FINANCE CONTRACT

Development Agreement

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EUROPEAN INVESTMENT BANK | FLOWSERVE CORPORATION

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Title: FINANCE CONTRACT
Date: 3/21/2005
Industry: Misc. Capital Goods Sector: Capital Goods

Exhibit 10.5

E U R O P E A N I N V E S T M E N T B A N K


		FI N°
		Agora N° 2003 0403

FLOWSERVE PRODUCT DEVELOPMENT PROJECT (GB)

FINANCE CONTRACT

between

EUROPEAN INVESTMENT BANK

and

FLOWSERVE CORPORATION

and

FLOWSERVE B.V.

2004

THIS CONTRACT IS MADE BETWEEN :

the European Investment Bank, having its seat
in Luxembourg, represented by
Thomas C. Barrett, Director and Alfonso
Querejeta, Director

hereinafter called: “THE BANK”,

of the first part,

and


Flowserve Corporation, a limited liability corporation incorporated under New York law, and having its registered office at CT Corporation System, 1633 Broadway, New York, NY 10019, represented by Renee J. Hornbaker, Vice President		Irving, Texas USA April 14, 2004

(Authority of Signatory: Annex IA)

and


Flowserve B.V., a limited liability company incorporated under the laws of the Netherlands, and having its principal place of business at Parallelweg 6, 4878 AH Etten-Leur, The Netherlands, and registered under number 20052878, represented by Jan van Rens, Financial Director		Etten Leur, The Netherlands 14 April 2004

(Authority of Signatory: Annex IB)

hereinafter called respectively
“Flowserve Corporation” and “Flowserve
B.V.” and together “THE BORROWERS”,

of the second part.

WHEREAS :

—	Flowserve Corporation is presently carrying out a project consisting of research and development over the years 2003-2007 as more particularly described in the Technical Description contained in Schedule A and hereinafter called “the Project”;

—	the total cost of the Project is estimated by THE BANK at EUR 155.5 million, to be financed as follows:


	million EUR
— own resources and third party loans		85.5
— EIB loan		70.0

total:		155.5

—	in order to enable it to implement this finance plan, THE BORROWERS have requested a loan from THE BANK in a total amount equivalent to EUR 70 million;

—	the obligations of THE BANK under this Contract are conditional upon the prior execution, by a bank or syndicate of first-class banking institutions acceptable to THE BANK (such guarantor or guarantors are hereinafter collectively referred to as the “Guarantor”), of a guarantee agreement or agreements under which the Guarantor will guarantee the financial obligations of THE BORROWERS under each Tranche of this Contract (the “Guarantee”);

—	THE BANK, being satisfied that the financing of the Project falls within the scope of its functions and having regard to the matters herein recited, has decided to accede to the request of THE BORROWERS by opening in their favour under this Finance Contract (hereinafter called the “Contract”) a credit in an amount of EUR 70 million (seventy million euro);

—	the Board of Directors of Flowserve Corporation has authorised its entering into this Contract in the terms set out in Annex IIA and the Board of Directors of Flowserve B.V. has authorised its entering into this Contract in the terms set out in Annex IIB;

—	THE BORROWERS have each delivered an opinion of their respective legal counsel in the terms set out in Annex III;

—	references herein to Articles, Paragraphs, Articles, Recitals and Schedules are references respectively to articles, paragraphs and sub-paragraphs of, and recitals and schedules to, this Contract and the following terms have the respective meanings assigned to them in the following Recitals and Articles:


Term	Article
Affected Guarantor		7.02
Contract		fifth Recital
Credit		1.01


Term	Article
Disbursement Notice		1.02C
Disbursement Request		1.02A
EIB Redeployment Rate		4.02B
EUR		1.03
Expiry Date		4.03B
Fixed Rate Tranche		1.02B(b)
FSFR		3.01D
FSFR Conversion Date		3.01D(i)
FSFR Reference Period		3.01D
FSFR Tranche		1.02B(b)
GBP		1.03
Guarantee		fourth Recital
Guarantor		fourth Recital
Loan		2.01
Luxembourg Business Day		1.02C
Material Adverse Change		1.04(ii)
Maturity Date		3.01B(1)(ii)
Notice Day		3.01B(2)(ii)(a)
Notice Day		3.01B(2)(ii)(a)
Notified		1.06
Payment Date		5.03A
Prepayment Amount		4.02A
Prepayment Date		4.02A
Prepayment Notice		4.02A
Project		first Recital
Qualifying Guarantor		7.01
Quarter Day		3.01C
Reference Period		3.01B(1)
Relevant Business Day		5.03B
Relevant Interbank Rate		1.02B
Renewal Date		4.03B
Revisable Rate Tranche		1.02B(b)
Revision Date		3.01B(2)(ii)(a)
Revision Notice		3.01B(2)(ii)(a)
Scheduled Disbursement Date		1.02C(f)
Term Loan		4.03D
Test Date		3.01B(4)
Tranche		1.02A
VSFR		3.01C
VSFR Conversion		3.01C(i)
VSFR Conversion Date		3.01C(iii)
VSFR Conversion Option Date		3.01C(i)
VSFR Conversion Request		3.01C(i)
VSFR Converted Tranche		3.01C(iii)
VSFR Proposal		3.01C(ii)
VSFR Reference Period		3.01C
VSFR Tranche		1.02B(b)
USD		1.03

NOW THEREFORE it is hereby agreed as follows :

ARTICLE 1
Disbursement

1.01 Amount of Credit and Joint and Several Liability of THE BORROWERS

By this Contract THE BANK establishes in favour of THE BORROWERS, and THE BORROWERS accept, a credit (hereinafter the “Credit”) in an amount equivalent to EUR 70 000 000 (seventy million euro), to be used for the sole purpose of financing the Project.

The liability of THE BORROWERS to make any and all payments under this Contract shall be joint and several.

1.02 Disbursement Procedures

	A.	Until 18 months from the signature date THE BORROWERS or either of them may deliver to THE BANK up to five written requests (each hereinafter a “Disbursement Request”) for disbursement of any of the Credit (hereinafter a “Tranche”). For the avoidance of doubt, THE BORROWERS shall not deliver more than five Disbursement Requests between them.

	B.	Disbursement of each Tranche shall be subject to receipt by THE BANK of a Request, signed by a duly authorised officer of each of THE BORROWERS or of the relevant BORROWER (as the case may be), specifying:

	(a)	the amount of the Tranche to be disbursed, such amount shall be (save for the last Tranche to be disbursed under this Contract) at least EUR 10 000 000 of the Credit established hereunder;

	(b)	whether the Tranche is to bear a fixed rate of interest determined pursuant to Article 3.01A (such a Tranche being referred to as a “Fixed-Rate Tranche”) or pursuant to Article 3.01B (such a Tranche being referred to as a “Revisable-Rate Tranche”), or a floating rate of interest determined pursuant to Article 3.01C (a “VSFR Tranche”) or determined pursuant to Article 3.01D (a “FSFR Tranche”);

	(c)	the currency in which THE BORROWERS prefer the Tranche to be disbursed, being a currency referred to in Paragraph 1.03 as being available for that type of Tranche;

	(d)	in case of a Fixed-Rate or a Revisable-Rate Tranche, the annual or semi-annual Payment Dates preferred by THE BORROWERS chosen in accordance with Article 5.03A;

	(e)	THE BORROWERS’ preferred repayment terms and repayment schedule, chosen in accordance with Article 4.01; and

	(f)	the preferred date for disbursement, it being understood that THE BANK may disburse any Tranche up to four calendar months from the date of the relevant Disbursement Request.

THE BORROWERS or the relevant BORROWER (as the case may be) may also at their/its discretion specify in the Disbursement Request the following respective elements, if any, indicated by THE BANK without commitment to be applicable to each currency of the Tranche during its lifetime, that is to say:

	(i)	in the case of a Fixed-Rate Tranche (and in case of a Revisable-Rate Tranche, until the Revision Date), the interest rate or rates; and

	(ii)	in the case of a FSFR Tranche, the spread to the Relevant Interbank Rate.

		For the purposes of this Contract generally, “Relevant Interbank Rate” means EURIBOR (as defined in Schedule B) or such other reference rate as appropriate for three months’ deposits in the currency of the tranche and determined in the manner generally applied by THE BANK from time to time in its loan operations.

		Each of THE BORROWERS or the relevant BORROWER (as the case may be) shall provide to THE BANK evidence that the person or persons making Disbursement Requests hereunder have been duly authorised to do so.Subject to the proviso to Article 1.02C, each Disbursement Request is irrevocable.

	C.	Between 10 and 15 days before the date of disbursement THE BANK shall, if the Request conforms to Article 1.02B, and subject to Article 1.05, deliver to Flowserve Corporation a notice (hereinafter a “Disbursement Notice”) which shall:

	(a)	confirm the amount of the Tranche to be disbursed as specified in the Request;

	(b)	specify the fixed or revisable interest rate or, as the case may be, specify whether the Tranche is a VSFR Tranche or a FSFR Tranche and, if the latter, the spread to the Relevant Interbank Rate applicable during the lifetime of the Tranche or until the FSFR Conversion Option Date (as defined in Article 3.01D), as the case may be;

	(c)	in relation of any FSFR Tranche, specify the FSFR Conversion Option Date, if any;

	(d)	specify the currency of the Tranche specified in the Disbursement Request;

	(e)	specify the applicable Payment Date(s);

	(f)	specify the repayment terms applicable thereto in accordance with Article 4.01; and

	(f)	specify the date on which the Tranche is scheduled to be disbursed (hereinafter the “Scheduled Disbursement Date”), disbursement being subject to the conditions of Article 1.03.

Provided that, if one or more of the elements specified in the Disbursement Notice does not conform to the corresponding element, if any, in the Disbursement Request, THE BORROWERS or the relevant BORROWER (as the case may be) may within three Luxembourg Business Days following receipt of the Disbursement Notice revoke the Disbursement Request by notice to THE BANK and thereupon the Disbursement Request and the Disbursement Notice shall be of no effect.

For the purposes of this Contract generally, “Luxembourg Business Day” means a day on which commercial banks are open for business in Luxembourg.

Disbursement shall be made to such bank account of either of THE BORROWERS as THE BORROWERS or the relevant BORROWER (as the case may be) shall specify in a notification to THE BANK, signed by a duly authorised officer of such, not less than fifteen days before the date of disbursement. Only one account may be specified for each Tranche.

1.03 Currency of Disbursement

Subject to availability, THE BANK shall disburse each Tranche in the currency for which THE BORROWERS or the relevant BORROWER (as the case may be) has expressed a preference. Each currency of disbursement shall be the euro (“EUR”), pounds Sterling (“GBP”) United States dollars (“USD”).

For the calculation of sums to be disbursed in currencies other than the euro, THE BANK shall apply the rate published by the European Central Bank in Frankfurt am Main, on such date within fifteen days preceding disbursement as THE BANK shall decide.

1.04 Conditions of Disbursement

Disbursement of each Tranche pursuant to Article 1.02 shall be subject to the fulfilment of the following conditions to the satisfaction of THE BANK:

	(i)	the condition mentioned in Article 7.01 at least ten Luxembourg Business Days prior to the date fixed for disbursement;

	(ii)	there shall not have occurred any Material Adverse Change in relation to either of THE BORROWERS since the date of this Contract and THE BORROWERS shall have provided confirmation in writing to this effect to THE BANK as of a date falling no earlier than fifteen days and not later than five days before the date of disbursement; provided that THE BANK shall act reasonably in determining the occurrence or non-occurrence of a Material Adverse Change; for the purpose of this subparagraph (ii), “Material Adverse Change” means any event or condition which materially impairs the relevant BORROWER’s ability to perform its financial and other obligations under this Finance Contract; and

	(iii)	no event described in Article 4.03C or 10.01 shall have occurred and be continuing in respect of either of THE BORROWERS.

1.05 Deferment of Disbursement

	A.	THE BANK shall, at the request of THE BORROWERS or the relevant BORROWER (as the case may be), defer disbursement of any Tranche in whole or in part to a date specified by THE BORROWERS or the relevant BORROWER (as the case may be) being a date falling not more than six months from its Scheduled Disbursement Date. In such a case THE BORROWERS shall pay deferment indemnity as determined pursuant to Article 1.05C below. Any request for deferment shall have effect in respect of a Tranche only if it is made at least five Luxembourg Business Days before its Scheduled Disbursement Date.

	B.	If any of the conditions referred to in Article 1.04 are not fulfilled as of the specified date, disbursement will be deferred to a date agreed between THE BANK and THE BORROWERS or the relevant BORROWER (as the case may be) falling not less than five Luxembourg Business Days following the fulfilment of all conditions of disbursement.

	C.	If the disbursement of any Tranche is deferred whether on request of THE BORROWERS or the relevant BORROWER (as the case may be) or by reason of non-fulfilment of any of the conditions of disbursement, THE BORROWERS shall, upon demand by THE BANK, pay an indemnity on the amount of which disbursement is deferred. Such indemnity shall accrue from the Scheduled Disbursement Date to the

		actual disbursement date or, as the case may be, until the date of cancellation of the Tranche at a rate equal to R ₁ minus R ₂ , where:

		R ₁ means the rate of interest that would have applied from time to time pursuant to Article 3.01 and the relevant Disbursement Notice, if the Tranche had been disbursed on the Scheduled Disbursement Date;

		and

		R ₂ means the Relevant Interbank Rate less 0.125% (12.5 basis points); provided that for the purpose of determining the Relevant Interbank Rate in relation to this Article 1.05, the relevant periods provided for in Schedule B shall be successive periods of one month commencing on the Scheduled Disbursement Date.

		Furthermore, the indemnity:

	(i)	if the deferment exceeds one month in duration, shall accrue at the end of every month;

	(ii)	shall be calculated using the day count convention applicable to R ₁ ; and

	(iii)	where R ₂ exceeds R ₁ , shall be set at zero.

1.06 Cancellation and Suspension of Credit

	A.	THE BORROWERS or either of them may at any time, by notice given to THE BANK cancel, in whole or in part, and with immediate effect, the undisbursed portion of the Credit. However, the notice shall have no effect on a Tranche whose current Scheduled Disbursement Date falls within five Luxembourg Business Days following the date of the notice. THE BORROWERS shall, save as stated in the next paragraph, incur no liability by way of indemnity or otherwise to THE BANK by reason of such cancellation.

		If THE BORROWERS or either of them cancel a Tranche that has been the subject of a Disbursement Notice (such a Tranche, whatever its interest rate basis, being referred to as “Notified”), THE BORROWERS shall, if the Tranche is a Fixed-Rate Tranche, a Revisable-Rate Tranche or a FSFR Tranche, pay an indemnity on the cancelled amount. Such indemnity shall be calculated, in accordance with Article 4.02B and C, in respect of the period running from the date (the “Starting Date”), being the later of (a) the date of the cancellation notice and (b) the Scheduled Disbursement Date of the Tranche, until its scheduled final repayment date. For this purpose (i) references in Article 4.02B and C to the Prepayment Date shall refer to Starting Date and (ii) the cancelled amount shall be deemed to be disbursed and repaid upon the Starting Date. The cancellation indemnity shall be payable within seven days of demand.

	B.	THE BANK may, by notice to THE BORROWERS or either of them, in whole or in part suspend the undisbursed portion of the Credit at any time, and with immediate effect:

	(a)	under the conditions mentioned in Article 10.01 or Article 4.03;

		or

	(b)	if exceptional circumstances shall arise which adversely affect THE BANK’s access to relevant international capital markets.

		Such suspension shall continue until THE BANK notifies THE BORROWERS or either of them that it may again draw on the Credit or, as the case may be, until THE BANK cancels the suspended amount as provided below.

		Furthermore, THE BANK may, by notice to THE BORROWERS or either of them, in whole or in part cancel the undisbursed portion of the Credit under the conditions of indents (a) and (b) of Article 1.06B above, subject always (in the case of Article 4.03) to fulfilment of the respective procedures specified in each paragraph of Article 4.03. THE BANK may also, by notice to THE BORROWERS or either of them, cancel a Tranche the disbursement of which has been deferred under Article 1.05A or B by more than six months in aggregate.

		However, THE BANK shall not be entitled to suspend or cancel, on grounds of paragraph (b) of Article 1.06B above, any Notified Tranche.

	C.	If THE BANK suspends a Notified Tranche on the sole ground of Article 1.06B indent (a), THE BORROWERS shall pay an indemnity on the suspended amount in the manner provided for in Article 1.05C.

		If THE BANK cancels a Notified Fixed-Rate Tranche or a Revisable-Rate Tranche on the sole ground of the said indent (a) of Article 1.06B, THE BORROWERS shall pay an indemnity on the cancelled amount, calculated in accordance with Article 1.06A, provided that no indemnity is payable upon cancellation upon the sole ground of an event mentioned in Article 4.03(A).

		If THE BANK cancels a Notified VSFR Tranche or a FSVR Tranche under the said indent (a) of Article 1.05B on the ground of an event mentioned in Article 10.01, THE BORROWER shall pay an indemnity on the cancelled amount calculated on the basis of Article 10.03(2) and accruing over the period running from the later of (a) the date of the cancellation notice and (b) the Scheduled Disbursement Date of the Tranche, until its final scheduled repayment date.

1.07 Sums Due under Article 1

Sums due under Article 1 shall be payable in euro or, if different, the currency of the Tranche concerned.

ARTICLE 2
The Loan

2.01 Amount of the Loan

The loan (hereinafter called “the Loan”) shall comprise the aggregate of the amounts in the currencies disbursed by THE BANK hereunder, each such amount as notified by THE BANK upon the occasion of the disbursement of a Tranche.

2.02 Currency of Repayments

Each repayment of a Tranche under Article 4 or, as the case may be, Article 10 shall be effected in its currency of disbursement.

2.03 Currency of Interest and Other Charges

Interest and other charges payable on, or in respect of, a Tranche under Article 3.01, Article 4 or, where applicable, Article 10 shall be calculated and be payable in the currency in which such Trance is repayable.

Any other sum due hereunder shall be paid in the currency specified by THE BANK having regard to the currency of the expenditure to be reimbursed thereby.

2.04 Notification by THE BANK

After each disbursement of a Tranche, THE BANK shall deliver to THE BORROWERS or the relevant BORROWER (as the case may be) a summary statement showing the disbursement date, currency and amount, repayment terms and the interest rate of and for that Tranche. Such statement shall include the relevant amortisation table referred to in Article 4.01.

ARTICLE 3
Interest

3.01 Interest Rates

Fixed-Rate Tranches

THE BORROWERS shall pay interest on the outstanding balance of each Fixed-Rate Tranche semi-annually or annually in arrears on the relevant Payment Date specified in Article 5.03A or, if different, as specified in the relevant Disbursement Notice commencing on the first such Payment Date following the date of disbursement of the Tranche. Interest shall be calculated at the rate specified in the Disbursement Notice, which rate shall be the rate applicable at the date of the Disbursement Notice, in accordance with the applicable principles from time to time laid down by the governing bodies of THE BANK for loans made at a fixed rate of interest, denominated in the currency of the Tranche and bearing equivalent terms for the repayment of capital and the payment of interest.

	B.	Revisable-Rate Tranches

	(1)	In respect of any Revisable-Rate Tranche, THE BORROWERS shall pay interest on the daily outstanding balance at a nominal fixed interest applicable to successive Reference Periods as determined pursuant to Article 3.01B(2) semi-annually or annually in arrears on the relevant Payment Date.

“Reference Period” means a period commencing on the date of disbursement of the relevant Tranche or the date of expiry of the immediately preceding relevant Reference Period and determined as follows:

(i)

the first Reference Period shall commence on the date of disbursement of the relevant Tranche and shall expire on such date as is specified in the relevant Disbursement Notice being no earlier than a payment date (determined pursuant to Article 5.03A) specified in the relevant Disbursement Notice for the payment of interest on that Tranche, most

		closely preceding the fourth anniversary of the date of drawdown of such Tranche and no later than four years prior to the final maturity of such Tranche; and

	(ii)	each subsequent Reference Period shall begin immediately upon expiry of the immediately preceding Reference Period and shall expire on such date as is specified in the relevant notice of acceptance given by THE BORROWERS or the relevant BORROWER (as the case may be) pursuant to Article 3.01B(2)(ii)(b) below being a date falling at least four years after the date of expiry of the first Reference Period and being a date falling no later than a date (determined pursuant to Article 5.03A) specified in the relevant Disbursement Notice for the payment of interest on that Tranche, most closely preceding the tenth anniversary of the date of drawdown of such Tranche (in case of a bullet prepayment, the seventh anniversary of the date of drawdown of such Tranche) (such date being hereinafter referred as the “Maturity Date”).

(2)

(i)

interest on the relevant Tranche shall be payable at a fixed rate determined by THE BANK for the first Reference Period to be the rate applicable at the date of issue of the relevant Disbursement Notice to loans to be made by THE BANK denominated in the currency of the Tranche for the financing of projects located in the European territories of member countries of the European Community on the date of disbursement of the Tranche in question and having (i) a life equal to that of the Reference Period and (ii) during that life the same terms for repayment and the payment of interest as the Tranche in question. The rate of interest for the first Reference Period shall be specified in the relevant Disbursement Notice.

(ii)

For each subsequent Reference Period the interest rate applicable to the relevant Tranche shall be determined as follows:

	(a)	before 12 noon (Luxembourg time) on any day on which THE BANK is open for business in Luxembourg (the “Notice Day”) falling in the interval between 60 and 30 days (the “Notice Period”) prior to the commencement of each subsequent Reference Period (the “Revision Date”), upon request of THE BORROWERS or the relevant BORROWER (as the case may be) within the Notice Period, and where reasonably practicable, THE BANK shall, subject to Article 3.01B(4), indicate by irrevocable notice (the “Revision Notice”) the fixed interest rate applicable to the Tranche for each choice of duration of that Reference Period, as permitted by Article 3.01B(1)(ii), to the extent that funding is available to THE BANK for each duration;

	(b)	by not later than 17:00 Luxembourg time on the Notice Day, THE BORROWERS or the relevant BORROWER (as the case may be) shall indicate to THE BANK by irrevocable notice its acceptance or rejection of a rate indicated by THE BANK for one of the permitted durations; upon delivery of such notice of acceptance THE BORROWERS shall be obliged to pay interest at the specified rate for a Reference Period of the specified duration; failing timely delivery of an acceptance by THE BORROWERS or the relevant BORROWER (as the case may be) in due time of an interest rate indicated by THE BANK, the relevant offer shall lapse.

If on a date falling one month before the Revision Date in question, by 17:00 hours Luxembourg time, THE BANK has not received any notice from THE BORROWERS or the relevant BORROWER (as the case may be) indicating its acceptance of an interest rate applicable to the relevant Tranche from that Revision Date, THE BORROWERS shall be obliged to prepay the Tranche on the Revision Date in question.

	(3)	THE BORROWERS shall pay interest on Revisable-Rate Tranches annually or semi-annually in arrears on the date(s) specified in the Disbursement Notice and determined in accordance with Article 5.03A commencing on the first such date following the date of disbursement of the Tranche.

	C.	VSVR Tranches

THE BORROWERS shall pay interest on the outstanding balance of each VSFR Tranche at VSFR (as defined below) quarterly in arrears on the relevant Payment Date, subject to a ceiling of the Relevant Interbank Rate plus 13 basis points (0.13% p.a.), as determined for successive VSFR Reference Periods commencing on or after the first relevant Quarter Day; provided that, if such Tranche is not disbursed on a Quarter Day or, where a Quarter Day is not a Relevant Business Day, on the nearest succeeding day that is a Relevant Business Day, interest for the period from the date of disbursement to the first Quarter Day shall be payable at the Relevant Interbank Rate.

THE BANK shall notify VSFR or other applicable rate to THE BORROWERS or to the relevant BORROWER (as the case may be) within ten days following the commencement of the VSFR Reference Period to which it applies.

For the purpose of this Article 3.01C:

“ VSFR ” means a variable-spread floating interest rate, that is to say a general interest rate determined by THE BANK for each VSFR Reference Period in accordance with the applicable principles from time to time laid down by the governing bodies of THE BANK for loans made at a floating rate of interest, not defined by reference to the Relevant Interbank Rate.

“Quarter Day” means each 15th March, 15th June, 15th September and 15th December.

“ VSFR Reference Period ” means each period from, and including, one Quarter Day to, but excluding, the next following Quarter Day.

VSFR Conversion

Any Variable-Spread Floating-Rate Tranche, or a part thereof which is not less than an amount of EUR 10 million, may be converted at the request of THE BORROWERS or the relevant BORROWER (as the case may be) on the following conditions:

(i)

Upon receipt by THE BANK of a Conversion Request from THE BORROWERS or the relevant BORROWER (as the case may be) on a Luxembourg Business Day falling not later than 75 days before a VSFR Conversion Option Date, (as defined below) after prior consultation with THE BORROWERS or the relevant BORROWER (as the case may be), and on condition that the necessary funds are available to THE BANK for this purpose, THE BANK shall, in the period between 60 and 30 days before the VSFR Conversion Option Date, propose to THE BORROWERS or the relevant BORROWER (as the case may be) the fixed rate of interest to be applicable to the Variable-Spread Floating-Rate Tranche (or relevant part thereof) for its remaining term and shall propose that

		this rate shall apply as from the VSFR Conversion Option Date, with interest to be payable annually or semi-annually in arrear on the date or dates to be specified (such change of interest rate basis being referred to as “VSFR Conversion”); and such rate shall be the rate of interest generally applicable to loans denominated in the currency of the Variable-Spread Floating-Rate Tranche, as the case may be, and granted by THE BANK to borrowers in the EU on the same repayment terms and remaining life as the Tranche in question and on the same periodicity for the payment of interest as is to be contained in the VSFR Conversion Request .

	(ii)	For the purposes of this paragraph, “VSFR Conversion Option Date” means any one of 15th March, 15th June, 15th September and 15th December falling not later than four years before the final repayment date of the relevant Variable-Spread Floating-Rate Tranche; and “VSFR Conversion Request” means a written notice from THE BORROWER requesting THE BANK to submit to it a proposal for converting to a fixed-rate basis the whole of the Variable-Spread Floating-Rate Tranche, or a part outstanding, which in either case is in an amount of not less than EUR 10 million.

		Any such proposal by THE BANK (the “VSFR Proposal”) shall be made subject to any amendments to this Contract which the BANK in its discretion considers reasonably necessary for the purpose of amending the applicable interest rate basis or causing the financial terms of the Contract to conform to THE BANK’s standard terms of lending for fixed-rate loans at the date of the VSFR Proposal.

	(iii)	Any notice by THE BORROWERS or the relevant BORROWER (as the case may be) accepting the VSFR Proposal in respect of any Variable-Spread Floating-Rate Tranche shall be served in writing on THE BANK by 5 p.m. (Luxembourg time) on the same day

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