U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 26, 1998
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 No. 1-4663
Crompton & Knowles Corporation
(Exact name of registrant as specified in its charter)
Massachusetts 04-1218720
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
One Station Place, Metro Center
Stamford, Connecticut 06902
(address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(203) 353-5400
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
Common Stock, $0.10 par value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: NONE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [x] No
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ x ]
The aggregate market value of the voting stock held by non-affiliates of
the registrant, computed as of February 26, 1999, was $ 1,207,895,507.
The number of shares of Common Stock of the registrant outstanding as of
February 26, 1999, was 67,743,203.
DOCUMENTS INCORPORATED BY REFERENCE
Annual Report to Stockholders for fiscal year ended
December 26, 1998 ........ Parts I, II and IV
Proxy Statement for Annual Meeting of Stockholders on
April 27, 1999 ........ Part III
INDEX
Page
PART I
Item 1. Business
Specialty Chemicals
Polymers and Polymer Processing Equipment
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders
PART II
Item 5. Market for Registrant's Common Equity and
Related Stockholder Matters
Item 6. Selected Financial Data
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Item 8. Financial Statements and Supplementary Data
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
PART III
Item 10. Directors and Executive Officers of the Registrant
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners
and Management
Item 13. Certain Relationships and Related Transactions
PART IV
Item 14. Exhibits, Financial Statement Schedules
and Reports on Form 8-K
PART I
ITEM 1. BUSINESS
General Business of Crompton & Knowles Corporation
Crompton & Knowles Corporation (together with its consolidated
subsidiaries, the "Corporation"), was incorporated in Massachusetts in 1900.
The Corporation has engaged in the manufacture and sale of specialty chemicals
since 1954 and, since 1961, in the manufacture and sale of polymer processing
equipment.
The Corporation has substantially expanded both its specialty chemical
and its polymer processing equipment businesses through a number of
acquisitions in both the United States and Europe, including that of Uniroyal
Chemical Corporation ("UCC") in 1996. UCC was the parent of Uniroyal Chemical
Company, Inc. ("Uniroyal"), a multinational manufacturer of performance
chemicals, which include rubber chemicals and additives for plastics and
lubricants, crop protection chemicals, and polymers, which include Royalene(R)
EPDM rubber, Paracril(R) nitrile rubber and Adiprene(R)/Vibrathane(R) urethane
prepolymers. In December 1998, UCC and Uniroyal were merged, with Uniroyal
surviving as a subsidiary of the Corporation.
During fiscal year 1998, the Corporation acquired the polymer processing
equipment business of Betol Machinery of Luton, U.K. In addition, the
Corporation entered into two joint ventures. First, in November the
Corporation and Bayer Corporation ("Bayer") formed joint ventures to serve the
agricultural seed treatment markets in North America. The business previously
operated by Gustafson, Inc. ("Gustafson"), a unit of Uniroyal, is the basis of
the 50/50 joint ventures. The U.S. joint venture will be headquartered in
Plano, Texas under the former Gustafson management. The crop protection
businesses of the Corporation and Bayer will continue to operate
independently, except for these seed treatment joint ventures. Also in
November of 1998, Uniroyal entered into a joint venture with GIRSA, a
subsidiary of DESC, S.A. de C.V., a Mexican corporation, to produce
Paracril(R) oil-resistant nitrile rubber products in Mexico. Uniroyal is
contributing its nitrile rubber technology and business, and will continue to
provide sales and technical service support through its existing organization.
GIRSA is contributing its process and manufacturing technology and will be
primarily responsible for the construction of a new plant in Mexico.
Uniroyal's production facility in Painesville, Ohio will close by mid-1999.
In January 1999, the Corporation sold its specialty ingredients
business, Ingredient Technology Corporation, to Chr. Hansen, Inc.
Information as to the sales, operating profit, depreciation and
amortization, assets and capital expenditures attributable to each of the
Corporation's business segments during each of its last three fiscal years is
set forth in the Notes to Consolidated Financial Statements on pages 32-33 of
the Corporation's 1998 Annual Report to Stockholders, and such information is
incorporated herein by reference.
Reporting Segments
Effective in 1998, the Corporation adopted FASB Statement No. 131,
"Disclosures about Segments of an Enterprise and Related Information," and
redefined its reporting segments. The Corporation's results are grouped into
two major business categories, "Specialty Chemicals" and "Polymers and Polymer
Processing Equipment." Specialty Chemicals consist of separate reporting
segments for Performance Chemicals (rubber chemicals and specialty additives),
Crop Protection, Colors and Other (specialty ingredients). Polymers and
Polymer Processing Equipment consist of separate reporting segments for
Polymers (EPDM, urethanes and nitrile rubber) and Polymer Processing Equipment
(specialty process equipment and controls).
Products and Services
The Corporation's products are currently marketed in approximately 120
countries and serve a wide variety of end use markets including tires,
agriculture, automobiles, textiles, plastics, lubricants, petrochemicals,
leather, construction, recreation, mining, paper, packaging, home furnishings,
and appliances. The principal products and services offered by the
Corporation are described below.
SPECIALTY CHEMICALS
Performance Chemicals
The Performance Chemicals business consists of a number of specialty
chemicals used in the plastics, petroleum and rubber industries. The
Performance Chemicals business had net sales for fiscal 1998 of $441.8
million.
Rubber Chemicals
The product line of the Performance Chemicals business contains over 100
different chemicals for use in processing rubber. These products include
accelerators, antioxidants, antiozonants, chemical foaming agents and waxes.
Accelerators are used for curing natural and synthetic rubber, and have a wide
range of activation temperatures, curing ranges and use forms. Antiozonants
protect rubber compounds from flex cracking and ozone, oxygen and heat
degradation. Antioxidants provide rubber compounds with protection against
oxygen, light and heat. Foaming agents produce gas by thermal decomposition
or via a chemical reaction with other components of a polymer system and are
mixed with rubber to produce sponge rubber products. Waxes inhibit static
atmospheric ozone cracking in rubber. Tire manufacturers accounted for
approximately 60% of the Corporation's rubber chemical sales in fiscal 1998,
with the balance of such sales going to the industrial rubber market which
includes numerous manufacturers of hoses, belting, sponge and a wide variety
of other engineered rubber products. The Corporation believes it is one of
the three largest suppliers of rubber chemicals in the world.
Specialty Additives
The Corporation also manufactures and markets a broad line of additives
for plastics and lubricants, including antioxidants, lubricant additives,
chemical foaming agents, synthetic fluids, chemical intermediates,
polymerization inhibitors, curatives, dispersants and polymer modifiers.
These products are used in the manufacture of numerous plastic and petroleum
related products which in turn have diverse end uses, including plastic
products, petrochemicals, adhesives, aerospace, athletic equipment, automotive
components, construction, electronics, food packaging, vinyl flooring, wire
and cable and automotive and industrial oils and lubricants. These chemicals
are often specially developed for a customer's specific manufacturing
requirements. Future growth is expected to result from continued penetration
in existing niche markets and expansion into worldwide markets, particularly
Europe and Asia, and through the further development of a new series of
polymerization inhibitors, high performance antioxidants and lubricant
additives. These high performance additives are a minor component of the end
product but critical to its performance.
Performance chemicals are sold through a specialized sales force,
including technical service professionals who address customer inquiries and
problems. The technical service professionals generally have degrees in
chemistry and/or chemical engineering and are knowledgeable in specific
product application fields. The sales and technical service professionals
identify and focus on customers' growth opportunities, working not only with
the customers' headquarters staff, but also with their research and
development and manufacturing personnel on a worldwide basis.
Net sales of rubber chemicals during fiscal 1998, 1997 and 1996 were
14.7%, 15.6%, and 16.8% of the Corporation's net sales, respectively.
Crop Protection
The Crop Protection business manufactures and markets a wide variety of
agricultural chemicals for many major food crops, including grains, fruits,
nuts and vegetables, and many non-food crops, such as tobacco, cotton, turf,
flax and ornamental plants. The business focuses its efforts mainly on
products used on high value cash crops, such as vegetables, nuts, citrus and
tree and vine fruits as opposed to commodity crops such as soybeans and corn.
The Crop Protection business had net sales for fiscal 1998 of $348.0 million.
The Crop Protection business offers four major crop protection chemical
product lines: fungicides; miticides and insecticides; growth regulants; and
herbicides. Each product line is composed of numerous formulations for
specific crops and geographic regions.
The Corporation has a substantial presence in its targeted segments of
the agrichemicals market due to its strategy of focusing research, product
development, and sales and marketing on highly profitable market niches which
are less sensitive to competitive pricing pressures than commodity segments of
the market. While the products of the Crop Protection business represent a
relatively small percentage of the grower's overall costs, these products are
often critical to the success or failure of the crops being treated. In
addition, product line extensions, attention to application effectiveness and
customer service are important factors in developing strong customer loyalty.
The Corporation is a leading producer and marketer of seed treatment
chemicals. In November 1998, the Corporation formed joint ventures with
Bayer Corporation to serve the agricultural seed treatment markets in North
America based on Gustafson, Inc. ("Gustafson"), formerly a wholly owned
subsidiary, which is a leading producer of seed treatment formulations and
equipment. Bayer acquired a 50 percent interest in the Gustafson seed
treatment business. As a result of this transaction, the operating results of
Gustafson were deconsolidated in December 1998.
Gustafson has a leading share of the North American commercial seed
treatment formulation market and is recognized as a technological leader in
this market. Gustafson is engaged directly and through cooperative ventures
in developing and formulating seed treatment systems, offering a broad line of
chemical formulations which contain fungicides, insecticides and seed
conditioning aids in addition to commercial seed treating equipment.
Gustafson's expertise enables it to develop and produce formulations
consisting of multiple components to obtain optimum efficacy against seed and
soil disease pathogens and insects.
For the last several years, Gustafson has maintained a major
developmental program in the field of naturally occurring biological control
agents targeted for disease. Gustafson has focused its efforts on naturally
occurring organisms as opposed to genetically engineered organisms. Gustafson
received regulatory approval from the United States Environmental Protection
Agency ("EPA") in 1992 for the first of a series of new biological
formulations.
In Australia, the Corporation's subsidiary, Hannaford Seedmaster Services
Pty. Ltd., provides seed treatment chemicals and treating services to the
local market.
The Crop Protection business, under the Uniroyal name, promotes seed
treatment chemicals in all regions of the world other than North America and
Australia and enjoys a substantial position in the international seed
treatment market. The Corporation anticipates continuing growth in seed
treatment, which is environmentally attractive because it involves very
localized use of agricultural chemicals and very low use rates compared to
broad foliar or soil treatment.
The Crop Protection business markets its products in North America
through a direct sales force selling to a distribution network consisting of
more than one hundred distributors and direct customers. In the international
market, the Crop Protection business' direct sales force services over 300
distributors, dealers and agents.
Colors
The Colors business had net sales in fiscal 1998 of $229.7 million.
Textile dyes manufactured and sold by the Colors business are used on both
synthetic and natural fibers for knit and woven garments, home furnishings
such as carpets, draperies, and upholstery, and automotive furnishings
including carpeting, seat belts, and upholstery. Industrial dyes and
chemicals are marketed to the paper, leather, and ink industries for use on
stationery, tissue, towels, shoes, apparel and luggage, as well as other
specialty areas such as transfer printing inks.
The Corporation also markets a line of chemical auxiliaries for the
textile industry, including leveling agents, dye fixatives, and preparation
and finishing chemicals.
The Corporation is among the largest suppliers of dyes in the United
States and is a leading domestic producer of specialty dyes for nylon, wool,
polyester, acrylics, and cotton. The Corporation is recognized domestically
as a leader in dyes and dyeing process technology for the broadloom carpet
industry and is the only supplier of basic dyes for differential dyed nylon
carpet in the United States and Europe. In addition, the Corporation supplies
unique dyes for metal coating applications and ink-jet printers. In Europe,
the primary dye offerings of the Corporation are acid and pre-metallized dyes
for wool and nylon fibers.
Domestically, the Corporation sells dyes and chemical auxiliaries
predominantly through its own dedicated sales force. The Corporation's
position as a leading dyes supplier in the United States has been maintained
by satisfying the market's needs with quick customer response, efficient
production, quality products and strong technical service. Outside the United
States, as much as one-half of the Corporation's sales of dyes are made
through third party distribution channels.
Other
In January 1999, the Corporation sold its specialty ingredients business,
Ingredient Technology Corporation ("ITC"), to Chr. Hansen, Inc. ITC had
fiscal 1998 net sales of $89.6 million. Through ITC, the Corporation
manufactured and sold reaction and compounded flavor ingredients for the food
processing, bakery, beverage and pharmaceutical industries; colors certified
by the Food & Drug Administration for sale to domestic producers of food and
pharmaceuticals; and inactive ingredients for the pharmaceutical industry.
ITC was also a leading supplier of specialty sweeteners, including edible
molasses, molasses blends, malt extracts, and syrups for the bakery,
confectionery and food processing industries and a supplier of seasonings and
seasoning blends for the food processing industry.
POLYMERS AND POLYMER PROCESSING EQUIPMENT
Polymers
The Polymers business, which had net sales for fiscal 1998 of $342.5
million, has three principal product lines: Adiprene(R)/Vibrathane(R) urethane
prepolymers, Royalene(R) EPDM rubber and Paracril(R) nitrile rubber.
Adiprene(R)/Vibrathane(R)
The Corporation believes that it is the leading manufacturer of high
performance liquid castable urethane prepolymers in the world. Among the most
common products using these prepolymers are solid industrial tires, printing
rollers, industrial rolls, abrasion-resistant mining products such as chutes,
hoppers and slurry transport systems, mechanical goods and a variety of sports
equipment and other consumer items. The Corporation effectively competes in
this business by providing efficient customer service and technical assistance
through a highly regarded technical service staff and a proven ability to
develop new products and technologies for its customers. Over 150 grades of
urethane prepolymers are commercially available from Uniroyal.
Adiprene(R)/Vibrathane(R) urethane prepolymers are sold directly by a
dedicated sales force in the United States, Canada and Australia and by direct
sales and through distributorships in Europe, Latin America and the Far East.
Adiprene(R)/Vibrathane(R) customers are serviced worldwide by a dedicated
technical staff. Technical service personnel support field sales, while a
research and development staff is dedicated to support new product and process
development to meet rapidly changing customer needs. Technical support is a
critical component of the product offering.
Royalene(R)
The Corporation produces and markets approximately 30 different ethylene-
propylene-diene rubber ("EPDM") polymer variations. EPDM is popularly known
as "crackless rubber" because of its ability to withstand sunlight and ozone
without cracking. EPDM's applications include automobile, single-ply roofing,
hoses, electrical insulation, tire sidewalls, mechanical seals and gaskets,
oil additives, and plastic modifiers.
The Corporation believes it is one of the three largest suppliers of EPDM
polymers in the world, and the largest supplier of EPDM polymers in North
America. The Corporation's success in this business has been due to several
factors, including product performance, effective technical assistance and
outstanding customer service, which have earned the Corporation a reputation
for excellence and strong customer loyalty.
Paracril(R)
In November 1998, Uniroyal entered into a joint venture with GIRSA, a
subsidiary of DESC, S.A. de C.V., a Mexican corporation, to produce
Paracril(R) oil-resistant nitrile rubber products in Mexico. Uniroyal is
contributing its nitrile rubber technology and business to the joint venture,
and will continue to provide sales and technical service support through its
existing organization. GIRSA is contributing its process and manufacturing
technology to the joint venture and will be primarily responsible for the
construction of a new plant in Mexico. Uniroyal's production facility in
Painesville, Ohio will close by mid-1999.
Nitrile rubber polymers, produced and marketed by the Corporation under
the Paracril(R) trademark, are resistant to most types of oils. Paracril(R)
nitrile rubber is produced in 22 different variations to meet specific end use
requirements in automotive hoses, seals, rings, printing rolls, insulation and
many other products exposed to oil.
The sale of Royalene(R) and Paracril(R) products is supported by a
highly qualified staff of technical service specialists with extensive field
and operational experience. Strong customer relations and market knowledge
result from this sales effort. In certain geographic areas, the Royalene(R)
and Paracril(R) products are sold through distributors.
Polymer Processing Equipment
The Corporation's wholly owned subsidiary, Davis-Standard Corporation,
manufactures and sells polymer processing equipment, which includes industrial
blow molding equipment, electronic controls, and integrated extrusion systems,
and offers specialized service and modernization programs for in-place polymer
processing systems. The polymer processing equipment business had net sales
in the 1998 fiscal year of $344.5 million.
Integrated polymer processing systems, which include extruders in
combination with controls and other equipment, are used to process polymers
into various products such as plastic sheet and profiles used in appliances,
automobiles, home construction, sports equipment, and furniture; extruded
shapes used as house siding, furniture trim, and substitutes for wood molding;
and cast and blown film used to package many consumer products. Integrated
extrusion systems are also used to compound engineered polymers, to recycle
and reclaim plastics, to coat paper, cardboard and other materials used as
packaging, and to apply plastic or rubber insulation to high voltage power
cable for electrical utilities and to wire for the communications,
construction, automotive, and appliance industries. Industrial blow molding
equipment produced by the Corporation is sold to manufacturers of non-
disposable plastic items such as tool cases and beverage coolers.
The Corporation is a leading producer of polymer processing equipment for
the polymers industry and a leading domestic producer of industrial blow
molding equipment and competes with domestic and foreign producers of such
products. The expansion of its Pawcatuck, Connecticut facility and a strong
performance at its German subsidiary, ER-WE-PA Davis-Standard GmbH, have
enabled shipments to keep pace with the strong demand for extruders. The
Corporation is one of a number of producers of other types of polymer
processing machinery.
In the United States, most of the Corporation's sales of polymer
processing equipment are made by its own dedicated sales force. In other
parts of the world, and for export sales from the United States, the
Corporation's sales of such equipment are made largely through agents.
* * *
Sources of Raw Materials
Chemicals, steel, castings, parts, machine components and other raw
materials required in the manufacture of the Corporation's products are
generally available from a number of sources, some of which are foreign. The
Corporation also uses large amounts of petrochemical feedstocks in its
chemical manufacturing processes. Large increases in the cost of these
petrochemical feedstocks could adversely affect the Corporation's operating
margins. Significant sales of the colors business consist of dyes
manufactured from intermediates purchased from foreign sources.
The Corporation holds a 50% interest in Rubicon Inc. ("Rubicon"), a
manufacturing joint venture between Uniroyal and ICI American Holdings, Inc.
("ICI") located in Geismar, Louisiana, which supplies both ICI and Uniroyal
with aniline, and Uniroyal with diphenylamine ("DPA"). The Corporation
believes that its aniline and DPA needs in the foreseeable future will be met
by production from Rubicon and Uniroyal's DPA facility located in
Huddersfield, England.
Patents and Licenses
The Corporation has over 1,800 United States and foreign patents and
pending applications and has trademark protection for approximately 500
product names. Patents, trade names, trademarks, know-how, trade secrets,
formulae, and manufacturing techniques assist in maintaining the competitive
position of certain of the Corporation's products. Patents, formulae, and
know-how are of particular importance in the manufacture of a number of
specialty chemicals manufactured and sold by the Corporation, and patents and
know-how are also significant in the manufacture of certain wire insulating
and polymer processing machinery product lines. The Corporation is licensed
to use certain patents and technology owned by other companies, including some
foreign companies, to manufacture products complementary to its own products,
for which it pays royalties in amounts not considered material to the
consolidated results of the enterprise. Products to which the Corporation has
such rights include certain crop protection chemicals, dyes, and polymer
processing machinery.
While the existence of a patent is prima facie evidence of its validity,
the Corporation cannot assure that any of its patents will not be challenged
nor can it predict the outcome of any such challenge. The Corporation
believes that no single patent, trademark, or other individual right is of
such importance, however, that expiration or termination thereof would
materially affect its business.
Seasonal Business
With the exception of the Crop Protection business which has
approximately 15% of its annual sales occurring in the fourth calendar
quarter, no material portion of any segment of the business of the Corporation
is seasonal.
Customers
The Corporation does not consider any segment of its business dependent
on a single customer or a few customers, the loss of any one or more of whom
would have a material adverse effect on the segment. No one customer's
business accounts for more than ten percent of the Corporation's gross
revenues nor more than ten percent of its earnings before taxes.
Backlog
Because machinery production schedules range from about 60 days to 10
months, backlog is important to the Corporation's polymer processing equipment
business. Firm backlog of customers' orders for this business at the end of
1998 totalled approximately $118 million compared with $106 million at the end
of 1997. It is expected that most of the 1998 backlog will be shipped during
1999. Orders for specialty chemicals and polymers are generally filled from
inventory stocks and thus are excluded from backlog.
Competitive Conditions
The Corporation is a major manufacturer of specialty chemicals, polymers
and polymer processing equipment. Competition varies by product and by
geographic region, except that in rubber chemicals the market is fairly
concentrated. In that market, Uniroyal and its two principal competitors
together account for approximately 50% of total worldwide sales. In addition,
the EPDM market is fairly concentrated. Uniroyal and its two principal
competitors together account for approximately 70% of sales within the United
States and approximately 50% worldwide.
Two new EPDM technologies are being developed and commercialized by
competitors. The first technology, which is based on a new metallocene
catalyst system and which may expand the application areas of EPDM, is also
being developed by the Corporation. The second technology is a gas phase
process that has not been fully commercialized by any company and cannot be
fully assessed at this time.
Product performance, service, and prices are all important factors in
competing in the specialty chemicals, polymers and polymer processing
equipment businesses.
Research and Development
The Corporation conducts research and development on a worldwide basis at
a number of facilities, including field stations that are used for crop
protection research and development activities. Research and development
expenditures by the Corporation totalled $52.8 million for the year 1998,
$53.6 million for the year 1997 and $52.4 million for the year 1996.
Environmental Matters
Chemical companies are subject to extensive environmental laws and
regulations concerning, among other things, emissions to the air, discharges
to land, surface, subsurface strata and water and the generation, handling,
storage, transportation, treatment and disposal of waste and other materials
and are also subject to other federal, state and local laws and regulations
regarding health and safety matters.
Environmental Regulation. The Corporation believes that its business,
operations and facilities have been and are being operated in substantial
compliance in all material respects with applicable environmental and health
and safety laws and regulations, many of which provide for substantial fines
and criminal sanctions for violations. The ongoing operations of chemical
manufacturing plants, however, entail risks in these areas and there can be no
assurance that material costs or liabilities will not be incurred. In
addition, future developments, such as increasingly strict requirements of
environmental and health and safety laws and regulations and enforcement
policies thereunder, could bring into question the handling, manufacture, use,
emission or disposal of substances or pollutants at facilities owned, used or
controlled by the Corporation or the manufacture, use or disposal of certain
products or wastes by the Corporation and could involve potentially
significant expenditures. To meet changing permitting and regulatory
standards, the Corporation may be required to make significant site or
operational modifications, potentially involving substantial expenditures and
reduction or suspension of certain operations. The Corporation incurred $10.8
million of costs for capital projects and $31.8 million for operating and
maintenance costs related to environmental compliance at its facilities during
fiscal 1998. In fiscal 1999, the Corporation expects to incur approximately
$14.3 million of costs for capital projects and $31.7 million for operating
and maintenance costs related to environmental compliance at its facilities.
During fiscal 1998, the Corporation spent $8.4 million to clean up previously
utilized waste disposal sites and to remediate current and past facilities.
The Corporation expects to spend approximately $18.4 million during fiscal
1999 to clean up such waste disposal sites.
Pesticide Regulation. The Corporation's Crop Protection business is
subject to regulation under various federal, state, and foreign laws and
regulations relating to the manufacture, sales and use of pesticide products.
In August, 1996, Congress enacted significant changes to the Federal
Insecticide, Fungicide, and Rodenticide Act ("FIFRA"), governing U.S. sale and
use of pesticide products, and the Federal Food, Drug, and Cosmetic Act
("FFDCA"), which limits pesticide residues on food with the Food Quality
Protection Act of 1996 ("FQPA"). Under FIFRA, the new law will facilitate
registrations and reregistrations of pesticides for special (so called
"minor") uses and authorize collection of maintenance fees to support
pesticide reregistrations. Coordination of regulations implementing FIFRA and
FFDCA will be required. Food safety provisions will establish a single
standard of safety for pesticide residue on raw and processed foods; provide
information through large food retail stores to consumers about the health
risks of pesticide residues and how to avoid them; preempt state and local
food safety laws if they are based on concentrations of pesticide residues
below recently established federal residue limits (called "tolerances"); and
ensure that tolerances protect the health of infants and children.
FFDCA, as amended by FQPA, authorizes EPA to set a tolerance for a
pesticide in or on food at a level which poses "a reasonable certainty of no
harm" to consumers. The EPA is required to review all tolerances for all
pesticide products within 10 years. It is not known when and to what extent
the Corporation's products will be reviewed and/or restricted under this
standard.
In April, 1996, UCC announced that it had voluntarily canceled registered
uses of its propargite miticide on certain crops in the United States. The
action was taken to reduce dietary exposure as requested by the EPA, using the
EPA's current risk assessment model. Tests to confirm that propargite does
not pose a dietary risk are continuing under EPA approved protocols.
Propargite will be reviewed under the new FQPA standard discussed above.
The European Commission ("EC") has established procedures whereby all
existing active ingredient pesticides will be reviewed. This EC regulation
became effective in 1993 and will result in a review of all commercial
products during the next few years. The initial round of reviews covered
ninety products, four of which are the Corporation's products. It is
anticipated that other of the Corporation's products will be reviewed in
subsequent years. The process may lead to full reregistration in member
states of the EC or may lead to some restrictions, if adverse data is
discovered.
Employees
The Corporation had approximately 5,364 employees on December 26, 1998.
Geographic Information
The information with respect to sales and property, plant and equipment
attributable to each of the major geographic areas served by the Corporation
for each of the Corporation's last three fiscal years, set forth in the Notes
to Consolidated Financial Statements on page 33 of the Corporation's 1998
Annual Report to Stockholders, is incorporated herein by reference.
The Corporation considers that the risks relating to operations of its
foreign subsidiaries are comparable to those of other U.S. companies which
operate subsidiaries in developed countries. All of the Corporation's
international operations are subject to fluctuations in the relative values of
the currencies in the various countries in which its activities are conducted.
ITEM 2. PROPERTIES
The following table sets forth information as to the principal operating
properties of the Corporation and its subsidiaries:
Location Facility Products/Businesses
UNITED STATES
Alabama
Bay Minette Plant* Performance Chemicals
Connecticut
Bethany Research Center* Crop Protection
Middlebury Corporate Offices and Crop Protection, Performance
Research Center** Chemicals, and Polymers
Naugatuck Plant, Research Center* Crop Protection, Performance
Chemicals, and Polymers
Pawcatuck Office and Polymer Processing
Machine Shop* Equipment
Stamford Office** Corporate Headquarters
Louisiana
Geismar Plant* Crop Protection, Performance
Chemicals, and Polymers
New Jersey
Cedar Grove Office and Polymer Processing Equipment
Machine Shop**
Edison Office and Polymer Processing Equipment
Machine Shop**
Newark Plant* Colors
Nutley Office, Laboratory Colors
and Plant*
Somerville Office and Polymer Processing Equipment
Machine Shop*
North Carolina
Charlotte Office and Colors
Laboratory*
Gastonia Plant* Crop Protection, Performance
Chemicals, and Polymers
Lowell Plant* Colors
Pennsylvania
Gibraltar Office, Laboratory Colors
and Plant*
Reading Plant* Colors
South Carolina
Greenville Plant, Laboratory Colors
and Warehouse*
INTERNATIONAL
Australia
South Australia
Regency Park, S.A. Office and Crop Protection
Machine Shop**
New South Wales
Seven Hills Office and Laboratory** Polymers
Bahamas
Freeport Plant* Performance Chemicals
Belgium
Brussels Office** Colors, Crop Protection,
Performance Chemicals
and Polymers
Tertre Office, Laboratory Colors
and Plant*
Brazil
Rio Claro Plant* Crop Protection, Performance
Chemicals, and Polymers
Canada
Ontario
Elmira Plant* Crop Protection, Performance
Chemicals, and Polymers
Guelph Research Center* Crop Protection, Performance
Chemicals, and Polymers
France
Dannemarie Office and Polymer Processing Equipment
Machine Shop*
Oissel Office, Laboratory Colors
and Plant*
Germany
Erkrath Office and Polymer Processing Equipment
Machine Shop*
Italy
Latina Plant* Crop Protection, Performance
Chemicals, and Polymers
Korea
Kyungki-do Plant* Performance Chemicals
Mexico
Tampico Plant* Performance Chemicals
The Netherlands Plant* Crop Protection
Amsterdam
Republic of China
(Taiwan)
Kaohsiung Plant*** Performance Chemicals
Thailand
Bangkok Plant* Performance Chemicals
United Kingdom
Evesham Research Center* Crop Protection
Huddersfield Plant# Performance Chemicals
Langley Office** Colors, Crop Protection,
Performance Chemicals, and
Polymers
__________________
* Facility Owned by the Corporation
** Facility Leased by the Corporation
*** Facility Owned by Uniroyal Chemical Taiwan Ltd., which is 80% owned by
Uniroyal
# Land Leased by and Facility owned by Uniroyal
All facilities are considered to be in good operating condition, well
maintained, and suitable for the Corporation's requirements.
ITEM 3. LEGAL PROCEEDINGS
The Corporation is involved in claims, litigation, administrative
proceedings and investigations of various types in several jurisdictions. A
number of such matters involve claims for a material amount of damages and
relate to or allege environmental liabilities, including clean-up costs
associated with hazardous waste disposal sites, natural resource damages,
property damage and personal injury.
Environmental Liabilities. Each quarter, the Corporation evaluates and
reviews estimates for future remediation and other costs to determine
appropriate environmental reserve amounts. For each site, a determination is
made of the specific measures that are believed to be required to remediate
the site, the estimated total cost to carry out the remediation plan, the
portion of the total remediation costs to be borne by the Corporation and the
anticipated time frame over which payments toward the remediation plan will
occur. The total amount accrued for such environmental liabilities at
December 26, 1998, was $94 million. The Corporation estimates the potential
liabilities to range from $70 million to $129 million at December 26, 1998.
It is reasonably possible that the Corporation's estimates for environmental
remediation liabilities may change in the future should additional sites be
identified, further remediation measures be required or undertaken, the
interpretation of current laws and regulations be modified or additional
environmental laws and regulations be enacted.
The Corporation generally assesses the possibility for toxic tort claims.
Such liabilities are dependent upon complex factors. Five facilities have
been identified where the possibility for toxic tort claims may be
significant, i.e. as situations where chemicals are believed to have migrated
off-site, thus posing risk of exposure. There are no lawsuits pending
involving any of these five facilities. Virtually all, if not all, of the
off-site disposal sites to which the Corporation may have sent toxic materials
pose a possibility for toxic tort claims. There are currently pending five
toxic tort claims against Uniroyal and others arising from these off-site
disposal sites.
The Corporation and some of its subsidiaries have been identified by
federal, state or local governmental agencies, and by other potentially
responsible parties (a "PRP") under the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended, or comparable state
statutes, as a PRP with respect to costs associated with waste disposal sites
at various locations in the United States. Because these regulations have
been construed to authorize joint and several liability, the EPA could seek to
recover all costs involving a waste disposal site from any one of the PRP's
for such site, including the Corporation, despite the involvement of other
PRPs. In many cases, the Corporation is one of several hundred PRPs so
identified. In a few instances, the Corporation is one of only a handful of
PRPs. In certain instances, a number of other financially responsible PRPs
are also involved, and the Corporation expects that any ultimate liability
resulting from such matters will be apportioned between the Corporation and
such other parties. In addition, the Corporation is involved with
environmental remediation and compliance activities at some of its current and
former sites in the United States and abroad. The more significant of these
matters are described below.
. Beacon Heights and Laurel Park - Uniroyal is a member of the Beacon
Heights Coalition, a group of entities engaged in remedial work at the Beacon
Heights site in the State of Connecticut pursuant to a Consent Decree entered
in 1987. The actions required by this Consent Decree have been essentially
completed. There is a continuing requirement for operation and maintenance at
the site.
Over many years, Uniroyal has entered into and performed activities
pursuant to a series of Administrative Orders with respect to the Laurel Park
site located in the State of Connecticut. The EPA, the State of Connecticut,
and the Laurel Park Coalition (consisting of Uniroyal and a number of other
parties) have entered into a Consent Decree governing the design and
implementation of the selected remedy. Remedial construction began at the
Laurel Park site in July 1996, and was completed in 1998. Operation and
maintenance activities at the site are ongoing.
Consolidated litigation brought by the Beacon Heights and Laurel Park
Coalitions seeking contribution to the costs from the owner/operators of the
site and later from other identified generator parties has resulted in
substantial recoveries from a number of parties. Hearings on the remaining
claims have been completed before a Special Master appointed by the Court.
The Special Master has issued a Report and Recommendations to the Court
denying recovery to the Coalitions. The Coalitions intend to file objections
to the Report prior to the Courts ruling in this matter.
. Cleve Reber - Uniroyal and three other corporations named in an
Administrative Order issued by the EPA have complied with such Order which
governs remediation of the site located in the State of Louisiana. The
cooperating parties have negotiated a consent agreement with the EPA which
resolves all outstanding claims, leaving only ongoing operation and
maintenance activities at the site.
. Petro Processors - This matter relating to a site in the State of
Louisiana was initiated in 1981. Litigation was instituted by the EPA against
a number of parties, including Uniroyal, Inc. (which Uniroyal has agreed to
indemnify), seeking cleanup of the Petro Processors site. A Consent Decree
was entered to settle the case in February 1984, which required the defendants
to clean up the site to the satisfaction of the EPA under supervision of the
court. A settlement among the ten defendants, dated December 16, 1983,
defines the percentage to be borne by each defendant of the currently
estimated future cost of $89.0 million to complete remediation of the site.
Although the allocations are subject to a confidentiality order, Uniroyal
believes that the amount it will pay will not be material to its financial
condition or results of operations.
. Vertac - Uniroyal and its Canadian subsidiary, Uniroyal Chemical
Co./Cie. (formerly known as Uniroyal Chemical Ltd./Ltee) were joined with
others as defendants in consolidated civil actions brought in the United
States District Court, Eastern District of Arkansas, Western Division by the
United States of America, the State of Arkansas and Hercules Incorporated
("Hercules") relating to a Vertac Chemical Corporation site in Jacksonville,
Arkansas. Uniroyal has been dismissed from the litigation. On May 21, 1997,
the Court entered an order finding that Uniroyal Chemical Co./Cie. is jointly
and severally liable to the United States, and finding that Hercules and
Uniroyal Chemical Co./Cie. are liable to each other in contribution. On
October 23, 1998, the Court entered an order granting the United States's
motion for summary judgment against Uniroyal Chemical Co,/Cie. and Hercules as
to the amount of its claimed removal and remediation costs of $102.9 million
at the Vertac site. Trial on the allocation of these costs as between
Uniroyal Chemical Co./Cie. and Hercules was concluded on November 6, 1998, and
post-trial briefing was completed during February 1999, with a decision
expected during the second quarter of 1999. How much, if any, of the costs
will ultimately be imposed on Uniroyal Chemical Co./Cie. cannot be determined
at this time although Uniroyal Chemical Co./Cie. continues to believe that its
share of liability will be small in comparison to that of Hercules.
The natural resource damage case filed by several individuals in state
court which named Uniroyal Chemical Co./Cie. has been withdrawn without
prejudice. These individuals have refiled their case in Federal court against
some of the parties but have not named Uniroyal Chemical Co./Cie. as a
defendant. Uniroyal Chemical Co./Cie. received a notice from the United
States Department of the Interior of its intent to perform a Natural Resource
Damage Assessment at the site. In addition, the State of Arkansas has
commenced an action for natural resource damages which is currently pending in
the State court, but Uniroyal Chemical Co./Cie. has not been named a party in
that action.
. Naugatuck - On February 24, 1999, the Connecticut Department of
Environmental Protection initiated an action in Connecticut State court
against Uniroyal alleging that the Company's Naugatuck, CT, plant had on
several occasions improperly discharged hazardous wastes to the Naugatuck
sewage treatment plant and had failed to comply with other applicable state
and Federal requirements regarding its discharges to the sewage treatment
plant.
The Corporation intends to assert all meritorious legal defenses and all
other equitable factors which are available to it with respect to the above
matters. The Corporation believes that the resolution of these environmental
matters will not have a material adverse effect on its consolidated financial
position. While the Corporation believes it is unlikely, the resolution of
these environmental matters could have a material adverse effect on its
consolidated results of operations in any given year if a significant number
of these matters are resolved unfavorably.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this report.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The information concerning the range of market prices for the
Corporation's Common Stock on the New York Stock Exchange and the amount of
dividends paid thereon during the past two years, set forth in the Notes to
Consolidated Financial Statements on page 33 of the Corporation's 1998 Annual
Report to Stockholders, is incorporated herein by reference.
The number of registered holders of Common Stock of the Corporation on
December 26, 1998, was 4,555.
ITEM 6. SELECTED FINANCIAL DATA
The selected financial data for the Corporation for each of its last
seven fiscal years, set forth under the heading "Seven Year Selected Financial
Data" on page 35 of the Corporation's 1998 Annual Report to Stockholders, is
incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Management's discussion and analysis of the Corporation's financial
condition and results of operations, set forth under the heading "Management's
Discussion and Analysis of Financial Condition and Results of Operations" on
pages 18 through 21 of the Corporation's 1998 Annual Report to Stockholders,
is incorporated herein by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk is summarized in Management's Discussion and Analysis of
Financial Conditions and Results of Operations on pages 19 and 20 of the
Corporation's 1998 Annual Report to Stockholders. Significant interest rate
risk-sensitive instruments as of December 26, 1998, are detailed below and
should be read in conjunction with the Long-term Debt and Financial
Instruments Notes to the Corporation's 1998 Annual Report to Stockholders:
Interest Rate Sensitivity
(In thousands of dollars)
Fair
Year of Maturity 1999 2000 2001 2002 2003 Total Value
Long-Term Debt:
Fixed Rate (US$) $182,261 $173,128 $355,389 $394,447
Average
Interest Rate 9.00% 10.50% 9.73%
Variable Rate (US$) $283,700 $283,700 $283,700
Average
Interest Rate 6.13% 6.13%
Variable Rate (primarily
Canadian Dollars) $ 3,366 $500 $ 462 $ 3,440 $ 7,768 $ 7,768
Average
Interest Rate 5.73% 4.25% 4.25% 5.38% 5.39%
Short-Term Debt:
Variable Rate (primarily Belgian
Francs) $17,305 $ 17,305 $ 7,305
Average
Interest Rate 3.85% 3.85%
Anticipated Transaction Interest Rate
Protection Agreement:
Protection Agreement
(US$) $230,000 $230,000 $ 17,098
6.04% 6.04%
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements of the Corporation, notes thereto, and
supplementary data, appearing on pages 22 through 35 of the Corporation's 1998
Annual Report to Stockholders, are incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information called for by this item concerning directors of the
Corporation is included in the definitive proxy statement for the
Corporation's Annual Meeting of Stockholders to be held on April 27, 1999,
which is to be filed with the Commission pursuant to Regulation 14A of the
Securities Exchange Act of 1934, and such information is incorporated herein
by reference.
The executive officers of the Corporation are as follows:
Vincent A. Calarco, age 56, has served as President and Chief Executive
Officer of the Registrant since 1985 and Chairman of the Board since 1986. Mr.
Calarco has been a member of the Board of Directors of the Registrant since
1985.
Robert W. Ackley, age 57, has served as a Vice President, Polymer Processing
Equipment, of the Registrant since 1998 and as President of Davis-Standard
Corporation (prior to 1995, Davis-Standard Division) since 1983. Mr. Ackley
has served as a Vice President of the Registrant since 1986.
Peter Barna, age 55, has served as Vice President-Finance of the Registrant
since 1996 and Principal Accounting Officer of the Registrant since 1986. Mr.
Barna served as Treasurer of the Registrant from 1980 to 1996.
James J. Conway, age 55, has served as Vice President, Colors, of the
Registrant since 1998 and President of Crompton & Knowles Colors Incorporated
since 1997. Prior to joining the Registrant, Mr. Conway was Senior Vice
President and General Manager of International Specialty Products, Inc. from
1992 to 1997.
Joseph B. Eisenberg, Ph.D., age 56, has served as Vice President, Rubber
Chemicals, EPDM and Nitrile Rubber, of the Registrant since 1998 and as
Executive Vice President, Chemicals & Polymers, of Uniroyal since 1994. Dr.
Eisenberg served as Vice President and General Manager of the Chemicals &
Polymers Division of Uniroyal from 1991 to1994.
John T. Ferguson II, age 52, has served as Vice President of the Registrant
since 1996, and General Counsel and Secretary of the Registrant since 1989.
Marvin H. Happel, age 59, has served as Vice President-Organization and
Administration of the Registrant since 1996 and Vice President-Organization
from 1986 to 1996.
Alfred F. Ingulli, age 57, has served as Vice President, Crop Protection, of
the Registrant since 1998 and as Executive Vice President, Crop Protection of
Uniroyal since 1994. Mr. Ingulli served as Vice President and General
Manager, Crop Protection Division of Uniroyal from 1989 to 1994.
John R. Jepsen, age 43, has served as Treasurer of the Registrant since 1998.
Mr. Jepsen served with the International Paper Company as Assistant Treasurer,
International from 1996 to 1998 and, prior to that, as Director of Corporate
Finance from 1986 to 1996.
Charles J. Marsden, age 58, has served as Senior Vice President and Chief
Financial Officer of the Registrant since 1996, and served as Vice President-
Finance and Chief Financial Officer of the Registrant from 1985 to 1996. Mr.
Marsden has served as a member of the Board of Directors of the Registrant
since 1985.
William A. Stephenson, age 51,has served as Vice President, Specialty
Additives and Urethanes, of the Registrant since 1998 and as Executive Vice
President, Specialties of Uniroyal since 1994. Mr. Stephenson served as Vice
President and General Manager, Specialties Division, of Uniroyal from 1990 to
1994.
The term of office of each of the above-named executive officers is until
the first meeting of the Board of Directors following the next annual meeting
of stockholders and until the election and qualification of his successor.
There is no family relationship between any of such officers, and there
is no arrangement or understanding between any of them and any other person
pursuant to which any such officer was selected as an officer.
ITEM 11. EXECUTIVE COMPENSATION
Information called for by this item is included in the definitive proxy
statement for the Corporation's Annual Meeting of Stockholders to be held on
April 27, 1999, which is to be filed with the Commission pursuant to
Regulation 14A, and such information is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information called for by this item is included in the definitive proxy
statement for the Corporation's Annual Meeting of Stockholders to be held on
April 27, 1999, which is to be filed with the Commission pursuant to
Regulation 14A, and such information is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information called for by this item is included in the definitive proxy
statement for the Corporation's Annual Meeting of Stockholders to be held on
April 27, 1999, and such information is incorporated herein by reference.
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. Financial statements and Independent Auditors' Report, as required by
Item 8 of this form, which appear on pages 22 through 34 of the
Corporation's 1998 Annual Report to Stockholders and are incorporated
herein by reference:
(i) Consolidated Statements of Operations for the fiscal years
ended 1998, 1997, and 1996;
(ii) Consolidated Balance Sheets for the fiscal years ended 1998
and 1997;
(iii) Consolidated Statements of Cash Flows for the fiscal years
ended 1998, 1997, and 1996;
(iv) Consolidated Statements of Stockholders' Equity [Deficit] for
the fiscal years ended 1998, 1997 and 1996;
(v) Notes to Consolidated Financial Statements; and
(vi) Independent Auditors' Report of KPMG LLP.
2. Independent Auditors' Report and Consent, and Financial Statement
Schedule II, Valuation and Qualifying Accounts, required by
Regulation S-X. Pages S-1 and S-2 hereof.
3. The following exhibits are either filed herewith or incorporated
herein by reference to the respective reports and registration
statements identified in the parenthetical clause following the
description of the exhibit:
Exhibit No. Description
2.0 Agreement and Plan of Merger dated April 30, 1996, by and among
the Registrant, Tiger Merger Corp. and UCC (incorporated by reference
to Exhibit 2 to Form 10-Q for the period ended March 31, 1996).
2.1 Limited Liability Company Agreement by and between Gustafson, Inc. and
Trace Chemicals, Inc., effective as of September 23, 1998,
(incorporated by reference to Exhibit 2.1 to Form 8-K/A dated January
21, 1999).
2.2 First Amendment to Limited Liability Company Agreement by and among GT
Seed Treatment Inc. (f/k/a Gustafson, Inc.), Ecart Inc. (f/k/a Trace
Chemicals, Inc.) and Bayer Corporation, dated as of November 20, 1998,
(incorporated by reference to Exhibit 2.2 to Form 8-K/A dated January
21, 1999).
2.3 Purchase Agreement by and among the Registrant, Uniroyal, Trace
Chemicals, Inc. and Gustafson, Inc. as Sellers, and Bayer Corporation,
as Purchaser, and Gustafson LLC, as the Company, dated as of November
20, 1998, (incorporated by reference to Exhibit 2.3 to Form 8-K/A
dated January 21, 1999).
2.4 Purchase Agreement by and between Uniroyal Chemical Co./Cie and Bayer
Inc., effective as of November 20, 1998, (incorporated by reference
to Exhibit 2.4 to Form 8-K/A dated January 21, 1999).
2.5 Partnership Agreement of Gustafson Partnership by and between Uniroyal
Chemical Co./Cie and Bayer Inc., effective as of November 20, 1998,
(incorporated by reference to Exhibit 2.5 to Form 8-K/A dated January
21, 1999).
2.6 Joint Venture Agreement and Shareholders Agreement dated September 18,
1998, by and between Uniroyal and GIRSA S.A. de C.V. (filed
herewith*)
2.7 Stock Purchase Agreement dated as of December 8, 1998, by and among
the Registrant and Ingredient Technology Corporation, as Sellers, and
Chr. Hansen Inc., as Purchaser (filed herewith*).
3(i) Restated Articles of Organization of the Registrant filed with the
Commonwealth of Massachusetts on October 27, 1988, as amended on April
10, 1990, and on April 14, 1992 (incorporated by reference to Exhibit
3(a) to Form 10-K for the fiscal year ended December 26, 1992).
3(ii) By-laws of the Registrant (incorporated by reference to Exhibit
3(ii) to Form 10-K for the fiscal year ended December 27, 1997).
4.1 Rights Agreement dated as of July 20, 1988, between the Registrant and
The Chase Manhattan Bank, N.A., as Rights Agent (incorporated by
reference to Exhibit 1 to Form 8-K dated July 29, 1988).
4.2 Agreement dated as of March 28, 1991, amending Rights Agreement dated
as of July 20, 1988, between the Registrant and The Chase Manhattan
Bank, N.A., as Rights Agent (incorporated by reference to Exhibit
4(i)(i) to Form 10-K for the fiscal year ended December 29, 1990).
4.3 Form of Indenture, dated as of February 8, 1993, among Uniroyal
and State Street Bank and Trust Company, as
Trustee, relating to the 10 1/2% Notes, including form of securities
(incorporated by reference to Exhibit 4.1 to the Registration
Statement on UCC Form S-1, Registration No. 33-45296 and 33-45295
["UCC Form S-1, Registration No. 33-45296/45295"]).
4.4 Form of First Supplemental Indenture, dated as of December 9, 1998,
among UCC, as Issuer, Uniroyal, as successor to the Issuer, and State
Street Bank and Trust Company, as Trustee, relating to the 10 1/2%
Notes (filed herewith*).
4.5 Form of Indenture, dated as of February 8, 1993, among UCC and United
States Trust Company of New York, as Trustee, relating to the 11%
Notes, including form of securities (incorporated by reference to
Exhibit 4.1(a) to UCC Form S-1, Registration No. 33-45296/45295).
4.6 Form of Indenture, dated as of February 8, 1993, among UCC and The
Shawmut Bank Connecticut, N.A. as Trustee, relating to the 12% Notes,
including form of securities (incorporated by reference to Exhibit
4.1(b) to UCC Form S-1, Registration No. 33-45296/45295).
4.7 Form of Indenture, dated as of September 1, 1993, among Uniroyal
and State Street Bank and Trust Company, as Trustee, relating to $270
million of 9% Notes, including the form of securities (incorporated
by reference to Exhibit 4.2 to UCC Form S-1, Registration No.
33-66740).
4.8 Form of US $600 Million Second Amended and Restated Credit Agreement
dated as of July 25, 1997, by and among the Registrant and certain of
its subsidiaries, as Borrowers, and various lenders, and Citicorp
Securities, Inc., as Arranger, and Citicorp USA, Inc., as Agent and
the Chase Manhattan Bank, as Managing Agent (incorporated by
reference to Exhibit 4 to UCC Form 10-Q for the quarter ended June 28,
1997).
4.9 Form of US $600 Million Third Amended and Restated Credit Agreement
dated as of March 31, 1998, by and among the Registrant and certain of
its subsidiaries, as Borrowers, and various lenders, and Citicorp USA,
Inc., as Agent and The Chase Manhattan Bank, Corestates Bank, N.A. and
First Union National Bank, as Managing Agents (incorporated by
reference to Exhibit 4 to Form 10-Q for the quarter ended June 27,
1998).
10.1+ 1983 Stock Option Plan of the Registrant, as amended through April 14,
1987 (incorporated by reference to Exhibit 10(c) to Form 10-Q for the
quarter ended March 28, 1987).
10.2+ Amendments to the Registrant's Stock Option Plans
adopted February 22, 1988 (incorporated by reference to Exhibit 10(d)
to Form 10-K for the fiscal year ended December 26, 1987).
10.3+ Summary of Management Incentive Bonus Plan for selected key management
personnel (incorporated by reference to Exhibit 10(m) to Form 10-K
for the fiscal year ended December 27, 1980).
10.4+ Supplemental Medical Reimbursement Plan (incorporated by reference to
Exhibit 10(n) to Form 10-K for the fiscal year ended December 27,
1980).
10.5+ Supplemental Dental Reimbursement Plan (incorporated by reference to
Exhibit 10(o) to Form 10-K for the fiscal year ended December 27,
1980).
10.6+ Employment Agreement dated February 22, 1988, between the Registrant
and Vincent A. Calarco (incorporated by reference to Exhibit 10(j) to
the Form 10-K for the fiscal year ended December 26, 1987).
10.7+ Form of Employment Agreement entered into in 1988, 1989, 1992, 1994,
1996 and 1998 between the Registrant or one of its subsidiaries and
ten of the executive officers of the Registrant (incorporated by
reference to Exhibit 10(k) to Form 10-K for the fiscal year ended
December 26, 1987).
10.8+ Form of Employment Agreement dated as of August 21, 1996, between a
subsidiary of the Registrant and three executive officers of the
Registrant (incorporated by reference to Exhibit 10.28 to the
UCC/Uniroyal Form 10-K for the fiscal year ended September 28, 1996).
10.9+ Amended Supplemental Retirement Agreement dated October 18, 1995,
between the Registrant and Vincent A. Calarco (incorporated by
reference to Exhibit 10(i) to Form 10-K for the fiscal year ended
December 30, 1995).
10.10+ Form of Amended Supplemental Retirement Agreement dated October 18,
1995, between the Registrant and three of its executive officers
(incorporated by reference to Exhibit 10(j) to Form 10-K for the
fiscal year ended December 30, 1995).
10.11+ Form of Supplemental Retirement Agreement dated October 18, 1995,
between the Registrant and five of its executive officers
(incorporated by reference to Exhibit 10(k) to Form 10-K for the
fiscal year ended December 30, 1995).
10.12+ Form of Supplemental Retirement Agreement dated as of August 21, 1996,
between a subsidiary of the Registrant and two executive officers of
the Registrant (incorporated by reference to Exhibit 10.29 to the
UCC/Uniroyal Form 10-K for the fiscal year ended September 28, 1996).
10.13+ Form of Supplemental Retirement Agreement dated as of August 21, 1996,
between a subsidiary of the Registrant and two executive officers of
the Registrant (incorporated by reference to Exhibit 10.30 to the
UCC/Uniroyal Form 10-K for the fiscal year ended September 28, 1996).
10.14+ Supplemental Retirement Agreement Trust Agreement dated October 20,
1993, between the Registrant and Shawmut Bank, N.A. (incorporated by
reference to Exhibit 10(l) to Form 10-K for the fiscal year ended
December 25, 1993).
10.15+ Amended Benefit Equalization Plan dated October 20, 1993
(incorporated by reference to Exhibit 10(m) to Form 10-K for the
fiscal year ended December 25, 1993).
10.16+ Amended Benefit Equalization Plan Trust Agreement dated October 20,
1993, between the Registrant and Shawmut Bank, N.A. (incorporated by
reference to Exhibit 10(n) to Form 10-K for the fiscal year ended
December 25, 1993).
10.17+ Amended 1988 Long Term Incentive Plan (incorporated by reference to
Exhibit 10(o) to Form 10-K for the fiscal year ended December 25,
1993).
10.171+ Amendment No. 4 to 1988 Long Term Incentive Plan (incorporated by
reference to Exhibit 10.171 to Form 10-K for the fiscal year ended
December 28, 1996).
10.18 Trust Agreement dated as of May 15, 1989, between the Registrant and
Shawmut Worcester County Bank, N.A. and First Amendment thereto dated
as of February 8, 1990 (incorporated by reference to Exhibit 10(w) to
Form 10-K for the fiscal year ended December 30, 1989).
10.19+ Form of 1992 - 1994 Long Term Performance Award Agreement
(incorporated by reference to Exhibit 10(y) to Form 10-K for the
fiscal year ended December 28, 1991).
10.20+ Restricted Stock Plan for Directors of the Registrants approved by the
stockholders on April 9, 1991 (incorporated by reference to Exhibit
10(z) to Form 10-K for the fiscal year ended December 28, 1991).
10.21+ Amended 1993 Stock Option Plan for Non-Employee Directors (filed
herewith*).
10.22 Form of Assignment and Assumption of Raw Materials Agreement, dated as
of October 30, 1989, between UCC and Avery (incorporated by reference
to Exhibit 10.1 to UCC Form S-1, Registration No. 33-32770).
10.23+ UCC Purchase Right Plan, as amended and restated as of March 16, 1995
(incorporated by reference to Exhibit 10.1 to the UCC Form 10-Q for
the period ended April 2, 1995 ["UCC April 1995 Form 10-Q"]).
10.24+ UCC 1993 Stock Option Plan (incorporated by reference to Exhibit 28.1
to UCC's Registration Statement No. 33-62030 on Form S-8, filed on May
4, 1993).
10.25+ Form of Amendment No. 2 to the UCC 1993 Stock Option Plan
(incorporated by reference to Exhibit 10.2 to the UCC April 1995 Form
10-Q).
10.26+ Form of Executive Stock Option Agreement, dated as of November 15,
1993 (incorporated by reference to Exhibit 10.22 to the UCC 1994 Form
10-K).
10.27+ Form of Amended and Restated 1996 - 1998 Long Term Performance Award
Agreement entered into in 1996 between the Registrant or one of its
subsidiaries and thirteen of the executive officers of the Registrant
(incorporated by reference to Exhibit 10.27 to the Form 10-K for the
fiscal year ended December 27, 1997).
10.28 Second Amended and Restated Lease Agreement between the Middlebury
Partnership, as Lessor, and the Uniroyal, as Lessee, dated as of
August 28, 1997 (incorporated by reference to Exhibit 10 to the
UCC/Uniroyal 10-Q for the quarter ended September 27, 1997).
10.291 Form of Receivables Sale Agreement, dated as of December 11, 1998, by
and among the Registrant, as Initial Collection Agent, Crompton &
Knowles Receivables Corporation, ABN AMRO Bank N.V., as the Agent, the
Enhancer, and the Liquidity Provider, and Windmill Funding Corporation
(filed herewith*).
10.292 Form of Receivables Purchase Agreement, dated as of December 11, 1998,
by and among the Registrant, as Initial Collection Agent, and certain
of its subsidiaries, as Sellers, and Crompton & Knowles Receivables
Corporation, as Buyer (filed herewith*).
13 1998 Annual Report to Stockholders of the Registrant. (Not to be
deemed filed with the Securities and Exchange Commission
except those portions expressly incorporated by reference into this
report on Form 10-K.) (filed herewith*).
21 Subsidiaries of the Registrant (filed herewith*).
23 Consent of independent auditors. (See Item 14(a)2 herein.) (filed
herewith*).
24 Power of attorney from directors and executive officers of the
Registrant authorizing signature of this report. (Original on file at
principal executive offices of Registrant.) (filed herewith*).
27 Financial data schedule for the fiscal year ended December 26, 1998
(filed herewith*).
* Copies of these Exhibits are annexed to this report on Form 10-K
provided to the Securities and Exchange Commission and the New York Stock
Exchange.
+ This Exhibit is a compensatory plan, contract or arrangement in which one
or more directors or executive officers of the Registrant participate.
(b) Reports on Form 8-K filed in fourth quarter 1998
A Current Report on Form 8-K was filed by the Registrant on December 7,
1998, ("Form 8-K"), reporting on Item 2 (Acquisition or Disposition of
Assets). The Registrant amended its Form 8-K by filing a Current Report on
Form 8-K/A on January 21, 1999, reporting on Item 2.
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.
CROMPTON & KNOWLES CORPORATION
(Registrant)
Date: March 26, 1999 By:/s/Charles J. Marsden
Charles J. Marsden
Senior Vice President &
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 and in the capacities and on the date indicated.
Name Title
Vincent A. Calarco* Chairman of the Board, President,
and Director (Principal Executive
Officer)
Charles J. Marsden* Senior Vice President and Director
(Chief Financial Officer)
Peter Barna* Vice President - Finance
(Principal Accounting Officer)
James A. Bitonti* Director
Robert A. Fox* Director
Roger L. Headrick* Director
Leo I. Higdon, Jr.* Director
C. A. Piccolo* Director
Patricia K. Woolf* Director
Date: March 26, 1999 *By:/s/Charles J. Marsden
Charles J. Marsden
as attorney-in-fact
Independent Auditors' Report and Consent
The Board of Directors and Stockholders
Crompton & Knowles Corporation
Under date of January 27, 1999, we reported on the consolidated balance sheets
of Crompton & Knowles Corporation and subsidiaries (the Company) as of
December 26, 1998 and December 27, 1997, and the related consolidated
statements of operations, stockholders' equity (deficit) and cash flows for
each of the years in the three-year period ended December 26, 1998, which are
incorporated by reference in this Form 10-K. In connection with our audits of
the aforementioned consolidated financial statements, we also audited the
related consolidated financial statement schedule included in this Form 10-K.
This financial statement schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion on this financial
statement schedule based on our audit.
In our opinion, such financial statement schedule, when considered in relation
to the basic consolidated financial statements taken as a whole, presents
fairly, in all material respects, the information set forth therein.
We consent to the incorporation by reference in the registration statements
(Nos. 33-21246, 33-42280, 33-67600 and 333-62429) on Form S-8 of Crompton &
Knowles Corporation of our report, dated January 27, 1999, relating to the
consolidated balance sheets of Crompton & Knowles Corporation and subsidiaries
as of December 26, 1998 and December 27, 1997, and the related consolidated
statements of operations, stockholders' equity (deficit) and cash flows for
each of the years in the three-year period ended December 26, 1998, which
report is incorporated by reference in the December 26, 1998 Annual Report on
Form 10-K of Crompton & Knowles Corporation.
/S/KPMG LLP
KPMG LLP
Stamford, Connecticut
March 26, 1999
S-1
Schedule II
CROMPTON & KNOWLES CORPORATION AND SUBSIDIARIES
Valuation and Qualifying Accounts
(In thousands of dollars)
Additions
Balance at charged to Adjustments Balance
beginning costs and at end
of year expenses Recurring Other of year
Fiscal Year ended December 26, 1998:
Allowance for doubtful accounts
$ 8,708 $ 5,209 $ (3,742)(1) $ (407)(3) $ 9,768
Accumulated amortization of cost in
excess of acquired net assets
42,243 7,222 (572)(2) (4,046)(3) 44,647
Accumulated amortization of other
intangible assets
123,262 14,122 743 (2) (17,267)(3) 120,860
Fiscal Year ended December 27, 1997:
Allowance for doubtful accounts
$ 7,299 $ 2,230 $ (821)(1) $ 0 $ 8,708
Accumulated amortization of cost in
excess of acquired net assets
36,616 5,751 (67 (2) (57)(4) 42,243
Accumulated amortization of other
intangible assets
108,163 15,413 (314)(2) 0 123,262
Fiscal Year ended December 28, 1996:
Allowance for doubtful accounts
$ 6,142 $ 2,333 $ (1,525)(1) $ 349 (5) $ 7,299
Accumulated amortization of cost in
excess of acquired net assets
29,562 5,835 140 (2) 1,079 (5) 36,616
Accumulated amortization of other
intangible assets
89,036 15,700 (296)(2) 3,723 (5) 108,163
(1) Represents accounts written off as uncollectible (net of recoveries),
and the translation effect of accounts denominated in foreign
currencies.
(2) Represents the translation effect of intangible assets denominated
in foreign currencies.
(3) Represents primarily disposition of the Gustafson seed treatment business.
(4) Represents intangible asset retirements.
(5) Represents adjustment to conform fiscal year of Uniroyal.
S - 2
EXHIBIT 2.6
JOINT VENTURE AND SHAREHOLDERS AGREEMENT
AGREEMENT dated September 18, 1998 by and between Uniroyal Chemical
Company, Inc., a New Jersey corporation with its principal offices at World
Headquarters, Middlebury, Connecticut 06749 ("Uniroyal"), and GIRSA S.A. de
C.V., a company organized and existing under the laws of Mexico with its
principal offices at Paseo de los Tamarindos No. 400 B, Piso 31 Bosque de las
Lomas, Mexico, D.F. ("GIRSA"), with the participation of Novaquim Holdings,
S.A. de C.V., a company organized and existing under the laws of Mexico with
its principal offices at Insurgentes Sur 1685, Piso 11, Col. Guadalupe Inn,
Mexico, D.F. ("Novaquim"). As used in this Agreement, references to "Uniroyal
Chemical" shall mean Uniroyal and/or Novaquim, as required by the context of
this Agreement, and references to a "party" or the "parties" shall mean GIRSA,
on the one hand, and Uniroyal Chemical, on the other hand.
WITNESSETH:
WHEREAS, Uniroyal is engaged in the business of manufacturing
acrylonitrile-butadiene rubber ("NBR") and NBR-PVC alloys (NBR and NBR-PVC
alloys being collectively referred to herein as "NBR Products") in the United
States and marketing NBR Products throughout the world and Uniroyal is the
owner of certain proprietary technology with respect to the manufacture of NBR
Products including patents and trademarks and certain proprietary information
with respect to the marketing of NBR Products (collectively, "Technology and
Know-how");
WHEREAS, Novaquim is a wholly owned subsidiary of Uniroyal and carries
on, directly or indirectly, the NBR Products business of Uniroyal in Mexico;
WHEREAS, GIRSA is engaged, through its wholly owned subsidiary,
Industrias Negromex S.A. de C.V. ("INSA") in the business of producing NBR
Products, styrene butadiene rubber and other products and owns manufacturing
facilities for the production of NBR Products, styrene butadiene rubber and
other products, which facilities are located at Altamira, Tams., Mexico (the
"Facilities"), and INSA is currently manufacturing NBR Products exclusively
for Uniroyal at the Facilities;
WHEREAS, GIRSA and Uniroyal have determined that it would be advantageous
to both if the Facilities and the manufacturing skills of INSA, the sales and
marketing skills and customer base of Uniroyal and the Technology and Know-how
were combined into operations of a joint venture (the "Joint Venture"),
consisting of a jointly owned, directly or indirectly, manufacturing company
formed in Mexico, and a jointly owned marketing company formed in the United
States, it being the expectation of GIRSA and Uniroyal that the Joint Venture
would operate, commencing on or about July 1, 1999 (the "Start-up Date"), as a
world class, high quality producer of NBR Products, and would be a successful
competitor in the worldwide market for NBR Products.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
set forth herein, and for other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged , the parties hereto agree as
follows:
1. JOINT VENTURE COMPANIES
1.01 Manufacturing Company. (a) GIRSA has heretofore caused to be
organized, under the laws of Mexico, an S.A. de C.V. company under the name
Nitrilo, S.A. de C.V. (the "Manufacturing Company"), that shall have an
authorized capital of $100,000.00 pesos consisting of 51 shares of Class A
stock of the par value of $1,000.00 pesos each (the "Manufacturing Class A
Shares") and 49 shares of Class B stock of the par value of $1,000.00 pesos
each (the "Manufacturing Class B Shares"). As promptly as reasonably
possible, GIRSA shall amend the By-laws of the Manufacturing Company, so they
shall be substantially as the ones attached as Exhibit A hereto.
(b) The Manufacturing Company shall engage in the manufacture of NBR
Products, using the Technology and Know-How contributed by Uniroyal to the
Joint Venture required for the manufacture of the NBR Products and the
technical information to be provided by INSA for supporting the continuous
process for NBR and the equipment to be sold, granted in use or contributed or
otherwise funded by GIRSA (indirectly through INSA) and Uniroyal (indirectly
through Novaquim) for the Joint Venture as provided hereunder.
1.02 Marketing Company. (a) As promptly as reasonably possible, Uniroyal
shall cause to be organized, under the laws of the State of Delaware, United
States of America, a limited liability company (the "Marketing Company"),
consisting of 510 Class A units (the "Marketing Class A Shares") and 490 Class
B units (the "Marketing Class B Shares"). The Certificate of Formation and
Limited Liability Agreement for the Marketing Company shall be substantially
as the ones attached as Exhibit B hereto.
(b) The Marketing Company shall engage in the marketing of NBR Products
worldwide on behalf of the Joint Venture except for Mexico, using the sales
and marketing skills and customer base contributed by Uniroyal to the Joint
Venture.
The Manufacturing Company, and the Marketing Company are sometimes referred to
in this Agreement each as a "Joint Venture Company" and collectively as the
"Joint Venture Companies". In the event that GIRSA and Uniroyal shall jointly
organize additional corporations in order to carry on the activities of the
Joint Venture, such additional corporations shall also be deemed Joint Venture
Companies, and shall be subject for their organization and governance to the
applicable provisions of this Agreement.
1.03 Manufacturing Company Capitalization. Capital Contributions of the
parties to the Manufacturing Company shall be as follows:
(a) GIRSA shall contribute or cause to be contributed:
(i) the advances heretofore made by it to the Manufacturing Company to
fund engineering and capital projects to benefit the Joint Venture (as
referred to and provided for in that certain Agreement dated May 12, 1998
by and between GIRSA and Uniroyal (the "Capital Risk Sharing
Agreement"));
(ii) the use for the duration of the Joint Venture of (1) all batch
processing manufacturing machinery and equipment for the production of
NBR Products currently located at the Facilities as more specifically
described in Exhibit "C-1" of this Agreement and (2) the use of new
production equipment worth US$18,620,000.00 as more specifically
described in Exhibit "C-2".
GIRSA shall cause INSA transfer to Manufacturing Company the machinery
and equipment detailed in Exhibit "C-2" no later than eleven years from
the Start up Date.
(iii) cash in an amount equal to the difference between US$7,656,500 and
the amount of the advances referred to in paragraph 1.03 (a) (i) above in
accordance with the cash flow needs to fund capital projects, new
production equipment and improvement of existing equipment at the
Facilities.
In return for the aforesaid contributions to the capital of Manufacturing
Company, GIRSA shall receive 51% of the total amount of shares of
Manufacturing Company, which 51% interest shall be represented by Class A
Shares..
(b) Uniroyal shall contribute, through Novaquim:
(i) the advances heretofore made by Uniroyal through Novaquim to the
Manufacturing Company to fund engineering and capital projects to benefit
the Joint Venture (as referred to and provided for in the Capital Risk
Sharing Agreement) credit for such advances having been contributed by
Uniroyal to Novaquim;
(ii) timely before the Start-up Date, the batch polymerization reactors,
French press, P&S dryer and related machinery and equipment for the
production and testing of NBR Products located at Uniroyal's NBR Products
manufacturing facilities at Painesville, Ohio, U.S.A. and certain
research and development equipment located in Connecticut, as more
specifically described in Exhibit "D" attached to this Agreement;
(iii) cash in an amount equal to the difference between US$7,356,500 and
the amount of the advances referred to in paragraph 1.03 (b) (i) above in
accordance with cash flow needs to fund capital projects, new production
equipment , and improvement of existing equipment at the Facilities.
In return for the aforesaid contributions to the capital of Manufacturing
Company, Novaquim shall receive 49% of the total amount of shares of
Manufacturing Company which 49% interest shall be represented by Class B
Shares.
Once the contributions of the parties have been capitalized through a capital
stock increase , GIRSA shall be holder and owner of 51% of the total shares of
Manufacturing Company, and Novaquim shall be holder and owner of 49% of the
total shares of Manufacturing Company.
1.04 Marketing Company Capitalization. Capital Contributions of GIRSA and
Uniroyal to the Marketing Company shall be as follows:
(a) GIRSA shall contribute or cause to be contributed, cash in the
amount of US$122,500
In return for the aforesaid contribution to the capital of Marketing Company,
GIRSA shall receive 49% of the total amount of ownership interests of
Marketing Company, which interests shall be represented by Class B Shares.
(b) Uniroyal shall contribute or cause to be contributed cash in the
amount of US$127,500
In return for the aforesaid contribution to the capital of Marketing Company,
Uniroyal shall receive 51% of the total amount of ownership interests of
Marketing Company which interests shall be represented by Class A Shares . In
view of the above, once the contributions of the parties have been made, GIRSA
shall be the holder and owner of 49% of the total ownership interests of
Marketing Company, and Uniroyal shall be the holder and owner of 51% of the
total ownership interests of the Marketing Company.
(c) Following such capitalization of the Marketing Company, Uniroyal
shall sell and irrevocably transfer to the Marketing Company, and Uniroyal and
GIRSA shall cause the Marketing Company to purchase from Uniroyal (and/or
Uniroyal shall otherwise provide for the perpetual, free and exclusive use by
the Marketing Company on a worldwide basis of) the following property for the
sum of US$250,000:
All intangible property owned by Uniroyal, or by any Uniroyal's
affiliate, applicable to the production by batch polymerization and marketing
of NBR Products including, but not limited to, all patents, technology, trade
secrets, recipes, technical facts, technical information, formulas or data
owned by Uniroyal, including techniques, processes and research and
development applicable to the production of NBR Products and all logistics
knowledge, procedures, data, trademarks, technical service know-how,
applications and customer lists, applicable to the marketing of NBR Products
(as more specifically described in Exhibit "E" to this Agreement).
Such purchase and sale (and/or other provision for free and exclusive
use) shall be effected by proper instruments of irrevocable assignment or
other appropriate irrevocable documents, substantially in the forms attached
hereto as Exhibit "F", and shall be effective as of the Start-up Date, but
prior to the Start-up Date, Marketing Company and Manufacturing Company, as
licensee of the Marketing Company, shall be granted the right to use the above
mentioned technology and Know-how, in preparation for the start-up of the
Joint Venture including, without limitation, the acquisition and installation
of machinery and equipment for the operations of the Joint Venture.
Uniroyal shall provide reasonable assistance and training in the use of
the above mentioned technology and Know-how to the Marketing Company and to
the Manufacturing Company, as licensee of the Marketing Company, at no cost.
1.05 Ongoing Funding. GIRSA and Uniroyal shall be equally responsible
for funds (other than those provided for in Sections 1.03 and 1.04 of this
Agreement) required by the Joint Venture Companies from time to time. GIRSA
and Uniroyal shall discuss and, agree upon the method by which additional
funds required by the Joint Venture Companies shall be raised. Such funds may
be provided in the form of loans directly from GIRSA and Uniroyal, from
related or unrelated third parties or other funding methods as GIRSA and
Uniroyal may agree. If GIRSA and Uniroyal are unable to agree on the adoption
of some other method for raising funds required by a Joint Venture Company or
Companies, GIRSA and Uniroyal shall lend or shall cause an affiliated party to
lend to the entity requiring such funds one behalf of the amount so required
at a rate of interest to be agreed upon by the parties at that time.
1.06 Allocation of Joint Venture Profits and Liabilities. (a) Unless
otherwise agreed by the parties, the parties shall cause all of the free cash
flow (excluding cash required for ongoing operations, approved capital
expenses and repayment of indebtedness) of each Joint Venture Company to be
distributed as dividends, provided that such distribution does not impair the
capital of such company and is otherwise permitted by applicable law. It is
the expectation of the parties that the contributions to the Joint Venture by
the Manufacturing Company and the Marketing Company will be equal between
GIRSA and Uniroyal Chemical and it is therefore the intention of the parties
that the aggregate profits of the Joint Venture net of any taxes paid by the
Joint Venture Companies, on a combined basis and without giving effect to
their respective equity ownership interests in the Joint Venture Companies,
will be shared equally by the parties, GIRSA on the one hand and Uniroyal
Chemical, on the other hand. Accordingly, the parties shall take all the
necessary steps and/or make all necessary adjustments in the operations of the
Joint Venture Companies in order to so assure that GIRSA and Uniroyal Chemical
will enjoy an equal share of the aggregate profits of the Joint Venture
Companies, as contemplated by this Section 1.06.
(b) It is the intention of the parties that potential liabilities of the
Joint Venture Companies accruing from and after the Start-up Date, including,
but not limited to, product liabilities, environmental liabilities and health
liabilities (but excluding liabilities for which GIRSA, Uniroyal or another
party is obligated to indemnify GIRSA, Uniroyal or any Joint Venture Company
under this Agreement or any of the Related Agreements, as defined in Section
10.01 hereof), will also be shared by GIRSA and Uniroyal on an equal basis,
whether or not the equity of such Joint Venture Company is owned equally by
GIRSA and Uniroyal. Accordingly if, and to the extent that a Joint Venture
Company and/or GIRSA and Uniroyal including any of their subsidiaries party to
the Related Agreements incurs any such liability, GIRSA and Uniroyal shall
cause such liability to be equalized between them, whether by an adjustment of
distributions to the parties, an equalizing payment from one party to the
other or some other appropriate mechanism.
The provisions of this subsection (b) shall apply only to the equalization of
liabilities of the Joint Venture Companies as between Uniroyal and GIRSA and
nothing set forth in this subsection (b) shall be deemed to create any
obligation by GIRSA or Uniroyal to third parties for the liabilities of the
Joint Venture Companies.
(c) It is the intention of the parties that the benefits and burdens
of carrying accounts receivable, inventory and accounts payable related to the
NBR Operations of the Joint Venture will be shared by GIRSA and Uniroyal
Chemical on an equal basis. Accordingly, the parties shall cause such
benefits and burdens to be equalized between them.
1.07 Corporate Governance of the Joint Venture Companies. (a) The By-
laws and other formation documents of each Joint Venture Company shall
provide that such company shall be governed by a board of directors consisting
of six directors or managers, as the case may be, three of whom shall be
nominated and elected by the holders of the Class A Shares and three of whom
shall be nominated and elected by the holders of the Class B Shares. The
formation documents of the Marketing Company shall include the Limited
Liability Company Agreement governing the Marketing Company entered into by
GIRSA and Uniroyal.
(b) Directors or Managers, as the case may be, of a Joint Venture
Company nominated and elected by holders of the Class A shares of such company
are referred to in this Agreement as "Class A Directors" of such company and
directors of a Joint Venture Company nominated and elected by holders of the
Class B shares of such company are referred to in this Agreement as "Class B
Directors" of such company.
2. CAPITAL PROJECTS OF THE MANUFACTURING COMPANY
2.01 Transfer of Existing Equipment. The parties shall cause the
Manufacturing Company to pay the costs of dismantling, moving and reinstalling
at the Facilities the machinery and equipment referred to in Section
1.03(b)(ii) hereof and the parties shall cooperate with the Manufacturing
Company in arranging for the dismantling and moving of such machinery and
equipment. Such cooperation shall consist of technical and logistical
assistance as appropriate. In any event, dismantling, moving and
reinstalling of such machinery and equipment at the Facilities shall be
carried out in accordance with an expense budget to be approved by the parties
and must comply with the procedures established in the "Project Manual"
attached hereto as Exhibit "G".
2.02 New Capital Projects. (a) Decisions on whether or not to commit
funds for new production assets to be installed at the Facilities by or on
behalf of the Manufacturing Company (including funds for engineering services
related thereto) shall be made jointly by the parties (each such proposed
installation being referred to herein as a "Capital Project"). Once the
parties have reached agreement on a decision to commit funds for any Capital
Project (each an "Approved Capital Project"), the implementation of such
Approved Capital Project shall be effected by the Managing Director of the
Manufacturing Company and a steering committee (the "Steering Committee")
consisting of an equal number of members appointed by GIRSA and Uniroyal
Chemical, not to exceed 6 members. GIRSA shall make available or cause INSA
to make available all such information about the Facilities and the processes
at the Facilities, and GIRSA shall provide or shall cause INSA to provide such
access to the Facilities, as the Managing Director of the Manufacturing
Company and the Steering Committee may reasonably require to enable them to
evaluate proposals for any Capital Project, to develop or obtain estimates of
the costs for the design, procurement and construction of any Approved Capital
Project or to otherwise effectuate the purposes of this Section 2.02. The
Capital Projects initially expected to be implemented by or on behalf of the
Manufacturing Company in pursuit of the goals of the Joint Venture (the
"Initial Capital Projects"), and the costs of such Initial Capital Projects as
presently anticipated by the parties, are set forth in Exhibit "H" attached
hereto. The parties shall not unreasonably fail to approve the implementation
of any Initial Capital Project set forth in such Exhibit "H" provided that the
estimated costs for the design, procurement and construction of such Initial
Capital Project are within the limits for such Initial Capital Project as set
forth in such Exhibit "H"; provided that neither party shall be obligated to
approve any such Initial Capital Project if it believes, in good faith, that
such Initial Capital Project can be better implemented in a manner different
than that proposed or at a cost more favorable to the Joint Venture than that
estimated and if it provides to the other party information reasonably
substantiating such belief. The parties may decide, as part of the initial
capital program phase for the Manufacturing Company, to implement Capital
Projects different from or in addition to those set forth on Exhibit "H"
attached hereto, in the manner contemplated by this Section 2.02.
(b) After the completion of the initial capital program phase for the
Manufacturing Company as referred to in subsection (a) of this Section 2.02,
ongoing Capital Projects for the Manufacturing Company shall be overseen by
the Managing Director of the Manufacturing Company and the Steering Committee,
who shall recommend investments in Capital Projects and shall develop
operating policies and procedures for the Manufacturing Company.
(c) The Managing Director of the Manufacturing Company shall also be the
President of the Marketing Company shall have the authority to make
commitments on behalf of the Manufacturing Company with engineers, vendors,
contractors and other persons or entities for expenditures for Approved
Capital Projects up to the amount approved by the parties for such Approved
Capital Project, including the authority to expend funds on behalf of the
Manufacturing Company for Approved Capital Projects. Promptly after the work
contracted for in respect of an Approved Capital Project shall have been
completed, the Steering Committee shall submit a report thereon to GIRSA and
Uniroyal.
3. OPERATING AGREEMENT
3.01 INSA and the Manufacturing Company shall enter no later than November
15, 1998, into an operating agreement dated as of the date of this Joint
Venture Agreement ("the Operating Agreement") whereby INSA will provide or
cause to be provided to the Manufacturing Company (a) the use of the
Facilities, (b) labor, (c) the use of the machinery and equipment described
in Exhibits "C-1" and "C-2", (d) technology for continuos emulsion
polymerization process recognized as trade secret of INSA and (e) other
services including utilities necessary for the production of NBR Products at
the Facilities and invoicing services. The Operating Agreement shall be
substantially in the form attached hereto as Exhibit "I". GIRSA shall cause
INSA to enter into the Operating Agreement and GIRSA and Uniroyal Chemical
shall cause the Manufacturing Company to enter into the Operating Agreement.
Simultaneously with the execution and delivery of the Operating Agreement and
the NBR Products Supply Agreement referred to in Section 6.01 hereof, Uniroyal
shall, and GIRSA shall cause INSA to, terminate the Manufacturing Agreement
dated January 5, 1996 by and between INSA and Uniroyal, effective on the
Start-up Date.
4. SALES SERVICES AGREEMENTS
4.01 Uniroyal, GIRSA and the Marketing Company shall enter no later than
November 15, 1998, into a sales services agreement dated as of the date of
this Joint Venture Agreement (the "Uniroyal Sales Services Agreement"),
whereby Uniroyal will provide sales services, technical support services and
other services including warehousing, invoicing and logistical support for the
NBR Products sales efforts of the Marketing Company. The Uniroyal Sales
Services Agreement shall be substantially in the form attached hereto as
Exhibit "J-1". GIRSA and Uniroyal shall cause the Marketing Company to enter
into the Uniroyal Sales Services Agreement.
4.02 The Manufacturing Company and Novaquim, S.A. de C.V., a subsidiary of
Novaquim, shall enter no later than November 15, 1998 into a sales services
agreement dated as of the date of this Joint Venture Agreement (the "Novaquim
Sales Services Agreement"), whereby Novaquim, S.A de C.V. will provide sales
services to the Manufacturing Company in regards to the sale of the NBR
Products in Mexico. The Novaquim Sales Services Agreement shall be
substantially in the form attached hereto as Exhibit "J-2". GIRSA and
Uniroyal Chemical shall cause the Manufacturing Company to enter into the
Novaquim Sales Services Agreement, and Uniroyal Chemical shall cause Novaquim,
S.A. de C.V. to enter into the Novaquim Sales Services Agreement.
5. TECHNOLOGY LICENSE
5.01 The Marketing Company and the Manufacturing Company shall enter, no
later than November 15, 1998 into an exclusive license agreement (the "License
Agreement"), whereby, except as provided in Section 1.04 (b), paragraph
three, above, the Marketing Company shall grant an exclusive and irrevocable
license on a worldwide basis, to the Manufacturing Company for a 99 year term
on all intangible property owned by the Marketing Company applicable to the
production of NBR Products including, but not limited to, all patents,
technology, recipes and research and development results. The License
Agreement shall be substantially in the form attached hereto as Exhibit "K".
GIRSA and Uniroyal Chemical shall cause the Marketing Company and the
Manufacturing Company to enter into the License Agreement.
6. NBR PRODUCTS SUPPLY AGREEMENT
6.01 The Marketing Company and the Manufacturing Company shall enter no
later than November 15, 1998, into an NBR Products supply agreement dated as
of the date of this Joint Venture Agreement (the "NBR Products Supply
Agreement"), whereby, except as may be otherwise agreed by the Marketing
Company and the Manufacturing Company, the Marketing Company will purchase all
of its requirements for NBR Products solely from the Manufacturing Company and
the Manufacturing Company will produce NBR Products exclusively for the
Marketing Company except that the Manufacturing Company will produce NBR
Products for its own account for sales to customers in Mexico. The NBR
Products Supply Agreement shall be substantially in the form attached hereto
as Exhibit "L". GIRSA and Uniroyal Chemical shall cause the Marketing Company
and the Manufacturing Company to enter into the NBR Products Supply Agreement.
7. CORPORATE SERVICES AGREEMENTS
7.01 GIRSA Corporativo, S.A. de C.V., a Mexican corporation that is a
wholly owned subsidiary of GIRSA ("GIRSA Corporativo"), and Manufacturing
Company shall enter no later than November 15, 1998, into a corporate services
agreement dated as of the date of this Joint Venture Agreement ("GIRSA
Corporate Services Agreement"), whereby GIRSA Corporativo will provide
corporate services to Manufacturing Company. The GIRSA Corporate Services
Agreement shall be substantially in the form attached hereto as Exhibit "M-1".
GIRSA and Uniroyal shall cause Manufacturing Company to enter into the GIRSA
Corporate Services Agreement, and GIRSA shall cause GIRSA Corporativo to enter
into the GIRSA Corporate Services Agreement.
7.02 Uniroyal and Marketing Company shall enter no later than November 15,
1998, into a corporate services agreement dated as of the date of this Joint
Venture Agreement ("Uniroyal Corporate Services Agreement"), whereby Uniroyal
will provide corporate services to Marketing Company. The Uniroyal Corporate
Services Agreement shall be substantially in the form attached hereto as
Exhibit "M-2". GIRSA and Uniroyal shall cause the Marketing Company to enter
into the Uniroyal Corporate Services Agreement.
8. FORCE MAJEURE
8.01 Neither party shall be liable for its delay or failure to perform
hereunder if due to any contingency beyond the reasonable control of the party
affected, including but not limited to acts of God, war, sabotage, labor
disturbance, civil disturbance, or governmental regulation or order. Such
performance shall be excused during the continuation of the inability of the
party to so perform ("Delayed Party") and the cause of such non-performance
shall be remedied insofar as possible with all due dispatch of the Delayed
Party. Delay or failure to perform hereunder due to the closing by Uniroyal
of the Painesville Plant shall not be considered Force Majeure.
9. SHAREHOLDER AND MANAGEMENT ISSUES
9.01 Management of the Joint Venture. The powers, responsibilities and
procedures of the shareholders, boards of directors and officers of the Joint
Venture shall be as specified in this Agreement and in the formation documents
for each of the Joint Venture Companies, respectively.
9.02 General Procedures. Written agendas of the topics to be discussed at
any meeting of the shareholders or board of directors of any Joint Venture
Company shall be distributed to all directors in advance of any such meetings;
written descriptions of such topics shall also be distributed at such meetings
and shall form the basis of any discussions. The results and minutes of such
meetings shall be recorded and supplied for approval to the participants at
such meetings in accordance with applicable law.
9.03 Meetings of Shareholders. Annual and special meetings of the
shareholders of each of the Joint Venture Companies shall be conducted in
accordance with the provisions of applicable law. The shareholders of each of
the Joint Venture Companies shall make all reasonable efforts to alternate the
location of meetings of shareholders between Mexico City, Mexico, and
Middlebury, Connecticut, or any other location agreed upon by the
shareholders, subject to requirements of applicable law. If permitted by
applicable law and if acceptable to the shareholders of such companies, the
shareholders of such companies may act by written consent in lieu of any
meeting. Reference in this Agreement to "shareholder" shall be deemed with
respect to the Marketing Company, to refer to "member", whether such term is
capitalized or lower case.
9.04 Boards of Directors. (a) The management of each of the Joint
Venture Companies shall be the responsibility of the board of directors
thereof, which shall be elected and governed in its actions according to the
provisions of this Agreement and the provisions of applicable law. Each
director shall serve as such without compensation.
Reference in this Agreement to "director" and "board of directors" shall be
deemed, with respect to the Marketing Company, to refer to "manager" and
"board of managers" whether such terms are capitalized or lower case.
(b) The powers and duties, indemnification, and other terms and
conditions of directors of each of the Joint Venture Companies shall be
determined from time to time by the shareholders thereof in accordance with
the applicable formation documents and applicable law.
(c) The boards of directors of each of the Joint Venture Companies shall
make all reasonable efforts to alternate the location of meetings of directors
between Mexico City, Mexico and Middlebury, Connecticut, or any other location
agreed upon by the directors. To the extent reasonably possible, board of
directors meetings of the Joint Venture Companies shall be coordinated so that
they can be held successively on the same date and in the same location. If
permitted by applicable law and if acceptable to the directors of such
companies, the directors of such companies may act by written consent in lieu
of any meeting.
(d) Holders of the class of shares entitled to nominate and elect a
director of any company may fill any vacancy resulting from such director's
death, resignation or removal, in each case without the consent of holders of
another class of shares.
(e) There shall be a Chairman of the Board of Directors of the Marketing
Company and of the Manufacturing Company, serving for a term of two years.
The first Chairman of the Board of Directors of the Marketing Company shall be
designated by the holder of the Class B Shares of the Marketing Company and
the first Chairman of the Board of Directors of the Manufacturing Company
shall be designated by the holder of the Class A shares of the Manufacturing
Company. At the end of such first two-year terms, the successor Chairman of
the Board of Directors of the Marketing Company shall be designated by the
holder of the Class A Shares of the Marketing Company and the successor
Chairman of the Board of Directors of the Manufacturing Company shall be
designated by the holder of the Class B shares of the Manufacturing Company.
The designation of the holder of such office in each Joint Venture Company for
each successive term shall alternate in the foregoing manner. The class of
shares at the time having the right to designate the holder of such office
shall also have the right, at any time or times during the two year term for
its designee, to designate a replacement for such designee or for any person
designated by such class of shares as such a replacement.
(f) Each board of directors of a Joint Venture Company shall have the
power to delegate responsibilities and authority to committees of such board
of directors or to appropriate officers of such company from time to time if
such delegation has been approved by both Class A Directors and Class B
Directors of such company.
(g) The taking of any of the following actions by any Joint Venture
Company shall require the approval of both a majority of Class A Directors and
a majority of Class B Directors of such company, if the matter is being
submitted for a vote of directors, or the favorable vote of 75% of the total
outstanding voting shares of stock of such Company, if the matter is being
submitted for a vote of shareholders:
(i) Review, approval and modification of the operating budget for
such company for each financial year and of business and strategic
plans for such Company;
(ii) Creation or dissolution of any subsidiaries of such Company;
(iii) Establishment or modification of such Company's capital
expenditures budget;
(iv) Appointment, removal and compensation of such Company's
officers;
(v) Establishment, modification or termination of such Company's
compensation and benefits programs and policies;
(vi) Any change in dividend distribution policies as set forth in
Section 1.06 hereof;
(vii) Approval of capital projects estimated to exceed US
$50,000.00;
(viii) Execution, modification or termination in any form
whatsoever of (a) any contract, agreement or arrangement with Uniroyal
or GIRSA, (b) any contract, agreement or arrangement with any other
Joint Venture Company including the Related Agreements; or (c) any
contract, agreement or arrangement with any affiliate of Uniroyal,
Novaquim or GIRSA including all Related Agreements;
(ix) Acquisition or disposition of any business of such Company,
and approval of any financing associated with such acquisition or
disposition;
(x) Entering into, modifying or terminating any agreement having
a term in excess of one year (except for confidentiality or non-
disclosure agreements) and/or involving expenditures or receipts by such
Company of more than US $50,000.00 other than in the ordinary course of
business;
(xi) Making any loan or advance or giving any credit other than
NBR Products trade credit in the ordinary course of business by such
Company or making any modification of any of the terms of any such loan,
advance or credit except for intercompany loans between Joint Venture
Companies;
(xii) Borrowing of any funds (but not draw-downs under lines of
credit or other credit facilities previously approved);
(xiii) Granting of any mortgage, lien, security interest or other
encumbrance over any assets of such Company;
(xiv) Appointment of outside counsel and/or independent auditors;
(xv) Change of accounting principles of such Company;
(xvi) Modification of the formation documents (certificate of
incorporation and by-laws in the case of the Manufacturing Company or
certificate of formation and Limited Liability Company Agreement in the
case of the Marketing Company, or any other constituent documents) of
such company or any subsidiary of such Company;
(xvii) Acquisition or disposition by purchase, lease or otherwise
of any real property;
(xviii) Acquisition or disposition of any assets in any single
transaction or series of related transactions, other than in the
ordinary course of business;
(xix) Discontinuance of such Company's business;
(xx) Authorization of any merger, consolidation, reorganization
or recapitalization involving such Company;
(xxi) Settlement of any lawsuit or claim, or confession of
judgment in any legal proceeding, in an amount in excess of $50,000.00;
(xxii) Termination, dissolution or winding up of such Company;
(xxiii) The granting of powers of attorney.
(xxiv) The issuance of additional securities, whether debt or
equity.
9.05 Officers. The officers of the Joint Venture Companies shall be a
President, in the case of the Marketing Company and a Managing Director in the
case of the Manufacturing Company, a Treasurer and a Secretary and such other
officers, if any, as shall be determined by the Board of Directors. The Joint
Venture Companies shall also have a Chief Financial Officer (who may be the
Treasurer). The holders of the Class A Shares and the Class B Shares shall
consult with one another in the selection of the holders of offices in each of
the Joint Venture Companies and shall jointly select such officers. Subject to
the provisions of applicable law, an individual may hold more than one office
of any Joint Venture Company, except that the offices of President or Managing
Director, as the case may be, and Treasurer of any of the Joint Venture
Companies may not be held by the same person.
9.06 Obligations of Confidentiality. Every director, officer and
employee of each of the parties to this agreement and each of the Joint
Venture Companies involved with the operations of the Joint Venture Companies,
shall be required to keep strictly secret and confidential all confidential,
proprietary or non-public information of such company, and the shareholders of
each such company shall keep strictly secret and confidential all
confidential, proprietary or non-public information of each such company,
except as otherwise authorized by the board of directors of such company and
except that the President or Managing Director of the Joint Venture Companies
may disclose confidential, proprietary or non-public information of the Joint
Venture Companies in pursuing the business interests of such companies,
provided that the President or Managing Director of the Joint Venture
Companies has first obtained appropriate confidentiality agreements from any
parties to whom or to which such confidential, proprietary or non-public
information is being disclosed.
9.07 Required Insurance The parties shall cause each of the
Manufacturing Company and the Marketing Company, to maintain in effect
insurance in amounts and covering the risks customary in the industry in which
such company operates. In particular, the insurance coverage for the
Manufacturing Company shall be substantially similar to the insurance coverage
maintained by GIRSA for its subsidiaries generally. GIRSA shall notify the
Manufacturing Company within reasonable time about any change in its insurance
coverages.
9.08 Environmental, Health and Safety Standards. It is the intention of
the parties that the operations of the Manufacturing Company shall be
conducted in compliance with all applicable Mexican environmental, health and
safety laws and regulations.
10. REPRESENTATIONS, WARRANTIES AND COVENANTS
Each of the parties hereto represents and warrants to and covenants with
the others as follows:
10.01 Organization. It is a corporation duly organized, validly existing
and in good standing (a) under the laws of Mexico, in the case of GIRSA, or
(b) under the laws of the State of New Jersey, United States, in the case of
Uniroyal, and under the laws of Mexico, in the case of Novaquim, in each case
with full corporate power and authority to own its properties and assets and
to conduct its business in the manner in which it is operated, and to enter
into this Agreement and, as the case may be, to enter into each of the
agreements referred to in Articles 3 through 7 of this Agreement (each a
"Related Agreement") to which it is to be a party and to perform its
obligations hereunder and thereunder.
10.02 Authority. It has all requisite corporate power and authority to
enter into and perform this Agreement and, as the case may be, to enter into
each Related Agreement to which it is to be a party, and to consummate the
transactions contemplated hereby and thereby. All corporate acts and other
proceedings required to be taken by or on the part of it to carry out this
Agreement and such Related Agreements, and to execute and deliver the
instruments and consummate the transactions contemplated hereby and thereby
have been duly and properly taken. This Agreement and such Related Agreements
have been or will be duly executed and delivered by it and constitute, or when
executed will constitute, its legal, valid and enforceable obligation of in
accordance with the respective terms of this Agreement and such Related
Agreements, except as such enforceability may be limited by applicable
bankruptcy, insolvency or similar laws from time to time in effect which
affect creditors' rights generally, and by general principles of equity
(regardless of whether such enforceability is considered in a proceeding in
equity or at law).
10.03 No Conflict. Neither the execution and delivery by it of this
Agreement or the Related Agreements, as the case may be, to which it is to be
a party, nor the consummation by it of the transactions contemplated hereby
and thereby will:
(a) conflict with, result in a breach of or constitute a default (or an
event which with notice or lapse of time or both could become a default)
under, or result in the imposition of a lien or encumbrance on any of its
assets, properties or rights pursuant to, (i) its By-Laws, in the case of
GIRSA and Novaquim, or its Amended Certificate of Incorporation or By-
laws, in the case of Uniroyal, or (ii) any agreement, indenture,
mortgage, lease, contract, commitment or other instrument or obligation
to which it is a party or by which it or its business and assets is bound
or affected;
(b) violate any law or regulation or court or administrative judgment,
order or process, or
(c) require it to obtain any authorization, consent, approval or waiver
from, or to make any filing with, any public body or authority or any
other person or entity, except as disclosed in Exhibit "N".
10.04 Corporate Existence. It will not liquidate, merge or consolidate
with or into any person, firm or corporation unless (a) the surviving or
resulting person, firm or corporation, concurrently with such transaction,
irrevocably and unconditionally assumes its obligations hereunder and under
the Related Agreements to which it is a party, such assumption to be in an
instrument to be delivered and to be satisfactory in form and substance to the
other party hereto, and (b) immediately after and as a result of such
liquidation merger or consolidation no Event of Default (as defined in Section
11.01 of this Agreement), and no event that with notice or the passage of time
or both would constitute an Event of Default, shall exist.
10.05 Conduct of NBR Products Business. From and after the Start-up Date,
(a) the business of manufacturing and marketing NBR Products shall be
conducted by it exclusively through the Joint Venture, and (b) it will not
engage, directly or indirectly, in the business of manufacturing or producing,
or selling, marketing or distributing NBR Products except through the Joint
Venture Companies as contemplated by this Agreement and the Related
Agreements; except that (i) Uniroyal may continue to sell NBR Products for its
own account (and not for the account of the Joint Venture or the Marketing
Company), directly and/or indirectly through its subsidiaries, until the on-
hand inventories of NBR Products manufactured and/or purchased by Uniroyal and
its subsidiaries in the ordinary course of business up to the Start-up Date
have been exhausted and (ii) during an interim period after the Start-up Date,
while accounting, computer and other such systems are being developed for the
Joint Venture and for Uniroyal's sales services under the Uniroyal Sales
Services Agreement and Novaquim, S.A. de C.V.'s sale services under the
Novaquim Sales Services Agreement, Uniroyal and Novaquim, S.A. de C.V. may, in
providing such services, purchase from the Marketing Company and/or
Manufacturing Company as the case may be, on a consignment basis or otherwise,
NBR Products for resale to customers provided that the Joint Venture shall
receive the total economic benefit of any such sales.
10.06 Warranties. It has the right to sell, transfer, contribute or
otherwise convey all tangible and intangible property to be transferred sold,
contributed and/or conveyed by it under this Agreement. Therefore, GIRSA
shall be responsible and Uniroyal shall be responsible for itself and for
Novaquim, for any consequential, compensatory, actual, liquidated, punitive or
any other damages or loses suffered by the other party and/or Marketing
Company and/or the Manufacturing Company out of the proper use of said
tangible or intangible property and/or loss or damages caused by any defect in
the tangible or intangible property or instructions supplied by it, including
any default or negligence or infringement. As a result, it shall defend,
indemnify and hold the other party, the Marketing Company and/or the
Manufacturing Company harmless against any and all claims, demands, suits or
any claims of any nature other arising out of the proper use of the tangible
or intangible property.
10.07 Payments /contributions. It will contribute and/or pay, as the
case may be, any amounts under this Agreement when due to the other party or
to any of the Joint Venture Companies. In case of failure to pay any of said
amounts when due, it shall pay to the other party or to the appropriate Joint
Venture Company financial costs at rate of interest 3% above the London
Interbank Offered Rate (LIBOR) for six months as published in the Wall Street
Journal on the date payment was supposed to be made. In addition, the remedies
provided in Section 11.01 may be invoked .
11. DEFAULTS AND TERMINATION.
11.01 Defaults. In the event that either party shall default in the
performance of or in the compliance with any material term, condition or
obligation contained in this Agreement, or in the performance of or in the
compliance with any material term, condition or obligation contained in any
Related Agreement, or shall breach, in any material respect, any
representation, warranty or covenant contained in this Agreement or any
Related Agreement, the non-defaulting party may give the defaulting party
notice, specifying the nature of such default or breach in reasonable detail.
If the defaulting party does not cure such default or breach within 90
(ninety) days of the date of such notice (or if such default or breach cannot
reasonably be cured within said 90 (ninety) day term, if the defaulting party
shall not have commenced such cure and shall not actively and diligently
pursue such cure to its conclusion), GIRSA or Uniroyal, exclusively, may seek
resolution of such default or breach by invoking arbitration in accordance
with Section 15 of this Agreement.
11.02 Termination by Consent. GIRSA or Uniroyal may terminate this
Agreement at any time by mutual agreement in writing.
In the event of termination of this Agreement, GIRSA agrees to cause INSA to
transfer the machinery and equipment detailed in Exhibit "C-1" to
Manufacturing Company at no cost, unless INSA has already transferred this
machinery and equipment in accordance with the terms of Section 1.03 (a)
(ii). In the event of termination of this Agreement, GIRSA shall cause INSA
to transfer the equipment detailed in Exhibit "C-2" to Manufacturing Company
at no cost, unless the Operating Agreement and the terms of Section 1.03 (a)
(ii) continue in full force and effect, in which case INSA shall continue to
own the machinery and equipment detailed in Exhibit "C-2", subject to the
provisions of the Operating Agreement.
12. JOINT VENTURE COMPANIES SHARE TRANSFER RESTRICTIONS AND RIGHT TO
PURCHASE.
12.01 Share Transfer Restrictions.
(a) No Transfers Except Pursuant to this Agreement. Each party
agrees that it will not transfer, assign, pledge, hypothecate, convey or in
any way alienate any of its shares or any right or interest in the Joint
Venture Companies or any of them, whether voluntarily or by operation of law,
or by gift or otherwise, except in accordance with the provisions of this
Agreement as set forth in Sections 12.01 (b) and (c) below or except as set
forth in Section 12.01 (d). Any purported transfer in violation of any
provision of this Agreement shall be void and of no force or effect, shall not
operate to transfer any interest in or title to such shares to the purported
transferee and such purported transferee shall have only a claim against the
purported transferor for rescission and damages, if any.
(b) Transfer to Certain Affiliated Entities. Each party hereby
consents to the transfer at any time by the other party ("Transferring
Party") of any of the Transferring Party's shares in the Joint Venture
Companies or any of them to any company controlled by the Transferring Party
(each a "Controlled Company"), and to the further transfer at any time of such
shares in the Joint Venture Companies or any of them by such Controlled
Company back to the Transferring Party or to another Controlled Company of the
Transferring Party. No party shall, without the prior written consent of the
other party, sell or otherwise dispose of any shares of the capital stock of
any Controlled Company that then holds any shares of any of the Joint Venture
Companies or permit any such Controlled Company to:
(i) Pledge or hypothecate any shares of any of the Joint Venture
Companies;
(ii) transfer, assign, convey or in any way alienate or otherwise
dispose of any shares of any of the Joint Venture Companies to any
person or entity other than the Transferring Party or another
Controlled Company of the Transferring Party;
(iii) issue any shares of capital stock of the Controlled Company to any
person other than the Transferring Party or another Controlled
Company of the Transferring Party; or
(iv) merge or consolidate with any person or entity other than the
Transferring Party or another Controlled Company of the
Transferring Party.
For purposes of this Section 12.01 (b), a company shall be deemed a Controlled
Company of a Transferring Party if the Transferring Company owns, directly or
indirectly, all of the capital stock of such Controlled Company.
(c ) Offer to Sell. Any sale or other disposition of shares of any
of the Joint Venture Companies, other than a transfer permitted by Section
12.01 (b) hereof shall be subject to the following limitations:
A party may not sell less than all of its shares in any Joint Venture
Company, and may not sell its shares in less than all of the Joint
Venture Companies. If a party wishes to sell its Shares in the Joint
Venture Companies (or if a party wishes to sell its shares in the Joint
Venture Companies pursuant to a bona fide third-party offer), such party
(referred to in this Section 12.01 (c ) as the "Selling Shareholder")
shall give written notice of such desire to the other party (referred to
in this Section 12.01 (c ) as the "Non-selling Shareholder"), which
notice shall contain an offer ("Offer") by the Selling Shareholder to
sell all of its shares in the Joint Venture Companies at a specified
cash price (which shall not exceed the price contained in any such
third-party offer). The Offer shall also specify, in reasonable detail,
any other terms and conditions applicable to the proposed sale of such
shares. The Non-selling Shareholder shall have an absolute and
irrevocable right, during a period of sixty days following receipt of
such notice, to make or not to make written acceptance of such Offer.
If the Non-selling Shareholder accepts such Offer, in writing, within
such sixty day period, all the Selling Party's shares in the Joint
Venture Companies shall be sold to the Non-selling Shareholder in
accordance with the provisions of Section 12.01 (d). If the Non-selling
Shareholder does not accept such Offer, in writing, within such sixty
day period the Selling Shareholder shall be free, subject to the
requirements set forth in Section 12.01 (e), to sell all of its shares
in the Joint Venture Companies at any time during the next succeeding
period of one hundred eighty days following the expiration of such sixty
day period, but not again thereafter without again complying with the
procedure set forth in this Section 12.01 (c).
(d) Purchase of Shares by Non-selling Shareholder. If an Offer by
the Selling Shareholder shall be accepted by the Non-selling Shareholder in
accordance with Section 12.01 (c) hereof, the parties shall enter into good
faith negotiations of a definitive purchase and sale agreement, and a closing
of the purchase and sale of the securities subject to the Offer shall be held
on the 90th business day (business days shall not include Saturdays, Sundays
or legal holidays in the United States or Mexico) following the date of the
Non-selling Shareholder's acceptance of the Offer or such other date as the
parties shall agree upon in writing. Such closing shall occur at the offices
of the Selling Shareholder or at any other location that the parties shall
agree to in writing. At such closing, the Selling Shareholder shall:
(i) transfer all of its shares in the Joint Venture Companies to the
Non-selling Shareholder, duly endorsed; and
(ii) pay to the appropriate government authorities, or to the Non-
selling Shareholder (for payment over to such government authorities),
any taxes or other fees or charges, payable on such transfer.
At such closing, the Non-selling Shareholder shall:
(iii) pay to the Selling Shareholder, by delivery of a certified or
bank check or by wire transfer to an account designated by the Selling
Shareholder, the contract price (as set forth in the accepted Offer) for
all of the Selling Shareholder's shares in the Joint Venture Companies;
(iv) arrange to have the Selling Shareholder relieved of its
obligations, if any, as a guarantor of any outstanding loans to the
Companies, or undertake, in writing, to indemnify the Selling
Shareholder against any and all losses and damages that the Selling
Shareholder may thereafter incur by reason of its having acted as such a
guarantor; and
(v) receive the shares duly endorsed from the Selling Shareholder.
(e) Transfer of Shares to a Third Party. In order for a valid
transfer of the Selling Shareholder's shares in the Joint Venture Companies to
be made to a purchaser other than the Non-selling Shareholder ("Third Party
Purchaser"), the following provisions of this Section 12.01 (e) must be
observed, except as otherwise provided in Section 13.04 hereof:
(i) All of the Selling Shareholder's shares in all Joint Venture
Companies must be sold to a single Third Party Purchaser.
(ii) The purchase price paid by the Third Party Purchaser must be a
cash purchase price not less than the price at which the Selling
Shareholder's Shares were offered to the Non-selling Shareholder in the
Offer, payable in U.S. Dollars, and the sale to such Third Party
Purchaser must be on terms and subject to conditions of sale not more
favorable to the Third Party Purchaser than those offered to the Non-
selling Shareholder in the Offer; and
(iii) The Selling Shareholder must, at the option of the Non-selling
Shareholder and as a condition of the closing of the sale of the shares
of the Joint Venture Companies to the Third Party Purchaser, require the
Third Party Purchaser to enter into a written agreement with the Non-
selling Shareholder embodying the same provisions as those set forth in
this Agreement.
Any purported sale of the Selling Shareholder's shares in the Joint Venture
Companies to any Third Party Purchaser without compliance with the provisions
of this Section 12 shall be null and void.
12.02 Right to Purchase.
(a) Triggering Events. In the event that:
(i) all or any portion of a party's shares in the Joint Venture
Companies should be voluntarily or involuntarily assigned to a third
party without compliance with the requirements of Section 12.01 (e)
hereof; or
(ii) a party shall (1) file, or consent by answer or otherwise to the
filing against it of, a petition for relief or reorganization or any
other petition in bankruptcy, for liquidation or to take advantage of any
bankruptcy or insolvency law of any jurisdiction, (2)make an assignment
for the benefit of its creditors, (3)consent to the appointment of, or be
subject to an order of any governmental authority of any jurisdiction
appointing, a custodian, receiver, trustee or other officer with similar
powers of such party or of any substantial part of its assets, (4)be
adjudicated insolvent or bankrupt or be subject to any order of any
governmental authority ordering the liquidation, reorganization,
dissolution or winding up of such party, be the subject of any petition
seeking the liquidation, reorganization, dissolution or winding up of
such party which is not dismissed within thirty days, or (5) take any
corporate action for any of the foregoing; or
(iii) a party shall be dissolved, all or a material portion of the
equity securities of a party shall be voluntarily or involuntarily
assigned or otherwise transferred to a third party or all or a material
portion of the assets of a party shall be assigned or otherwise
transferred to a third party;
all, but not less than all, of the shares of the Joint Venture Companies
theretofore held by such party (the "Offering Shareholder") may be purchased
by the other party (the "Non-offering Shareholder"). The right of purchase
granted in the immediately preceding sentence shall be exercised, if at all,
by written notice from the Non-offering Shareholder to the Offering
Shareholder or to the Offering Shareholder's assignee or transferee, as the
case may be, within thirty days of notice of the event giving rise to the
right to purchase (the "Offering Date"). For purposes of this Section 12.02,
the term "Offering Shareholder" shall include any assignee or transferee of
such Offering Shareholder. The price to be paid and the terms of payment for
any shares to be purchased pursuant to this Section 12.02 (a) shall be as
provided in Sections 12.02 (b) and (c) hereof.
(b) Purchase Price. When any option to purchase shares arises under
this Section 12.02 (b), the purchase price for such shares shall be the Fair
Market Value of the shares, determined as follows:
(i) By Agreement. Upon the Joint Venture Company's receipt of notice of
the Triggering Event, the Offering Shareholder and the Non-offering
Shareholder shall forthwith attempt to agree upon the Fair Market Value
of Shares.
(ii) Appraisal if no Agreement. If the Non-offering Shareholder and the
Offering Shareholder are unable to agree upon the Fair Market Value of
the shares within thirty calendar days following the exercise of any
right to purchase as provided in Section 12.02 (a), they shall within the
next thirty (30) calendar days jointly appoint one appraiser to determine
the Fair Market Value of the shares, and such appraiser shall conduct and
complete an appraisal of the Fair Market Value of the shares within
thirty (30) calendar days after his appointment. The appraiser or
appraisers shall be investment banking firms of international reputation.
If the Non-offering Shareholder and the Offering Shareholder are unable
to agree upon the identity of the appraiser to be so jointly appointed,
the Non-offering Shareholder shall promptly chose one appraiser through a
notice to the Offering Shareholder, and the Offering Shareholder shall
promptly choose one appraiser by notice to the Non-offering Shareholder.
The two appraisers so selected shall then promptly appoint a third
appraiser, and the three appraiser so selected shall conduct and complete
an appraisal of the Fair Market Value of the shares within thirty (30)
calendar days after the selection of the third appraiser. If the two
appraisers so appointed are unable to agree upon a third appraiser,
either the Non-offering Shareholder or the Offering Shareholder upon 30
days prior written notice to the other may submit the matter of
designating a third appraiser for valuing the Shares to arbitration in
accordance with Section 15 of this Agreement. The appraisers shall
attempt to reach an agreement as to the Fair Market Value of the shares,
and the agreed decision of two out of the three appraisers shall govern.
If two of the appraisers are unable to agree as to the Fair Market Value
of the shares, the values determined by each of the three appraisers
shall be added together, their total shall be divided by three, and the
resulting quotient shall be the Fair Market Value of the shares. If
however, the low appraisal and/or the high appraisal are/is more than 5%
lower and/or higher than the middle appraisal, the low appraisal and/or
the high appraisal, shall be disregarded, if only one appraisal is so
disregarded the remaining two appraisals shall be added together, their
total shall be divided by two, and the resulting quotient shall be the
Fair Market Value of the Shares. If both the low appraisal and the
high appraisal are so disregarded, the middle appraisal shall be the Fair
Market Value of the shares. The determination of the Fair Market Value
of the shares in such manner shall be conclusive for all purposes and
upon all parties.
If either the Non-offering Shareholder and the Offering Shareholder shall
fail to appoint an appraiser within thirty (30) calendar days after the
lapse of the initial thirty (30) calendar day period referred to above,
then, the appraiser appointed by the party who does appoint an appraiser
shall alone determine the Fair Market Value of the shares, and such
appraisal shall be binding.
Each party shall compensate the appraiser appointed by such party, and
the compensation of the third appraiser and the expenses of the appraiser
shall be borne equally by the Non-offering Shareholder and the Offering
Shareholder.
Neither the Offering Shareholder nor the Non-offering Shareholder shall
choose, as an appraiser pursuant to this Section 12.02, any investment
banking firm that it has retained during the preceding two-year period
and neither the Offering Shareholder nor the Non-offering Shareholder
shall, at any time during the two-year period following completion of
such appraisal procedure, retain any investment banking firm that it has
chosen as an appraiser pursuant to this Section 12.02.
(c) Terms of Payment. Payment for the shares shall be made in full
in cash at the closing of the purchase and sale thereof, by delivery of a bank
or certified check to the Offering Shareholder or by wire of good funds to a
bank account designated by the Offering Shareholder, at the option of the
Offering Shareholder. Payment shall be made in US Dollars.
(d) Closing. The closing of the purchase and sale of shares pursuant
to this Section 12 shall take place as promptly as practicable after the
determination of the purchase price for such Shares in accordance with Section
12.02 (b). Such closing shall take place at the offices of the Offering
Shareholder or any other location as agreed in writing by the parties located
as provided in Section 12.01 (d) above.
13. DEADLOCK BETWEEN THE PARTIES.
13.01 For purposes of this Article 13, Deadlock shall mean the inability
of both a majority of the Class A Directors and Class B Directors of any
Joint Venture Company and/or an inability of the shareholders of any Joint
Venture Company, to reach an agreement on any matter coming before such board
of directors and/or such shareholders meeting, as the case may be, for a vote.
13.02 If a Deadlock shall occur, GIRSA or Uniroyal may submit a memorandum
to the other party, in accordance with the notice provisions of Section 14.01
hereof, stating its position. Such memorandum shall be considered by the
Chairman of the Board of GIRSA's parent company and the Chairman of the Board
of Uniroyal's parent company (each a "Senior Officer"). Within twenty
business days of receipt of such memorandum by the recipient, such Senior
Officers shall meet to negotiate in good faith a mutually satisfactory
resolution of the Deadlock.
13.03 If such Senior Officers are not able to reach a satisfactory
resolution of the Deadlock within thirty business days of such meeting, then
the parties shall seek, in good faith, to mediate a resolution of the Deadlock
with a mediator that is mutually agreeable to the parties or, if the parties
shall be unable to agree upon a mediator, a mediator appointed by the
International Chamber of Commerce.
13.04 In the event that the Deadlock shall continue for more than six
months after the commencement of the mediation, then (a) GIRSA and Uniroyal
may seek to agree upon a price at which GIRSA or Uniroyal may purchase the
other party's stock in the Joint Venture Companies directly or through any of
their affiliates or (b) GIRSA or Uniroyal may, with the previous written
agreement of the other, which shall not be unreasonably withheld, retain a
preeminent investment banking firm of international reputation to solicit bids
from any responsible prospective purchaser for all of the issued and
outstanding stock of all of the Joint Venture Companies. GIRSA and Uniroyal
shall be equally responsible for the fees and expenses of the investment
banking firm and for any other costs of the sale of such stock. GIRSA and
Uniroyal or any of their affiliates may bid for such stock. Both parties
shall be obligated to sell their stock in all of the Joint Venture Companies
to the highest responsible bidder and the net proceeds of such sale shall be
divided equally between GIRSA and Uniroyal Chemical; except that in the event
GIRSA or any related party of GIRSA, or Uniroyal or any related party of
Uniroyal is the successful bidder for the stock of the Joint Venture
Companies, such party shall retain its own stock in the Joint Venture
Companies and shall purchase the other party's stock in the Joint Venture
Companies for a price equal to fifty percent (50%) of the bidding party's bid
for all of the issued and outstanding stock of the Joint Venture Companies.
In the event of a sale of the stock of the Joint Venture Companies, in
accordance with this Section 13.04, this Agreement shall terminate; provided,
however, that the Related Agreements referred to in Sections, 3, 4, 5 and 6
hereunder, shall remain in full force and effect, and each party shall be
obligated to honor its contractual obligations under said Related Agreements
to which it is a party, in accordance with the terms of such agreements.
13.05 The provisions set forth in this Article 13 shall be the exclusive
method of resolving a Deadlock as to the Joint Venture. The parties agree not
to invoke any judicial or other procedure for resolution of Deadlock between
or among shareholders or directors that may be available under any corporation
law applicable to any Joint Venture Company and the parties agree and consent
that if either party shall invoke any such procedure in violation of this
Section 13.05, GIRSA or Uniroyal shall be entitled to enforce this Section
13.05 by an action for specific performance, injunctive relief or other
similar legal or equitable relief.
14. NOTICES
14.01 All notices, requests, demands, directions and other communications
required or permitted to be given hereunder shall be in writing and mailed,
postage-prepaid, first class certified mail, or delivered by hand or by
overnight courier service to the applicable party at the address indicated
below:
If to Uniroyal Chemical:
Uniroyal Chemical Company, Inc.
World Headquarters
Benson Road
Middlebury, Connecticut 06749
Attention: Executive Vice President, Chemicals and Polymers
with a copy to:
Uniroyal Chemical Company, Inc.
World Headquarters
Benson Road
Middlebury, Connecticut 06749
Attention: General Counsel
If to GIRSA:
GIRSA S.A. de C.V.
Paseo de los Tamarindos No. 400 B, Piso 31
Bosque de las Lomas
Mexico, D.F.
Attention: Managing Director
with a copy to:
GIRSA S.A. de C.V.
Paseo de los Tamarindos No. 400 B, Piso 31
Bosque de las Lomas
Mexico, D.F.
Attention: General Counsel
Either party may change the address to which notice is to be directed to it by
giving written notice to the other party in accordance with the terms of this
Section 14.01.
15. ARBITRATION.
15.01 Disputes. Any controversy, dispute, difference or claim ("Dispute")
other than any Deadlock and other than the enforcement of any right under
Section 13.05, arising out of or relating to this Agreement which cannot be
resolved by mutual agreement between the parties within a period of thirty
(30) days from the commencement of the Dispute and the resolution of any
default or breach provided for in Section 11.01, shall be settled finally by
arbitration in accordance with the Rules of Conciliation and Arbitration (the
"Rules") of the International Chamber of Commerce ("ICC").
In making their decision, the arbitrators shall not assess damages against the
parties, except in the case of (a) the provisions of Section 10.06; or (b)
such party's gross negligence or willful misconduct in which event,
arbitrators shall not assess indirect or consequential damages.
15.02 Arbitration Panel. The arbitration shall be conducted by three
arbitrators appointed in accordance with the Rules. Exclusively GIRSA or
Uniroyal may commence arbitration by filing a demand for arbitration
("Demand") with the Secretariat of the Court of Arbitration (the "Court of
Arbitration") of the ICC, and sending a copy of such demand to the other party
in accordance with Section 14 of this Agreement. The Demand shall designate
the arbitrator selected by the party filing the Demand. Within fifteen (15)
days thereafter, the other party shall designate a second arbitrator by
written notice to the first party in accordance with Section 14 of this
Agreement. The two arbitrators thus designated shall, within fifteen (15)
days thereafter, select a neutral third arbitrator. In the event that the
second or third arbitrator is not designated or selected within the period
specified, such arbitrator shall be appointed by the Court of Arbitration.
15.03 Rules and Governing Law. The arbitrators shall determine what rules
shall be applicable to those aspects of the proceedings as to which the Rules
may be silent and shall conduct the arbitration proceedings in accordance with
such procedural rules as they may establish. In deciding the merits of the
Dispute the arbitrators shall first apply the provisions of this Agreement and
then, if necessary, the laws of Mexico D.F., Mexico (if the arbitration takes
place in Mexico City, Mexico as provided for in Section 15.05) or the laws of
the State of Connecticut, U.S.A. (if the arbitration takes place in Waterbury,
Connecticut, U.S.A. as provided for in Section 15.05).
15.04 Substitution of Arbitrator. If, for any reason, an arbitrator,
after having accepted appointment as such, is unwilling or unable to enter
upon and complete the determination of the Dispute, then, within fifteen (15)
days of the receipt of notice of the arbitrator's withdrawal, a substitute
shall be appointed in accordance with the procedures established herein and in
the Rules.
15.05 Place and time of Arbitration. The place of arbitration shall be
determined as follows:
(a) If the party filing the Demand is Uniroyal, the place of
arbitration shall be Mexico City, Mexico.
(b) If the party filing the Demand is GIRSA, the place of arbitration
shall be Waterbury, Connecticut, U.S.A.
The arbitrators shall fix the date, time and location of the hearing, which
shall commence within thirty (30) days after the date the parties receive
notice of the appointment of the third arbitrator.
15.06 Language. The arbitration hearing shall be conducted in the
official language of the country in which the arbitration is taking place, and
if a translator or interpreter is required, the party needing such translator
or interpreter shall provide one at its own expense.
15.07 Absence of a Party. In the event that GIRSA or Uniroyal fails to
submit to arbitration or fails to appear at the date, time or location
designated for the arbitration the arbitrators will, providing that such party
has received notice of the arbitration and the opportunity to present its
case, proceed with the arbitration in the absence of such party and will
render their decision on the basis of the documents and evidence presented to
them.
15.08 Decisions. The decision of the arbitrators shall be determined by
the majority, and the parties shall be bound by the decision of the
arbitrators, who shall communicate such decision to the parties within thirty
(30) days of the closing of the hearing and shall, within thirty days
thereafter, provide the parties with a written opinion stating the reasons for
their decision.
15.09 Finality. The arbitration award shall be final and not subject to
appeal. Judgment upon such award may be entered for execution in any court of
competent jurisdiction, or application may be made to such a court for
judicial acceptance of such award and an order of enforcement.
15.10 Actions Pending Arbitration. During the period commencing the day
the Demand is filed with the ICC until the award is made by the arbitrators,
the party filing the Demand shall not, and during the period commencing the
day the party not filing the Demand receives the copy thereof as hereinabove
provided until the award is made by the arbitrators, such party not filing the
Demand shall not, take any action that would fundamentally change the
situation with respect to the subject matter of the Demand in a way that would
prejudice the other party. Notwithstanding any other rights that either party
may have, pending the resolution of any Dispute, this Agreement shall remain
in full force and effect in accordance with its terms and the parties shall
continue to fulfill their obligations hereunder.
15.11 Fees and Expenses. The fees and expenses of the arbitrators shall
be shared equally by GIRSA and Uniroyal, each of which shall, if the ICC so
demands, submit an advance deposit, in U.S. Dollars, to the ICC in such amount
as the ICC shall determine. If such deposit shall, in the aggregate, exceed
the fees and expenses of the arbitrators, the excess shall be equally divided
and half shall be returned to each of the parties.
15.12 Attorney's Fees. The arbitrators shall have the authority, in their
discretion, to award attorney's fees to the party determined by them to be
free from fault.
16. GENERAL
16.01 Entire Agreement. This Agreement and the Related Agreements set
forth the entire agreement and understanding of the parties in respect of the
transactions contemplated hereby and thereby, and supersede all prior
agreements, arrangements and understandings relating to the subject matter
hereof and thereof. No representation, promise, inducement or statement of
intention has been made by either party with respect to the subject matter
hereof and thereof that is not set forth in this Agreement or the Related
Agreements. No Party shall be bound by or liable for any alleged
representation, promise, inducement or statement of intention not so set
forth.
16.02 Partial Invalidity. The determination by any judicial authority of
competent jurisdiction that any term or provision of this Agreement is void or
unenforceable shall not affect the validity or enforceability of the remaining
provisions of this Agreement.
16.03 Amendments. This Agreement may be amended, modified, superseded or
canceled, and any of the provisions hereof may be waived, only by a written
instrument executed by the parties, or in the case of a waiver, by the party
waiving compliance. The failure of either party at any time or times to
require performance of any provision hereof shall in no manner affect its
right at a later time to enforce the same. No waiver by either party of any
provision, or of the breach of any provision contained in this Agreement, in
any one or more instances, shall be deemed to be or construed as a further or
continuing waiver of any such provision or breach or a waiver of any other
provision or of the breach of any other provision of this Agreement.
16.04 Assignment. Without the unanimous written consent of both parties,
none of the parties shall sell assign or otherwise transfer any of his rights
in this Agreement. Any purported assignment in violation of this provision
shall be void and of no force or effect.
16.05 Execution in Counterparts. This Agreement may be executed in one or
more counterparts, each of which may be executed by one or more of the parties
hereto, with the same force as though all persons who executed such
counterparts had executed but one instrument, but all such counterparts shall
comprise one and the same agreement.
16.06 Headings. Section headings in this Agreement are included herein
for convenient reference only and shall not in any way affect the meaning of
this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be executed by their duly authorized representatives as of the date first
above written.
"UNIROYAL CHEMICAL"
"UNIROYAL" "NOVAQUIM"
UNIROYAL CHEMICAL COMPANY, INC. NOVAQUIM HOLDINGS, S.A. DE C.V.
/s/Joseph B. Eisenberg /s/Joseph B. Eisenberg
By: Joseph B. Eisenberg By: Joseph B. Eisenberg
Title: Executive Vice President Title: President
Dated: September 18, 1998 Dated: September 18, 1998
"GIRSA"
GIRSA S.A. de C.V.
/s/Enrique Ochoa
By: Enrique R. Ochoa Vega
Title: Managing Director
Dated: September 18, 1998
EXHIBIT "A"
The By-laws of the Manufacturing Company
EXHIBIT "B"
The Certificate of Incorporation and By-laws of the Marketing Company
EXHIBIT "C-1"
Batch processing manufacturing machinery and equipment for the production of
NBR Products located at GIRSA's Facilities.
EXHIBIT "C-2"
Additional machinery and equipment for the production of NBR Products
to be acquired by INSA.
EXHIBIT "D"
The batch polymerization reactors, French press, P&S dryer and related
machinery and equipment for the production [and testing] of NBR Products
located at Uniroyal's NBR Products manufacturing facilities at Painesville,
Ohio, U.S.A. [and certain Research and Development equipment in Connecticut].
EXHIBIT "E"
Intangible property owned by Uniroyal applicable to the production and
marketing of NBR Products.
EXHIBIT "F"
Instruments of irrevocable assignment, for the free and exclusive use on a
worldwide basis, of assets to be contributed by Uniroyal to the capital of
Marketing Company.
EXHIBIT "G"
Project Manual
EXHIBIT "H"
Initial Capital Projects.
EXHIBIT "I"
Operating Services Agreement
EXHIBIT "J"
The Sales Services Agreement
EXHIBIT "K"
License Agreement
EXHIBIT "L"
The NBR Products Supply Agreement
EXHIBIT "M-1"
The GIRSA Corporate Services Agreement
EXHIBIT "M-2"
The Uniroyal Corporate Services Agreement
EXHIBIT "N"
Authorization, consent, approval or waiver from, or to make any filing with,
any public body or authority or any other person or entity required to be
carried out by the parties.
1. Registration of Manufacturing Company before the Mexican Foreign
Investment Registry.
2. Registration of Marketing Company and/or GIRSA before the U.S.
authorities on Foreign Investment.
3. Registration of Technology License Agreement before the IMPI and US
authorities.
4. Filing and/or registration of intangible property assignments and
licenses before the corresponding authorities in countries required.
EXHIBIT 2.7
STOCK PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT, dated as of December 8, 1998, by and among Chr.
Hansen, Inc., a Wisconsin corporation ("Buyer"), Ingredient Technology
Corporation, a Delaware corporation (the "Company"), and Crompton & Knowles
Corporation, a Massachusetts corporation ("Seller").
WHEREAS, pursuant to the terms and subject to the conditions of this
Agreement, Buyer wishes to acquire all of the capital stock of the Company;
WHEREAS, Seller, being the holder, directly or indirectly, of all of the
Shares of the Company, wishes to sell the Shares to Buyer;
WHEREAS, the purchase and sale of the Shares of the Company (the
"Acquisition") has been approved by the Board of Directors of Buyer as being
in the best interests of Buyer and its equityholders;
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth herein and
subject to the conditions and other terms herein set forth, the parties hereto
hereby agree as follows:
ARTICLE 1A
For all purposes of this Agreement, the following terms shall have the
respective meanings set forth in this Article 1.A (such definitions to be
equally applicable to both the singular and plural forms of the terms herein
defined):
"Acquisition Proposal" shall have the meaning set forth in Section 5.11.
"Act" shall have the meaning set forth in Section 3.10.
"Additional Indemnity Taxes" shall have the meaning set forth in Section
9.7(a)
"Affiliate" shall mean any individual, partnership, corporation, entity or
other person that directly, or indirectly through one or more intermediaries,
controls, is controlled by or is under common control with the Person
specified. The term "control" shall mean the power, directly or indirectly,
to: (i) vote 10% or more of the securities which have ordinary voting power
in the election of Directors (or individuals filling any analogous position)
of any Person; or (ii) direct or cause the direction of the management and
policies of any Person, whether by contract or otherwise.
"Affiliated Group" shall have the meaning set forth in Section 8.2(a).
"Aging Schedule" shall have the meaning set forth in Section 3.9.
"Agreement" shall mean this Stock Purchase Agreement among Seller, the Company
and Buyer as such may hereafter be amended.
"Annual Financial Statements" shall have the meaning set forth in Section 3.6.
"Applicable Law" or "Law" shall mean any domestic or foreign federal, state or
local statute, law, ordinance, rule, administrative interpretation,
regulation, order, writ, injunction, directive, judgment, decree, policy,
guideline or other requirement (including those of any self-regulatory
organization), each as amended through the date hereof, applicable to Seller,
the Company, Buyer or any of their respective Affiliates, properties, assets,
officers, directors, employees or agents, as the case may be.
"Authorizations" shall have the meeting set forth in Section 3.2.
"Book Value Adjustment" shall mean the amount (positive or negative) equal to
(x) the Net Book Value of the Company as of the close of business on the last
Business Day of the month last preceding the month in which the Closing Date
occurs minus (y) an amount equal to $52,052,000.
"Business Day" shall mean any day that the NYSE is normally open for trading
and that is not a Saturday, a Sunday or a day on which banks in the State of
New Jersey are generally closed for regular banking business.
"Buyer" has the meaning set forth on the first page hereof and includes any
direct or indirect successor or assign.
"Buyer Disclosure Schedule" shall have the meaning set forth in Section 4.A.
"Buyer Material Adverse Effect" shall mean, with respect to any matter or
matters (individually or in the aggregate) affecting Buyer or any of its
Affiliates, a material adverse effect on (x) the business, assets, financial
condition or results of operations of Buyer and its Subsidiaries taken as a
whole or (y) the ability of Buyer to complete the Closing, in each case, other
than any change, effect, event or occurrence relating to (i) the United States
economy in general, (ii) this Agreement or the transactions contemplated
hereby or the announcement thereof, (iii) changes in legal or regulatory
conditions that affect in general the businesses in which Buyer and its
Subsidiaries are engaged or (iv) the industry or industries in which Buyer and
its Subsidiaries operate in general, and not specifically relating to Buyer or
its Subsidiaries.
"Canadian Subsidiary" shall have the meaning set forth in Section 5.12.
"Closing" shall have the meaning set forth in Section 1.2.
"Closing Date" shall have the meaning set forth in Section 1.2.
"Closing Price Documents" shall have the meaning set forth in Section 2.2(a).
"Closing Inventory Count" shall have the meaning set forth in Section 2.1.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Company" shall have the meaning set forth on the first page hereof.
"Company Disclosure Schedule" shall have the meaning set forth in Section 3.A.
"Company Financial Statements" shall have the meaning set forth in Section
3.6.
"Company Material Adverse Effect" shall mean, with respect to any matter or
matters (individually or in the aggregate) affecting the Company or any of its
Affiliates, a material adverse effect (the parties hereby agreeing that
aggregate Losses incurred or reasonably likely to be incurred in excess of $5
million shall be deemed a material adverse effect for purposes of this
definition) on (x) the business, assets, financial condition or results of
operations of the Company and its Subsidiaries taken as a whole or (y) the
ability of Seller or the Company to complete the Closing, in each case, other
than any change, effect, event or occurrence relating to (i) the United States
economy in general, (ii) this Agreement or the transactions contemplated
hereby or the announcement thereof, (iii) changes in legal or regulatory
conditions that affect in general the businesses in which the Company and its
Subsidiaries are engaged or (iv) the industry or industries in which the
Company and its Subsidiaries operate in general, and not specifically relating
to the Company or its Subsidiaries.
"Company Subsidiary" shall mean, each corporation, limited liability company,
partnership, joint venture or other Person in which the Company, directly or
indirectly, owns any capital stock, equity interest or other ownership or
investment interest.
"Confidentiality Agreement" shall mean that certain letter agreement relating
to confidential information provided by Seller and the Company to Buyer and
its Affiliates.
"Contracts" has the meaning set forth in Section 3.14.
"Covered Lease" shall mean that certain lease relating to the Real Estate
located in Mohwah, New Jersey.
"Covered Litigation" shall mean any Proceeding pending against the Company
and/or any Company Subsidiary as of the date hereof, including, without
limitation, those Proceedings listed in Section 3.22(a) of the Company
Disclosure Schedule.
"Disagreement" shall have the meaning set forth in Section 2.2(b).
"Encumbrance" shall have the meaning set forth in Section 3.2.
"Environmental Authorizations" shall have the meaning set forth in Section
3.18(c).
"Environmental Laws" shall have the meaning set forth in Section 3.18(a).
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended, and the rules, regulations and class exemptions of the Department of
Labor thereunder.
"Estimated Purchase Consideration" shall mean a bona fide estimate of the
Purchase Consideration, which estimate shall be computed in accordance with
the definitions contained in this Article 1.A, provided that in computing the
Estimated Purchase Consideration, the Book Value Adjustment shall be
reasonably estimated by Seller and the Company, subject to the reasonable
approval of Buyer.
"French Subsidiary" shall have the meaning set forth in Section 5.12.
"GAAP" shall mean generally accepted accounting principles as used in the
United States of America as in effect at the time any applicable financial
statements were prepared or any act requiring the application of GAAP was
performed; provided, however, that with respect to the preparation of any
financial statement or other application of GAAP on or after December 31, 1997
(including for purposes of determining the Estimated Purchase Consideration
and Purchase Consideration hereunder) such principles shall be applied on a
basis consistent with the preparation of the Company's Annual Financial
Statements for the 1997 fiscal year referred to in Section 3.6 hereof.
"Governmental Authority" shall mean any nation or government, any state or
other political subdivision thereof, any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government, including the SEC or any other government authority, agency,
department, board, commission or instrumentality of the United States, any
State of the United States or any political subdivision thereof, and any
court, tribunal or arbitrator(s) of competent jurisdiction, and any
governmental or non-governmental self-regulatory organization, agency or
authority.
"HSR Act" shall mean the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended, and the rules and regulations promulgated thereunder.
"Indemnified Party" shall have the meaning set forth in Section 9.4(a).
"Indemnifying Party" shall have the meaning set forth in Section 9.4(a).
"Independent Accounting Firm" shall mean such reputable national accounting
firm mutually agreed to by Buyer and Seller (which agreement shall not be
unreasonably withheld by either party), other than any accounting firm that
has performed services for Buyer, Seller or the Company or any of their
Affiliates during the past five years.
"Intellectual Property" shall have the meaning set forth in Section 3.13(a).
"Interim Balance Sheet" shall have the meaning set forth in Section 3.6.
"Interim Statements" shall have the meaning set forth in Section 3.6.
"IRS" shall mean the Internal Revenue Service, and any successor thereto.
"Loss" shall mean any and all claims, losses, liabilities, costs, penalties,
fines and expenses (including reasonable expenses for attorneys, accountants,
consultants and experts), damages, obligations to third parties, expenditures,
proceedings, judgments, awards, settlements or demands that are imposed upon
or otherwise incurred, suffered or sustained by the relevant party. For
purposes of the indemnifications set forth in Sections 9.1(e) and 9.1(h)
hereof, Losses shall include, without limitation, fines and penalties imposed
as a result of violations of Environmental Laws, costs of obtaining permits
and approvals required by Environmental Laws, costs of preparing such permit
and approval applications, costs of preparing contingency, emergency response,
containment and other plans required by Environmental Laws, costs of
investigation, clean-up and/or remediation required by Environmental Laws, and
costs and expenses, including capital expenditures, required to comply with
Environmental Laws and any permits, approvals or plans required to be prepared
or approved under Environmental Laws.
"Material Contract" shall mean any Contract involving aggregate consideration
in excess of $100,000 payable by or to any party to such Contract and/or
performance over a period in excess of six months.
"Net Book Value" shall mean consolidated stockholders' equity of the Company
as determined in accordance with GAAP consistently applied, except to the
extent otherwise provided on Schedule I attached hereto.
"Notice of Disagreement" shall have the meaning set forth in Section 2.2(b).
"Notified Party" shall have the meaning set forth in Section 7.1.
"Notifying Party" shall have the meaning set forth in Section 7.1.
"NYSE" shall mean the New York Stock Exchange, Inc., and any successor
thereto.
"Order" shall have the meaning set forth in Section 3.18(b).
"Person" shall mean any individual, corporation, company, partnership (limited
or general), joint venture, association, trust, limited liability company,
Governmental Authority or other organization or entity.
"Plan" has the meaning set forth in Section 3.17(a).
"Post-Closing Tax Period" shall have the meaning set forth in Section 8.2(b).
"Pre-Closing Tax Period" has the meaning set forth in Section 8.2(a).
"Premium Increase" shall have the meaning set forth in Section 9.7(b).
"Prime Rate" shall mean the prime rate (currently the base rate on corporate
loans posted by at least 75% of the 30 largest U.S. banks) as reported from
time to time in The Wall Street Journal (or if not then reported therein, such
other reputable comparable source).
"Proceeding" shall have the meaning set forth in Section 3.15(d).
"Purchase Consideration" shall mean an amount in cash equal to (x)
$103,000,000, plus (y) the Book Value Adjustment.
"Real Estate" shall have the meaning set forth in Section 3.12(a), except that
for purposes of Sections 3.18, 9.1(e) and 9.1(h), "Real Estate" shall also
include each parcel of real property that was previously, but is no longer,
owned or used by the Company and/or any Company Subsidiary or in which the
Company or any Company Subsidiary previously had, but no longer has, a
leasehold or other interest.
"Records" shall mean all records and original documents (and copies thereof)
in the possession of the Company or its Affiliates as of the Closing Date (a)
which pertain to or are utilized by the Company to administer, reflect,
monitor, evidence or record information respecting the business or conduct of
the Company, or (b) necessary or appropriate to comply with any Applicable
Law, and shall include in the case of (a) and (b) above all such records
maintained on electronic or magnetic media, or in the electronic data base
system of the Company.
"Related Party" shall have the meaning set forth in Section 3.29
"Release" shall have the meaning set forth in Section 3.18(d).
"Regulatory Documents" shall mean, with respect to a Person, all
forms, reports, registration statements, schedules and other
documents filed, or required to be filed, with any Governmental
Authority by such Person pursuant to Applicable Law.
"Right" shall mean any option, warrant, convertible or exchangeable security,
right, subscription, call, legally binding commitment, unsatisfied preemptive
right or other agreement or right of any kind to purchase or otherwise acquire
from the specified Person any capital stock thereof, whether issued and
outstanding, authorized but unissued or treasury shares.
"SEC" shall mean the Securities and Exchange Commission, and any successor
thereto.
"Securities" shall mean any security as defined in the Securities
Act.
"Seller" has the meaning set forth on the first page hereof and includes any
direct or indirect successor or assign.
"Shares" shall have the meaning set forth in Section 3.4.
"Subsidiary" of a Person shall mean any Person 50% or more of the voting stock
(or of any other form of general partnership or other voting or controlling
equity interest in the case of a Person that is not a corporation) of which is
beneficially owned by the Person directly or indirectly through one or more
other Persons.
"Supplemental Closing" shall have the meaning set forth in Section 2.2(d).
"Supplemental Closing Date" shall have the meaning set forth in Section
2.2(d).
"Tax Benefit" shall mean a Tax deduction, Tax credit or other Tax benefit.
"Tax Return" shall mean any return, report, information statement, schedule or
other document (including any related or supporting information and including
any Form 1099 or other document or report required to be provided by the
Company to third parties) with respect to Taxes, including any document
required to be retained or provided to any Governmental Authority pursuant to
31 U.S.C. Sections 5311-5328 and regulations promulgated thereunder, relating
to the Company or any consolidated group of which any such entity was a member
at the applicable time, and any amended Tax Returns.
"Tax" or "Taxes" shall have the meaning set forth in Section 3.15(a).
"Tax Liens" shall have the meaning set forth in Section 3.8.
"Third Party Claim" shall have the meaning set forth in Section 9.4(a).
"Title or Authority Warranty" shall have the meaning set forth in Section
9.3(d).
"Treasury Regulations" shall mean regulations promulgated under the Code.
"Wire Transfer" shall mean a payment in immediately available funds by wire
transfer in lawful money of the United States of America to such account or to
a number of accounts as shall have been designated to the paying party in
writing by the party to receive payment.
ARTICLE I
THE ACQUISITION
1.1. General. Upon the terms and subject to the conditions hereof, Seller
agrees to sell, transfer, assign, convey and deliver to Buyer (or at Buyer's
election, an Affiliate of Buyer), and Buyer (or at Buyer's election, an
Affiliate of Buyer) agrees to purchase, redeem and accept from Seller, the
Shares for the Purchase Consideration.
1.2. Closing. The consummation of the Acquisition as contemplated by this
Agreement (the "Closing") shall take place at the offices of Wachtell, Lipton,
Rosen & Katz, 51 West 52nd Street, New York, New York 10019, at 10:00 a.m.,
local time, on the later of January 15, 1999 or the fifth Business Day after
all of the conditions set forth in Article VI hereof (other than conditions
which relate to actions to be taken at the Closing) have been satisfied or
waived, or at such other date, time and place as Buyer and Seller shall agree
(the date on which the Closing takes place being referred to herein as the
"Closing Date").
1.3. Instruments of Transfer; Payment of Purchase Consideration.
(a) Not less than two Business Days prior to the Closing Date, Seller
shall deliver to Buyer Wire Transfer instructions designating the account(s)
to which the Estimated Purchase Consideration shall be paid by Buyer at the
Closing.
(b) At the Closing, Seller shall deliver, or shall cause to be delivered,
to Buyer the following:
(1) one or more certificates representing all of the Shares duly executed
in blank or accompanied by stock powers duly executed in blank, in proper form
for transfer, with all appropriate stock transfer tax stamps affixed;
(2) a certificate of the Secretary of State of the State of Delaware as to
the good standing of the Company dated as of a date not earlier than 10 days
prior to the Closing Date, together with a copy of the Certificate of
Incorporation, as amended, of the Company certified by the Secretary of State
of the State of Delaware;
(3) the documents required to be delivered pursuant to Section 6.2;
(4) resignations of the officers and directors of the Company and the
Company Subsidiaries and each person who is a trustee, custodian or authorized
signatory under any Plan which covers employees of the Company and/or the
Company Subsidiaries exclusively, effective as of the Closing Date, except as
Buyer shall direct in writing to the contrary;
(5) resignations of the signatories of the bank and other depository
accounts and safe deposit boxes of the Company and the Company Subsidiaries;
(6) a general release in the form of Exhibit 1.3(b)(6);
(7) possession of all Records and all pass books, keys, articles,
passwords or codes required for access to the Company, the Company
Subsidiaries, their business, properties and assets and/or the Real Estate,
and the combinations for all safes, vaults and other places of safe keeping or
storage of the Company and the Company Subsidiaries, in each case, in the
possession of Seller or any of its Affiliates as of the Closing Date;
(8) one or more Supply Agreements, executed by Seller, in the form(s)
negotiated pursuant to Section 5.14 and with the terms set forth in Exhibit
5.14 hereto; and
(9) A supplement to the Company Disclosure Schedule updating same as of
the Closing Date.
(c) At the Closing, Buyer shall deliver, or shall cause to be delivered,
to Seller the following:
(1) an amount cash equal to the Estimated Purchase Consideration by Wire
Transfer to the designated account(s); and
(2) the documents required to be delivered pursuant to Section 6.3.
ARTICLE II
POST-CLOSING ADJUSTMENT
2.1. Closing Inventory. As soon as practicable after the Closing Date
and, in any event, within 30 days thereafter, Buyer and Seller shall take a
physical count of the inventory of the Company and its Subsidiaries to
determine the inventory of the Company and its Subsidiaries as of the close of
business on the last Business Day of the month last preceding the month in
which the Closing Date occurs (the "Closing Inventory Count"). As soon as
practicable after the date hereof, Buyer and Seller shall agree on the
procedures to be used in taking the Closing Inventory Count. The parties
anticipate that Buyer and Seller may begin taking the Closing Inventory Count
before the Closing. Except as the parties may otherwise agree, the Closing
Inventory Count shall be made jointly by representatives of each party unless
the Buyer declines to send a representative to any location, in which event
the count at such location shall be made by Seller and the Seller's count
shall be final and binding on the Buyer. The Company's inventory, as
reflected in the Closing Price Documents, shall be based on the Closing
Inventory Count.
2.2. Supplemental Closing.
(a) As soon as reasonably practicable following the Closing Date, and in
no event more than thirty Business Days thereafter, Buyer and the Company
shall prepare and deliver to Seller schedules calculating the amount of the
Book Value Adjustment and setting forth such calculations (including
calculation of the Net Book Value) in reasonable detail (collectively, the
"Closing Price Documents"). The parties shall consult with one another and
cooperate in the preparation and review of the Closing Price Documents in
accordance with this Section 2.2, including, without limitation, providing
access to such working papers and information relating to the preparation
thereof as reasonably requested by the other party.
(b) Within twenty Business Days after delivery of the Closing Price
Documents to Seller, Seller may dispute all or any portion of the Closing
Price Documents by giving written notice (a "Notice of Disagreement") to Buyer
setting forth in reasonable detail the basis for any such dispute (any such
dispute being hereinafter called a "Disagreement"). The parties shall
promptly commence good faith negotiations with a view to resolving all such
Disagreements. If Seller does not give such a Notice of a Disagreement within
the twenty-Business-Day period set forth in this paragraph (b), Seller shall
be deemed to have accepted such Closing Price Documents in the form delivered
to Seller by Buyer.
(c) If Seller shall deliver a Notice of Disagreement and Buyer shall not
dispute all or any portion of such Notice of Disagreement by giving written
notice to Seller setting forth in reasonable detail the basis for such dispute
within twenty Business Days following the delivery of such Notice of
Disagreement, Buyer shall be deemed to have irrevocably accepted the Closing
Price Documents as modified in the manner described in the Notice of
Disagreement. If Buyer disputes all or any portion of the Notice of
Disagreement within the twenty-Business-Day period described in the previous
sentence, and within twenty Business Days following the delivery to Seller of
the notice of such dispute Seller and Buyer do not resolve the Disagreement
(as evidenced by a written agreement among the Buyer, the Company and Seller),
such Disagreement shall thereafter be referred by either Buyer or Seller to an
Independent Accounting Firm for a resolution of such Disagreement in
accordance with the terms of this Agreement. The determinations of such firm
with respect to any Disagreement shall be rendered within twenty Business Days
after referral of the Disagreement to such firm or as soon thereafter as
reasonably possible, shall be final and binding upon the parties, the amount
so determined shall be used to complete the final Closing Price Documents and
the parties agree that the procedures set forth in this Section 2.2 shall be
the sole and exclusive remedy with respect to the determination of the Book
Value Adjustment. Buyer and Seller shall use their reasonable best efforts to
cause the Independent Accounting Firm to render its determination within the
twenty-Business-Day period described in the previous sentence, and each shall
cooperate with such firm and provide such firm with access to the books,
records, personnel and representatives of it and such other information as
such firm may require in order to render its determination. All of the fees
and expenses of any Independent Accounting Firm retained pursuant to this
paragraph (c) shall be shared equally by Buyer and Seller. Seller and Buyer
shall execute such engagement letters and other agreements in connection with
the engagement of the Independent Accounting Firm as such firm may reasonably
request.
(d) Promptly after the Closing Price Documents have been finally
determined in accordance with paragraphs (a), (b) and (c) of this Section 2.2
(including by means of a deemed acceptance of such documents by Seller or by
Buyer as provided in paragraphs (b) and (c), respectively), but in no event
later than five Business Days following such final determination (the
"Supplemental Closing Date"), the parties hereto shall hold a supplemental
closing (the "Supplemental Closing"), either by telephone or in person at a
mutually convenient location. If the Purchase Consideration is greater than
the Estimated Purchase Consideration, Buyer shall deliver, or shall cause to
be delivered, to Seller on the Supplemental Closing Date an amount in cash
equal to the difference in the manner (by check or Wire Transfer) set forth in
written payment instructions delivered by Seller to Buyer at least one
Business Day prior to the Supplemental Closing Date. If the Purchase
Consideration is less than the Estimated Purchase Consideration, Seller shall
deliver to Buyer on the Supplemental Closing Date an amount in cash equal to
the difference in the manner (by check or Wire Transfer) set forth in written
payment instructions delivered by Buyer to Seller at least one Business Day
prior to the Supplemental Closing Date. In any case, the amount payable at
the Supplemental Closing shall be accompanied by interest thereon calculated
at the Prime Rate for the period from the Closing Date up to but not including
the Supplemental Closing Date.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLER AND THE COMPANY
3.A. Disclosure Schedule. On or prior to the date hereof, Seller and the
Company have delivered to Buyer a schedule (the "Company Disclosure Schedule")
setting forth, among other things, items the disclosure of which is necessary
or appropriate either in response to an express disclosure requirement
contained in a provision hereof or as an exception to one or more
representations or warranties contained in this Article III or to one or more
of the covenants contained in Article V or in Article X. The mere inclusion
of an item in the Company Disclosure Schedule as an exception to a
representation or warranty shall not be deemed an admission by Seller or the
Company that such item represents a material exception or fact, event or
circumstance or that such item is reasonably likely to result in a Company
Material Adverse Effect. The Company Disclosure Schedule is arranged in
sections and paragraphs corresponding to the sections and paragraphs contained
herein. A fact or matter disclosed in the Company Disclosure Schedule with
respect to one section or paragraph shall be deemed to be disclosed with
respect to each other section and paragraph of this Agreement where such
disclosure is appropriate if, but only if, the relevance of the disclosure to
such other section or paragraph is readily apparent. Notwithstanding the
foregoing, a fact or matter shall be deemed to be disclosed as an exception to
the representations and warranties in Section 3.4 only if it is disclosed in
Section 3.4 of the Company Disclosure Schedule. Seller shall be permitted to
supplement in writing the Company Disclosure Schedule from time to time
following the date hereof by delivery of such supplements to Buyer in the
manner provided under Section 11.5, provided that such supplements shall not
be considered in determining the satisfaction of the conditions set forth in
Sections 6.2(a), 6.2(b) and 6.2(c) hereof. Subject to the provisions of
Section 9.3(d) hereof, the representations and warranties set forth in this
Article III and the covenants set forth in Article V shall survive the Closing
notwithstanding any investigation made by or information furnished to Buyer in
connection herewith.
3.B. Representations and Warranties of Seller and the Company. Subject to
the foregoing and except as set forth in the Company Disclosure Schedule, each
of Seller and the Company hereby represents and warrants to Buyer as of the
date of this Agreement as follows:
3.1. Authority of Seller. Seller has full corporate power and authority
to enter into this Agreement and to consummate the transactions contemplated
hereby. The execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby by Seller have been duly
and validly authorized by all necessary corporate action on the part of
Seller. This Agreement has been, and each other agreement and document to be
executed and delivered pursuant hereto by Seller will be, duly and validly
executed and delivered by Seller, and this Agreement constitutes (assuming due
authorization, execution and delivery by Buyer), and, when executed and
delivered, such ancillary documents will constitute (assuming due
authorization, execution and delivery by the other parties thereto), the
legal, valid and binding obligations of Seller enforceable against Seller in
accordance with their respective terms, except as the enforceability thereof
may be subject to or limited by bankruptcy, insolvency, reorganization,
moratorium or similar Laws relating to or affecting the rights of creditors
generally and general principles of equity, regardless of whether applied in
proceedings at law or in equity.
3.2. No Violation. Neither the execution, delivery and performance
hereof, nor the consummation of the transactions contemplated hereby, nor
compliance with any of the provisions hereof, by Seller, will: (i) conflict
with, breach or violate, or result in a conflict with, or breach or violation
of, or a default under, or give rise to any right of termination, cancellation
or acceleration with respect to (A) Seller's, the Company's and/or any Company
Subsidiary's Certificate of Incorporation or By-Laws; (B) any approval,
consent, license, franchise, permit, order, waiver, certificate, registration
or authorization of any kind whatsoever (collectively, "Authorizations"),
agreement, instrument, other document or obligation to which Seller, the
Company and/or any Company Subsidiary is a party or by which Seller, the
Company, any Company Subsidiary, the Shares and/or any of Seller's, the
Company's and/or any Company Subsidiaries' properties or assets are bound; (C)
any Law applicable to Seller, the Company, any Company Subsidiary, the Shares
and/or any of Seller's, the Company's and/or any Company Subsidiary's
properties or assets; or (ii) result in the creation or imposition of any
lien, security interest, claim, charge, condition, equitable interest, pledge,
option, right of first refusal or encumbrance of any kind whatsoever,
including any restriction on use, voting, transfer or other disposition,
receipt of income or exercise of any other attribute of ownership
(collectively, "Encumbrances") upon the Shares or any of the properties or
assets of the Company and/or any Company Subsidiary. Except for the approvals
set forth in Section 3.2 of the Company Disclosure Schedule, no Authorization
or other action of, or registration, declaration, recording or filing with,
any Governmental Authority or other Person is required in connection with the
execution and delivery of this Agreement and/or any other agreement or
document to be executed and delivered pursuant hereto by Seller and/or the
consummation by Seller of the transactions contemplated hereby and/or thereby.
3.3. Organization and Standing of the Company. The Company is a
corporation duly organized and validly existing and in good standing under the
laws of the State of Delaware. The Company has the full power and authority
to own or lease its properties and assets and to carry on all business
activities now conducted by it. The Company is duly qualified and in good
standing in each jurisdiction in which the nature of its business or the
ownership, leasing or holding of its properties or assets makes such
qualification necessary. Section 3.3 of the Company Disclosure Schedule lists
each jurisdiction in which the Company is qualified to do business as a
foreign corporation as of the date hereof. The Company's Certificate of
Incorporation and By-Laws (true, correct and complete copies of which have
been made available to Buyer) are in full force and effect without amendment
or modification. The stock transfer and minute books of the Company (true,
correct and complete copies of which have been made available for inspection
by Buyer and its representatives) are correct and complete. Since December
31, 1993, except as set forth in Section 3.3 of the Company Disclosure
Schedule, the Company has not merged or consolidated with any other person or
acquired any business or line of business, whether by means of a stock or
asset purchase, merger, consolidation or otherwise.
3.4. Capitalization. The entire authorized capital stock of the Company
consists of 1000 shares of Common Stock, $1.00 par value, of which 10 shares
(the "Shares") are duly authorized and validly issued and outstanding. The
Shares constitute all of the issued and outstanding shares of capital stock of
the Company of whatever class, series or designation. All of the Shares are
fully paid and nonassessable. None of the Shares have been issued in
violation of, or are subject to, any preemptive or subscription rights. All
of the Shares have been issued in full compliance with all applicable federal
and state securities laws or in accordance with exemptions therefrom. There
are no outstanding warrants, options, subscriptions, convertible or
exchangeable securities or other agreements, instruments, documents or
commitments pursuant to which the Company is or may become obligated to issue,
sell, purchase, retire or redeem any shares of capital stock or other
securities of the Company. The Seller owns, directly or indirectly through
one or more Subsidiaries, the Shares and will transfer them, or cause them to
be transferred, to the Buyer at Closing free and clear of all Encumbrances.
3.5. Company Subsidiaries. Section 3.5 of the Company Disclosure Schedule
lists each Company Subsidiary (other than the Canadian Subsidiary and the
French Subsidiary). Each of the Company Subsidiaries is duly organized and
validly existing and in good standing under the Laws of the jurisdiction of
its organization. Each of the Company Subsidiaries has the full power and
authority to own or lease its properties and assets and to carry on all
business activities now conducted by it. Each of the Company Subsidiaries is
duly qualified and in good standing in each jurisdiction in which the nature
of its business or the ownership, leasing or holding of its properties or
assets makes such qualification necessary. In the case of each of the Company
Subsidiaries (other than the Canadian Subsidiary and the French Subsidiary),
Section 3.5 of the Company Disclosure Schedule lists each jurisdiction in
which such Company Subsidiary (other than the Canadian Subsidiary and the
French Subsidiary) is qualified to do business as a foreign corporation as of
the date hereof. The Certificate of Incorporation and By-Laws (true, correct
and complete copies of which have been made available to Buyer) of each
Company Subsidiary are in full force and effect without amendment or
modification. The stock transfer and minute books of each Company Subsidiary
(true, correct and complete copies of which have been made available for
inspection by Buyer and its representatives) are correct and complete. Since
December 31, 1993, except as set forth in Section 3.5 of the Company
Disclosure Schedule, none of the Company Subsidiaries has merged or
consolidated with any other person or acquired any business or line of
business, whether by means of a stock or asset purchase, merger, consolidation
or otherwise. In the case of each Company Subsidiary (other than the Canadian
Subsidiary and the French Subsidiary), Section 3.5 of the Company Disclosure
Schedule sets forth a true, correct and complete summary of the capitalization
of such Company Subsidiary. The outstanding capital stock, equity interest or
other ownership or investment interests of each Company Subsidiary are fully
paid and nonassessible, have not been issued in violation of, and are not
subject to, any preemptive or subscription rights, and have been issued in
full compliance with all applicable federal and state securities laws or in
accordance with exemptions therefrom. There are no outstanding warrants,
options, subscriptions, convertible or exchangeable securities or other
agreements, instruments, documents or commitments pursuant to which any
Company Subsidiary is or may become obligated to issue, sell, purchase, retire
or redeem any capital stock, equity interest or other ownership or investment
interest except as set forth in Section 3.5 of the Company Disclosure
Schedule.
3.6. Financial Statements. Section 3.6 of the Company Disclosure Schedule
sets forth the following consolidated financial statements of the Company (the
"Company Financial Statements"): (i) consolidated balance sheets of the
Company as of fiscal year end 1994, 1995, 1996 and 1997 and statements of
results of operations for the years then ended (the "Annual Financial
Statements"); and (ii) unaudited consolidated balance sheets of the Company as
of October 25, 1997 and October 24, 1998 (such October 24, 1998 consolidated
balance sheet being referred to herein as the "Interim Balance Sheet") and
statements of results of operations for the ten (10) months then ended (such
statements of results of operations for the ten (10) months ended October 24,
1998 being referred to herein as the "Interim Statements"). The Company
Financial Statements are true and correct in all material respects, have been
prepared in accordance with the books and records of the Company and the
Company Subsidiaries, fairly present the financial condition and results of
operations of the Company and the Company Subsidiaries as of the dates and for
the periods indicated, and, subject to customary year-end adjustments and the
absence of footnotes, have been prepared in accordance with GAAP applied on a
basis consistent throughout the periods reflected therein.
3.7. Use of Assets. The Company and the Company Subsidiaries own, have
valid leasehold interests in, or hold under valid licenses or right of use to,
all of the property and assets, personal and real, tangible or intangible,
used by the Company and/or the Company Subsidiaries in connection with the
conduct of their business as presently conducted. The properties and assets
of the Company and the Company Subsidiaries are sufficient for the operation
of their current business in the ordinary course and are suitable for the
respective purposes for which they are currently being used. Except for
inventory in transit to or from customers or suppliers, inventory maintained
in third party warehouses or other facilities, and vehicles in the possession
of employees, all of the tangible personal property owned or leased by the
Company and the Company Subsidiaries is currently in their possession.
3.8. Ownership of Assets. The Company and the Company Subsidiaries have
good title to all of their owned properties and assets, including the assets
reflected on the Interim Balance Sheet and assets acquired after the periods
reflected in the Interim Balance Sheet (except for assets sold in the ordinary
course of business consistent with past practice). None of such property is
subject to any Encumbrances, except for: (i) Encumbrances listed in Section
3.8 of the Disclosure Statement; (ii) statutory liens for real and personal
property Taxes not yet delinquent or due and payable ("Tax Liens"); and (iii)
Encumbrances which do not detract from the value or interfere with the use or
marketability of the property affected thereby (it being understood that any
Encumbrance securing any obligation to pay monies shall be deemed to affect
marketability) (collectively, the Encumbrances excepted pursuant to clauses
(i), (ii) and (iii) above being referred to herein as "Permitted
Encumbrances").
3.9. Accounts Receivable. All accounts, notes and claims receivable of
the Company and the Company Subsidiaries, as reflected on the Interim Balance
Sheet, represent, and all accounts, notes and claims receivable of the Company
and the Company Subsidiaries as reflected in the Closing Price Documents will
represent, valid claims against the obligors thereof which arose in the
ordinary course of business. A correct and complete aging schedule of the
trade account receivables of the Company and the Company Subsidiaries dated as
of the date of the Interim Balance Sheet has been made available to the Buyer
(the "Aging Schedule").
3.10. Inventory. The inventory maintained by the Company and the Company
Subsidiaries complies in all material respects with the Federal Food, Drug and
Cosmetics Act (the "Act") and acts amending or supplementing the Act and the
pure food and drug laws of all states in the United States and the laws of all
countries into which products of the Company and the Company Subsidiaries
would normally be shipped by the Company or the Company Subsidiaries, in each
case, to the extent applicable. No inventory maintained by the Company or any
Company Subsidiary is: (i) adulterated or misbranded within the meaning of the
Act or such laws; (ii) prohibited from introduction into interstate commerce
under the provisions of Section 404 or 505 of the Act; or (iii) contains a
misbranded hazardous substance or banned hazardous substance. Section 3.10 of
the Company Disclosure Schedule lists each warehouse or other facility where
the Company or any Company Subsidiary maintains inventory. The current
inventories of the Company and the Company Subsidiaries are useable and, in
the case of finished goods inventories, salable in the ordinary course of
business and stored in compliance with applicable Law, in each case other than
as reserved against on the Interim Balance Sheet.
3.11. Equipment. Section 3.11 of the Company Disclosure Schedule lists
each item of machinery, equipment, material furniture, material fixtures,
vehicles and/or other material tangible personal property owned by the Company
or any Company Subsidiary, including items held under capitalized leases.
Section 3.11 of the Company Disclosure Schedule also lists each lease under
which the Company or any Company Subsidiaries has rights in tangible personal
property. All machinery and equipment (including office equipment) owned or
leased by the Company and/or the Company Subsidiaries: (i) has been maintained
in accordance with reasonably sound maintenance practices; and (ii) is in good
operating condition and repair, ordinary wear and tear excepted, and, in the
case of such property leased by the Company and/or any Company Subsidiary, is
in the condition required for such property by the terms of the lease
applicable thereto during the term of the lease and upon the expiration
thereof.
3.12. Real Property.
(a) Section 3.12(a) of the Company Disclosure Schedule lists each parcel
of real property currently owned or used by the Company and/or any Company
Subsidiary or in which the Company and/or any Company Subsidiary currently has
a leasehold or other similar interest (collectively, the "Real Estate"), and
sets forth, as to each such parcel, whether it is owned or leased. The
Company and the Company Subsidiaries do not have any interest in or use of any
other real property other than as set forth in Section 3.12(a) of the Company
Disclosure Schedule, including, for example, any interest of the Company or
any Company Subsidiary under an easement or wharf use agreement.
(b) The Real Estate and the use thereof by the Company and the Company
Subsidiaries are in compliance with all applicable Laws affecting the use and
occupancy of the Real Estate and are in compliance with the provisions of all
covenants and restrictions affecting the use and occupancy of the industrial
parks, subdivisions, or other planned use developments, if any, in which the
Real Estate is located.
(c) Except for the leases under which the Company or any Company
Subsidiary is a tenant with respect to any Real Estate, none of the Real
Estate is subject to any lease, option to purchase, right of first refusal or
other agreement or restriction granting any rights in the Real Estate to any
other person, other than Permitted Encumbrances.
(d) There are no: (i) actual or, to Seller's knowledge, proposed special
assessments, or any commenced or, to Seller's knowledge, planned improvements,
which may result in an assessment or otherwise affect the Real Estate; (ii)
pending or, to Seller's knowledge, threatened condemnation proceedings
involving the Real Estate; (iii) pending or, to Seller's knowledge, threatened
litigation or administrative actions involving the Real Estate; (iv) repairs,
alterations or corrections of any existing condition with respect to the Real
Estate required under applicable Law; (v) pending or, to Seller's knowledge,
threatened changes in any zoning Laws which may affect the Real Estate; or
(vi) other pending or, to Seller's knowledge, threatened matters which may
adversely affect the Real Estate or the interest of the Company and/or the
Company Subsidiaries therein or use thereof.
(e) With respect to each parcel of the Real Estate: (i) the buildings and
improvements on such parcel are located within the boundary lines of such
parcel, are not in violation of applicable setback requirements or Laws, and
do not encroach on any easements which may affect such parcel; (ii) such
parcel does not serve any adjoining property for any purpose inconsistent with
the use of such parcel by the Company and/or the Company Subsidiaries; (iii)
such parcel is not located within any flood plain or any area containing
wetlands and is not subject to any similar type of restriction for which all
applicable Authorizations necessary for the use thereof have not been
obtained; and (iv) such parcel is suitable for the purposes for which it is
currently being used.
(f) The buildings, fixtures and other improvements located on the Real
Estate have received all necessary Authorizations from all Governmental
Authorities, have been maintained in accordance with reasonably sound
maintenance practices, and are in good condition, working order and repair,
ordinary wear and tear excepted. None of the buildings, fixtures or other
improvements located on the Real Estate is in need of maintenance or repairs
except for ordinary, routine maintenance and repairs that are not material in
nature or cost. The buildings, fixtures and other improvements located on the
Real Estate are suitable for the purposes for which they are currently being
used and are adequate for the continued conduct of the business of the Company
and the Company Subsidiaries as currently conducted.
3.13. Intellectual Property.
(a) As used herein, "Intellectual Property" means: (i) patents, patent
applications, unpatented inventions and discoveries; (ii) registered and
unregistered business names, trade names, trade dress, domain names,
trademarks and service marks; (iii) copyrights on both published works and
unpublished works; and (iv) product formulations, know-how, trade secrets,
confidential information, customer lists, software, technical information,
data, process technology, plans, drawings, and blueprints.
(b) Section 3.13(b) of the Company Disclosure Schedule lists: (i) all
patents and patent applications owned by the Company and/or the Company
Subsidiaries and the jurisdictions by which each such patent has been issued
or in which each such application has been filed (including registration or
application numbers); (ii) all trade names, trademarks, domain names and
service marks owned and used by the Company and/or the Company Subsidiaries
and all registrations owned and registration applications filed by the Company
and/or the Company Subsidiaries for trade names, trademarks and service marks
and the jurisdictions by which each such registration has been issued or under
which each such application has been filed (including registration and
application numbers); (iii) all registrations owned and registration
applications filed by the Company and/or the Company Subsidiaries for
copyrights owned and/or used by the Company and/or the Company Subsidiaries
and the jurisdictions by which each such registration has been issued or in
which each such application has been filed (including registration and
application numbers). The Intellectual Property owned by the Company and/or
the Company Subsidiaries, including the Intellectual Property listed in
Section 3.13(b) of the Company Disclosure Schedule, is referred to herein as
the "Company's Intellectual Property."
(c) Section 3.13(c) of the Company Disclosure Schedule lists all licenses,
agreements or other arrangements under which any Person is licensed or
otherwise authorized to use any of the Company's Intellectual Property.
(d) Section 3.13(d) of the Company Disclosure Schedule lists all licenses,
agreements or other arrangements under which the Company or any Company
Subsidiary is licensed or otherwise authorized to use any Intellectual
Property owned by any Person other than the Company and/or any Company
Subsidiary. The Intellectual Property which the Company and/or any Company
Subsidiary has the authority to use under such licenses, agreements or other
arrangements is referred to herein as the "Third Party Intellectual Property."
(e) Except for the rights existing under the licenses, agreements and
other arrangements listed in Section 3.13(c) of the Company Disclosure
Schedule, the Company and/or the Company Subsidiaries have the exclusive right
to the use of all of the Company's Intellectual Property. To Seller's
knowledge, all patents and all registered trademarks, service marks and
copyrights included in the Company's Intellectual Property are valid and
subsistent, and no patents or registered trademarks, service marks or
copyrights included in the Company's Intellectual Property have been, in whole
or in part, abandoned, dedicated, disclaimed or allowed to lapse for
nonpayment of fees or taxes or for any other reason. The present activities
of the Company and the Company Subsidiaries and their use of Intellectual
Property do not infringe on or violate any intellectual property rights of any
other Person and, to the Seller's knowledge, no Person is infringing or
violating any of the Company's Intellectual Property or the rights of the
Company and/or the Company Subsidiaries in any Third Party Intellectual
Property.
(f) Except as set forth in Section 3.13(f) of the Company Disclosure
Schedule, all current employees of the Company and the Company Subsidiaries
have: (i) executed written agreements not to misuse or disclose confidential
information of the Company and the Company Subsidiaries; and (ii) executed
written agreements that assign to the Company all Intellectual Property
developed by such employees while employed by the Company and/or the Company
Subsidiaries. To Seller's knowledge, no present employee of the Company
and/or any Company Subsidiary has entered into any agreement (other than with
the Company or any of its Subsidiaries) that restricts or limits in any way
the scope or type of work in which such employee may be engaged or requires
such employee to transfer, assign or disclose to any Person any Intellectual
Property which he develops or with which he becomes familiar during his
employment by the Company and/or any Company Subsidiary.
(g) The Company has adopted and implemented a commercially reasonable plan
to investigate and correct any "year 2000 problems" associated with the
operation of the Company's business.
3.14. Contracts and Commitments. Section 3.14 of the Company Disclosure
Schedule identifies the following leases, contracts, agreements and other
arrangements (collectively, "Contracts"), written or unwritten, to which the
Company and/or any Company Subsidiary is a party, by which the Company and/or
any Company Subsidiary is bound and/or under which the Company and/or any
Company Subsidiary has any rights and/or obligations which are continuing or
require future performance:
(a) Material Contracts relating to the purchase of products from the
Company and/or any Company Subsidiary, including open purchase orders and any
requirements or other agreements pursuant to which the Company and/or any
Company Subsidiary is obligated to supply products to any person or any person
is obligated or has the right to purchase products from the Company and/or any
Company Subsidiary;
(b) Material Contracts relating to the purchase of raw materials,
packaging or other inventories and/or any other Material Contracts for the
purchase of tangible personal property or services, including open purchase
orders and any requirements or other agreements, pursuant to which any person
is obligated to supply products or services to the Company and/or any Company
Subsidiary and/or the Company and/or any Company Subsidiary has the right to
purchase any such products or services;
(c) Material Contracts providing for any promotional allowance, volume
discount, incentive payment, rebate, advertising allowance or other similar
payment, refund or accommodation to any customer of the Company and/or any
Company Subsidiary;
(d) Material Contracts providing for any promotional allowance, volume
discount, incentive payment, rebate, advertising allowance or other similar
payment, refund or accommodation to the Company and/or any Company Subsidiary;
(e) Indentures, mortgages, notes, loans or credit agreements or Contracts
relating to the borrowing of money or to the direct or indirect guarantee or
assumption of obligations of others;
(f) Contracts with stockholders, directors, officers or employees,
including Contracts involving employees that contain any severance or
termination pay liabilities or obligations or any bonus, or deferred
compensation agreements with employees, but excluding Plans.
(g) Contracts with any sales representative, dealer, distributor,
wholesaler, manufacturer's representative, sales agent or other sales
contract;
(h) Contracts under which the Company and/or any Company Subsidiary serves
as a sales representative, dealer, distributor, wholesaler, manufacturer's
representative, or sales agent for any other person;
(i) Material manufacturing or tolling agreements or other Material
Contracts pursuant to which any person provides processing, finishing,
packaging or other goods or services to the Company and/or any Company
Subsidiary;
(j) Contracts pursuant to which any person provides warehouse or storage
facilities for the Company and/or any Company Subsidiary;
(k) Contracts restraining, limiting or prohibiting disclosure of
information or competition limiting or benefiting the Company and/or any
Company Subsidiary; and
(l) Material Contracts not otherwise disclosed above.
Seller has made available to Buyer a correct and complete copy of each
written Contract identified in Sections 3.11, 3.12, 3.13 and 3.14 of the
Company Disclosure Schedule. Except as disclosed in Section 3.14 of the
Company Disclosure Schedule, neither the Company nor any Company Subsidiary is
required under the terms of any of such Contracts to give notice to or obtain
consent from any party thereto to consummate the transactions contemplated
hereby. Except as disclosed in Section 3.14 of the Company Disclosure
Schedule, all oral contracts are terminable by the Company or the Company
Subsidiary party thereto upon notice to the other party thereto without
premium, penalty or other liability or obligation of the Company or any
Company Subsidiary after such termination. With respect to each Contract
identified in Sections 3.11, 3.12, 3.13 and 3.14 of the Company Disclosure
Schedule, except as disclosed in such sections: (i) such Contract is legal,
valid and binding, and is enforceable (except as the enforceability thereof
may be subject to or limited by bankruptcy, insolvency, reorganization,
moratorium or similar Laws relating to or affecting the rights of creditors
generally and general principles of equity, regardless of whether applied in
proceedings at law or in equity) and in full force and effect; (ii) neither
the Company nor any Company Subsidiary is in breach of default thereunder and
no event has occurred which with notice or lapse of time would constitute a
breach or default by the Company or any Company Subsidiary or permit any third
party to terminate, modify or accelerate such Contract; (iii) neither the
Company nor any Company Subsidiary has repudiated any provision of such
Contract; (iv) to the Seller's knowledge, no third party is in breach or
default, and no event has occurred which with notice or lapse of time, would
constitute a breach or default by a third party or permit the Company or any
Company Subsidiary to terminate, modify or accelerate such Contract; (v)
neither the Company nor any Company Subsidiary has any present expectation or
intention of not fully performing any obligation on its part to be performed
pursuant to such Contract; (vi) the Seller does not have any knowledge of any
breach or anticipated breach by any other party to such Contract; and (vii)
neither the Company nor any Company Subsidiary is obligated to sell any
property or services at prices lower than, or to purchase any property or
services at prices higher than, prevailing market prices.
3.15. Taxes.
(a) For the purposes hereof "Tax" or "Taxes" means all federal, state,
county, local, foreign and other taxes, assessments or charges, including
income, estimated income, business, occupation, franchise, property (real and
personal), sales, employment, gross receipts, use, transfer, ad valorem,
profits, license, capital, payroll, employee or other withholding,
unemployment, excise, goods and services, severance, stamp, and including
interest, penalties and additions which are or may be payable in connection
therewith.
(b) All material returns, reports, forms and other documents and all
amendments relating to Taxes (collectively, "Tax Returns") required to be
filed by the Company and/or any Company Subsidiary prior to the date hereof
have been timely and properly filed (taking into account any extension of time
within which to file) and properly reflect the Tax liability of the Company
and/or such Company Subsidiary. All such Tax Returns are correct and complete
in all material respects.
(c) All Taxes shown as due on such Tax Returns will have been timely paid
in full prior to the Closing, except as set forth in Section 3.15(c) of the
Company Disclosure Schedule as to any such Taxes which are being contested in
good faith in appropriate proceedings and for which the Company has made
adequate provision in the Company Financial Statements.
(d) Except as set forth in Section 3.15(d) of the Company Disclosure
Schedule, there is no action, suit, proceeding, audit, investigation,
assessment, adjustment, or claim (collectively, "Proceedings") now pending or,
to the Seller's knowledge, proposed in writing against or with respect to the
Company and/or any Company Subsidiary in respect of any Tax. Except as set
forth in Section 3.15(d) of the Company Disclosure Schedule, there are no
outstanding waivers or other agreements extending any statutory periods of
limitation for the assessment of Taxes of the Company and/or any Company
Subsidiary. Except as set forth in Section 3.15(d) of the Company Disclosure
Schedule, all Tax Returns of the Company and the Company Subsidiaries with
respect to federal income Taxes and all state income Taxes through the year
ended December 31, 1993 have been examined and the examination concluded or
are Tax Returns with respect to which the applicable periods for assessment,
giving effect to waivers and extensions, have expired.
(e) Buyer is not required to withhold Tax on the purchase of the Shares
under Section 1445 of the Code.
(f) No payments by the Company and/or any Company Subsidiary resulting
from the consummation of the Acquisition or required as a result of such
consummation pursuant to any Contract entered into by the Company on or before
the Closing Date will result in a nondeductible expense pursuant to Section
280G of the Code.
(g) Except as set forth in Section 3.15(g) of the Company Disclosure
Schedule, neither the Company nor any Company Subsidiary has agreed or is
required to make any adjustment under Section 481(a) of the Code by reason of
a change in method of accounting or otherwise.
(h) Neither the Company nor any Company Subsidiary is a "consenting
corporation" under Section 341(f) of the Code.
(i) There are no tax sharing agreements to which the Company and/or any
Company Subsidiary is a party that will survive the Closing.
3.16. Labor Practices and Matters.
(a) The Company and the Company Subsidiaries are in compliance with the
Federal Fair Labor Standards Act and all Laws relating to employment
discrimination, employee welfare and labor standards which are applicable to
the Company and/or any Company Subsidiary, including without limitation: (i)
any provisions thereof relating to the employment of any person not a citizen
of the United States; and (ii) any provisions thereof relating to wages,
bonuses, collective bargaining, equal pay and the payment of Social Security
and similar payroll taxes. There is no basis for any claim by any past or
present employee of the Company and/or any Company Subsidiary that such
employee was wrongfully discharged or subject to any employment discrimination
by the Company and/or any Company Subsidiary arising out of or relating to
such employee's race, sex, color, religion, handicap or any other protected
characteristic under applicable Law. There are no Proceedings involving the
Company and/or any Company Subsidiary relating to labor or employment matters,
and there is no pending investigation by any governmental agency or, to the
knowledge of Seller, threatened claim by any such agency or other person
relating to labor or employment matters involving the Company and/or any
Company Subsidiary.
(b) Except as set forth in Section 3.16(b) of the Company Disclosure
Schedule, neither the Company nor any Company Subsidiary is a party to any
agreement or contract with any union, labor organization, employee group, or
other entity or individual which affects the employment of employees with the
Company and/or any Company Subsidiary, including, without limitation, any
collective bargaining agreements or labor contracts.
(c) To the knowledge of the Seller, none of the employees of the Company
or any Company Subsidiary is in the process of being organized into labor
unions or associations. Since December 31, 1993, neither the Company nor any
Company Subsidiary has been subject to a strike or other work stoppage and, to
the knowledge of Seller, there are no strikes or work stoppages contemplated
or threatened against the Company or any Company Subsidiary.
(d) Section 3.16(d) of the Company Disclosure Schedule lists each of the
states where the Company and/or any Company Subsidiary has or maintains any
unemployment or worker's compensation accounts. Since December 31, 1993,
neither the Company nor any Company Subsidiary has had any adverse change in
its contribution or its experience rating for unemployment or worker's
compensation purposes in any state. No unemployment or worker's account of
the Company or any Company Subsidiary has a negative balance.
(e) The Company and each Company Subsidiary is in full compliance with the
Occupational Safety and Health Act of 1970, as amended, ("OSHA") and all other
Laws regulating or otherwise affecting health and safety of the workplace.
3.17. Employee Benefits.
(a) Section 3.17(a) of the Company Disclosure Schedule lists all profit
sharing, pension or retirement, medical, health, or life insurance plans,
programs, arrangements or agreements, and each other employee benefit plan,
program, arrangement or agreement whatsoever maintained, contributed to, or
required to be contributed to, for the benefit of any current or former
employee or terminated employee of the Company and/or any Company Subsidiary
(including retirees), whether formal or informal (a "Plan" or the "Plans").
Neither the Company nor any Company Subsidiary has any formal plan or
commitment, whether legally binding or not, to create any additional Plan or
modify or change any existing Plan that would affect any current or former
employee of the Company or such Company Subsidiary.
(b) Seller has heretofore made available to Buyer a true, correct and
complete copy of each Plan (including all amendments thereto).
(c) All amounts which the Company and/or any Company Subsidiary is
required to pay under the terms of each Plan with respect to the most recent
plan year thereof ended prior to the date of this Agreement have been timely
paid in full, and all such amounts payable with respect to the portion of the
current plan year ending on the Closing Date will be paid on or before the
Closing Date or will be fully reflected as a liability in the Closing Price
Documents.
(d) With respect to each Plan which is an employee pension benefit plan
(as defined in Section 3(2) of ERISA)): (i) to the extent such Plan is
intended to qualify under Section 401(a) of the Code, such Plan is so
qualified and the Company and/or a Company Subsidiary has received a current
favorable determination letter to such effect from the IRS or is properly
relying on the qualification of a standardized prototype plan which the
Company and/or a Company Subsidiary has duly adopted; (ii) the provisions of
such Plan are, and its operation has been and is, in material compliance with
ERISA and the Code; (iii) the Company and the Company Subsidiaries are in
material compliance with ERISA and the Code, including ERISA's fiduciary and
prohibited transaction rules, participation and vesting provisions, reporting
and disclosure provisions and funding requirements; (iv) there is no funding
deficiency, and no Reportable Event (as defined in Section 4043 of ERISA and
regulations issued thereunder) has occurred, nor has such Plan applied for or
received a waiver of the minimum funding standards imposed by ERISA and the
Code; (v) no facts, including any Reportable Event, exist which might
constitute grounds for the termination of such plan by the Pension Benefit
Guaranty Corporation or the appointment by the appropriate United States
District Court of a trustee to administer such plan; and (vi) none of the
Company, any Company Subsidiary, any Plan, any trust created thereunder, or
any trustee or administrator thereof has engaged in a transaction in
connection with the Company, any Company Subsidiary or any trustee or
administrator of any Plan or any such trust, or any party dealing with any
Plan or any such trust, which could be subject to a material civil penalty
assessed pursuant to Section 502(i) or 502(l) of ERISA. With respect to each
Plan which is an employee welfare benefit plan (as defined in Section 3(1) of
ERISA): (i) the provisions of such Plan are, and its operation has been and
is, in material compliance with ERISA and the Code and the Comprehensive
Omnibus Budget Reconciliation Act of 1985, as amended; and (ii) the Company
and the Company Subsidiaries are in material compliance with ERISA and the
Code, including ERISA's fiduciary and prohibited transaction rules and
reporting and disclosure requirements. No Plan which is an employee pension
or welfare benefit plan is currently under audit or review by the Department
of Labor, the IRS or any other federal or state Governmental Authority, and to
Seller's knowledge no such action is contemplated or under consideration.
(e) Neither the Company nor any Company Subsidiary is a party to any
multi-employer plan (as defined in Section 3(37) of ERISA), nor has the
Company or any Company Subsidiary incurred any withdrawal liability in
connection with any such plan.
(f) No Plan provides for health or other welfare benefits to retirees, nor
has the Company or any Company Subsidiary promised or incurred any liability
in connection with any such benefit.
(g) No actions or claims (except those routinely submitted in the ordinary
course of plan administration) are currently pending, or, to the Seller's
knowledge, currently threatened, against any Plan.
3.18. Compliance With Environmental Laws.
(a) For purposes hereof, "Environmental Laws" mean the Solid Waste
Disposal Act, the Clean Air Act, the Clean Water Act, the Water Quality Act of
1987, the Federal Insecticide, Fungicide and Rodenticide Act, the Marine
Protection, Research and Sanctuary's Act, the Pollution Prevention Act of
1990, the National Environmental Policy Act, the Noise Control Act, the Safe
Drinking Water Act, the Emergency Planning and Community Right to Know Act,
the Resource Conservation and Recovery Act of 1976 ("RCRA"), the Comprehensive
Environmental Response, Compensation and Liability Act of 1980 ("CERCLA"), the
Toxic Substance Control Act of 1976 and all other Laws regulating or otherwise
affecting the environment and/or the disposal of waste or other materials, as
the same may have been amended. For purposes hereof, "Operating Period"
means: (i) with respect to the Company, the period since May 31, 1988; (ii)
with respect to each Company Subsidiary, the period since May 31, 1988 or, if
later, the date on which the Company acquired such Company Subsidiary; (iii)
with respect to each parcel of Real Estate, the period since May 31, 1988 or,
if later, the earlier of the date on which the Company or a Company Subsidiary
acquired or first occupied such parcel (except that in the case of each parcel
of Real Estate, if any, which was occupied and/or owned by the Seller and/or
any Affiliate of the Seller before it was owned or occupied by the Company or
a Company Subsidiary, the "Operating Period" shall mean the period from the
earlier of the date on which the Seller or such Affiliate acquired or first
occupied such parcel). With respect to each parcel of real property which was
previously, but is no longer, owned or used by the Company and/or any Company
Subsidiary or in which the Company and/or any Company Subsidiary had, but no
longer has, a leasehold or other interest, the "Operating Period" for such
parcel shall terminate when the Company and/or any Company Subsidiary last
owned, used and/or had any leasehold or other interest in such parcel.
(b) The Company, each Company Subsidiary and each parcel of the Real
Estate at all times during the relevant Operating Period has been, and, to the
Seller's knowledge, at all times prior to the relevant Operating Period has
been, in full compliance with all Environmental Laws. None of Seller, the
Company and/or any Company Subsidiary is subject to, nor to Seller's knowledge
is there any basis for Seller, the Company and/or any Company Subsidiary to be
subject to, any judgment, decree, order or citation (collectively, an "Order")
based on any violation of Environmental Law with respect to the operations of
the Company, the Company Subsidiaries and/or the Real Estate or, in the case
of the Company and the Company Subsidiaries, otherwise. None of Seller, the
Company and/or any Company Subsidiary has been threatened with or received a
written notice, directive, violation, report or charge asserting any violation
of, and no action has been taken against Seller, the Company and/or the
Company Subsidiaries, or to Seller's knowledge against any other owner or user
of the Real Estate under, any Environmental Law with respect to the operations
of the Company, the Company Subsidiaries and/or the Real Estate or, in the
case of the Company and the Company Subsidiaries, otherwise. None of the
assets of the Company and/or the Company Subsidiaries are required to be
upgraded, modified or replaced to be in compliance with Environmental Laws.
(c) Section 3.23 of the Company Disclosure Schedule lists all
Authorizations held by the Company and/or the Company Subsidiaries and/or held
by Seller with respect to the current operations of the Company and/or the
Company Subsidiaries required under Environmental Laws ("Environmental
Authorizations"), true, correct and complete copies of which have been made
available for inspection by Buyer and its representatives. The Company and
the Company Subsidiaries have timely obtained all Environmental
Authorizations, all of which are in full force and effect, and the Company and
the Company Subsidiaries have paid all fees and other charges therefor and are
in compliance with all terms and conditions thereof.
(d) None of the Company, any Company Subsidiary, or any third person has,
during the relevant Operating Period for such parcel or, to Seller's
knowledge, at any time prior to the relevant Operating Period for such parcel,
stored, used, generated, treated, recycled, disposed of or Released (as
defined below), any substance in a manner on any parcel of Real Estate which
may form the basis for any present or future claim against Buyer, the Company
and/or any Company Subsidiary based upon Environmental Laws, or which may
subject Buyer, the Company and/or any Company Subsidiary to claims for
damages. No parcel of the Real Estate has, during the relevant Operating
Period for such parcel or, to Seller's knowledge, at any time prior to the
relevant Operating Period for such parcel, been used as a landfill, dump site
or for any other use which involved the disposal of solid waste on such parcel
or which may subject Buyer, the Company and/or any Company Subsidiary to any
claim for cleanup or damages under Environmental Laws. Except for the storage
and use of hazardous chemicals in the ordinary course of business and in
compliance with all Environmental Laws, no hazardous or toxic substances or
wastes, as defined under Environmental Laws, have, during the relevant
Operating Period for such parcel or, to Seller's knowledge, at any time prior
to the Operating Period for such parcel, been located at, on or under any
parcel of the Real Estate, or been stored, used, generated, treated, recycled
or disposed of on or Released from any parcel of the Real Estate. No parcel
has, during the relevant Operating Period or, to Seller's knowledge, prior to
the relevant Operating Period, been contaminated by hazardous or toxic
substances or wastes, as defined under Environmental Laws, originating from
off-site sources. For purposes hereof, "Release" means to discharge, spill,
emit, leak, leach, deposit or otherwise release any substance to the outdoor
or indoor environment or into or out of any property, including by the
movement of any substance through or in air, soil, surface water, ground water
or property.
(e) During the relevant Operating Period, (i) no asbestos, urea
formaldehyde or polychlorinated biphenals were Released in, on or under any of
the Real Estate, and (ii) no above ground or underground storage tanks were
located at, on or under any of the Real Estate. To Seller's knowledge no
asbestos, urea formaldehyde, polychlorinated biphenals or aboveground or
underground storage tanks are currently located at, on or under any of the
Real Estate currently owned or used by the Company and/or any Company
Subsidiary or in which the Company and/or any Company Subsidiary currently has
a leasehold or other similar interest.
(f) Each of the Company and the Company Subsidiaries has, at all times
during the relevant Operating Period and, to the Seller's knowledge, at all
times prior thereto, utilized only properly licensed haulers and transporters
to dispose of any pollutant, contaminant or hazardous or toxic substance,
material or waste and all such disposal has been in full compliance with all
Environmental Laws applicable at the time of such disposal and there have been
no violations of Environmental Laws in connection with any such disposal.
Neither the Company nor any Company Subsidiary has been named or listed as a
potentially responsible party in any matter arising under Environmental Laws,
nor has Seller been so named in connection with the operations of the Company,
the Company Subsidiaries and/or the Real Estate. To the Seller's knowledge,
there is no existing condition that may form the basis of any present or
future claim, demand or action seeking investigation, cleanup, removal,
notification or other remedial or responsive action with respect to any
facility, site, location or body of water, surface or subsurface, for which
Buyer, the Company and/or any Company Subsidiary would be liable or
responsible, whether as a result of the disposal of any pollutant, contaminant
or hazardous or toxic substance, material or waste at such facility, site,
location or body of water or otherwise.
(g) True, correct and complete copies of all environmental claims,
reports, studies, compliance actions, correspondence with environmental
regulators or the like, of or in the possession of Seller, the Company and/or
any Company Subsidiary with respect to the Company, any such Company
Subsidiary and/or the Real Estate have been made available to Buyer.
3.19. Products. No claim for product liability has been asserted against
the Company and/or any Company Subsidiary since December 31, 1993, and, to
Seller's knowledge, no event has occurred which might give rise to the
assertion of any such claim. There is no deficiency or inadequacy in the
manufacture, design or formulation of any of the products of the Company and
the Company Subsidiaries that may hereafter give rise to any such failure or
result in any such claim. All products sold by the Company and the Company
Subsidiaries have been manufactured in compliance with all applicable
manufacturing and quality control procedures.
3.20. Product Warranties. All products and services manufactured and/or
sold by the Company and the Company Subsidiaries (and the delivery thereof)
have been in conformity with all applicable contractual commitments and all
express or implied warranties. No warranty claims exist for the repair or
replacement thereof or other damages in connection with such services, sales
or deliveries, except for any such claims incurred in the ordinary course of
business consistent in amount and character with past experience of the
Company and the Company Subsidiaries. All product labeling of the Company and
the Company Subsidiaries is in conformity with all Applicable Laws. Copies of
the standard terms and conditions of sale, delivery or lease of the Company
and the Company Subsidiaries (including all warranty provisions) have been
made available to Buyer. Since December 31, 1993, neither the Company nor any
Company Subsidiary has voluntarily or involuntarily recalled or withdrawn any
product from commerce due to health and/or safety concerns.
3.21. Insurance. Section 3.21 of the Company Disclosure Schedule
summarizes the insurance coverages maintained with respect to the operations
and assets of the Company and the Company Subsidiaries. Section 3.21 of the
Company Disclosure Schedule also summarizes each claim (including any claim
for worker's compensation) made by the Company and/or any Company Subsidiary
under, or which has been made against the Company and/or any Company
Subsidiary and has been paid or defended in accordance with, the terms of, any
insurance policy maintained by the Company and/or any Company Subsidiary since
December 31, 1993.
3.22. Litigation.
(a) There is no Proceeding, or to Seller's knowledge, any investigation or
inquiry, before any Governmental Authority or any private tribunal now
pending, or, to Seller's knowledge, threatened, against, relating to or
affecting: (i) Seller, the Company and/or any Company Subsidiary which would
adversely affect Seller's ability to consummate the transactions contemplated
hereby; or (ii) the Company and/or any Company Subsidiary, or any director,
officer or other employee thereof in his capacity as such, or the assets or
properties of the Company and/or any Company Subsidiary. To Seller's
knowledge, no basis exists for any such Proceeding, investigation or inquiry.
(b) None of the Company, any Company Subsidiary, and/or, to Seller's
knowledge, any officer, director or employee thereof, currently is or has been
permanently or temporarily enjoined or prohibited by any Order from engaging
in or continuing any conduct or practice in connection with the business of
the Company and/or any Company Subsidiary.
(c) There is no existing Order enjoining or prohibiting the Company or any
Company Subsidiary from taking, or requiring the Company and/or any Company
Subsidiary to take, any action of any kind or to which the Company and/or any
Company Subsidiary is subject or is bound.
(d) Neither the Company nor any Company Subsidiary is in default under any
Order.
3.23. Licenses and Permits. Section 3.23 of the Company Disclosure
Schedule lists all Authorizations held by the Company and/or the Company
Subsidiaries, and, in the case of nongovernmental Authorizations (such as, for
example, Kosher designations), the person, agency or authority granting such
approvals. Seller has made true, correct and complete copies of such
Authorizations available for inspection by Buyer and its representatives. The
Company and the Company Subsidiaries have all Authorizations and have made all
registrations, declarations, recordings and filings with, all Governmental
Authorities which are required for the conduct of their business or the
ownership and use of their properties and assets as currently conducted or
used. The Company and the Company Subsidiaries have timely obtained all such
Authorizations, all of which are in full force and effect, and the Company and
the Company Subsidiaries have paid all fees and other charges therefor and
have complied with and are in compliance with all terms and conditions
thereof.
3.24. Compliance with Laws. The Company, the Company Subsidiaries, the
conduct and operation of their business, and the condition of their properties
and assets are in compliance with all applicable Laws. No written notice has
been issued nor any investigation or review is pending or, to Seller's
knowledge, threatened by any Governmental Authority: (i) with respect to any
alleged violation or default under any applicable Law by the Company and/or
any Company Subsidiary; or (ii) with respect to any alleged failure by the
Company and/or any Company Subsidiary to have all Authorizations required in
connection with the conduct of the business of the Company and the Company
Subsidiaries and/or the ownership and/or use of their properties or assets or
with respect to any possible revocation, cancellation, termination, suspension
or adverse modification of any such Authorization.
3.25. Customers and Suppliers. Section 3.25 of the Company Disclosure
Schedule lists, with respect to 1997 and the ten-month period ended October
24, 1998, each of the Company's Major Customers and Major Suppliers (as
defined below) and the approximate dollar volume of sales made to and
purchases made from such persons. For purposes of this Section 3.25, "Major
Customer" shall mean any customer of the Company whose total purchases from
the Company and the Company Subsidiaries represented Two Percent (2%) or more
of the Company's total consolidated sales during 1997 and/or the ten-month
period ended October 24, 1998; and "Major Supplier" shall mean any supplier of
the Company whose total sales to the Company and the Company Subsidiaries
represented Two Percent (2%) or more of the Company's total consolidated cash
expenses during 1997 and/or the ten-month period ended October 24, 1998. To
Seller's knowledge, no Major Customer or Major Supplier has communicated to
Seller, the Company, and/or any Company Subsidiary that such customer or
supplier intends to cease doing business or to materially reduce its business
with the Company and/or its Company Subsidiaries or to terminate any agreement
with the Company and/or its Company Subsidiaries.
3.26. Accounts: Safe Deposit Boxes. Section 3.26 of the Company
Disclosure Schedule lists the bank and savings accounts, certificates of
deposit and safe deposit boxes of the Company and/or the Company Subsidiaries
and those persons authorized to sign thereon. True, correct copies of all
corporate borrowing, depository and transfer resolutions and those persons
entitled to act thereunder have been made available to Buyer.
3.27. Brokers; Agents. Seller has not dealt with any banker, agent,
finder, broker or other representative in any manner which could result in the
Company, any Company Subsidiary and/or Buyer being liable for any fee or
commission in the nature of an investment banking, finder's or originator's
fee in connection with the subject matter of this Agreement.
3.28. Absences of Certain Changes or Events. Since December 31, 1997, the
Company and the Company Subsidiaries have not: (i) taken any action which
would have constituted a violation under Section 5.1 if Seller had then been
bound by Section 5.1; or (ii) failed to take any action which would have been
required by Section 5.1 if Seller had been bound by Section 5.1. Since
December 31, 1997, there has not been any Company Material Adverse Effect.
3.29. Related Party Transactions. Since December 31, 1993, no Related
Party (as defined below) has had any interest in any transaction, lease,
Contract or other arrangement with the Company and/or any Company Subsidiary.
Without limitation to the foregoing, since December 31, 1993, no Related Party
has had: (i) any interest in any Person which has purchased, sold or furnished
to the Company and/or any Company Subsidiary any goods or services; (ii) a
beneficial interest in any lease, Contract, commitment or understanding to
which the Company or any Company Subsidiary is a party or by which it is bound
or affected; (iii) any claim against the Company and/or any Company Subsidiary
or any assets of the Company and/or any Company Subsidiary; or (iv) any
interest in any assets used by the Company and/or any Company Subsidiary. For
purposes hereof, each of the following shall be deemed to be a "Related
Party:" (i) Seller; (ii) each Affiliate of the Seller; (iii) each individual
who is or was at any time since December 31, 1993, an officer or director of
any of the foregoing; (iii) any family member of any of the individuals
referred to in clause (ii); and (iv) any Person in which any of the
individuals referred in clause (ii) or (iii) hold, directly or otherwise, a
voting, proprietary or equity interest in excess of two (2%).
3.30. Certain Payments. Since December 31, 1993, neither the Company nor
any Company Subsidiary nor any director or officer, agent or employee thereof
nor any other Person associated with or acting for or on behalf thereof, has
directly or indirectly: (i) made any contribution, gift, bribe, rebate,
payoff, influence payment, kickback, or other payment to any person, private
or public, regardless or form, whether in money, property or services (A) to
obtain favorable treatment in securing business for or in respect of the
Company and/or any Company Subsidiary, (B) to pay for favorable treatment for
business secured for or in respect of the Company and/or any Company
Subsidiary, (C) to obtain special concessions or for special concessions
already obtained for or in respect of the Company and/or any Company
Subsidiary, or (D) in violation of any Law; or (ii) established or maintained
any fund or asset that was required to be, but has not been, recorded in the
consolidated books and records of the Company.
3.31. Undisclosed Liabilities. The Company and its Company Subsidiaries
are not subject to any obligation, liability, debt or commitment, whether
absolute, contingent, accrued or otherwise, whether due or to become due,
except for: (i) liabilities reflected on the Interim Balance Sheet; (ii)
liabilities incurred in the ordinary course of business since the date of the
Interim Balance Sheet; (iii) liabilities not required to be disclosed on the
Interim Balance Sheet in accordance with GAAP, but otherwise disclosed herein
to the extent required by the terms hereof; (iv) liabilities listed in Section
3.31 of the Company Disclosure Schedule; and (v) liabilities arising
hereunder.
3.32. No Material Omissions. No representation or warranty by Seller
contained in this Agreement or in any writing to be furnished pursuant hereto
contains or will contain any untrue statement of a material fact or omits or
will omit to state any material fact required to make the representations or
warranties herein or therein contained, in light of the circumstances under
which they are made, not misleading.
3.33. Filing Documents. None of the information regarding the Seller or
any of its Affiliates supplied or to be supplied by Seller for inclusion in
any documents to be filed with any Governmental Authority in connection with
the transactions contemplated hereby will, at the respective times such
documents are filed with any Governmental Authority, contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light
of the circumstances under which they are made, not misleading.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER
4.A. Disclosure Schedule. On or prior to the date hereof, Buyer has
delivered to Seller a schedule (the "Buyer Disclosure Schedule") setting
forth, among other things, items the disclosure of which is necessary or
appropriate either in response to an express disclosure requirement contained
in a provision hereof or as an exception to one or more representations or
warranties contained in this Article IV or to one or more of the covenants
contained in Article V. The mere inclusion of an item in the Buyer Disclosure
Schedule as an exception to a representation or warranty shall not be deemed
an admission by Buyer that such item represents a material exception or fact,
event or circumstance or that such item is reasonably likely to result in a
Buyer Material Adverse Effect. The Buyer Schedule is arranged in sections and
paragraphs corresponding to the sections and paragraphs herein. A fact or
matter disclosed in the Buyer Disclosure Schedule with respect to one section
or paragraph shall be deemed to be disclosed with respect to each other
section and paragraph of this Agreement where such disclosure is appropriate
if, but only if, the relevance of the disclosure to such other section or
paragraph is readily apparent. Buyer shall be permitted to supplement in
writing the Buyer Disclosure Schedule from time to time following the date
hereof by delivery of such supplements to Seller in the manner provided under
Section 11.5, provided that such supplements shall not be considered in
determining the satisfaction of the conditions set forth in Sections 6.3(a)
and 6.3(b) hereof. Subject to the provisions of Section 9.3(d) hereof, the
representations and warranties set forth in this Article IV and the covenants
set forth in Article V shall survive the Closing notwithstanding any
investigation made by or information furnished to Seller in connection
herewith.
4.B. Representations and Warranties of Buyer . Subject to the foregoing
and except as set forth in the Buyer Disclosure Schedule, Buyer hereby
represents and warrants to each of Seller and the Company as of the date of
this Agreement as follows:
4.1. Organization and Authority of Buyer. Buyer is a corporation, duly
organized, validly existing and in good standing under the laws of the State
of Wisconsin. Buyer has the power and authority to carry on its business as
it is now being conducted and to own, lease and operate all of its properties
and assets. Buyer has full corporate power and authority to enter into this
Agreement and to consummate the transactions contemplated hereby. The
execution, delivery and performance of this Agreement and the consummation of
the transactions contemplated hereby by Buyer have been duly and validly
authorized by all necessary corporate action on the part of Buyer. This
Agreement has been, and each other agreement and document to be executed and
delivered pursuant hereto by Buyer will be, duly and validly executed and
delivered by Buyer, and this Agreement constitutes (assuming due
authorization, execution and delivery by Seller and the Company), and, when
executed and delivered, such ancillary documents will constitute(assuming due
authorization, execution and delivery by the other parties thereto), the
legal, valid and binding obligations of Buyer enforceable against Buyer in
accordance with their respective terms, except as the enforceability thereof
may be subject to or limited by bankruptcy, insolvency, reorganization,
moratorium or similar Laws relating to or affecting the rights of creditors
generally and general principles of equity, regardless of whether applied in
proceedings at law or in equity.
4.2. No Violation. Neither the execution, delivery and performance
hereof, nor the consummation of the transactions contemplated hereby, nor
compliance with any of the provisions hereof, by Buyer, will conflict with,
breach or violate, or result in a conflict with, or breach or violation of, or
a default under, or give rise to any right of termination, cancellation or
acceleration with respect to: (i) Buyer's Articles of Incorporation or By-
Laws; (ii) any Authorization, agreement, instrument, other document or
obligation to which Buyer is a party or by which Buyer and/or any of Buyer's
properties or assets are bound; or (iii) any Law applicable to Buyer and/or
any of Buyer's properties or assets. Except for the approval referred to in
Section 4.2 of the Buyer Disclosure Schedule, no Authorization or other action
of, or registration, declaration, recording or filing with, any Governmental
Authority or other Person is required in connection with the execution and
delivery of this Agreement and/or any other agreement or document to be
executed and delivered pursuant hereto by Buyer and/or the consummation by
Buyer of the transactions contemplated hereby and/or thereby.
4.3. Brokers; Agents. Buyer has not dealt with any banker, agent, finder,
broker or other representative in any manner which could result in Seller
being liable for any fee or commission in the nature of an investment
banker's, finder's or originator's fee in connection with the subject matter
of this Agreement.
4.4. Filing Documents. None of the information regarding the Buyer or any
of its Affiliates supplied or to be supplied by Buyer for inclusion in any
documents to be filed with any Governmental Authority in connection with the
transactions contemplated hereby will, at the respective times such documents
are filed with any Governmental Authority, contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading.
4.5. Cash Consideration. Buyer will have sufficient cash on hand to pay
the Purchase Consideration as of the Closing.
4.6. Securities Act. The Shares are being acquired by Buyer for
investment only and not with a view to any public distribution thereof. Buyer
acknowledges that the Shares will not be registered by Seller pursuant to the
Securities Act of 1933, as amended (the "Securities Act"), or any state
securities laws, and Buyer will not offer to sell or otherwise dispose of the
Shares in violation of any of the registration requirements of the Securities
Act.
ARTICLE V
PRE-CLOSING COVENANTS
5.1. Conduct of Business by the Company. During the period from the date
of this Agreement and continuing through the Closing Date, except as expressly
contemplated or permitted by this Agreement or with the prior written consent
of Buyer, the Company shall (a) carry on its business in the ordinary course
consistent with past practice; (b) use all reasonable efforts to preserve its
present business organization and relationships; (c) use all reasonable
efforts to keep available the present services of its employees; (d) use all
reasonable efforts to preserve and maintain its assets and properties
consistent with past practice; and (e) use all reasonable efforts to preserve
its rights, franchises, goodwill and relations with its customers and others
with whom it conducts business. Without limiting the generality of the
foregoing, except as expressly contemplated by this Agreement or required by
Applicable Law or consented to in writing by Buyer, the Company shall not, and
shall cause each of its Subsidiaries not to, directly or indirectly:
(i) amend or agree to amend its Articles/Certificate of
Incorporation or By-Laws (or comparable instruments), or merge with or into or
consolidate with, or agree to merge with or into or consolidate with, any
other Person, subdivide or in any way reclassify any shares of its capital
stock or its equity interests, or change or agree to change in any manner the
rights of its outstanding capital stock or its equity interests;
(ii) issue, sell or purchase, or issue any Right to purchase or otherwise
acquire, or enter into any contracts, agreements or arrangements to issue,
sell or purchase, any shares of its capital stock or its equity interests;
(iii) incur any indebtedness for borrowed money or guarantee the
indebtedness of any other Person;
(iv) make, or agree to make, any change in its accounting or record
keeping methods or practices for Tax or accounting purposes or make, or agree
to make, any change in depreciation or amortization policies or rates adopted
by it for Tax or accounting purposes;
(v) make any loan or advance to any of its Affiliates, partners, officers,
directors, employees, consultants, agents or other representatives (other than
travel advances made in the ordinary course of business), or make any other
loan or advance, in each case otherwise than in the ordinary course of
business but in no event individually or in the aggregate in excess of $5,000;
(vi) sell, offer to sell, abandon or make any other disposition of any of
its assets, except in the ordinary course of business consistent with past
practice; grant or suffer, or agree to grant or suffer, any Encumbrance on any
of its material assets;
(vii) except in the ordinary course of business consistent with past
practice, incur or assume, or agree to incur or assume, any liability or
obligation (whether or not currently due and payable) relating to its business
or any of its assets in excess of $100,000, individually or in the aggregate;
(viii) settle any claim, action or proceeding involving any liability for
material money damages or any material restrictions upon any of its
operations;
(ix) create, renew, amend, terminate or cancel, or take any action that
might result in the creation, renewal, amendment, termination, breach or
cancellation of, any Contract other than in the ordinary course of business
consistent with past practice;
(x) enter into, or agree to enter into, any contract, agreement or
arrangement with any of its Affiliates other than those entered into in the
ordinary course of business consistent with past practice;
(xi) declare dividends or declare or make any other distributions of any
kind payable to Seller and/or its Affiliates in the aggregate greater than
cash and other liquid assets on hand on the date hereof plus or minus the
consolidated net income or net loss of the Company from the date hereof
through the close of business on the last Business Day of the month last
preceding the month in which the Closing Date occurs, or make any direct or
indirect redemption, retirement, purchase or other acquisition of any shares
of its capital stock, its equity interests or Rights;
(xii) acquire or agree to acquire in any manner, including by way of
merger, consolidation or purchase of an equity interest or assets, any
business or any corporation, partnership, association or other business
organization or division thereof;
(xiii) enter into, amend, modify or renew any written employment,
consulting, severance or similar agreements or arrangements with any
directors, officers or employees of the Company, or grant any salary or wage
increase or increase benefits under any Plan, except (i) normal individual
increases in compensation to employees in the ordinary course of business
consistent with past practice, (ii) in accordance with agreements or
arrangements existing as of the date hereof, and (iii) grants of awards or
bonuses to newly hired officers and employees consistent with past practice;
or
(xiv) Make or authorize any change in its prices or credit policies
except in the ordinary course of business consistent with past practice;
(xv) Enter into or amend any Material Contract;
(xvi) Fail to pay any debts or obligations as the same become due and
payable, except for debts or obligations being contested by the Company or any
Subsidiary in good faith and by appropriate proceedings;
(xvii) After the close of business on the last Business Day of the month
last preceding the month in which the Closing Date occurs, declare or pay any
dividend or make any other distribution of any kind on its capital stock or
enter into, or agree to enter into, any contract, agreement, arrangement or
other transaction with any Affiliate of Seller, except on a basis consistent
with arms-length pricing; or
(xviii) authorize or agree (by contract or otherwise) to do any of the
foregoing.
5.2. Insurance. The Company will use all reasonable efforts to maintain
in effect until the Closing Date all material casualty and liability policies
maintained by the Company on the date hereof or will procure comparable
replacement policies (to the extent commercially reasonable) and maintain such
policies in effect until the Closing Date.
5.3. Maintenance of Records. Through the Closing Date, the Company will
maintain the Records in the same manner and with the same care that the
Records have been maintained prior to the execution of this Agreement.
5.4. Further Assurances. Each party to this Agreement shall execute such
documents and other papers and perform such further acts as may be reasonably
required to carry out the provisions hereof and the transactions contemplated
hereby.
5.5. Efforts of Parties to Close. During the period from the date of this
Agreement through the Closing Date, each party hereto shall use its reasonable
best efforts to fulfill or obtain the fulfillment of the conditions precedent
to the consummation of the transactions contemplated hereby, including the
execution and delivery of any documents, certificates, instruments or other
papers that are reasonably required for the consummation of the transactions
contemplated hereby. During the period from the date of this Agreement and
continuing through the Closing, except as required by Applicable Law or with
the prior written consent of the other parties to this Agreement, no party to
this Agreement shall knowingly take any action which, or knowingly fail to
take any action the failure of which to be taken, would, or could reasonably
be expected to, (a) result in any conditions to the Closing set forth in
Article VI not being satisfied; (b) result in a material violation of any
provision of this Agreement; or (c) adversely affect or materially delay the
receipt of any of the requisite regulatory approvals necessary to consummate
the transactions contemplated hereby.
5.6. Confidentiality and Announcements.
(a) The parties agree to be bound by and comply with the provisions set
forth in the Confidentiality Agreement, the provisions of which are hereby
incorporated herein by reference.
(b) Subject to Section 5.8(a) and (b), the parties to this Agreement shall
consult with each other as to the form, substance and timing of any press
release or other public disclosure related to this Agreement or the
transactions contemplated hereby and no such press release or other public
disclosure shall be made without the consent of the other parties, which
consent shall not be unreasonably withheld or delayed; provided, however, that
the parties may make such disclosure as is required by Applicable Law, based
on advice of counsel, after making reasonable efforts under the circumstances
to consult with each other prior to such disclosure.
5.7. Access; Certain Communications. Between the date of this Agreement
and the Closing Date, subject to any Applicable Laws relating to the exchange
of information and confidentiality, the Company shall afford to Buyer and its
authorized agents and representatives complete access, upon reasonable notice
and during normal business hours, to all Contracts, documents and information
of or relating to the assets, liabilities, business, operations, personnel and
other aspects of the business of the Company. The Company shall cause its
personnel, attorneys and accountants to provide assistance to Buyer in Buyer's
investigations of matters relating to the transactions contemplated hereby,
including allowing Buyer and its authorized agents and representatives access
to the facilities of the Company; provided , however, that Buyer's
investigations shall be conducted in a manner which does not unreasonably
interfere with the Company's normal operations, customers, and employee
relations.
5.8. Regulatory Matters; Third Party Consents.
(a) The parties to this Agreement shall cooperate with each other and
use their reasonable best efforts promptly to prepare and file (on a
confidential basis if requested by any of the other parties and permitted
under Applicable Law) all necessary documentation, to effect (on a
confidential basis if requested by any of the other parties and permitted
under Applicable Law) all applications, notices, petitions and filings, and to
obtain as promptly as practicable all permits, consents, approvals, waivers
and authorizations of all third parties and Governmental Authorities which are
necessary or advisable to consummate the transactions contemplated by this
Agreement, including but not limited to, any filings to be made under the HSR
Act which filings shall be made within 30 days of the date of this Agreement,
and requests for required consents under the Contracts. Buyer agrees to take
all reasonable steps necessary to satisfy any conditions or requirements
imposed by any Governmental Authority in connection with the consummation of
the transactions contemplated by this Agreement, other than those conditions
or requirements which, individually or in the aggregate, are likely to have an
adverse effect on the Company, Buyer and/or their Affiliates. If any required
consent of or waiver by any third party (excluding any Governmental Authority)
is not obtained prior to the Closing, or if the assignment of any Contract
would be ineffective or would adversely affect any material rights or benefits
thereunder so that Buyer would not in fact receive all such rights and
benefits, the parties hereto, each without cost, expense or liability to the
other, shall cooperate in good faith to seek, if possible, an alternative
arrangement to achieve the economic results intended. The parties to this
Agreement will have the right to review in advance, and will consult with the
other on, in each case subject to Applicable Laws relating to the exchange of
information and confidentiality, all the information relating to Buyer, Seller
or the Company, as the case may be, which appear in any filing made with, or
written materials submitted to, any third party or any Governmental Authority
in connection with the transactions contemplated by this Agreement (except for
any confidential portions thereof). The parties to this Agreement agree that
they will consult with each other with respect to the obtaining of all
permits, consents, approvals and authorizations of all third parties and
Governmental Authorities necessary or advisable to consummate the transactions
contemplated by this Agreement and each party will keep the others apprised of
the status of matters relating to completion of the transactions contemplated
herein. The party responsible for a filing as set forth above shall, if
requested to do so by any other party, promptly deliver to the other parties
hereto evidence of the filing of all applications, filings, registrations and
notifications relating thereto (except for any confidential portions thereof),
and any supplement, amendment or item of additional information in connection
therewith (except for any confidential portions thereof). The party
responsible for a filing shall also promptly deliver to the other parties
hereto a copy of each material notice, order, opinion and other item of
correspondence received by such filing party from any Governmental Authority
in respect of any such application (except for any confidential portions
thereof). In exercising the foregoing rights and obligations, each of the
parties hereto shall act reasonably and as promptly as practicable.
(b) Each party to this Agreement shall, upon request, furnish each other
with all information concerning themselves, directors, officers, partners and
stockholders and such other matters as may be reasonably necessary or
advisable in connection with any statement, filing, notice or application made
by or on behalf of Buyer, Seller or the Company to any Governmental Authority
in connection with the transactions contemplated by this Agreement.
(c) The parties to this Agreement shall promptly advise each other upon
receiving any communication from any Governmental Authority whose consent or
approval is required for consummation of the transactions contemplated by this
Agreement which causes such party to believe that there is a reasonable
likelihood that any requisite regulatory approval will not be obtained or that
the receipt of any such approval will be materially delayed or that the
transactions contemplated hereby will become subject to additional conditions
imposed by a Governmental Authority.
5.9. Notification of Certain Matters. Each party to this Agreement shall
give prompt notice to the other parties, to the extent known by such party, of
(i) the occurrence, or failure to occur, of any event or existence of any
condition that has caused or could reasonably be expected to cause any of the
conditions contained in Sections 6.2(a), 6.2(b) or 6.3(a) of this Agreement
not to be satisfied prior to the Closing, and (ii) any failure on its part to
comply with or satisfy, in any material respect, any covenant, condition or
agreement to be complied with or satisfied by it under this Agreement.
5.10. Expenses. Buyer, the Company and Seller shall each bear their
respective direct and indirect expenses incurred in connection with the
negotiation and preparation of this Agreement and the consummation of the
transactions contemplated hereby. The Company shall pay all pre-closing costs
and expenses for which the Company is responsible under this Section 5.10
prior to the Closing. Notwithstanding the foregoing, Seller and Buyer shall
each pay one-half of (i) the fees required in connection with any filings to
be made under the HSR Act and (ii) any amounts payable at any time on or after
the date hereof under those certain change of control contracts set forth in
Section 5.10 of the Company Disclosure Schedule (provided that the parties
hereby agree to use all reasonable efforts and to cooperate to restructure or
terminate such agreements), and, upon request of the other party, the
requested party shall promptly reimburse the requesting party for its share of
such fees and amounts.
5.11. Third Party Proposals. None of Seller, the Company or any of their
respective Affiliates, officers, directors, representatives or agents, shall
directly or indirectly solicit or encourage inquiries or proposals, or enter
into any definitive agreement, with respect to, or initiate or participate in
any negotiations or discussions with any Person concerning, any acquisition or
purchase of all or a substantial portion of the assets of, or of any equity
interest in, any of the Company or its Subsidiaries or any merger or business
combination with any of the Company or its Subsidiaries, in each case other
than as contemplated by this Agreement (each, an "Acquisition Proposal"), or
furnish any information to any such Person. Seller and any of its Affiliates
and agents shall notify Buyer immediately if any Acquisition Proposal
(including the terms thereof) is received by, any such information is
requested from, or any such negotiations or discussions are sought to be
initiated with, any of Seller or any of its Affiliates, officers, directors,
representatives or agents. Seller shall, and shall cause its Affiliates,
officers, directors, employees, representatives and advisors to, immediately
cease or cause to be terminated any existing activities, including discussions
or negotiations with any parties, conducted prior to the date hereof with
respect to any Acquisition Proposal and shall seek to have all materials
distributed to Persons in connection therewith by Seller or any of its
Affiliates or advisors returned to Seller promptly or destroyed. None of
Seller or any of its Affiliates, officers, directors, representatives or
agents, shall amend, modify, waive or terminate, or otherwise release any
Person from, any standstill, confidentiality or similar agreement or
arrangement currently in effect with respect to the Company. Seller shall
cause its officers, directors, agents, advisors and Affiliates to comply with
the provisions of this Section 5.11.
5.12. Foreign Subsidiaries. Prior to the Closing, Seller shall cause the
Company to distribute or otherwise transfer to Seller or one or more of its
Affiliates (other than the Company or a Company Subsidiary) all of the
Company's, and any of the Company Subsidiaries', ownership interests in: (i)
9056-0921 Quebec Inc., a Quebec corporation (the "Canadian Subsidiary"), or
such corporation's assets, including any capital stock thereof held by the
Company or any Company Subsidiary; and (ii) Davis-Standard France SARL, a
French limited liability company (the "French Subsidiary"), or such company's
assets, including any capital stock thereof held by the Company or any Company
Subsidiary.
5.13. Interim Financial Statements and Aging Schedules. Without
limitation to Seller's obligations under Section 5.7 , Seller shall cause the
Company to furnish to Buyer, promptly upon completion thereof, the
consolidated financial statements of the Company (including a consolidated
balance sheet and a statement of results of operations) for each month after
October, 1998, which financial statements shall be prepared in accordance with
GAAP, applied on a consistent basis. Seller further shall cause the Company
to furnish to Buyer current Aging Schedules as soon as reasonably practicable
following Buyer's written request therefor, provided that such requests shall
not be made more than once per month.
5.14 Supply Agreements. As soon as reasonably practicable following the
date hereof, Buyer and Seller shall negotiate in good faith the definitive
terms of one or more supply agreements (the "Supply Agreements") containing
the terms set forth on Exhibit 5.14 hereto (which the parties agree are all of
the material terms) and such other terms and conditions as are reasonably
mutually agreeable to such parties and are otherwise customary for agreements
of such type entered into on an arms-length basis.
ARTICLE VI
CONDITIONS TO CONSUMMATION OF THE ACQUISITION
6.1. Mutual Conditions. The obligations of each party to this Agreement
to effect the Acquisition shall be subject to the following conditions, any of
which may be waived in writing by each of the Company and Seller, on the one
hand, and Buyer, on the other hand:
(a) No order, injunction or decree issued by any court or agency of
competent jurisdiction or other legal restraint or prohibition preventing the
consummation of the transactions contemplated by this Agreement shall be in
effect. No proceeding by any Governmental Authority or other Person shall be
pending or threatened which questions the validity or legality of, or which
seeks to restrain or prohibit, the transactions contemplated hereby or which
could reasonably be expected to result in the imposition of material damages
or penalties upon any party hereto if such transactions are consummated. No
statute, rule, regulation, order, injunction or decree shall have been
enacted, entered, promulgated or enforced by any Governmental Authority which
prohibits, restricts or makes illegal consummation of the transactions
contemplated hereby;
(b) All consents, waivers, authorizations and approvals required from all
Governmental Authorities to consummate the transactions contemplated hereby,
without the imposition of conditions or requirements shall have been obtained
and shall remain in full force and effect and all statutory waiting periods in
respect thereof shall have expired or terminated; and
(c) In respect of the notifications of the parties hereto pursuant to the
HSR Act, the applicable waiting period and any extensions thereof shall have
expired or terminated.
6.2. Conditions to Buyer's Obligations. The obligations of Buyer to
effect the Acquisition shall be subject to the following conditions, any of
which may be waived in writing by Buyer:
(a) Each of the representations and warranties of each of Seller and the
Company set forth in this Agreement shall be true and correct in all respects,
subject to the standard set forth below, as of the date of this Agreement and
(except to the extent such representations and warranties speak as of an
earlier date) as of the Closing Date as though newly made on and as of the
Closing Date. For purposes of this Section 6.2(a), no representation or
warranty of Seller or the Company contained in Article III hereof shall be
deemed untrue or incorrect as a consequence of the existence of any fact,
event or circumstance unless such fact, circumstance or event is not set forth
in the Company Disclosure Schedule (without giving effect to any supplement
thereto) and individually or taken together with all other facts, events or
circumstances inconsistent with any representation or warranty contained in
Article III hereof has had or is reasonably likely to result in a Company
Material Adverse Effect.
(b) Each of the representations and warranties of each of Seller and the
Company set forth in Section 3.4, shall be true and correct in all respects as
of the date of this Agreement and (except to the extent such representations
and warranties speak as of an earlier date) as of the Closing Date as though
newly made on and as of the Closing Date.
(c) The Company and Seller shall have performed and complied in all
material respects with all agreements, covenants, obligations and conditions
required by this Agreement to be performed or complied with by them on or
prior to the Closing Date.
(d) Messrs. Wachtell, Lipton, Rosen & Katz, counsel to Seller, shall
have delivered to Buyer an opinion dated the Closing Date in the form of
Exhibit 6.2(d).
(e) Seller, the Company and the Company Subsidiaries shall have obtained
and have provided to Buyer such Authorizations as are required by Law or under
agreements with third parties in order to consummate the transactions
contemplated hereby and to continue the business of the Company and the
Subsidiaries after the Closing, including those required from third parties as
set forth in Section 3.14 of the Company Disclosure Schedule and those
required to avoid the acceleration of any indebtedness or the termination or
cancellation of Contracts or Authorizations affecting the Company, the Company
Subsidiaries and/or their business and properties, whether from lenders,
equipment lessors, landlords, manufacturers, suppliers, customers and other
Persons, in each case, other than those Authorizations the failure to obtain
of which would not reasonably be expected to have a Company Material Adverse
Effect.
(f) At least ten (10) days prior to the Closing, Seller shall have
delivered to Buyer a binding commitment to issue an ALTA owner's policy of
title insurance on each parcel of the Real Estate identified in Section
3.12(a) of the Company Disclosure Schedule as being owned by the Company or a
Subsidiary in the amount set forth in Section 3.12(a) of the Company
Disclosure Schedule naming the Company or such Subsidiary, as the case may be,
as proposed insured. Each such commitment shall be written by a title
insurance company reasonably acceptable to Buyer and licensed in the state in
which such parcel is located, shall show title to such Real Estate and any
easements, use or other agreements benefiting or appurtenant to any of the
Real Estate to be vested in the Company or such Subsidiary, as the case may
be, free and clear of all Encumbrances except Permitted Encumbrances, and
shall commit such insurance company to issue an ALTA owner's policy of title
insurance, insuring the Company's or Subsidiary's interest in such Real Estate
as fee simple owner. Each such commitment shall contain such special
endorsements as Buyer may reasonably require, including: (i) extended
coverage insuring over the standard preprinted exceptions including a gap
coverage endorsement insuring title to such Real Estate through the Closing
Date; (ii) nonimputation; (iii) access; and (iv) zoning.
(g) At least ten (10) days prior to the Closing, Seller shall have
delivered to Buyer a survey of each parcel of the Real Estate identified in
Section 3.12(a) of the Company Disclosure Schedule as being owned by the
Company or a Subsidiary which shall have been prepared by a surveyor licensed
in the state in which such parcel is located. Each such survey shall be in
such form and shall contain a surveyor's certificate in such form as will
cause the title insurance company which issues the commitment referred to in
Section 6.2(f) to delete all survey exceptions from the policy of title
insurance covering the parcel in question and shall: (i) set forth the legal
description of such parcel, which shall be the same description as set forth
in the title insurance commitment for such parcel referred to in Section
6.2(f); (ii) indicate the boundary lines by course and dimension of such
parcel; (iii) indicate the location of all easements, rights of way, public
utilities, water courses, drains, sewers and roads crossing such parcel and
the locations and names of all streets abutting or adjacent to such parcel;
and (iv) clearly designate the location of all improvements and all other
material matters of survey affecting such parcel.
(h) Between the date hereof and Closing there shall have been no damage to
or loss or destruction of any real or tangible personal property of the
Company or any Company Subsidiary which, individually or in the aggregate,
would require the expenditure of more than $5,000,000 to remedy, repair or
replace.
(i) Seller shall have delivered to Buyer a certificate, dated as of the
Closing Date, signed on behalf of Seller by its Chief Financial Officer
confirming the satisfaction of the conditions contained in paragraphs (a),
(b), (c) and (e) of this Section 6.2.
6.3. Conditions to Seller's and the Company's Obligations. The obligation
of the Company and Seller to effect the Acquisition shall be subject to the
following conditions, any of which may be waived in writing by the Company and
Seller:
(a) Each of the representations and warranties of Buyer set forth in
this Agreement shall be true and correct in all respects, subject to the
standard set forth below, as of the date of this Agreement and (except to the
extent such representations and warranties speak as of an earlier date) as of
the Closing Date as though newly made on and as of the Closing Date. For
purposes of this Section 6.3(a), no representation or warranty of Buyer
contained in Article IV hereof shall be deemed untrue or incorrect as a
consequence of the existence of any fact, event or circumstance unless such
fact, circumstance or event is not set forth in the Buyer Disclosure Schedule
(without giving effect to any supplement thereto) and individually or taken
together with all other facts, events or circumstances inconsistent with any
representation or warranty contained in Article IV hereof has had or is
reasonably likely to result in a Buyer Material Adverse Effect;
(b) The Buyer shall have performed and complied in all material respects
with all agreements, covenants, obligations and conditions required by this
Agreement to be performed or complied with by it on or prior to the Closing
Date.
(c) Godfrey & Kahn, S.C., counsel to Buyer, shall have delivered to
Seller an opinion dated the Closing Date in the form of Exhibit 6.3(c).
(d) Buyer shall have delivered to Buyer a certificate, dated as of the
Closing Date, signed on behalf of Buyer by its President confirming the
satisfaction of the conditions contained in paragraphs (a) and (b) of this
Section 6.3.
ARTICLE VII
TERMINATION
7.1. Termination.
(a) This Agreement may be terminated prior to the Closing as follows:
(i) by written consent of Seller, the Company and Buyer;
(ii) by any of Buyer, on the one hand, or Seller or the Company, on the
other hand, (the "Notifying Party") if Seller or the Company, on the one hand,
or Buyer, on the other hand, as the case may be (the "Notified Party"), shall
have failed to perform and comply in all material respects with its or their
agreements and covenants hereunder and such failure to perform or comply shall
not have been remedied within 30 days after receipt by the Notified Party of
notice in writing from the Notifying Party, specifying the nature of such
failure and requesting that such failure be remedied; provided that the
Notifying Party may not terminate this Agreement pursuant to this subsection
(ii) for an additional 30 days if the Notified Party continues in good faith
to use its reasonable best efforts to perform or comply with such agreements
and covenants, other than in respect of approvals of any Governmental
Authority, in which case the Notifying Party may not terminate this Agreement
under this subsection (ii) as long as the Notified Party continues in good
faith to use its reasonable best efforts to perform or comply in respect of
the approvals of any Governmental Authority as required hereunder;
(iii) by any of Buyer, Seller or the Company if there shall be any Law or
regulation that makes consummation of the transactions contemplated hereby
illegal or otherwise prohibited or if consummation of the transactions
contemplated hereby would violate any nonappealable final order, decree or
judgment of any court or Governmental Authority having competent jurisdiction;
(iv) by Buyer if any condition to Buyer's obligations hereunder becomes
incapable of fulfillment or is not satisfied or waived as of the Closing
through no fault of such party and is not waived by such party;
(v) by Seller or the Company if any condition to Seller's or the Company's
obligations hereunder becomes incapable of fulfillment or is not satisfied or
waived as of the Closing through no fault of such parties and is not waived by
such parties; or
(vi) without any further action on March 31, 1999, if the Closing has not
occurred on or before March 31, 1999, unless the failure of the Closing to
occur by such date shall be due to the failure of a party to perform or
observe the covenants and agreements of such party set forth herein, in which
case this Agreement shall terminate pursuant to this Section 7.1(vi) only upon
delivery of written notice of such termination by a party that has not so
failed to perform or observe its covenants and agreements to each other party
hereto in accordance with the provisions of Section 7.1(b).
Notwithstanding Section 7.1(a)(iii) - (v) hereof, a party who is or whose
Affiliate is in material breach of any of its obligations or representations
and warranties hereunder shall not have the right to terminate this Agreement
pursuant to Section 7.1(a)(iii) - (v).
(b) The termination of this Agreement shall be effectuated by the delivery
by the party terminating this Agreement to each other party of a written
notice of such termination, except for a termination pursuant to Section
7.1(vi) which shall be effective as of the date set forth therein subject to
the terms of such Section 7.1(vi). If this Agreement so terminates, it shall
become null and void and have no further force or effect, except as provided
in Section 7.2.
7.2. Survival After Termination . If this Agreement is terminated in
accordance with Section 7.1 hereof and the transactions contemplated hereby
are not consummated, this Agreement shall become void and of no further force
and effect, without any liability on the part of any party hereto, except for
the provisions of Section 5.6, this Section 7.2, the first sentence of Section
5.10 and clause (i) of the second sentence of Section 5.10. Notwithstanding
the foregoing, nothing in this Section 7.2 shall relieve any party to this
Agreement of liability for a willful breach of any provision of this Agreement
or any agreement made as of the date hereof or subsequent thereto pursuant to
this Agreement.
ARTICLE VIII
TAX MATTERS
8.1. Tax Matters. Except as otherwise required by Applicable Law,
Buyer will not cause or permit the Company, Buyer or any Affiliate of Buyer
(i) to take any action on the Closing Date, other than in the ordinary course
of business or except as agreed in writing between the parties (including, but
not limited to, the distribution of any dividend or the effectuation of any
redemption), that could give rise to any Tax liability or loss under this
Agreement by Seller, or (ii) to amend any Tax Return or file a claim for
refund for any Pre-Closing Tax Period that results in any net increased Tax
Liability to or any net reduced Tax Benefit of, Seller, the Company or any
Affiliate of the Company. Seller shall include the Company and the
Subsidiaries through the Closing Date in its United States federal income tax
return and in those state and local tax returns that are filed on a
consolidated or combined basis in accordance with Applicable Law and past
practice of Seller, the Company and the Company Subsidiaries.
8.2 Liability for Taxes.
(a) Seller shall be liable for, and shall hold Buyer, the Company and the
Company Subsidiaries harmless from and against, any or all Taxes due or
payable by the Company and/or the Company Subsidiaries, or by Buyer with
respect to the Company and/or the Company Subsidiaries, for any taxable period
ending on or before the Closing Date and the portion ending on the Closing
Date of any taxable period that includes (but does not end on) the Closing
Date ("Pre-Closing Tax Period"), and any Taxes arising after the Pre-Closing
Tax Period relating to adjustments under Section 481(a) of the Code
attributable to changes initiated during the Pre-Closing Tax Period ("Section
481 Taxes"), including: (i) any liability of the Company and/or the Company
Subsidiaries by reason of their being severally liable (pursuant to Treasury
Regulations Section 1.1502-6, any analogous state, local or foreign provision,
or otherwise), in whole or in part, for any tax of any affiliated group (as
defined in Section 1504(a) of the Code or any analogous state, local or
foreign provisions) with respect to which the Company and/or the Company
Subsidiaries may be or have been an includible corporation (as defined in
Sections 1504(b) and (c) of the Code or such analogous state, local or foreign
provisions) (an "Affiliated Group"); (ii) any liability that arises because
the Company and/or the Company Subsidiaries ceases on the Closing Date to be a
member of an Affiliated Group filing consolidated or combined returns; (iii)
any liability that results from any transaction with respect to the Canadian
Subsidiary and/or French Subsidiary described in Section 5.12; and (iv) any
and all sales, transfer, stamp, excise or similar Taxes applicable to the sale
to Buyer of the Shares, and the transactions contemplated hereby; provided,
however, that Seller shall not be liable for any Taxes due or payable by
Buyer, the Company and/or the Subsidiaries: (i) resulting or arising from any
action taken by or on behalf of Buyer, Buyer's Affiliates, the Company and/or
the Company Subsidiaries on or after the Closing Date out of the ordinary
course of business not contemplated by this Agreement; or (ii) for which a
liability, which is identified as being for such Taxes, to the extent that
such liability is accrued on the Closing Price Documents.
(b) Except for Section 481 Taxes, Buyer shall be liable for, and shall
hold Seller harmless from and against, any and all Taxes due or payable with
respect to: (i) the business activities, transactions and assets of the
Company and/or the Company Subsidiaries for any taxable tax period beginning
after the Closing Date and the portion beginning the day after the Closing
Date of any tax period that includes (but does not end on) the Closing Date
("Post-Closing Tax Period"); and (ii) any action taken by or on behalf of
Buyer, Buyer's Affiliates, the Company and/or the Company Subsidiaries out of
the ordinary course of business on or after the Closing Date not contemplated
by this Agreement.
(c) Any Taxes (other than real and personal property Taxes and any other
Taxes not measured or measurable, in whole or in part, by net or gross income
or receipts), with respect to the business, activities and assets of the
Company and the Company Subsidiaries that relate to a tax period beginning
before the Closing Date and ending after the Closing Date shall be apportioned
between Seller and Buyer, as determined from the books and records of the
Company consistent with the Code, regulations thereunder and other applicable
Law, based on the actual operations of the Company and the Company
Subsidiaries during the portion of such period ending on the Closing Date and
the portion of such period beginning on the day after the Closing Date, and
based on accounting methods, elections and conventions that do not have the
effect of distorting income or expenses, and each such portion of such period
shall be deemed to be a tax period subject to the provisions of Sections
8.2(a) and 8.2(b). Buyer shall, with the approval of Seller (which shall not
be unreasonably withheld), cause the Company and the Company Subsidiaries to
file any required separate (nonconsolidated or noncombined) state, local and
foreign Tax Returns for any such tax period, and Buyer shall pay, or cause to
be paid, all state, local or foreign Taxes (including interest and penalties
relating thereto) shown as due on any such returns with respect to the Company
and/or the Company Subsidiaries. In the event that Buyer and Seller are
unable to agree on any Tax Returns described in the immediately preceding
sentence, the dispute shall be referred to a nationally recognized independent
accounting firm mutually agreed upon by Buyer and Seller for resolution, and
the determination of such accounting firm shall be binding upon Buyer and
Seller, with the fees and expenses of such accounting firm borne equally by
Buyer and Seller. Seller shall pay Buyer its share of any such Taxes (except
to the extent accrued on the Closing Price Documents) pursuant to the filing
of any such Tax Returns under the provisions of this Section 8.2(c) within
five (5) business days after receipt of notice of such filing by Buyer, which
notice shall set forth in reasonable detail the calculations regarding
Seller's share of such Taxes.
(d) Any refunds or credits of Taxes that arise in, or are otherwise
attributable to, a Pre-Closing Tax Period (other than a refund or credit
arising from a carryback or a refund or credit reflected as an asset in the
Closing Price Documents) of the Company and/or any Company Subsidiary net of
any costs of collection shall be for the account of Seller. Any refunds or
credits of Taxes that arise in, or are otherwise attributable to, a Post-
Closing Tax Period of Buyer, the Company and/or any Company Subsidiary,
including any refunds or credits that arise from the carryback of any
deduction, loss or credit from a Post-Closing Tax Period to a Pre-Closing Tax
Period or a refund or credit reflected as an asset in the Closing Price
Documents, shall be for the account of Buyer. Buyer shall cause the Company
and the Company Subsidiaries to use their best efforts to seek and promptly to
forward to, or to reimburse, Seller for any refunds or credits due to Seller
after receipt thereof, and Seller shall use its best efforts to seek and
promptly to forward to, or reimburse, Buyer for any refunds or credits due
Buyer after receipt thereof.
8.3. Procedures.
(a) Seller shall have the right to exercise, at its own expense, control
at any time over the handling, disposition and/or settlement of any issue
raised in any official inquiry, examination or proceeding regarding any Tax
Return with respect to which Seller may be liable for Taxes pursuant to this
Article VIII (other than any Tax Return for a period beginning before the
Closing Date and ending after the Closing Date), including the right to settle
or otherwise terminate any contest with respect thereto; provided, however,
that (i) to the extent that such settlement or defense could reasonably be
expected to adversely affect Buyer for any Tax period or, the Company and/or
any Company Subsidiary for a Post-Closing Tax Period, Seller shall permit
Buyer to participate, at its own expense, in such settlement or defense
through counsel chosen by Buyer and Seller shall not enter into a settlement
(at the administrative level or during the course of judicial proceedings)
without prior consultation with Buyer; and (ii) Buyer shall cooperate with
Seller, as Seller may reasonably request, in any such inquiry, examination or
proceeding.
(b) Buyer shall have the right to exercise, at its own expense, control
at any time over the handling, disposition and/or settlement of any issue
raised in any official inquiry, examination or proceeding regarding any Tax
Return other than as described in Section 8.3(a)) (including the right to
settle or otherwise terminate any contest with respect thereto); provided,
however, that: (i) to the extent that such settlement or defense could
reasonably be expected to adversely affect Seller for any Tax period or, the
Company and/or any Company Subsidiary for any Pre-Closing Tax Period, Buyer
shall permit Seller to participate, at its own expense, in such settlement or
defense through counsel chosen by Seller and Buyer shall not enter into a
settlement (at the administrative level or during the course of judicial
proceedings) without prior consultation with Seller; (ii) Seller shall
cooperate with Buyer, as Buyer may reasonably request, in any such inquiry,
examination or proceeding; and (iii) in the case of any Tax Return for a
period beginning before the Closing Date and ending after the Closing Date,
Buyer shall settle any issue only with the consent of Seller, which consent
will not be unreasonably withheld or delayed.
(c) If, with respect to any official inquiry, examination or proceeding
with respect to Taxes for which indemnity may be sought pursuant to this
Article VIII, Seller, in the case of a Tax Return described in Section 8.3(a),
or Buyer, in the case of any other relevant Tax Return, elects not to exercise
control over the handling, disposition and/or settlement of the issues raised
in such inquiry, examination or proceeding, Buyer or Seller, as the case may
be, shall so notify Seller or Buyer, respectively, and the party so notified
shall be entitled, but shall not be obligated, to exercise control over the
handling, disposition and/or settlement, subject, in the case of Seller, to
the provisions of Section 8.3(a) and, in the case of Buyer, to the provisions
of Section 8.3(b).
(d) Buyer shall promptly notify Seller in writing upon receipt by Buyer,
the Company, any Company Subsidiary or any member of any group of which Buyer,
the Company and/or any Company Subsidiary may be a member, of notice of any
pending or threatened official inquiry, examination or proceeding that may
affect the Tax liability for the Company and/or any Company Subsidiary for any
Pre-Closing Tax Period. Seller shall promptly notify Buyer in writing upon
receipt by Seller of notice of any pending or threatened official inquiry,
examination or proceeding relating to the Company and/or any Company
Subsidiary for any tax period.
8.4. Survival. Anything in Section 9.3(d) to the contrary
notwithstanding, the provisions of this Article VIII relating to Taxes shall
survive the Closing until one year following the latest of (i) the date upon
which liability to which any such claim may relate is barred by all applicable
statutes of limitations (after taking into account any extensions); (ii) the
date upon which any claim for refund or credit related to any such claim is
barred by all applicable statutes of limitations (after taking into account
any extensions); and (iii) with respect to any claim for which indemnity is
being sought at the expiration of the periods described in clauses (i) and
(ii) above, the date of a final determination in such proceeding with respect
to such claim.
8.5. Exclusive Provisions Relating to Taxes. The provisions of this
Article VIII set forth the exclusive and entire agreement of the parties
relating to sharing liabilities for Taxes, division of refunds of Taxes,
control of proceedings relating to Taxes, and filing of Tax Returns, and the
provisions of Section 9.4 shall not apply to such matters except to the extent
expressly and plainly applicable.
8.6. Continuing Cooperation. Subsequent to the Closing, the parties
hereto shall provide each other, and Buyer shall cause the Company and the
Company Subsidiaries to provide Seller, with such cooperation and information
relating to the Company and the Company Subsidiaries as either reasonably may
request in: (i) filing any Tax Return, amended return or claim for refund;
(ii) determining any liability for Taxes or a right to refund of Taxes; or
(iii) conducting or defending any audit or other proceeding in respect of
Taxes. Such cooperation and information shall include providing copies of all
relevant Tax Returns (or applicable portions thereof), together with
accompanying schedules and related work papers, documents relating to rules or
other determinations by taxing Governmental Authorities and records concerning
the ownership and tax basis of the property which any party, the Company, the
Company Subsidiaries or any of their Affiliates may possess. Buyer shall
make, and shall cause the Company and the Company Subsidiaries to make, and
Seller shall make, its and their employees, accountants and other advisors
available on a mutually convenient basis to provide explanations of any
documents or information required to be provided hereunder. The parties shall
retain, and Buyer shall cause the Company and the Company Subsidiaries to
retain, all returns, schedules and work papers, and all material records and
other documents relating thereto, until the expiration of the statute of
limitation (and, to the extent notified by any party, any extensions thereof)
of the taxable years to which such returns and other documents relate and,
unless such returns and other documents are offered and delivered to Seller or
Buyer, as applicable, until the final determination of any tax in respect of
such years. In addition, the parties shall comply, and Buyer shall cause the
Company and the Company Subsidiaries to comply, with all applicable
governmental record retention agreements entered into with any taxing
authority with respect to the Company and/or the Company Subsidiaries. Seller
will cooperate with Buyer upon request in obtaining the Internal Revenue
Service to exercise its authority to limit the liability of the Company and
the Company Subsidiaries under Treasury Regulation Section 1.1502-6 for Taxes
of Seller's Affiliated Group. Any information obtained under this Article
VIII shall be kept confidential, except as may be otherwise necessary in
connection with the filing of any Tax Returns or claims for refund or in
conducting any audit or other proceeding in respect of Taxes. Notwithstanding
the foregoing, neither Seller nor Buyer shall be required unreasonably to
prepare any document, or determine any information not then in its possession,
in response to a request under this Section 8.6.
ARTICLE IX
INDEMNIFICATION
9.1. Indemnification by Seller. From and after Closing, Seller shall
indemnify and hold Buyer, the Company, the Company Subsidiaries and/or their
respective shareholders, directors, officers, employees, agents, successors
and/or assigns harmless from and against any and all Losses in excess of the
amount, if any, reserved or deducted for a particular matter in the Closing
Price Documents (including any costs of environmental remedies or cleanup)
suffered or incurred by any of them which result from or arise out of:
(a) Any inaccuracy in or breach of any of the representations or
warranties of the Company or the Seller made in this Agreement;
(b) Any breach or nonperformance of any of the covenants or other
agreements made by Seller or, only with respect to obligations thereunder
required to be performed prior to or as of the Closing, the Company in or
pursuant to this Agreement;
(c) Except for claims for Taxes (which shall be governed by Article VIII
hereof) and claims relating to any violation of Environmental Laws (which
shall be governed by Sections 9.1(a), 9.1(e) and 9.1(h)) or covered by the
representations and warranties set forth in Section 3.18 (which shall be
governed by Sections 9.1(a), 9.1(e) and 9.1(h)), any claim by any Governmental
Authority or any other Person based upon, alleging or arising out of any act,
omission or occurrence by or relating to the Company and/or the Company
Subsidiaries as of or before the Closing, including, without limitation, any
such Loss relating to or arising out of any claim for nonperformance or breach
of Contract or warranty, worker's compensation or unemployment compensation,
any product liability or personal injury or property damage, any violation of
wage hour Laws and/or employee welfare and safety Laws, any violation of
employment discrimination Laws, any claim under any Plan relating to events on
or before the Closing Date, and/or any claim for infringement relating to the
Company's and/or any Subsidiary's use of any Intellectual Property prior to
the Closing Date;
(d) Any Taxes to the extent provided in Article VIII;
(e) (i) Any violation by the Company or any Company Subsidiary of any
Environmental Law either (A) occurring during the Operating Period for the
Company or such Company Subsidiary or (B) occurring prior to the Operating
Period for the Company or such Company Subsidiary and known by Seller as of
the Closing; or (ii) any condition existing or Release occurring on or under
any parcel of the Real Estate in violation of any Environmental Law in effect
on or before the Closing Date and either (A) resulting from any action or
inaction occurring or any condition created during the Operating Period for
such parcel, or (B) resulting from any action or inaction occurring or any
condition created prior to the Operating Period for such parcel and known by
the Seller as of the Closing, in each case under clauses (i) and (ii) of this
Section 9.1(e), other than any Losses arising out of, attributable to, or
resulting from matters, facts or circumstances disclosed in Section 3.18 of
the Company Disclosure Schedule;
(f) The operations and/or disposition of the Canadian Subsidiary and/or
French Subsidiary prior to, at or after the Closing;
(g) The Covered Litigation (provided that Seller shall be permitted to
defend the Covered Litigation and shall have authority to resolve the Covered
Litigation, subject to the provisions set forth in Section 9.4 hereof); and
(h) (i) Any violation by the Company or any Company Subsidiary of any
Environmental Law either (A) occurring during the Operating Period for the
Company or such Company Subsidiary or (B) occurring prior to the Operating
Period for the Company or such Company Subsidiary and known by Seller as of
the Closing; or (ii) any condition existing or Release occurring on or under
any parcel of the Real Estate in violation of any Environmental Law in effect
on or before the Closing Date and either (A) resulting from any action or
inaction occurring or any condition created during the Operating Period for
such parcel, or (B) resulting from any action or inaction occurring or any
condition created prior to the Operating Period for such parcel and known by
the Seller as of the Closing, in each case under clauses (i) and (ii) of this
Section 9.1(h), only to the extent such Losses arise out of, are attributable
to, or result from matters, facts or circumstances disclosed in Section 3.18
of the Company Disclosure Schedule (including in the ERM Reports (as defined
in the Company Disclosure Schedule)), and then only for one half of any such
Losses.
9.2. Indemnification by Buyer. From and after Closing, Buyer shall
indemnify and hold Seller and/or its shareholders, directors, officers,
employees, agents, successors and/or assigns harmless from and against any and
all Losses suffered or incurred by any of them which result from or arise out
of:
(a) Any inaccuracy in or breach of any of the representations or
warranties of Buyer made in this Agreement;
(b) Any breach or nonperformance of any of the covenants or other
agreements made by Buyer or, only with respect to obligations required to be
performed thereunder after the Closing, the Company in or pursuant to this
Agreement; and
(c) The Covered Lease, provided the Buyer shall not be required to
indemnify any Person or make any payment with respect to any liability,
obligation, penalty or damages arising under the Covered Lease in connection
with any breaches or defaults thereunder occurring prior to the Closing.
9.3. Limitation on Liability. Anything in this Agreement to the
contrary notwithstanding:
(a) No party shall be required to indemnify any Person or make any
payment with respect to any Loss arising under Sections 9.1(a), 9.1(b),
9.1(c), 9.1(e), 9.2(a) and/or 9.2(b) if the inaccuracy or breach in question,
the breach or nonperformance in question, the claim in question or the
violation, condition or Release, in question, as the case may be, was
disclosed in any written supplement to the Company Disclosure Schedule or the
Buyer Disclosure Schedule, as the case may be, delivered to the other
party(ies) prior to Closing and such inaccuracy, breach, nonperformance,
claim, violation, condition or Release, together with all other inaccuracies,
breaches, nonperformances, claims, violations, conditions and/or Releases
would have caused any of the conditions set forth in Sections 6.2(a), 6.2(b)
or 6.2(c), in the case of indemnification or payment by Seller, or Sections
6.3(a) or 6.3(b), in the case of indemnification or payment by Buyer, not to
be satisfied as of Closing (without giving effect to any waiver thereof or any
supplement to the Company or Buyer Disclosure Schedules).
(b) (i) Seller shall not be required to indemnify any Person or make any
payment with respect to any Losses arising under Sections 9.1(a), 9.1(c)
(other than Losses to the extent arising under Section 9.1(c) with respect to
any claim arising under any Plan (which Losses shall not be subject to this
Section 9.3(b))) or 9.1(e), and Buyer shall not be required to indemnify or
make any payment with respect to any Losses arising under Section 9.2(a),
unless and until the aggregate amount of such Losses for which such party
would otherwise be liable under such Sections exceeds $1,250,000 (the "Basket
Amount"), but if and when the aggregate amount of Losses for which such party
would otherwise be liable under such Sections exceeds, in the aggregate, the
Basket Amount, then such party shall be liable for all such Losses but only to
the extent in excess of the Basket Amount, subject to the limitations set
forth in Section 9.3(c), below;
(c) (i) Seller shall not be required to indemnify any Person or make any
payments with respect to any Losses arising under Sections 9.1(a) or 9.1(c),
and Buyer shall not be required to indemnify or make any payment with respect
to any Losses arising under Section 9.2(a), in each case to the extent the
aggregate of the amounts for which such party is obligated to indemnify any
Persons or make payments under this Article IX exceeds $30,000,000; and (ii)
Seller shall not be required to indemnify any Person or make any payments with
respect to any Losses arising under Section 9.1(h) to the extent the aggregate
of the amounts for which Seller is obligated to indemnify any Persons or make
payments under such Section 9.1(h) exceeds $1,125,000.
(d) No Indemnified Party (as defined below) shall be entitled to any
indemnification or any payment pursuant to this Article IX unless the
Indemnified Party shall provide the Indemnifying Party (as defined below) with
notice of its claim for indemnification as provided in Section 9.4: (i)
within two (2) years after the Closing Date in the case of any claim for
indemnification under Sections 9.1(a) (other than in the case of any claim for
indemnification under Sections 9.1(a) with respect to any inaccuracy and/or
breach of any representation or warranty made in Sections 3.1 or 3.4), 9.1(b)
(in the case of any breach or nonperformance of any of the covenants or other
agreements covered thereby to the extent required to be performed prior to or
as of the Closing), 9.2(a) (other than in the case of any claim for
indemnification under Sections 9.2(a) with respect to any inaccuracy and/or
breach of any representation or warranty made in Section 4.1) or 9.2(b) (in
the case of any breach or nonperformance of any of the covenants or other
agreements covered thereby to the extent required to be performed prior to or
as of the Closing); (ii) within three (3) years after the Closing Date in the
case of any claim for indemnification under Sections 9.1(c); and (iii) within
the period of the applicable statute of limitations in all other cases.
9.4. Procedure.
(a) Notice of Third Party Claims. Any party entitle to and seeking
indemnification under this Article IX (an "Indemnified Party") for any Loss or
potential Loss arising from a claim asserted by a third party against the
Indemnified Party (a "Third Party Claim") shall give written notice to the
party obligated to provide indemnification under this Article IX (the
"Indemnifying Party") specifying in detail the source of the Loss or potential
Loss under Section 9.1 or 9.2, as the case may be. Written notice to the
Indemnifying Party of the existence of a Third Party Claim shall be given by
the Indemnified Party promptly after notice of the potential claim; provided,
however, that the Indemnified Party shall not be foreclosed from seeking
indemnification pursuant to this Article IX by any failure to provide such
prompt notice of the existence of a Third Party Claim to the Indemnifying
Party except and only to the extent that the Indemnifying Party actually
incurs an incremental out-of-pocket expense or otherwise has been materially
damaged or prejudiced as a result of such delay.
(b) Defense. Except as otherwise provided herein, the Indemnifying Party
may elect to compromise or defend, at such Indemnifying Party's own expense
and by such Indemnifying Party's own counsel (which counsel shall be
reasonably satisfactory to the Indemnified Party), any Third Party Claim. If
the Indemnifying Party elects to compromise or defend such Third Party Claim,
it shall, within 30 days after receiving notice of the Third Party Claim (10
days if the Indemnifying Party in good faith states in such notice that prompt
action is required), notify the Indemnified Party of its intent to do so, and
the Indemnified Party shall cooperate, at the expense of the Indemnifying
Party, in the compromise of, or defense against, such Third Party Claim. If
the Indemnifying Party elects not to compromise or defend against the Third
Party Claim, or fails to notify the Indemnified Party of its election to do so
as herein provided, or otherwise abandons the defense of such Third Party
Claim, (i) the Indemnified Party may pay (without prejudice of any of its
rights as against the Indemnifying Party), compromise or defend such Third
Party Claim (until such defense is assumed by the Indemnifying Party) and (ii)
the costs and expenses of the Indemnified Party incurred in connection
therewith shall be indemnifiable by the Indemnifying Party pursuant to the
terms of this Agreement. Notwithstanding anything to the contrary contained
herein, in connection with any Third Party Claim in which the Indemnified
Party shall reasonably conclude, based upon advice of its outside legal
counsel, that (x) there is a conflict of interest between the Indemnifying
Party and the Indemnified Party in the conduct of the defense of such Third
Party Claim or (y) there are specific defenses available to the Indemnified
Party which are different from or additional to those available to the
Indemnifying Party and which could be materially adverse to the Indemnifying
Party, then the Indemnified Party shall have the right to assume and direct
the defense of such Third Party Claim. In such an event, the Indemnifying
Party shall pay the reasonable fees and disbursements of counsel of the
Indemnifying Party and one counsel to all the Indemnified Parties.
Notwithstanding the foregoing, neither the Indemnifying Party nor the
Indemnified Party may settle or compromise any claim (however, if the sole
settlement relief payable to a third party in respect of such Third Party
Claim is monetary damages that are paid in full by the Indemnifying Party and
if the settlement results in the full and unconditional release of all claims
against the Indemnified Party by the person asserting such claim, the
Indemnifying Party may settle such claim without the consent of the
Indemnified Party) over the objection of the other. In any event, except as
otherwise provided herein, the Indemnified Party and the Indemnifying Party
may each participate, at its own expense, in the defense of such Third Party
Claim in which case each party shall cooperate in providing information to and
consulting with the other about the claim. If the Indemnifying Party chooses
to defend any claim, the Indemnified Party shall make available to the
Indemnifying Party any personnel or any books, records or other documents
within its control that are reasonably necessary or appropriate for such
defense, subject to the receipt of appropriate confidentiality agreements.
(c) Settlement. If a settlement offer solely for money damages is made by
a third party claimant and provides for a full and unconditional release of
all claims against the Indemnified Party by the claimant, and the Indemnifying
Party notifies the Indemnified Party in writing of the Indemnifying Party's
willingness to accept the settlement offer and pay the amount called for by
such offer, and the Indemnified Party reasonably declines to accept such
offer, the Indemnified Party may continue to contest such claim, free of any
participation by the Indemnifying Party, and the amount of any ultimate
liability with respect to such claim that the Indemnifying Party has an
obligation to pay hereunder shall be limited to the lesser of (A) the amount
of the settlement offer that the Indemnified Party declined to accept plus the
costs and expenses of the Indemnified Party prior to the date the
Indemnifying Party notifies the Indemnified Party of the Indemnifying Party's
willingness to settle or compromise such Third Party Claim and (B) the
aggregate Losses of the Indemnified Party with respect to such claim.
(d) Miscellaneous. The procedures set forth in Section 9.4(a)-(c) above
shall apply solely with respect to Third Party Claims and shall not be deemed
to apply to, or otherwise affect or limit, an Indemnified Party's rights under
this Agreement with respect to any claim other than a Third Party Claim.
(e) Notice of Non-Third Party Claims. Any Indemnified Party seeking
indemnification for any Loss or potential Loss arising from a claim asserted
by any party to this Agreement against the Indemnifying Party (a "Non-Third
Party Claim") shall give written notice to the Indemnifying Party specifying
in detail the source of the Loss or potential Loss under Section 9.1 or 9.2,
as the case may be. Written notice to the Indemnifying Party of the existence
of a Non-Third Party Claim shall be given by the Indemnified Party promptly
after the Indemnified Party becomes aware of the potential claim; provided,
however, that the Indemnified Party shall not be foreclosed from seeking
indemnification pursuant to this Article IX by any failure to provide such
prompt notice of the existence of a Non-Third Party Claim to the Indemnifying
Party except and only to the extent that the Indemnifying Party actually
incurs an incremental out-of-pocket expense or otherwise has been materially
damaged or prejudiced as a result of such.
9.5. Survival of Indemnity. Any matter as to which a claim has been
asserted by formal notice pursuant to Sections 9.4(a) or 9.4(e) and within the
time limitation applicable by reason of Section 9.3(d) that is pending or
unresolved at the end of any applicable limitation period under this Article
IX or Applicable Law shall continue to be covered by this Article IX
notwithstanding any applicable statute of limitations (which the parties
hereby waive) or the expiration dates set forth in Section 9.3(d) until such
matter is finally terminated or otherwise resolved by the parties under this
Agreement or by a court of competent jurisdiction and any amounts payable
hereunder are finally determined and paid.
9.6. Subrogation. Any Indemnifying Party shall be subrogated to any right
of action which the Indemnified Party may have against any other Person with
respect to any matter giving rise to a claim for indemnification hereunder.
9.7. Adjustments to Indemnification Obligations.
(a) All computations of indemnity payments due under this Article IX
shall reflect the actual present cash cost of the obligation with respect to
which the indemnity payment relates. If any Indemnified Party receives a Tax
Benefit by virtue of having paid or accrued an amount for which an indemnity
payment is provided, the amount of such Tax Benefit will be refunded to the
Indemnifying Party making such indemnity payment when, as and if such
Indemnified Party realizes a cash Tax savings from such Tax Benefit. If for
any reason an Indemnified Party has any Tax imposed on it on account of its
receipt of an indemnity payment including payments pursuant to this sentence
("Additional Indemnity Taxes"), such indemnity payment shall be "grossed-up"
for the Additional Indemnity Taxes so that the net payments received by the
Indemnified Party will be equal to the amount of the indemnity payment such
Indemnified Party would have received had no such Additional Indemnity Taxes
been imposed.
(b) The amount which any Indemnifying Party is or may be required to pay
any Indemnified Party pursuant to this Article IX shall be reduced (including
without limitation, retroactively) by any insurance proceeds or other amounts
actually recovered by or on behalf of such Indemnified Party in reduction of
the related Losses, less any increase in insurance premiums incurred by the
Indemnified Party as a result of such Loss (a "Premium Increase"). If an
Indemnified Party shall have received the payment required by this Agreement
from an Indemnifying Party in respect of a Loss and shall subsequently
actually receive insurance proceeds or other amounts in respect of such Loss,
then such Indemnified Party shall pay to such Indemnifying Party a sum equal
to the amount of such insurance proceeds or other amounts actually received
(net of any expenses in obtaining the same), less any Premium Increase.
(c) No Indemnified Party shall be entitled to indemnification under this
Agreement for consequential or punitive damages with respect to Any Non-Thirty
Party Claim.
9.8. Exclusive Remedy. Except as provided in Section 11.10, the right to
indemnification, if any, with respect to breaches of representations,
warranties and covenants pursuant to this Article IX shall constitute the sole
and exclusive remedy with respect thereto, shall preclude any other monetary
award (whether at law or in equity) and shall preclude assertion by any party
hereto of any right to any such monetary award from the Indemnifying Party.
Nothing in this Article IX shall limit the remedies available to an
Indemnified Party to enforce its right to indemnification.
9.9. Duty to Mitigate. Each party shall use its reasonable best efforts
to mitigate any and all Losses suffered, incurred or sustained by such party
arising out of, attributable to or resulting from any inaccuracy in or breach
of any of the representations, warranties or covenants of the other party
hereto.
9.10. Payment. If any Indemnitee shall incur any Loss for which it is
entitled to indemnification hereunder, the Indemnifying Party shall make the
indemnification payment required under this Article X within ten (10) days
after receipt by the Indemnifying Party of written notice from the Indemnitee
stating the amount of the Loss and of the indemnification payment requested.
Any indemnification payment required under this Section 9.10 which is not made
when due shall bear interest at a floating rate equal to the Prime Rate as in
effect from time to time from the date due until paid.
ARTICLE X
CONDUCT SUBSEQUENT TO CLOSING
10.1. Further Assurances. From and after the Closing, upon the
reasonable request of any other party from time to time, each party shall
execute, acknowledge and deliver to the other parties such further instruments
and take such other actions as such other party may reasonably request in
order: (i) to carry out the intent and purposes of this Agreement and/or more
effectively reflect the consummation of the transactions contemplated hereby;
and (ii) to confirm and perfect in the Company and the Company Subsidiaries
title to any and all of their assets and properties. Without limitation of
the foregoing, from and after the Closing, upon the reasonable request of
Buyer, but without cost to Buyer, the Company and/or any Company Subsidiary,
Seller shall cause any patents, registered trademarks, registered copyrights,
Contracts and/or other rights, properties and/or assets primarily used by or
related to the Company and/or any Company Subsidiaries (other than the
Canadian Subsidiary and the French Subsidiary) and set forth, or required to
be set forth, in the Company Disclosure Schedule, but titled in and/or held in
the name of the Seller and/or its other Affiliates, to be assigned,
transferred and conveyed to the Company and/or any Company Subsidiaries as
requested by Buyer.
10.2. Noncompetition and Nondisclosure Covenant.
(a) Other than as contemplated by the Supply Agreements, Seller shall
not (i) at any time during the five (5) year period commencing on the Closing
Date (the "Noncompetition Period") engage, either directly or indirectly,
except as a holder of no more than 5% of the stock of a publicly held company
provided Seller does not actively participate in the business of such company,
in the business of developing, manufacturing, distributing or selling (A)
reaction and compounded flavor ingredients for the food processing , bakery,
beverage and pharmaceutical industries, (B) natural colors for producers of
food or pharmaceuticals, (C) specialty sweeteners, including edible molasses,
molasses blends, malt extracts, and syrups for the bakery, confectionery and
food processing industries, or (D) seasonings and seasoning blends for the
food processing industry (collectively, the "Restricted Business") or (ii) at
any time during the Noncompetition Period, induce or attempt to induce any
present employee of the Company and/or the Company Subsidiaries to leave the
employ of the Company and/or the Company Subsidiaries (other than pursuant to
general advertisements or solicitation for employment not specifically target
at such employees) or (iii) at any time during the Noncompetition Period,
contact, solicit or entice any supplier, customer, distributor or
representative of the Company and/or any Company Subsidiary as of the date
hereof for the purpose of causing any such customer, supplier, distributor or
representative not to conduct the Restricted Business with the Company and/or
any Company Subsidiary. Notwithstanding the foregoing, during the
Noncompetition Period, Seller or any of its Affiliates may acquire or be
acquired by, or merge or effect any other business combination with, any
entity, whether in the form of a merger, stock purchase, purchase and
assumption or otherwise, the principal business of which is not the Restricted
Business. For purposes of this Section 10.2(a), an entity's "principal
business" shall be deemed to be the Restricted Business if the portion of such
entity's (including for this purpose any Affiliates of such entity, if such
entity was part of an affiliated group of entities acquired at the same time)
consolidated gross revenues attributable to the Restricted Business in the
full calendar quarter last preceding the closing of such acquisition exceeded
twenty-five (25%) of such entity's (and all such Affiliates') consolidated
gross revenues during such quarter.
(b) In the event that Seller or any of its Affiliates acquires or is
acquired by, or merges or effects any other business combination with, any
entity, whether in the form of a merger, stock purchase, purchase and
assumption or otherwise, in any case in compliance with the terms of Section
10.2(a) above, Seller or its Affiliates (or any such entity or its Affiliates,
if applicable) shall be entitled to consummate such transaction and continue
to operate any lines of business in which such entity or its Subsidiaries were
engaged at the time of such transaction (including without limitation any
Restricted Business), provided that any such entity and its Subsidiaries
shall, during the Noncompetition Period, conduct the Restricted Business
otherwise permitted under this Section 10.2(b) and neither Seller nor any of
its other Affiliates (Seller and its Affiliates being defined for purposes of
this Section 10.2(b) as of the time immediately prior to the consummation of
the relevant transaction under Section 10.2(a)) shall conduct such Restricted
Business.
(c) Seller shall not, and Seller shall ensure that its Affiliates do
not, at any time during the Noncompetition Period, use or disclose any
Confidential Information, and Seller shall protect and safeguard all
Confidential Information with the same care that it uses in protecting its own
proprietary information. For purposes hereof, "Confidential Information"
shall mean all information relating to the business of the Company and the
Company Subsidiaries as of or before the Closing that is not publicly known,
including, without limitation: (i) information regarding their products; (ii)
information concerning products under development by or being tested by the
Company and the Company Subsidiaries; (iii) the Company's Intellectual
Property relating to manufacturing processes and formulations; (iv) pricing
and customer information; (v) information concerning the marketing programs
and strategies of the Company and the Company Subsidiaries; (vi) personnel
information; and (vii) other information that is not publicly known and that
confers a competitive advantage on the Company and the Company Subsidiaries or
that would confer a competitive advantage on the competitors of the Company
and the Company Subsidiaries if it were disclosed to such competitors. The
foregoing notwithstanding, this Section 10.2(c) shall not apply to any
information that: (i) becomes or has become publicly known without any
violation by Seller and/or its Affiliates of its obligations hereunder; or
(ii) Seller and/or its Affiliates, in the written opinion of Seller's counsel,
are required to disclose by Law, whether by subpoena or otherwise, provided
that Seller and/or its Affiliates provide Buyer with a reasonable opportunity
to take appropriate measures to avoid such legal requirement or to protect
such Confidential Information despite such disclosure and disclose only so
much of the Confidential Information as Seller and/or its Affiliates are
required to disclose by Law. Seller shall be liable to Buyer, the Company and
the Company Subsidiaries for any violation of this Section 10.2(c) by Seller's
Affiliates.
(d) Seller acknowledges and agrees that a breach of the provisions of
this Section 10.2 will cause irreparable injury to Buyer, the Company and the
Company Subsidiaries, and that Buyer, the Company and the Company Subsidiaries
shall be entitled to an injunction enjoining and restraining Seller from doing
or continuing to do any such act or creating any other violations or
threatened violations of any such provision.
(e) Seller agrees that the terms and conditions of this Section 10.2 are
reasonable and necessary for the protection of Buyer, the Company, the Company
Subsidiaries and their trade secret, confidential and proprietary information
and for the prevention of damage or loss thereto as a result of action taken
by Seller.
10.3. Access to Records. After the Closing, Seller shall provide to
Buyer, the Company, the Company Subsidiaries and their respective
representatives, and Buyer shall cause the Company and the Company
Subsidiaries to provide to Seller and its representatives, the opportunity,
upon reasonable request, to examine and make copies of any documents and
Records relating to the Company and the Company Subsidiaries in their or their
Affiliates' custody, and to consult with their officers, employees, directors,
accountants and other representatives for bona fide business purposes,
including, without limitation, the preparation of Tax Returns and financial
statements and/or any audit with respect thereto. For a period of five (5)
years after the Closing, Seller shall not dispose of any, and Buyer shall
cause the Company and the Company Subsidiaries not to dispose of any, Records
relating to the business of the Company and the Company Subsidiaries as
conducted prior to the Closing Date unless Seller has first given to Buyer or
Buyer has first given to Seller, as the case may be, at least thirty (30) days
prior written notice of its intention to do so and afforded Buyer or Seller,
as the case may be, the opportunity to take possession of such Records prior
to their disposition.
10.4. Benefit Plan Rollovers. After the Closing Date, if Buyer so elects,
Seller shall cooperate with Buyer in affecting either a plan to plan transfer
or rollover of account balances of employees of the Company and the Company
Subsidiaries in any benefit plans maintained by Seller or its Affiliates to
any similar plans which Buyer may maintain or establish into which such
transfer may be made under applicable Law and in accordance with the terms of
the benefit plans maintained by Seller or its Affiliates. Such transfer or
rollover shall be accomplished only to the extent requested by Buyer with
respect to any employee of the Company and/or the Company Subsidiaries who is
eligible to participate in Buyer's plans and who consents to or elects to make
any such transfer or rollover.
10.5. Transition Services. At Buyer's request, but without cost to Buyer,
Company and/or any Company Subsidiary, for a period of up to 90 days after the
Closing, Seller shall provide invoicing, account receivable management (but
not credit services) and cash management services to the Company and the
Company Subsidiaries on the same basis and in the same manner as currently
provided by Seller to the Company and the Company Subsidiaries.
10.7 Cooperation. Seller shall reasonably cooperate with Buyer, the
Company and the Company Subsidiaries to effect the transition from Seller and
its other Affiliates to Buyer and its Affiliates following the Closing of the
provision of corporate and administrative services currently provided by
Seller and its other Affiliates to the Company and the Company Subsidiaries.
10.8. Employee Benefits. For a period of two years following the Closing
Date, Buyer shall cause the Company and the Company Subsidiaries to provide to
the employees of the Company and the Company Subsidiaries compensation,
employee benefits, fringe benefits and other benefits which, in the aggregate,
are generally as favorable as those provided by Buyer to its other North
American employees generally. For purposes of benefits provided by Buyer on a
corporatewide basis to employees, including employees of the Company and the
Company Subsidiaries, Buyer shall give such employees service credit for
periods of employment with the Company and the Company Subsidiaries.
ARTICLE XI
MISCELLANEOUS
11.1. Amendments; Waiver. This Agreement may not be amended, altered or
modified except by written instrument executed by all the parties hereto. Any
agreement on the part of any party to waive (i) any inaccuracies in the
representations and warranties contained herein by any other party or in any
document, certificate or writing delivered pursuant hereto by any other party,
or (ii) compliance with any of the agreements, covenants or conditions
contained herein, shall be valid only if set forth in an instrument in writing
signed on behalf of such party. No such waiver shall constitute a waiver of,
or estoppel with respect to, any subsequent or other inaccuracy, breach or
failure to strictly comply with the provisions of this Agreement.
11.2. Entire Agreement. This Agreement (including the Company Disclosure
Schedule, the Buyer Disclosure Schedule, any other schedules, certificates,
lists and documents referred to herein, and any documents executed by the
parties simultaneously herewith or pursuant thereto) constitutes the entire
agreement of the parties hereto, except as provided herein, and supersedes all
prior agreements and understandings, written and oral, among the parties with
respect to the subject matter hereof.
11.3. Interpretation. When a reference is made in this Agreement to
Sections, Exhibits or Schedules, such reference shall be to a Section of or
Exhibit or Schedule to this Agreement unless otherwise indicated. The table
of contents and headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement. Whenever the words "include," "includes" or "including" are
used in this Agreement, they shall be deemed to be followed by the words
"without limitation." The phrases "the date of this Agreement," "the date
hereof" and terms of similar import, unless the context otherwise requires,
shall be deemed to refer to the date set forth in the first paragraph of this
Agreement. The words "herein," "hereof" and "hereunder" and other words of
similar import refer to this Agreement as a whole and not to any particular
Article, Section or other subdivision. The use of the neuter pronoun "it"
shall also refer as appropriate to the masculine and/or feminine gender, and
vice versa. The use of the singular herein shall, where appropriate, be
deemed to include the plural and vice versa. As used herein, any
representation or warranty made "to Seller's knowledge" means that the Seller
does not know such representation or warranty is untrue, and the Seller shall
be deemed to "know" facts, circumstances or information if any officer,
director or management personnel of Seller, the Company and/or any Company
Subsidiary has actual knowledge of such facts, circumstances or information.
11.4. Severability. Any term or provision of this Agreement which is
invalid or unenforceable in any jurisdiction shall, as to that jurisdiction,
be ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of
this Agreement is so broad as to be unenforceable, the provision shall be
interpreted to be only so broad as is enforceable.
11.5. Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given if (a) delivered in person, (b) transmitted
by facsimile (with written confirmation), (c) mailed by certified or
registered mail (return receipt requested) or (d) delivered by an express
courier (with written confirmation) to the parties at the following addresses
(or at such other address for a party as shall be specified by like notice):
If to Seller or the Company: Crompton & Knowles Corporation
One Station Place - Metro Center
Stamford, Connecticut 06902
Facsimile: (203) 353-5417
Attention: Charles J. Marsden
With a copy to: Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, New York 10019
Facsimile: (212) 403-2000
Attention: Edward D. Herlihy, Esq.
If to Buyer: Chr. Hansen, Inc.
9015 West Maple Street
Milwaukee, Wisconsin 53214
Facsimile: (414) 607-5704
Attention: Leif Noergaard
11.6. Governing Law. The parties hereto agree that all terms and
conditions of this Agreement and the documents delivered in connection
herewith shall be governed by, and construed and enforced in accordance with,
the laws of the State of Delaware, without giving effect to any choice of law
or conflict provision or rule (whether of the State of Delaware or any other
jurisdiction) that would cause the application of the laws of any jurisdiction
other than the State of Delaware.
11.7. Arbitration. Any controversy or claim arising under this Agreement
or the breach thereof (excluding any dispute with respect to the Closing Price
Documents which shall be resolved as provided in Section 2.2 and excluding any
dispute arising under Section 10.2) shall be submitted to and settled by
arbitration in New York, New York under the American Arbitration Association
("AAA") Commercial Arbitration Rules with expedited procedures as then in
effect, as modified by this Agreement. There shall be one arbitrator selected
by the parties within ten days of the arbitration demand or, if not, by the
AAA from its Large, Complex Case Panel who shall be an attorney with at least
15 years commercial law experience. Any issue about whether any claim is
covered by this arbitration clause shall be determined by the arbitrator. The
arbitrator shall apply substantive law and may award injunctive relief or any
other remedy available for a judge, but shall not have the power to award
punitive damages. The arbitrator shall so conduct the arbitration that a
final result, determination, finding, judgment and/or award (the "Final
Determination") is made or rendered as soon as practicable. The Final
Determination shall be final and binding on the parties and there shall be no
appeal from, or reexamination of, the Final Determination, except for fraud,
perjury, evident impartiality or misconduct by the arbitrator prejudicing the
rights of any party or to correct manifest clerical errors. The arbitrator
selected pursuant to this Section 11.7 will determine the allocation of the
costs and expenses of arbitration based upon the percentage which the portion
of the contested amount not awarded to each party bears to the amount actually
contested by such party. For example, if Buyer submits a claim for $1,000,
and the Seller contests only $500 of the amount claimed by Buyer, and if the
arbitrator ultimately resolves the dispute by awarding Buyer $300 of the $500
contested, then the costs and expenses of the arbitration shall be allocated
60% (i.e., $300 divided by $500) to Seller and 40% (i.e., $200 divided by
$500) to Buyer. If any party shall fail to pay the amount of any damages
assessed against it within ten (10) days of the delivery to such party of the
Final Determination, the unpaid amount shall bear interest from the date of
such delivery until paid at a floating rate equal to the Prime Rate plus 3%
per annum, but not exceeding the maximum rate permitted by Law in such cases,
and such party shall promptly reimburse the other party for any and all costs
or expenses of any nature or kind whatsoever (including, but not limited to,
all reasonable attorneys' fees) incurred in seeking to collect such damages or
to enforce any Final Determination.
11.8. Benefit; Assignment. This Agreement shall be binding upon and
inure to the benefit of Buyer, Seller and their respective successors and
permitted assigns. Neither Buyer nor Seller may assign its rights nor
delegate its obligations hereunder without the written consent of the other
parties hereto, except that Buyer may assign its rights and delegate its
obligations hereunder to any direct or indirect, wholly owned subsidiary of
Chr. Hansen A/S, and, from and after the Closing, Buyer may assign its rights
under Articles IX and X, hereof, to any financial institution in connection
with the extension of credit to Buyer and/or its corporate affiliates by such
financial institution, but, in the event of any such assignment, Buyer shall
not be released from any of its obligations hereunder. Except as expressly
provided otherwise in Articles IX, this Agreement shall not be deemed to
confer any rights or remedies upon any person other than the parties hereto
and their respective successors and permitted assigns. Nothing in this
Agreement shall confer any rights of employment upon any Person.
11.9. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
taken together shall constitute one and the same agreement, it being
understood that all of the parties need not sign the same counterpart.
11.10. Specific Performance. The parties hereto acknowledge that, in view
of the uniqueness of the Company's business and the transactions contemplated
by this Agreement, each party would not have an adequate remedy at law for
money damages in the event that the covenants to be performed under this
Agreement have not been performed in accordance with their terms, and
therefore agree that (notwithstanding any right to indemnification hereunder)
the other parties shall be entitled to specific enforcement of the terms of
such covenants and any other equitable remedy to which such parties may be
entitled.
11.11. Effect of Investigation. Except to the extent provided in this
Agreement, no investigation by the parties hereto made before or after the
date of this Agreement or the provisions of any documents (other than the
Company Disclosure Schedule and the Buyer Disclosure Schedule, and any
permitted supplements thereto to the extent provided in this Agreement),
whether available pursuant to this Agreement or otherwise, shall affect the
interpretation of the representations and warranties of the parties which are
contained herein.
11.12. WAIVER OF JURY TRIAL. WITHOUT LIMITATION TO SECTION 11.7, EACH OF
THE PARTIES HERETO IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN
ANY LEGAL PROCEEDING ARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE
TRANSACTIONS CONTEMPLATED HEREBY.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above written.
CROMPTON & KNOWLES CORPORATION
By: /s/Charles J. Marsden
Name:
Title:
INGREDIENT TECHNOLOGY CORPORATION
By: /s/Charles J. Marsden
Name:
Title:
CHR. HANSEN, INC.
By: /s/Leif Noergaard
Name: Leif Noergaard
Title: President
Schedule I
Adjustments to GAAP
For Purposes of Calculating Net Book Value
To the extent not otherwise required by GAAP, Net Book Value shall be computed
by making the following adjustments to the consolidated balance sheet of the
Company as of the close of business on the last Business Day of the month last
preceding the month in which the Closing Date occurs:
(I) any inter-company accounts between the Company and/or its
Subsidiaries, on the one hand, and Seller and/or its Affiliates (other than
the Company or any of its Subsidiaries), on the other hand, shall be excluded;
(II) unpaid costs and premiums, if any, due with respect to the surveys
and title insurance policies to be provided by Seller as provided in Sections
6.2(g) and (h) of the Agreement shall be accrued as liabilities;
(III) there shall be included as current assets or current liabilities, as
the case may be, amounts prepaid or appropriately accrued for periodic items
through the close of business on the last Business Day of the month last
preceding the month in which the Closing Date occurs, including, for example,
maintenance and service agreements, personal property leases, vacation and
sick pay and electric, gas, telephone and other utility charges;
(IV) there shall be included as current liabilities amounts appropriately
accrued for customer deposits or prepayments (if any) through the close of
business on the last Business Day of the month last preceding the month in
which the Closing Date occurs;
(V) no effect shall be given to the sale of the Shares to the Buyer or any
other transactions contemplated hereby (other than the disposition of the
Canadian and French Subsidiary as provided herein); and
(VI) the adjustments reflected in the consolidated balance sheet of the
Company as of October 24, 1998 (including the footnotes thereto) attached
hereto shall be applied in the same amounts (without further adjustment
thereto; except that the adjustments in columns three, four and nine (from the
left) shall be appropriately and consistently adjusted to reflect actual
balances) in the preparation of the consolidated balance sheet of the Company
as of the close of business on the last Business Day of the month last
preceding the month in which the Closing Date occurs.
EXHIBIT 4.4
Uniroyal Chemical Corporation
(f/k/a UCC Investors Holding, Inc.)
as Issuer
Uniroyal Chemical Company, Inc.
as successor to the Issuer
and
State Street Bank and Trust Company
as Trustee
First Supplemental Indenture
Dated as of December 9, 1998
$300,000,000
10 1/2% Senior Notes due 2002
First supplemental indenture, dated as of December 9, 1998
(the "First Supplement"), among Uniroyal Chemical Corporation
(f/k/a UCC Investors Holding, Inc.), a corporation organized
under the laws of the State of Delaware (the "Company"), Uniroyal
Chemical Company, Inc., a corporation organized under the laws of
the State of New Jersey ("UCCI"), and State Street Bank and Trust
Company, a Massachusetts banking corporation, as Trustee (the
"Trustee").
Whereas, the Company and the Trustee have entered into an
Indenture, dated as of February 8, 1993 (as amended, restated,
supplemented or otherwise modified from time to time, the
"Indenture"), providing for the issuance of 10 1/2% Senior Notes
due 2002 (the "Securities"), in the aggregate principal amount of
$300,000,000;
Whereas, the Company and UCCI have entered into an Agreement
and Plan of Merger, dated as of December 4, 1998 (the "Merger
Agreement"), pursuant to which the Company will merge with and
into UCCI (the "Merger");
Whereas, Section 4.01 of the Indenture permits the Company
to merge with another corporation provided certain terms and
conditions are satisfied;
Whereas, Section 8.01 of the Indenture authorizes the
Company and the Trustee to enter into a supplemental indenture
without consent of any Securityholders, to, among other things,
comply with Article IV of the Indenture as well as to make any
change that does not adversely affect the rights of any
Securityholder;
Whereas, the Company has furnished the Trustee with an
Officers' Certificate and, as to legal issues, an Opinion of
Counsel, stating that the Merger and this First Supplement comply
with Article IV of the Indenture and that all conditions
precedent in the Indenture provided for relating to the Merger
have been complied with; and
Whereas, pursuant to Section 8.06 of the Indenture, in
signing this First Supplement the Trustee shall be fully
protected in relying upon an Officers' Certificate and an Opinion
of Counsel stating that this First Settlement is authorized or
permitted by the Indenture;
Now, Therefore, each party hereto agrees as follows for the
benefit of the other parties and for the equal and ratable
benefit of the Holders of the Securities.
SECTION 1. Definitions.
(a) Capitalized terms used herein and not otherwise
defined herein shall have the meanings ascribed to such terms in
the Indenture.
(b) the following term shall have the indicated meaning
when used in this First Supplement:
"Effective Time" has the meaning ascribed to it in the
Merger Agreement.
SECTION 2. Assumption of Obligations.
(a) UCCI hereby assumes, from and after the Effective
Time, all the respective obligations of the Company under the
Securities and the Indenture.
(b) The resolutions adopted by the Board of Directors
of UCCI in connection with this First Supplement and the
assumption of obligations provided for herein are attached as
Annex A hereto.
SECTION 3. Successor.
All references to "UCC Investors Holdings, Inc." or to
"Uniroyal Chemical Corporation" contained in the Indenture
(including any exhibit, annex or attachment thereto but excluding
the signature page) and relating to any time period subsequent to
the Effective Time, are hereby amended to be references to
Uniroyal Chemical Company, Inc., and all references to the
defined term "Company" contained in Indenture (including any
exhibit, annex or attachment thereto) shall be references to
Uniroyal Chemical Company, Inc.
SECTION 4. Notification.
The third full paragraph of Section 10.10 of the
Indenture is hereby deleted in its entirety and the following new
paragraph is hereby substituted therefore:
The Company's address is:
Uniroyal Chemical Company, Inc.
Benson Road
Middlebury, Connecticut 06749
SECTION 5. Ratification: Construction.
As amended by this First Supplement, the Indenture is
in all respects ratified and confirmed, and, as so supplemented
by this First Supplement, shall be read, taken and construed as
one and the same instrument.
SECTION 6. Notices.
Any notice or communication pursuant to this First
Supplement shall be given as provided in Section 10.02 of the
Indenture.
SECTION 7. Governing Law.
This First Supplement shall be governed by and
construed in accordance with the laws of the State of New York,
without regard to the conflicts of laws rules thereof.
SECTION 8. Heading: Miscellaneous.
The headings of this First Supplement have been
inserted for convenience of reference only, are not to be
considered a part hereof and shall in no way modify or restrict
any of the terms or provisions hereof.
SECTION 9. Counterparts.
This First Supplement may be executed in one or more
counterparts, all of which shall be considered one and the same
and each of which shall be deemed an original.
SECTION 10. Effectiveness.
This First Supplement shall become a legally effective
and binding instrument upon the later of (i) execution and
delivery hereof by all parties hereto and (ii) the Effective
Time.
In Witness Whereof, the parties hereto have caused this
First Supplement to be duly executed and attested, all as of the
day and year first above written.
UNIROYAL CHEMICAL COMPANY, INC.
By: /s/John R. Jepson
Name: John Jepson
Title: Treasurer
Attest:
/s/ Barry J. Shainman
Name: Barry J. Shainman
Title: Secretary
UNIROYAL CHEMICAL COMPANY, INC.
By: /s/John R. Jepson
Name: John Jepson
Title: Treasurer
Attest:
/s/Barry J. Shainman
Name: Barry J. Shainman
Title: Secretary
STATE STREET BANK AND
TRUST COMPANY, as Trustee
By: /s/James E. Mogavero
Name: James E. Mogavero
Title: Vice President
Attest:
/s/Todd R. DiNezza
Name: Todd R. DiNezza
Title: Assistant Secretary
EXHIBIT 10.21
CROMPTON & KNOWLES CORPORATION
1993 Stock Option Plan for Non - Employee Directors
(As Amended as of 10/14/98)
1. Purpose
The purpose of this 1993 Stock Option Plan for Non - Employee Directors
(the "Plan") of Crompton & Knowles Corporation (the "Company") is to attract
and retain highly qualified non-employee directors of the Company and to
encourage non-employee directors to own shares of the Company's Common Stock,
$.10 par value ("Common Stock").
2. Participation
All directors of the Company who are not employees of the Company or any
subsidiary of the Company shall be eligible to participate in the Plan.
3. Administration
(a) Grants. Grants of stock options under the Plan shall be governed
by Section 6.
(b) Committee. A committee (the "Committee"), which shall be the
Committee on Executive Compensation of the Board or such other committee
composed of three or more directors or other persons appointed for such
purpose by the Board, shall administer the Plan. If at any time no committee
designated to administer the Plan shall be in office, the functions of the
Committee shall be exercised by the Board.
(c) Rules; Committee Action. The Committee shall have the authority
to adopt, alter and repeal such administrative rules, guidelines, and
practices governing the Plan as it shall from time to time deem advisable and
to interpret the terms and provisions of the Plan and any award issued under
the Plan (and any agreement relating thereto). The Committee may act only by
a majority of its members then in office, except that the members thereof may
authorize any one or more of their number or any officer of the Company to
execute and deliver documents on behalf of the Committee.
4. Stock Available for Options
(a) Shares Available. Subject to adjustment under subsection (b),
options may be granted under the Plan in respect of a maximum of 200,000
shares of Common Stock. Shares subject to an option that expires or
terminates unexercised shall again be available for options hereunder to the
extent of such expiration or termination. Shares issued under the Plan may
consist in whole or in part of authorized but unissued shares or treasury
shares.
(b) Adjustment. In the event of any stock dividend, extraordinary
cash dividend, creation of a class of equity securities, recapitalization,
reorganization, merger, consolidation, split-up, spin-off, combination,
exchange of shares, issuance of warrants or activation of rights to purchase
Common Stock at a price substantially below fair market value, or similar
change affecting the Common Stock, such adjustment shall be made in the
maximum number and kind of shares subject to the Plan, in the number and kind
of shares subject to outstanding options and subsequent options grants, and in
the purchase price of outstanding options as the Board shall deem to be
appropriate under the circumstances to prevent substantial dilution or
enlargement of the rights granted to participants hereunder.
5. Nonstatutory Stock Options
All options granted under the Plan shall be nonstatutory options not
intended to qualify under Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code").
6. Terms and Conditions of Options
Each option granted under the Plan shall be evidenced by a written
instrument in such form as the Committee may approve and shall be subject to
the following terms and conditions:
(a) Grant of Options. As used in the Plan, the term "Grant Date"
means the date of the first regular meeting of the Board in the forth quarter
of each calendar year. Each year on the Grant Date, the Committee may grant
an option to each eligible director to purchase up to 7,500 shares of Common
Stock."
(b) Purchase Price. The purchase price for Common Stock subject to
an option shall be 100% of the Fair Market Value of the Common Stock on the
Grant Date.
(c) Fair Market Value. As used in the Plan, the term "Fair Market
Value" means the mean, as of any given date, between the highest and lowest
reported sales prices of the Common Stock on the New York Stock Exchange
Composite Index on such date (or, if there is no reported sale on such date,
on the last preceding date on which any reported sale occurred).
(d) Expiration Date of Options. The expiration date of each option
shall be fixed by the Committee, but no option granted under the Plan shall be
exercisable more than ten years after the Grant Date.
(e) Exercisability of Options. Options shall be exercisable in whole
or in part with respect to 50% of the shares covered thereby on or after the
first anniversary of the Grant Date and as to the remaining 50% of such shares
on or after the second anniversary of the Grant Date.
(f) Termination of Service. In the event service on the Board by the
holder of any option terminates for any reason other than disability, death,
or Change in Control (as hereinafter defined), the then outstanding options of
such holder may thereafter be exercised, to the extent exercisable at the time
of such termination, for a period of one year from the date of such
termination but in no event after the stated expiration date of each option.
(g) Disability or Death; Change in Control. In the event service on
the Board by the holder of any option terminates by reason of disability,
death, or Change in Control, the then outstanding options of such holder will
become immediately exercisable, to the extent not otherwise exercisable, and
will expire one year after such termination. Such options may be exercised
during such one-year period regardless of their stated expiration dates. The
rights of the option holder may be exercised by the holder's guardian or legal
representative in the case of disability and by the beneficiary designated by
the holder in writing delivered to the Company or, if none has been
designated, the holder's estate in the case of death.
(h) Exercise and Payment. Options may be exercised only by written
notice to the Secretary of the Company accompanied by payment of the full
purchase price for the shares as to which they are exercised. The purchase
price may be paid in cash, in shares of Common Stock already owned for at
least six months by the optionee (or other person entitled to exercise the
option), or partly in cash and partly in such shares of Common Stock. The
value of shares delivered in payment of the purchase price shall be their Fair
Market Value, as determined above, as of the date of exercise. Upon receipt
of such notice and payment, the Company shall promptly issue and deliver to
the optionee (or other person entitled to exercise the option) a certificate
or certificates for the number of shares as to which the exercise is made.
(i) Change in Control. As used herein, a "Change in Control" means a
change in control of the Company of a nature that would be required to be
reported in response to Item 1(a) of the Current Report on Form 8-K, as in
effect on the effective date of the Plan, pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934 (the "Exchange Act"); provided that,
without limitation, such a "Change in Control" shall be deemed to have
occurred if:
(i) A third person, including a "group" as such term is used in
Section 13(d)(3) of the Exchange Act, other than the trustee of a Company
employee benefit plan, becomes the beneficial owner, directly or indirectly,
of 20 percent or more of the combined voting power of the Company's
outstanding voting securities ordinarily having the right to vote for the
election of directors of the Company;
(ii) During any period of 24 consecutive months individuals
who, at the beginning of such consecutive 24-month period, constitute the
Board of Directors of the Company (the "Board" generally and as of the
effective date of the Plan the "Incumbent Board") cease for any reason (other
than retirement upon reaching normal retirement age, disability, or death) to
constitute at least a majority of the Board; provided that any person becoming
a director subsequent to the effective date of the Plan whose election, or
nomination for election by the Company's shareholders, was approved by a vote
of at least three-quarters of the directors comprising the Incumbent Board
(other than an election or nomination of an 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 Company, as such
terms are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange
Act) shall be, for purposes of this Agreement, considered as though such
person were a member of the Incumbent Board; or
(iii) The Company shall cease to be a publicly owned corporation
having its outstanding stock listed on the New York Stock Exchange or quoted
in the NASDAQ National Market System.
7. Options not Transferable
Options granted under the Plan shall not be transferable by the holder
other than by will or the laws of descent and distribution or pursuant to a
qualified domestic relations order as defined by the Code or Title I of the
Employee Retirement Income Security Act ("ERISA") or the rules thereunder.
8. Limitation of Rights
Neither the Plan nor the granting of any option hereunder shall
constitute an agreement or understanding that the Company will retain a
director for any period of time or at any particular rate of compensation.
The holder of an option shall have no rights as a shareholder with respect to
shares as to which the option has not been exercised and payment made
hereunder.
9. Purchase for Investment
Unless the options and shares of Common Stock covered by the Plan have
been registered under the Securities Act of 1933, as amended, or the Company
has determined that such registration is unnecessary, each holder exercising
an option may be required by the Company to represent in writing that such
holder is acquiring the shares subject to the option for his own account for
investment and not with a view to, or for sale in connection with, the
distribution of any part thereof.
10. Compliance with Regulations
It is the intention of the Company that the Plan comply in all respects
with Rule 16b-3 promulgated under Section 16(b) of the Exchange Act and that
eligible directors remain disinterested persons for purposes of administering
other employee benefit plans of the Company and having such other plans be
exempt from Section 16(b) of the Exchange Act. Therefore, if any Plan
provision or Committee rule is later found not to be in compliance with Rule
16b-3 or if any Plan provision or Committee rule would disqualify eligible
directors from remaining disinterested persons, that provision or rule shall
be deemed null and void, and in all events the Plan shall be construed in
favor of its meeting the requirements of Rule 16b-3.
11. Effective Date of the Plan
The Plan shall be effective as of the date it is adopted by the Board.
Options granted under the Plan may not be exercised prior to the time the Plan
shall have been approved by the holders of a majority of the outstanding
Common Stock present or represented and entitled to vote at a meeting of
shareholders of the Company. If such approval of the Plan by the shareholders
is not obtained within one year of the adoption of the Plan by the Board, the
Plan and any options granted pursuant to the Plan shall be null and void.
12. Amendment of the Plan
The Board may amend, suspend, or terminate the Plan or any portion
thereof at any time, provided that no amendment affecting the amount of Common
Stock subject to options granted under the Plan, the exercise price of
options, or the timing of grants may be made more than once every six months,
other than to comport with changes in the Code, ERISA, or the rules
thereunder.
13. Governing Law
The Plan shall be governed by and interpreted in accordance with the laws
of the Commonwealth of Massachusetts.
Amended 10/18/95
Amended 05/15/96
Amended 10/16/96
Amended 10/14/98
EXHIBIT 10.291
Receivables Sale Agreement
Dated as of December 11, 1998
among
Crompton & Knowles Receivables Corporation,
as the Seller,
Crompton & Knowles Corporation,
as the Initial Collection Agent
ABN AMRO Bank N.V.,
as the Agent,
the Liquidity Providers
from time to time party hereto,
ABN AMRO Bank N.V.,
as the Enhancer,
and
Windmill Funding Corporation
Table of Contents
Page
Article I Purchases from Seller and Settlements............1
Section 1.1. Sales.....................................1
Section 1.2. Interim Liquidations......................3
Section 1.3. Selection of Discount Rates and Tranche
Periods........................................................3
Section 1.4. Fees and Other Costs and Expenses.........4
Section 1.5. Maintenance of Sold Interest; Deemed
Collection.....................................................4
Section 1.6. Reduction in Commitments..................5
Section 1.7. Repurchases...............................5
Section 1.8. Assignment of Purchase Agreements.........6
Section 1.9. Extension of Liquidity Termination Date...6
Article II Sales to and from Windmill; Allocations.........7
Section 2.1. Required Purchases from Windmill..........7
Section 2.2. Purchases by Windmill.....................8
Section 2.3. Allocations and Distributions.............9
Article III Administration and Collections................10
Section 3.1. Appointment of Collection Agent..........10
Section 3.2. Duties of Collection Agent...............11
Section 3.3. Reports..................................11
Section 3.4. Lock-Box Arrangements....................12
Section 3.5. Enforcement Rights.......................12
Section 3.6. Collection Agent Fee.....................13
Section 3.7. Responsibilities of the Seller...........13
Section 3.8. Actions by Seller........................13
Section 3.9. Indemnities by the Collection Agent......13
Article IV Representations and Warranties.................14
Section 4.1. Representations and Warranties...........14
Article V Covenants.......................................17
Section 5.1. Covenants of the Seller..................17
Article VI Indemnification................................21
Section 6.1. Indemnities by the Seller................21
Section 6.2. Increased Cost and Reduced Return........22
Section 6.3. Other Costs and Expenses.................23
Section 6.4. Withholding Taxes........................24
Section 6.5. Payments and Allocations.................24
Article VII Conditions Precedent..........................24
Section 7.1. Conditions to Closing....................24
Section 7.2. Conditions to Each Purchase..............25
Article VIII The Agent....................................26
Section 8.1. Appointment and Authorization............26
Section 8.2. Delegation of Duties.....................26
Section 8.3. Exculpatory Provisions...................26
Section 8.4. Reliance by Agent........................27
Section 8.5. Assumed Payments.........................27
Section 8.6. Notice of Termination Events.............27
Section 8.7. Non-Reliance on Agent and Other Purchasers28
Section 8.8. Agent and Affiliates.....................28
Section 8.9. Indemnification..........................28
Section 8.10. Successor Agent..........................28
Article IX Miscellaneous..................................29
Section 9.1. Termination..............................29
Section 9.2. Notices..................................29
Section 9.3. Payments and Computations................29
Section 9.4. Sharing of Recoveries....................30
Section 9.5. Right of Setoff..........................30
Section 9.6. Amendments...............................30
Section 9.7. Waivers..................................31
Section 9.8. Successors and Assigns; Participations;
Assignments...................................................31
Section 9.9. Intended Tax Characterization..........33
Section 9.10. Waiver of Confidentiality................33
Section 9.11. Confidentiality of Agreement.............33
Section 9.12. Agreement Not to Petition................33
Section 9.13. Excess Funds.............................33
Section 9.14. No Recourse..............................34
Section 9.15. Limitation of Liability..................34
Section 9.16. Headings; Counterparts...................34
Section 9.17. Cumulative Rights and Severability.......34
Section 9.18. Governing Law; Submission to Jurisdiction.34
Section 9.19. Waiver of Trial by Jury..................35
Section 9.20. Entire Agreement.........................35
Signature.....................................................36
Schedules Descriptions
Schedule I Definitions
Schedule II Liquidity Providers and Commitments of Committed
Purchasers
Exhibits Description
Exhibit A Form of Incremental Purchase Request
Exhibit B Form of Notification of Assignment from Windmill to
the Committed Purchasers
Exhibit C Form of Notification of Assignment from the
Committed Purchasers to Windmill
Exhibit D-1 Form of Periodic Report
Exhibit D-2 Form of Daily Report
Exhibit E Addresses and Names of Seller and Originator
Exhibit F Subsidiaries
Exhibit G Lock-Boxes and Lock-Box Banks
Exhibit H Form of Lock-Box Letter
Exhibit I Compliance Certificate
Exhibit J Credit and Collection Policy
Receivables Sale Agreement
Receivables Sale Agreement, dated as of December 11, 1998,
among Crompton & Knowles Receivables Corporation, a Delaware
corporation, as Seller (the "Seller"), Crompton & Knowles
Corporation, a Massachusetts corporation, as the initial
Collection Agent (the "Initial Collection Agent") ABN AMRO Bank
N.V., as agent for the Purchasers (the "Agent"), the liquidity
providers party hereto (the "Liquidity Providers"), ABN AMRO Bank
N.V., as provider of the Program LOC (the "Enhancer"), and
Windmill Funding Corporation ("Windmill"). Certain capitalized
terms used herein, and certain rules of construction, are defined
in Schedule I. The sole initial Liquidity Provider and the
Commitments of all Committed Purchasers are listed on
Schedule II.
The parties hereto agree as follows:
Article
Purchases from Seller and Settlements
Section 1.1. Sales.
(a) The Sold Interest. Subject to the terms and
conditions hereof, the Seller may, from time to time before the
Liquidity Termination Date, sell to Windmill or ratably to the
Committed Purchasers an undivided percentage ownership interest
in the Receivables and all related Collections. Any such
purchase (a "Purchase") shall be made by each relevant Purchaser
remitting funds to the Seller, through the Agent, pursuant to
Section 1.1(c) or by the Collection Agent remitting Collections
to the Seller pursuant to Section 1.1(d). The aggregate
percentage ownership interest so acquired by a Purchaser in the
Receivables and related Collections (its "Purchase Interest")
shall equal at any time the following quotient:
I + R
__________
ER
where:
I = the outstanding Investment of such Purchaser at
such time;
R = the Reserve for such Purchaser at such time; and
ER = the Eligible Receivables Balance at such time.
Except during a Liquidation Period for a Purchaser, such
Purchaser's Purchase Interest will change whenever its
Investment, its Reserve or the Eligible Receivables Balance
changes. During a Liquidation Period for a Purchaser its
Purchase Interest shall remain constant, except for
redeterminations to reflect Investment acquired from or
transferred to another Purchaser under Article II. The sum of
all Purchasers' Purchase Interests at any time is referred to
herein as the "Sold Interest", which at any time is the aggregate
percentage ownership interest then held by the Purchasers in the
Receivables and Collections.
(b) Windmill Purchase Option and Other Purchasers'
Commitments. Subject to Section 1.1(d) concerning Reinvestment
Purchases, at no time will Windmill have any obligation to make a
Purchase. Each Liquidity Provider and the Enhancer (together the
"Committed Purchasers" and each a "Committed Purchaser")
severally hereby agrees, subject to Section 7.2 and the other
terms and conditions hereof, to make Purchases before the
Liquidity Termination Date, based on its Ratable Share of each
Purchase by the Committed Purchasers, to the extent its
Investment would not thereby exceed its Commitment, the Aggregate
Investment would not thereby exceed the Purchase Limit, and the
Matured Aggregate Investment would not thereby exceed the
Aggregate Commitments. Each Purchaser's first Purchase and each
additional Purchase by such Purchaser not made from Collections
pursuant to Section 1.1(d) is referred to herein as an
"Incremental Purchase." Each Purchase made by a Purchaser with
the proceeds of Collections in which it has a Purchase Interest,
which does not increase the outstanding Investment of such
Purchaser, is referred to herein as a "Reinvestment Purchase."
(c) Incremental Purchases. In order to request an
Incremental Purchase from a Purchaser, the Seller must provide to
the Agent an irrevocable written request (including by telecopier
or other facsimile communication) substantially in the form of
Exhibit A, by 10:00 a.m. (Chicago time) three Business Days
before the requested date (the "Purchase Date") of such Purchase,
specifying whether the Purchase is requested from Windmill or
from the Committed Purchasers and which may, if Windmill is the
requested Purchaser, request that the Committed Purchasers make
such Purchase in lieu of Windmill should Windmill decline to do
so, the requested Purchase Date (which must be a Business Day)
and the requested amount (the "Purchase Amount") of such
Purchase, which must be in a minimum amount of $1,000,000 and
multiples thereof (or, if less, an amount equal to the Maximum
Incremental Purchase Amount). The Agent shall promptly notify
the contents of any such request to each Purchaser from which the
Purchase is requested. If the Purchase is requested from
Windmill and Windmill determines, in its sole discretion, to make
the requested Purchase, Windmill shall transfer to the Agent's
Account the amount of such Incremental Purchase on the requested
Purchase Date. If (i) the Incremental Purchase is requested from
the Committed Purchasers or (ii) the Incremental Purchase is
requested from Windmill and Windmill declines to make such
Incremental Purchase, then, subject to Section 7.2 and the other
terms and conditions hereof, each Committed Purchaser shall
transfer its Ratable Share of the requested Purchase Amount into
the Agent's Account by no later than 12:00 noon (Chicago time) on
the Purchase Date. The Agent shall transfer to the Seller
Account the proceeds of any Incremental Purchase delivered into
the Agent's Account. The Agent shall notify the Seller as to
which Purchaser has made the requested Purchase.
(d) Reinvestment Purchases. Unless Windmill has
provided to the Agent, the Seller, and the Collection Agent a
notice still in effect that it no longer wishes to make
Reinvestment Purchases (in which case Windmill's Reinvestment
Purchases, but not those of the Committed Purchasers, shall
cease), at any time before the Liquidity Termination Date when no
Interim Liquidation is in effect, on each day that any
Collections are received by the Collection Agent a Purchaser's
Purchase Interest in such Collections shall automatically be used
to make a Reinvestment Purchase by such Purchaser, but only to
the extent such Reinvestment Purchase would not cause the
Purchaser's Investment to increase above the amount of such
Investment at the start of the day plus any Incremental Purchases
made by the Purchaser on that day. Windmill may revoke any
notice provided under the first sentence of this Section 1.1(d)
by notifying the Agent, the Seller, and the Collection Agent that
it will make Reinvestment Purchases.
(e) Security Interest. To secure all of the Seller's
obligations under the Transaction Documents, the Seller hereby
grants to the Agent (for the benefit of the Purchasers) a
security interest in all of the Seller's rights in the
Receivables, the Collections, and the Lock- Box Accounts.
Section 1.2. Interim Liquidations. (a) Optional. The
Seller may at any time direct that Reinvestment Purchases cease
and that an Interim Liquidation commence for all Purchasers by
giving the Agent and the Collection Agent at least three Business
Days' written (including telecopy or other facsimile
communication) notice specifying the date on which the Interim
Liquidation shall commence and, if desired, when such Interim
Liquidation shall cease before the Liquidity Termination Date
(identified as a specific date or as when the Aggregate
Investment is reduced to a specified amount). If the Seller does
not so specify the date on which an Interim Liquidation shall
cease, it may cause such Interim Liquidation to cease at any time
before the Liquidity Termination Date, subject to Section 1.2(b)
below, by notifying the Agent and the Collection Agent in writing
(including by telecopy or other facsimile communication) at least
three Business Days before the date on which it desires such
Interim Liquidation to cease.
(b) Mandatory. If at any time before the Liquidity
Termination Date any condition in Section 7.2 is not fulfilled,
the Seller shall immediately notify the Agent and the Collection
Agent, whereupon Reinvestment Purchases shall cease and an
Interim Liquidation shall commence, which shall only cease upon
the Seller confirming to the Agent that the conditions in
Section 7.2 are fulfilled.
Section 1.3. Selection of Discount Rates and Tranche
Periods. (a) All Investment shall be allocated to one or more
Tranches reflecting the Discount Rates at which such Investment
accrues Discount and the Tranche Periods for which such Discount
Rates apply. In each request for an Incremental Purchase and
three Business Days before the expiration of any Tranche Period
applicable to any Purchaser's Investment, the Seller may request
the Discount Rate(s) and Tranche Period(s) to be applicable to
such Investment. All Investment (i) of Windmill shall accrue
Discount at the CP Rate and (ii) of the Committed Purchasers may
accrue Discount at either the Eurodollar Rate or the Prime Rate,
in all cases as established for each Tranche Period applicable to
such Investment. Each Tranche shall be in the minimum amount of
$1,000,000 and in multiples thereof or, in the case of Discount
accruing at the Prime Rate, in any amount of Investment that
otherwise has not been allocated to another Tranche Period. Any
Investment not allocated to a Tranche Period shall be a Prime
Tranche. During the pendency of a Termination Event, the Agent
may reallocate any outstanding Investment of the Committed
Purchasers to a Prime Tranche. All Discount accrued during a
Tranche Period shall be payable by the Seller on the last day of
such Tranche Period or, for a Eurodollar Tranche with a Tranche
Period of more than three months, 90 days after the commencement,
and on the last day, of such Tranche Period.
(b) If, by the time required in Section 1.3(a), the
Seller fails to select a Tranche Period for any Investment of
Windmill, the Agent may, in its sole discretion, select such
Tranche Period. If, by the time required in Section 1.3(a), the
Seller fails to select a Discount Rate or Tranche Period for any
Investment of the Committed Purchasers, such amount of Investment
shall automatically accrue Discount at the Prime Rate for a three
Business Day Tranche Period. Any Investment purchased from
Windmill pursuant to Section 2.1 shall have a Prime Tranche
Period of three Business Days.
(c) If the Agent or any Committed Purchaser determines
(i) that maintenance of any Eurodollar Tranche would violate any
applicable law or regulation or (ii) by reason of circumstances
affecting the interbank eurodollar market that deposits of a type
and maturity appropriate to match fund any of such Purchaser's
Eurodollar Tranches are not available, then the Agent, upon the
direction of such Purchaser, shall suspend the availability of,
and terminate any outstanding, Eurodollar Tranche so affected.
All Investment allocated to any such terminated Eurodollar
Tranche shall be reallocated to a Prime Tranche.
Section 1.4. Fees and Other Costs and Expenses. (a) The
Seller shall pay to the Agent (i) for the ratable benefit of the
Liquidity Providers, such amounts as agreed to with the Liquidity
Providers and the Agent in the Pricing Letter, and (ii) for the
account of the Enhancer and the Agent, such amounts as agreed to
with the Enhancer and the Agent in the Fee Letter.
(b) If the amount of Investment allocated to any CP or
Eurodollar Tranche is reduced before the last day of its Tranche
Period, or if a requested Incremental Purchase at the Eurodollar
Rate does not take place on its scheduled Purchase Date, the
Seller shall pay the Early Payment Fee to each Purchaser that had
its Investment so reduced or scheduled Purchase not made.
(c) Investment shall be payable solely from Collections
and from amounts payable under Sections 1.5, 1.7 and 6.1 (to the
extent amounts paid under Section 6.1 indemnify against
reductions in or nonpayment of Receivables). The Seller shall
pay, as a full recourse obligation, all other amounts payable
hereunder, including, without limitation, all Discount, fees
described in clauses (a) and (b) above and amounts payable under
Article VI.
Section 1.5. Maintenance of Sold Interest; Deemed
Collection. (a) General. If at any time before the Liquidity
Termination Date the Eligible Receivables Balance is less than
the sum of 100% plus the Reserve Percentage multiplied by the
Aggregate Investment (or, if a Termination Event exists, the
Matured Aggregate Investment), the Seller shall pay to the Agent
an amount equal to such deficiency for application to reduce the
Investments of the Purchasers ratably in accordance with the
principal amount of their respective Investments, applied first
to Prime Tranches and second to the other Tranches with the
shortest remaining maturities unless otherwise specified by the
Seller. Any amount so applied to reduce Windmill's Investment
shall be deposited in the Special Transaction Subaccount.
(b) Deemed Collections. If on any day the outstanding
balance of a Receivable is reduced or cancelled as a result of
any defective or rejected goods or services, any cash discount or
adjustment (including any adjustment resulting from the
application of any special refund or other discounts or any
reconciliation), any setoff or credit (whether such claim or
credit arises out of the same, a related, or an unrelated
transaction) or other similar reason not arising from the
financial inability of the Obligor to pay undisputed
indebtedness, the Seller shall be deemed to have received on such
day a Collection on such Receivable in the amount of such
reduction or cancellation. If on any day any representation,
warranty, covenant or other agreement of the Seller related to a
Receivable is not true or is not satisfied, the Seller shall be
deemed to have received on such day a Collection in the amount of
the outstanding balance of such Receivable. All such Collections
deemed received by the Seller under this Section 1.5(b) shall be
remitted by the Seller to the Collection Agent in accordance with
Section 5.1(i).
(c) Adjustment to Sold Interest. At any time before the
Liquidity Termination Date that the Seller is deemed to have
received any Collection under Section 1.5(b) ("Deemed
Collections") that derive from a Receivable that is otherwise
reported as an Eligible Receivable, so long as no Liquidation
Period then exists, the Seller may satisfy its obligation to
deliver such amount to the Collection Agent by instead notifying
the Agent that the Sold Interest should be recalculated by
decreasing the Eligible Receivables Balance by the amount of such
Deemed Collections, so long as such adjustment does not cause the
Sold Interest to exceed 100%.
(d) Payment Assumption. Unless an Obligor otherwise
specifies or another application is required by contract or law,
any payment received by the Seller from any Obligor shall be
applied as a Collection of Receivables of such Obligor (starting
with the oldest such Receivable) and remitted to the Collection
Agent as such.
Section 1.6. Reduction in Commitments. The Seller may,
upon thirty days' notice to the Agent, reduce the Aggregate
Commitment in increments of $1,000,000, so long as the Aggregate
Commitment at all times equals at least the outstanding Matured
Aggregate Investment. Each such reduction in the Aggregate
Commitment shall reduce the Commitment of each Committed
Purchaser in accordance with its Ratable Share and shall ratably
reduce the Purchase Limit so that the Aggregate Commitment
remains at least 102% of the Purchase Limit.
Section 1.7. Repurchases. (a) Optional. At any time
that the Aggregate Investment is less than 10% of the Aggregate
Commitment in effect on the date hereof, the Seller may, upon
thirty days' notice to the Agent, repurchase the entire Sold
Interest from the Purchasers at a price equal to the outstanding
Matured Aggregate Investment and all other amounts then owed
hereunder.
(b) Mandatory. If at any time before the Liquidity
Termination Date the Sold Interest exceeds 100%, unless the
Seller remedies the situation by satisfying its obligations under
Section 1.5(a), any Purchaser may direct that all Purchasers
ratably reassign to the Seller, without recourse, representation
or warranty, a portion of the Purchase Interest of each Purchaser
so that the Sold Interest does not exceed 100%. The Seller shall
purchase such reassigned Purchase Interests at a purchase price
equal to the Matured Value of the Investment so reassigned by
each Purchaser.
Section 1.8. Assignment of Purchase Agreements. The
Seller hereby assigns and otherwise transfers to the Agent (for
the benefit of the Agent, each Purchaser and any other Person to
whom any amount is owed hereunder), all of the Seller's right,
title and interest in, to and under each Purchase Agreement. The
Seller shall execute, file and record all financing statements,
continuation statements and other documents required to perfect
or protect such assignment. This assignment includes (a) all
monies due and to become due to the Seller from each Originator
or the Parent under or in connection with each Purchase Agreement
(including fees, expenses, costs, indemnities and damages for the
breach of any obligation or representation related to such
agreement) and (b) all rights, remedies, powers, privileges and
claims of the Seller against each Originator or the Parent under
or in connection with each Purchase Agreement. All provisions of
each Purchase Agreement shall inure to the benefit of, and may be
relied upon by, the Agent, each Purchaser and each such other
Person. At any time that a Termination Event has occurred and is
continuing, the Agent shall have the sole right to enforce the
Seller's rights and remedies under each Purchase Agreement to the
same extent as the Seller could absent this assignment, but
without any obligation on the part of the Agent, any Purchaser or
any other such Person to perform any of the obligations of the
Seller under each Purchase Agreement (or any of the promissory
notes executed thereunder). All amounts distributed to the
Seller under each Purchase Agreement from Receivables sold to the
Seller thereunder shall constitute Collections hereunder and
shall be applied in accordance herewith.
Section 1.9. Extension of Liquidity Termination Date.
The Seller may advise the Liquidity Providers and the Enhancer in
writing of its desire to extend the Liquidity Termination Date
for an additional 364 days, provided (i) such request is made not
more than 120 days prior to, and not less than 90 days prior to,
the Liquidity Termination Date, and (ii) not more than one such
request for the extension of the Liquidity Termination Date may
be made in any one calendar year and (iii) in no event shall the
Liquidity Termination Date be extended beyond December 11, 2003.
In the event that the Liquidity Providers and the Enhancer are
agreeable to such extension, the Agent shall so notify the Seller
in writing (it being understood that the Liquidity Providers and
the Enhancer may accept or decline such a request in their sole
discretion and on such terms as they may elect) not less than 45
days prior to the Liquidity Termination Date and the Seller and
the Liquidity Providers and the Enhancer shall enter into such
documents as the Liquidity Providers and the Enhancer may deem
necessary or appropriate to reflect such extension, and all
reasonable costs and expenses incurred by the Liquidity Providers
and the Enhancer in connection therewith (including reasonable
attorneys' fees) shall be paid by the Seller. The Liquidity
Providers or the Enhancer shall be deemed to have refused to
grant the requested extension in the event the Agent shall fail
to so notify the Seller of their agreement to such an extension.
Article II
Sales to and from Windmill; Allocations
Section 2.1. Required Purchases from Windmill.
(a) Windmill may, at any time, and on the earlier of the Windmill
Termination Date and 10 Business Days following the Agent and
Windmill learning of a continuing Termination Event, Windmill
shall, sell to the Committed Purchasers any percentage designated
by Windmill of Windmill's Investment and its related Windmill
Settlement (each, a "Put"). If the Put occurs due to the
Windmill Termination Date or a Termination Event, the designated
percentage shall be 100% or such lesser percentage as is
necessary to obtain the maximum available Purchase Price from
each Committed Purchaser. Immediately upon notice of a Put from
Windmill to the Agent, the Agent shall deliver to each Purchaser
a notification of assignment in substantially the form of
Exhibit B, and each Committed Purchaser shall purchase from
Windmill its Purchase Percentage of Windmill's Investment and
related Windmill Settlement by transferring to the Agent's
Account an amount equal to such Purchaser's Purchase Price by not
later than 1:00 p.m. (Chicago time) on the date such funds are
requested; provided, however, that the Enhancer may exchange for
part or all of the Purchase Price payable by it an equal amount
of the Program Unreimbursed Draw Amount.
(b) If a Liquidity Provider fails to transfer to the
Agent its full Purchase Price when required by Section 2.1(a)
(the aggregate amount not made available to the Agent by each
such Liquidity Provider being the "Unpaid Amount"), then, upon
notice from the Agent by not later than 1:15 p.m. (Chicago time),
each Liquidity Provider not owing an Unpaid Amount shall transfer
to the Agent's Account, by not later than 1:45 p.m. (Chicago
time), an amount equal to the lesser of such Liquidity Provider's
proportionate share (based on its Commitment divided by the
Commitments of all Liquidity Providers that have not so failed to
pay their full Purchase Price) of the Unpaid Amount and its
Unused Commitment. If the Agent does not then receive the Unpaid
Amount in full, upon notice from the Agent by not later than
2:00 p.m. (Chicago time) on such day, each Liquidity Provider
that has not failed to fund any part of its obligations on such
day under this Section 2.1 shall pay to the Agent, by not later
than 2:30 p.m. (Chicago time), its proportionate share
(determined as described above) of the amount of such remaining
deficiency up to the amount of its Unused Commitment. Any
Liquidity Provider that fails to make a payment under this
Section 2.1 on the date of a Put shall pay on demand to each
other Liquidity Provider that makes a payment under this
subsection (b) the amount paid by it to cover such failure,
together with interest thereon, for each day from the date such
payment was made until the date such other Liquidity Provider has
been paid such amount in full, at a rate per annum equal to the
Federal Funds Rate plus two percent (2%) per annum. In addition,
without prejudice to any other rights Windmill may have under
applicable law, any Liquidity Provider that has failed to
transfer to the Agent under Section 2.1(a) its full Purchase
Price shall pay on demand to Windmill the difference between such
unpaid Purchase Price and the amount paid by other Liquidity
Providers or the Agent to cover such failure, together with
interest thereon, for each day from the date such Purchase Price
was due until the date paid, at a rate per annum equal to the
Federal Funds Rate plus two percent (2%) per annum.
(c) Any portion of Windmill's Investment and related
Windmill Settlement purchased by a Committed Purchaser (including
any purchased under Section 2.1(b) in fulfillment of another
Liquidity Provider's obligation unless such purchase is
reimbursed in full, with interest, by such other Liquidity
Provider under Section 2.1(b)) shall be considered part of such
Purchaser's Investment and related Windmill Settlement from the
date of the relevant Put. Each such sale by Windmill to a
Committed Purchaser shall be without recourse, representation or
warranty except for the representation and warranty that such
Investment and related amounts are being sold by Windmill free
and clear of any Adverse Claim created or granted by Windmill.
Immediately upon any purchase by the Committed Purchasers of any
portion of Windmill's Investment, the Seller shall pay to the
Agent (for the ratable benefit of such Purchasers) an amount
equal to the sum of the Assigned Windmill Settlement and the
amount calculated for all such Purchasers pursuant to clause (b)
of the definition of Purchase Price.
(d) The proceeds from each Put received by Windmill
(other than amounts described in clauses (b)(ii) and (iii) of the
definition of Purchase Price), shall be transferred into the
Special Transaction Subaccount and used solely to pay that
portion of the outstanding commercial paper of Windmill issued to
fund or maintain the Investment of Windmill so transferred.
Until used to pay CP Notes, all proceeds of any Put pursuant to
this Section shall be invested in Permitted Investments. All
earnings on such Permitted Investments shall be promptly remitted
to the Seller.
(e) The obligation of each Committed Purchaser to make
any purchase from Windmill pursuant to this Section 2.1 shall be
several, not joint, and shall be absolute and unconditional;
provided, however, that no Committed Purchaser shall have any
obligation to make such a purchase at a time that (i) Windmill
shall have voluntarily commenced any proceeding or filed any
petition under any bankruptcy, insolvency or similar law seeking
the dissolution, liquidation or reorganization of Windmill or
(ii) involuntary proceedings or an involuntary petition shall
have been commenced or filed against Windmill under any
bankruptcy, insolvency or similar law seeking the dissolution,
liquidation or reorganization of Windmill and such proceeding or
petition shall not have been dismissed or stayed for a period of
thirty (30) days, or any of the actions sought in such proceeding
or petition (including the entry of an order for relief against,
or the appointment of a receiver, trustee, custodian or other
similar official for, Windmill or for any substantial part of
Windmill's property) shall occur.
Section 2.2. Purchases by Windmill. If the Seller
requests an increase in Windmill's Investment when any Committed
Purchaser has any outstanding Investment, Windmill shall
determine the amount, if any, by which it desires to increase its
Investment (the "Desired Increase") and shall so notify the
Agent. Such request may only be made at the end of a Tranche
Period. If Windmill has a Desired Increase, the Agent shall
deliver to the Committed Purchasers a notification of assignment
in substantially the form of Exhibit C and, before purchasing any
additional Investment from the Seller, Windmill shall purchase in
full the Investment of the Committed Purchasers, at a purchase
price equal to such Investment plus accrued and unpaid Discount
thereon. If the Desired Increase is less than the sum of the
total Investment of the Committed Purchasers and accrued
Discount, Windmill shall purchase a ratable portion of each
Liquidity Provider's Investment and only after all such
Investment and accrued Discount thereon is purchased may Windmill
purchase Investment of the Enhancer and Discount thereon. Any
sale from any Committed Purchaser to Windmill pursuant to this
Section 2.2 shall be without recourse, representation or warranty
except for the representation and warranty that the Investment
sold by such Purchaser is free and clear of any Adverse Claim
created or granted by such Purchaser and that such Purchaser has
not suffered a Bankruptcy Event.
Section 2.3. Allocations and Distributions.
(a) Windmill Termination and Non-Reinvestment Periods.
Before the Liquidity Termination Date unless an Interim
Liquidation is in effect, on each day during a period that
Windmill is not making Reinvestment Purchases (as established
under Section 1.1(d)) and at all times on and after the Windmill
Termination Date, the Collection Agent (i) shall set aside and
hold solely for the benefit of Windmill (or deliver to the Agent,
if so instructed pursuant to Section 3.2(a)) Windmill's Purchase
Interest in all Collections received on such day and (ii) shall
distribute on the last day of each CP Tranche Period to the Agent
(for the benefit of Windmill) the amounts so set aside up to the
amount of Windmill's Investment allocated to such Tranche Period
and, to the extent not already paid in full, all Discount thereon
and all other amounts then due from the Seller in connection with
such Investment and Tranche Period. The Sold Interest, and each
Purchaser's Purchase Interest, shall be recalculated to give
effect to any application of any portion of the Sold Interest in
Collections to pay Discount or other amounts (except Investment)
under this Section 2.3(a), and the Seller shall comply with
Section 1.5(a) after such recalculation.
(b) Liquidity Termination Date and Interim Liquidations.
On each day on and after the Liquidity Termination Date, and
during any Interim Liquidation, the Collection Agent shall set
aside and hold solely for the account of the Agent, for the
benefit of the Purchasers, (or deliver to the Agent, if so
instructed pursuant to Section 3.2(a)) the Sold Interest in all
Collections received on such day and such Collections shall be
allocated as follows:
(i) first, only so long as (A) the sum of the
Matured Value of the Windmill Investment, the Matured Value of
the Liquidity Provider Investment, and the Enhancer Investment is
less than (B) the product of the Sold Interest (or, if less,
100%) multiplied by the Eligible Receivables Balance, to the
payment of all Discount then due and not paid to the Enhancer;
(ii) second, to Windmill and to the Liquidity
Providers (ratably, based on the Matured Value of their
Investments) until all Investment of, and Discount due but not
already paid to, the Liquidity Providers and Windmill has been
paid in full;
(iii) third, to the Enhancer until all Investment
of, and Discount due but not already paid to, the Enhancer has
been paid in full;
(iv) fourth, to the Purchasers until all other
amounts owed to the Purchasers have been paid in full;
(v) fifth, to the Agent until all amounts owed to
the Agent have been paid in full;
(vi) sixth, to any other Person to whom any amounts
are owed under the Transaction Documents until all such amounts
have been paid in full; and
(vii) seventh, to the Seller (or as otherwise
required by applicable law).
Unless an Interim Liquidation has ended by such date (in which
case Reinvestment Purchases shall resume to the extent provided
in Section 1.1(d)), on the last day of each Tranche Period
(unless otherwise instructed by the Agent pursuant to
Section 3.2(a)), the Collection Agent shall deposit into the
Agent's Account, from such set aside Collections, all amounts
allocated to such Tranche Period and all Tranche Periods that
ended before such date, due in accordance with the priorities in
clauses (i)-(iii) above. No distributions shall be made to pay
amounts under clauses (iv) - (vii) until sufficient Collections
have been set aside to pay all amounts described in clauses (i) -
(iii) that may become payable for all outstanding Tranche
Periods. All distributions by the Agent shall be made ratably
within each priority level in accordance with the respective
amounts then due each Person included in such level unless
otherwise agreed by the Agent and all Purchasers. As provided in
Section 1.4(c) all Discount and other amounts payable hereunder
other than Investment are payable by the Seller. If any part of
the Sold Interest in any Collections is applied to pay any such
amounts pursuant to this Section 2.3(b), the Seller shall pay to
the Collection Agent the amount so applied for distribution as
part of the Sold Interest in Collections.
Article III
Administration and Collections
Section 3.1. Appointment of Collection Agent. (a) The
servicing, administering and collecting of the Receivables shall
be conducted by a Person (the "Collection Agent") designated to
so act on behalf of the Purchasers under this Article III. As
the Initial Collection Agent, the Parent is hereby designated as,
and agrees to perform the duties and obligations of, the
Collection Agent. The Parent acknowledges that the Agent and
each Purchaser have relied on the Parent's agreement to act as
Collection Agent (and the agreement of any of the sub-collection
agents to so act) in making the decision to execute and deliver
this Agreement and agrees that it will not voluntarily resign as
Collection Agent. At any time after the occurrence of a
Collection Agent Replacement Event, the Agent may designate a new
Collection Agent to succeed the Parent (or any successor
Collection Agent).
(b) The Parent may, and if requested by the Agent shall,
delegate its duties and obligations as Collection Agent to an
Affiliate (acting as a sub-collection agent). Notwithstanding
such delegation, the Parent shall remain primarily liable for the
performance of the duties and obligations so delegated, and the
Agent and each Purchaser shall have the right to look solely to
the Parent for such performance. The Agent may at any time after
the occurrence of a Collection Agent Replacement Event remove or
replace any sub-collection agent.
(c) If replaced, the Collection Agent agrees it will
terminate, and will cause each existing sub-collection agent to
terminate, its collection activities in a manner requested by the
Agent to facilitate the transition to a new Collection Agent.
The Collection Agent shall cooperate with and assist any new
Collection Agent (including providing access to, and
transferring, all Records and allowing the new Collection Agent
to use all licenses, hardware or software necessary or desirable
to collect the Receivables). The Parent irrevocably agrees to
act (if requested to do so) as the data-processing agent for any
new Collection Agent in substantially the same manner as the
Parent conducted such data-processing functions while it acted as
the Collection Agent; provided, however, that the Parent receives
a then market rate compensation for providing such services.
Section 3.2. Duties of Collection Agent. (a) The
Collection Agent shall take, or cause to be taken, all action
necessary or advisable to collect each Receivable in accordance
with this Agreement, the Credit and Collection Policy and all
applicable laws, rules and regulations using the skill and
attention the Collection Agent exercises in collecting other
receivables or obligations owed solely to it. The Collection
Agent shall, in accordance herewith, set aside all Collections to
which a Purchaser is entitled. If so instructed by the Agent,
the Collection Agent shall transfer to the Agent the amount of
Collections to which the Agent and the Purchasers are entitled by
the Business Day following receipt and identification thereof.
Each party hereto hereby appoints the Collection Agent to enforce
such Person's rights and interests in the Receivables, but
(notwithstanding any other provision in any Transaction Document)
the Agent shall at all times after the occurrence of a Collection
Agent Replacement Event have the sole right to direct the
Collection Agent to commence or settle any legal action to
enforce collection of any Receivable.
(b) If no Termination Event exists and the Collection
Agent determines that such action is appropriate in order to
maximize the Collections, the Collection Agent may, in accordance
with the Credit and Collection Policy, extend the maturity of any
Receivable (but no such extension shall be for a period more than
thirty (30) days) or adjust the outstanding balance of any
Receivable. Any such extension or adjustment shall not alter the
status of a Receivable as a Defaulted Receivable or Delinquent
Receivable or limit any rights of the Agent or the Purchasers
hereunder. If a Termination Event exists, the Collection Agent
may make such extensions or adjustments only with the prior
consent of the Instructing Group.
(c) The Collection Agent shall turn over to the Seller
(i) any percentage of Collections in excess of the Sold Interest,
less all reasonable third party out-of-pocket costs and expenses
of the Collection Agent for collecting the Receivables and
(ii) subject to Section 1.5(d), the collections and records for
any indebtedness owed to the Seller that is not a Receivable.
The Collection Agent shall have no obligation to remit any such
funds or records to the Seller until the Collection Agent
receives evidence (satisfactory to the Agent) that the Seller is
entitled to such items. The Collection Agent has no obligations
concerning indebtedness that is not a Receivable other than to
deliver the collections and records for such indebtedness to the
Seller when required by this Section 3.2(c).
Section 3.3. Reports. On or before the twentieth day of
each month, the Collection Agent shall deliver to the Agent a
report reflecting information as of the close of business of the
Collection Agent for the immediately preceding calendar month or
such other preceding period as is requested (each a "Periodic
Report"), containing the information described on Exhibit D1
(with such modifications or additional information as requested
by the Agent or the Instructing Group); provided, however, that
in the event the senior unsecured long-term debt of the Parent is
rated (i) less than BB- by S&P or (ii) less than Ba3 by Moody's
(or either such rating is suspended or withdrawn) then the
Collection Agent shall deliver a report containing the
information described on Exhibit D2 to the Agent on each Business
Day.
Section 3.4. Lock-Box Arrangements. The Agent is hereby
authorized to give notice at any time after the occurrence of a
Collection Agent Replacement Event to any or all Lock-Box Banks
that the Agent is exercising its rights under the Lock-Box
Letters and to take all actions permitted under the Lock-Box
Letters. The Seller agrees to take any action requested by the
Agent to facilitate the foregoing. After the Agent takes any
such action under the Lock-Box Letters, the Seller shall
immediately deliver to the Agent any Collections received by the
Seller. If the Agent takes control of any Lock-Box Account, the
Agent shall distribute Collections it receives in accordance
herewith and shall deliver to the Collection Agent, for
distribution under Section 3.2, all other amounts it receives
from such Lock-Box Account.
Section 3.5. Enforcement Rights. (a) The Agent may, at
any time after the occurrence of a Collection Agent Replacement
Event, direct the Obligors and the Lock-Box Banks to make all
payments on the Receivables directly to the Agent or its
designee. The Agent may, and the Seller shall at the Agent's
request, withhold the identity of the Purchasers from the
Obligors and Lock-Box Banks. Upon the Agent's request after the
occurrence of a Collection Agent Replacement Event, the Seller
(at the Seller's expense) shall (i) give notice to each Obligor
of the Agent's ownership of the Sold Interest and direct that
payments on Receivables be made directly to the Agent or its
designee, (ii) assemble for the Agent all Records and collateral
security for the Receivables and transfer to the Agent (or its
designee), or license to the Agent (or its designee) the use of,
all software then used by the Collection Agent to collect the
Receivables and (iii) segregate in a manner acceptable to the
Agent all Collections the Seller receives and, promptly upon
receipt, remit such Collections in the form received, duly
endorsed or with duly executed instruments of transfer, to the
Agent or its designee.
(b) After the occurrence of a Collection Agent
Replacement Event, Seller hereby irrevocably appoints the Agent
as its attorney-in-fact coupled with an interest, with full power
of substitution and with full authority in the place of the
Seller, to take any and all steps deemed desirable by the Agent,
in the name and on behalf of the Seller to (i) collect any
amounts due under any Receivable, including endorsing the name of
the Seller on checks and other instruments representing
Collections and enforcing such Receivables, and (ii) exercise any
and all of the Seller's rights and remedies under each Purchase
Agreement. The Agent's powers under this Section 3.5(b) shall
not subject the Agent to any liability if any action taken by it
(except for any action taken pursuant thereto that constitutes
gross negligence or willful misconduct) proves to be inadequate
or invalid, nor shall such powers confer any obligation
whatsoever upon the Agent.
(c) Neither the Agent nor any Purchaser shall have any
obligation to take or consent to any action to realize upon any
Receivable or to enforce any rights or remedies related thereto.
Section 3.6. Collection Agent Fee. On or before the
twentieth day of each calendar month, the Seller shall pay to the
Collection Agent a fee for the immediately preceding calendar
month as compensation for its services (the "Collection Agent
Fee") equal to (a) at all times the Parent or an Affiliate of any
Crompton & Knowles Entity is the Collection Agent, such
consideration as is acceptable to it, the receipt and sufficiency
of which is hereby acknowledged, and (b) at all times any other
Person is the Collection Agent, a reasonable amount agreed upon
by the Agent and the new Collection Agent on an arm'slength basis
reflecting rates and terms prevailing in the market at such time.
The Collection Agent may only apply to payment of the Collection
Agent Fee the portion of the Collections in excess of the Sold
Interest or Collections that fund Reinvestment Purchases. The
Agent may, with the consent of the Instructing Group, pay the
Collection Agent Fee to the Collection Agent from the Sold
Interest in Collections. The Seller shall be obligated to
reimburse any such payment to the extent required by Section 1.5
or 2.3.
Section 3.7. Responsibilities of the Seller. The Seller
shall, or shall cause each Originator to, pay when due all Taxes
payable in connection with the Receivables or their creation or
satisfaction. The Seller shall, and shall cause each Originator
to, perform all of its obligations under agreements related to
the Receivables to the same extent as if interests in the
Receivables had not been transferred hereunder or, in the case of
each Originator, under each Purchase Agreement. The Agent's or
any Purchaser's exercise of any rights hereunder shall not
relieve the Seller or any Originator from such obligations.
Neither the Agent nor any Purchaser shall have any obligation to
perform any obligation of the Seller or of any Originator or any
other obligation or liability in connection with the Receivables.
Section 3.8. Actions by Seller. The Seller shall defend
and indemnify the Agent and each Purchaser against all costs,
expenses, claims and liabilities for any action taken by the
Seller, any Originator or any other Affiliate of the Seller or of
such Originator (whether acting as Collection Agent or otherwise)
related to any Receivable (other than with respect to the credit
risk of an Obligor and for which reimbursement would constitute
recourse for uncollectible Receivables), or arising out of any
alleged failure of compliance of any Receivable with the
provisions of any law or regulation. If any goods related to a
Receivable are repossessed, the Seller agrees to resell, or to
have the applicable Originator or another Affiliate resell, such
goods in a commercially reasonable manner for the account of the
Agent and remit, or have remitted, to the Agent the Purchasers'
share in the gross sale proceeds thereof net of any out-of-pocket
expenses and any equity of redemption of the Obligor thereon.
Any such moneys collected by the Seller or the applicable
Originator or other Affiliate of the Seller pursuant to this
Section 3.8 shall be segregated and held in trust for the Agent
and remitted to the Agent's Account within two Business Days of
receipt as part of the Sold Interest in Collections for
application as provided herein.
Section 3.9. Indemnities by the Collection Agent.
Without limiting any other rights any Person may have hereunder
or under applicable law, the Collection Agent hereby indemnifies
and holds harmless the Agent and each Purchaser and their
respective officers, directors, agents and employees (each an
"Indemnified Party") from and against any and all damages,
losses, claims, liabilities, penalties, Taxes, costs and expenses
(including attorneys' fees and court costs) (all of the foregoing
collectively, the "Indemnified Losses") at any time imposed on or
incurred by any Indemnified Party arising out of or otherwise
relating to:
(i) any written representation or warranty made by
the Collection Agent (or any employee or agent of the Collection
Agent) in this Agreement, any other Transaction Document, any
Periodic Report or any other information or report delivered by
the Collection Agent pursuant hereto, which shall have been false
or incorrect in any material respect when made;
(ii) the failure by the Collection Agent to comply
with any applicable law, rule or regulation related to any
Receivable, or the nonconformity of any Receivable with any such
applicable law, rule or regulation;
(iii) any loss of a perfected security interest (or
in the priority of such security interest) as a result of any
commingling by the Collection Agent of funds to which the Agent
or any Purchaser is entitled hereunder with any other funds; or
(iv) any failure of the Collection Agent, to
perform its duties or obligations in accordance with the
provisions of this Agreement or any other Transaction Document to
which the Collection Agent is a party;
whether arising by reason of the acts to be performed by the
Collection Agent hereunder or otherwise, excluding only
Indemnified Losses to the extent (a) such Indemnified Losses
resulted solely from negligence or willful misconduct of the
Indemnified Party seeking indemnification, (b) solely due to the
credit risk of the Obligor and for which reimbursement would
constitute recourse to the Collection Agent for uncollectible
Receivables, (c) such Indemnified Losses include Taxes on, or
measured by, the overall net income of the Agent or any Purchaser
computed in accordance with the Intended Tax Characterization, or
(d) the applicable Originator is the plaintiff and the
Indemnified Party is the defendant unless such Indemnified Party
prevails in such legal action; provided, however, that nothing
contained in this sentence shall limit the liability of the
Collection Agent or limit the recourse of the Agent and each
Purchaser to the Collection Agent for any amounts otherwise
specifically provided to be paid by the Collection Agent
hereunder.
Article IV
Representations and Warranties
Section 4.1. Representations and Warranties. The Seller
represents and warrants to the Agent and each Purchaser that:
(a) Corporate Existence and Power. Each of the
Seller and each Crompton & Knowles Entity is a corporation duly
organized, validly existing and in good standing under the laws
of its state of incorporation and has all corporate power and
authority and all governmental licenses, authorizations, consents
and approvals required to carry on its business in each
jurisdiction in which its business is now conducted, except where
failure to obtain such license, authorization, consent or
approval would not have a material adverse effect on (i) its
ability to perform its obligations under, or the enforceability
of, any Transaction Document, (ii) its business or financial
condition, (iii) the interests of the Agent or any Purchaser
under any Transaction Document or (iv) the enforceability or
collectibility of any Receivable.
(b) Corporate Authorization and No Contravention.
The execution, delivery and performance by each of the Seller and
each Crompton & Knowles Entity of each Transaction Document to
which it is a party (i) are within its corporate powers,
(ii) have been duly authorized by all necessary corporate action,
(iii) do not contravene or constitute a default under (A) any
applicable law, rule or regulation, (B) its or any Subsidiary's
charter or by-laws or (C) any agreement, order or other
instrument to which it or any Subsidiary is a party or its
property is subject and (iv) will not result in any Adverse Claim
on any Receivable or Collection or give cause for the
acceleration of any indebtedness of the Seller, any Crompton &
Knowles Entity or any Subsidiary.
(c) No Consent Required. No approval,
authorization or other action by, or filings with, any
Governmental Authority or other Person is required in connection
with the execution, delivery and performance by the Seller or any
Crompton & Knowles Entity of any Transaction Document or any
transaction contemplated thereby.
(d) Binding Effect. Each Transaction Document to
which the Seller or any Crompton & Knowles Entity is a party
constitutes the legal, valid and binding obligation of such
Person enforceable against that Person in accordance with its
terms, except as limited by bankruptcy, insolvency, or other
similar laws of general application relating to or affecting the
enforcement of creditors' rights generally and subject to general
principles of equity.
(e) Perfection of Ownership Interest. Immediately
preceding its sale of Receivables to the Seller, each Originator
was the owner of, and effectively sold, such Receivables to the
Seller, free and clear of any Adverse Claim. The Seller owns the
Receivables free of any Adverse Claim other than the interests of
the Purchasers (through the Agent) therein that are created
hereby, and each Purchaser shall at all times have a valid
undivided percentage ownership interest, which shall be a first
priority perfected security interest for purposes of Article 9 of
the applicable Uniform Commercial Code, in the Receivables and
Collections (subject to, in the case of Collections, the
limitations on perfection of a security interest in proceeds set
forth in the applicable Uniform Commercial Code) to the extent of
its Purchase Interest then in effect.
(f) Accuracy of Information. All information
furnished by the Seller, any Crompton & Knowles Entity or any
Affiliate of any such Person to the Agent or any Purchaser in
connection with any Transaction Document, or any transaction
contemplated thereby, is true and accurate in all material
respects (and is not incomplete by omitting any information
necessary to prevent such information from being materially
misleading), in each case on the date the statement was made and
in light of the circumstances under which the statements were
made or the information was furnished.
(g) No Actions, Suits. There are no actions,
suits or other proceedings (including matters relating to
environmental liability) pending or threatened against or
affecting the Seller, any Crompton & Knowles Entity or any
Subsidiary, or any of their respective properties, that (i) if
adversely determined (individually or in the aggregate), may have
a material adverse effect on the financial condition of the
Seller, any Crompton & Knowles Entity or any Subsidiary or on the
collectibility of the Receivables or (ii) involve any Transaction
Document or any transaction contemplated thereby. None of the
Seller, any Crompton & Knowles Entity or any Subsidiary is in
default of any contractual obligation or in violation of any
order, rule or regulation of any Governmental Authority, which
default or violation may have a material adverse effect upon
(i) the financial condition of the Seller, the Crompton & Knowles
Entities and the Subsidiaries taken as a whole or (ii) the
collectibility of the Receivables.
(h) No Material Adverse Change. Since December 31,
1997, there has been no material adverse change in the
collectibility of the Receivables or the Seller's, any Crompton &
Knowles Entity's or any Subsidiary's (i) financial condition or
(ii) ability to perform its obligations under any Transaction
Document.
(i) Accuracy of Exhibits; Lock-Box Arrangements.
All information on Exhibits E-G (listing offices and names of the
Seller and each Originator and where they maintain Records; the
Subsidiaries; and Lock Boxes) is true and complete, subject to
any changes permitted by, and notified to the Agent in accordance
with, Article V. The Seller has delivered a copy of all Lock-Box
Agreements to the Agent. The Seller has not granted any interest
in any Lock-Box or Lock-Box Account to any Person other than the
Agent and, upon delivery to a Lock-Box Bank of the related
Lock-Box Letter, the Agent will have exclusive ownership and
control of the Lock-Box Account at such Lock-Box Bank.
(j) Sales by each Originator. Each sale by each
Originator to the Seller of an interest in Receivables and their
Collections has been made in accordance with the terms of the
applicable Purchase Agreement, including the payment by the
Seller to each Originator of the purchase price described in such
Purchase Agreement. Each such sale has been made for "reasonably
equivalent value" (as such term is used in Section 548 of the
Bankruptcy Code) and not for or on account of "antecedent debt"
(as such term is used in Section 547 of the Bankruptcy Code) owed
by such Originator to the Seller.
(k) Year 2000 Problem. Each of the Seller and each
Crompton & Knowles Entity has reviewed the areas within its
business and operations which could be adversely affected by, and
have developed or are developing a program to address on a timely
basis, the "Year 2000 Problem" (that is, the risk that computer
applications used by such Person and its Subsidiaries may be
unable to recognize and perform properly date-sensitive functions
involving certain dates prior to and any date on or after
December 31, 1999), and have made related appropriate inquiry of
material suppliers and vendors. Based on such review and
program, such Person believes that the "Year 2000 Problem" will
not have a material adverse effect on such Person.
Article V
Covenants
Section 5.1. Covenants of the Seller. The Seller hereby
covenants and agrees to comply with the following covenants and
agreements, unless the Agent (with the consent of the Instructing
Group) shall otherwise consent:
(a) Financial Reporting. The Seller will, and will
cause each Crompton & Knowles Entity and each Subsidiary to,
maintain a system of accounting established and administered in
accordance with GAAP and will furnish to the Agent and each
Purchaser:
(i) Annual Financial Statements. Within 95 days
after each fiscal year of (A) the Parent copies of the Parent's
consolidated annual audited financial statements (including a
consolidated balance sheet, consolidated statement of income and
retained earnings and statement of cash flows, with related
footnotes) certified by a "Big 5" accounting firm or other firm
of independent certified public accountants satisfactory to the
Agent and prepared on a consolidated basis in conformity with
GAAP, and (B) each of the Seller and each Originator the annual
balance sheet for such Person (and, additionally for the Seller,
an annual profit and loss statement) certified by a Designated
Financial Officer thereof, in each case prepared on a
consolidated basis in conformity with GAAP as of the close of
such fiscal year for the year then ended;
(ii) Quarterly Financial Statements. Within
50 days after each (except the last) fiscal quarter of each
fiscal year of (A) the Parent, copies of its unaudited financial
statements (including at least a consolidated balance sheet as of
the close of such quarter and statements of earnings and sources
and applications of funds for the period from the beginning of
the fiscal year to the close of such quarter) certified by a
Designated Financial Officer and prepared in a manner consistent
with the financial statements described in part (A) of clause (i)
of this Section 5.l(a) and (B) each of the Seller and each
Originator, the quarterly balance sheet for such Person (and,
additionally for the Seller, a profit and loss statement) for the
period from the beginning of such fiscal year to the close of
such quarter, in each case certified by a Designated Financial
Officer thereof and prepared in a manner consistent with part (B)
of clause (i) of Section 5.1(a);
(iii) Officer's Certificate. Each time financial
statements are furnished pursuant to clause (i) or (ii) of
Section 5.1(a), a compliance certificate (in substantially the
form of Exhibit I) signed by a Designated Financial Officer,
dated the date of such financial statements;
(iv) Public Reports. Promptly upon becoming
available, a copy of each report or proxy statement filed by the
Parent with the Securities Exchange Commission or any securities
exchange;
(v) Crompton & Knowles Credit Agreement
Certificate. When delivered to the banks party to the Crompton &
Knowles Credit Agreement, a copy of the certificates and
schedules described in Sections 5.03(b)(i) and (ii) and
5.03(c)(i) and (ii) of the Crompton & Knowles Credit Agreement;
and
(vi) Other Information. With reasonable
promptness, such other information (including non-financial
information) as may be requested by the Agent or any Purchaser
(with a copy of such request to the Agent).
(b) Notices. Immediately upon becoming aware of any of
the following the Seller will notify the Agent and provide a
description of:
(i) Potential Termination Events. The occurrence
of any Potential Termination Event;
(ii) Representations and Warranties. The failure
of any representation or warranty herein to be true (when made or
at any time thereafter) in any material respect;
(iii) Downgrading. The downgrading, withdrawal or
suspension of any rating by any rating agency of any indebtedness
of the Seller;
(iv) Litigation. The institution of any
litigation, arbitration proceeding or governmental proceeding
reasonably likely to be material to the Seller, any Subsidiary or
the collectibility or quality of the Receivables;
(v) Judgments. The entry of any judgment or decree
against the Seller, any Crompton & Knowles Entity or any
Subsidiary if the aggregate amount of all judgments then
outstanding against the Seller, the Crompton & Knowles Entities
and the Subsidiaries exceeds $1,000,000; or
(vi) Changes in Business. Any change in, or
proposed change in, the character of the Seller's or any
Originator's business that could impair the collectibility or
quality of any Receivable.
If the Agent receives such a notice, the Agent shall promptly
give notice thereof to each Purchaser and, until Windmill has no
Investment after the Windmill Termination Date, to each CP Dealer
and each Rating Agency.
(c) Conduct of Business. The Seller will perform, and
will cause each Crompton & Knowles Entity and Subsidiary to
perform, all actions necessary to remain duly incorporated,
validly existing and in good standing in its jurisdiction of
incorporation and to maintain all requisite authority to conduct
its business in each jurisdiction in which it conducts business.
(d) Compliance with Laws. The Seller will comply, and
will cause each Crompton & Knowles Entity and Subsidiary to
comply, with all laws, regulations, judgments and other
directions or orders imposed by any Governmental Authority to
which such Person or any Receivable or Collection may be subject.
(e) Furnishing Information and Inspection of Records.
The Seller will furnish to the Agent and the Purchasers such
information concerning the Receivables as the Agent or a
Purchaser may reasonably request. The Seller will, and will
cause each Originator to, permit, at any time during regular
business hours, the Agent or any Purchaser (or any
representatives thereof), once per year or at any time after the
occurrence of a Termination Event (at the expense of the Seller)
or at any other time (at the expense of the Agent or such
Purchaser (as applicable)) (i) to examine and make copies of all
Records, (ii) to visit the offices and properties of the Seller
for the purpose of examining the Records and (iii) to discuss
matters relating hereto with any of the Seller's or any
Originator's officers, directors, employees or independent public
accountants having knowledge of such matters. Once a year, the
Agent may (at the expense of the Seller provided such expenses
are reasonable in amount) have an independent public accounting
firm conduct an audit of the Records or make test verifications
of the Receivables and Collections.
(f) Keeping Records. (i) The Seller will, and will
cause each Originator to, have and maintain (A) administrative
and operating procedures (including an ability to recreate
Records if originals are destroyed), (B) adequate facilities,
personnel and equipment and (C) all Records and other information
necessary or advisable for collecting the Receivables (including
Records adequate to permit the immediate identification of each
new Receivable and all Collections of, and adjustments to, each
existing Receivable). The Seller will give the Agent prior
notice of any material change in such administrative and
operating procedures.
(ii) The Seller will, (A) at all times from and
after the date hereof, clearly and conspicuously mark its
computer and master data processing books and records with a
legend describing the Agent's and the Purchasers' interest
therein and (B) upon the request of the Agent, so mark each
contract relating to a Receivable and deliver to the Agent all
such contracts (including all multiple originals of such
contracts), with any appropriate endorsement or assignment, or
segregate (from all other receivables then owned or being
serviced by the Seller) the Receivables and all contracts
relating to each Receivable and hold in trust and safely keep
such contracts so legended in separate filing cabinets or other
suitable containers at such locations as the Agent may specify.
(g) Perfection. (i) The Seller will, and will cause
each Originator to, at its expense, promptly execute and deliver
all instruments and documents and take all action necessary or
requested by the Agent (including the execution and filing of
financing or continuation statements, amendments thereto or
assignments thereof) to enable the Agent to exercise and enforce
all its rights hereunder and to vest and maintain vested in the
Agent a valid, first priority perfected security interest in the
Receivables, the Collections, the Purchase Agreements, and
proceeds thereof free and clear of any Adverse Claim (and a
perfected ownership interest in the Receivables and Collections
to the extent of the Sold Interest). The Agent will be permitted
to sign and file any continuation statements, amendments thereto
and assignments thereof without the Seller's signature.
(ii) The Seller will, and will cause each
Originator to, only change its name, identity or corporate
structure or relocate its chief executive office or the Records
following thirty (30) days advance notice to the Agent and the
delivery to the Agent of all financing statements, instruments
and other documents (including direction letters) requested by
the Agent.
(iii) The Seller and each Originator will at all
times maintain its chief executive offices within a jurisdiction
in the USA (other than in the states of Florida, Maryland and
Tennessee) in which Article 9 of the UCC is in effect. If the
Seller or any Originator moves its chief executive office to a
location that imposes Taxes, fees or other charges to perfect the
Agent's and the Purchasers' interests hereunder or the Seller's
interests under the Purchase Agreements, the Seller will pay all
such amounts and any other costs and expenses incurred in order
to maintain the enforceability of the Transaction Documents, the
Sold Interest and the interests of the Agent and the Purchasers
in the Receivables and Collections.
(h) Performance of Duties. The Seller will perform, and
will cause each Crompton & Knowles Entity and Subsidiary and the
Collection Agent (if an Affiliate) to perform, its respective
duties or obligations in accordance with the provisions of each
of the Transaction Documents. The Seller (at its expense) will,
and will cause each Crompton & Knowles Entity to, (i) fully and
timely perform in all material respects all agreements required
to be observed by it in connection with each Receivable, (ii)
comply in all material respects with the Credit and Collection
Policy, and (iii) refrain from any action that may impair the
rights of the Agent or the Purchasers in the Receivables or
Collections.
(i) Payments on Receivables, Accounts. The Seller will,
and will cause each Originator to, at all times instruct all
Obligors to deliver payments on the Receivables to a Lock-Box
Account. If any such payments or other Collections are received
by the Seller or any Originator, it shall hold such payments in
trust for the benefit of the Agent and the Purchasers and
promptly (but in any event within two Business Days after receipt
and identification thereof) remit such funds into a Lock-Box
Account. The Seller will cause each Lock-Box Bank to comply with
the terms of each applicable Lock-Box Letter. The Seller will
not permit the funds of any Affiliate to be deposited into any
Lock-Box Account. If such funds are nevertheless deposited into
any Lock-Box Account, the Seller will promptly identify such
funds for segregation. The Seller will not, and will not permit
any Collection Agent or other Person to, commingle Collections or
other funds to which the Agent or any Purchaser is entitled with
any other funds. The Seller shall only add, and shall only
permit an Originator to add, a Lock-Box Bank, Lock-Box, or
Lock-Box Account to those listed on Exhibit G if the Agent has
received notice of such addition, a copy of any new Lock-Box
Agreement and an executed and acknowledged copy of a Lock-Box
Letter substantially in the form of Exhibit H (with such changes
as are acceptable to the Agent) from any new Lock-Box Bank. The
Seller shall only terminate a Lock-Box Bank or Lock-Box, or close
a Lock-Box Account, upon 30 days advance notice to the Agent.
(j) Sales and Adverse Claims Relating to Receivables.
Except as otherwise provided herein, the Seller will not, and
will not permit any Originator to, (by operation of law or
otherwise) dispose of or otherwise transfer, or create or suffer
to exist any Adverse Claim upon, any receivable or any proceed
thereof.
(k) Extension or Amendment of Receivables. Except as
otherwise permitted in Section 3.2(b) and then subject to
Section 1.5, the Seller will not, and will not permit each
Originator to, extend, amend, rescind or cancel any Receivable.
(l) Change in Business or Credit and Collection Policy.
The Seller will not, and will not permit any Originator to, make
any material change in the character of its business or in its
Credit and Collection Policy.
(m) Accounting for Sale. Except as provided in
Section 9.9, the Seller will not, and will not permit any
Crompton & Knowles Entity to, account for, or otherwise treat,
the transactions contemplated by the Transaction Documents other
than as a sale of Receivables or inconsistent with the Agent's
ownership interest in the Receivables and Collections.
Article VI
Indemnification
Section 6.1. Indemnities by the Seller. Without
limiting any other rights any Person may have hereunder or under
applicable law, the Seller hereby indemnifies and holds harmless,
on an after-Tax basis, the Agent and each Purchaser and their
respective officers, directors, agents and employees (each an
"Indemnified Party") from and against any and all damages,
losses, claims, liabilities, penalties, Taxes, costs and expenses
(including attorneys' fees and court costs) (all of the foregoing
collectively, the "Indemnified Losses") at any time imposed on or
incurred by any Indemnified Party arising out of or otherwise
relating to any Transaction Document, the transactions
contemplated thereby or the acquisition of any portion of the
Sold Interest, or any action taken or omitted by any of the
Indemnified Parties (including any action taken by the Agent as
attorney-in-fact for the Seller pursuant to Section 3.5(b)),
whether arising by reason of the acts to be performed by the
Seller hereunder or otherwise, excluding only Indemnified Losses
to the extent (a) a final judgment of a court of competent
jurisdiction holds such Indemnified Losses resulted solely from
gross negligence or willful misconduct of the Indemnified Party
seeking indemnification, (b) solely due to the credit risk of the
Obligor and for which reimbursement would constitute recourse to
the Seller or the Collection Agent for uncollectible Receivables
or (c) such Indemnified Losses include Taxes on, or measured by,
the overall net income of the Agent or any Purchaser computed in
accordance with the Intended Tax Characterization; provided,
however, that nothing contained in this sentence shall limit the
liability of the Seller or the Collection Agent or limit the
recourse of the Agent and each Purchaser to the Seller or the
Collection Agent for any amounts otherwise specifically provided
to be paid by the Seller or the Collection Agent hereunder.
Without limiting the foregoing indemnification, but subject to
the limitations set forth in clauses (a), (b) and (c) of the
previous sentence, the Seller shall indemnify each Indemnified
Party for Indemnified Losses (including losses in respect of
uncollectible Receivables, regardless for these specific matters
whether reimbursement therefor would constitute recourse to the
Seller or the Collection Agent) relating to or resulting from:
(i) any representation or warranty made by the
Seller, any Crompton & Knowles Entity or the Collection Agent (or
any employee or agent of the Seller, any Crompton & Knowles
Entity or the Collection Agent) under or in connection with this
Agreement, any Periodic Report or any other information or report
delivered by the Seller, any Crompton & Knowles Entity or the
Collection Agent pursuant hereto, which shall have been false or
incorrect in any material respect when made or deemed made;
(ii) the failure by the Seller, any Crompton &
Knowles Entity, or the Collection Agent to comply with any
applicable law, rule or regulation related to any Receivable, or
the nonconformity of any Receivable with any such applicable law,
rule or regulation;
(iii) the failure of the Seller to vest and
maintain vested in the Agent, for the benefit of the Purchasers,
a perfected ownership or security interest in the Sold Interest
and the property conveyed pursuant to Section 1.1(e) and
Section 1.8, free and clear of any Adverse Claim;
(iv) any commingling of funds to which the Agent or
any Purchaser is entitled hereunder with any other funds;
(v) any failure of a Lock-Box Bank to comply with
the terms of the applicable Lock-Box Letter;
(vi) any dispute, claim, offset or defense (other
than discharge in bankruptcy of the Obligor) of the Obligor to
the payment of any Receivable, or any other claim resulting from
the sale or lease of goods or the rendering of services related
to such Receivable or the furnishing or failure to furnish any
such goods or services or other similar claim or defense not
arising from the financial inability of any Obligor to pay
undisputed indebtedness;
(vii) any failure of the Seller or any Crompton &
Knowles Entity, or any Affiliate of any thereof, to perform its
duties or obligations in accordance with the provisions of this
Agreement or any other Transaction Document to which such Person
is a party (as a Collection Agent or otherwise);
(viii) any action taken by the Agent as
attorney-in-fact for the Seller pursuant to Section 3.5(b); or
(ix) any environmental liability claim, products
liability claim or personal injury or property damage suit or
other similar or related claim or action of whatever sort,
arising out of or in connection with any Receivable or any other
suit, claim or action of whatever sort relating to any of the
Transaction Documents.
Section 6.2. Increased Cost and Reduced Return. By way
of clarification, and not of limitation, of Section 6.1, if the
adoption of any applicable law, rule or regulation, or any change
therein, or any change in the interpretation or administration
thereof by any Governmental Authority charged with the
interpretation or administration thereof, or compliance by any
Windmill Funding Source, the Agent or any Purchaser
(collectively, the "Funding Parties") with any request or
directive (whether or not having the force of law) of any such
Governmental Authority (a "Regulatory Change") (a) subjects any
Funding Party to any charge or withholding on or in connection
with a Funding Agreement or this Agreement (collectively, the
"Funding Documents") or any Receivable, (b) changes the basis of
taxation of payments to any of the Funding Parties of any amounts
payable under any of the Funding Documents (except for changes in
the rate of Tax on the overall net income of such Funding Party),
(c) imposes, modifies or deems applicable any reserve,
assessment, insurance charge, special deposit or similar
requirement against assets of, deposits with or for the account
of, or any credit extended by, any of the Funding Parties,
(d) has the effect of reducing the rate of return on such Funding
Party's capital to a level below that which such Funding Party
could have achieved but for such adoption, change or compliance
(taking into consideration such Funding Party's policies
concerning capital adequacy) or (e) imposes any other condition,
and the result of any of the foregoing is (x) to impose a cost
on, or increase the cost to, any Funding Party of its commitment
under any Funding Document or of purchasing, maintaining or
funding any interest acquired under any Funding Document, (y) to
reduce the amount of any sum received or receivable by, or to
reduce the rate of return of, any Funding Party under any Funding
Document or (z) to require any payment calculated by reference to
the amount of interests held or amounts received by it hereunder,
then, upon demand by the Agent, the Seller shall pay to the Agent
for the account of the Person such additional amounts as will
compensate the Agent or such Purchaser (or, in the case of
Windmill, will enable Windmill to compensate any Windmill Funding
Source) for such increased cost or reduction. Each Funding Party
agrees that on the occurrence of any event giving rise to the
operation of this Section 6.2 with respect to such Funding Party,
it will, if requested by the Seller, use reasonable efforts
(subject to overall policy considerations of such Funding Party)
to designate another office for any credit accommodation affected
by such event, provided that such designation is made on such
terms that such Funding Party and its office suffer no economic,
legal or regulatory disadvantage, with the object of avoiding the
consequence of the event giving rise to the operation of such
Section.
Section 6.3. Other Costs and Expenses. Also by way of
clarification, and not of limitation, of Section 6.1, the Seller
shall pay to the Agent on demand all costs and expenses in
connection with (a) the preparation, execution, delivery and
administration (including amendments of any provision) of the
Transaction Documents, (b) the sale of the Sold Interest, (c) the
perfection of the Agent's rights in the Receivables and
Collections, (d) the enforcement by the Agent or the Purchasers
of the obligations of the Seller under the Transaction Documents
or of any Obligor under a Receivable and (e) the maintenance by
the Agent of the Lock-Boxes and Lock-Box Accounts, including
fees, costs and expenses of legal counsel for the Agent and
Windmill relating to any of the foregoing or to advising the
Agent, Windmill and any Windmill Funding Source about its rights
and remedies under any Transaction Document or any related
Funding Agreement and all costs and expenses (including counsel
fees and expenses) of the Agent, each Purchaser and each Windmill
Funding Source in connection with the enforcement of the
Transaction Documents or any Funding Agreement and in connection
with the administration of the Transaction Documents following a
Termination Event. The Seller shall reimburse the Agent and
Windmill for the cost of the Agent's or Windmill's auditors
(which may be employees of such Person) auditing the books,
records and procedures of the Seller. The Seller shall reimburse
Windmill for any amounts Windmill must pay to any Windmill
Funding Source pursuant to any Funding Agreement on account of
any Tax. The Seller shall reimburse Windmill on demand for all
other costs and expenses incurred by Windmill or any shareholder
of Windmill in connection with the Transaction Documents or the
transactions contemplated thereby, including the cost of auditing
Windmill's books by certified public accountants, the cost of the
Ratings and the fees and out-of-pocket expenses of counsel of the
Agent, Windmill or any shareholder, or administrator, of Windmill
for advice relating to Windmill's operation.
Section 6.4. Withholding Taxes. (a) All payments made
by the Seller hereunder shall be made without withholding for or
on account of any present or future taxes (other than overall net
income taxes on the recipient). If any such withholding is so
required, the Seller shall make the withholding, pay the amount
withheld to the appropriate authority before penalties attach
thereto or interest accrues thereon and pay such additional
amount as may be necessary to ensure that the net amount actually
received by each Purchaser and the Agent free and clear of such
taxes (including such taxes on such additional amount) is equal
to the amount that Purchaser or the Agent (as the case may be)
would have received had such withholding not been made. If the
Agent or any Purchaser pays any such taxes, penalties or interest
the Seller shall reimburse the Agent or such Purchaser for that
payment on demand. If the Seller pays any such taxes, penalties
or interest, it shall deliver official tax receipts evidencing
that payment or certified copies thereof to the Purchaser or
Agent on whose account such withholding was made (with a copy to
the Agent if not the recipient of the original) on or before the
thirtieth day after payment.
(b) Before the first date on which any amount is payable
hereunder for the account of any Purchaser not incorporated under
the laws of the USA such Purchaser shall deliver to the Seller
and the Agent each two (2) duly completed copies of United States
Internal Revenue Service Form 1001 or 4224 (or successor
applicable form) certifying that such Purchaser is entitled to
receive payments hereunder without deduction or withholding of
any United States federal income taxes. Each such Purchaser
shall replace or update such forms when necessary to maintain any
applicable exemption and as requested by the Agent or the Seller.
Section 6.5. Payments and Allocations. If any Person
seeks compensation pursuant to this Article VI, such Person shall
deliver to the Seller and the Agent a certificate setting forth
the amount due to such Person, a description of the circumstance
giving rise thereto and the basis of the calculations of such
amount, which certificate shall be conclusive absent demonstrable
error. The Seller shall pay to the Agent (for the account of
such Person) the amount shown as due on any such certificate
within 10 Business Days after receipt of the notice.
Article VII
Conditions Precedent
Section 7.1. Conditions to Closing. This Agreement
shall become effective on the first date all conditions in this
Section 7.1 are satisfied. On or before such date, the Seller
shall deliver to the Agent the following documents in form,
substance and quantity acceptable to the Agent:
(a) A certificate of the Secretary of each of the
Seller and each Crompton & Knowles Entity certifying (i) the
resolutions of the Seller's and each Crompton & Knowles Entity's
board of directors approving each Transaction Document to which
it is a party, (ii) the name, signature, and authority of each
officer who executes on the Seller's or any Crompton & Knowles
Entity's behalf a Transaction Document (on which certificate the
Agent and each Purchaser may conclusively rely until a revised
certificate is received), (iii) the Seller's and each Crompton &
Knowles Entity's certificate or articles of incorporation
certified by the Secretary of State of its state of
incorporation, (iv) a copy of the Seller's and each Crompton &
Knowles Entity's by-laws and (v) good standing certificates
issued by the Secretaries of State of each jurisdiction in which
the Seller or any Crompton & Knowles Entity is incorporated.
(b) All instruments and other documents required,
or deemed desirable by the Agent, to perfect the Agent's first
priority interest in the Receivables and Collections in all
appropriate jurisdictions.
(c) UCC search reports from all jurisdictions the
Agent requests.
(d) Executed copies of (i) all consents and
authorizations necessary in connection with the Transaction
Documents (ii) direction letters executed by the Seller and each
Originator authorizing the Agent to inspect and make copies from
the Seller's and each Originator's books and records with respect
to the Receivables maintained at any off-site data processing or
storage facilities, (iii) all Lock-Box Letters, (iv) a compliance
certificate in the form of Exhibit I covering the period ending
August 31, 1998, (v) a Periodic Report covering the month ended
August 31, 1998, and (vi) each Transaction Document.
(e) Favorable opinions of counsel to the Seller and
each Crompton & Knowles Entity (and, if requested by Windmill,
the Enhancer or any Liquidity Provider and then at the expense of
the Seller) covering such matters as Windmill or the Agent may
request.
(f) Such other approvals, opinions or documents as
the Agent or Windmill may request.
Section 7.2. Conditions to Each Purchase. The
obligation of each Committed Purchaser to make any Purchase, and
the right of the Seller to request or accept any Purchase, are
subject to the conditions (and each Purchase shall evidence the
Seller's representation and warranty that clauses (a)-(e) of this
Section 7.2 have been satisfied) that on the date of such
Purchase before and after giving effect to the Purchase:
(a) no Potential Termination Event shall then exist
or shall occur as a result of the Purchase;
(b) the Liquidity Termination Date has not
occurred;
(c) after giving effect to the application of the
proceeds of such Purchase, (x) the outstanding Matured Aggregate
Investment would not exceed the Aggregate Commitment and (y) the
outstanding Aggregate Investment would not exceed the Purchase
Limit;
(d) the representations and warranties in
Section 4.1 are true and correct in all material respects on and
as of such date (except to the extent such representations and
warranties relate solely to an earlier date and then as of such
earlier date); and
(e) each of the Seller and each Crompton & Knowles
Entity is in full compliance with the Transaction Documents
(including all covenants and agreements in Article V).
Nothing in this Section 7.2 limits the obligations (including
those in Section 2.1) of each Committed Purchaser to Windmill.
Article VIII
The Agent
Section 8.1. Appointment and Authorization. Each
Purchaser hereby irrevocably designates and appoints ABN AMRO
Bank N.V. as the "Agent" hereunder and authorizes the Agent to
take such actions and to exercise such powers as are delegated to
the Agent hereby and to exercise such other powers as are
reasonably incidental thereto. The Agent shall hold, in its
name, for the benefit of each Purchaser, the Purchase Interest of
the Purchaser. The Agent shall not have any duties other than
those expressly set forth herein or any fiduciary relationship
with any Purchaser, and no implied obligations or liabilities
shall be read into this Agreement, or otherwise exist, against
the Agent. The Agent does not assume, nor shall it be deemed to
have assumed, any obligation to, or relationship of trust or
agency with, the Seller. Notwithstanding any provision of this
Agreement or any other Transaction Document, in no event shall
the Agent ever be required to take any action which exposes the
Agent to personal liability or which is contrary to the provision
of any Transaction Document or applicable law.
Section 8.2. Delegation of Duties. The Agent may
execute any of its duties through agents or attorneys-in-fact and
shall be entitled to advice of counsel concerning all matters
pertaining to such duties. The Agent shall not be responsible
for the negligence or misconduct of any agents or
attorneys-in-fact selected by it with reasonable care.
Section 8.3. Exculpatory Provisions. Neither the Agent
nor any of its directors, officers, agents or employees shall be
liable for any action taken or omitted (i) with the consent or at
the direction of the Instructing Group or (ii) in the absence of
such Person's gross negligence or willful misconduct. The Agent
shall not be responsible to any Purchaser or other Person for
(i) any recitals, representations, warranties or other statements
made by the Seller, any Crompton & Knowles Entity or any of their
Affiliates, (ii) the value, validity, effectiveness, genuineness,
enforceability or sufficiency of any Transaction Document,
(iii) any failure of the Seller, any Crompton & Knowles Entity or
any of their Affiliates to perform any obligation or (iv) the
satisfaction of any condition specified in Article VII. The
Agent shall not have any obligation to any Purchaser to ascertain
or inquire about the observance or performance of any agreement
contained in any Transaction Document or to inspect the
properties, books or records of the Seller, any Crompton &
Knowles Entity or any of their Affiliates.
Section 8.4. Reliance by Agent. The Agent shall in all
cases be entitled to rely, and shall be fully protected in
relying, upon any document, other writing or conversation
believed by it to be genuine and correct and to have been signed,
sent or made by the proper Person and upon advice and statements
of legal counsel (including counsel to the Seller), independent
accountants and other experts selected by the Agent. The Agent
shall in all cases be fully justified in failing or refusing to
take any action under any Transaction Document unless it shall
first receive such advice or concurrence of the Purchasers, and
assurance of its indemnification, as it deems appropriate.
Section 8.5. Assumed Payments. Unless the Agent shall
have received notice from the applicable Purchaser before the
date of any Put or of any Incremental Purchase that such
Purchaser will not make available to the Agent the amount it is
scheduled to remit as part of such Put or Incremental Purchase,
the Agent may assume such Purchaser has made such amount
available to the Agent when due (an "Assumed Payment") and, in
reliance upon such assumption, the Agent may (but shall have no
obligation to) make available such amount to the appropriate
Person. If and to the extent that any Purchaser shall not have
made its Assumed Payment available to the Agent, such Purchaser
(and the Seller in the case of any Incremental Purchase) hereby
agrees to pay the Agent forthwith on demand such unpaid portion
of such Assumed Payment up to the amount of funds actually paid
by the Agent, together with interest thereon for each day from
the date of such payment by the Agent until the date the
requisite amount is repaid to the Agent, at a rate per annum
equal to the Federal Funds Rate plus 2%.
Section 8.6. Notice of Termination Events. The Agent
shall not be deemed to have knowledge or notice of the occurrence
of any Potential Termination Event unless the Agent has received
notice from any Purchaser or the Seller stating that a Potential
Termination Event has occurred hereunder and describing such
Potential Termination Event. The Agent shall take such action
concerning a Potential Termination Event as may be directed by
the Instructing Group (or, if required for such action, all of
the Purchasers), but until the Agent receives such directions,
the Agent may (but shall not be obligated to) take such action,
or refrain from taking such action, as the Agent deems advisable
and in the best interests of the Purchasers.
Section 8.7. Non-Reliance on Agent and Other Purchasers.
Each Purchaser expressly acknowledges that neither the Agent nor
any of its officers, directors, employees, agents,
attorneys-in-fact or Affiliates has made any representations or
warranties to it and that no act by the Agent hereafter taken,
including any review of the affairs of the Seller or any Crompton
& Knowles Entity, shall be deemed to constitute any
representation or warranty by the Agent. Each Purchaser
represents and warrants to the Agent that, independently and
without reliance upon the Agent or any other Purchaser and based
on such documents and information as it has deemed appropriate,
it has made and will continue to make its own appraisal of and
investigation into the business, operations, property, prospects,
financial and other conditions and creditworthiness of the
Seller, the Crompton & Knowles Entities, and the Receivables and
its own decision to enter into this Agreement and to take, or
omit, action under any Transaction Document. The Agent shall
deliver each month to any Purchaser that so requests a copy of
the Periodic Report(s) received covering the preceding calendar
month. Except for items specifically required to be delivered
hereunder, the Agent shall not have any duty or responsibility to
provide any Purchaser with any information concerning the Seller,
any Crompton & Knowles Entity or any of their Affiliates that
comes into the possession of the Agent or any of its officers,
directors, employees, agents, attorneys-in-fact or Affiliates.
Section 8.8. Agent and Affiliates. The Agent and its
Affiliates may extend credit to, accept deposits from and
generally engage in any kind of business with the Seller, any
Crompton & Knowles Entity or any of their Affiliates and, in its
roles as a Liquidity Provider and the Enhancer, ABN AMRO may
exercise or refrain from exercising its rights and powers as if
it were not the Agent. The parties acknowledge that ABN AMRO
acts as agent for Windmill and subagent for Windmill's management
company in various capacities, as well as providing credit
facilities and other support for Windmill not contained in the
Transaction Documents.
Section 8.9. Indemnification. Each Committed Purchaser
shall indemnify and hold harmless the Agent and its officers,
directors, employees, representatives and agents (to the extent
not reimbursed by the Seller or any Crompton & Knowles Entity and
without limiting the obligation of the Seller or any Crompton &
Knowles Entity to do so), ratably in accordance with its Ratable
Share from and against any and all liabilities, obligations,
losses, damages, penalties, judgments, settlements, costs,
expenses and disbursements of any kind whatsoever (including in
connection with any investigative or threatened proceeding,
whether or not the Agent or such Person shall be designated a
party thereto) that may at any time be imposed on, incurred by or
asserted against the Agent or such Person as a result of, or
related to, any of the transactions contemplated by the
Transaction Documents or the execution, delivery or performance
of the Transaction Documents or any other document furnished in
connection therewith (but excluding any such liabilities,
obligations, losses, damages, penalties, judgments, settlements,
costs, expenses or disbursements resulting solely from the gross
negligence or willful misconduct of the Agent or such Person as
finally determined by a court of competent jurisdiction).
Section 8.10. Successor Agent. The Agent may, upon at
least five (5) days notice to the Seller and each Purchaser,
resign as Agent. Such resignation shall not become effective
until a successor agent is appointed by an Instructing Group and
has accepted such appointment. Upon such acceptance of its
appointment as Agent hereunder by a successor Agent, such
successor Agent shall succeed to and become vested with all the
rights and duties of the retiring Agent, and the retiring Agent
shall be discharged from its duties and obligations under the
Transaction Documents. After any retiring Agent's resignation
hereunder, the provisions of Article VI and this Article VIII
shall inure to its benefit as to any actions taken or omitted to
be taken by it while it was the Agent.
Article IX
Miscellaneous
Section 9.1. Termination. Windmill shall cease to be a
party hereto when the Windmill Termination Date has occurred,
Windmill holds no Investment and all amounts payable to it
hereunder have been indefeasibly paid in full. This Agreement
shall terminate following the Liquidity Termination Date when no
Investment is held by a Purchaser and all other amounts payable
hereunder have been indefeasibly paid in full, but the rights and
remedies of the Agent and each Purchaser concerning any
representation, warranty or covenant made, or deemed to be made,
by the Seller and under Article VI and Section 8.9 shall survive
such termination.
Section 9.2. Notices. Unless otherwise specified, all
notices and other communications hereunder shall be in writing
(including by telecopier or other facsimile communication), given
to the appropriate Person at its address or telecopy number set
forth on the signature pages hereof or at such other address or
telecopy number as such Person may specify, and effective when
received at the address specified by such Person. Each party
hereto, however, authorizes the Agent to act on telephone notices
of Purchases, Puts, and Discount Rate and Tranche Period
selections from any person the Agent in good faith believes to be
acting on behalf of the relevant party and, at the Agent's
option, to tape record any such telephone conversation. Each
party hereto agrees to deliver promptly to the Agent a
confirmation of each telephone notice given or received by such
party (signed by an authorized officer of such party), but the
absence of such confirmation shall not affect the validity of the
telephone notice. The Agent's records of all such conversations
shall be deemed correct and, if the confirmation of a
conversation differs in any material respect from the action
taken by the Agent, the records of the Agent shall govern absent
manifest error. The number of days for any advance notice
required hereunder may be waived (orally or in writing) by the
Person receiving such notice and, in the case of notices to the
Agent, the consent of each Person to which the Agent is required
to forward such notice.
Section 9.3. Payments and Computations. Notwithstanding
anything herein to the contrary, any amounts to be paid or
transferred by the Seller or the Collection Agent to, or for the
benefit of, any Purchaser or any other Person shall be paid or
transferred to the Agent (for the benefit of such Purchaser or
other Person). The Agent shall promptly (and, if reasonably
practicable, on the day it receives such amounts) forward each
such amount to the Person entitled thereto and such Person shall
apply the amount in accordance herewith. All amounts to be paid
or deposited hereunder shall be paid or transferred on the day
when due in immediately available Dollars (and, if due from the
Seller or Collection Agent, by 11:00 a.m. (Chicago time), with
amounts received after such time being deemed paid on the
Business Day following such receipt). The Seller hereby
authorizes the Agent to debit the Seller Account for application
to any amounts owed by the Seller hereunder. The Seller shall,
to the extent permitted by law, pay to the Agent upon demand, for
the account of the applicable Person, interest on all amounts not
paid or transferred by the Seller or the Collection Agent when
due hereunder at a rate equal to the Prime Rate plus 2%,
calculated from the date any such amount became due until the
date paid in full. Any payment or other transfer of funds
scheduled to be made on a day that is not a Business Day shall be
made on the next Business Day, and any Discount Rate or interest
rate accruing on such amount to be paid or transferred shall
continue to accrue to such next Business Day. All computations
of interest, fees, and Discount shall be calculated for the
actual days elapsed based on a 360 day year.
Section 9.4. Sharing of Recoveries. Each Purchaser
agrees that if it receives any recovery, through set-off,
judicial action or otherwise, on any amount payable or
recoverable hereunder in a greater proportion than should have
been received hereunder or otherwise inconsistent with the
provisions hereof, then the recipient of such recovery shall
purchase for cash an interest in amounts owing to the other
Purchasers (as return of Investment or otherwise), without
representation or warranty except for the representation and
warranty that such interest is being sold by each such other
Purchaser free and clear of any Adverse Claim created or granted
by such other Purchaser, in the amount necessary to create
proportional participation by the Purchasers in such recovery (as
if such recovery were distributed pursuant to Section 2.3). If
all or any portion of such amount is thereafter recovered from
the recipient, such purchase shall be rescinded and the purchase
price restored to the extent of such recovery, but without
interest.
Section 9.5. Right of Setoff. During a Termination
Event, each Purchaser is hereby authorized (in addition to any
other rights it may have) to setoff, appropriate and apply
(without presentment, demand, protest or other notice which are
hereby expressly waived) any deposits and any other indebtedness
held or owing by such Purchaser (including by any branches or
agencies of such Purchaser) to, or for the account of, the Seller
against amounts owing by the Seller hereunder (even if contingent
or unmatured).
Section 9.6. Amendments. Except as otherwise expressly
provided herein, no amendment or waiver hereof shall be effective
unless signed by the Seller and the Instructing Group. In
addition, no amendment hereof shall, without the consent of
(a) all the Liquidity Providers, (i) extend the Liquidity
Termination Date or the date of any payment or transfer of
Collections by the Seller to the Collection Agent or by the
Collection Agent to the Agent, (ii) reduce the rate or extend the
time of payment of Discount for any Eurodollar Tranche or Prime
Tranche, (iii) reduce or extend the time of payment of any fee
payable to the Liquidity Providers, (iv) except as provided
herein, release, transfer or modify any Committed Purchaser's
Purchase Interest or change any Commitment, (v) amend the
definition of Required Liquidity Providers, Instructing Group,
Termination Event or Section 1.1, 1.2, 1.5, 1.7(a), 2.1, 2.2,
2.3, 7.2 or 9.6, Article VI, or any obligation of any Crompton &
Knowles Entity thereunder, (vi) consent to the assignment or
transfer by the Seller or any Originator of any interest in the
Receivables other than transfers under the Transaction Documents
or permit any Crompton & Knowles Entity to transfer any of its
obligations under any Transaction Document except as expressly
contemplated by the terms of the Transaction Documents, or
(vii) amend any defined term relevant to the restrictions in
clauses (i) through (vi) in a manner which would circumvent the
intention of such restrictions or (b) the Agent, amend any
provision hereof if the effect thereof is to affect the
indemnities to, or the rights or duties of, the Agent or to
reduce any fee payable for the Agent's own account.
Notwithstanding the foregoing, the amount of any fee or other
payment due and payable from the Seller to the Agent (for its own
account), Windmill or the Enhancer may be changed or otherwise
adjusted solely with the consent of the Seller and the party to
which such payment is payable. Any amendment hereof shall apply
to each Purchaser equally and shall be binding upon the Seller,
the Purchasers and the Agent.
Section 9.7. Waivers. No failure or delay of the Agent
or any Purchaser in exercising any power, right, privilege or
remedy hereunder shall operate as a waiver thereof, nor shall any
single or partial exercise of any such power, right, privilege or
remedy preclude any other or further exercise thereof or the
exercise of any other power, right, privilege or remedy. Any
waiver hereof shall be effective only in the specific instance
and for the specific purpose for which such waiver was given.
After any waiver, the Seller, the Purchasers and the Agent shall
be restored to their former position and rights and any Potential
Termination Event waived shall be deemed to be cured and not
continuing, but no such waiver shall extend to (or impair any
right consequent upon) any subsequent or other Potential
Termination Event. Any additional Discount that has accrued
after a Termination Event before the execution of a waiver
thereof, solely as a result of the occurrence of such Termination
Event, may be waived by the Agent at the direction of the
Purchaser entitled thereto or, in the case of Discount owing to
the Liquidity Providers, of the Required Liquidity Providers.
Section 9.8. Successors and Assigns; Participations;
Assignments.
(a) Successors and Assigns. This Agreement shall be
binding upon and inure to the benefit of the parties hereto and
their respective successors and assigns. Except as otherwise
provided herein, the Seller may not assign or transfer any of its
rights or delegate any of its duties without the prior consent of
the Agent and the Purchasers.
(b) Participations. Any Purchaser may sell to one or
more Persons (each a "Participant") participating interests in
the interests of such Purchaser hereunder. Such Purchaser shall
remain solely responsible for performing its obligations
hereunder, and the Seller and the Agent shall continue to deal
solely and directly with such Purchaser in connection with such
Purchaser's rights and obligations hereunder. Each Participant
shall be entitled to the benefits of Article VI and shall have
the right of setoff through its participation in amounts owing
hereunder to the same extent as if it were a Purchaser hereunder,
which right of setoff is subject to such Participant's obligation
to share with the Purchasers as provided in Section 9.4. A
Purchaser shall not agree with a Participant to restrict such
Purchaser's right to agree to any amendment hereto, except
amendments described in clause (a) of Section 9.6.
(c) Assignments by Liquidity Providers. Any Liquidity
Provider may assign to one or more Persons ("Purchasing Liquidity
Providers"), acceptable to the Agent in its sole discretion, any
portion of its Commitment as a Liquidity Provider and Purchase
Interest pursuant to a supplement hereto (a "Transfer
Supplement") in form satisfactory to the Agent executed by each
such Purchasing Liquidity Provider, such selling Liquidity
Provider and the Agent. Any such assignment by a Liquidity
Provider must be for an amount of at least Five Million Dollars.
Each Purchasing Liquidity Provider shall pay a fee of Three
Thousand Dollars to the Agent. Any partial assignment shall be
an assignment of an identical percentage of such selling
Liquidity Provider's Investment and its Commitment as a Liquidity
Provider. Upon the execution and delivery to the Agent of the
Transfer Supplement and payment by the Purchasing Liquidity
Provider to the selling Liquidity Provider of the agreed purchase
price, such selling Liquidity Provider shall be released from its
obligations hereunder to the extent of such assignment and such
Purchasing Liquidity Provider shall for all purposes be a
Liquidity Provider party hereto and shall have all the rights and
obligations of a Liquidity Provider hereunder to the same extent
as if it were an original party hereto with a Commitment as a
Liquidity Provider, an Investment and any related Assigned
Windmill Settlement described in the Transfer Supplement.
(d) Replaceable Liquidity Providers. If any Liquidity
Provider (a "Replaceable Liquidity Provider") shall (i) petition
the Seller for any amounts under Section 6.2 or (ii) cease to
have a short-term debt rating of "A-1+" by S&P and "P-1" by
Moody's, the Seller or Windmill may designate a replacement
financial institution (a "Replacement Liquidity Provider")
acceptable to the Agent, in its sole discretion, to which such
Replaceable Liquidity Provider shall, subject to its receipt of
an amount equal to its Investment, any related Assigned Windmill
Settlement, and accrued Discount and fees thereon and all amounts
payable under Section 6.2, promptly assign all of its rights,
obligations and Liquidity Provider Commitment hereunder, together
with all of its Purchase Interest, and any related Assigned
Windmill Settlement, to the Replacement Liquidity Provider in
accordance with Section 9.8(c).
(e) Assignment by Windmill. Each party hereto agrees
and consents (i) to Windmill's assignment, participation, grant
of security interests in or other transfers of any portion of, or
any of its beneficial interest in, the Windmill Purchase Interest
and the Windmill Settlement and (ii) to the complete assignment
by Windmill of all of its rights and obligations hereunder to ABN
AMRO or any other Person, and upon such assignment Windmill shall
be released from all obligations and duties hereunder; provided,
however, that Windmill may not, without the prior consent of the
Required Liquidity Providers and the Enhancer, transfer any of
its rights under Section 2.1 to cause the Liquidity Providers or
the Enhancer to purchase the Windmill Purchase Interest and the
Windmill Settlement unless the assignee (i) is a corporation
whose principal business is the purchase of assets similar to the
Receivables, (ii) has ABN AMRO as its administrative agent and
(iii) issues commercial paper with credit ratings substantially
comparable to the Ratings. Windmill shall promptly notify each
party hereto of any such assignment. Upon such an assignment of
any portion of Windmill's Purchase Interest and the Windmill
Settlement, the assignee shall have all of the rights of Windmill
hereunder relate to such Windmill Purchase Interest and Windmill
Settlement.
(f) Opinions of Counsel. If required by the Agent or to
maintain the Ratings, each Transfer Supplement must be
accompanied by an opinion of counsel of the assignee as to such
matters as the Agent may reasonably request.
Section 9.9. Intended Tax Characterization. It is the
intention of the parties hereto that, for the purposes of all
Taxes, the transactions contemplated hereby shall be treated as a
loan by the Purchasers (through the Agent) to the Seller that is
secured by the Receivables (the "Intended Tax Characterization").
The parties hereto agree to report and otherwise to act for the
purposes of all Taxes in a manner consistent with the Intended
Tax Characterization. As provided in Section 5.1(g), the Seller
hereby grants to the Agent, for the ratable benefit of the
Purchasers, a security interest in all Receivables and
Collections to secure the payment of all amounts other than
Investment owing hereunder and (to the extent of the Sold
Interest) to secure the repayment of all Investment.
Section 9.10. Waiver of Confidentiality. The Seller
hereby consents to the disclosure of any nonpublic information
relating to the Seller, any Affiliate, or the Transaction
Documents among the Agent and the Purchasers and by the Agent or
the Purchasers to (i) any officers, directors, members, managers,
employees or outside accountants, auditors or attorneys thereof,
(ii) any prospective or actual assignee or participant, (iii) any
rating agency, surety, guarantor or credit or liquidity enhancer
to the Agent or any Purchaser, (iv) any entity organized to
purchase, or make loans secured by, financial assets for which
ABN AMRO provides managerial services or acts as an
administrative agent, (v) Windmill's administrator, management
company, referral agents, issuing agents or depositaries or CP
Dealers and (vi) Governmental Authorities with appropriate
jurisdiction.
Section 9.11. Confidentiality of Agreement. Unless
otherwise consented to by the Agent, the Seller hereby will not
disclose the contents of any Transaction Document, or any other
confidential or proprietary information furnished by the Agent or
any Purchaser, to any Person other than to (i) its auditors and
attorneys, Affiliates, officers, directors, members, managers,
employees, outside accountants or as required by applicable law
or (ii) Governmental Authorities with appropriate jurisdiction.
Section 9.12. Agreement Not to Petition. Each party
hereto agrees, for the benefit of the holders of the privately or
publicly placed indebtedness for borrowed money for Windmill,
not, prior to the date which is one (1) year and one (1) day
after the payment in full of all such indebtedness, to acquiesce,
petition or otherwise, directly or indirectly, invoke, or cause
Windmill to invoke, the process of any Governmental Authority for
the purpose of (a) commencing or sustaining a case against
Windmill under any federal or state bankruptcy, insolvency or
similar law (including the Federal Bankruptcy Code), (b)
appointing a receiver, liquidator, assignee, trustee, custodian,
sequestrator or other similar official for Windmill, or any
substantial part of its property, or (c) ordering the winding up
or liquidation of the affairs of Windmill.
Section 9.13. Excess Funds. Other than amounts payable
under Section 9.4, Windmill shall be required to make payment of
the amounts required to be paid pursuant hereto only if Windmill
has Excess Funds (as defined below). If Windmill does not have
Excess Funds, the excess of the amount due hereunder (other than
pursuant to Section 9.4) over the amount paid shall not
constitute a "claim" (as defined in Section 101(5) of the Federal
Bankruptcy Code) against Windmill until such time as Windmill has
Excess Funds. If Windmill does not have sufficient Excess Funds
to make any payment due hereunder (other than pursuant to
Section 9.4), then Windmill may pay a lesser amount and make
additional payments that in the aggregate equal the amount of
deficiency as soon as possible thereafter. The term "Excess
Funds" means the excess of (a) the aggregate projected value of
Windmill's assets and other property (including cash and cash
equivalents), over (b) the sum of (i) the sum of all scheduled
payments of principal, interest and other amounts payable on
publicly or privately placed indebtedness of Windmill for
borrowed money, plus (ii) the sum of all other liabilities,
indebtedness and other obligations of Windmill for borrowed money
or owed to any credit or liquidity provider, together with all
unpaid interest then accrued thereon, plus (iii) all taxes
payable by Windmill to the Internal Revenue Service, plus (iv)
all other indebtedness, liabilities and obligations of Windmill
then due and payable, but the amount of any liability,
indebtedness or obligation of Windmill shall not exceed the
projected value of the assets to which recourse for such
liability, indebtedness or obligation is limited. Excess Funds
shall be calculated once each Business Day.
Section 9.14. No Recourse. The obligations of Windmill,
its management company, its administrator and its referral agents
(each a "Program Administrator") under any Transaction Document
or other document (each, a "Program Document") to which a Program
Administrator is a party are solely the corporate obligations of
such Program Administrator and no recourse shall be had for such
obligations against any Affiliate, director, officer, member,
manager, employee, attorney or agent of any Program
Administrator.
Section 9.15. Limitation of Liability. No Person shall
make a claim against the Agent or any Purchaser (or their
respective Affiliates, directors, officers, members, managers,
employees, attorneys or agents) for any special, indirect,
consequential or punitive damages under any claim for breach of
contract or other theory of liability in connection with the
Transaction Documents or the transactions contemplated thereby,
and the Seller (for itself, the Collection Agent and all other
Persons claiming by or through the Seller) hereby waives any
claim for any such damages.
Section 9.16. Headings; Counterparts. Article and
Section Headings in this Agreement are for reference only and
shall not affect the construction of this Agreement. This
Agreement may be executed by different parties on any number of
counterparts, each of which shall constitute an original and all
of which, taken together, shall constitute one and the same
agreement.
Section 9.17. Cumulative Rights and Severability. All
rights and remedies of the Purchasers and Agent hereunder shall
be cumulative and non-exclusive of any rights or remedies such
Persons have under law or otherwise. Any provision hereof that
is prohibited or unenforceable in any jurisdiction shall, in such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions
hereof and without affecting such provision in any other
jurisdiction.
Section 9.18. Governing Law; Submission to Jurisdiction.
This Agreement shall be governed by, and construed in accordance
with, the internal laws (and not the law of conflicts) of the
State of New York. The Seller hereby submits to the nonexclusive
jurisdiction of the United States District Court for the Southern
District of New York and of any New York state court sitting in
New York, New York for purposes of all legal proceedings arising
out of, or relating to, the Transaction Documents or the
transactions contemplated thereby. The Seller hereby irrevocably
waives, to the fullest extent permitted by law, any objection it
may now or hereafter have to the venue of any such proceeding and
any claim that any such proceeding has been brought in an
inconvenient forum. Nothing in this Section 9.18 shall affect
the right of the Agent or any Purchaser to bring any action or
proceeding against the Seller or its property in the courts of
other jurisdictions.
Section 9.19. Waiver of Trial by Jury. To the extent
permitted by applicable law, each party hereto irrevocably waives
all right of trial by jury in any action, proceeding or
counterclaim arising out of, or in connection with, any
transaction document or any matter arising thereunder.
Section 9.20. Entire Agreement. The Transaction
Documents constitute the entire understanding of the parties
thereto concerning the subject matter thereof. Any previous or
contemporaneous agreements, whether written or oral, concerning
such matters are superseded thereby.
In Witness Whereof, the parties hereto have caused this
Agreement to be executed and delivered by their duly authorized
officers as of the date hereof.
ABN AMRO Bank N.V., as the Agent ABN AMRO Bank N.V., as the
Enhancer
By:/s/W. Robert Poff By:/s/W. Robert Poff
Title:VP Title: VP
By:/s/Paul Cronin By:/s/Paul Cronin
Title: SVP Title: SVP
Address: Structured Finance, Address: Structured Finance,
Asset Securitization Asset Securitization
135 South LaSalle Street 135 South LaSalle Street
Chicago, Illinois 60674-9135 Chicago, Illinois 60674-9135
Attention: Purchaser Agent Attention: Enhancer-Windmill
Windmill Telephone: (312) 904-6263
Telephone: (312) 904-6263 Telecopy: (312) 904-6376
Telecopy: (312) 904-6376
ABN AMRO Bank N.V., Windmill Funding Corporation
as a Liquidity Provider
By:/s/W. Robert Poff By:/s/Andrew L. Stidd
Title: VP Title: President
By:/s/Paul Cronin Address: c/o Global Securitization
Services, LLC
Title: SVP 25 West 43rd Street, Suite 704
Address: Structured Finance, New York, New York 10036
Asset Securitization Attention: Andrew Stidd
135 South LaSalle Street
Chicago, Illinois 60674-9135 Telephone: (212) 302-8330
Attention: Administrator - Telecopy: (212) 302-8767
Windmill
Telephone: (312) 904-6263
Telecopy: (312) 904-6376
with a copy to:
ABN AMRO Bank N.V.
Address: Structured Finance,
Asset Securitization
135 South LaSalle Street
Chicago, Illinois 60674-9135
Attention: Administrator -
Windmill
Telephone: (312) 904-6263
Telecopy: (312) 904-6376
Crompton & Knowles Receivables Crompton & Knowles Corporation,
Corporation, as Seller as Initial Collection Agent
By:/s/Charles J. Marsden By:/s/Charles J. Marsden
Title: President Title: Senior Vice President and
Chief Financial Officer
Address:Station Place Address:Station Place
Metro Center Metro Center
Stamford,Connecticut 06902 Stamford, Connecticut 06902
Attention: Antonio Bucci, Attention: Antonio Bucci,
Assistant Treasurer Assistant Treasurer
Telephone: (203) 573-3555 Telephone: (203) 573-3555
Telecopy: (203) 573-3751 Telecopy: (203) 573-3751
Notices sent to: Notices sent to:
Crompton & Knowles Corporation Cromption & Knowles Corporation
Benson Road Benson Road
Middlebury, Conneticut 06749 Middlebury, Connecticut 06749
Schedule I
Definitions
The following terms have the meanings set forth, or referred
to, below:
"ABN AMRO" means ABN AMRO Bank N.V. in its individual
capacity and not in its capacity as the Agent.
"Adverse Claim" means, for any asset or property of a
Person, a lien, security interest, charge, mortgage, pledge,
hypothecation, assignment or encumbrance, or any other right or
claim, in, of or on such asset or property in favor of any other
Person, except (i) those in favor of the Agent and (ii) liens for
taxes, assessments or charges of any Governmental Authority
(other than Tax or ERISA liens) and liens of landlords, carriers,
warehousemen, mechanics and materialmen imposed by law in the
ordinary course of business, in each case (a) for amounts not yet
due or (b) which are being contested in good faith by appropriate
proceedings and with respect to which adequate reserves or other
appropriate provisions are being maintained in accordance with
GAAP.
"Affiliate" means, for any Person, any other Person which,
directly or indirectly, is in control of, is controlled by, or is
under common control with such Person. For purposes of this
definition, "control" means the power, directly or indirectly, to
cause the direction of the management and policies of a Person.
"Agent" is defined in the first paragraph hereof.
"Agent's Account" means the account designated to the Seller
and the Purchasers by the Agent.
"Aggregate Commitment" means $81,600,000, as such amount
may be reduced pursuant to Section 1.6.
"Aggregate Investment" means the sum of the Investments of
all Purchasers.
"Assigned Windmill Settlement" means, for each Committed
Purchaser for any Put, the product of such Purchaser's Purchased
Percentage and the amount of the Windmill Settlement being
transferred pursuant to such Put.
"Bankruptcy Event" means, for any Person, that (a) such
Person makes a general assignment for the benefit of creditors or
any proceeding is instituted by or against such Person seeking to
adjudicate it bankrupt or insolvent, or seeking the 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 or other similar official for it or any
substantial part of its property or (b) such Person takes any
corporate action to authorize any such action.
"Business Day" means any day other than (a) a Saturday,
Sunday or other day on which banks in the States of New York,
Connecticut or Illinois are authorized or required to close, (b)
a holiday on the Federal Reserve calendar and, (c) solely for
matters relating to a Eurodollar Tranche, a day on which dealings
in Dollars are not carried on in the London interbank market.
"Charge-Off" means any Receivable that has or should have
been (in accordance with the Credit and Collection Policy)
charged off or written off by the Seller.
"Collection" means any amount paid, or deemed paid, on a
Receivable, including from the proceeds of collateral securing,
or any guaranty of, such Receivable or by the Seller under
Section 1.5(b).
"Collection Agent" is defined in Section 3.1(a).
"Collection Agent Replacement Event" means the occurrence of
any one or more of the following:
(a) any failure by the Collection Agent to make any
payment, transfer or deposit required by any Transaction Document
to be made by it which failure continues unremedied for one
Business Day;
(b) failure on the part of the Collection Agent to
observe or perform any covenant or agreement contained in
Sections 3.2 or 3.3 of this Agreement;
(c) failure on the part of the Collection Agent to
observe or perform any other covenant or agreement set forth in
this Agreement or any other Transaction Document, which failure
has a material adverse effect on any Purchaser and continues
unremedied for a period of 30 days after the earlier of (i) the
date on which written notice of the failure, requiring the same
to be remedied, shall have been given to the Collection Agent by
any Purchaser, or to and (ii) the date on which the Collection
Agent became aware of such failure;
(d) the Daily Report shall fail to have been
correct in any material respect when made or delivered or shall
not have been delivered when required under the terms hereof;
(e) the Monthly Report shall fail to have been
correct in any material respect when made or delivered, or shall
not have been delivered when required under the terms hereof, and
such condition continues unremedied for a period of three
Business Days;
(f) any written representation, warranty,
certification or statement made by the Collection Agent in, or
pursuant to, any Transaction Document proves to have been
incorrect in any material adverse respect when made; or
(g) the Collection Agent suffers a Bankruptcy
Event.
"Collection Agent Fee" is defined in Section 3.6.
"Commitment" means, for each Committed Purchaser, the amount
set forth on Schedule II, as adjusted in accordance with Sections
1.6 and 9.8.
"Committed Purchasers" is defined in Section 1.1(b).
"Concentration Limit" means (i) with respect to Obligors
with senior unsecured long-term indebtedness rated A- (or higher)
by S&P or A3 (or higher) by Moody's, an amount not to exceed 5%
of the Eligible Receivables Balance, and (ii) with respect to all
other Obligors, an amount not to exceed 3% of the Eligible
Receivables Balance.
"CP Dealer" means, at any time, each Person Windmill then
engages as a placement agent or commercial paper dealer.
"CP Rate" means, for any CP Tranche Period, a rate per annum
equal to (a) the weighted average of the rates at which
commercial paper notes having a term equal to such CP Tranche
Period may be sold by any CP Dealer selected by Windmill, as
agreed between each such CP Dealer and Windmill, plus (b) on or
after the occurrence of a Termination Event, 2%. If such rate is
a discount rate, the CP Rate shall be the rate resulting from
Windmill's converting such discount rate to an interest-bearing
equivalent rate. If Windmill determines that due to disruptions
in the commercial paper market that it is unable to issue
commercial paper, then the CP Rate shall be the Prime Rate for so
long as such condition shall continue. The CP Rate shall include
all costs and expenses to Windmill of issuing the related
commercial paper notes, including all dealer commissions and note
issuance costs in connection therewith.
"Credit and Collection Policy" means the Seller's credit and
collection policy and practices relating to Receivables attached
hereto as Exhibit J.
"Crompton & Knowles Credit Agreement" means that certain
Amended and Restated Credit Agreement dated as of July 25, 1997
among Crompton & Knowles Corporation, Crompton & Knowles Colors
Incorporated, Davis-Standard Corporation, Ingredient Technology
Corporation, Uniroyal Chemical Company, Inc., The B2 Borrowers
named therein, the B3 Borrowers named therein and Uniroyal
Chemical Ltd., as the Initial Borrowers and the Initial Lenders,
Initial Issuing Banks and Swing Line Bank named therein, as
Initial Lenders, Initial Issuing Banks and Swing Line Bank and
Citicorp USA, Inc., as Agent and The Chase Manhattan Bank, as
Managing Agent.
"Crompton & Knowles Entity" means the Parent and each
Originator.
"Deemed Collections" is defined in Section 1.5(c).
"Default Ratio" means, at any time, the ratio of (a) the
then aggregate outstanding balance of all Defaulted Receivables
(minus Charge-Offs) to (b) the then aggregate outstanding balance
of all Receivables (minus Charge-Offs).
"Defaulted Receivable" means any Receivable (a) on which any
amount is unpaid more than (i) for Davis-Standard Corporation, 90
days past its original invoice date and (ii) for all other
Originators, 90 days past its original due date, or (b) the
Obligor on which has suffered a Bankruptcy Event.
"Delinquency Ratio" means, at any time, the ratio of (a) the
then aggregate outstanding balance of all Delinquent Receivables
to (b) the then aggregate outstanding balance of all Receivables.
"Delinquent Receivable" means any Receivable (other than a
Charge-Off or Defaulted Receivable) on which any amount is unpaid
more than (i) for Davis Standard Corporation, 3190 days past its
original invoice date and (ii) for all other Originators, 3190
days past its original due date.
"Designated Financial Officer" means each of Antonio Bucci
and Kate Thomas.
"Dilution Ratio" means, for any period, the ratio of (a) the
aggregate amount of payments owed by the Seller pursuant to the
first sentence of Section 1.5(b) during such period to (b) the
aggregate amount of Collections received during such period.
"Dilution Reserve" means, at any time prior to the
occurrence of a Dilution Reserve Trigger Event, 0, and upon the
occurrence of a Dilution Reserve Trigger Event, 2 times the
highest Dilution Ratio (expressed as a decimal) as of the last
day of each of the last twelve calendar months.
"Dilution Reserve Trigger Event" means either of the ratios
described in Sections 5.04(a) and (b) of the Crompton & Knowles
Credit Agreement as of any date is greater than a ratio that is
.25 less than the required ratio for such date under the
applicable Section.
"Discount" means, for any Tranche Period, (a) the product of
(i) the Discount Rate for such Tranche Period, (ii) the total
amount of Investment allocated to the Tranche Period, and (iii)
the number of days elapsed during the Tranche Period divided by
(b) 360 days.
"Discount Rate" means, for any Tranche Period, the CP Rate,
the Eurodollar Rate or the Prime Rate, as applicable.
"Discount Reserve" means, at any time, the product of (a)
1.5 multiplied by (b) the rate announced by ABN AMRO as its
"Prime Rate" (which may not be its best or lowest rate)
multiplied by (c) a fraction, the numerator of which is 75 and
the denominator of which is 360.
"Dollar" and "$" means lawful currency of the United States
of America.
"Early Payment Fee" means, if any Investment of a Purchaser
allocated (or, in the case of a requested Purchase not made by
the Committed Purchasers for any reason other than their default,
scheduled to be allocated) to a Tranche Period for a CP Tranche
or Eurodollar Tranche is reduced or terminated before the last
day of such Tranche Period (the amount of Investment so reduced
or terminated being referred to as the "Prepaid Amount"), the
cost to the relevant Purchaser of terminating or reducing such
Tranche, which (a) for a CP Tranche means any compensation
payable in prepaying the related commercial paper or, if not
prepaid, any shortfall between the amount that will be available
to Windmill on the maturity date of the related commercial paper
from reinvesting the Prepaid Amount in Permitted Investments and
the Face Amount of such commercial paper and (b) for a Eurodollar
Tranche will be determined based on the difference between the
LIBOR applicable to such Tranche and the LIBOR applicable for a
period equal to the remaining maturity of the Tranche on the date
the Prepaid Amount is received.
"Eligible Receivable" means, at any time, any Receivable:
(i) the Obligor of which (a) is a resident of, or
organized under the laws of, or with its chief executive office
in, the USA; provided, however, that not more than 10% of
Eligible Receivables at any time may consist of Receivables the
Obligor of which is not a resident of, or organized under the
laws of, or with its chief executive office in, the USA (each, a
"Foreign Receivable") if the applicable Originator is the account
party to a letter of credit or letters of credit issued by a
financial institution acceptable to the Agent naming the
Collection Agent (or a permitted sub-collection agent) as
beneficiary in a face amount not less than the aggregate invoiced
amount of Foreign Receivables of such Originator and in form and
substance satisfactory to the Agent; (b) is not an Affiliate of
any Crompton & Knowles Entity; (c) is not a government or a
governmental subdivision or agency; (d) has not suffered a
Bankruptcy Event; (e) is a customer of the Originator in good
standing; and (f) is not the Obligor of Receivables 25% or more
of which are Defaulted Receivables;
(ii) which is stated to be due and payable within
90 days after the invoice therefor; provided, however, that not
more than 10% of Eligible Receivables at any time may consist of
Receivables which are stated to be due and payable within 91 to
360 days after invoice therefor;
(iii) which is not a Defaulted Receivable or a
Charge-Off;
(iv) which is an "account" within the meaning of
Section 9105 of the UCC of all applicable jurisdictions;
(v) which is denominated and payable only in
Dollars in the USA and is non-interest bearing; provided that a
Receivable shall not be deemed to be interest bearing solely as a
result of the Seller's lawful imposition of an interest or other
charge on any Receivable that remains unpaid for some specified
period of time;
(vi) which arises under a contract that is in full
force and effect and constitutes the legal, valid and binding
obligation of the related Obligor enforceable against such
Obligor in accordance with its terms subject to no offset,
counterclaim, defense or other Adverse Claim, and is not an
executory contract or unexpired lease within the meaning of
Section 365 of the Bankruptcy Code;
(vii) which arises under a contract that (a)
contains an obligation to pay a specified sum of money and is
subject to no contingencies and (b) does not contain a
confidentiality provision that purports to restrict any
Purchaser's exercise of rights under this Agreement, including,
without limitation, the right to review such contract;
(viii) which does not, in whole or in part,
contravene any law, rule or regulation applicable thereto
(including, without limitation, those relating to usury, truth in
lending, fair credit billing, fair credit reporting, equal credit
opportunity, fair debt collection practices and privacy); and
(ix) which satisfies all applicable requirements of
the Credit and Collection Policy and was generated in the
ordinary course of each Originator's business from the sale of
goods or provision of services to a related Obligor solely by
each Originator.
"Eligible Receivable Balance" means, at any time, the
aggregate outstanding principal balance of all Eligible
Receivables less the portion of the aggregate outstanding
principal balance of Eligible Receivables which exceed the
Concentration Limit.
"Enhancer" is defined in the first paragraph hereof.
"Enhancer Commitment Percentage" means 10%.
"Eurodollar Rate" means, for any Tranche Period for a
Eurodollar Tranche, the sum of (a) LIBOR for such Tranche Period
divided by 1 minus the "Reserve Requirement" plus (b)(i) for
Investment of a Liquidity Provider, the amount specified in the
Pricing Letter, or, (ii) for Investment of the Enhancer, the
amount specified in the Fee Letter plus (c) during the pendency
of a Termination Event, 1% for Investment of a Liquidity Provider
and 2% for Investment of the Enhancer; where "Reserve
Requirement" means, for any Tranche Period for a Eurodollar
Tranche, the maximum reserve requirement imposed during such
Tranche Period on "eurocurrency liabilities" as currently defined
in Regulation D of the Board of Governors of the Federal Reserve
System.
"Face Amount" means the face amount of any Windmill
commercial paper issued on a discount basis or, if not issued on
a discount basis, the principal amount of such note and interest
scheduled to accrue thereon to its stated maturity.
"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 immediately preceding Business
Day) by the Federal Reserve Bank of New York or, if such rate is
not so published for any day which is a Business Day, the average
of the quotations for such transactions received by ABN AMRO as
of approximately 10:00 a.m. (Chicago time) on such day from three
federal funds brokers of recognized standing selected by it.
"Fee Letter" means the letter agreement dated as of the date
hereof among the Seller, the Agent, Windmill and the Enhancer.
"Funding Agreement" means any agreement or instrument
executed by Windmill and executed by or in favor of any Windmill
Funding Source or executed by any Windmill Funding Source at the
request of Windmill (including the Program LOC).
"GAAP" means generally accepted accounting principles in the
USA, applied on a consistent basis.
"Governmental Authority" means any (a) Federal, state,
municipal or other governmental entity, board, bureau, agency or
instrumentality, (b) administrative or regulatory authority
(including any central bank or similar authority) or (c) court,
judicial authority or arbitrator, in each case, whether foreign
or domestic.
"Incremental Purchase" is defined in Section 1.1(b).
"Initial Collection Agent" is defined in the first paragraph
hereof.
"Instructing Group" means the Required Liquidity Providers,
the Enhancer and, unless the Windmill Termination Date has
occurred and Windmill has no Investment, Windmill.
"Intended Tax Characterization" is defined in Section 9.9.
"Interim Liquidation" means any time before the Liquidity
Termination Date during which no Reinvestment Purchases are made
by any Purchaser, as established pursuant to Section 1.2.
"Investment" means, for each Purchaser, (a) the sum of
(i) all Incremental Purchases by such Purchaser and (ii) the
aggregate amount of any payments or exchanges made by, or on
behalf of, such Purchaser to any other Purchaser under Article II
minus (b) all Collections, amounts received from other Purchasers
under Article II, and other amounts received or exchanged and, in
each case, applied by the Agent or such Purchaser to reduce such
Purchaser's Investment. A Purchaser's Investment shall be
restored to the extent any amounts so received or exchanged and
applied are rescinded or must be returned for any reason.
"LIBOR" means, for any Tranche Period for a Eurodollar
Tranche or other time period, the rate per annum (rounded
upwards, if necessary, to the next higher one hundred-thousandth
of a percentage point) for deposits in Dollars for a period equal
to such Tranche Period or other period, which appears on Page
3750 of the Telerate Service (or any successor page or successor
service that displays the British Bankers' Association Interest
Settlement Rates for Dollar deposits) as of 11:00 a.m. (London,
England time) two Business Days before the commencement of such
Tranche Period or other period. If for any Tranche Period for a
Eurodollar Tranche no such displayed rate is available (or, for
any other period, if such displayed rate is not available or the
need to calculate LIBOR is not notified to the Agent at least 3
Business Days before the commencement of the period for which it
is to be determined), the Agent shall determine such rate based
on the rates ABN AMRO is offered deposits of such duration in the
London interbank market.
"Limited Guaranty" means the Limited Guaranty, dated the
date hereof, from the Parent in favor of the Agent.
"Liquidation Period" means, for Windmill only, all times
when Windmill is not making Reinvestment Purchases pursuant to
Section 1.1(d) and, for all Purchasers, all times (x) during an
Interim Liquidation and (y) on and after the Liquidity
Termination Date.
"Liquidity Providers" is defined in the first paragraph
hereof.
"Liquidity Termination Date" means the earliest of (a) the
date of the occurrence of a Termination Event described in clause
(e) of the definition of Termination Event, (b) the date
designated by the Agent to the Seller at any time after the
occurrence of any other Termination Event, (c) the Business Day
designated by the Seller with no less than five (5) Business Days
prior notice to the Agent and (d) December 10, 1999.
"Lock-Box" means each post office box or bank box listed on
Exhibit G, as revised pursuant to Section 5.1(i).
"Lock-Box Account" means each account maintained by the
Collection Agent at a Lock-Box Bank for the purpose of receiving
or concentrating Collections.
"Lock-Box Agreement" means each agreement between the
Collection Agent and a Lock-Box Bank concerning a Lock-Box
Account.
"Lock-Box Bank" means each bank listed on Exhibit G, as
revised pursuant to Section 5.1(i).
"Lock-Box Letter" means a letter in substantially the form
of Exhibit H (or otherwise acceptable to the Agent) from the
Seller and the Collection Agent to each Lock-Box Bank,
acknowledged and accepted by such Lock-Box Bank and the Agent.
"Loss Reserve" means, at any time, the greatest of (a) .12,
(b) 0.75 times the highest Delinquency Ratio (expressed as a
decimal) as of the last day of each of the last twelve calendar
months and (c) 0.75 times the highest Default Ratio (expressed as
a decimal) as of the last day of each of the last twelve calendar
months.
"Loss-to-Liquidation Ratio" means, for any period, the ratio
of the outstanding balance of Charge-Offs to the aggregate amount
of Collections during such period.
"Matured Aggregate Investment" means, at any time, the
Matured Value of Windmill's Investment plus the total Investments
of all other Purchasers then outstanding.
"Matured Value" means, of any Investment, the sum of such
Investment and all unpaid Discount, fees and other amounts
scheduled to become due (whether or not then due) on such
Investment during all Tranche Periods to which any portion of
such Investment has been allocated.
"Maximum Incremental Purchase Amount" means, at any time,
the lesser of (a) the difference between the Purchase Limit and
the Aggregate Investment then outstanding and (b) the difference
between the Aggregate Commitment and the Matured Aggregate
Investment then outstanding.
"Moody's" means Moody's Investors Service, Inc.
"Obligor" means, for any Receivable, each Person obligated
to pay such Receivable and each guarantor of such obligation.
"Originators" means each of Uniroyal Chemical Company, Inc.,
Uniroyal Chemical Export Ltd., Davis Standard Corporation and
Crompton & Knowles Colors Incorporated.
"Parent" means Crompton & Knowles Corporation, a
Massachusetts corporation.
"Periodic Report" is defined in Section 3.3.
"Permitted Investments" means (a) evidences of indebtedness,
maturing within thirty (30) days after the date of purchase
thereof, issued by, or guaranteed by the full faith and credit
of, the federal government of the USA, (b) repurchase agreements
with banking institutions or broker-dealers the short-term
unsecured obligations of which is rated at least "A-1+" (or the
equivalent) by S&P and at least "P-1" (or the equivalent) by
Moody's registered under the Securities Exchange Act of 1934
which are fully secured by obligations of the kind specified in
clause (a), (c) money market funds (i) rated not lower than the
highest rating category from Moody's and "AAA m" or "AAAm-g,"
from S&P or (ii) which are otherwise acceptable to the Rating
Agencies or (d) commercial paper issued by any corporation
incorporated under the laws of the USA and rated at least "A-1+"
(or the equivalent) by S&P and at least "P-1" (or the equivalent)
by Moody's.
"Person" means an individual, partnership, corporation,
association, joint venture, Governmental Authority or other
entity of any kind.
"Potential Termination Event" means any Termination Event or
any event or condition that with the lapse of time or giving of
notice, or both, would constitute a Termination Event.
"Pricing Letter" means the letter agreement dated as of the
date hereof among the Liquidity Providers, the Agent and the
Seller.
"Prime Rate" means, for any period, the daily average during
such period of (a) the greater of (i) the floating commercial
loan rate per annum of ABN AMRO (which rate is a reference rate
and does not necessarily represent the lowest or best rate
actually charged to any customer by ABN AMRO) announced from time
to time as its prime rate or equivalent for Dollar loans in the
USA, changing as and when said rate changes and (ii) the Federal
Funds Rate plus 0.75% plus (b) during the pendency of a
Termination Event, 1% for Investment of a Liquidity Provider and
2% for Investment of the Enhancer.
"Program LOC" means that certain amended and restated
irrevocable transferable letter of credit No. S550115, dated
November 3, 1995, issued by the Enhancer at the request of
Windmill, and each letter of credit issued in substitution or
replacement therefor.
"Program Unreimbursed Draw Amount" means the sum of all
draws under the Program LOC in connection with this Transaction
which have not been reimbursed (whether through the payment of
cash or the exchange of assets), together with all interest
thereon and all other amounts, if any, payable in connection
therewith.
"Purchase" is defined in Section 1.1(a).
"Purchase Agreement" means the Receivables Purchase
Agreement dated as of the date hereof among the Seller and each
Originator.
"Purchase Amount" is defined in Section 1.1(c).
"Purchase Date" is defined in Section 1.1(c).
"Purchase Interest" means, for a Purchaser, the percentage
ownership interest in the Receivables and Collections held by
such Purchaser, calculated when and as described in
Section 1.1(a); provided, however, that (except for purposes of
computing a Purchase Interest or the Sold Interest in Section 1.5
or 1.7) at any time the Sold Interest would otherwise exceed 100%
each Purchaser then holding any Investment shall have its
Purchase Interest reduced by multiplying such Purchase Interest
by a fraction equal to 100% divided by the Sold Interest
otherwise then in effect, so that the Sold Interest is thereby
reduced to 100%.
"Purchase Limit" means $80,000,000.
"Purchase Price" means, for each Committed Purchaser for any
Put, such Purchaser's Purchased Percentage for such Put
multiplied by the sum of (a) (i) for the Enhancer, the amount of
Windmill's Investment being transferred pursuant to such Put (the
"Put Investment") and (ii) for each Liquidity Provider, the
lesser of (A), the Put Investment and (B) the sum of (I) the
product of (1) the amount of Windmill Investment being
transferred pursuant to such Put divided by the Windmill
Investment (before giving effect to such Put), (2) Windmill's
Purchase Interest at such time, (3) the Eligible Receivables
Balance as most recently calculated, provided, however, that
Collections used to reduce such most recently computed Eligible
Receivables Balance but not yet received by the Agent shall be
added back to the Eligible Receivables Balance, and (II) the
amount of Windmill Settlement being transferred pursuant to such
Put plus (b) (i) all unpaid Discount owed to Windmill (whether or
not then due) to the end of each applicable Tranche Period to
which any Investment being Put has been allocated, (ii) all
accrued but unpaid fees (whether or not then due) payable to
Windmill in connection herewith at the time of such purchase and
(iii) all accrued and unpaid costs, expenses and indemnities due
to Windmill from the Seller in connection herewith. Windmill
shall calculate the Purchase Price on the date of such Put based
on the information then available to it, and, regardless of
whether such information is complete, such calculation shall be
conclusive and binding absent manifest error; provided, however,
that if such purchase occurs due to the occurrence of a
Termination Event, the Purchase Price shall be determined as of
the date such Termination Event first occurred (without regard to
any grace periods), adjusted to reflect amounts received by
Windmill. In making any such calculation, Windmill shall be
entitled to rely on information provided to it by the Seller
without any obligation to investigate the accuracy or
completeness of such information.
"Purchased Percentage" means, for any Put, for each
Committed Purchaser, its Ratable Share or such lesser percentage
as is necessary to prevent the Purchase Price of such Purchaser
from exceeding its Unused Commitment (unless, in the case of the
Enhancer, it elects not to reduce its Purchased Percentage in
whole or in part).
"Purchasers" means the Liquidity Providers, the Enhancer and
Windmill.
"Put" is defined in Section 2.l(a).
"Ratable Share" means, for each Committed Purchaser, such
Purchaser's Commitment divided by the Aggregate Commitment. If,
however, on the date any Incremental Purchase or payment for any
Put is to be made by the Committed Purchasers, the Enhancer has
outstanding Investment plus Program Unreimbursed Draw Amount in
excess of its Ratable Share of the outstanding Investment and
Program Unreimbursed Draw Amount of all Committed Purchasers,
then for purposes of such Incremental Purchase or Put the Ratable
Share of each Committed Purchaser shall be replaced with a
percentage equal for each Committed Purchaser to (a) its
Commitment minus its Investment and Program Unreimbursed Draw
Amount before such Purchase or Put (its "Existing Investment")
divided by (b) the Aggregate Commitment minus the sum of the
Existing Investments of all Committed Purchasers.
"Rating Agency" means Moody's, S&P and any other rating
agency Windmill chooses to rate its commercial paper notes.
"Ratings" means the ratings by the Rating Agencies of the
indebtedness for borrowed money of Windmill.
"Receivable" means each obligation of an Obligor to pay for
merchandise sold or services rendered by any Originator and
includes such Originator's rights to payment of any interest or
finance charges and in the merchandise (including returned goods)
and contracts relating to such Receivable, all security
interests, guaranties and property securing or supporting payment
of such Receivable, all Records and all proceeds of the
foregoing. During any Interim Liquidation and on and after the
Liquidity Termination Date, the term "Receivable" shall only
include receivables existing on the date such Interim Liquidation
commenced or Liquidity Termination Date occurred, as applicable.
Deemed Collections shall reduce the outstanding balance of
Receivables hereunder, so that any Receivable that has its
outstanding balance deemed collected shall cease to be a
Receivable hereunder after (x) the Collection Agent receives
payment of such Deemed Collections under Section 1.5(b) or (y) if
such Deemed Collection is received before the Liquidity
Termination Date, an adjustment to the Sold Interest permitted by
Section 1.5(c) is made.
"Records" means, for any Receivable, all contracts, books,
records and other documents or information (including computer
programs, tapes, disks, software and related property and rights)
relating to such Receivable or the related Obligor.
"Reinvestment Purchase" is defined in Section 1.1(b).
"Required Liquidity Providers" means Liquidity Providers
having Liquidity Provider Commitments in excess of 66-2/3% of the
Commitment of all Liquidity Providers.
"Reserve" means, for each Purchaser, an amount equal to the
Reserve Percentage multiplied by such Purchaser's Investment.
"Reserve Percentage" means, at any time, the sum of the Loss
Reserve, the Dilution Reserve and the Discount Reserve.
"Seller" is defined in the first paragraph hereof.
"Seller Account" means the Seller's account number
035-1-084215 at The Chase Manhattan Bank, New York, New York or
such other account designated by the Seller to the Agent with at
least ten (10) days prior notice.
"Sold Interest" is defined in Section 1.1(a).
"Special Transaction Subaccount" means the special
transaction subaccount established for this Agreement pursuant to
Windmill's depositary agreement.
"S&P" means Standard & Poor's Ratings Group.
"Subordinated Notes" means each buyer note issued by the
Seller to the applicable Originator under the Purchase Agreement.
"Subsidiary" means any Person of which at least a majority
of the voting stock (or equivalent equity interests) is owned or
controlled by the Seller or any Crompton & Knowles Entity or by
one or more other Subsidiaries of the Seller or such Crompton &
Knowles Entity. The Subsidiaries of the Parent on the date
hereof are listed on Exhibit F.
"Taxes" means all taxes, charges, fees, levies or other
assessments (including income, gross receipts, profits,
withholding, excise, property, sales, use, license, occupation
and franchise taxes and including any related interest, penalties
or other additions) imposed by any jurisdiction or taxing
authority (whether foreign or domestic).
"Termination Date" means (a) for Windmill, the Windmill
Termination Date, (b) for the Liquidity Providers, the Liquidity
Termination Date and (c) for the Enhancer, the earlier of (i) the
third (3rd) Business Day following the Liquidity Termination Date
and (ii) December 10, 1999.
"Termination Event" means the occurrence of any one or more
of the following:
(a) any representation, warranty, certification or
statement made by the Seller or any Crompton & Knowles Entity in,
or pursuant to, any Transaction Document proves to have been
incorrect in any material respect when made; or
(b) the Collection Agent, any Crompton & Knowles Entity
or the Seller fails to make any payment or other transfer of
funds hereunder when due (including any payments under
Section 1.5(a)); or
(c) the Seller fails to observe or perform any covenant
or agreement contained in Sections 3.3, 5.1(b), 5.1(e), 5.1(g),
5.1(i), or 5.1(j) of this Agreement or any Originator fails to
perform any covenant or agreement in Sections 6.1(d), 6.1(f),
6.1(i), 6.1(j), 6.1(k), 6.2(b) or 6.3 of each Purchase Agreement;
or
(d) the Seller or the Collection Agent (or any
sub-collection agent) fails to observe or perform any other term,
covenant or agreement under any Transaction Document, and such
failure remains unremedied for thirty days; or
(e) the Seller, any Originator or any Subsidiary suffers
a Bankruptcy Event; or
(f) the average of the Delinquency Ratios as of the end
of each of the most recent three calendar months exceeds 25%, the
average of the Default Ratios as of the end of each of the most
recent three calendar months exceeds 25%, the Dilution Ratio at
the end of any calendar month measured for the three month
calendar period then ending exceeds 5% or the Loss-to-Liquidation
Ratio at the end of any calendar month measured for the three
month calendar period then ending exceeds 1%; or
(g) (i) the Seller, any Crompton & Knowles Entity or any
Affiliate, directly or indirectly, disaffirms or contests the
validity or enforceability of any Transaction Document or
(ii) any Transaction Document fails to be the enforceable
obligation of the Seller or any Affiliate party thereto; or
(h) the Seller or any Subsidiary (A) generally does not
pay its debts as such debts become due or admits in writing its
inability to pay its debts generally or (B) fails to pay any of
its indebtedness (except in aggregate principal amount of less
than $1,000,000) or defaults in the performance of any provision
of any agreement under which such indebtedness was created or is
governed and such default permits such indebtedness to be
declared due and payable or to be required to be prepaid before
the scheduled maturity thereof; or
(i) any event occurs or condition exists which
constitutes a default or an event of default under the Crompton &
Knowles Credit Agreement; or
(j) the average of the Turnover Rates for each of the
most recent three calendar months exceeds 75 days; or
(k) a Collection Agent Replacement Event has occurred
and is continuing with respect to the Initial Collection Agent;
or
(l) the Parent shall fail to own and control, directly
or indirectly, (i) 100% of the outstanding voting stock of the
Seller and each Originator (other than with respect to Crompton &
Knowles Colors Incorporated) and (ii) 80% of the outstanding
voting stock of Crompton & Knowles Colors Incorporated; provided,
however, that the Parent may own less than 80% of Crompton &
Knowles Colors Incorporated so long as no Receivables in which
the Purchasers' have a Sold Interest were originated by such
entities.
Notwithstanding the foregoing, a failure of a representation or
warranty or breach of any covenant described in clause (a), (c)
or (d) above related to a Receivable shall not constitute a
Termination Event if the Seller has been deemed to have collected
such Receivable pursuant to Section 1.5(b) or, before the
Liquidity Termination Date, has adjusted the Sold Interest as
provided in Section 1.5(c) so that such Receivable is no longer
considered to be outstanding.
"Tranche" means a portion of the Investment of Windmill or
of the Committed Purchasers allocated to a Tranche Period
pursuant to Section 1.3. A Tranche is a (i) CP Tranche, (ii)
Eurodollar Tranche or (iii) Prime Tranche depending whether
Discount accrues during its Tranche Period based on a (i) CP
Rate, (ii) Eurodollar Rate, or (iii) Prime Rate.
"Tranche Period" means a period of days ending on a Business
Day selected pursuant to Section 1.3, which (i) for a CP Tranche
shall not exceed 270 days, (ii) for a LIBOR Tranche shall not
exceed 180 days, and (iii) for a Prime Tranche shall not be less
than 2 days and shall not exceed 30 days.
"Transaction Documents" means this Agreement, the Fee
Letter, the Limited Guaranty, the Pricing Letter, the Purchase
Agreements, the Subordinated Notes, and all other documents,
instruments and agreements executed or furnished in connection
herewith and therewith.
"Transfer Supplement" is defined in Section 9.8.
"Turnover Rate" means, for any period for which it is
calculated, the product, expressed in days, of (A) (1) the
Eligible Receivables Balance at the beginning of such period
divided by (2) the average daily Collections (other than Deemed
Collections) during such period multiplied by (B) 30.
"UCC" means, for any state, the Uniform Commercial Code as
in effect in such state.
"USA" means the United States of America (including all
states and political subdivisions thereof).
"Unused Aggregate Commitment" means, at any time, the
difference between the Aggregate Commitment then in effect and
the outstanding Matured Aggregate Investment.
"Unused Commitment" means, for any Committed Purchaser at
any time, the difference between its Commitment and its
Investment then outstanding.
"Windmill" is defined in the first paragraph hereof.
"Windmill Funding Source" means any insurance company, bank
or other financial institution providing liquidity, back-up
purchase or credit support for Windmill.
"Windmill Settlement" means the sum of all claims and rights
to payment pursuant to Section 1.5 or 1.7 or any other provision
owed to Windmill (or owed to the Agent or the Collection Agent
for the benefit of Windmill) by the Seller that, if paid, would
be applied to reduce Windmill's Investment.
"Windmill Termination Date" means the earliest of (a) the
Business Day designated by the Seller with no less than five (5)
Business Days prior notice to the Agent, (b) the Business Day
designated by Windmill at any time to the Seller and (c) the
Liquidity Termination Date.
The foregoing definitions shall be equally applicable to
both the singular and plural forms of the defined terms. Unless
otherwise inconsistent with the terms of this Agreement, all
accounting terms used herein shall be interpreted, and all
accounting determinations hereunder shall be made, in accordance
with GAAP. Amounts to be calculated hereunder shall be
continuously recalculated at the time any information relevant to
such calculation changes.
Schedule II
Liquidity Providers and Commitments of Committed Purchasers
Name of Liquidity Provider Commitment
ABN AMRO Bank N.V. $73,440,000
Enhancer
ABN AMRO Bank N.V. $8,160,000
Exhibit A
to
Receivables Sale Agreement
Form of Incremental Purchase Request
______________, 199_
ABN AMRO Bank N.V., as Agent
Asset Securitization, Structured Finance
Suite 725
135 South LaSalle Street
Chicago, Illinois 60674-9135
Attn: Purchaser Agent-Windmill
Re: Receivables Sale Agreement dated as of December 11, 1998
(the "Sale Agreement") among Crompton & Knowles
Receivables Corporation, as Seller, Crompton & Knowles
Corporation, as Initial Collection Agent, ABN AMRO Bank
N.V., as Agent, and the Purchasers thereunder
Ladies and Gentlemen:
The undersigned Seller under the above-referenced Sale
Agreement hereby confirms its has requested an Incremental
Purchase of $___________ by [Windmill/the Committed Purchasers]
under the Sale Agreement. The Seller further confirms it has
requested a Tranche Period beginning on __________ for such
increased Investment [or insert different Tranche Periods for
different Tranches. Also, if purchases by Committed Purchasers
are requested, insert for each Tranche whether it is a Eurodollar
or Prime Tranche.]
Attached hereto as Schedule I is information relating to the
proposed Incremental Purchase required by the Sale Agreement. If
on the date of this Incremental Purchase Request ("Notice"), an
Interim Liquidation is in effect, this Notice revokes our request
for such Interim Liquidation so that Reinvestment Purchases shall
immediately commence in accordance with Section 1.1(d) of the
Sale Agreement.
The Seller hereby certifies that both before and after
giving effect to [each of] the proposed Incremental Purchase[s]
contemplated hereby and the use of the proceeds therefrom, all of
the requirements of Section 7.2 of the Sale Agreement have been
satisfied.
Very truly yours,
Crompton & Knowles Receivables Corporation
By
Title
Schedule I
to
Incremental Purchase Requests
Summary of Information Relating to Proposed Sale(s)
1. Dates, Amounts, Purchaser(s), Proposed Tranche
Periods
A1 Date of Notice _________
A2 Measurement Date (the last
Business Day of the week
immediately preceding the
week in which the Date of
Notice occurs) _________
A3 Proposed Purchase Dates _______ ________ _______ _________
(each of which is a
Business Day)
A4 Respective Proposed
Incremental Purchase on
each such Purchase Date $_______ $_______ $_______ $_______
(each Incremental (A4A) (A4B) (A4C) (A4D)
Purchase must be in a
minimum amount of
$1,000,000 and multiples
thereof, or, if less, an
amount equal to the
Maximum Incremental
Purchase Amount)
A5 Proposed Allocation
among Purchasers
Windmill $_______ $_______ $_______ $_______
Liquidity
Providers $_______ $_______ $_______ $_______
Enhancer $_______ $_______ $_______ $_______
A6 Tranche Period
and, for Committed
Purchasers, Tranche Rate(s)
Starting Date ________ ________ ________ ________
Ending Date ________ ________ ________ ________
Number of Days ________ ________ ________ ________
Prime or Eurodollar
(for Committed
Purchasers only) ________ ________ ________ ________
Each proposed Purchase Date must be a Business Day and must
occur no later than two weeks after the Measurement Date set
forth above. The choice of Measurement Date is a risk
undertaken by the Seller. If a selected Measurement Date is
not the applicable Purchase Date, the Seller's choice and
disclosure of such date shall not in any manner diminish or
waive the obligation of the Seller to assure the Purchasers
that, after giving effect to the proposed Purchase, the
actual Sold Interest as of the date of such proposed
Purchase does not exceed 100%.
Exhibit B
to
Receivables Sale Agreement
Form of Notification of Assignment from Windmill
to the Committed Purchasers
______________, 199_
Crompton & Knowles
Receivables Corporation
_____________________
_____________________
ABN AMRO Bank N.V., as Agent
Asset Securitization, Structured Finance
Suite 725
135 South LaSalle Street
Chicago, Illinois 60674-9135
Attn: Enhancer-Windmill
[Insert Name and Address of each
Liquidity Provider]
Re: Receivables Sale Agreement dated as of December
11,1998 (the "Sale Agreement") among
Crompton & Knowles Receivables Corporation, as Seller,
Crompton & Knowles Corporation, as Initial Collection Agent,
ABN AMRO Bank N.V., as Agent,
and the Purchasers thereunder
Ladies and Gentlemen:
The Agent under the above-referenced Sale Agreement hereby
notifies each of you that Windmill has notified the Agent
pursuant to Section 2.1(a) of the Sale Agreement that it will
sell to the Committed Purchasers on ____________ (the "Put Date")
____% of Windmill's Investment and related Windmill Settlement
(the "Assigned Interest"). In accordance with the terms of the
Sale Agreement, each Liquidity Provider and the Enhancer must
purchase from Windmill on the Put Date its respective Purchase
Percentage of the Assigned Interest by paying its Purchase Price
therefor described on Schedule I hereto. As further provided in
Section 2.1 of the Sale Agreement, upon payment by a Committed
Purchaser of its Purchase Price to the Agent, effective as of the
Put Date the assignment by Windmill to such Committed Purchaser
of its Purchased Percentage of the Assigned Interest shall be
complete, subject to the purchase of any additional portion of
the Assigned Interest pursuant to Section 2.1(b) upon the failure
of a Liquidity Provider to pay its Purchase Price.
In accordance with the Sale Agreement, Windmill's acceptance
of the Purchase Price payable by each Committed Purchaser
constitutes its representation and warranty that it is the legal
and beneficial owner of the Assigned Interest free and clear of
any Adverse Claim created by Windmill and that on the Put Date it
is not subject to any bankruptcy, insolvency or similar
proceeding described in Section 2.1(e) of the Sale Agreement.
Very truly yours,
ABN AMRO Bank N.V., as Agent
By _______________________
Name______________________
Title_____________________
By________________________
Name______________________
Title_____________________
Schedule I
to
Notification of Assignment
Dated ___________, 199_
I. Percentage of Windmill Investment and related Windmill
Settlement assigned: ___%
II. Information for each Committed Purchaser.
Purchaser Purchased Percentage Purchase Price
_____________ _____________________ _______________
_____________ _____________________ _______________
_____________ _____________________ _______________
_____________ _____________________ _______________
_____________ _____________________ _______________
III. Information for Seller.
A. Aggregate Windmill Investment Assigned: $______________.
B. Aggregate Windmill Settlement Assigned: $______________.
C. Aggregate amounts allocated to clause (b) of the
definition of Purchase Price:
$___________.
Exhibit C
to
Receivables Sale Agreement
Form of Notification of Assignment to Windmill
From the Committed Purchasers
______________, 199_
Crompton & Knowles
Receivables Corporation
_______________________
_______________________
ABN AMRO Bank N.V., as Agent
Asset Securitization, Structured Finance
Suite 725
135 South LaSalle Street
Chicago, Illinois 60674-9135
Attn: Enhancer-Windmill
[Insert Name and Address of each
Liquidity Provider]
Re: Receivables Sale Agreement dated as of
December 11, 1998 (the "Sale Agreement") among
Crompton & Knowles Receivables Corporation, as Seller,
Crompton & Knowles Corporation, as Initial Collection
Agent, ABN AMRO Bank N.V., as Agent, and the
Purchasers thereunder
Ladies and Gentlemen:
The Agent under the above-referenced Sale Agreement hereby
notifies each of you that Windmill has notified the Agent
pursuant to Section 2.2 of the Sale Agreement that it will
purchase from the Committed Purchasers on ____________ (the
"Purchase Date") that portion of the Committed Purchasers'
Investments identified on Schedule I hereto (the "Assigned
Interest"). As further provided in Section 2.2 of the Sale
Agreement, upon payment by Windmill to the Agent of the purchase
price of such Investments described on Schedule I hereto,
effective as of the Purchase Date the assignment by the Committed
Purchasers to Windmill of the Assigned Interest shall be complete
and all payments thereon under the Sale Agreement shall be made
to Windmill.
In accordance with the Sale Agreement, each Committed
Purchaser's acceptance of the portion purchase price payable to
it described on Schedule I hereto constitutes its representation
and warranty that it is the legal and beneficial owner of the
portion of the Assigned Interest related to its Purchase Interest
identified on Schedule I free and clear of any Adverse Claim
created or granted by it and that on the Purchase Date it is not
subject to a Bankruptcy Event.
Very truly yours,
ABN AMRO Bank N.V., as Agent
By_________________________
Name_______________________
Title______________________
By_________________________
Name_______________________
Title______________________
Schedule I
to
Notification of Assignment
Dated ___________, 199_
I. Amount of Committed Purchaser Investment Assigned: $_________
II. Information for each Committed Purchaser.
Purchaser Purchase Interest Purchase Price*
_________ ________________ _______________
_________ ________________ _______________
_________ ________________ _______________
_________ ________________ _______________
_________ ________________ _______________
III. Information for Seller.
Aggregate amounts of purchase price in excess of amount of
Investment assigned: $_______________.
Exhibit D-1
Form of Periodic Report
Exhibit D-2
Form of Daily Report
Exhibit E
Addresses and Names of Seller and Originators
1. Locations. (a) The chief executive office of the
Seller and each Originator are located at the following address:
Crompton & Knowles Receivables Corporation
Benson Road
Middlebury, Connecticut 06749
Uniroyal Chemical Company, Inc.
Benson Road
Middlebury, Connecticut 06749
Uniroyal Chemical Export Ltd.
Benson Road
Middlebury, Connecticut 06749
Davis Standard Corporation
1 Extrusion Drive
Pawcatuck, Connecticut 06379
Crompton & Knowles Colors Incorporated
3001 North Graham Street
Charlotte, North Carolina 28206
No such address was different at any time since December 31, 1997
(b) The following are all the locations where the Seller
and each Originator directly or through its agents maintain any
Records:
Station Place
Metro Center
Stamford, Connecticut 06902
Route 724
Bidsboro, Pennsylvania 19508
2. Names. The following is a list of all names
(including trade names or similar appellations) used by the
Seller and each Originator or any of its divisions or other
business units:
None.
Exhibit F
Subsidiaries
Exhibit G
Lock Boxes and Lock-Box Banks
Bank Lock-Box Number Collection Account
Citibank 8429, 2049, and 8129 4049-8376
Fleet Bank 30586 058-8001
First Union
National Bank 9595 8126-1733
First Union
National Bank 601247 2011-3077884317
Exhibit H
to Receivables Sale Agreement
Form of Lock Box Letter
[Name of Lock Box Bank]
Ladies and Gentlemen:
Reference is made to the lock-box numbers _______________ in
__________ and the associated the lock-box demand deposit account
number ____________ maintained with you (such lock-boxes and
associated lock-box demand deposit account, collectively, the
"Accounts"), each in the name of [Name of Originator] ("[___]").
[___] hereby confirms it has sold all Receivables (as defined
below) to Crompton & Knowles Receivables Corporation (the
"Seller").
In connection with the Receivables Sale Agreement, dated as
of December 11, 1998 (as amended, supplemented or otherwise
modified from time to time, the "Receivables Sale Agreement"),
among the Seller, Windmill Funding Corporation ("Windmill"), the
financial institutions from time to time party thereto
(collectively, the "Liquidity Providers"), ABN AMRO Bank N.V., as
provider of the program letter of credit (the "Enhancer"), and
ABN AMRO Bank N.V., as agent (the "Agent") for Windmill, the
Liquidity Providers and the Enhancer (collectively, the
"Purchasers"), the Seller has assigned to the Agent for the
benefit of the Purchasers an undivided percentage interest in the
accounts, chattel paper, instruments or general intangibles
(collectively, the "Receivables") under which payments are or may
hereafter be made to the Accounts, and has granted to the Agent
for the benefit of the Purchasers a security interest in its
retained interest in such Receivables. As is the customary
practice in this type of transaction, we hereby request that you
execute this letter agreement. All references herein to "we" and
"us" refer to [_____] and the Seller, jointly and severally.
Your execution hereof is a condition precedent to our continued
maintenance of the Accounts with you.
We hereby transfer exclusive dominion and control of the
Accounts to the Agent, subject only to the condition subsequent
that the Agent shall have given you notice that a "Termination
Event" has occurred and is continuing under the Receivables Sale
Agreement and of its election to assume such dominion and
control, which notice shall be in substantially the form attached
hereto as Annex A (the "Agent's Notice").
At all times prior to the receipt of the Agent's Notice
described above, all payments to be made by you out of, or in
connection with the Accounts, are to be made in accordance with
the instructions of the Seller or its agent.
We hereby irrevocably instruct you, at all times from and
after the date of your receipt of the Agent's Notice as described
above, to make all payments to be made by you out of, or in
connection with, the Accounts directly to the Agent, at its
address set forth below its signature hereto or as the Agent
otherwise notifies you, or otherwise in accordance with the
instructions of the Agent.
We also hereby notify you that, at all times from and after
the date of your receipt of the Agent's Notice as described
above, the Agent shall be irrevocably entitled to exercise in our
place and stead any and all rights in connection with the
Accounts, including, without limitation, (a) the right to specify
when payments are to be made out of, or in connection with, the
Accounts and (b) the right to require preparation of duplicate
monthly bank statements on the Accounts for the Agent's audit
purposes and mailing of such statements directly to an address
specified by the Agent. At all times from and after the date of
your receipt of the Agent's Notice, neither we nor any of our
affiliates shall be given any access to the Accounts.
The Agent's Notice may be personally served or sent by
telex, facsimile or U.S. mail, certified return receipt
requested, to the address, telex or facsimile number set forth
under your signature to this letter agreement (or to such other
address, telex or facsimile number as to which you shall notify
the Agent in writing). If the Agent's Notice is given by telex
or facsimile, it will be deemed to have been received when the
Agent's Notice is sent and the answerback is received (in the
case of telex) or receipt is confirmed by telephone or other
electronic means (in the case of facsimile). All other notices
will be deemed to have been received when actually received or,
in the case of personal delivery, delivered.
By executing this letter agreement, you acknowledge the
existence of the Agent's right to dominion and control of the
Accounts and its ownership of and security interest in the
amounts from time to time on deposit therein and agree that from
the date hereof the Accounts shall be maintained by you for the
benefit of, and amounts from time to time therein held by you as
agent for, the Agent on the terms provided herein. The Accounts
are to be entitled "Crompton & Knowles Receivables Corporation
and ABN AMRO Bank N.V., as Agent for the Purchasers" with the
subline ["Name of Originator"]. Except as otherwise provided in
this letter agreement, payments to the Accounts are to be
processed in accordance with the standard procedures currently in
effect. All service charges and fees in connection with the
Accounts shall continue to be payable by us under the
arrangements currently in effect.
By executing this letter agreement, you (a) irrevocably
waive and agree not to assert, claim or endeavor to exercise, (b)
irrevocably bar and estop yourself from asserting, claiming or
exercising and (c) acknowledge that you have not heretofore
received a notice, writ, order or other form of legal process
from any other party asserting, claiming or exercising, any right
of set-off, banker's lien or other purported form of claim with
respect to the accounts or any funds from time to time therein.
Except for your right to payment of your service charge and fees
and to make deductions for returned items, you shall have no
rights in the Accounts or funds therein, except deductions for
service charges, fees and returned or misplaced items. To the
extent you may ever have any additional rights, you hereby
expressly subordinate all such rights to all rights of the Agent.
You may terminate this letter agreement by cancelling the
Accounts maintained with you, which cancellation and termination
shall become effective only upon thirty (30) days prior written
notice thereof from you to the Agent in the absence of fraud or
abuse. Incoming mail addressed to the Accounts (including,
without limitation, any direct funds transfer to the Accounts)
received after such cancellation shall be forwarded in accordance
with the Agent's instructions. This letter agreement may also be
terminated upon written notice to you by the Agent stating that
the Receivables Sale Agreement is no longer in effect. Except as
otherwise provided in this paragraph, this letter agreement may
not be terminated without the prior written consent of the Agent.
This letter agreement contains the entire agreement between
the parties with respect to the subject matter hereof, and may
not be altered, modified or amended in any respect, nor may any
right, power or privilege of any party hereunder be waived or
released or discharged, except upon execution by you, us and the
Agent of a written instrument so providing. The terms and
conditions of any agreement between us and you (a "Lock-Box
Service Agreement") (whether now existing or executed hereafter)
with respect to the lock-box arrangements, to the extent not
inconsistent with this letter agreement, will remain in effect
between you and us. In the event that any provision in this
letter agreement is in conflict with, or inconsistent with, any
provision of any such Lock-Box Service Agreement, this letter
agreement will exclusively govern and control. Each party agrees
to take all actions reasonably requested by any other party to
carry out the purposes of this letter agreement or to preserve
and protect the rights of each party hereunder.
[___] agrees to indemnify, defend and hold harmless you and
your affiliates, directors, officers, employees, agents,
successors and assigns (each, an "Indemnitee") from and against
any and all liabilities, losses, claims, damages, demands, costs
and expenses of every kind (including but not limited to costs
incurred as a result of items being deposited in the Account and
being unpaid for any reason, reasonable attorney's fees and the
reasonable charges of your in-house counsel) incurred or
sustained by any Indemnitee arising out of your performance of
the services contemplated by this Lock-Box Letter, except to the
extent such liabilities, losses, claims, damages, demands, costs
and expenses are the direct result of your gross negligence or
willful misconduct. The provisions of this paragraph shall
survive the termination of this Lock-Box Letter.
In the event [___] becomes subject to a voluntary or
involuntary proceeding under the United States Bankruptcy Code,
or if you are otherwise served with legal process which you in
good faith believe affects funds in the Account you may suspend
disbursements from the Account otherwise required by the terms
hereof until such time as you receive an appropriate court order
or other assurances satisfactory to you establishing that the
funds may continue to be disbursed according to the instructions
contained in this Lock-Box Letter.
This letter agreement and the rights and obligations of the
parties hereunder will be governed by and construed and
interpreted in accordance with the laws of the state of New York.
This letter agreement may be executed in any number of
counterparts and all of such counterparts taken together will be
deemed to constitute one and the same instrument.
Please indicate your agreement to the terms of this letter
agreement by signing in the space provided below. This letter
agreement will become effective immediately upon execution of a
counterpart of this letter agreement by all parties hereto.
Very truly yours,
[Name of Originator]
By:__________________________
Title:_______________________
Crompton & Knowles Receivables Corporation
By:__________________________
Title:_______________________
Accepted and confirmed as of
the date first written above:
By: ABN AMRO Bank N.V., as Agent
By:___________________________
Title:__________________________
By:____________________________
Title:___________________________
Address of notice:
ABN AMRO Bank N.V.
Structured Finance, Asset Securitization
135 South LaSalle Street
Chicago, Illinois 60674
Attention: Purchaser Agent-Windmill
Telephone Number: (312) 904-6263
Telecopy Number: (312) 904-6376
Acknowledged and agreed to as of the date first written above:
[Name of Bank]
By:___________________________
Title:__________________________
Address for notice:
_______________________________
_______________________________
Annex A to Lock-Box Letter
[Name of Bank]
Re: Crompton & Knowles Receivables Corporation
Lock Box Numbers ______________
Lock-Box Account Number ____________
Ladies and Gentlemen:
Reference is made to the letter agreement dated
_________________ (the "Letter Agreement") among [Name of
Originator], Crompton & Knowles Receivables Corporation, the
undersigned, as Agent, and you concerning the above-described
lock-boxes and lock-box account (collectively, the "Accounts").
We hereby give you notice that a "Termination Event" has occurred
and is continuing under the Receivables Sale Agreement (as
defined in the Letter Agreement) and of our assumption of
dominion and control of the Accounts as provided in the Letter
Agreement.
We hereby instruct you not to permit any other party to have
access to the Accounts and to make all payments to be made by you
out of or in connection with the Accounts directly to the
undersigned upon our instructions, at our address set forth
above.
Very truly yours,
ABN AMRO Bank N.V.
By:_________________________
Title:______________________
By:_________________________
Title:______________________
cc: Crompton & Knowles Receivables Corporation
Exhibit I
To Receivables Sale Agreement
Compliance Certificate
To: ABN AMRO Bank N.V., as Agent, and
each Purchaser
This Compliance Certificate is furnished pursuant to Section
5.1(a)(iii) of the Receivables Sale Agreement, dated as of
December 11, 1998 (as amended, supplemented or otherwise modified
through the date hereof, the "Sale Agreement"), among Crompton &
Knowles Receivables Corporation (the "Seller"), Crompton &
Knowles Corporation (the "Initial Collection Agent"), the
liquidity providers from time to time party thereto
(collectively, the "Liquidity Providers"), Windmill Funding
Corporation ("Windmill") and ABN AMRO Bank N.V., as the provider
of the program letter of credit (the "Enhancer" and together with
the Liquidity Providers and Windmill, the "Purchasers"), and ABN
AMRO Bank N.V. as agent for the Purchasers (in such capacity, the
"Agent"). Terms used in this Compliance Certificate and not
otherwise defined herein shall have the respective meanings
ascribed thereto in the Sale Agreement.
The undersigned hereby represents, warrants, certifies and
confirms that:
1. The undersigned is a duly elected Designated
Financial Officer of the undersigned.
2. Attached hereto is a copy of the financial statements
described in Section 5.1(a)(i) or 5.1(a)(ii) of the Sale
Agreement.
3. The undersigned has reviewed the terms of the
Transaction Documents and has made, or caused to be made under
his/her supervision, a detailed review of the transactions and
the conditions of the Seller and each Originator during and at
the end of the accounting period covered by the attached
financial statements.
4. The examinations described in paragraph 3 hereof did
not disclose, and the undersigned has no knowledge of, the
existence of any condition or event which constitutes a Potential
Termination Event, during or at the end of the accounting period
covered by the attached financial statements or as of the date of
this Compliance Certificate, except as set forth below.
5. Based on the examinations described in paragraph 3
hereof, the undersigned confirms that the representations and
warranties contained in Article IV of the Sale Agreement are true
and correct as though made on the date hereof, except as set
forth below.
6. The undersigned confirms that Year 2000 remediation
efforts are proceeding as scheduled.
7. [Indicate whether an auditor, regulator or third
party consultant of the undersigned has issued a management
letter or other communication regarding Year 2000 exposure,
program or progress].
Described below are the exceptions, if any, to paragraphs 4
and 5 listing, in detail, the nature of the condition or event,
the period during which it has existed and the action the
undersigned has taken, is taking or proposes to take with respect
to each such condition or event:
The foregoing certifications, together with the computations
set forth in Schedule I hereto and the financial statements
delivered with this Compliance Certificate in support hereof, are
made and delivered this ____ day of ___________, 199__.
[Name of Seller or Originator]
By:_______________________
Designated Financial Officer
Exhibit J
Credit and Collection Polic
Pricing Letter
December 11, 1998
Crompton & Knowles Receivables Corporation
Station Place
Metro Center
Stamford, Connecticut 06902
Ladies and Gentlemen:
Reference is made to the Receivables Sale Agreement (the
"Sale Agreement"), dated as of December 11, 1998, among Crompton
& Knowles Receivables Corporation ("Seller"), Crompton & Knowles
Corporation (the "Initial Collection Agent"), ABN AMRO Bank N.V.,
as agent (the "Agent"), the Liquidity Providers party thereto,
the Enhancer and Windmill Funding Corporation. For purposes of
this letter, unless otherwise defined herein, all terms defined
in the Sale Agreement and used herein have the same meaning
herein as in the Sale Agreement. This letter is the "Pricing
Letter" referred to in, and supplements, the Sale Agreement and
is subject to all of the terms and provisions thereof.
Liquidity Provider Eurodollar Rate. The rate referred to in
clause (b)(i) of the definition of Eurodollar Rate is 0.75%.
This letter shall be governed by and construed in accordance
with the laws of the State of New York and may be executed in
counterparts, each of which shall constitute an original and all
of which, when taken together, shall constitute but one
instrument.
If this is acceptable to you, please so indicate by signing
below.
Sincerely,
ABN AMRO Bank N.V., as the Agent and
as the sole Liquidity Provider
By:
Name:
Title:
By:
Name:
Title:
Windmill Funding Corporation
By:
Name:
Title:
Accepted and Agreed:
Crompton & Knowles Receivables Corporation
By
Name:
Title:
Fee Letter
December 11, 1998
Crompton & Knowles Receivables Corporation
Station Place
Metro Center
Stamford, Connecticut 06902
Ladies and Gentlemen:
Reference is made to the Receivables Sale Agreement (the
"Sale Agreement"), dated as of December 11, 1998, among Crompton
& Knowles Receivables Corporation ("Seller"), Crompton & Knowles
Corporation (the "Initial Collection Agent"), ABN AMRO Bank N.V.,
as agent (the "Agent"), the Liquidity Providers party thereto,
the Enhancer and Windmill Funding Corporation. For purposes of
this letter, unless otherwise defined herein, all terms defined
in the Sale Agreement and used herein have the same meaning
herein as in the Sale Agreement. This letter is the "Fee Letter"
referred to in, and supplements, the Sale Agreement and is
subject to all of the terms and provisions thereof.
Program Fee. The Seller agrees to pay to the Agent, during
the period from the date hereof to the date on or after the
Liquidity Termination Date when no Aggregate Investment is
outstanding, a program fee equal to 25 basis points (0.25%) per
annum, payable monthly in arrears on the twentieth day of each
calendar month, on an amount equal to the daily average amount of
the Aggregate Commitment during the immediately preceding
calendar month, calculated on the basis of actual number of days
elapsed during the immediately preceding calendar month and a 360
day year.
Bank Upfront Fee. The Seller agrees to pay to the Agent, on
the date hereof, for its own account, a onetime bank upfront fee
equal to $75,000.
Enhancer Eurodollar Rate. The rate referred to in clause
(b)(ii) of the definition of Eurodollar Rate is 0.75%.
The Seller shall pay to the Agent on the date hereof all
rating agency, legal and accounting expenses of the Agent and
Purchasers arising in connection with the execution, delivery,
amendment and enforcement of the Transaction Documents.
This letter shall be governed by and construed in accordance
with the laws of the State of New York, and may be executed in
counterparts, each of which shall constitute an original and all
of which, when taken together, shall constitute but one
instrument.
If this is acceptable to you, please so indicate by signing
below.
Sincerely,
ABN AMRO Bank N.V., as the Agent
and as the Enhancer
By:
Name:
Title:
By:
Name:
Title:
Windmill Funding Corporation
By:
Name:
Title:
Accepted and Agreed:
Crompton & Knowles Receivables Corporation
By:
Name:
Title:
Limited Guaranty
For Value Received and in consideration of advances made or
to be made, or credit given or to be given, or other financial
accommodation afforded or to be afforded to Crompton & Knowles
Receivables Corporation, a corporation organized and existing
under the laws of the State of Delaware (hereinafter designated
as "Debtor"), by the Purchasers (the "Purchasers") in the below
referenced Sale Agreement and ABN AMRO Bank N.V. as the agent (in
such capacity, the "Agent") from time to time, the undersigned
(the "Guarantor") hereby guarantees the performance by the Debtor
of the obligations now or hereafter existing pursuant to the Sale
Agreement that are full recourse obligations of the Debtor as
provided in Section 1.4(c) of the Receivables Sale Agreement
dated as of December 11, 1998 (said agreement, as it may
hereafter be amended or otherwise modified from time to time,
being the "Sale Agreement") among the Purchasers, the Agent, the
Guarantor, in its capacity as Initial Collection Agent and the
Debtor (such full recourse obligations of the Debtor as provided
in Section 1.4(c) of the Sale Agreement being, collectively, the
"Obligations"), and agrees to pay any and all expenses (including
counsel fees and expenses) incurred by the Purchasers and the
Agent in enforcing any rights under this guaranty (the
"Guaranty"). Capitalized terms used herein without definition
shall have the same meanings herein as such terms have in the
Sale Agreement.
The Guarantor absolutely, irrevocably and unconditionally
guarantees to the Agent and each Purchaser the full and prompt
payment when due (by acceleration or otherwise) of all
Obligations of the Debtor to such Persons. The books and records
of the Agent showing the amount of the Obligations of the Debtor
shall be admissible in evidence in any action or proceeding,
shall be binding upon the Guarantor and shall be conclusive
(absent demonstrable error) for the purpose of establishing the
amount of the Obligations of the Debtor to the Agent or any
Purchaser. The liability of the Guarantor under this Guaranty
shall be absolute and unconditional irrespective of any lack of
genuineness, validity, legality or enforceability of any
Transaction Document or any other document, agreement or
instrument relating thereto or any assignment or transfer of any
thereof. This is a continuing guaranty and shall remain in full
force and effect and be binding upon the Guarantor and the
Guarantor's successors and assigns.
Waiver of Suretyship Defenses. The Guarantor authorizes the
Agent and each Purchaser, without notice or demand and without
affecting the Guarantor's liability hereunder, from time to time
to renew, extend, accelerate, compromise, settle, restructure,
refinance, refund or otherwise change the amount and time for
payment of the Obligations, or otherwise change the terms of the
Obligations or any part thereof. Neither the Agent nor any
Purchaser shall have any obligation to perfect, secure, marshall,
protect or insure any collateral or any collateral agreement and
the Guarantor's liability hereunder shall not be affected by the
non-perfection, invalidity, impairment or unenforceability of any
collateral or collateral agreement.
Insolvency of Debtor. This Guaranty shall continue to be
effective or be reinstated, as the case may be, if at any time
payment or performance of the Obligations of the Debtor, or any
part thereof, is, upon the insolvency, bankruptcy or
reorganization of the Debtor or otherwise pursuant to applicable
law, rescinded or reduced in amount or must otherwise be restored
or returned by the Agent or any Purchaser, all as though such
payment or performance had not been made.
Exhaustion of Other Remedies Not Required. The obligations
of the Guarantor hereunder are those of a primary obligor, and
not merely a surety, and are independent of the Obligations. The
Guarantor unconditionally waives any right to require the Agent
or any Purchaser to (a) proceed against the Debtor or any other
obligor in respect of the Obligations; (b) proceed against or
exhaust any security held directly or indirectly on account of
the Obligations; or (c) pursue any other remedy in the Agent's or
Purchaser's powers whatsoever. No failure or delay by the Agent
or any Purchaser in exercising any right, power or privilege
hereunder shall operate as a waiver thereof nor shall any single
or partial exercise thereof preclude any other or further
exercise thereof or the exercise of any other right, power or
privilege.
Waiver of Notices. The Guarantor hereby waives (i) notice
of acceptance of this Guaranty and of any extension of any loan
or other financial accommodation by the Agent or any Purchaser to
the Debtor; (ii) presentment and demand for payment of any of the
Obligations; (iii) protest and notice of dishonor or default to
the Guarantor or to any other party with respect to any of the
Obligations; and (iv) all other notices to which the Guarantor
might otherwise be entitled.
Amendments. No amendment or waiver of any provision of this
Guaranty shall in any event be effective unless the same shall be
in writing and signed by the Agent and each Purchaser.
Payment of Expenses. The Guarantor agrees to pay all
reasonable attorneys' fees and charges, including the reasonable
disbursements of internal counsel, and all other reasonable costs
and expenses which may be incurred by the Agent or any Purchaser
in the enforcement of this Guaranty.
Governing Law/Trial By Jury. This Guaranty and the rights
and obligations of the Guarantor, the Agent and each Purchaser
under this Guaranty shall be governed by, and construed and
interpreted in accordance with, the law of the State of New York.
The Guarantor waives any right it may have to a jury trial in
connection with any action, suit or proceeding arising out of or
related in any way to this Guaranty.
Subrogation. The Guarantor shall not exercise any
subrogation rights which it may have under this Guaranty nor
shall the Guarantor seek any reimbursement from the Debtor unless
and until all of the Obligations have been paid in full.
In Witness Whereof, the Guarantor has caused this Guaranty
to be executed as of the date and year first above written.
Crompton & Knowles Corporation
By:
Title:
EXHIBIT 10.292
RECEIVABLES PURCHASE AGREEMENT
dated as of December 11, 1998
among
CROMPTON & KNOWLES CORPORATION
as Initial Collection Agent,
UNIROYAL CHEMICAL COMPANY, INC.
UNIROYAL CHEMICAL EXPORT LTD.
DAVIS STANDARD CORPORATION
and
CROMPTON & KNOWLES COLORS INCORPORATED
as Sellers,
and
CROMPTON & KNOWLES RECEIVABLES CORPORATION
as Buyer
TABLE OF CONTENTS
ARTICLE I
PURCHASE AND SALE
SECTION 1.1 Purchase and Sale Page 1
SECTION 1.2 Timing of Purchases Page 2
SECTION 1.3 Consideration for Purchases Page 2
SECTION 1.4 No Recourse Page 2
SECTION 1.5 No Assumption of Obligations Relating to
Receivables, Related Assets or Contracts Page 2
SECTION 1.6 True Sales Page 3
SECTION 1.7 Contribution of Receivables Page 3
ARTICLE II
CALCULATION OF PURCHASE PRICE
SECTION 2.1 Calculation of Purchase Price Page 4
SECTION 2.2 Definitions and Calculations Related to
Purchase Price Percentage Page 5
ARTICLE III
PAYMENT OF PURCHASE PRICE; SERVICING, ETC.
SECTION 3.1 Purchase Price Payments Page 5
SECTION 3.2 The Buyer Notes Page 8
SECTION 3.3 Application of Collections and Other Funds Page 8
SECTION 3.4 Servicing of Receivables and Related Assets Page 9
SECTION 3.5 Adjustments for Noncomplying Receivables Page 9
SECTION 3.6 Payments and Computations Etc Page 9
ARTICLE IV
CONDITIONS TO PURCHASES
SECTION 4.1 Conditions Precedent to Initial Purchase Page 10
SECTION 4.2 Certification as to Representations and
Warranties Page 11
SECTION 4.3 Effect of Payment of Purchase Price Page 11
ARTICLE V
REPRESENTATIONS AND WARRANTIES
SECTION 5.1 Representations and Warranties of the Sellers Page 11
SECTION 5.2 Representations and Warranties of Buyer Page 16
ARTICLE VI
GENERAL COVENANTS OF THE SELLERS
SECTION 6.1 Affirmative Covenants Page 17
SECTION 6.2 Reporting Responsibilities. Page 19
SECTION 6.3 Negative Covenants Page 21
ARTICLE VII
ADDITIONAL RIGHTS AND OBLIGATIONS IN RESPECT OF THE SPECIFIED ASSETS
SECTION 7.1 Rights of Buyer Page 23
SECTION 7.2 Responsibilities of the Sellers Page 24
SECTION 7.3 Further Action Evidencing Purchases Page 24
SECTION 7.4 Collection of Receivables; Rights of Buyer and
Its Assignees Page 25
ARTICLE VIII
TERMINATION
SECTION 8.1 Termination by the Sellers Page 26
SECTION 8.2 Automatic Termination Page 26
ARTICLE IX
INDEMNIFICATION
SECTION 9.1 Indemnities by the Seller Page 26
ARTICLE X
MISCELLANEOUS
SECTION 10.1 Amendments; Waivers, Etc Page 28
SECTION 10.2 Notices, Etc Page 28
SECTION 10.3 Cumulative Remedies Page 29
SECTION 10.4 Binding Effect; Assignability; Survival of
Provisions Page 29
SECTION 10.5 Governing Law Page 29
SECTION 10.6 Costs, Expenses and Taxes Page 29
SECTION 10.7 Submission to Jurisdiction Page 30
SECTION 10.8 Waiver of Jury Trial Page 30
SECTION 10.9 Integration Page 30
SECTION 10.10 Counterparts Page 30
SECTION 10.11 Acknowledgment and Consent Page 31
SECTION 10.12 No Partnership or Joint Venture Page 31
SECTION 10.13 No Proceedings Page 31
SECTION 10.14 Severability of Provisions Page 32
SECTION 10.15 Recourse to Buyer Page 32
EXHIBITS
EXHIBIT A Form of Buyer Note
EXHIBIT B Form of Seller Assignment Certificate
SCHEDULES
SCHEDULE 1 Litigation and Other Proceedings (Section 5.1(f))
SCHEDULE 2 Credit and Collection Policy (Section 5.1(4))
SCHEDULE 3 Offices of the Sellers where Records are Maintained (Section
5.1(n))
SCHEDULE 4 Legal Names, Trade Names and Names Under Which the Sellers Do
Business (Section 5.1(q))
APPENDICES
APPENDIX A Definitions
This RECEIVABLES PURCHASE AGREEMENT, dated as of December 11, 1998 (this
"Agreement"), is made among CROMPTON & KNOWLES CORPORATION, a Massachusetts
corporation (the "Parent"), as the Initial Collection Agent, certain
Affiliates of the Parent that are listed on the signature pages hereto as a
seller (each a "Seller" and collectively, the "Sellers"), and CROMPTON &
KNOWLES RECEIVABLES CORPORATION, a Delaware corporation ("Buyer"). Except as
otherwise defined herein, capitalized terms used in this Agreement have the
meanings assigned to them in Appendix A. This Agreement shall be interpreted
in accordance with the conventions set forth in Part B of such Appendix A.
WHEREAS, pursuant to the Receivables Sale Agreement, Buyer intends to
transfer its interests in the Receivables sold pursuant hereto, together with
Receivables contributed to Buyer from time to time, to Windmill Funding
Corporation and the Committed Purchasers (as such term is defined in the
Receivables Sale Agreement) in order to, among other things, finance its
purchases hereunder;
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto, intending to
be legally bound, agree as follows:
ARTICLE I
PURCHASE AND SALE
SECTION 1.1 Purchase and Sale. Each Seller hereby sells, transfers,
assigns, sets over and otherwise conveys to Buyer and Buyer hereby purchases
from each Seller, at the times set forth in Section 1.2, all of such Seller's
right, title and interest in, to and under:
(a) all Receivables of such Seller (other than Contributed
Receivables) that existed and were owing to such Seller as at the closing of
such Seller's business on the Initial Cut-Off Date,
(b) all Receivables created by such Seller (other than Contributed
Receivables) that arise during the period from and including the closing of
such Seller's business on the Initial Cut-Off Date to but excluding the
Purchase Termination Date,
(c) all Related Security with respect to all Receivables (other
than Contributed Receivables) of such Seller,
(d) the Lockboxes, the Bank Accounts, all documents, instruments
and agreements relating to the Lockboxes or the Bank Accounts, and all amounts
from time to time on deposit in the Lockboxes or the Bank Accounts,
(e) all Collections and other proceeds of the foregoing, including
all funds received by any Person in payment of any amounts owed (including
invoice prices, finance charges, interest and all other charges, if any) in
respect of any Receivable described above (other than a Contributed
Receivable) or Related Security with respect to any such Receivable, or
otherwise applied to repay or discharge any such Receivable (including
insurance payments that a Seller or Initial Collection Agent applies in the
ordinary course of its business to amounts owed in respect of any such
Receivable and net proceeds of any sale or other disposition of repossessed
goods that were the subject of any such Receivable) or other collateral or
property of any Obligor or any other Person directly or indirectly liable for
payment of such Receivables, and
(f) all Records relating to any of the foregoing.
As used herein, (i) "Purchased Receivables" means the items listed above
in clauses (a) and (b), (ii) "Related Purchased Assets" means the items listed
above in clauses (c), (d), (e), and (f), (iii) "Related Assets" means the
Related Purchased Assets and the Related Contributed Assets, (iv) "Purchased
Assets" means the Purchased Receivables and the Related Purchased Assets, and
(v) "Specified Assets" means the Purchased Receivables, the Contributed
Receivables and the Related Assets.
SECTION 1.2 Timing of Purchases.
(a) Initial First Issuance Date Purchases. All of the Purchased Assets
of each Seller that existed at the closing of such Seller's business on the
Initial Cut-Off Date shall be sold automatically to Buyer on the First
Issuance Date.
(b) Regular Purchases. Except to the extent otherwise provided in
Section 8.2, after the closing of a Seller's business on the Initial Cut-Off
Date until the closing of such Seller's business on the Business Day
immediately preceding the Purchase Termination Date, each and every Receivable
and the Related Assets of each Seller shall be sold automatically to Buyer
pursuant hereto immediately (and without further action by any Person) upon
the creation of such Receivable.
SECTION 1.3 Consideration for Purchases. On the terms and subject to
the conditions set forth in this Agreement, Buyer agrees to make Purchase
Price payments to the Sellers in accordance with Article III.
SECTION 1.4 No Recourse. Except as specifically provided in this
Agreement, the sale and purchase of Purchased Assets, and the transfer and
assignment of the Contributed Assets, under this Agreement shall be without
recourse to the Sellers; it being understood that each Seller shall be liable
to Buyer for all representations, warranties, covenants and indemnities made
by such Seller pursuant to the terms of this Agreement, all of which
obligations are limited so as not to constitute recourse to such Seller for
the credit risk of the Obligors.
SECTION 1.5 No Assumption of Obligations Relating to Receivables,
Related Assets or Contracts. None of Buyer, the Initial Collection Agent nor
the Agent shall have any obligation or liability to any Obligor or other
customer or client of a Seller (including any obligation to perform any of the
obligations of such Seller under any Receivable, related contracts or any
other related purchase orders or other agreements). No such obligation or
liability is intended to be assumed by Buyer, the Initial Collection Agent or
the Agent hereunder, and any assumption is expressly disclaimed.
SECTION 1.6 True Sales. The Sellers and Buyer intend the transfers of
Purchased Assets and Contributed Assets hereunder to be true sales or
contributions to capital, respectively by the Sellers to Buyer that are
absolute and irrevocable and that provide Buyer with the full benefits of
ownership of the Receivables, and none of the Sellers nor Buyer intends the
transactions contemplated hereunder to be, or for any purpose to be
characterized as, loans from Buyer to any Seller.
It is, further, not the intention of Buyer or any Seller that the
conveyance of the Specified Assets by such Seller be deemed a grant of a
security interest in the Specified Assets by such Seller to Buyer to secure a
debt or other obligation of such Seller. However, in the event that,
notwithstanding the intent of the parties, any Specified Assets are property
of any Seller's estate, then (i) this Agreement also shall be deemed to be and
hereby is a security agreement within the meaning of the UCC, and (ii) the
conveyance by such Seller provided for in this Agreement shall be deemed to be
a grant by such Seller to Buyer of, and such Seller hereby grants to Buyer, a
security interest in and to all of such Seller's right, title and interest in,
to and under the Specified Assets, whether now or hereafter existing or
created, to secure (1) the rights of Buyer hereunder, (2) a loan by Buyer to
such Seller in the amount of the related Purchase Price of the Purchased
Assets sold by it or the Unpaid Balance of any Contributed Receivables and the
related Contributed Assets, as the case may be and (3) without limiting the
foregoing, the payment and performance of such Seller's obligations (whether
monetary or otherwise) hereunder. Each Seller and Buyer shall, to the extent
consistent with this Agreement, take such actions as may be necessary to
ensure that, if this Agreement were deemed to create a security interest in
the Specified Assets, such security interest would be deemed to be a perfected
security interest of first priority (subject to Permitted Adverse Claims) in
favor of Buyer under applicable law and will be maintained as such throughout
the term of this Agreement.
SECTION 1.7 Contribution of Receivables. If at any time, the Parent
will become a Seller under the Agreement, then the Parent may, in its sole
discretion, from time to time, transfer to Buyer, as a contribution to the
capital of Buyer, all its right, title and interest in, to and under:
(a) such Receivables of the Parent that the Parent may from time to
time designate in a Periodic Report as part of a contribution to the capital
of Buyer (collectively, the "Contributed Receivables"),
(b) all Related Security with respect to the Contributed
Receivables,
(c) all Collections and other proceeds of the foregoing, including
all funds received by any Person in payment of any amounts owed (including
invoice prices, finance charges, interest and all other charges, if any other
than sales tax) in respect of any Contributed Receivable, or Related Security
with respect to any such Contributed Receivable, or otherwise applied to repay
or discharge any such Contributed Receivable (including insurance payments
that the Parent or the Initial Collection Agent applies in the ordinary course
of its business to amounts owed in respect of any such Contributed Receivable
and net proceeds of any sale or other disposition of repossessed goods that
were the subject of any such Contributed Receivable) or other collateral or
property of any Obligor or any other party directly or indirectly liable for
payment of such Contributed Receivables, and
(d) all Records relating to any of the foregoing (the items listed
above in clauses (b), (c) and (d) being referred to herein as the "Related
Contributed Assets").
The value of the capital contribution attributable to each Contributed
Receivable and its Related Contributed Assets shall be an aggregate amount
equal to the Unpaid Balance of such Contributed Receivable as of the Cut-Off
Date immediately preceding the applicable date of contribution (or, in the
case of contributions deemed to occur pursuant to Section 3.1, equal to the
portion of the Unpaid Balance of the Receivables so contributed).
ARTICLE II
CALCULATION OF PURCHASE PRICE
SECTION 2.1 Calculation of Purchase Price. (a) On or before the
twentieth day of each month, the Initial Collection Agent shall deliver to
Buyer and the Agent a Periodic Report with respect to Buyer's purchases of
Receivables from the Sellers:
(i) that are to be made on the First Issuance Date (in the case of
the Periodic Report to be delivered on the First Issuance Date) or
(ii) that were made during the immediately preceding Calendar
Cycle.
(b) On each day when Receivables are purchased by Buyer from a Seller
pursuant to Article I, the "Purchase Price" to be paid to such Seller on such
day for the Purchased Receivables and Related Purchased Assets that are to be
sold by such Seller on such day shall be determined in accordance with the
following formula:
PP = AUB x PPP
where:
PP = the aggregate Purchase Price for the Purchased Receivables
and Related Purchased Assets to be purchased from such
Seller on such day.
AUB = the Aggregate Unpaid Balance of the Purchased Receivables
that are to be purchased from such Seller on such day.
"Aggregate Unpaid Balance" shall mean (i) for purposes of
calculating the Purchase Price to be paid to such Seller on
the First Issuance Date, the sum of the Unpaid Balance of
each Receivable generated by such Seller, as measured as at
the closing of such Seller's business on the Initial Cut-Off
Date, and (ii) for purposes of calculating the Purchase
Price on each Business Day thereafter, the sum of the Unpaid
Balance of each Receivable to be purchased from such Seller
on such day, calculated at the time of the Receivable's sale
to Buyer.
PPP = the Purchase Price Percentage applicable to the Receivables
to be purchased from such Seller on such day, as determined
pursuant to Section 2.2.
SECTION 2.2 Definitions and Calculations Related to Purchase Price
Percentage.
(a) "Purchase Price Percentage" for the Receivables to be sold by a
Seller on any day during a Distribution Period shall mean the percentage
determined in accordance with the following formula:
PPP = 100% - (LP + PD)
where:
PPP = the Purchase Price Percentage in effect during such
Distribution Period.
LP = a loss percentage of three quarters of one percent (.75%)
PD = a profit discount equal to one quarter of one percent
(.25%).
ARTICLE III
PAYMENT OF PURCHASE PRICE; SERVICING, ETC.
SECTION 3.1 Purchase Price Payments. (a) On the First Issuance Date
and on the Business Day following each day on which any Receivables and
Related Purchased Assets are purchased by Buyer pursuant to Article I, on the
terms and subject to the conditions of this Agreement, Buyer shall pay to the
Sellers the Purchase Price for the Receivables and Related Purchased Assets
purchased on such day by Buyer from the Sellers by (i) making a cash payment
to the Sellers to the extent that Buyer has cash available to make the payment
pursuant to Section 3.3 and (ii) if the Purchase Price to be paid for the
Receivables and Related Assets of any Seller exceeds the amount of any cash
payment for the account of such Seller on such day pursuant to clause (i), by
automatically increasing the principal amount outstanding under the relevant
Buyer Notes by the amount of the excess (or at the option of the Parent, if
and to the extent it shall become a Seller (as evidenced by notice to Initial
Collection Agent if the Initial Collection Agent is other than the Parent),
and only in the case of the Parent, when and if it shall become a Seller, such
excess shall be deemed to have been contributed to Buyer by the Parent as a
capital contribution).
The obligation of Buyer to pay the Purchase Price for Receivables that
has been deferred pursuant to the preceding paragraph shall be evidenced by
Buyer Notes. Each Seller agrees that, prior to the Seller Maturity Date, Buyer
shall be required to make payments in respect of the payment obligations
evidenced by the Buyer Notes only to the extent that it has cash available
under Section 3.3.
(b) On the last day of each Calendar Cycle, the "Noncomplying Receivables
Adjustment" for each Seller shall be equal to the difference (whether the
difference is positive or negative) between (i) the aggregate Seller
Noncomplying Receivables Adjustments in respect of such Seller, if any, for
the immediately preceding Calendar Cycle, as shown in the Periodic Report for
such Calendar Cycle, as such amount is determined pursuant to Section 3.5,
minus (ii) the amount of the payments (if any) that Buyer shall have received
during such Calendar Cycle from such Seller on account of any Seller
Noncomplying Receivables that had been the subject of an earlier Seller
Noncomplying Receivables Adjustment. If the Noncomplying Receivables
Adjustment for any Seller is positive for any Calendar Cycle, Buyer shall
reduce the Purchase Price payable to such Seller on such day pursuant to
subsection (a) above by the amount of the Noncomplying Receivables Adjustment.
If instead the Noncomplying Receivables Adjustment for any Seller is negative
for any Calendar Cycle, Buyer shall increase the Purchase Price payable to
such Seller pursuant to subsection (a) above on such day by the amount of the
Noncomplying Receivables Adjustment.
(c) If for any Calendar Cycle the Seller Noncomplying Receivables
Adjustments in respect of any Seller (as determined pursuant to Section 3.5),
less any amounts in clause (b)(ii) relating to such Seller's Receivables,
exceeds the Purchase Price payable by Buyer to such Seller pursuant to
subsection (a) above on such day, or if such day falls on or after the
Purchase Termination Date, then the principal amount of such Seller's Buyer
Note shall be reduced automatically by the amount of such excess.
(d) If, on any day prior to the Purchase Termination Date, the principal
amount of a Seller's Buyer Note is zero and such Seller is not a Terminating
Seller, then the amount of the excess of the Seller Noncomplying Receivables
Adjustments in respect of such Seller (as determined pursuant to Section 3.5),
less any amounts in clause (b)(ii) relating to such Seller's Receivables, on
such day over the Purchase Price payable by Buyer to Initial Collection Agent
(for the account of such Seller) on such day pursuant to subsection (a) above
(the "Purchase Price Credit") shall be credited against the Purchase Price
payable by Buyer for subsequent Purchases of Receivables and Related Assets of
such Seller by Buyer. If any such Purchase Price Credit has not been fully
applied on or prior to the tenth Business Day (or a mutually agreed upon
earlier day) after the creation of such Purchase Price Credit, then, on the
Business Day that follows the end of the tenth Business Day (or shorter)
period, such Seller shall pay to Buyer in cash the remaining unapplied amount
of the Purchase Price Credit.
(e) If, on any day on or after the Purchase Termination Date, or, with
respect to any Seller, the date such Seller becomes a Terminating Seller, the
principal amount of any Seller's Buyer Note has been reduced to zero, an
amount equal to the Seller Noncomplying Receivables Adjustments, if any, in
respect of such Seller (as determined pursuant to Section 3.5), less any
amounts in clause (b)(ii) relating to such Seller's Receivables, shall be paid
by such Seller to Buyer in cash on the next succeeding Business Day.
(f) If, on any day, the amounts, if any, relating to any Seller's
Receivables pursuant to clause (b)(ii) above exceeds the Seller Noncomplying
Receivables Adjustments, if any, in respect of such Seller (as determined
pursuant to Section 3.5) for such day, then Buyer shall either (i) pay Initial
Collection Agent (for the account of such Seller) in cash the amount of such
excess, or (ii) if Buyer does not have sufficient cash to pay such amount in
full, increase the principal amount of such Seller's Buyer Note by the amount
of such excess that is not paid in cash to Initial Collection Agent.
(g) Amounts received by the Initial Collection Agent pursuant to this
Section 3.1 shall be allocated among the Sellers in accordance with Section
3.3, and the Seller Noncomplying Receivables Adjustments in respect of each
such Seller (as determined pursuant to Section 3.5). The Initial Collection
Agent shall maintain a bookkeeping account (the "Seller Account") for purposes
of tracking:
(i) the Purchase Price payable to each Seller in respect of
Receivables sold by it to Buyer (including the extent to which cash and
non-cash payments made by Buyer should be allocated to each Seller),
(ii) the extent to which such Purchase Price should be reduced on
account of such Seller's Seller Noncomplying Receivables Adjustments
(including any allocation of a Purchase Price Credit),
(iii) if a Seller makes cash payments in respect of the
Noncomplying Receivables (including any payment in respect of a Purchase Price
Credit), the obligation of each other Seller to reimburse such Seller for its
proportionate share thereof,
(iv) if Purchase Price payments attributable to a Seller's
Receivables have been reduced on account of another Seller's Seller
Noncomplying Receivables Adjustment, the obligation of such other Seller to
reimburse the Seller subject to such reduction,
(v) the extent to which payments (whether cash or non-cash) by
Buyer in respect of a negative Noncomplying Receivables Adjustment should be
allocated to each Seller, and
(vi) cash payments made to and by each Seller in respect of the
items described above.
The Initial Collection Agent shall maintain sufficient records with
respect to the Seller Account such that, on any day, it would be able to
calculate each of the items set forth above. Intercompany accounts among
Sellers resulting from the items described above will be settled in accordance
with the intercompany cash management system customarily employed by the
Parent and its Subsidiaries.
SECTION 3.2 The Buyer Notes. On the First Issuance Date, Buyer will
deliver to each Seller a promissory note, substantially in the form of Exhibit
A, payable to the order of such Seller (each such promissory note, as the same
may be amended, amended and restated, supplemented, endorsed or otherwise
modified from time to time, together with any promissory note issued from time
to time in substitution therefor or renewal thereof in accordance with the
Transaction Documents, being herein called a "Buyer Note"), that is
subordinated to all amounts payable by the Buyer to the Purchasers pursuant to
the Receivables Sale Agreement. Each Buyer Note is payable in full on the date
(the "Seller Maturity Date") that is one year and one day after the date on
which all Investments (as defined in the Receivables Sale Agreement) and other
amounts then due and owing by the Buyer to the Purchasers under the
Transaction Documents have been paid in full. Buyer may prepay all or part of
the outstanding balance of any Buyer Note from time to time without any
premium or penalty, unless the prepayment would result in a default in Buyer's
payment of any other amount required to be paid by it under any Transaction
Document. By its execution of this Agreement, the Parent acknowledges receipt
of the Buyer Notes made in favor of the Sellers which on the First Issuance
Date are party hereto.
(b) The Initial Collection Agent (or its designee) shall hold all Buyer
Notes for the benefit of the Sellers and shall make all appropriate
recordkeeping entries with respect to the Buyer Notes or otherwise to reflect
the payments on and adjustment of the Buyer Notes. The Initial Collection
Agent's books and records shall constitute rebuttable presumptive evidence of
the principal amount of and accrued interest on each Buyer Note at any time.
Each Seller hereby irrevocably authorizes and directs the Initial Collection
Agent to mark its Buyer Note "CANCELLED" and return it to Buyer upon the final
payment thereof.
SECTION 3.3 Application of Collections and Other Funds. If, on any day,
Buyer (or, the Initial Collection Agent, on behalf of the Buyer) receives (i)
proceeds of transfers pursuant to the Receivables Sale Agreement or (ii)
Collections on Receivables that are not allocable to the Sold Interest
pursuant to the Receivables Sale Agreement, Buyer shall apply the funds as
follows:
(a) first, to pay its existing expenses and to set aside funds for
the payment of expenses that are then accrued (in each case to the extent such
expenses are permitted to exist under the Receivables Sale Agreement),
(b) second, to pay the Purchase Price pursuant to Section 3.1 for
Receivables and Related Assets purchased by Buyer from the Sellers on such day
(in the case of the First Issuance Date) or the next preceding Business Day,
such payment to be made on a pro rata basis to the Seller based on the
Purchase Price then payable to each such Seller, and
(c) third, (A) to pay amounts owed by Buyer to the Sellers under
the Buyer Notes on a pro rata basis based on the then unpaid principal balance
of the Buyer Notes, (B) to pay amounts to the Sellers owed pursuant to Section
3.1(f) on a pro rata basis based on the then unpaid amounts owing to all
Sellers pursuant to Section 3.1(f), or (C) to declare and pay dividends to the
Parent to the extent permitted by law.
SECTION 3.4 Servicing of Receivables and Related Assets. Consistent
with Buyer's ownership of the Receivables and the Related Assets, as between
the parties to this Agreement, Buyer shall have the sole right to service,
administer and collect the Receivables and to assign and/or delegate the right
to others. Without limiting the generality of Section 10.11, each Seller
hereby acknowledges and agrees that Buyer shall assign to the Purchaser the
rights and interests of Buyer hereunder and agrees to cooperate fully with the
Initial Collection Agent (and any successor thereto appointed in accordance
with the Receivables Sale Agreement), the Agent and the Purchasers in the
exercise of such rights.
SECTION 3.5 Adjustments for Noncomplying Receivables. If at any time
any of the Buyer, Initial Collection Agent, the Agent, any of the Purchasers,
or a Seller shall determine that any of the representations and warranties
made by the related Seller in Section 5.1 with respect to any Receivable
originated by such Seller was not true on the date of the purchase thereof by
Buyer or the date of contribution thereof to Buyer, such Seller shall be
deemed to have received on the date of such determination a Collection of the
Receivable in an amount equal to the Unpaid Balance of the Receivable (the sum
of all such amounts for such Seller on any day being called the "Seller
Noncomplying Receivables Adjustment" for such Seller for such day), and such
Seller Noncomplying Receivables Adjustment shall be settled in the manner
provided for in Section 3.1.
SECTION 3.6 Payments and Computations Etc. (a) All amounts to be paid
by a Seller to Buyer hereunder shall be paid in accordance with the terms
hereof no later than 1:00 p.m., New York City time, on the day when due in
Dollars in immediately available funds to an account that Buyer shall from
time to time specify in writing. Payments received by Buyer after such time
shall be deemed to have been received on the next Business Day. In the event
that any payment becomes due on a day that is not a Business Day, then the
payment shall be made on the next Business Day. Each Seller shall, to the
extent permitted by law, pay to Buyer, on demand, interest on all amounts not
paid when due hereunder at 2% per annum above the interest rate on the
applicable Buyer Note in effect on the date the payment was due; provided,
however, that the interest rate shall not at any time exceed the maximum rate
permitted by applicable law. All computations of interest payable 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.
(b) All amounts to be paid by Buyer to a Seller hereunder shall be paid
to Initial Collection Agent (for the account of the applicable Seller) no
later than 2:00 p.m., New York City time, on the day when due in Dollars in
immediately available funds to an account that the Initial Collection Agent
shall from time to time specify in writing. Payments received by Initial
Collection Agent after such time shall be deemed to have been received on the
next Business Day. Initial Collection Agent shall promptly remit payments
received by it in immediately available funds to such account as the
applicable Seller shall from time to time specify in writing. In the event
that any payment becomes due on a day that is not a Business Day, then such
payment shall be made on the next Business Day.
ARTICLE IV
CONDITIONS TO PURCHASES
SECTION 4.1 Conditions Precedent to Initial Purchase. The initial
purchase hereunder is subject to the conditions precedent that (i) each of the
conditions precedent to the execution, delivery and effectiveness of each
other Transaction Document (other than a condition precedent in any other
Transaction Document relating to the effectiveness of this Agreement) shall
have been fulfilled to the satisfaction of Buyer, and (ii) Buyer shall have
received (or in the case of subsection (f) below, shall have delivered) each
of the following, on or before the First Issuance Date, each (unless otherwise
indicated) dated the date hereof or the First Issuance Date and each in form
and substance satisfactory to Buyer:
(a) Seller Assignment Certificates. A Seller Assignment
Certificate from each Seller, duly completed, executed and delivered by such
Seller,
(b) Resolutions. A copy of the resolutions of the Board of
Directors of each Seller approving this Agreement and the other Transaction
Documents to be delivered by it hereunder and the transactions contemplated
hereby and thereby and addressing such other matters as may be required by
Buyer, certified by its Secretary or Assistant Secretary, each as of a recent
date acceptable to Buyer,
(c) Good Standing Certificate of each Seller. A good standing
certificate for each Seller, issued as of a recent date by the Secretary of
State of the jurisdiction of its incorporation,
(d) Incumbency Certificate. A certificate of the Secretary or
Assistant Secretary of each Seller certifying, as of a recent date reasonably
acceptable to Buyer, the names and true signatures of the officers authorized
on such Seller's behalf to sign the Transaction Documents to be delivered by
such Seller (on which certificate Buyer, the Agent and the Initial Collection
Agent may conclusively rely until such time as Buyer shall receive from such
Seller (with a copy to the Agent and the Initial Collection Agent), a revised
certificate meeting the requirements of this subsection),
(e) Other Transaction Documents. Original copies, executed by each
of the parties thereto in such reasonable number as shall be specified by
Buyer, of each of the other Transaction Documents to be executed and delivered
in connection herewith, and
(f) Buyer Notes. The Buyer Notes, executed by Buyer.
SECTION 4.2 Certification as to Representations and Warranties. Each
Seller, by accepting the Purchase Price paid for each Purchase, shall be
deemed to have certified, with respect to the Receivables and Related Assets
to be sold by it on such day, that its representations and warranties
contained in Article V are true and correct on and as of such day, with the
same effect as though made on and as of such day.
SECTION 4.3 Effect of Payment of Purchase Price. Upon the payment of
the Purchase Price (whether in cash or by an increase in a Buyer Note in each
case pursuant to Section 3.1) for any Purchase, title to the Receivables and
the Related Assets included in the Purchase shall vest in Buyer, whether or
not the conditions precedent to the Purchase were in fact satisfied; provided,
however, that Buyer shall not be deemed to have waived any claim it may have
under this Agreement for the failure by a Seller in fact to satisfy any such
condition precedent.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
SECTION 5.1 Representations and Warranties of the Sellers. In order to
induce Buyer to enter into this Agreement and to make purchases hereunder,
each Seller hereby makes, with respect to itself, the representations and
warranties set forth in this section at the times and to the extent set forth
in Section 4.2 (it being understood that only the Parent makes the
representations and warranties set forth below with respect to the Contributed
Receivables, if any, and Related Assets with respect thereto).
(a) Corporate Existence and Power. The Seller is a corporation
duly organized, validly existing and in good standing under the laws of its
state of incorporation and has all corporate power and authority and all
governmental licenses, authorizations, consents and approvals required to
carry on its business in each jurisdiction in which its business is now
conducted, except where failure to obtain such license, authorization, consent
or approval would not have a material adverse effect on (i) its ability to
perform its obligations under, or the enforceability of, any Transaction
Document, (ii) its business or financial condition, (iii) the interests of the
Agent or any Purchaser under any Transaction Document or (iv) the
enforceability or collectibility of any Receivable.
(b) Corporate Authorization and No Contravention. The execution,
delivery and performance by the Seller of each Transaction Document to which
it is a party (i) are within its corporate powers, (ii) have been duly
authorized by all necessary corporate action, (iii) do not contravene or
constitute a default under (A) any applicable law, rule or regulation, (B) its
or any Subsidiary's charter or by-laws or (C) any agreement, order or other
instrument to which it or any Subsidiary is a party or its property is subject
and (iv) will not result in any Adverse Claim on any Receivable or Collection
or give cause for the acceleration of any indebtedness of the Seller or any
Subsidiary.
(c) [Reserved]
(d) Valid Sale; Reasonably Equivalent Value. Each sale of
Receivables and Related Assets made by such Seller pursuant to this Agreement,
and each contribution of Receivables and Related Assets made to Buyer pursuant
to this Agreement, shall constitute a valid transfer and assignment of all of
such Seller's right, title and interest in, to and under such Receivables and
the Related Assets of such Seller to Buyer that is perfected and of first
priority under the UCC and otherwise, enforceable against creditors of, and
purchasers from, such Seller and free and clear of any Adverse Claim (other
than any Permitted Adverse Claim or any Adverse Claim arising solely as a
result of any action taken by Buyer hereunder or by the Agent under the
Receivables Sale Agreement); Each such sale, and/or contribution, has been
made for "reasonably equivalent value" (as such term is used in Section 548 of
the Bankruptcy Code) and not for or on account of "antecedent debt" (as such
term is used in Section 547 of the Bankruptcy Code) owed by such Originator to
the Seller.
(e) Binding Effect. Each Transaction Document 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, except as
limited by bankruptcy, insolvency, or other similar laws of general
application relating to or affecting the enforcement of creditors' rights
generally and subject to general principles of equity.
(f) Litigation and Other Proceedings. Except as described in
Schedule 1, there are no actions, suits or other proceedings (including
matters relating to environmental liability) pending or, to the knowledge of
Seller, threatened against or affecting the Seller or any Subsidiary, or any
of their respective properties, that (i) if adversely determined (individually
or in the aggregate), may have a material adverse effect on the financial
condition of the Seller or any Subsidiary or on the collectibility of the
Receivables or (ii) involve any Transaction Document or any transaction
contemplated thereby. None of the Seller or any Subsidiary is in default of
any contractual obligation or in violation of any order, rule or regulation of
any Governmental Authority, which default or violation may have a material
adverse effect upon (i) the financial condition of the Seller and its
Subsidiaries taken as a whole or (ii) the collectibility of the Receivables.
(g) Approvals. All authorizations, consents, filings, orders and
approvals of, or other action by, any Governmental Authority or other Person
that are required to be obtained by such Seller, and all notices to and
filings with any Governmental Authority or other Person that are required to
be made by it, in the case of each of the foregoing in connection with the
conveyance of Receivables and Related Assets or the due execution, delivery
and performance by such Seller of this Agreement, such Seller's Seller
Assignment Certificate or any other Transaction Document to which it is a
party and the consummation of the transactions contemplated by this Agreement,
have been obtained or made and are in full force and effect, except where the
failure to obtain or make any such authorization, consent, order, approval,
action, notice or filing, individually or in the aggregate for all such
failures, would not reasonably be expected to have a Material Adverse Effect.
(h) Bulk Sales Act. No transaction contemplated by this Agreement
or any other Transaction Document requires compliance with, or will be subject
to avoidance under, any bulk sales act or similar law.
(i) No Material Adverse Change. Since December 27, 1997, there has
been no material adverse change in (i) the collectibility of the Receivables,
or (ii) the Seller's financial condition or (iii) the Seller's ability to
perform its obligations under any Transaction Document.
(j) Margin Regulations. No use of any funds obtained by such
Seller under this Agreement will conflict with or contravene any of
Regulations G, T, U and X promulgated by the Federal Reserve Board from time
to time.
(k) Quality of Title.
(i) Immediately before each purchase to be made by Buyer
hereunder and (in the case of the Parent) each contribution to be made
hereunder to Buyer, each Receivable and Specified Asset of such Seller that is
then to be transferred to Buyer thereunder, and the related contracts, shall
be owned by such Seller free and clear of any Adverse Claim (other than any
Permitted Adverse Claim or any Adverse Claim arising solely as the result of
any action taken by Buyer hereunder or by the Agent under the Receivables Sale
Agreement); provided that the existence of an Adverse Claim that is released
on the First Issuance Date shall not constitute a breach of this
representation and warranty; and such Seller shall have made all UCC filings
and shall have taken all other action under applicable law in each relevant
jurisdiction in order to protect and perfect the ownership interest of Buyer
and its successors in the Receivables and Related Assets against all creditors
of, and purchasers from, such Seller.
(ii) Whenever Buyer makes a purchase hereunder from such
Seller or (in the case of the Parent) accepts a contribution hereunder from
such Seller, it shall have acquired a valid and perfected first priority
ownership interest in each Receivable and other Specified Asset, free and
clear of any Adverse Claim (other than any Permitted Adverse Claim or any
Adverse Claim arising solely as the result of any action taken by Buyer
hereunder or by the Agent under the Receivables Sale Agreement).
(iii) No effective UCC financing statement or other instrument
similar in effect that covers all or part of any Receivable originated by such
Seller, any interest therein or any other Specified Asset with respect thereto
is on file in any recording office except (x) such as may be filed (A) in
favor of such Seller in accordance with the related contracts, (B) in favor of
Buyer pursuant to this Agreement and (C) in favor of the Agent, in accordance
with the Receivables Sale Agreement and (y) such as may have been identified
to Buyer prior to the First Issuance Date and UCC termination statements (or
appropriate releases releasing any Receivables and Related Assets described
therein) relating to which have been filed and recorded on or prior to the
First Issuance Date. No effective financing statement or instrument similar in
effect relating to perfection that covers any inventory of such Seller that
might give rise to Receivables is on file in any recording office.
(iv) No Purchase by Buyer from such Seller (and, in the case
of the Parent, no capital contribution to Buyer, whether or not made in
connection with a Purchase) constitutes a fraudulent transfer or fraudulent
conveyance under the United States Bankruptcy Code or applicable state
bankruptcy or insolvency laws or is otherwise void or voidable or subject to
subordination under similar laws or principles or for any other reason.
(v) Each Purchase by Buyer from such Seller constitutes a true
and valid sale of the Receivables and Related Assets under applicable state
law and true and valid assignments and transfers for consideration (and not
merely a pledge of the Receivables and Related Assets for security purposes),
enforceable against the creditors of such Seller, and no Receivables or
Related Assets transferred to Buyer hereunder shall constitute property of
such Seller.
(l) Eligible Receivables. On the date of each Daily Report or
Periodic Report that identifies a Receivable originated by such Seller as an
Eligible Receivable, such Receivable exists and is an Eligible Receivable.
(m) Accuracy of Information. All information furnished by the
Seller or any Affiliate thereof to the Buyer, the Agent or any Purchaser in
connection with any Transaction Document, or any transaction contemplated
thereby, is true and accurate in all material respects (and is not incomplete
by omitting any information necessary to prefect such information from being
materially misleading, in each case on the date the statement was made and in
light of the circumstances under which the statements were made or the
information was furnished.
(n) Offices. (i) The principal place of business and chief
executive office of such Seller is located at the address set forth under such
Seller's signature hereto, and have been located at such address since six
months prior to the First Issuance Date, and (ii) any other location in which
such Seller keeps (or has kept during the past four months) Records related to
the Receivables or Related Assets (and all original documents relating
thereto) is specified in Schedule 3 (or in the case of each of clause (i) and
clause (ii), at such other locations, notified to the Initial Collection Agent
and the Agent in accordance with Section 6.1(f), in jurisdictions where all
action required pursuant to Section 7.3 has been taken and completed).
(o) Account Banks and Payment Instructions. The names and
addresses of all the banks, together with the account numbers of the accounts
at such banks (and all related lockboxes and post office boxes), into which
Collections are paid as of the First Issuance Date have been accurately
identified to Buyer, the Purchaser and the Agent. Such Seller has instructed
all Obligors to submit all payments on the Receivables and Related Assets
directly to one of the Lockboxes or Lockbox Accounts. The Lockbox Agreements
to which such Seller is a party constitute the legal, valid and binding
obligations of the parties thereto in accordance with their respective terms
subject to applicable bankruptcy, reorganization, insolvency, moratorium and
other laws affecting creditors' rights generally and general equitable
principles. The Seller has delivered a copy of all Lockbox Agreements to the
Agent. The Seller has not granted any interest in any Lockbox or Lockbox
Account to any Person other than the Agent and, upon delivery to a Lockbox
Bank of the related Lockbox Letter, the Agent will have exclusive ownership
and control of the Lockbox Account at such Lockbox Bank.
(p) Compliance with Applicable Laws. Such Seller is in compliance
with the requirements of all applicable laws, rules, regulations and orders of
all Governmental Authorities (federal, state, local or foreign, and including
environmental laws), a violation of any of which, individually or in the
aggregate for all such violations, would have a substantial likelihood of
having a Material Adverse Effect.
(q) Legal Names. Except as set forth in Schedule 4, since 1993 (i)
such Seller has not been known by any legal name other than its corporate name
as of the date hereof (which corporate name is set forth on its signature page
hereto, except to the extent permitted otherwise pursuant to Section 6.3(e),
and (ii) such Seller has not been the subject of any merger or other corporate
reorganization that resulted in a change of name, identity or corporate
structure. Such Seller uses no trade names other than its actual corporate
name and the trade names set forth in Schedule 4.
(r) Investment Company Act; Public Utility Holding Company Act.
Neither such Seller nor any of such Seller's Subsidiaries is (i) an
"investment company", or controlled by an "investment company", registered or
required to be registered under the Investment Company Act of 1940, as amended
or (ii) a "holding company", or a "subsidiary company" or an "affiliate" of a
"holding company" within the meaning of the Public Utility Holding Company Act
of 1935, as amended.
(s) Taxes. Such Seller has filed or caused to be filed all tax
returns and reports required by law to have been filed by it and has paid all
taxes, assessments and governmental charges thereby shown to be owing, except
any such taxes, assessments or charges (i) that are being diligently contested
in good faith by appropriate proceedings, (ii) for which adequate reserves in
accordance with GAAP shall have been set aside on its books and (iii) with
respect to which no Adverse Claim, except Permitted Adverse Claims, has been
imposed upon any Receivables or Related Assets.
(t) Pension Plans. Each Pension Plan or employee benefit plan as
to which such Seller has liability complies in all material respects with
applicable laws and regulations (except where failure to comply would not give
rise to a Material Adverse Effect), no steps have been taken to terminate any
Pension Plan and no contribution failure with respect thereto sufficient to
give rise to an Adverse Claim in favor of the PBGC has occurred. No condition
exists or event or transaction has occurred with respect to any Pension Plan
which could result in the incurrence by such Seller of any liability, fine or
penalty which could have a Material Adverse Effect.
(u) Credit and Collection Policy. A true, complete and correct copy
of the Credit and Collection Policy utilized by the Seller in the origination
of its Receivables is set forth as Schedule 2 hereto.
(v) Ownership. All of the issued and outstanding capital stock of
such Seller is owned, directly or indirectly, by the Parent.
(w) Year 2000 Compliance. The Seller has reviewed the areas within
its business and operations which could be adversely affected by, and have
developed or are developing a program to address on a timely basis, the "Year
2000 Problem" (that is, the risk that computer applications used by such
Person and its Subsidiaries may be unable to recognize and perform properly
date-sensitive functions involving certain dates prior to and any date on or
after December 31, 1999), and have made related appropriate inquiry of
material suppliers and vendors. Based on such review and program the Seller
believes that the "Year 2000 Problem" will not have a material adverse effect
on such Seller.
(x) Certain Financial Matters. Such Seller is not in financial
difficulty, is not having trouble paying its accounts payable and is current
in the payment thereof (including in respect of amounts payable by such Seller
to suppliers of produce and other agricultural commodities to such Seller).
SECTION 5.2 Representations and Warranties of Buyer. From the date
hereof until the Purchase Termination Date, Buyer hereby represents and
warrants that (a)(i) this Agreement has been duly authorized, executed and
delivered by Buyer and (ii) constitutes the legal, valid and binding
obligation of Buyer, enforceable against it in accordance with its terms,
except as enforceability may be limited by bankruptcy, insolvency,
reorganization or other similar laws affecting the enforcement of creditors'
rights generally and by general principles of equity, regardless of whether
enforceability is considered in a proceeding in equity or at law, and (b) the
execution, delivery and performance of this Agreement does not violate any
applicable law or any agreement to which Buyer is a party or by which its
properties are bound.
ARTICLE VI
GENERAL COVENANTS OF THE SELLERS
SECTION 6.1 Affirmative Covenants. From the First Issuance Date until
the first day following the Purchase Termination Date on which all Obligations
of the Sellers under the Transaction Documents shall have been finally and
fully paid and performed, unless the Agent (as assignee of Buyer) shall
otherwise give its prior written consent, each Seller hereby agrees that it
will perform the covenants and agreements set forth in this section.
(a) Compliance with Laws, Etc. The Seller will comply, and will
cause each Subsidiary to comply, with all laws, regulations, judgments and
other directions or orders imposed by any Governmental Authority to which such
Person or any Receivable or Collection may be subject.
(b) Preservation of Corporate Existence. The Seller will perform,
and will cause each Subsidiary to perform, all actions necessary to remain
duly incorporated, validly existing and in good standing in its jurisdiction
of incorporation and to maintain all requisite authority to conduct its
business in each jurisdiction in which it conducts business.
(c) Receivables Reviews. The Seller will furnish to the Buyer, the
Agent and the Purchasers such information concerning the Receivables as the
Agent or a Purchaser may reasonably request and as may be generated by the
then existing data processing capacity of the Seller. The Seller will permit,
at any time during regular business hours, the Agent or any Purchaser (or any
representatives thereof), once per year or at anytime after the occurrence of
a Termination Event (at the expense of the Seller) or at any other time (at
the expense of the Agent or such Purchaser (as applicable)) (i) to examine and
make copies of all Records, (ii) to visit the offices and properties of the
Seller for the purpose of examining the Records and (iii) to discuss matters
relating hereto with any of the Seller's officers, directors, employees or
independent public accountants having knowledge of such matters. Once a year,
the Agent may (at the expense of the Seller) have an independent public
accounting firm conduct an audit of the Records or make test verifications of
the Receivables and Collections.
(d) Keeping of Records and Books of Account. The Seller will have
and maintain (A) administrative and operating procedures including an ability
to recreate Records if originals are destroyed), (B) adequate facilities,
personnel and equipment and (C) all Records and other information necessary or
advisable for collecting the Receivables (including Records adequate to permit
the immediate identification of each new Receivable and all Collections of,
and adjustments to, each existing Receivable). The Seller will give each of
the Buyer and the Agent prior notice of any material change in such
administrative and operating procedures.
(e) Performance and Compliance with Receivables and Contracts. Such
Seller will, at its expense, timely and fully perform and comply with all
provisions, covenants and other promises required to be observed by it under
the contracts of such Seller related to the Receivables and Related Assets, in
each case to the extent failure to perform or comply, individually or in the
aggregate for all such failures, would have a substantial likelihood of having
a Material Adverse Effect.
(f) Location of Records and Offices. Such Seller keeps (i) its
principal place of business and chief executive office at the address set
forth under such Seller's signature hereto, and (ii) the offices where it
maintains all Records related to the Receivables and the Related Assets (and
all original documents relating thereto) at the addresses referred to in
Schedule 3 (or, in the case of each of clause (i) and clause (ii), upon not
less than 30 days' prior written notice given by such Seller to Buyer and the
Agent at such other locations in jurisdictions where all action required by
Section 7.3 shall have been taken and completed).
(g) Credit and Collection Policies. Such Seller will comply in all
material respects with its Credit and Collection Policy in regard to each
Receivable of such Seller and the Related Assets and the contracts related to
each such Receivable.
(h) Separate Corporate Existence of Buyer. Such Seller hereby
acknowledges that the Buyer is entering into the transactions contemplated by
the Transaction Documents in reliance upon Buyer's identity as a legal entity
separate from such Seller. Therefore, such Seller will take all reasonable
steps to continue their respective identities as separate legal entities and
to make it apparent to third Persons that each is an entity with assets and
liabilities distinct from those of Buyer and that Buyer is not a division of
the Initial Collection Agent, such Seller, the Parent or any other Person.
Without limiting the foregoing, each Seller will operate, conduct their
respective businesses and otherwise act in a manner which is consistent with
the factual assumptions in each of the opinions of Thacher Proffitt & Wood
dated the First Issuance Date regarding certain substantive consolidation and
true sale issues.
(i) Payment Instructions to Obligors. Such Seller will instruct all
Obligors to submit all payments either (i) to one of the Lockboxes for deposit
in a Lockbox Account or (ii) directly to one of the Lockbox Accounts.
(j) Segregation of Collections. Such Seller shall use reasonable
efforts to minimize the deposit of any funds other than Collections into any
of the Transaction Accounts and, to the extent that any such funds
nevertheless are deposited into any of the Transaction Accounts, shall
promptly identify any such funds, or shall cause the funds to be so
identified, to Buyer, the Initial Collection Agent and the Agent (following
which notice, Buyer shall cause the Initial Collection Agent to return all the
funds to such Seller).
(k) Identification of Eligible Receivables. Such Seller will
establish and maintain such procedures as are necessary for determining no
less frequently than each Business Day whether each Receivable qualifies as an
Eligible Receivable, and for identifying, on any Business Day, all Receivables
to be sold on that date that are not Eligible Receivables.
(l) Accuracy of Information. All written information furnished on
and after the First Issuance Date by or on behalf of such Seller to Buyer or
the Agent pursuant to or in connection with any Transaction Document or any
transaction contemplated herein or therein shall not contain any untrue
statement of a material fact or omit to state any material fact necessary to
make the statements made not misleading, in each case on the date the
statement was made and in light of the circumstances under which the
statements were made or the information was furnished.
(m) Taxes. Such Seller shall file or cause to be filed, and cause
each Person with whom it shares consolidated tax liability to file, all
Federal, state and local tax returns that are required to be filed by it
(except where the failure to file such returns does not have a substantial
likelihood of having a Material Adverse Effect) and pay or cause to be paid
all taxes shown to be due and payable on taxes or assessments (except only
such taxes or assessments the validity of which are being contested in good
faith by appropriate proceedings and with respect to which such Seller shall
have set aside adequate reserves on its books in accordance with GAAP and
which proceedings do not have a substantial likelihood of having a Material
Adverse Effect).
(n) Software Licenses. Such Seller shall cause all software
licenses or similar agreements used by the Sellers or Initial Collection Agent
in the origination or servicing of Receivables to expressly permit use by any
Successor Initial Collection Agent of the materials subject to such licenses
or agreements.
(o) Payment of Accounts Payable. Such Seller shall pay all of its
accounts payable in accordance with its normal business.
SECTION 6.2 Reporting Responsibilities. From the First Issuance Date
until the first day following the Purchase Termination Date on which all
Obligations of the Sellers shall have been finally and fully paid and
performed under the Transaction Document, unless the Agent (as assignee of
Buyer) shall otherwise give its prior written consent, each Seller hereby
agrees that it will perform the covenants and agreements set forth in this
section.
(a) Financial Reporting. The Seller will, and will cause each
Subsidiary to, maintain a system of accounting established and administered in
accordance with GAAP and will furnish (or will cause to be furnished) to the
Agent and each Purchaser:
(i) Annual Financial Statements. Within 95 days after each
fiscal year of (A) the Parent, copies of the Parent's consolidated annual
audited financial statements (including a consolidated balance sheet,
consolidated statement of income and retained earnings and statement of cash
flows, with related footnotes) certified by Parent's firm of independent
certified public accountants and prepared on a consolidated basis in
conformity with GAAP, and (B) the Seller, the annual balance sheet and annual
profit and loss statement of the Seller certified by a Designated Financial
Officer thereof, in each case prepared on a consolidated basis in conformity
with GAAP as of the close of such fiscal year for the year then ended;
(ii) Quarterly Financial Statements. Within 50 days after each
(except the last) fiscal quarter of each fiscal year of (A) the Parent, copies
of its unaudited financial statements (including at least a consolidated
balance sheet as of the close of such quarter and statements of earnings and
sources and applications of funds for the period from the beginning of the
fiscal year to the close of such quarter) certified by a Designated Financial
Officer and prepared in a manner consistent with the financial statements
described in part (A) of clause (i) of this Section 5.1(a), and (B) the
Seller, the quarterly balance sheet and a profit and loss statement of the
Seller for the period from the beginning of such fiscal year to the close of
such quarter, in each case certified by a Designated Financial Officer thereof
and prepared in a manner consistent with part (B) of clause (i) of Section 5.
1 (a);
(iii) Officer's Certificate. Each time financial statements are
furnished pursuant to clause (i) or (ii) of Section 6.2 (a), a compliance
certificate (in substantially the form of Exhibit I to the Receivables Sale
Agreement) signed by a Designated Financial Officer, dated the date of such
financial statements;
(iv) Public Reports. Promptly upon becoming available, a copy of
each report or proxy statement filed by the Parent with the Securities
Exchange Commission or any securities exchange;
(v) Crompton & Knowles Credit Agreement Certificate. When
delivered to the banks party to the Crompton & Knowles Credit Agreement, a
copy of the certificates and schedules described in Section Sections
5.03(b)(i) and (ii) and 5.03(c)(i) and (ii) of the Crompton & Knowles Credit
Agreement; and
(vi) Other Information. With reasonable promptness, such other
information (including non-financial information) as may be reasonably
requested by the Agent or any Purchaser (with a copy of such request to the
Agent).
(b) Notices. Immediately upon becoming aware of any of the
following the Seller will notify the Agent and provide a description of:
(i) Potential Termination Events. The occurrence of any
Potential Termination Event;
(ii) Representations and Warranties. The failure of any
representation or warranty herein to be true (when made or at any time
(iii) Downgrading. The downgrading, withdrawal or suspension of
any rating by any rating agency of any indebtedness of the Seller;
(iv) Litigation. The institution of any litigation, arbitration
proceeding or governmental proceeding reasonably likely to be material to the
Seller, any Subsidiary or the collectibility or quality of the Receivables;
(v) Judgments. The entry of any judgment or decree against the
Seller or any Subsidiary if the aggregate amount of all judgments then
outstanding against the Seller and the Subsidiaries exceeds $5,000,000; or
(vi) Changes in Business. Any change in, or proposed change in,
the character of the Seller's business that could impair the collectibility or
quality of any Receivable.
SECTION 6.3 Negative Covenants. From the First Issuance Date until the
first day following the Purchase Termination Date on which all Obligations of
the Sellers under the Transaction Documents shall have been finally and fully
paid and performed, unless the Agent (as assignee of Buyer) shall otherwise
give its prior written consent, each Seller hereby agrees that it will perform
the covenants and agreements set forth in this section.
(a) Sales, Liens, Etc. Except as otherwise provided in the
Receivables Sale Agreement, such Seller will not (i)(A) sell, assign (by
operation of law or otherwise) or otherwise transfer to any Person, (B) pledge
any interest in, (C) grant, create, incur, assume or permit to exist any
Adverse Claim (other than Permitted Adverse Claims) to or in favor of any
Person upon or with respect to, or (D) cause to be filed any UCC financing
statement or equivalent document relating to perfection with respect to any
Transferred Asset or any contract related to any Receivable, or upon or with
respect to any lockbox or account to which any Collections of any such
Receivable or any Related Assets are sent or any interest therein, or (ii)
assign to any Person any right to receive income from or in respect of any of
the foregoing.
In the event that such Seller fails to keep any Specified Assets
free and clear of any Adverse Claim (other than a Permitted Adverse Claim, any
Adverse Claims arising hereunder, and other Adverse Claims permitted by any
other Transaction Document), Buyer may (without limiting its other rights with
respect to such Seller's breach of its obligations hereunder) make reasonable
expenditures necessary to release the Adverse Claim. Buyer shall be entitled
to indemnification for any such expenditures pursuant to the indemnification
provisions of Article IX. Alternatively, Buyer may deduct such expenditures as
an offset to the Purchase Price owed to such Seller hereunder.
Such Seller will not pledge or grant any security interest in the
Buyer Note or the capital stock of Buyer unless prior to any pledge or grant
such Seller, Buyer, the Agent and the Person for whose benefit the pledge or
grant is being made have entered into an Intercreditor Agreement reasonably
acceptable to the Agent.
(b) Extension or Amendment of Receivables; Change in Credit and
Collection Policy or Contracts. Such Seller will not extend, amend, waive or
otherwise modify the terms of any Receivable or contract related thereto
except as permitted pursuant to Section 3.2(b) of the Receivables Sale
Agreement and subject to the limitation set forth in Section 1.5 of the
Receivables Sale Agreement. Such Seller shall not change the terms and
provisions of the Credit and Collection Policy in any material respect.
(c) Change in Payment Instructions to Obligors. Such Seller will
not (i) add or terminate any bank as an Account Bank (or add or terminate any
related Lockbox or Bank Account) from those listed in the letter referred to
in Section 5.1(o) unless, prior to any such addition or termination, Buyer and
the Agent shall have received not less than ten Business Days' prior written
notice of the addition or termination and, not less than ten Business Days
prior to the effective date of any such proposed addition or termination,
Buyer and the Agent shall have received (A) counterparts of the applicable
type of Account Agreement with each new Account Bank, duly executed by such
new Account Bank and all other parties thereto and (B) copies of all other
agreements and documents signed by the Account Bank and such other parties
with respect to any new Bank Account and any new Lockbox, or (ii) make any
change in its instructions to Obligors, given in accordance with Section
5.1(o) regarding payments to be made by Obligors, other than changes in the
instructions that direct Obligors to make payments to another Lockbox or Bank
Account that in each case is subject to an Account Agreement.
(d) Mergers, Acquisitions, Sales, etc. Except for (i) mergers or
consolidations in which such Seller is the surviving Person, (ii) mergers or
consolidations of a Subsidiary of the Parent into such Seller or (iii) mergers
or consolidations in which the surviving Person expressly assumes the
performance of this Agreement, such Seller will not be a party to any merger
or consolidation. Such Seller will give the Agent notice of any such permitted
merger or consolidation promptly following completion thereof. Such Seller
will not, directly or indirectly, transfer, assign, convey or lease, whether
in one transaction or in a series of transactions, all or substantially all of
its assets or sell or assign, with or without recourse, any Receivables or
Related Assets, in each case other than pursuant to this Agreement.
(e) Change in Name. Such Seller will not (i) change its corporate
name or (ii) change the name under or by which it does business, in each case
unless such Seller shall have given Buyer, the Initial Collection Agent and
the Agent 30 days' prior written notice thereof and unless, prior to any
change in name, such Seller shall have taken and completed all action required
by Section 7.3. The Seller will at all times maintain its chief executive
offices within a jurisdiction in the United States of America (other than in
the states of Florida, Maryland and Tennessee) in which Article 9 of the UCC
is in effect. If the Seller moves its chief executive office to a location
that imposes taxes, fees or other charges to perfect the Agent's and the
Purchasers' interests hereunder (as assignee of Buyer), the Seller will pay
all such amounts and any other costs and expenses incurred in order to
maintain the enforceability of the Transaction Documents and the interests of
the Agent and the Purchasers (as assignee of Buyer) in the Receivables and
Collections.
(f) Certificate of Incorporation. Such Seller will not cause or
permit Buyer to amend its Certificate of Incorporation without the Agent's
prior written consent, which consent will not be unreasonably withheld or
delayed.
(g) Amendments to Transaction Documents. Such Seller will not
amend or otherwise modify or waive any Transaction Document to which it is a
party unless the Agent (as assignee of Buyer) shall have given its prior
written consent to each amendment, modification or waiver.
(h) Accounting for Purchases. Such Seller shall prepare its
financial statements in accordance with GAAP, and any financial statements
which are consolidated to include Buyer will contain footnotes stating that
such Seller has sold or contributed its Receivables to Buyer and that the
assets of Buyer will not be available to the Parent and its Subsidiaries
unless Buyer's liabilities have been paid in full. Such Seller shall not
prepare any financial statements that account for the transactions
contemplated in this Agreement in any manner other than as a sale of the
Purchased Assets by such Seller to Buyer, or in any other respect account for
or treat the transactions contemplated in this Agreement (including but not
limited to accounting and, where taxes are not consolidated, for tax reporting
purposes) in any manner other than as a sale of the Purchased Assets by such
Seller to Buyer.
ARTICLE VII
ADDITIONAL RIGHTS AND OBLIGATIONS IN RESPECT OF THE SPECIFIED ASSETS
SECTION 7.1 Rights of Buyer. (a) Each Seller hereby authorizes Buyer,
the Initial Collection Agent and/or their respective designees to take any and
all steps in such Seller's name and on behalf of such Seller that Buyer, the
Initial Collection Agent and/or their respective designees determine are
reasonably necessary or appropriate to collect all amounts due under any and
all Specified Assets, including endorsing the name of such Seller on checks
and other instruments representing Collections and enforcing such Seller's
rights under such Specified Assets.
(b) Except as set forth in Section 3.1 with respect to Seller
Noncomplying Receivables, Buyer shall have no obligation to account for any
Specified Asset to any Seller. Buyer shall have no obligation to account for,
or to return Collections, or any interest or other finance charge collected
pursuant thereto, to any Seller, irrespective of whether such Collections and
charges are in excess of the Purchase Price for the Purchased Assets.
(c) Buyer shall have the unrestricted right to further assign, transfer,
deliver, hypothecate, subdivide or otherwise deal with the Specified Assets,
and all of Buyer's right, title and interest in, to and under this Agreement,
on whatever terms Buyer shall determine, pursuant to the Receivables Sale
Agreement or otherwise.
(d) Buyer shall have the sole right to retain any gains or profits
created by buying, selling or holding the Specified Assets and shall have the
sole risk of and responsibility for losses or damages created by such buying,
selling or holding.
SECTION 7.2 Responsibilities of the Sellers. Anything herein to the
contrary notwithstanding, each Seller hereby agrees:
(a) to deliver directly to the Initial Collection Agent (for
Buyer's account), within two Business Days after receipt and identification
thereof, any Collections that it receives, in the form so received, and agrees
that all such Collections shall be deemed to be received in trust for Buyer
and shall be maintained and segregated separate and apart from all other funds
and moneys of such Seller until delivery of such Collections to the Initial
Collection Agent,
(b) to perform all of its obligations hereunder and under the
contracts related to the Receivables and Related Assets to the same extent as
if the Receivables had not been sold hereunder, and the exercise by Buyer or
its designee or assignee of Buyer's rights hereunder or in connection herewith
shall not relieve such Seller from any of its obligations under the contracts
or Related Assets related to the Receivables,
(c) that it hereby grants to Buyer an irrevocable power of
attorney, with full power of substitution, coupled with an interest, to take
in the name of such Seller all steps necessary or advisable to endorse,
negotiate or otherwise realize on any writing or other right of any kind held
or transmitted by such Seller or transmitted or received by Buyer (whether or
not from such Seller) in connection with any Transferred Asset, and
(d) to the extent that such Seller does not own the computer
software that such Seller uses to account for Receivables, such Seller shall
provide Buyer and the Agent with such licenses, sublicenses and/or assignments
of contracts as Buyer or the Agent shall require with regard to all services
and computer hardware or software used by such Seller that relate to the
servicing of the Specified Assets.
SECTION 7.3 Further Action Evidencing Purchases. Each Seller agrees
that from time to time, at its expense, it will promptly, upon reasonable
request by Buyer, Initial Collection Agent or a Purchaser, execute and deliver
all further instruments and documents, and take all further action, in order
to perfect, protect or more fully evidence the purchase by Buyer or
contribution to Buyer of the Receivables and the Related Assets under this
Agreement, or to enable Buyer to exercise or enforce any of its rights under
any Transaction Document. Each Seller further agrees that from time to time,
at its expense, it will promptly, upon request, take all action that Buyer,
the Initial Collection Agent or the Agent may reasonably request in order to
perfect, protect or more fully evidence the purchase or contribution of the
Receivables and the Related Assets or to enable Buyer or the Agent (as the
assignee of Buyer) to exercise or enforce any of its rights hereunder or under
any other Transaction Document. Without limiting the generality of the
foregoing, upon the request of Buyer, each Seller will:
(a) execute and file such UCC financing or continuation statements,
or amendments thereto or assignments thereof, and such other instruments or
notices, as Buyer or the Agent may reasonably determine to be necessary or
appropriate, and
(b) mark the master data processing records evidencing the
Receivables with the following legend:
"THE RECEIVABLES DESCRIBED HEREIN HAVE BEEN SOLD TO CROMPTON &
KNOWLES RECEIVABLES CORPORATION PURSUANT TO A RECEIVABLES PURCHASE
AGREEMENT, DATED AS OF DECEMBER 11, 1998, AMONG CROMPTON & KNOWLES
CORPORATION ("C&K") AS INITIAL COLLECTION AGENT AND SELLER, CERTAIN
SUBSIDIARIES OF C&K, AS SELLERS, AND CROMPTON & KNOWLES RECEIVABLES
CORPORATION."
Each Seller hereby authorizes Buyer or its designee to file one or more
UCC financing or continuation statements, and amendments thereto and
assignments thereof, relative to all or any of the Receivables and Related
Assets of such Seller, in each case whether now existing or hereafter
generated by such Seller. Except for material performance obligations of such
Seller to any Obligor hereunder or under any contracts relating to such
Obligor, if (i) such Seller fails to perform any of its agreements or
obligations under this Agreement and does not remedy the failure within the
applicable cure period, if any, and (ii) Buyer in good faith reasonably
believes that the performance of such agreements and obligations is necessary
or appropriate to protect its interests under this Agreement, then Buyer or
its designee may (but shall not be required to) perform, or cause performance
of, such agreement or obligation and the reasonable expenses of Buyer or its
designee or assignee incurred in connection with such performance shall be
payable by such Seller as provided in Section 9.1.
SECTION 7.4 Collection of Receivables; Rights of Buyer and Its
Assignees. (a) Each Seller hereby transfers to the Agent (as transferee of
Buyer's interest in the Specified Assets) the ownership of, and the exclusive
dominion and control over, each of the Bank Accounts and all related lockboxes
owned by such Seller, and such Seller hereby agrees to take any further action
that Buyer or the Agent may reasonably request in order to effect or complete
the transfer. Each Seller further agrees to use reasonable efforts to prevent
funds other than proceeds of the Specified Assets from being deposited in any
Bank Account.
(b) Each Seller shall, at the request of Buyer and at such Seller's
expense, promptly give notice of interest in the Receivables of the Obligor
and the Related Assets to each such Obligor and direct that payments be made
directly to the Agent or its designee, which notice shall be acceptable in
form and substance to Buyer. In addition, each Seller hereby authorizes Buyer
to take any and all steps in such Seller's name and on its behalf that are
necessary or desirable, in the reasonable determination of Buyer, to collect
all amounts due under any and all Specified Assets, including endorsing such
Seller's name on checks and other instruments representing Collections and
enforcing the Specified Assets and the contracts related to the Receivables.
ARTICLE VIII
TERMINATION
SECTION 8.1 Termination by the Sellers. The Sellers may terminate all
of their agreements to sell Receivables hereunder to Buyer by giving Buyer and
the Agent not less than five Business Days' prior written notice of their
election not to continue to sell Receivables to Buyer (the "Termination of
Sale Notice"); provided that the Termination of Sale Notice must specify the
effective date of termination.
SECTION 8.2 Automatic Termination. (a) The agreement of Buyer to
purchase Receivables from a Seller hereunder shall terminate automatically
upon (i) the first date on which an event specified in the definition of
Bankruptcy Event occurs as a result of a case or proceeding being filed
against such Seller, (ii) the first date on which Crompton & Knowles
Corporation fails to own and control, directly or indirectly, (A) in the case
of Crompton & Knowles Colors Incorporated, less than eighty percent (80%) of
the outstanding voting stock of such entity, or (B) in the case of all other
Sellers not covered by clause (A), one hundred percent (100%) of the
outstanding voting stock of such entity or (iii) the occurrence of a
Termination Event, as defined in the Receivables Sale Agreement as in effect
on the Closing Date. The termination referred to in clauses (i) and (ii) of
the preceding sentence shall apply only to the relevant Seller and the
termination referred to in clause (iii) shall apply to all Sellers.
(b) If the Internal Revenue Service or the PBGC files one or more Tax or
ERISA Liens against the assets of Buyer or any Seller (including Receivables),
then (and for so long as such Tax or ERISA Liens remain in place) Buyer shall
not purchase any Receivables or Related Assets from such Seller (or from any
Seller if such Tax or ERISA Lien is filed against Buyer).
ARTICLE IX
INDEMNIFICATION
SECTION 9.1 Indemnities by the Seller. Without limiting any other
rights any Person may have hereunder or under applicable law, each Seller, on
a several basis, hereby indemnifies and holds harmless, on an after-Tax basis,
the Buyer, the Agent and each Purchaser and their respective officers,
directors, agents and employees (each an "Indemnified Party") from and against
any and all damages, losses, claims, liabilities, penalties, Taxes, costs and
expenses (including attorneys' fees and court costs) (all of the foregoing
collectively, the "Indemnified Losses") at any time imposed on or incurred by
any Indemnified Party arising out of or otherwise relating to any Transaction
Document, the transactions contemplated thereby or the acquisition of any
portion of the Sold Interest, or any action taken or omitted by any of the
Indemnified Parties (including any action taken by the Agent as attorney-in-
fact for the Seller pursuant to Section 3.5(b)), whether arising by reason of
the acts to be performed by the Seller hereunder or otherwise, excluding only
Indemnified Losses to the extent (a) a final judgment of a court of competent
jurisdiction holds such Indemnified Losses resulted solely from gross
negligence or willful misconduct of the Indemnified Party seeking
indemnification, (b) solely due to the credit risk of the Obligor and for
which reimbursement would constitute recourse to the Seller for uncollectible
Receivables or (c) such Indemnified Losses include Taxes on, or measured by,
the overall net income of the Agent or any Purchaser computed in accordance
with the Intended Tax Characterization; provided, however, that nothing
contained in this sentence shall limit the liability of the Seller or limit
the recourse of each Indemnified Party to the Seller for any amounts otherwise
specifically provided to be paid by the Seller hereunder. Without limiting
the foregoing indemnification, but subject to the limitations set forth in
clauses (a), (b) and (c) of the previous sentence, the Seller shall indemnify
each Indemnified Party for Indemnified Losses (including losses in respect of
uncollectible Receivables, regardless for these specific matters whether
reimbursement therefor would constitute recourse to the Seller) relating to or
resulting from:
(i) any representation or warranty made by the Seller (or any
employee or agent of the Seller) under or in connection with this Agreement or
any other information or report delivered by the Seller pursuant hereto, which
shall have been false or incorrect in any material respect when made or deemed
made;
(ii) the failure by the Seller to comply with any applicable
law, rule or regulation related to any Receivable, or the nonconformity of any
Receivable with any such applicable law, rule or regulation;
(iii) the failure of the Seller to vest and maintain vested in
the Agent, for the benefit of the Purchasers, a perfected ownership or
security interest in the Transferred Assets, free and clear of any Adverse
Claim;
(iv) any commingling of funds to which the Agent or any
Purchaser is entitled hereunder with any other funds;
(v) any failure of a Lock-Box Bank to comply with the terms of
the applicable Lock-Box Letter;
(vi) any dispute, claim, offset or defense (other than discharge
in bankruptcy of the Obligor) of the Obligor to the payment of any Receivable,
or any other claim resulting from the sale or lease of goods or the rendering
of services related to such Receivable or the furnishing or failure to furnish
any goods or services or other similar claim or defense not arising from the
financial inability of any Obligor to pay undisputed indebtedness;
(vii) any failure of the Seller, to perform its duties or
obligations in accordance with the provisions of this Agreement or any other
Transaction Document to which such Person is a party (as a Collection Agent or
otherwise);
(viii) any action taken by the Agent as attorney-in-fact for the
Seller; or
(ix) any environmental liability claim, products liability claim
or personal injury or property damage suit or other similar or related claim
or action of whatever sort, arising out of or in connection with any
Receivable or any other suit, claim or action of whatever sort relating to any
of the Transaction Documents.
ARTICLE X
MISCELLANEOUS
SECTION 10.1 Amendments; Waivers, Etc. (a) The provisions of this
Agreement may from time to time be amended, modified or waived, if such
amendment, modification or waiver is in writing and signed by Buyer, each
Seller and the Agent, and then any such waiver or consent shall be effective
only in the specific instance and for the specific purpose for which given.
(b) No failure or delay on the part of Buyer, the Agent or any other
third party beneficiary referred to in Section 10.11(a) in exercising any
power or right hereunder shall operate as a waiver thereof, nor shall any
single or partial exercise of any such power or right preclude any other or
further exercise thereof or the exercise of any other power or right. No
notice to or demand on any Seller in any case shall entitle it to any notice
or demand in similar or other circumstances. No waiver or approval by Buyer or
the Agent under this Agreement shall, except as may otherwise be stated in the
waiver or approval, be applicable to subsequent transactions. No waiver or
approval under this Agreement shall require any similar or dissimilar waiver
or approval thereafter to be granted hereunder.
SECTION 10.2 Notices, Etc. All notices, demands, instructions and
other communications provided for hereunder shall, unless otherwise stated
herein, be in writing (including facsimile communication) and shall be
personally delivered or sent by certified mail, postage prepaid, by facsimile
or by overnight courier, to the intended party at the address or facsimile
number of such party set forth under its name on the signature pages hereof or
at such other address or facsimile number as shall be designated by the party
in a written notice to the other parties hereto given in accordance with this
section. Copies of all notices, demands, instructions and other communications
provided for hereunder shall be delivered to the Agent at their respective
addresses for notices set forth in the Receivables Sale Agreement. All notices
and communications provided for hereunder shall be effective, (a) if
personally delivered, when received, (b) if sent by certified mail, four
Business Days after having been deposited in the mail, postage prepaid and
properly addressed, (c) if transmitted by facsimile, when sent, receipt
confirmed by telephone or electronic means and (d) if sent by overnight
courier, two Business Days after having been given to the courier unless
sooner received by the addressee.
SECTION 10.3 Cumulative Remedies. The remedies herein provided are
cumulative and not exclusive of any remedies provided by law. Without limiting
the foregoing, each Seller hereby authorizes Buyer, at any time and from time
to time, to the fullest extent permitted by law, to set-off, against any
Obligations of any Seller to Buyer that are then due and payable or that are
not then due and payable from a Seller to Buyer but have then accrued, any and
all indebtedness or other obligations at any time owing to any Seller by Buyer
to or for the credit or the account of any Seller or that are not then due and
payable from Buyer to a Seller but have then accrued.
SECTION 10.4 Binding Effect; Assignability; Survival of Provisions.
This Agreement shall be binding upon and inure to the benefit of Buyer and the
Sellers and their respective successors and permitted assigns. No Seller may
assign any of its rights hereunder or any interest herein without the prior
written consent of Buyer and the Agent. 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 the first date
following the Purchase Termination Date, on which all Obligations shall have
been finally and fully paid and performed or such other time as the parties
hereto shall agree and as to which the Agent shall have given its prior
written consent, which consent shall not be unreasonably withheld or delayed.
The rights and remedies with respect to any breach of any representation and
warranty made by a Seller pursuant to Article V or of any covenant made by a
Seller in Article VI, the indemnification and payment provisions of Article IX
and Section 10.6, and the provisions of Sections 10.3, 10.4, 10.5, 10.7, 10.8,
10.9, 10.11, 10.12, 10.13, and 10.15, shall be continuing and shall survive
any termination of this Agreement.
SECTION 10.5 Governing Law. THIS AGREEMENT SHALL BE CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO CONFLICT
OF LAWS PRINCIPLES, EXCEPT TO THE EXTENT THAT THE PERFECTION OF THE INTERESTS
OF BUYER IN THE RECEIVABLES AND THE RELATED ASSETS ARE GOVERNED BY THE LAWS OF
A JURISDICTION OTHER THAN THE STATE OF NEW YORK.
SECTION 10.6 Costs, Expenses and Taxes. In addition to the obligations
of the Sellers under Article IX, the Sellers agree jointly and severally to
pay on demand:
(a) all reasonable out-of-pocket and other costs and expenses in
connection with the enforcement of this Agreement, the Seller Assignment
Certificates or the other Transaction Documents by Buyer or any successor in
interest to Buyer, and
(b) all stamp and other taxes and fees payable or determined to be
payable in connection with the execution and delivery, and the filing and
recording, of this Agreement or the other Transaction Documents, and agrees to
indemnify each Indemnified Party against any liabilities with respect to or
resulting from any delay in paying or omission to pay the taxes and fees.
SECTION 10.7 Submission to Jurisdiction. Each party hereto hereby (a)
irrevocably submits to the non-exclusive jurisdiction of any New York State or
Federal Court sitting in the Borough of Manhattan in the City of New York, New
York over any action or proceeding arising out of or relating to the
Transaction Documents, (b) irrevocably agrees that all claims in respect of
the action or proceeding may be heard and determined in such State or Federal
Court, (c) irrevocably waives, to the fullest extent it may effectively do so,
the defense of an inconvenient forum to the maintenance of such action or
proceeding, and (d) irrevocably appoints CT Corporation, as its agent to
receive on behalf of it and its property service of copies of the summons and
complaint and any other process that may be served in such action or
proceeding. The service may be made by mailing or delivering a copy of the
process to Buyer or the applicable Seller in care of the Process Agent at the
Process Agent's above address, and Buyer and each Seller hereby irrevocably
authorizes and directs the Process Agent to accept the service on its behalf.
As an alternative method of service, each of Buyer and the Sellers also
irrevocably consents to the service of any and all process in such action or
proceeding by the mailing of copies of the process to Buyer or a Seller (as
applicable) at its address specified herein. Nothing in this section shall
affect the right of any party hereto to serve legal process in any other
manner permitted by law or affect the right of any party hereto to bring any
action or proceeding against any or all of the other parties hereto or any of
their respective properties in the courts of any other jurisdiction.
SECTION 10.8 Waiver of Jury Trial. Each party hereto waives any right
to a trial by jury in any action or proceeding to enforce or defend any rights
under or relating to the Transaction Documents or any amendment, instrument,
document or agreement delivered or that may in the future be delivered in
connection therewith or arising from any course of conduct, course of dealing,
statements (whether verbal or written), actions of any of the parties hereto
or any other relationship existing in connection with the Transaction
Documents, and agrees that any such action or proceeding shall be tried before
a court and not before a jury.
SECTION 10.9 Integration. This Agreement and the other Transaction
Documents contain a final and complete integration of all prior expressions by
the parties hereto with respect to the subject matter hereof and thereof and
shall together constitute the entire agreement between the parties hereto with
respect to the subject matter hereof and thereof, superseding all prior oral
or written understandings.
SECTION 10.10 Counterparts. This Agreement may be executed in any
number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed shall be deemed to be an original
and all of which together shall constitute one and the same agreement.
SECTION 10.11 Acknowledgment and Consent. (a) The Sellers acknowledge
that, contemporaneously herewith, Buyer is selling, transferring, assigning,
setting, granting, over and otherwise conveying to the Agent all of Buyer's
right, title and interest in, to and under the Specified Assets, this
Agreement and all of the other Transaction Documents pursuant to the
Receivables Sale Agreement. The Sellers hereby consent to the sale, transfer,
assignment, set over and conveyance to the Agent by Buyer of all right, title
and interest of Buyer in, to and under the Specified Assets, this Agreement
and the other Transaction Documents, and all of Buyer's rights, remedies,
powers and privileges, and all claims of Buyer against the Sellers, under or
with respect to this Agreement and the other Transaction Documents (whether
arising pursuant to the terms of this Agreement or otherwise available at law
or in equity), including (i) the right of Buyer, at any time, to enforce this
Agreement against the Sellers and the obligations of the Sellers hereunder,
(ii) the right to appoint a successor to the Initial Collection Agent at the
times and upon the conditions set forth in the Receivables Sale Agreement, and
(iii) the right, at any time, to give or withhold any and all consents,
requests, notices, directions, approvals, demands, extensions or waivers under
or with respect to this Agreement, any other Transaction Document or the
obligations in respect of the Sellers thereunder to the same extent as Buyer
may do. Each of the parties hereto acknowledges and agrees that the Agent and
the Purchasers are third party beneficiaries of the rights of Buyer arising
hereunder and under the other Transaction Documents to which any Seller is a
party. Each Seller hereby acknowledges and agrees that it has no claim to or
interest in any of the Bank Accounts or the Transaction Accounts.
(b) The Sellers hereby agree to execute all agreements, instruments and
documents, and to take all other action, that Buyer or the Agent reasonably
determines is necessary or appropriate to evidence the consents, agreements
and acknowledgments described in subsection (a) above. To the extent that
Buyer, individually or through the Initial Collection Agent, has granted or
grants powers of attorney to the Agent under the Receivables Sale Agreement,
the Sellers hereby grant a corresponding power of attorney on the same terms
to Buyer. The Sellers hereby acknowledge and agree that Buyer, in all of its
capacities, shall assign to the Agent for the benefit of the Purchasers the
powers of attorney and other rights and interests granted by the Sellers to
Buyer hereunder and agrees to cooperate fully with the Agent in the exercise
of the rights.
SECTION 10.12 No Partnership or Joint Venture. Nothing contained in
this Agreement shall be deemed or construed by the parties hereto or by any
third Person to create the relationship of principal and agent or of
partnership or of joint venture.
SECTION 10.13 No Proceedings. Each Seller hereby agrees that it will
not institute against Buyer or Windmill, or join any other Person in
instituting against Buyer or Windmill, any proceeding of the type referred to
in the definition of Bankruptcy Event so long as there shall not have elapsed
one year plus one day since the last day on which any such Investment shall
have been outstanding. The foregoing shall not limit the right of a Seller to
file any claim in or otherwise take any action with respect to any such
proceeding that was instituted against Buyer or Windmill by any Person other
than a Seller or the Parent (provided that no such action may be taken by a
Seller until such proceeding has continued undismissed, unstayed and in effect
for a period of 10 days).
SECTION 10.14 Severability of Provisions. If any one or more of the
covenants, agreements, provisions or terms of this Agreement or any of the
other Transaction Documents shall for any reason whatsoever be held invalid,
then the unenforceable covenants, agreements, provisions or terms shall be
deemed severable from the remaining covenants, agreements, provisions or terms
of this Agreement or the other Transaction Documents (as applicable) and shall
in no way affect the validity or enforceability of the other provisions of
this Agreement or any of the other Transaction Documents.
SECTION 10.15 Recourse to Buyer. Except to the extent expressly
provided otherwise in the Transaction Documents, the obligations of Buyer
under the Transaction Documents to which it is a party are solely the
obligations of Buyer. No recourse shall be had for payment of any fee payable
by or other obligation of or claim against Buyer that arises out of any
Transaction Document to which Buyer is a party against any director, officer
or employee of Buyer. The provisions of this section shall survive the
termination of this Agreement.
[SIGNATURES FOLLOW]
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.
CROMPTON & KNOWLES CORPORATION
as Initial Collection Agent
By: /s/Charles J. Marsden
Title: Senior Vice President and Chief Financial Officer
Address: One Station Place, Metro Center
Stamford, Connecticut 06902
Attention: General Counsel
Telephone: (203) 353-5400
Facsimile: (203) 353-5423
With a copy to:
Crompton & Knowles Corporation
Benson Road
Middlebury, Connecticut 06749
Attention: Antonio Bucci, Assistant Treasurer
Telephone: (203) 573-3555
Facsimile: (203) 573-3751
UNIROYAL CHEMICAL COMPANY, INC., as Seller
By: /s/Charles J. Marsden
Title: Vice President and Chief Financial Officer
Address: Benson Road
Middlebury, Connecticut 06749
Notices to be sent to:
c/o Crompton & Knowles Corporation
Benson Road
Middlebury, Connecticut 06749
Attention: Antonio Bucci, Assistant Treasurer
Telephone: (203) 573-3555
Facsimile: (203) 573-3751
With a copy to:
Crompton & Knowles Corporation
One Station Place, Metro Center
Stamford, Connecticut 06902
Attention: General Counsel
Telephone: (203) 353-5400
Facsimile: (203) 353-5423
UNIROYAL CHEMICAL EXPORT LTD., as Seller
By: /s/Charles J. Marsden
Title: Vice President and Chief Financial Officer
Address: Benson Road
Middlebury, Connecticut 06749
Notices to be sent to:
c/o Crompton & Knowles Corporation
Benson Road
Middlebury, Connecticut 06749
Attention: Antonio Bucci, Assistant Treasurer
Telephone: (203) 573-3555
Facsimile: (203) 573-3751
With a copy to:
Crompton & Knowles Corporation
One Station Place, Metro Center
Stamford, Connecticut 06902
Attention: General Counsel
Telephone: (203) 353-5400
Facsimile: (203) 353-5423
DAVIS STANDARD CORPORATION, as Seller
By: /s/David J. Antoniuk
Title: Vice President Finance
Address: 1 Extrusion Drive
Pawcatuck, Connecticut 06379
Notices to be sent to:
c/o Crompton & Knowles Corporation
Benson Road
Middlebury, Connecticut 06749
Attention: Antonio Bucci, Assistant Treasurer
Telephone: (203) 573-3555
Facsimile: (203) 573-3751
With a copy to:
Crompton & Knowles Corporation
One Station Place, Metro Center
Stamford, Connecticut 06902
Attention: General Counsel
Telephone: (203) 353-5400
Facsimile: (203) 353-5423
CROMPTON & KNOWLES COLORS INCORPORATED, as Seller
By: /s/R. J. Lipka
Title: V.P. - Controller
Address: 3001 North Graham Street
Charlotte, North Carolina 28206
Notices to be sent to:
c/o Crompton & Knowles Corporation
Benson Road
Middlebury, Connecticut 06749
Attention: Antonio Bucci, Assistant Treasurer
Telephone: (203) 573-3555
Facsimile: (203) 573-3751
With a copy to:
Crompton & Knowles Corporation
One Station Place, Metro Center
Stamford, Connecticut 06902
Attention: General Counsel
Telephone: (203) 353-5400
Facsimile: (203) 353-5423
CROMPTON & KNOWLES RECEIVABLES CORPORATION,
as the Buyer
By: /s/John R. Jepsen
Title: Treasurer
Address: One Station Place, Metro Center
Stamford, Connecticut 06902
Notices to be sent to:
c/o Crompton & Knowles Corporation
Benson Road
Middlebury, Connecticut 06749
Attention: Antonio Bucci, Assistant Treasurer
Telephone: (203) 573-3555
Facsimile: (203) 573-3751
With a copy to:
Crompton & Knowles Corporation
One Station Place, Metro Center
Stamford, Connecticut 06902
Attention: General Counsel
Telephone: (203) 353-5400
Facsimile: (203) 353-5423
EXHIBIT A
FORM OF BUYER NOTE
December 11, 1998
FOR VALUE RECEIVED, the undersigned, CROMPTON & KNOWLES RECEIVABLES
CORPORATION, a Delaware corporation ("Buyer"), promises to pay to [
], a [ ] corporation (the "Seller" and together
with its successors and assigns, the "Holder"), on the terms and subject to
the conditions set forth in this promissory note (this "Note") and in the
Receivables Purchase Agreement dated as of December 11, 1998 (as amended,
amended and restated or otherwise modified from time to time, the "Agreement")
among Buyer, CROMPTON & KNOWLES CORPORATION (the "Parent"), and certain
subsidiaries of the Parent, an amount equal to the aggregate deferred Purchase
Price owed by Buyer to the Seller pursuant to Article III of the Agreement.
Such amount, as shown in the records of the Initial Collection Agent, will be
rebuttable presumptive evidence of the principal amount and interest owing
under this Note.
1. Purchase Agreement. This Note is a Buyer Note described in, and is
subject to the terms and conditions set forth in, the Agreement. Reference is
hereby made to the Agreement for a statement of certain other rights and
obligations of Buyer and the Seller.
2. Rules of Construction; Definitions. Certain rules of construction
governing the interpretation of this Note are set forth in Appendix A to the
Agreement and, except as otherwise specifically provided herein, capitalized
terms used but not defined herein have the meanings ascribed to them in such
Appendix A or, if not defined therein, as such terms as defined in the
Receivables Sale Agreement. In addition, as used herein, the following terms
have the following meanings:
"Bankruptcy Proceedings" means any dissolution, winding up,
liquidation, readjustment, reorganization or other similar event relating to
Buyer, whether voluntary or involuntary, partial or complete, and whether in
bankruptcy, insolvency, receivership or other similar proceedings, or upon an
assignment for the benefit of creditors, or any other marshalling of the
assets and liabilities of Buyer or any sale of all or substantially all of the
assets of Buyer; provided, however, that none of the following shall
constitute a "Bankruptcy Proceeding" so long as no bankruptcy, insolvency,
receivership or other similar proceedings shall have been commenced by or
against Buyer and is continuing: the occurrence of a Termination Event in
accordance with the terms of the Receivables Sale Agreement.
"Highest Lawful Rate" has the meaning set forth in paragraph 9.
"Junior Liabilities" means all obligations of Buyer to the Holder
under this Note.
"Reference Rate" means, with respect to any day occurring in a
Calculation Period, the rate of interest then in effect under the Crompton &
Knowles Credit Agreement.
"Senior Interests" means all obligations of Buyer to the Agent or
the Purchasers under or in connection with the Transaction Documents, whether
direct or indirect, absolute or contingent, now or hereafter existing, or due
or to become due, including without limitation interest or other amounts due
or to become due after an Event of Bankruptcy.
"Subordination Provisions" means, collectively, the provisions of
paragraph 7.
3. Interest. Subject to the Subordination Provisions, Buyer promises to
pay interest on the aggregate unpaid principal amount of this Note outstanding
on each day at an adjustable rate per annum equal to the Reference Rate in
effect on such day.
4. Interest Payment Dates. (a) Subject to the Subordination Provisions,
Buyer shall pay accrued interest on this Note on the twentieth day of each
month. Buyer also shall pay accrued interest on the principal amount of each
prepayment hereof on the date of such prepayment.
(b) Notwithstanding the provisions of paragraph 4(a), in the event that
on the date an interest payment is due hereunder the amount of funds available
therefor pursuant to Section 3.3 of the Agreement is insufficient to pay any
amount due pursuant to paragraph 4(a), then interest shall be payable only to
the extent that funds are available therefor in accordance with Section 3.3 of
the Agreement, and any amount not paid because funds are not available in
accordance with said Section 3.3 shall not constitute a claim (as defined in
Section 101 of the Bankruptcy Code) against or corporate obligation of Buyer
for any such insufficiency. All interest on this Note that is not paid when
due pursuant to this paragraph shall be payable on the next date on which an
interest payment on this Note is due and on which funds are available therefor
pursuant to Section 3.3 of the Agreement, and all such unpaid interest shall
accrue interest at the Reference Rate until paid in full.
5. Basis of Computation. Interest accrued hereunder shall be computed
for the actual number of days elapsed on the basis of a 360-day year.
6. Principal Payment Dates. Subject to the Subordination Provisions,
any unpaid principal of this Note shall only become due and payable on the
date which is one year and one day after the date on which all Investments (as
defined in the Receivables Sale Agreement) and other amounts then due and
owing by the Buyer under the Transaction Documents have been paid in full.
Subject to the Subordination Provisions, the principal amount of and accrued
interest on this Note may be prepaid on any Business Day without premium or
penalty; provided, that no prepayment shall be made by Buyer to the extent
that such prepayment would result in a default in the payment of any other
amount required to be paid by Buyer under any Transaction Document.
7. Subordination Provisions. Buyer covenants and agrees, and the
Holder, by its acceptance of this Note, likewise covenants and agrees, that
the payment of all Junior Liabilities is hereby expressly subordinated in
right of payment to the payment and performance of the Senior Interests to the
extent and in the manner set forth in this paragraph:
(a) In the event of any Bankruptcy Proceeding, the Senior Interests
shall first be paid and performed in full and in cash before the Holder shall
be entitled to receive and to retain any payment or distribution in respect of
the Junior Liabilities. In order to implement the foregoing: (i) all payments
and distributions of any kind or character in respect of the Junior
Liabilities to which the Holder would be entitled except for this clause (a)
shall be made directly to the Agent (for the benefit of itself and the
Purchasers), and (ii) if a Bankruptcy Proceeding has been commenced, the
Holder shall promptly file a claim or claims, in the form required in such
Bankruptcy Proceeding, for the full outstanding amount of the Junior
Liabilities, and shall use commercially reasonable efforts to cause said claim
or claims to be approved and all payments and other distributions in respect
thereof to be made directly to the Agent (for the benefit of itself and the
Purchasers) until the Senior Interests shall have been paid and performed in
full and in cash.
(b) In the event that the Holder receives any payment or other
distribution of any kind or character from Buyer or from any other source
whatsoever, in payment of the Junior Liabilities, after the commencement of
any Bankruptcy Proceeding, such payment or other distribution shall be
received in trust for the Agent and the Purchasers and shall be turned over by
the Holder to the Agent forthwith.
(c) Upon the final indefeasible payment in full and in cash of all
Senior Interests, the Holder shall be subrogated to the rights of the Agent
and the Purchasers to receive payments or distributions from Buyer that are
applicable to the Senior Interests until the Junior Liabilities are paid in
full.
(d) These Subordination Provisions are intended solely for the
purpose of defining the relative rights of the Holder, on the one hand, and
the Agent and the Purchasers on the other hand. Nothing contained in these
Subordination Provisions or elsewhere in this Note is intended to or shall
impair, as between Buyer, its creditors (other than the Agent and the
Purchasers) and the Holder, Buyer's obligation, which is unconditional and
absolute, to pay the Junior Liabilities as and when the same shall become due
and payable in accordance with the terms hereof and of the Agreement or to
affect the relative rights of the Holder and creditors of Buyer (other than
the Agent and the Purchasers).
(e) The Holder shall not, until the Senior Interests have been
finally paid and performed in full and in cash, (i) cancel, waive, forgive,
transfer or assign, or commence legal proceedings to enforce or collect, or
subordinate to any obligation of Buyer (other than to the Senior Interests),
howsoever created, arising or evidenced, whether direct or indirect, absolute
or contingent, or now or hereafter existing, or due or to become due, the
Junior Liabilities or any rights in respect hereof or (ii) convert the Junior
Liabilities into an equity interest in Buyer, unless, in the case of each of
clauses (i) and (ii), the Holder shall have received the prior written consent
of the Agent in each case.
(f) The Holder shall not commence, or join with any other Person in
commencing, any proceeding of the type referred to in the definition of
Bankruptcy Event with respect to Buyer until at least one year and one day
shall have passed after the Senior Interests shall have been finally paid and
performed in full and in cash; provided, however, that the Holder shall at all
times have the right to file any claim in or otherwise take any action with
respect to any insolvency proceeding instituted against Buyer by any Person
other than the Holder (provided that no such action may be taken by the Holder
until such proceeding has continued undismissed, unstayed and in effect for a
period of 10 days).
(g) If, at any time, any payment (in whole or in part) made with
respect to any Receivable is rescinded or must be restored or returned by the
Agent or a Purchaser (whether in connection with any Bankruptcy Proceedings or
otherwise), these Subordination Provisions shall continue to be effective or
shall be reinstated, as the case may be, as though such payment had not been
made.
(h) Each of the Agent and the Purchasers may, from time to time, in
its sole discretion, without notice to the Holder, and without waiving any of
its rights under these Subordination Provisions, take any or all of the
following actions: (i) retain or obtain an interest in any property to secure
any of the Senior Interests, (ii) retain or obtain the primary or secondary
obligations of any other obligor or obligors with respect to any of the Senior
Interests, (iii) extend or renew for one or more periods (whether or not
longer than the original period), alter, increase or exchange any of the
Senior Interests, or release or compromise any obligation of any nature with
respect to any of the Senior Interests, (iv) amend, supplement, amend and
restate, or otherwise modify any Transaction Document to which it is a party,
and (v) release its security interest in, or surrender, release or permit any
substitution or exchange for all or any part of any rights or property
securing any of the Senior Interests, or extend or renew for one or more
periods (whether or not longer than the original period), or release,
compromise, alter or exchange any obligations of any nature of any obligor
with respect to any such rights or property.
(i) The Holder hereby waives: (i) notice of acceptance of these
Subordination Provisions by the Agent or any of the Purchasers, (ii) notice of
the existence, creation, non-payment or non-performance of all or any of the
Senior Interests, and (iii) all diligence in enforcement, collection or
protection of, or realization upon, the Senior Interests, or any thereof, or
any security therefor.
(j) These Subordination Provisions constitute a continuing offer
from Buyer to all Persons who become the holders of, or who continue to hold,
Senior Interests, and these Subordination Provisions are made for the benefit
of the Agent and the Purchasers, and the Agent may proceed to enforce such
provisions on behalf of each of such Persons.
8. General. No failure or delay on the part of the Holder in exercising
any power or right hereunder shall operate as a waiver thereof, nor shall any
single or partial exercise of any such power or right preclude any other or
further exercise thereof or the exercise of any other power or right. No
amendment, modification or waiver of, or consent with respect to, any
provision of this Note shall in any event be effective unless (a) the same
shall be in writing and signed and delivered by Buyer and the Seller, and (b)
all consents required for such actions under the Transaction Documents shall
have been received by the appropriate Persons.
9. Limitation on Interest. Notwithstanding anything in this Note to the
contrary, Buyer shall never be required to pay unearned interest on any amount
outstanding hereunder, and shall never be required to pay interest on the
principal amount outstanding hereunder, at a rate in excess of the maximum
nonusurious interest rate that may be contracted for, charged or received
under applicable federal or state law (such maximum rate being herein called
the "Highest Lawful Rate"). If the effective rate of interest that would
otherwise be payable under this Note would exceed the Highest Lawful Rate, or
the Holder shall receive any unearned interest or shall receive monies that
are deemed to constitute interest that would increase the effective rate of
interest payable by Buyer under this Note to a rate in excess of the Highest
Lawful Rate, then (a) the amount of interest that would otherwise be payable
by Buyer under this Note shall be reduced to the amount allowed by applicable
law, and (b) any unearned interest paid by Buyer or any interest paid by Buyer
in excess of the Highest Lawful Rate shall be refunded to Buyer. Without
limitation of the foregoing, all calculations of the rate of interest
contracted for, charged or received by the Holder under this Note that are
made for the purpose of determining whether such rate exceeds the Highest
Lawful Rate shall be made, to the extent permitted by applicable usury laws
(now or hereafter enacted), by amortizing, prorating and spreading in equal
parts during the actual period during which any amount has been outstanding
hereunder all interest at any time contracted for, charged or received by the
Holder in connection herewith. If at any time and from time to time (i) the
amount of interest payable to the Holder on any date shall be computed at the
Highest Lawful Rate pursuant to the provisions of the foregoing sentence, and
(ii) in respect of any subsequent interest computation period the amount of
interest otherwise payable to the Holder would be less than the amount of
interest payable to the Holder computed at the Highest Lawful Rate, then the
amount of interest payable to the Holder in respect of such subsequent
interest computation period shall continue to be computed at the Highest
Lawful Rate until the total amount of interest payable to the Holder shall
equal the total amount of interest that would have been payable to the Holder
if the total amount of interest had been computed without giving effect to the
provisions of the foregoing sentence.
10. No Negotiation. This Note is not negotiable.
11. Governing Law. THIS NOTE SHALL BE DEEMED TO BE A CONTRACT MADE
UNDER AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW
YORK WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES.
12. Security Interest. The Seller may grant a security interest in or
otherwise pledge this Note as security, and any Person to whom such security
interest is granted or to whom this Note is pledged shall be bound by, and for
all purposes takes this Note subject to, the restrictions and other provisions
(including the Subordination Provisions) set forth herein.
13. Captions. Paragraph captions used in this Note are provided solely
for convenience of reference and shall not affect the meaning or
interpretation of any provision of this Note.
CROMPTON & KNOWLES RECEIVABLES CORPORATION
By:
Title:
EXHIBIT B
FORM OF
SELLER ASSIGNMENT CERTIFICATE
[Date]
Reference is made to the Receivables Purchase Agreement dated as of
December 11, 1998 (as the same may be amended, supplemented, amended and
restated or otherwise modified from time to time, the "Agreement") among
CROMPTON & KNOWLES CORPORATION (the "Parent"), as Initial Collection Agent,
certain affiliates of the Parent, as Sellers, and CROMPTON & KNOWLES
RECEIVABLES CORPORATION ("Buyer"). Unless otherwise defined herein,
capitalized terms used herein have the meanings provided in Appendix A to the
Agreement, and this Seller Assignment Certificate shall be interpreted in
accordance with the conventions set forth in Part B of such Appendix A.
The undersigned (the "Seller") hereby sells, transfers, assigns, sets
over and conveys unto Buyer all right, title and interest of the Seller in, to
and under:
(a) all Receivables of the Seller (other than Contributed
Receivables) that existed and were owing to the Seller as at the closing of
the Seller's business on the Initial Cut-Off Date,
(b) all Receivables created by the Seller (other than Contributed
Receivables) that arise during the period from and including the closing of
the Seller's business on the Initial Cut-Off Date to but excluding the
Purchase Termination Date,
(c) all Related Security with respect to all Receivables (other
than Contributed Receivables) of the Seller,
(d) the Lockboxes, the Bank Accounts, all documents, instruments
and agreements relating to the Lockboxes or the Bank Accounts, and all amounts
from time to time on deposit in the Lockboxes or the Bank Accounts,
(e) all Collections and other proceeds of the foregoing, including
all funds received by any Person in payment of any amounts owed (including
invoice prices, finance charges, interest and all other charges, if any) in
respect of any Receivable described above (other than a Contributed
Receivable) or Related Security with respect to any such Receivable, or
otherwise applied to repay or discharge any such Receivable (including
insurance payments that the Seller or the Initial Collection Agent applies in
the ordinary course of its business to amounts owed in respect of any such
Receivable and net proceeds of any sale or other disposition of repossessed
goods that were the subject of any such Receivable) or other collateral or
property of any Obligor or any other Person directly or indirectly liable for
payment of such Receivables), and
(f) all Records relating to any of the foregoing.
This Seller Assignment Certificate is made without recourse but on the
terms and subject to the conditions set forth in the Transaction Documents to
which the Seller is a party. The Seller acknowledges and agrees that Buyer is
accepting this Seller Assignment Certificate in reliance on the
representations, warranties and covenants of the Seller contained in the
Transaction Documents to which the Seller is a party.
THIS SELLER ASSIGNMENT CERTIFICATE SHALL BE CONSTRUED IN ACCORDANCE WITH
THE AGREEMENT AND THE INTERNAL LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD
TO CONFLICT OF LAWS PRINCIPLES.
IN WITNESS WHEREOF, the undersigned has caused this Seller Assignment
Certificate to be duly executed and delivered by its duly Authorized Officer
as of the date first above written.
[SELLER FULL NAME]
By:
Title:
SCHEDULE 1
LITIGATION AND OTHER PROCEEDINGS
None
SCHEDULE 2
CREDIT AND COLLECTION POLICY
SCHEDULE 3
OFFICES OF THE SELLERS
WHERE RECORDS ARE MAINTAINED
The chief executive office of each Seller. In addition, the following
Sellers maintain Records at the locations set forth below:
I Crompton & Knowles Colors Incorporated
Route 724
Birdsboro, PA 19508
SCHEDULE 4
LEGAL NAMES, TRADE NAMES AND NAMES
UNDER WHICH THE SELLERS DO BUSINESS
None
APPENDIX A
to
Receivables Purchase Agreement
DEFINITIONS
Part A. Defined Terms
"Administrative Agent" means ABN AMRO Bank N.V., in its capacity as agent
under the Receivables Sale Agreement, and successor thereto appointed in
accordance with the Receivables Sale Agreement.
"Adverse Claim" means any claim of ownership interest or any mortgage,
deed of trust, pledge, hypothecation, assignment, deposit arrangement,
encumbrance, lien (statutory or other) or other security interest.
"Affiliate" means as to any Person, any other Person which, directly or
indirectly, is in control of, is controlled by, or is under common control
with, such Person. A Person shall be deemed to control another Person if the
controlling Person possesses, directly or indirectly, the power to direct or
cause the direction of the management and policies of the other Person,
whether through the ownership of voting securities, membership interests, by
contract, or otherwise.
"Agent" is defined in the Receivables Sale Agreement.
"Aggregate Unpaid Balance" is defined in Section 2.1(b) of the
Receivables Purchase Agreement.
"Attorney Costs" means and includes all fees and disbursements of any law
firm or other external counsel.
"Authorized Officer" means, with respect to Buyer, Initial Collection
Agent, any Seller or the Administrative Agent, any of the Chief Executive
Officer, the President, the Treasurer, the Chief Financial Officer, any Vice
President and any Assistant Treasurer of such Person.
"Bankruptcy Code" means the Federal Bankruptcy Reform Act of 1978 (11
U.S.C. Section 101, et seq.).
"Bankruptcy Event" means, for any Person, any of the following events:
(a) a case or other proceeding shall be commenced, without the
application or consent of such Person, in any court, seeking the liquidation,
reorganization, debt arrangement, dissolution, winding up or composition or
readjustment of debts of such Person, the appointment of a trustee, receiver,
custodian, liquidator, assignee, sequestrator or the like for such Person or
any substantial part of its assets, or any similar action with respect to such
Person under any law relating to bankruptcy, insolvency, reorganization,
winding up or composition or adjustment of debts, and such case or proceeding
shall continue undismissed, or unstayed and in effect, for a period of 60
days; or an order for relief in respect of such Person shall be entered in an
involuntary case under the federal bankruptcy laws or other similar laws now
or hereafter in effect, or
(b) such Person shall commence a voluntary case or other proceeding
under any applicable bankruptcy, insolvency, reorganization, debt arrangement,
dissolution or other similar law now or hereafter in effect, or shall consent
to the appointment of or taking possession by a receiver, liquidator,
assignee, trustee, custodian, sequestration or the like, for such Person or
any substantial part of its property, or shall make any general assignment for
the benefit of creditors, or shall fail to, or admit in writing its inability
to, pay its debts generally as they become due.
"Business Day" shall have the meaning assigned to such term on the
Receivables Sale Agreement.
"Buyer" is defined in the preamble to the Receivables Purchase Agreement.
"Calculation Period" means a calendar month.
"Calendar Cycle" means a financial reporting cycle utilized by the
Initial Collection Agent.
"Collection" means all funds that are received by a Seller or Initial
Collection Agent from or on behalf of any Obligor in payment of any amounts
owed (including invoice prices, finance charges, interest and all other
charges, if any) in respect of any Receivable or Related Asset, or any other
funds otherwise applied to repay or discharge any Receivable (including
insurance payments applied in the ordinary course of its business to amounts
owed in respect of such Receivable and net proceeds of sale or other
disposition of repossessed goods that were the subject of such Receivable), in
each case without regard to whether such funds are immediately available or
evidenced by checks or otherwise.
"Contributed Receivables" is defined in Section 1.7 of the Receivables
Purchase Agreement.
"Credit and Collection Policy" means, with respect to a Seller, the
credit and collection policies and practices relating to the contracts and
Receivables of such Seller as set forth in Schedule 2 to the Receivables
Purchase Agreement, as such credit and collection policies may be modified
without violating Section 6.1(g) of the Receivables Purchase Agreement.
"Credit Memo" means a notation on the Initial Collection Agent's records
reflecting an event referred to in the definition of "Dilution".
"Crompton & Knowles Credit Agreement" is defined in the Receivables Sale
Agreement.
"Cut-Off Date" means the last day of any calendar month.
"Daily Report" means the report prepared by the Initial Collection Agent
in accordance with the proviso set forth in Section 3.3 of the Receivable Sale
Agreement and the form of which appears as Exhibit D-2 to the Receivables Sale
Agreement.
"Debit Memo" means a notation on the Initial Administrative Agent's (or a
Sub-Initial Administrative Agent's) records as to the remaining portion of the
original Unpaid Balance of a Receivable that has not been paid at the time
that a portion of the Receivable has been paid.
"Dollars" means dollars in lawful money of the United States of America.
"Eligible Receivable" shall have the meaning assigned to such term in the
Receivables Sale Agreement.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and any successor statute of similar import, together with the
regulations thereunder, in each case as in effect from time to time.
"ERISA Affiliate" means a corporation, trade or business that is, along
with any Seller, a member of a controlled group of corporations or a
controlled group of trades or businesses, as described in section 414 of the
Internal Revenue Code, or section 4001 of ERISA.
"Federal Reserve Board" means the Board of Governors of the Federal
Reserve System, or any successor thereto or to the functions thereof.
"First Issuance Date" means December 11, 1998.
"GAAP" means United States generally accepted accounting principles.
"Governmental Authority" means the United States of America, any state or
other political subdivision thereof and any entity in the United States of
America or any applicable foreign jurisdiction that exercises executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government.
"Guaranty" means any agreement or arrangement by which any Person
directly or indirectly guarantees, endorses, agrees to purchase or otherwise
becomes contingently liable upon any liability of any other Person (other than
by endorsements of instruments in the course of collection) or guarantees the
payment of distributions upon the shares of any other Person.
"Indebtedness" of any Person means all of that Person's obligations for
borrowed money, obligations evidenced by bonds, debentures, notes or other
similar instruments, obligations as lessee under leases that are required by
GAAP to be recorded as capitalized leases and obligations to pay the deferred
purchase price of property or services.
"Indemnified Losses" means any and all liabilities, obligations, losses,
damages, penalties, actions, judgments, claims, suits, costs, charges,
expenses and disbursements (including reasonable Attorney Costs) of any kind
or nature whatsoever (whether on account of settlement or otherwise, and
whether or not the Person seeking indemnification, payment or reimbursement is
a party to any action or proceeding, if applicable, that gives rise to any
Indemnified Losses).
"Initial Collection Agent" means at any time the Person then authorized
pursuant to the Receivables Sale Agreement to service, administer and collect
Receivables and the Related Assets, which Person shall initially be the
Parent.
"Initial Cut-Off Date" means the Business Day immediately preceding the
First Issuance Date.
"Internal Revenue Code" means the Internal Revenue Code of 1986.
"Lockbox Accounts" means bank accounts into which Collections from
Receivables are deposited.
"Lockbox Bank" means any of the banks at which one or more Lockbox
Accounts are maintained.
"Material Adverse Effect" means, with respect to any Seller or Initial
Collection Agent and any event or circumstance at any time, a material adverse
effect on (a) the ability of Seller or Initial Collection Agent to perform its
obligations under any Transaction Document or (b) the validity, enforceability
or collectibility of any Receivables, Related Assets or contracts relating
thereto or (c) any Transaction Document; provided, that for the purpose of
determining whether any Adverse Claim or other event or circumstance results
(or has a likelihood of resulting) in a Material Adverse Effect, the effect of
such event or circumstance shall be considered in the aggregate with the
effect of all other Adverse Claims (including Permitted Adverse Claims) or
other events and circumstances occurring or existing at the time of such
determination.
"Moody's" means Moody's Investors Service, Inc., or any successor
thereto.
"Noteholder" means any holder of a commercial paper note issued by the
Purchaser.
"Obligations" means (a) all obligations (monetary or otherwise) of the
Seller to the Buyer and its successors, permitted transferees and assigns,
arising under or in connection with the Transaction Documents, and (b) all
obligations (monetary or otherwise) of a Seller to Buyer and its successors,
transferees and assigns, arising under or in connection with the Transaction
Documents, in each case howsoever created, arising or evidenced, whether
direct or indirect, absolute or contingent, now or hereafter existing, or due
or to become due.
"Obligor" means a Person obligated to make payments on a Receivable.
"Officer's Certificate" means, unless otherwise specified in the
Receivables Purchase Agreement or Receivables Sale Agreement, as the case may
be, a certificate signed by an Authorized Officer of the applicable Seller or
the Initial Collection Agent, as the case may be, or, in the case of a
Successor Initial Collection Agent, a certificate signed by the President, any
Vice President, Assistant Treasurer or the financial controller (or an officer
holding an office with equivalent or more senior responsibilities) of such
Successor Initial Collection Agent, that, in the case of any of the foregoing,
is delivered to the Agent.
"Opinion of Counsel" means a written opinion of counsel, which shall be
reasonably acceptable to the addressees thereof.
"Parent Company" is defined in Section 6.2(a) of the Receivables Purchase
Agreement.
"PBGC" means the Pension Benefit Guaranty Corporation.
"Pension Plan" means a "pension plan," as such term is defined in section
3(2) of ERISA, which is subject to title IV of ERISA (other than any
"multiemployer plan" as such term is defined in section 4001(a)(3) of ERISA),
and to which any Seller or any ERISA Affiliate may have any liability,
including any liability by reason of having been a substantial employer within
the meaning of section 4063 of ERISA at any time during the preceding five
years, or by reason of being deemed to be a contributing sponsor under section
4069 of ERISA.
"Periodic Report" is defined in the Receivables Sale Agreement.
"Permitted Adverse Claims" means (a) ownership or security interests
arising under the Transaction Documents; and (b) liens for taxes, assessments
or charges of any Governmental Authority (other than Tax or ERISA Liens) and
liens of landlords, carriers, warehousemen, mechanics and materialmen imposed
by law in the ordinary course of business, in each case (i) for amounts not
yet due or (ii) which are being contested in good faith by appropriate
proceedings and with respect to which adequate reserves or other appropriate
provisions are being maintained in accordance with GAAP.
"Person" means an individual, partnership, limited liability company,
corporation, joint stock company, trust (including a business trust),
unincorporated association, joint venture, government or any agency or
political subdivision thereof or any other entity.
"Process Agent" is defined in Section 10.7 of the Receivables Purchase
Agreement.
"Program" means the transactions contemplated in the Transaction
Documents.
"Purchase" means each purchase of Receivables and Related Assets by Buyer
from a Seller under the Receivables Purchase Agreement.
"Purchasers" is defined in the Receivables Sale Agreement.
"Purchase Price" is defined in Section 2.1(b) of the Receivables Purchase
Agreement.
"Purchase Price Credit" is defined in Section 3.1(d) of the Receivables
Purchase Agreement.
"Purchase Termination Date" means the earlier to occur of (a) the
effective date of termination specified by the Seller pursuant to Section 8.1
of the Receivables Purchase Agreement and (b) any event referred to in Section
8.2 of the Receivables Purchase Agreement.
"Purchased Assets" is defined in Section 1.1 of the Receivables Purchase
Agreement.
"Purchased Receivables" is defined in Section 1.1 of the Receivables
Purchase Agreement.
"Rating Agency" means each of S&P and Moody's.
"Receivable" shall have the meaning assigned to such term in the
Receivables Sale Agreement.
"Receivables Purchase Agreement" means the Receivables Purchase
Agreement, dated as of December 11, 1998, among Crompton & Knowles
Corporation, as Initial Administrative Agent, the Seller and the Buyer, as
such agreement may be amended, modified or supplemented from time to time in
accordance with its terms.
"Receivables Sale Agreement" means the Receivables Sale Agreement, dated
as of December 11, 1998, among Crompton & Knowles Receivables Corporation, as
seller, the Agent, the liquidity providers from time to time party thereto,
ABN AMRO Bank, N.V., as the enhancer and Windmill Funding Corporation.
"Records" means all contracts, purchase orders, invoices and other
agreements, documents, books, records and other media for the storage of
information (including tapes, disks, punch cards, computer programs and
databases and related property) maintained by the Sellers or Initial
Collection Agent with respect to the Purchased Assets or the related Obligors.
"Recoveries" means all Collections received by the Initial Collection
Agent in respect of any Write-Off.
"Related Assets" is defined in Section 1.1 of the Receivables Purchase
Agreement.
"Related Contributed Assets" is defined in Section 1.7 of the Receivables
Purchase Agreement.
"Related Purchased Assets" is defined in Section 1.1 of the Receivables
Purchase Agreement.
"Related Security" means, with respect to any Receivable, (a) all of the
applicable Seller's right, title and interest in and to the goods, if any,
relating to the sale that gave rise to the Receivable, (b) all other security
interests or liens and property subject thereto from time to time purporting
to secure payment of the Receivable, whether pursuant to any contract related
to the Receivable or otherwise, and (c) all letters of credit, guarantees and
other agreements or arrangements of whatever character from time to time
supporting or securing payment of the Receivable, whether pursuant to any
contract related to the Receivable or otherwise.
"Report Date" means the twentieth day of each calendar month (or, if such
day is not a Business Day, the next Business Day following such day).
"S&P" means Standard & Poor's, a division of The McGraw-Hill Companies,
Inc., or any successor thereto.
"Securities Act" means the Securities Act of 1933, as amended.
"Seller" means each Person from time to time party to the Receivables
Purchase Agreement as a "Seller."
"Seller Assignment Certificate" means an assignment by a Seller,
substantially in the form of Exhibit B to the Receivables Purchase Agreement.
"Seller Noncomplying Receivables Adjustments" is defined in Section
3.5(a) of the Receivables Purchase Agreement.
"Specified Assets" is defined in Section 1.1 of the Receivables Purchase
Agreement.
"Subsidiary" means, with respect to any Person, any corporation of which
more than 50% of the outstanding capital stock having ordinary voting power to
elect a majority of the board of directors of such corporation (irrespective
of whether at the time capital stock of any other class or classes of such
corporation shall or might have voting power upon the occurrence of any
contingency) is at the time directly or indirectly owned by such Person.
"Tax or ERISA Lien" means a lien arising under Section 6321 of the
Internal Revenue Code or Section 302(f) or 4068 of ERISA.
"Terminating Seller" means any Seller that shall have given written
notice to the Buyer of its intention to terminate its obligation to sell to
the Buyer its Receivables and Related Assets.
"Transaction Documents" shall have the meaning assigned to such term in
the Receivables Sale Agreement.
"UCC" means the Uniform Commercial Code as from time to time in effect in
the
applicable jurisdiction or jurisdictions.
"Unpaid Balance" of any Receivable means at any time the unpaid amount
thereof as shown in the books of Initial Collection Agent at such time.
"Write-Off" means any Receivable that, consistent with the applicable
Credit and Collection Policy, has been written off as uncollectible.
Part B. Other Interpretative Matters. For purposes of any Transaction
Document (including in this Appendix), unless otherwise specified therein: (1)
accounting terms used and not specifically defined therein shall be construed
in accordance with GAAP; (2) terms used in Article 9 of the New York UCC, and
not specifically defined in that Transaction Document, are used therein as
defined in such Article 9; (3) the term "including" means "including without
limitation," and other forms of the verb "to include" have correlative
meanings; (4) references to any Person include such Person's permitted
successors; (5) in the computation of a period of time from a specified date
to a later specified date, the word "from" means "from and including" and the
words "to" and "until" each means "to but excluding"; (6) the words "hereof",
"herein" and "hereunder" and words of similar import refer to such Transaction
Document as a whole and not to any particular provision of such Transaction
Document; (7) the term "or" means "and/or"; (8) the meanings of defined terms
are equally applicable to the singular and plural forms of such defined terms;
(9) references to "Section", "Schedule", "Exhibit", "Annex" and "Appendix" in
such Transaction Document are references to Sections, Schedules, Exhibits,
Annexes and Appendices in or to such Transaction Document; (10) the various
captions (including any table of contents) are provided solely for convenience
of reference and shall not affect the meaning or interpretation of such
Transaction Document; and (11) references to any statute or regulation refer
to that statute or regulation as amended from time to time, and include any
successor statute or regulation of similar import.
Crompton & Knowles Corporation
1998 Annual Report
(C&K logo)
Service
Technology
Performance
contents
Mission statement 1
Letter to shareholders 2
Business review 6
MD&A 18
Consolidated financial statements 22
Notes to consolidated financial statements 26
Responsibility for financial statements 34
Independent auditors' report 34
Seven year selected financial data 35
Corporate Management 36
Board of Directors and corporate data (inside back cover)
financial highlights
(4 bar charts)
sales
in billions of dollars
$2.0
1.0
0
94 95 96 97 98
return on average total capital
before special items
20%
15%
10%
5%
0
94 95 96 97 98
return on sales
before special items
7%
6%
5%
4%
3%
2%
1%
0
94 95 96 97 98
debt
in billions of dollars
$1.2
.8
.4
0
94 95 96 97 98
in thousands of dollars, except per share amounts 1998 1997
Net sales $ 1,796,119 $ 1,851,180
Operating profit $ 218,298 $ 224,278
Interest expense $ 78,520 $ 103,349
Net earnings $ 161,755 $ 86,829
Basic earnings per share $ 2.20 $ 1.18
Diluted earnings per share $ 2.14 $ 1.15
Total assets $ 1,408,893 $ 1,548,820
Long-term debt $ 646,857 $ 896,291
Cash flow from operations $ 169,522 $ 215,787
Operating profit and net earnings before
special items (refer to page 35) are as follows:
Adjusted operating profit $ 259,858 $ 252,278
Adjusted net earnings $ 117,270 $ 92,071
about the company
Crompton & Knowles is a global producer and marketer of specialty chemicals,
polymers and polymer processing equipment. The company has 5,400 employees in
research, manufacturing, sales, and administrative facilities around the
world, and our products are sold in 120 countries.
Crompton & Knowles has secured leading positions in scores of markets by
providing quality products, a high level of technical service and performance
know-how that solves customer problems and adds value to customers' products.
The company's 69.4 million shares of common stock outstanding are traded on
the New York Stock Exchange under the symbol CNK. Up-to-date information on
the company is available at www.crompton-knowles.com.
The company has two business groups which consist of five primary reporting
segments:
specialty chemicals polymers & polymer processing equipment
performance chemicals polymers
crop protection polymer processing equipment
colors
percentage of sales by business
total sales: $1.80 billion
(pie chart)
Performance Chemicals 25%
Crop Protection 19%
Colors 13%
Polymers 19%
Polymer Processing Equipment 19%
Other* 5%
*Includes specialty ingredients business sold effective the first day of
fiscal 1999.
Crompton & Knowles is a member of the Chemical Manufacturers Association and a
signatory of the Association's Responsible Care(r) Program. The company is
committed to a continuous good faith effort to improve performance in health,
safety and environmental quality.
performance chemicals
A leading worldwide producer of rubber chemicals and additives for plastics
and lubricants.
key products
Rubber chemicals include antioxidants, antiozonants, accelerators, foaming
agents, and miscellaneous specialty products. Additives include
antioxidants, chemical foaming agents, polymer modifiers, petroleum additives,
synthetic fluids, chemical intermediates, polymerization inhibitors,
curatives, and dispersants.
markets served
Rubber chemicals are sold to processors and manufacturers of rubber including
tire makers and industrial makers of hoses, belts, rubber sponge, and a
variety of natural and synthetic rubber products. Plastic additives are sold
to manufacturers of petrochemicals and plastics processors. These customers
manufacture materials used in a wide range of end use markets including
automotive, aerospace, construction, electronics, packaging, flooring, and
wire and cable. Lubricant additives are used in automotive and industrial
oils and lubricants.
crop protection
Producer of products for use on high value crops to improve crop quality and
increase yields. A leading international seed treatment company providing
products to assure germination and healthy seedlings.
key products
Fungicides, miticides, insecticides, growth regulants, herbicides, and seed
treatment equipment.
markets served
Both food and non-food crops with an emphasis on high value crops such as
nuts, citrus, tree and vine fruits, tobacco, cotton, and ornamental plants.
colors
The largest producer of dyes in the U.S.
key products
Textile and industrial dyes and auxiliary chemicals for the dyeing process.
markets served
About one-half of sales are to the apparel market. Other textile markets
include carpeting and other home and automotive furnishings. Industrial dyes
markets are primarily paper, leather and ink.
polymers
The number one supplier of EPDM in North America. The number one worldwide
supplier of castable urethanes. Building the world's largest dedicated nitrile
rubber manufacturing facility.
key products
EPDM heat, sunlight and ozone resistant rubber, abrasion-resistant castable
urethane prepolymers and oil resistant nitrile rubber.
markets served
EPDM is primarily used in automotive applications as well as in roofing, hose,
and wire and cable insulation. Urethane end products include industrial and
printing rollers, mining machinery and equipment, mechanical goods, solid
industrial tires, and sporting goods. Nitrile rubber is used in automotive
hoses, seals and o-rings and other consumer and industrial applications.
polymer processing equipment
The number one worldwide producer of plastics extrusion systems.
key products
Integrated single screw and twin screw extrusion systems with advanced
electronic controls. Industrial blow molding equipment and controls.
markets served
Makers of extruded products for the packaging, automotive, appliance,
construction, medical, and power and communications cable markets.
crompton & knowles corporation
Crompton & Knowles' mission is to create value for our shareholders by
providing value to our customers.
Value creation is the result of steady, sustainable, profitable growth. The
entrepreneurial spirit of our people combined with the efficient allocation
of capital ensures our success in all business environments.
We respond to our customers' needs, providing them with quality products and
services to solve their problems and add value to their products. This
customer focus places us in leadership positions in our markets.
By doing well for our customers, we will do well for our shareholders. Our
businesses will generate attractive returns, and the confidence of our
investors will be rewarded.
to our shareholders
Crompton & Knowles made considerable gains in 1998 to position our company for
future growth and value creation. We strengthened the individual businesses by
introducing new products, entering new markets and increasing production
capacity. We strengthened the business portfolio by entering into joint
ventures in two businesses and divesting the specialty ingredients business.
We strengthened the capital structure of the company by paying down debt,
refinancing high cost debt and buying back stock. We continued to grow
earnings despite difficult market conditions.
Because of the entrepreneurial values and customer-first focus of the business
units, we were able to respond quickly to changes in the marketplace enabling
us to continue our earnings growth record. For the year, we reported a 27
percent increase in earnings before special items to $117.3 million, or $1.55
a share diluted.
We are focused on accelerating the growth of our individual businesses.
- -- Our research and development expertise is being leveraged across all our
business lines, and we are bringing to market our most promising products
faster than ever before. We expect a number of new products to make
significant market penetration in 1999. These include: a new friction
modifier for lubricant additives, a new stabilizer used in polyurethane
production, a new generation of EPDM polymers for the wire and cable market,
new urethane prepolymers for golf balls, and a new agricultural miticide based
on our unique chemistry.
- -- We are expanding participation in our present markets and seeking new ones
in order to increase the sales of existing products. We have an international
infrastructure that we are leveraging across all our product lines. In
particular, there are new markets in Europe and South America for polymer
processing equipment and the high population, agrarian countries of China,
India and Brazil for crop protection chemicals.
- -- We have increased production capacity for a number of high-demand products
including Royalene(r) EPDM, Synton(r) PAO synthetic lubricants and
Adiprene(r)/ Vibrathane(r) castable urethanes, that will support continued
growth in these businesses.
- -- We are evaluating a number of acquisition candidates that have the
potential to add new technologies, new products and improve market access. We
are evaluating options that would add production capacity for EPDM, rubber
chemicals in Europe and Asia and polymer processing equipment in Europe. Also,
plastics additives and crop protection chemicals represent product lines we
have targeted for growth around the world. In Europe, we are adding
substantial capacity for castable urethanes which is scheduled to come on line
in early 2000. In 1998, we acquired Betol Machinery in England to advance our
market penetration of polymer processing equipment in Europe.
(photo of Vincent A. Calarco)
/s/Vincent A. Calarco
Vincent A. Calarco
Chairman, President and
Chief Executive Officer
We completed several initiatives in 1998 that will improve the long-term
strategic position of the businesses and improve returns on our invested
capital.
We created a joint venture with our Gustafson seed treatment business and
Bayer A.G. of Germany to further strengthen the technologies of the business.
By partnering Gustafson's strong market presence with one of the world's
leading developers of active ingredients for seed treatment, we made a
substantial contribution to the future of this successful North American
enterprise. Our crop protection business continues to expand its seed
treatment presence in international markets.
We substantially improved the competitive position of our nitrile rubber
business by completing an agreement for a 50/50 joint venture with DESC, S.A.
de C.V. of Mexico (NYSE: DES). We combined our Paracril(r) oil-resistant
nitrile rubber technology and business with DESC's process and manufacturing
capability. Building a 40,000 metric ton plant in Mexico, the largest
dedicated nitrile rubber plant in the world, will enable us to close a high-
cost facility in Ohio.
Both Gustafson seed treatment and Paracril nitrile rubber have leading
positions in their respective markets, and we believe that these new
partnerships have positioned them well for growth through expansion of their
products and services.
Also, in January 1999, we divested our specialty ingredients business to Chr.
Hansen Holding A/S of Denmark for $103 million in cash.
Since the Uniroyal Chemical merger, our financial strategy has been focused on
debt reduction. In the past two years, we have reduced debt by $400 million,
and annual interest expense has been cut by more than $36 million. Debt
reduction in 1998 was $234 million, and at year-end, total debt was $664
million. In addition, we refinanced $460 million of 9 to 12 percent high cost
bonds, and our average cost of debt is now approximately 8 percent.
Despite our solid earnings performance and excellent business prospects, the
market for our stock, along with the entire specialty chemical industry, was
weak for much of 1998. With our stock selling at a discount to its 12 month
high, we initiated a 6.8 million share repurchase program early in 1999 after
completing the 7.5 million share program authorized in September 1998. At the
depressed market prices of 1998 and early 1999, this is an accretive
investment that will benefit shareholders. While we view share repurchase as
an attractive use of cash generated from one-time events, we continue to use
cash flow from operations to pay down debt.
To provide us with more flexibility to pursue our strategy, we are continuing
to improve our balance sheet and moving to upgrade our status with the credit
rating agencies.
As shareholders you know that we focus on long-term value appreciation by
running the company in the best way possible to execute our business plan and
deliver on our objectives. We are continuing to make considerable progress in
strengthening our financial position.
- -- Our return on average capital before special items of 18.6 percent,
increased from 16.5 percent last year, placing us in a leading position among
specialty chemical companies.
- -- Our shareholder equity turned positive in 1998 and at year-end was $67
million, a $163 million improvement over the past two years.
- -- Our net earnings before special items as a percent of sales increased to
6.5 percent from 5.0 percent in 1997.
- -- The combination of debt reduction and refinancing, share buyback and tax
savings should contribute approximately 20 cents a share to 1999 earnings.
Looking ahead, we see a number of trends that should benefit our business in
1999. There are early indications that the Asian economies may have bottomed
out, and we may see a modest increase in international economic activity that
would contribute to top line growth. In addition, indications are that
petrochemical prices will remain depressed and our businesses will benefit
from lower raw material costs. We are hopeful that the negative weather
patterns that impacted 1998 crop protection sales will not recur in 1999, and
we can resume the outstanding growth record of this business.
We are confident that we will be able to meet the new challenges ahead. Our
culture, based on small business values, will enable our businesses to respond
to their customers' needs with speed and flexibility.
The dedication of our employees to the job at hand has ensured the
profitability of each of our businesses as we seek to expand markets, grow
sales, improve productivity, and satisfy the needs of our customers.
We will continue to maintain our focus on our customers, our operations and
our balance sheet in order to accelerate our growth and to build value.
Thank you for your confidence and support.
Respectfully yours,
Vincent A. Calarco
Chairman, President and
Chief Executive Officer
March 18, 1999
review of businesses
At Crompton & Knowles, we rely on entrepreneurial values that permit each of
our business units to respond to customers with the speed and flexibility of a
small business.
We listen closely to our customers and work hard to understand their
businesses and markets as well as they do. We strive to anticipate their needs
and to identify and solve their problems. This approach enables both of us to
be more competitive, and our shared successes help to build long-term
relationships.
Our customer relationships are built on service, technology and performance.
Service starts with our specialized sales force of trained scientists and
engineers who have in-depth knowledge of our specific products, their market
applications and our customers' markets. Whether we are providing a new
urethane product for an entrepreneur/inventor in California or a multi-million
dollar polymer extrusion system for a European auto company, our job is to add
value to our customers' products.
Technology is founded on a disciplined, customer-first approach to research
and development, focusing on projects with the greatest opportunity for
success in the marketplace. Manufacturing, marketing and sales have input at
every step in the process which keeps R&D activities closely aligned with our
business objectives and our customers' needs.
Performance is based on delivering quality products that solve customers'
problems and add value to their business. We are listening to our customers
and working diligently to lower their costs of doing business and to
decrease the impact of their products on the environment. This effort has
produced breakthrough products and innovative services as discussed in the
following sections covering our businesses.
We are a global company with an effective international production and
marketing infrastructure. This global presence allows us to capitalize on new
markets whenever and wherever they emerge, in areas as diverse as insecticides
to protect the crops of half-acre farms in China and rubber chemicals that
extend the life of tires produced by giant international corporations.
In 120 countries around the world, we back our products and services with
advanced technology to ensure the highest level of product performance and
market acceptance for our customers' products, thus assuring our own market
leadership and corporate profitability.
(photo of fire truck)
Caption:
performance
Modern high-performance engines and transmissions require lubricants that
perform under a wide range of operating conditions. Synthetic lubricants such
as our Synton(r) PAO and Trilene(r) liquid polymers provide stability under a
wide temperature range from arctic to tropical for extended operating periods.
The result is maximum performance and extended operating life in the most
demanding environments.
Technological advancements in engine and machine design are continually
calling for higher-performing products for both automotive and industrial
lubricant applications. From our position as a world leader in amine
antioxidant lubricant additives, we are increasing our R&D focus on new
Naugalube(r) products including friction modifiers and anti-wear agents. The
goal is to improve engine life and performance in the next generation of
passenger cars while increasing fuel efficiency.
Our Performance Chemicals units, Rubber Chemicals and Specialty Additives,
have a long history of anticipating market needs and responding with
innovation. Technologically, we capitalize on our 100-year-old heritage in
rubber chemicals with our proprietary catalysts, specialty equipment and
multi-step processing.
We are a world leader in rubber chemicals with a comprehensive line of more
than 100 different products used in rubber processing. Our Flexzone(r)
antiozonants, Naugard(r) antioxidants and other chemicals are recognized
around the world for their ability to protect rubber from ozone, oxygen, heat,
and light, dramatically extending product life and lowering costs. While we
provide these products to a broad range of rubber producers including makers
of hose, sponge, belts, weather stripping and wire and cable, over 50 percent
of sales are to tire manufacturers, with much of their sales going to the
replacement tire market.
We are positioning our bonding agents and liquid polymers, as well as
silicone-modified EPDM and solid polyurethanes, for accelerated growth in
rubber applications over the next five years. They will be at the center of a
thrust to acquire core and synergistic products and technologies and to expand
markets and introduce newly developed products.
Our experience in and dedication to the rubber industry has enabled us to
develop multifunctional teams trained and equipped to help customers
determine and design the most cost-effective and innovative uses for our
products. For instance, we assist customers in the use of advanced microwave
technology to cure rubber products for weather stripping.
We share with our customers our proprietary techniques for compounding rubber
in an annual one-week, multi-lingual training session for rubber compounders
from the footwear, tire, wire and cable, weather-stripping and other
industries. Sharing of our technical expertise gives our products added value
because it directly benefits the bottom line of our customers. That, in turn,
assures brand loyalty.
technology
(photo) Bottled beverages
Caption: To protect the carbonation and freshness of billions of glass-bottled
drinks, the beverage industry uses bottle cap liners made with our Celogen(r)
foaming agents.
We are making strategic investments to expand our presence in key worldwide
rubber chemical markets. Asia is projected to be the strongest growth area for
rubber production over the next decade, and we are expanding our presence
there by buying out our joint venture partners in Korea and Thailand. We are
also looking at opportunities to increase our presence elsewhere in Asia and
Europe.
Our specialty additives product line is one of the broadest lines in the
specialty chemical industry. Makers of plastics around the world depend on us
to specify the appropriate products to meet their production needs and ensure
the performance of their end products.
Our Naugard(r) antioxidants may make up less than two percent of the
formulation of a plastic material in products such as wire and cable, but they
are critical in extending product life which opens scores of new markets and
applications. Our additives enhance the performance and durability of plastics
that enable automobile manufacturers to reduce the weight of vehicles and
improve gas mileage.
Our polymer modifiers, Royaltuf(r) modified EPDM, used to toughen engineered
thermoplastics, and Polybond(r) compatibilizers, critical to the production of
advanced composite materials, are among the fastest growing segments of the
specialty chemicals industry. We see growing opportunities in cutting-edge
technologies such as nanocomposites, which offer the automotive industry and
other plastics users products with dramatic improvements in mechanical,
thermal and flame-retardant properties.
Our Naugard(r) polymerization inhibitors, which prevent the formation of
polymer during the production of various monomers, are market leaders, and our
new SFR styrene monomer polymerization inhibitor has successfully completed
testing with a number of major customers and is expected to achieve
significant market acceptance in 1999. We are continuing to develop new grades
of inhibitors, polymer modifiers and antioxidants to serve expanding
international plastics markets.
photo: Foot prosthetic
Caption: Technology.
Glen Garrison of Eschen Prosthetic Labs, Hospital for Special Surgery, New
York City, explains the fitting of a prosthesis to a patient following
surgery. The artificial foot is made by Kingsley Manufacturing of Costa Mesa,
California. It was developed from Adiprene(r)/Vibrathane(r) castable urethane
To provide performance advantages of toughness and durability for extended
wear and ease of molding to replicate individual foot characteristics.
Our Adiprene/Vibrathane business is built on close relationships with
customers like Kingsley. We solve their problems by providing customized,
high-performance products that are uniquely suited to their needs. With over
three decades of experience in castable urethanes, we continue to advance our
lead market position by pursuing technological advances.
For automotive and industrial lubricants makers, our Synton(r) PAO synthetic
fluids can lower life-cycle costs by extending drain intervals and enhancing
high-temperature performance in industrial machinery and gear-boxes. PAO-based
lubricants have excellent thermal and oxidative stability in automotive uses.
Last year, we completed a second plant expansion for Synton PAO, doubling
capacity while improving the manufacturing process, in order to serve a
growing number of customers. We expect this new capacity to be sold out in
1999, and we will continue to invest in new capacity to support the
rapidly increasing demand for these high-performance products.
Responding to the demands of the transportation industry, we are working on
new friction modifiers to enable engines to generate more horsepower per unit
of fuel and improve mileage for larger vehicles, as well as new dispersants to
keep diesel engines running more cleanly.
Our Crop Protection business focuses on improved crop quality and increased
yields for farmers around the world. Our primary product and marketing focus
is on high-value crops such as nuts, citrus, tobacco, cotton, tree and vine
fruits, and ornamental plants. We are a world leader in products and
applications to treat seeds before planting to assure germination and healthy
seedlings.
Our specialized product lines include fungicides, miticides, insecticides,
herbicides and growth regulants formulated for specific crops and geographic
regions. We have built customer loyalty with our superior service based on
formulation expertise and application advice. Our high-value market niches
that reflect our knowledge of the crops and growing conditions of specific
geographic areas generate higher sales margins.
Also, when we serve larger commodity markets, it is with targeted, value-added
products. Our Harvade(r) defoliant makes the harvesting of cotton, corn,
canola, and sunflowers more efficient, and tobacco growers depend on our Royal
MH-30 plant growth regulant to reduce field labor by preventing the growth of
undesirable sucker leaves.
We are constantly expanding our already extensive product offerings in the
agricultural chemical industry by acquiring new insecticide and fungicide
labels and developing new products in our laboratories.
We believe our newly developed miticide, D-2341, has the potential to capture
a significant share of the annual $525 million worldwide miticide market. We
plan to initially market our unique chemistry in the U.S. for greenhouse use
as Floramite(r) beginning in mid-1999. The product, which was granted fast-
track registration status as a "reduced risk pesticide" by the Environmental
Protection Agency, also is being developed in Japan for use on food crops
including apples, citrus and tea.
Geographic expansion is integral to our growth program. In Brazil, the world's
fourth-largest agricultural economy, consumption of agricultural chemicals is
growing at double-digit rates and we are aggressively marketing products in
all our major categories for crop application and seed treatment.
New product registrations have been obtained in Italy, China and Korea for
tobacco plant growth regulants. We have recently obtained registration for our
Pantera(r) herbicide to control grass weeds in Bolivia, Colombia, Peru, and
Ecuador, and we have also introduced it into Russia, Ukraine, Belarus,
Moldova, and China, paving the way for significant future sales growth.
We expect the vast agrarian economies of China and India to provide major
growth for Omite(r) and Comite(r) miticides, Vitavax(r) seed treatments,
growth regulants and other products. Sales have been expanding in China, where
we opened an office two years ago, and in India, where we have increased the
sales staff.
Photo: Greenhouse with flowers
Caption: Service.
Crop Protection product development specialist Dave Barcel, right, examines
the growth characteristics of Accent impatiens with Patrick Steppuhn,
production manager of Kawahara Nursery in Morgan Hill, California. We have
been working closely with Kawahara in the use of Bonzi(r) plant growth
regulator on flowering plants in order to produce uniform, compact and well-
proportioned plants. Bonzi helped the nursery increase impatiens production
five-fold to 5 million plants.
Kawahara, a 50-acre family-owned business, is one of the largest growers of
high-quality bedding plants in the country and has been a key partner in
helping us develop new uses for plant growth regulators.
Dave Barcel has built a strong relationship with Kawahara that is typical of
our field operations. The combination of his extensive background in
horticulture and the experience of Patrick Steppuhn in the nursery's
"laboratory" environment has enabled us to refine our products and discover
new applications.
The market for seed treatment systems promises substantial growth as
genetically altered seed production increases, and seed companies and farmers
seek to protect their growing seed investment from disease and pests prior to
germination. With less than 30 percent of soybean and wheat seed currently
being treated in North America, hybridization and genetic alteration of these
crops promise to create large market opportunities for Gustafson.
For those farmers who do not want to invest in genetically altered seed, seed
treatment represents an option to enhance the genetic potential of the seed
and assure germination. We anticipate accelerating growth in seed treatment
because of the enhanced environmental attractiveness of the localized use of
chemicals at very low application rates.
Our Vitavax(r) seed treatment is one of the world's best-selling seed
treatment products, and about half of our crop protection business, including
the Gustafson joint venture, is related to seed treatment products and
application systems. Our Gustafson joint venture with Bayer is the largest
seed treatment company in North America. The partnership is a powerful
combination of agricultural chemical strengths: we are a leader in formulating
and delivering seed treatment products and Bayer is a leading developer of
active ingredients for seed treatment.
In Australia, our Hannaford Seedmaster Services subsidiary holds a major share
of the seed treatment market and is using that market position to expand its
product offerings to crop application chemicals.
Our Colors business, the largest domestic producer of dyes, has been seriously
affected by low-cost imported apparel and dyes from Asia. U.S. apparel imports
grew substantially in 1998 and now account for more than 60 percent of the
retail market. Our European market is also facing difficulty due to increasing
Asian imports of fiber, textiles, apparel, and dyes.
To compensate for these dramatic changes in the company's primary dye markets,
we have reduced our fixed costs and increased productivity. The lower price of
chemical intermediates has somewhat mitigated lower dye selling prices. We are
renewing our customer focus with an emphasis on zero defects and enhanced
service. We will continue to improve our quick response time, comprehensive
catalogue of quality dyes, and extensive technical support capabilities.
We have countered some of the Asian competition in the U.S. by building a
solid foundation for growth in Latin America, especially Mexico and Brazil,
which promises to be competitive in apparel production.
We are focusing on markets including carpeting, paper and ink, where Asian
imports have not caused the dislocation that they have brought to the apparel
industry. Around the world, we are growing sales in niche industrial and
specialized textile areas where our product range, quality and production
expertise can provide a clear benefit to the customer.
The domestic carpet industry had a good year in 1998, and by diligent and
quick response to long-term customers we were able to increase our market
share. We are continuing to help these high-volume producers of nylon and wool
carpeting to improve their quality and increase productivity.
During the year, we generated substantial sales of high purity dyes for film
printing, and we anticipate growth as the motion picture industry responds to
obvious improvements in image brightness and color quality.
Despite an extremely competitive worldwide paper business, we increased sales
of direct dyes to the North American paper industry including deep-dyed
specialty paper markets. Part of this success was due to customer acceptance
of new marketing efforts including new packaging. The use of premeasured dyes
in pulpable paper bags enhances the ease of use and minimizes waste and
environmental impact by eliminating direct handling and measurement by the
customer.
(photo) 2 C&K technicians at computer workstation
Caption: Technology.
C&K Colors technical personnel work with our proprietary Dyebath Monitoring
System (DMS) at the company's technical center in Charlotte, North Carolina.
This computerized monitoring system permits users to optimize the dyeing
process through continuous sampling of the dyebath.
Measuring the color in the bath spectroscopically, the system permits a
detailed understanding of the variables in the dyeing process including time,
temperature, pH, and the dyes themselves. This advanced system answers our
textile customers' needs to produce quality products with consistent color and
minimal dye waste at reduced cost.
Our efforts in developing new dye application methods have enabled us to offer
innovative reactive dye combinations for applying difficult-to-dye cotton
shades. We created new combinations of products that provide customers with
more consistency in their dyeing processes while delivering shorter
dyeing cycles, more batches per week, lower dye usage, and less effluent.
We have strengthened our presence in Europe by better integrating our
production, marketing and sales efforts. Our European development group has
improved production processes for a group of our Neutrilan(tm) dyes that
allows the delivery of more concentrated colors. We are showing increased
growth for industrial colors to a wide range of user industries including
glass fiber insulation and paper as a result of these efforts.
Photo: mechanic working on car
Caption: Performance.
A typical new car contains 20 pounds of EPDM rubber, used to make parts
ranging from weather stripping to brake parts. Our Royalene(r) EPDM is used by
most car manufacturers in the world. The worldwide automobile industry
built 53 million cars in 1998.
Our Polymers business was led by strong sales of EPDM in 1998.
We are the largest North American supplier of EPDM which is commonly known as
"crackless rubber" because of its ability to withstand heat, sunlight and
ozone without deteriorating. With three production lines devoted to
Royalene(r) EPDM, we have significant production flexibility and high-volume
production capability with consistent, reliable quality to meet a full range
of market demands.
We produce over 30 different variations of this polymer primarily for
applications in automotive parts including hoses, belts, weather stripping,
brake components, and seals and gaskets, and in roofing, industrial hose and
wire and cable. We are enjoying considerable success with RoyalEdge(r), a
generation of EPDM introduced two years ago for the weather seal and wire and
cable markets. EPDM production has been sold out for the past two years, and
demand continues to be strong. Late in 1998, we completed the low-cost
debottlenecking of our Geismar, Louisiana plant and we expect to see the full
increase in capacity this year.
We are confident that we will maintain our leadership position and retain the
loyalty of our customers with aggressive marketing efforts and new product
innovations in EPDM. In addition, we expect that our profitability will
continue to benefit from depressed petrochemical raw material costs and
improved production efficiencies.
We are the world's largest supplier of castable urethane prepolymers. Golf
balls are one of the newest product uses for Adiprene(r)/Vibrathane(r) adding
to our sporting goods applications that include in-line skates and skateboard
wheels. The unique abrasion resistance and durability characteristics of
these products continue to open new markets. Our customer service, technical
support and ability to customize products ensure our leadership position in
the market.
A number of new urethane prepolymers achieved market success last year.
Adiprene LFI (low-free isocyanate) prepolymers offer strong growth potential
in transportation and industrial markets by providing improved processability
and workplace safety for the user and higher performance in end-use
applications.
Adiprene PPDI (para-phenylene diisocyanate) urethane prepolymers are
responding to growing market demand for ultra-high-performance products such
as wheels for "People Mover" transit systems, amusement park rides and bearing
seals for steel mill rolls. We have developed a proprietary process to produce
these PPDI-based polymers in more environmentally friendly forms.
Our Ribbon Flow System(r) is a moldless casting alternative to traditional hot
casting and is making substantial inroads into new applications. This economic
combination of rotational casting and room temperature curing provides a more
cost-effective system to produce high-performance rolls for the paper and
steel industries.
Photo: 2 men at Davis-Standard extruder
Caption: Service.
Florent Rocklin of Davis-Standard (left) introduces Andreas Jung of Move
Automotive to the latest technologies incorporated into the DS multi-layer
reinforced rubber hose extrusion system. Move, a Mulhausen, Germany maker of
automotive parts, will use the Davis-Standard system to produce extruded brake
hoses for the European automotive industry.
Davis-Standard has made impressive inroads into the European market for
polymer processing equipment with acquisitions in Germany, the United Kingdom
and France and the introduction of sophisticated new products.
With our state-of-the-art equipment and attentive customer service and
training, we help manufacturers of plastic and rubber components synchronize
their production process and increase their productivity and profitability.
Our production capacity for oil-resistant Paracril(r) nitrile rubber will
double in 1999 as the result of a new joint venture with DESC, a diversified
Mexican chemical company. We will close a high-cost facility in Ohio and move
production to a state-of-the-art facility near Tampico, Mexico. The new 40,000
metric-ton facility will be the largest dedicated nitrile rubber plant in the
world and will support growth opportunities worldwide. Existing and new
customers will benefit from our product innovation and our partner's
manufacturing expertise. We have sold out existing production capacity for a
number of years, and we expect that this new capacity will allow us to supply
new automotive and industrial customers worldwide. In addition, this year we
will introduce a new product line to meet the demanding needs of today's high-
speed injection molding machines.
Polymer processing equipment customers rely on our Davis-Standard subsidiary
for the most technically innovative, efficient and productive systems
available for polymer processing. With backlog at a record $118 million at
year-end, 1999 should be another good year as we continue to emphasize
service, technology and performance.
Our integrated systems, which combine extruders with advanced computer-based
controls and other equipment, produce plastic and rubber extruded forms for
appliances, automobiles, home construction products, medical tubing, power and
communication cables and a wide range of other uses. Davis-Standard is also a
leading producer of industrial blow molding equipment used for making non-
disposable plastic consumer products such as beverage coolers and outdoor
furniture.
The business has attained a strong 15 percent compounded growth rate over the
past five years through technological innovation, geographic expansion and
acquisitions.
Photo: Retired Extruder
Caption: Service.
In 1998, the first Davis-Standard plastic extruder was retired after 50 years
of continuous service. The Gavitt Wire and Cable Co. machine processed tons of
polymers for custom wire and cable products since 1948. The Brookfield,
Massachusetts customer is still operating six of our machines, two of which
were built before 1950.
Our impetus for technological product innovation is the continual efficiency
and productivity improvements anticipated by our customers. By combining
several state-of-the-art products, we produce sophisticated systems which
allow our customers to reduce manufacturing steps and increase the return on
their investment. Our twin-screw, in-line compounding machines produce process
engineered plastics, which are fed into our single-screw extrusion machines
to produce products. These multi-machine production processes are monitored
and controlled by our proprietary data acquisition and process control system
integrated into a plant-wide MIS network.
Recycled plastic lumber using wood fillers has received considerable
acceptance in the construction industry recently. One of the reasons for this
market success has been our ability to provide extrusion systems that can
produce the product at economical rates and with consistent quality.
We have expanded into Europe through acquisitions in Germany, France and the
United Kingdom, and into Asia and Latin America with aggressive marketing and
sales efforts. In June of 1998, we acquired Betol Machinery of Luton, England
adding to our European presence. Our business plan is to expand our U.S.
position as the leading full-line supplier of extrusion equipment to worldwide
markets.
For Davis-Standard, product quality, timely delivery and responsive technical
service are critical. We are continuing to build sales on our ability to get
our customers into production quickly so they gain a competitive edge
producing quality products, using advanced technology ahead of their
competition. In pursuit of the goals of zero defects and timely delivery, we
have opened a 40,000-square foot testing area, adjacent to our Connecticut
production plant, where we set up, wire and test complete systems prior to
shipping. The benefit is dramatic reductions in the time spent on the final
installation at the customer's facility.
Photo: 2 men conducting a fish survey in creek
Caption: environmental stewardship
Aquatic biologists, Rick Baldwin, left, and Ron Beirnes, conduct a juvenile
fish survey in Canagagigue Creek, adjacent to the company's Elmira, Ontario,
facility. They recently found 23 species of fish flourishing in a well-
balanced ecosystem that 30 years ago was devoid of aquatic life.
Since 1990, our Elmira operation has reduced water use and wastewater
generation by 80 percent and air emissions by more than 40 percent.
Accomplishments at this Canadian plant are typical of Crompton & Knowles'
worldwide commitment to cleaner air and water, reduced water use, and the
reuse and recycling of materials.
Active membership in the Chemical Manufacturers Association in the U.S. and
similar industry organizations, such as the Canadian Chemical Producers
Association, assures our dedication to Responsible Care(r) principles that
call for "continuous progress toward the vision of no accidents, injuries or
harm to the environment."
During the year, our Latina, Italy, and Kaohsiung, Taiwan, facilities were
certified to the exacting requirements of ISO 14001 environmental management
standards. Our goal is for all of our facilities to receive ISO 14001
certification.
We are honored to have been recognized by the Chemical Education Foundation as
a finalist for its 1998 and 1999 Chemical Product Stewardship Manufacturing
Award.
Financial Section
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Financial Condition and Liquidity
Liquidity and Capital Resources
The December 26, 1998 working capital balance of $203.4 million decreased
$148.6 million from the December 27, 1997, balance of $352 million while the
current ratio decreased to 1.5 from 2.0 in 1997. The decreases were primarily
a result of the Company selling $80 million of accounts receivable to an agent
bank in December 1998 and higher income taxes payable relating to the
Gustafson joint venture gain. Days sales in receivables averaged 54 days,
unchanged from 1997. Inventory turnover averaged 3.1 in 1998 compared to 3.3
in 1997.
Net cash flow provided by operations of $169.5 million decreased $46.3 million
from the very strong $215.8 million in 1997. The cash flow was primarily used,
together with the proceeds from the Gustafson joint venture, additional credit
agreement borrowings and proceeds from the sale of accounts receivable, to
fund capital expenditures, reduce debt including the 11% Senior Subordinated
Notes and the 12% Subordinated Discount Notes, repurchase approximately 7% of
the Company's then outstanding common shares and pay cash dividends. The
Company's debt to total capital percentage decreased to 91% from 102% in 1997.
The Company's liquidity needs, including debt service, are expected to be
financed from operations. The Company has available a revolving credit
agreement providing for borrowings of $545 million through September 2003.
Borrowings under the agreement amounted to $286.3 million at December 26,
1998, and carried a weighted average interest rate of 6.1%. Also, in December
1998, the Company entered into a five year agreement to sell up to $82 million
of domestic accounts receivable to an agent bank. The program reduces
financing costs versus borrowings under the revolving credit agreement and
diversifies the Company's sources of financing. At December 26, 1998, $80
million of domestic accounts receivable had been sold under this agreement at
a cost of approximately 5.85%.
In May 1998, the Company redeemed its outstanding 11% Senior Subordinated
Notes and the 12% Subordinated Discount Notes. The payment for the redemption
including premium and accrued interest amounted to $366.2 million and was
funded by drawing on the Company's revolving credit agreement.
In September 1998, the Company announced a share repurchase program to buy
back 7.5 million shares or approximately 10% of the common shares then
outstanding. The program was completed in early 1999 and in January the
Company announced another share repurchase program for 6.8 million shares, or
approximately 10% of the common shares then outstanding.
In November 1998, the Company announced the formation of a joint
venture with GIRSA, a subsidiary of DESC, S.A. de C.V., to produce nitrile
rubber products in Mexico. The joint venture will result in the closure of the
Company's existing nitrile rubber facility in Painesville, Ohio, resulting in
a fourth quarter pre-tax charge of $33.6 million.
Also in November, 1998, the Company formed a joint venture with Bayer
Corporation to serve the seed treatment markets in North America. The basis of
the joint venture was the Company's Gustafson seed treatment business. The
Company received cash proceeds of $180 million in the transaction which
resulted in a fourth quarter pre-tax gain of $153.4 million.
In January 1999, the Company announced that its specialty ingredients business
was sold to Chr. Hansen Holding A/S of Denmark for $103 million, resulting in
a pre-tax gain in the first quarter of 1999 of approximately $44 million.
Capital expenditures of $66.6 million increased $16.4 million from $50.2 in
1997. Capital expenditures are expected to approximate $70 million in 1999,
primarily for replacement needs and improvement of domestic and foreign
operating facilities.
Year 2000 Issues
The Company has assessed and continues to assess its Information Technology
("IT") infrastructures including those systems that are typically viewed as
non-IT systems to determine and address any potential problems that may result
from Year 2000 compliance issues. As generally known, Year 2000 compliance
issues pertain to the ability of computerized systems to recognize and process
date sensitive information beginning January 1, 2000. The Company has
performed this assessment over the last two years and has been implementing
appropriate steps to be Year 2000 compliant in both its IT and non-IT systems.
Under the Company's current environment, IT systems include mission critical
applications that directly support the Company's operations. These IT systems
also include networked personal computers running desktop applications.
Typical non-IT systems within the Company's environment include process
controls and other microcontrollers containing imbedded computer chips. The
Company has completed its assessment of its non-IT systems and is aggressively
undertaking measures to remedy such systems. The Company expects to complete
this remediation by October 1999.
The Company employs a number of major mission critical IT systems in its
Specialty Chemicals and Polymers businesses. These systems are currently being
upgraded to address Year 2000 compliance issues and the Company expects this
to be completed by mid-1999.
The Company's Polymer Processing Equipment business is supported by a legacy
system that runs on a mid-range computer system. This system has been reworked
and tested, and the Company believes that it is now Year 2000 compliant. The
Company has assessed all other IT systems including non-IT systems in this
business segment and has undertaken necessary steps to address any Year 2000
compliance issues. This business currently sells equipment controls containing
programs and microchips. The Company believes that these products which are
used in the operation of extrusion machinery are Year 2000 compliant.
The Company has operations in Europe, Asia Pacific, and Latin America
supported by IT systems operating on mid-range computers. The Company is
presently upgrading these IT systems to address Year 2000 compliance and
expects to complete this upgrade by mid-1999.
The Company is actively looking into the overall Year 2000 readiness of its
major business partners including vendors, suppliers, and service providers in
order to determine that the Company's operations will not be disrupted in the
event that any such third party failed to have Year 2000 compliant systems.
The Company has received assurances from nearly all of the major business
entities that it conducts business with that these entities will be able to
conduct business beyond January 1, 2000, without any disruption. The Company
continues to provide status information of its Year 2000 compliance effort to
its customers and assures its customers that the Company's IT infrastructure
will continue to function properly beyond January 1, 2000.
The Company has spent approximately $4.8 million to assess and correct Year
2000 compliance issues in its IT infrastructure through December 26, 1998. The
Company estimates that it will spend an additional $1.6 million to complete
the remediation of Year 2000 compliance issues in its IT infrastructure. The
Company is committed to allocate funds to remediate any other Year 2000
compliance issues in the course of its ongoing assessment of its IT
infrastructure. Year 2000 compliance costs are not expected to have a material
effect on the Company's results of operations.
The Company does not expect to have any material risk exposure emanating from
its internal IT infrastructure. While it is not expected to occur, failure of
the Company's suppliers and key customers to address Year 2000 compliance
could have a material adverse impact on the Company's operations. In
particular, failure of the Company's energy and telecommunication suppliers to
address Year 2000 compliance could have a material adverse impact on the
Company's operations. The Company is continuing to assess its efforts to
mitigate any potential risk associated with Year 2000 compliance including
development of contingency plans.
New Accounting Standards
In June, 1997, the Financial Accounting Standards Board (FASB) issued
Statement No. 130 "Reporting Comprehensive Income" and Statement No. 131
"Disclosure about Segments of an Enterprise and Related Information." The
Company has adopted these standards in 1998.
In February, 1998, the FASB issued Statement No. 132 "Employers' Disclosures
about Pensions and Other Postretirement Benefits" and in June 1998 issued
Statement No. 133 "Accounting for Derivative Instruments and Hedging
Activities." The Company has adopted Statement No. 132 in 1998 and will adopt
Statement No. 133 in the first quarter of 2000.
International Operations
The lower U.S. dollar exchange rate versus the international currencies in
which the Company operates accounted for a favorable adjustment of $5.4
million in the accumulated other comprehensive income account since year-end
1997. Changes in this account relating to foreign currency translation are
primarily a function of fluctuations in exchange rates and do not necessarily
reflect either enhancement or impairment of the net asset values or the
earnings potential of the Company's foreign operations. The net asset value of
foreign operations amounting to $229 million is not currently being hedged
with respect to translation in U.S. dollars.
The Company operates on a worldwide basis and exchange rate disruptions
between the United States and foreign currencies are not expected to have
a material effect on year-to-year comparisons of the Company's results of
operations. Cash deposits, borrowings and forward exchange contracts are used
periodically to hedge fluctuations between the U.S. and foreign currencies if
such fluctuations are earnings related. Such hedging activities are not
significant in total.
Environmental Matters
The Company is involved in claims, litigation, administrative proceedings and
investigations of various types in a number of jurisdictions. A number of such
matters involve claims for a material amount of damages and relate to or
allege environmental liabilities, including clean-up costs associated with
hazardous waste disposal sites, natural resource damages, property damage and
personal injury. The Company and some of its subsidiaries have been identified
by federal, state or local governmental agencies, and by other potentially
responsible parties (each a "PRP") under the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended, or comparable
state statutes, as a PRP with respect to costs associated with waste disposal
sites at various locations in the United States. In addition, the Company is
involved with environmental remediation and compliance activities at some of
its current and former sites in the United States and abroad.
Each quarter, the Company evaluates and reviews estimates for future
remediation and other costs to determine appropriate environmental reserve
amounts. For each site a determination is made of the specific measures that
are believed to be required to remediate the site, the estimated total cost to
carry out the remediation plan, the portion of the total remediation costs to
be borne by the Company and the anticipated time frame over which payments
toward the remediation plan will occur. As of December 26, 1998, the Company's
reserves for environmental remediation activities totaled $94 million. It is
reasonably possible that the Company's estimates for environmental remediation
liabilities may change in the future should additional sites be identified,
further remediation measures be required or undertaken, the interpretation of
current laws and regulations be modified or additional environmental laws and
regulations be enacted.
The Company intends to assert all meritorious legal defenses and all other
equitable factors which are available to it with respect to the above matters.
The Company believes that the resolution of these environmental matters will
not have a material adverse effect on the consolidated financial position of
the Company. While the Company believes it is unlikely, the resolution of
these environmental matters could have a material adverse effect on the
Company's consolidated results of operations in any given year if a
significant number of these matters are resolved unfavorably.
Market Risk
The Company is exposed to potential losses arising from adverse changes in
foreign exchange and interest rates and, therefore, selectively uses
derivative instruments to manage its exposure to such market risks. The
Company does not enter into derivatives or other financial investments for
trading or speculative purposes. The Company enters into foreign exchange
contracts periodically to hedge currency fluctuations if such fluctuations are
earnings related. Gains and losses on foreign exchange contracts are reflected
in the statements of operations, and are offset by changes in the underlying
value of the hedged transactions. Such hedging activities are not significant
in total.
At December 26, 1998, the Company had an interest rate lock contract
("Interest Hedge") outstanding with a major financial institution for $230
million at a rate of 6.04%. The Interest Hedge expires on September 1, 2000.
The settlement amount will be based on the difference between the
rate of 6.04% and the 10 year Treasury rate at the expiration date. A
settlement of the fair market value of the Interest Hedge as of December 26,
1998, would require a payment of approximately $17 million.
The fair market value of long-term debt is subject to interest rate risk. The
Company's long-term debt amounted to $646.9 million at December 26, 1998. The
fair market value of such debt was $685.9 million, and with respect to notes,
has been determined based on quoted market prices.
Forward-Looking Statements
Certain statements made in this annual report are forward-looking statements
that involve risks and uncertainties. These statements are based on currently
available information and the Company's actual results may differ
significantly from the results discussed. Investors are cautioned that there
can be no assurance that the actual results will not differ materially from
those suggested in such forward-looking statements.
Operating Results - 1998 compared to 1997
Overview
Consolidated net sales decreased 3% to $1.80 billion from $1.85 billion in
1997. The decrease was primarily attributable to lower volume of 2% and lower
foreign currency translation of 1%. International sales, including U.S.
exports, increased slightly as a percentage of total sales to 40% from 39% in
1997.
Net earnings for 1998 were $161.8 million, or $2.20 per share basic and $2.14
per share diluted, compared to earnings of $86.8 million, or $1.18 per share
basic and $1.15 per share diluted, in 1997. Before after-tax special items (as
detailed on page 35), net earnings were $117.3 million, or $1.59 per share
basic and $1.55 per share diluted, compared with $92.1 million, or $1.25 per
share basic and $1.22 per share diluted, in 1997.
Gross margins as a percentage of net sales increased to 36.2% from 35.4% in
the prior year. The increase was primarily attributable to lower raw material
costs, improved pricing and product mix. Consolidated operating profit of
$218.3 million declined 3% from the prior year; however, excluding the impact
of special items, operating profit increased 3% to $259.9 million from $252.3
million in the prior year. Operating profit for the specialty chemicals
business declined 14% and for the polymers and polymer processing equipment
business increased 35%.
Specialty Chemicals
Specialty chemicals sales of $1.11 billion represent a decrease of 7% from
1997. Operating profit for specialty chemicals was $150.1 million compared to
$183 million in 1997. An analysis of sales and operating profit by reporting
segment follows.
Performance chemicals sales of $441.8 million decreased 6% versus 1997
primarily attributable to lower volume of 3%, lower pricing of 2% and lower
foreign currency translation of 1%. Rubber chemicals sales were 9% lower than
1997 primarily due to lower volume and pricing. Specialty additives sales
decreased 1% primarily due to lower pricing and foreign currency translation.
Performance chemicals operating profit of $50 million decreased 26% from 1997.
The decrease was primarily attributable to lower volume, unfavorable
manufacturing variances and an unfavorable product mix.
Crop protection sales of $348 million decreased 6% versus 1997 primarily due
equally to the deconsolidation of the Gustafson seed treatment business in
December 1998 and lower volume, particularly in the insecticide business.
Operating profit of $78.7 million increased 2% from 1997 primarily due to
lower operating costs and improved pricing and product mix.
Colors sales of $229.7 million decreased 11% versus 1997. The decrease was
primarily attributable to lower volume of 9% and lower pricing and foreign
currency translation of 1% each. The decrease in volume was primarily in
apparel dyes, which accounts for approximately 50% of the business. Operating
profit of $13.5 million decreased from $30.1 million in 1997. Excluding the
impact of special items, operating profit of $21.5 million decreased 29%
versus 1997. The decrease in operating profit was primarily due to lower
volume.
Other represents the specialty ingredients business which was sold effective
the first day of fiscal 1999. Sales of $89.6 million decreased 11% from 1997
while operating profit of $7.9 million increased 1%.
Polymers & Polymer Processing Equipment
Polymers & polymer processing equipment sales of $687 million represent an
increase of 5% from 1997. Operating profit of $123 million increased 35% from
1997. An analysis of sales and operating profit by reporting segment follows.
Polymers sales of $342.5 million were essentially unchanged from 1997 as
improved pricing of 4% was offset primarily by lower volume. EPDM sales
increased 6% from 1997 primarily due to improved pricing. Urethane and nitrile
rubber sales were lower by 3% and 9%, respectively, due primarily to lower
volume. Polymers operating profit of $77.4 million increased 40% from 1997
primarily attributable to improved pricing and lower raw material costs in the
EPDM business.
Polymer processing equipment sales of $344.5 million increased 11% from 1997
primarily due to higher volume. Operating profit of $45.6 million increased
27% from 1997 primarily due to increased volume and improved product mix. The
equipment order backlog totaled $118 million at the end of 1998 compared to
$106 million at the end of 1997.
Other
Selling, general and administrative expenses of $264.7 million decreased 2%
versus 1997, but as a percentage of sales remained essentially unchanged at
14.7%. Depreciation and amortization of $80.5 million increased 1% from 1997
primarily as a result of a higher fixed asset base. Research and development
costs of $52.8 million decreased 2% from 1997, but as a percentage of sales
remained constant at 2.9%.
Facility closure costs of $33.6 million represent primarily the write-off of
plant and equipment, severance and other costs related to the closure of the
Company's nitrile rubber facility in Painesville, Ohio.
Interest expense of $78.5 million decreased 24% from 1997 primarily due to
lower levels of indebtedness and lower interest cost on borrowings used to
redeem high cost debt in 1998. Other income of $158.9 million in 1998 includes
a gain in the amount of $153.4 million resulting from the sale of a 50%
interest in the Gustafson seed treatment business. Other income of $27.8
million in 1997 includes a gain of $28 million relating to a settlement with
the U.S. Department of the Army. The effective tax rate excluding the impact
of special items was 37.2% compared to 38.1% in 1997.
Operating Results - 1997 Compared to 1996
Overview
Consolidated net sales increased 3% to $1.85 billion from $1.80 billion in
1996. The increase was primarily attributable to increased volume of 5% offset
by lower foreign currency translation of 1% and lower pricing of 1%.
International sales, including U.S. exports, decreased slightly as a
percentage of total sales to 39% from 40% in 1996.
Net earnings before extraordinary losses on early extinguishment of debt
increased 43% to $92.1 million, or $1.25 per share basic and $1.22 per share
diluted, compared with $64.6 million, or $.90 per share basic and diluted, in
1996 before after-tax merger and special environmental costs. Net earnings
were $86.8 million, or $1.18 per share basic and $1.15 per share diluted,
compared to a net loss of $22.5 million, or $.31 per share basic and diluted,
in the prior year.
Gross margins as a percentage of net sales increased slightly to 35.4% from
35.1% in the prior year. Consolidated operating profit, before special charges
of $28 million in 1997 and $115 million in 1996, increased 15% to $252.3
million from $218.6 million in the prior year. Both segments contributed to
the increase in operating profit as specialty chemicals rose 8% and polymers &
polymer processing equipment increased 30%.
Specialty Chemicals
Specialty chemicals sales of $1.20 billion decreased 1% from 1996. Operating
profit for specialty chemicals of $183 million increased 8% from 1996. An
analysis of sales and operating profit by reporting segment follows.
Performance chemicals sales of $469.4 million decreased 2% versus 1996
primarily due to lower foreign currency translation of 2% and lower pricing of
4%, offset in part by higher volume of 4%. Rubber chemical sales were 5% lower
than the prior year primarily due to lower pricing. Specialty additives sales
increased 4% versus 1996 primarily attributable to higher volume. Performance
chemicals operating profit of $67.7 million increased 3% from 1996 primarily
as a result of lower operating costs and improved product mix.
Crop protection sales of $370.1 million increased 5% from 1996 primarily due
to higher volume particularly in the herbicides, insecticide and fungicide
businesses. Operating profit of $77.4 million increased 15% from 1996
primarily as a result of higher volume and improved pricing and product mix.
Colors sales of $257.6 million decreased 5% versus 1996. The decrease was
primarily attributable to lower foreign currency translation of 3% and lower
pricing of 2%. Colors operating profit of $30.1 million decreased 2% from
1996, primarily due to lower pricing.
Other represents the specialty ingredients business which was sold effective
the first day of fiscal 1999. Sales of $100.2 million decreased 4% from 1996,
while operating profit of $7.8 million increased 30%.
Polymers & Polymer Processing Equipment
Polymers & polymer processing equipment sales of $653.8 million represent an
increase of 9% from 1996. Operating profit of $91.4 million increased 30%
compared to 1996. An analysis of sales and operating profit by reporting
segment follows.
Polymers sales of $342.1 million increased 9% from 1996 primarily due to
higher volume in the EPDM, urethane and nitrile rubber businesses. Polymers
operating profit of $55.5 million increased 19% from 1996 primarily
attributable to volume growth and improved product mix.
Polymers processing equipment sales of $311.7 million increased 9% from 1996.
The increase was due primarily to increased volume of 12% offset primarily by
lower foreign currency translation of 3%. Operating profit of $35.9 million
increased 54% from 1996 primarily as a result of volume growth, cost
reductions and improved product mix. The equipment order backlog totaled $106
million at the end of 1997 compared to $92 million at the end of 1996.
Other
Selling, general and administrative expenses of $269.4 million decreased 4%
versus 1996 primarily due to planned cost reductions and lower foreign
currency translation. Depreciation and amortization of $79.9 million decreased
3% from 1996 as a result of certain assets becoming fully depreciated and
amortized. Research and development costs of $53.6 million increased 2% from
1996, but as a percentage of sales remained constant at 2.9%.
Severance and other costs of $13 million includes severance costs relating to
planned workforce reductions and other costs relating primarily to certain
product liability claims and costs associated with the implementation of SAP
software. The special environmental charge of $15 million reflects the
Company's current estimate of additional requirements for future remediation
costs.
Interest expense of $103.3 million decreased 10% from 1996 primarily due to
lower levels of indebtedness. Other income of $27.8 million includes a gain in
the amount of $28 million relating to a settlement with the U.S. Department of
the Army. The effective tax rate of 38.1% compares to 38.9% in the prior year
after adjusting for the after-tax impact of merger and special environmental
costs in 1996.
Consolidated Statements of Operations
Fiscal years ended 1998, 1997 and 1996
(In thousands of dollars, except per share data) 1998 1997 1996
Net Sales $1,796,119 $1,851,180 $1,803,969
Costs and Expenses
Cost of products sold 1,146,200 1,196,030 1,170,586
Selling, general and administrative 264,710 269,405 279,812
Depreciation and amortization 80,536 79,856 82,597
Research and development 52,775 53,611 52,359
Facility closure costs 33,600 - -
Severance and other costs - 13,000 -
Special environmental charge - 15,000 30,000
Merger and related costs - - 85,000
Operating Profit 218,298 224,278 103,615
Interest expense 78,520 103,349 114,244
Other income (158,938) (27,817) (1,285)
Earnings
Earnings (loss) before income taxes and
extraordinary loss 298,716 148,746 (9,344)
Income taxes 115,493 56,675 12,710
Earnings (loss) before extraordinary loss 183,223 92,071 (22,054)
Extraordinary loss on early extinguishment
of debt (21,468) (5,242) (441)
Net earnings (loss) $ 161,755 $ 86,829 $ (22,495)
Basic Earnings (Loss) Per Common Share
Earnings (loss) before extraordinary loss $ 2.48 $ 1.25 $ (.31)
Extraordinary loss (.28) (.07) -
Net earnings (loss) $ 2.20 $ 1.18 $ (.31)
Diluted Earnings (Loss) Per Common Share
Earnings (loss) before extraordinary loss $ 2.42 $ 1.22 $ (.31)
Extraordinary loss (.28) (.07) -
Net earnings (loss) $ 2.14 $ 1.15 $ (.31)
See accompanying notes to consolidated financial statements . Crompton &
Knowles Corporation and Subsidiaries
Consolidated Balance Sheets
Fiscal years ended 1998 and 1997
(In thousands of dollars, except per share data) 1998 1997
Assets
Current Assets
Cash $ 12,104 $ 10,607
Accounts receivable 173,668 262,412
Inventories 334,562 356,716
Other current assets 77,422 85,314
Total current assets 597,756 715,049
Non-Current Assets
Property, plant and equipment 473,403 474,892
Cost in excess of acquired net assets 166,184 181,025
Other assets 171,550 177,854
$1,408,893 $1,548,820
Liabilities and Stockholders' Equity (Deficit)
Current Liabilities
Notes payable $ 17,305 $ 1,770
Accounts payable 117,338 145,405
Accrued expenses 139,401 149,910
Income taxes payable 103,179 38,909
Other current liabilities 17,149 27,094
Total current liabilities 394,372 363,088
Non-Current Liabilities
Long-term debt 646,857 896,291
Postretirement health care liabiliy 142,727 149,344
Other liabilities 158,234 160,187
Stockholders' Equity (Deficit)
Common stock, $.10 par value - issued 77,332,751 shares 7,733 7,733
Additional paid-in capital 238,615 232,213
Accumulated deficit (15,985) (174,019)
Accumulated other comprehensive income (37,571) (44,805)
Treasury stock at cost (125,246) (40,228)
Deferred compensation (843) (984)
Total stockholders' equity (deficit) 66,703 (20,090)
$1,408,893 $1,548,820
See accompanying notes to consolidated financial statements . Crompton &
Knowles Corporation and Subsidiaries
Consolidated Statements of Cash Flows
Fiscal years ended 1998, 1997 and 1996
Increase (decrease) to cash (in thousands of dollars)
1998 1997 1996
Cash Flows from Operating Activities
Net earnings (loss) $ 161,755 $ 86,829 $ (22,495)
Adjustments to reconcile net earnings (loss)
to net cash provided by operations:
Gustafson joint venture gain (153,429) - -
Facility closure costs 33,600 - -
Extraordinary loss on early debt
extinguishment 21,468 5,242 441
Depreciation and amortization 80,536 79,856 82,597
Noncash interest 4,819 14,289 16,082
Deferred taxes (5,366) 18,184 (16,383)
Changes in assets and liabilities:
Accounts receivable 497 (2,997) (9,675)
Inventories 7,314 (3,960) (7,033)
Other current assets (11,508) 5,688 (614)
Other assets 3,358 2,165 (169)
Accounts payable and accrued expenses (32,188) 8,573 22,548
Income taxes payable 79,568 13,055 3,249
Other current liabilities (10,562) 7,244 2,066
Postretirement health care liability (3,727) (32,460) (2,653)
Other liabilities (7,161) 12,306 27,106
Other 548 1,773 286
Net cash provided by operations 169,522 215,787 95,353
Cash Flows from Investing Activities
Proceeds from Gustafson joint venture 180,000 - -
Capital expenditures (66,628) (50,176) (39,204)
Acquisitions (5,927) - (15,713)
Other investing activities (3,790) 5,569 2,689
Net cash provided (used) by investing
activities 103,655 (44,607) (52,228)
Cash Flows from Financing Activities
Payments on long-term notes (460,034) (76,860) (19,417)
Proceeds (payments) on credit agreement
borrowings 199,894 (91,529) 75,740
Proceeds (payments) on short-term borrowings 15,535 (5,903) (100,434)
Proceeds from sale of accounts receivable 80,000 - -
Premium paid on early extinguishment of debt (22,984) (7,065) (338)
Treasury stock acquired (94,974) - -
Dividends paid (3,721) (3,671) (12,967)
Proceeds from sale of common stock - - 14,150
Other financing activities 14,425 4,240 4,873
Net cash used by financing activities (271,859) (180,788) (38,393)
Cash
Effect of exchange rates on cash 179 (905) (573)
Change in cash 1,497 (10,513) 4,159
Cash adjustment to conform fiscal year of Uniroyal - - (13,476)
Cash at beginning of period 10,607 21,120 30,437
Cash at end of period $ 12,104 $ 10,607 $ 21,120
See accompanying notes to consolidated financial statements . Crompton &
Knowles Corporation and Subsidiaries
Consolidated Statements of Stockholders' Equity (Deficit)
Fiscal years ended 1998, 1997 and 1996
Accumulated
Additional Other
Common Paid-in Accumulated Comprehensive Treasury Deferred
Stock Capital Deficit Income Stock Compensation Total
(In thousands of dollars, except per share data)
Balance, December 30, 1995
$7,676 $227,433 $(213,347) $(15,785) $(62,972) $(2,190) $(59,185)
Comprehensive income:
Net loss (22,495) (22,495)
Equity adjustment for
translation of foreign currencies (13,424) (13,424)
Equity adjustment for
pension liability (tax of $57) (96) (96)
Total comprehensive income (36,015)
Adjustment to conform
fiscal year of Uniroyal (8,368) (8,368)
Cash dividends ($.27 per share) (12,967) (12,967)
Stock options, warrants and other
issuances (535,892 shares)
48 5,062 254 5,364
Sale of 1,000,000 common shares
(485) 14,635 14,150
Amortization of deferred compensation 603 603
Balance, December 28, 1996
7,724 232,010 (257,177) (29,305) (48,083) (1,587) (96,418)
Comprehensive income:
Net earnings 86,829 86,829
Equity adjustment for
translation of foreign currencies (16,453) (16,453)
Equity adjustment for
pension liability (tax of ($566)) 953 953
Total comprehensive income 71,329
Cash dividends ($.05 per share) (3,671) (3,671)
Stock options, warrants and other
issuances (668,552 shares)
9 203 7,855 8,067
Amortization of deferred compensation 603 603
Balance, December 27, 1997
7,733 232,213 (174,019) (44,805) (40,228) (984) (20,090)
Comprehensive income:
Net earnings 161,755 161,755
Equity adjustment for translation
of foreign currencies 5,427 5,427
Equity adjustment for
pension liability (tax of ($1,073)) 1,807 1,807
Total comprehensive income 168,989
Cash dividends ($.05 per share)
(3,721) (3,721)
Stock options, warrants
and other issuances (1,130,258 shares)
6,402 9,956 16,358
Treasury stock acquired (5,368,600 shares) (94,974) (94,974)
Amortization of deferred compensation 141 141
Balance, December 26, 1998
$7,733 $238,615 $(15,985) $(37,571) $(125,246) $ (843) $ 66,703
See accompanying notes to consolidated financial statements . Crompton &
Knowles Corporation and Subsidiaries
Notes to Consolidated Financial Statements
Accounting Policies
Business Combination
On August 21, 1996, the Company merged (the "Merger") with Uniroyal Chemical
Corporation ("UCC") in a common stock transaction that was accounted for on a
pooling-of-interests basis with UCC becoming a wholly-owned subsidiary of the
Company. In December 1998, UCC was merged into its wholly-owned subsidiary,
Uniroyal Chemical Company, Inc. ("Uniroyal") with Uniroyal being the surviving
corporation. All information has been restated to reflect the combined
operations of both companies. The consolidated financial statements reflect
results for the twelve month periods ended December 26, 1998, December 27,
1997 and December 28, 1996, respectively.
In connection with the merger with Uniroyal, the Company incurred $85 million
of merger and related costs. The components of these costs comprise
principally severance and other personnel costs of $37.6 million, investment
banking fees of $12.5 million, legal fees of $9.7 million, debt related fees
of $8.3 million, facility consolidation costs of $6.4 million and other costs
of $10.5 million. As of December 26, 1998 these accruals were fully realized.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of all
majority-owned subsidiaries. Other affiliates in which the Company has a 20%
to 50% ownership are accounted for in accordance with the equity method. All
significant intercompany balances and transactions have been eliminated in
consolidation. The Company's fiscal year ends on the last Saturday in
December.
The consolidated financial statements have been prepared in conformity with
generally accepted accounting principles which requires the Company to make
estimates and assumptions that affect the amounts and disclosures reported in
the financial statements and accompanying notes. Actual results could differ
from these estimates.
Inventory Valuation
Inventories are valued at the lower of cost or market. Cost is determined
using the first-in, first-out (FIFO) basis.
Property, Plant and Equipment
Property, plant and equipment are carried at cost, less accumulated
depreciation. Depreciation expense ($59.4 million in 1998, $58.7 million in
1997 and $59.2 million in 1996) is computed generally on the straight-line
method using the following ranges of asset lives: buildings and improvements:
10 to 40 years, machinery and equipment: 3 to 25 years, and furniture and
fixtures: 3 to 10 years.
Renewals and improvements which extend the useful lives of the assets are
capitalized. Capitalized leased assets and leasehold improvements are
depreciated over their useful lives or the remaining lease term, whichever is
shorter. Expenditures for maintenance and repairs are charged to expense as
incurred.
Long-Lived Assets
The Company evaluates the recoverability of the carrying value of long-lived
assets of each of its businesses by assessing whether the projected cash flows
of each of its businesses is sufficient to recover the existing unamortized
cost of these assets. On this basis, if the Company determines that any assets
have been permanently impaired, the amount of the impaired assets is written-
off against earnings in the quarter in which the impairment is determined.
Intangible Assets
The excess cost over the fair value of net assets of businesses acquired is
being amortized on a straight-line basis over 20 to 40 years. Accumulated
amortization was $44.6 million and $42.2 million in 1998 and 1997,
respectively.
Patents, unpatented technology, trademarks and other intangibles of $59
million in 1998 and $79.1 million in 1997, included in other assets, are being
amortized principally on a straight-line basis over their estimated useful
lives ranging from 6 to 20 years. Accumulated amortization was $120.9 million
and $123.3 million in 1998 and 1997, respectively.
Financial Instruments
Financial instruments are presented in the accompanying consolidated financial
statements at either cost or fair value as required by generally accepted
accounting principles.
Translation of Foreign Currencies
Balance sheet accounts denominated in foreign currencies are translated
generally at the current rate of exchange as of the balance sheet date, while
revenues and expenses are translated at average rates of exchange during the
periods presented. The cumulative foreign currency adjustments resulting from
such translation are included in the accumulated other comprehensive income
account in the stockholders' equity (deficit) section of the consolidated
balance sheets. For foreign subsidiaries operating in highly inflationary
economies, monetary balance sheet accounts and related revenue and expenses
are translated at current rates of exchange while non-monetary balance sheet
accounts and related revenues and expenses are translated at historical
exchange rates. The resulting translation gains and losses related to those
countries are reflected in operations and are not significant in any of the
years presented.
Research and Development
Research and development costs are expensed as incurred.
Income Taxes
A provision has not been made for U.S. income taxes which would be payable if
undistributed earnings of foreign subsidiaries of approximately $230 million
at December 26, 1998, were distributed to the Company in the form of
dividends, since certain foreign countries limit the extent of repatriation of
earnings, while for others, the Company's intention is to permanently
reinvest such foreign earnings. The determination of the amount of the
unrecognized deferred tax liability related to undistributed earnings is not
practicable.
Earnings Per Common Share
Effective in 1997, the Company adopted FASB Statement No. 128 "Earnings per
Share." Further information is provided in the footnote on earnings per common
share.
Comprehensive Income
Effective in the first quarter of 1998, the Company adopted FASB Statement No.
130 "Reporting Comprehensive Income." The Statement establishes standards for
reporting "Comprehensive Income" and its components in the consolidated
financial statements. The adoption of this statement had no impact on the
Company's net earnings (loss) or stockholders' equity (deficit). Statement No.
130 requires unrealized foreign currency translation adjustments and the
minimum pension liability adjustment, which prior to adoption were reported
separately in stockholders' equity (deficit), to be included in "Accumulated
Other Comprehensive Income." The balance of accumulated other comprehensive
income includes accumulated translation adjustments and minimum pension
liability in the amounts of $36,618 and $953 and $42,045 and $2,760 at
December 26, 1998 and December 27, 1997, respectively.
Stock-Based Compensation
Effective in 1996, the Company adopted FASB Statement No. 123 "Accounting and
Disclosure of Stock-Based Compensation." As permitted, the Company elected to
continue to follow the provisions of Accounting Principles Board No. 25
"Accounting for Stock Issued to Employees" and related interpretations in
accounting for stock-based compensation plans. Further information is provided
in the footnote on Stock Incentive Plans.
Statements of Cash Flows
Cash includes bank term deposits of three months or less. Cash payments during
the fiscal years ended 1998, 1997 and 1996 included interest payments of
$79.5 million, $90.8 million and $100.1 million and income tax payments of
$33.5 million, $28.3 million and $28.7 million, respectively.
Other Disclosures
Included in accounts receivable are allowances for doubtful accounts in the
amount of $9.8 million in 1998 and $8.7 million in 1997. Included in other
current liabilities are customer deposits in the amount of $15.7 million
in 1998 and $25.1 million in 1997. Included in other liabilities are
environmental liabilities in the amount of $75.6 million in 1998 and $84.7
million in 1997.
In 1997, the Company incurred a $13 million charge related to severance ($6.9
million) and other non-recurring costs ($6.1 million). As of December 26,
1998, the balance to be realized in 1999 was not significant.
Joint Ventures, Acquisitions and Divestitures
In November 1998, the Company and Bayer Corporation formed a joint venture to
serve the agricultural seed treatment markets in North America. The basis of
the joint venture is the Company's Gustafson seed treatment business. The
Company received cash proceeds of $180 million in the transaction which
resulted in a fourth quarter pre-tax gain of $153.4 million. Also, in November
1998, the Company announced the formation of a joint venture with GIRSA, a
subsidiary of DESC, S.A. de C.V. to produce nitrile rubber products in Mexico.
The joint venture will result in the closure of the Company's existing nitrile
rubber facility in Painesville, Ohio. In connection with the facility closure,
the Company incurred a charge of $33.6 million summarized as follows:
(In thousands) Charge Realized Balance
Write-off of long lived assets $13,811 $13,811 $ -
Facility closure and maintenance costs 12,239 - 12,239
Severance and other costs 7,550 778 6,772
$33,600 $14,589 $19,011
During 1998, the Company acquired the extrusion business of Betol Machinery
for $5.9 million. During 1996, the Company acquired the extrusion business of
Klockner ER-WE-PA GmbH and the Hartig line of industrial blow molding systems
at an aggregate cost of $15.7 million. The acquisitions have been accounted
for using the purchase method and, accordingly, the acquired assets and
liabilities have been recorded at their fair values at the dates of
acquisition. The excess cost of purchase price over fair value of net assets
acquired, in the amount of $13.6 million, is being amortized from 20 to 40
years. The operating results of each acquisition are included in the
consolidated statement of operations from the dates of acquisition.
In January, 1999, the Company sold its specialty ingredients business to Chr.
Hansen Holding A/S of Denmark for $103 million. The pre-tax gain of
approximately $44 million will be recorded in the first quarter of 1999.
Accounts Receivable Program
In December 1998, the Company entered into a five year agreement to sell up to
$82 million of domestic accounts receivable to an agent bank. The program
reduces financing costs versus borrowings under the revolving credit agreement
and diversifies the Company's sources of financing. At December 26, 1998, $80
million of domestic accounts receivable had been sold under this agreement at
a cost of approximately 5.85%.
Inventories
(In thousands) 1998 1997
Finished goods $226,663 $226,730
Work in process 45,237 47,029
Raw materials and supplies 62,662 82,957
$334,562 $356,716
Property, Plant and Equipment
(In thousands) 1998 1997
Land and improvements $ 30,380 $ 29,295
Buildings and improvements 155,578 159,734
Machinery and equipment 634,136 637,538
Furniture and fixtures 37,989 28,051
Construction in progress 50,000 36,892
908,083 891,510
Less accumulated depreciation 434,680 416,618
$473,403 $474,892
Leases
The future minimum rental payments under operating leases having initial or
remaining non-cancelable lease terms in excess of one year (as of December 26,
1998) total $100 million as follows: $11.3 million in 1999, $10.2 million in
2000, $8.6 million in 2001, $7.8 million in 2002, $6.4 million in 2003, and
$55.7 million in later years. Total rental expense for all operating leases
was $15.8 million in 1998, $16.8 million in 1997 and $16.6 million in 1996.
Real estate taxes, insurance and maintenance expenses generally are
obligations of the Company and, accordingly, are not included as part of
rental payments. It is expected that, in the normal course of business, leases
that expire will be renewed or replaced by leases on other properties.
Long-term Debt
(In thousands) 1998 1997
9% Senior Notes Due 2000 $182,261 $226,623
10.5% Senior Notes Due 2002 173,128 235,998
11% Senior Subordinated Notes - 228,675
12% Subordinated Discount Notes - 113,586
Credit Agreement 286,280 88,328
Other 5,188 3,081
$646,857 $896,291
9% Senior Notes
The 9% Senior Notes Due September 2000 are an obligation of Uniroyal and are
unsecured. Interest is payable semi-annually. The 9% Senior Notes are not
redeemable prior to maturity, except upon a change in control (as defined in
the related indenture) whereupon an offer shall be made to purchase the 9%
Senior Notes then outstanding at a purchase price equal to 101% of the
principal amount thereof, plus accrued and unpaid interest.
10.5% Senior Notes
The 10.5% Senior Notes Due February 2002 are an obligation of Uniroyal and are
unsecured. Interest is payable semi-annually. The 10.5% Senior Notes require
that upon a change in control (as defined in the related indentures), an offer
shall be made to purchase all of the notes at a purchase price equal to 101%
of the principal amount thereof, plus accrued and unpaid interest.
Debt Redemptions and Repurchases
During 1998, the Company redeemed the outstanding 11% Senior Subordinated
Notes at a price of 105.5% of the principal amount thereof and the 12%
Subordinated Discount Notes at a price of 100% of the principal amount
thereof. In addition, the Company repurchased in the open market $44.4 million
of 9% Senior Notes and $62.8 million of 10.5% Senior Notes. As a result of the
redemptions and repurchases, the Company recognized an extraordinary loss of
$21.5 million, net of tax benefit of $13.1 million.
During 1997, the Company repurchased in the open market $24 million of 9%
Senior Notes, $47.1 million of 10.5% Senior Notes, $3.5 million of 11% Senior
Subordinated Notes, and $2.5 million of 12% Subordinated Discount Notes. As a
result of the repurchases, the Company recognized an extraordinary loss of
$5.3 million, net of tax benefit of $3.5 million.
During 1996, the Company repurchased $17.2 million of 9% Senior Notes in the
open market and redeemed $2.2 million in connection with the Merger. As a
result of the repurchase, the Company recognized an extraordinary loss of $441
thousand, net of tax benefit of $293 thousand.
Credit Agreement
In 1998, the Company amended its revolving credit agreement with a syndicate
of banks. The termination date was extended to September 2003 from August
2001. Borrowings under the credit agreement are divided into three tranches
and were amended as follows: Tranche I provides a maximum of $329 million
available to the Company for working capital and general corporate purposes.
Tranche II provides a maximum of $66 million available to Uniroyal for working
capital and general corporate purposes. Tranche III provides up to $150
million of borrowings by the European and Canadian subsidiaries of the
Company. Borrowings may be denominated in U.S. dollars or the subsidiary's
local currency. As a result of the Accounts Receivable Program, the Company
was required to permanently reduce its available borrowings under the credit
agreement from $600 million to $545 million.
The credit agreement calls for interest based upon various options including a
spread (currently .5%) over LIBOR that varies according to certain debt ratios
for the trailing four fiscal quarters. In addition, the Company must pay a
commitment fee (currently .15%) on the total unused portion of the credit
agreement based upon certain debt ratios for the trailing four fiscal
quarters. At December 26, 1998, borrowings under the credit agreement
of $286.3 million bore a weighted average interest rate of 6.1%.
Debt Covenants
The Company's various debt agreements contain covenants which limit the
ability to incur additional debt, transfer funds between affiliated companies,
pay cash dividends or make certain other payments. In addition, the credit
agreement requires the Company to maintain certain financial ratios.
Maturities
In 1998, the scheduled maturities of long-term debt during the next five
fiscal years are: 1999 - none; 2000 - $185.6 million; 2001 - $0.5 million;
2002 - $173.6 million; and 2003 - $287.1 million.
Financial Instruments
At December 26, 1998, the Company had an interest rate lock contract
("Interest Hedge") outstanding with a major financial institution for $230
million at a rate of 6.04%. The Interest Hedge expires on September 1, 2000.
The settlement amount will be based on the difference between the rate of
6.04% and the 10 year U.S. Treasury rate at the expiration date. A settlement
of the fair market value of the Interest Hedge as of December 26, 1998 would
require payment of approximately $17 million.
The carrying amounts for cash, accounts receivable, notes payable, accounts
payable and other current liabilities approximate their fair value because of
the short maturities of these instruments. The fair market values of
long-term debt were $685.9 million and $972.2 million in 1998 and 1997,
respectively, and with respect to the notes have been determined based on
quoted market prices.
Income Taxes
The components of earnings (loss) before income taxes and extraordinary loss,
and the provision for income taxes are as follows:
(In thousands) 1998 1997 1996
Pretax Earnings (Loss):
Domestic $207,595 $104,886 $(32,875)
Foreign 91,121 43,860 23,531
298,716 148,746 (9,344)
Income Taxes:
Domestic
Current 95,386 22,506 15,576
Deferred (7,381) 16,989 (9,566)
88,005 39,495 6,010
Foreign
Current 25,473 15,985 13,517
Deferred 2,015 1,195 (6,817)
27,488 17,180 6,700
Total
Current 120,859 38,491 29,093
Deferred (5,366) 18,184 (16,383)
$ 115,493 $ 56,675 $ 12,710
The provision (benefit) for income taxes differs from the Federal statutory
rate for the following reasons:
(In thousands) 1998 1997 1996
Provision (benefit) at statutory rate $104,551 $52,061 $(3,270)
Nondeductible merger and related costs - - 14,709
Impact of valuation allowance 3,598 (3,616) (2,904)
Foreign dividends impact - 524 3,744
Goodwill amortization 4,395 1,619 2,214
Foreign income tax rate differential (5,686) 674 (2,168)
State income taxes, net of federal
benefit 7,629 5,141 (601)
Other, net 1,006 272 986
Actual provision for income taxes $115,493 $56,675 $12,710
Provisions have been made for deferred taxes based on differences between
financial statement and tax bases of assets and liabilities using currently
enacted tax rates and regulations. The components of the net deferred tax
assets and liabilities are as follows
(In thousands) 1998 1997
Deferred tax assets:
Pension and other postretirement $ 81,398 $ 78,348
Accruals for environmental remediation 28,992 31,886
Other accruals 45,860 41,722
NOL carryforwards 15,774 22,363
Inventories and other 17,147 12,487
Deferred tax liabilities:
Property, plant and equipment (65,771) (71,557)
Intangibles (5,862) (10,055)
Other (5,769) (2,389)
Net deferred tax asset before valuation
allowance 111,769 $102,805
Valuation allowance (16,064) (12,466)
Net deferred tax asset after valuation allowance $ 95,705 $ 90,339
Net deferred taxes (in thousands) include $46,905 and $47,967 in current
assets and $48,800 and $42,372 in long-term assets in 1998 and 1997,
respectively.
As of December 26, 1998, the Company's foreign subsidiaries had aggregate NOL
carryforwards of $34 million which can be used to reduce future taxable income
in those countries. During 1998, the Company utilized its remaining $35
million of domestic NOL carryforwards.
Earnings Per Common Share
Effective in 1997, the Company adopted FASB Statement No. 128 "Earnings per
Share". The computation of basic earnings (loss) per common share is based on
the weighted average number of common shares outstanding. Diluted earnings per
share is based on the weighted average number of common and common equivalent
shares outstanding. The computation of diluted loss per share for fiscal year
1996 follows the basic calculation since common stock equivalents were
antidilutive.
(In thousands, except per share amounts) 1998 1997 1996
Earnings (loss) before extraordinary loss $183,223 $ 92,071 $(22,054)
Net earnings (loss) $161,755 $ 86,829 $(22,495)
Basic
Weighted average shares outstanding 73,696 73,373 72,026
Earnings (loss) before extraordinary loss $ 2.48 $ 1.25 $ (.31)
Net earnings (loss) $ 2.20 $ 1.18 $ (.31)
Diluted
Weighted average shares outstanding 73,696 73,373 72,026
Stock options, warrants and other equivalents 2,004 1,985 -
Weighted average shares adjusted for dilution 75,700 75,358 72,026
Earnings (loss) before extraordinary loss $ 2.42 $ 1.22 $ (.31)
Net earnings (loss) $ 2.14 $ 1.15 $ (.31)
Capital Stock
The Company is authorized to issue 250,000,000 shares of common stock at a par
value of $.10. There were 77,332,751 shares issued in 1998 and 1997, of which
7,962,736 and 3,724,394 shares were held in the treasury in 1998 and 1997,
respectively.
In September 1998, the Board of Directors authorized a plan to repurchase 7.5
million shares of the Company's then outstanding common stock. As of December
26, 1998, the Company repurchased 5.4 million shares at a cost of $95 million.
In January 1999, the Board of Directors authorized an additional repurchase of
6.8 million shares.
The Company is authorized to issue 250,000 shares of preferred stock without
par value, none of which are outstanding. Preferred share purchase rights
("Rights") outstanding with respect to each share of the Company's common
stock entitle the holder to purchase one one-hundredth of a share of Series A
Junior Participating Preferred Stock at an exercise price of $800. The Rights
cannot become exercisable until ten days following a public announcement that
a person or group has acquired 20% or more of the common shares of the Company
or intends to make a tender or exchange offer which would result in their
ownership of 20% or more of the Company's common shares. The Rights also
entitle the holder under certain circumstances to receive shares in another
company which acquires the Company or merges with it.
Warrants
In connection with the Merger, the Company assumed warrants that had been
issued by Uniroyal to purchase up to 107,195 converted shares at an adjusted
exercise price of $1.04 per share. In 1998, the remaining 107,195 warrants
were exercised.
Stock Incentive Plans
The 1988 Long-Term Incentive Plan ("1988 Plan") authorized the Board to grant
stock options, stock appreciation rights, restricted stock and long-term
performance awards to the officers and other key employees of the Company over
a period of ten years through October 1998. Non-qualified and incentive stock
options were granted under the 1988 plan at prices not less than 100% of the
market value on the date of the grant. All outstanding options will expire not
more than ten years and one month from the date of grant. In conjunction with
shareholder approval of the Merger, the number of common shares covered under
the 1988 Plan was increased from 4 million to 10 million shares. The Company
will be seeking shareholder approval for an additional 3,000,000 shares under
a new Long-Term Incentive Plan similar to the 1988 Plan at the annual meeting
of shareholders on April 27, 1999.
The 1993 Stock Option Plan for Non-Employee Directors as amended in 1996
authorizes 200,000 shares to be optioned to non-employee directors at the rate
of twice their annual retainer divided by the stock price on the date of
grant. The options will vest over a two year period and be exercisable over a
ten year period from the date of grant, at a price equal to the fair market
value on the date of grant.
Under the 1988 Plan, 1,261,000 common shares have been transferred to an
independent trustee to administer restricted stock awards for the Company's
long-term incentive program. At December 26, 1998 deferred compensation
relating to such shares in the amount of $843 thousand is being amortized over
an estimated service period of six to fifteen years. In 1996, the Company
granted long-term incentive awards in the amount of 824,250 shares which were
earned at the end of 1998 based upon the achievement of certain financial
criteria. In 1999, the Company granted long-term incentive awards (contingent
upon shareholder approval of the new Long-Term Incentive Plan) in the amount
of 1,181,250 shares to be earned at the end of 2001 if certain financial
criteria are met. The 1998 earned shares and the 2001 shares, if earned, will
vest ratably at 25% per year with the final installment at retirement.
Compensation expense related to such shares is accrued over a six year period
based upon the level of incentive achievement.
Effective in 1996, the Company adopted the provisions of FASB Statement No.
123 "Accounting and Disclosure of Stock-Based Compensation." As permitted, the
Company elected to continue its present method of accounting for stock-based
compensation. Accordingly, compensation expense has not been recognized for
stock based compensation plans other than restricted stock awards under the
Company's long-term incentive programs. Had compensation cost for the
Company's stock option and long-term incentive awards been determined under
the fair value method, net earnings (loss) (in thousands) would have been
$158,641, $84,660, and $(24,098) for the years 1998, 1997 and 1996,
respectively. Net earnings (loss) per common share (basic) would have been
$2.15, $1.15, and $(.33) and net earnings (loss) per common share (diluted)
would have been $2.06, $1.11, and $(.33) for the years 1998, 1997 and 1996,
respectively. The fair value per share of long-term incentive awards granted
in 1996 was $13.88 and the average fair value per share of options granted was
$5.46 in 1998, $10.53 in 1997, and $5.72 in 1996. The fair value of options
granted was estimated using the Black-Scholes option pricing model with the
following assumptions for 1998, 1997 and 1996, respectively: dividend yield
.35%, .19%, and .34%, expected volatility 31%, 28%, and 30%, risk-free
interest rate 4.6%, 6.1%, and 6.5%, and expected life 6 years, 6 years and 5
years.
Changes during 1998, 1997 and 1996 in shares under option are summarized as
follows:
Price Per Share
Range Average Shares
Outstanding at 12/30/95 $ 2.47-23.75 $10.91 4,633,759
Granted 9.14-16.88 15.11 2,178,022
Exercised 4.01-18.19 10.19 (419,287)
Lapsed 3.13-23.75 8.14 (120,519)
Outstanding at 12/28/96 2.47-23.75 12.47 6,271,975
Granted 19.31-26.41 26.39 613,251
Exercised 2.47-19.31 6.69 (667,733)
Lapsed 9.31-19.31 14.62 (86,917)
Outstanding at 12/27/97 3.13-26.41 14.46 6,130,576
Granted 14.34 14.34 1,077,112
Exercised 3.13-19.31 9.74 (966,664)
Lapsed 13.00-26.41 19.06 (34,543)
Outstanding at 12/26/98 $ 3.13-26.41 $15.15 6,206,481
Exercisable at 12/28/96 $ 2.47-23.75 $10.87 3,851,369
Exercisable at 12/27/97 $ 3.13-23.75 $12.32 3,866,992
Exercisable at 12/26/98 $ 3.13-26.41 $14.16 3,650,289
Shares available for grant at year-end 1998 and 1997 were 2,552,948 and
3,595,467, respectively.
The following table summarizes information concerning currently outstanding
and exercisable options:
Number Weighted Avg. Weighted Number Weighted
Range of Outstanding Remaining Average Exercisable Average
Exercise at end of Contractual Exercise at end of Exercise
Prices 1998 Life Price 1998 Price
$ 3.13-9.31 472,428 2.45 $ 6.43 472,428 $ 6.43
$11.75-13.57 1,264,576 4.85 $12.21 1,246,057 $12.20
$14.34-14.50 2,569,940 8.50 $14.43 610,828 $14.50
$14.63-22.78 1,292,969 5.81 $17.35 1,143,590 $17.41
$23.75-26.41 606,568 8.79 $26.39 177,386 $26.34
6,206,481 6.76 $15.15 3,650,289 $14.16
The Company has an Employee Stock Ownership Plan that is offered to eligible
employees of the Company and certain of its subsidiaries. The Company makes
contributions equivalent to a stated percentage of employee contributions. The
Company's contributions were $2 million in 1998, 1997 and 1996.
Pension and Postretirement Health Care Liabilities
The Company has several defined benefit and defined contribution pension plans
which cover substantially all employees in the United States and Canada.
Pension benefits for retired employees of the Company in other countries are
generally covered by government-sponsored plans. The defined benefit
plans provide retirement benefits based on the employees' years of service and
compensation during employment. The Company will make contributions to the
defined benefit plans at least equal to the minimum amounts required by law,
while contributions to the defined contribution plans are determined as a
percentage of each covered employees' salary.
The Company also provides health and life insurance benefits for certain
retired and active employees and their beneficiaries and covered dependents in
the U.S. and Canada. Postretirement benefits for retired employees in other
countries are generally covered by government-sponsored plans.
Effective in 1998, the Company adopted FASB Statement No. 132, "Employers'
Disclosures about Pension and Other Postretirement Benefits."
Pension cost-defined benefit
(In thousands) 1998 1997 1996
Service cost $ 7,635 $ 6,599 $ 5,974
Interest cost 16,044 15,171 13,135
Expected return on plan assets (15,610) (14,328) (8,837)
Amortization of prior service cost 410 577 (843)
Amortization of unrecognized
transition obligation 58 (131) (32)
Recognized actuarial gain 74 136 126
Curtailments 2,570 - -
Net cost $ 11,181 $ 8,024 $ 9,523
Postretirement health care cost
(In thousands) 1998 1997 1996
Service cost $ 1,256 $ 1,174 $ 1,292
Interest cost 9,958 10,298 10,134
Expected return on plan assets (3,271) (910) 10
Amortization of prior service cost (6,196) (6,148) (5,483)
Recognized actuarial loss (1,367) (671) (1,972)
Net cost $ 380 $ 3,743 $ 3,981
Benefit obligation Pension (defined benefit) Postretirement
(In thousands) 1998 1997 1998 1997
Benefit obligation at
beginning of year $244,364 $195,519 $154,829 $142,998
Service cost 7,635 6,599 1,256 1,174
Interest cost 16,044 15,171 9,958 10,298
Foreign currency exchange impact (1,724) (3,693) (432) 368
Plan participants contributions 122 105 91 103
Amendments - 2,319 (238) -
Curtailments 1,526 - - -
Plan mergers - 15,414 - 10,875
Actuarial (gain)/loss (2,649) 28,901 (5,374) (446)
Benefits paid (13,520) (15,971) (8,650) (10,541)
Benefit obligation at end of year $251,798 $244,364 $151,440 $154,829
Plan assets
Fair value of plan assets at
beginning of year $197,229 $140,272 $ 40,002 $ 5,601
Actual return on plan assets 17,004 33,638 3,271 910
Government contributions - - - 31,371
Plan mergers - 28,015 - 4,761
Employer contributions 4,361 11,746 6,239 7,797
Foreign currency exchange impact (1,949) (576) - -
Plan participants contributions 122 105 91 103
Benefits paid (13,520) (15,971) (8,650) (10,541)
Fair value of plan assets at
end of year $203,247 $197,229 $ 40,953 $ 40,002
Unfunded status $ 48,551 $ 47,135 $110,487 $114,827
Components of unfunded status
Pension (defined benefit) Postretirement
(In thousands) 1998 1997 1998 1997
Unrecognized net (gain) loss $ 4,017 $ 5,596 $ (2,379) $ 2,253
Unrecognized prior service cost (2,339) 891 (29,861) (36,770)
Unrecognized net transition asset 1,257 1,315 - -
Prepaid benefit cost (1,597) (1,872) - -
Accrued benefit liability 51,603 47,750 142,727 149,344
Intangible asset (3,437) (3,785) - -
Equity adjustment to minimum
Liability (953) (2,760) - -
Net amount recognized $ 48,551 $ 47,135 $110,487 $114,827
Postretirement health care costs are generally not pre-funded (except for
certain government-related plans) and are paid by the Company as incurred.
For plans with benefit obligations in excess of plan assets, the aggregate
benefit obligation was $229.2 million in 1998 and $218.7 million in 1997, and
the aggregate fair value of plan assets was $178.6 million in 1998 and $168.7
million in 1997.
The weighted-average discount rate used to calculate the projected benefit
obligation ranged from 5.75%-7% in 1998 and 6%-8% in 1997. The expected long-
term rate of return on plan assets ranged from 7.75%-9% in 1998 and from 7%-9%
in 1997. The assumed rate of compensation increase ranged from 2%-4% in 1998
and 2%-5.5% in 1997.
The assumed health care cost trend rate ranged from 9.31%-7.4% and is assumed
to decrease gradually to a range of 6.07%-5.5% in 2020 and remain level
thereafter. An increase in the assumed health care cost trend rate of 1% in
each year would increase the accumulated postretirement benefit obligation by
$7.8 million and $8.7 million, and would increase the service and interest
cost by $570 thousand and $604 thousand in 1998 and 1997, respectively. A
decrease in the assumed health care cost trend rate of 1% in each year would
decrease the accumulated postretirement benefit obligation by $8.7 million and
$9.9 million, and would decrease the service and interest cost by $662
thousand and $773 thousand in 1998 and 1997, respectively.
The Company's net cost for all pension plans, including defined contribution
plans, was $19 million, $15 million, and $17 million in 1998, 1997, and 1996,
respectively.
Contingencies
The Company is involved in claims, litigation, administrative proceedings and
investigations of various types in several jurisdictions. A number of such
matters involve claims for a material amount of damages and relate to or
allege environmental liabilities, including clean-up costs associated with
hazardous waste disposal sites, natural resource damages, property damage and
personal injury. The Company and some of its subsidiaries have been identified
by federal, state or local governmental agencies, and by other potentially
responsible parties (each a "PRP") under the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended, or comparable
state statutes, as a PRP with respect to costs associated with waste disposal
sites at various locations in the United States. In addition, the Company is
involved with environmental remediation and compliance activities at some of
its current and former sites in the United States and abroad.
Each quarter, the Company evaluates and reviews estimates for future
remediation and other costs to determine appropriate environmental reserve
amounts. For each site, a determination is made of the specific measures that
are believed to be required to remediate the site, the estimated total cost to
carry out the remediation plan, the portion of the total remediation costs
to be borne by the Company and the anticipated time frame over which payments
toward the remediation plan will occur. The total amount accrued for such
environmental liabilities at December 26, 1998 was $94 million. The
Company estimates its potential environmental liability to range from $70
million to $129 million at December 26, 1998. It is reasonably possible that
the Company's estimates for environmental remediation liabilities may change
in the future should additional sites be identified, further remediation
measures be required or undertaken, the interpretation of current laws and
regulations be modified or additional environmental laws and regulations be
enacted.
On May 21, 1997, the United States District Court, Eastern District of
Arkansas, entered an order finding that Uniroyal Chemical Co./Cie. is jointly
and severally liable to the United States and Hercules and Uniroyal Chemical
Co./Cie. are liable to each other in contribution with respect to the
remediation of the Vertac Chemical Corporation site in Jacksonville, Arkansas.
On October 23, 1998, the Court entered an order granting the United States's
motion for summary judgment against Uniroyal Chemical Co./Cie and Hercules for
removal and remediation costs of $102.9 million at the Vertac site. Trial on
the allocation of these costs as between Uniroyal Chemical Co./Cie. and
Hercules has concluded and a decision is expected during the second quarter of
1999.
The Company intends to assert all meritorious legal defenses and all other
equitable factors which are available to it with respect to the above matters.
The Company believes that the resolution of these environmental matters will
not have a material adverse effect on its consolidated financial position.
While the Company believes it is unlikely, the resolution of these
environmental matters could have a material adverse effect on its consolidated
results of operations in any given year if a significant number of these
matters are resolved unfavorably.
Business Segment Data
Effective in 1998, the Company adopted FASB Statement No. 131 "Disclosures
about Segments of an Enterprise and Related Information" which established
revised standards for reporting information about operating segments. Pursuant
to Statement No. 131, the Company redefined its reporting segments into two
major business categories, "Specialty Chemicals" and "Polymers and Polymer
Processing Equipment." Specialty Chemicals includes reporting segments of
Performance Chemicals (rubber chemicals and specialty additives), Crop
Protection, Colors and Other (specialty ingredients). Polymers and Polymer
Processing Equipment includes reporting segments of Polymers (EPDM,
urethanes and nitrile rubber) and Polymer Processing Equipment (specialty
process equipment and controls).
The accounting policies of the operating segments are the same as those
described in the summary of accounting policies. The Company evaluates a
segment's performance based on several factors, of which a primary financial
measure is operating profit. In computing operating profit, the following
items have not been deducted: interest expense, other income and income taxes.
Corporate assets are principally cash and other assets maintained for general
corporate purposes. Inter-segment sales are not significant. The Company has
investments in unconsolidated affiliates in the Performance Chemicals segment
in the amount of $31.1 million, $20.9 million and $20.7 million in 1998, 1997
and 1996, respectively, and the Crop Protection segment in the amount of $11.9
million in 1998. A summary of business data for the Company's reportable
segments for the years 1998, 1997 and 1996 follows.
Information by Business Segment
(In thousands) 1998 1997 1996
Sales
Specialty Chemicals
Performance Chemicals $ 441,800 $ 469,434 $ 477,480
Crop Protection 348,000 370,091 353,288
Colors 229,723 257,638 271,105
Other 89,589 100,190 104,384
1,109,112 1,197,353 1,206,257
Polymers & Polymer Processing Equipment
Polymers 342,527 342,154 312,836
Polymer Processing Equipment 344,480 311,673 284,876
687,007 653,827 597,712
$1,796,119 $1,851,180 $1,803,969
Operating Profit
Specialty Chemicals
Performance Chemicals $ 50,010 $ 67,730 $ 65,569
Crop Protection 78,747 77,343 67,130
Colors 13,504 30,121 30,842
Other 7,863 7,798 5,997
150,124 182,992 169,538
Polymers & Polymer Processing Equipment
Polymers 77,414 55,485 46,811
Polymer Processing Equipment 45,591 35,921 23,372
123,005 91,406 70,183
General corporate expenses (21,231) (22,120) (21,106)
Special items (33,600) (28,000) (115,000)
$ 218,298 $ 224,278 $ 103,615
Depreciation and Amortization
Specialty Chemicals
Performance Chemicals $ 26,437 $ 26,116 $ 28,678
Crop Protection 20,844 20,478 22,483
Colors 8,865 8,943 8,645
Other 2,574 2,782 2,651
58,720 58,319 62,457
Polymers & Polymer Processing Equipment
Polymers 16,887 17,186 15,613
Polymer Processing Equipment 4,739 4,163 4,342
21,626 21,349 19,955
Corporate 190 188 185
$ 80,536 $ 79,856 $ 82,597
(In thousands) 1998 1997 1996
Segment Assets
Specialty Chemicals
Performance Chemicals $ 434,095 $ 455,231 $ 473,576
Crop Protection 293,334 343,497 374,442
Colors 216,969 230,691 235,069
Other 64,966 67,176 68,175
1,009,364 1,096,595 1,151,262
Polymers & Polymer Processing Equipment
Polymers 215,476 244,562 264,274
Polymer Processing Equipment 165,009 188,694 196,372
380,485 433,256 460,646
Corporate 19,044 18,969 45,282
$1,408,893 $1,548,820 $1,657,190
Capital Expenditures
Specialty Chemicals
Performance Chemicals $ 23,243 $ 18,867 $ 15,610
Crop Protection 10,234 8,696 4,291
Colors 9,873 9,384 8,368
Other 2,180 1,722 1,282
45,530 38,669 29,551
Polymers & Polymer Processing Equipment
Polymers 15,937 8,708 7,811
Polymer Processing Equipment 4,733 2,676 1,807
20,670 11,384 9,618
Corporate 428 123 35
$ 66,628 $ 50,176 $ 39,204
Geographic Information
Sales are attributed based on location of customer.
(In thousands) 1998 1997 1996
Sales
United States $1,077,190 $1,125,121 $1,077,968
Canada 106,230 107,386 100,379
Latin America 133,870 116,734 106,795
Europe/Africa 359,760 348,294 355,549
Asia/Pacific 119,069 153,645 163,278
$1,796,119 $1,851,180 $1,803,969
Property, plant and equipment
United States $ 360,241 $ 374,395 $ 386,023
Canada 22,158 21,040 22,775
Latin America 7,213 6,016 4,918
Europe/Africa 71,168 62,180 71,215
Asia/Pacific 12,623 11,261 13,048
$ 473,403 $ 474,892 $ 497,979
Summarized Unaudited Quarterly Financial Data
(In thousands, except per share data) 1998
First Second Third Fourth
Net sales $477,219 $474,337 $442,768 $401,795
Gross profit 174,754 182,246 163,168 129,751
Earnings before extraordinary loss 31,943 39,795 30,592 80,893
Net earnings 29,992 25,952 24,918 80,893
Earnings per common share
before extraordinary loss:
Basic .43 .53 .41 1.13
Diluted .42 .52 .40 1.11
Net earnings per common share:
Basic .40 .35 .34 1.13
Diluted .39 .34 .33 1.11
Common dividends per share - .05 - -
Market price per common share:
High 31 1/16 32 13/16 26 7/8 21 9/16
Low 25 7/16 23 13 3/8 13 1/4
The sum of earnings per common share for the four quarters do not equal the
total earnings per common share for 1998 due to changes in the average number
of shares outstanding.
(In thousands, except per share data) 1997
First Second Third Fourth
Net sales $473,873 $494,142 $455,076 $428,089
Gross profit 169,501 181,504 167,450 136,695
Earnings before extraordinary loss 26,611 31,768 24,822 8,870
Net earnings 26,611 30,541 22,940 6,737
Earnings per common share
before extraordinary loss:
Basic .36 .44 .33 .12
Diluted .35 .43 .32 .12
Net earnings per common share:
Basic .36 .42 .31 .09
Diluted .35 .41 .30 .09
Common dividends per share - .05 - -
Market price per common share:
High 23 1/4 24 3/4 27 1/8 27 3/8
Low 17 7/8 18 1/2 22 1/8 23 3/8
Responsibility for Financial Statements
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles and have been audited by KPMG LLP,
Independent Certified Public Accountants, whose report is presented herein.
Management of the Company assumes responsibility for the accuracy and
reliability of the financial statements. In discharging such responsibility,
management has established certain standards which are subject to continuous
review and are monitored through the Company's financial management and
internal audit group.
The Board of Directors pursues its oversight role for the financial statements
through its Audit Committee which consists of outside directors. The Audit
Committee meets on a regular basis with representatives of management, the
internal audit group and KPMG LLP.
Independent Auditors' Report
The Board of Directors and Stockholders
Crompton & Knowles Corporation
We have audited the accompanying consolidated balance sheets of Crompton &
Knowles Corporation and subsidiaries (the Company) as of December 26, 1998 and
December 27, 1997, and the related consolidated statements of operations,
stockholders' equity (deficit) and cash flows for each of the years in the
three-year period ended December 26, 1998. 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 financial position of the
Company as of December 26, 1998 and December 27, 1997, and the results of
their operations and their cash flows for each of the years in the three-year
period ended December 26, 1998, in conformity with generally accepted
accounting principles.
/s/KPMG LLP
Stamford, Connecticut
January 27, 1999
Seven Year Selected Financial Data
(In millions of dollars, except per share data)
1998 1997 1996 1995 1994 1993 1992
Summary of Operations
Net sales $1,796.1 1,851.2 1,804.0 1,744.8 1,536.2 1,466.2 1,374.3
Cost of products sold $1,146.2 1,196.0 1,170.6 1,126.2 972.9 926.3 859.1
Selling, general and
administrative $ 264.7 269.4 279.8 270.3 240.1 220.5 207.3
Depreciation and
amortization $ 80.5 79.9 82.6 80.1 86.1 89.9 89.2
Research and
development $ 52.8 53.6 52.4 50.1 44.7 42.1 41.1
Facility closure costs $ 33.6 - - - - - -
Severance and other
costs $ - 13.0 - - - - -
Special environmental
charge $ - 15.0 30.0 - - - -
Merger and related
costs $ - - 85.0 - - - -
Write-off of
intangibles $ - - - - 191.0 - -
Operating profit $ 218.3 224.3 103.6 218.1 1.4 187.4 177.6
Interest expense $ 78.5 103.3 114.2 122.4 130.7 121.7 132.4
Other expense (income) $ (158.9) (27.8) (1.3) (2.7) (4.4) 1.5 6.7
Earnings (loss) before income
taxes, extraordinary loss and
cumulative effect of accounting
changes $ 298.7 148.8 (9.3) 98.4 (124.9) 64.2 38.5
Provision (benefit) for
income taxes $ 115.4 56.7 12.7 (41.5) 38.0 37.0 23.0
Earnings (loss) before
extraordinary loss and
cumulative effect of
accounting changes $ 183.3 92.1 (22.0) 139.9 (162.9) 27.2 15.5
Extraordinary loss $ (21.5) (5.3) (.5) (8.3) - (100.1) (3.0)
Cumulative effect of
accounting changes $ - - - - - (111.9) (5.8)
Net earnings (loss) $ 161.8 86.8 (22.5) 131.6 (162.9) (184.8) 6.7
Special items, net of tax (included above):
Seed treatment gain $ 92.1 - - - - - -
Facility closure
costs $ (21.1) - - - - - -
Severance and other
costs $ - (7.8) - - - - -
Special environmental
charge $ - (9.0) (18.5) - - - -
Postretirement settlement
gain $ - 16.8 - - - - -
Merger and related
costs $ - - (68.1) - - - -
Early extinguishment of
debt $ (21.5) (5.3) (.5) (8.3) - (100.1) (3.0)
Change in deferred tax
valuation allowance $ - - - 78.9 (34.9) - -
Write-off of
intangibles $ - - - - (162.5) - -
Cumulative effect of
accounting changes $ - - - - - (111.9) (5.8)
Other $ (5.0) - - 4.4 - - -
Total special items $ 44.5 (5.3) (87.1) 75.0 (197.4) (212.0) (8.8)
Per Share Statistics
Basic
Earnings (loss) before
extraordinary loss and
cumulative effect of
accounting changes $ 2.48 1.25 (.31) 2.13 (2.67) .44 .26
Net earnings (loss) $ 2.20 1.18 (.31) 2.01 (2.67) (2.98) .11
Diluted
Earnings (loss) before
extraordinary loss and
cumulative effect of
accounting changes $ 2.42 1.22 (.31) 2.11 (2.67) .44 .25
Net earnings (loss) $ 2.14 1.15 (.31) 1.99 (2.67) (2.98) .11
Dividends $ .05 .05 .27 .52 .46 .38 .31
Book value $ .32 (.27) (1.32) (.83) (5.15) (1.17) 2.37
Common stock trading range:
High 32 13/16 27 3/8 20 1/8 20 24 1/8 27 1/4 23 7/8
Low 13 1/4 17 7/8 13 12 13 7/8 17 5/8 16
Average shares outstanding (thousands)
- Basic 73,696 73,373 72,026 65,572 60,908 61,941 59,430
Average shares outstanding (thousands)
- Diluted 75,700 75,358 72,026 66,269 60,908 61,941 61,067
Financial Position
Current assets $ 597.8 715.0 742.2 697.0 696.9 582.7 537.5
Non-current assets $ 811.1 833.8 915.0 958.8 791.4 1,006.0 1,021.3
Total assets $1,408.9 1,548.8 1,657.2 1,655.8 1,488.3 1,588.7 1,558.8
Current liabilities $ 394.4 363.1 357.5 420.6 361.6 285.4 285.0
Long-term debt $ 646.9 896.3 1,055.0 974.2 1,102.2 1,048.8 904.3
Other liabilities $ 300.9 309.5 341.1 320.2 327.8 326.4 223.1
Stockholders' equity
(deficit) $ 66.7 (20.1) (96.4) (59.2) (303.3) (71.9) 146.4
Current ratio 1.5 2.0 2.1 1.7 1.9 2.0 1.9
Total capital $ 730.9 878.0 967.9 1,020.1 866.1 994.1 1,057.8
Total debt-to-capital % 90.9 102.3 110.0 105.8 135.0 107.2 86.2
Profitability Statistics (Before Special Items)
% Operating profit on
sales 14.5 13.6 12.1 12.2 12.5 12.8 12.9
% Earnings on sales 6.5 5.0 3.6 3.2 2.2 1.9 1.1
% Earnings on average total
capital 18.6 16.5 12.8 14.2 11.2 8.3 8.8
Other Statistics
Net cash provided by
operations $ 169.5 215.8 95.4 106.3 96.7 97.3 112.1
Capital spending $ 66.6 50.2 39.2 87.7 52.1 60.4 47.3
Depreciation $ 59.4 58.7 59.2 57.4 56.3 53.0 52.3
Sales per employee $ .324 .332 .315 .309 .293 .289 .277
corporate management
(Photos of each)
Vincent A. Calarco
Chairman, President and Chief Executive Officer
Robert W. Ackley
Vice President
Polymer Processing Equipment
James J. Conway
Vice President
Colors
Joseph B. Eisenberg
Vice President
Rubber Chemicals, EPDM and Nitrile Rubber
Alfred F. Ingulli
Vice President
Crop Protection
Walter K. Ruck
Vice President
Uniroyal Operations
William A. Stephenson
Vice President
Specialty Additives and Urethanes
Charles J. Marsden
Senior Vice President and Chief Financial Officer
Peter Barna
Vice President
Finance
John T. Ferguson II
Vice President
General Counsel and Secretary
Marvin H. Happel
Vice President
Organization and Administration
Other corporate officers:
(not pictured)
John R. Jepsen
Treasurer
Michael F. Vagnini
Controller
board of directors
James A. Bitonti (2,3)
Chairman and Chief Executive Officer
BITCO International, Inc.
Vincent A. Calarco (4)
Chairman of the Board
President and Chief Executive Officer
Robert A. Fox (2,3)
President and Chief Executive Officer
Foster Farms
Roger L. Headrick (3,4)
Managing General Partner
HMCH Ventures
Leo I. Higdon, Jr. (1,4)
President
Babson College
Charles J. Marsden
Senior Vice President and Chief Financial Officer
C.A. Piccolo (1,2)
President and Chief Executive Officer
HealthPic Consultants, Inc.
Patricia K. Woolf Ph.D. (1,2)
Private Investor and Lecturer
Department of Molecular Biology
Princeton University
1 Member of Audit Committee
2 Member of Nominating Committee
3 Member of Committee on Executive Compensation
4 Member of Finance Committee
corporate data
corporate headquarters
One Station Place, Metro Center
Stamford, CT 06902
(203) 353-5400
www.crompton-knowles.com
auditors
KPMG LLP
Stamford Square
3001 Summer Street
Stamford, CT 06905
transfer agent and registrar
ChaseMellon Shareholder Services L.L.C.
85 Challenger Road
Ridgefield Park, NJ 07660
(800) 288-9541
www.chasemellon.com
annual meeting
The annual meeting of stockholders will be held at 11:15 a.m. on Tuesday,
April 27, 1999, at the Sheraton Stamford Hotel, 2701 Summer Street, Stamford,
Connecticut 06905
form 10-K
A copy of the Company's report on Form 10-K for 1998, as filed with the
Securities and Exchange Commission, may be obtained free of charge by writing
to the Secretary of the Corporation, Benson Road, Middlebury, CT 06749
investor relations
Robert P. Harwood
Benson Road, Middlebury, CT 06749
(203) 573-2000
e-mail: [email protected]
(c) 1999 Crompton & Knowles Corporation.
All rights reserved.
(C&K logo) is a registered trademark of Crompton & Knowles Corporation.
(r) and (tm) indicate registered and unregistered trade and service marks.
back cover
(C&K logo) Crompton & Knowles Corporation
One Station Place, Metro Center, Stamford, CT 06902
www.crompton-knowles.com
EXHIBIT 21
Subsidiaries of the Registrant
The following are subsidiaries of Crompton & Knowles Corporation:
Name Place of Organization
CK Holding Corporation Delaware
Crompton & Knowles of Canada Ltd. Canada
Crompton & Knowles Colors Incorporated Delaware
Crompton & Knowles Europe S.P.R.L. Belgium
Crompton & Knowles (France) S.A. France
Crompton & Knowles (Deutschland) GmbH Germany
Crompton & Knowles (Hong Kong) Ltd. Hong Kong
Crompton & Knowles (Korea) Ltd. Korea
Crompton & Knowles (Espagna) SL Spain
Crompton & Knowles (Italia) SRL Italy
Crompton & Knowles (Nederland) B.V. Netherlands
Crompton & Knowles (Portugal) LDA Spain
Crompton & Knowles Receivables Corporation Delaware
Crompton & Knowles Services S.P.R.L. Belgium
C&K Services (Luxembourg) S.A. Luxembourg
Crompton & Knowles (Luxembourg) S.A. Luxembourg
Crompton & Knowles (United Kingdom) Ltd. United Kingdom
CNK Disposition Corporation Florida
Crompton & Knowles Acceptance Corporation Massachusetts
Crompton & Knowles Chemical Realty Pennsylvania
Crompton & Knowles International, Inc. US Virgin Islands
Crompton & Knowles I.P.R. Corporation Delaware
Crompton & Knowles Overseas Corporation Delaware
Crompton & Knowles Chemische Produckte
GmbH & Co. K.G. Dusseldorf
Kem Manufacturing Corporation Georgia
Kem International Corporation Delaware
Davis-Standard Corporation Delaware
Davis-Standard (France) SARL France
Davis-Standard (Deutschland) GmbH Germany
Davis-Standard Limited England & Wales
ER-WE-PA Davis-Standard GmbH Germany
Agro ST Inc. Delaware
GT Seed Treatment, Inc. Minnesota
Gustafson International Company Texas
Gustafson LLC Delaware
Gustafson Partnership Ontario
Hannaford Seedmaster Services (Australia)
Pty. Ltd. Australia
Industrias Gustafson S.A. de C.V. Mexico
Inmobiliaria Huilquimex, S.A. de C.V. Mexico
(Continued)
The following are subsidiaries of Crompton & Knowles Corporation:
Interbel Trading, Inc. Florida
Lokar Enterprises, Inc. Delaware
ParaTec Elastomers LLC Delaware
Naugatuck Treatment Company Connecticut
Nitrilo S.A. de C.V. Mexico
Uniroyal Chemical Holding S.A. de C.V. Mexico
Uniroyal Chemical S.A. de C.V. Mexico
Rubicon Inc. Louisiana
TOA Uni Chemicals Ltd. Thailand
TOA Uni Chemical Manufacturing Ltd. Thailand
Trace Chemicals LLC Delaware
Ecart, Inc. Nevada
Unicorb Limited England
Uniroyal Chemical Korea Inc. Korea
Uniroyal Chemical Asia, Ltd. Delaware
Uniroyal Chemical Asia Pte. Ltd. Singapore
Uniroyal Chemical B.V. The Netherlands
Uniroyal Chemical Brazil Holding, Inc. Delaware
Uniroyal Chemical Co./Cie. Canada
Uniroyal Chemical Company, Inc. New Jersey
Uniroyal Chemical Company Limited Bahamas/Delaware
Uniroyal Chemical European Holdings B.V. The Netherlands
Uniroyal Chemical Export Limited Delaware
Uniroyal Chemical Holdings B.V. The Netherlands
Uniroyal Chemical International Company Texas
Uniroyal Chemical International Sales Corp. Barbados
Uniroyal Chemical Investments Ltd. Canada
Uniroyal Chemical Leasing Company, Inc. Delaware
Uniroyal Chemical Limited Scotland
Uniroyal Chemical Netherlands B.V. The Netherlands
Uniroyal Chemical Overseas B.V. The Netherlands
Uniroyal Chemical Partipacoes Ltda. Brazil
Uniroyal Chemical (Proprietary) Limited South Africa
Uniroyal Chemical Pty. Ltd. Australia
Uniroyal Chemical S.A. Spain
Uniroyal Chemical S.A.R.L. Switzerland
Uniroyal Chemical Specialties, Inc. Delaware
Uniroyal Chemical Taiwan Ltd. Taiwan
Uniroyal Chemical Technology B.V. The Netherlands
Uniroyal Chimica SrL Italy
Uniroyal Quimica S.A. Brazil
Uniroyal Quimica Sociedad Anonima Comerciale
Industrial Argentina
9056-0921 Quebec Inc. Canada
EXHIBIT 23
Independent Auditors' Report and Consent
The Board of Directors and Stockholders
Crompton & Knowles Corporation
Under date of January 27, 1999, we reported on the consolidated
balance sheets of Crompton & Knowles Corporation and subsidiaries
(the Company) as of December 26, 1998 and December 27, 1997, and
the related consolidated statements of operations, stockholders'
equity (deficit) and cash flows for each of the years in the
three-year period ended December 26, 1998, which are incorporated
by reference in this Form 10-K. In connection with our audits of
the aforementioned consolidated financial statements, we also
audited the related consolidated financial statement schedule
included in this Form 10-K. This financial statement schedule is
the responsibility of the Company's management. Our
responsibility is to express an opinion on this financial
statement schedule based on our audit.
In our opinion, such financial statement schedule, when
considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.
We consent to the incorporation by reference in the registration
statements (Nos. 33-21246, 33-42280, 33-67600 and 333-62429) on
Form S-8 of Crompton & Knowles Corporation of our report, dated
January 27, 1999, relating to the consolidated balance sheets of
Crompton & Knowles Corporation and subsidiaries as of December
26, 1998 and December 27, 1997, and the related consolidated
statements of operations, stockholders' equity (deficit) and cash
flows for each of the years in the three-year period ended
December 26, 1998, which report is incorporated by reference in
the December 26, 1998 Annual Report on Form 10-K of Crompton &
Knowles Corporation.
/S/KPMG LLP
KPMG LLP
Stamford, Connecticut
March 26, 1999
EXHIBIT 24
POWER OF ATTORNEY
We, the undersigned officers and directors of Crompton &
Knowles Corporation, hereby constitute and appoint Vincent A.
Calarco, Charles J. Marsden and John T. Ferguson II, and each of
them severally, our true and lawful attorneys or attorney, with
full power to them and each of them to execute for us, and in our
names in the capacities indicated below, and to file with the
Securities and Exchange Commission the Annual Report on Form 10-K
of Crompton & Knowles Corporation for the fiscal year ended
December 26, 1998, and any and all amendments thereto.
IN WITNESS WHEREOF, we have signed this Power of Attorney in
the capacities indicated on January 19, 1999.
Signature Title Signature Title
Principal Executive
Officer:
Chairman of the
Board,President, /s/Robert A. Fox Director
/s/Vincent A. Calarco CEO and Director Robert A. Fox
Vincent A. Calarco
Principal Financial /s/Roger L. Headrick Director
Officer: Roger L. Headrick
Senior Vice President
Chief Financial
/s/Charles J. Marsden Officer /s/Leo I. Higdon, Jr. Director
Charles J. Marsden and Director Leo I. Higdon, Jr.
Principal Accounting
Officer:
Vice President -
/s/Peter Barna Finance /s/C.A. Piccolo Director
Peter Barna C.A. Piccolo
/s/James A. Bitonti Director /s/Patricia K. Woolf Director
James A. Bitonti Patricia K. Woolf
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