such Obligor multiplied by (b) the Outstanding Balance of the
Eligible Receivables then in the Receivables Pool.
"Normal Concentration Percentage" for any Obligor means at any time 3%, or
such other percentage ("Special Concentration Percentage") if such Obligor is a
Special Obligor and is designated by the Agent in a writing delivered to the
Seller; provided that in the case of an Obligor with any Affiliated Obligor, the
Normal Concentration Percentage shall be calculated as if such Obligor and such
Affiliated Obligor are one Obligor.
"Obligor" means a Person (other than an employee, a division or a direct or
indirect Subsidiary of Coltec or its Affiliates) obligated to make payments
pursuant to a Contract; provided that in the event that any payments in respect
of a Contract are made by any other Person, such other Person shall be deemed to
be an Obligor.
"Originator" means each entity which becomes a party to the Originator
Purchase Agreement or the Canadian Purchase Agreement as a seller of
"Securitized Receivables," as defined in the Originator Purchase Agreement and
the Canadian Purchase Agreement.
"Originator Purchase Agreement" means the Receivables Transfer and
Administration Agreement, dated the date of the Agreement, among Coltec, as a
seller, collection agent and sellers' agent, certain Originators, as sellers and
as subcollection agents, certain other sellers and CNCI, as purchaser, as the
same may be amended, modified or restated from time to time.
I-16
<PAGE>
"Other Corporations" means Coltec and all of its Subsidiaries except the
Seller.
"Outstanding Balance" of any Receivable at any time means the then
outstanding principal balance thereof.
"Percentage" of any Bank means, (a) with respect to Credit Lyonnais and
each of the other Banks which have executed the Agreement, the percentage set
forth beneath its name on the signature page to the Agreement, or (b) with
respect to a Bank that has entered into an Assignment and Acceptance, the amount
set forth therein as such Bank's Percentage, in each case as such amount may be
modified by an Assignment and Acceptance entered into between a Bank and an
Eligible Assignee.
"Person" means an individual, partnership, corporation (including a
business trust), joint stock company, limited liability company, trust,
unincorporated association, joint venture or other entity, or a government or
any political subdivision or agency thereof.
"Pool Receivable" means a Receivable in the Receivables Pool.
"Purchase Limit" means $85,000,000, as such amount may be reduced pursuant
to Section 1.01(b). References to the unused portion of the Purchase Limit shall
mean, at any time, the Purchase Limit, as then reduced pursuant to Section
1.01(b), minus the then outstanding Capital of Receivable Interests under the
Agreement.
"Rating Agency" means, collectively, Moody's Investors Service, Inc. and
Standard & Poor's, and their respective successors in interest.
"Receivable" means the indebtedness of any Obligor resulting from the
provision or sale of merchandise or services by the Originators under a
Contract, and includes the right to payment of any interest or finance charges
and other obligations of such Obligor with respect thereto which has been
acquired by the Seller by purchase or by capital contribution pursuant to the
CNCI Purchase Agreement.
"Receivable Interest" means, at any time, an undivided percentage ownership
interest in (i) all then outstanding Pool Receivables arising prior to the
I-17
<PAGE>
time of the most recent computation or recomputation of such undivided
percentage interest pursuant to Section 1.03, (ii) all Related Security with
respect to such Pool Receivables, and (iii) all Collections with respect to, and
other proceeds of, such Pool Receivables and Related Security. Each undivided
percentage interest shall be computed as
C + YR + LDR + CAFR
-------------------
NRPB
where:
C = the Capital of each such
Receivable Interest at the time of
computation.
YR = the Yield Reserve of each such
Receivable Interest at the time of
computation.
LDR = the Loss and Dilution Reserve of
each such Receivable Interest at the
time of computation.
CAFR = the Collection Agent Fee Reserve
of each such Receivable Interest at
the time of computation.
NRPB = the Net Receivables Pool Balance at
the time of computation.
Each Receivable Interest shall be determined from time to time pursuant to
the provisions of Section 1.03.
"Receivables Pool" means at any time the aggregation of each then
outstanding Receivable.
I-18
<PAGE>
"Related Security" means with respect to any Receivable:
(a) all of the Seller's interest in any merchandise (including
returned merchandise) relating to any sale giving rise to such Receivable;
(b) all security interests or liens and property subject thereto from
time to time purporting to secure payment of such Receivable, whether
pursuant to the Contract related to such Receivable or otherwise, together
with all financing statements signed by an Obligor describing any
collateral securing such Receivable;
(c) all guaranties, proceeds from insurance (including the Export
Insurance Policies) and other agreements or arrangements of whatever
character from time to time supporting or securing payment of such
Receivable whether pursuant to the Contract related to such Receivable or
otherwise; and
(d) the Contract and all other books, records and other information
(including, without limitation, computer programs, tapes, discs, punch
cards, data processing software and related property and rights) relating
to such Receivable and the related Obligor to the extent assignable or
licensable under such Contract or other agreement and under applicable law;
and
(e) the right to payment under any Contract which is a Long-Term
Contract.
"Relevant Rating Agencies" means, collectively, each of the Rating Agencies
then rating the Notes at the request of the Issuer.
"Required Rating" means, with respect to any entity's senior bank debt, a
rating of at least BB- by Standard & Poor's or Ba3 by Moody's Investors Service,
Inc.; provided, that if such entity does not have rated senior bank debt
outstanding, the Agent has in good faith determined, in its sole discretion,
that such entity's bank debt would receive at least such a rating.
"Settlement Date" means the thirteenth Business Day after the end of each
Fiscal Month, or such earlier date as the Agent and the Collection Agent may
agree.
I-19
<PAGE>
"Settlement Period" for any Receivable Interest means each period
commencing on the first day and ending on the last day of each Fixed Period for
such Receivable Interest and, on and after the Termination Date for such
Receivable Interest, such period (including, without limitation, a period of one
day) as shall be selected from time to time by the Agent or, in the absence of
any such selection, each period of thirty days from the last day of the
immediately preceding Settlement Period.
"Special Obligor" means an Obligor, so designated in writing by the Agent,
(i) having a short-term debt rating of at least P-1 from Moody's Investors
Service, Inc. and A-1 from Standard & Poor's, and (ii) as set forth in Annex D
to this Agreement, as such Annex may be amended from time to time.
"Specified Boeing Receivable" means any indebtedness of The Boeing Company
("Boeing") owed to Coltec Aerospace Ltd (formerly Menasco Aerospace Ltd)
("Menasco") that is subject to the terms and conditions of that certain Security
Agreement, dated as of September 26, 1988, by and between Boeing and Menasco.
"Subsidiary" means any corporation of which securities having ordinary
voting power to elect a majority of the board of directors or other persons
performing similar functions are at the time directly or indirectly owned by the
Seller or Coltec, as the case may be, or one or more Subsidiaries, or by the
Seller or Coltec, as the case may be, and one or more Subsidiaries.
"Termination Date" for any Receivable Interest means (i) in the case of a
Receivable Interest owned by an Investor, the earlier of (a) the Business Day
which the Seller or the Agent so designates by notice to the other at least one
Business Day in advance for such Receivable Interest and (b) the Facility
Termination Date and (ii) in the case of a Receivable Interest owned by a Bank,
the earlier of (a) the Business Day which the Seller so designates by notice to
the Agent at least one Business Day in advance for such Receivable Interest and
(b) the Commitment Termination Date.
"Transaction Document" means any of the Agreement, the CNCI Purchase
Agreement, the Originator Purchase Agreement, the Canadian Purchase Agreement
and all other agreements and documents delivered and/or related hereto or
thereto.
I-20
<PAGE>
"UCC" means the Uniform Commercial Code as from time to time in effect in
the specified jurisdiction.
"Yield" means:
(a) for each Receivable Interest for any Fixed Period to the extent
the Issuer will be funding such Receivable Interest during such Fixed
Period through the issuance of commercial paper,
IR x C x ED + LF
---
360
(b) for each Receivable Interest for any Fixed Period, to the
extent the Investors will not be funding such Receivable Interest
during such Fixed Period through the issuance of commercial paper or
the Banks will be funding such Receivable Interest,
AR x C x ED + LF
---
360
where:
AR = the Assignee Rate for such
Receivable Interest for such
Fixed Period
C = the Capital of such Receivable
Interest during such Fixed Period
ED = the actual number of days elapsed
during such Fixed Period
IR = the Investor Rate for such
Receivable Interest for such Fixed
Period
LF = the Liquidation Fee, if any, for
such Receivable Interest for such
Fixed Period;
I-21
<PAGE>
provided that no provision of the Agreement shall require the payment or permit
the collection of Yield in excess of the maximum permitted by applicable law;
and provided further that Yield for any Receivable Interest shall not be
considered paid by any distribution to the extent that at any time all or a
portion of such distribution is rescinded or must otherwise be returned for any
reason.
"Yield Reserve" for any Receivable Interest at any time means the sum of
(i) the then accrued and unpaid Yield for such Receivable Interest plus (ii) an
amount equal to the outstanding Capital multiplied by the Investor Rate or
Assignee Rate, whichever is applicable, multiplied by two times the Days Sales
Outstanding divided by 360.
- - - - - -
Other Terms. All accounting terms not specifically defined herein shall be
construed in accordance with generally accepted accounting principles.
I-22
<PAGE>
EXHIBIT II
CONDITIONS OF PURCHASES
1. Conditions Precedent to Initial Purchase. The initial purchase of a
Receivable Interest under the Agreement is subject to the conditions precedent
that the Agent shall have received on or before the date of such purchase the
following, each (unless otherwise indicated) dated such date, in form and
substance satisfactory to the Agent:
(a) Copies of (i) the resolutions of the Board of Directors of each of
the members of the Seller, of CNCI and of each Originator approving the
Transaction Documents to which it is a party, (ii) the consent of the
members of the Seller to the Seller's entering into the transactions
contemplated by the Transaction Documents, (iii) the operating agreement of
the Seller and (iv) all documents evidencing other necessary action and
governmental approvals, if any, with respect to the Transaction Documents,
certified by the Secretary or Assistant Secretary of a member of the
Seller, CNCI or the Originator, as appropriate.
(b) Copies of (i) a power of attorney, executed by the members of the
Seller, appointing any and all officers of CNCI from time to time
designated by CNCI in an incumbency certificate delivered by CNCI to the
Seller, or any one of such officers, as the Seller's true and lawful agent
and attorney-in-fact and (ii) the incumbency certificate described in the
immediately preceding clause (i).
(c) A copy of (i) the articles of organization of the Seller,
certified as of a recent date by the Secretary of State or other
appropriate official of the state of its formation, and (ii) the operating
agreement of the Seller.
(d) Acknowledgment copies, or time stamped receipt copies of proper
financing statements, duly filed on or before the date of such initial
purchase under the UCC of all jurisdictions that the Agent may deem
necessary or desirable in order to perfect the ownership and security
interests contemplated by the Transaction Documents.
(e) Acknowledgment copies, or time stamped receipt copies of proper
financing statements, if any, necessary to release all security interests
II-1
<PAGE>
and other rights of any Person in (i) the Receivables, Contracts (unless
such Contract is a Long-Term Contract) or Related Security previously
granted by the Seller, CNCI or the Originators and (ii) the collateral
security referred to in Section 1.12.
(f) Completed requests for information, dated on or before the date of
such initial purchase, listing the financing statements referred to in
subsection (d) above and all other effective financing statements filed in
the jurisdictions referred to in subsection (d) above that name the Seller,
CNCI or any Originator as debtor, together with copies of such other
financing statements (none of which shall cover any Receivables, Related
Security or the collateral security referred to in Section 1.12).
(g) Copies of executed Lock-Box Agreements with the Lock-Box Banks.
(h) Favorable opinions of counsel for the Seller, CNCI and the
Originators, substantially in the form of Annex E hereto and as to such
other matters as the Agent may reasonably request.
(i) An executed copy of the Fee Agreement.
(j) An executed copy of the CNCI Purchase Agreement.
(k) An executed copy of the Originator Purchase Agreement.
(l) An executed copy of the Canadian Purchase Agreement.
(m) An executed copy of the First Amendment to Credit Agreement.
(n) Written confirmation from each of the Relevant Rating Agencies
that the rating of the Issuer's commercial paper notes will not be
downgraded or withdrawn solely as a result of entering into the Agreement.
(o) Satisfactory results of a review and audit of the
Originators' collection, operating and reporting systems, Credit and
Collection Policy, historical receivables data and accounts.
II-2
<PAGE>
2. Conditions Precedent to All Purchases and Reinvestments. Each purchase
(including the initial purchase) and each reinvestment shall be subject to the
further conditions precedent that
(a) in the case of each purchase, the Collection Agent shall have
delivered to the Agent on or prior to such purchase, in form and substance
satisfactory to the Agent, a completed Monthly Report containing
information covering the most recently ended Fiscal Month;
(b) on the date of such purchase or reinvestment pursuant to Section
1.04(b)(ii) of the Agreement, the following statements shall be true (and
acceptance of the proceeds of such purchase or reinvestment shall be deemed
a representation and warranty by the Seller that such statements are then
true), except that the statement in clause (iv) below is required to be
true only if such purchase or reinvestment is by an Investor:
(i) the representations and warranties contained in Exhibit III
are correct on and as of the date of such purchase or reinvestment as
though made on and as of such date,
(ii) no event has occurred and is continuing, or would result
from such purchase or reinvestment, that constitutes an Event of
Termination (or, following notice from the Agent, an event that but
for notice or lapse of time or both would constitute an Event of
Termination),
(iii) all of the senior bank debt securities of Coltec have the
Required Rating,
(iv) the Agent shall not have given the Seller at least one
Business Day's notice that the Investors have terminated the
reinvestment of Collections in Receivable Interests, and
(v) the Originators shall have sold to CNCI, pursuant to the
Originator Purchase Agreement and the Canadian Purchase Agreement, all
Receivables originated by such Originators arising on or prior to such
date and CNCI shall have sold or contributed to the Seller, pursuant
to the CNCI Purchase Agreement, all such Receivables; and
II-3
<PAGE>
(vi) the Agent shall have received such other approvals, opinions
or documents as it may reasonably request.
3. Conditions Subsequent. The transactions contemplated by the Agreement
are subject to the following conditions subsequent:
(a) no later than December 19, 1997, all Obligor Collections will be
remitted, in all material respects, to the Lock-Box Accounts existing at
the date of the Agreement or to newly-established Lock-Box Accounts,
(b) no later than December 19, 1997, Lock-Box Agreements relating to
the newly-established Lock-Box Accounts will be executed and delivered to
the Agent,
(c) no later than December 19, 1997, only funds which are Collections
will go into Lock-Box Accounts with the exception of GST, Specified Boeing
Receivables and immaterial funds and
(d) no later than October 6, 1997, any documents required to be
delivered pursuant to Section 1(d) of this Exhibit II which were not
previously delivered shall be delivered.
II-4
<PAGE>
EXHIBIT III
REPRESENTATIONS AND WARRANTIES
The Seller represents and warrants as follows:
(a) The Seller is a limited liability company validly existing and in
good standing under the laws of the State of North Carolina and is duly
qualified to do business, and is in good standing, in every jurisdiction
where the nature of its business requires it to be so qualified.
(b) The execution, delivery and performance by the Seller of the
Transaction Documents to which the Seller is a party and the other
documents to be delivered by it thereunder (i) are within the Seller's
powers, (ii) have been duly authorized by all necessary action, (iii) do
not contravene (1) the Seller's operating agreement (2) any law, rule or
regulation applicable to the Seller, (3) any contractual restriction
binding on or affecting the Seller or its property or (4) any order, writ,
judgment, award, injunction or decree binding on or affecting the Seller or
its property, and (iv) do not result in or require the creation of any
lien, security interest or other charge or encumbrance upon or with respect
to any of its properties (except for the interest created pursuant to the
Agreement). Each of the Transaction Documents has been duly executed and
delivered by the Seller.
(c) No authorization or approval or other action by, and no notice to
or filing with, any governmental authority or regulatory body is required
for the due execution, delivery and performance by the Seller of the
Transaction Documents to which the Seller is a party or any other document
to be delivered thereunder, except for the filing of UCC financing
statements which are referred to therein.
(d) Each of the Transaction Documents to which the Seller is a party
constitutes the legal, valid and binding obligation of the Seller
enforceable against the Seller in accordance with its terms subject to
applicable bankruptcy, insolvency, reorganization, moratorium or other
similar laws affecting the enforcement of rights of creditors generally and
except to the extent that enforcement of rights and remedies set forth
herein may be limited to judicial discretion regarding the enforcement of,
or by
II-5
<PAGE>
applicable laws affecting, remedies (whether considered in a court of law
or a proceeding in equity).
(e) The balance sheets of Coltec and its consolidated Subsidiaries as
at the end of its most recent fiscal year, and the related statements of
income and retained earnings of Coltec and its consolidated Subsidiaries
for such fiscal year, copies of which have been furnished to the Agent,
fairly present the financial condition of Coltec and its consolidated
Subsidiaries as at such date and the results of the operations of Coltec
and its consolidated Subsidiaries for the period ended on such date, all in
accordance with generally accepted accounting principles consistently
applied, and since the last day of its most recent fiscal year there has
been no material adverse change in the business, operations, property or
financial or other condition of Coltec or its Subsidiaries. The opening pro
forma balance sheet of the Seller, giving effect to the initial purchase to
be made under the Agreement, a copy of which has been furnished to the
Agent, fairly presents the financial condition of the Seller as at such
date, in accordance with generally accepted accounting principles, and
since the formation of the Seller there has been no material adverse change
in the business, operations, property or financial or other condition of
the Seller.
(f) There are no actions, suits or proceedings before any court,
governmental agency or arbitrator pending or, to the best knowledge of
Coltec, threatened (i) with respect to this Agreement or any documentation
executed in connection herewith or the transactions contemplated hereby,
(ii) with respect to the Credit Agreement or (iii) that are reasonably
likely to materially and adversely affect the business, property, assets,
condition (financial or otherwise) or prospects of Coltec or Coltec and its
Subsidiaries taken as a whole or the ability of the Seller or Coltec and
its Subsidiaries taken as a whole to perform their respective obligations
under the Transaction Documents, or which purports to affect the legality,
validity or enforceability of the Transaction Documents. Neither Coltec nor
any other Originator is in default with respect to any order of any court,
arbitration or governmental body except for defaults that are not material
to the business or operations of Coltec and its Subsidiaries taken as a
whole.
II-6
<PAGE>
(g) No proceeds of any purchase or reinvestment will be used to
acquire any equity security of a class which is registered pursuant to
Section 12 of the Securities Exchange Act of 1934.
(h) The Seller is the legal and beneficial owner of the Pool
Receivables and Related Security free and clear of any Adverse Claim. Upon
each purchase of or reinvestment in a Receivable Interest, the Investors or
the Banks, as the case may be, shall acquire a valid and perfected first
priority undivided percentage ownership interest or security interest to
the extent of the pertinent Receivable Interest in each Pool Receivable
then existing or thereafter arising and in the Related Security and
Collections with respect thereto. No effective financing statement or other
instrument similar in effect covering any Contract or any Pool Receivable
or the Related Security or Collections with respect thereto is on file in
any recording office, except those filed in favor of the Agent relating to
the Agreement and those filed pursuant to the CNCI Purchase Agreement, the
Originator Purchase Agreement and the Canadian Purchase Agreement.
(i) Each Monthly Report (if prepared by the Seller or one of its
Affiliates, or to the extent that information contained therein is supplied
by the Seller or an Affiliate), written information, exhibit, financial
statement, document, book, record or report furnished by or on behalf of
the Seller to the Agent, the Investors or the Banks in connection with the
Agreement is accurate in all material respects as of its date (except as
otherwise disclosed to the Agent, the Investors or the Banks, as the case
may be, at such time) and no such document contains any untrue statement of
a material fact or omits to state a material fact necessary in order to
make the statements contained therein, in the light of the circumstances
under which they were made, not misleading.
(j) The principal place of business and chief executive office of the
Seller and the office where the Seller keeps its records concerning the
Pool Receivables are located at the address or addresses referred to in
paragraph (b) of Exhibit IV.
(k) The names and addresses of all the Lock-Box Banks, together with
the account numbers of the Lock-Box Accounts of the Seller at such
II-7
<PAGE>
Lock-Box Banks, are specified in Annex F hereto (or at such other Lock-Box
Banks and/or with such other Lock-Box Accounts as have been notified to the
Agent in accordance with the Agreement).
(l) The Seller is not known by and does not use any tradename or
doing-business-as name.
(m) The Seller was organized on July 30, 1997, and the Seller did not
engage in any business activities prior to the date of the Agreement. The
Seller has no Subsidiaries.
(n) (i) The fair value of the property of the Seller is greater than
the total amount of liabilities, including contingent liabilities, of the
Seller, (ii) the Seller does not intend to, and does not believe that it
will, incur debts or liabilities beyond the Seller's abilities to pay such
debts and liabilities as they mature and (iii) the Seller is not engaged in
a business or a transaction, and is not about to engage in a business or a
transaction, for which the Seller's property would constitute unreasonably
small capital.
(o) With respect to each Pool Receivable, the Seller (i) shall have
received such Pool Receivable as a contribution to the capital of the
Seller by CNCI or (ii) shall have purchased such Pool Receivable from CNCI
in exchange for payment (made by the Seller to CNCI in accordance with the
provisions of the CNCI Purchase Agreement) of cash in an amount which
constitutes fair consideration and reasonably equivalent value. Each such
sale referred to in clause (ii) of the preceding sentence has not been made
for or on account of an antecedent debt owed by CNCI to the Seller and no
such sale is voidable or subject to avoidance under any section of the
Federal Bankruptcy Code.
II-8
<PAGE>
EXHIBIT IV
COVENANTS
Until the latest of the Facility Termination Date, the date on which no
Capital of or Yield on any Receivable Interest shall be outstanding or the date
all other amounts owed by the Seller hereunder to the Investors, the Banks or
the Agent are paid in full:
(a) Compliance with Laws, Etc. The Seller will comply in all material
respects with all applicable laws, rules, regulations and orders and
preserve and maintain its existence, rights, franchises, qualifications,
and privileges except to the extent that the failure so to comply with such
laws, rules and regulations or the failure so to preserve and maintain such
existence, rights, franchises, qualifications, and privileges would not
materially adversely affect the collectibility of the Receivables Pool or
the ability of the Seller to perform its obligations under the Transaction
Documents to which it is a party.
(b) Offices, Records and Books of Account. The Seller will keep its
principal place of business and chief executive office and the office where
it keeps its records concerning the Pool Receivables at the address of the
Seller set forth in Section 4.02 of the Agreement or, upon 30 days' prior
written notice to the Agent, at any other locations in jurisdictions where
all actions reasonably requested by the Agent to protect and perfect the
interest in the Pool Receivables have been taken and completed. The Seller
or the Collection Agent on its behalf also will maintain and implement
administrative and operating procedures (including, without limitation, an
ability to recreate records evidencing Pool Receivables and related
Contracts in the event of the destruction of the originals thereof), and
keep and maintain all documents, books, records and other information
reasonably necessary or advisable for the collection of all Pool
Receivables (including, without limitation, records adequate to permit the
daily identification of each Pool Receivable and all Collections of and
adjustments to each existing Pool Receivable).
IV-1
<PAGE>
(c) Performance and Compliance with Contracts and Credit and
Collection Policy. The Seller will ensure, at its expense, that the
Originators will timely and fully perform and comply with all material
provisions, covenants and other promises required to be observed by them
under the Contracts related to the Pool Receivables, and timely and fully
comply in all material respects with the Credit and Collection Policy in
regard to each Pool Receivable and the related Contract.
(d) Sales, Liens, Etc. The Seller will not sell, assign (by operation
of law or otherwise) or otherwise dispose of, or create or suffer to exist
any Adverse Claim upon or with respect to, the Seller's undivided interest
in any Pool Receivable, Related Security, related Contract or Collections,
or upon or with respect to any account to which any Collections of any Pool
Receivables are sent, or assign any right to receive income in respect
thereof.
(e) Extension or Amendment of Receivables. Except as provided in
Section 4.02(c), the Seller will not, and will not permit the Collection
Agent to, extend the maturity or adjust the Outstanding Balance or
otherwise modify the payment terms of any Pool Receivable.
(f) Change in Business or Credit and Collection Policy. The Seller
will not make or permit any change in the character of its business or in
the Credit and Collection Policy that would, in either case, materially
adversely affect the collectibility of the Receivables Pool or the ability
of the Seller to perform its obligations under the Agreement.
(g) Change in Payment Instructions to Obligors. The Seller will not
make or permit any change in the instructions to Obligors regarding
payments to be made to the Seller or the Collection Agent or payments to be
made to any Lock-Box Bank, unless the Agent shall have received notice of
and agreed to such change, other than a change related solely to
instructions to Obligors to pay to a new Lock-Box Bank.
(h) Addition or Termination of Lock-Box Banks or Lock-Box Agreements.
The Seller will not add or terminate or cause or permit the addition or
termination of any bank as a Lock-Box Bank from those listed in Annex F to
the Agreement or terminate any Lock-Box Agreement, unless
IV-2
<PAGE>
the Agent shall have received notice of such addition or termination of a
Lock-Box Bank, notice of the termination of the Lock-Box Account with any
terminated Lock-Box Bank and executed copies of Lock-Box Agreements with
each newly added Lock-Box Bank. The Seller will not permit any provision of
any Lock-Box Agreement to be changed, amended, modified or waived without
the prior written consent of the Agent.
(i) Deposits to Lock-Box Accounts. Subject to the provisions of
Section 3 of Exhibit II to the Agreement, the Seller will deposit, or cause
to be deposited, all Collections of Pool Receivables into Lock-Box Accounts
from the date of the Agreement and the Seller will not deposit or otherwise
credit, or cause or permit to be so deposited or credited, to any Lock-Box
Account cash or cash proceeds other than Collections of Pool Receivables;
provided, however, that cash collections representing payment of GST or
Specified Boeing Receivables may be deposited or credited to any Lock-Box
Account.
(j) Marking of Records. At its expense, the Seller will mark its
master data processing records evidencing Pool Receivables and related
Contracts with a legend evidencing that Receivable Interests related to
such Pool Receivables and related Contracts have been sold in accordance
with the Agreement.
(k) Reporting Requirements. The Seller will provide to the Agent (in
multiple copies, if requested by the Agent) the following:
(i) as soon as available and in any event within 45 days after
the end of the first three quarters of each fiscal year of Coltec,
balance sheets of Coltec and its consolidated Subsidiaries as of the
end of such quarter and statements of income and retained earnings of
Coltec and its consolidated Subsidiaries for the period commencing at
the end of the previous fiscal year and ending with the end of such
quarter, certified by the chief financial officer of Coltec;
IV-3
<PAGE>
(ii) as soon as available and in any event within 90 days after
the end of each fiscal year of Coltec, a copy of the Annual Report on
Form 10-K for such year for Coltec and its consolidated Subsidiaries,
containing financial statements for such year audited by Arthur
Andersen & Co. or other independent public accountants acceptable to
the Agent;
(iii) as soon as possible and in any event within five days after
the occurrence of each Event of Termination or event that but for
notice or lapse of time or both would constitute an Event of
Termination, a statement of the chief financial officer of the Seller
setting forth details of such Event of Termination or event that but
for notice or lapse of time or both would constitute an Event of
Termination, and the action that the Seller has taken and proposes to
take with respect thereto;
(iv) promptly after the filing or receiving thereof, copies of
all reports and notices that Coltec or any Affiliate files under ERISA
with the Internal Revenue Service or the Pension Benefit Guaranty
Corporation or the U.S. Department of Labor or that Coltec or any
Affiliate receives from any of the foregoing or from any multiemployer
plan (within the meaning of Section 4001(a)(3) of ERISA) to which
Coltec or any Affiliate is or was, within the preceding five years, a
contributing employer, in each case in respect of the assessment of
withdrawal liability or an event or condition which could, in the
aggregate, result in the imposition of liability on Coltec and/or any
such Affiliate in excess of $1,000,000;
(v) at least ten Business Days prior to any change in the name of
Coltec, any other Originator, CNCI or the Seller, a notice setting
forth the new name and the effective date thereof;
(vi) promptly after the Seller obtains knowledge thereof, notice
of any "Event of Termination" or "Facility Termination Date" under the
CNCI Purchase Agreement, the Originator Purchase Agreement or the
Canadian Purchase Agreement;
IV-4
<PAGE>
(vii) so long as any Capital shall be outstanding, as soon as
possible and in any event no later than the day of occurrence thereof,
notice that an Originator has stopped selling to CNCI, pursuant to the
Originator Purchase Agreement or the Canadian Purchase Agreement, all
newly arising Receivables originated by such Originator and notice
that CNCI has stopped selling or contributing to the Seller, pursuant
to the CNCI Purchase Agreement, all Receivables acquired from
Originators under the Originator Purchase Agreement or the Canadian
Purchase Agreement;
(viii) at the time of the delivery of the financial statements
provided for in clause (ii) of this paragraph, a certificate of the
chief financial officer or the treasurer of a member of the Seller to
the effect that, to the best of such officer's knowledge, no Event of
Termination has occurred and is continuing or, if any Event of
Termination has occurred and is continuing, specifying the nature and
extent thereof;
(ix) promptly after receipt thereof, copies of all notices
received by the Seller from CNCI under the CNCI Purchase Agreement;
(x) promptly, from time to time, such other information,
documents, records or reports respecting the Receivables or the
condition or operations, financial or otherwise, of the Seller as the
Agent may from time to time reasonably request;
(xi) promptly after the Seller obtains knowledge thereof, notice
of any (a) litigation, investigation or proceeding which may exist at
any time between the Seller, CNCI or an Originator and any
governmental authority which, in either case, if not cured or if
adversely determined, as the case may be, would have a material
adverse effect on the business, operations, property or financial or
other condition of the Seller, CNCI or Coltec and its Subsidiaries
taken as a whole; (b) litigation or proceeding adversely affecting the
Seller's, CNCI's or an Originator's ability to perform its obligations
under the Transaction Documents to which it is a party or (c)
litigation or proceeding adversely affecting the Seller, CNCI or an
IV-5
<PAGE>
Originator in which the amount involved is $2,000,000 or more and not
covered by insurance or in which injunctive or similar relief is
sought; and
(xii) promptly after the occurrence thereof, notice of a material
adverse change in the business, operations, property or financial or
other condition of the Seller.
(l) Corporate Separateness.
(i) At least one member of the Seller shall at all times maintain
at least one independent director who (x) is not currently and has not
been during the five years preceding the date of the Agreement an
officer, director or employee of an Affiliate of the Seller or of any
Other Corporation (except for such member), (y) is not a current or
former officer or employee of the Seller and (z) is not a stockholder
of any Other Corporation or any of their respective Affiliates.
(ii) The Seller shall not direct or participate in the management
of any of the Other Corporations' operations.
(iii) The Seller shall maintain a separate principal office
through which its business shall be conducted, which office may be
located in identifiable space within the headquarters of one of the
Other Corporations. The Seller shall have stationery and other
business forms and a telephone listing separate from that of the Other
Corporations.
(iv) The Seller shall at all times be adequately capitalized in
light of its contemplated business.
(v) The Seller shall at all times provide for its own operating
expenses and liabilities from its own funds.
IV-6
<PAGE>
(vi) The Seller shall maintain its assets and transactions
separately from those of the Other Corporations and reflect such
assets and transactions in financial statements separate and distinct
from those of the Other Corporations and evidence such assets and
transactions by appropriate entries in books and records separate and
distinct from those of the Other Corporations. The Seller shall hold
itself out to the public under the Seller's own name as a legal entity
separate and distinct from the Other Corporations. The Seller shall
not hold itself out as having agreed to pay, or as being liable,
primarily or secondarily, for, any obligations of the Other
Corporations.
(vii) The Seller shall not maintain any joint account with any
Other Corporation or become liable as a guarantor or otherwise with
respect to any Debt or contractual obligation of any Other
Corporation.
(viii) The Seller shall not make any payment or distribution of
assets with respect to any obligation of any Other Corporation or
grant an Adverse Claim on any of its assets to secure any obligation
of any Other Corporation.
(ix) The Seller shall not make loans, advances or otherwise
extend credit to any of the Other Corporations.
(x) The Seller shall hold regular duly noticed meetings of its
members and make and retain minutes of such meetings.
(xi) The Seller shall have bills of sale (or similar instruments
of assignment) and, if appropriate, UCC-1 financing statements, with
respect to all assets purchased from any of the Other Corporations.
(xii) The Seller shall not engage in any transaction with any of
the Other Corporations, except as permitted by the Agreement and as
contemplated by the CNCI Purchase Agreement.
IV-7
<PAGE>
(xiii) The Seller shall comply with (and cause to be true and
correct) each of the facts and assumptions contained in the opinion of
Moore & Van Allen PLLC delivered pursuant to Exhibit II to the
Agreement.
(m) CNCI Purchase Agreement. The Seller will not amend, waive or modify any
provision of the CNCI Purchase Agreement (including any amendment which would
add any additional sellers) or waive the occurrence of any "Event of
Termination" under the CNCI Purchase Agreement or consent to any amendment,
modification or waiver by CNCI of any provision of the Originator Purchase
Agreement or the Canadian Purchase Agreement, without in each case the prior
written consent of the Agent. The Seller will perform all of its obligations
under the CNCI Purchase Agreement in all material respects and will enforce the
CNCI Purchase Agreement in accordance with its terms in all material respects.
(n) Nature of Business. The Seller will not engage in any business other
than the purchase of Receivables, Related Security and Collections from CNCI and
the transactions contemplated by the Agreement. The Seller will not create or
form any Subsidiary.
(o) Mergers, Etc. The Seller will not merge with or into 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 substantially all of its
assets (whether now owned or hereafter acquired) to, or acquire all or
substantially all of the assets or capital stock or other ownership interest of,
or enter into any joint venture or partnership agreement with, any Person, other
than as contemplated by the Agreement and the CNCI Purchase Agreement.
(p) Payments to Members. The Seller may pay cash profits to its members so
long as (i) no Event of Termination shall then exist or would occur as a result
thereof, (ii) such payments are in compliance with all applicable law including
the limited liability company law of the state of the Seller's formation, and
(iii) such payments have been approved by all necessary and appropriate action
of the Seller.
IV-8
<PAGE>
(q) Debt. The Seller will not incur any Debt, other than any Debt incurred
pursuant to the Agreement.
(r) Operating Agreement. The Seller will not amend or delete Articles III
or IV of its operating agreement.
(s) Further Assurances.
(i) The Seller agrees from time to time, at its expense, promptly to
execute and deliver all further instruments and documents, and to take all
further actions, that may be necessary or desirable, or that the Agent may
reasonably request, to perfect, protect or more fully evidence the
Receivable Interests purchased under the Agreement, or to enable the
Investors, the Banks or the Agent to exercise and enforce their respective
rights and remedies under the Agreement. Without limiting the foregoing,
the Seller will, upon the request of the Agent, execute and file such
financing or continuation statements, or amendments thereto, and such other
instruments and documents, that may be necessary or desirable, or that the
Agent may reasonably request, to perfect, protect or evidence such
Receivable Interests.
(ii) The Seller authorizes the Agent to file financing or continuation
statements, and amendments thereto and assignments thereof, relating to the
Pool Receivables and the Related Security, the related Contracts (other
than an assignment with respect to a Contract which is a Long-Term
Contract) and the Collections with respect thereto without the signature of
the Seller where permitted by law. A photocopy or other reproduction of the
Agreement shall be sufficient as a financing statement where permitted by
law.
IV-9
<PAGE>
EXHIBIT V
EVENTS OF TERMINATION
Each of the following, unless waived in writing by the Agent (other than as
set forth in clauses (g) and (h) which cannot be waived), shall be an "Event of
Termination":
(a) The Collection Agent (if Coltec or any of its Affiliates) (i)
shall fail to perform or observe any term, covenant or agreement under the
Agreement (other than as referred to in clause (ii) of this paragraph (a)),
such failure could reasonably be expected to have a material adverse effect
on the interests of the Investors or the Banks and such failure shall
remain unremedied for 30 days after written notice thereof shall have been
given to the Seller by the Agent or (ii) shall fail to make when due any
payment or deposit to be made by it under the Agreement; or
(b) The Seller shall fail (i) to transfer to the Agent when requested
any rights, pursuant to the Agreement, which the Seller then has as
Collection Agent, which failure could reasonably be expected to have a
material adverse effect on the interests of the Investors or the Banks, and
such failure shall remain unremedied for 30 days after written notice
thereof shall have been given to the Seller by the Agent, or (ii) to make
any payment required under Section 1.04; or
(c) Any representation or warranty made or deemed made by the Seller
or the Collection Agent (or any of their respective officers) under or in
connection with the Agreement or any other Transaction Document or any
written information or report delivered by the Seller or the Collection
Agent pursuant to the Agreement or any other Transaction Document shall
prove to have been incorrect or untrue in any material respect when made or
deemed made or delivered and the breach of such representation or warranty
or any such incorrect or untrue information could reasonably be expected to
have a material adverse effect on the interests of the Investors or the
Banks and shall remain unremedied for 30 days after written notice thereof
shall have been given to the Seller by the Agent ; or
V-1
<PAGE>
(d) The Seller, CNCI or an Originator shall fail to perform or observe
any other term, covenant or agreement contained in a Transaction Document
to which it is a party on its part to be performed or observed, such
failure could reasonably be expected to have a material adverse effect on
the interests of the Investors or the Banks and such failure shall remain
unremedied for 30 days after written notice thereof shall have been given
to the Seller by the Agent (or, with respect to a failure to deliver the
Monthly Report pursuant to the Agreement, such failure shall remain
unremedied for five days, without a requirement for notice); or
(e) As of the last day of any Fiscal Month, either the Default Ratio
shall exceed 8% or the Delinquency Ratio shall exceed 8% or the Dilution
Ratio shall exceed 8% or the Monthly Default Ratio shall exceed 15% or the
Monthly Delinquency Ratio shall exceed 15%; or
(f) Any purchase or any reinvestment pursuant to the Agreement shall
for any reason (other than pursuant to the terms hereof) cease to create,
or any Receivable Interest shall for any reason cease to be, a valid and
perfected first priority undivided percentage ownership interest or
security interest to the extent of the pertinent Receivable Interest in
each applicable Pool Receivable and the Related Security and Collections
with respect thereto; or the security interest created pursuant to Section
1.12 shall for any reason cease to be a valid first priority security
interest in the collateral security referred to in that section; or
(g) The Seller, CNCI or an Originator shall generally not pay its
debts as such debts become due, or shall admit in writing its inability to
pay its debts generally, or shall make a general assignment for the benefit
of creditors; or any proceeding shall be instituted by or against the
Seller, CNCI or an Originator seeking liquidation, winding up,
reorganization, arrangement, adjustment, protection, relief, or composition
of it or its debts under any law relating to bankruptcy, insolvency or
reorganization or relief of debtors, or seeking the entry of an order for
relief or the appointment of a receiver, trustee, custodian or other
similar official for it or for any substantial part of its property and, in
the case of any such proceeding instituted against it (but not instituted
by it), either such proceeding shall remain undismissed or unstayed for a
period of 60 days, or any of the actions sought in such proceeding
(including, without limitation, the entry
V-2
<PAGE>
of an order for relief against, or the appointment of a receiver, trustee,
custodian or other similar official for, it or for any substantial part of
its property) shall occur; or the Seller, CNCI or an Originator shall take
any corporate action to authorize any of the actions set forth above in
this paragraph (g); or
(h) The sum of the Receivable Interests shall be greater than 100% (i)
for a period of five consecutive Business Days after written notice in the
form of the Monthly Report, delivered not later than ten Business Days
after the Fiscal Month most recently ended or (ii) if such Monthly Report
is not delivered by such tenth Business Day, for a period of five
consecutive Business Days after such Monthly Report was required to be
delivered; or
(i) An "Event of Termination" or "Facility Termination Date" shall
occur under the CNCI Purchase Agreement or the Originator Purchase
Agreement or the Canadian Purchase Agreement or the CNCI Purchase Agreement
or the Originator Purchase Agreement or the Canadian Purchase Agreement
shall cease to be in full force and effect; or
(j) All of the outstanding ownership interests of the Seller shall
cease to be owned, directly or indirectly, by Coltec; or
(k) The senior bank debt of Coltec shall not have the Required Rating;
or
(l) An "Event of Default" under and as defined in the Credit Agreement
shall have occurred and remain unremedied for five days after written
notice is given by the Agent to the Seller; or
(m) Any of the conditions subsequent set forth in paragraph 3 of
Exhibit II to the Agreement shall not be satisfied on or after the date so
specified.
V-3
<PAGE>
Annex D
Special Obligor Special Concentration
Percentage
Boeing Company 40%
United Technologies and Allied Signal 20% in aggregate
Any Obligor rated at least A-1 by
Standard & Poor's (or its equivalent long-term
rating as indicated by the chart below) and P-1 by
Moody's Investors Service, Inc. (or its equivalent
long-term rating as indicated by the chart below) 10%
If Boeing Company is rated at least A-2 by Standard & Poor's (or its equivalent
long-term senior unsecured rating as indicated by the chart below) and P-2 by
Moody's Investors Service, Inc., (or its equivalent long-term senior unsecured
rating as indicated by the chart below) the Special Concentration Percentage is
15%. If Boeing is not rated at least A-2 by Standard & Poor's (or its equivalent
long-term senior unsecured rating as indicated by the chart below) and P-2 by
Moody's Investors Service, Inc. (or its equivalent long-term senior unsecured
rating as indicated by the chart below) it will cease to be a Special Obligor.
If the securities of only one of United Technologies and Allied Signal are rated
at least A-1 by Standard & Poor's and P-1 by Moody's Investors Service, Inc.
then in no event shall the Concentration Percentage for United Technologies and
Allied Signal exceed 20% in the aggregate.
Moody's Investors Service, Inc. Equivalent Long-Term Ratings
Long-Term Short-Term
Aaa through A1 P-1
A2 through Baa1 P-2
Standard & Poor's Equivalent Long-Term Ratings
Long-Term Short-Term
AAA through AA- A-1+
A+ A-1
A through BBB+ A-2
<PAGE>
EXECUTION COPY
================================================================================
RECEIVABLES TRANSFER AND ADMINISTRATION AGREEMENT
Dated as of September 19, 1997
Among
COLTEC INDUSTRIES INC
as a Seller, the Collection Agent and as Sellers' Agent
certain subsidiaries and affiliates of
Coltec Industries Inc
as Sellers and as Sub-Collection Agents
and
COLTEC NORTH CAROLINA INC
as Purchaser
================================================================================
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE I DEFINITIONS.........................................................1
SECTION 1.01. Certain Defined Terms...................................1
SECTION 1.02. Other Terms.............................................6
ARTICLE II AMOUNTS AND TERMS OF PURCHASES.....................................6
SECTION 2.01. Facility................................................6
SECTION 2.02. Making Purchases........................................6
SECTION 2.03. Collections; Purchase Price.............................7
SECTION 2.04. Settlement Procedures...................................7
SECTION 2.05. Payments and Computations, Etc..........................8
ARTICLE III [reserved]........................................................9
ARTICLE IV REPRESENTATIONS AND WARRANTIES.....................................9
SECTION 4.01. Representations and Warranties of the Sellers...........9
ARTICLE V COVENANTS..........................................................11
SECTION 5.01. Covenants of the Sellers...............................11
SECTION 5.02. Covenant of the Sellers and the Purchaser..............16
ARTICLE VI ADMINISTRATION AND COLLECTION.....................................16
SECTION 6.01. Designation of Collection Agent........................16
SECTION 6.02. Duties of Collection Agent.............................17
SECTION 6.03. Collection Agent Fee...................................17
SECTION 6.04. Certain Rights of the Purchaser........................18
SECTION 6.05. Rights and Remedies....................................19
SECTION 6.06. Transfer of Records to Purchaser.......................19
SECTION 6.07. Designation of Sub-Collection Agents...................19
SECTION 6.08. Duties of Sub-Collection Agent.........................20
SECTION 6.09. Sub-Collection Agent Fee...............................21
ARTICLE VII EVENTS OF TERMINATION............................................21
SECTION 7.01. Events of Termination..................................21
SECTION 7.02 Individual Seller Termination...........................22
ARTICLE VIII INDEMNIFICATION.................................................23
SECTION 8.01. Indemnities............................................23
ARTICLE IX MISCELLANEOUS.....................................................25
SECTION 9.01. Amendments, Etc........................................25
SECTION 9.02. Notices, Etc...........................................25
SECTION 9.03. Binding Effect; Assignability..........................25
SECTION 9.04. Costs, Expenses and Taxes..............................26
SECTION 9.05. [reserved].............................................26
SECTION 9.06. [reserved].............................................26
SECTION 9.07. Governing Law..........................................26
SECTION 9.08. Third Party Beneficiary................................27
i
<PAGE>
SECTION 9.09. Execution in Counterparts..............................27
EXHIBITS
EXHIBIT A Form of Opinion of Counsel for the Sellers
EXHIBIT B Credit and Collection Policy
EXHIBIT C Lock-Box Banks
Attachment 1 - Form of Sale Assignment
SCHEDULES
Schedule 4.01(n) List of Tradenames
Schedule 5.01(b) Addresses of Sellers
ii
<PAGE>
RECEIVABLES TRANSFER AND ADMINISTRATION AGREEMENT
RECEIVABLES TRANSFER AND ADMINISTRATION AGREEMENT, dated as of September
19, 1997 (this "Agreement"), by and among COLTEC INDUSTRIES INC, a Pennsylvania
corporation ("Coltec"), as agent for the Sellers (the "Sellers' Agent"), as
collection agent (the "Collection Agent") and as a Seller, each of the persons
listed on the signature page to this Agreement under the heading "Sellers" (each
a "Seller" and collectively, the "Sellers") and as sub-collection agents (each a
"Sub-Collection Agent" and collectively, the "Sub-Collection Agents"), and
COLTEC NORTH CAROLINA INC, a North Carolina corporation (the "Purchaser").
PRELIMINARY STATEMENTS
1. Certain terms which are capitalized and used throughout this Agreement
(in addition to those defined above) are defined in Article I of this Agreement.
2. Each Seller has Receivables that it wishes to sell to the Purchaser, and
the Purchaser is prepared to purchase such Receivables on the terms set forth
herein.
3. The Purchaser wishes to engage Coltec to act as Collection Agent to
collect certain Receivables acquired by the Purchaser hereunder and Coltec
desires to engage each of the other Sellers as sub-collection agents to collect
the portion of the Receivables acquired by the Purchaser from such Seller.
NOW, THEREFORE, the parties agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.01. Certain Defined Terms.
As used in this Agreement, the following terms shall have the following
meanings (such meanings to be equally applicable to both the singular and plural
forms of the terms defined):
Adverse Claim: means a lien, security interest, or other charge or encumbrance,
or any other type of preferential arrangement other than inchoate liens, such as
for taxes not yet due.
Affiliate: means, as to any Person, any other Person that, directly or
indirectly, is in control of, is controlled by or is under common control with
such Person or is a director or officer of such Person.
<PAGE>
Alternate Base Rate: means a fluctuating interest rate per annum as shall be in
effect from time to time, which rate shall be at all times equal to the lower
of:
(a) the rate of interest announced publicly by Credit Lyonnais, New York
Branch in New York, New York, from time to time as its prime rate, less 1.50%
and
(b) the Federal Funds Rate plus 0.50%.
Business Day means any day on which banks are not authorized or required to
close in the cities of New York, New York and Charlotte, North Carolina.
Closing Date: means September 22, 1997.
Collection Agent: means at any time the Person then authorized pursuant to
Section 6.01 to service, administer and collect Purchased Receivables.
Collection Agent Fee: has the meaning specified in Section 6.03.
Collections: means, with respect to any Receivable, all cash collections and
other cash proceeds of such Receivable, including, without limitation, all cash
proceeds of Related Security with respect to such Receivable, and all funds
deemed to have been received by the Seller or any other Person as a Collection
pursuant to Section 2.04.
Contract: means an agreement between a Seller and an Obligor pursuant to or
under which such Obligor shall be obligated to pay for merchandise or services
from time to time.
Credit Agreement: means the credit agreement, dated as of March 24, 1992, as
amended and restated as of January 11, 1994 and as further amended and restated
as of December 18, 1996, supplemented or restated from time to time, among
Coltec Industries Inc, various banks, Bankers Trust Company, as administrative
agent, Bank of America Illinois, as documentation agent, and The Chase Manhattan
Bank, as syndication agent.
Credit and Collection Policy: means those receivables credit and collection
policies and practices of the Sellers in effect on the date of this Agreement
applicable to the Receivables and described in Exhibit B hereto, as modified in
compliance with this Agreement.
Defaulted Receivable: means a Receivable:
(i) as to which any payment, or part thereof, remains unpaid for 60
days (or 90 days, subject to receipt by the Sellers' Agent of the
Purchaser's written consent following revision by the Sub-Collection Agents
of their reporting systems to further specify the aging of the Receivables)
from the original due date for such payment;
2
<PAGE>
(ii) as to which the Obligor thereof or any other Person obligated
thereon or owning any Related Security in respect thereof has taken any
action, or suffered any event to occur, of the type described in Section
7.01(e); or
(iii) which, consistent with the Credit and Collection Policy, would
be written off as uncollectible.
Dilution: means, with respect to any Receivable, the aggregate amount of any
reductions or adjustments in the Outstanding Balance of such Receivable as a
result of any defective, rejected, returned, repossessed or foreclosed
merchandise or services or any cash discount or other adjustment or setoff.
Discount Percentage: means, with respect to any Seller on any day prior to the
day on which the Sellers' Agent completes its initial fair market valuation
methodology, 2.50 % and, thereafter, shall mean for each Fiscal Month the
percentage set forth in such fair market valuation methodology with respect to
such Seller, as adjusted periodically from time to time.
ERISA: means the Employee Retirement Income Security Act of 1974, as amended
from time to time, and the regulations promulgated and rulings issued
thereunder.
Event of Termination: has the meaning specified in Section 7.01.
Facility: means the commitment of the Purchaser to make Purchases of Receivables
from the Seller pursuant to the terms of this Agreement.
Facility Termination Date: means the earlier of (i) the date of termination of
the Facility pursuant to Section 7.01 and (ii) the date which the Sellers' Agent
designates by at least two Business Days' notice to the Purchaser.
Federal Funds Rate: means, for any period, a fluctuating interest rate per annum
equal for each day during such period to the weighted average of the rates on
overnight federal funds transactions with members of the Federal Reserve System
arranged by federal funds brokers, as published for such day (or, if such day is
not a Business Day, for the next preceding Business Day) by the Federal Reserve
Bank of New York, or, if such rate is not so published for any day which is a
Business Day, the average of the quotations for such day on such transactions
received by the Agent under the Sale Agreement from three federal funds brokers
of recognized standing selected by it.
Fiscal Month: means each period specified as a "Fiscal Month" by the Seller's
Agent to the Purchaser on a schedule provided as of the beginning of each fiscal
year of the Seller's Agent.
General Trial Balance: of a Seller on any date means such Seller's accounts
receivable trial balance (whether in the form of a computer printout, magnetic
tape or diskette) on such date,
3
<PAGE>
listing Obligors and the Receivables respectively owed by such Obligors on such
date together with the aged Outstanding Balances of such Receivables, in form
and substance satisfactory to the Purchaser.
Indemnified Amounts: has the meaning specified in Section 8.01.
Lock-Box Account: means one or more accounts maintained for the purpose of
receiving Collections.
Lock-Box Agreement: means an agreement relating to a Lock-Box Account between a
Seller and any Lock-Box Bank in form and substance satisfactory to the Purchaser
(or its assignees or designees).
Lock-Box Bank: means any of the banks or other financial institutions holding
one or more Lock-Box Accounts.
Long Term Contract: means any agreement between a Seller and an Obligor pursuant
to or under which such Obligor shall be obligated to pay for merchandise or
services from time to time, the term of which exceeds 12 months.
Monthly Report: means a report, in form and substance satisfactory to the
Purchaser, furnished by the Collection Agent to the Purchaser pursuant to
Section 6.02(b).
Obligor: means a Person obligated to make payments to a Seller pursuant to a
Contract.
Outstanding Balance: of any Receivable on any date means the outstanding
principal balance thereof on such date.
Person: means an individual, partnership, corporation (including a business
trust), joint stock company, limited liability company, trust, unincorporated
association, joint venture or other entity, or a government or any political
subdivision or agency thereof.
Purchase: means a purchase by the Purchaser of Receivables from a Seller
pursuant to Article II.
Purchase Price: means, for any Receivable sold by a Seller during a Fiscal
Month, the product of (a) the Outstanding Balance of such Receivable on the date
such Receivable is sold to the Purchaser, and (b) the excess of 100% over the
Discount Percentage in effect for such Fiscal Month.
Purchased Receivable: means any Receivable which has been sold by a Seller
hereunder.
4
<PAGE>
Receivable: means the indebtedness of any Obligor resulting from the provision
or sale of merchandise or services by a Seller under a Contract, and includes
the right to payment of any interest or finance charges and other obligations of
such Obligor with respect thereto.
Related Security: means with respect to any Receivable:
(i) all of the related Seller's interest in any merchandise (including
returned merchandise) relating to any sale giving rise to such Receivable;
(ii) all security interests or liens and property subject thereto from
time to time purporting to secure payment of such Receivable, whether
pursuant to the Contract related to such Receivable or otherwise, together
with all financing statements signed by an Obligor describing any
collateral securing such Receivable;
(iii) all guaranties, proceeds from insurance policies and other
agreements or arrangements of whatever character from time to time
supporting or securing payment of such Receivable whether pursuant to the
Contract related to such Receivable or otherwise;
(iv) the Contract and all other books, records and other information
(including, without limitation, computer programs, tapes, discs, punch
cards, data processing software and related property and rights) relating
to such Receivable and the related Obligor to the extent assignable or
licensable under the related contract or license and applicable law; and
(v) rights to payment under Long Term Contracts.
Sale Agreement: means that certain Receivables Purchase Agreement, dated as of
the date hereof, among CNC Finance LLC, as seller, Atlantic Asset Securitization
Corp., as a purchaser, The Industrial Bank of Japan, Limited, Lloyds Bank PLC,
The Sumitomo Bank, Limited, Credit Lyonnais New York Branch, individually and as
agent, and the Sellers' Agent, as collection agent, as amended or restated from
time to time.
Securitized Receivables: means any Purchased Receivables that are transferred by
the Purchaser to CNC Finance LLC under the Receivables Purchase and Contribution
Agreement, dated as of the date hereof, by and between the Purchaser and CNC
Finance LLC and, with respect to which Receivables, CNC Finance LLC sells,
transfers or grants a security interest, or otherwise transfers an interest, in
such Purchased Receivables in connection with a securitization transaction.
Settlement Date: means the thirteenth Business Day of each Fiscal Month (or if
such day is not a Business Day, the immediately succeeding Business Day);
provided, however, that following the
5
<PAGE>
occurrence of an Event of Termination, Settlement Dates shall occur on such days
as are selected from time to time by the Purchaser or its designee in a written
notice to the Collection Agent.
Sub-Collection Agent: means at any time the Person then authorized pursuant to
Section 6.07 to service, administer and collect the portion of the Purchased
Receivables acquired by the Purchaser from a Seller.
Sub-Collection Agent Fee: has the meaning specified in Section 6.09.
UCC: means the Uniform Commercial Code as from time to time in effect in the
specified jurisdiction or other equivalent local statute.
SECTION 1.02. Other Terms.
All accounting terms not specifically defined herein shall be construed in
accordance with generally accepted accounting principles.
ARTICLE II
AMOUNTS AND TERMS OF PURCHASES
SECTION 2.01. Facility.
On the terms and conditions hereinafter set forth and without recourse
(except to the extent as is specifically provided herein), the Purchaser agrees
to purchase Receivables from the Sellers as such Receivables arise during the
period from the date hereof to the Facility Termination Date.
SECTION 2.02. Making Purchases.
(a) On the Closing Date, each Seller hereby sells, transfers, absolutely
assigns, sets-over and conveys to the Purchaser all Receivables owned by such
Seller as of the close of business on the Business Day immediately preceding the
Closing Date. Each Seller hereby agrees, on each Business Day occurring after
the Closing Date and prior to the Facility Termination Date, to sell, transfer,
absolutely assign, set-over and convey to the Purchaser all Receivables owned by
such Seller as of the close of business on the immediately preceding Business
Day. Each Seller and the Purchaser shall enter into a certificate of assignment
(the "Sale Assignment"), dated as of the date hereof, in the form of Attachment
1 hereto, evidencing such sale, transfer, absolute assignment, set-over and
conveyance of such Receivables.
(b) Upon the sale, transfer, absolute assignment, set-over and conveyance
of the Purchased Receivables the ownership of each such Receivable shall be
vested in the Purchaser and
6
<PAGE>
no Seller shall take any action inconsistent with such ownership and shall not
claim any ownership interest in any such Purchased Receivable.
(c) Each Seller shall indicate in its records that ownership of each
Purchased Receivable is held by the Purchaser or its assignee. In addition, each
Seller shall respond to any inquiries with respect to ownership of a Purchased
Receivable by stating that it is no longer the owner of such Receivable and that
ownership of such Purchased Receivable is held by the Purchaser or its assignee.
SECTION 2.03. Collections; Purchase Price.
(a) On the Business Day following the Closing Date, the Purchaser shall pay
each Seller an amount equal to the Purchase Price for all Receivables owned by
such Seller as of the close of business on the last Business Day of the Seller's
August Fiscal Month and sold to the Purchaser on the Closing Date. On each
Settlement Date, (i) the Collection Agent shall deposit into an account of the
Purchaser or the Purchaser's assignee all Collections of Purchased Receivables
received during the related Fiscal Month and then held by the Collection Agent,
and (ii) the Purchaser shall pay each Seller in respect of all Receivables sold,
transferred, absolutely assigned, set-over and conveyed by such Seller to the
Purchaser during the immediately preceding Fiscal Month (except for the first
Settlement Date, which shall relate only to Receivables sold, transferred,
absolutely assigned, set-over and conveyed after the Closing Date) an amount
equal to the aggregate Purchase Price of such Receivables. Each party's
obligation to make payment of any amount under this Section 2.03(a) will be
automatically satisfied and discharged and, if the aggregate amount that would
otherwise have been payable by one party exceeds the aggregate amount that would
otherwise have been payable by the other party, replaced by an obligation upon
the party by whom the larger aggregate amount would have been payable to pay to
the other party the excess of the larger aggregate amount over the smaller
aggregate amount.
(b) In the event that the Sellers' Agent believes that amounts which are
not Collections of Purchased Receivables have been deposited into an account of
the Purchaser or the Purchaser's assignee, the Sellers' Agent shall so advise
the Purchaser and, on the Business Day following such identification, the
Purchaser shall remit, or shall cause to be remitted, to the Sellers' Agent for
the account of the applicable Seller, all amounts so deposited which are
identified, to the Purchaser's satisfaction, as not being Collections of
Receivables which are Purchased Receivables.
SECTION 2.04. Settlement Procedures.
(a) If on any day the Outstanding Balance of any Purchased Receivable is
reduced or adjusted as a result of any defective, rejected, returned,
repossessed or foreclosed merchandise or services or any cash discount or other
adjustment made by a Seller, or any set-off or dispute in respect of any claim
by the Obligor thereof against a Seller (whether such claim arises out of the
same or a related transaction or an unrelated transaction but excluding
adjustments, reductions or
7
<PAGE>
cancellations in respect of such Obligor's bankruptcy, insolvency or similar
event), such Seller shall be deemed to have received on such day a Collection of
such Purchased Receivable in the amount of such reduction or adjustment. If such
Seller is not the Collection Agent, such Seller shall pay to the Collection
Agent on or prior to the next Settlement Date all amounts deemed to have been
received pursuant to this subsection during the related Fiscal Month.
(b) Upon discovery by a Seller or the Purchaser of a breach of any of the
representations and warranties made by such Seller in Section 4.01(j) with
respect to any Purchased Receivable transferred by such Seller, such party shall
give prompt written notice thereof to the other party, as soon as practicable
and in any event within three Business Days following such discovery. If such
breach cannot be cured, such Seller shall, upon not less than two Business Days'
notice from the Purchaser or its assignee or designee, repurchase such Purchased
Receivable on the next succeeding Settlement Date for a repurchase price equal
to the Outstanding Balance of such Purchased Receivable. Each repurchase of a
Purchased Receivable shall include the Related Security with respect to such
Purchased Receivable. The proceeds of any such repurchase shall be deemed to be
a Collection in respect of such Purchased Receivable. If such Seller is not the
Collection Agent, such Seller shall pay to the Collection Agent on or prior to
the next Settlement Date the repurchase price required to be paid pursuant to
this subsection.
(c) Except as stated in subsection (a) or (b) of this Section 2.04 or as
otherwise required by law or the underlying Contract, all Collections from an
Obligor of any Purchased Receivable shall be applied to the Receivables of such
Obligor in the order of the age of such Receivables, starting with the oldest
such Receivable, unless such Obligor designates its payment for application to
specific Receivables.
SECTION 2.05. Payments and Computations, Etc.
(a) All amounts to be paid or deposited by any Party hereunder shall be
paid or deposited no later than 11:00 A.M. (New York City time) on the day when
due in same day funds to the account specified by the recipient of such funds to
the payor as set forth in a written notice from time to time.
(b) Each Seller shall, to the extent permitted by law, pay to the Purchaser
interest on any amount not paid or deposited by such Seller (whether as
Collection Agent or otherwise) when due hereunder at an interest rate per annum
equal to 2.0% per annum above the Alternate Base Rate, payable on demand.
(c) All computations of interest and all computations of fees hereunder
shall be made on the basis of a year of 360 days for the actual number of days
(including the first but excluding the last day) elapsed. Whenever any payment
or deposit to be made hereunder shall be due on a day other than a Business Day,
such payment or deposit shall be made on the next succeeding
8
<PAGE>
Business Day and such extension of time shall be included in the computation of
such payment or deposit.
ARTICLE III
[reserved]
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
SECTION 4.01. Representations and Warranties of the Sellers.
Each Seller represents and warrants as follows:
(a) Such Seller is a corporation duly incorporated, validly existing and in
good standing under the laws of its jurisdiction of incorporation, and is duly
qualified to do business, and is in good standing, in every jurisdiction where
the nature of its business requires it to be so qualified.
(b) The execution, delivery and performance by such Seller of this
Agreement and the other documents to be delivered by it hereunder, including
such Seller's sale of Receivables hereunder and such Seller's use of the
proceeds of Purchases, (i) are within such Seller's corporate powers, (ii) have
been duly authorized by all necessary corporate action, (iii) do not contravene
(1) such Seller's charter or by-laws, (2) any law, rule or regulation applicable
to such Seller, (3) any contractual restriction binding on or affecting such
Seller or its property or (4) any order, writ, judgment, award, injunction or
decree binding on or affecting such Seller or its property, and (iv) do not
result in or require the creation of any Adverse Claim upon or with respect to
any of its properties (except for the transfer of such Seller's interest in the
Purchased Receivables pursuant to this Agreement). This Agreement has been duly
executed and delivered by such Seller.
(c) No authorization or approval or other action by, and no notice to or
filing with, any governmental authority or regulatory body is required for the
due execution, delivery and performance by such Seller of this Agreement or any
other document to be delivered by it hereunder other than the filings of
financing statements and similar documents contemplated in Section 5.01(k)(i).
(d) This Agreement constitutes the legal, valid and binding obligation of
such Seller enforceable against such Seller in accordance with its terms, except
as enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws
9
<PAGE>
affecting the enforcement of creditors' rights generally and by general
equitable principles (whether enforcement is sought by proceedings in equity or
at law).
(e) Each sale made pursuant to this Agreement will constitute a valid sale,
transfer, and assignment of the Purchased Receivables to the Purchaser,
enforceable against creditors of, and purchasers from, such Seller. Following
each such sale, such Seller shall have no remaining property interest in any
Purchased Receivable.
(f) The balance sheets of the Sellers' Agent and its consolidated
subsidiaries for the most recently ended fiscal year, and the related statements
of income and retained earnings of the Sellers' Agent and its consolidated
subsidiaries for such fiscal year, copies of which have been furnished to the
Purchaser, fairly present the financial condition of the Sellers' Agent and its
subsidiaries as at the date of such balance sheets and the results of the
operations of the Sellers' Agent and its consolidated subsidiaries for the
period ended on such date, all in accordance with generally accepted accounting
principles consistently applied, and since the date of such balance sheets there
has been no material adverse change in the business, operations, property or
financial or other condition of such Seller.
(g) There are no actions, suits or proceedings pending or, to the best
knowledge of such Seller, threatened (i) with respect to this Agreement or any
documentation executed in connection herewith or the transactions contemplated
hereby, (ii) with respect to the Credit Agreement or (iii) that are reasonably
likely to materially and adversely affect the business, property, assets,
condition (financial or otherwise) or prospects of Coltec Industries Inc or
Coltec Industries Inc and its Subsidiaries (as defined in the Sale Agreement)
taken as a whole. Such Seller is not in default with respect to any order of any
court, arbitration or governmental body, except for defaults that are not
material to the business or operation of Coltec Industries Inc and its
Subsidiaries (as defined in the Sale Agreement) taken as a whole.
(h) No proceeds of any Purchase will be used to acquire any equity security
of a class which is registered pursuant to Section 12 of the Securities Exchange
Act of 1934.
(i) No transaction contemplated hereby requires compliance with any bulk
sales act or similar law.
(j) Each Purchased Receivable, together with the Related Security, is owned
(prior to its sale hereunder) by such Seller free and clear of any Adverse Claim
(other than any Adverse Claim arising solely as the result of any action taken
by the Purchaser). When the Purchaser makes a Purchase and when a Seller sells a
Receivable to the Purchaser, the Purchaser shall acquire a valid and perfected
first priority ownership or security interest of each such Purchased Receivable
and the Related Security and Collections with respect thereto free and clear of
any Adverse Claim (other than any Adverse Claim arising solely as the result of
any action taken by the Purchaser), and no effective financing statement or
other instrument similar in effect covering any Purchased Receivable, any
interest therein, the Related Security or Collections with respect
10
<PAGE>
thereto is on file in any recording office except such as may be filed in favor
of Purchaser in accordance with this Agreement or in connection with any Adverse
Claim arising solely as the result of any action taken by the Purchaser.
(k) All written information and each exhibit, financial statement,
document, book, record or report furnished by such Seller to the Purchaser in
connection with this Agreement is accurate in all material respects as of its
date (except as otherwise disclosed in writing to the Purchaser at such time),
and no such document contains any untrue statement of a material fact or omits
to state a material fact necessary in order to make the statements contained
therein, in the light of the circumstances under which they were made, not
misleading.
(l) The principal place of business and chief executive office of such
Seller and the office where such Seller keeps its records concerning the
Purchased Receivables are located at the address or addresses referred to in
Section 5.01(b).
(m) The names and addresses of all the Lock-Box Banks, together with the
account numbers of the Lock-Box Accounts at such Lock-Box Banks, are specified
in Exhibit C (as the same may be updated from time to time pursuant to Section
5.01(h)), together with a notation indicating which such Lock-Box Accounts will
receive collections of Receivables that constitute Securitized Receivables.
(n) Except as specified in Schedule 4.01(n), such Seller is not known by
and does not use any tradename or doing-business-as name.
(o) The transfers of Purchased Receivables by such Seller to the Purchaser
pursuant to this Agreement, and all other transactions between such Seller and
the Purchaser, have been and will be made in good faith and without intent to
hinder, delay or defraud creditors of such Seller.
ARTICLE V
COVENANTS
SECTION 5.01. Covenants of the Sellers.
From the date hereof until the first day following the Facility Termination
Date on which all of the Purchased Receivables are either collected in full or
are written off the books of the Purchaser as uncollectible:
(a) Compliance with Laws, Etc. Each Seller will comply in all material
respects with all applicable laws, rules, regulations and orders and preserve
and maintain its corporate existence, rights, franchises, qualifications and
privileges except to the extent that the failure so
11
<PAGE>
to comply with such laws, rules and regulations or the failure so to preserve
and maintain such existence, rights, franchises, qualifications, and privileges
would not materially adversely affect the collectibility of the Purchased
Receivables or the ability of such Seller to perform its obligations under this
Agreement.
(b) Offices, Records and Books of Account. Each Seller will keep its
principal place of business and chief executive office and the office where it
keeps its records concerning the Purchased Receivables at the addresses set
forth in Schedule 5.01(b) hereto or, upon 30 days' prior written notice to the
Purchaser, at any other locations in jurisdictions where all actions required by
Section 5.01(k) shall have been taken and completed. Each Seller also will
maintain and implement administrative and operating procedures (including,
without limitation, an ability to recreate records evidencing Purchased
Receivables and related Contracts in the event of the destruction of the
originals thereof), and keep and maintain all documents, books, records and
other information reasonably necessary or advisable for the collection of all
Purchased Receivables (including, without limitation, records adequate to permit
the daily identification of each new Purchased Receivable and all Collections of
and adjustments to each existing Purchased Receivable). Each Seller shall make a
notation in its books and records, including its computer files, to indicate
which Receivables have been sold to the Purchaser hereunder.
(c) Performance and Compliance with Contracts and Credit and Collection
Policy. Each Seller will, at its expense, timely and fully perform and comply
with all material provisions, covenants and other promises required to be
observed by it under the Contracts related to the Purchased Receivables, and
timely and fully comply in all material respects with the Credit and Collection
Policy in regard to each Purchased Receivable and the related Contract.
(d) Sales, Liens, Etc. Except for the sales of Receivables contemplated
herein, each Seller will not sell, assign (by operation of law or otherwise) or
otherwise dispose of, or create or suffer to exist any Adverse Claim upon or
with respect to, any Purchased Receivable, Related Security or Collections, or
upon or with respect to any account to which any Collections of any Purchased
Receivable are sent, or assign any right to receive income in respect thereof;
provided, however, that the provisions of this paragraph shall not prevent the
existence of inchoate liens for taxes, assessments and governmental charges or
claims not yet due or being contested in good faith and by appropriate
proceedings; notwithstanding anything to the contrary, the Purchaser understands
that each Seller, each Sub-Collection Agent and the Collection Agent will not
segregate any Collections from other funds of such Person and that such
Collections will be commingled with other funds of such Persons in the Sellers'
Agent's cash management operations.
(e) Extension or Amendment of Purchased Receivables. Except as provided in
Section 6.02(c), each Seller will not extend, amend or otherwise modify the
terms of any Purchased Receivable.
12
<PAGE>
(f) Change in Business or in Credit and Collection Policy. No Seller will
make any change in either (i) the character of its business or (ii) its Credit
and Collection Policy if such change would impair the collectibility of the
Purchased Receivables.
(g) Audits. Each Seller will, from time to time during regular business
hours as requested by the Purchaser, permit the Purchaser and each Seller whose
Purchased Receivables at such time constitute Securitized Receivables will, from
time to time during regular business hours as requested by the Agent under the
Sale Agreement, permit the Agent under the Sale Agreement:
(i) to conduct an annual audit (or more frequently if an Event of
Termination occurs) of the Purchased Receivables, the Related Security and
the related books and records and collections systems of such Seller, the
first such audit by the Agent under the Sale Agreement shall occur prior to
March 1, 1998,
(ii) semi-annually (or more frequently if an Event of Termination
occurs) to examine and make copies of and abstracts from all books, records
and documents (including, without limitation, computer tapes and disks) in
the possession or under the control of the Collection Agent relating to
Purchased Receivables and the Related Security, including, without
limitation, the Contracts, and
(iii) semi-annually (or more frequently if an Event of Termination
occurs) to visit the offices and properties of the Collection Agent and
such Seller for the purpose of examining such materials described in clause
(ii) above, and to discuss matters relating to Purchased Receivables and
the Related Security or such Seller's or the Collection Agent's performance
hereunder with any of the officers or employees of such Seller or the
Collection Agent having knowledge of such matters.
(h) Change in Payment Instructions to Obligors. Each Seller whose
Receivables constitute Securitized Receivables will not add or terminate any
bank or bank account as a Lock-Box Bank or Lock-Box Account from those listed in
Exhibit C to this Agreement, or make any change in its instructions to Obligors
regarding payments to be made to any Lock-Box Bank, unless the Purchaser shall
have received notice of such addition, termination or change (including an
updated Exhibit C) and executed copies of Lock-Box Agreements with each new
Lock-Box Bank or with respect to each new Lock-Box Account.
(i) Deposits to Lock-Box Accounts. Each Seller of Receivables that
constitute Securitized Receivables will deposit, or cause to be deposited, all
Collections of Purchased Receivables that constitute Securitized Receivables
into Lock-Box Accounts, and such Seller will not deposit or otherwise credit, or
cause or permit to be so deposited or credited, to any Lock-Box Account cash or
cash proceeds other than Collections of Purchased Receivables that constitute
Securitized Receivables; provided, however, that notwithstanding the foregoing,
13
<PAGE>
failure to comply with the provisions hereof prior to December 19, 1997 shall
not be a breach of this subsection (i).
(j) Marking of Records. At its expense, each Seller will mark its master
data processing records evidencing Purchased Receivables with a legend
evidencing or otherwise mark its records to indicate that such Purchased
Receivables have been sold in accordance with this Agreement.
(k) Further Assurances.
(i) Each Seller agrees from time to time, at its expense, promptly to
execute and deliver all further instruments and documents, and to take all
further actions, that may be necessary or desirable, or that the Purchaser
or its assignee may reasonably request, to perfect, protect or more fully
evidence the sale of Receivables under this Agreement, or to enable the
Purchaser or its assignee to exercise and enforce its respective rights and
remedies under this Agreement. Without limiting the foregoing, such Seller
will, upon the request of the Purchaser or its assignee, (x) execute and
file such financing or continuation statements, or amendments thereto, and
such other instruments and documents, that may be necessary or desirable to
perfect, protect or evidence such Purchased Receivables; and (y) deliver to
the Purchaser copies of all Contracts (other than Long Term Contracts)
relating to the Purchased Receivables and all records relating to such
Contracts and the Purchased Receivables, whether in hard copy or in
magnetic tape or diskette format (which if in magnetic tape or diskette
format shall be compatible with the Purchaser's computer equipment).
(ii) Each Seller authorizes the Purchaser or its assignee to file
financing or continuation statements, and amendments thereto and
assignments thereof, relating to the Purchased Receivables and the Related
Security, the related Contracts and the Collections with respect thereto
without the signature of such Seller where permitted by law. A photocopy or
other reproduction of this Agreement shall be sufficient as a financing
statement where permitted by law.
(iii) Each Seller shall perform its obligations under the Contracts
related to the Purchased Receivables to the same extent as if the Purchased
Receivables had not been sold or transferred.
(l) Reporting Requirements. The Sellers' Agent will provide to the
Purchaser the following:
(i) as soon as available and in any event within 45 days after the end
of the first three quarters of each fiscal year of the Sellers' Agent
balance sheets of the Sellers' Agent and its consolidated subsidiaries as
of the end of such quarter and statements of income and retained earnings
of the Sellers' Agent and its subsidiaries for the period
14
<PAGE>
commencing at the end of the previous fiscal year and ending with the end
of such quarter, certified by the chief financial officer of the Sellers'
Agent;
(ii) as soon as available and in any event within 90 days after the
end of each fiscal year of the Sellers' Agent, a copy of the Annual Report
on Form 10-K for such year for the Sellers' Agent and its consolidated
subsidiaries, containing financial statements for such year audited by
Arthur Andersen & Co. or other nationally recognized independent public
accountants;
(iii) as soon as possible and in any event within five days after the
occurrence of each Event of Termination or event that, but for notice or
the lapse of time or both, would constitute an Event of Termination, a
statement of the chief financial officer of the Sellers' Agent setting
forth details of such Event of Termination or event that, but for notice or
the lapse of time or both, would constitute an Event of Termination and the
action that the Sellers' Agent has taken and proposes to take with respect
thereto;
(iv) promptly after the filing or receiving thereof, copies of all
reports and notices that the Sellers' Agent or any Affiliate files under
ERISA with the Internal Revenue Service or the Pension Benefit Guaranty
Corporation or the U.S. Department of Labor or that the Sellers' Agent or
any Affiliate receives from any of the foregoing or from any multiemployer
plan (within the meaning of Section 4001(a)(3) of ERISA) to which the
Sellers' Agent or any Affiliate is or was, within the preceding five years,
a contributing employer, in each case in respect of the assessment of
withdrawal liability or an event or condition which could, in the
aggregate, result in the imposition of liability on the Sellers' Agent
and/or any such Affiliate in excess of $1,000,000;
(v) at least ten Business Days prior to any change in each Seller's
name, a notice setting forth the new name and the effective date thereof;
and
(vi) such other information respecting the Purchased Receivables or
the condition or operations, financial or otherwise, of the Sellers as the
Purchaser may from time to time reasonably request.
(m) No Seller will direct or participate in the management of CNC Finance
LLC.
(n) Each Seller will: (i) maintain separate corporate records and books of
account from those of the Purchaser and CNC Finance LLC; (ii) conduct its
business from an office separate from that of the Purchaser and CNC Finance LLC,
which office may be located in identifiable space within the headquarters of any
such other Person; (iii) ensure that all oral and written communications,
including without limitation, letters, invoices, purchase orders, contracts,
statements and applications, will be made solely in its own name; (iv) have
stationery and other business forms and a telephone listing separate from those
of the Purchaser or CNC Finance LLC; (v) not hold itself out as having agreed to
pay, or as being liable for, the
15
<PAGE>
obligations of the Purchaser or CNC Finance LLC; (vi) continuously maintain as
official records the resolutions, agreements and other instruments underlying
the transactions contemplated by this Agreement; and (vii) disclose on its
annual financial statements the effects of the transactions contemplated by this
Agreement in accordance with generally accepted accounting principles.
SECTION 5.02. Covenant of the Sellers and the Purchaser.
The Sellers and the Purchaser have structured this Agreement with the
intention that each Purchase of Receivables hereunder be treated as a sale of
such Receivables by the Sellers to the Purchaser for all purposes. The Sellers
and the Purchaser shall record each Purchase as a sale or purchase, as the case
may be, on its books and records, and reflect, to the extent required or
permitted by applicable law and/or accounting rules, each Purchase in its
financial statements and tax returns as a sale or purchase, as the case may be.
In the event that, contrary to the mutual intent of the Sellers and the
Purchasers, any Purchase of Receivables hereunder is not characterized as a
sale, the Sellers shall, effective as of the date hereof, be deemed to have
granted (and the Sellers hereby do grant) to the Purchaser a first priority
security interest in and to any and all Purchased Receivables, Related Security
and the proceeds thereof to secure the repayment of all amounts advanced to the
Sellers hereunder with accrued interest thereon, and this Agreement shall be
deemed to be a security agreement.
ARTICLE VI
ADMINISTRATION AND COLLECTION
SECTION 6.01. Designation of Collection Agent.
(a) The servicing, administration and collection of the Purchased
Receivables other than the Securitized Receivables shall be conducted by such
Person (the "Collection Agent") so designated hereunder from time to time. The
Sellers' Agent is hereby designated as, and hereby agrees to perform the duties
and obligations of, the Collection Agent pursuant to the terms hereof until
receipt of written notice by the Seller's Agent, following the occurrence of an
Event of Termination, from the Purchaser or its assignee of the designation of a
new Collection Agent. The Collection Agent may, with the prior consent of the
Purchaser, subcontract with any other Person for the servicing, administration
or collection of Purchased Receivables. Any such subcontract shall not affect
the Collection Agent's liability for performance of its duties and obligations
pursuant to the terms hereof.
(b) It is the intent of the parties hereto that the servicing,
administration and collection of Securitized Receivables will be arranged for
pursuant to the terms and conditions of the Sale Agreement and related documents
upon the sale of the portion of the Purchased
16
<PAGE>
Receivables constituting Securitized Receivables by the Purchaser hereunder to
CNC Finance LLC.
SECTION 6.02. Duties of Collection Agent.
(a) The Collection Agent shall take or cause to be taken all such actions
as may be necessary or advisable to collect each Purchased Receivable from time
to time, all in accordance with applicable laws, rules and regulations, with
reasonable care and diligence, and in accordance with the Credit and Collection
Policy. The Purchaser hereby appoints the Collection Agent, from time to time
designated pursuant to Section 6.01, as agent to enforce its ownership and other
rights in the Purchased Receivables, the Related Security and the Collections
with respect thereto. In performing its duties as Collection Agent, the
Collection Agent shall exercise the same care and apply the same policies as it
would exercise and apply if it owned the Purchased Receivables and shall act in
the best interests of the Purchaser and its assignees.
(b) On or before the tenth Business Day after the end of each Fiscal Month,
the Collection Agent shall prepare and forward to the Purchaser (i) a Monthly
Report, relating to all then outstanding Purchased Receivables, and the Related
Security and Collections with respect thereto, in each case, as of the close of
business of the Collection Agent on the last day of the immediately preceding
Fiscal Month, and (ii) if requested by the Purchaser, a listing by Obligor of
all Purchased Receivables, together with an aging report of such Purchased
Receivables.
(c) The Collection Agent, may, in accordance with the Credit and Collection
Policy, extend the maturity or adjust the Outstanding Balance of any Purchased
Receivable or amend or otherwise modify the terms of any Purchased Receivable as
the Sellers' Agent deems appropriate to maximize Collections thereof.
(d) The Collection Agent shall as soon as practicable following receipt
turn over to the applicable Seller any cash collections or other cash proceeds
received with respect to Receivables not constituting Purchased Receivables sold
by such Seller, less, in the event the Sellers' Agent is not the Collection
Agent, all reasonable and appropriate out-of-pocket costs and expenses of the
Collection Agent of servicing, collecting and administering the Receivables to
the extent not covered by the Collection Agent Fee received by it.
(e) The Collection Agent also shall perform the other obligations of the
"Collection Agent" set forth in this Agreement with respect to the Purchased
Receivables.
SECTION 6.03. Collection Agent Fee.
The Purchaser shall pay to the Collection Agent, so long as it is acting as
the Collection Agent hereunder, a periodic collection fee (the "Collection Agent
Fee") of 1% per annum on the Outstanding Balance of all Purchased Receivables
(excluding Securitized Receivables) at the end of each Fiscal Month, payable in
arrears on each Settlement Date.
17
<PAGE>
SECTION 6.04. Certain Rights of the Purchaser.
(a) The Purchaser may, at any time, give notice of ownership and/or direct
the Obligors of Purchased Receivables and any Person obligated on any Related
Security, or any of them, that payment of all amounts payable under any
Purchased Receivable shall be made directly to the Purchaser or its designee.
Each Seller and the Collection Agent hereby transfers to the Purchaser (and its
assigns and designees) the exclusive ownership and control of the Lock-Box
Accounts maintained by such Seller and the Collection Agent for the purpose of
receiving Collections.
(b) Each Seller shall, at any time upon the Purchaser's request and at such
Seller's expense, give notice of such ownership to each Obligor of Purchased
Receivables and direct that payments of all amounts payable under such Purchased
Receivables be made directly to the Purchaser or its designee.
(c) At the Purchaser's request and at each Seller's expense, each Seller
shall (x) assemble all of the documents, instruments and other records
(including, without limitation, computer tapes and disks) that evidence or
relate to the Purchased Receivables acquired from such Seller, and the related
Contracts (excluding the Long Term Contracts themselves) and Related Security,
or that are otherwise necessary or desirable to collect the Purchased
Receivables, and shall make the same available to the Collection Agent at a
place selected by the Collection Agent, and (y) segregate all cash, checks and
other instruments received by it from time to time constituting Collections of
such Purchased Receivables in a manner acceptable to the Purchaser and, promptly
upon receipt, remit all such cash, checks and instruments, duly endorsed or with
duly executed instruments of transfer, to the Purchaser or its designee. The
Purchaser shall also have the right to make copies of all such documents,
instruments and other records at any time.
(d) At the Purchaser's request and at the Collection Agent's expense, the
Collection Agent shall (x) assemble all of the documents, instruments and other
records (including, without limitation, computer tapes and disks), maintained by
the Collection Agent that relate to the Purchased Receivables, and the related
Contracts (excluding the Long Term Contracts themselves) and Related Security,
and shall make the same available to the Purchaser at a place selected by the
Purchaser, and (y) segregate all cash, checks and other instruments received by
it from time to time constituting Collections of Purchased Receivables in a
manner acceptable to the Purchaser and, promptly upon receipt, remit all such
cash, checks and instruments, duly endorsed or with duly executed instruments of
transfer, to the Purchaser or its designee. The Purchaser shall also have the
right to make copies of all such documents, instruments and other records at any
time.
18
<PAGE>
SECTION 6.05. Rights and Remedies.
(a) If a Seller or the Collection Agent fails to perform any of its
obligations under this Agreement, the Purchaser may (but shall not be required
to) itself perform, or cause performance of, such obligation, and, if such
Seller (as Collection Agent or otherwise) fails to so perform, the costs and
expenses of the Purchaser incurred in connection therewith shall be payable by
such Seller or the Collection Agent, as the case may be, as provided in Section
8.01 or Section 9.04 as applicable.
(b) Each Seller shall perform all of its obligations under the Contracts
related to the Purchased Receivables to the same extent as if such Seller had
not sold Receivables hereunder and the exercise by the Purchaser of its rights
hereunder shall not relieve such Seller from such obligations or its obligations
with respect to the Purchased Receivables. The Purchaser shall not have any
obligation or liability with respect to any Purchased Receivables or related
Contracts, nor shall the Purchaser be obligated to perform any of the
obligations of such Seller thereunder.
(c) Each Seller shall cooperate with the Collection Agent in collecting
amounts due from Obligors in respect of the Purchased Receivables.
SECTION 6.06. Transfer of Records to Purchaser.
Each Purchase of Receivables hereunder shall include the transfer to the
Purchaser of all of the Seller's right and title to and interest in the records
relating to such Receivables.
Each Seller shall take such action requested by the Purchaser, from time to
time hereafter, that may be necessary or appropriate to ensure that the
Purchaser has an enforceable ownership interest in the records relating to the
Purchased Receivables.
SECTION 6.07. Designation of Sub-Collection Agents.
The Collection Agent hereby designates each Seller to perform, as agent of
the Collection Agent, the servicing, administration and collection of the
portion of the Purchased Receivables (excluding Securitized Receivables) owned
by the Purchaser that were acquired from such Seller. Until the Collection Agent
gives notice to a Sub-Collection Agent of the designation of a new
Sub-Collection Agent, each such Sub-Collection Agent is hereby designated as,
and hereby agrees to perform the duties and obligations of, a Sub-Collection
Agent pursuant to the terms hereof. Each such Sub-Collection Agent agrees that
such notice may be given at any time in the Collection Agent's discretion. Upon
receipt of such notice, the Sub-Collection Agent receiving such notice agrees
that it will terminate its activities as Sub-Collection Agent hereunder in a
manner which the Collection Agent believes will facilitate the transition of the
performance of such activities to a new Sub-Collection Agent or to the
Collection Agent, and such Sub-Collection Agent shall use its best efforts to
assist the new Sub-Collection Agent or to the Collection Agent to take over the
servicing, administration and collection of the Purchased
19
<PAGE>
Receivables then being serviced by such Sub-Collection Agent, including, without
limitation, providing access to and copies of all computer tapes or disks and
other documents or instruments that evidence or relate to such Purchased
Receivables maintained in its capacity as Sub-Collection Agent and access to all
employees and officers of such Sub-Collection Agent responsible with respect
thereto. The Collection Agent at any time after giving such notice may designate
as Sub-Collection Agent any Person (including itself) to succeed such
Sub-Collection Agent or any successor Sub-Collection Agent, if such Person shall
consent and agree to the terms hereof. The Collection Agent liability for
performance of its duties and obligations pursuant to the terms hereof shall not
be affected by the provision of this section.
SECTION 6.08. Duties of Sub-Collection Agent.
(a) Each Sub-Collection Agent shall take or cause to be taken all such
actions as may be necessary or advisable to collect each Purchased Receivable
that was sold by it to the Purchaser hereunder from time to time, all in
accordance with applicable laws, rules and regulations, with reasonable care and
diligence, and in accordance with the Credit and Collection Policy. The
Purchaser hereby appoints each Sub-Collection Agent, from time to time
designated pursuant to Section 6.07, as agent to enforce its ownership and other
rights in the Purchased Receivables sold by such Sub-Collection Agent hereunder
and the Related Security and the Collections with respect thereto. In performing
its duties as Sub-Collection Agent, each Sub-Collection Agent shall exercise the
same care and apply the same policies as it would exercise and apply if it owned
such Purchased Receivables and shall act in the best interests of the Purchaser
and its assignees.
(b) On or before the tenth Business Day after the end of each Fiscal Month,
each Sub-Collection Agent shall prepare and forward to the Purchaser (i) a
Monthly Report, relating to all then outstanding Purchased Receivables sold by
such Sub-Collection Agent hereunder and the Related Security and Collections
with respect thereto, in each case, as of the close of business of such
Sub-Collection Agent on the last day of the immediately preceding Fiscal Month,
and (ii) if requested by the Purchaser, a listing by Obligor of all Purchased
Receivables, together with an aging report of such Purchased Receivables.
(c) A Sub-Collection Agent, may, in accordance with the Credit and
Collection Policy, extend the maturity or adjust the Outstanding Balance of any
Purchased Receivable that was sold by it to the Purchaser hereunder or amend or
otherwise modify the terms of any Purchased Receivable that was sold by it to
the Purchaser hereunder as such Seller deems appropriate to maximize Collections
thereof.
(d) Each Sub-Collection Agent shall retain for the benefit of the
Collection Agent and shall hold in trust, for the Purchaser, all documents,
instruments and records (including, without limitation, computer tapes or disks)
which evidence or relate to Purchased Receivables sold by such Sub-Collection
Agent hereunder.
20
<PAGE>
(e) Each Sub-Collection Agent shall retain any cash collections or other
cash proceeds received by it with respect to Receivables not constituting
Purchased Receivables sold by it hereunder, unless such Collections or proceeds
related to Purchased Receivables sold by a different Sub-Collection Agent, in
which case, such collections or proceeds shall constitute Collections of such
Purchased Receivables and shall be forthwith paid to the Purchaser.
SECTION 6.09. Sub-Collection Agent Fee.
The Collection Agent shall pay to each Sub-Collection Agent, so long as it
is acting as the Sub-Collection Agent hereunder, a periodic fee (the
"Sub-Collection Agent Fee") of 1% per annum on the Outstanding Balance of all
Purchased Receivables at the end of each Fiscal Month for which such
Sub-Collection Agent has the servicing, administration and collection
responsibilities, payable in arrears on each Settlement Date.
ARTICLE VII
EVENTS OF TERMINATION
SECTION 7.01. Events of Termination.
If any of the following events ("Events of Termination") shall occur and be
continuing:
(a) The Sellers' Agent shall fail (i) to transfer to the Purchaser when
requested any rights, pursuant to this Agreement, which the Sellers' Agent then
has as Collection Agent and such failure shall have a material adverse effect
upon the interest of the Purchaser and shall remain unremedied for thirty (30)
days after written notice thereof shall have been given to the Sellers' Agent by
the Purchaser, or (ii) to make any payment required under Section 2.04(a) or
2.04(b); or
(b) Any representation or warranty made or deemed made by a Seller (or any
of its officers) under or in connection with this Agreement or any written
information or report delivered by a Seller pursuant to this Agreement shall
prove to have been incorrect or untrue in any material respect when made or
deemed made or delivered and such breach shall have a material adverse effect
upon the interest of the Purchaser and shall remain unremedied for thirty (30)
days after written notice thereof shall have been given to the Sellers' Agent by
the Purchaser; or
(c) A Seller shall fail to perform or observe any other term, covenant or
agreement contained in this Agreement on its part to be performed or observed
and any such failure shall remain unremedied for thirty (30) days after written
notice thereof shall have been given to the Sellers' Agent by the Purchaser (or,
with respect to a failure to deliver the Monthly Report pursuant to this
Agreement, such failure shall remain unremedied for five days, without a
21
<PAGE>
requirement for notice) and such failure shall have a material adverse effect on
the interest of the Purchaser; or
(d) Any Purchase of Receivables hereunder, the Related Security and the
Collections with respect thereto shall for any reason cease to constitute valid
and perfected ownership interest or security interest in such Purchased
Receivables, Related Security and Collections free and clear of any Adverse
Claim; or
(e) A Seller or any of its subsidiaries shall generally not pay its debts
as such debts become due, or shall admit in writing its inability to pay its
debts generally, or shall make a general assignment for the benefit of
creditors; or any proceeding shall be instituted by or against a Seller or any
of its subsidiaries seeking liquidation, winding up, reorganization,
arrangement, adjustment, protection, relief, or composition of it or its debts
under any law relating to bankruptcy, insolvency or reorganization or relief of
debtors, or seeking the entry of an order for relief or the appointment of a
receiver, trustee, custodian or other similar official for it or for any
substantial part of its property and, in the case of any such proceeding
instituted against it (but not instituted by it), either such proceeding shall
remain undismissed or unstayed for a period of sixty (60) days, or any of the
actions sought in such proceeding (including, without limitation, the entry of
an order for relief against, or the appointment of a receiver, trustee,
custodian or other similar official for, it or for any substantial part of its
property) shall occur; or the Seller or any of its subsidiaries shall take any
corporate action to authorize any of the actions set forth above in this
subsection (e); or
(f) The occurrence of an Event of Default under the Credit Agreement, and
such Event of Default shall remain unremedied for five (5) days after written
notice thereof shall have been given to the Sellers' Agent by the Purchaser; or
(g) An Event of Termination shall have occurred under the Sale Agreement;
then, and in any such event, the Purchaser may, by notice to the Sellers' Agent,
declare the Facility Termination Date to have occurred (in which case the
Facility Termination Date shall be deemed to have occurred); provided, that,
automatically upon the occurrence of any event (without any requirement for the
passage of time or the giving of notice) described in paragraph (e) of this
Section 7.01, the Facility Termination Date shall occur. Upon any such
declaration or designation or upon such automatic termination, the Purchaser
shall have, in addition to the rights and remedies under this Agreement, all
other rights and remedies with respect to the Purchased Receivables provided
after default under the UCC and under other applicable law, which rights and
remedies shall be cumulative.
SECTION 7.02 Individual Seller Termination.
Except for any Seller constituting a division of Coltec Industries Inc,
if all or, in the case of Garlock Bearings Inc., 80% or more, of the outstanding
capital stock of a Seller shall cease to
22
<PAGE>
be owned, directly or indirectly, by Coltec Industries Inc, such Seller shall
immediately cease selling Receivables and the Purchaser shall immediately cease
purchasing such Seller's Receivables hereunder.
ARTICLE VIII
INDEMNIFICATION
SECTION 8.01. Indemnities.
Without limiting any other rights which the Purchaser may have hereunder or
under applicable law, each Seller, severally and not jointly, and Coltec,
jointly and severally with each other Seller, hereby agree to indemnify the
Purchaser and its assigns and transferees (each, an "Indemnified Party") from
and against any and all damages, claims, losses, liabilities and related costs
and expenses, including reasonable attorneys' fees and disbursements (all of the
foregoing being collectively referred to as "Indemnified Amounts"), awarded
against or incurred by any Indemnified Party arising out of or as a result of:
(i) any representation or warranty or statement made or deemed made by
such Seller (or any of its officers) under or in connection with this
Agreement, which shall have been incorrect in any material respect when
made;
(ii) the failure by such Seller to comply with any applicable law,
rule or regulation with respect to any Purchased Receivable sold by such
Seller; or the failure of any Purchased Receivable sold by such Seller or
the related Contract to conform to any such applicable law, rule or
regulation;
(iii) the failure to vest in the Purchaser absolute ownership of the
Receivables that are, or that purport to be, the subject of a Purchase from
such Seller under this Agreement and the Related Security and Collections
in respect thereof, free and clear of any Adverse Claim;
(iv) the failure of such Seller to have filed, or any delay in filing,
financing statements or other similar instruments or documents under the
UCC of any applicable jurisdiction or other applicable laws with respect to
any Receivables that are, or that purport to be, the subject of a Purchase
sold by such Seller under this Agreement and the Related Security and
Collections in respect thereof, whether at the time of any Purchase from
such Seller or at any subsequent time;
(v) any dispute, claim, offset or defense (other than discharge in
bankruptcy of the Obligor) of the Obligor to the payment of any Receivable
that
23
<PAGE>
is, or that purports to be, the subject of a Purchase from such Seller
under this Agreement (including, without limitation, a defense based on
such Receivable or the related Contract not being a legal, valid and
binding obligation of such Obligor enforceable against it in accordance
with its terms), or any other claim resulting from the sale of the
merchandise or services related to such Receivable or the furnishing or
failure to furnish such merchandise or services or relating to collection
activities with respect to such Receivable (if such collection activities
were performed by such Seller acting as Sub-Collection Agent) except to the
extent that such dispute, claim, offset or defense results solely from
actions or failures to act of the Purchaser or its assigns;
(vi) any failure of such Seller, as Sub-Collection Agent or otherwise,
to perform its duties or obligations in accordance with the provisions
hereof or to perform its duties or obligations under any Contract related
to a Purchased Receivable sold by such Seller;
(vii) any products liability or other claim arising out of or in
connection with merchandise, insurance or services which are the subject of
any Contract related to a Purchased Receivable sold by such Seller;
(viii) the commingling by such Seller or an affiliate of such Seller
of Collections of Purchased Receivables sold by such Seller, at any time
with other funds of such Seller or an Affiliate of such Seller;
(ix) any investigation, litigation or proceeding related solely to
this Agreement or the ownership of Purchased Receivables sold by such
Seller and the Related Security, or Collections with respect thereto or in
respect of any Purchased Receivable sold by such Seller and the Related
Security or related Contract, except to the extent any such investigation,
litigation or proceeding relates to a possible matter involving an
Indemnified Party for which neither such Seller nor any of its Affiliates
is at fault;
(x) any failure of such Seller to comply with its covenants contained
in Section 5.01;
(xi) any claim brought by any Person other than an Indemnified Party
arising from any activity by such Seller or any Affiliate of such Seller in
servicing, administering or collecting any Purchased Receivable sold by
such Seller; or
(xii) any Dilution with respect to any Purchased Receivable sold by
such Seller.
24
<PAGE>
It is expressly agreed and understood by the parties hereto (i) that the
foregoing indemnification is not intended to, and shall not, constitute a
guarantee of the collectibility or payment of the Purchased Receivables and (ii)
that nothing in this Section 8.01 shall require a Seller to indemnify any Person
(x) for Receivables which are not collected, not paid or uncollectible on
account of the insolvency, bankruptcy, or financial inability to pay of the
applicable Obligor, (y) for damages, losses, claims or liabilities or related
costs or expenses resulting from such Person's gross negligence or willful
misconduct, or (z) for any income taxes or franchise taxes incurred by such
Person arising out of or as a result of this Agreement or in respect of any
Purchased Receivable or any Contract.
ARTICLE IX
MISCELLANEOUS
SECTION 9.01. Amendments, Etc.
No amendment or waiver of any provision of this Agreement or consent to any
departure by a Seller therefrom shall be effective unless in a writing signed by
the Purchaser and, in the case of any amendment, also signed by the Sellers'
Agent, and then such amendment, waiver or consent shall be effective only in the
specific instance and for the specific purpose for which given. No failure on
the part of the Purchaser to exercise, and no delay in exercising, any right
hereunder shall operate as a waiver thereof; nor shall any single or partial
exercise of any right hereunder preclude any other or further exercise thereof
or the exercise of any other right.
SECTION 9.02. Notices, Etc.
All notices and other communications hereunder shall, unless otherwise
stated herein, be in writing (which shall include electronic transmission) shall
be personally delivered, express couriered, electronically transmitted (whether
by facsimile, e-mail or otherwise) or mailed by registered or certified mail and
shall, unless otherwise expressly provided herein, be effective when received at
the address set forth under a party's name on the signature pages hereof or at
such other address as shall be designated by such party in a written notice to
the other parties hereto.
SECTION 9.03. Binding Effect; Assignability.
(a) This Agreement shall be binding upon and inure to the benefit of
the Sellers, the Purchaser and their respective successors and assigns;
provided, however, that a Seller may not assign its rights or obligations
hereunder or any interest herein without the prior written consent of the
Purchaser.
25
<PAGE>
(b) This Agreement shall create and constitute the continuing
obligations of the parties hereto in accordance with its terms, and shall
remain in full force and effect until such time, after the Facility
Termination Date, when all of the Purchased Receivables are either
collected in full or become Defaulted Receivables; provided, however, that
rights and remedies with respect to any breach of any representation and
warranty made by the Seller pursuant to Article IV and the provisions of
Article VIII and Section 9.04 shall be continuing and shall survive any
termination of this Agreement.
SECTION 9.04. Costs, Expenses and Taxes.
(a) In addition to the rights of indemnification granted to the
Purchaser pursuant to Article VIII hereof, each Seller agrees to pay on
demand all costs and expenses in connection with the preparation, execution
and delivery of this Agreement and the other documents and agreements to be
delivered hereunder, including, without limitation, the reasonable fees and
out-of-pocket expenses of counsel for the Purchaser with respect thereto
and with respect to advising the Purchaser as to its rights and remedies
under this Agreement, and each Seller agrees to pay all costs and expenses,
if any (including reasonable counsel fees and expenses), in connection with
the enforcement of this Agreement against such Seller and the other
documents to be delivered hereunder excluding, however, any costs of
enforcement or collection of Purchased Receivables.
(b) In addition, each Seller agrees to pay any and all stamp and other
taxes and fees payable in connection with the execution, delivery, filing
and recording of this Agreement or the other documents or agreements to be
delivered hereunder with respect to such Seller, and each Seller agrees to
save each Indemnified Party harmless from and against any liabilities with
respect to or resulting from any delay in paying or omission to pay such
taxes and fees.
SECTION 9.05. [reserved]
SECTION 9.06. [reserved]
SECTION 9.07. Governing Law.
THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE
LAWS OF THE STATE OF NORTH CAROLINA (WITHOUT GIVING EFFECT TO THE CONFLICT OF
LAWS PRINCIPLES THEREOF), EXCEPT TO THE EXTENT THAT THE PERFECTION OF THE
PURCHASER'S OWNERSHIP OF OR SECURITY INTEREST IN THE RECEIVABLES OR REMEDIES
HEREUNDER, IN RESPECT THEREOF, ARE GOVERNED BY THE LAWS OF A JURISDICTION OTHER
THAN THE STATE OF NORTH CAROLINA.
26
<PAGE>
SECTION 9.08. Third Party Beneficiary.
Each of the parties hereto hereby acknowledges that the Purchaser is
transferring the Securitized Receivables and certain of its rights under this
Agreement to CNC Finance LLC under the Receivables Purchase and Contribution
Agreement, dated as of the date hereof (the "CNCI Purchase Agreement") between
the Purchaser and CNC Finance LLC and that CNC Finance LLC is transferring an
interest in the Securitized Receivables and certain of its rights under the CNCI
Purchase Agreement pursuant to the Sale Agreement and each Seller hereby
consents to all such transfers and assignments. CNC Finance LLC and the other
parties to the Sale Agreement shall be third-party beneficiaries of and shall,
following the occurrence of an Event of Termination under the Sale Agreement, be
entitled to enforce the Purchaser's rights and remedies under this Agreement
solely with respect to the Securitized Receivables to the same extent as if they
were parties hereto, except to the extent specifically limited under the terms
of the CNCI Purchase Agreement or the Sale Agreement.
SECTION 9.09. Execution in Counterparts.
This Agreement may be executed in any number of counterparts, each of which
when so executed shall be deemed to be an original and all of which when taken
together shall constitute one and the same agreement. Delivery of an executed
counterparty of a signature page to this Agreement by facsimile shall be
effective as delivery of a manually executed counterpart of this Agreement.
[Remainder of Page Intentionally Left Blank]
27
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
by their respective officers thereunto duly authorized, as of the date first
above written.
SELLERS: COLTEC INDUSTRIES INC, as a Seller,
as Collection Agent and as Seller's Agent
By: ___________________________________________
Name:: ________________________________________
Title: ________________________________________
Address:
3 Coliseum Centre
2550 West Tyvola Road
Charlotte, North Carolina 28217
Attention: Thomas B. Jones, Jr.,
Treasury Department
Facsimile No.: (704) 423-7069
Account Information:
_____________________
[INSERT OTHER SELLERS]
PURCHASER: COLTEC NORTH CAROLINA INC
By: ___________________________________________
Name:: ________________________________________
Title: ________________________________________
Address:
3 Coliseum Centre
2550 West Tyvola Road
Charlotte, North Carolina 28217
Attention: Thomas B. Jones, Jr.,
Treasury Department
Facsimile No.: (704) 423-7069
<PAGE>
EXHIBIT A
FORM OF OPINION OF COUNSEL FOR THE SELLERS
<PAGE>
EXHIBIT B
CREDIT AND COLLECTION POLICY
<PAGE>
EXHIBIT C
LOCK-BOX BANKS
Bank Name Contains Collections of
and Address Account No. Securitized Receivables
- ----------- ----------- -----------------------
<PAGE>
Attachment 1
To
Receivables Transfer and
Administration Agreement
[FORM OF SALE ASSIGNMENT]
SALE ASSIGNMENT, dated as of ______________ ___ 19___, between [SELLER]
(the "Seller") and Coltec North Carolina Inc ("CNCI").
1. We refer to the Receivables Transfer and Administration Agreement, dated
as of September _, 1997, by and among Coltec Industries Inc, the Seller, certain
affiliates of Coltec Industries Inc and CNCI (the "Agreement"). All provisions
of the Agreement are incorporated herein by reference. All capitalized terms
shall have the meanings set forth in the Agreement.
2. The Seller does hereby sell, transfer, absolutely assign, set over
and convey to CNCI, without recourse, all right, title and interest of the
Seller in and to all Receivables from time to time arising and owned by the
Seller.
3. The Seller does hereby make the representations and warranties referred
to in Section 4.01 of the Agreement with respect to each Purchased Receivable
with full force and effect as if fully set forth herein.
IN WITNESS WHEREOF, the parties have caused this Sale Assignment to be
executed by their respective officers thereunto duly authorized, as of the date
first above written.
[SELLER]
By: _________________________________
Name:
Title:
COLTEC NORTH CAROLINA INC
By: _________________________________
Name:
Title:
<PAGE>
Schedule 4.01(n)
List of Tradenames
3
<PAGE>
SELLERS: AMI INDUSTRIES, INC., as a Seller
By: _______________________________________
Name: _____________________________________
Title: ____________________________________
Address:
___________________________________________
Attention: ________________________________
Facsimile No.: (___) ___-____
Account Information:
____________________
COLTEC CANADA INC, as a Seller
By: _______________________________________
Name: _____________________________________
Title: ____________________________________
Address:
___________________________________________
Attention: ________________________________
Facsimile No.: (___) ___-____
Account Information:
____________________
4
<PAGE>
COLTEC INDUSTRIAL PRODUCTS, as a Seller
By: _______________________________________
Name: _____________________________________
Title: ____________________________________
Address:
___________________________________________
Attention: ________________________________
Facsimile No.: (___) ___-____
Account Information:
____________________
DELAVAN-DELTA INC, as a Seller
By: _______________________________________
Name: _____________________________________
Title: ____________________________________
Address:
___________________________________________
Attention: ________________________________
Facsimile No.: (___) ___-____
Account Information:
____________________
5
<PAGE>
DELAVAN INC, as a Seller
By: _______________________________________
Name: _____________________________________
Title: ____________________________________
Address:
___________________________________________
Attention: ________________________________
Facsimile No.: (___) ___-____
Account Information:
____________________
GARLOCK BEARINGS INC, as a Seller
By: _______________________________________
Name: _____________________________________
Title: ____________________________________
Address:
___________________________________________
Attention: ________________________________
Facsimile No.: (___) ___-____
Account Information:
____________________
6
<PAGE>
GARLOCK INC, as a Seller
By: _______________________________________
Name: _____________________________________
Title: ____________________________________
Address:
___________________________________________
Attention: ________________________________
Facsimile No.: (___) ___-____
Account Information:
____________________
HOLLEY PERFORMANCE PRODUCTS, as a
Seller
By: _______________________________________
Name: _____________________________________
Title: ____________________________________
Address:
___________________________________________
Attention: ________________________________
Facsimile No.: (___) ___-____
Account Information:
____________________
7
<PAGE>
MENASCO AEROSYSTEMS INC, as a Seller
By: _______________________________________
Name: _____________________________________
Title: ____________________________________
Address:
___________________________________________
Attention: ________________________________
Facsimile No.: (___) ___-____
Account Information:
____________________
STEMCO INC, as a Seller
By: _______________________________________
Name: _____________________________________
Title: ____________________________________
Address:
___________________________________________
Attention: ________________________________
Facsimile No.: (___) ___-____
Account Information:
____________________
8
<PAGE>
WALBAR INC, as a Seller
By: _______________________________________
Name: _____________________________________
Title: ____________________________________
Address:
___________________________________________
Attention: ________________________________
Facsimile No.: (___) ___-____
Account Information:
____________________
9
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
by their respective officers thereunto duly authorized, as of the date first
above written.
SELLERS: COLTEC INDUSTRIES INC, as a Seller,
as Collection Agent, and as Sellers' Agent
By:____________________________________________
Name:__________________________________________
Title:_________________________________________
Address:
3 Coliseum Centre
2550 West Tyvola Road
Charlotte, North Carolina 28217
Attention: Thomas B. Jones, Jr.,
Treasury Department
Facsimile No.: (704) 423-7069
Account Information:
______________
PURCHASER: COLTEC NORTH CAROLINA INC
By:____________________________________________
Name:__________________________________________
Title:_________________________________________
Address:
3 Coliseum Centre
2550 West Tyvola Road
Charlotte, North Carolina 28217
Attention: Thomas B. Jones, Jr.,
Treasury Department
Facsimile No.: (704) 423-7069
Account Information:
______________
10
<PAGE>
EXECUTION COPY
[CANADIAN SUBSIDIARIES]
- --------------------------------------------------------------------------------
RECEIVABLES TRANSFER AND ADMINISTRATION AGREEMENT
Dated as of September 19, 1997
Among
COLTEC INDUSTRIES INC
as Sellers' Agent
certain Canadian subsidiaries and affiliates of
Coltec Industries Inc
as Sellers
and
COLTEC NORTH CAROLINA INC
as Purchaser
- --------------------------------------------------------------------------------
<PAGE>
i
TABLE OF CONTENTS
Page
----
ARTICLE I DEFINITIONS........................................................1
SECTION 1.01. Certain Defined Terms..................................1
SECTION 1.02. Other Terms............................................6
ARTICLE II AMOUNTS AND TERMS OF PURCHASES....................................6
SECTION 2.01. Facility...............................................6
SECTION 2.02. Making Purchases.......................................6
SECTION 2.03. Collections; Purchase Price............................7
SECTION 2.04. Settlement Procedures..................................7
SECTION 2.05. Payments and Computations, Etc.........................8
SECTION 2.06. Annual Rates of Interest...............................9
ARTICLE III [reserved].......................................................9
ARTICLE IV REPRESENTATIONS AND WARRANTIES....................................9
SECTION 4.01. Representations and Warranties of the Sellers..........9
ARTICLE V COVENANTS ........................................................12
SECTION 5.01. Covenants of the Sellers..............................12
SECTION 5.02. Covenant of the Sellers and the Purchaser.............16
ARTICLE VI ADMINISTRATION AND COLLECTION....................................17
SECTION 6.01. Undertaking to Collect and Administer Receivables.....17
SECTION 6.02. Duties................................................17
SECTION 6.03. Certain Rights of the Purchaser.......................18
SECTION 6.04. Rights and Remedies...................................19
SECTION 6.05. Transfer of Records to Purchaser......................19
ARTICLE VII EVENTS OF TERMINATION...........................................20
SECTION 7.01. Events of Termination.................................20
SECTION 7.02 Individual Seller Termination.........................21
ARTICLE VIII INDEMNIFICATION.21
SECTION 8.01. Indemnities...........................................21
ARTICLE IX MISCELLANEOUS.....23
SECTION 9.01. Amendments, Etc.......................................23
SECTION 9.02. Notices, Etc..........................................24
SECTION 9.03. Binding Effect; Assignability.........................24
SECTION 9.04. Costs, Expenses and Taxes.............................24
SECTION 9.05. [reserved]............................................25
i
<PAGE>
SECTION 9.06. [reserved]............................................25
SECTION 9.07. Governing Law.........................................25
SECTION 9.08. Third Party Beneficiary...............................25
SECTION 9.09. Execution in Counterparts.............................26
EXHIBITS(a)
EXHIBIT A Form of Opinion of Counsel for the Sellers
EXHIBIT B Credit and Collection Policy
EXHIBIT C Lock-Box Banks
Attachment 1 - Form of Sale Assignment
SCHEDULES
Schedule 4.01(n) List of Tradenames
Schedule 5.01(b) Addresses of Sellers
ii
<PAGE>
RECEIVABLES TRANSFER AND ADMINISTRATION AGREEMENT
RECEIVABLES TRANSFER AND ADMINISTRATION AGREEMENT, dated as of September
19, 1997 (this "Agreement"), by and among COLTEC INDUSTRIES INC, a Pennsylvania
corporation ("Coltec"), as agent for the Sellers (the "Sellers' Agent"), each of
the persons listed on the signature page to this Agreement under the heading
"Sellers" (each a "Seller" and collectively, the "Sellers") and COLTEC NORTH
CAROLINA INC, a North Carolina corporation (the "Purchaser").
PRELIMINARY STATEMENTS
1. Certain terms which are capitalized and used throughout this Agreement
(in addition to those defined above) are defined in Article I of this Agreement.
2. Each Seller has Receivables that it wishes to sell to the Purchaser, and
the Purchaser is prepared to purchase such Receivables on the terms set forth
herein.
3. The Purchaser wishes to engage each of the Sellers to perform certain
collection and administration duties with respect to the Receivables acquired by
the Purchaser from such Seller.
NOW, THEREFORE, the parties agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.01. Certain Defined Terms.
As used in this Agreement, the following terms shall have the following
meanings (such meanings to be equally applicable to both the singular and plural
forms of the terms defined):
Adverse Claim: means a lien, security interest, or other charge or encumbrance,
or any other type of preferential arrangement other than inchoate liens, such as
for taxes not yet due.
Affiliate: means, as to any Person, any other Person that, directly or
indirectly, is in control of, is controlled by or is under common control with
such Person or is a director or officer of such Person.
Alternate Base Rate: means a fluctuating interest rate per annum as shall be in
effect from time to time, which rate shall be at all times equal to the lower
of:
(a) the rate of interest announced publicly by Credit Lyonnais New York
Branch in New York, New York, from time to time as its prime rate, less 1.50%
and
<PAGE>
(b) the Federal Funds Rate plus 0.50%.
Business Day: means any day on which banks are not authorized or required to
close in the cities of New York, New York; Charlotte, North Carolina; or
Toronto, Ontario, Canada.
Closing Date: means September 22, 1997.
Collections: means, with respect to any Receivable, all cash collections and
other cash proceeds of such Receivable, including, without limitation, all cash
proceeds of Related Security with respect to such Receivable, and all funds
deemed to have been received by the Seller or any other Person as a Collection
pursuant to Section 2.04, but excluding any amounts representing GST.
Contract: means an agreement between the Seller and an Obligor pursuant to or
under which such Obligor shall be obligated to pay for merchandise or services
from time to time.
Credit Agreement: means the credit agreement, dated as of March 24, 1992, as
amended and restated as of January 11, 1994 and as further amended and restated
as of December 18, 1996, supplemented or restated from time to time, among
Coltec Industries Inc, various banks, Bankers Trust Company, as administrative
agent, Bank of America Illinois, as documentation agent, and The Chase Manhattan
Bank, as syndication agent.
Credit and Collection Policy: means those receivables credit and collection
policies and practices of the Sellers in effect on the date of this Agreement
applicable to the Receivables and described in Exhibit B hereto, as modified in
compliance with this Agreement.
Defaulted Receivable: means a Receivable:
(i) as to which any payment, or part thereof, remains unpaid for 60
days (or 90 days, subject to receipt by the Sellers' Agent of the
Purchaser's written consent following revision by the Sellers of their
reporting systems to further specify the aging of the Receivables) from the
original due date for such payment;
(ii) as to which the Obligor thereof or any other Person obligated
thereon or owning any Related Security in respect thereof has taken any
action, or suffered any event to occur, of the type described in Section
7.01(e); or
(iii) which, consistent with the Credit and Collection Policy, would
be written off as uncollectible.
Dilution: means, with respect to any Receivable, the aggregate amount of any
reductions or adjustments in the Outstanding Balance of such Receivable as a
result of any defective, rejected, returned, repossessed or foreclosed
merchandise or services or any cash discount or other adjustment or setoff.
2
<PAGE>
Discount Percentage: means, with respect to any Seller on any day prior to the
day on which the Sellers' Agent completes its initial fair market valuation
methodology, 2.50% and, thereafter, shall mean for each Fiscal Month the
percentage set forth in such fair market valuation methodology with respect to
such Seller, as adjusted periodically from time to time.
Event of Termination: has the meaning specified in Section 7.01.
Facility: means the commitment of the Purchaser to make Purchases of Receivables
from the Sellers pursuant to the terms of this Agreement.
Facility Termination Date: means the earlier of (i) the date of termination of
the Facility pursuant to Section 7.01 and (ii) the date which the Sellers' Agent
designates by at least two Business Days' notice to the Purchaser.
Federal Funds Rate: means, for any period, a fluctuating interest rate per annum
equal for each day during such period to the weighted average of the rates on
overnight federal funds transactions with members of the Federal Reserve System
arranged by federal funds brokers, as published for such day (or, if such day is
not a Business Day, for the next preceding Business Day) by the Federal Reserve
Bank of New York, or, if such rate is not so published for any day which is a
Business Day, the average of the quotations for such day on such transactions
received by the Agent under the Sale Agreement from three federal funds brokers
of recognized standing selected by it.
Fiscal Month: means each period specified as a "Fiscal Month" by the Seller's
Agent to the Purchaser on a schedule provided as of the beginning of each fiscal
year of the Seller's Agent.
General Trial Balance: of a Seller on any date means such Seller's accounts
receivable trial balance (whether in the form of a computer printout, magnetic
tape or diskette) on such date, listing Obligors and the Receivables
respectively owed by such Obligors on such date together with the aged
Outstanding Balances of such Receivables, in form and substance satisfactory to
the Purchaser.
GST: means any tax imposed under Part IX of the Excise Tax Act (Canada) and any
other similar goods and services tax or value added tax or other sales tax
imposed by a Canadian province including Quebec Sales Tax.
Indemnified Amounts: has the meaning specified in Section 8.01.
Lock-Box Account: means one or more accounts maintained for the purpose of
receiving Collections.
Lock-Box Agreement: means an agreement relating to a Lock-Box Account between a
Seller and any Lock-Box Bank in form and substance satisfactory to the Purchaser
(or its assignees or designees).
3
<PAGE>
Lock-Box Bank: means any of the banks or other financial institutions holding
one or more Lock-Box Accounts.
Long Term Contract: means any agreement between a Seller and an Obligor pursuant
to or under which such Obligor shall be obligated to pay for merchandise or
services from time to time, the term of which exceeds 12 months.
Monthly Report: means a report, in form and substance satisfactory to the
Purchaser, furnished by each Seller to the Purchaser pursuant to Section
6.02(b).
Obligor: means a Person obligated to make payments to a Seller pursuant to a
Contract.
Outstanding Balance: of any Receivable on any date means the outstanding
principal balance thereof on such date.
Person: means an individual, partnership, corporation (including a business
trust), joint stock company, limited liability company, trust, unincorporated
association, joint venture or other entity, or a government or any political
subdivision or agency thereof.
PPSA: The Personal Property Security Act (Ontario), as amended from time to
time.
Purchase: means a purchase by the Purchaser of Receivables from a Seller
pursuant to Article II.
Purchase Price: means, for any Receivable sold by a Seller during a Fiscal
Month, the product of (a) the Outstanding Balance of such Receivable on the date
such Receivable is sold to the Purchaser, and (b) the excess of 100% over the
Discount Percentage in effect for such Fiscal Month.
Purchased Receivable: means any Receivable which has been sold by a Seller
hereunder.
Receivable: means the indebtedness, excluding any amounts due that represent
GST, of any Obligor resulting from the provision or sale of merchandise or
services by a Seller under a Contract, and includes the right to payment of any
interest or finance charges and other obligations of such Obligor with respect
thereto provided, however that no Specified Boeing Receivable may at any time
constitute a Receivable.
Related Security: means with respect to any Receivable:
(i) all of the applicable Seller's interest in any merchandise
(including returned merchandise) relating to any sale giving rise to such
Receivable;
(ii) all security interests or liens and property subject thereto from
time to time purporting to secure payment of such Receivable, whether
pursuant to the Contract
4
<PAGE>
related to such Receivable or otherwise, together with all financing
statements signed by an Obligor describing any collateral securing such
Receivable;
(iii) all guaranties, proceeds from insurance policies and other
agreements or arrangements of whatever character from time to time
supporting or securing payment of such Receivable whether pursuant to the
Contract related to such Receivable or otherwise;
(iv) the Contract and all other books, records and other information
(including, without limitation, computer programs, tapes, discs, punch
cards, data processing software and related property and rights) relating
to such Receivable and the related Obligor to the extent assignable or
licensable under the related contract or license and applicable law; and
(v) rights to payment under Long Term Contracts.
Sale Agreement: means that certain Receivables Purchase Agreement, dated as of
the date hereof, among CNC Finance LLC, as seller, Atlantic Asset Securitization
Corp., as a purchaser, The Industrial Bank of Japan, Limited, Lloyds Bank PLC,
The Sumitomo Bank, Limited, Credit Lyonnais New York Branch, individually and as
agent, and the Sellers' Agent, as collection agent, as amended or restated from
time to time.
Securitized Receivable: means any Purchased Receivables that are transferred by
the Purchaser to CNC Finance LLC under the Receivables Purchase and Contribution
Agreement, dated as of the date hereof, by and between the Purchaser and CNC
Finance LLC and, with respect to which Receivables, CNC Finance LLC sells,
transfers or grants a security interest, or otherwise transfers an interest, in
such Purchased Receivables in connection with a securitization transaction.
Settlement Date: means the thirteenth Business Day of each Fiscal Month (or if
such day is not a Business Day, the immediately succeeding Business Day);
provided, however, that following the occurrence of an Event of Termination,
Settlement Dates shall occur on such days as are selected from time to time by
the Purchaser or its designee in a written notice to each Seller.
Specified Boeing Receivable: means any indebtedness of The Boeing Company
("Boeing") owed to Menasco Aerospace Ltd., now Coltec Aerospace Canada Ltd.
("Menasco") that is subject to the terms and conditions of that certain Security
Agreement, dated as of September 26, 1988, by and between Boeing and Menasco.
SECTION 1.02 Other Terms.
All accounting terms not specifically defined herein shall be construed in
accordance with generally accepted accounting principles.
5
<PAGE>
ARTICLE II
AMOUNTS AND TERMS OF PURCHASES
SECTION 2.01 Facility.
On the terms and conditions hereinafter set forth and without recourse
(except to the extent as is specifically provided herein), the Purchaser agrees
to purchase Receivables from the Sellers as such Receivables arise during the
period from the date hereof to the Facility Termination Date.
SECTION 2.02 Making Purchases.
(a) On the Closing Date, each Seller hereby sells, transfers, absolutely
assigns, sets-over and conveys to the Purchaser all Receivables owned by such
Seller as of the close of business on the Business Day immediately preceding the
Closing Date. Each Seller hereby agrees, on each Business Day occurring after
the Closing Date and prior to the Facility Termination Date, to sell, transfer,
absolutely assign, set-over and convey to the Purchaser all Receivables owned by
such Seller as of the close of business on the immediately preceding Business
Day. Each Seller and the Purchaser shall enter into a certificate of assignment
(the "Sale Assignment"), dated as of the date hereof, in the form of Attachment
1 hereto, evidencing such sale, transfer, absolute assignment, set-over and
conveyance of such Receivables.
(b) Upon the sale, transfer, absolute assignment, set-over and conveyance
of the Purchased Receivables the ownership of each such Receivable shall be
vested in the Purchaser and no Seller shall take any action inconsistent with
such ownership and shall not claim any ownership interest in any such Purchased
Receivable.
(c) Each Seller shall indicate in its records that ownership of each
Purchased Receivable is held by the Purchaser or its assignee. In addition, each
Seller shall respond to any inquiries with respect to ownership of a Purchased
Receivable by stating that it is no longer the owner of such Receivable and that
ownership of such Purchased Receivable is held by the Purchaser or its assignee.
(d) All payments of the Purchase Price of any Receivable payable in
Canadian dollars shall be made in Canadian dollars.
SECTION 2.03 Collections; Purchase Price.
(a) On the Business Day following the Closing Date, the Purchaser shall pay
each Seller an amount equal to the Purchase Price for all Receivables owned by
such Seller as of the close of business on the last Business Day of the Seller's
August Fiscal Month and sold to the Purchaser on the Closing Date. On each
Settlement Date, (i) each Seller shall deposit into an account of the Purchaser
or the Purchaser's assignee all Collections of Purchased Receivables
6
<PAGE>
received during the related Fiscal Month and then held by the Seller, and (ii)
the Purchaser shall pay each Seller in respect of all Receivables sold,
transferred, absolutely assigned, set-over and conveyed by such Seller to the
Purchaser during the immediately preceding Fiscal Month (except for the first
Settlement Date, which shall relate only to Receivables sold, transferred,
absolutely assigned, set-over and conveyed after the Closing Date) an amount
equal to the aggregate Purchase Price of such Receivables. Each party's
obligation to make payment of any amount under this Section 2.03(a) will be
automatically satisfied and discharged and, if the aggregate amount that would
otherwise have been payable by one party exceeds the aggregate amount that would
otherwise have been payable by the other party, replaced by an obligation upon
the party by whom the larger aggregate amount would have been payable to pay to
the other party the excess of the larger aggregate amount over the smaller
aggregate amount.
(b) In the event that the Sellers' Agent believes that amounts which are
not Collections of Purchased Receivables have been deposited into an account of
the Purchaser or the Purchaser's assignee, the Sellers' Agent shall so advise
the Purchaser and, on the Business Day following such identification, the
Purchaser shall remit, or shall cause to be remitted, to the Sellers' Agent for
the account of the applicable Seller, all amounts so deposited which are
identified, to the Purchaser's satisfaction, as not being Collections of
Receivables which are Purchased Receivables. Any amounts representing GST or
collections of any Specified Boeing Receivable deposited into an account of the
Purchaser or Purchaser's assignee shall be held in trust for the applicable
Seller.
SECTION 2.04 Settlement Procedures.
(a) If on any day the Outstanding Balance of any Purchased Receivable is
reduced or adjusted as a result of any defective, rejected, returned,
repossessed or foreclosed merchandise or services or any cash discount or other
similar adjustment made by a Seller, or any set-off or dispute in respect of any
claim by the Obligor thereof against a Seller (whether such claim arises out of
the same or a related transaction or an unrelated transaction but excluding
adjustments, reductions or cancellations in respect of such Obligor's
bankruptcy, insolvency or similar event), such Seller shall be deemed to have
received on such day a Collection of such Purchased Receivable in the amount of
such reduction or adjustment.
(b) Upon discovery by a Seller or the Purchaser of a breach of any of the
representations and warranties made by such Seller in Section 4.01(j) with
respect to any Transferred Receivable transferred by such Seller, such party
shall give prompt written notice thereof to the other party, as soon as
practicable and in any event within three Business Days following such
discovery. If such breach cannot be cured, such Seller shall, upon not less than
two Business Days' notice from the Purchaser or its assignee or designee,
repurchase such Transferred Receivable on the next succeeding Settlement Date
for a repurchase price equal to the outstanding balance of such Transferred
Receivable (which shall be calculated excluding the amount of the related GST).
Each repurchase of a Transferred Receivable shall include the Related Security
with respect to such Transferred Receivable. The proceeds of any such repurchase
shall be deemed to be a Collection in respect of such Transferred Receivable.
Such
7
<PAGE>
Seller shall pay to the Purchaser on or prior to the next Settlement Date the
repurchase price required to be paid pursuant to this subsection.
(c) Except as stated in subsections (a) or (b) of this Section 2.04 or as
otherwise required by law or the underlying Contract, all Collections from an
Obligor of any Purchased Receivable shall be applied to the Receivables of such
Obligor in the order of the age of such Receivables, starting with the oldest
such Receivable, unless such Obligor designates its payment for application to
specific Receivables.
SECTION 2.05 Payments and Computations, Etc.
(a) All amounts to be paid or deposited by any Party hereunder shall be
paid or deposited no later than 11:00 A.M. (New York City time) on the day when
due in same day funds to the account specified by the recipient of such funds to
the payor as set forth in a written notice from time to time.
(b) Each Seller shall, to the extent permitted by law, pay to the Purchaser
interest on any amount not paid or deposited by such Seller (whether as Seller
or otherwise) when due hereunder at an interest rate per annum equal to 2.0% per
annum above the Alternate Base Rate, payable on demand.
(c) All computations of interest and all computations of fees hereunder
shall be made on the basis of a year of 360 days for the actual number of days
(including the first but excluding the last day) elapsed. Whenever any payment
or deposit to be made hereunder shall be due on a day other than a Business Day,
such payment or deposit shall be made on the next succeeding Business Day and
such extension of time shall be included in the computation of such payment or
deposit.
SECTION 2.06 Annual Rates of Interest.
For the purposes of the Interest Act (Canada), whenever interest payable
pursuant to this Agreement is calculated on the basis of a period other than a
calendar year (the "Interest Period"), each rate of interest determined pursuant
to such calculation expressed as an annual rate is equivalent to such rate as so
determined multiplied by the actual number of days in the calendar year in which
the same is to be ascertained and divided by the number of days in the Interest
Period.
ARTICLE III
[reserved]
8
<PAGE>
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
SECTION 4.01 Representations and Warranties of the Sellers.
Each Seller represents and warrants as follows:
(a) Such Seller is a corporation duly incorporated, validly existing and in
good standing under the laws of its jurisdiction of incorporation, and is duly
qualified to do business, and is in good standing, in every jurisdiction where
the nature of its business requires it to be so qualified.
(b) The execution, delivery and performance by such Seller of this
Agreement and the other documents to be delivered by it hereunder, including
such Seller's sale of Receivables hereunder and such Seller's use of the
proceeds of Purchases, (i) are within such Seller's corporate powers, (ii) have
been duly authorized by all necessary corporate action, (iii) do not contravene
(1) such Seller's charter or by-laws, (2) any law, rule or regulation applicable
to such Seller, (3) any contractual restriction binding on or affecting such
Seller or its property or (4) any order, writ, judgment, award, injunction or
decree binding on or affecting such Seller or its property, and (iv) do not
result in or require the creation of any Adverse Claim upon or with respect to
any of its properties (except for the transfer of such Seller's interest in the
Purchased Receivables pursuant to this Agreement). This Agreement has been duly
executed and delivered by such Seller.
(c) No authorization or approval or other action by, and no notice to or
filing with, any governmental authority or regulatory body is required for the
due execution, delivery and performance by such Seller of this Agreement or any
other document to be delivered by it hereunder other than the filing of
financing statements and similar documents as contemplated in Section
5.01(k)(i).
(d) This Agreement constitutes the legal, valid and binding obligation of
such Seller enforceable against such Seller in accordance with its terms, except
as enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the enforcement of
creditors' rights generally and by general equitable principles (whether
enforcement is sought by proceedings in equity or at law).
(e) Each sale made pursuant to this Agreement will constitute a valid sale,
transfer, and assignment of the Purchased Receivables to the Purchaser,
enforceable against creditors of, and purchasers from, such Seller. Following
each such sale, such Seller shall have no remaining property interest in any
Purchased Receivable.
(f) The balance sheets of the Sellers' Agent and its consolidated
subsidiaries for the most recently ended fiscal year, and the related statements
of income and retained earnings of the Sellers' Agent and its consolidated
subsidiaries for such fiscal year, copies of which have been
9
<PAGE>
furnished to the Purchaser, fairly present the financial condition of the
Sellers' Agent and its subsidiaries as at the date of such balance sheets and
the results of the operations of the Sellers' Agent and its consolidated
subsidiaries for the period ended on such date, all in accordance with generally
accepted accounting principles consistently applied, and since the date of such
balance sheets there has been no material adverse change in the business,
operations, property or financial or other condition of such Seller.
(g) There are no actions, suits or proceedings pending or, to the best
knowledge of such Seller, threatened (i) with respect to this Agreement or any
documentation executed in connection herewith or the transactions contemplated
hereby, (ii) with respect to the Credit Agreement or (iii) that are reasonably
likely to materially and adversely affect the business, property, assets,
conditions (financial or otherwise) or prospects of Coltec Industries Inc or
Coltec Industries Inc and its Subsidiaries (as defined in the Sale Agreement)
taken as a whole. Such Seller is not in default with respect to any order of any
court, arbitration or governmental body, except for defaults that are not
material to the business or operation of Coltec Industries Inc and its
Subsidiaries (as defined in the Sale Agreement) taken as a whole.
(h) No proceeds of any Purchase will be used to acquire any equity security
of a class which is registered pursuant to Section 12 of the Securities Exchange
Act of 1934.
(i) No transaction contemplated hereby requires compliance with any bulk
sales act or similar law.
(j) Each Purchased Receivable, together with the Related Security, is owned
(prior to its sale hereunder) by such Seller free and clear of any Adverse Claim
(other than any Adverse Claim arising solely as the result of any action taken
by the Purchaser). When the Purchaser makes a Purchase and when a Seller sells a
Receivable to the Purchaser, the Purchaser shall acquire a valid and perfected
first priority ownership or security interest of each such Purchased Receivable
and the Related Security and Collections with respect thereto free and clear of
any Adverse Claim (other than any Adverse Claim arising solely as the result of
any action taken by the Purchaser), and no effective financing statement or
other instrument similar in effect covering any Purchased Receivable, any
interest therein, the Related Security or Collections with respect thereto is on
file in any recording office except such as may be filed in favor of Purchaser
in accordance with this Agreement or in connection with any Adverse Claim
arising solely as the result of any action taken by the Purchaser.
(k) All written information and each exhibit, financial statement,
document, book, record or report furnished by such Seller to the Purchaser in
connection with this Agreement is accurate in all material respects as of its
date (except as otherwise disclosed in writing to the Purchaser at such time),
and no such document contains any untrue statement of a material fact or omits
to state a material fact necessary in order to make the statements contained
therein, in the light of the circumstances under which they were made, not
misleading.
10
<PAGE>
(l) The principal place of business and chief executive office of such
Seller and the office where such Seller keeps its records concerning the
Purchased Receivables are located at the address or addresses referred to in
Section 5.01(b).
(m) The names and addresses of all the Lock-Box Banks, together with the
account numbers of the Lock-Box Accounts at such Lock-Box Banks, are specified
in Exhibit C (as the same may be updated from time to time pursuant to Section
5.01(h)), together with a notation indicating which such Lock-Box Accounts will
receive collections of Receivables that constitute Securitized Receivables.
(n) Except as specified in Schedule 4.01(n), such Seller is not known by
and does not use any tradename or doing-business-as name.
(o) The transfers of Purchased Receivables by such Seller to the Purchaser
pursuant to this Agreement, and all other transactions between such Seller and
the Purchaser, have been and will be made in good faith and without intent to
hinder, delay or defraud creditors of such Seller.
ARTICLE V
COVENANTS
SECTION 5.01 Covenants of the Sellers.
From the date hereof until the first day following the Facility Termination
Date on which all of the Purchased Receivables are either collected in full or
are written off the books of the Purchaser as uncollectible:
(a) Compliance with Laws, Etc. Each Seller will comply in all material
respects with all applicable laws, rules, regulations and orders and preserve
and maintain its corporate existence, rights, franchises, qualifications and
privileges except to the extent that the failure so to comply with such laws,
rules and regulations or the failure so to preserve and maintain such existence,
rights, franchises, qualifications, and privileges would not materially
adversely affect the collectibility of the Purchased Receivables or the ability
of such Seller to perform its obligations under this Agreement.
(b) Offices, Records and Books of Account. Each Seller will keep its
principal place of business and chief executive office and the office where it
keeps its records concerning the Purchased Receivables at the addresses in
Schedule 5.01(b) hereto or, upon 30 days' prior written notice to the Purchaser,
at any other locations in jurisdictions where all actions required by Section
5.01(k) shall have been taken and completed. Each Seller also will maintain and
implement administrative and operating procedures (including, without
limitation, an ability to recreate records evidencing Purchased Receivables and
related Contracts in the event of the destruction of the originals thereof), and
keep and maintain all documents, books, records and
11
<PAGE>
other information reasonably necessary or advisable for the collection of all
Purchased Receivables (including, without limitation, records adequate to permit
the daily identification of each new Purchased Receivable and all Collections of
and adjustments to each existing Purchased Receivable). Each Seller shall make a
notation in its books and records, including its computer files, to indicate
which Receivables have been sold to the Purchaser hereunder.
(c) Performance and Compliance with Contracts and Credit and Collection
Policy. Each Seller will, at its expense, timely and fully perform and comply
with all material provisions, covenants and other promises required to be
observed by it under the Contracts related to the Purchased Receivables, and
timely and fully comply in all material respects with the Credit and Collection
Policy in regard to each Purchased Receivable and the related Contract.
(d) Sales, Liens, Etc. Except for the sales of Receivables contemplated
herein, each Seller will not sell, assign (by operation of law or otherwise) or
otherwise dispose of, or create or suffer to exist any Adverse Claim upon or
with respect to, any Purchased Receivable, Related Security or Collections, or
upon or with respect to any account to which any Collections of any Purchased
Receivable are sent, or assign any right to receive income in respect thereof;
provided, however, that the provisions of this paragraph shall not prevent the
existence of inchoate liens for taxes, assessments and governmental charges or
claims not yet due or being contested in good faith and by appropriate
proceedings; notwithstanding anything to the contrary, the Purchaser understands
that each Seller will not segregate any Collections from other funds of such
Person and that such Collections will be commingled with other funds of such
Persons in the Sellers' Agent's cash management operations.
(e) Extension or Amendment of Purchased Receivables. Except as provided in
Section 6.02(c), each Seller will not extend, amend or otherwise modify the
terms of any Purchased Receivable.
(f) Change in Business or Credit and Collection Policy. No Seller will make
any change in either (i) the character of its business or (ii) its Credit and
Collection Policy if such change would impair the collectibility of the
Purchased Receivables.
(g) Audits. Each Seller will, from time to time during regular business
hours as requested by the Purchaser, permit the Purchaser and each Seller whose
Purchased Receivables at such time constitute Securitized Receivables will, from
time to time during regular business hours as requested by the Agent under the
Sale Agreement, permit the Agent under the Sale Agreement:
(i) to conduct an annual audit (or more frequently if an Event of
Termination occurs) of the Purchased Receivables, the Related Security and
the related books and records and collections systems of such Seller, the
first such audit by the Agent under the Sale Agreement shall occur prior to
March 1, 1998,
(ii) semi-annually (or more frequently if an Event of Termination
occurs) to examine and make copies of and abstracts from all books, records
and documents
12
<PAGE>
(including, without limitation, computer tapes and disks) in the possession
or under the control of the Seller relating to Purchased Receivables and
the Related Security, including, without limitation, the Contracts, and
(iii) semi-annually (or more frequently if an Event of Termination
occurs) to visit the offices and properties of such Seller for the purpose
of examining such materials described in clause (ii) above, and to discuss
matters relating to Purchased Receivables and the Related Security or such
Seller's performance hereunder with any of the officers or employees of
such Seller having knowledge of such matters.
(h) Change in Payment Instructions to Obligors. Each Seller whose
Receivables constitute Securitized Receivables will not add or terminate any
bank or bank account as a Lock-Box Bank or Lock-Box Account from those listed in
Exhibit C to this Agreement, or make any change in its instructions to Obligors
regarding payments to be made to any Lock-Box Bank, unless the Purchaser shall
have received notice of such addition, termination or change (including an
updated Exhibit C) and executed copies of Lock-Box Agreements with each new
Lock-Box Bank or with respect to each new Lock-Box Account.
(i) Deposits to Lock-Box Accounts. Each Seller of Receivables that
constitute Securitized Receivables will deposit, or cause to be deposited, all
Collections of Purchased Receivables that constitute Securitized Receivables
into Lock-Box Accounts, and such Seller will not deposit or otherwise credit, or
cause or permit to be so deposited or credited, to any Lock-Box Account cash or
cash proceeds other than Collections of Purchased Receivables that constitute
Securitized Receivables; provided, however, that notwithstanding the foregoing,
failure to comply with the provisions hereof prior to December 19, 1997 shall
not be a breach of this subsection (i); provided, further, however that cash
collections representing payment of GST and/or Specified Boeing Receivables may
at any time be credited or deposited to any Lock-Box Account; provided, however
that any such amount so credited or deposited shall be held in trust for the
applicable Seller.
(j) Marking of Records. At its expense, each Seller will mark its master
data processing records evidencing Purchased Receivables with a legend
evidencing or otherwise mark its records to indicate that such Purchased
Receivables have been sold in accordance with this Agreement.
(k) Further Assurances.
(i) Each Seller agrees from time to time, at its expense, promptly to
execute and deliver all further instruments and documents, and to take all
further actions, that may be necessary or desirable, or that the Purchaser
or its assignee may reasonably request, to perfect, protect or more fully
evidence the sale of Receivables under this Agreement, or to enable the
Purchaser or its assignee to exercise and enforce its respective rights and
remedies under this Agreement. Without limiting the foregoing, such Seller
will, upon the request of the Purchaser or its assignee, (x) execute and
file such financing or continuation statements, or amendments thereto, and
such other instruments and
13
<PAGE>
documents, that may be necessary or desirable to perfect, protect or
evidence such Purchased Receivables; and (y) deliver to the Purchaser
copies of all Contracts (other than Long Term Contracts) relating to the
Purchased Receivables and all records relating to such Contracts and the
Purchased Receivables, whether in hard copy or in magnetic tape or diskette
format (which if in magnetic tape or diskette format shall be compatible
with the Purchaser's computer equipment).
(ii) Each Seller authorizes the Purchaser or its assignee to file
financing or continuation statements, and amendments thereto and
assignments thereof, relating to the Purchased Receivables and the Related
Security, the related Contracts and the Collections with respect thereto
without the signature of such Seller where permitted by law. A photocopy or
other reproduction of this Agreement shall be sufficient as a financing
statement where permitted by law.
(iii) Each Seller shall perform its obligations under the Contracts
related to the Purchased Receivables to the same extent as if the Purchased
Receivables had not been sold or transferred.
(l) Reporting Requirements. The Sellers' Agent will provide to the
Purchaser the following:
(i) as soon as available and in any event within 45 days after the end
of the first three quarters of each fiscal year of the Sellers' Agent
balance sheets of the Sellers' Agent and its consolidated subsidiaries as
of the end of such quarter and statements of income and retained earnings
of the Sellers' Agent and its subsidiaries for the period commencing at the
end of the previous fiscal year and ending with the end of such quarter,
certified by the chief financial officer of the Sellers' Agent;
(ii) as soon as available and in any event within 90 days after the
end of each fiscal year of the Sellers' Agent, a copy of the Annual Report
of Form 10-K for such year for the Sellers' Agent and its consolidated
subsidiaries, containing financial statements for such year audited by
Arthur Andersen & Co. or other nationally recognized independent public
accountants;
(iii) as soon as possible and in any event within five days after the
occurrence of each Event of Termination or event that, but for notice or
the lapse of time or both, would constitute an Event of Termination, a
statement of the chief financial officer of the Sellers' Agent setting
forth details of such Event of Termination or event that, but for notice or
the lapse of time or both, would constitute an Event of Termination and the
action that the Sellers' Agent has taken and proposes to take with respect
thereto;
(iv) promptly after the filing or receiving thereof, copies of all
reports and notices that the Sellers' Agent or any Affiliate files under
applicable legislation or that the Sellers' Agent or any Affiliate receives
from any applicable regulatory authority or from any multiemployer plan to
which the Sellers' Agent or any Affiliate is or was, within the
14
<PAGE>
preceding five years, a contributing employer, in each case in respect of
the assessment of withdrawal liability or an event or condition which
could, in the aggregate, result in the imposition of liability on the
Sellers' Agent and/or any such Affiliate in excess of $1,000,000;
(v) at least ten Business Days prior to any change in each Seller's
name, a notice setting forth the new name and the effective date thereof;
and
(vi) such other information respecting the Purchased Receivables or
the condition or operations, financial or otherwise, of the Sellers as the
Purchaser may from time to time reasonably request.
(m) Each Seller will: (i) maintain separate corporate records and books of
account from those of the Purchaser and CNC Finance LLC; (ii) conduct its
business from an office separate from that of the Purchaser and CNC Finance LLC
(which office may be located in identifiable space within the headquarters of
Coltec Industries Inc or any of its affiliates); (iii) ensure that all oral and
written communications, including without limitation, letters, invoices,
purchase orders, contracts, statements and applications, will be made solely in
its own name; (iv) have stationery and other business forms and a mailing
address and a telephone number separate from those of the Purchaser or CNC
Finance LLC; (v) not hold itself out as having agreed to pay, or as being liable
for, the obligations of the Purchaser or CNC Finance LLC; (vi) continuously
maintain as official records the resolutions, agreements and other instruments
underlying the transactions contemplated by this Agreement; and (vii) disclose
on its annual financial statements the effects of the transactions contemplated
by this Agreement in accordance with generally accepted accounting principles.
SECTION 5.02 Covenant of the Sellers and the Purchaser.
The Sellers and the Purchaser have structured this Agreement with the
intention that each Purchase of Receivables hereunder be treated as a sale of
such Receivables by the Sellers to the Purchaser for all purposes. The Sellers
and the Purchaser shall record each Purchase as a sale or purchase, as the case
may be, on its books and records, and reflect, to the extent required or
permitted by applicable law and/or accounting rules, each Purchase in its
financial statements and tax returns as a sale or purchase, as the case may be.
In the event that, contrary to the mutual intent of the Sellers and the
Purchasers, any Purchase of Receivables hereunder is not characterized as a
sale, the Sellers shall, effective as of the date hereof, be deemed to have
granted (and the Sellers hereby do grant) to the Purchaser a first priority
security interest in and to any and all Purchased Receivables, Related Security
and the proceeds thereof to secure the repayment of all amounts advanced to the
Sellers hereunder with accrued interest thereon, and this Agreement shall be
deemed to be a security agreement.
15
<PAGE>
ARTICLE VI
ADMINISTRATION AND COLLECTION
SECTION 6.01 Undertaking to Collect and Administer Receivables.
In consideration of the purchase by the Purchaser of Receivables hereunder
and the payment to each Seller purchase price therefor, each Seller agrees to
service, administer and collect the portion of the Purchased Receivables owned
by the Purchaser that was acquired from such Seller.
SECTION 6.02 Duties.
(a) Each Seller shall take or cause to be taken all such actions as may be
necessary or advisable to collect each Purchased Receivable that was sold by it
to the Purchaser hereunder from time to time, all in accordance with applicable
laws, rules and regulations, with reasonable care and diligence, in accordance
with the Credit and Collection Policy and subject to the directions of the
Purchaser or its designees. In performing such duties, each Seller shall,
subject to the directions of the Purchaser or its designee, exercise the same
care and apply the same policies as it would exercise and apply if it owned such
Purchased Receivables and shall act in the best interests of the Purchaser and
its assignees.
(b) On or before the tenth Business Day after the end of each Fiscal Month,
each Seller shall prepare and forward to the Purchaser (i) a Monthly Report,
relating to all then outstanding Purchased Receivables sold by such Seller
hereunder and the Related Security and Collections with respect thereto, in each
case, as of the close of business of such Seller on the last day of the
immediately preceding Fiscal Month, and (ii) if requested by the Purchaser, a
listing by Obligor of all Purchased Receivables, together with an aging report
of such Purchased Receivables.
(c) Without the prior approval of the Purchaser or its designee, no Seller
may extend the maturity or adjust the Outstanding Balance of any Purchased
Receivable that was sold by it to the Purchaser hereunder or amend or otherwise
modify the terms of any Purchased Receivable that was sold by it to the
Purchaser hereunder.
(d) Each Seller shall retain for the benefit of the Purchaser and shall
hold in trust for the Purchaser, all documents, instruments and records
(including, without limitation, computer tapes or disks) which evidence or
relate to Purchased Receivables sold by such Seller hereunder.
(e) Each Seller shall retain any cash collections or other cash proceeds
received by it with respect to Receivables not constituting Purchased
Receivables sold by it hereunder, unless such Collections or proceeds related to
Purchased Receivables sold by a different Seller, in which case, such
collections or proceeds shall constitute Collections of such Purchased
Receivables and shall be forthwith paid to the Purchaser. Each Seller shall
retain or promptly remove from the Lockbox Accounts all cash collections
representing payment of GST or a
16
<PAGE>
Specified Boeing Receivable and shall timely make payment of all GST when due to
applicable tax authorities.
(f) No Seller shall have the authority to act on behalf of the Purchaser or
its designee except as is expressly conferred herein; provided, however, that no
Seller shall have the authority to contract in the name of the Purchaser or its
designees.
(g) Each Seller shall, at the request of the Sellers' Agent or the
Purchaser or its successors and assigns, separately state in each Monthly Report
all Receivables that are denominated in United States dollars and all
Receivables that are denominated in Canadian dollars.
SECTION 6.03 Certain Rights of the Purchaser.
(a) The Purchaser may, at any time, give notice of ownership and/or direct
the Obligors of Purchased Receivables and any Person obligated on any Related
Security, or any of them, that payment of all amounts payable under any
Purchased Receivable shall be made directly to the Purchaser or its designee.
Each Seller hereby transfers to the Purchaser (and its assigns and designees)
the exclusive ownership and control of the Lock-Box Accounts maintained by such
Seller for the purpose of receiving Collections.
(b) Each Seller shall, at any time upon the Purchaser's request and at such
Seller's expense, give notice of such ownership to each Obligor of Purchased
Receivables and direct that payments of all amounts payable under such Purchased
Receivables be made directly to the Purchaser or its designee.
(c) At the Purchaser's request and at each Seller's expense, each Seller
shall (x) assemble all of the documents, instruments and other records
(including, without limitation, computer tapes and disks) that evidence or
relate to the Purchased Receivables acquired from such Seller, and the related
Contracts (excluding the Long Term Contracts themselves) and Related Security,
or that are otherwise necessary or desirable to collect the Purchased
Receivables, and shall make the same available to the Purchaser at a place
selected by the Purchaser, and (y) segregate all cash, checks and other
instruments received by it from time to time constituting Collections of such
Purchased Receivables in a manner acceptable to the Purchaser and, promptly upon
receipt, remit all such cash, checks and instruments, duly endorsed or with duly
executed instruments of transfer, to the Purchaser or its designee. The
Purchaser shall also have the right to make copies of all such documents,
instruments and other records at any time.
(d) At the Purchaser's request and at each Seller's expense, each Seller
shall (x) assemble all of the documents, instruments and other records
(including, without limitation, computer tapes and disks), maintained by such
Seller that relate to the Purchased Receivables, and the related Contracts
(excluding the Long Term Contracts themselves) and Related Security, and shall
make the same available to the Purchaser at a place selected by the Purchaser,
and (y) segregate all cash, checks and other instruments received by it from
time to time constituting
17
<PAGE>
Collections of Purchased Receivables in a manner acceptable to the Purchaser
and, promptly upon receipt, remit all such cash, checks and instruments, duly
endorsed or with duly executed instruments of transfer, to the Purchaser or its
designee. The Purchaser shall also have the right to make copies of all such
documents, instruments and other records at any time.
SECTION 6.04 Rights and Remedies.
(a) If a Seller fails to perform any of its obligations under this
Agreement, the Purchaser may (but shall not be required to) itself perform, or
cause performance of, such obligation, and, if such Seller fails to so perform,
the costs and expenses of the Purchaser incurred in connection therewith shall
be payable by such Seller, as provided in Section 8.01 or Section 9.04 as
applicable.
(b) Each Seller shall perform all of its obligations under the Contracts
related to the Purchased Receivables to the same extent as if such Seller had
not sold Receivables hereunder and the exercise by the Purchaser of its rights
hereunder shall not relieve such Seller from such obligations or its obligations
with respect to the Purchased Receivables. The Purchaser shall not have any
obligation or liability with respect to any Purchased Receivables or related
Contracts, nor shall the Purchaser be obligated to perform any of the
obligations of such Seller thereunder.
SECTION 6.05 Transfer of Records to Purchaser.
(a) Each Purchase of Receivables hereunder shall include the transfer to
the Purchaser of all of the Seller's right and title to and interest in the
records relating to such Receivables.
(b) Each Seller shall take such action requested by the Purchaser, from
time to time hereafter, that may be necessary or appropriate to ensure that the
Purchaser has an enforceable ownership interest in the records relating to the
Purchased Receivables.
ARTICLE VII
EVENTS OF TERMINATION
SECTION 7.01 Events of Termination.
If any of the following events ("Events of Termination") shall occur and be
continuing:
(a) The Sellers' Agent shall fail (i) to transfer to the Purchaser when
requested any rights, pursuant to this Agreement, which the Sellers' Agent then
has and such failure shall have a material adverse effect upon the interest of
the Purchaser and shall remain unremedied for thirty (30) days after written
notice thereof shall have been given to the Sellers' Agent by the Purchaser, or
(ii) to make any payment required under Section 2.04(a) or 2.04(b); or
18
<PAGE>
(b) Any representation or warranty made or deemed made by a Seller (or any
of its officers) under or in connection with this Agreement or any written
information or report delivered by a Seller pursuant to this Agreement shall
prove to have been incorrect or untrue in any material respect when made or
deemed made or delivered and such breach shall have a material adverse effect
upon the interest of the Purchaser and shall remain unremedied for thirty (30)
days after written notice thereof shall have been given to the Sellers' Agent by
the Purchaser; or
(c) A Seller shall fail to perform or observe any other term, covenant or
agreement contained in this Agreement on its part to be performed or observed
and any such failure shall remain unremedied for thirty (30) days after written
notice thereof shall have been given to the Sellers' Agent by the Purchaser (or,
with respect to a failure to deliver the Monthly Report pursuant to this
Agreement, such failure shall remain unremedied for five days, without a
requirement for notice) and such failure shall have a material adverse effect on
the interest of the Purchaser; or
(d) Any Purchase of Receivables hereunder, the Related Security and the
Collections with respect thereto shall for any reason cease to constitute valid
and perfected ownership interest or security interest in such Purchased
Receivables, Related Security and Collections free and clear of any Adverse
Claim; or
(e) A Seller or any of its subsidiaries shall generally not pay its debts
as such debts become due, or shall admit in writing its inability to pay its
debts generally, or shall make a general assignment for the benefit of
creditors; or any proceeding shall be instituted by or against a Seller or any
of its subsidiaries seeking liquidation, winding up, reorganization,
arrangement, adjustment, protection, relief, or composition of it or its debts
under any law relating to bankruptcy, insolvency or reorganization or relief of
debtors, or seeking the entry of an order for relief or the appointment of a
receiver, trustee, custodian or other similar official for it or for any
substantial part of its property and, in the case of any such proceeding
instituted against it (but not instituted by it), either such proceeding shall
remain undismissed or unstayed for a period of sixty (60) days, or any of the
actions sought in such proceeding (including, without limitation, the entry of
an order for relief against, or the appointment of a receiver, trustee,
custodian or other similar official for, it or for any substantial part of its
property) shall occur; or the Seller or any of its subsidiaries shall take any
corporate action to authorize any of the actions set forth above in this
subsection (e); or
(f) The occurrence of an Event of Default under the Credit Agreement and
such Event of Default shall remain unremedied for five (5) days after written
notice thereof shall have been given to the Sellers' Agent by the Purchaser; or
(g) An Event of Termination shall have occurred under the Sale Agreement;
then, and in any such event, the Purchaser may, by notice to the Sellers' Agent,
declare the Facility Termination Date to have occurred (in which case the
Facility Termination Date shall be deemed to have occurred); provided, that,
automatically upon the occurrence of any event
19
<PAGE>
(without any requirement for the passage of time or the giving of notice)
described in paragraph (e) of this Section 7.01, the Facility Termination Date
shall occur. Upon any such declaration or designation or upon such automatic
termination, the Purchaser shall have, in addition to the rights and remedies
under this Agreement, all other rights and remedies with respect to the
Purchased Receivables provided after default under the PPSA and under other
applicable law, which rights and remedies shall be cumulative.
SECTION 7.02 Individual Seller Termination.
Except for any Seller constituting a division of Coltec Industries Inc, if
all of the outstanding capital stock of a Seller shall cease to be owned,
directly or indirectly, by Coltec Industries Inc, such Seller shall immediately
cease selling Receivables and the Purchaser shall immediately cease purchasing
such Seller's Receivables hereunder.
ARTICLE VIII
INDEMNIFICATION
SECTION 8.01 Indemnities.
Without limiting any other rights which the Purchaser may have hereunder or
under applicable law, each Seller, severally and not jointly, and Coltec,
jointly and severally with each other Seller, hereby agree to indemnify the
Purchaser and its assigns and transferees (each, an "Indemnified Party") from
and against any and all damages, claims, losses, liabilities and related costs
and expenses, including reasonable attorneys' fees and disbursements (all of the
foregoing being collectively referred to as "Indemnified Amounts"), awarded
against or incurred by any Indemnified Party arising out of or as a result of:
(i) any representation or warranty or statement made or deemed made by
such Seller (or any of its officers) under or in connection with this
Agreement, which shall have been incorrect in any material respect when
made;
(ii) the failure by such Seller to comply with any applicable law,
rule or regulation with respect to any Purchased Receivable sold by such
Seller; or the failure of any Purchased Receivable sold by such Seller or
the related Contract to conform to any such applicable law, rule or
regulation;
(iii) the failure to vest in the Purchaser absolute ownership of the
Receivables that are, or that purport to be, the subject of a Purchase from
such Seller under this Agreement and the Related Security and Collections
in respect thereof, free and clear of any Adverse Claim;
(iv) the failure of such Seller to have filed, or any delay in filing,
financing statements or other similar instruments or documents under the
PPSA of any applicable
20
<PAGE>
jurisdiction or other applicable laws with respect to any Receivables that
are, or that purport to be, the subject of a Purchase sold by such Seller
under this Agreement and the Related Security and Collections in respect
thereof, whether at the time of any Purchase from such Seller or at any
subsequent time;
(v) any dispute, claim, offset or defense (other than discharge in
bankruptcy of the Obligor) of the Obligor to the payment of any Receivable
that is, or that purports to be, the subject of a Purchase from such Seller
under this Agreement (including, without limitation, a defense based on
such Receivable or the related Contract not being a legal, valid and
binding obligation of such Obligor enforceable against it in accordance
with its terms), or any other claim resulting from the sale of the
merchandise or services related to such Receivable or the furnishing or
failure to furnish such merchandise or services or relating to collection
activities with respect to such Receivable except to the extent that such
dispute, claim, offset or defense results solely from actions or failures
to act of the Purchaser or its assigns;
(vi) any failure of such Seller to perform its duties or obligations
in accordance with the provisions hereof or to perform its duties or
obligations under any Contract related to a Purchased Receivable sold by
such Seller;
(vii) any products liability or other claim arising out of or in
connection with merchandise, insurance or services which are the subject of
any Contract related to a Purchased Receivable sold by such Seller;
(viii) the commingling by such Seller or an affiliate of such Seller
of Collections of Purchased Receivables sold by such Seller at any time
with other funds of such Seller or an Affiliate of such Seller;
(ix) any investigation, litigation or proceeding related solely to
this Agreement or the ownership of Purchased Receivables sold by such
Seller and the Related Security, or Collections with respect thereto or in
respect of any Purchased Receivable sold by such Seller and the Related
Security or related Contract, except to the extent any such investigation,
litigation or proceeding relates to a possible matter involving an
Indemnified Party for which neither such Seller nor any of its Affiliates
is at fault;
(x) any failure of such Seller to comply with its covenants contained
in Section 5.01;
(xi) any claim brought by any Person other than an Indemnified Party
arising from any activity by such Seller or any Affiliate of such Seller in
servicing, administering or collecting any Purchased Receivable sold by
such Seller; or
(xii) any Dilution with respect to any Purchased Receivable sold by
such Seller.
21
<PAGE>
It is expressly agreed and understood by the parties hereto (i) that the
foregoing indemnification is not intended to, and shall not, constitute a
guarantee of the collectibility or payment of the Purchased Receivables and (ii)
that nothing in this Section 8.01 shall require a Seller to indemnify any Person
(x) for Receivables which are not collected, not paid or uncollectible on
account of the insolvency, bankruptcy, or financial inability to pay of the
applicable Obligor, (y) for damages, losses, claims or liabilities or related
costs or expenses resulting from such Person's gross negligence or willful
misconduct, or (z) for any income taxes or franchise taxes incurred by such
Person arising out of or as a result of this Agreement or in respect of any
Purchased Receivable or any Contract.
ARTICLE IX
MISCELLANEOUS
SECTION 9.01 Amendments, Etc.
No amendment or waiver of any provision of this Agreement or consent to any
departure by a Seller therefrom shall be effective unless in a writing signed by
the Purchaser and, in the case of any amendment, also signed by the Sellers'
Agent, and then such amendment, waiver or consent shall be effective only in the
specific instance and for the specific purpose for which given. No failure on
the part of the Purchaser to exercise, and no delay in exercising, any right
hereunder shall operate as a waiver thereof; nor shall any single or partial
exercise of any right hereunder preclude any other or further exercise thereof
or the exercise of any other right.
SECTION 9.02 Notices, Etc.
All notices and other communications hereunder shall, unless otherwise
stated herein, be in writing (which shall include electronic transmission) shall
be personally delivered, express couriered, electronically transmitted (whether
by facsimile, e-mail or otherwise) or mailed by registered or certified mail and
shall, unless otherwise expressly provided herein, be effective when received at
the address set forth under a party's name on the signature pages hereof or at
such other address as shall be designated by such party in a written notice to
the other parties hereto.
SECTION 9.03 Binding Effect; Assignability.
(a) This Agreement shall be binding upon and inure to the benefit of the
Sellers, the Purchaser and their respective successors and assigns; provided,
however, that a Seller may not assign its rights or obligations hereunder or any
interest herein without the prior written consent of the Purchaser.
(b) This Agreement shall create and constitute the continuing obligations
of the parties hereto in accordance with its terms, and shall remain in full
force and effect until such time, after the Facility Termination Date, when all
of the Purchased Receivables are either
22
<PAGE>
collected in full or become Defaulted Receivables; provided, however, that
rights and remedies with respect to any breach of any representation and
warranty made by the Seller pursuant to Article IV and the provisions of Article
VIII and Section 9.04 shall be continuing and shall survive any termination of
this Agreement.
SECTION 9.04 Costs, Expenses and Taxes.
(a) In addition to the rights of indemnification granted to the Purchaser
pursuant to Article VIII hereof, each Seller agrees to pay on demand all costs
and expenses in connection with the preparation, execution and delivery of this
Agreement and the other documents and agreements to be delivered hereunder,
including, without limitation, the reasonable fees and out-of-pocket expenses of
counsel for the Purchaser with respect thereto and with respect to advising the
Purchaser as to its rights and remedies under this Agreement, and each Seller
agrees to pay all costs and expenses, if any (including reasonable counsel fees
and expenses), in connection with the enforcement of this Agreement against such
Seller and the other documents to be delivered hereunder excluding, however, any
costs of enforcement or collection of Purchased Receivables.
(b) In addition, each Seller agrees to pay any and all stamp and other
taxes and fees payable in connection with the execution, delivery, filing and
recording of this Agreement or the other documents or agreements to be delivered
hereunder with respect to such Seller, and each Seller agrees to save each
Indemnified Party harmless from and against any liabilities with respect to or
resulting from any delay in paying or omission to pay such taxes and fees.
SECTION 9.05 [reserved]
SECTION 9.06 [reserved]
SECTION 9.07 Governing Law.
THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE
LAWS OF THE STATE OF NORTH CAROLINA (WITHOUT GIVING EFFECT TO THE CONFLICT OF
LAWS PRINCIPLES THEREOF), EXCEPT TO THE EXTENT THAT THE PERFECTION OF THE
PURCHASER'S OWNERSHIP OF OR SECURITY INTEREST IN THE RECEIVABLES OR REMEDIES
HEREUNDER, IN RESPECT THEREOF, ARE GOVERNED BY THE LAWS OF A JURISDICTION OTHER
THAN THE STATE OF NORTH CAROLINA.
SECTION 9.08 Third Party Beneficiary.
Each of the parties hereto hereby acknowledges that the Purchaser is
transferring the Securitized Receivables and certain of its rights under this
Agreement to CNC Finance LLC under the Receivables Purchase and Contribution
Agreement, dated as of the date hereof (the "CNCI Purchase Agreement") between
the Purchaser and CNC Finance LLC and that CNC Finance LLC is transferring an
interest in the Securitized Receivables and certain of its rights
23
<PAGE>
under the CNCI Purchase Agreement pursuant to the Sale Agreement and each Seller
hereby consents to all such transfers and assignments. CNC Finance LLC and the
other parties to the Sale Agreement shall be third-party beneficiaries of and
shall, following the occurrence of an Event of Termination under the Sale
Agreement, be entitled to enforce the Purchaser's rights and remedies under this
Agreement solely with respect to the Securitized Receivables to the same extent
as if they were parties hereto, except to the extent specifically limited under
the terms of the CNCI Purchase Agreement or the Sale Agreement.
SECTION 9.09 Execution in Counterparts.
This Agreement may be executed in any number of counterparts, each of which
when so executed shall be deemed to be an original and all of which when taken
together shall constitute one and the same agreement. Delivery of an executed
counterparty of a signature page to this Agreement by facsimile shall be
effective as delivery of a manually executed counterpart of this Agreement.
[Remainder of Page Intentionally Left Blank]
24
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
by their respective officers thereunto duly authorized, as of the date first
above written.
SELLERS: COLTEC AEROSPACE CANADA LTD.
By:_____________________________________
Name:___________________________________
Title:__________________________________
Address:
________________________________________
Attention:______________________________
Facsimile No.: ( ) -
___ __ ____
Account Information:
____________________
GARLOCK OF CANADA LTD.
By:_____________________________________
Name:___________________________________
Title:__________________________________
Address:
________________________________________
Attention:______________________________
Facsimile No.: ( ) -
___ ___ ____
Account Information:
____________________
<PAGE>
PURCHASER: COLTEC NORTH CAROLINA INC
By:_____________________________________
Name:___________________________________
Title:__________________________________
Address:
3 Coliseum Centre
2550 West Tyvola Road
Charlotte, North Carolina 28217
Attention: Thomas B. Jones, Jr.,
Treasury Department
Facsimile No.: (704) 423-7069
SELLER'S AGENT: COLTEC INDUSTRIES INC
By:_____________________________________
Name:___________________________________
Title:__________________________________
Address:
3 Coliseum Centre
2550 West Tyvola Road
Charlotte, North Carolina 28217
Attention: Thomas B. Jones, Jr.,
Treasury Department
Facsimile No.: (704) 423-7069
<PAGE>
EXHIBIT A
FORM OF OPINION OF COUNSEL FOR THE SELLERS
<PAGE>
EXHIBIT B
CREDIT AND COLLECTION POLICY
<PAGE>
EXHIBIT C
LOCK-BOX BANKS
Bank Name Contains Collections of
and Address Account No. Securitized Receivables
- ----------- ----------- -----------------------
<PAGE>
Attachment 1
To
Receivables Transfer and
Administration Agreement
[FORM OF SALE ASSIGNMENT]
SALE ASSIGNMENT, dated as of ______________ ___ 19___, between [SELLER]
(the "Seller") and Coltec North Carolina Inc ("CNCI").
1. We refer to the Receivables Transfer and Administration Agreement, dated
as of September _, 1997, by and among Coltec Industries Inc, the Seller, certain
affiliates of Coltec Industries Inc and CNCI (the "Agreement"). All provisions
of the Agreement are incorporated herein by reference. All capitalized terms
shall have the meanings set forth in the Agreement.
2. The Seller does hereby sell, transfer, absolutely assign, set over and
convey to CNCI, without recourse, all right, title and interest of the Seller in
and to all Receivables from time to time arising and owned by the Seller.
3. The Seller does hereby make the representations and warranties referred
to in Section 4.01 of the Agreement with respect to each Purchased Receivable
with full force and effect as if fully set forth herein.
IN WITNESS WHEREOF, the parties have caused this Sale Assignment to be
executed by their respective officers thereunto duly authorized, as of the date
first above written.
[SELLER]
By:
-------------------------------------
Name:
Title:
COLTEC NORTH CAROLINA INC
By:
-------------------------------------
Name:
Title:
<PAGE>
EXECUTION COPY
- --------------------------------------------------------------------------------
RECEIVABLES PURCHASE
AND
CONTRIBUTION AGREEMENT
Dated as of September 19, 1997
Between
COLTEC NORTH CAROLINA INC
as Seller
and
CNC FINANCE LLC
as Purchaser
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE I DEFINITIONS.........................................................1
SECTION 1.01. Certain Defined Terms...................................1
SECTION 1.02. Other Terms.............................................2
ARTICLE II AMOUNTS AND TERMS OF PURCHASES AND CONTRIBUTIONS...................3
SECTION 2.01. Facility................................................3
SECTION 2.02. Making Purchases........................................3
SECTION 2.03. Collections.............................................4
SECTION 2.04. Settlement Procedures...................................4
SECTION 2.05. Payments and Computations, Etc..........................5
SECTION 2.06. Contributions...........................................5
ARTICLE III [reserved]........................................................6
ARTICLE IV REPRESENTATIONS AND WARRANTIES.....................................6
SECTION 4.01. Representations and Warranties of the Seller............6
ARTICLE V COVENANTS...........................................................8
SECTION 5.01. Covenants of the Seller.................................8
SECTION 5.02. Covenant of the Seller and the Purchaser...............11
ARTICLE VI EVENTS OF TERMINATION.............................................11
SECTION 6.01. Events of Termination..................................11
ARTICLE VII INDEMNIFICATION..................................................13
SECTION 7.01. Indemnities............................................13
ARTICLE VIII MISCELLANEOUS...................................................14
SECTION 8.01. Amendments, Etc........................................14
SECTION 8.02. Notices, Etc...........................................15
SECTION 8.03. Binding Effect; Assignability..........................15
SECTION 8.04. Costs, Expenses and Taxes..............................15
SECTION 8.05. Certain Rights of the Purchaser........................16
SECTION 8.06. Rights and Remedies....................................16
SECTION 8.07. Transfer of Records to Purchaser.......................17
SECTION 8.08. Confidentiality........................................17
SECTION 8.09. Governing Law..........................................17
SECTION 8.10. Third Party Beneficiary................................17
SECTION 8.11. No Proceedings.........................................18
SECTION 8.12. Execution in Counterparts..............................18
<PAGE>
EXHIBIT A.........Form of Opinion of Counsel for the Seller
EXHIBIT B.........Credit and Collection Policy
EXHIBIT C.........Lock-Box Banks
SCHEDULE 1........Eligible Originators
ATTACHMENT 1......Form of Purchase Assignment
<PAGE>
RECEIVABLES PURCHASE AND CONTRIBUTION AGREEMENT
RECEIVABLES PURCHASE AND CONTRIBUTION AGREEMENT (this "Agreement"), dated
as of September 19, 1997, by and between COLTEC NORTH CAROLINA INC, a North
Carolina corporation, as Seller (the "Seller"), and CNC FINANCE LLC, a North
Carolina limited liability company, as Purchaser (the "Purchaser").
PRELIMINARY STATEMENTS
1. Certain terms which are capitalized and used throughout this Agreement
(in addition to those defined above) are defined in Article I of this Agreement.
2. The Seller has Receivables that it wishes to sell to the Purchaser, and
the Purchaser is prepared to purchase such Receivables on the terms set forth
herein.
3. The Seller may also wish to contribute Receivables to the capital of the
Purchaser on the terms set forth herein.
NOW, THEREFORE, the parties agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.01. Certain Defined Terms.
Unless otherwise defined herein, capitalized terms used but not defined
herein shall have the meanings given to such terms in the Receivables Transfer
and Administration Agreement, dated as of September 19, 1997 (the "Transfer
Agreement"), by and among Coltec Industries Inc, certain sellers party thereto
and Coltec North Carolina Inc, as purchaser thereunder, the (Canadian
Subsidiaries) Receivables Transfer and Administration Agreement, dated as of
September 19, 1997 (the "Canadian Transfer Agreement"), by and among Coltec
Industries Inc, certain sellers party thereto and Coltec North Carolina Inc, as
purchaser thereunder, and under the Receivables Purchase Agreement, dated as of
September 19, 1997 (the "Sale Agreement"), by and among CNC Finance LLC, as
seller thereunder, Coltec Industries Inc, as collection agent, Atlantic Asset
Securitization Corp., as issuer, and Credit Lyonnais New York Branch, as agent.
As used herein, the following terms shall have the following meanings (such
meanings to be equally applicable to both the singular and the plural forms of
the terms defined):
"Business Day" means any day on which banks are not authorized or required
to close in the cities of New York, New York; Charlotte, North Carolina; or
Toronto, Ontario, Canada.
<PAGE>
[Purchase and Contribution Agreement]
"Canadian Exchange Rate" means for any Settlement Date the average of the
rates for each Business Day of the most recently ended Fiscal Month specified in
the Wall Street Journal in the table entitled "Currency Trading - Exchange
Rates" under the heading "Canada - (Dollar)" and the column "U.S. $ equiv."
"Contributed Receivable" has the meaning specified in Section 2.06.
"Eligible Originator" means each entity agreed to from time to time by the
Purchaser and the Seller and consented to by the Agent and which is a party to
either of the Transfer Agreement or the Canadian Transfer Agreement as a seller
and which is listed on Schedule 1 hereto.
"Purchase" means a purchase by the Purchaser of Receivables from the Seller
pursuant to Article II.
"Sold Receivable" means any Receivable which has been sold by the Seller to
the Purchaser hereunder.
"Related Security" means (a) all rights of the Seller under Article VI of
the Canadian Transfer Agreement and (b) with respect to any Receivable:
(i) all of the related Seller's interest in any merchandise (including
returned merchandise) relating to any sale giving rise to such Receivable;
(ii) all security interests or liens and property subject thereto from
time to time purporting to secure payment of such Receivable, whether
pursuant to the Contract related to such Receivable or otherwise, together
with all financing statements signed by an Obligor describing any
collateral securing such Receivable;
(iii) all guaranties, proceeds from insurance policies and other
agreements or arrangements of whatever character from time to time
supporting or securing payment of such Receivable whether pursuant to the
Contract related to such Receivable or otherwise;
(iv) the Contract and all other books, records and other information
(including, without limitation, computer programs, tapes, discs, punch
cards, data processing software and related property and rights) relating
to such Receivable and the related Obligor to the extent assignable or
licensable under the related contract or license and applicable law; and
(v) rights to payment under Long Term Contracts.
"Transferred Receivable" means a Sold Receivable or a Contributed
Receivable.
SECTION 1.02. Other Terms.
All accounting terms not specifically defined herein shall be construed
in accordance with generally accepted accounting principles.
2
<PAGE>
[Purchase and Contribution Agreement]
ARTICLE II
AMOUNTS AND TERMS OF PURCHASES AND CONTRIBUTIONS
SECTION 2.01. Facility.
On the terms and conditions hereinafter set forth and without recourse
(except to the extent as is specifically provided herein), the Purchaser agrees
to purchase Receivables from the Seller as such Receivables arise during the
period from the date hereof to the Facility Termination Date.
SECTION 2.02. Making Purchases.
(a) On the Closing Date, the Seller hereby sells, transfers, absolutely
assigns, sets-over and conveys to the Purchaser all Receivables owned by the
Seller as of the close of business on the Business Day immediately preceding the
Closing Date. The Seller hereby agrees, on each Business Day occurring after the
Closing Date and prior to the Facility Termination Date, to sell, transfer,
absolutely assign, set-over and convey to the Purchaser all Receivables of
Eligible Originators owned by the Seller as of the close of business on the
immediately preceding Business Day. The Seller and the Purchaser shall enter
into a certificate of assignment (the "Purchase Assignment"), dated as of the
date hereof, in the form of Attachment 1 hereto, evidencing such sale, transfer,
absolute assignment, set-over and conveyance of such Receivables.
(b) Upon the sale, transfer, absolute assignment, set-over and conveyance
of the Transferred Receivables the ownership of each such Receivable shall be
vested in the Purchaser and the Seller shall not take any action inconsistent
with such ownership and shall not claim any ownership interest in any such
Transferred Receivable.
(c) The Seller shall indicate in its records that ownership of each
Transferred Receivable is held by the Purchaser or its assignee. In addition,
the Seller shall respond to any inquiries with respect to ownership of a
Transferred Receivable by stating that it is no longer the owner of such
Receivable and that ownership of such Transferred Receivable is held by the
Purchaser or its assignee.
(d) The Purchaser and the Seller agree that the Purchaser shall purchase
all Canadian dollar denominated Receivables in Canadian dollars. If, on the date
of any Purchase, the Seller desires to sell any Receivable payable in Canadian
dollars, the Purchase Price of which exceeds the aggregate amount of Canadian
dollars available on such day to the Purchaser, the Purchaser shall purchase
such Receivables at an adjusted Purchase Price equal to the product of (i) the
Canadian Exchange Rate and (ii) the Purchase Price for such Receivable, such
adjusted Purchase Price to be payable in United States dollars, or the Seller
may agree to make a contribution of
3
<PAGE>
[Purchase and Contribution Agreement]
such excess Receivables to the Purchaser in accordance with the provisions of
Section 2.07 hereof.>
SECTION 2.03. Collections.
(a) On the Business Day following the Closing Date, the Purchaser shall pay
the Seller the aggregate Purchase Price (calculated as set forth in the Transfer
Agreement) for the purchase of all Receivables owned by the Seller as of the
close of business on the last Business Day of the Seller's August Fiscal Month.
On each Settlement Date, (i) the Collection Agent shall deposit into an account
of the Purchaser or the Purchaser's assignee all Collections of Transferred
Receivables received during the related Fiscal Month and then held by the
Collection Agent, and (ii) the Purchaser shall pay the Seller in respect of all
Receivables sold, transferred, absolutely assigned, set-over and conveyed by the
Seller to the Purchaser during the immediately preceding Fiscal Month an amount
equal to the aggregate Purchase Price (calculated as set forth in the Transfer
Agreement or, as to Transferred Receivables originated by a party to the
Canadian Transfer Agreement, as set forth in the Canadian Transfer Agreement) of
such Receivables (except for the first Settlement Date, which shall relate only
to Receivables sold, transferred, absolutely assigned, set-over and conveyed
after the Closing Date). Each party's obligation to make payment of any amount
under this Section 2.03(a) will be automatically satisfied and discharged and,
if the aggregate amount that would otherwise have been payable by one party
exceeds the aggregate amount that would otherwise have been payable by the other
party, replaced by an obligation upon the party by whom the larger aggregate
amount would have been payable to pay to the other party the excess of the
larger aggregate amount over the smaller aggregate amount.
(b) In the event that the Seller believes that Collections which are not
Collections of Transferred Receivables have been deposited into an account of
the Purchaser or the Purchaser's assignee, the Seller shall so advise the
Purchaser and, on the Business Day following such identification, the Purchaser
shall remit, or shall cause to be remitted, to the Seller, all Collections so
deposited which are identified, to the Purchaser's satisfaction, to be
Collections of Receivables which are not Transferred Receivables.
SECTION 2.04. Settlement Procedures.
(a) If on any day the Outstanding Balance of any Transferred Receivable is
reduced or adjusted as a result of any defective, rejected, returned,
repossessed or foreclosed merchandise or services or any cash discount or other
adjustment made by the Seller, or any set-off or dispute in respect of any claim
by the Obligor thereof against the Seller (whether such claim arises out of the
same or a related transaction or an unrelated transaction but excluding
adjustments, reductions or cancellations in respect of such Obligor's
bankruptcy, insolvency or similar event), the Seller shall be deemed to have
received on such day a Collection of such Transferred Receivable in the amount
of such reduction or adjustment. The Seller shall pay to the Collection Agent on
or prior to the next Settlement Date all amounts deemed to have been received
pursuant to this subsection during the related Fiscal Month.
4
<PAGE>
[Purchase and Contribution Agreement]
(b) Upon discovery by the Seller or the Purchaser of a breach of any of the
representations or warranties made by such Seller in Section 4.01(i) with
respect to any Transferred Receivable, such party shall give prompt written
notice thereof to the other party, as soon as practicable and in any event
within three Business Days following such discovery. If such breach cannot be
cured, such Seller shall, upon not less than two Business Days' notice from the
Purchaser or its assignee or designee, repurchase such Transferred Receivable on
the next succeeding Settlement Date for a repurchase price equal to the
Outstanding Balance of such Transferred Receivable. Each repurchase of a
Transferred Receivable shall include the Related Security with respect to such
Transferred Receivable. The proceeds of any such repurchase shall be deemed to
be a Collection in respect to such Transferred Receivable. The Seller shall pay
to the Collection Agent under the Sale Agreement on or prior to the next
Settlement Date the repurchase price required to be paid pursuant to this
subsection.
(c) Except as stated in subsection (a) or (b) of this Section 2.04 or as
otherwise required by law or the underlying Contract, all Collections from an
Obligor of any Transferred Receivable shall be applied to the Receivables of
such Obligor in the order of the age of such Receivables, starting with the
oldest such Receivable, unless such Obligor designates its payment for
application to specific Receivables.
SECTION 2.05. Payments and Computations, Etc.
(a) All amounts to be paid or deposited by the Seller hereunder shall be
paid or deposited no later than 11:00 A.M. (New York City time) on the day when
due in same day funds to the account of the recipient of such funds to the payor
as set forth in a written notice delivered from time to time by the parties
hereto to each other.
(b) The Seller shall, to the extent permitted by law, pay to the Purchaser
interest on any amount not paid or deposited by the Seller when due hereunder at
an interest rate per annum equal to 2.0% per annum above the Alternate Base
Rate, payable on demand.
(c) All computations of interest and all computations of fees hereunder
shall be made on the basis of a year of 360 days for the actual number of days
(including the first but excluding the last day) elapsed. Whenever any payment
or deposit to be made hereunder shall be due on a day other than a Business Day,
such payment or deposit shall be made on the next succeeding Business Day and
such extension of time shall be included in the computation of such payment or
deposit.
SECTION 2.06. Contributions.
The Seller may from time to time at its option, by notice to the Purchaser,
identify Receivables it has acquired from Eligible Originators which it proposes
to contribute to the Purchaser as a capital contribution. On the date of each
such contribution and after giving effect thereto, the Purchaser shall own the
Receivables so identified and contributed (collectively, the "Contributed
Receivables") and all Related Security with respect thereto.
5
<PAGE>
[Purchase and Contribution Agreement]
ARTICLE III
[reserved]
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
SECTION 4.01. Representations and Warranties of the Seller.
The Seller represents and warrants as follows:
(a) It is a corporation duly incorporated, validly existing and in good
standing under the laws of its jurisdiction of incorporation, and is duly
qualified to do business, and is in good standing, in every jurisdiction where
the nature of its business requires it to be so qualified.
(b) The execution, delivery and performance by it of this Agreement and the
other documents to be delivered by it hereunder, including the sale and
contribution of Receivables hereunder and its use of the proceeds of Purchases,
(i) are within its corporate powers, (ii) have been duly authorized by all
necessary corporate action, (iii) do not contravene (1) its charter or by-laws,
(2) any law, rule or regulation applicable to it, (3) any contractual
restriction binding on or affecting it or its property or (4) any order, writ,
judgment, award, injunction or decree binding on or affecting it or its
property, and (iv) do not result in or require the creation of any Adverse Claim
upon or with respect to any of its properties (except for the transfer of its
interest in the Transferred Receivables pursuant to this Agreement). This
Agreement has been duly executed and delivered by the Seller.
(c) No authorization or approval or other action by, and no notice to or
filing with, any governmental authority or regulatory body is required for the
due execution, delivery and performance by the Seller of this Agreement or any
other document to be delivered by it hereunder other than the filing of
financing statements and similar documents as contemplated in Section 5.01(i).
(d) This Agreement constitutes the legal, valid and binding obligation of
the Seller enforceable against the Seller in accordance with its terms, except
as enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the enforcement of
creditors' rights generally and by general equitable principles (whether
enforcement is sought by proceedings in equity or at law).
(e) Each sale and contribution of Receivables made pursuant to this
Agreement will constitute a valid sale, transfer, and assignment of the
Transferred Receivables to the Purchaser,
6
<PAGE>
[Purchase and Contribution Agreement]
enforceable against creditors of, and purchasers from, the Seller. Following
each such sale/or or contribution, the Seller shall have no remaining property
interest in any Transferred Receivable.
(f) There is no pending or, to the Seller's actual knowledge, threatened
action or proceeding affecting the Seller or any of its subsidiaries before any
court, governmental agency or arbitrator which may materially adversely affect
the financial condition or operations of the Seller or any of its subsidiaries
or the ability of the Seller to perform its obligations under this Agreement, or
which purports to affect the legality, validity or enforceability of this
Agreement. The Seller is not in default with respect to any order of any court,
arbitration or governmental body except for defaults with respect to orders of
governmental agencies which defaults are material to the business or operations
of the Seller.
(g) No proceeds of any Purchase will be used to acquire any equity security
of a class which is registered pursuant to Section 12 of the Securities Exchange
Act of 1934.
(h) No transaction contemplated hereby requires compliance with any bulk
sales act or similar law.
(i) Each Transferred Receivable, together with the Related Security, is
owned (prior to its sale or contribution hereunder) by the Seller free and clear
of any Adverse Claim (other than any Adverse Claim arising solely as the result
of any action taken by the Purchaser). When the Purchaser makes a Purchase and
when the Seller contributes a Receivable to the Purchaser, the Purchaser shall
acquire a valid and perfected first priority ownership or security interest of
each such Transferred Receivable and the Related Security and Collections with
respect thereto free and clear of any Adverse Claim (other than any Adverse
Claim arising solely as the result of any action taken by the Purchaser), and no
effective financing statement or other instrument similar in effect covering any
Transferred Receivable, any interest therein, the Related Security or
Collections with respect thereto is on file in any recording office except such
as may be filed in favor of Purchaser in accordance with this Agreement or in
connection with any Adverse Claim arising solely as the result of any action
taken by the Purchaser.
(j) All written information and each exhibit, financial statement,
document, book, record or report furnished by the Seller to the Purchaser in
connection with this Agreement is accurate in all material respects as of its
date (except as otherwise disclosed in writing to the Purchaser at such time),
and no such document contains any untrue statement of a material fact or omits
to state a material fact necessary in order to make the statements contained
therein, in the light of the circumstances under which they were made, not
misleading.
(k) The principal place of business and chief executive office of the
Seller and the office where the Seller keeps its records concerning the
Transferred Receivables are located at the address or addresses referred to in
Section 5.01(b).
(l) The Seller is not known by and does not use any tradename or
doing-business-as name.
7
<PAGE>
[Purchase and Contribution Agreement]
(m) The transfers of Transferred Receivables by the Seller to the Purchaser
pursuant to this Agreement, and all other transactions between the Seller and
the Purchaser, have been and will be made in good faith and without intent to
hinder, delay or defraud creditors of the Seller.
(n) Each Receivable sold or contributed to the Purchaser hereunder was
acquired by the Seller from an Eligible Originator.
ARTICLE V
COVENANTS
SECTION 5.01. Covenants of the Seller.
From the date hereof until the first day following the Facility Termination
Date on which all of the Transferred Receivables are either collected in full or
are written off the books of the Purchaser as uncollectible:
(a) Compliance with Laws, Etc. The Seller will comply in all material
respects with all applicable laws, rules, regulations and orders and preserve
and maintain its corporate existence, rights, franchises, qualifications and
privileges except to the extent that the failure so to comply with such laws,
rules and regulations or the failure so to preserve and maintain such existence,
rights, franchises, qualifications, and privileges would not materially
adversely affect the collectibility of the Transferred Receivables or the
ability of the Seller to perform its obligations under this Agreement.
(b) Offices, Records and Books of Account. The Seller will keep its
principal place of business and chief executive office and the office where it
keeps its records concerning the Transferred Receivables at the address of the
Seller set forth under its name on the signature page to this Agreement or, upon
30 days' prior written notice to the Purchaser, at any other locations in
jurisdictions where all actions required by Section 5.01(k) shall have been
taken and completed. The Seller also will maintain and implement administrative
and operating procedures (including, without limitation, an ability to recreate
records evidencing Transferred Receivables and related Contracts in the event of
the destruction of the originals thereof), and keep and maintain all documents,
books, records and other information reasonably necessary or advisable for the
collection of all Transferred Receivables (including, without limitation,
records adequate to permit the daily identification of each new Transferred
Receivable and all Collections of and adjustments to each existing Transferred
Receivable). The Seller shall make a notation in its books and records,
including its computer files, to indicate which Receivables have been sold or
contributed to the Purchaser hereunder.
(c) Performance and Compliance with Contracts and Credit and Collection
Policy. The Seller will, at its expense, timely and fully perform and comply
with all material provisions, covenants and other promises required to be
observed by it under the Contracts related to the
8
<PAGE>
[Purchase and Contribution Agreement]
Transferred Receivables, and timely and fully comply in all material respects
with the Credit and Collection Policy in regard to each Transferred Receivable
and the related Contract.
(d) Sales, Liens, Etc. Except for the sales and contributions of
Receivables contemplated herein, the Seller will not sell, assign (by operation
of law or otherwise) or otherwise dispose of, or create or suffer to exist any
Adverse Claim upon or with respect to, any Transferred Receivable, Related
Security, related Contract or Collections, or upon or with respect to any
account to which any Collections of any Transferred Receivable are sent, or
assign any right to receive income in respect thereof; provided, however, that
the provisions of this paragraph shall not prevent the existence of inchoate
liens for taxes, assessments and governmental charges or claims not yet due or
being contested in good faith and by appropriate proceedings.
(e) Extension or Amendment of Transferred Receivables. The Seller will not
extend, amend or otherwise modify the terms of any Transferred Receivable.
(f) Change in Business or in Credit and Collection Policy. The Seller will
not make any change in either (i) the character of its business or (ii) its
Credit and Collection Policy if such change would impair the collectibility of
the Transferred Receivables.
(g) Audits. The Seller will, from time to time (but subject to the
restrictions set forth below) during regular business hours upon reasonable
prior written request from the Purchaser, permit the Purchaser, or its agents,
representatives or assigns, or the Agent under the Sale Agreement:
(i) to conduct an annual audit (or more frequently if an Event of
Termination occurs) of the Transferred Receivables, the Related Security
and the related books and records and collections systems of the Seller;
the first such audit by the Agent under the Sale Agreement shall occur
prior to March 1, 1998,
(ii) semi-annually (or more frequently if an Event of Termination
occurs) to examine and make copies of and abstracts from all books, records
and documents (including, without limitation, computer tapes and disks) in
the possession or under the control of the Seller relating to Transferred
Receivables and the Related Security, including, without limitation, the
Contracts; and
(iii) semi-annually (or more frequently if an Event of Termination
occurs) to visit the offices and properties of the Seller for the purpose
of examining such materials described in clause (ii) above, and to discuss
matters relating to Transferred Receivables and the Related Security or the
Seller's performance hereunder with any of the officers or employees of the
Seller having knowledge of such matters.
(h) Marking of Records. At its expense, the Seller will mark its master
data processing records evidencing Transferred Receivables with a legend
evidencing or otherwise
9
<PAGE>
[Purchase and Contribution Agreement]
mark its records to indicate, that such Transferred Receivables have been sold
in accordance with this Agreement.
(i) Further Assurances. The Seller agrees from time to time, at its
expense, promptly to execute and deliver all further instruments and documents,
and to take all further actions, that may be necessary or desirable, or that the
Purchaser or its assignee may reasonably request, to perfect, protect or more
fully evidence the sale and contribution of Receivables under this Agreement, or
to enable the Purchaser or its assignee to exercise and enforce its respective
rights and remedies under this Agreement. Without limiting the foregoing, the
Seller will, upon the request of the Purchaser or its assignee, (x) execute and
file such financing or continuation statements, or amendments thereto, and such
other instruments and documents, that may be necessary or desirable to perfect,
protect or evidence such Transferred Receivables; and (y) deliver to the
Purchaser copies of all Contracts (other than Long Term Contracts) relating to
the Transferred Receivables and all records relating to such Contracts and the
Transferred Receivables, whether in hard copy or in magnetic tape or diskette
format (which if in magnetic tape or diskette format shall be compatible with
the Purchaser's computer equipment).
(j) Reporting Requirements. The Seller will provide to the Purchaser the
following:
(i) as soon as possible and in any event within five days after the
occurrence of each Event of Termination or event that, but for notice or
the lapse of time or both, would constitute an Event of Termination, a
statement of the chief financial officer of the Seller setting forth
details of such Event of Termination or event that, but for notice or the
lapse of time or both, would constitute an Event of Termination and the
action that the Seller has taken and proposes to take with respect thereto;
(ii) at least ten Business Days prior to any change in the Seller's
name, a notice setting forth the new name and the effective date thereof;
and
(iii) such other information respecting the Transferred Receivables or
the condition or operations, financial or otherwise, of the Seller as the
Purchaser may from time to time reasonably request.
(k) The Seller will not amend, modify or waive any provision of either the
Transfer Agreement or the Canadian Transfer Agreement without the prior written
consent of the Purchaser and its assigns if such amendment, modification or
waiver would have an adverse effect upon any Transferred Receivable or on the
collectibility of any Transferred Receivable.
(l) The Seller will: (i) maintain separate corporate records and books of
account from those of the Purchaser; (ii) conduct its business from an office
separate from that of the Purchaser which office may be located in identifiable
space within the headquarters of Coltec Industries Inc or any of its affiliates;
(iii) ensure that all oral and written communications, including without
limitation, letters, invoices, purchase orders, contracts, statements and
applications, will be made solely in its own name; (iv) have stationery and
other business forms and a telephone listing separate from those of the
Purchaser; (vi) not engage in any transaction
10
<PAGE>
[Purchase and Contribution Agreement]
with the Purchaser except as contemplated by this Agreement or as permitted by
the Sale Agreement; (vii) continuously maintain as official records the
resolutions, agreements and other instruments underlying the transactions
contemplated by this Agreement; and (viii) disclose on its annual financial
statements effects of the transactions contemplated by this Agreement in
accordance with generally accepted accounting principles.
SECTION 5.02. Covenant of the Seller and the Purchaser.
The Seller and the Purchaser have structured this Agreement with the
intention that each Purchase of Receivables hereunder be treated as a sale of
such Receivables by the Seller to the Purchaser for all purposes. The Seller and
the Purchaser shall record each Purchase as a sale or purchase, as the case may
be, on its books and records, and, to the extent it prepares separate financial
statements and tax returns and to the extent required or permitted by applicable
law and/or accounting rules, reflect each Purchase in its financial statements
and tax returns as a sale or purchase, as the case may be. In the event that,
contrary to the mutual intent of the Seller and the Purchasers, any Purchase of
Receivables hereunder is not characterized as a sale, the Seller shall,
effective as of the date hereof, be deemed to have granted (and the Seller
hereby does grant) to the Purchaser a security interest in and to any and all
Purchased Receivables, Related Security and the proceeds thereof to secure the
repayment of all amounts advanced to the Seller hereunder with accrued interest
thereon, and this Agreement shall be deemed to be a security agreement.
ARTICLE VI
EVENTS OF TERMINATION
SECTION 6.01. Events of Termination.
If any of the following events ("Events of Termination") shall occur and be
continuing:
(a) The Seller shall fail (i) to transfer to the Purchaser when requested
any rights, pursuant to this Agreement, which failure shall have a material
adverse effect upon the interest of the Purchaser and shall remain unremedied
for thirty (30) days after written notice thereof shall have been given to the
Seller by the Purchaser, or (ii) to make any payment required under Section
2.04(a) or 2.04(b); or
(b) Any representation or warranty made or deemed made by the Seller (or
any of its officers) under or in connection with this Agreement or any written
information or report delivered by the Seller pursuant to this Agreement shall
prove to have been incorrect or untrue in any material respect when made or
deemed made or delivered, which breach shall have a material adverse effect upon
the interest of the Purchaser and shall remain unremedied for thirty (30) days
after written notice thereof shall have been given to the Seller by the
Purchaser; or
11
<PAGE>
[Purchase and Contribution Agreement]
(c) The Seller shall fail to perform or observe any other term, covenant or
agreement contained in this Agreement on its part to be performed or observed,
which failure shall have a material adverse effect on the interest of the
Purchaser and shall remain unremedied for thirty (30) days after written notice
thereof shall have been given to the Seller by the Purchaser; or
(d) Any Purchase or contribution of Receivables hereunder, the Related
Security and the Collections with respect thereto shall for any reason cease to
constitute valid and perfected ownership interest or security interest in such
Transferred Receivable in favor of the Purchaser of such Transferred
Receivables, Related Security and Collections free and clear of any Adverse
Claim; or
(e) The Seller or any of its subsidiaries shall generally not pay its debts
as such debts become due, or shall admit in writing its inability to pay its
debts generally, or shall make a general assignment for the benefit of
creditors; or any proceeding shall be instituted by or against the Seller or any
of its subsidiaries seeking liquidation, winding up, reorganization,
arrangement, adjustment, protection, relief, or composition of it or its debts
under any law relating to bankruptcy, insolvency or reorganization or relief of
debtors, or seeking the entry of an order for relief or the appointment of a
receiver, trustee, custodian or other similar official for it or for any
substantial part of its property and, in the case of any such proceeding
instituted against it (but not instituted by it), either such proceeding shall
remain undismissed or unstayed for a period of sixty (60) days, or any of the
actions sought in such proceeding (including, without limitation, the entry of
an order for relief against, or the appointment of a receiver, trustee,
custodian or other similar official for, it or for any substantial part of its
property) shall occur; or the Seller or any of its subsidiaries shall take any
corporate action to authorize any of the actions set forth above in this
subsection (e); or
(f) The occurrence of an Event of Default under the Credit Agreement and
such Event of Default shall remain unremedied for five (5) days after written
notice thereof shall have been give to the Seller by the Purchaser; or
(g) An Event of Termination shall have occurred under the Sale Agreement;
or
(h) All of the outstanding capital stock of the Seller shall cease to be
owned, directly or indirectly, by Coltec Industries Inc;
then, and in any such event, the Purchaser may, by notice to the Seller, declare
the Facility Termination Date to have occurred (in which case the Facility
Termination Date shall be deemed to have occurred); provided, that,
automatically upon the occurrence of any event (without any requirement for the
passage of time or the giving of notice) described in paragraph (e) of this
Section 6.01, the Facility Termination Date shall occur. Upon any such
declaration or designation or upon such automatic termination, the Purchaser
shall have, in addition to the rights and remedies under this Agreement, all
other rights and remedies with respect to the Transferred Receivables provided
after default under the UCC and under other applicable law, which rights and
remedies shall be cumulative.
12
<PAGE>
[Purchase and Contribution Agreement]
ARTICLE VII
INDEMNIFICATION
SECTION 7.01. Indemnities.
Without limiting any other rights which the Purchaser may have hereunder or
under applicable law, the Seller hereby agrees to indemnify the Purchaser and
its assigns and transferees (each, an "Indemnified Party") from and against any
and all damages, claims, losses, liabilities and related costs and expenses,
including reasonable attorneys' fees and disbursements (all of the foregoing
being collectively referred to as "Indemnified Amounts"), awarded against or
incurred by any Indemnified Party arising out of or as a result of:
(i) any representation or warranty or statement made or deemed made by
the Seller (or any of its officers) under or in connection with this
Agreement, which shall have been incorrect in any material respect when
made;
(ii) the failure by the Seller to comply with any applicable law, rule
or regulation with respect to any Transferred Receivable; or the failure of
any Transferred Receivable to conform to any such applicable law, rule or
regulation;
(iii) the failure to vest in the Purchaser absolute ownership of the
Receivables that are, or that purport to be, the subject of a Purchase or
contribution under this Agreement and the Related Security and Collections
in respect thereof, free and clear of any Adverse Claim;
(iv) the failure of the Seller to have filed, or any delay in filing,
financing statements or other similar instruments or documents under the
UCC of any applicable jurisdiction or other applicable laws with respect to
any Receivables that are, or that purport to be, the subject of a Purchase
or contribution under this Agreement and the Related Security and
Collections in respect thereof, whether at the time of any Purchase or
contribution or at any subsequent time;
(v) any dispute, claim, offset or defense (other than discharge in
bankruptcy of the Obligor) of the Obligor to the payment of any Receivable
that is, or that purports to be, the subject of a Purchase or contribution
under this Agreement (including, without limitation, a defense based on
such Receivable or the related Contract not being a legal, valid and
binding obligation of such Obligor enforceable against it in accordance
with its terms), or any other claim resulting from the sale of the
merchandise or services related to such Receivable or the furnishing or
failure to furnish such merchandise or services except to the extent that
such dispute, claim, offset or defense results solely from actions or
failures to act of the Purchaser or its assigns;
13
<PAGE>
[Purchase and Contribution Agreement]
(vi) any products liability or other claim arising out of or in
connection with merchandise, insurance or services which are the subject of
any Contract;
(vii) the commingling of Collections of Transferred Receivables by the
Seller at any time with other funds of the Seller or an Affiliate of the
Seller;
(viii) any investigation, litigation or proceeding related solely to
this Agreement or the ownership of Transferred Receivables, the Related
Security, or Collections with respect thereto or in respect of any
Transferred Receivable, Related Security or Contract, except to the extent
any such investigation, litigation or proceeding relates to a possible
matter involving an Indemnified Party for which neither the Seller nor any
of its Affiliates is at fault;
(ix) any failure of the Seller to comply with its covenants contained
in Section 5.01;
(x) any claim brought by any Person other than an Indemnified Party
arising from any activity by the Seller or any Affiliate of the Seller in
servicing, administering or collecting any Transferred Receivable; or
(xi) any Dilution with respect to any Transferred Receivable.
It is expressly agreed and understood by the parties hereto (i) that the
foregoing indemnification is not intended to, and shall not, constitute a
guarantee of the collectibility or payment of the Transferred Receivables and
(ii) that nothing in this Section 7.01 shall require the Seller to indemnify any
Person (x) for Receivables which are not collected, not paid or uncollectible on
account of the insolvency, bankruptcy, or financial inability to pay of the
applicable Obligor, (y) for damages, losses, claims or liabilities or related
costs or expenses resulting from such Person's gross negligence or willful
misconduct, or (z) for any income taxes or franchise taxes incurred by such
Person arising out of or as a result of this Agreement or in respect of any
Transferred Receivable or any Contract.
ARTICLE VIII
MISCELLANEOUS
SECTION 8.01. Amendments, Etc.
No amendment or waiver of any provision of this Agreement or consent to any
departure by the Seller therefrom shall be effective unless in a writing signed
by the Purchaser and, in the case of any amendment, also signed by the Seller,
and then such amendment, waiver or consent shall be effective only in the
specific instance and for the specific purpose for which given. No failure on
the part of the Purchaser to exercise, and no delay in exercising, any right
hereunder
14
<PAGE>
[Purchase and Contribution Agreement]
shall operate as a waiver thereof; nor shall any single or partial exercise of
any right hereunder preclude any other or further exercise thereof or the
exercise of any other right.
SECTION 8.02. Notices, Etc.
All notices and other communications hereunder shall, unless otherwise
stated herein, be in writing (which shall include electronic transmission) shall
be personally delivered, express couriered, electronically transmitted (whether
by facsimile, e-mail or otherwise) or mailed by registered or certified mail and
shall, unless otherwise expressly provided herein, be effective when received at
the address set forth under a party's name on the signature pages hereof or at
such other address as shall be designated by such party in a written notice to
the other parties hereto.
SECTION 8.03. Binding Effect; Assignability.
(a) This Agreement shall be binding upon and inure to the benefit of the
Seller, the Purchaser and their respective successors and assigns; provided,
however, that the Seller may not assign its rights or obligations hereunder or
any interest herein without the prior written consent of the Purchaser.
(b) This Agreement shall create and constitute the continuing obligation of
each of the parties hereto in accordance with its terms, and shall remain in
full force and effect until such time, after the Facility Termination Date, when
all of the Transferred Receivables are either collected in full or become
Defaulted Receivables; provided, however, that rights and remedies with respect
to any breach of any representation and warranty made by the Seller pursuant to
Article IV and the provisions of Article VII and Section 8.04 shall be
continuing and shall survive any termination of this Agreement.
SECTION 8.04. Costs, Expenses and Taxes.
(a) In addition to the rights of indemnification granted to the Purchaser
pursuant to Article VII hereof, the Seller agrees to pay on demand all costs and
expenses in connection with the preparation, execution and delivery of this
Agreement and the other documents and agreements to be delivered hereunder,
including, without limitation, the reasonable fees and out-of-pocket expenses of
counsel for the Purchaser with respect thereto and with respect to advising the
Purchaser as to its rights and remedies under this Agreement, and the Seller
agrees to pay all costs and expenses, if any (including reasonable counsel fees
and expenses), in connection with the enforcement of this Agreement and the
other documents to be delivered hereunder excluding, however, any costs of
enforcement or collection of Transferred Receivables.
(b) In addition, the Seller agrees to pay any and all stamp and other taxes
and fees payable in connection with the execution, delivery, filing and
recording of this Agreement or the other documents or agreements to be delivered
hereunder, and the Seller agrees to save each Indemnified Party harmless from
and against any liabilities with respect to or resulting from any delay in
paying or omission to pay such taxes and fees.
15
<PAGE>
[Purchase and Contribution Agreement]
SECTION 8.05. Certain Rights of the Purchaser.
(a) The Purchaser may, at any time, give notice of ownership and/or direct
the Obligors of Transferred Receivables and any Person obligated on any Related
Security, or any of them, that payment of all amounts payable under any
Transferred Receivable shall be made directly to the Purchaser or its designee.
The Seller hereby transfers to the Purchaser (and its assigns and designees) the
exclusive ownership and control of the Lock-Box Accounts maintained by the
Seller for the purpose of receiving Collections.
(b) The Seller shall, at any time upon the Purchaser's request and at the
Seller's expense, give notice of such ownership to each Obligor of Transferred
Receivables and direct that payments of all amounts payable under such
Transferred Receivables be made directly to the Purchaser or its designee.
(c) At the Purchaser's request after the occurrence of an Event of
Termination and at the Seller's expense, the Seller shall (x) assemble all of
the documents, instruments and other records (including, without limitation,
computer tapes and disks) that evidence or relate to the Transferred Receivables
acquired from the Seller, and the related Contracts and Related Security, or
that are otherwise necessary or desirable to collect the Transferred
Receivables, and shall make the same available to the Collection Agent at a
place selected by the Collection Agent, and (y) segregate all cash, checks and
other instruments received by it from time to time constituting Collections of
such Transferred Receivables in a manner acceptable to the Purchaser and,
promptly upon receipt, remit all such cash, checks and instruments, duly
endorsed or with duly executed instruments of transfer, to the Purchaser or its
designee. The Purchaser shall also have the right to make copies of all such
documents, instruments and other records at any time.
SECTION 8.06. Rights and Remedies.
(a) If the Seller fails to perform any of its obligations under this
Agreement, the Purchaser may (but shall not be required to) itself perform, or
cause performance of, such obligation, and, if the Seller fails to so perform,
the costs and expenses of the Purchaser incurred in connection therewith shall
be payable by the Seller as provided in Section 7.01 or Section 8.04 as
applicable.
(b) The Seller shall perform all of its obligations under the Contracts
related to the Transferred Receivables to the same extent as if the Seller had
not sold or contributed Receivables hereunder and the exercise by the Purchaser
of its rights hereunder shall not relieve the Seller from such obligations or
its obligations with respect to the Transferred Receivables. The Purchaser shall
not have any obligation or liability with respect to any Transferred Receivables
or related Contracts, nor shall the Purchaser be obligated to perform any of the
obligations of the Seller thereunder.
(c) The Seller shall cooperate with the Collection Agent under the Sale
Agreement in
16
<PAGE>
[Purchase and Contribution Agreement]
collecting amounts due from Obligors in respect of the Transferred Receivables.
SECTION 8.07. Transfer of Records to Purchaser.
Each Purchase and contribution of Receivables hereunder shall include the
transfer to the Purchaser of all of the Seller's right and title to and interest
in the records relating to such Receivables.
The Seller shall take such action requested by the Purchaser, from time to
time hereafter, that may be necessary or appropriate to ensure that the
Purchaser has an enforceable ownership interest in the records relating to the
Transferred Receivables.
SECTION 8.08. Confidentiality.
Unless otherwise required by applicable law, each party hereto agrees to
maintain the confidentiality of this Agreement in communications with third
parties and otherwise; provided that this Agreement may be disclosed to (i)
third parties to the extent such disclosure is made pursuant to a written
agreement of confidentiality in form and substance reasonably satisfactory to
the other party hereto, (ii) to the Seller's, the Collection Agent's, the
Agent's (under the Sale Agreement) and the Eligible Originators' legal counsel
and accountants, (iii) to the financial institutions from time to time parties
to the Credit Agreement and their respective legal counsel, (iv) in the event
this Agreement is or becomes public information (other than as a result of the
violation of the provisions of this Section 8.08 by the person making such
disclosure) and (v) to any of their officers, directors, managers, employees or
agents, provided that the person making such disclosure shall ensure that any
such officer, director, manager, employee or agent shall agree to keep this
Agreement confidential.
SECTION 8.09. Governing Law.
THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE
LAWS OF THE STATE OF NORTH CAROLINA (WITHOUT GIVING EFFECT TO THE CONFLICT OF
LAWS PRINCIPLES THEREOF), EXCEPT TO THE EXTENT THAT THE PERFECTION OF THE
PURCHASER'S OWNERSHIP OF OR SECURITY INTEREST IN THE RECEIVABLES OR REMEDIES
HEREUNDER, IN RESPECT THEREOF, ARE GOVERNED BY THE LAWS OF A JURISDICTION OTHER
THAN THE STATE OF NORTH CAROLINA.
SECTION 8.10. Third Party Beneficiary.
Each of the parties hereto hereby acknowledges that the Purchaser is
transferring interests in the Transferred Receivables and certain of its rights
under this Agreement to Credit Lyonnais, New York Branch, as agent under the
Sale Agreement and the Seller hereby consents to such transfers and assignments.
All such assignees, including parties to the Sale Agreement in the case of
assignment to such parties, shall be third party beneficiaries of, and shall,
following the occurrence of an Event of Termination under the Sale Agreement, be
entitled to enforce the
17
<PAGE>
[Purchase and Contribution Agreement]
Purchaser's rights and remedies under, this Agreement to the same extent as if
they were parties thereto, except to the extent specifically limited under the
terms of the Sale Agreement or their assignment.
SECTION 8.11. No Proceedings.
The Seller hereby agrees that it will not, directly or indirectly,
institute, or cause to be instituted, against the Purchaser or CNC Member Inc
any proceeding of the type referred to in the second clause of Section 6.01(e)
so long as there shall not have elapsed one year plus one day since the day
following the Facility Termination Date on which the aggregate Capital is
reduced to zero and all yield and other amounts payable under the Sale Agreement
by the Purchaser hereunder has been paid in full.
SECTION 8.12. Execution in Counterparts.
This Agreement may be executed in any number of counterparts, each of which
when so executed shall be deemed to be an original and all of which when taken
together shall constitute one and the same agreement. Delivery of an executed
counterparty of a signature page to this Agreement by facsimile shall be
effective as delivery of a manually executed counterpart of this Agreement.
[Remainder of Page Intentionally Left Blank]
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
by their respective officers thereunto duly authorized, as of the date first
above written.
SELLER: COLTEC NORTH CAROLINA INC
By:______________________________________
Name::___________________________________
Title:___________________________________
Address:
3 Coliseum Centre
2550 West Tyvola Road
Charlotte, NC 28217
Attention: Thomas B. Jones, Jr.
Facsimile No.: (704) 423-7069
Account Information:
____________________
PURCHASER: CNC FINANCE LLC
By:______________________________________
Name::___________________________________
Title:___________________________________
Address:
3 Coliseum Centre
2550 West Tyvola Road
Charlotte, NC 28217
Attention: Thomas B. Jones, Jr.
Facsimile No.: (704) 423-7069
<PAGE>
Accepted and agreed to by:
COLTEC INDUSTRIES INC,
as Collection Agent
By:_______________________________
Name:_____________________________
Title:____________________________
<PAGE>
[FORM OF PURCHASE ASSIGNMENT]
PURCHASE ASSIGNMENT, dated as of ______________ ___ 19___, between Coltec North
Carolina Inc (the "Seller") and CNC Finance LLC (the "Purchaser").
1. We refer to the Receivables Purchase and Contribution Agreement, dated
as of September _, 1997, by and between the Purchaser and the Seller (the
"Agreement"). All provisions of the Agreement are incorporated herein by
reference. All capitalized terms shall have the meanings set forth in the
Agreement.
2. The Seller does hereby sell, transfer, assign, set over and convey to
the Purchaser, without recourse, all right, title and interest of the Seller in
and to all Receivables from time to time acquired by the Seller from any
Eligible Originator and owned by the Seller.
3. The Seller does hereby make the representations and warranties referred
to in Section 4.01 of the Agreement with respect to each Transferred Receivable
with full force and effect as if fully set forth herein.
IN WITNESS WHEREOF, the parties have caused this Purchase Assignment to be
executed by their respective officers thereunto duly authorized, as of the date
first above written.
COLTEC NORTH CAROLINA INC
By:_______________________________
Name:_____________________________
Title:____________________________
CNC FINANCE LLC
By: Coltec North Carolina Inc,
a member
By:_______________________________
Name:_____________________________
Title:____________________________
<PAGE>
FIRST AMENDMENT
TO
RECEIVABLES TRANSFER AND ADMINISTRATION AGREEMENT
THIS FIRST AMENDMENT TO RECEIVABLES TRANSFER AND ADMINISTRATION AGREEMENT,
dated as of December 15, 1997 (this "Amendment"), is to that Receivables
Transfer and Administration Agreement, dated as of September 19, 1997 (as
amended and modified hereby and as further amended and modified from time to
time hereafter, the "Transfer Agreement"), by and among COLTEC INDUSTRIES INC, a
Pennsylvania corporation, as agent for the Sellers (the "Sellers' Agent"), as
collection agent (the "Collection Agent") and as a Seller, the entities listed
on the signature pages thereto (each a "Seller" and, collectively, the
"Sellers") and COLTEC NORTH CAROLINA INC, a North Carolina corporation (the
"Purchaser"). Terms used and not otherwise defined in this Amendment shall have
the meanings set forth in the Transfer Agreement.
W I T N E S S E T H
WHEREAS, the parties hereto desire to amend Schedule 4.01(n) referred to
in, and attached to, the Transfer Agreement to reflect additional tradenames of
certain of the Sellers; and
WHEREAS, in accordance with the terms of that certain Receivables Purchase
Agreement, dated as of September 19, 1997, by and among CNC Finance LLC, as
seller, the Collection Agent, Atlantic Asset Securitization Corp., The
Industrial Bank of Japan Limited, Lloyds Bank PLC, The Sumitomo Bank, Limited
(whose interest thereunder has been assigned to the other Banks party thereto)
and Credit Lyonnais New York Branch (the "Agent"), the Agent has consented to
such amendment on the terms and conditions hereinafter set forth;
NOW, THEREFORE, IN CONSIDERATION of these premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. Amendment.
Schedule 4.01(n) referred to in, and attached to, the Transfer Agreement is
hereby deleted and replaced in its entirety with Appendix 1 attached hereto.
2. No Other Changes.
Except as modified by this Amendment, all of the terms and provisions of
the Transfer Agreement remain in full force and effect.
<PAGE>
3. Counterparts.
This Amendment may be executed in any number of counterparts, each of which
when so executed and delivered shall be deemed an original. It shall not be
necessary in making proof of this Amendment to produce or account for more than
one such counterpart.
4. Governing Law.
This Amendment shall be construed and enforced in accordance with the laws
of the State of North Carolina without regard to its rules with respect to
conflicts of law.
[Remainder of Page Intentionally Left Blank]
2
<PAGE>
The undersigned have caused this FIRST AMENDMENT TO RECEIVABLES TRANSFER
AND ADMINISTRATION AGREEMENT to be duly executed and delivered by their proper
and duly authorized representatives as of the 15th day of December, 1997.
COLTEC INDUSTRIES INC,
as Sellers' Agent
By__________________________________
Name:
Title:
COLTEC NORTH CAROLINA INC,
as Purchaser
By__________________________________
Name:
Title:
Accepted and Agreed:
CREDIT LYONNAIS
NEW YORK BRANCH
By_______________________________
Name:
Title:
<PAGE>
APPENDIX 1
List of Tradenames
Subsidiaries Tradenames
------------ ----------
1. Coltec Industries Inc Chandler Evans Control Systems
Delavan Process Instrumentation
Fairbanks Morse Engine
Haber Tool
Lewis Engineering Company
Menasco Aerosystems
Quincy Compressor
Sterling Die
2. AMI Industries, Inc. Aircraft Seating Systems
3. Coltec Canada Inc None
4. Coltec Industrial Products France Compressor Products
Ortman Fluid Power
Plastomer Products
5. Delavan-Delta Inc Delavan Commercial Products
6. Delavan Inc Delavan Fuel Metering Products
Delavan Gas Turbine Products
7. Garlock Bearings Inc None
8. Garlock Inc Garlock Metallic Gaskets
Garlock Sealing Technologies
9. Holley Performance Products Inc Holley Performance Products
10. Menasco Aerosystems Inc None
11. Stemco Inc Stemco Truck Products
12. Walbar Inc Walbar Arizona
Walbar Metals
<PAGE>
FIRST AMENDMENT
TO
RECEIVABLES PURCHASE AND CONTRIBUTION AGREEMENT
THIS FIRST AMENDMENT TO RECEIVABLES PURCHASE AND CONTRIBUTION AGREEMENT,
dated as of December 15, 1997 (this "Amendment"), is to that Receivables
Purchase and Contribution Agreement dated as of September 19, 1997 (as amended
and modified hereby and as further amended and modified from time to time
hereafter, the "Purchase Agreement"), by and between COLTEC NORTH CAROLINA INC,
a North Carolina corporation, as seller (the "Seller"), and CNC FINANCE LLC, a
North Carolina limited liability company, as purchaser (the "Purchaser"). Terms
used and not otherwise defined in this Amendment shall have the meanings set
forth in the Purchase Agreement.
W I T N E S S E T H
WHEREAS, the parties hereto desire to amend Schedule 1 referred to in, and
attached to, the Purchase Agreement to reflect the addition of certain Eligible
Originators; and
WHEREAS, in accordance with the terms of that certain Receivables Purchase
Agreement, dated as of September 19, 1997, by and among CNC Finance LLC, as
seller, the Collection Agent, Atlantic Asset Securitization Corp., The
Industrial Bank of Japan Limited, Lloyds Bank PLC, The Sumitomo Bank, Limited
(whose interest thereunder has been assigned to the other Banks party thereto)
and Credit Lyonnais New York Branch (the "Agent"), the Agent has consented to
such amendment on the terms and conditions hereinafter set forth;
NOW, THEREFORE, IN CONSIDERATION of these premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. Amendments.
Schedule 1 referred to in, and attached to, the Purchase Agreement is
hereby deleted and replaced in its entirety with Appendix 1 attached hereto.
2. No Other Changes.
Except as modified by this Amendment, all of the terms and provisions of
the Purchase Agreement remain in full force and effect.
3. Counterparts.
This Amendment may be executed in any number of counterparts, each of which
when so executed and delivered shall be deemed an original. It shall not be
necessary in making proof of this Amendment to produce or account for more than
one such counterpart.
<PAGE>
4. Governing Law.
This Amendment shall be construed and enforced in accordance with the laws
of the State of North Carolina without regard to its rules with respect to
conflicts of law.
[Remainder of Page Intentionally Left Blank]
2
<PAGE>
The undersigned have caused this FIRST AMENDMENT TO RECEIVABLES PURCHASE
AND CONTRIBUTION AGREEMENT to be duly executed and delivered by their proper and
duly authorized representatives as of the 15th day of December, 1997.
COLTEC NORTH CAROLINA INC,
as Seller
By__________________________________________
Name:
Title:
CNC FINANCE LLC,
as Purchaser
By: Coltec North Carolina Inc
By__________________________________________
Name:
Title:
Accepted and Agreed:
CREDIT LYONNAIS
NEW YORK BRANCH
By__________________________________________
Name:
Title:
<PAGE>
APPENDIX 1
Eligible Originators
AMI Industries, Inc.,
a Subsidiary of Coltec Industries Inc
1275 North Newport Rd.
Colorado Springs, CO 80916
Chandler Evans Control Systems,
a Division of Coltec Industries Inc
Charter Oak Boulevard
P.O. Box 330651
W. Hartford, CT 06133-0651
Delavan Gas Turbine Products,
a Division of Delavan Inc
811 Fourth Street
P.O. Box 65100
West Des Moines, IA 50265-0100
Delavan Process Instrumentation,
an Operating Unit of the Lewis Engineering Company
Division of Coltec Industries Inc
238 Water Street
Naugatuck, CT 06770
Garlock Bearings Inc,
a Subsidiary of Coltec Industries Inc
700 Mid Atlantic Parkway
Thorofare, NY 08086
Garlock Metallic Gaskets,
an Operating Unit of Garlock Inc
1977 Kindred Street
Houston, TX 77049
Garlock Sealing Technologies,
a Division of Garlock Inc
1666 Division Street
Palmyra, NY 14522
<PAGE>
Garlock Sealing Technologies,
a Division of Garlock Inc
300 Alling Drive
Sodus, NY 14551
Garlock Sealing Technologies,
a Division of Garlock of Canada Ltd
2860 Plymouth Drive
Oakville, Ontario
Canada L6H-5S8
Haber Tool,
a Division of Coltec Industries Inc
12850 Inkster Road
Detroit MI 48239
Lewis Engineering Company,
a Division of Coltec Industries Inc
238 Water Street
Naugatuck, CT 06770
Menasco Aerospace,
a Division of Coltec Aerospace Canada Ltd.
1400 South Service Road West
Oakville, Ontario
Canada L6L-5Y7
Menasco Aerosystems,
a Division of Coltec Industries Inc
4000 South Highway 157
Euless, TX 76040-7012
Quincy Compressor,
a Division of Coltec Industries Inc
3501 Wismann Lane
Quincy, IL 62301-3116
Stemco Truck Products,
a Division of Stemco Inc
300 East Industrial Blvd.
Longview, TX 75602-4720
<PAGE>
Walbar Arizona,
a Division of Walbar Inc
323 S. Bracken Lane
Chandler, AZ 85224
Walbar Canada,
a division of Coltec Aerospace Canada Ltd.
1865 Sharlyn Road
Mississauga
Canada L4X-1R2
Walbar Metals,
a Division of Walbar Inc
Peabody Industrial Center, Fifth Street
Peabody, MA 01960-3369
Walbar Metals,
a Division of Walbar Inc
5502 Highway 25 North
Hodges, SC 29653
<PAGE>
SPLIT DOLLAR INSURANCE AGREEMENT
THIS AGREEMENT is made the 8th day of May, 1997 between COLTEC INDUSTRIES
INC (the "Corporation") and _____________________ (the "Executive").
WITNESSETH:
A. The Corporation has heretofore adopted a Family Protection Program which
provides certain death benefits to beneficiary(ies) of the Executive in the
event of the Executive's death while employed by the Corporation.
B. The Corporation and the Executive believe that the Family Protection
Program would better serve the interests of the Executive and his family if the
current Family Protection Program were terminated and replaced by a split dollar
insurance program allowing the Executive to deploy certain insurance proceeds
for the benefit of his beneficiaries as the Executive determines in the event of
his death.
C. The Corporation owns a policy of insurance on the life of the Executive
which is listed on Schedule A annexed hereto and incorporated herein by
reference (the "Policy"). The Policy represents a collection of rights and
assets comprising a death benefit portion and a cash value portion.
D. The Corporation and the Executive desire that, upon payment of the death
benefit while this Agreement is in effect, each of the Corporation and the
beneficiary of the Executive will receive a portion of the proceeds as described
herein.
THEREFORE, in consideration of the mutual covenants contained herein, the
parties agree as to each Policy as follows:
1. Ownership of Policy, Policy Loans. The Corporation shall be sole owner
of each Policy and shall endorse the death proceeds of each to the beneficiary
named by the Executive, in accordance with paragraph 2, such that the total
Death Benefit payable to the beneficiary shall equal (a) the entire death
proceeds payable under the Policy (without reduction for policy loans, if any),
minus (b) the Corporation's interest. The Corporation's Interest equals the
greater of the cash surrender value and (x) all amounts paid by the Corporation
to the Insurer as premium
<PAGE>
payments minus (y) the total of amounts paid by (or taxed to) the Executive as
income under paragraph 3 hereof. The Corporation may borrow against the cash
value of the Policy(ies) up to the limit of the Corporation's Interest.
2. Executive's Rights. The Executive shall have the right to designate and
change direct and contingent beneficiaries of the Executive's Death Benefit and
to elect and change a payment plan for such beneficiaries. The Executive shall
have the right to assign any part or all of the Executive's interest in the
Policy and this Agreement to any person, entity or trust (the "Assignee") by
execution of a written assignment delivered to the Corporation and to the
Insurer. Thereupon. the Assignee shall be substituted for the Executive herein
to the extent of the Assignee's interest.
3. Payment of Premiums. The Corporation shall pay the entire premium on the
Policy minus the "Executive's Cost." The Executive shall contribute the
Executive's Cost each year in time to be included with the Corporation's
payment. In the event the Executive does not so contribute, the Executive's Cost
will be treated by the Corporation as a bonus to the Executive and will be
reported for tax purposes accordingly. The Executive's Cost shall be an amount
equal to the current term rate for the Executive's age multiplied by the
Executive's Death Benefit in the insurance Policy. For this purpose, "current
term rate" shall mean the lesser of the Insurer's annual term insurance rate for
standard risks or the rate specified in Revenue Rulings 64-328 and 66-110.
4. Use of Dividends. Policy dividends shall be applied to purchase paid-up
additional insurance protection.
5. Right of First Refusal. The Corporation shall not sell, surrender,
change the insured or transfer ownership of the Policy while this Agreement is
in effect (or for sixty (60) days thereafter) without first giving the Executive
the option to purchase the Policy during a period of sixty (60) days' notice to
the Executive of such intention. The purchase price of the Policy shall be the
cash value of the Policy as of the date of transfer to the Executive, less any
Policy and premium loans and any other indebtedness secured by the Policy. This
restriction shall not impair the right of the Corporation to terminate this
Agreement pursuant to paragraph 6 hereof. The exercise by the Corporation of the
right to surrender the Policy or to change the insured will terminate the rights
of the Executive.
2
<PAGE>
6. Termination. This Agreement may be terminated by either party hereto,
with or without the consent of the other, by giving notice of termination in
writing to the other party. This Agreement shall terminate automatically upon
termination of the Executive's employment with the Corporation for any reason
whatsoever other than the Executive's death. In the event of termination of the
Agreement, the Executive shall have the right to purchase the Policy from the
Corporation on the same terms and conditions as specified in paragraph 5 hereof.
7. Insurer. The Insurer named on Schedule A shall be bound only by the
provisions of and endorsements on the Policy, and any payments made or action
taken by it in accordance therewith shall fully discharge it from all claims,
suits and demands of all persons whatsoever. It shall not be bound by the
provisions of this Agreement.
8. Amendment. The Corporation and the Executive may mutually agree to amend
this Agreement and such amendment shall be in writing and signed by the
Corporation and the Executive. If additional Policies are made subject to this
Agreement, they shall be listed on successive Schedules annexed hereto.
9. Binding Effect. This Agreement shall bind and inure to the benefit of
the Corporation and its successors and assigns; the Executive and his heirs,
executors, administrators and assigns; and any Policy beneficiary.
10. ERISA Provision. The following provisions are part of this Agreement
and are intended to meet the requirements of the Employee Retirement Income
Security Act of 1974 ("ERISA"):
a. The named fiduciary: the Corporation.
b. The funding policy under this Plan is that all premiums on the
Policy be remitted to the Insurer when due.
c. Direct payment by the Insurer is the basis of payment of benefits
under this Plan, with those benefits in turn being based on the payment of
premiums as provided in the Plan.
3
<PAGE>
d. For claims procedure purposes, the "Claims Manager" shall be the
Treasurer and the Director of Compensation of the Corporation; provided,
however, that if a claim made under the Plan affects any of these persons,
such person shall not participate in the review of the claim.
i. If for any reason a claim for benefits under this Plan is
denied by the Corporation, the Claims Manager shall deliver to the
claimant a written explanation setting forth the specific reasons for
the denial, pertinent references to the Plan section on which the
denial is based, such other data as may be pertinent and information
on the procedures to be followed by the claimant in obtaining a review
of his claim, all written in a manner calculated to be understood by
the claimant. For this purpose:
(a) The claimant's claim shall be deemed filed when
presented in writing to the Claims Manager.
(b) The Claims Manager's explanation shall be in writing
delivered to the claimant within ninety (90) days of the date the
claim is filed.
(ii) The claimant shall have sixty (60) days following his
receipt of the denial of the claim to file with the Claims Manager a
written request for review of the denial. For such review, the
claimant or his representative may submit pertinent documents and
written issues and comments.
(iii) The Claims Manager shall decide the issue on review and
furnish the claimant with a copy within sixty (60) days of receipt of
the claimant's request for review of his claim. The decision on review
shall be in writing and shall include specific reasons for the
decision, written in a manner calculated to be understood by the
claimant, as well as specific references to the pertinent Plan
provisions on which the decision is based. If a copy of the decision
is not so furnished to the claimant within such sixty (60) days, the
claim shall be deemed denied on review.
11. Termination of Family Protection Program. The Agreement between the
Corporation and the Executive dated April 26, 1996 pertaining to the Family
Protection Program is terminated by mutual agreement of the parties as of the
date hereof.
4
<PAGE>
IN WITNESS WHEREOF, the parties have signed and sealed this Agreement.
COLTEC INDUSTRIES INC COLTEC INDUSTRIES INC, Corporation
By: By:
------------------------------ --------------------------------
Title:
--------------------------
(SEAL)
---------------------------
5
<PAGE>
SCHEDULE A
Insurer Policy # Face Amount
6
<PAGE>
BENEFITS EQUALIZATION PLAN
OF
COLTEC INDUSTRIES INC
Effective January 1, 1976
Amended and Restated as of January 1, 1989
<PAGE>
BENEFITS EQUALIZATION PLAN OF
COLTEC INDUSTRIES INC
INTRODUCTION
The purpose of this Plan is to provide a means for select officers of the
Corporation who are, or would be, impacted by the application of Internal
Revenue Code Sections 401(a)(17), 401(k), 402(g), or 415 ("IRS limits") to the
Retirement Plan for Salaried Employees of Coltec Industries Inc and the Coltec
Industries Inc Retirement Savings Plan for Salaried Employees to receive the
same benefits from such plans as they would be entitled to in the absence of
such IRS limits. In addition, to the extent that salary deferrals hereunder
cannot be recognized for purposes of the benefits payable under the Retirement
Plan for Salaried Employees of Coltec Industries Inc, any benefit attributable
to such amounts would be paid hereunder.
This Plan was originally effective January 1, 1976, and has been amended from
time to time. The provisions contained herein reflect subsequent amendments
effective January 1, 1989, and January 1, 1997, as well as the merger of the
Supplemental Retirement Savings Plan of Coltec Industries Inc into the Plan.
<PAGE>
BENEFITS EQUALIZATION PLAN OF
COLTEC INDUSTRIES INC
TABLE OF CONTENTS
Page
----
ARTICLE I. DEFINITIONS........................................................1
ARTICLE II. COMPUTATION OF SUPPLEMENTAL BENEFITS..............................4
ARTICLE III. SUPPLEMENTAL CONTRIBUTIONS.......................................5
ARTICLE IV. SOURCE OF PAYMENT AND BENEFITS....................................8
ARTICLE V. AMENDMENT AND TERMINATION.........................................11
ARTICLE VI. GENERAL PROVISIONS...............................................12
ARTICLE VII. CHANGE IN CONTROL...............................................13
<PAGE>
BENEFITS EQUALIZATION PLAN OF
COLTEC INDUSTRIES INC
ARTICLE 1. DEFINITIONS
1.01 "Board" means the Board of Directors of the Corporation.
1.02 "Code" means the Internal Revenue Code of 1986. All references to any
Section of the Code shall be deemed to refer not only to such Section but
also to any amendment thereof and any successor statutory provisions.
1.03 "Committee" means the Retirement Committee appointed by the Board to
administer the Retirement Plan.
1.04 "Corporation" means Coltec Industries Inc.
1.05 "Deferred Contributions" means contributions made on behalf of a
participant in the Savings Plan pursuant to his deferral election
thereunder.
1.06 "Employee" means an individual who (a) at any time before the termination
of this Plan is an employee of a participating employer and while so
employed is a member of the Retirement Plan or the Savings Plan and (b)
has been designated as a participant in the Plan by action of the Board
or of a committee of the Board. In addition, an employee who previously
participated in the Supplemental Retirement Savings Plan of Colt
Industries Inc shall participate in this Plan, effective December 31,
1996.
1.07 "Employer Contributions" means matching contributions made to the Savings
Plan by participating employers.
1.08 "Plan" means this Benefits Equalization Plan of Coltec Industries Inc, as
at any time in effect.
<PAGE>
1.09 "Restricted Retirement Allowance" means the portion of the Total
Retirement Allowance of a member of the Retirement Plan that is payable
thereunder in any calendar year.
1.10 "Retirement Plan" means the Retirement Plan for Salaried Employees of
Coltec Industries Inc, as at any time in effect.
1.11 "Savings Plan" means the Coltec Industries Inc Retirement Savings Plan
for Salaried Employees.
1.12 "Total Retirement Allowance" means the allowance that would be payable in
any calendar year under the Retirement Plan to a member or his
beneficiary, determined (a) without regard to any IRS limits and (b) by
including in the determination of the "Average Final Compensation" under
the Retirement Plan the amount of the member's salary reduction pursuant
to Section 3.02 hereof (to the extent not includible under the Retirement
Plan).
1.13 "Key Executive" means an employee of a participating employer who entered
into an individual deferred compensation agreement with his participating
employer and who was given the opportunity to transfer the entire amount
so deferred into the Plan.
Wherever used herein, words in the masculine form shall be deemed to refer to
females as well as to males.
<PAGE>
ARTICLE II. COMPUTATION OF SUPPLEMENTAL BENEFITS
If during any calendar year after 1975 the Total Retirement allowance payable to
any person in such year will exceed the Restricted Retirement Allowance payable
to him in such year, he shall be entitled to receive under this Plan in such
year a supplemental benefit in an amount equal to the excess of such Total
Retirement Allowance over such Restricted Retirement Allowance.
<PAGE>
ARTICLE III. SUPPLEMENTAL CONTRIBUTIONS
3.01 For each year in which an Employee is, or could be, prevented from making
Deferred Contributions under the Savings Plan as a consequence of the IRS
limits, a participating employer shall record on its books a supplemental
contribution equal to the sum of (a) and (b) below:
(a) the amount of the Employee's salary reduction under the agreement
described in Section 3.02, which shall not be greater than an amount
equal to (1) minus (2):
(1) the Employee's compensation for the year multiplied by a
percentage equal to the maximum percentage of Deferred
Contributions permitted for such year under the Savings Plan
without regard to any IRS limits; minus
(2) the amount of Deferred Contributions which could be made on the
Employee's behalf for the year under the Savings Plan (whether or
not made); plus
(b) an amount equal to the excess of (1) over (2):
(1) the Employer Contribution that would have been made on the
Employee's behalf for the year under the Savings Plan, without
regard to any IRS limits, based on the Employee's actual Deferred
Contributions plus the amount treated as Deferred Contributions
pursuant to (a) above; less
(2) the actual amount of Employer Contributions made on the
Employee's behalf for the year under the Savings Plan.
<PAGE>
Notwithstanding the foregoing, no contributions shall be made under the
foregoing paragraph (b)(l) if the Employee does not have the maximum amount of
Deferred Contributions which could be made on the Employee's behalf under the
Savings Plan credited to such plan due to: the Employee's voluntary suspension,
or reduction, in the rate of such contributions under the Savings Plan; or the
Employee's incurrence of a suspension of contributions attributable to a
withdrawal under the Savings Plan.
3.02 Prior to the beginning of any calendar year after 1988 during which an
Employee desires to have contributions credited on his behalf pursuant to
Section 3.01, the Employee shall execute an irrevocable salary reduction
agreement specifying the percentage by which his compensation is to be
reduced in the following year. Such percentage shall be expressed as an
aggregate total percentage of no less than 6 percent, reduced by the
percentage of his compensation which could be contributed to the Savings
Plan for the year as Deferred Contributions. Any such election shall remain
in effect for the entire calendar year and cannot be modified or revoked by
the Employee during such year. Prior to the beginning of any subsequent
year, an employee will need to execute a new salary reduction agreement for
such subsequent year.
3.03 Supplemental contributions credited for the benefit of an Employee pursuant
to Section 3.01 and amounts deferred by Key Executives pursuant to
individual deferred compensation agreements shall be credited (or debited)
annually with the investment earnings (or losses) and appreciation (or
depreciation) generated by an investment in one or more investment vehicles
selected by the Committee and made available for election by Employees and
Key Executives hereunder. The investment experience of the vehicle selected
by the Employee and Key Executive shall be reflected on the books of the
participating employer and shall be paid to the Employee or Key Executive,
as the case may be, as provided in Article IV in addition to the
contributions credited pursuant to Section 3.01.
<PAGE>
Participating employers shall be under no obligation to purchase any
investment vehicle, the earnings and appreciation of which are used to
measure the investment return payable to an Employee hereunder, and all
payments to Employees under this Plan shall be made from the general assets
of participating employers.
<PAGE>
ARTICLE IV. SOURCE OF PAYMENT AND BENEFITS
4.01 Payment of any supplemental benefit under Article II of this Plan shall be
made in cash at the same time in the same form and to the same person or
persons as payment of allowances under the Retirement Plan. Payment of any
supplemental amounts under Article III of this Plan shall be made in cash
(i) to the Employee, or his beneficiary, in a lump sum as soon as
practicable following the Employee's termination of employment or (ii) to
the Employee, at the written election of the Employee delivered to the
Committee prior to the date on which payment of supplemental amounts are
scheduled to commence, in either five or ten annual installments, each
installment shall be equal to a fraction of the value of the supplemental
amounts to which the election is applicable as of the date any such
installment is due, the numerator of which fraction shall be one (1) and
the denominator of which shall be the number of installments then remaining
to be paid. Payment of such installments shall commence as soon as
practicable following the Employee's termination of employment and shall be
made as of each subsequent anniversary of such date for the duration of the
period during which installments are to be paid. If the Employee shall die
prior to receiving all of such installments, the remaining installments
shall be paid to his beneficiary in a lump sum.
Notwithstanding the foregoing, in the case of any Employee who (a) begins
retirement on or after January 1, 1997, or (b) began retirement prior to
January 1, 1997, was a director of the Corporation at retirement, continued
to serve as a director of the Corporation thereafter, is presently a
director of the Corporation and ceases to be a director after January 1,
1997, payment of any supplemental benefit under Article II of this Plan
shall be made in a lump sum as soon as administratively feasible after the
Employee's retirement or after ceasing to be a director of the Corporation;
provided, however, that if the Employee gives a written notification to the
Corporation not less than 90 days prior to his annuity starting date under
the Retirement Plan that he elects not to receive payment of any
supplemental benefit under Article II of the Plan in a lump sum, such
payment shall instead be made at the same time in the same form, and to the
same person or persons as payment of allowances under the Retirement Plan.
The amount of such lump
<PAGE>
sum distribution shall be determined using the factors that would be used
for valuing a single sum distribution under the Retirement Plan as of the
date of valuation. Such lump sum shall be in lieu of all supplemental
benefits under Article II of the Plan, but shall have no effect on the
form, timing, or amount of any distribution made under the Retirement Plan.
4.02 Payment of supplemental amounts or benefits under this Plan shall be made
by the participating employer who employed the Employee in respect of whom
such amounts are payable. In case such amounts or benefits are payable in
respect of an Employee whose service included employment with more than one
participating employer, the Committee shall determine the proportion of
such amounts or benefits to be paid by each such participating employer.
4.03 The Corporation or other participating employer making a payment under this
Plan shall withhold any amount required to be withheld under applicable
Federal, state, and local income tax laws, and any such payment shall be
reduced by the amount so withheld.
4.04 In addition to the payment of any supplemental benefit under Article II and
any supplemental amount under Article III, payment of any amounts deferred
by Key Executives pursuant to individual deferred compensation agreements
shall be in the same form and in the same manner as payment of supplemental
amounts contributed under Article III of the Plan. Payment shall be made by
the participating employer of the Key Executive at the time such amounts
were deferred.
<PAGE>
ARTICLE V. AMENDMENT AND TERMINATION
The Board may amend this Plan in any respect or terminate it at any time;
provided, however, that no such amendment or termination shall have the effect
of reducing the amount of supplemental amounts payable hereunder with respect to
the service of any Employee prior to such amendment or termination.
In the event of termination, any amounts which are payable by reason of the
service of Employees prior to the time of termination shall be paid as follows:
(a) with respect to any supplemental benefits under Article II, through the
purchase from an insurance company of a fully paid-up and non-transferable
annuity in the amount determined under Article II as of the date of
termination of the Plan; and
(b) with respect to any supplemental amounts under Article III, in the form of
an immediate cash lump sum.
<PAGE>
ARTICLE VI. GENERAL PROVISIONS
6.01 This Plan shall be administered by the Committee, which shall maintain such
records as will enable it to determine the Employees or their beneficiaries
who are entitled to receive supplemental amounts hereunder and the amount
of such benefits.
6.02 No right or interest of any person entitled to a benefit under this Plan
shall be subject to voluntary or involuntary alienation, assignment, or
transfer of any kind.
6.03 The establishment of the Plan shall not be construed as conferring any
legal rights upon an Employee or any person for a continuation of
employment, nor shall it interfere with the rights of a participating
employer to discharge any Employee and to treat him without regard to the
effect that such treatment may have upon him as an Employee.
6.04 This Plan shall be construed and administered in accordance with the laws
of the State of New York.
6.05 This Plan shall be effective January 1, 1976, as to amounts payable on or
after that date in respect of any Employee.
<PAGE>
ARTICLE VII. CHANGE IN CONTROL
7.01 Notwithstanding anything to the contrary contained in this Plan. the
provisions of this Article VII shall apply in the event of a Change in
Control or a Potential Change in Control, as defined below:
(a) A "Change in Control" shall be deemed to occur:
(1) upon the acquisition, other than from the Corporation by any
individual, entity, or group (within the meaning of Section
13(d)(3) or 14(d) of the Securities Act of 1934 (the "Exchange
Act") of the beneficial ownership (within the meaning of Rule
13d-3 promulgated under the Exchange Act) of 20 percent or more
of either the then outstanding shares of common stock of the
Corporation or the combined voting securities of the Corporation
entitled to vote generally in the election of directors;
provided. however, that for any individual. entity, or group that
has a beneficial ownership in shares of common stock or voting
securities as of the date of adoption of this Article VII, a
Change in Control shall occur only upon the acquisition of an
additional 20 percent or more of the total outstanding shares of
common stock or voting securities; or
(2) when individuals who, as of the date of the adoption of this
Article VII, constitute the Board (the "Incumbent Board") cease
for any reason to constitute at least a majority of the Board,
provided that any individual becoming a director subsequent to
the date hereof whose election, or nomination for election by the
Corporation's shareholders, was approved by a vote of at least a
majority of the directors then comprising the Incumbent Board
shall be considered as though such individual was a member of the
Incumbent Board, but excluding, for this purpose, any such
individual whose initial assumption of office is in connection
with an actual or threatened election contest relating to the
election of the directors of the Corporation (as such terms are
used in Rule 14a-11 of Regulation 14A promulgated under the
Exchange Act); or
<PAGE>
(3) upon the approval by the shareholders of the Corporation of (i) a
reorganization, merger, or consolidation, in each case, with
respect to which the individuals and entities who were the
respective beneficial owners of the common stock and voting
securities of the Corporation immediately prior to such
reorganization, merger, or consolidation do not, following such
reorganization, merger, or consolidation, beneficially own,
directly or indirectly, more than 50 percent of, respectively,
the then outstanding shares of common stock, and the combined
voting power of the then outstanding voting securities entitled
to vote generally in the election of directors, as the case may
be, of the corporation resulting from such reorganization,
merger, or consolidation; (ii) a complete liquidation or
dissolution of the Corporation; or (iii) the sale or other
disposition of all or substantially all of the assets of the
Corporation.
(b) A "Potential Change in Control" shall be deemed to occur:
(1) at the time the Corporation enters into an agreement, the
consummation of which would result in the occurrence of a Change
in Control; or
(2) at the time the Corporation or any individual, entity, or group
(within the meaning of Section 13(d)(3) or 14(d)(2) of the
Exchange Act) publicly announces an intention to take actions,
which if consummated, would constitute a Change in Control; or if
the Board in its discretion determines, based on facts and
circumstances, that there is a possible Change in Control.
7.02 Upon the occurrence of Potential Change in Control, the Corporation shall
set aside in a grantor trust, either existing or to be established, an
amount equal to the outstanding benefit obligations under the Plan as of
the date of the Potential Change in Control, less any amounts previously
set aside in a grantor trust to provide benefits under the Plan.
If a Change in Control does not occur within a reasonable time from the
date such funds are set aside, the funds, adjusted for any gains or losses,
shall revert to the Corporation.
<PAGE>
7.03 Upon the occurrence of a Change in Control, each Employee who has accrued
or been allocated a benefit under the Plan as of the date of the Change in
Control or the related Potential Change in Control shall become fully
vested in his benefit under the Plan.
7.04 As soon as administratively practicable after the later of the adoption of
this Article VII or the date an Employee first accrues or is allocated a
benefit under the Plan, the Committee shall provide each such Employee with
an opportunity to make an irrevocable election to receive an immediate lump
sum distribution of his entire vested benefit under the Plan as of the date
of a Change in Control, or to receive his benefit in the manner otherwise
provided under the Plan as if no Change in Control had occurred. The
receipt of such a lump sum benefit upon a Change in Control shall in no way
affect the right of the Employee to continue to participate in the Plan
following such distribution.
7.05 As soon as administratively practicable after the adoption of this Article
VII, the Committee shall provide each participant then in receipt of
periodic benefits under the Plan or who terminated service with a right to
a benefit under the Plan with an opportunity to make an irrevocable
election to receive, upon a Change in Control, an immediate lump sum
distribution of his remaining benefit under the Plan or to continue to
receive benefit payments as if no Change in Control had occurred.
7.06 Within the 30-day period following a Change in Control, any Employee who
did not elect to receive a lump sum distribution under Section 7.04 may
elect to receive a lump sum distribution in an amount equal to his total
benefit under the Plan reduced by a percentage equal to the LIBOR rate as
of the date of the Change in Control plus 1 percent. Such distribution
shall be in lieu of all remaining benefits under the Plan.
<PAGE>
7.07 For purposes of valuing any lump sum distribution of a supplemental benefit
under Article II of the Plan under Sections 7.04, 7.05, or 7.06, the
mortality factor shall be that used under the Retirement Plan as of the
Change in Control date, and the interest rate shall be the annual 30-year
U.S. Treasury rate published by the Board of Governors of the Federal
Reserve System for the month preceding the month containing the Change in
Control date.
<PAGE>
FIRST RESTATED EMPLOYMENT AGREEMENT
The Employment Agreement dated June 1, 1995 (the "Employment Agreement")
between John W. Guffey, Jr. ( the "Executive") and Coltec Industries Inc, a
Pennsylvania corporation (the "Corporation"), is amended, clarified and restated
as of this 18th day of December, 1997 (the Restatement Date") as if originally
entered into and effective as of June 1, 1995 (the "Effective Date"),
WHEREAS, the Employment Agreement has been amended from time to time since
its original execution, and
WHEREAS, the Corporation and the Executive desire to further modify the
Employment Agreement in order to clarify certain provisions thereof, and
WHEREAS, the Executive and the Corporation desire to combine all new and
previous amendments to the Employment Agreement into this First Restated
Employment Agreement setting forth the terms and conditions upon which the
Executive shall be employed by the Corporation to be effective as if originally
entered into on the Effective Date.
NOW, THEREFORE, in consideration of the foregoing and the mutual promises
herein contained, the parties agree as follows:
1. Employment Term
The Corporation agrees to employ the Executive and the Executive agrees to
be employed by the Corporation, upon the terms and conditions contained in
this Agreement, for a period of five years commencing on the Effective Date
and terminating on the fifth anniversary of the Effective Date (the
"Contract Period") The Contract Period shall be subject to earlier
termination in accordance with the provisions set forth in Section 6 below.
2. Duties
2.1 The Executive shall serve, subject to the supervision and control of
the Corporation's Board of Directors (the "Board") as Chairman and Chief
Executive Officer of the Corporation with the responsibilities and
authority, and status and perquisites which have, consistent with past
practice, been delegated or granted by the Corporation to an employee
holding such position(s) or which are customarily delegated or granted by
similarly situated corporations to an employee holding similar position(s).
If Executive is appointed to additional offices by the Corporation during
the Contract Period, the Executive shall have the responsibilities and
authority, and status and perquisites consistent with the past practices of
the Corporation or which are customarily delegated or granted by similarly
situated corporations to an employee holding such position(s).
<PAGE>
Executive shall also perform any additional lawful services and assume any
reasonable additional responsibilities, not inconsistent with his current
position, as shall from time to time be assigned to him by the Board.
2.2 Executive agrees that during the Contract Period, he shall devote
substantially all of his full working time and attention and give his best
effort, skill and abilities exclusively to the business and interests of
the Corporation; provided, however, that the foregoing shall not be
construed to prohibit Executive's service as a (i) director or officer of
any trade association, civic, educational or charitable organization or
governmental entity, or as (ii) a director of any corporation which is not
a competitor of the Corporation, provided that such service by Executive
does not materially interfere with the performance by Executive of the
responsibilities delegated under Section 2.1 above.
2.3 Executive shall carry out all responsibilities delegated in Section 2.1
above at the Corporation's headquarters at 3 Coliseum Centre, 2550 West
Tyvola Rd. Charlotte, NC except for travel reasonably required in the
performance of Executive's responsibilities.
3. Compensation and Benefits
Throughout the Contract Period, unless otherwise specifically provided
elsewhere herein:
3.1 Executive shall receive an annual base salary which is not less than
his annual base salary on the Effective Date and shall have the opportunity
for periodic increases in accordance with the Corporation's regular
practices.
3.2 Executive shall be entitled to participate, to the extent determined by
the Board, in all currently existing and future incentive compensation
plans of the Corporation including, but not limited to: the Annual
Incentive Plan for Certain Employees of Coltec Industries Inc and Its
Subsidiaries, the 1994 Long-Term Incentive Plan of Coltec Industries Inc
and the Coltec Industries Inc 1992 Stock Option and Incentive Plan (the
"Incentive Compensation Plans"), provided, however, that the Executive's
participation in all incentive compensation plans shall be at a level not
less than that customarily approved by the Board for an employee with
Executive's responsibilities and shall not in any case be less than
Executive's level of participation in such plans on the Effective Date. Any
payment to Executive under an Incentive Compensation Plan shall be
calculated and made in accordance with the provisions of the respective
plan, except as elsewhere provided for in this Agreement.
3.3 Executive shall be entitled to receive all employee benefits, fringe
benefits and perquisites (including but not limited to the use of company
cars, club memberships and financial planning services ("Company
Perquisites")) customarily made available to an employee with Executive's
responsibilities, and Executive shall be entitled to participate in all
applicable group, life, health, disability and accident insurance plans and
programs including, and not limited
2
<PAGE>
to, the Retirement Savings Plan, the Retirement Program, the Benefits
Equalization Plan (collectively, the "Retirement Plans") and the Family
Protection Plan as well as any other applicable Corporation benefit plans
and programs maintained currently upon terms and at levels no less
favorable than now exist or that shall be established or maintained in the
future for employees generally or for the Corporation's executives.
3.4 Executive shall be entitled to annual vacation and holidays in
accordance with the Corporation's established practice for its employees.
3.5 The Executive shall be entitled to receive reimbursement for all
reasonable out-of-pocket expenses incurred in performing his
responsibilities described in Section 2.1 above, provided that the
Executive properly accounts for such expenses in accordance with the
Corporation's established policies.
4. Indemnification
The Executive shall be entitled to indemnification by the Corporation to
the fullest extent permitted by law and the By- Laws of the Corporation in
respect of any actions or omissions which Executive has taken or has failed
to take as an employee, officer or director of the Corporation while
carrying out the responsibilities delegated under Section 2.1 above.
5. Management of the Corporation
During the Contract Period and subject to its fiduciary duties, the Board
shall not interfere with Executive's responsibilities in connection with
the normal day to day management of the Corporation's business matters and
will involve Executive as a director, in determining the strategic
direction of the Corporation, consistent with the Board's past practice and
its fiduciary duties to the Corporation's shareholders and its management.
6. Termination of Employment
The Contract Period shall terminate prior to the completion of its term on
the Date of Termination as defined in Sections 6.2 or 6.3 below following
receipt by the Executive or the Corporation, as the case may be, of a
Notice of Termination as defined in Section 6.1 below.
6.1 "Notice of Termination" shall mean any purported termination of
Executive's employment by the Corporation or by Executive which shall be
communicated by written notice to the other party hereto in accordance with
Section 9 of this Agreement, and which shall (1) indicate the specific
termination provision in this Agreement relied upon, (2) set forth in
reasonable detail the facts and circumstances claimed to provide a basis
for termination of Executive's employment under the provision so indicated,
and (3) set forth the date on which the Executive's employment with the
Corporation shall terminate.
3
<PAGE>
6.2 "Date of Termination" shall mean:
a. thirty (30) days after Notice of Termination is given by the
Corporation for termination of employment due to Disability; provided
that Executive shall not have returned to the full-time performance of
his duties during such thirty (30) day period;
b. the date of death in the event of Executive's death;
c. at least thirty days (30) but not more than sixty (60) days after
Notice of Termination is given by Executive for termination of
employment for Good Reason in respect of a termination covered by
Sections 7.6 or 7.7 below;
d. at least fifteen days (15) after Notice of Termination is given by
the Corporation for termination of employment for Cause;
e. at least fifteen days (15) after Notice of Termination is given by
Executive for retirement after the age of 55 years but before the age
of 65 years to the extent such retirement is permitted under the
Retirement Savings Plan, the Retirement Program or the BE Plan ("Early
Retirement"); or
f. the date specified in the Notice of Termination for termination of
employment for any other reason.
6.3 This Agreement shall automatically terminate upon the earlier of
Executive's 65th birthday or the date set forth in the Notice of
Termination for Early Retirement as provided in Paragraph 6.2(e) above
("Retirement Termination")
7. Compensation Upon Termination or During Disability
7.1 For purposes of this Agreement, "Disability", "Cause", "Good Reason"
and "Change-in-Control" shall have the meanings set forth below:
a. Disability - If, as a result of Executive's incapacity due to
physical or mental illness, Executive shall have become eligible for
benefits under the applicable long-term disability plan or policy of
the Corporation, Executive's employment may be terminated by the
Corporation for "Disability".
b. Cause - Termination by the Corporation of Executive's employment
for "Cause" shall mean termination upon :
i. the prolonged or repeated absence from duty without the
consent of the Board for reasons other than the Executive's
incapacity due to physical or mental illness;
4
<PAGE>
ii. the acceptance by Executive of a position with another
employer which conflicts with his duties as an employee of
the Corporation without the consent of the Board;
iii. the willful engaging by Executive in conduct relating to the
Corporation which is demonstrably and materially injurious
to the Corporation after a written demand for cessation of
such conduct is delivered to Executive by the Board, which
demand specifically identifies the manner in which the Board
believes the Executive has engaged in such conduct and the
injury to the Corporation;
iv. a willful material breach of an established written policy
or procedure of the Corporation, which breach is materially
injurious to the Corporation;
v. Executive's conviction for a crime involving moral
turpitude; or
vi. the breach of Executive's Agreement set forth in Section
11.1 below.
For purposes of this Paragraph, no act, or failure to act, on Executive's
part shall be deemed "willful" unless knowingly done, or omitted to be
done, by Executive not in good faith and without reasonable belief that
Executive's action or omission was in the best interests of the
Corporation.
c. Good Reason - Executive shall be entitled to terminate his employment
for Good Reason. For purposes of this Agreement, "Good Reason" shall mean
the occurrence, without Executive's express written consent, of any of the
following circumstances unless such circumstances are fully corrected prior
to the Date of Termination (as defined in Section 6.2 above), specified in
the Notice of Termination:
i. the terms of this Agreement are materially adversely altered by
action of the Corporation or the Corporation breaches in any
material respect any of its agreements set forth herein;
ii. the failure of the Corporation to obtain a satisfactory
agreement, required in Section 8 below, from any successor to
assume and perform this Agreement (a copy of the agreement
evidencing such assumption shall be provided by the Corporation
to Executive);
iii. any purported termination of Executive's employment by the
Corporation which is not effected pursuant to a Notice of
Termination satisfying the requirements set forth in Section 6
5
<PAGE>
above; for purposes of this Agreement, no such purported
termination shall be effective;
iv. Executive makes a determination in good faith that the cumulative
effect of actions by one or more of the members of the Board or
their respective agents or associates constitutes harassment or
unreasonable interference with the performance of Executive's
day-to-day duties under this Agreement (after a written demand
for cessation of such actions is delivered by Executive to the
Board which demand specifically identifies the manner in which
Executive believes that any Board members (or their agents or
associates) have harassed Executive or unreasonably interfered
with Executive's ability to perform his day-to-day duties);
provided, however, that appropriate involvement of Board members
in regular reviews of those items which have, consistent with the
Corporation's past practices, been normally within the purview
the Board's responsibilities shall not be taken into account by
Executive in making his determination under this Agreement;
v. the Corporation or any successor during the two year period
following a Change-in-Control delivers to the Executive a Notice
of Termination other than for Cause or takes any other action or
actions, including, but not limited to, a material decrease in
duties or authority or change in reporting relationships, which
may have an adverse effect upon Executive's employment or which
purport to terminate Executive's employment other than for Cause;
vi. relocation of the Executive's place of employment to a location
outside Charlotte, NC without the concurrence of Executive;
vii. after a Change-in-Control, the corporation a)reduces Executive's
annual salary, b) impairs Executive's opportunity to earn
incentive compensation on a basis comparable to that before the
Change-in-Control, c) reduces the Company Perquisites made
available to Executive before a Change-in-Control, or d)
eliminates or impairs Executive's ability to participate in
Retirement Plans, or
viii.the Executive chooses to terminate his employment with the
Corporation for any reason during the thirty (30) day period
immediately preceding either, at the option of the Executive, the
twelve (12) month anniversary or the twenty-four (24) month
anniversary of a Change-in-Control as hereafter defined.
Executive's right to terminate his employment pursuant to this Paragraph
shall not be affected by his incapacity due to physical illness. In
addition,
6
<PAGE>
Executive's continued employment with the Corporation shall not constitute
a waiver of Executive's rights under this Paragraph (c) nor constitute a
consent to any act or omission by the Corporation constituting Good Reason.
d. Change-in-Control - A Change-in-Control shall be deemed to occur as of
the date on which any of the following occur:
i. the acquisition, other than from the Corporation, by any
individual, entity or group (within the meaning of Section
13(d)(3) or 14(d)(2) of the Securities and Exchange Act of 1934,
as amended (the "Exchange Act") of beneficial ownership (within
the meaning of Rule 13d-3 promulgated under the Exchange Act) of
20 percent or more of either the then outstanding shares of
common stock of the Corporation or the combined voting power of
the then outstanding voting securities of the Corporation
entitled to vote generally in the election of directors; or
ii. Individuals who, as of the date of this Agreement, constitute the
Board (the "Incumbent Board") cease for any reason to constitute
at least a majority of the Board, provided that any individual
becoming a director subsequent to the date hereof whose election,
or nomination for election by the Corporation's shareholders, was
approved by a vote of at least a majority of the directors then
comprising the Incumbent Board shall be considered as though such
individual as a member of the Incumbent Board, but excluding, for
this purpose, any such individual whose initial assumption of
office is in connection with an actual or threatened election
contest relating to the election of the directors of the
Corporation (as such terms are used in Rule 14a-ll of Regulation
14A promulgated under the Exchange Act); or
iii. Approval by the shareholders of the Corporation of (1) a
reorganization, merger or consolidation, in each case, with
respect to which the individuals and entities who were the
respective beneficial owners of the common stock and voting
securities of the Corporation immediately prior to such
reorganization, merger or consolidation do not, following such
reorganization, merger or consolidation, beneficially own,
directly or indirectly, more than 50 percent of, respectively,
the then outstanding shares of common stock, and the combined
voting power of the then outstanding voting securities entitled
to vote generally in the election of directors, as the case may
be, of the corporation resulting from such reorganization, merger
or consolidation; (2) a complete liquidation or dissolution of
the
7
<PAGE>
Corporation; or of (3) the sale or other disposition of all or
substantially all of the assets of the Corporation.
7.2 During any period of Disability and until the earlier of the end of the
Contract Period or Executive's death, Executive shall receive all accrued
but unpaid base salary plus all amounts or benefits payable or due to him
(including a pro rata share under Incentive Compensation Plans targeted for
the year in which the Disability occurs) under the Corporation's
compensation and benefit plans and programs in which Executive is
participating at the commencement of any such period, plus an additional
payment from the Corporation (if necessary) such that the aggregate amount
received by Executive in the nature of salary continuation from all sources
equals Executive's base salary at the rate in effect at the commencement of
any such period. Thereafter, Executive shall be entitled to participate in
all applicable group, life, Family Protection Plan, health, disability and
accident insurance plans and programs as well as any other applicable
Corporation benefit plans and programs (including, but not limited to, the
1992 Stock Option and Incentive Plan) in accordance with the terms of such
plans and programs; provided that such terms shall not be less advantageous
to Executive than the terms in effect as of the date hereof.
7.3 If Executive's employment shall be terminated by reason of Executive's
death, the Executive shall be entitled to the benefits provided below:
a. The Corporation shall pay to Executive's estate as soon as
practicable after the date of Executive's death, Executive's accrued
but unpaid base salary through the date of Executive's death, at the
rate in effect at the time of Executive's death, plus all other
amounts to which Executive is entitled under any benefit or
compensation plan of the Corporation including, but not limited to, a
pro rata share under Incentive Compensation Plans earned during the
year in which Employee's death occurs.
b. After Executive's death, Executive's beneficiaries shall be
entitled to participate in all applicable group, life, health,
disability and accident insurance plans and programs as well as any
other applicable Corporation benefit plans and programs including, but
not limited to, the 1992 Stock Option and Incentive Plan, in
accordance with the terms of such plans and programs.
7.4 If Executive's employment shall be terminated as a result of a
Retirement Termination or as a result of a voluntary resignation for other
than Good Reason ("Resignation"), then Executive shall receive all accrued
but unpaid base salary plus all amounts payable to him under the
Corporation's compensation (including, but not limited to, a pro rata share
under Incentive Compensation Plans targeted for the year the Retirement
Termination or Resignation occurs) and benefit plans and programs in which
Executive is participating at the time the Retirement Termination or
Resignation becomes effective. In the event of a Retirement Termination,
Executive shall be entitled to participate in all retirement and other
8
<PAGE>
plans and programs effective on the Date of Termination to which he is
eligible in accordance with their terms.
7.5 If Executive's employment shall be terminated by the Corporation for
Cause, then Executive shall be entitled to the following benefits:
a. The Corporation shall pay Executive's full base salary through the
Date of Termination at the rate in effect at the time Notice of
Termination is given plus all other amounts to which Executive is
entitled under any benefit or compensation plan of the Corporation,
excluding any bonus, other incentive compensation and vacation pay, if
any, otherwise payable to Executive pursuant to the terms of the
applicable plan or program of the Corporation, at the time such
payments are due.
b. Executive shall be entitled to participate in all applicable group,
life, health, disability and accident insurance plans and programs,
but only to the extent required by the terms of such plans, or only to
the extent specifically required by Federal or state law.
7.6 If Executive's employment shall be terminated (1) by the Corporation
for other than Cause, (2) by Executive for Good Reason other than Good
Reason as specified in Section 7.7 below ("Section 7.7 Good Reason") then
Executive shall be entitled to the following benefits:
a. The Corporation shall pay Executive, as soon as practicable
following the Date of Termination a sum equal to Executive's accrued
but unpaid base salary through the Date of Termination at the rate in
effect at the time Notice of Termination is given plus all other
amounts to which Executive is entitled under any benefit or
compensation plan of the Corporation (including but not limited to a
pro rata share under Incentive Compensation Plans targeted for the
year in which Executive's employment is terminated).
b. The Corporation shall pay Executive as soon as practicable
following the Date of Termination an additional payment equal to the
sum of Executive's annual base salary plus the highest annual bonus
received by the Executive during any of the three previous calendar
years multiplied by the higher of three (3) or the number of years
(including fractions thereof) remaining under the Contract Period.
c. In accordance with a valid election on file with the Corporation,
the corporation shall pay to Executive a sum of money equal to the
value of Executive' s accrued balance of the Benefits Equalization
Plan ("BE Plan").
d. For the longer of three years from the Date of Termination or until
the end of the Contract Period (the "Relevant Damage Period"), the
Corporation shall continue to make available to Executive all Company
9
<PAGE>
Perquisites, or, in the alternative, the Corporation shall pay to
Executive as soon as practicable after the Date of Termination a sum
of money reasonably approximating the cash value of the Company
Perquisites. Additionally, for such period of time Executive shall,
subject to Section 7.9, be allowed to participate in all applicable
group, life, health, disability and accident insurance plans and
programs as well as any other applicable Corporation benefit plans and
programs (including, but not limited to, the 1992 Stock Option and
Incentive Plan) as if he were an active employee (limited, in the case
of coverage under life insurance plans, to the level of coverage that
the Corporation is able to obtain on Executive's behalf based upon the
annual premium cost of providing Executive with life insurance during
Executive's last twelve months of employment with the Corporation), in
which Executive was participating 30 days prior to the time Notice of
Termination is given or comparable plans substituted therefor;
provided, however, that if Executive is ineligible (e.g., by operation
of law or the terms of the applicable plan) to continue to participate
in any such plan, the Corporation will provide Executive with a
comparable level of compensation or benefit.
e. For purposes of Section 7.6(d), Executive's participation in
respect to the Corporation's 1994 Long Term Incentive Plan (the
"LTIP") shall be as follows (the defined terms within this section and
not otherwise defined within this Agreement being the same as defined
in the LTIP as in effect on the date hereof):
i. all of the Executive's Restricted Shares previously issued
under the LTIP and not yet vested by the Date of Termination
shall become 100% vested, nonforfeitable and fully
transferable as of such date; and
ii. the Corporation will pay the Executive as soon as
practicable following the Date of Termination an amount in
cash equal to three times the product of (x) the number of
Performance Units previously granted under the LTIP to the
Executive and still outstanding, times (y) the Award Value
at the Threshold Target level.
f. For purposes of Section 7.6(d), Executive's benefits with respect
to the Corporation's Retirement Plan for Salaried Employees and the BE
Plan or any equivalent or superior plans or arrangements in which the
Executive participated prior to the Date of Termination (any such Plan
or arrangement, the "Pension Plans") and the Corporation's welfare
benefit plans in which the Executive participates on the date hereof
or any equivalent or superior successor plans or arrangements in which
the Executive participates prior to the Date of Termination ("Welfare
Benefit Plans") the contemplated continued participation shall require
the Corporation to pay or provide the executive with the benefits,
earnings credits for benefits and service credits for benefits which
the Executive
10
<PAGE>
would have received under the Pension Plans and Welfare Benefit Plans
if (x) the Executive's employment and his coverage under the Pension
Plans and the Welfare Benefit Plans had continued during the Relevant
Damage Period, and (y) the compensation described in Section 7.6(b)
which would have been credited under the Pension Plans and/or the
Welfare Plans were paid to the Executive ratably over the Relevant
Damage Period.
g. All restrictions, if any, on shares of restricted stock previously
granted to Executive which would have lapsed if Executive had been
employed throughout the Relevant Damage Period shall immediately lapse
as of the Date of Termination, and Executive shall be entitled to the
possession of the shares of such stock as of such date upon the
payment of any applicable withholding taxes.
7.7 If Executive's employment by the Corporation shall be terminated by
Executive for Good Reason where Executive has given Notice of Termination
to the Corporation within two years from the occurrence of an event
constituting a Change-of-Control, then Executive shall be entitled to the
following benefits in lieu of the benefits under Section 7.6:
a. The Corporation shall pay Executive his accrued but unpaid base
salary through the Date of Termination at the rate in effect at the
time Notice of Termination is given, plus all other amounts to which
Executive is entitled under any benefit or compensation plan of the
Corporation (including, but not limited, to a pro rata share under
Incentive Compensation Plans earned during the year in which
employment is terminated)
b. In lieu of any further base salary payments to Executive for period
subsequent to the Date of Termination, the Corporation shall pay to
Executive a lump sum equal to five times (5x) the sum of Executive's
annual base salary for one calendar year at the rate in effect
immediately prior to the time Notice of Termination is given plus the
highest annual bonus received by the Executive during any of the three
preceding calendar years.
c. In lieu of any further participation by Executive in the Family
Protection Plan, the Corporation shall transfer to Executive a fully
paid up insurance policy or policies then insuring the life of the
Executive pursuant to the terms of the Family Protection Plan, plus an
amount of money (the "Tax Adjustment") calculated to reimburse
Executive for any local, state or Federal income, employment or other
taxes which he may be liable as a result of receiving the insurance
policy or policies and the Tax Adjustment amount.
d. At Executive's option and as soon, as practicable after his
request, the Corporation shall pay Executive a sum of money equal to
the value of Executive's accrued balance of the BE Plan.
11
<PAGE>
e. For five years from the Date of Termination, the Corporation shall
continue to make available to Executive all Company Perquisites, or,
in the alternative, the Corporation shall pay to Executive as soon as
practicable after the Date of Termination a sum of money reasonably
approximating the cash value of the Company Perquisites. Additionally,
Executive shall, subject to Section 7.9, be allowed to participate in
all applicable group, life, health, disability and accident insurance
plans and programs as well as any other applicable Corporation benefit
plans and programs (including, but not limited to the 1992 Stock
Option and Incentive Plan) as if he were an active employee (limited,
in the case of coverage under life insurance plans, to the level of
coverage that the Corporation is able to obtain on Executive's behalf
based upon the annual premium cost of providing Executive with life
insurance during Executive's last twelve months of employment with the
Corporation), in which Executive was participating 30 days prior to
the time Notice of Termination is given or comparable plans
substituted therefor; provided, however, that if Executive is
ineligible (e.g., by operation of law or the terms of the applicable
plan) to continue to participate in any such plan, the Corporation
will provide Executive with a comparable level of compensation or
benefit.
f. For purposes of Section 7.7(e), Executive's participation in
respect to the LTIP shall be as follows (the defined terms within this
section and not otherwise defined within this agreement being the same
as defined in the LTIP):
i. all of the Executive's Restricted Shares previously issued
under the LTIP and not yet vested by the Date of Termination
shall become 100% vested, nonforfeitable and fully
transferable as of such date; and
ii. all LTIP awards issued prior to the Date of Termination
("Existing Awards") of Performance Units ("Existing Units")
shall be deemed to have been outstanding throughout the
Performance Cycle to which each relates; and
iii. the Executive shall be deemed to have received an LTIP award
in each of the five years following the Date of Termination
("Deemed Awards") in an amount equal in units to the highest
number of Performance Units received by the Executive in any
of the three years prior to the Date of Termination ("Deemed
Units") and all of the Deemed Units shall be deemed to have
been outstanding throughout the Performance Cycle to which
each relates; and
iv. except as set forth in Section 7.7(f)(v), the Corporation
will pay the Executive as soon as practicable following the
Date of Termination an amount in cash equal to th e number
of Existing and Deemed Units to which he is entitled
multiplied by an Award Value the
12
<PAGE>
result of which is further multiplied by 1.10 (the "LTIP
Payout"). The Operating Income Threshold Target for each
Deemed Award shall be that established for the Existing
Award issued just prior to the Date of Termination. The
Award Value shall be calculated in accordance with the
provisions of the LTIP applying actual operating profit of
the Corporation whenever such has actually been achieved and
applying those projections of operating profit contained in
the Corporation's Coltec 2000 Plan for those years which do
not have actual results. If any Performance Cycle of any
Existing or Deemed Unit shall extend beyond the projections
contained in the Corporation's Coltec 2000 Plan, then the
operating profit contained in the Coltec 2000 Plan for the
year ending December 31, 1999 shall be the operating profit
applied to each year of any Performance Cycle for which
actual operating profit cannot be calculated increased for
each year after 1999 at the average rate of annual increase
of operating profit actually realized for the period between
January 1, 1997 and December 31, 1999.
v. in the event that the independent accountants of the
Corporation shall determine that if the payment of the LTIP
Payout is made entirely in cash it shall prevent the
Corporation from consummating any business combination
approved by the Board of Directors which combination is
intended to be accounted for under the pooling of interests
method of accounting ("Pooling"), then the LTIP Payout shall
be made 2/3 in cash and 1/3 in the Corporation's Common
Stock (the " Share Portion"). If a merger or acquisition of
the Corporation has taken place prior to the time that the
Executive has given Notice of Termination setting forth his
intent to terminate his employment for Good Reason and the
Common Stock of the Corporation is no longer traded on a
national securities exchange then the Share Portion of the
LTIP Payout shall be made in the common stock of the
Corporation's parent or successor corporation (collectively,
a "Successor"), which stock is traded on a national
securities exchange or on an over the counter securities
market. The number of shares payable in respect to the Share
Portion shall be determined by dividing the dollar value of
the Share Portion by the price of a share of the Common
Stock of the Corporation, or a Successor, as the case may
be, on the last business day immediately preceding the date
of the Notice of Termination.
g. For purposes of Section 7.7(e), Executive's benefits with respect
to the Pension Plans and the Welfare Benefit Plans, the contemplated
continued participation shall require the Corporation to pay or
provide the Executive with the benefits, earnings credits for benefits
and service credits for benefits which the Executive would have
received under the Pension Plans and Welfare Benefit Plans if (x) the
Executive's employment and his coverage under the Pension Plans and
the Welfare Benefit Plans had
13
<PAGE>
continued for an additional five year period, and (y) the compensation
described in Section 7.7(b) which would have been credited under the
Pension Plans and/or the Welfare Plans were paid to the Executive
ratably over a five year period.
h. All restrictions, if any, on shares of restricted stock previously
granted to Executive shall immediately lapse as of the Date of
Termination, and Executive shall be entitled to the possession of the
shares of such stock as of such date upon the payment of any
applicable withholding taxes.
7.8 In addition to the benefits set forth in Sections 7.6 and 7.7, in the
event that Executive's employment shall be terminated (1) by the
Corporation for other than Cause, (2) by Executive for Good Reason other
than Section 7.7 Good Reason, or (3) by Executive for Section 7.7 Good
Reason then:
a. The Company shall also pay to Executive all reasonable legal fees
and expenses incurred by Executive as a result of such termination
(including all such fees and expenses, if any, incurred in contesting
or disputing any such termination (including cost associated with
legal consultation even if no actual contest or dispute results) or in
seeking to obtain or enforce any right or benefit provided by this
Agreement or in connection with any tax audit or proceeding to the
extent attributable to the application of Section 4999 of the Internal
Revenue Code of 1986, as amended (the "Code"), to any payment or
benefit provided hereunder), except any such fees or expenses incurred
by Executive in seeking to enforce a claim which is determined by an
arbitrator, pursuant to Section 14 below, to have been frivolous in
nature or not brought or pursued in good faith.
b. In addition to all other benefits provided hereunder, in the event
that Executive becomes entitled to any payments or benefits from the
corporation (whether or not provided under this Agreement) ("Severance
Payments") if Executive will be subject to the tax (the "Excise Tax")
imposed by Section 4999 of the Code, the Corporation shall pay to
Executive at the time or times specified in Paragraph (h) below, an
additional amount (the "Gross-Up Payment") such that the net amount
retained by Executive, after deduction of (i) any additional Excise
Tax payable by Executive as a result of Executive's receipt of the
Severance Payments, and (ii) any additional Federal, state and local
income and employment taxes and Excise tax payable by Executive as a
result of Executive's receipt of the Gross-Up Payments shall be equal
to the Severance Payments. For purposes of determining whether any of
the Severance Payments will be subject to the Excise Tax and the
amount of such Excise Tax, (i) the Severance Payments, payments
provided for in this paragraph and any other payments or benefits
received or to be received by Executive in connection with a
change-in-control of the Corporation (as defined in Section 280G of
the Code) or Executive's termination of employment (whether pursuant
to the terms of this Agreement or any other plan, arrangement or
agreement with the
14
<PAGE>
Corporation, any person whose actions result in a Change-in-Control or
any person affiliated with the Corporation or such person) shall be
treated as "parachute payments" within the meaning of Section
280G(b)(2) of the Code, and all "excess parachute payments" within the
meaning of Section 280G(b)(1) shall be treated as subject to the
Excise Tax, unless and to the extent that in the opinion of tax
counsel selected by the Corporation's independent auditors and
acceptable to Executive, such other payments or benefits (in whole or
in part) do not constitute parachute payments, or such excess
parachute payments (in whole or in part) and represent reasonable
compensation for services actually rendered within the meaning of
Section 280G(b)(4) of the Code in excess of the base amount within the
meaning of Section 280G(b)(3) of the Code, or are otherwise not
subject to the Excise Tax, (ii) the amount of the Severance Payments
which shall be treated as subject to the Excise Tax shall be equal to
the lesser of (x) the total amount of the Severance Payments or (y)
the amount of excess parachute payments within the meaning of Section
280G(b)(1) (after applying clause (i) above), (iii) any payment
pursuant to this Paragraph shall be treated as subject to the Excise
Tax in its entirety and (iv) the value of any non-cash benefits or any
deferred payment of benefit shall be determined by the Corporation's
independent auditors in accordance with the principles of Sections
280G(d)(3) and (4) of the Code. For purposes of determining the
amount of the Gross-Up Payment, Executive shall be deemed to pay
federal income taxes at the highest marginal rate of Federal income
taxation in the calendar year in which the Gross-Up Payment is to be
made and state and local income taxes at the highest marginal rate of
taxation in the state and locality of Executive residence on the Date
of Termination, not of the maximum reduction in federal income taxes
which could be obtained from deduction of such state and local taxes.
In the event that the Excise Tax is subsequently determined to be less
than the amount taken into account hereunder at the time of
termination of Executive's employment, Executive shall repay to the
Corporation at the time that the amount of such reduction in Excise
Tax is finally determined, the portion of the Gross-Up Payment
attributable to such reduction (plus the portion of the Gross-Up
Payment attributable to the Excise Tax and federal and state and local
income tax imposed on the Gross-Up Payment being repaid by Executive)
plus interest accrued from the date such Gross-Up Payment is made to
Executive to the date of such repayment on the amount of such
repayment at the rate provided in Section 1274(b)(2)(B) of the Code.
In the event that the Excise Tax is determined to exceed the amount
taken into account hereunder at the time of the termination of
Executive's employment (including by reason of any payment the
existence or amount of which cannot be determined at the time of the
Gross-Up Payment), the Corporation shall make an additional gross-up
payment in respect of such excess (plus any interest payable with
respect to such excess) at the time that the amount of such excess is
finally determined.
15
<PAGE>
c. The payments provided for in Paragraph (b) above shall be made at
any time during the 90-day period preceding each due date for making
payment of such Excise Taxes to the appropriate taxing authority;
provided, however, that if the amounts of such payments cannot be
finally determined on or before each such date, the Corporation shall
pay to Executive on such date an estimate, as determined in good faith
by the Corporation, of the minimum amount of such payments and shall
pay the remainder of such payments then due as soon as the amount
thereof can be determined. In the event that the amount of the
estimated payments exceeds the amount subsequently determined to have
been due, such excess shall constitute a loan by the Corporation to
Executive on the fifth day after demand by the Corporation (together
with interest at the rate provided in Section 1274(b)(2)(B) of the
Code).
7.9 Upon receipt of written notice from Executive that Executive has been
reemployed by another company or entity on a full-time basis, benefits
otherwise receivable by Executive pursuant to Subsections 7.6(d) or 7.7(e)
related solely to life, health disability and accident insurance plans and
programs and other similar benefits (but not Incentive Compensation, LTIP,
Pension Plans or other similar plans and programs) shall be reduced to the
extent comparable benefits are made available to Executive at his new
employment and any such benefits actually received by Executive shall be
reported to the Corporation. Nothing herein contained shall obligate
Executive to accept employment elsewhere.
7.10 Any stock of the Corporation which is delivered to the Executive
pursuant to Subsections 7.6 or 7.7 shall be delivered to him fully
registered for immediate sale to the public under all applicable securities
laws.
8. Successors; Binding Agreement
The Corporation will require any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or substantially all
of the business and/or assets of the Corporation to expressly assume and
agree to perform this Agreement in the same manner and to the same extent
that the Corporation would be required to perform it if no such succession
had taken place. Failure of the Corporation to obtain such assumption and
agreement prior to the effectiveness of any such succession shall be a
breach of this Agreement and shall entitle Executive to terminate this
Agreement for Good Reason. As used in this Agreement, "Corporation" shall
mean the Corporation and any successor to its business and or assets as
aforesaid which assumes and agrees to perform this Agreement by operation
of law, or otherwise.
9. Notice
For the purpose of this Agreement, notices and all other communications
provided for in the Agreement shall be in writing and shall be deemed to
have been duly given when delivered or mailed by United States registered
mail, return receipt requested, postage prepaid, addressed to the
Executive's most recent home
16
<PAGE>
address on file with the Corporation, and to the Corporation at 3 Coliseum
Centre, 2550 West Tyvola Road, Charlotte, NC 28217 to the attention of the
Chairman of the Compensation Committee of the Board of Directors with a
copy to the Secretary of the Corporation or to such other address as either
party may have furnished to the other in writing in accordance herewith,
except that notice of change of address shall be effective only upon
receipt.
10. Modification - Waiver
No provision of this Agreement may be modified, waived or discharged unless
such waiver, modification or discharge is agreed to in writing and signed
by Executive and such officer of the Corporation as may be specifically
designated by the Board. No waiver by either party hereto at any time of
any breach by the other party hereto of, or compliance with, any condition
or provision of this Agreement to be performed by such other party shall be
deemed a waiver of similar or dissimilar provisions or conditions at the
same or at any prior or subsequent time. In the event that the independent
accountants of the Corporation shall determine that anything contained
herein shall prevent the Corporation from consummating any business
combination approved by the Board of Directors which combination is
intended to be accounted for as a Pooling, then Executive agrees to
negotiate in good faith concerning amendments to such portions of this
Agreement as may be requested by the Corporation so as to allow such
business combination to be accounted for as a Pooling; provided, however,
that any such amendment shall: (a) be as limited in scope as is absolutely
necessary in the opinion of the Corporation's advisors to allow the
business combination to be accounted for as a Pooling, and (b) be designed
to have as minimal an economic detriment to the Executive as is possible
while still allowing the business combination to be accounted for as a
Pooling.
11. Non-competition
11.1 Until the Date of Termination, Executive agrees not to enter into
competitive endeavors and not to undertake any commercial activity which is
contrary to the best interests of the Corporation or its affiliates,
including becoming an employee, owner (except for passive investments of
not more than three percent of the outstanding shares of, or any other
equity interest in, any company or entity listed or traded on a national
securities exchange or in an over-the-counter securities market), officer,
agent or director of (a) any firm or person engaged in the operation of a
business engaged in the acquisition of industrial businesses or (b) any
firm or person which either directly competes with a line or lines of
business of the Corporation accounting for five percent (5%) or more of the
Corporation's gross revenues or earnings before taxes or derives five
percent (5%) or more of such firm's or person's gross revenues or earnings
before taxes from a line or lines of business which directly compete with
the Corporation. Notwithstanding any provision of this Agreement to the
contrary, Executive agrees that his breach of the provisions of this
Section 11.1 shall permit the Corporation to terminate Executive's
employment for Cause in accordance with Section 7.l(b) hereof.
17
<PAGE>
11.2 After the Date of Termination and for a period of time equal in years
to the multiple of annual salary received by Executive pursuant to either
Sections 7.6(b) or 7.7(b) (the "Non-Competition Period"), Executive agrees
not to become an employee, owner (except for passive investments of not
more than three percent of the outstanding shares of, or any other equity
interest in, any company or entity listed or traded on a national
securities exchange or in an over-the-counter securities market), officer,
agent or director of any firm or person which directly and substantially
competes with a business of the Corporation accounting for five percent
(5%) or more of the Corporation's gross revenues or earnings before taxes.
During the Non-Competition Period, Executive will be available to answer
questions and provide advice to the Corporation; provided, however, that
such requirement shall not unreasonably interfere with any other of
Executive's activities which Executive is then pursuing and which are not
otherwise prohibited by this Section 11. Also, during the Non-Competition
Period, Executive will retain in confidence any and all confidential
information known to him concerning the Corporation and its business and
shall not use or disclose such information without the approval of the
Corporation except to the extent such information becomes public or as may
be required by law.
11.3 Executive acknowledges and agrees that damages for breach of the
covenant not to compete in this Section 11 will be difficult to determine
and will not afford a full and adequate remedy, and therefore Executive
agrees that the Corporation, in addition to seeking actual damages pursuant
to the procedures set forth in Section 14 below, may seek specific
enforcement of the covenant not to compete in any court of competent
jurisdiction, including, without limitation, by the issuance of a temporary
or permanent injunction, without the necessity of a bond. Executive and the
Corporation agree that the provisions of this covenant not to compete are
reasonable. However, should any court or arbitrator determine that any
provision of this covenant not to compete is unreasonable, either in period
of time, geographical area, or otherwise, the parties agree that this
covenant not to compete should be interpreted and enforced to the maximum
extent which such court or arbitrator deems reasonable.
12. Validity
The invalidity or unenforceability of any provision of this Agreement shall
not affect the validity or enforceability of any other provision of this
Agreement, which shall remain in full force and effect.
13. Counterparts
This Agreement may be executed in several counterparts, each of which shall
be deemed to be an original but all of which together will constitute one
and the same instrument.
18
<PAGE>
14. Arbitration
Except as contemplated by Section 11.3 of this Agreement, any dispute or
controversy arising under or in connection with this Agreement shall be
settled exclusively by arbitration in Charlotte, NC or such other location
mutually agreed upon by the parties to the arbitration, in accordance with
rules of the American Arbitration Association, and judgment upon such award
rendered by the arbitrator may be entered in any court having jurisdiction
over such proceeding.
15. Governing Law
This Agreement shall be governed by and construed and enforced in
accordance with the laws of the State of North Carolina.
16. Entire Agreement; Survival of Certain Provisions
16.1 This Agreement constitutes the whole agreement of the Corporation and
the Executive. No agreements or representations, oral or otherwise, express
or implied, with respect to the subject matter of this Agreement have been
made by either party which are not expressly set forth in this Agreement
16.2 The obligations of the Corporation under Section 7.8 above and the
Executive's obligations under Section 11 above shall survive the expiration
of the term of this Agreement.
17. Withholding
Any payments made to Executive under this Agreement shall be paid net of
any applicable withholding required under Federal, state or local law.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the Effective Date.
COLTEC INDUSTRIES INC
By /s/ R.J. TUBBS
------------------------
/s/ JOHN W. GUFFEY, JR.
------------------------
EXECUTIVE
19
<PAGE>
FIRST RESTATED EMPLOYMENT AGREEMENT
The Employment Agreement dated June 1, 1995 (the "Employment Agreement")
between Laurence H. Polsky (the "Executive") and Coltec Industries Inc, a
Pennsylvania corporation (the "Corporation"), is amended, clarified and restated
as of this 18th day of December, 1997 (the Restatement Date") as if originally
entered into and effective as of June 1, 1995 (the "Effective Date"),
WHEREAS, the Employment Agreement has been amended from time to time since
its original execution, and
WHEREAS, the Corporation and the Executive desire to further modify the
Employment Agreement in order to clarify certain provisions thereof, and
WHEREAS, the Executive and the Corporation desire to combine all new and
previous amendments to the Employment Agreement into this First Restated
Employment Agreement setting forth the terms and conditions upon which the
Executive shall be employed by the Corporation to be effective as if originally
entered into on the Effective Date.
NOW, THEREFORE, in consideration of the foregoing and the mutual promises
herein contained, the parties agree as follows:
1. Employment Term
The Corporation agrees to employ the Executive and the Executive agrees to
be employed by the Corporation, upon the terms and conditions contained in
this Agreement, for a period of four years commencing on the Effective Date
and terminating on the fourth anniversary of the Effective Date (the
"Contract Period") The Contract Period shall be subject to earlier
termination in accordance with the provisions set forth in Section 5 below.
2. Duties
2.1 The Executive shall serve, subject to the supervision and control of
the Corporation's Chairman and Chief Executive Officer as the Executive
Vice, Administration of the Corporation with the responsibilities and
authority, and status and perquisites which have, consistent with past
practice, been delegated or granted by the Corporation to an employee
holding such position(s) or which are customarily delegated or granted by
similarly situated corporations to an employee holding similar position(s).
If Executive is appointed to additional offices by the Corporation during
the Contract Period, the Executive shall have the responsibilities and
authority, and status and perquisites consistent with the past practices of
the Corporation or which are customarily delegated or granted by similarly
situated corporations to an employee holding such position(s). Executive
shall also perform any additional lawful services and assume any
<PAGE>
reasonable additional responsibilities, not inconsistent with his then
current position, as shall from time to time be assigned to him by the
Board of Directors of the Corporation (the "Board") or by the Chairman and
Chief Executive Officer of the Corporation.
2.2 Executive agrees that during the Contract Period, he shall devote
substantially all of his full working time and attention and give his best
effort, skill and abilities exclusively to the business and interests of
the Corporation; provided, however, that the foregoing shall not be
construed to prohibit Executive's service as a (i) director or officer of
any trade association, civic, educational or charitable organization or
governmental entity or, subject to approval by the Chairman and Chief
Executive Officer as (ii) a director of any corporation which is not a
competitor of the Corporation, provided that such service by Executive does
not materially interfere with the performance by Executive of the
responsibilities delegated under Section 2.1 above.
2.3 Executive shall carry out all responsibilities delegated in Section 2.1
above at such location within the continental United States as the Chairman
and Chief Executive Officer may from time to time, after consultation with
Executive, deem appropriate, except for travel reasonably required in the
performance of Executive's responsibilities.
3. Compensation and Benefits
Throughout the contract period hereof, unless otherwise specifically
provided elsewhere herein:
3.1 Executive shall receive an annual base salary which is not less than
his annual base salary on the Effective Date and shall have the opportunity
for periodic increases in accordance with the Corporation's regular
practices.
3.2 Executive shall be entitled to participate, to the extent determined by
the Board, in all currently existing and future incentive compensation
plans of the Corporation including, but not limited to: the Annual
Incentive Plan for Certain Employees of Coltec Industries Inc and Its
Subsidiaries, the 1994 Long-Term Incentive Plan of Coltec Industries Inc
and the Coltec Industries Inc 1992 Stock Option and Incentive Plan (the
"Incentive Compensation Plans"), provided, however, that the Executive's
participation in all incentive compensation plans shall be at a level not
less than the level customarily approved by the Board for an employee with
Executive's responsibilities and shall not in any case be less than
Executive's level of participation in such plans on the Effective Date. Any
payment to Executive under an Incentive Compensation Plan shall be
calculated and made in accordance with the provisions of the respective
plan, except as elsewhere provided for in this Agreement.
2
<PAGE>
3.3 Executive shall be entitled to receive all employee benefits, fringe
benefits and perquisites (including but not limited to the use of company
cars, club memberships and financial planning services ("Company
Perquisites")) customarily made available to an employee with Executive's
responsibilities, and Executive shall be entitled to participate in all
applicable group, life, health, disability and accident insurance plans and
programs including, and not limited to, the Retirement Savings Plan, the
Retirement Program, the Benefits Equalization Plan (collectively the
"Retirement Plan") and the Family Protection Plan as well as any other
applicable Corporation benefit plans and programs maintained currently upon
terms and at levels no less favorable than now exist or that shall be
established or maintained in the future for employees generally or for the
Corporation's executives.
3.4 Executive shall be entitled to annual vacation and holidays in
accordance with the Corporation's established practice for its employees.
3.5 The Executive shall be entitled to receive reimbursement for all
reasonable out-of-pocket expenses incurred in performing his
responsibilities described in Section 2.1 above, provided that the
Executive properly accounts for such expenses in accordance with the
Corporation's established policies.
4. Indemnification
The Executive shall be entitled to indemnification by the Corporation to
the fullest extent permitted by law and the By- Laws of the Corporation in
respect of any actions or omissions which Executive has taken or has failed
to take as an employee, officer or director of the Corporation while
carrying out the responsibilities delegated under Section 2.1 above.
5. Termination of Employment
The Contract Period shall terminate prior to the completion of its term on
the Date of Termination as defined in Sections 5.2 or 5.3 below following
receipt by the Executive or the Corporation, as the case may be, of a
Notice of Termination as defined in Section 5.1 below.
5.1 "Notice of Termination" shall mean any purported termination of
Executive's employment by the Corporation or by Executive which shall be
communicated by written notice to the other party hereto in accordance with
Section 8 of this Agreement, and which shall (1) indicate the specific
termination provision in this Agreement relied upon, (2) set forth in
reasonable detail the facts and circumstances claimed to provide a basis
for termination of Executive's employment under the provision so indicated,
and (3) set forth the date on which the Executive's employment with the
Corporation shall terminate.
3
<PAGE>
5.2 "Date of Termination" shall mean:
a. thirty (30) days after Notice of Termination is given by the
Corporation for termination of employment due to Disability; provided
that Executive shall not have returned to the full-time performance of
his duties during such thirty (30) day period;
b. the date of death in the event of Executive's death;
c. at least thirty days (30) but not more than sixty (60) days after
Notice of Termination is given by Executive for termination of
employment for Good Reason in respect of a termination covered by
Sections 6.6 or 6.7 below;
d. at least fifteen days (15) after Notice of Termination is given by
the Corporation for termination of employment for Cause;
e. at least fifteen days (15) after Notice of Termination is given by
Executive for retirement after the age of 55 years but before the age
of 65 years to the extent such retirement is permitted under the
Retirement Savings Plan, the Retirement Program or the BE Plan ("Early
Retirement"); or
f. the date specified in the Notice of Termination for termination of
employment for any other reason.
5.3 This Agreement shall automatically terminate upon the earlier of
Executive's 65th birthday or the date set forth in the Notice of
Termination for Early Retirement as provided in Paragraph 5.2(e) above
("Retirement Termination")
6. Compensation Upon Termination or During Disability
6.1 For purposes of this Agreement, "Disability", "Cause", "Good Reason"
and "Change-in-Control" shall have the meanings set forth below:
a. Disability - If, as a result of Executive's incapacity due to
physical or mental illness, Executive shall have become eligible for
benefits under the applicable long-term disability plan or policy of
the Corporation, Executive's employment may be terminated by the
Corporation for "Disability".
b. Cause - Termination by the Corporation of Executive's employment
for "Cause" shall mean termination upon :
i. the prolonged or repeated absence from duty without the
consent of the Board for reasons other than the Executive's
incapacity due to physical or mental illness;
4
<PAGE>
ii. the acceptance by Executive of a position with another
employer which conflicts with his duties as an employee of
the Corporation without the consent of the Chairman and
Chief Executive Officer;
iii. the willful engaging by Executive in conduct relating to the
Corporation which is demonstrably and materially injurious
to the Corporation after a written demand for cessation of
such conduct is delivered to Executive by the Board, which
demand specifically identifies the manner in which the Board
believes the Executive has engaged in such conduct and the
injury to the Corporation;
iv. a willful material breach of an established written policy
or procedure of the Corporation which breach is materially
injurious to the Corporation;
v. Executive's conviction for a crime involving moral
turpitude; or
vi. the breach of Executive's Agreement set forth in Section
10.1 below.
For purposes of this Paragraph, no act, or failure to act, on
Executive's part shall be deemed "willful" unless knowingly done, or
omitted to be done, by Executive not in good faith and without
reasonable belief that Executive's action or omission was in the best
interests of the Corporation.
c. Good Reason - Executive shall be entitled to terminate his
employment for Good Reason. For purposes of this Agreement, "Good
Reason" shall mean the occurrence, without Executive's express written
consent, of any of the following circumstances unless such
circumstances are fully corrected prior to the Date of Termination (as
defined in Section 5.2 above), specified in the Notice of Termination:
i. the terms of this Agreement are materially adversely altered
by action of the Corporation or the Corporation breaches in
any material respect any of its agreements set forth herein;
ii. the failure of the Corporation to obtain a satisfactory
agreement, required in Section 7 below, from any successor
to assume and perform this Agreement (a copy of the
agreement evidencing such assumption shall be provided by
the Corporation to Executive);
iii. any purported termination of Executive's employment by the
Corporation which is not effected pursuant to a Notice of
Termination satisfying the requirements set forth in Section
5
5
<PAGE>
above; for purposes of this Agreement, no such purported
termination shall be effective;
iv. Executive makes a determination in good faith that the
cumulative effect of actions by one or more of the members
of the Board, the Chairman and Chief Executive Officer, the
President and Chief Operating Officer or their respective
agents or associates constitutes harassment or unreasonable
interference with the performance of Executive's day-to-day
duties under this Agreement (after a written demand for
cessation of such actions is delivered by Executive to the
President and Chief Operating Officer, the Chairman and
Chief Executive Officer or to the Board which demand
specifically identifies the manner in which Executive
believes that such President and Chief Operating Officer,
Chairman and Chief Executive Officer or Board members (or
their agents or associates) have harassed Executive or
unreasonably interfered with Executive's ability to perform
his day-to-day duties); provided, however, that appropriate
involvement of the President and Chief Operating Officer,
the Chairman and Chief Executive Officer or the Board
members in regular reviews of those items which have,
consistent with the Corporation's past practices, been
normally within the purview of the President and Chief
Operating Officer, the Chairman and Chief Executive Officer
or the Board's responsibilities as well as any bona fide
business disagreements between the Executive and the
Corporation shall not be taken into account by Executive in
making his determination under this Agreement;
v. the Corporation or any successor during the two year period
following a Change-in-Control delivers to the Executive a
Notice of Termination other than for Cause or takes any
other action or actions, including, but not limited to, a
material decrease in duties or authority or change in
reporting relationships, which may have an adverse effect
upon Executive's employment or which purport to terminate
Executive's employment other than for Cause;
vi. relocation of the Executive's place of employment to a
location outside the continental United States or relocation
of the Executive's place of employment within the
continental United States without reimbursing Executive his
cost of relocation at a level at least as favorable as that
provided under the Corporation' s policy and practice in
effect on the date of this Agreement; or
vii. after a Change-in-Control as hereafter defined, the
Corporation a) reduces Executive's annual salary, b) impairs
Executive's
6
<PAGE>
opportunity to earn incentive compensation on a basis
comparable to that before the Change-in-Control, c) reduces
the Company perquisites made available to Executive before
the Change-in-Control or d) eliminates or impairs
Executive's ability to participate in the Retirement Plans;
viii. the Executive chooses to terminate his employment with the
Corporation for any reason during the thirty (30) day period
immediately preceding either, at the option of the
Executive, the twelve (12) month anniversary or the
twenty-four (24) month anniversary of a Change-in-Control as
hereafter defined.
Executive's right to terminate his employment pursuant to this
Paragraph shall not be affected by his incapacity due to physical
illness. In addition, Executive's continued employment with the
Corporation shall not constitute a waiver of Executive's rights under
this Paragraph (c) nor constitute a consent to any act or omission by
the Corporation constituting Good Reason.
d. Change-in-Control - A Change-in-Control shall be deemed to occur as
of the date on which any of the following occur:
i. the acquisition, other than from the Corporation, by any
individual, entity or group (within the meaning of Section
13 (d) (3) or 14 (d) (2) of the Securities and Exchange Act
of 1934, as amended (the "Exchange Act") of beneficial
ownership (within the meaning of Rule 13d-3 promulgated
under the Exchange Act) of 20 percent or more of either the
then outstanding shares of common stock of the Corporation
or the combined voting power of the then outstanding voting
securities of the Corporation entitled to vote generally in
the election of directors; or
ii. Individuals who, as of the date of this Agreement,
constitute the Board (the "Incumbent Board") cease for any
reason to constitute at least a majority of the Board,
provided that any individual becoming a director subsequent
to the date hereof whose election, or nomination for
election by the Corporation's shareholders, was approved by
a vote of at least a majority of the directors then
comprising the Incumbent Board shall be considered as though
such individual as a member of the Incumbent Board, but
excluding, for this purpose, any such individual whose
initial assumption of office is in connection with an actual
or threatened election contest relating to the election of
the directors of the Corporation (as such terms are used in
Rule 14a-ll of Regulation 14A promulgated under the Exchange
Act); or
7
<PAGE>
iii. Approval by the shareholders of the Corporation of (1) a
reorganization, merger or consolidation, in each case, with
respect to which the individuals and entities who were the
respective beneficial owners of the common stock and voting
securities of the Corporation immediately prior to such
reorganization, merger or consolidation do not, following
such reorganization, merger or consolidation, beneficially
own, directly or indirectly, more than 50 percent of,
respectively, the then outstanding shares of common stock,
and the combined voting power of the then outstanding voting
securities entitled to vote generally in the election of
directors, as the case may be, of the corporation resulting
from such reorganization, merger or consolidation; (2) a
complete liquidation or dissolution of the Corporation; or
of (3) the sale or other disposition of all or substantially
all of the assets of the Corporation.
6.2 During any period of Disability and until the earlier of the end of the
Contract Period or Executive's death, Executive shall receive all accrued
but unpaid base salary plus all amounts or benefits payable or due to him
(including a pro rata share under Incentive Compensation Plans targeted for
the year in which the Disability occurs) under the Corporation ' s
compensation and benefit plans and programs in which Executive is
participating at the commencement of any such period, plus an additional
payment from the Corporation (if necessary) such that the aggregate amount
received by Executive in the nature of salary continuation from all sources
equals Executive's base salary at the rate in effect at the commencement of
any such period. Thereafter, Executive shall be entitled to participate in
all applicable group, life, Family Protection Plan, health, disability and
accident insurance plans and programs as well as any other applicable
Corporation benefit plans and programs (including, but not limited to, the
1992 Stock Option and Incentive Plan) in accordance with the terms of such
plans and programs; provided that such terms shall not be less advantageous
to Executive than the terms in effect as of the date hereof.
6.3 If Executive's employment shall be terminated by reason of Executive's
death, the Executive shall be entitled to the benefits provided below:
a. The Corporation shall pay to Executive's estate as soon as
practicable after the date of Executive's death, Executive's accrued
but unpaid base salary through the date of Executive's death, at the
rate in effect at the time of Executive's death, plus all other
amounts to which Executive is entitled under any benefit or
compensation plan of the Corporation including, but not limited to, a
pro rata share under Incentive Compensation Plans earned during the
year in which Employee's death occurs.
b. After Executive's death, Executive's beneficiaries shall be
entitled to participate in all applicable group, life, health,
disability and accident insurance plans and programs as well as any
other applicable Corporation
8
<PAGE>
benefit plans and programs including, but not limited to, the 1992
Stock Option and Incentive Plan, in accordance with the terms of such
plans and programs.
6.4 If Executive's employment shall be terminated as a result of a
Retirement Termination or as a result of a voluntary resignation for other
than Good Reason ("Resignation"), then Executive shall receive all accrued
but unpaid base salary plus all amounts payable to him under the
Corporation's compensation (including, but not limited to, a pro rata share
under Incentive Compensation Plans targeted for the year the Retirement
Termination or Resignation occurs) and benefit plans and programs in which
Executive is participating at the time the Retirement Termination or
Resignation becomes effective. In the event of a Retirement Termination,
Executive shall be entitled to participate in all retirement and other
plans and programs effective on the Date of Termination to which he is
eligible in accordance with their terms .
6.5 If Executive's employment shall be terminated by the Corporation for
Cause, then Executive shall be entitled to the following benefits:
a. The Corporation shall pay Executive's full base salary through the
Date of Termination at the rate in effect at the time Notice of
Termination is given plus all other amounts to which Executive is
entitled under any benefit or compensation plan of the Corporation,
excluding any bonus, other incentive compensation and vacation pay, if
any, otherwise payable to Executive pursuant to the terms of the
applicable plan or program of the Corporation, at the time such
payments are due.
b. Executive shall be entitled to participate in all applicable group
life, health, disability and accident insurance plans and programs,
but only to the extent required by the terms of such plans, or only to
the extent specifically required by Federal or state law.
6.6 If Executive's employment shall be terminated (1) by the Corporation
for other than Cause, (2) by Executive for Good Reason other than Good
Reason as specified in Section 6.7 below ("Section 6.7 Good Reason") then
Executive shall be entitled to the following benefits:
a. The Corporation shall pay Executive, as soon as practicable
following the Date of Termination a sum equal to Executive's accrued
but unpaid base salary through the Date of Termination at the rate in
effect at the time Notice of Termination is given plus all other
amounts to which Executive is entitled under any benefit or
compensation plan of the Corporation (including but not limited to a
pro rata share under Incentive Compensation Plans targeted for the
year in which Executive's employment is terminated).
b. The Corporation shall pay Executive as soon as practicable
following the Date of Termination an additional payment equal to the
9
<PAGE>
sum of Executive's annual base salary plus the highest annual bonus
received by the Executive or, if the Executive has not received an
annual bonus while serving as a Executive Vice President, by any
individual serving as Executive Vice President for the Corporation
during any of the three previous calendar years multiplied by the
higher of two (2) or the number of years (including fractions thereof)
remaining under the Contract Period.
c. In accordance with a valid election on file with the Corporation,
the Corporation shall pay to Executive a sum of money equal to the
value of Executive' s accrued balance of the Benefits Equalization
Plan (the "BE Plan").
d. For the longer of two years from the Date of Termination or until
the end of the Contract Period (the "Relevant Damage Period"), the
Corporation shall continue to make available to Executive all Company
Perquisites, or, in the alternative, the Corporation shall pay to
Executive as soon as practicable after the Date of Termination a sum
of money reasonably approximating the cash value of the Company
Perquisites. Additionally, for such period of time Executive shall,
subject to Section 6.9, be allowed to participate in all applicable
group, life, health, disability and accident insurance plans and
programs as well as any other applicable Corporation benefit plans and
programs (including, but not limited to, the 1992 Stock Option and
Incentive Plan) as if he were an active employee (limited, in the case
of coverage under life insurance plans, to the level of coverage that
the Corporation is able to obtain on Executive's behalf based upon the
annual premium cost of providing Executive with life insurance during
Executive's last twelve months of employment with the Corporation), in
which Executive was participating 30 days prior to the time Notice of
Termination is given or comparable plans substituted therefor;
provided, however, that if Executive is ineligible (e.g., by operation
of law or the terms of the applicable plan) to continue to participate
in any such plan, the Corporation will provide Executive with a
comparable level of compensation or benefit.
e. For purposes of Section 6.6(d), Executive's participation in
respect to the Corporation's 1994 Long Term Incentive Plan (the
"LTIP") shall be as follows (the defined terms within this section and
not otherwise defined within this Agreement being the same as defined
in the LTIP as in effect on the date hereof):
i. all of the Executive's Restricted Shares previously issued
under the LTIP and not yet vested by the Date of Termination
shall become 100% vested, nonforfeitable and fully
transferable as of such date; and
ii. the Corporation will pay the Executive as soon as
practicable following the Date of Termination an amount in
cash equal to three
10
<PAGE>
times the product of (x) the number of Performance Units
previously granted under the LTIP to the Executive and still
outstanding, times (y) the Award Value at the Threshold
Target level.
f. For purposes of Section 6.6(d), Executive's benefits with respect
to the Corporation's Retirement Plan for Salaried Employees and the BE
Plan or any equivalent or superior plans or arrangements in which the
Executive participated prior to the Date of Termination (any such Plan
or arrangement, the "Pension Plans") and the Corporation's welfare
benefit plans in which the Executive participates on the date hereof
or any equivalent or superior successor plans or arrangements in which
the Executive participates prior to the Date of Termination ("Welfare
Benefit Plans") the contemplated continued participation shall require
the Corporation to pay or provide the executive with the benefits,
earnings credits for benefits and service credits for benefits which
the Executive would have received under the Pension Plans and Welfare
Benefit Plans if (x) the Executive's employment and his coverage under
the Pension Plans and the Welfare Benefit Plans had continued during
the Relevant Damage Period, and (y) the compensation described in
Section 6.6 (b) which would have been credited under the Pension Plans
and/or the Welfare Plans were paid to the Executive ratably over the
Relevant Damage Period.
g. All restrictions, if any, on shares of restricted stock previously
granted to Executive which would have lapsed if Executive had been
employed throughout the Relevant Damage Period shall immediately lapse
as of the Date of Termination, and Executive shall be entitled to the
possession of the shares of such stock as of such date upon the
payment of any applicable withholding taxes.
6.7 If Executive's employment by the Corporation shall be terminated by
Executive for Good Reason where Executive has given Notice of Termination
to the Corporation within two years from the occurrence of an event
constituting a Change-of-Control, then Executive shall be entitled to the
following benefits in lieu of the benefits under the Section 6.6:
a. The Corporation shall pay Executive his accrued but unpaid base
salary through the Date of Termination at the rate in effect at the
time Notice of Termination is given, plus all other amounts to which
Executive is entitled under any benefit or compensation plan of the
Corporation (including, but not limited to, a pro rata share under
Incentive Compensation Plans earned during the year in which
employment is terminated)
b. In lieu of any further base salary payments to Executive for period
subsequent to the Date of Termination, the Corporation shall pay to
Executive a lump sum equal to four times (4x) the sum of Executive's
annual base salary at the rate in effect immediately prior to the time
Notice of Termination is given plus the highest annual bonus received
by
11
<PAGE>
the Executive or, if the Executive has not received an annual bonus
while serving as a Executive Vice President, ,any
individual serving as Executive Vice President, for
the Corporation during any of the three preceding calendar years.
c. In lieu of any further participation by Executive in the Family
Protection Plan, the Corporation shall transfer to Executive a fully
paid up insurance policy or policies then insuring the life of the
Executive pursuant to the terms of the Family Protection Plan, plus an
amount of money (the "Tax Adjustment") calculated to reimburse
Executive for any local, state or Federal income, employment or other
taxes which he may be liable as a result of receiving the insurance
policy or policies and the Tax Adjustment amount.
d. At Executive's option and as soon, as practicable after his
request, the Corporation shall pay Executive a sum of money equal to
the value of Executive's accrued balance of the BE Plan.
e. For four years from the Date of Termination, the Corporation shall
continue to make available to Executive all Company Perquisites, or,
in the alternative, the Corporation shall pay to Executive as soon as
practicable after the Date of Termination a sum of money reasonably
approximating the cash value of the Company Perquisites. Additionally,
Executive shall, subject to Section 6.9, be allowed to participate in
all applicable group, life, health, disability and accident insurance
plans and programs as well as any other applicable Corporation benefit
plans and programs (including, but not limited to the 1992 Stock
Option and Incentive Plan) as if he were an active employee (limited,
in the case of coverage under life insurance plans, to the level of
coverage that the Corporation is able to obtain on Executive's behalf
based upon the annual premium cost of providing Executive with life
insurance during Executive's last twelve months of employment with the
Corporation), in which Executive was participating 30 days prior to
the time Notice of Termination is given or comparable plans
substituted therefor; provided, however, that if Executive is
ineligible (e.g., by operation of law or the terms of the applicable
plan) to continue to participate in any such plan, the Corporation
will provide Executive with a comparable level of compensation or
benefit.
f. For purposes of Section 6.7(e), Executive's participation in
respect to the LTIP shall be as follows (the defined terms within this
section and not otherwise defined within this agreement being the same
as defined in the LTIP):
i. all of the Executive's Restricted Shares previously issued
under the LTIP and not yet vested by the Date of Termination
shall become 100% vested, nonforfeitable and fully
transferable as of such date; and
12
<PAGE>
ii. all LTIP awards issued prior to the Date of Termination
("Existing Awards") of Performance Units ("Existing Units")
shall be deemed to have been outstanding throughout the
Performance Cycle to which each relates; and
iii. the Executive shall be deemed to have received an LTIP award
in each of the four years following the Date of Termination
("Deemed Awards") in an amount equal in units to the highest
number of Performance Units received by the Executive in any
of the three years prior to the Date of Termination ("Deemed
Units") and all of the Deemed Units shall be deemed to have
been outstanding throughout the Performance Cycle to which
each relates; and
iv. except as set forth in Section 6.7(f)(v), the Corporation
will pay the Executive as soon as practicable following the
Date of Termination an amount in cash equal to th e number
of Existing and Deemed Units to which he is entitled
multiplied by an Award Value the result of which is further
multiplied by 1.10 (the "LTIP Payout"). The Operating Income
Threshold Target for each Deemed Award shall be that
established for the Existing Award issued just prior to the
Date of Termination. The Award Value shall be calculated in
accordance with the provisions of the LTIP applying actual
operating profit of the Corporation whenever such has
actually been achieved and applying those projections of
operating profit contained in the Corporation's Coltec 2000
Plan for those years which do not have actual results. If
any Performance Cycle of any Existing or Deemed Unit shall
extend beyond the projections contained in the Corporation's
Coltec 2000 Plan, then the operating profit contained in the
Coltec 2000 Plan for the year ending December 31, 1999 shall
be the operating profit applied to each year of any
Performance Cycle for which actual operating profit cannot
be calculated increased for each year after 1999 at the
average rate of annual increase of operating profit actually
realized for the period between January 1, 1997 and December
31, 1999.
v. in the event that the independent accountants of the
Corporation shall determine that if the payment of the LTIP
Payout is made entirely in cash it shall prevent the
Corporation from consummating any business combination
approved by the Board of Directors which combination is
intended to be accounted for under the pooling of interests
method of accounting ("Pooling"), then the LTIP Payout shall
be made 2/3 in cash and 1/3 in the Corporation's Common
Stock (the "Share Portion"). If a merger or acquisition of
the Corporation has taken place prior to the time that the
Executive has given Notice of Termination setting forth his
intent to terminate his employment for Good Reason and the
Common Stock of the Corporation is no longer traded on a
national
13
<PAGE>
securities exchange then the Share Portion of the LTIP
Payout shall be made in the common stock of the
Corporation's parent or successor corporation (collectively,
a "Successor"), which stock is traded on a national
securities exchange or on an over the counter securities
market. The number of shares payable in respect to the Share
Portion shall be determined by dividing the dollar value of
the Share Portion by the price of a share of the Common
Stock of the Corporation, or a Successor, as the case may
be, on the last business day immediately preceding the date
of the Notice of Termination.
g. For purposes of Section 6.7(e), Executive's benefits with respect
to the Pension Plans and the Welfare Benefit Plans, the contemplated
continued participation shall require the Corporation to pay or
provide the Executive with the benefits, earnings credits for benefits
and service credits for benefits which the Executive would have
received under the Pension Plans and Welfare Benefit Plans if (x) the
Executive's employment and his coverage under the Pension Plans and
the Welfare Benefit Plans had continued for an additional four year
period, and (y) the compensation described in Section 6.7 (b) which
would have been credited under the Pension Plans and/or the Welfare
Plans were paid to the Executive ratably over a four year period.
h. All restrictions, if any, on shares of restricted stock previously
granted to Executive shall immediately lapse as of the Date of
Termination, and Executive shall be entitled to the possession of the
shares of such stock as of such date upon the payment of any
applicable withholding taxes.
6.8 In addition to the benefits set forth in Sections 6.6 and 6.7, in the
event that Executive's employment shall be terminated (1) by the
Corporation for other than Cause, (2) by Executive for Good Reason other
than Section 6.7 Good Reason, or (3) by Executive for Section 6.7 Good
Reason then:
a. The Company shall also pay to Executive all reasonable legal fees
and expenses incurred by Executive as a result of such termination
(including all such fees and expenses, if any, incurred in contesting
or disputing any such termination (including cost associated with
legal consultation even if no actual contest or dispute results) or in
seeking to obtain or enforce any right or benefit provided by this
Agreement or in connection with any tax audit or proceeding to the
extent attributable to the application of Section 4999 of the Internal
Revenue Code of 1986, as amended (the "Code"), to any payment or
benefit provided hereunder), except any such fees or expenses incurred
by Executive in seeking to enforce a claim which is determined by an
arbitrator, pursuant to Section 14 below, to have been frivolous in
nature or not brought or pursued in good faith.
b. In the event that Executive becomes entitled to any payments or
benefits from the Corporation (whether or not provided under this
Agreement) (the
14
<PAGE>
"Severance Payments") that will be subject to the tax (the "Excise
Tax") imposed by Section 4999 of the Code, the Corporation shall pay
to Executive at the time or times specified in Paragraph (h) below, an
additional amount (the "Gross-Up Payment") such that the net amount
retained by Executive, after deduction of (I) any additional Excise
Tax payable by Executive as a result of Executive's receipt of the
Severance Payments, and (ii) any additional Federal, state and local
income and employment taxes and Excise tax payable by Executive as a
result of Executive's receipt of the Gross-Up Payments shall be equal
to the Severance Payments. For purposes of determining whether any of
the Severance Payments will be subject to the Excise Tax and the
amount of such Excise Tax, (i) the Severance Payments, payments
provided for in this paragraph and any other payments or benefits
received or to be received by Executive in connection with a
change-in-control of the Corporation (as defined in Section 280G of
the Code) or Executive's termination of employment (whether pursuant
to the terms of this Agreement or any other plan, arrangement or
agreement with the Corporation, any person whose actions result in a
Change-in-Control or any person affiliated with the Corporation or
such person) shall be treated as "parachute payments" within the
meaning of Section 280G(b) (2) of the Code, and all "excess parachute
payments" within the meaning of Section 280G(b) (1) shall be treated
as subject to the Excise Tax, unless and to the extent that in the
opinion of tax counsel selected by the Corporation's independent
auditors and acceptable to Executive, such other payments or benefits
(in whole or in part) do not constitute parachute payments, or such
excess parachute payments (in whole or in part) and represent
reasonable compensation for services actually rendered within the
meaning of Section 280G(b) (4) of the Code in excess of the base
amount within the meaning of Section 280G(b) (3) of the Code, or are
otherwise not subject to the Excise Tax, (ii) the amount of the
Severance Payments which shall be treated as subject to the Excise Tax
shall be equal to the lesser of (x) the total amount of the Severance
Payments or (y) the amount of excess parachute payments within the
meaning of Section 280G(b) (1) (after applying clause (i) above),
(iii) any payment pursuant to this Paragraph shall be treated as
subject to the Excise Tax in its entirety and (iv) the value of any
non-cash benefits or any deferred payment of benefit shall be
determined by the Corporation's independent auditors in accordance
with the principles of Sections 280G(d) (3)and (4) of the Code. For
purposes of determining the amount of the Gross-Up Payment, Executive
shall be deemed to pay federal income taxes at the highest marginal
rate of Federal income taxation in the calendar year in which the
Gross-Up Payment is to be made and state and local income taxes at the
highest marginal rate of taxation in the state and locality of
Executive residence on the Date of Termination, not of the maximum
reduction in federal income taxes which could be obtained from
deduction of such state and local taxes. In the event that the Excise
Tax is subsequently determined to be less than the amount taken into
account hereunder at the time of termination of Executive's
employment, Executive shall repay to the
15
<PAGE>
Corporation at the time that the amount of such reduction in Excise
Tax is finally determined, the portion of the Gross-Up Payment
attributable to such reduction (plus the portion of the Gross-Up
Payment attributable to the Excise Tax and federal and state and local
income tax imposed on the Gross-Up Payment being repaid by Executive)
plus interest accrued from the date such Gross-Up Payment is made to
Executive to the date of such repayment on the amount of such
repayment at the rate provided in Section 1274(b) (2) (B) of the Code.
In the event that the Excise Tax is determined to exceed the amount
taken into account hereunder at the time of the termination of
Executive's employment (including by reason of any payment the
existence or amount of which cannot be determined at the time of the
Gross-Up Payment), the Corporation shall make an additional gross-up
payment in respect of such excess (plus any interest payable with
respect to such excess) at the time that the amount of such excess is
finally determined.
c. The payments provided for in Paragraph (b) above shall be made at
any time during the 90-day period preceding each due date for making
payment of such Excise Taxes to the appropriate taxing authority;
provided, however, that if the amounts of such payments cannot be
finally determined on or before each such date, the Corporation shall
pay to Executive on such date an estimate, as determined in good faith
by the Corporation, of the minimum amount of such payments and shall
pay the remainder of such payments then due as soon as the amount
thereof can be determined. In the event that the amount of the
estimated payments exceeds the amount subsequently determined to have
been due, such excess shall constitute a loan by the Corporation to
Executive on the fifth day after demand by the Corporation (together
with interest at the rate provided in Section 1274 (b) (2) (B) of the
Code).
6.9 Upon receipt of written notice from Executive that Executive has been
reemployed by another company or entity on a full-time basis , benefits
otherwise receivable by Executive pursuant to Subsections 6.6(d) or 6.7(e)
related solely to life, health disability and accident insurance plans and
programs and other similar benefits (but not Incentive Compensation , LTIP,
Pension Plans or other similar plans and programs) shall be reduced to the
extent comparable benefits are made available to Executive at his new
employment and any such benefits actually received by Executive shall be
reported to the Corporation. Nothing herein contained shall obligate
Executive to accept employment elsewhere .
6.10. Any stock of the Corporation which is delivered to the Executive
pursuant to Subsection 6.6 or 6.7 shall be delivered to him fully
registered for immediate sale to the public under all applicable securities
laws.
7. Successors; Binding Agreement
16
<PAGE>
The Corporation will require any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or substantially all
of the business and/or assets of the Corporation to expressly assume and
agree to perform this Agreement in the same manner and to the same extent
that the Corporation would be required to perform it if no such succession
had taken place. Failure of the Corporation to obtain such assumption and
agreement prior to the effectiveness of any such succession shall be a
breach of this Agreement and shall entitle Executive to terminate this
Agreement for Good Reason. As used in this Agreement, "Corporation" shall
mean the Corporation and any successor to its business and or assets as
aforesaid which assumes and agrees to perform this Agreement by operation
of law, or otherwise.
8. Notice
For the purpose of this Agreement, notices and all other communications
provided for in the Agreement shall be in writing and shall be deemed to
have been duly given when delivered or mailed by United States registered
mail, return receipt requested, postage prepaid, addressed to the
Executive's most recent home address on file with the Corporation, and to
the Corporation at 3 Coliseum Centre, 2550 West Tyvola Road, Charlotte, NC
28217 to the attention of the Chairman of the Board of Directors with a
copy to the Secretary of the Corporation or to such other address as either
party may have furnished to the other in writing in accordance herewith,
except that notice of change of address shall be effective only upon
receipt.
9. Modification - Waiver
No provision of this Agreement may be modified, waived or discharged unless
such waiver, modification or discharge is agreed to in writing and signed
by Executive and such officer of the Corporation as may be specifically
designated by the Board. No waiver by either party hereto at any time of
any breach by the other party hereto of, or compliance with, any condition
or provision of this Agreement to be performed by such other party shall be
deemed a waiver of similar or dissimilar provisions or conditions at the
same or at any prior or subsequent time. In the event that the independent
accountants of the Corporation shall determine that anything contained
herein shall prevent the Corporation from consummating any business
combination approved by the Board of Directors which combination is
intended to be accounted for as a Pooling, then Executive agrees to
negotiate in good faith concerning amendments to such portions of this
Agreement as may be requested by the Corporation so as to allow such
business combination to be accounted for as a Pooling; provided, however,
that any such amendment shall: (a) be as limited in scope as is absolutely
necessary in the opinion of the Corporation's advisors to allow the
business combination to be accounted for as a Pooling, and (b) be designed
to have as minimal an economic detriment to the Executive as is possible
while still allowing the business combination to be accounted for as a
Pooling.
17
<PAGE>
10. Non-competition
10.1 Until the Date of Termination, Executive agrees not to enter into
competitive endeavors and not to undertake any commercial activity which is
contrary to the best interests of the Corporation or its affiliates,
including becoming an employee, owner (except for passive investments of
not more than three percent of the outstanding shares of, or any other
equity interest in, any company or entity listed or traded on a national
securities exchange or in an over-the-counter securities market), officer,
agent or director of (a) any firm or person engaged in the operation of a
business engaged in the acquisition of industrial businesses or (b) any
firm or person which either directly competes with a line or lines of
business of the Corporation accounting for five percent (5%) or more of the
Corporation's gross revenues or earnings before taxes or derives five
percent (5%) or more of such firm's or person's gross revenues or earnings
before taxes from a line or lines of business which directly compete with
the Corporation. Notwithstanding any provision of this Agreement to the
contrary, Executive agrees that his breach of the provisions of this
Section 10.1 shall permit the Corporation to terminate Executive's
employment for Cause in accordance with Section 5.l(b) hereof.
10.2 After the Date of Termination and for a period of time equal in years
to the multiple of annual salary received by Executive pursuant to either
Sections 6.6(b) or 6.7(b) (the "Non-Competition Period"), Executive agrees
not to become an employee, owner (except for passive investments of not
more than three percent of the outstanding shares of, or any other equity
interest in, any company or entity listed or traded on a national
securities exchange or in an over-the-counter securities market), officer,
agent or director of any firm or person which directly and substantially
competes with a business of the Corporation accounting for five percent
(5%) or more of the Corporation's gross revenues or earnings before taxes.
During the Non-Competition Period, Executive will be available to answer
questions and provide advice to the Corporation; provided, however, that
such requirement shall not unreasonably interfere with any other of
Executive's activities which Executive is then pursuing and which are not
otherwise prohibited by this Section 10. Also, during the Non-Competition
Period, Executive will retain in confidence any and all confidential
information known to him concerning the Corporation and its business and
shall not use or disclose such information without the approval of the
Corporation except to the extent such information becomes public or as may
be required by law.
10.3 Executive acknowledges and agrees that damages for breach of the
covenant not to compete in this Section 10 will be difficult to determine
and will not afford a full and adequate remedy, and therefore Executive
agrees that the Corporation, in addition to seeking actual damages pursuant
to the procedures set forth in Section 13 below, may seek specific
enforcement of the covenant not to
18
<PAGE>
compete in any court of competent jurisdiction, including, without
limitation, by the issuance of a temporary or permanent injunction, without
the necessity of a bond. Executive and the Corporation agree that the
provisions of this covenant not to compete are reasonable. However, should
any court or arbitrator determine that any provision of this covenant not
to compete is unreasonable, either in period of time, geographical area, or
otherwise, the parties agree that this covenant not to compete should be
interpreted and enforced to the maximum extent which such court or
arbitrator deems reasonable.
11. Validity
The invalidity or unenforceability of any provision of this Agreement shall
not affect the validity or enforceability of any other provision of this
Agreement, which shall remain in full force and effect.
12. Counterparts
This Agreement may be executed in several counterparts, each of which shall
be deemed to be an original but all of which together will constitute one
and the same instrument.
13. Arbitration
Except as contemplated by Section 10.3 of this Agreement, any dispute or
controversy arising under or in connection with this Agreement shall be
settled exclusively by arbitration in Charlotte, NC or such other location
mutually agreed upon by the parties to the arbitration, in accordance with
rules of the American Arbitration Association, and judgment upon such award
rendered by the arbitrator may be entered in any court having jurisdiction
over such proceeding.
14. Governing Law
This Agreement shall be governed by and construed and enforced in
accordance with the laws of the State of North Carolina.
15. Entire Agreement; Survival of Certain Provisions
15.1 This Agreement constitutes the whole agreement of the Corporation and
the Executive. No agreements or representations, oral or otherwise, express
or implied, with respect to the subject matter of this Agreement have been
made by either party which are not expressly set forth in this Agreement
15.2 The obligations of the Corporation under Section 6.8 above and the
Executive's obligations under Section 10 above shall survive the expiration
of the term of this Agreement.
16. Withholding
19
<PAGE>
Any payments made to Executive under this Agreement shall be paid net of
any applicable withholding required under Federal, state or local law.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the Effective Date.
COLTEC INDUSTRIES INC
By /s/ R. J. TUBBS
-----------------------------------
/s/ LAURENCE H. POLSKY
-----------------------------------
EXECUTIVE
20
<PAGE>
SECOND RESTATED EMPLOYMENT AGREEMENT
The Employment Agreement dated June 1, 1995 and restated on January 10,
1997 (the "Employment Agreement") between Robert J. Tubbs (the "Executive") and
Coltec Industries Inc, a Pennsylvania corporation (the "Corporation"), is
amended, clarified and restated as of this 18th day of December, 1997 (the
"Restatement Date") as if originally entered into and effective as of June 1,
1995 (the "Effective Date"),
WHEREAS, the Employment Agreement has been amended and restated from time
to time since its original execution, and
WHEREAS, the Corporation and the Executive desire to further modify the
Employment Agreement in order to clarify certain provisions thereof, and
WHEREAS, the Executive and the Corporation desire to combine all new and
previous amendments to the Employment Agreement into this Second Restated
Employment Agreement setting forth the terms and conditions upon which the
Executive shall be employed by the Corporation to be effective as if originally
entered into on the Effective Date.
NOW, THEREFORE, in consideration of the foregoing and the mutual promises
herein contained, the parties agree as follows:
1. Employment Term
The Corporation agrees to employ the Executive and the Executive agrees to
be employed by the Corporation, upon the terms and conditions contained in
this Agreement, for a period of four years commencing on the Effective Date
and terminating on the fourth anniversary of the Effective Date (the
"Contract Period") The Contract Period shall be subject to earlier
termination in accordance with the provisions set forth in Section 5 below.
2. Duties
2.1 The Executive shall serve, subject to the supervision and control of
the Corporation's Chairman and Chief Executive Officer as the Executive
Vice President, General Counsel and Secretary of the Corporation with the
responsibilities and authority, and status and perquisites which have,
consistent with past practice, been delegated or granted by the Corporation
to an employee holding such position(s) or which are customarily delegated
or granted by similarly situated corporations to an employee holding
similar position(s). If Executive is appointed to additional offices by the
Corporation during the Contract Period, the Executive shall have the
responsibilities and authority, and status and perquisites consistent with
the past practices of the Corporation or which are customarily delegated or
granted by similarly situated corporations to an employee holding such
position(s). Executive shall also perform any
<PAGE>
additional lawful services and assume any reasonable additional
responsibilities, not inconsistent with his then current position, as shall
from time to time be assigned to him by the Board of Directors of the
Corporation (the "Board") or by the Chairman and Chief Executive Officer of
the Corporation.
2.2 Executive agrees that during the Contract Period, he shall devote
substantially all of his full working time and attention and give his best
effort, skill and abilities exclusively to the business and interests of
the Corporation; provided, however, that the foregoing shall not be
construed to prohibit Executive's service as a (i) director or officer of
any trade association, civic, educational or charitable organization or
governmental entity or, subject to approval by the Chairman and Chief
Executive Officer as (ii) a director of any corporation which is not a
competitor of the Corporation, provided that such service by Executive does
not materially interfere with the performance by Executive of the
responsibilities delegated under Section 2.1 above.
2.3 Executive shall carry out all responsibilities delegated in Section 2.1
above at such location within the continental United States as the Chairman
and Chief Executive Officer may from time to time, after consultation with
Executive, deem appropriate, except for travel reasonably required in the
performance of Executive's responsibilities.
3. Compensation and Benefits
Throughout the contract period hereof, unless otherwise specifically
provided elsewhere herein:
3.1 Executive shall receive an annual base salary which is not less than
his annual base salary on the Effective Date and shall have the opportunity
for periodic increases in accordance with the Corporation's regular
practices.
3.2 Executive shall be entitled to participate, to the extent determined by
the Board, in all currently existing and future incentive compensation
plans of the Corporation including, but not limited to: the Annual
Incentive Plan for Certain Employees of Coltec Industries Inc and Its
Subsidiaries, the 1994 Long-Term Incentive Plan of Coltec Industries Inc
and the Coltec Industries Inc 1992 Stock Option and Incentive Plan (the
"Incentive Compensation Plans"), provided, however, that the Executive's
participation in all incentive compensation plans shall be at a level not
less than the level customarily approved by the Board for an employee with
Executive's responsibilities and shall not in any case be less than
Executive's level of participation in such plans on the Effective Date. Any
payment to Executive under an Incentive Compensation Plan shall be
calculated and made in accordance with the provisions of the respective
plan, except as elsewhere provided for in this Agreement.
2
<PAGE>
3.3 Executive shall be entitled to receive all employee benefits, fringe
benefits and perquisites (including but not limited to the use of company
cars, club memberships and financial planning services ("Company
Perquisites")) customarily made available to an employee with Executive's
responsibilities, and Executive shall be entitled to participate in all
applicable group, life, health, disability and accident insurance plans and
programs including, and not limited to, the Retirement Savings Plan, the
Retirement Program, the Benefits Equalization Plan (collectively the
"Retirement Plan") and the Family Protection Plan as well as any other
applicable Corporation benefit plans and programs maintained currently upon
terms and at levels no less favorable than now exist or that shall be
established or maintained in the future for employees generally or for the
Corporation's executives.
3.4 Executive shall be entitled to annual vacation and holidays in
accordance with the Corporation's established practice for its employees.
3.5 The Executive shall be entitled to receive reimbursement for all
reasonable out-of-pocket expenses incurred in performing his
responsibilities described in Section 2.1 above, provided that the
Executive properly accounts for such expenses in accordance with the
Corporation's established policies.
4. Indemnification
The Executive shall be entitled to indemnification by the Corporation to
the fullest extent permitted by law and the By- Laws of the Corporation in
respect of any actions or omissions which Executive has taken or has failed
to take as an employee, officer or director of the Corporation while
carrying out the responsibilities delegated under Section 2.1 above.
5. Termination of Employment
The Contract Period shall terminate prior to the completion of its term on
the Date of Termination as defined in Sections 5.2 or 5.3 below following
receipt by the Executive or the Corporation, as the case may be, of a
Notice of Termination as defined in Section 5.1 below.
5.1 "Notice of Termination" shall mean any purported termination of
Executive's employment by the Corporation or by Executive which shall be
communicated by written notice to the other party hereto in accordance with
Section 8 of this Agreement, and which shall (1) indicate the specific
termination provision in this Agreement relied upon, (2) set forth in
reasonable detail the facts and circumstances claimed to provide a basis
for termination of Executive's employment under the provision so indicated,
and (3) set forth the date on which the Executive's employment with the
Corporation shall terminate.
3
<PAGE>
5.2 "Date of Termination" shall mean:
a. thirty (30) days after Notice of Termination is given by the
Corporation for termination of employment due to Disability; provided
that Executive shall not have returned to the full-time performance of
his duties during such thirty (30) day period;
b. the date of death in the event of Executive's death;
c. at least thirty days (30) but not more than sixty (60) days after
Notice of Termination is given by Executive for termination of
employment for Good Reason in respect of a termination covered by
Sections 6.6 or 6.7 below;
d. at least fifteen days (15) after Notice of Termination is given by
the Corporation for termination of employment for Cause;
e. at least fifteen days (15) after Notice of Termination is given by
Executive for retirement after the age of 55 years but before the age
of 65 years to the extent such retirement is permitted under the
Retirement Savings Plan, the Retirement Program or the BE Plan ("Early
Retirement"); or
f. the date specified in the Notice of Termination for termination of
employment for any other reason.
5.3 This Agreement shall automatically terminate upon the earlier of
Executive's 65th birthday or the date set forth in the Notice of
Termination for Early Retirement as provided in Paragraph 5.2(e) above
("Retirement Termination")
6. Compensation Upon Termination or During Disability
6.1 For purposes of this Agreement, "Disability", "Cause", "Good Reason"
and "Change-in-Control" shall have the meanings set forth below:
a. Disability - If, as a result of Executive's incapacity due to
physical or mental illness, Executive shall have become eligible for
benefits under the applicable long-term disability plan or policy of
the Corporation, Executive's employment may be terminated by the
Corporation for "Disability".
b. Cause - Termination by the Corporation of Executive's employment
for "Cause" shall mean termination upon :
i. the prolonged or repeated absence from duty without the
consent of the Board for reasons other than the Executive's
incapacity due to physical or mental illness;
4
<PAGE>
ii. the acceptance by Executive of a position with another
employer which conflicts with his duties as an employee of
the Corporation without the consent of the Chairman and
Chief Executive Officer;
iii. the willful engaging by Executive in conduct relating to the
Corporation which is demonstrably and materially injurious
to the Corporation after a written demand for cessation of
such conduct is delivered to Executive by the Board, which
demand specifically identifies the manner in which the Board
believes the Executive has engaged in such conduct and the
injury to the Corporation;
iv. a willful material breach of an established written policy
or procedure of the Corporation which breach is materially
injurious to the Corporation;
v. Executive's conviction for a crime involving moral
turpitude; or
vi. the breach of Executive's Agreement set forth in Section
10.1 below.
For purposes of this Paragraph, no act, or failure to act, on
Executive's part shall be deemed "willful" unless knowingly done, or
omitted to be done, by Executive not in good faith and without
reasonable belief that Executive's action or omission was in the best
interests of the Corporation.
c. Good Reason - Executive shall be entitled to terminate his
employment for Good Reason. For purposes of this Agreement, "Good
Reason" shall mean the occurrence, without Executive's express written
consent, of any of the following circumstances unless such
circumstances are fully corrected prior to the Date of Termination (as
defined in Section 5.2 above), specified in the Notice of Termination:
i. the terms of this Agreement are materially adversely altered
by action of the Corporation or the Corporation breaches in
any material respect any of its agreements set forth herein;
ii. the failure of the Corporation to obtain a satisfactory
agreement, required in Section 7 below, from any successor
to assume and perform this Agreement (a copy of the
agreement evidencing such assumption shall be provided by
the Corporation to Executive);
iii. any purported termination of Executive's employment by the
Corporation which is not effected pursuant to a Notice of
Termination satisfying the requirements set forth in Section
5
5
<PAGE>
above; for purposes of this Agreement, no such purported
termination shall be effective;
iv. Executive makes a determination in good faith that the
cumulative effect of actions by one or more of the members
of the Board, the Chairman and Chief Executive Officer, the
President and Chief Operating Officer or their respective
agents or associates constitutes harassment or unreasonable
interference with the performance of Executive's day-to-day
duties under this Agreement (after a written demand for
cessation of such actions is delivered by Executive to the
President and Chief Operating Officer, the Chairman and
Chief Executive Officer or to the Board which demand
specifically identifies the manner in which Executive
believes that such President and Chief Operating Officer,
Chairman and Chief Executive Officer or Board members (or
their agents or associates) have harassed Executive or
unreasonably interfered with Executive's ability to perform
his day-to-day duties); provided, however, that appropriate
involvement of the President and Chief Operating Officer,
the Chairman and Chief Executive Officer or the Board
members in regular reviews of those items which have,
consistent with the Corporation's past practices, been
normally within the purview of the President and Chief
Operating Officer, the Chairman and Chief Executive Officer
or the Board's responsibilities as well as any bona fide
business disagreements between the Executive and the
Corporation shall not be taken into account by Executive in
making his determination under this Agreement;
v. the Corporation or any successor during the two year period
following a Change-in-Control delivers to the Executive a
Notice of Termination other than for Cause or takes any
other action or actions, including, but not limited to, a
material decrease in duties or authority or change in
reporting relationships, which may have an adverse effect
upon Executive's employment or which purport to terminate
Executive's employment other than for Cause;
vi. relocation of the Executive's place of employment to a
location outside the continental United States or relocation
of the Executive's place of employment within the
continental United States without reimbursing Executive his
cost of relocation at a level at least as favorable as that
provided under the Corporation' s policy and practice in
effect on the date of this Agreement; or
vii. after a Change-in-Control as hereafter defined, the
Corporation a) reduces Executive's annual salary, b) impairs
Executive's
6
<PAGE>
opportunity to earn incentive compensation on a basis
comparable to that before the Change-in-Control, c) reduces
the Company perquisites made available to Executive before
the Change-in-Control or d) eliminates or impairs
Executive's ability to participate in the Retirement Plans;
viii. the Executive chooses to terminate his employment with the
Corporation for any reason during the thirty (30) day period
immediately preceding either, at the option of the
Executive, the twelve (12) month anniversary or the
twenty-four (24) month anniversary of a Change-in-Control as
hereafter defined.
Executive's right to terminate his employment pursuant to this
Paragraph shall not be affected by his incapacity due to physical
illness. In addition, Executive's continued employment with the
Corporation shall not constitute a waiver of Executive's rights under
this Paragraph (c) nor constitute a consent to any act or omission by
the Corporation constituting Good Reason.
d. Change-in-Control - A Change-in-Control shall be deemed to occur as
of the date on which any of the following occur:
i. the acquisition, other than from the Corporation, by any
individual, entity or group (within the meaning of Section
13 (d) (3) or 14 (d) (2) of the Securities and Exchange Act
of 1934, as amended (the "Exchange Act") of beneficial
ownership (within the meaning of Rule 13d-3 promulgated
under the Exchange Act) of 20 percent or more of either the
then outstanding shares of common stock of the Corporation
or the combined voting power of the then outstanding voting
securities of the Corporation entitled to vote generally in
the election of directors; or
ii. Individuals who, as of the date of this Agreement,
constitute the Board (the "Incumbent Board") cease for any
reason to constitute at least a majority of the Board,
provided that any individual becoming a director subsequent
to the date hereof whose election, or nomination for
election by the Corporation's shareholders, was approved by
a vote of at least a majority of the directors then
comprising the Incumbent Board shall be considered as though
such individual as a member of the Incumbent Board, but
excluding, for this purpose, any such individual whose
initial assumption of office is in connection with an actual
or threatened election contest relating to the election of
the directors of the Corporation (as such terms are used in
Rule 14a-ll of Regulation 14A promulgated under the Exchange
Act); or
7
<PAGE>
iii. Approval by the shareholders of the Corporation of (1) a
reorganization, merger or consolidation, in each case, with
respect to which the individuals and entities who were the
respective beneficial owners of the common stock and voting
securities of the Corporation immediately prior to such
reorganization, merger or consolidation do not, following
such reorganization, merger or consolidation, beneficially
own, directly or indirectly, more than 50 percent of,
respectively, the then outstanding shares of common stock,
and the combined voting power of the then outstanding voting
securities entitled to vote generally in the election of
directors, as the case may be, of the corporation resulting
from such reorganization, merger or consolidation; (2) a
complete liquidation or dissolution of the Corporation; or
of (3) the sale or other disposition of all or substantially
all of the assets of the Corporation.
6.2 During any period of Disability and until the earlier of the end of the
Contract Period or Executive's death, Executive shall receive all accrued
but unpaid base salary plus all amounts or benefits payable or due to him
(including a pro rata share under Incentive Compensation Plans targeted for
the year in which the Disability occurs) under the Corporation ' s
compensation and benefit plans and programs in which Executive is
participating at the commencement of any such period, plus an additional
payment from the Corporation (if necessary) such that the aggregate amount
received by Executive in the nature of salary continuation from all sources
equals Executive's base salary at the rate in effect at the commencement of
any such period. Thereafter, Executive shall be entitled to participate in
all applicable group, life, Family Protection Plan, health, disability and
accident insurance plans and programs as well as any other applicable
Corporation benefit plans and programs (including, but not limited to, the
1992 Stock Option and Incentive Plan) in accordance with the terms of such
plans and programs; provided that such terms shall not be less advantageous
to Executive than the terms in effect as of the date hereof.
6.3 If Executive's employment shall be terminated by reason of Executive's
death, the Executive shall be entitled to the benefits provided below:
a. The Corporation shall pay to Executive's estate as soon as
practicable after the date of Executive's death, Executive's accrued
but unpaid base salary through the date of Executive's death, at the
rate in effect at the time of Executive's death, plus all other
amounts to which Executive is entitled under any benefit or
compensation plan of the Corporation including, but not limited to, a
pro rata share under Incentive Compensation Plans earned during the
year in which Employee's death occurs.
b. After Executive's death, Executive's beneficiaries shall be
entitled to participate in all applicable group, life, health,
disability and accident insurance plans and programs as well as any
other applicable Corporation
8
<PAGE>
benefit plans and programs including, but not limited to, the 1992
Stock Option and Incentive Plan, in accordance with the terms of such
plans and programs.
6.4 If Executive's employment shall be terminated as a result of a
Retirement Termination or as a result of a voluntary resignation for other
than Good Reason ("Resignation"), then Executive shall receive all accrued
but unpaid base salary plus all amounts payable to him under the
Corporation's compensation (including, but not limited to, a pro rata share
under Incentive Compensation Plans targeted for the year the Retirement
Termination or Resignation occurs) and benefit plans and programs in which
Executive is participating at the time the Retirement Termination or
Resignation becomes effective. In the event of a Retirement Termination,
Executive shall be entitled to participate in all retirement and other
plans and programs effective on the Date of Termination to which he is
eligible in accordance with their terms.
6.5 If Executive's employment shall be terminated by the Corporation for
Cause, then Executive shall be entitled to the following benefits:
a. The Corporation shall pay Executive's full base salary through the
Date of Termination at the rate in effect at the time Notice of
Termination is given plus all other amounts to which Executive is
entitled under any benefit or compensation plan of the Corporation,
excluding any bonus, other incentive compensation and vacation pay, if
any, otherwise payable to Executive pursuant to the terms of the
applicable plan or program of the Corporation, at the time such
payments are due.
b. Executive shall be entitled to participate in all applicable group
life, health, disability and accident insurance plans and programs,
but only to the extent required by the terms of such plans, or only to
the extent specifically required by Federal or state law.
6.6 If Executive's employment shall be terminated (1) by the Corporation
for other than Cause, (2) by Executive for Good Reason other than Good
Reason as specified in Section 6.7 below ("Section 6.7 Good Reason") then
Executive shall be entitled to the following benefits:
a. The Corporation shall pay Executive, as soon as practicable
following the Date of Termination a sum equal to Executive's accrued
but unpaid base salary through the Date of Termination at the rate in
effect at the time Notice of Termination is given plus all other
amounts to which Executive is entitled under any benefit or
compensation plan of the Corporation (including but not limited to a
pro rata share under Incentive Compensation Plans targeted for the
year in which Executive's employment is terminated).
b. The Corporation shall pay Executive as soon as practicable
following the Date of Termination an additional payment equal to the
9
<PAGE>
sum of Executive's annual base salary plus the highest annual bonus
received by the Executive or, if the Executive has not received an
annual bonus while serving as a Executive Vice President, General
Counsel and Secretary, by any individual serving as Executive Vice
President, General Counsel and Secretary for the Corporation during
any of the three previous calendar years multiplied by the higher of
two (2) or the number of years (including fractions thereof) remaining
under the Contract Period.
c. In accordance with a valid election on file with the Corporation,
the Corporation shall pay to Executive a sum of money equal to the
value of Executive' s accrued balance of the Benefits Equalization
Plan (the "BE Plan").
d. For the longer of two years from the Date of Termination or until
the end of the Contract Period (the "Relevant Damage Period"), the
Corporation shall continue to make available to Executive all Company
Perquisites, or, in the alternative, the Corporation shall pay to
Executive as soon as practicable after the Date of Termination a sum
of money reasonably approximating the cash value of the Company
Perquisites. Additionally, for such period of time Executive shall,
subject to Section 6.9, be allowed to participate in all applicable
group, life, health, disability and accident insurance plans and
programs as well as any other applicable Corporation benefit plans and
programs (including, but not limited to, the 1992 Stock Option and
Incentive Plan) as if he were an active employee (limited, in the case
of coverage under life insurance plans, to the level of coverage that
the Corporation is able to obtain on Executive's behalf based upon the
annual premium cost of providing Executive with life insurance during
Executive's last twelve months of employment with the Corporation), in
which Executive was participating 30 days prior to the time Notice of
Termination is given or comparable plans substituted therefor;
provided, however, that if Executive is ineligible (e.g., by operation
of law or the terms of the applicable plan) to continue to participate
in any such plan, the Corporation will provide Executive with a
comparable level of compensation or benefit.
e. For purposes of Section 6.6(d), Executive's participation in
respect to the Corporation's 1994 Long Term Incentive Plan (the
"LTIP") shall be as follows (the defined terms within this section and
not otherwise defined within this Agreement being the same as defined
in the LTIP as in effect on the date hereof):
i. all of the Executive's Restricted Shares previously issued
under the LTIP and not yet vested by the Date of Termination
shall become 100% vested, nonforfeitable and fully
transferable as of such date; and
ii. the Corporation will pay the Executive as soon as
practicable following the Date of Termination an amount in
cash equal to three
10
<PAGE>
times the product of (x) the number of Performance Units
previously granted under the LTIP to the Executive and still
outstanding, times (y) the Award Value at the Threshold
Target level.
f. For purposes of Section 6.6(d), Executive's benefits with respect
to the Corporation's Retirement Plan for Salaried Employees and the BE
Plan or any equivalent or superior plans or arrangements in which the
Executive participated prior to the Date of Termination (any such Plan
or arrangement, the "Pension Plans") and the Corporation's welfare
benefit plans in which the Executive participates on the date hereof
or any equivalent or superior successor plans or arrangements in which
the Executive participates prior to the Date of Termination ("Welfare
Benefit Plans") the contemplated continued participation shall require
the Corporation to pay or provide the executive with the benefits,
earnings credits for benefits and service credits for benefits which
the Executive would have received under the Pension Plans and Welfare
Benefit Plans if (x) the Executive's employment and his coverage under
the Pension Plans and the Welfare Benefit Plans had continued during
the Relevant Damage Period, and (y) the compensation described in
Section 6.6 (b) which would have been credited under the Pension Plans
and/or the Welfare Plans were paid to the Executive ratably over the
Relevant Damage Period.
g. All restrictions, if any, on shares of restricted stock previously
granted to Executive which would have lapsed if Executive had been
employed throughout the Relevant Damage Period shall immediately lapse
as of the Date of Termination, and Executive shall be entitled to the
possession of the shares of such stock as of such date upon the
payment of any applicable withholding taxes.
6.7 If Executive's employment by the Corporation shall be terminated by
Executive for Good Reason where Executive has given Notice of Termination
to the Corporation within two years from the occurrence of an event
constituting a Change-of-Control, then Executive shall be entitled to the
following benefits in lieu of the benefits under the Section 6.6:
a. The Corporation shall pay Executive his accrued but unpaid base
salary through the Date of Termination at the rate in effect at the
time Notice of Termination is given, plus all other amounts to which
Executive is entitled under any benefit or compensation plan of the
Corporation (including, but not limited to, a pro rata share under
Incentive Compensation Plans earned during the year in which
employment is terminated)
b. In lieu of any further base salary payments to Executive for period
subsequent to the Date of Termination, the Corporation shall pay to
Executive a lump sum equal to four times (4x) the sum of Executive's
annual base salary at the rate in effect immediately prior to the time
Notice of Termination is given plus the highest annual bonus received
by
11
<PAGE>
the Executive or, if the Executive has not received an annual bonus
while serving as a Executive Vice President, General Counsel and
Secretary, any individual serving as Executive Vice President, General
Counsel and Secretary for the Corporation during any of the three
preceding calendar years.
c. In lieu of any further participation by Executive in the Family
Protection Plan, the Corporation shall transfer to Executive a fully
paid up insurance policy or policies then insuring the life of the
Executive pursuant to the terms of the Family Protection Plan, plus an
amount of money (the "Tax Adjustment") calculated to reimburse
Executive for any local, state or Federal income, employment or other
taxes which he may be liable as a result of receiving the insurance
policy or policies and the Tax Adjustment amount.
d. At Executive's option and as soon, as practicable after his
request, the Corporation shall pay Executive a sum of money equal to
the value of Executive's accrued balance of the BE Plan.
e. For four years from the Date of Termination, the Corporation shall
continue to make available to Executive all Company Perquisites, or,
in the alternative, the Corporation shall pay to Executive as soon as
practicable after the Date of Termination a sum of money reasonably
approximating the cash value of the Company Perquisites. Additionally,
Executive shall, subject to Section 6.9, be allowed to participate in
all applicable group, life, health, disability and accident insurance
plans and programs as well as any other applicable Corporation benefit
plans and programs (including, but not limited to the 1992 Stock
Option and Incentive Plan) as if he were an active employee (limited,
in the case of coverage under life insurance plans, to the level of
coverage that the Corporation is able to obtain on Executive's behalf
based upon the annual premium cost of providing Executive with life
insurance during Executive's last twelve months of employment with the
Corporation), in which Executive was participating 30 days prior to
the time Notice of Termination is given or comparable plans
substituted therefor; provided, however, that if Executive is
ineligible (e.g., by operation of law or the terms of the applicable
plan) to continue to participate in any such plan, the Corporation
will provide Executive with a comparable level of compensation or
benefit.
f. For purposes of Section 6.7(e), Executive's participation in
respect to the LTIP shall be as follows (the defined terms within this
section and not otherwise defined within this agreement being the same
as defined in the LTIP):
i. all of the Executive's Restricted Shares previously issued
under the LTIP and not yet vested by the Date of Termination
shall become
12
<PAGE>
100% vested, nonforfeitable and fully transferable as of
such date; and
ii. all LTIP awards issued prior to the Date of Termination
("Existing Awards") of Performance Units ("Existing Units")
shall be deemed to have been outstanding throughout the
Performance Cycle to which each relates; and
iii. the Executive shall be deemed to have received an LTIP award
in each of the four years following the Date of Termination
("Deemed Awards") in an amount equal in units to the highest
number of Performance Units received by the Executive in any
of the three years prior to the Date of Termination ("Deemed
Units") and all of the Deemed Units shall be deemed to have
been outstanding throughout the Performance Cycle to which
each relates; and
iv. except as set forth in Section 6.7(f)(v), the Corporation
will pay the Executive as soon as practicable following the
Date of Termination an amount in cash equal to th e number
of Existing and Deemed Units to which he is entitled
multiplied by an Award Value the result of which is further
multiplied by 1.10 (the "LTIP Payout"). The Operating Income
Threshold Target for each Deemed Award shall be that
established for the Existing Award issued just prior to the
Date of Termination. The Award Value shall be calculated in
accordance with the provisions of the LTIP applying actual
operating profit of the Corporation whenever such has
actually been achieved and applying those projections of
operating profit contained in the Corporation's Coltec 2000
Plan for those years which do not have actual results. If
any Performance Cycle of any Existing or Deemed Unit shall
extend beyond the projections contained in the Corporation's
Coltec 2000 Plan, then the operating profit contained in the
Coltec 2000 Plan for the year ending December 31, 1999 shall
be the operating profit applied to each year of any
Performance Cycle for which actual operating profit cannot
be calculated increased for each year after 1999 at the
average rate of annual increase of operating profit actually
realized for the period between January 1, 1997 and December
31, 1999.
v. in the event that the independent accountants of the
Corporation shall determine that if the payment of the LTIP
Payout is made entirely in cash it shall prevent the
Corporation from consummating any business combination
approved by the Board of Directors which combination is
intended to be accounted for under the pooling of interests
method of accounting ("Pooling"), then the LTIP Payout shall
be made 2/3 in cash and 1/3 in the Corporation's Common
Stock (the "Share Portion"). If a merger or acquisition of
the Corporation has taken place prior to the time that the
Executive has given Notice of Termination setting forth his
intent to
13
<PAGE>
terminate his employment for Good Reason and the Common
Stock of the Corporation is no longer traded on a national
securities exchange then the Share Portion of the LTIP
Payout shall be made in the common stock of the
Corporation's parent or successor corporation (collectively,
a "Successor"), which stock is traded on a national
securities exchange or on an over the counter securities
market. The number of shares payable in respect to the Share
Portion shall be determined by dividing the dollar value of
the Share Portion by the price of a share of the Common
Stock of the Corporation, or a Successor, as the case may
be, on the last business day immediately preceding the date
of the Notice of Termination.
g. For purposes of Section 6.7(e), Executive's benefits with respect
to the Pension Plans and the Welfare Benefit Plans, the contemplated
continued participation shall require the Corporation to pay or
provide the Executive with the benefits, earnings credits for benefits
and service credits for benefits which the Executive would have
received under the Pension Plans and Welfare Benefit Plans if (x) the
Executive's employment and his coverage under the Pension Plans and
the Welfare Benefit Plans had continued for an additional four year
period, and (y) the compensation described in Section 6.7 (b) which
would have been credited under the Pension Plans and/or the Welfare
Plans were paid to the Executive ratably over a four year period.
h. All restrictions, if any, on shares of restricted stock previously
granted to Executive shall immediately lapse as of the Date of
Termination, and Executive shall be entitled to the possession of the
shares of such stock as of such date upon the payment of any
applicable withholding taxes.
6.8 In addition to the benefits set forth in Sections 6.6 and 6.7, in the
event that Executive's employment shall be terminated (1) by the
Corporation for other than Cause, (2) by Executive for Good Reason other
than Section 6.7 Good Reason, or (3) by Executive for Section 6.7 Good
Reason then:
a. The Company shall also pay to Executive all reasonable legal fees
and expenses incurred by Executive as a result of such termination
(including all such fees and expenses, if any, incurred in contesting
or disputing any such termination (including cost associated with
legal consultation even if no actual contest or dispute results) or in
seeking to obtain or enforce any right or benefit provided by this
Agreement or in connection with any tax audit or proceeding to the
extent attributable to the application of Section 4999 of the Internal
Revenue Code of 1986, as amended (the "Code"), to any payment or
benefit provided hereunder), except any such fees or expenses incurred
by Executive in seeking to enforce a claim which is determined by an
arbitrator, pursuant to Section 14 below, to have been frivolous in
nature or not brought or pursued in good faith.
14
<PAGE>
b. In the event that Executive becomes entitled to any payments or
benefits from the Corporation (whether or not provided under this
Agreement) (the "Severance Payments") that will be subject to the tax
(the "Excise Tax") imposed by Section 4999 of the Code, the
Corporation shall pay to Executive at the time or times specified in
Paragraph (h) below, an additional amount (the "Gross-Up Payment")
such that the net amount retained by Executive, after deduction of (I)
any additional Excise Tax payable by Executive as a result of
Executive's receipt of the Severance Payments, and (ii) any additional
Federal, state and local income and employment taxes and Excise tax
payable by Executive as a result of Executive's receipt of the
Gross-Up Payments shall be equal to the Severance Payments. For
purposes of determining whether any of the Severance Payments will be
subject to the Excise Tax and the amount of such Excise Tax, (i) the
Severance Payments, payments provided for in this paragraph and any
other payments or benefits received or to be received by Executive in
connection with a change-in-control of the Corporation (as defined in
Section 280G of the Code) or Executive's termination of employment
(whether pursuant to the terms of this Agreement or any other plan,
arrangement or agreement with the Corporation, any person whose
actions result in a Change-in-Control or any person affiliated with
the Corporation or such person) shall be treated as "parachute
payments" within the meaning of Section 280G(b) (2) of the Code, and
all "excess parachute payments" within the meaning of Section 280G(b)
(1) shall be treated as subject to the Excise Tax, unless and to the
extent that in the opinion of tax counsel selected by the
Corporation's independent auditors and acceptable to Executive, such
other payments or benefits (in whole or in part) do not constitute
parachute payments, or such excess parachute payments (in whole or in
part) and represent reasonable compensation for services actually
rendered within the meaning of Section 280G(b) (4) of the Code in
excess of the base amount within the meaning of Section 280G(b) (3) of
the Code, or are otherwise not subject to the Excise Tax, (ii) the
amount of the Severance Payments which shall be treated as subject to
the Excise Tax shall be equal to the lesser of (x) the total amount of
the Severance Payments or (y) the amount of excess parachute payments
within the meaning of Section 280G(b) (1) (after applying clause (i)
above), (iii) any payment pursuant to this Paragraph shall be treated
as subject to the Excise Tax in its entirety and (iv) the value of any
non-cash benefits or any deferred payment of benefit shall be
determined by the Corporation's independent auditors in accordance
with the principles of Sections 280G(d) (3) and (4) of the Code. For
purposes of determining the amount of the Gross-Up Payment, Executive
shall be deemed to pay federal income taxes at the highest marginal
rate of Federal income taxation in the calendar year in which the
Gross-Up Payment is to be made and state and local income taxes at the
highest marginal rate of taxation in the state and locality of
Executive residence on the Date of Termination, not of the maximum
reduction in federal income taxes which could be obtained from
deduction of such state and local taxes. In the event that the Excise
Tax is subsequently determined to
15
<PAGE>
be less than the amount taken into account hereunder at the time of
termination of Executive's employment, Executive shall repay to the
Corporation at the time that the amount of such reduction in Excise
Tax is finally determined, the portion of the Gross-Up Payment
attributable to such reduction (plus the portion of the Gross-Up
Payment attributable to the Excise Tax and federal and state and local
income tax imposed on the Gross-Up Payment being repaid by Executive)
plus interest accrued from the date such Gross-Up Payment is made to
Executive to the date of such repayment on the amount of such
repayment at the rate provided in Section 1274(b) (2) (B) of the Code.
In the event that the Excise Tax is determined to exceed the amount
taken into account hereunder at the time of the termination of
Executive's employment (including by reason of any payment the
existence or amount of which cannot be determined at the time of the
Gross-Up Payment), the Corporation shall make an additional gross-up
payment in respect of such excess (plus any interest payable with
respect to such excess) at the time that the amount of such excess is
finally determined.
c. The payments provided for in Paragraph (b) above shall be made at
any time during the 90-day period preceding each due date for making
payment of such Excise Taxes to the appropriate taxing authority;
provided, however, that if the amounts of such payments cannot be
finally determined on or before each such date, the Corporation shall
pay to Executive on such date an estimate, as determined in good faith
by the Corporation, of the minimum amount of such payments and shall
pay the remainder of such payments then due as soon as the amount
thereof can be determined. In the event that the amount of the
estimated payments exceeds the amount subsequently determined to have
been due, such excess shall constitute a loan by the Corporation to
Executive on the fifth day after demand by the Corporation (together
with interest at the rate provided in Section 1274 (b) (2) (B) of the
Code).
6.9 Upon receipt of written notice from Executive that Executive has been
reemployed by another company or entity on a full-time basis , benefits
otherwise receivable by Executive pursuant to Subsections 6.6(d) or 6.7(e)
related solely to life, health disability and accident insurance plans and
programs and other similar benefits (but not Incentive Compensation , LTIP,
Pension Plans or other similar plans and programs) shall be reduced to the
extent comparable benefits are made available to Executive at his new
employment and any such benefits actually received by Executive shall be
reported to the Corporation. Nothing herein contained shall obligate
Executive to accept employment elsewhere.
6.10. Any stock of the Corporation which is delivered to the Executive
pursuant to Subsection 6.6 or 6.7 shall be delivered to him fully
registered for immediate sale to the public under all applicable securities
laws.
16
<PAGE>
7. Successors; Binding Agreement
The Corporation will require any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or substantially all
of the business and/or assets of the Corporation to expressly assume and
agree to perform this Agreement in the same manner and to the same extent
that the Corporation would be required to perform it if no such succession
had taken place. Failure of the Corporation to obtain such assumption and
agreement prior to the effectiveness of any such succession shall be a
breach of this Agreement and shall entitle Executive to terminate this
Agreement for Good Reason. As used in this Agreement, "Corporation" shall
mean the Corporation and any successor to its business and or assets as
aforesaid which assumes and agrees to perform this Agreement by operation
of law, or otherwise.
8. Notice
For the purpose of this Agreement, notices and all other communications
provided for in the Agreement shall be in writing and shall be deemed to
have been duly given when delivered or mailed by United States registered
mail, return receipt requested, postage prepaid, addressed to the
Executive's most recent home address on file with the Corporation, and to
the Corporation at 3 Coliseum Centre, 2550 West Tyvola Road, Charlotte, NC
28217 to the attention of the Chairman of the Board of Directors with a
copy to the Secretary of the Corporation or to such other address as either
party may have furnished to the other in writing in accordance herewith,
except that notice of change of address shall be effective only upon
receipt.
9. Modification - Waiver
No provision of this Agreement may be modified, waived or discharged unless
such waiver, modification or discharge is agreed to in writing and signed
by Executive and such officer of the Corporation as may be specifically
designated by the Board. No waiver by either party hereto at any time of
any breach by the other party hereto of, or compliance with, any condition
or provision of this Agreement to be performed by such other party shall be
deemed a waiver of similar or dissimilar provisions or conditions at the
same or at any prior or subsequent time. In the event that the independent
accountants of the Corporation shall determine that anything contained
herein shall prevent the Corporation from consummating any business
combination approved by the Board of Directors which combination is
intended to be accounted for as a Pooling, then Executive agrees to
negotiate in good faith concerning amendments to such portions of this
Agreement as may be requested by the Corporation so as to allow such
business combination to be accounted for as a Pooling; provided, however,
that any such amendment shall: (a) be as limited in scope as is absolutely
necessary in the opinion of the Corporation's advisors to allow the
business combination to be accounted for as a Pooling, and (b) be designed
to have as minimal an economic detriment to the Executive as is possible
while still allowing the business combination to be accounted for as a
Pooling.
17
<PAGE>
10. Non-competition
10.1 Until the Date of Termination, Executive agrees not to enter into
competitive endeavors and not to undertake any commercial activity which is
contrary to the best interests of the Corporation or its affiliates,
including becoming an employee, owner (except for passive investments of
not more than three percent of the outstanding shares of, or any other
equity interest in, any company or entity listed or traded on a national
securities exchange or in an over-the-counter securities market), officer,
agent or director of (a) any firm or person engaged in the operation of a
business engaged in the acquisition of industrial businesses or (b) any
firm or person which either directly competes with a line or lines of
business of the Corporation accounting for five percent (5%) or more of the
Corporation's gross revenues or earnings before taxes or derives five
percent (5%) or more of such firm's or person's gross revenues or earnings
before taxes from a line or lines of business which directly compete with
the Corporation. Notwithstanding any provision of this Agreement to the
contrary, Executive agrees that his breach of the provisions of this
Section 10.1 shall permit the Corporation to terminate Executive's
employment for Cause in accordance with Section 5.l(b) hereof.
10.2 After the Date of Termination and for a period of time equal in years
to the multiple of annual salary received by Executive pursuant to either
Sections 6.6(b) or 6.7(b) (the "Non-Competition Period"), Executive agrees
not to become an employee, owner (except for passive investments of not
more than three percent of the outstanding shares of, or any other equity
interest in, any company or entity listed or traded on a national
securities exchange or in an over-the-counter securities market), officer,
agent or director of any firm or person which directly and substantially
competes with a business of the Corporation accounting for five percent
(5%) or more of the Corporation's gross revenues or earnings before taxes.
During the Non-Competition Period, Executive will be available to answer
questions and provide advice to the Corporation; provided, however, that
such requirement shall not unreasonably interfere with any other of
Executive's activities which Executive is then pursuing and which are not
otherwise prohibited by this Section 10. Also, during the Non-Competition
Period, Executive will retain in confidence any and all confidential
information known to him concerning the Corporation and its business and
shall not use or disclose such information without the approval of the
Corporation except to the extent such information becomes public or as may
be required by law.
10.3 Executive acknowledges and agrees that damages for breach of the
covenant not to compete in this Section 10 will be difficult to determine
and will not afford a full and adequate remedy, and therefore Executive
agrees that the Corporation, in addition to seeking actual damages pursuant
to the procedures set forth in Section 13 below, may seek specific
enforcement of the covenant not to compete in any court of competent
jurisdiction, including, without limitation, by the
18
<PAGE>
issuance of a temporary or permanent injunction, without the necessity of a
bond. Executive and the Corporation agree that the provisions of this
covenant not to compete are reasonable. However, should any court or
arbitrator determine that any provision of this covenant not to compete is
unreasonable, either in period of time, geographical area, or otherwise,
the parties agree that this covenant not to compete should be interpreted
and enforced to the maximum extent which such court or arbitrator deems
reasonable.
11. Validity
The invalidity or unenforceability of any provision of this Agreement shall
not affect the validity or enforceability of any other provision of this
Agreement, which shall remain in full force and effect.
12. Counterparts
This Agreement may be executed in several counterparts, each of which shall
be deemed to be an original but all of which together will constitute one
and the same instrument.
13. Arbitration
Except as contemplated by Section 10.3 of this Agreement, any dispute or
controversy arising under or in connection with this Agreement shall be
settled exclusively by arbitration in Charlotte, NC or such other location
mutually agreed upon by the parties to the arbitration, in accordance with
rules of the American Arbitration Association, and judgment upon such award
rendered by the arbitrator may be entered in any court having jurisdiction
over such proceeding.
14. Governing Law
This Agreement shall be governed by and construed and enforced in
accordance with the laws of the State of North Carolina.
15. Entire Agreement; Survival of Certain Provisions
15.1 This Agreement constitutes the whole agreement of the Corporation and
the Executive. No agreements or representations, oral or otherwise, express
or implied, with respect to the subject matter of this Agreement have been
made by either party which are not expressly set forth in this Agreement
15.2 The obligations of the Corporation under Section 6.8 above and the
Executive's obligations under Section 10 above shall survive the expiration
of the term of this Agreement.
19
<PAGE>
16. Withholding
Any payments made to Executive under this Agreement shall be paid net of
any applicable withholding required under Federal, state or local law.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the Effective Date.
COLTEC INDUSTRIES INC
By /s/ LAURENCE H. POLSKY
----------------------------------
/s/ R. S. TUBBS
----------------------------------
EXECUTIVE
20
<PAGE>
FIRST RESTATED EMPLOYMENT AGREEMENT
The Employment Agreement dated July 11, 1997 (the "Employment Agreement")
between David D. Harrison (the "Executive") and Coltec Industries Inc, a
Pennsylvania corporation (the "Corporation"), is amended, clarified and restated
as of this 18th day of December, 1997 (the "Restatement Date") as if originally
entered into and effective as of July 11, 1997 (the "Effective Date"),
WHEREAS, the Employment Agreement has been amended from time to time since
its original execution, and
WHEREAS, the Corporation and the Executive desire to further modify the
Employment Agreement in order to clarify certain provisions thereof, and
WHEREAS, the Executive and the Corporation desire to combine all new and
previous amendments to the Employment Agreement into this First Restated
Employment Agreement setting forth the terms and conditions upon which the
Executive shall be employed by the Corporation to be effective as if originally
entered into on the Effective Date.
NOW, THEREFORE, in consideration of the foregoing and the mutual promises
herein contained, the parties agree as follows:
1. Employment Term
The Corporation agrees to employ the Executive and the Executive agrees to
be employed by the Corporation, upon the terms and conditions contained in
this Agreement, for a period of four years commencing on the Effective
Date and terminating on the fourth anniversary of the Effective Date (the
"Contract Period") The Contract Period shall be subject to earlier
termination in accordance with the provisions set forth in Section 5 below.
2. Duties
2.1 The Executive shall serve, subject to the supervision and control of
the Corporation's President and Chief Operating Officer as the Executive
Vice President and Chief Financial Officer of the Corporation with the
responsibilities and authority, and status and perquisites which have,
consistent with past practice, been delegated or granted by the
Corporation to an employee holding such position(s) or which are
customarily delegated or granted by similarly situated corporations to
an employee holding similar position(s). If Executive is appointed to
additional offices by the Corporation during the Contract Period, the
Executive shall have the responsibilities and authority, and status and
perquisites consistent with the past practices of the Corporation or
which are customarily delegated or granted by
<PAGE>
similarly situated corporations to an employee holding such position(s).
Executive shall also perform any additional lawful services and assume any
reasonable additional responsibilities, not inconsistent with his then
current position, as shall from time to time be assigned to him by the
Board of Directors of the Corporation (the "Board") or by the Chairman and
Chief Executive Officer of the Corporation.
2.2 Executive agrees that during the Contract Period, he shall devote
substantially all of his full working time and attention and give his best
effort, skill and abilities exclusively to the business and interests of
the Corporation; provided, however, that the foregoing shall not be
construed to prohibit Executive's service as a (i) director or officer of
any trade association, civic, educational or charitable organization or
governmental entity or, subject to approval by the Chairman and Chief
Executive Officer as (ii) a director of any corporation which is not a
competitor of the Corporation, provided that such service by Executive does
not materially interfere with the performance by Executive of the
responsibilities delegated under Section 2.1 above.
2.3 Executive shall carry out all responsibilities delegated in Section 2.1
above at such location within the continental United States as the
President and Chief Executive Officer may from time to time, after
consultation with Executive, deem appropriate, except for travel reasonably
required in the performance of Executive's responsibilities.
3. Compensation and Benefits
Throughout the contract period hereof, unless otherwise specifically
provided elsewhere herein:
3.1 Executive shall receive an annual base salary which is not less than
his annual base salary on the Effective Date and shall have the opportunity
for periodic increases in accordance with the Corporation's regular
practices.
3.2 Executive shall be entitled to participate, to the extent determined by
the Board, in all currently existing and future incentive compensation
plans of the Corporation including, but not limited to: the Annual
Incentive Plan for Certain Employees of Coltec Industries Inc and Its
Subsidiaries, the 1994 Long-Term Incentive Plan of Coltec Industries Inc
and the Coltec Industries Inc 1992 Stock Option and Incentive Plan (the
"Incentive Compensation Plans"), provided, however, that the Executive's
participation in all incentive compensation plans shall be at a level not
less than the customarily approved by the Board for an employee with
Executive's responsibilities and shall not in any case be less than
Executive's level of participation in such plans on the Effective Date. Any
payment to Executive under an Incentive Compensation Plan shall be
calculated and made in accordance with the provisions of the respective
plan, except as elsewhere provided for in this Agreement.
2
<PAGE>
3.3 Executive shall be entitled to receive all employee benefits, fringe
benefits and perquisites (including but not limited to the use of company
cars, club memberships and financial planning services ("Company
Perquisites")) customarily made available to an employee with Executive's
responsibilities, and Executive shall be entitled to participate in all
applicable group, life, health, disability and accident insurance plans and
programs including, and not limited to, the Retirement Savings Plan, the
Retirement Program, the Benefits Equalization Plan (collectively the
"Retirement Plans") and the Family Protection Plan as well as any other
applicable Corporation benefit plans and programs maintained currently upon
terms and at levels no less favorable than now exist or that shall be
established or maintained in the future for employees generally or for the
Corporation's executives.
3.4 Executive shall be entitled to annual vacation and holidays in
accordance with the Corporation's established practice for its employees.
3.5 The Executive shall be entitled to receive reimbursement for all
reasonable out-of-pocket expenses incurred in performing his
responsibilities described in Section 2.1 above, provided that the
Executive properly accounts for such expenses in accordance with the
Corporation's established policies.
4. Indemnification
The Executive shall be entitled to indemnification by the Corporation to
the fullest extent permitted by law and the By-Laws of the Corporation in
respect of any actions or omissions which Executive has taken or has failed
to take as an employee, officer or director of the Corporation while
carrying out the responsibilities delegated under Section 2.1 above.
5. Termination of Employment
The Contract Period shall terminate prior to the completion of its term on
the Date of Termination as defined in Sections 5.2 or 5.3 below following
receipt by the Executive or the Corporation, as the case may be, of a
Notice of Termination as defined in Section 5.1 below.
5.1 "Notice of Termination" shall mean any purported termination of
Executive's employment by the Corporation or by Executive which shall be
communicated by written notice to the other party hereto in accordance with
Section 8 of this Agreement, and which shall (1) indicate the specific
termination provision in this Agreement relied upon, (2) set forth in
reasonable detail the facts and circumstances claimed to provide a basis
for termination of Executive's employment under the provision so indicated,
and (3) set forth the date on which the Executive's employment with the
Corporation shall terminate.
3
<PAGE>
5.2 "Date of Termination" shall mean:
a. thirty (30) days after Notice of Termination is given by the
Corporation for termination of employment due to Disability; provided
that Executive shall not have returned to the full-time performance of
his duties during such thirty (30) day period;
b. the date of death in the event of Executive's death;
c. at least thirty days (30) but not more than sixty (60) days after
Notice of Termination is given by Executive for termination of
employment for Good Reason in respect of a termination covered by
Sections 6.6 or 6.7 below;
d. at least fifteen days (15) after Notice of Termination is given by
the Corporation for termination of employment for Cause;
e. at least fifteen days (15) after Notice of Termination is given by
Executive for retirement after the age of 55 years but before the age
of 65 years to the extent such retirement is permitted under the
Retirement Savings Plan, the Retirement Program or the BE Plan ("Early
Retirement"); or
f. the date specified in the Notice of Termination for termination of
employment for any other reason.
5.3 This Agreement shall automatically terminate upon the earlier of
Executive's 65th birthday or the date set forth in the Notice of
Termination for Early Retirement as provided in Paragraph 5.2(e) above
("Retirement Termination")
6. Compensation Upon Termination or During Disability
6.1 For purposes of this Agreement, "Disability", "Cause", "Good Reason"
and "Change-in-Control" shall have the meanings set forth below:
a. Disability - If, as a result of Executive's incapacity due to physical
or mental illness, Executive shall have become eligible for benefits under
the applicable long-term disability plan or policy of the Corporation,
Executive's employment may be terminated by the Corporation for
"Disability".
b. Cause - Termination by the Corporation of Executive's employment for
"Cause" shall mean termination upon:
4
<PAGE>
i. the prolonged or repeated absence from duty without the consent
of the Board for reasons other than the Executive's incapacity
due to physical or mental illness;
ii. the acceptance by Executive of a position with another employer
which conflicts with his duties as an employee of the Corporation
without the consent of the Chairman and Chief Executive Officer;
iii. the willful engaging by Executive in conduct relating to the
Corporation which is demonstrably and materially injurious to the
Corporation after a written demand for cessation of such conduct
is delivered to Executive by the Board, which demand specifically
identifies the manner in which the Board believes the Executive
has engaged in such conduct and the injury to the Corporation;
iv. a willful material breach of an established written policy or
procedure of the Corporation which breach is materially injurious
to the Corporation;
v. Executive's conviction for a crime involving moral turpitude; or
vi. the breach of Executive's Agreement set forth in Section 10.1
below.
For purposes of this Paragraph, no act, or failure to act, on Executive's
part shall be deemed "willful" unless knowingly done, or omitted to be
done, by Executive not in good faith and without reasonable belief that
Executive's action or omission was in the best interests of the
Corporation.
c. Good Reason - Executive shall be entitled to terminate his employment
for Good Reason. For purposes of this Agreement, "Good Reason" shall mean
the occurrence, without Executive's express written consent, of any of the
following circumstances unless such circumstances are fully corrected prior
to the Date of Termination (as defined in Section 5.2 above), specified in
the Notice of Termination:
i. the terms of this Agreement are materially adversely altered by
action of the Corporation or the Corporation breaches in any
material respect any of its agreements set forth herein;
ii. the failure of the Corporation to obtain a satisfactory
agreement, required in Section 7 below, from any successor to
assume and perform this Agreement (a copy of the agreement
evidencing
5
<PAGE>
such assumption shall be provided by the Corporation to
Executive);
iii. any purported termination of Executive's employment by the
Corporation which is not effected pursuant to a Notice of
Termination satisfying the requirements set forth in Section 5
above; for purposes of this Agreement, no such purported
termination shall be effective;
iv. Executive makes a determination in good faith that the cumulative
effect of actions by one or more of the members of the Board, the
Chairman and Chief Executive Officer, the President and Chief
Operating Officer or their respective agents or associates
constitutes harassment or unreasonable interference with the
performance of Executive's day-to-day duties under this Agreement
(after a written demand for cessation of such actions is
delivered by Executive to the President and Chief Operating
Officer, the Chairman and Chief Executive Officer or to the Board
which demand specifically identifies the manner in which
Executive believes that such President and Chief Operating
Officer, Chairman and Chief Executive Officer or Board members
(or their agents or associates) have harassed Executive or
unreasonably interfered with Executive's ability to perform his
day-to-day duties); provided, however, that appropriate
involvement of the President and Chief Operating Officer, the
Chairman and Chief Executive Officer or the Board members in
regular reviews of those items which have, consistent with the
Corporation's past practices, been normally within the purview of
the President and Chief Operating Officer, the Chairman and Chief
Executive Officer or the Board's responsibilities as well as any
bona fide business disagreements between the Executive and the
Corporation shall not be taken into account by Executive in
making his determination under this Agreement;
v. the Corporation or any successor during the two year period
following a Change-in-Control delivers to the Executive a Notice
of Termination other than for Cause or takes any other action or
actions, including, but not limited to, a material decrease in
duties or authority or change in reporting relationships, which
may have an adverse effect upon Executive's employment or which
purport to terminate Executive's employment other than for Cause;
vi. relocation of the Executive's place of employment to a location
outside the continental United States or relocation of the
6
<PAGE>
Executive's place of employment within the continental United
States without reimbursing Executive his cost of relocation at a
level at least as favorable as that provided under the
Corporation' s policy and practice in effect on the date of this
Agreement; or
vii. after a Change-in-Control as hereafter defined, the Corporation
a) reduces Executive's annual salary, b) impairs Executive's
opportunity to earn incentive compensation on a basis comparable
to that before the Change-in-Control, c) reduces the Company
perquisites made available to Executive before the
Change-in-Control or d) eliminates or impairs Executive's ability
to participate in the Retirement Plans.
viii. the Executive chooses to terminate his employment with the
Corporation for any reason during the thirty (30) day period
immediately preceding either, at the option of the Executive, the
twelve (12) month anniversary or the twenty-four (24) month
anniversary of a Change-in-Control as hereafter defined.
Executive's right to terminate his employment pursuant to this Paragraph
shall not be affected by his incapacity due to physical illness. In
addition, Executive's continued employment with the Corporation shall not
constitute a waiver of Executive's rights under this Paragraph (c) nor
constitute a consent to any act or omission by the Corporation constituting
Good Reason.
d. Change-in-Control - A Change-in-Control shall be deemed to occur as of
the date on which any of the following occur:
i. the acquisition, other than from the Corporation, by any
individual, entity or group (within the meaning of Section 13 (d)
(3) or 14 (d) (2) of the Securities and Exchange Act of 1934, as
amended (the "Exchange Act") of beneficial ownership (within the
meaning of Rule 13d-3 promulgated under the Exchange Act) of 20
percent or more of either the then outstanding shares of common
stock of the Corporation or the combined voting power of the then
outstanding voting securities of the Corporation entitled to vote
generally in the election of directors; or
ii. Individuals who, as of the date of this Agreement, constitute the
Board (the "Incumbent Board") cease for any reason to constitute
at least a majority of the Board, provided that any individual
becoming a director subsequent to the date hereof whose election,
or nomination for election by the Corporation's
7
<PAGE>
shareholders, was approved by a vote of at least a majority of
the directors then comprising the Incumbent Board shall be
considered as though such individual as a member of the Incumbent
Board, but excluding, for this purpose, any such individual whose
initial assumption of office is in connection with an actual or
threatened election contest relating to the election of the
directors of the Corporation (as such terms are used in Rule
14a-ll of Regulation 14A promulgated under the Exchange Act); or
iii. Approval by the shareholders of the Corporation of (1) a
reorganization, merger or consolidation, in each case, with
respect to which the individuals and entities who were the
respective beneficial owners of the common stock and voting
securities of the Corporation immediately prior to such
reorganization, merger or consolidation do not, following such
reorganization, merger or consolidation, beneficially own,
directly or indirectly, more than 50 percent of, respectively,
the then outstanding shares of common stock, and the combined
voting power of the then outstanding voting securities entitled
to vote generally in the election of directors, as the case may
be, of the corporation resulting from such reorganization, merger
or consolidation; (2) a complete liquidation or dissolution of
the Corporation; or of (3) the sale or other disposition of all
or substantially all of the assets of the Corporation.
6.2 During any period of Disability and until the earlier of the end of the
Contract Period or Executive's death, Executive shall receive all accrued
but unpaid base salary plus all amounts or benefits payable or due to him
(including a pro rata share under Incentive Compensation Plans targeted for
the year in which the Disability occurs) under the Corporation ' s
compensation and benefit plans and programs in which Executive is
participating at the commencement of any such period, plus an additional
payment from the Corporation (if necessary) such that the aggregate amount
received by Executive in the nature of salary continuation from all sources
equals Executive's base salary at the rate in effect at the commencement of
any such period. Thereafter, Executive shall be entitled to participate in
all applicable group, life, Family Protection Plan, health, disability and
accident insurance plans and programs as well as any other applicable
Corporation benefit plans and programs (including, but not limited to, the
1992 Stock Option and Incentive Plan) in accordance with the terms of such
plans and programs; provided that such terms shall not be less advantageous
to Executive than the terms in effect as of the date hereof.
6.3 If Executive's employment shall be terminated by reason of Executive's
death, the Executive shall be entitled to the benefits provided below:
8
<PAGE>
a. The Corporation shall pay to Executive's estate as soon as
practicable after the date of Executive's death, Executive's accrued
but unpaid base salary through the date of Executive's death, at the
rate in effect at the time of Executive's death, plus all other
amounts to which Executive is entitled under any benefit or
compensation plan of the Corporation including, but not limited to, a
pro rata share under Incentive Compensation Plans earned during the
year in which Employee's death occurs.
b. After Executive's death, Executive's beneficiaries shall be
entitled to participate in all applicable group, life, health,
disability and accident insurance plans and programs as well as any
other applicable Corporation benefit plans and programs including, but
not limited to, the 1992 Stock Option and Incentive Plan, in
accordance with the terms of such plans and programs.
6.4 If Executive's employment shall be terminated as a result of a
Retirement Termination or as a result of a voluntary resignation for other
than Good Reason ("Resignation"), then Executive shall receive all accrued
but unpaid base salary plus all amounts payable to him under the
Corporation's compensation (including, but not limited to, a pro rata share
under Incentive Compensation Plans targeted for the year the Retirement
Termination or Resignation occurs) and benefit plans and programs in which
Executive is participating at the time the Retirement Termination or
Resignation becomes effective. In the event of a Retirement Termination,
Executive shall be entitled to participate in all retirement and other
plans and programs effective on the Date of Termination to which he is
eligible in accordance with their terms.
6.5 If Executive's employment shall be terminated by the Corporation for
Cause, then Executive shall be entitled to the following benefits:
a. The Corporation shall pay Executive's full base salary through the
Date of Termination at the rate in effect at the time Notice of
Termination is given plus all other amounts to which Executive is
entitled under any benefit or compensation plan of the Corporation,
excluding any bonus, other incentive compensation and vacation pay, if
any, otherwise payable to Executive pursuant to the terms of the
applicable plan or program of the Corporation, at the time such
payments are due.
b. Executive shall be entitled to participate in all applicable group,
life, health, disability and accident insurance plans and programs,
but only to the extent required by the terms of such plans, or only to
the extent specifically required by Federal or state law.
6.6 If Executive's employment shall be terminated (1) by the
Corporation for other than Cause, (2) by Executive for Good Reason
other than Good Reason as
9
<PAGE>
specified in Section 6.7 below ("Section 6.7 Good Reason") then
Executive shall be entitled to the following benefits:
a. The Corporation shall pay Executive, as soon as practicable
following the Date of Termination a sum equal to Executive's
accrued but unpaid base salary through the Date of Termination at
the rate in effect at the time Notice of Termination is given
plus all other amounts to which Executive is entitled under any
benefit or compensation plan of the Corporation (including but
not limited to a pro rata share under Incentive Compensation
Plans targeted for the year in which Executive's employment is
terminated).
b. The Corporation shall pay Executive as soon as practicable
following the Date of Termination an additional payment equal to
the sum of Executive's annual base salary plus the highest annual
bonus received by the Executive or, if the Executive has not
received an annual bonus while serving as a Executive Vice
President, Chief Financial Officer, by any individual serving as
Executive Vice President, for the Corporation during any of
the three previous calendar years multiplied by the higher of
two (2) or the number of years (including fractions thereof)
remaining under the Contract Period.
c. In accordance with a valid election on file with the
Corporation the Corporation shall pay to Executive a sum of money
equal to the value of Executive' s accrued balance of the
Benefits Equalization Plan (the "BE Plan").
d. For the longer of two years from the Date of Termination or
until the end of the Contract Period (the "Relevant Employment
Period"), the Corporation shall continue to make available to
Executive all Company Perquisites, or, in the alternative, the
Corporation shall pay to Executive as soon as practicable after
the Date of Termination a sum of money reasonably approximating
the cash value of the Company Perquisites. Additionally, for such
period of time Executive shall, subject to Section 6.9, be
allowed to participate in all applicable group, life, health,
disability and accident insurance plans and programs as well as
any other applicable Corporation benefit plans and programs
(including, but not limited to, the 1992 Stock Option and
Incentive Plan) as if he were an active employee (limited, in the
case of coverage under life insurance plans, to the level of
coverage that the Corporation is able to obtain on Executive's
behalf based upon the annual premium cost of providing Executive
with life insurance during Executive's last twelve months of
employment with the Corporation), in which Executive was
participating 30 days prior to the time Notice of Termination is
given or comparable plans substituted therefor; provided,
however, that if Executive is ineligible (e.g., by operation of
law or the terms of the applicable plan) to continue to
10
<PAGE>
participate in any such plan, the Corporation will provide
Executive with a comparable level of compensation or benefit.
e. For purposes of Section 6.6(d), Executive's participation in
respect to the Corporation's 1994 Long Term Incentive Plan (the
"LTIP") shall be as follows (the defined terms within this
section and not otherwise defined within this Agreement being the
same as defined in the LTIP as in effect on the date hereof):
i. all of the Executive's Restricted Shares previously
issued under the LTIP and not yet vested by the Date of
Termination shall become 100% vested, nonforfeitable
and fully transferable as of such date; and
ii. the Corporation will pay the Executive as soon as
practicable following the Date of Termination an amount
in cash equal to three times the product of (x) the
number of Performance Units previously granted under
the LTIP to the Executive and still outstanding, times
(y) the Award Value at the Threshold Target level.
f. For purposes of Section 6.6(d), Executive's benefits with
respect to the Corporation's Retirement Plan for Salaried
Employees and the BE Plan or any equivalent or superior plans or
arrangements in which the Executive participated prior to the
Date of Termination (any such Plan or arrangement, the "Pension
Plans") and the Corporation's welfare benefit plans in which the
Executive participates on the date hereof or any equivalent or
superior successor plans or arrangements in which the Executive
participates prior to the Date of Termination ("Welfare Benefit
Plans") the contemplated continued participation shall require
the Corporation to pay or provide the executive with the
benefits, earnings credits for benefits and service credits for
benefits which the Executive would have received under the
Pension Plans and Welfare Benefit Plans if (x) the Executive's
employment and his coverage under the Pension Plans and the
Welfare Benefit Plans had continued during the Relevant Damage
Period, and (y) the compensation described in Section 6.6 (b)
which would have been credited under the Pension Plans and/or the
Welfare Plans were paid to the Executive ratably over the
Relevant Damage Period.
g. All restrictions, if any, on shares of restricted stock
previously granted to Executive which would have lapsed if
Executive had been employed throughout the Relevant Damage Period
shall immediately lapse as of the Date of Termination, and
Executive shall be entitled to the possession of the shares of
such stock as of such date upon the payment of any applicable
withholding taxes.
11
<PAGE>
6.7 If Executive's employment by the Corporation shall be terminated by
Executive for Good Reason where Executive has given Notice of
Termination to the Corporation within two years from the occurrence of
an event constituting a Change-of-Control, then Executive shall be
entitled to the following benefits in lieu of the benefits under
Section 6.6:
a. The Corporation shall pay Executive his accrued but unpaid
base salary through the Date of Termination at the rate in effect
at the time Notice of Termination is given, plus all other
amounts to which Executive is entitled under any benefit or
compensation plan of the Corporation (including, but not limited
to, a pro rata share under Incentive Compensation Plans earned
during the year in which employment is terminated).
b. In lieu of any further base salary payments to Executive for
period subsequent to the Date of Termination, the Corporation
shall pay to Executive a lump sum equal to four times (4x) the
sum of Executive's annual base salary at the rate in effect
immediately prior to the time Notice of Termination is given plus
the highest annual bonus received by the Executive or, if the
Executive has not received an annual bonus while serving as an
Executive Vice President, Chief Financial Officer, any
individual serving as Executive Vice President, Chief Financial
Officer for the Corporation during any of the three preceding
calendar years.
c. In lieu of any further participation by Executive in the
Family Protection Plan, the Corporation shall transfer to
Executive a fully paid up insurance policy or policies then
insuring the life of the Executive pursuant to the terms of the
Family Protection Plan, plus an amount of money (the "Tax
Adjustment") calculated to reimburse Executive for any local,
state or Federal income, employment or other taxes which he may
be liable as a result of receiving the insurance policy or
policies and the Tax Adjustment amount.
d. At Executive's option and as soon, as practicable after his
request, the Corporation shall pay Executive a sum of money equal
to the value of Executive's accrued balance of the BE Plan.
e. For four years from the Date of Termination, the Corporation
shall continue to make available to Executive all Company
Perquisites, or, in the alternative, the Corporation shall pay to
Executive as soon as practicable after the Date of Termination a
sum of money reasonably approximating the cash value of the
Company Perquisites. Additionally, Executive shall, subject to
Section 6.9, be allowed to participate in all applicable group,
life, health, disability and accident insurance plans and
programs as well as any other applicable Corporation benefit
plans and programs (including, but not limited to the 1992 Stock
Option and Incentive Plan) as if he were an active employee
(limited, in the case of
12
<PAGE>
coverage under life insurance plans, to the level of coverage
that the Corporation is able to obtain on Executive's behalf
based upon the annual premium cost of providing Executive with
life insurance during Executive's last twelve months of
employment with the Corporation), in which Executive was
participating 30 days prior to the time Notice of Termination is
given or comparable plans substituted therefor; provided,
however, that if Executive is ineligible (e.g., by operation of
law or the terms of the applicable plan) to continue to
participate in any such plan, the Corporation will provide
Executive with a comparable level of compensation or benefit.
f. For purposes of Section 6.7(e), Executive's participation in
respect to the LTIP shall be as follows (the defined terms within
this section and not otherwise defined within this agreement
being the same as defined in the LTIP):
i. all of the Executive's Restricted Shares previously
issued under the LTIP and not yet vested by the Date of
Termination shall become 100% vested, nonforfeitable
and fully transferable as of such date; and
ii. all LTIP awards issued prior to the Date of Termination
("Existing Awards") of Performance Units ("Existing
Units") shall be deemed to have been outstanding
throughout the Performance Cycle to which each relates;
and
iii. the Executive shall be deemed to have received an LTIP
award in each of the four years following the Date of
Termination ("Deemed Awards") in an amount equal in
units to the highest number of Performance Units
received by the Executive in any of the three years
prior to the Date of Termination ("Deemed Units") and
all of the Deemed Units shall be deemed to have been
outstanding throughout the Performance Cycle to which
each relates; and
iv. except as set forth in Section 6.7(f)(v), the
Corporation will pay the Executive as soon as
practicable following the Date of Termination an amount
in cash equal to th e number of Existing and Deemed
Units to which he is entitled multiplied by an Award
Value the result of which is further multiplied by 1.10
(the "LTIP Payout"). The Operating Income Threshold
Target for each Deemed Award shall be that established
for the Existing Award issued just prior to the Date of
Termination. The Award Value shall be calculated in
accordance with the provisions of the LTIP applying
actual operating profit of the Corporation whenever
such has actually been achieved and applying those
projections of operating profit
13
<PAGE>
contained in the Corporation's Coltec 2000 Plan for
those years which do not have actual results. If any
Performance Cycle of any Existing or Deemed Unit shall
extend beyond the projections contained in the
Corporation's Coltec 2000 Plan, then the operating
profit contained in the Coltec 2000 Plan for the year
ending December 31, 1999 shall be the operating profit
applied to each year of any Performance Cycle for which
actual operating profit cannot be calculated increased
for each year after 1999 at the average rate of annual
increase of operating profit actually realized for the
period between January 1, 1997 and December 31, 1999.
v. in the event that the independent accountants of the
Corporation shall determine that if the payment of the
LTIP Payout is made entirely in cash it shall prevent
the Corporation from consummating any business
combination approved by the Board of Directors which
combination is intended to be accounted for under the
pooling of interests method of accounting ("Pooling"),
then the LTIP Payout shall be made 2/3 in cash and 1/3
in the Corporation's Common Stock (the "Share
Portion"). If a merger or acquisition of the
Corporation has taken place prior to the time that the
Executive has given Notice of Termination setting forth
his intent to terminate his employment for Good Reason
and the Common Stock of the Corporation is no longer
traded on a national securities exchange, then the
Share Portion of the LTIP Payout shall be made in the
publicly traded stock of the Corporation's parent or
successor corporation (collectively, a "Successor"),
which stock is traded on a national securities exchange
or on an over the counter securities market. The number
of shares payable in respect to the Share Portion shall
be determined by dividing the dollar value of the Share
Portion by the price of a share of the Common Stock of
the Corporation, or a Successor, as the case may be, on
the last business day immediately preceding the date of
the Notice of Termination.
g. For purposes of Section 6.7(e), Executive's benefits with
respect to the Pension Plans and the Welfare Benefit Plans, the
contemplated continued participation shall require the
Corporation to pay or provide the Executive with the benefits,
earnings credits for benefits and service credits for benefits
which the Executive would have received under the Pension Plans
and Welfare Benefit Plans if (x) the Executive's employment and
his coverage under the Pension Plans and the Welfare Benefit
Plans had continued for an additional three year period, and (y)
the compensation described in Section 6.7 (b) which would have
been credited under the Pension Plans and/or the Welfare Plans
were paid to the Executive ratably over a three year period.
14
<PAGE>
h. All restrictions, if any, on shares of restricted stock previously
granted to Executive shall immediately lapse as of the Date of
Termination, and Executive shall be entitled to the possession of the
shares of such stock as of such date upon the payment of any
applicable withholding taxes.
6.8 In addition to the benefits set forth in Sections 6.6 and 6.7, in the
event that Executive's employment shall be terminated (1) by the
Corporation for other than Cause, (2) by Executive for Good Reason other
than Section 6.7 Good Reason, or (3) by Executive for Section 6.7 Good
Reason then:
a. The Company shall also pay to Executive all reasonable legal fees
and expenses incurred by Executive as a result of such termination
(including all such fees and expenses, if any, incurred in contesting
or disputing any such termination (including cost associated with
legal consultation even if no actual contest or dispute results) or in
seeking to obtain or enforce any right or benefit provided by this
Agreement or in connection with any tax audit or proceeding to the
extent attributable to the application of Section 4999 of the Internal
Revenue Code of 1986, as amended (the "Code"), to any payment or
benefit provided hereunder), except any such fees or expenses incurred
by Executive in seeking to enforce a claim which is determined by an
arbitrator, pursuant to Section 14 below, to have been frivolous in
nature or not brought or pursued in good faith.
b. In addition to all other benefits provided hereunder, in the event
that Executive becomes entitled to any payments or benefits from the
Corporation (whether or not provided under this Agreement (the
"Severance Payments") that will be subject to the tax (the "Excise
Tax") imposed by Section 4999 of the Code, the Corporation shall pay
to Executive at the time or times specified in Paragraph (h) below, an
additional amount (the "Gross-Up Payment") such that the net amount
retained by Executive, after deduction of (I) any additional Excise
Tax payable by Executive as a result of Executive's receipt of the
Severance Payments, and (ii) any additional Federal, state and local
income and employment taxes and Excise tax payable by Executive as a
result of Executive's receipt of the Gross-Up Payments shall be equal
to the Severance Payments. For purposes of determining whether any of
the Severance Payments will be subject to the Excise Tax and the
amount of such Excise Tax, (i) the Severance Payments, payments
provided for in this paragraph and any other payments or benefits
received or to be received by Executive in connection with a
change-in-control of the Corporation (as defined in Section 280G of
the Code) or Executive's termination of employment (whether pursuant
to the terms of this Agreement or any other plan, arrangement or
agreement with the Corporation, any person whose actions result in a
Change-in-Control or any person affiliated with the Corporation or
such person) shall be treated as "parachute payments" within the
meaning of Section 280G(b) (2) of the
15
<PAGE>
Code, and all "excess parachute payments" within the meaning of
Section 280G(b) (1) shall be treated as subject to the Excise Tax,
unless and to the extent that in the opinion of tax counsel selected
by the Corporation's independent auditors and acceptable to Executive,
such other payments or benefits (in whole or in part) do not
constitute parachute payments, or such excess parachute payments (in
whole or in part) and represent reasonable compensation for services
actually rendered within the meaning of Section 280G(b) (4) of the
Code in excess of the base amount within the meaning of Section
280G(b) (3) of the Code, or are otherwise not subject to the Excise
Tax, (ii) the amount of the Severance Payments which shall be treated
as subject to the Excise Tax shall be equal to the lesser of (x) the
total amount of the Severance Payments or (y) the amount of excess
parachute payments within the meaning of Section 280G(b) (1) (after
applying clause (i) above), (iii) any payment pursuant to this
Paragraph shall be treated as subject to the Excise Tax in its
entirety and (iv) the value of any non-cash benefits or any deferred
payment of benefit shall be determined by the Corporation's
independent auditors in accordance with the principles of Sections
280G(d) (3)and (4) of the Code. For purposes of determining the amount
of the Gross-Up Payment, Executive shall be deemed to pay Federal
income taxes at the highest marginal rate of federal income taxation
in the calendar year in which the Gross-Up Payment is to be made and
state and local income taxes at the highest marginal rate of taxation
in the state and locality of Executive residence on the Date of
Termination, not of the maximum reduction in federal income taxes
which could be obtained from deduction of such state and local taxes.
In the event that the Excise Tax is subsequently determined to be less
than the amount taken into account hereunder at the time of
termination of Executive's employment, Executive shall repay to the
Corporation at the time that the amount of such reduction in Excise
Tax is finally determined, the portion of the Gross-Up Payment
attributable to such reduction (plus the portion of the Gross-Up
Payment attributable to the Excise Tax and federal and state and local
income tax imposed on the Gross-Up Payment being repaid by Executive)
plus interest accrued from the date such Gross-Up Payment is made to
Executive to the date of such repayment on the amount of such
repayment at the rate provided in Section 1274(b) (2) (B) of the Code.
In the event that the Excise Tax is determined to exceed the amount
taken into account hereunder at the time of the termination of
Executive's employment (including by reason of any payment the
existence or amount of which cannot be determined at the time of the
Gross-Up Payment), the Corporation shall make an additional gross-up
payment in respect of such excess (plus any interest payable with
respect to such excess) at the time that the amount of such excess is
finally determined.
c. The payments provided for in Paragraph (b) above shall be made at
any time during the 90-day period preceding each due date for making
16
<PAGE>
payment of such Excise Taxes to the appropriate taxing authority;
provided, however, that if the amounts of such payments cannot be
finally determined on or before each such date, the Corporation shall
pay to Executive on such date an estimate, as determined in good faith
by the Corporation, of the minimum amount of such payments and shall
pay the remainder of such payments then due as soon as the amount
thereof can be determined. In the event that the amount of the
estimated payments exceeds the amount subsequently determined to have
been due, such excess shall constitute a loan by the Corporation to
Executive on the fifth day after demand by the Corporation (together
with interest at the rate provided in Section 1274 (b) (2) (B) of the
Code).
6.9 Upon receipt of written notice from Executive that Executive has been
reemployed by another company or entity on a full-time basis , benefits
otherwise receivable by Executive pursuant to Subsections 6.6(d) or 6.7(e)
related solely to life, health disability and accident insurance plans and
programs and other similar benefits (but not Incentive Compensation , LTIP,
Pension Plans or other similar plans and programs) shall be reduced to the
extent comparable benefits are made available to Executive at his new
employment and any such benefits actually received by Executive shall be
reported to the Corporation. Nothing herein contained shall obligate
Executive to accept employment elsewhere .
6.10. Any stock of the Corporation which is delivered to the Executive
pursuant to Subsection 6.6 or 6.7 shall be delivered to him fully
registered for immediate sale to the public under all applicable securities
laws.
7. Successors; Binding Agreement
The Corporation will require any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or substantially all
of the business and/or assets of the Corporation to expressly assume and
agree to perform this Agreement in the same manner and to the same extent
that the Corporation would be required to perform it if no such succession
had taken place. Failure of the Corporation to obtain such assumption and
agreement prior to the effectiveness of any such succession shall be a
breach of this Agreement and shall entitle Executive to terminate this
Agreement for Good Reason. As used in this Agreement, "Corporation" shall
mean the Corporation and any successor to its business and or assets as
aforesaid which assumes and agrees to perform this Agreement by operation
of law, or otherwise.
8. Notice
For the purpose of this Agreement, notices and all other communications
provided for in the Agreement shall be in writing and shall be deemed to
have been duly given when delivered or mailed by United States registered
mail, return receipt requested, postage prepaid, addressed to the
Executive's most recent home
17
<PAGE>
address on file with the Corporation, and to the Corporation at 3 Coliseum
Centre, 2550 West Tyvola Road, Charlotte, NC 28217 to the attention of the
Chairman of the Board of Directors with a copy to the Secretary of the
Corporation or to such other address as either party may have furnished to
the other in writing in accordance herewith, except that notice of change
of address shall be effective only upon receipt.
9. Modification - Waiver
No provision of this Agreement may be modified, waived or discharged unless
such waiver, modification or discharge is agreed to in writing and signed
by Executive and such officer of the Corporation as may be specifically
designated by the Board. No waiver by either party hereto at any time of
any breach by the other party hereto of, or compliance with, any condition
or provision of this Agreement to be performed by such other party shall be
deemed a waiver of similar or dissimilar provisions or conditions at the
same or at any prior or subsequent time. In the event that the independent
accountants of the Corporation shall determine that anything contained
herein shall prevent the Corporation from consummating any business
combination approved by the Board of Directors which combination is
intended to be accounted for as a Pooling, then Executive agrees to
negotiate in good faith concerning amendments to such portions of this
Agreement as may be requested by the Corporation so as to allow such
business combination to be accounted for as a Pooling; provided, however,
that any such amendment shall: (a) be as limited in scope as is absolutely
necessary in the opinion of the Corporation's advisors to allow the
business combination to be accounted for as a Pooling, and (b) be designed
to have as minimal an economic detriment to the Executive as is possible
while still allowing the business combination to be accounted for as a
Pooling.
10. Non-competition
10.1 Until the Date of Termination, Executive agrees not to enter into
competitive endeavors and not to undertake any commercial activity which is
contrary to the best interests of the Corporation or its affiliates,
including becoming an employee, owner (except for passive investments of
not more than three percent of the outstanding shares of, or any other
equity interest in, any company or entity listed or traded on a national
securities exchange or in an over-the-counter securities market), officer,
agent or director of (a) any firm or person engaged in the operation of a
business engaged in the acquisition of industrial businesses or (b) any
firm or person which either directly competes with a line or lines of
business of the Corporation accounting for five percent (5%) or more of the
Corporation's gross revenues or earnings before taxes or derives five
percent (5%) or more of such firm's or person's gross revenues or earnings
before taxes from a line or lines of business which directly compete with
the Corporation. Notwithstanding any provision of this Agreement to the
contrary, Executive agrees that his breach
18
<PAGE>
of the provisions of this Section 10.1 shall permit the Corporation to
terminate Executive's employment for Cause in accordance with Section
6.l(b) hereof.
10.2 After the Date of Termination and for a period of time equal in years
to the multiple of annual salary received by Executive pursuant to either
Sections 6.6(b) or 6.7(b) (the "Non-Competition Period"), Executive agrees
not to become an employee, owner (except for passive investments of not
more than three percent of the outstanding shares of, or any other equity
interest in, any company or entity listed or traded on a national
securities exchange or in an over-the-counter securities market), officer,
agent or director of any firm or person which directly and substantially
competes with a business of the Corporation accounting for five percent
(5%) or more of the Corporation's gross revenues or earnings before taxes.
During the Non-Competition Period, Executive will be available to answer
questions and provide advice to the Corporation; provided, however, that
such requirement shall not unreasonably interfere with any other of
Executive's activities which Executive is then pursuing and which are not
otherwise prohibited by this Section 10. Also, during the Non-Competition
Period, Executive will retain in confidence any and all confidential
information known to him concerning the Corporation and its business and
shall not use or disclose such information without the approval of the
Corporation except to the extent such information becomes public or as may
be required by law.
10.3 Executive acknowledges and agrees that damages for breach of the
covenant not to compete in this Section 10 will be difficult to determine
and will not afford a full and adequate remedy, and therefore Executive
agrees that the Corporation, in addition to seeking actual damages pursuant
to the procedures set forth in Section 13 below, may seek specific
enforcement of the covenant not to compete in any court of competent
jurisdiction, including, without limitation, by the issuance of a temporary
or permanent injunction, without the necessity of a bond. Executive and the
Corporation agree that the provisions of this covenant not to compete are
reasonable. However, should any court or arbitrator determine that any
provision of this covenant not to compete is unreasonable, either in period
of time, geographical area, or otherwise, the parties agree that this
covenant not to compete should be interpreted and enforced to the maximum
extent which such court or arbitrator deems reasonable.
11. Validity
The invalidity or unenforceability of any provision of this Agreement shall
not affect the validity or enforceability of any other provision of this
Agreement, which shall remain in full force and effect.
12. Counterparts
This Agreement may be executed in several counterparts, each of which shall
be deemed to be an original but all of which together will constitute one
and the same instrument.
19
<PAGE>
13. Arbitration
Except as contemplated by Section 10.3 of this Agreement, any dispute or
controversy arising under or in connection with this Agreement shall be
settled exclusively by arbitration in Charlotte, NC or such other location
mutually agreed upon by the parties to the arbitration, in accordance with
rules of the American Arbitration Association, and judgment upon such award
rendered by the arbitrator may be entered in any court having jurisdiction
over such proceeding.
14. Governing Law
This Agreement shall be governed by and construed and enforced in
accordance with the laws of the State of North Carolina.
15. Entire Agreement; Survival of Certain Provisions
15.1 This Agreement constitutes the whole agreement of the Corporation and
the Executive. No agreements or representations, oral or otherwise, express
or implied, with respect to the subject matter of this Agreement have been
made by either party which are not expressly set forth in this Agreement
15.2 The obligations of the Corporation under Section 9 above and the
Executive's obligations under Section 6.8 above shall survive the
expiration of the term of this Agreement.
16. Withholding
Any payments made to Executive under this Agreement shall be paid net of
any applicable withholding required under Federal, state or local law.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the Effective Date.
COLTEC INDUSTRIES INC
By _________________________________
____________________________________
EXECUTIVE
20
<PAGE>
FIRST RESTATED EMPLOYMENT AGREEMENT
The Employment Agreement dated March 21, 1997 (the "Employment Agreement")
between Michael J. Burdulis ( the "Executive") and Coltec Industries Inc, a
Pennsylvania corporation (the "Corporation"), is amended, clarified and restated
as of this 18th day of December, 1997 (the Restatement Date") as if originally
entered into and effective as of March 21, 1997 (the "Effective Date"),
WHEREAS, the Employment Agreement has been amended from time to time since
its original execution, and
WHEREAS, the Corporation and the Executive desire to further modify the
Employment Agreement in order to clarify certain provisions thereof, and
WHEREAS, the Executive and the Corporation desire to combine all new and
previous amendments to the Employment Agreement into this First Restated
Employment Agreement setting forth the terms and conditions upon which the
Executive shall be employed by the Corporation to be effective as if originally
entered into on the Effective Date.
NOW, THEREFORE, in consideration of the foregoing and the mutual promises
herein contained, the parties agree as follows:
1. Employment Term
The Corporation agrees to employ the Executive and the Executive agrees to
be employed by the Corporation, upon the terms and conditions contained in
this Agreement, for a period of three years commencing on the Effective
Date and terminating on the third anniversary of the Effective Date (the
"Contract Period") The Contract Period shall be subject to earlier
termination in accordance with the provisions set forth in Section 5 below.
2. Duties
2.1 The Executive shall serve, subject to the supervision and control of
the Corporation's President and Chief Operating Officer as the Senior Vice
President - Group Operations of the Corporation with the responsibilities
and authority, and status and perquisites which have, consistent with past
practice, been delegated or granted by the Corporation to an employee
holding such position(s) or which are customarily delegated or granted by
similarly situated corporations to an employee holding similar position(s).
If Executive is appointed to additional offices by the Corporation during
the Contract Period, the Executive shall have the responsibilities and
authority, and status and perquisites consistent with the past practices of
the Corporation or which are customarily delegated or granted by similarly
situated corporations to an employee holding such position(s). Executive
shall also perform any additional lawful services and
<PAGE>
assume any reasonable additional responsibilities, not inconsistent with
his then current position, as shall from time to time be assigned to him by
the Board of Directors of the Corporation (the "Board") or by the President
and Chief Operating Officer of the Corporation.
2.2 Executive agrees that during the Contract Period, he shall devote
substantially all of his full working time and attention and give his best
effort, skill and abilities exclusively to the business and interests of
the Corporation; provided, however, that the foregoing shall not be
construed to prohibit Executive's service as a (i) director or officer of
any trade association, civic, educational or charitable organization or
governmental entity or, subject to approval by the President and Chief
Operating Officer as (ii) a director of any corporation which is not a
competitor of the Corporation, provided that such service by Executive does
not materially interfere with the performance by Executive of the
responsibilities delegated under Section 2.1 above.
2.3 Executive shall carry out all responsibilities delegated in Section 2.1
above at such location within the continental United States as the
President and Chief Operating Officer may from time to time, after
consultation with Executive, deem appropriate, except for travel reasonably
required in the performance of Executive's responsibilities.
3. Compensation and Benefits
Throughout the contract period hereof, unless otherwise specifically
provided elsewhere herein:
3.1 Executive shall receive an annual base salary which is not less than
his annual base salary on the Effective Date and shall have the opportunity
for periodic increases in accordance with the Corporation's regular
practices.
3.2 Executive shall be entitled to participate, to the extent determined by
the Board, in all currently existing and future incentive compensation
plans of the Corporation including, but not limited to: the Annual
Incentive Plan for Certain Employees of Coltec Industries Inc and Its
Subsidiaries, the 1994 Long-Term Incentive Plan of Coltec Industries Inc
and the Coltec Industries Inc 1992 Stock Option and Incentive Plan (the
"Incentive Compensation Plans"), provided, however, that the Executive's
participation in all incentive compensation plans shall be at a level not
less than the customarily approved by the Board for an employee with
Executive's responsibilities and shall not in any case be less than
Executive's level of participation in such plans on the Effective Date. Any
payment to Executive under an Incentive Compensation Plan shall be
calculated and made in accordance with the provisions of the respective
plan, except as elsewhere provided for in this Agreement.
2
<PAGE>
3.3 Executive shall be entitled to receive all employee benefits, fringe
benefits and perquisites (including but not limited to the use of company
cars, club memberships and financial planning services ("Company
Perquisites")) customarily made available to an employee with Executive's
responsibilities, and Executive shall be entitled to participate in all
applicable group, life, health, disability and accident insurance plans and
programs including, and not limited to, the Retirement Savings Plan, the
Retirement Program, the Benefits Equalization Plan (collectively the
"Retirement Plans") and the Family Protection Plan as well as any other
applicable Corporation benefit plans and programs maintained currently upon
terms and at levels no less favorable than now exist or that shall be
established or maintained in the future for employees generally or for the
Corporation's executives.
3.4 Executive shall be entitled to annual vacation and holidays in
accordance with the Corporation's established practice for its employees.
3.5 The Executive shall be entitled to receive reimbursement for all
reasonable out-of-pocket expenses incurred in performing his
responsibilities described in Section 2.1 above, provided that the
Executive properly accounts for such expenses in accordance with the
Corporation's established policies.
4. Indemnification
The Executive shall be entitled to indemnification by the Corporation to
the fullest extent permitted by law and the By-Laws of the Corporation in
respect of any actions or omissions which Executive has taken or has failed
to take as an employee, officer or director of the Corporation while
carrying out the responsibilities delegated under Section 2.1 above.
5. Termination of Employment
The Contract Period shall terminate prior to the completion of its term on
the Date of Termination as defined in Sections 5.2 or 5.3 below following
receipt by the Executive or the Corporation, as the case may be, of a
Notice of Termination as defined in Section 5.1 below.
5.1 "Notice of Termination" shall mean any purported termination of
Executive's employment by the Corporation or by Executive which shall be
communicated by written notice to the other party hereto in accordance with
Section 8 of this Agreement, and which shall (1) indicate the specific
termination provision in this Agreement relied upon, (2) set forth in
reasonable detail the facts and circumstances claimed to provide a basis
for termination of Executive's employment under the provision so indicated,
and (3) set forth the date on which the Executive's employment with the
Corporation shall terminate.
3
<PAGE>
5.2 "Date of Termination" shall mean:
a. thirty (30) days after Notice of Termination is given by the
Corporation for termination of employment due to Disability; provided
that Executive shall not have returned to the full-time performance of
his duties during such thirty (30) day period;
b. the date of death in the event of Executive's death;
c. at least thirty days (30) but not more than sixty (60) days after
Notice of Termination is given by Executive for termination of
employment for Good Reason in respect of a termination covered by
Sections 6.6 or 6.7 below;
d. at least fifteen days (15) after Notice of Termination is given by
the Corporation for termination of employment for Cause;
e. at least fifteen days (15) after Notice of Termination is given by
Executive for retirement after the age of 55 years but before the age
of 65 years to the extent such retirement is permitted under the
Retirement Savings Plan, the Retirement Program or the BE Plan ("Early
Retirement"); or
f. the date specified in the Notice of Termination for termination of
employment for any other reason.
5.3 This Agreement shall automatically terminate upon the earlier of
Executive's 65th birthday or the date set forth in the Notice of
Termination for Early Retirement as provided in Paragraph 5.2(e) above
("Retirement Termination")
6. Compensation Upon Termination or During Disability
6.1 For purposes of this Agreement, "Disability", "Cause", "Good Reason"
and "Change-in-Control" shall have the meanings set forth below:
a. Disability - If, as a result of Executive's incapacity due to
physical or mental illness, Executive shall have become eligible for
benefits under the applicable long-term disability plan or policy of
the Corporation, Executive's employment may be terminated by the
Corporation for "Disability".
b. Cause - Termination by the Corporation of Executive's employment
for "Cause" shall mean termination upon:
i. the prolonged or repeated absence from duty without the consent
of the Board for reasons other than the Executive's incapacity
due to physical or mental illness;
4
<PAGE>
ii. the acceptance by Executive of a position with another employer
which conflicts with his duties as an employee of the Corporation
without the consent of the President and Chief Operating Officer;
iii. the willful engaging by Executive in conduct relating to the
Corporation which is demonstrably and materially injurious to the
Corporation after a written demand for cessation of such conduct
is delivered to Executive by the Board, which demand specifically
identifies the manner in which the Board believes the Executive
has engaged in such conduct and the injury to the Corporation;
iv. a willful material breach of an established written policy or
procedure of the Corporation which breach is materially injurious
to the Corporation;
v. Executive's conviction for a crime involving moral turpitude; or
vi. the breach of Executive's Agreement set forth in Section 10.1
below.
For purposes of this Paragraph, no act, or failure to act, on
Executive's part shall be deemed "willful" unless knowingly done, or
omitted to be done, by Executive not in good faith and without
reasonable belief that Executive's action or omission was in the best
interests of the Corporation.
c. Good Reason - Executive shall be entitled to terminate his
employment for Good Reason. For purposes of this Agreement, "Good
Reason" shall mean the occurrence, without Executive's express written
consent, of any of the following circumstances unless such
circumstances are fully corrected prior to the Date of Termination (as
defined in Section 5.2 above), specified in the Notice of Termination:
i. the terms of this Agreement are materially adversely altered by
action of the Corporation or the Corporation breaches in any
material respect any of its agreements set forth herein;
ii. the failure of the Corporation to obtain a satisfactory
agreement, required in Section 7 below, from any successor to
assume and perform this Agreement (a copy of the agreement
evidencing such assumption shall be provided by the Corporation
to Executive);
iii. any purported termination of Executive's employment by the
Corporation which is not effected pursuant to a Notice of
Termination satisfying the requirements set forth in Section 5
5
<PAGE>
above; for purposes of this Agreement, no such purported
termination shall be effective;
iv. Executive makes a determination in good faith that the cumulative
effect of actions by one or more of the members of the Board, the
Chairman and Chief Executive Officer, the President and Chief
Operating Officer or their respective agents or associates
constitutes harassment or unreasonable interference with the
performance of Executive's day-to-day duties under this Agreement
(after a written demand for cessation of such actions is
delivered by Executive to the President and Chief Operating
Officer, the Chairman and Chief Executive Officer or to the Board
which demand specifically identifies the manner in which
Executive believes that such President and Chief Operating
Officer, Chairman and Chief Executive Officer or Board members
(or their agents or associates) have harassed Executive or
unreasonably interfered with Executive's ability to perform his
day-to-day duties); provided, however, that appropriate
involvement of the President and Chief Operating Officer, the
Chairman and Chief Executive Officer or the Board members in
regular reviews of those items which have, consistent with the
Corporation's past practices, been normally within the purview of
the President and Chief Operating Officer, the Chairman and Chief
Executive Officer or the Board's responsibilities as well as any
bona fide business disagreements between the Executive and the
Corporation shall not be taken into account by Executive in
making his determination under this Agreement;
v. the Corporation or any successor during the two year period
following a Change-in-Control delivers to the Executive a Notice
of Termination other than for Cause or takes any other action or
actions, including, but not limited to, a material decrease in
duties or authority or change in reporting relationships, which
may have an adverse effect upon Executive's employment or which
purport to terminate Executive's employment other than for Cause;
vi. relocation of the Executive's place of employment to a location
outside the continental United States or relocation of the
Executive's place of employment within the continental United
States without reimbursing Executive his cost of relocation at a
level at least as favorable as that provided under the
Corporation' s policy and practice in effect on the date of this
Agreement; or
vii. after a Change-in-Control as hereafter defined, the Corporation
a) reduces Executive's annual salary, b) impairs Executive's
6
<PAGE>
opportunity to earn incentive compensation on a basis comparable
to that before the Change-in-Control, c) reduces the Company
perquisites made available to Executive before the
Change-in-Control or d) eliminates or impairs Executive's ability
to participate in the Retirement Plans.
viii. the Executive chooses to terminate his employment with the
Corporation for any reason during the thirty (30) day period
immediately preceding either, at the option of the Executive, the
twelve (12) month anniversary or the twenty-four (24) month
anniversary of a Change-in-Control as hereafter defined.
Executive's right to terminate his employment pursuant to this
Paragraph shall not be affected by his incapacity due to physical
illness. In addition, Executive's continued employment with the
Corporation shall not constitute a waiver of Executive's rights under
this Paragraph (c) nor constitute a consent to any act or omission by
the Corporation constituting Good Reason.
d. Change-in-Control - A Change-in-Control shall be deemed to occur as
of the date on which any of the following occur:
i. the acquisition, other than from the Corporation, by any
individual, entity or group (within the meaning of Section
13(d)(3) or 14(d)(2) of the Securities and Exchange Act of 1934,
as amended (the "Exchange Act") of beneficial ownership (within
the meaning of Rule 13d-3 promulgated under the Exchange Act) of
20 percent or more of either the then outstanding shares of
common stock of the Corporation or the combined voting power of
the then outstanding voting securities of the Corporation
entitled to vote generally in the election of directors; or
ii. Individuals who, as of the date of this Agreement, constitute the
Board (the "Incumbent Board") cease for any reason to constitute
at least a majority of the Board, provided that any individual
becoming a director subsequent to the date hereof whose election,
or nomination for election by the Corporation's shareholders, was
approved by a vote of at least a majority of the directors then
comprising the Incumbent Board shall be considered as though such
individual as a member of the Incumbent Board, but excluding, for
this purpose, any such individual whose initial assumption of
office is in connection with an actual or threatened election
contest relating to the election of the directors of the
Corporation (as such terms are used in Rule 14a-ll of Regulation
14A promulgated under the Exchange Act); or
7
<PAGE>
iii. Approval by the shareholders of the Corporation of (1) a
reorganization, merger or consolidation, in each case, with
respect to which the individuals and entities who were the
respective beneficial owners of the common stock and voting
securities of the Corporation immediately prior to such
reorganization, merger or consolidation do not, following such
reorganization, merger or consolidation, beneficially own,
directly or indirectly, more than 50 percent of, respectively,
the then outstanding shares of common stock, and the combined
voting power of the then outstanding voting securities entitled
to vote generally in the election of directors, as the case may
be, of the corporation resulting from such reorganization, merger
or consolidation; (2) a complete liquidation or dissolution of
the Corporation; or of (3) the sale or other disposition of all
or substantially all of the assets of the Corporation.
6.2 During any period of Disability and until the earlier of the end of the
Contract Period or Executive's death, Executive shall receive all accrued
but unpaid base salary plus all amounts or benefits payable or due to him
(including a pro rata share under Incentive Compensation Plans targeted for
the year in which the Disability occurs) under the Corporation's
compensation and benefit plans and programs in which Executive is
participating at the commencement of any such period, plus an additional
payment from the Corporation (if necessary) such that the aggregate amount
received by Executive in the nature of salary continuation from all sources
equals Executive's base salary at the rate in effect at the commencement of
any such period. Thereafter, Executive shall be entitled to participate in
all applicable group, life, Family Protection Plan, health, disability and
accident insurance plans and programs as well as any other applicable
Corporation benefit plans and programs (including, but not limited to, the
1992 Stock Option and Incentive Plan) in accordance with the terms of such
plans and programs; provided that such terms shall not be less advantageous
to Executive than the terms in effect as of the date hereof.
6.3 If Executive's employment shall be terminated by reason of Executive's
death, the Executive shall be entitled to the benefits provided below:
a. The Corporation shall pay to Executive's estate as soon as
practicable after the date of Executive's death, Executive's accrued
but unpaid base salary through the date of Executive's death, at the
rate in effect at the time of Executive's death, plus all other
amounts to which Executive is entitled under any benefit or
compensation plan of the Corporation including, but not limited to, a
pro rata share under Incentive Compensation Plans earned during the
year in which Employee's death occurs.
b. After Executive's death, Executive's beneficiaries shall be
entitled to participate in all applicable group, life, health,
disability and accident insurance plans and programs as well as any
other applicable Corporation
8
<PAGE>
benefit plans and programs including, but not limited to, the 1992
Stock Option and Incentive Plan, in accordance with the terms of such
plans and programs.
6.4 If Executive's employment shall be terminated as a result of a
Retirement Termination or as a result of a voluntary resignation for other
than Good Reason ("Resignation"), then Executive shall receive all accrued
but unpaid base salary plus all amounts payable to him under the
Corporation's compensation (including, but not limited to, a pro rata share
under Incentive Compensation Plans targeted for the year the Retirement
Termination or Resignation occurs) and benefit plans and programs in which
Executive is participating at the time the Retirement Termination or
Resignation becomes effective. In the event of a Retirement Termination,
Executive shall be entitled to participate in all retirement and other
plans and programs effective on the Date of Termination to which he is
eligible in accordance with their terms.
6.5 If Executive's employment shall be terminated by the Corporation for
Cause, then Executive shall be entitled to the following benefits:
a. The Corporation shall pay Executive's full base salary through the
Date of Termination at the rate in effect at the time Notice of
Termination is given plus all other amounts to which Executive is
entitled under any benefit or compensation plan of the Corporation,
excluding any bonus, other incentive compensation and vacation pay, if
any, otherwise payable to Executive pursuant to the terms of the
applicable plan or program of the Corporation, at the time such
payments are due.
b. Executive shall be entitled to participate in all applicable group,
life, health, disability and accident insurance plans and programs,
but only to the extent required by the terms of such plans, or only to
the extent specifically required by Federal or state law.
6.6 If Executive's employment shall be terminated (1) by the Corporation
for other than Cause, (2) by Executive for Good Reason other than Good
Reason as specified in Section 6.7 below ("Section 6.7 Good Reason") then
Executive shall be entitled to the following benefits:
a. The Corporation shall pay Executive, as soon as practicable
following the Date of Termination a sum equal to Executive's accrued
but unpaid base salary through the Date of Termination at the rate in
effect at the time Notice of Termination is given plus all other
amounts to which Executive is entitled under any benefit or
compensation plan of the Corporation (including but not limited to a
pro rata share under Incentive Compensation Plans targeted for the
year in which Executive's employment is terminated).
b. The Corporation shall pay Executive as soon as practicable
following the Date of Termination an additional payment equal to the
sum of
9
<PAGE>
Executive's annual base salary plus the highest annual bonus received
by the Executive or, if the Executive has not received an annual bonus
while serving as a Senior Vice President, Group Operations, by any
individual serving as Senior Vice President, Group Operations for the
Corporation during any of the three previous calendar years multiplied
by the higher of one (1) or the number of years (including fractions
thereof) remaining under the Contract Period.
c. In accordance with a valid election on file with the Corporation
the Corporation shall pay to Executive a sum of money equal to the
value of Executive' s accrued balance of the Benefits Equalization
Plan (the "BE Plan").
d. For the longer of one year from the Date of Termination or until
the end of the Contract Period (the "Relevant Employment Period"), the
Corporation shall continue to make available to Executive all Company
Perquisites, or, in the alternative, the Corporation shall pay to
Executive as soon as practicable after the Date of Termination a sum
of money reasonably approximating the cash value of the Company
Perquisites. Additionally, for such period of time Executive shall,
subject to Section 6.9, be allowed to participate in all applicable
group, life, health, disability and accident insurance plans and
programs as well as any other applicable Corporation benefit plans and
programs (including, but not limited to, the 1992 Stock Option and
Incentive Plan) as if he were an active employee (limited, in the case
of coverage under life insurance plans, to the level of coverage that
the Corporation is able to obtain on Executive's behalf based upon the
annual premium cost of providing Executive with life insurance during
Executive's last twelve months of employment with the Corporation), in
which Executive was participating 30 days prior to the time Notice of
Termination is given or comparable plans substituted therefor;
provided, however, that if Executive is ineligible (e.g., by operation
of law or the terms of the applicable plan) to continue to participate
in any such plan, the Corporation will provide Executive with a
comparable level of compensation or benefit.
e. For purposes of Section 6.6(d), Executive's participation in
respect to the Corporation's 1994 Long Term Incentive Plan (the
"LTIP") shall be as follows (the defined terms within this section and
not otherwise defined within this Agreement being the same as defined
in the LTIP as in effect on the date hereof):
i. all of the Executive's Restricted Shares previously issued under
the LTIP and not yet vested by the Date of Termination shall
become 100% vested, nonforfeitable and fully transferable as of
such date; and
ii. the Corporation will pay the Executive as soon as practicable
following the Date of Termination an amount in cash equal to
three
10
<PAGE>
times the product of (x) the number of Performance Units
previously granted under the LTIP to the Executive and still
outstanding, times (y) the Award Value at the Threshold Target
level.
f. For purposes of Section 6.6(d), Executive's benefits with respect
to the Corporation's Retirement Plan for Salaried Employees and the BE
Plan or any equivalent or superior plans or arrangements in which the
Executive participated prior to the Date of Termination (any such Plan
or arrangement, the "Pension Plans") and the Corporation's welfare
benefit plans in which the Executive participates on the date hereof
or any equivalent or superior successor plans or arrangements in which
the Executive participates prior to the Date of Termination ("Welfare
Benefit Plans") the contemplated continued participation shall require
the Corporation to pay or provide the executive with the benefits,
earnings credits for benefits and service credits for benefits which
the Executive would have received under the Pension Plans and Welfare
Benefit Plans if (x) the Executive's employment and his coverage under
the Pension Plans and the Welfare Benefit Plans had continued during
the Relevant Damage Period, and (y) the compensation described in
Section 6.6 (b) which would have been credited under the Pension Plans
and/or the Welfare Plans were paid to the Executive ratably over the
Relevant Damage Period.
g. All restrictions, if any, on shares of restricted stock previously
granted to Executive which would have lapsed if Executive had been
employed throughout the Relevant Damage Period shall immediately lapse
as of the Date of Termination, and Executive shall be entitled to the
possession of the shares of such stock as of such date upon the
payment of any applicable withholding taxes.
6.7 If Executive's employment by the Corporation shall be terminated by
Executive for Good Reason where Executive has given Notice of Termination
to the Corporation within two years from the occurrence of an event
constituting a Change-of-Control, then Executive shall be entitled to the
following benefits in lieu of the benefits under Section 6.6:
a. The Corporation shall pay Executive his accrued but unpaid base
salary through the Date of Termination at the rate in effect at the
time Notice of Termination is given, plus all other amounts to which
Executive is entitled under any benefit or compensation plan of the
Corporation (including, but not limited to, a pro rata share under
Incentive Compensation Plans earned during the year in which
employment is terminated)
b. In lieu of any further base salary payments to Executive for period
subsequent to the Date of Termination, the Corporation shall pay to
Executive a lump sum equal to three times (3x) the sum of Executive's
annual base salary at the rate in effect immediately prior to the time
Notice of Termination is given plus the highest annual bonus received
by
11
<PAGE>
the Executive or, if the Executive has not received an annual bonus
while serving as a Senior Vice President, Group Operations, any
individual serving as Senior Vice President, Group Operations for the
Corporation during any of the three preceding calendar years.
c. In lieu of any further participation by Executive in the Family
Protection Plan, the Corporation shall transfer to Executive a fully
paid up insurance policy or policies then insuring the life of the
Executive pursuant to the terms of the Family Protection Plan, plus an
amount of money (the "Tax Adjustment") calculated to reimburse
Executive for any local, state or Federal income, employment or other
taxes which he may be liable as a result of receiving the insurance
policy or policies and the Tax Adjustment amount.
d. At Executive's option and as soon, as practicable after his
request, the Corporation shall pay Executive a sum of money equal to
the value of Executive's accrued balance of the BE Plan.
e. For three years from the Date of Termination, the Corporation shall
continue to make available to Executive all Company Perquisites, or,
in the alternative, the Corporation shall pay to Executive as soon as
practicable after the Date of Termination a sum of money reasonably
approximating the cash value of the Company Perquisites. Additionally,
Executive shall, subject to Section 6.9, be allowed to participate in
all applicable group, life, health, disability and accident insurance
plans and programs as well as any other applicable Corporation benefit
plans and programs (including, but not limited to the 1992 Stock
Option and Incentive Plan) as if he were an active employee (limited,
in the case of coverage under life insurance plans, to the level of
coverage that the Corporation is able to obtain on Executive's behalf
based upon the annual premium cost of providing Executive with life
insurance during Executive's last twelve months of employment with the
Corporation), in which Executive was participating 30 days prior to
the time Notice of Termination is given or comparable plans
substituted therefor; provided, however, that if Executive is
ineligible (e.g., by operation of law or the terms of the applicable
plan) to continue to participate in any such plan, the Corporation
will provide Executive with a comparable level of compensation or
benefit.
f. For purposes of Section 6.7(e), Executive's participation in
respect to the LTIP shall be as follows (the defined terms within this
section and not otherwise defined within this agreement being the same
as defined in the LTIP):
i. all of the Executive's Restricted Shares previously issued under
the LTIP and not yet vested by the Date of Termination shall
become 100% vested, nonforfeitable and fully transferable as of
such date; and
12
<PAGE>
ii. all LTIP awards issued prior to the Date of Termination
("Existing Awards") of Performance Units ("Existing Units") shall
be deemed to have been outstanding throughout the Performance
Cycle to which each relates; and
iii. the Executive shall be deemed to have received an LTIP award in
each of the three years following the Date of Termination
("Deemed Awards") in an amount equal in units to the highest
number of Performance Units received by the Executive in any of
the three years prior to the Date of Termination ("Deemed Units")
and all of the Deemed Units shall be deemed to have been
outstanding throughout the Performance Cycle to which each
relates; and
iv. except as set forth in Section 6.7(f)(v), the Corporation will
pay the Executive as soon as practicable following the Date of
Termination an amount in cash equal to th e number of Existing
and Deemed Units to which he is entitled multiplied by an Award
Value the result of which is further multiplied by 1.10 (the
"LTIP Payout"). The Operating Income Threshold Target for each
Deemed Award shall be that established for the Existing Award
issued just prior to the Date of Termination. The Award Value
shall be calculated in accordance with the provisions of the LTIP
applying actual operating profit of the Corporation whenever such
has actually been achieved and applying those projections of
operating profit contained in the Corporation's Coltec 2000 Plan
for those years which do not have actual results. If any
Performance Cycle of any Existing or Deemed Unit shall extend
beyond the projections contained in the Corporation's Coltec 2000
Plan, then the operating profit contained in the Coltec 2000 Plan
for the year ending December 31, 1999 shall be the operating
profit applied to each year of any Performance Cycle for which
actual operating profit cannot be calculated increased for each
year after 1999 at the average rate of annual increase of
operating profit actually realized for the period between January
1, 1997 and December 31, 1999.
v. in the event that the independent accountants of the Corporation
shall determine that if the payment of the LTIP Payout is made
entirely in cash it shall prevent the Corporation from
consummating any business combination approved by the Board of
Directors which combination is intended to be accounted for under
the pooling of interests method of accounting ("Pooling"), then
the LTIP Payout shall be made 2/3 in cash and 1/3 in the
Corporation's Common Stock (the "Share Portion"). If a merger or
acquisition of the Corporation has taken place prior to the time
that the Executive has given Notice of Termination setting forth
his intent to terminate his employment for Good Reason and the
Common Stock of the Corporation is no longer traded on a national
13
<PAGE>
securities exchange, then the Share Portion of the LTIP Payout
shall be made in the publicly traded stock of the Corporation's
parent or successor corporation (collectively, a "Successor"),
which stock is traded on a national securities exchange or on an
over the counter securities market. The number of shares payable
in respect to the Share Portion shall be determined by dividing
the dollar value of the Share Portion by the price of a share of
the Common Stock of the Corporation, or a Successor, as the case
may be, on the last business day immediately preceding the date
of the Notice of Termination.
g. For purposes of Section 6.7(e), Executive's benefits with respect
to the Pension Plans and the Welfare Benefit Plans, the contemplated
continued participation shall require the Corporation to pay or
provide the Executive with the benefits, earnings credits for benefits
and service credits for benefits which the Executive would have
received under the Pension Plans and Welfare Benefit Plans if (x) the
Executive's employment and his coverage under the Pension Plans and
the Welfare Benefit Plans had continued for an additional three year
period, and (y) the compensation described in Section 6.7 (b) which
would have been credited under the Pension Plans and/or the Welfare
Plans were paid to the Executive ratably over a three year period.
h. All restrictions, if any, on shares of restricted stock previously
granted to Executive shall immediately lapse as of the Date of
Termination, and Executive shall be entitled to the possession of the
shares of such stock as of such date upon the payment of any
applicable withholding taxes.
6.8 In addition to the benefits set forth in Sections 6.6 and 6.7, in the
event that Executive's employment shall be terminated (1) by the
Corporation for other than Cause, (2) by Executive for Good Reason other
than Section 6.7 Good Reason, or (3) by Executive for Section 6.7 Good
Reason then:
a. The Company shall also pay to Executive all reasonable legal fees
and expenses incurred by Executive as a result of such termination
(including all such fees and expenses, if any, incurred in contesting
or disputing any such termination (including cost associated with
legal consultation even if no actual contest or dispute results) or in
seeking to obtain or enforce any right or benefit provided by this
Agreement or in connection with any tax audit or proceeding to the
extent attributable to the application of Section 4999 of the Internal
Revenue Code of 1986, as amended (the "Code"), to any payment or
benefit provided hereunder), except any such fees or expenses incurred
by Executive in seeking to enforce a claim which is determined by an
arbitrator, pursuant to Section 14 below, to have been frivolous in
nature or not brought or pursued in good faith.
b. In addition to all other benefits provided hereunder, in the event
that Executive becomes entitled to any payments or benefits from the
Corporation (whether or not provided under this Agreement (the
14
<PAGE>
"Severance Payments") that will be subject to the tax (the "Excise
Tax") imposed by Section 4999 of the Code, the Corporation shall pay
to Executive at the time or times specified in Paragraph (h) below, an
additional amount (the "Gross-Up Payment") such that the net amount
retained by Executive, after deduction of (i) any additional Excise
Tax payable by Executive as a result of Executive's receipt of the
Severance Payments, and (ii) any additional Federal, state and local
income and employment taxes and Excise tax payable by Executive as a
result of Executive's receipt of the Gross-Up Payments shall be equal
to the Severance Payments. For purposes of determining whether any of
the Severance Payments will be subject to the Excise Tax and the
amount of such Excise Tax, (i) the Severance Payments, payments
provided for in this paragraph and any other payments or benefits
received or to be received by Executive in connection with a
change-in-control of the Corporation (as defined in Section 280G of
the Code) or Executive's termination of employment (whether pursuant
to the terms of this Agreement or any other plan, arrangement or
agreement with the Corporation, any person whose actions result in a
Change-in-Control or any person affiliated with the Corporation or
such person) shall be treated as "parachute payments" within the
meaning of Section 280G(b)(2) of the Code, and all "excess parachute
payments" within the meaning of Section 280G(b)(1) shall be treated
as subject to the Excise Tax, unless and to the extent that in the
opinion of tax counsel selected by the Corporation's independent
auditors and acceptable to Executive, such other payments or benefits
(in whole or in part) do not constitute parachute payments, or such
excess parachute payments (in whole or in part) and represent
reasonable compensation for services actually rendered within the
meaning of Section 280G(b)(4) of the Code in excess of the base
amount within the meaning of Section 280G(b)(3) of the Code, or are
otherwise not subject to the Excise Tax, (ii) the amount of the
Severance Payments which shall be treated as subject to the Excise Tax
shall be equal to the lesser of (x) the total amount of the Severance
Payments or (y) the amount of excess parachute payments within the
meaning of Section 280G(b)(1) (after applying clause (i) above),
(iii) any payment pursuant to this Paragraph shall be treated as
subject to the Excise Tax in its entirety and (iv) the value of any
non-cash benefits or any deferred payment of benefit shall be
determined by the Corporation's independent auditors in accordance
with the principles of Sections 280G(d)(3) and (4) of the Code. For
purposes of determining the amount of the Gross-Up Payment, Executive
shall be deemed to pay Federal income taxes at the highest marginal
rate of federal income taxation in the calendar year in which the
Gross-Up Payment is to be made and state and local income taxes at the
highest marginal rate of taxation in the state and locality of
Executive residence on the Date of Termination, not of the maximum
reduction in federal income taxes which could be obtained from
deduction of such state and local taxes. In the event that the Excise
Tax is subsequently determined to be less than the amount taken into
account hereunder at the time of termination of Executive's
employment, Executive shall repay to the
15
<PAGE>
Corporation at the time that the amount of such reduction in Excise
Tax is finally determined, the portion of the Gross-Up Payment
attributable to such reduction (plus the portion of the Gross-Up
Payment attributable to the Excise Tax and federal and state and local
income tax imposed on the Gross-Up Payment being repaid by Executive)
plus interest accrued from the date such Gross-Up Payment is made to
Executive to the date of such repayment on the amount of such
repayment at the rate provided in Section 1274(b)(2)(B) of the Code.
In the event that the Excise Tax is determined to exceed the amount
taken into account hereunder at the time of the termination of
Executive's employment (including by reason of any payment the
existence or amount of which cannot be determined at the time of the
Gross-Up Payment), the Corporation shall make an additional gross-up
payment in respect of such excess (plus any interest payable with
respect to such excess) at the time that the amount of such excess is
finally determined.
c. The payments provided for in Paragraph (b) above shall be made at
any time during the 90-day period preceding each due date for making
payment of such Excise Taxes to the appropriate taxing authority;
provided, however, that if the amounts of such payments cannot be
finally determined on or before each such date, the Corporation shall
pay to Executive on such date an estimate, as determined in good faith
by the Corporation, of the minimum amount of such payments and shall
pay the remainder of such payments then due as soon as the amount
thereof can be determined. In the event that the amount of the
estimated payments exceeds the amount subsequently determined to have
been due, such excess shall constitute a loan by the Corporation to
Executive on the fifth day after demand by the Corporation (together
with interest at the rate provided in Section 1274(b)(2)(B) of the
Code).
6.9 Upon receipt of written notice from Executive that Executive has been
reemployed by another company or entity on a full-time basis , benefits
otherwise receivable by Executive pursuant to Subsections 6.6(d) or 6.7(e)
related solely to life, health disability and accident insurance plans and
programs and other similar benefits (but not Incentive Compensation , LTIP,
Pension Plans or other similar plans and programs) shall be reduced to the
extent comparable benefits are made available to Executive at his new
employment and any such benefits actually received by Executive shall be
reported to the Corporation. Nothing herein contained shall obligate
Executive to accept employment elsewhere .
6.10. Any stock of the Corporation which is delivered to the Executive
pursuant to Subsection 6.6 or 6.7 shall be delivered to him fully
registered for immediate sale to the public under all applicable securities
laws.
7. Successors; Binding Agreement
The Corporation will require any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or substantially all
of the
16
<PAGE>
business and/or assets of the Corporation to expressly assume and agree to
perform this Agreement in the same manner and to the same extent that the
Corporation would be required to perform it if no such succession had taken
place. Failure of the Corporation to obtain such assumption and agreement
prior to the effectiveness of any such succession shall be a breach of this
Agreement and shall entitle Executive to terminate this Agreement for Good
Reason. As used in this Agreement, "Corporation" shall mean the Corporation
and any successor to its business and or assets as aforesaid which assumes
and agrees to perform this Agreement by operation of law, or otherwise.
8. Notice
For the purpose of this Agreement, notices and all other communications
provided for in the Agreement shall be in writing and shall be deemed to
have been duly given when delivered or mailed by United States registered
mail, return receipt requested, postage prepaid, addressed to the
Executive's most recent home address on file with the Corporation, and to
the Corporation at 3 Coliseum Centre, 2550 West Tyvola Road, Charlotte, NC
28217 to the attention of the Chairman of the Board of Directors with a
copy to the Secretary of the Corporation or to such other address as either
party may have furnished to the other in writing in accordance herewith,
except that notice of change of address shall be effective only upon
receipt.
9. Modification - Waiver
No provision of this Agreement may be modified, waived or discharged unless
such waiver, modification or discharge is agreed to in writing and signed
by Executive and such officer of the Corporation as may be specifically
designated by the Board. No waiver by either party hereto at any time of
any breach by the other party hereto of, or compliance with, any condition
or provision of this Agreement to be performed by such other party shall be
deemed a waiver of similar or dissimilar provisions or conditions at the
same or at any prior or subsequent time. In the event that the independent
accountants of the Corporation shall determine that anything contained
herein shall prevent the Corporation from consummating any business
combination approved by the Board of Directors which combination is
intended to be accounted for as a Pooling, then Executive agrees to
negotiate in good faith concerning amendments to such portions of this
Agreement as may be requested by the Corporation so as to allow such
business combination to be accounted for as a Pooling; provided, however,
that any such amendment shall: (a) be as limited in scope as is absolutely
necessary in the opinion of the Corporation's advisors to allow the
business combination to be accounted for as a Pooling, and (b) be designed
to have as minimal an economic detriment to the Executive as is possible
while still allowing the business combination to be accounted for as a
Pooling.
17
<PAGE>
10. Non-competition
10.1 Until the Date of Termination, Executive agrees not to enter into
competitive endeavors and not to undertake any commercial activity which is
contrary to the best interests of the Corporation or its affiliates,
including becoming an employee, owner (except for passive investments of
not more than three percent of the outstanding shares of, or any other
equity interest in, any company or entity listed or traded on a national
securities exchange or in an over-the-counter securities market), officer,
agent or director of (a) any firm or person engaged in the operation of a
business engaged in the acquisition of industrial businesses or (b) any
firm or person which either directly competes with a line or lines of
business of the Corporation accounting for five percent (5%) or more of the
Corporation's gross revenues or earnings before taxes or derives five
percent (5%) or more of such firm's or person's gross revenues or earnings
before taxes from a line or lines of business which directly compete with
the Corporation. Notwithstanding any provision of this Agreement to the
contrary, Executive agrees that his breach of the provisions of this
Section 10.1 shall permit the Corporation to terminate Executive's
employment for Cause in accordance with Section 5.l(b) hereof.
10.2 After the Date of Termination and for a period of time equal in years
to the multiple of annual salary received by Executive pursuant to either
Sections 6.6(b) or 6.7(b) (the "Non-Competition Period"), Executive agrees
not to become an employee, owner (except for passive investments of not
more than three percent of the outstanding shares of, or any other equity
interest in, any company or entity listed or traded on a national
securities exchange or in an over-the-counter securities market), officer,
agent or director of any firm or person which directly and substantially
competes with a business of the Corporation accounting for five percent
(5%) or more of the Corporation's gross revenues or earnings before taxes.
During the Non-Competition Period, Executive will be available to answer
questions and provide advice to the Corporation; provided, however, that
such requirement shall not unreasonably interfere with any other of
Executive's activities which Executive is then pursuing and which are not
otherwise prohibited by this Section 10. Also, during the Non-Competition
Period, Executive will retain in confidence any and all confidential
information known to him concerning the Corporation and its business and
shall not use or disclose such information without the approval of the
Corporation except to the extent such information becomes public or as may
be required by law.
10.3 Executive acknowledges and agrees that damages for breach of the
covenant not to compete in this Section 10 will be difficult to determine
and will not afford a full and adequate remedy, and therefore Executive
agrees that the Corporation, in addition to seeking actual damages pursuant
to the procedures set forth in Section 13 below, may seek specific
enforcement of the covenant not to compete in any court of competent
jurisdiction, including, without limitation, by the issuance of a temporary
or permanent injunction, without the necessity of a bond. Executive and the
Corporation agree that the provisions of this covenant not to compete are
reasonable. However, should any court or arbitrator determine that any
provision of this covenant not to compete is unreasonable, either in period
of
18
<PAGE>
time, geographical area, or otherwise, the parties agree that this covenant
not to compete should be interpreted and enforced to the maximum extent
which such court or arbitrator deems reasonable.
11. Validity
The invalidity or unenforceability of any provision of this Agreement shall
not affect the validity or enforceability of any other provision of this
Agreement, which shall remain in full force and effect.
12. Counterparts
This Agreement may be executed in several counterparts, each of which shall
be deemed to be an original but all of which together will constitute one
and the same instrument.
13. Arbitration
Except as contemplated by Section 10.3 of this Agreement, any dispute or
controversy arising under or in connection with this Agreement shall be
settled exclusively by arbitration in Charlotte, NC or such other location
mutually agreed upon by the parties to the arbitration, in accordance with
rules of the American Arbitration Association, and judgment upon such award
rendered by the arbitrator may be entered in any court having jurisdiction
over such proceeding.
14. Governing Law
This Agreement shall be governed by and construed and enforced in
accordance with the laws of the State of North Carolina.
15. Entire Agreement; Survival of Certain Provisions
15.1 This Agreement constitutes the whole agreement of the Corporation and
the Executive. No agreements or representations, oral or otherwise, express
or implied, with respect to the subject matter of this Agreement have been
made by either party which are not expressly set forth in this Agreement
15.2 The obligations of the Corporation under Section 9 above and the
Executive's obligations under Section 6.8 above shall survive the
expiration of the term of this Agreement.
16. Withholding
Any payments made to Executive under this Agreement shall be paid net of
any applicable withholding required under Federal, state or local law.
19
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the Effective Date.
COLTEC INDUSTRIES INC
By /s/ R. J. TUBBS
------------------------------
/s/ MICHAEL J. BURDULIS
---------------------------------
EXECUTIVE
20
<PAGE>
FIRST AMENDMENT TO
1997 RESTRICTED STOCK PLAN
FOR OUTSIDE DIRECTORS
OF COLTEC INDUSTRIES INC
WHEREAS, Coltec Industries Inc, a Pennsylvania corporation
(the "Company"), adopted the 1997 Restricted Stock Plan for Outside Directors
of Coltec Industries Inc (the "Plan"); and
WHEREAS, the Board of Directors of the Company (the "Board")
desires to amend the Plan in certain respects;
WHEREAS, Section 11 of the Plan states that the Plan may be
amended at any time by the Board, subject to shareholder approval if required
under applicable law; and
WHEREAS, the Board has determined that shareholder approval
of the amendments to the Plan as provided herein are not required under
applicable law.
NOW, THEREFORE, the Plan is hereby amended in the following
respects:
1. Section 2 of the Plan is hereby amended by adding a new
paragraph (b) thereto, to read as follows, and by renumbering existing
paragraphs 2(b) through 2(i) as 2(c) through 2(j):
"(b) "Change in Control" shall mean the occurrence of any of
the following events:
(i) any person (as defined in sections 13(d) and
14(d) of the Exchange Act), other than the Company, any
trustee or other fiduciary holding securities under an
employee benefit plan of the Company, or any company
<PAGE>
2
owned, directly or indirectly, by the shareholders of the
Company in substantially the same proportions as their
ownership of stock of the Company, acquires "beneficial
ownership" (as defined in Rule 13d-3 under the Exchange Act)
of securities representing more than 25% of the combined
voting power of the Company; or
(ii) during any period of two consecutive years,
individuals who at the beginning of such period constitute
the Board and any new director (other than a director
designated by a person who has entered into an agreement
with the Company to effect a transaction described in
subsections 2(b)(i), 2(b)(iii) or 2(b)(iv) whose election by
the Board or nomination for election by the Company's
shareholders was approved by a vote of at least two-thirds
(2/3) of the directors then still in office who either were
directors at the beginning of the period or whose election
or nomination for election was previously so approved, cease
for any reason to constitute a majority thereof; or
(iii) the shareholders of the Company approve a
merger other than (i) a merger which would result in the
voting securities of the Company outstanding immediately
prior thereto continuing to represent (either by remaining
outstanding or by being converted into voting securities of
the surviving entity), in combination with the ownership of
any trustee or other fiduciary holding securities under an
employee benefit plan of the Company, at least 67% of the
combined voting power of the voting securities of the
Company or such surviving entity outstanding immediately
after such merger or (ii) a merger effected to implement a
recapitalization of the Company (or similar transaction) in
which no person acquires more than 50% of the combined
voting power of the Company's then outstanding securities;
or
(iv) the shareholders of the Company approve a plan
of complete liquidation of the Company or a sale of
substantially all of the Company's assets."
2. The third sentence of Section 8 of the Plan is hereby
amended by adding the following clause at the end of thereof:
"Notwithstanding the foregoing, the Restricted Period shall
expire, and all restrictions on outstanding
<PAGE>
3
shares of Restricted Stock shall lapse, upon the occurrence
of a Change in Control."
3. Exhibit A, which is attached to, and a part of, the Plan
and referenced in Section 5 of the Plan, is hereby amended by adding the
following provision at the end thereof:
"Notwithstanding anything in this Exhibit A to the
contrary, including the schedule of grant dates of
Restricted Stock set forth above in this Exhibit A
(including the footnotes thereto), if a Change in Control
shall occur and, in connection therewith and at any time
following in any way as a result thereof, any of Messrs.
Moses, Stuckey and Coppola shall cease to serve as a
director of the Company upon or following such Change in
Control, all grants of Restricted Stock not yet then made to
any such terminating director shall be granted to such
director immediately prior to the Change in Control and
shall be granted free and clear of all restrictions
otherwise applicable."
4. Notwithstanding the foregoing amendments to the Plan as
provided in this First Amendment, such amendments shall be null and void and
of no force or effect if (x) it shall be determined by the Company's
independent auditors that such amendment shall prevent the Company from
consummating a business combination approved by the Board which combination is
intended to be accounted for under the pooling of interests method of
accounting and (y) the Board affirmatively determines that such amendment
shall not be made.
5. Except as hereinabove provided, the Plan is ratified and
confirmed in all respects.
<PAGE>
4
IN WITNESS WHEREOF, this First Amendment to the Plan is
hereby adopted effective as of , 1998.
BOARD OF DIRECTORS OF
COLTEC INDUSTRIES INC
By: ________________________
<PAGE>
EXHIBIT 10.22
AMENDMENT NO. 3
TO THE
COLTEC INDUSTRIES INC
1992 STOCK OPTION AND INCENTIVE PLAN
The first sentence of Section 4. Shares of Stock Subject to the Plan. is hereby
amended to read as follows:
"The number of shares of Common Stock under the Plan that may be issued
pursuant to Incentive Stock Rights, Stock Options (including any Stock
Options granted pursuant to Section 12(b) hereof), Stock Appreciation
Rights and Restricted Stock grants shall not exceed in the aggregate,
12,160,000 shares of Common Stock."
<PAGE>
EMPLOYMENT AGREEMENT
Agreement dated January 1, 1998 between Nishan Teshoian (the "Executive")
and Coltec Industries Inc, a Pennsylvania corporation (the "Corporation").
WHEREAS, the Executive and the Corporation desire to set forth the terms
and conditions upon which the Executive shall be employed by the Corporation.
NOW, THEREFORE, in consideration of the foregoing and the mutual promises
herein contained, the parties agree as follows:
1. Employment Term
The Corporation agrees to employ the Executive and the Executive agrees to
be employed by the Corporation, upon the terms and conditions contained in
this Agreement, for a period of four years commencing on the date hereof
and terminating on the fourth anniversary of the date hereof (the "Contract
Period") The Contract Period shall be subject to earlier termination in
accordance with the provisions set forth in Section 5 below.
2. Duties
2.1 The Executive shall serve, subject to the supervision and control of
the Corporation's Chairman and Chief Executive Officer as the President and
Chief Operating Officer of the Corporation with the responsibilities and
authority, and status and perquisites which have, consistent with past
practice, been delegated or granted by the Corporation to an employee
holding such position(s) or which are customarily delegated or granted by
similarly situated corporations to an employee holding similar position(s).
If Executive is appointed to additional offices by the Corporation during
the Contract Period, the Executive shall have the responsibilities and
authority, and status and perquisites consistent with the past practices of
the Corporation or which are customarily delegated or granted by similarly
situated corporations to an employee holding such position(s). Executive
shall also perform any additional lawful services and assume any reasonable
additional responsibilities, not inconsistent with his then current
position, as shall from time to time be assigned to him by the Board of
Directors of the Corporation (the "Board") or by the Chairman and Chief
Executive Officer of the Corporation
2.2 Executive agrees that during the Contract Period, he shall devote
substantially all of his full working time and attention and give his best
effort, skill and abilities exclusively to the business and interests of
the Corporation; provided, however, that the foregoing shall not be
construed to prohibit Executive's service as a (i)
1
<PAGE>
director or officer of any trade association, civic, educational or
charitable organization or governmental entity or, subject to approval by
the Board as (ii) a director of any corporation which is not a competitor
of the Corporation, provided that such service by Executive does not
materially interfere with the performance by Executive of the
responsibilities delegated under Section 2.1 above.
2.3 Executive shall carry out all responsibilities delegated in Section 2.1
above at the Corporation's headquarters, except for travel reasonably
required in the performance of Executive's responsibilities.
3. Compensation and Benefits
Throughout the contract period hereof, unless otherwise specifically
provided elsewhere herein:
3.1 Executive shall receive an annual base salary which is not less than
his annual base salary on the date of this Agreement and shall have the
opportunity for periodic increases in accordance with the Corporation's
regular practices.
3.2 Executive shall be entitled to participate, to the extent determined by
the Board, in all currently existing and future incentive compensation
plans of the Corporation including, but not limited to: the Annual
Incentive Plan for Certain Employees of Coltec Industries Inc and Its
Subsidiaries, the 1994 Long-Term Incentive Plan of Coltec Industries Inc
and the Coltec Industries Inc 1992 Stock Option and Incentive Plan (the
"Incentive Compensation Plans"), provided, however, that the Executive's
participation in all incentive compensation plans shall be at a level not
less than the level customarily approved by the Board for an employee with
Executive's responsibilities and shall not in any case be less than
Executive's level of participation in such plans on the date of this
Agreement. Any payment to Executive under an Incentive Compensation Plan
shall be calculated and made in accordance with the provisions of the
respective plan, except as elsewhere provided for in this Agreement.
3.3 Executive shall be entitled to receive all employee benefits, fringe
benefits and perquisites (including but not limited to the use of company
cars, club memberships and financial planning services ("Company
Perquisites")) customarily made available to an employee with Executive's
responsibilities, and Executive shall be entitled to participate in all
applicable group, life, health, disability and accident insurance plans and
programs including, and not limited to, the Retirement Savings Plan, the
Retirement Program, the Benefits Equalization Plan (collectively the
"Retirement Plans") and the Family Protection Plan as well as any other
applicable Corporation benefit plans and programs maintained currently upon
terms and at levels no less favorable than now exist or that shall be
established or maintained in the future for employees generally or for the
Corporation's executives.
3.4 Executive shall be entitled to annual vacation and holidays in
accordance with the Corporation's established practice for its employees.
2
<PAGE>
3.5 The Executive shall be entitled to receive reimbursement for all
reasonable out-of-pocket expenses incurred in performing his
responsibilities described in Section 2.1 above, provided that the
Executive properly accounts for such expenses in accordance with the
Corporation's established policies.
4. Indemnification
The Executive shall be entitled to indemnification by the Corporation to
the fullest extent permitted by law and the By- Laws of the Corporation in
respect of any actions or omissions which Executive has taken or has failed
to take as an employee, officer or director of the Corporation while
carrying out the responsibilities delegated under Section 2.1 above.
5. Termination of Employment
The Contract Period shall terminate prior to the completion of its term on
the Date of Termination as defined in Sections 5.2 or 5.3 below following
receipt by the Executive or the Corporation, as the case may be, of a
Notice of Termination as defined in Section 5.1 below.
5.1 "Notice of Termination" shall mean any purported termination of
Executive's employment by the Corporation or by Executive which shall be
communicated by written notice to the other party hereto in accordance with
Section 8 of this Agreement, and which shall (1) indicate the specific
termination provision in this Agreement relied upon, (2) set forth in
reasonable detail the facts and circumstances claimed to provide a basis
for termination of Executive's employment under the provision so indicated,
and (3) set forth the date on which the Executive's employment with the
Corporation shall terminate.
5.2 "Date of Termination" shall mean:
a. thirty (30) days after Notice of Termination is given by the
Corporation for termination of employment due to Disability; provided
that Executive shall not have returned to the full-time performance of
his duties during such thirty (30) day period;
b. the date of death in the event of Executive's death;
c. at least thirty days (30) but not more than sixty (60) days after
Notice of Termination is given by Executive for termination of
employment for Good Reason in respect of a termination covered by
Sections 6.6 or 6.7 below;
d. at least fifteen days (15) after Notice of Termination is given by
the Corporation for termination of employment for Cause;
3
<PAGE>
e. at least fifteen days (15) after Notice of Termination is given by
Executive for retirement after the age of 55 years but before the age
of 65 years to the extent such retirement is permitted under the
Retirement Savings Plan, the Retirement Program or the BE Plan ("Early
Retirement"); or
f. the date specified in the Notice of Termination for termination of
employment for any other reason.
5.3 This Agreement shall automatically terminate upon the earlier of
Executive's 65th birthday or the date set forth in the Notice of
Termination for Early Retirement as provided in Paragraph 5.2(e) above
("Retirement Termination")
6. Compensation Upon Termination or During Disability
6.1 For purposes of this Agreement, "Disability", "Cause", "Good Reason"
and "Change-in-Control" shall have the meanings set forth below:
a. Disability - If, as a result of Executive's incapacity due to
physical or mental illness, Executive shall have become eligible for
benefits under the applicable long-term disability plan or policy of
the Corporation, Executive's employment may be terminated by the
Corporation for "Disability".
b. Cause - Termination by the Corporation of Executive's employment
for "Cause" shall mean termination upon :
i. the prolonged or repeated absence from duty without the
consent of the Board for reasons other than the Executive's
incapacity due to physical or mental illness;
ii. the acceptance by Executive of a position with another
employer which conflicts with his duties as an employee of
the Corporation without the consent of the Board;
iii. the willful engaging by Executive in conduct relating to the
Corporation which is demonstrably and materially injurious
to the Corporation after a written demand for cessation of
such conduct is delivered to Executive by the Board, which
demand specifically identifies the manner in which the Board
believes the Executive has engaged in such conduct and the
injury to the Corporation;
iv. a willful material breach of an established written policy
or procedure of the Corporation which breach is materially
injurious to the Corporation;
4
<PAGE>
v. Executive's conviction for a crime involving moral
turpitude; or
vi. the breach of Executive's Agreement set forth in Section
10.1 below.
For purposes of this Paragraph, no act, or failure to act, on
Executive's part shall be deemed "willful" unless knowingly done, or
omitted to be done, by Executive not in good faith and without
reasonable belief that Executive's action or omission was in the best
interests of the Corporation.
c. Good Reason - Executive shall be entitled to terminate his
employment for Good Reason. For purposes of this Agreement, "Good
Reason" shall mean the occurrence, without Executive's express written
consent, of any of the following circumstances unless such
circumstances are fully corrected prior to the Date of Termination (as
defined in Section 5.2 above), specified in the Notice of Termination:
i. the terms of this Agreement are materially adversely altered
by action of the Corporation or the Corporation breaches in
any material respect any of its agreements set forth herein;
ii. the failure of the Corporation to obtain a satisfactory
agreement, required in Section 7 below, from any successor
to assume and perform this Agreement (a copy of the
agreement evidencing such assumption shall be provided by
the Corporation to Executive);
iii. any purported termination of Executive's employment which is
not effected pursuant to a Notice of Termination satisfying
the requirements set forth in Section 5 above; for purposes
of this Agreement, no such purported termination shall be
effective;
iv. Executive makes a determination in good faith that the
cumulative effect of actions by one or more of the members
of the Board, the Chairman and Chief Executive Officer or
their respective agents or associates constitutes harassment
or unreasonable interference with the performance of
Executive's day-to-day duties under this Agreement (after a
written demand for cessation of such actions is delivered by
Executive to the Chairman and Chief Executive Officer or to
the Board which demand specifically identifies the manner in
which Executive believes that the Chairman and Chief
Executive Officer or Board members (or their agents or
associates) have harassed Executive or unreasonably
interfered with Executive's ability to perform his
day-to-day duties); provided, however, that appropriate
involvement of the Chairman and Chief Executive Officer or
the Board members in regular reviews of those items which
have, consistent with the Corporation's past practices,
5
<PAGE>
been normally within the purview of the Chairman and Chief
Executive Officer or the Board's responsibilities as well as
any bona fide business disagreements between the Executive
and the Corporation shall not be taken into account by
Executive in making his determination under this Agreement;
v. the Corporation or any successor during the two year period
following a Change-in-Control delivers to the Executive a
Notice of Termination other than for Cause or takes any
other action or actions, including, but not limited to, a
material decrease in duties or authority or change in
reporting relationships, which may have an adverse effect
upon Executive's employment or which purport to terminate
Executive's employment other than for Cause;
vi. relocation of the Executive's place of employment to a
location outside the continental United States or relocation
of the Executive's place of employment within the
continental United States without reimbursing Executive his
cost of relocation at a level at least as favorable as that
provided under the Corporation' s policy and practice in
effect on the date of this Agreement; or
vii. after a Change-in-Control as hereafter defined, the
Corporation a) reduces Executive's annual salary, b) impairs
Executive's opportunity to earn incentive compensation on a
bases comparable to that before the Change-in-Control, c)
reduces the Company Perquisites made available to Executive
before the Change-in-Control or d) eliminates or impairs
Executive's ability to participate in the Retirement Plans.
viii. the Executive chooses to terminate his employment with the
Corporation for any reason during the thirty (30) day period
immediately preceding either, at the option of the
Executive, the twelve (12) month anniversary or the
twenty-four (24) month anniversary of a Change-in-Control as
hereafter defined.
Executive's right to terminate his employment pursuant to this
Paragraph shall not be affected by his incapacity due to physical
illness. In addition, Executive's continued employment with the
Corporation shall not constitute a waiver of Executive's rights under
this Paragraph (c) nor constitute a consent to any act or omission by
the Corporation constituting Good Reason.
d. Change-in-Control - A Change-in-Control shall be deemed to occur as
of the date on which any of the following occur:
6
<PAGE>
i. the acquisition, other than from the Corporation, by any
individual, entity or group (within the meaning of Section
13 (d) (3) or 14 (d) (2) of the Securities and Exchange Act
of 1934, as amended (the "Exchange Act") of beneficial
ownership (within the meaning of Rule 13d-3 promulgated
under the Exchange Act) of 20 percent or more of either the
then outstanding shares of common stock of the Corporation
or the combined voting power of the then outstanding voting
securities of the Corporation entitled to vote generally in
the election of directors; or
ii. Individuals who, as of the date of this Agreement,
constitute the Board (the "Incumbent Board") cease for any
reason to constitute at least a majority of the Board,
provided that any individual becoming a director subsequent
to the date hereof whose election, or nomination for
election by the Corporation's shareholders, was approved by
a vote of at least a majority of the directors then
comprising the Incumbent Board shall be considered as though
such individual as a member of the Incumbent Board, but
excluding, for this purpose, any such individual whose
initial assumption of office is in connection with an actual
or threatened election contest relating to the election of
the directors of the Corporation (as such terms are used in
Rule 14a-ll of Regulation 14A promulgated under the Exchange
Act); or
iii. Approval by the shareholders of the Corporation of (1) a
reorganization, merger or consolidation, in each case, with
respect to which the individuals and entities who were the
respective beneficial owners of the common stock and voting
securities of the Corporation immediately prior to such
reorganization, merger or consolidation do not, following
such reorganization, merger or consolidation, beneficially
own, directly or indirectly, more than 50 percent of,
respectively, the then outstanding shares of common stock,
and the combined voting power of the then outstanding voting
securities entitled to vote generally in the election of
directors, as the case may be, of the corporation resulting
from such reorganization, merger or consolidation; (2) a
complete liquidation or dissolution of the Corporation; or
of (3) the sale or other disposition of all or substantially
all of the assets of the Corporation.
6.2 During any period of Disability and until the earlier of the end of the
Contract Period or Executive's death, Executive shall receive all accrued
but unpaid base salary plus all amounts or benefits payable or due to him
(including a pro rata share under Incentive Compensation Plans targeted for
the year in which the Disability occurs) under the Corporation's
compensation and benefit plans and programs in which Executive is
participating at the commencement of any such
7
<PAGE>
period, plus an additional payment from the Corporation (if necessary) such
that the aggregate amount received by Executive in the nature of salary
continuation from all sources equals Executive's base salary at the rate in
effect at the commencement of any such period. Thereafter, Executive shall
be entitled to participate in all applicable group, life, Family Protection
Plan, health, disability and accident insurance plans and programs as well
as any other applicable Corporation benefit plans and programs (including,
but not limited to, the 1992 Stock Option and Incentive Plan) in accordance
with the terms of such plans and programs; provided that such terms shall
not be less advantageous to Executive than the terms in effect as of the
date hereof.
6.3 If Executive's employment shall be terminated by reason of Executive's
death, the Executive shall be entitled to the benefits provided below:
a. The Corporation shall pay to Executive's estate as soon as
practicable after the date of Executive's death, Executive's accrued
but unpaid base salary through the date of Executive's death, at the
rate in effect at the time of Executive's death, plus all other
amounts to which Executive is entitled under any benefit or
compensation plan of the Corporation including, but not limited to, a
pro rata share under Incentive Compensation Plans earned during the
year in which Employee's death occurs.
b. After Executive's death, Executive's beneficiaries shall be
entitled to participate in all applicable group, life, health,
disability and accident insurance plans and programs as well as any
other applicable Corporation benefit plans and programs including, but
not limited to, the 1992 Stock Option and Incentive Plan, in
accordance with the terms of such plans and programs.
6.4 If Executive's employment shall be terminated as a result of a
Retirement Termination or as a result of a voluntary resignation for other
than Good Reason ("Resignation"), then Executive shall receive all accrued
but unpaid base salary plus all amounts payable to him under the
Corporation's compensation (including, but not limited to, a pro rata share
under Incentive Compensation Plans targeted for the year the Retirement
Termination or Resignation occurs) and benefit plans and programs in which
Executive is participating at the time the Retirement Termination or
Resignation becomes effective. In the event of a Retirement Termination,
Executive shall be entitled to participate in all retirement and other
plans and programs effective on the Date of Termination to which he is
eligible in accordance with their terms .
6.5 If Executive's employment shall be terminated by the Corporation for
Cause, then Executive shall be entitled to the following benefits:
a. The Corporation shall pay Executive's full base salary through the
Date of Termination at the rate in effect at the time Notice of
Termination is given plus all other amounts to which Executive is
entitled under any
8
<PAGE>
benefit or compensation plan of the Corporation, excluding any bonus,
other incentive compensation and vacation pay, if any, otherwise
payable to Executive pursuant to the terms of the applicable plan or
program of the Corporation, at the time such payments are due.
b. Executive shall be entitled to participate in all applicable group,
life, health, disability and accident insurance plans and programs,
but only to the extent required by the terms of such plans, or only to
the extent specifically required by Federal or state law.
6.6 If Executive's employment shall be terminated (1) by the Corporation
for other than Cause, (2) by Executive for Good Reason other than Good
Reason as specified in Section 6.7 below ("Section 6.7 Good Reason") then
Executive shall be entitled to the following benefits:
a. The Corporation shall pay Executive, as soon as practicable
following the Date of Termination a sum equal to Executive's accrued
but unpaid base salary through the Date of Termination at the rate in
effect at the time Notice of Termination is given plus all other
amounts to which Executive is entitled under any benefit or
compensation plan of the Corporation (including but not limited to a
pro rata share under Incentive Compensation Plans targeted for the
year in which Executive's employment is terminated).
b. The Corporation shall pay Executive as soon as practicable
following the Date of Termination an additional payment equal to the
sum of Executive's annual base salary plus the highest annual bonus
("Annual Bonus")received by the Executive during any of the three
previous calendar years multiplied by the higher of two (2) or the
number of years (including fractions thereof) remaining under the
Contract Period. If the Executive has not received an Annual Bonus
during the three (3) year period preceding the Date of Termination,
then the Annual Bonus for purposes of this section shall be calculated
by multiplying Executive's full base salary for one calendar year
times .8 and by further multiplying the result by 2.27.
c. In accordance with a valid election on file with the Corporation
the Corporation shall pay the Executive a sum of money equal to the
value of Executive' s accrued balance of the Benefits Equalization
Plan (the "BE Plan").
d. For the longer of two years from the Date of Termination or until
the end of the Contract Period (the "Relevant Damage Period"), the
Corporation shall continue to make available to Executive all Company
Perquisites, or, in the alternative, the Corporation shall pay to
Executive as soon as practicable after the Date of Termination a sum
of money reasonably approximating the cash value of the Company
Perquisites. Additionally, for such period of time Executive shall,
subject to Section
9
<PAGE>
6.9, be allowed to participate in all applicable group, life, health,
disability and accident insurance plans and programs as well as any
other applicable Corporation benefit plans and programs (including,
but not limited to, the 1992 Stock Option and Incentive Plan) as if he
were an active employee (limited, in the case of coverage under life
insurance plans, to the level of coverage that the Corporation is able
to obtain on Executive's behalf based upon the annual premium cost of
providing Executive with life insurance during Executive's last twelve
months of employment with the Corporation), in which Executive was
participating 30 days prior to the time Notice of Termination is given
or comparable plans substituted therefor; provided, however, that if
Executive is ineligible (e.g., by operation of law or the terms of the
applicable plan) to continue to participate in any such plan, the
Corporation will provide Executive with a comparable level of
compensation or benefit.
e. For purposes of Section 6.6(d), Executive's participation in
respect to the Corporation's 1994 Long Term Incentive Plan (the
"LTIP") shall be as follows (the defined terms within this section and
not otherwise defined within this Agreement being the same as defined
in the LTIP as in effect on the date hereof):
i. all of the Executive's Restricted Shares previously issued
under the LTIP and not yet vested by the Date of Termination
shall become 100% vested, nonforfeitable and fully
transferable as of such date; and
ii. the Corporation will pay the Executive as soon as
practicable following the Date of Termination an amount in
cash equal to three times the product of (x) the number of
Performance Units previously granted under the LTIP to the
Executive and still outstanding, times (y) the Award Value
at the Threshold Target level.
f. For purposes of Section 6.6(d), Executive's benefits with respect
to the Corporation's Retirement Plan for Salaried Employees and the BE
Plan or any equivalent or superior plans or arrangements in which the
Executive participated prior to the Date of Termination (any such Plan
or arrangement, the "Pension Plans") and the Corporation's welfare
benefit plans in which the Executive participates on the date hereof
or any equivalent or superior successor plans or arrangements in which
the Executive participates prior to the Date of Termination ("Welfare
Benefit Plans") the contemplated continued participation shall require
the Corporation to pay or provide the executive with the benefits,
earnings credits for benefits and service credits for benefits which
the Executive would have received under the Pension Plans and Welfare
Benefit Plans if (x) the Executive's employment and his coverage under
the Pension Plans and the Welfare Benefit Plans had continued during
the Relevant Damage Period, and (y) the compensation described in
Section 6.6 (b) which would
10
<PAGE>
have been credited under the Pension Plans and/or the Welfare Plans
were paid to the Executive ratably over the Relevant Damage Period.
g. All restrictions, if any, on shares of restricted stock previously
granted to Executive which would have lapsed if Executive had been
employed throughout the Relevant Damage Period shall immediately lapse
as of the Date of Termination and Executive shall be entitled to the
possession of the shares of such stock as of such date upon the
payment of any applicable withholding taxes.
6.7 If Executive's employment by the Corporation shall be terminated by
Executive for Good Reason where Executive has given Notice of Termination
to the Corporation within two years from the occurrence of an event
constituting a Change-of-Control, then Executive shall be entitled to the
following benefits in lieu of the benefits under Section 6.6:
a. The Corporation shall pay Executive his accrued but unpaid base
salary through the Date of Termination at the rate in effect at the
time Notice of Termination is given, plus all other amounts to which
Executive is entitled under any benefit or compensation plan of the
Corporation (including, but not limited to, a pro rata share under
Incentive Compensation Plans earned during the year in which
employment is terminated)
b. In lieu of any further base salary payments to Executive for period
subsequent to the Date of Termination, the Corporation shall pay to
Executive as severance pay a lump sum equal to four times (4x) the sum
of Executive's annual base salary at the rate in effect immediately
prior to the time Notice of Termination is given plus the highest
Annual Bonus received by the Executive during any of the three
preceding calendar years. If the Executive has not received an Annual
Bonus during the three (3) year period preceding the Date of
Termination, then the Annual Bonus for purposes of this section shall
be calculated by multiplying Executive's full base salary for one
calendar year times .8 and by further multiplying the result by 2.27.
c. In lieu of any further participation by Executive in the Family
Protection Plan, the Corporation shall transfer to Executive a fully
paid up insurance policy or policies then insuring the life of the
Executive pursuant to the terms of the Family Protection Plan, plus an
amount of money (the "Tax Adjustment") calculated to reimburse
Executive for any local, state or Federal income, employment or other
taxes which he may be liable as a result of receiving the insurance
policy or policies and the Tax Adjustment amount.
d. At Executive's option and as soon, as practicable after his
request, the Corporation shall pay Executive a sum of money equal to
the value of Executive's accrued balance of the BE Plan.
11
<PAGE>
e. For four years from the Date of Termination, the Corporation shall
continue to make available to Executive all Company Perquisites, or,
in the alternative, the Corporation shall pay to Executive as soon as
practicable after the Date of Termination a sum of money reasonably
approximating the cash value of the Company Perquisites. Additionally,
Executive shall, subject to Section 6.9, be allowed to participate in
all applicable group, life, health, disability and accident insurance
plans and programs as well as any other applicable Corporation benefit
plans and programs (including, but not limited to the 1992 Stock
Option and Incentive Plan) as if he were an active employee (limited,
in the case of coverage under life insurance plans, to the level of
coverage that the Corporation is able to obtain on Executive's behalf
based upon the annual premium cost of providing Executive with life
insurance during Executive's last twelve months of employment with the
Corporation), in which Executive was participating 30 days prior to
the time Notice of Termination is given or comparable plans
substituted therefor; provided, however, that if Executive is
ineligible (e.g., by operation of law or the terms of the applicable
plan) to continue to participate in any such plan, the Corporation
will provide Executive with a comparable level of compensation or
benefit.
f. For purposes of Section 6.7(e), Executive's participation in
respect to the LTIP shall be as follows (the defined terms within this
section and not otherwise defined within this agreement being the same
as defined in the LTIP):
i. all of the Executive's Restricted Shares previously issued
under the LTIP and not yet vested by the Date of Termination
shall become 100% vested, nonforfeitable and fully
transferable as of such date; and
ii. all LTIP awards issued prior to the Date of Termination
("Existing Awards") of Performance Units ("Existing Units")
shall be deemed to have been outstanding throughout the
Performance Cycle to which each relates; and
iii. the Executive shall be deemed to have received an LTIP award
in each of the 4four years following the Date of Termination
("Deemed Awards") in an amount equal in units to the highest
number of Performance Units received by the Executive in any
of the three years prior to the Date of Termination ("Deemed
Units") and all of the Deemed Units shall be deemed to have
been outstanding throughout the Performance Cycle to which
each relates; and
iv. except as set forth in Section 6.7(f)(v), the Corporation
will pay the Executive as soon as practicable following the
Date of Termination an amount in cash equal to th e number
of Existing and Deemed Units to which he is entitled
multiplied by an Award Value the
12
<PAGE>
result of which is further multiplied by 1.10 (the "LTIP
Payout"). The Operating Income Threshold Target for each
Deemed Award shall be that established for the Existing
Award issued just prior to the Date of Termination. The
Award Value shall be calculated in accordance with the
provisions of the LTIP applying actual operating profit of
the Corporation whenever such has actually been achieved and
applying those projections of operating profit contained in
the Corporation's Coltec 2000 Plan for those years which do
not have actual results. If any Performance Cycle of any
Existing or Deemed Unit shall extend beyond the projections
contained in the Corporation's Coltec 2000 Plan, then the
operating profit contained in the Coltec 2000 Plan for the
year ending December 31, 1999 shall be the operating profit
applied to each year of any Performance Cycle for which
actual operating profit cannot be calculated increased for
each year after 1999 at the average rate of annual increase
of operating profit actually realized for the period between
January 1, 1997 and December 31, 1999.
v. in the event that the independent accountants of the
Corporation shall determine that if the payment of the LTIP
Payout is made entirely in cash it shall prevent the
Corporation from consummating any business combination
approved by the Board of Directors which combination is
intended to be accounted for under the pooling of interests
method of accounting ("Pooling"), then the LTIP Payout shall
be made 2/3 in cash and 1/3 in the Corporation's Common
Stock (the "Share Portion"). If a merger or acquisition of
the Corporation has taken place prior to the time that the
Executive has given Notice of Termination setting forth his
intent to terminate his employment for Good Reason and the
Common Stock of the Corporation is no longer traded on a
national securities exchange then the Share Portion of the
LTIP Payout shall be made in the common stock of the
Corporation's parent or successor corporation (collectively,
a "Successor"), which stock is traded on a national
securities exchange or on an over the counter securities
market. The number of shares payable in respect to the Share
Portion shall be determined by dividing the dollar value of
the Share Portion by the price of a share of the Common
Stock of the Corporation, or a Successor, as the case may
be, on the last business day immediately preceding the date
of the Notice of Termination.
g. For purposes of Section 6.7(e), Executive's benefits with respect
to the Pension Plans and the Welfare Benefit Plans, the contemplated
continued participation shall require the Corporation to pay or
provide the Executive with the benefits, earnings credits for benefits
and service credits for benefits which the Executive would have
received under the Pension Plans and Welfare Benefit Plans if (x) the
Executive's employment and his coverage under the Pension Plans and
the Welfare Benefit Plans had
13
<PAGE>
continued for an additional four year period, and (y) the compensation
described in Section 6.7 (b) which would have been credited under the
Pension Plans and/or the Welfare Plans were paid to the Executive
ratably over a four year period.
h. All restrictions, if any, on shares of restricted stock previously
granted to Executive shall immediately lapse as of the Date of
Termination and Executive shall be entitled to the possession of the
shares of such stock as of such date upon the payment of any
applicable withholding taxes.
6.8 In addition to the benefits set forth in Sections 6.6 and 6.7, in the
event that Executive's employment shall be terminated (1) by the
Corporation for other than Cause, (2) by Executive for Good Reason other
than Section 6.7 Good Reason, or (3) by Executive for Section 6.7 Good
Reason then:
a. The Company shall also pay to Executive all reasonable legal fees
and expenses incurred by Executive as a result of such termination
(including all such fees and expenses, if any, incurred in contesting
or disputing any such termination (including cost associated with
legal consultation even if no actual contest or dispute results) or in
seeking to obtain or enforce any right or benefit provided by this
Agreement or in connection with any tax audit or proceeding to the
extent attributable to the application of Section 4999 of the Internal
Revenue Code of 1986, as amended (the "Code"), to any payment or
benefit provided hereunder), except any such fees or expenses incurred
by Executive in seeking to enforce a claim which is determined by an
arbitrator, pursuant to Section 14 below, to have been frivolous in
nature or not brought or pursued in good faith.
b. In addition to all other benefits provided hereunder, in the event
that Executive becomes entitled to any payments or benefits from the
Corporation (whether or not provided under this Agreement) (the
"Severance Payments") that will be subject to the tax (the "Excise
Tax") imposed by Section 4999 of the Code, the Corporation shall pay
to Executive at the time or times specified in Paragraph (h) below, an
additional amount (the "Gross-Up Payment") such that the net amount
retained by Executive, after deduction of (I) any additional Excise
Tax payable by Executive as a result of Executive's receipt of the
Severance Payments, and (ii) any additional Federal, state and local
income and employment taxes and Excise tax payable by Executive as a
result of Executive's receipt of the Gross-Up Payments shall be equal
to the Severance Payments. For purposes of determining whether any of
the Severance Payments will be subject to the Excise Tax and the
amount of such Excise Tax, (i) the Severance Payments, payments
provided for in this paragraph and any other payments or benefits
received or to be received by Executive in connection with a
change-in-control of the Corporation (as defined in Section 280G of
the Code) or Executive's termination of employment (whether pursuant
to the terms of this Agreement or any other plan, arrangement or
agreement with the
14
<PAGE>
Corporation, any person whose actions result in a Change-in-Control or
any person affiliated with the Corporation or such person) shall be
treated as "parachute payments" within the meaning of Section 280G(b)
(2) of the Code, and all "excess parachute payments" within the
meaning of Section 280G(b) (1) shall be treated as subject to the
Excise Tax, unless and to the extent that in the opinion of tax
counsel selected by the Corporation's independent auditors and
acceptable to Executive, such other payments or benefits (in whole or
in part) do not constitute parachute payments, or such excess
parachute payments (in whole or in part) and represent reasonable
compensation for services actually rendered within the meaning of
Section 280G(b) (4) of the Code in excess of the base amount within
the meaning of Section 280G(b) (3) of the Code, or are otherwise not
subject to the Excise Tax, (ii) the amount of the Severance Payments
which shall be treated as subject to the Excise Tax shall be equal to
the lesser of (x) the total amount of the Severance Payments or (y)
the amount of excess parachute payments within the meaning of Section
280G(b) (1) (after applying clause (i) above), (iii) any payment
pursuant to this Paragraph shall be treated as subject to the Excise
Tax in its entirety and (iv) the value of any non-cash benefits or any
deferred payment of benefit shall be determined by the Corporation's
independent auditors in accordance with the principles of Sections
280G(d) (3)and (4) of the Code. For purposes of determining the amount
of the Gross-Up Payment, Executive shall be deemed to pay federal
income taxes at the highest marginal rate of federal income taxation
in the calendar year in which the Gross-Up Payment is to be made and
state and local income taxes at the highest marginal rate of taxation
in the state and locality of Executive residence on the Date of
Termination, not of the maximum reduction in federal income taxes
which could be obtained from deduction of such state and local taxes.
In the event that the Excise Tax is subsequently determined to be less
than the amount taken into account hereunder at the time of
termination of Executive's employment, Executive shall repay to the
Corporation at the time that the amount of such reduction in Excise
Tax is finally determined, the portion of the Gross-Up Payment
attributable to such reduction (plus the portion of the Gross-Up
Payment attributable to the Excise Tax and Federal and state and local
income tax imposed on the Gross-Up Payment being repaid by Executive)
plus interest accrued from the date such Gross-Up Payment is made to
Executive to the date of such repayment on the amount of such
repayment at the rate provided in Section 1274(b) (2) (B) of the Code.
In the event that the Excise Tax is determined to exceed the amount
taken into account hereunder at the time of the termination of
Executive's employment (including by reason of any payment the
existence or amount of which cannot be determined at the time of the
Gross-Up Payment), the Corporation shall make an additional gross-up
payment in respect of such excess (plus any interest payable with
respect to such excess) at the time that the amount of such excess is
finally determined.
15
<PAGE>
c. The payments provided for in Paragraph (b) above shall be made at
any time during the 90-day period preceding each due date for making
payment of such Excise Taxes to the appropriate taxing authority;
provided, however, that if the amounts of such payments cannot be
finally determined on or before each such date, the Corporation shall
pay to Executive on such date an estimate, as determined in good faith
by the Corporation, of the minimum amount of such payments and shall
pay the remainder of such payments then due as soon as the amount
thereof can be determined. In the event that the amount of the
estimated payments exceeds the amount subsequently determined to have
been due, such excess shall constitute a loan by the Corporation to
Executive on the fifth day after demand by the Corporation (together
with interest at the rate provided in Section 1274 (b) (2) (B) of the
Code).
6.9 Upon receipt of written notice from Executive that Executive has been
reemployed by another company or entity on a full-time basis , benefits
otherwise receivable by Executive pursuant to Subsections 6.6(d) or 6.7(e)
related solely to life, health disability and accident insurance plans and
programs and other similar benefits (but not Incentive Compensation , LTIP,
Pension Plans or other similar plans and programs) shall be reduced to the
extent comparable benefits are made available to Executive at his new
employment and any such benefits actually received by Executive shall be
reported to the Corporation. Nothing herein contained shall obligate
Executive to accept employment elsewhere .
6.10 Any stock of the Corporation which is delivered to the Executive
pursuant to Subsections 6.6 or 6.7 shall be delivered to him fully
registered for immediate sale to the public under all applicable securities
laws.
7. Successors; Binding Agreement
The Corporation will require any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or substantially all
of the business and/or assets of the Corporation to expressly assume and
agree to perform this Agreement in the same manner and to the same extent
that the Corporation would be required to perform it if no such succession
had taken place. Failure of the Corporation to obtain such assumption and
agreement prior to the effectiveness of any such succession shall be a
breach of this Agreement and shall entitle Executive to terminate this
Agreement for Good Reason. As used in this Agreement, "Corporation" shall
mean the Corporation and any successor to its business and or assets as
aforesaid which assumes and agrees to perform this Agreement by operation
of law, or otherwise.
8. Notice
For the purpose of this Agreement, notices and all other communications
provided for in the Agreement shall be in writing and shall be deemed to
have been duly given when delivered or mailed by United States registered
mail, return
16
<PAGE>
receipt requested, postage prepaid, addressed to the Executive's most
recent home address on file with the Corporation, and to the Corporation at
3 Coliseum Centre, 2550 West Tyvola Road, Charlotte, NC 28217 to the
attention of the Chairman of the Board of Directors with a copy to the
Secretary of the Corporation or to such other address as either party may
have furnished to the other in writing in accordance herewith, except that
notice of change of address shall be effective only upon receipt.
9. Modification - Waiver
No provision of this Agreement may be modified, waived or discharged unless
such waiver, modification or discharge is agreed to in writing and signed
by Executive and such officer of the Corporation as may be specifically
designated by the Board. No waiver by either party hereto at any time of
any breach by the other party hereto of, or compliance with, any condition
or provision of this Agreement to be performed by such other party shall be
deemed a waiver of similar or dissimilar provisions or conditions at the
same or at any prior or subsequent time. In the event that the independent
accountants of the Corporation shall determine that anything contained
herein shall prevent the Corporation from consummating any business
combination approved by the Board of Directors which combination is
intended to be accounted for as a Pooling, then Executive agrees to
negotiate in good faith concerning amendments to such portions of this
Agreement as may be requested by the Corporation so as to allow such
business combination to be accounted for as a Pooling; provided, however,
that any such amendment shall: (a) be as limited in scope as is absolutely
necessary in the opinion of the Corporation's advisors to allow the
business combination to be accounted for as a Pooling, and (b) be designed
to have as minimal an economic detriment to the Executive as is possible
while still allowing the business combination to be accounted for as a
Pooling.
10. Non-competition
10.1 Until the Date of Termination, Executive agrees not to enter into
competitive endeavors and not to undertake any commercial activity which is
contrary to the best interests of the Corporation or its affiliates,
including becoming an employee, owner (except for passive investments of
not more than three percent of the outstanding shares of, or any other
equity interest in, any company or entity listed or traded on a national
securities exchange or in an over-the-counter securities market), officer,
agent or director of (a) any firm or person engaged in the operation of a
business engaged in the acquisition of industrial businesses or (b) any
firm or person which either directly competes with a line or lines of
business of the Corporation accounting for five percent (5%) or more of the
Corporation's gross revenues or earnings before taxes or derives five
percent (5%) or more of such firm's or person's gross revenues or earnings
before taxes from a line or lines of business which directly compete with
the Corporation. Notwithstanding any provision of this Agreement to the
contrary, Executive agrees that his breach of the provisions of this
Section 10.1 shall permit the Corporation to terminate Executive's
employment for Cause in accordance with Section 6.l(b) hereof.
17
<PAGE>
10.2 After the Date of Termination and for a period of time equal in years
to the multiple of annual salary received by Executive pursuant to either
Sections 6.6(b) or 6.7(b) (the "Non-Competition Period"), Executive agrees
not to become an employee, owner (except for passive investments of not
more than three percent of the outstanding shares of, or any other equity
interest in, any company or entity listed or traded on a national
securities exchange or in an over-the-counter securities market), officer,
agent or director of any firm or person which directly and substantially
competes with a business of the Corporation accounting for five percent
(5%) or more of the Corporation's gross revenues or earnings before taxes.
During the Non-Competition Period, Executive will be available to answer
questions and provide advice to the Corporation; provided, however, that
such requirement shall not unreasonably interfere with any other of
Executive's activities which Executive is then pursuing and which are not
otherwise prohibited by this Section 10. Also, during the Non-Competition
Period, Executive will retain in confidence any and all confidential
information known to him concerning the Corporation and its business and
shall not use or disclose such information without the approval of the
Corporation except to the extent such information becomes public or as may
be required by law.
10.3 Executive acknowledges and agrees that damages for breach of the
covenant not to compete in this Section 10 will be difficult to determine
and will not afford a full and adequate remedy, and therefore Executive
agrees that the Corporation, in addition to seeking actual damages pursuant
to the procedures set forth in Section 13 below, may seek specific
enforcement of the covenant not to compete in any court of competent
jurisdiction, including, without limitation, by the issuance of a temporary
or permanent injunction, without the necessity of a bond. Executive and the
Corporation agree that the provisions of this covenant not to compete are
reasonable. However, should any court or arbitrator determine that any
provision of this covenant not to compete is unreasonable, either in period
of time, geographical area, or otherwise, the parties agree that this
covenant not to compete should be interpreted and enforced to the maximum
extent which such court or arbitrator deems reasonable.
11. Validity
The invalidity or unenforceability of any provision of this Agreement shall
not affect the validity or enforceability of any other provision of this
Agreement, which shall remain in full force and effect.
12. Counterparts
This Agreement may be executed in several counterparts, each of which shall
be deemed to be an original but all of which together will constitute one
and the same instrument.
18
<PAGE>
13. Arbitration
Except as contemplated by Section 10.3 of this Agreement, any dispute or
controversy arising under or in connection with this Agreement shall be
settled exclusively by arbitration in Charlotte, NC or such other location
mutually agreed upon by the parties to the arbitration, in accordance with
rules of the American Arbitration Association, and judgment upon such award
rendered by the arbitrator may be entered in any court having jurisdiction
over such proceeding.
14. Governing Law
This Agreement shall be governed by and construed and enforced in
accordance with the laws of the State of North Carolina.
15. Entire Agreement; Survival of Certain Provisions
15.1 This Agreement constitutes the whole agreement of the Corporation and
the Executive. No agreements or representations, oral or otherwise, express
or implied, with respect to the subject matter of this Agreement have been
made by either party which are not expressly set forth in this Agreement
15.2 The obligations of the Corporation under Section 6.8 above and the
Executive's obligations under Section 10 above shall survive the expiration
of the term of this Agreement.
16. Withholding
Any payments made to Executive under this Agreement shall be paid net of
any applicable withholding required under Federal, state or local law.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the Effective Date.
COLTEC INDUSTRIES INC
By /s/ R. J. Tubbs
-----------------------------
/s/ Nishan Teshoian
--------------------------------
EXECUTIVE
<PAGE>
SECOND AMENDMENT TO
1994 STOCK OPTION PLAN
FOR OUTSIDE DIRECTORS
OF COLTEC INDUSTRIES INC
WHEREAS, Coltec Industries Inc, a Pennsylvania corporation
(the "Company"), adopted the 1994 Stock Option Plan for Outside Directors of
Coltec Industries Inc (the "Plan"); and
WHEREAS, the Plan was first amended in 1997, among other
things, to allow for limited transferability of stock options by outside
directors of the Company;
WHEREAS, the Board of Directors of the Company (the "Board")
desires to further amend the Plan in certain respects;
WHEREAS, Section 10.01 of the Plan states that the Plan may
be amended at any time by the Board, subject to shareholder approval if
required under applicable law; and
WHEREAS, the Board has determined that shareholder approval
of the amendments to the Plan as provided herein are not required under
applicable law.
NOW, THEREFORE, the Plan is hereby amended in the following
respects:
1. Section 5.02 of the Plan is hereby amended in its
entirety to read as follows:
5.02 Periodic Grants. "Each Outside Director who is
reelected to the Board by the shareholders of the Company at an
Annual or Special Meeting of the shareholders of the Company called
for that purpose shall be awarded, effective as of each such date of
reelection, an additional Option to purchase 3,000 shares of Common
Stock (the "Subsequent Option")".
<PAGE>
2
2. Section 6.02 of the Plan is hereby amended by adding the
following provision at the end thereof:
"Notwithstanding the foregoing provisions of Section 6.01
and 6.02, all Options shall immediately and fully vest and
become exercisable upon the occurrence of a change in
control of the Company (as defined herein); provided,
however that no such acceleration of vesting and
exercisability of Options shall occur if (x) it shall be
determined by the Company's independent auditors that such
acceleration shall prevent the Company from consummating a
business combination approved by the Board which combination
is intended to be accounted for under the pooling of
interests method of accounting and (y) the Board
affirmatively determines that such accelerated vesting and
exercisability of Options shall not occur. For purposes
hereof, a "change in control of the Company" shall be deemed
to occur if:
(i) any person (as defined in sections 13(d) and
14(d) of the Exchange Act), other than the Company, any
trustee or other fiduciary holding securities under an
employee benefit plan of the Company, or any company owned,
directly or indirectly, by the shareholders of the Company
in substantially the same proportions as their ownership of
stock of the Company, acquires "beneficial ownership" (as
defined in Rule 13d-3 under the Exchange Act) of securities
representing more than 25% of the combined voting power of
the Company; or
(ii) during any period of two consecutive years,
individuals who at the beginning of such period constitute
the Board and any new director (other than a director
designated by a person who has entered into an agreement
with the Company to effect a transaction described in
subsections 6.02(i), 6.02(iii) or 6.02(iv) whose election by
the Board or nomination for election by the Company's
shareholders was approved by a vote of at least two-thirds
(2/3) of the directors then still in office who either were
directors at the beginning of the period or whose election
or nomination for election was previously so approved, cease
for any reason to constitute a majority thereof; or
(iii) the shareholders of the Company approve a
merger other than (i) a merger which would result in the
voting securities of the Company outstanding immediately
prior thereto continuing to represent (either by remaining
outstanding or by being converted into voting securities of
the surviving entity), in combination with the ownership of
any trustee or other
<PAGE>
3
fiduciary holding securities under an employee benefit plan
of the Company, at least 67% of the combined voting power of
the voting securities of the Company or such surviving
entity outstanding immediately after such merger or (ii) a
merger effected to implement a recapitalization of the
Company (or similar transaction) in which no person acquires
more than 50% of the combined voting power of the Company's
then outstanding securities; or
(iv) the shareholders of the Company approve a plan
of complete liquidation of the Company or a sale of
substantially all of the Company's assets."
3. Except as hereinabove provided, the Plan is ratified and
confirmed in all respects.
IN WITNESS WHEREOF, this Second Amendment to the Plan is
hereby adopted effective as of , 1998.
BOARD OF DIRECTORS OF
COLTEC INDUSTRIES INC
By: _______________________
<PAGE>
EXHIBIT 10.26
AMENDMENT NO. 3
TO
THE 1994 STOCK OPTION PLAN FOR OUTSIDE DIRECTORS
1. The first sentence of Article III. Shares Available. is hereby amended to
read as follows:
"Subject to the provisions of Article XII of the Plan, no more than 158,000
shares of Common Stock shall be issued pursuant to the exercise of Options
granted under the Plan."
2. Section 5.02 is hereby amended in its entirety to read as follows:
5.02 Periodic Grants. "Each Outside Director who is reelected to the Board
by the shareholders of the Company at an Annual or Special Meeting of the
shareholders of the Company called for that purpose shall be awarded, effective
as of each such date of reelection, an additional Option to purchase 3,000
shares of Common Stock (the "Subsequent Option")."
<PAGE>
EXHIBIT 12.1
COLTEC INDUSTRIES INC AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(IN THOUSANDS)
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------------------------
1997 1996 1995 1994 1993
-------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Earnings from continuing operations
before extraordinary item .............................. 94,874 54,570 34,521 48,446 24,600
Add (deduct):
Income taxes:
Federal and Foreign .................................. 48,875 28,111 17,615 27,251 13,684
State and Local ...................................... 6,241 5,121 2,601 2,105 1,877
Portion of rents representative of
interest factor (1) .................................. 2,983 3,321 2,868 3,979 4,078
Interest Expense ....................................... 54,613 76,182 91,208 90,337 111,497
-------------------------------------------------------------------
Earnings from continuing operations
before extraordinary item, as
adjusted ............................................... 207,586 167,305 148,813 172,118 155,736
===================================================================
Fixed Charges:
Interest expense ....................................... 54,613 76,182 91,208 90,337 111,497
Capitalized interest ................................... 1,455 1,139 997 689 1,140
Portion of rents representative of
interest factor (1) .................................. 2,983 3,321 2,868 3,979 4,078
-------------------------------------------------------------------
Fixed Charges ........................................... 59,051 80,642 95,073 95,005 116,715
===================================================================
Ratio of earnings to fixed charges ...................... 3.5 2.1 1.6 1.8 1.3
===================================================================
</TABLE>
Note:
(1) Estimated to be 1/3 of total rent expenses
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
COLTEC INDUSTRIES INC
The following table sets forth selected consolidated financial data of Coltec
Industries Inc and subsidiaries (the Company) for the five years ended December
31, 1997.
<TABLE>
<CAPTION>
Years Ended December 31,
- --------------------------------------------------------------------------------------------------------------------------
(Dollars in millions, except per share data) 1997 1996 1995 1994 1993
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF EARNINGS DATA:
Net sales $1,314.9 $1,159.7 $1,099.6 $1,000.2 $1,061.4
------------------------------------------------------------------
Operating income(a) 197.8 157.6 142.0 165.2 148.5
Interest expense, net 54.0 74.9 89.9 89.5 110.2
Income taxes 48.9 28.1 17.6 27.2 13.7
------------------------------------------------------------------
Earnings from continuing operations
before extraordinary item(a) 94.9 54.6 34.5 48.5 24.6
Discontinued operations(b) - 57.1 36.7 45.5 40.6
Extraordinary item(c) - (30.6) (.3) (1.5) (17.8)
------------------------------------------------------------------
Net earnings $ 94.9 $ 81.1 $ 70.9 $ 92.5 $ 47.4
------------------------------------------------------------------
Earnings per common share:(d)
Before extraordinary item $ 1.42 $ .79 $ .49 $ .70 $ .35
Discontinued operations - .82 .53 .65 .59
Extraordinary item - (.44) - (.02) (.26)
------------------------------------------------------------------
Net earnings $ 1.42 $ 1.17 $ 1.02 $ 1.33 $ .68
------------------------------------------------------------------
Ratio of earnings to fixed charges(e) 3.5 2.1 1.6 1.8 1.3
BALANCE SHEET DATA (AT END OF PERIOD):
Working capital $ 187.9 $ 215.6 $ 208.9 $ 189.6 $ 163.1
Total assets 933.0 849.5 894.5 847.5 796.5
Total debt 759.4 720.3 945.8 970.1 1,033.6
Shareholders' equity (359.2) (417.0) (453.8) (525.6) (625.5)
------------------------------------------------------------------
OTHER OPERATING DATA:
Operating margin(a) 15.0% 13.6% 12.9% 16.5% 14.0%
Cash provided by operating activities $ 61.4 $ 49.5 $ 91.0 $ 98.2 $ 105.2
Capital expenditures 81.2 44.6 42.5 38.2 38.6
Depreciation of property, plant and equipment 29.7 27.0 26.8 25.3 28.3
Order backlog (at end of period) $ 875.6 $ 678.3 $ 657.1 $ 594.2 $ 598.6
------------------------------------------------------------------
Number of employees (at end of period) 9,072 8,153 8,213 8,387 8,449
------------------------------------------------------------------
</TABLE>
(a) Operating income for 1996 included a charge of $14.2 million related to the
bankruptcy of a major aerospace customer (Fokker). Operating income for
1995 included a special charge of $27.0 million primarily to cover the
costs of closing the Walbar compressor blade facility in Canada. The charge
also covered selected workforce reductions throughout the Company.
Operating income for 1993 included a special charge of $25.2 million to
cover the cost of consolidation and rearrangement of certain manufacturing
facilities and related workforce reductions primarily in the Aerospace
Segment.
(b) See note 2 to consolidated financial statements.
(c) See note 3 to consolidated financial statements.
(d) Represents diluted earnings per common share. See note 5 to consolidated
financial statements.
(e) For purposes of calculating the ratio of earnings to fixed charges,
earnings are determined by adding fixed charges (excluding capitalized
interest) and income taxes to earnings from continuing operations before
extraordinary item. Fixed charges consist of interest expense, capitalized
interest and that portion of rental expense deemed to be representative of
the interest factor.
18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
COLTEC INDUSTRIES INC
------------------------
FINANCIAL REVIEW
------------------------
The financial review that follows is based on continuing operations excluding
the impact of the 1996 discontinued operations discussed in note 2 to
consolidated financial statements and the Company's two operating segments,
Aerospace and Industrial. The 1995 information has been restated to reflect the
discontinued operations and the Company's two realigned operating segments (see
Industry Segment Information). Earnings per share information represents diluted
earnings per common share (see note 5 to consolidated financial statements).
The following discussion of operating results has been structured to
provide an analysis from the perspective of the Company as a whole, followed by
a more detailed analysis for each operating segment.
------------------------
RESULTS OF OPERATIONS
1997 COMPARED TO 1996
------------------------
COMPANY REVIEW
Net sales for 1997 increased 12.9% to $1.31 billion from $1.16 billion in 1996
primarily driven by increases in the Aerospace Segment. Gross profit increased
to $416.6 million in 1997 from $348.6 million in 1996. The gross profit margin
increase in 1997 to 31.7% from 30.1% in 1996 primarily resulted from the 1996
bankruptcy of a major aerospace customer (Fokker). Selling and administrative
expenses totaled $218.8 million, or 16.6%, of sales in 1997 compared to $191.0
million, or 16.5% of sales (15.9% excluding the Fokker impact) in 1996. The
increase resulted from costs associated with expanding the Company's businesses,
both domestically and internationally.
Operating income amounted to $197.8 million in 1997 compared to $157.6
million for 1996. The 1996 amount includes the effect of the $14.2 million
charge related to the bankruptcy of Fokker. Operating margin for 1997 was 15.0%
and was 13.6% (14.8% excluding the effect of the charge related to Fokker) for
1996.
Interest expense decreased 27.8% from $74.9 million in 1996 to $54.0
million in 1997, a result of lower interest rates primarily from refinancing
high-cost, fixed-rate debt with lower-cost, variable-rate bank debt, and a full
year impact of applying a substantial portion of the proceeds from the 1996
second quarter sale of the Company's automotive original equipment (OE)
components operations to debt reduction.
The effective tax rate was 34% in 1997 and 1996.
The 1996 results of discontinued operations reflect the aforementioned 1996
second quarter sale of the automotive OE components operations as well as the
1996 fourth quarter sale of Farnam Sealing Systems. Note 2 to consolidated
financial statements describes these transactions.
The 1996 extraordinary charge of $30.6 million relates to the refinancing
of high-cost, fixed-rate debt with lower-cost, variable-rate bank debt. In
January and December 1996, the Company redeemed $605.8 million of such high-cost
debt.
Net earnings and earnings from continuing operations were $94.9 million, or
$1.42 per share, in 1997 while 1996 net earnings amounted to $81.1 million, or
$1.17 per share with earnings from continuing operations for 1996 of $54.6
million, or $0.79 per share. The 1996 charge related to Fokker impacted earnings
by $0.13 per share. The reduction in interest expense increased earnings by
$0.20 per share in 1997.
SEGMENT REVIEW - AEROSPACE
Sales in 1997 for the Aerospace Segment aggregated $558.3 million, a 28.8%
increase over 1996 sales of $433.5 million. At Menasco, sales increased
significantly due to rising commercial aircraft production as well as improved
military sales. Menasco deliveries of main landing gear systems for the Boeing
737 increased to 196 shipsets in 1997 from 72 shipsets in 1996, while military
sales benefited primarily from higher shipset deliveries for the F-15 and F-16
programs (151 shipsets in 1997 versus 83 shipsets in 1996). At Chandler Evans,
higher sales were primarily due to increased sales of spare parts while original
equipment sales also improved. Aerospace Segment sales were favorably impacted
by the acquisition of AMI Industries Inc. in July 1997 (see note 2 to
consolidated financial statements). Sales in 1997 for the other aerospace
businesses increased due to increased sales volumes resulting from the continued
strengthening of the commercial aircraft market and regional airlines.
19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
COLTEC INDUSTRIES INC
Operating income for the Aerospace Segment increased 33.3% to $87.7 million
in 1997 from $65.8 million in 1996, excluding the 1996 charge for the Fokker
bankruptcy. The Segment's operating margin for 1997 was 15.7% versus 15.2% in
1996 excluding the Fokker bankruptcy charge. At the Menasco Aerospace division,
operating margin was impacted by improved manufacturing efficiencies due to
higher production. Chandler Evans realized higher margins due to higher
after-market sales and selling price increases for certain products. The
increase was also driven by higher sales volumes and improved margins for the
other engine components businesses.
SEGMENT REVIEW - INDUSTRIAL
Industrial Segment sales increased to $757.6 million in 1997 from $726.9 million
in 1996. During 1997, Quincy Compressor and Fairbanks Morse Engine (FM Engine)
divisions had significant sales volume increases. The FM Engine increase was due
to increased orders and the recovery from a ten-week strike in 1996. Garlock
Sealing Technologies (Garlock) also experienced sales increases in part as a
result of the Company's acquisition of the sheet rubber and conveyor belt
business from Dana Corporation's Boston Weatherhead division (see note 2 to
consolidated financial statements). The above increases were partially offset by
lower sales volumes at Holley Performance Products (Holley).
Operating income for the Industrial Segment was $149.8 million in 1997
compared to $147.1 million in 1996. The Segment's operating margin for 1997 was
19.8% compared to 20.2% in 1996. Operating income increased for Quincy
Compressor and FM Engine due to the higher sales volumes as mentioned above
while Garlock was impacted by increased costs related to international
initiatives. Holley's operating income was lower as a result of decreased sales
volumes.
------------------------
RESULTS OF OPERATIONS
1996 COMPARED TO 1995
------------------------
COMPANY REVIEW
Net sales for 1996 increased 5.5% to $1.16 billion from $1.10 billion in 1995
primarily due to increases in the Aerospace Segment. Gross profit decreased to
$348.6 million in 1996 from $355.4 million in 1995. The gross profit decline in
1996 to 30.1% from 32.3% in 1995 stemmed from the impact of the bankruptcy of a
major aerospace customer (Fokker), increased spending related to asbestos (see
note 16 to consolidated financial statements) and higher other manufacturing
costs. Selling and administrative expenses totaled $191.0 million, or 16.5% of
sales (15.9% excluding the Fokker impact), in 1996 compared to $186.4 million,
or 17.0% of sales, in 1995.
Operating income amounted to $157.6 million in 1996 compared to $142.0
million for 1995. These amounts include the effect of the $14.2 million charge
in 1996 related to the bankruptcy of Fokker and the 1995 special charge of $27.0
million. Operating margin for 1996 was 13.6% (14.8% excluding the effect of the
charge related to Fokker) and 1995 was 12.9% (15.4% excluding the special
charge). The margin decrease to 14.8% from 15.4% related to the same reasons as
those stated to explain the decrease in overall gross profit margin (excluding
Fokker).
Interest expense decreased 16.7% from $89.9 million in 1995 to $74.9
million in 1996, a direct result of applying a substantial portion of the
proceeds from the second quarter sale of the Company's automotive original
equipment (OE) components operations to debt reduction. The Company also
benefited from the January 1996 redemption of $46.4 million of 11 1/4%
debentures which was funded with lower-cost, variable-rate bank debt.
The effective tax rate was 34.0% in 1996 versus 33.8% in 1995.
The results of discontinued operations reflect the aforementioned second
quarter sale of the automotive OE components operations as well as the fourth
quarter sale of Farnam Sealing Systems. Note 2 to consolidated financial
statements describes these transactions.
The 1996 extraordinary charge of $30.6 million relates to the refinancing
of high-cost, fixed-rate debt with lower-cost, variable-rate bank debt. In
January and December 1996, the Company redeemed $605.8 million of such high-cost
debt.
20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
COLTEC INDUSTRIES INC
As a result of the foregoing, net earnings were $81.1 million, or $1.17 per
share, in 1996 while 1995 net earnings amounted to $70.9 million, or $1.02 per
share. Earnings from continuing operations in 1996 were $54.6 million, or $0.79
per share, compared to 1995 earnings from continuing operations of $34.5
million, or $0.49 per share. The 1996 charge related to Fokker impacted earnings
by $0.13 per share while the 1995 special charge affected earnings by $0.25 per
share. The aforementioned reduction in interest expense increased earnings by
$0.14 per share in 1996.
SEGMENT REVIEW - AEROSPACE
Sales in 1996 for the Aerospace Segment aggregated $433.5 million, a 14.6%
increase over 1995 sales of $378.3 million. At Menasco, deliveries doubled in
1996 (41 versus 20) for shipsets of landing gear systems for the Boeing 777
while shipset deliveries for the McDonnell Douglas MD-80 increased more than
50%. These increases more than offset the lost business for the F-70 and F-100
programs due to the bankruptcy of Fokker. Sales for Walbar increased
significantly due to a change in the billing practices for consigned inventory
at its Arizona facility although profitability levels were not affected. Sales
in 1996 for the other aerospace businesses increased due to higher sales volumes
resulting from the continued strength of the commercial and regional airline
markets as well as higher selling prices for certain products and new product
sales.
Operating income for the Aerospace Segment increased 18.0% to $65.8 million
in 1996 from $55.8 million in 1995, excluding the 1996 charge for the Fokker
bankruptcy and the 1995 special charge. Excluding such charges, the Segment's
operating margin for 1996 was 15.2% versus 14.7% in 1995. Contributing to this
increase were the significant improvement in 1996 operating results of Walbar's
Canadian operations due to the closing of the compressor blade facility as well
as higher margins which were obtained for its turbine blade business. The
increase was also driven by higher sales volumes and improved margins for the
other engine components businesses. At Menasco, operating results were flat
compared to 1995 with the improvement from the Boeing 777 and MD-80 programs
offsetting the loss of the Fokker business. Menasco was also impacted by a less
favorable mix of landing gear systems for certain commercial airline programs.
SEGMENT REVIEW - INDUSTRIAL
Industrial Segment sales increased slightly to $726.9 million in 1996 from
$722.6 million in 1995. During 1996, Garlock realized the full year benefit of
its December 1995 acquisition of certain assets of Furon Company's metallic
gasket business. Garlock's sales were also favorably impacted by continued
volume increases for KLOZURE oil seals, cut gaskets and GYLON gasketing
products. Moderate sales increases were registered by the Holley and France
Compressor Products (France Compressor) divisions. FM Engine sales were
unfavorably affected by lower shipments of commercial, government and Alco
engines due to the effects of a ten-week strike. The Stemco division also
experienced a downturn in sales due to lower trailer production levels.
Operating income for the Industrial Segment was essentially unchanged at
$147.1 million in 1996 compared to $146.6 million in 1995. The Segment's
operating margin for 1996 was 20.2% compared to 20.3% in 1995. Operating income
increased for Garlock, Holley and France Compressor primarily due to higher
sales volumes. The negative impact of the strike at FM Engine was offset by the
gain on the sale of Stemco's truck exhaust business (see note 2 to consolidated
financial statements).
INDUSTRY SEGMENT INFORMATION
In conjunction with the divestitures of the automotive OE components operations
during 1996 (see note 2 to consolidated financial statements), the Company was
realigned into two operating segments. Following are the major products in each
industry segment:
Aerospace: Menasco landing gear and flight control actuation systems;
Walbar blades, vanes and discs for jet and other gas turbine engines; Chandler
Evans fuel pumps and control systems; Delavan gas turbine products; Lewis
Engineering cockpit instrumentation and sensors; AMI flight attendant seats.
Industrial: Garlock seals, gaskets, packings, bearings, valves and tape;
Quincy air compressors; Delavan spray nozzles; France Compressor products; FM
Engine large diesel and dual-fuel engines; Haber and Sterling dies; Holley
aftermarket automotive products; Ortman Fluid Power cylinders.
21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
COLTEC INDUSTRIES INC
The following table shows financial information by industry segment for the
five years ended December 31, 1997.
<TABLE>
<CAPTION>
Years Ended December 31,
- --------------------------------------------------------------------------------------------------------------
(Dollars in millions) 1997 1996 1995 1994 1993
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales:
Aerospace $ 558.3 $ 433.5 $ 378.3 $ 339.2 $ 356.9
Industrial 757.6 726.9 722.6 662.7 705.4
Intersegment elimination(a) (1.0) (.7) (1.3) (1.7) (.9)
-------------------------------------------------------------------
Total $1,314.9 $1,159.7 $1,099.6 $1,000.2 $1,061.4
-------------------------------------------------------------------
Operating income:(b)
Aerospace $ 87.7 $ 51.6 $ 32.4 $ 51.0 $ 44.5
Industrial 149.8 147.1 146.6 145.4 135.6
-------------------------------------------------------------------
Total segments 237.5 198.7 179.0 196.4 180.1
Corporate unallocated(c) (39.7) (41.1) (37.0) (31.2) (31.6)
-------------------------------------------------------------------
Total $ 197.8 $ 157.6 $ 142.0 $ 165.2 $ 148.5
-------------------------------------------------------------------
Operating margin:(b)
Aerospace 15.7% 11.9% 8.6% 15.0% 12.5%
Industrial 19.8 20.2 20.3 21.9 19.2
-------------------------------------------------------------------
Total 15.0% 13.6% 12.9% 16.5% 14.0%
-------------------------------------------------------------------
Return on total assets:(b)(d)
Aerospace 20.1% 12.4% 8.3% 14.3% 12.7%
Industrial 48.2 51.2 49.1 53.3 49.8
-------------------------------------------------------------------
Total 21.2% 18.5% 15.9% 19.5% 18.6%
-------------------------------------------------------------------
Backlog:(e)
Aerospace $ 734.3 $ 560.7 $ 538.0 $ 445.7 $ 475.1
Industrial 142.0 117.8 119.5 148.5 124.0
Intersegment elimination (.7) (.2) (.4) - (.5)
-------------------------------------------------------------------
Total $ 875.6 $ 678.3 $ 657.1 $ 594.2 $ 598.6
-------------------------------------------------------------------
</TABLE>
(a) Reflects elimination of intercompany sales between divisions in different
segments.
(b) Operating income for 1996 included a charge of $14.2 million related to the
bankruptcy of a major aerospace customer (Fokker). Excluding this charge,
operating income, operating margin and return on total assets for 1996
would have been $65.8 million, 15.2% and 18.1%, respectively, for Aerospace
and $171.8 million, 15.9% and 22.0%, respectively, for the Company.
Operating income for 1995 included a special charge of $27.0 million as
follows: $23.4 million in the Aerospace Segment and $3.6 million in
Corporate Unallocated. Excluding the special charge, operating income,
operating margin and return on total assets for 1995 would have been $55.8
million, 14.7% and 13.4%, respectively, for Aerospace. Operating income for
1993 included a special charge of $25.2 million as follows: $17.2 million
in the Aerospace Segment and $8.0 million in the Industrial Segment.
Excluding the special charge, operating income, operating margin and return
on total assets for 1993 would have been $61.7 million, 17.3% and 17.6%,
respectively, for Aerospace, and $143.6 million, 20.4% and 52.7%,
respectively, for Industrial.
(c) Represents corporate selling and administrative expense, including other
income and expense, that is not allocable to individual industry segments.
(d) Return on total assets is calculated for each segment by dividing segment
operating income by segment total assets at December 31, and for total
Company by dividing total Company operating income by total assets at
December 31.
(e) Of the $875.6 million backlog at December 31, 1997, $267.2 million was
scheduled to be shipped after 1998.
22
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
COLTEC INDUSTRIES INC
------------------------
LIQUIDITY AND
CAPITAL RESOURCES
------------------------
CASH FLOWS
The Company generated cash from operations of $61.4 million in 1997 compared to
$49.5 million in 1996. The increase in operating cash flows stemmed from the
increase in net earnings. The increase in inventory in response to the ramp-up
for certain aircraft was offset by the increase in accounts payable. Working
capital at December 31, 1997 of $187.9 million was $27.7 million lower than
year-end 1996 as a result of the sale of $82.5 million of trade accounts
receivable (see note 6 to consolidated financial statements) partially offset by
a $12.5 million increase of accounts receivable prior to sale and a $52.5
million increase of inventories. The 1997 ratio of current assets to current
liabilities was 1.78 compared to 1.95 in 1996. Cash and cash equivalents
decreased to $14.7 million in 1997 from $15.0 million in 1996.
Net cash used in investing activities in 1997 included $81.2 million of
capital expenditures and $60.7 million for business acquisitions (see note 2 to
consolidated financial statements). Net cash provided by investing activities of
$284.6 million in 1996 consisted of proceeds from divestitures amounting to
$329.1 million (see note 2 to consolidated financial statements) with capital
expenditures totaling $44.6 million.
Financing activities in 1997 generated $80.2 million primarily from the
$82.5 million proceeds from sale of accounts receivable (see note 6 to
consolidated financial statements). The purchase of $42.7 million of treasury
stock was offset by a $39.5 million net increase in the Company's revolving
facility. Financing activities in 1996 used cash of $323.0 million. A
substantial portion of the proceeds from the 1996 second quarter sale of the
Company's automotive OE components operations was applied to debt reduction.
During 1996, the Company refinanced $617.0 million of high-cost, fixed-rate debt
with lower-cost, variable-rate bank debt. The Company also purchased treasury
stock with a cost of $46.4 million.
CAPITAL EXPENDITURES
Capital expenditures increased to $81.2 million in 1997 from $50.0
million in 1996 and $42.5 million in 1995, as the Company continues to
invest in capital improvements to increase efficiency, reduce costs,
pursue new opportunities, expand production capacity and improve
facilities. The level of capital expenditures has and will vary from year
to year, affected by the timing of capital spending for production
equipment for new products, periodic plant and facility expansion as well
as cost reduction and labor efficiency programs. Capital expenditures
during 1997 included amounts for the construction and equipment purchases
for significant production expansions at Menasco's original equipment
facilities. The Company estimates capital expenditures for 1998 to
approximate $60.0 million, including amounts for equipment purchases
related to capacity expansions and upgrades.
ENVIRONMENTAL MATTERS
The Company's operations are subject to extensive laws and regulations
governing air emissions, wastewater discharges and solid and hazardous
waste management activities. The Company takes a proactive approach in
addressing the applicability of these laws and regulations as they relate
to its manufacturing operations and in proposing and implementing any
remedial plans that may be necessary. The Company has identified certain
situations that will require future capital and non-capital expenditures
to maintain or improve compliance with current environmental laws and
regulations. The majority of the identified situations relate to
remediation projects at former operating sites which have been sold or
closed and primarily deal with soil and groundwater remediation.
The Company has been notified that it is among Potentially Responsible
Parties under federal environmental laws, or similar state laws, relative to the
costs of investigating and in some cases remediating contamination by hazardous
materials at several sites. Such laws impose joint and several liability for the
costs of investigating and remediating properties contaminated by hazardous
materials. Liability for these costs can be imposed on present and former owners
or operators of the properties or on parties who generated the wastes that
contributed to the contamination.
The Company's policy is to accrue environmental remediation costs when it
is both probable that a liability was incurred and the amount can be reasonably
estimated.
23
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
COLTEC INDUSTRIES INC
While it is often difficult to reasonably quantify future
environmental-related expenditures, the Company currently estimates its
future non-capital expenditures related to environmental matters to range
between $27.0 million and $50.0 million. In connection with these
expenditures, the Company had accrued $31.7 million at December 31, 1997,
representing management's best estimate of probable non-capital
environmental expenditures. These non-capital expenditures are estimated
to be incurred over the next 10 to 20 years. In addition, capital
expenditures aggregating $5.0 million may be required during the next two
years related to environmental matters. Although the Company is pursuing
insurance recovery in connection with certain of these matters, no
receivable has been recorded with respect to any potential recovery of
costs in connection with any environmental matter. During 1997, costs
associated with environmental remediation and ongoing assessment were not
significant. See notes 1 and 16 to consolidated financial statements.
The measurement of liability is based on an evaluation of currently
available facts with respect to each individual situation and takes into
consideration factors such as existing technology, presently enacted laws and
regulations and prior experience in remediation of contaminated sites. As
assessments and remediation progress at individual sites, these liabilities are
reviewed periodically and adjusted to reflect additional technical and legal
information which becomes available.
The Company believes it is either in material compliance with all currently
applicable regulations or is operating in accordance with the appropriate
variances and compliance schedules or similar arrangements.
Actual costs to be incurred for identified situations in future periods may
vary from the estimates, given inherent uncertainties in evaluating
environmental exposures due to unknown conditions, changing government
regulations and legal standards regarding liability and evolving related
technologies. Subject to the imprecision in estimating future environmental
costs, the Company believes that compliance with current laws and regulations
will not require significant capital expenditures or have a material adverse
effect on its consolidated results of operations or financial position.
ASBESTOS LITIGATION
The Company and certain of its subsidiaries are defendants in various lawsuits
involving asbestos-containing products. See note 16 to consolidated financial
statements for information on asbestos litigation.
OTHER COMMITMENTS
Liabilities of discontinued operations at December 31, 1997 of $159.9 million
relate to contingent contractual obligations, reserves for postretirement
benefits and other future estimated costs for various discontinued operations.
The Company expects future cash payments will extend at least over the next five
to ten years.
As in the case with most other companies, the Company recognizes the need
to ensure its operations will not be adversely impacted by the Year 2000 date
transition and is faced with the task of addressing related issues. The Company
is evaluating whether the effect of the Year 2000 transition issues resulting
from relationships with customers, suppliers and other constituents will have an
impact on the Company's results of operations or financial condition. At
December 31, 1997, the Company estimates that expenditures over the next two
years for the cost of modifying its existing software for the Year 2000 date
transition will have an immaterial impact on consolidated operating results.
FINANCIAL RESOURCES
At December 31, 1997, total debt was $759.4 million compared with $720.3 million
at year-end 1996. In December 1996, the Company amended its existing credit
facility increasing the total commitment to $850.0 million from $465.0 million
and extending the maturity date to December 15, 2001. The additional commitment
was used to redeem substantially all of the Company's outstanding high-cost,
fixed-rate debt. The amended credit facility also provides for a maximum
issuance of $125.0 million for letters of credit and reductions in the total
commitment of $75.0 million and $100.0 million at December 15, 1999 and 2000,
respectively. In December 1997, the Company amended this credit facility to
establish an $80.0 million sublimit for Canadian borrowings under the existing
facility. At December 31, 1997, $697.5 million of borrowings and $40.1 million
of letters of credit were outstanding under the credit facility, leaving
availability of $112.4 million. The Company believes that internally generated
funds and borrowings available under its credit facility will be sufficient to
meet its foreseeable working capital, capital expenditure and debt service
requirements.
During 1997, the Company entered into interest rate swaps to reduce (hedge)
the impact of interest rate changes for variable rate borrowings under its
credit facility. The agreements include an aggregate notional amount of $405.0
million, fixed interest rates ranging from 5.78% to 6.40% and maturity dates
ranging from April 1998 to October 2002.
24
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
COLTEC INDUSTRIES INC
------------------------
QUARTERLY FINANCIAL DATA
------------------------
The following table sets forth quarterly financial data for the years ended 1997
and 1996.
<TABLE>
<CAPTION>
Quarter
- ----------------------------------------------------------------------------------------------------------------
(In thousands, except per share data) 1st 2nd 3rd 4th
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1997
Net sales $309,172 $322,227 $324,453 $359,017
----------------------------------------------------------
Gross profit 97,497 105,090 102,981 111,032
----------------------------------------------------------
Operating income 44,928 48,754 49,194 54,916
Earnings from continuing operations before
extraordinary item 21,492 23,808 23,321 26,253
Discontinued operations - - - -
Extraordinary item - - - -
----------------------------------------------------------
Net earnings $ 21,492 $ 23,808 $ 23,321 $ 26,253
----------------------------------------------------------
Earnings per common share(a)
Before extraordinary item $ .32 $ .36 $ .35 $ .39
Discontinued operations - - - -
Extraordinary item - - - -
----------------------------------------------------------
Net earnings $ .32 $ .36 $ .35 $ .39
----------------------------------------------------------
1996
Net sales $281,198 $293,015 $287,216 $298,262
----------------------------------------------------------
Gross profit 73,182 93,654 85,858 95,874
----------------------------------------------------------
Operating income 21,331 44,888 42,140 49,216
Earnings from continuing operations before
extraordinary item 127 16,217 16,562 21,664
Discontinued operations(b) 7,649 43,507 1,509 4,518
Extraordinary item(c) (1,822) - (59) (28,733)
----------------------------------------------------------
Net earnings $ 5,954 $ 59,724 $ 18,012 $ (2,551)
----------------------------------------------------------
Earnings per common share(a)
Before extraordinary item $ - $ .23 $ .24 $ .32
Discontinued operations .11 .63 .02 .06
Extraordinary item (.02) - - (.42)
----------------------------------------------------------
Net earnings $ .09 $ .86 $ .26 $ (.04)
----------------------------------------------------------
</TABLE>
(a) See note 5 to consolidated financial statements.
(b) See note 2 to consolidated financial statements.
(c) See note 3 to consolidated financial statements.
25
<PAGE>
CONSOLIDATED STATEMENTS OF EARNINGS
COLTEC INDUSTRIES INC
<TABLE>
<CAPTION>
Years Ended December 31,
- -------------------------------------------------------------------------------------------------
(In thousands, except per share data) 1997 1996 1995
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $1,314,869 $1,159,691 $1,099,624
Cost of sales 898,269 811,123 744,201
-------------------------------------------------
Gross profit 416,600 348,568 355,423
Selling and administrative 218,808 190,993 186,401
Special charges - - 27,000
-------------------------------------------------
Operating income 197,792 157,575 142,022
Interest expense and other, net 54,043 74,894 89,886
-------------------------------------------------
Earnings from continuing operations before
income taxes and extraordinary item 143,749 82,681 52,136
Income taxes 48,875 28,111 17,615
-------------------------------------------------
Earnings from continuing operations
before extraordinary item 94,874 54,570 34,521
-------------------------------------------------
Discontinued operations (net of tax)
Income from operations - 19,252 36,639
Gain on sale - 37,931 -
-------------------------------------------------
Total discontinued operations - 57,183 36,639
-------------------------------------------------
Extraordinary item (net of tax) - (30,614) (254)
-------------------------------------------------
Net earnings $ 94,874 $ 81,139 $ 70,906
-------------------------------------------------
Basic earnings per common share
Before extraordinary item $ 1.44 $ .79 $ .49
-------------------------------------------------
Discontinued operations
Income from operations - .28 .53
Gain on sale - .55 -
-------------------------------------------------
Total discontinued operations - .83 .53
-------------------------------------------------
Extraordinary item - (.44) -
Net earnings $ 1.44 $ 1.18 $ 1.02
Weighted-average common shares 65,896 69,091 69,839
-------------------------------------------------
Diluted earnings per common share
Before extraordinary item $ 1.42 $ .79 $ .49
-------------------------------------------------
Discontinued operations
Income from operations - .28 .53
Gain on sale - .54 -
-------------------------------------------------
Total discontinued operations - .82 .53
-------------------------------------------------
Extraordinary item - (.44) -
Net earnings $ 1.42 $ 1.17 $ 1.02
Diluted weighted-average common shares 66,911 69,376 69,839
-------------------------------------------------
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
26
<PAGE>
CONSOLIDATED BALANCE SHEETS
COLTEC INDUSTRIES INC
<TABLE>
<CAPTION>
December 31,
- -------------------------------------------------------------------------------------------------------
(In thousands, except share data) 1997 1996
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 14,693 $ 15,029
Accounts and notes receivable, net of allowance
of $2,894 in 1997 and $2,007 in 1996 120,311 190,325
Inventory, net 256,736 204,198
Deferred income taxes 15,195 10,524
Other current assets 20,508 22,895
-----------------------------
Total current assets 427,443 442,971
Property, plant and equipment, net 287,619 214,790
Costs in excess of net assets acquired, net 157,751 132,872
Other assets 60,221 58,869
-----------------------------
$ 933,034 $ 849,502
=============================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Current portion of long-term debt $ 1,811 $ 2,528
Accounts payable 93,799 55,410
Accrued expenses 138,969 155,229
Current portion of liabilities of discontinued operations 4,999 14,229
-----------------------------
Total current liabilities 239,578 227,396
Long-term debt 757,578 717,722
Deferred income taxes 79,229 50,646
Other liabilities 60,892 100,005
Liabilities of discontinued operations 154,918 170,740
Commitments and contingencies
Shareholders' equity
Preferred stock - $.01 par value, 2,500,000 shares authorized,
issued and outstanding - none - -
Common stock - $.01 par value, 100,000,000 shares
authorized, 70,501,948 and 70,398,661 shares issued
at December 31, 1997 and 1996, respectively (excluding
25,000,000 shares held by a wholly owned subsidiary) 705 704
Capital surplus 642,828 643,221
Retained deficit (912,029) (1,006,903)
Unearned compensation (2,721) (2,136)
Minimum pension liability (1,646) (3,200)
Foreign currency translation adjustments (6,745) (1,151)
-----------------------------
(279,608) (369,465)
Less cost of 4,666,406 and 3,182,822 shares of common stock
in treasury at December 31, 1997 and 1996, respectively (79,553) (47,542)
-----------------------------
(359,161) (417,007)
-----------------------------
$ 933,034 $ 849,502
=============================
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
27
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
COLTEC INDUSTRIES INC
<TABLE>
<CAPTION>
Years Ended December 31,
- -------------------------------------------------------------------------------------------------------------------------
(In thousands) 1997 1996 1995
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $ 94,874 $ 81,139 $ 70,906
Adjustments to reconcile net earnings to cash
provided by operating activities
Gain on divestitures - (66,791) -
Extraordinary item - 51,001 390
Special charge provision - - 27,000
Depreciation and amortization 38,415 36,014 42,086
Deferred income taxes 24,791 39,146 5,665
Payments of liabilities of discontinued operations (25,052) (19,563) (2,504)
Special charge payments (11,746) (6,309) (8,945)
Foreign currency translation adjustment (5,594) 665 (1,135)
Other operating items (6,951) (4,370) 19,791
Changes in assets and liabilities, net of effects from
acquisitions and divestitures:
Accounts and notes receivable (4,263) (42,602) (6,632)
Inventories (42,508) 2,704 (32,373)
Other current assets 3,455 (617) 3,762
Accounts payable 35,963 (55) (4,283)
Accrued expenses (18,972) (21,302) (21,071)
Accrued pension liability (20,993) 443 (1,649)
------------------------------------------------
Cash provided by operating activities 61,419 49,503 91,008
------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from divestitures - 329,113 -
Capital expenditures (81,218) (44,550) (42,496)
Acquisition of businesses (60,711) - (21,750)
Other - - - (2,512)
------------------------------------------------
Cash provided by (used in) investing activities (141,929) 284,563 (66,758)
------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from debt refinancing - 542,000 -
Issuance of long-term debt 813 - 19,070
Repayment of long-term debt (8,113) (622,582) (13,537)
Increase (decrease) in revolving facility, net 39,500 (196,000) (30,000)
Purchase of treasury stock (42,695) (46,426) -
Proceeds from sale of accounts receivable 82,500 - -
Proceeds from exercise of stock options 8,169 - -
------------------------------------------------
Cash provided by (used in) financing activities 80,174 (323,008) (24,467)
------------------------------------------------
Increase (decrease) in cash and cash equivalents (336) 11,058 (217)
Cash and cash equivalents - beginning of year 15,029 3,971 4,188
------------------------------------------------
Cash and cash equivalents - end of year $ 14,693 $ 15,029 $ 3,971
------------------------------------------------
Supplemental cash flow data:
Cash paid for:
Interest $ 50,207 $ 74,870 $ 92,292
Income taxes 19,327 27,667 41,685
================================================
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
28
<PAGE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
COLTEC INDUSTRIES INC
<TABLE>
<CAPTION>
Foreign
Common Stock Minimum Currency Treasury Stock
-------------- Capital Retained Unearned Pension Translation --------------
(In thousands) Shares Amount Surplus Deficit Compensation Liability Adjustments Shares Amount Total
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1994 70,016 $700 $638,407 $(1,158,948) $(3,480) $ - $ (681) (99) ($1,599) $(525,601)
Net earnings 70,906 70,906
Issuance of restricted stock, net 61 1 1,006 1,072 (26) (422) 1,657
Exercise of stock options (30) 25 405 375
Tax benefit from stock option
and incentive plan 36 36
Foreign currency translation
adjustments (1,135) (1,135)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1995 70,077 701 639,419 (1,088,042) (2,408) - (1,816) (100) (1,616) (453,762)
Net earnings 81,139 81,139
Repurchase of common stock (3,129) (46,426) (46,426)
Issuance of restricted stock, net 322 3 3,941 272 (10) (142) 4,074
Exercise of stock options 56 642 642
Tax benefit from stock option
and incentive plan (139) (139)
Minimum pension liability (3,200) (3,200)
Foreign currency translation
adjustments 665 665
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1996 70,399 704 643,221 (1,006,903) (2,136) (3,200) (1,151) (3,183) (47,542) (417,007)
Net earnings 94,874 94,874
Repurchase of common stock (2,160) (42,695) (42,695)
Issuance of restricted stock, net 103 1 2,173 (585) (4) (51) 1,538
Exercise of stock options (2,566) 681 10,735 8,169
Minimum pension liability 1,554 1,554
Foreign currency translation
adjustments (5,594) (5,594)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1997 70,502 $705 $642,828 $ (912,029) $(2,721) $(1,646) $(6,745) (4,666) $(79,553)$(359,161)
===================================================================================================================================
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
29
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
COLTEC INDUSTRIES INC
(Dollars in thousands)
---------------------------------
1. SUMMARY OF ACCOUNTING POLICIES
---------------------------------
Organization: Coltec Industries Inc (the Company) is a diversified manufacturing
company serving the aerospace and general industrial markets primarily in the
United States, Canada and Europe.
Basis of Presentation: Investments in which the Company has ownership of 50% or
more of the voting common stock are consolidated in the financial statements.
Intercompany accounts and transactions are eliminated.
Certain 1996 and 1995 amounts have been reclassified to conform to the 1997
presentation.
Accounting Estimates: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the period.
Actual results could differ from those estimates.
Revenue Recognition: Revenue, including revenue under long-term commercial and
government contracts and programs, is recorded at the time deliveries or
customer acceptances are made and the Company has the contractual right to bill.
Inventories: Inventories, including inventories under long-term commercial and
government contracts and programs, are valued at the lower of cost or market.
Cost elements included in inventory are material, labor and factory overhead,
primarily using standard cost, which approximates actual cost. Cost on
approximately 50% of the domestic inventory at December 31, 1997 and 1996 was
determined on the last-in, first-out basis. Cost on the remainder of the
inventory is generally determined on the first-in, first-out basis.
Property, Plant and Equipment: Property, plant and equipment is carried at cost.
Depreciation of plant and equipment is provided generally by using the
straight-line method, based on estimated useful lives of the assets. The ranges
of estimated useful lives used in computing depreciation for financial reporting
are as follows:
Years
- --------------------------------------------------------------------------------
Land improvements 5-40
Buildings and equipment 10-45
Machinery and equipment 3-20
- --------------------------------------------------------------------------------
For leasehold improvements, the estimated useful life is the lesser of the
asset life or the lease term.
Renewals and betterments are capitalized by additions to the related asset
accounts, while repair and maintenance costs are charged against earnings.
Costs in Excess of Net Assets Acquired: It is the Company's policy to amortize
the excess costs arising from acquisitions on a straight-line basis over periods
not to exceed 40 years. In evaluating the value and future benefits of the
excess costs arising from acquisitions, the recoverability from operating income
is measured. Under this approach, the carrying value would be reduced if it is
probable that management's best estimate of future operating income from related
operations before amortization will be less than the carrying amount of the
excess costs arising from acquisitions over the remaining amortization period.
At December 31, 1997 and 1996, accumulated amortization related to all completed
acquisitions was $74,013 and $68,045, respectively.
Income Taxes: Income taxes are provided using the liability method. Under this
method, deferred tax assets and liabilities are recognized based on differences
between the financial statement and tax bases of assets and liabilities using
presently enacted tax rates.
Environmental Expenditures: Expenditures that relate to an existing condition
caused by past operations, and which do not contribute to current or future
revenue generation, are accrued when it is probable that an obligation has been
incurred and the amount can be reasonably estimated. Expenditures incurred for
environmental compliance with respect to pollution prevention and ongoing
monitoring programs are expensed as incurred. Expenditures that increase the
value of the property are capitalized.
30
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
COLTEC INDUSTRIES INC
Start-up Costs: Start-up costs related to new operations and new product lines
are expensed as incurred.
Cash and Cash Equivalents: The Company considers all short-term investments
purchased with a maturity of three months or less to be cash equivalents.
Foreign Currency Translation: The financial statements of foreign subsidiaries
were prepared in their respective local currencies and were translated into U.S.
dollars at year-end rates for assets and liabilities and at monthly
weighted-average rates for income and expenses. Translation adjustments are
included in shareholders' equity in the Consolidated Balance Sheets. Foreign
currency transaction gains and losses are included in net earnings. For 1997,
1996 and 1995, such gains and losses were not significant.
--------------------------------
2. ACQUISITIONS AND DIVESTITURES
--------------------------------
On June 30, 1997, the Company acquired the assets of AMI Industries Inc.
(AMI), a Colorado-based manufacturer of flight attendant and cockpit seats for
commercial aircraft, for approximately $25,000. The purchase agreement also
includes contingent payments based on earning levels for the years ended
December 31, 1997-2000. These contingent payments will be recorded as additional
purchase price and amortized over the remaining life of goodwill. For financial
statement purposes, the acquisition was accounted for as a purchase and,
accordingly, AMI's results are included in the Company's consolidated financial
statements since the date of acquisition. The purchase price, which was financed
through available cash resources, has been allocated to the acquired assets
based upon their fair market values. The $12,200 excess of the purchase price
over net assets is being amortized over 25 years. AMI expects annual sales to
approximate $40,000.
On October 7, 1997, the Company acquired the assets of the sheet rubber and
conveyor belt business of Dana Corporation's Boston Weatherhead division for
$28,000. Annualized sales are expected to approximate $35,000. The acquisition
was accounted for as a purchase and its results are included in the Company's
consolidated financial statements since the date of acquisition. The purchase
price, which was also financed through available cash resources, has been
allocated to the acquired assets based upon their fair market values. The $6,900
excess of the purchase price over net assets is being amortized over 25 years.
The impact of these acquisitions was not material in relation to the
Company's results of operations. Consequently, pro forma information is not
presented. The Company also had several small acquisitions during 1997, which
were not material to the Company's financial position or results of operations.
In June 1996, the Company sold Holley Automotive, Coltec Automotive and
Performance Friction Products to Borg-Warner Automotive, Inc. for $296,522 in
cash. In December 1996, Coltec sold Farnam Sealing Systems division to Meillor
SA for $20,728 in cash and a note receivable for $3,000. The sale of these
automotive original equipment (OE) components businesses resulted in an
after-tax gain of $37,931 (net of income taxes of $25,332), net of liabilities
retained, transaction costs and obligations relating to the sales. The sale of
the automotive OE components businesses represented a disposal of the Company's
Automotive Segment. Accordingly, the 1996 and 1995 Consolidated Statements of
Earnings were restated to reflect the operations of the automotive OE components
businesses as a discontinued operation. Net sales of the discontinued automotive
OE components businesses were $182,599 and $302,260 in 1996 and 1995,
respectively.
In December 1996, the Company also sold the exhaust systems and components
business of its Stemco division for $11,863 resulting in a pre-tax gain of
$3,528. Such gain is reflected in the 1996 Consolidated Statement of Earnings in
continuing operations. Net sales of the exhaust systems and components business
were $18,085 and $20,503 in 1996 and 1995, respectively.
---------------------
3. EXTRAORDIANRY ITEM
---------------------
In 1996, the Company redeemed all of its outstanding 11 1/4% debentures and
substantially all of its outstanding 9 3/4% and 10 1/4% senior notes at
redemption prices ranging from 105.125% to 106.987% of par. The redemption of
these notes including consent payments resulted in an extraordinary charge of
$30,614, net of income taxes of $20,387.
The Company incurred extraordinary charges of $254, net of income taxes of
$136, in 1995 in connection with early retirement of debt.
31
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
COLTEC INDUSTRIES INC
------------------
4. SPECIAL CHARGES
------------------
In the third quarter of 1995, the Company recorded a special charge of
$27,000, primarily to cover the costs of closing the Walbar compressor
blade facility in Canada. The facility was closed during 1996. The charge
also covered selected workforce reductions throughout the Company. The
special charge included costs to cover the cancellation of contractual
obligations resulting from the decision to close the Walbar facility,
asset write-downs, severance and employee-related costs and other costs
necessary to implement the shutdown of the Walbar facility and selected
workforce reductions throughout the Company.
At December 31, 1997 all related costs had been charged and the
remaining accrual was reversed. The activity in the related reserve
through December 31, 1997 was as follows:
Contractual Asset
Obligations Writedowns Severance Other Total
- --------------------------------------------------------------------------------
1995 charge $ 9,065 $ 7,845 $ 5,084 $ 5,006 $ 27,000
1995 activity (65) (4,549) (1,778) (2,553) (8,945)
- --------------------------------------------------------------------------------
December 31,
1995 9,000 3,296 3,306 2,453 18,055
1996 activity (961) (1,875) (1,876) (1,597) (6,309)
- --------------------------------------------------------------------------------
December 31,
1996 8,039 1,421 1,430 856 11,746
1997 activity (1,200) - (517) (29) (1,746)
Reversal (6,839) (1,421) (913) (827) (10,000)
- --------------------------------------------------------------------------------
December 31,
1997 $ - $ - $ - $ - $ -
- --------------------------------------------------------------------------------
In the third quarter of 1997, the Company recorded a special charge of
$10,000, to cover the restructuring of its Industrial Segment. This special
charge included the costs of closing its FMD Electronics operations in Roscoe,
Illinois and its Ortman Fluid Power operations in Hammond, Indiana. The special
charge also included the costs to restructure the Company's Industrial Segment
businesses in Canada and Germany and certain termination costs related to the
relocation of the Delavan Commercial divisional headquarters to North Carolina.
The third quarter 1997 charge included costs resulting from cancellation of
contractual obligations, asset writedowns, severance and employee-related costs
and other costs to shut down these facilities that will not benefit future
operations. The related reserve activity for the year ended December 31, 1997
was as follows:
Contractual Asset
Obligations Writedowns Severance Other Total
- --------------------------------------------------------------------------------
1997 charge $641 $1,049 $5,425 $2,885 $10,000
1997 activity 641 1,049 5,425 2,885 10,000
- --------------------------------------------------------------------------------
December 31,
1997 $ - $ - $ - $ - $ -
- --------------------------------------------------------------------------------
---------------------
5. EARNINGS PER SHARE
---------------------
In 1997, the Company adopted Statement of Financial Accounting Standards (SFAS)
No. 128, Earnings per Share, effective December 15, 1997. The Company's reported
earnings per common share for 1996 and 1995 equaled diluted earnings per share
as set forth in SFAS No. 128. As a result, the Company's reported earnings per
share for 1996 and 1995 were not restated.
Basic earnings per common share is computed by dividing net income by the
weighted-average number of shares of common stock outstanding during the year.
Diluted earnings per common share is computed by using the treasury stock method
to determine shares related to stock options and restricted stock.
(In thousands) 1997 1996 1995
- --------------------------------------------------------------------------------
Weighted-average
common shares 65,896 69,091 69,839
Stock options and restricted
stock issued 1,015 285 -
- --------------------------------------------------------------------------------
Diluted weighted-average
common shares 66,911 69,376 69,839
- --------------------------------------------------------------------------------
------------------------------
6. SALE OF ACCOUNTS RECEIVABLE
------------------------------
In September 1997, the Company and certain of its subsidiaries sold their U.S.
and Canadian customer trade receivables to CNC Finance LLC (CNC Finance), a
wholly-owned bankruptcy remote subsidiary of the Company. CNC Finance entered
into a three-year agreement to sell without recourse, on a revolving basis, an
undivided fractional ownership interest in the receivables, based on the level
of eligible receivables, up to a maximum of $85,000 to a special purpose entity
of a financial institution. At December 31, 1997, $82,500 of the Company's
32
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
COLTEC INDUSTRIES INC
receivables were sold under this agreement and the sale was reflected as a
reduction of accounts receivable in the 1997 Consolidated Balance Sheet. The
undivided interests were sold at a discount which was included in Interest
expense and other, net in the 1997 Consolidated Statement of Earnings.
------------
7. INVENTORY
------------
Inventories consisted of the following at December 31, 1997 and 1996:
1997 1996
- --------------------------------------------------------------------------------
Finished goods $ 53,748 $ 48,813
Work in process and finished parts 158,937 122,817
Raw materials and supplies 44,051 32,568
- --------------------------------------------------------------------------------
Total $256,736 $204,198
- --------------------------------------------------------------------------------
At December 31, 1997 and 1996, $54,441 and $45,371, respectively, of
contract advances were offset against inventories under long-term commercial and
government contracts and programs in the Consolidated Balance Sheets. Losses on
commercial and government contracts and programs are recognized in full when
identified.
The excess of current cost over last-in, first-out cost at December 31,
1997 and 1996 was $22,022 and $20,152, respectively.
--------------------------------
8. PROPERTY, PLANT AND EQUIPMENT
--------------------------------
Property, plant and equipment consisted of the following at December 31,
1997 and 1996:
1997 1996
- --------------------------------------------------------------------------------
Land and improvements $ 14,517 $ 16,182
Buildings and equipment 135,173 121,515
Machinery and equipment 486,335 415,749
Leasehold improvements 12,209 11,239
Construction in progress 30,535 23,010
- --------------------------------------------------------------------------------
Total 678,769 587,695
Less accumulated depreciation 391,150 372,905
- --------------------------------------------------------------------------------
Total $287,619 $214,790
- --------------------------------------------------------------------------------
----------------------
9. ACCRUED LIABILITIES
----------------------
Accrued liabilities consisted of the following at December 31, 1997 and 1996:
1997 1996
- --------------------------------------------------------------------------------
Salaries, wages and
employee benefits $ 34,603 $ 37,979
Taxes 13,728 18,995
Interest 7,115 3,032
Asbestos 50,688 60,659
Other 32,835 34,564
- --------------------------------------------------------------------------------
Total $138,969 $155,229
- --------------------------------------------------------------------------------
----------------
10. INCOME TAXES
----------------
Domestic and foreign components of earnings from operations before income taxes
and extraordinary item were as follows for the years ended December 31, 1997,
1996 and 1995:
1997 1996 1995
- --------------------------------------------------------------------------------
Domestic $114,517 $68,199 $25,426
Foreign 29,232 14,482 26,710
- --------------------------------------------------------------------------------
Total $143,749 $82,681 $52,136
- --------------------------------------------------------------------------------
Income taxes on earnings from continuing operations were as follows for the
years ended December 31, 1997, 1996 and 1995:
1997 1996 1995
- --------------------------------------------------------------------------------
Current -
Domestic $18,094 $ (2,912) $ 4,717
Foreign 6,872 13,634 7,638
- --------------------------------------------------------------------------------
24,966 10,722 12,355
- --------------------------------------------------------------------------------
Deferred -
Domestic 17,706 24,126 3,836
Foreign 6,203 (6,737) 1,424
- --------------------------------------------------------------------------------
23,909 17,389 5,260
- --------------------------------------------------------------------------------
Total $48,875 $28,111 $17,615
- --------------------------------------------------------------------------------
As discussed in note 2 to consolidated financial statements, the Company
sold its original equipment components businesses in 1996 resulting in income
tax on the gain of the sale of $25,332. As discussed in note 3 to consolidated
financial statements, the Company incurred extraordinary charges related to
early retirement of debt resulting in income taxes of $20,387 in 1996 and $136
in 1995.
33
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
COLTEC INDUSTRIES INC
Reconciliation of tax at the U.S. statutory income tax rate of 35% for the
years ended December 31, 1997, 1996 and 1995 to income taxes on earnings from
continuing operations was as follows:
1997 1996 1995
- --------------------------------------------------------------------------------
Tax at U.S. statutory rate $50,312 $28,938 $18,248
Repatriation of
non-U.S. earnings (1,195) 1,900 2,692
Non-U.S. rate differential 2,844 1,828 (287)
Utilization of tax credits (997) (1,104) (960)
Adjustment of reserves (2,736) (6,979) (6,172)
Other 647 3,528 4,094
- --------------------------------------------------------------------------------
Income taxes $48,875 $28,111 $17,615
- --------------------------------------------------------------------------------
Effective tax rate 34.0% 34.0% 33.8%
- --------------------------------------------------------------------------------
The significant components of deferred tax assets and liabilities at
December 31, 1997 and 1996 were as follows:
1997 1996
- --------------------------------------------------------------------------------
Deferred Deferred Deferred Deferred
Tax Tax Tax Tax
Assets Liabilities Assets Liabilities
- --------------------------------------------------------------------------------
Excess tax
over book
depreciation $ - $(21,828) $ - $(26,754)
Book/tax
differences
on contract
income - (24,230) - (27,154)
Employee
benefit plans 7,747 - 19,749 -
Accrued expenses
and liabilities 5,375 - 10,625 -
Foreign tax credit
carryforwards 3,700 - 6,600 -
Capital
transactions, net - (27,901) - (28,127)
Other - (3,194) 11,538 -
- --------------------------------------------------------------------------------
16,822 (77,153) 48,512 (82,035)
Less valuation
allowance (3,700) - (6,600) -
- --------------------------------------------------------------------------------
Total $13,122 $(77,153) $41,912 $(82,035)
- --------------------------------------------------------------------------------
The valuation allowance is attributable to foreign tax credit carryforwards,
which expire in 1998 through 2002.
------------------
11. LONG-TERM DEBT
------------------
Long-term debt consisted of the following at December 31, 1997 and 1996:
1997 1996
- --------------------------------------------------------------------------------
Credit Agreement 6.7%*(a) $697,500 $658,000
9 3/4% senior notes due 1999(b) 7,507 7,507
9 3/4% senior notes due 2000(c) 7,405 7,405
10 1/4% senior subordinated
notes due 2002(d) - 3,909
Other due 1998-2010 46,977 43,429
- --------------------------------------------------------------------------------
759,389 720,250
Less current portion 1,811 2,528
- --------------------------------------------------------------------------------
$757,578 $717,722
- --------------------------------------------------------------------------------
* Indicates average interest rate for 1997 and 1996.
(a) In 1996, the reducing revolving credit facility (the Credit Agreement),
entered into with a syndicate of banks, was amended to expire December 15,
2001 with the total commitment increased to $850,000 from $465,000 (see
note 3 to consolidated financial statements). The facility will be reduced
by $75,000 on December 15, 1999 and an additional $100,000 on December 15,
2000. The Credit Agreement provides up to $125,000 for the issuance of
letters of credit. At December 31, 1997, $40,089 of letters of credit had
been issued under the Credit Agreement. Obligations under the facility are
secured by substantially all of the Company's assets. Borrowings under the
facility bear interest, at the Company's option, at an annual rate equal to
the base rate or the Eurodollar rate plus 0.875%. The base rate is the
higher of 0.50% in excess of the Federal Reserve reported certificate of
deposit rate and the prime lending rate. Letter of credit fees of 0.875%
are payable on outstanding letters of credit and a commitment fee of 0.375%
is payable on the unutilized facility.
During 1997, the Company entered into interest rate swaps to reduce (hedge)
the impact of interest rate changes for variable rate borrowings under its
credit facility. The agreements include an aggregate notional amount of
$405,000, fixed interest rates ranging from 5.78% to 6.40% and maturity
dates ranging from April 1998 to October 2002.
(b) The 9 3/4% senior notes due 1999 are not redeemable prior to maturity on
November 1, 1999.
(c) The 9 3/4% senior notes due 2000 are not redeemable prior to maturity on
April 1, 2000.
(d) The 10 1/4% senior subordinated notes were redeemed on April 1, 1997 at
105.125% of par.
34
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
COLTEC INDUSTRIES INC
Minimum payments on long-term debt due within five years from December 31,
1997 are as follows:
- --------------------------------------------------------------------------------
1998 $ 1,811
1999 23,797
2000 9,180
2001 699,831
2002 1,361
Thereafter 23,409
- --------------------------------------------------------------------------------
Total $759,389
- --------------------------------------------------------------------------------
-----------------
12. PENSION PLANS
-----------------
The Company and certain of its subsidiaries have in effect, for substantially
all U.S. employees, pension plans under which funds are deposited with trustees.
The benefits under these plans are based primarily on years of service and
either final average salary or fixed amounts for each year of service. The
Company's policy is to fund amounts which are actuarially determined to provide
the plans with sufficient assets to meet future benefit payment requirements.
Plan assets consist principally of publicly traded equity and fixed-income
securities. Pension coverage for employees of non-U.S. subsidiaries is provided
in accordance with local requirements and customary practices.
For certain pension plans, the plan assets exceed the accumulated benefit
obligations (overfunded plans); and in the remainder of the plans, the
accumulated benefit obligations exceed the plan assets (underfunded plans).
During 1997, the Company merged several of its underfunded plans with its
overfunded plans.
As of December 31, 1997 and 1996, the funded status of the Company's
pension plans was as follows:
1997 1996
- --------------------------------------------------------------------------------
Over- Under- Over- Under-
funded funded funded funded
Plans Plans Plans Plans
- --------------------------------------------------------------------------------
Actuarial present
value of benefit
obligations:
Vested benefit
obligations $ 396,189 $ 30,604 $259,200 $119,158
- --------------------------------------------------------------------------------
Accumulated
benefit
obligations $ 406,385 $ 30,878 $265,396 $124,022
- --------------------------------------------------------------------------------
Projected benefit
obligations $ 427,737 $ 34,039 $289,973 $127,234
Plan assets at
fair value 568,094 1,551 408,979 79,735
- --------------------------------------------------------------------------------
Funded status 140,357 (32,488) 119,006 (47,499)
Unrecognized
net (gain) loss (120,839) 6,889 (89,702) (205)
Unrecognized
transition (asset)
obligations (2,192) 1,525 (1,389) 628
Unrecognized prior
service cost 15,255 2,571 2,837 15,033
Minimum liability
adjustment - (7,824) - (12,200)
- --------------------------------------------------------------------------------
(Accrued) prepaid
pension cost $ 32,581 $(29,327) $ 30,752 $ (44,243)
- --------------------------------------------------------------------------------
Included in the underfunded plans are amounts for unfunded, non-qualified
defined benefit plans.
At December 31, 1997 and 1996, the Company recorded a minimum liability of
$7,824 and $12,200, respectively, for underfunded plans with a partial offset to
other assets of $5,292 and $7,300, respectively, and an after-tax charge to
shareholders' equity of $1,646 and $3,200, respectively.
Assumptions as of December 31 used to develop the net periodic pension cost
for U.S. plans were:
1997 1996 1995
- --------------------------------------------------------------------------------
Discount rate for
benefit obligations 7.25% 7.75% 7.50%
Expected long-term rate
of return on assets 9.00% 9.00% 9.00%
Rate of increase in
compensation levels 4.75% 5.00% 5.00%
- --------------------------------------------------------------------------------
35
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
COLTEC INDUSTRIES INC
For non-U.S. plans, which were not material, similar economic assumptions
were used.
The components of net periodic pension cost for the years ended December
31, 1997, 1996 and 1995 were as follows:
1997 1996 1995
- --------------------------------------------------------------------------------
Service cost $ 8,404 $ 9,377 $ 7,618
Interest cost on projected
benefit obligations 31,996 31,142 30,317
Actual return on assets (95,430) (52,049) (91,611)
Amortization and deferral, net 47,782 11,443 52,953
- --------------------------------------------------------------------------------
Net periodic pension cost $ (7,248) $ (87) $ (723)
- --------------------------------------------------------------------------------
For discontinued operations, the total projected benefit obligations at
December 31, 1997 and 1996 were $203,737 and $214,822, respectively, and are
fully funded. Interest cost on the projected benefit obligations for 1997, 1996
and 1995 was $16,097, $16,502 and $19,609, respectively, and was fully offset by
return on assets resulting in no net periodic pension cost.
---------------------------
13. POSTRETIREMENT BENEFITS
---------------------------
The Company provides certain health care and life insurance benefits to its
eligible retired employees, principally in the United States, with some of these
retirees paying a portion of the related costs. The Company's accumulated
postretirement benefit obligations, none of which are funded, and the accrued
postretirement benefit cost at December 31, 1997 and 1996 were as follows:
1997 1996
- --------------------------------------------------------------------------------
Actuarial present value of accumulated postretirement benefit
obligations:
Retirees $ 16,980 $ 13,493
Fully eligible plan participants 1,925 2,416
Other plan participants 3,113 3,053
- --------------------------------------------------------------------------------
Total 22,018 18,962
Unrecognized transition obligations (15,330) (16,614)
Unrecognized net loss (4,611) (561)
Unrecognized prior service cost 1,964 2,495
- --------------------------------------------------------------------------------
Accrued postretirement benefit cost $ 4,041 $ 4,282
- --------------------------------------------------------------------------------
The components of postretirement benefit cost for the years ended December
31, 1997, 1996 and 1995 were as follows:
1997 1996 1995
- --------------------------------------------------------------------------------
Service cost $ 187 $ 395 $ 198
Interest cost on accumulated
postretirement benefit
obligations 1,433 1,951 1,927
Amortization of transition
obligations 1,022 1,107 1,373
Amortization and deferral, net (756) (124) (63)
- --------------------------------------------------------------------------------
Postretirement benefit cost $1,886 $3,329 $3,435
- --------------------------------------------------------------------------------
Discount rates of 7.25% and 7.75% were used in determining the accumulated
postretirement benefit obligations at December 31, 1997 and 1996, respectively.
The health care cost trend rates used in determining the accumulated
postretirement benefit obligations at December 31, 1997 were 8.7% in 1998
gradually declining to 5.0% by 2005. The effect of a 1% increase in the health
care cost trend rates in each year would increase the total service and interest
cost components of the postretirement benefit cost for 1997 by approximately
$142 and increase the accumulated postretirement benefit obligations at December
31, 1997 by approximately $1,400.
-------------------------
14. FINANCIAL INSTRUMENTS
-------------------------
The following methods and assumptions were used to estimate the fair value of
the Company's financial instruments:
Cash and cash equivalents, accounts and notes receivable and accounts payable:
The carrying amount approximates fair value due to the short-term nature of
these items.
Long-term receivables and investments: The fair value is based on quoted market
prices for similar publicly-traded securities or on the present value of
estimated future cash flows.
Long-term debt: The fair value of variable-rate long-term debt approximates
carrying value.
Forward exchange contracts and interest rate hedges: The fair value is based on
quoted market prices of similar contracts.
36
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
COLTEC INDUSTRIES INC
The estimated fair value of the Company's financial instruments at December
31, 1997 and 1996 was as follows:
1997 1996
- --------------------------------------------------------------------------------
Carrying Fair Carrying Fair
Value Value Value Value
- --------------------------------------------------------------------------------
Long-term receivables
and investments $ 35,017 $ 42,737 $ 32,427 $ 39,817
Long-term debt 759,389 760,609 720,250 720,824
Forward exchange
contracts - (8,384) - 87
Interest rate hedges - (3,555) - -
- --------------------------------------------------------------------------------
The Company utilizes forward exchange contracts to hedge U.S.
dollar-denominated sales, under long-term contracts, of certain foreign
subsidiaries. The Company does not engage in speculation. The Company's forward
exchange contracts do not subject the Company to risk due to exchange rate
movements because gains and losses on these contracts offset gains and losses on
the sales and related receivables being hedged. At December 31, 1997 and 1996,
the Company had $162,000 and $216,000, respectively, of forward exchange
contracts, denominated in Canadian dollars, which had a fair value of $153,616
and $216,087, respectively. The contracts have varying maturities with none
exceeding five years. Gains and losses on forward exchange contracts are
deferred and recognized over the life of the underlying long-term contract being
hedged.
The Company has an outstanding contingent liability for guaranteed debt and
lease payments of $30,772, and for letters of credit of $55,969. It was not
practical to obtain independent estimates of the fair values for the contingent
liability for guaranteed debt and lease payments and for letters of credit
without incurring excessive costs. In the opinion of management, non-performance
by the other parties to the contingent liabilities will not have a material
effect on the Company's results of operations and financial condition.
------------------------------------
15. STOCK OPTION AND INCENTIVE PLANS
------------------------------------
Pursuant to the Company's stock option plans, stock options and shares of
restricted stock have been granted to officers and key employees and stock
options to directors. Under the stock option plans, 7,468,000 shares of common
stock may be issued. Stock options outstanding under the stock option plans were
granted at a price equal to 100% of the market price on the date of grant and
are exercisable in annual installments of 20% or 33%, commencing one year from
date of grant and expiring ten years from date of grant.
The Company applies Accounting Principles Board Opinion #25, Accounting for
Stock Issued to Employees, in accounting for its stock option plans.
Accordingly, no compensation expense has been recognized for these plans. Had
compensation expense for the Company's stock option plans been determined based
on the fair value at the grant dates for awards under these plans consistent
with SFAS No. 123, Accounting for Stock-Based Compensation, the Company's pro
forma net earnings would have been $92,137 for 1997, $79,425 for 1996 and
$69,487 for 1995 and earnings per share would have been $1.38 in 1997, $1.15 in
1996 and $1.00 in 1995.
The fair value of each option was estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions: risk-free interest rate of 6.75% for 1997 and 7.0% for 1996 and
1995, no dividends paid, expected life of 3.7 years for 1997 and five years for
1996 and 1995, and volatility of 21% for 1997 and 23% for 1996 and 1995. The
weighted-average fair value of options granted was $5.75 for 1997, $4.76 for
1996 and $4.00 for 1995.
37
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
COLTEC INDUSTRIES INC
A summary of the status of the Company's fixed stock option plans as of
December 31, 1997, 1996 and 1995 was as follows:
Weighted-
Number Option Price Average
of Shares Range Per Exercise
(000s) Share Price
- --------------------------------------------------------------------------------
December 31, 1994 2,317 $15.00-21.25 N/A
Granted 2,960 10.75-18.08
Exercised (25) 15.00
Canceled (64) 15.00-18.25
- --------------------------------------------------------------------------------
December 31, 1995 5,188 10.75-21.25 $13.16
Granted 516 11.00-15.75 13.43
Exercised (56) 10.75-11.63 11.37
Canceled (236) 10.75-21.25 12.82
- --------------------------------------------------------------------------------
December 31, 1996 5,412 10.75-21.25 13.22
Granted 1,069 18.88-22.88 21.09
Exercised (1,004) 10.75-18.75 14.64
Canceled (217) 10.75-18.75 12.08
- --------------------------------------------------------------------------------
December 31, 1997 5,260 $10.75-22.88 $14.59
- --------------------------------------------------------------------------------
Stock options exercisable were 2,156,000, 2,103,000 and 1,188,000 at
December 31, 1997, 1996 and 1995, respectively.
The following summarizes information about the Company's stock options
outstanding as of December 31, 1997:
Options Outstanding
- --------------------------------------------------------------------------------
Weighted- Weighted-
Number Average Average
Range of Outstanding Remaining Exercise
Exercise Prices (000s) Life Price
- --------------------------------------------------------------------------------
$10.75 to $15.75 3,559 7.1 years $12.05
$16.25 to $20.13 744 6.9 years 18.02
$21.19 to $22.88 957 9.6 years 21.35
- --------------------------------------------------------------------------------
$10.75 to $22.88 5,260 7.6 years $14.59
- --------------------------------------------------------------------------------
Options Exercisable
- --------------------------------------------------------------------------------
Weighted-
Number Average
Range of Outstanding Exercise
Exercise Prices (000s) Price
- --------------------------------------------------------------------------------
$10.75 to $15.75 1,755 $12.79
$16.25 to $20.13 383 17.91
$21.19 to $22.88 18 21.25
- --------------------------------------------------------------------------------
$10.75 to $22.88 2,156 $13.77
- --------------------------------------------------------------------------------
In addition to the granting of stock options, the Company has granted
shares of restricted stock. Restrictions on certain shares lapse 100% three
years from the date of grant. Restrictions on the remaining shares lapse in
annual installments of 33% commencing one year from date of grant. The unearned
compensation resulting from the grant of restricted shares is reported as a
reduction to shareholders' equity in the Consolidated Balance Sheets and is
being charged to earnings over the period the restricted shares vest.
Shares available for grant at December 31, 1997 under the stock option
plans were 138,569.
---------------------------------
16. COMMITMENTS AND CONTINGENCIES
---------------------------------
The Company and certain of its subsidiaries are liable for lease payments and
are defendants in various lawsuits, including actions involving
asbestos-containing products and certain environmental proceedings.
With respect to asbestos product liability and related litigation costs, as
of December 31, 1997 and 1996, two subsidiaries of the Company were among a
number of defendants (typically 15 to 40) in approximately 110,000 and 94,700
actions, respectively (including approximately 2,400 and 5,100 actions,
respectively, in advanced stages of processing), filed in various states by
plaintiffs alleging injury or death as a result of exposure to asbestos fibers.
During 1997, 1996 and 1995, two subsidiaries of the Company received
approximately 38,200, 39,900 and 44,000 new actions, respectively. Through
December 31, 1997, approximately 199,000 of the approximately 309,000 total
actions brought have been settled or otherwise disposed of.
The damages claimed for personal injury or death vary from case to case and
in many cases plaintiffs seek $1,000 or more in compensatory damages and $2,000
or more in punitive damages. Although the law in each state differs to some
extent, it appears, based on advice of counsel, that liability for compensatory
damages would be shared among all responsible defendants, thus limiting the
potential monetary impact of such judgments on any individual defendant.
Following a decision of the Pennsylvania Supreme Court, in a case in which
neither the Company nor any of its subsidiaries were parties, that held
insurance carriers are obligated to cover asbestos-related bodily injury actions
if any injury or disease process, from first exposure through manifestation,
occurred during a covered policy period (the "continuous trigger theory of
coverage"), the Company
38
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
COLTEC INDUSTRIES INC
settled litigation with its primary and most of its first-level excess insurance
carriers, substantially on the basis of the Court's ruling. The Company has
negotiated a final agreement with most of its excess carriers that are in the
layers of coverage immediately above its first layer. The Company is currently
receiving payments pursuant to this agreement. The Company believes that, with
respect to the remaining carriers, a final agreement can be achieved without
litigation and on substantially the same basis that it has resolved the issues
with its other carriers. Settlements are generally made on a group basis with
payments made to individual claimants over periods of one to four years.
Payments were made with respect to asbestos liability and related costs
aggregating $59,247 in 1997, $71,354 in 1996 and $56,739 in 1995, substantially
all of which were covered by insurance. Related to payments not covered by
insurance, the Company recorded charges to operations amounting to $8,000 in
1997, $8,000 in 1996 and $5,000 in 1995.
In accordance with the Company's internal procedures for the processing of
asbestos product liability actions and due to the proximity to trial or
settlement, certain outstanding actions have progressed to a stage where the
Company can reasonably estimate the cost to dispose of these actions. As of
December 31, 1997, the Company estimates that the aggregate remaining cost of
the disposition of the settled actions for which payments remain to be made and
actions in advanced stages of processing, including associated legal costs, is
approximately $47,350, and the Company expects that this cost will be
substantially covered by insurance.
With respect to the 107,600 outstanding actions as of December 31, 1997,
which are in preliminary procedural stages, the Company lacks sufficient
information upon which judgments can be made as to the validity or ultimate
disposition of such actions, thereby making it difficult to estimate with
reasonable certainty the potential liability or costs to the Company. When
asbestos actions are received they are typically forwarded to local counsel to
ensure that the appropriate preliminary procedural response is taken. The
complaints typically do not contain sufficient information to permit a
reasonable evaluation as to their merits at the time of receipt, and in
jurisdictions encompassing a majority of the outstanding actions, the practice
has been that little or no discovery or other action is taken until several
months prior to the date set for trial. Accordingly, the Company generally does
not have the information necessary to analyze the actions in sufficient detail
to estimate the ultimate liability or costs to the Company, if any, until the
actions appear on a trial calendar. A determination to seek dismissal, to
attempt to settle or to proceed to trial is typically not made prior to the
receipt of such information.
It is also difficult to predict the number of asbestos lawsuits that the
Company's subsidiaries will receive in the future. The Company has noted that,
with respect to recently settled actions or actions in advanced stages of
processing, the mix of the injuries alleged and the mix of the occupations of
the plaintiffs have been changing from those traditionally associated with the
Company's asbestos-related actions. The Company is not able to determine with
reasonable certainty whether this trend will continue. Based upon the foregoing,
and due to the unique factors inherent in each of the actions, including the
nature of the disease, the occupation of the plaintiff, the presence or absence
of other possible causes of a plaintiff's illness, the availability of legal
defenses, such as the statute of limitations or state of the art, and whether
the lawsuit is an individual one or part of a group, management is unable to
estimate with reasonable certainty the cost of disposing of outstanding actions
in preliminary procedural stages or of actions that may be filed in the future.
However, the Company believes that its subsidiaries are in a favorable position
compared to many other defendants because, among other things, the asbestos
fibers in its asbestos-containing products were encapsulated. Considering the
foregoing, as well as the experience of the Company's subsidiaries and other
defendants in asbestos litigation, the likely sharing of judgments among
multiple responsible defendants, and the substantial amount of insurance
coverage that the Company expects to be available from its solvent carriers, the
Company believes that pending and reasonably anticipated future actions are not
likely to have a material effect on the Company's results of operations and
financial condition.
Although the insurance coverage which the Company has is substantial, it
should be noted that insurance coverage for asbestos claims is not available to
cover exposures initially occurring on and after July 1, 1984. The Company's
subsidiaries continue to be named as defendants in new cases, some of which
allege initial exposure after July 1, 1984.
In addition to claims for personal injury, the Company's subsidiaries have
been involved in an insignificant number of property damage claims based upon
asbestos-containing materials found in schools, public facilities and private
commercial buildings. Based upon proceedings to date, the overwhelming majority
of these claims have been resolved without a material adverse impact on the
39
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
COLTEC INDUSTRIES INC
Company. Likewise, the insignificant number of claims remaining to be resolved
are not expected to have a material effect on the Company's results of
operations and financial condition.
The Company has recorded an accrual for its liabilities for
asbestos-related matters that are deemed probable and can be reasonably
estimated (settled actions and actions in advanced stages of processing), and
has separately recorded an asset equal to the amount of such liabilities that is
expected to be recovered by insurance. In addition, the Company has recorded a
receivable for that portion of payments previously made for asbestos product
liability actions and related litigation costs that is recoverable from its
insurance carriers. Liabilities for asbestos-related matters and the receivable
from insurance carriers included in the Consolidated Balance Sheets were as
follows at December 31, 1997 and 1996:
1997 1996
- --------------------------------------------------------------------------------
Accounts and notes receivable $56,039 $67,012
Other assets 16,249 18,728
Accrued expenses 50,688 60,659
Other liabilities 2,682 10,879
- --------------------------------------------------------------------------------
With respect to environmental proceedings, the Company has been notified
that it is among the Potentially Responsible Parties under federal environmental
laws, or similar state laws, relative to the costs of investigating and in some
cases remediating contamination by hazardous materials at several sites. Such
laws impose joint and several liability for the costs of investigating and
remediating properties contaminated by hazardous materials. Liability for these
costs can be imposed on present and former owners or operators of the properties
or on parties who generated the wastes that contributed to the contamination.
The Company's policy is to accrue environmental remediation costs when it is
both probable that a liability has been incurred and the amount can be
reasonably estimated. While it is often difficult to reasonably quantify future
environmental-related expenditures, the Company currently estimates its future
non-capital expenditures related to environmental matters to range between
$27,000 and $50,000. In connection with these expenditures, the Company has
accrued $31,716 at December 31, 1997 representing management's best estimate of
probable non-capital environmental expenditures. These non-capital expenditures
are estimated to be incurred over the next 10 to 20 years. In addition, capital
expenditures aggregating $5,000 may be required during the next two years
related to environmental matters. Although the Company is pursuing insurance
recovery in connection with certain of these matters, no receivable has been
recorded with respect to any potential recovery of costs in connection with any
environmental matters.
Under operating lease commitments, expiring on various dates after December
31, 1997, the Company and certain of its subsidiaries are obligated as of
December 31, 1997, to pay rentals totaling $30,658 as follows: $5,482 in 1998,
$4,970 in 1999, $3,573 in 2000, $2,673 in 2001, $1,973 in 2002 and $11,987 in
later years.
At December 31, 1997, the Company had committed to a minimum employer
contribution of $15,806 to the Company's 401K plans.
-----------------------
17. SEGMENT INFORMATION
-----------------------
As discussed in note 2 to consolidated financial statements, the Company
divested all of its automotive OE components businesses in 1996. As a result of
the divestitures, the Company is now reporting the results of its business units
in two operating segments, Aerospace and Industrial.
Information on total assets, depreciation of property, plant and equipment
and capital expenditures by industry segment was as follows for the years ended
December 31, 1997, 1996 and 1995:
(In millions) 1997 1996 1995
- --------------------------------------------------------------------------------
Total assets:
Aerospace $437.3 $415.5 $391.3
Industrial 310.6 287.2 298.3
Corporate unallocated 185.1 146.8 134.3
- --------------------------------------------------------------------------------
Subtotal 933.0 849.5 823.9
Discontinued operations - - 70.6
- --------------------------------------------------------------------------------
Total $933.0 $849.5 $894.5
- --------------------------------------------------------------------------------
Depreciation of property,
plant and equipment:
Aerospace $ 13.4 $ 12.2 $ 12.3
Industrial 14.0 12.9 12.9
Corporate unallocated 2.3 1.9 1.6
- --------------------------------------------------------------------------------
Subtotal 29.7 27.0 26.8
Discontinued operations - 3.5 5.7
- --------------------------------------------------------------------------------
Total $ 29.7 $ 30.5 $ 32.5
- --------------------------------------------------------------------------------
Capital expenditures:
Aerospace $ 46.9 $ 26.9 $ 17.6
Industrial 31.4 13.7 13.7
Corporate unallocated 2.9 4.0 2.6
- --------------------------------------------------------------------------------
Subtotal 81.2 44.6 33.9
Discontinued operations - 5.4 8.6
- --------------------------------------------------------------------------------
Total $ 81.2 $ 50.0 $ 42.5
- --------------------------------------------------------------------------------
40
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
COLTEC INDUSTRIES INC
Information by geographic segment was as follows for the years ended
December 31, 1997, 1996 and 1995:
Operating Total
(In millions) Sales Income Assets
- --------------------------------------------------------------------------------
1997
Domestic operations $1,027.2 $198.4 $590.1
Foreign operations 287.7 39.1 157.8
- --------------------------------------------------------------------------------
Total segments 1,314.9 237.5 747.9
Corporate unallocated - (39.7) 185.1
- --------------------------------------------------------------------------------
Total $1,314.9 $197.8 $933.0
- --------------------------------------------------------------------------------
1996
Domestic operations $ 888.6 $182.5 $554.2
Foreign operations 271.1 16.2 148.5
- --------------------------------------------------------------------------------
Total segments 1,159.7 198.7 702.7
Corporate unallocated - (41.1) 146.8
- --------------------------------------------------------------------------------
Total $1,159.7 $157.6 $849.5
- --------------------------------------------------------------------------------
1995
Domestic operations* $ 854.0 $168.7 $554.8
Foreign operations 245.6 10.3 205.4
- --------------------------------------------------------------------------------
Total segments 1,099.6 179.0 760.2
Corporate unallocated - (37.0) 134.3
- --------------------------------------------------------------------------------
Total $1,099.6 $142.0 $894.5
- --------------------------------------------------------------------------------
*Includes total assets from discontinued operations.
--------------------------------------
18. SUPPLEMENTARY EARNINGS INFORMATION
--------------------------------------
The following expenses were included in the Consolidated Statements of Earnings
for the years ended December 31, 1997, 1996 and 1995:
1997 1996 1995
- --------------------------------------------------------------------------------
Maintenance $24,000 $22,816 $22,633
Taxes, other than
federal income taxes:
Payroll 30,025 24,633 24,379
Property 4,928 4,626 4,226
State and local 6,241 5,121 2,601
Rent 8,950 9,965 8,604
Research and
development costs 46,548 44,125 45,130
- --------------------------------------------------------------------------------
---------------------
19. SUBSEQUENT EVENTS
---------------------
On January 30, 1998, the Company acquired Marine and Petroleum Mfg. Inc.'s
manufacturing facilities based in Texas for approximately $17,000. The plants
acquired produce flexible graphite and Teflon sealing products used in the
petrochemical industry. Combined annual sales for these facilities are expected
to approximate $18,000. The Company also acquired Tex-o-Lon and Repro-Lon for
approximately $25,000. These two Texas businesses have combined annual sales of
$15,000. Tex-o-Lon manufactures, machines and distributes Teflon products,
primarily for the semiconductor industry. Repro-Lon reprocesses Teflon compounds
for the chemical and semiconductor industries. The acquisitions were accounted
for as purchases; accordingly, the purchase price, which was financed through
available cash resources, was allocated to the acquired assets based upon their
fair market values.
On February 2, 1998, the Company purchased the Sealing Division of Groupe
Carbone Lorraine for $45,600. This division, with facilities in France and South
Carolina, produces high-technology metallic gaskets used in the nuclear,
petroleum and chemical industries. Sales for 1998 are expected to approximate
$38,000. This acquisition will be accounted for as a purchase and the purchase
price, also financed through available cash resources, will be allocated to the
acquired assets based upon their fair market values.
In February 1998, the Company amended its existing credit facility
increasing the total commitment to $900,000 from $850,000.
41
<PAGE>
REPORT OF MANAGEMENT
COLTEC INDUSTRIES INC
The management of Coltec Industries Inc is responsible for the preparation of
the consolidated financial statements and related financial information included
in this Annual Report and for their integrity and objectivity. The consolidated
financial statements have been prepared in conformity with generally accepted
accounting principles and contain estimates and judgments by management as
appropriate.
The Company maintains a system of internal accounting control designed to
provide reasonable assurance that assets are safeguarded, transactions are
executed and recorded in accordance with management's authorization and
accounting records may be relied upon for preparation of financial statements.
Management is responsible for maintenance of these systems, which is
accomplished through communication of established written codes of conduct,
policies and procedures; selection of qualified personnel; and appropriate
delegation of authority and segregation of responsibilities. Adherence to these
controls, policies and procedures is monitored and evaluated by the Company's
internal auditors.
Coltec Industries Inc's consolidated financial statements have been audited
by Arthur Andersen LLP, the Company's independent public accountants. In
planning and performing their audit of the Company's consolidated financial
statements, the independent public accountants consider the internal control
structure in determining their auditing procedures. The independent public
accountants also prepare recommendations for improving policies and procedures
and such recommendations are communicated to management and the Audit Committee
of the Board of Directors.
The Audit Committee, composed solely of outside directors, meets
periodically with management, the independent public accountants and the
internal auditors, to review matters relating to the system of internal
accounting control and the Company's consolidated financial statements. Both the
independent public accountants and internal auditors have direct access to the
Audit Committee, with or without the presence of management, to discuss the
scope and results of their audits and their comments on the adequacy of the
Company's internal accounting control system.
/s/ John W. Guffey, Jr. /s/ David D. Harrison
John W. Guffey, Jr. David D. Harrison
Chairman and Executive Vice President
Chief Executive Officer and Chief Financial Officer
42
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
COLTEC INDUSTRIES INC
To the Board of Directors and
Shareholders of Coltec Industries Inc:
We have audited the accompanying consolidated balance sheets of Coltec
Industries Inc and subsidiaries as of December 31, 1997 and 1996, and the
related consolidated statements of earnings, shareholders' equity and cash flows
for each of the three years in the period ended December 31, 1997. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Coltec Industries Inc and subsidiaries as of 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/ Arthur Andersen LLP
Charlotte, North Carolina
February 2, 1998
43
<PAGE>
EXHIBIT 21.1
COLTEC INDUSTRIES INC AND SUBSIDIARIES
Parents and Subsidiaries
December 31, 1997
Set forth below is a list of Coltec's principal subsidiaries. All such
subsidiaries are consolidated in Coltec's Consolidated Financial Statements.
<TABLE>
<CAPTION>
Percentage of
State or Voting Securities
Jurisdiction Owned by its
Name Where Organized Immediate Parent
- ---- --------------- -----------------
<S> <C> <C>
AMI Industries, Inc. ........................ Colorado 100
Apollo Insurance Company .................... Vermont 100
CII Holdings Inc. ........................... Delaware 100
Coltec Aerospace Canada Ltd. ................ Canada 89*
Coltec Canada Inc. .......................... Delaware 100
Coltec (Gibraltar) .......................... Gibraltar 100
Coltec (Great Britain) Limited .............. United Kingdom 100
Coltec Holdings Inc. ........................ Delaware 100
Coltec Industries France SAS ................ France 100
Coltec Industrial Products Inc. ............. Delaware 100
Coltec do Brasil Produtos Industriais Ltda .. Brazil 89*
Coltec Industries Pacific Pte Ltd. .......... Singapore 100
Coltec International Services Co. ........... Delaware 100
Coltec Industries Korea ..................... Korea 89*
Coltec Luxembourg S.A ....................... Luxembourg 100
Coltec North Carolina Inc. .................. North Carolina 100
Delavan Inc. ................................ Delaware 100
Delavan Limited ............................. United Kingdom 100
Garlock Bearings Inc. ....................... Delaware 80
Garlock de Mexico, S.A. de C.V .............. Mexico 65.7
Garlock GmbH ................................ Germany 100
Garlock (Great Britain) Ltd. ................ United Kingdom 100
Garlock Inc. ................................ Ohio 100
Garlock of Canada Ltd. ...................... Ontario, Canada 100
Garlock Overseas Corporation ................ Delaware 100
Garlock Pty. Limited ........................ Australia 80
Garlock S.A ................................. Panama 100
Garrison Litigation Management Group, Ltd. .. Delaware 93
Holley Automotive Systems GmbH .............. Germany 100
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
Holley Performance Products Inc. Delaware 100
Liard S.A ...................... France 100
Louis Mulas, Sucs., S.A. de C.V Mexico 65.7
Menasco Aerosystems Inc ........ Delaware 100
Menasco-Krosno Ltd. ............ Poland 90.4
Stemco Inc. .................... Texas 100
The Anchor Packing Company ..... Delaware 100
Walbar Inc. .................... Delaware 100
</TABLE>
* Remaining outstanding shares owned by other subsidiary(s).
The names of certain other subsidiaries of Coltec have been omitted from the
list above because such unnamed subsidiaries considered in the aggregate as a
single subsidiary would not constitute a significant subsidiary.
<PAGE>
EXHIBIT 23.1
Consent of Independent Public Accountants
To the Board of Directors and Shareholders
of Coltec Industries Inc:
As independent public accountants, we hereby consent to the incorporation of our
reports included in and incorporated by reference into this Form 10-K, into the
Company's previously filed Registration Statement File No. 33-56139.
Arthur Andersen LLP
Charlotte, North Carolina
March 23, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
December 31, 1997 Consolidated Balance Sheet and Statement of Earnings for the
year ended December 31, 1997 and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 14,693
<SECURITIES> 0
<RECEIVABLES> 123,205
<ALLOWANCES> 2,894
<INVENTORY> 256,736
<CURRENT-ASSETS> 427,443
<PP&E> 678,769
<DEPRECIATION> 391,150
<TOTAL-ASSETS> 933,034
<CURRENT-LIABILITIES> 239,578
<BONDS> 757,578
0
0
<COMMON> 705
<OTHER-SE> (359,161)
<TOTAL-LIABILITY-AND-EQUITY> 933,034
<SALES> 1,314,869
<TOTAL-REVENUES> 1,314,869
<CGS> 898,269
<TOTAL-COSTS> 218,808
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 54,043
<INCOME-PRETAX> 143,749
<INCOME-TAX> 48,875
<INCOME-CONTINUING> 94,874
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 94,874
<EPS-PRIMARY> 1.44
<EPS-DILUTED> 1.42
</TABLE>
