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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______________ to ______________
Commission file number 1-8247
SCHULLER CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 84-0856796
(State or other jurisdiction of (I.R.S. employer identification no.)
incorporation or organization)
717 17TH STREET, DENVER, COLORADO 80202
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (303) 978-2000
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
------------------- -----------------------------------------
Common Stock ($.01 par value) New York Stock Exchange, Inc.
Cumulative Preference Stock, New York Stock Exchange, Inc.
Series B ($1.00 par value)
Warrants for the Purchase of New York Stock Exchange, Inc.
Common Stock
9% Interest Deferred Sinking New York Stock Exchange, Inc.
Fund Debentures
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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes x No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the 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.
Yes x No
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Based solely on the New York Stock Exchange, Inc. closing price as of April
5, 1996, the aggregate market value of the common stock held by
non-affiliates of the registrant was approximately $467,498,125.
As of April 5, 1996, there were 161,491,620 shares of the registrant's sole
class of common stock outstanding.
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DOCUMENTS INCORPORATED BY REFERENCE
The following documents or portions thereof filed with the Securities and
Exchange Commission are incorporated herein by reference:
The Selected Five-Year Financial Data, Management's Discussion and
Analysis of Financial Condition and Results of Operations and Financial
Statements and Selected Quarterly Financial Data contained in
Supplementary Data of the Company's 1995 Annual Report to
securityholders are incorporated by reference into Parts II and IV of
this report.
The Annual Report to securityholders, except for portions thereof that have been
specifically incorporated by reference, shall not be deemed filed as part of
this Annual Report on Form 10-K.
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TABLE OF CONTENTS TO FORM 10-K
PART I
PAGE
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ITEM 1. BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . 1
Significant Developments. . . . . . . . . . . . . . . . . . . . 1
Description of the Business.. . . . . . . . . . . . . . . . . . 2
Building Products . . . . . . . . . . . . . . . . . . . . . . . 2
Engineered Products . . . . . . . . . . . . . . . . . . . . . . 4
Materials . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Manufacturing . . . . . . . . . . . . . . . . . . . . . . . . . 5
Research and Development. . . . . . . . . . . . . . . . . . . . 6
Patents . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Labor Relations . . . . . . . . . . . . . . . . . . . . . . . . 6
Seasonality . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Environmental Regulations . . . . . . . . . . . . . . . . . . . 6
Occupational Health and Safety Regulations. . . . . . . . . . . 6
ITEM 2. PROPERTIES. . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Headquarters . . . . . . . . . . . . . . . . . . . . . . . . . 9
Manufacturing and Development Facilities. . . . . . . . . . . . 9
ITEM 3. LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . . . . . . . 10
Relationship With Trust . . . . . . . . . . . . . . . . . . . . 10
Plan of Reorganization and Related Injunction . . . . . . . . . 10
Environmental Proceedings . . . . . . . . . . . . . . . . . . . 11
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS . . . . . . 12
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS . . . . . . . . . . . . . . . . . . . . . 12
ITEM 6. SELECTED FINANCIAL DATA . . . . . . . . . . . . . . . . . . . . 12
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS . . . . . . . . . . . . . . . . . . 12
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA . . . . . . . . . . 13
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE . . . . . . . . . . . . . 13
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. . . . . . . 13
ITEM 11. EXECUTIVE COMPENSATION. . . . . . . . . . . . . . . . . . . . . 19
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT. . . . . . . . . . . . . . . . . . . . . . . . . . 26
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. . . . . . . . . 28
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K. . . . . . . . . . . . . . . . . . . . . . . . . . . 28
The "Company" when used in this Form 10-K refers to Schuller Corporation
(formerly known as Manville Corporation), incorporated in the State of Delaware
in 1981, including, where applicable, its consolidated subsidiaries. "Schuller"
refers to Schuller International Group, Inc., including, where applicable, its
subsidiaries.
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PART I
ITEM 1. BUSINESS
INTRODUCTION
Schuller Corporation (formerly known as Manville Corporation) is an
international holding company which was incorporated in Delaware in 1981 to
continue businesses begun by its predecessors in 1858. The Company owns all of
the outstanding common stock of Schuller International Group, Inc. ("Schuller")
and, until March 27, 1996, approximately 81 percent of the outstanding common
stock of Riverwood International Corporation ("Riverwood") (See "Significant
Developments").
Schuller is a leading manufacturer of insulation and building products,
with 1995 sales of approximately $1.39 billion. Schuller produces and markets
insulation products for buildings and equipment, commercial roofing systems,
high efficiency air filtration media and fibers and nonwoven mats used as
reinforcements in building and industrial applications. Schuller is a wholly
owned subsidiary of the Company.
SIGNIFICANT DEVELOPMENTS
SALE OF RIVERWOOD. On March 27, 1996, the Company disposed of all of
the shares of common stock of Riverwood held by the Company as a result of
the merger of a newly formed acquisition company owned by an investor group
with and into Riverwood (the "Riverwood Disposition"). In the Riverwood
Disposition, the Company received approximately $1.08 billion in the
aggregate for the approximately 81 percent of the outstanding shares of
Riverwood common stock held by the Company.
For financial reporting purposes, Riverwood's results have been included
in discontinued operations. See Note 7 to the Company's Consolidated Financial
Statements, incorporated by reference herein.
DECLARATION OF DIVIDEND. On March 27, 1996, the Company's Board of
Directors declared a dividend of $6.00 per share on the Company's common
stock, par value $.01 per share (the "Common Stock"), to be paid on April 12,
1996 to stockholders of record at the close of business on April 8, 1996.
PROFIT SHARING EXCHANGE AGREEMENT. On October 25, 1995, the Company
and Manville Personal Injury Settlement Trust (the "Trust") entered into a
Profit Sharing Exchange Agreement pursuant to which the Trust agreed to
exchange its right to receive annually 20 percent of the Company's adjusted
net earnings for newly issued shares representing 20 percent of outstanding
Common Stock on a fully diluted basis as of the date of issuance (assuming
exercise of all outstanding options, warrants and other rights to acquire
Common Stock, and after giving effect to such issuance). Pursuant to the
Profit Sharing Exchange Agreement, on April 5, 1996, the Company issued
32,527,110 shares of Common Stock to the Trust in exchange for its profit
sharing right.
SALE OF STILLWATER. In August 1995, the Company sold its remaining
stock investment in Stillwater Mining Company ("Stillwater") for net cash
proceeds of $110.5 million. The Company retained a five percent net smelter
royalty on certain Stillwater mining claims.
EXPANSION ACTIVITIES. Effective January 1, 1996, Schuller formed a joint
venture with China National New Building Materials Corporation and Tianma
Corporation to manufacture fiber glass mat in China. The joint venture, in
which Schuller has a 60 percent interest, will operate and expand an existing
fiber glass mat facility in the City of Changzhou, Jiansu Province. In early
1996, Schuller acquired Nord Bitumi SpA and Nord Bitumi U.S., Inc.,
manufacturers of modified bitumen roofing products, and Web Dynamics
Corporation, a manufacturer of polymer filtration products.
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DESCRIPTION OF THE BUSINESS
Schuller is a leading manufacturer of insulation and building products,
with 1995 net sales of approximately $1.39 billion. Schuller manufactures and
markets insulation products for buildings and equipment, commercial and
industrial roofing systems, high efficiency air filtration media and fibers and
nonwoven mats used as reinforcements in building and industrial applications.
Schuller operates 43 manufacturing facilities in North America, Europe and China
and is comprised of two principal business segments, as set forth in the
following table:
PRODUCT GROUPS BY BUSINESS SEGMENT (1) PRODUCTS AND APPLICATIONS
BUILDING PRODUCTS
Building Insulation Fiber glass wool insulation
for walls and attics
Commercial and Industrial Roofing systems, including
Roofing Systems membranes, insulation,
accessories and related
guarantees
Mechanical Insulations Pipe and duct insulation for
various commercial
applications
ENGINEERED PRODUCTS
Specialty Insulations and Thermal and acoustic
Filtration insulation for aircraft;
automobiles; heating,
ventilating and air
conditioning ("HVAC"); and
other equipment
Air filtration media for
buildings, ultra fine fibers
for clean room air filters and
battery separators
Mats and Fibers Fibers and nonwoven mats for
reinforcing roofing and
flooring
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(1) For additional business segment information and geographical data, see
Note 29 to the Company's Consolidated Financial Statements.
BUILDING PRODUCTS
Schuller's Building Products segment, with 1995 net sales of $805.6
million, or 56.8 percent of Schuller's total net sales (before elimination of
intersegment sales), is comprised of the building insulation, commercial and
industrial roofing systems and mechanical insulations product groups.
BUILDING INSULATION
PRODUCTS. Schuller's building insulation business manufactures a
complete line of fiber glass wool insulation for walls and attics in residential
and commercial buildings. Schuller's building insulation products include fiber
glass bats, rolls, blowing wool and related products.
The business operates six manufacturing and two support facilities
throughout North America to serve regional population and construction centers.
This regional structure, which keeps most shipping distances within a 500-mile
radius, improves Schuller's customer service and reduces its total
transportation costs.
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MARKETS AND DISTRIBUTION. Demand for Schuller's building insulation
products is driven primarily by North American housing starts. Schuller
estimates that during 1995, 75 percent of its wall and attic insulation was sold
to residential markets and the remaining 25 percent was sold to commercial
markets. Other important influences are the repair/remodel market and
commercial construction of warehouses and light manufacturing facilities.
In addition, implementation of various federal and state energy conservation
codes serves to increase the amount of insulation per unit built.
Building insulation products typically reach end users through
contractors, mass merchants and distributors. Schuller's marketing efforts are
normally directed toward insulation contractors and national mass merchants.
COMPETITION. Schuller's building insulation business competes primarily
with Owens-Corning Fiberglas Corporation ("OCF") and CertainTeed Corporation,
the U.S. subsidiary of Compagnie de Saint-Gobain ("CSG"). Schuller competes in
the building insulation business primarily on the basis of price,
packaging/merchandising and service.
COMMERCIAL AND INDUSTRIAL ROOFING SYSTEMS
PRODUCTS. Schuller's roofing systems business is a full-line supplier
of roofing systems and components for flat commercial and industrial roofs,
including a wide range of membranes, insulations, accessories and roofing system
guarantees.
Schuller's commercial roofing systems business operates twelve
manufacturing facilities and six distribution facilities in North America, and
one manufacturing facility in Italy. In early 1996, Schuller expanded this
business by acquiring Nord Bitumi SpA and Nord Bitumi U.S., Inc., manufacturers
of modified bitumen roofing products.
MARKETS AND DISTRIBUTION. Demand for Schuller's roofing systems
products is driven primarily by commercial and industrial reroofing needs.
Schuller estimates that approximately 75 percent of its commercial and
industrial roofing sales during 1995 were attributable to reroofing, with the
balance attributable to new construction. While sales of roofing systems are
affected by levels of new construction and general economic conditions, sales
attributable to reroofing are less sensitive to these factors, thus mitigating
the adverse effect of recessionary periods.
Schuller targets architects and specifiers who generally recommend
premium roofing systems. Approximately 95 percent of Schuller's commercial and
industrial roofing sales during 1995 were sold through wholesale distributors;
the remainder was sold through contractors.
COMPETITION. The commercial roofing business is a highly fragmented
market. Competitors include several large national participants, such as GAF
Corporation, Tamko Asphalt Products Inc., Bridgestone/Firestone, Inc., Carlisle
Companies Incorporated, The Celotex Corporation, and various smaller regional
companies. Schuller competes in the commercial roofing business primarily on
the basis of price, breadth of product line, specifications, level of guarantees
and systems reliability.
MECHANICAL INSULATIONS
PRODUCTS. Schuller's mechanical insulations business produces pipe and
duct insulation for use in commercial buildings, factories, refineries and other
industrial applications. Recent industry attention to indoor environmental
quality prompted Schuller to introduce several new air handling products.
Schuller's EnviroSystem-TM-, a group of products sold together aimed at indoor
environmental quality improvement, includes duct insulation with enhanced
thermal and acoustical properties with an antimicrobial agent for improved air
quality and air filtration.
Mechanical insulation products are manufactured at three facilities in
the United States.
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MARKETS AND DISTRIBUTION. Demand for mechanical insulations is driven
primarily by commercial construction activity. Mechanical insulation products
reach the market through Schuller's network of distributors, contractors and
fabricators.
COMPETITION. Schuller's mechanical insulations business primarily
competes with OCF, CertainTeed Corporation and Knauf Fiberglass USA. Schuller
competes in the mechanical insulations business primarily on the basis of price,
breadth of product line and strength of fabricator and distributor networks.
ENGINEERED PRODUCTS
Schuller's Engineered Products segment, with 1995 net sales of $612.5
million, or 43.2 percent of Schuller's total net sales (before elimination of
intersegment sales), is comprised of the specialty insulations and filtration
and mats and fibers product groups.
SPECIALTY INSULATIONS AND FILTRATION
PRODUCTS. Schuller's specialty insulations and filtration businesses
produce thermal and acoustic insulation for aircraft, automobiles, HVAC and
other equipment; air filtration media for commercial and industrial buildings;
and ultra fine fibers for clean room air filters and battery separators.
Specialty insulations and filtration products generally require extremely fine
and uniform fibers to provide the required insulation and filtration properties,
and therefore command higher prices than other fiber glass products. In early
1996, these businesses were expanded through the acquisition of Web Dynamics
Corporation, a manufacturer of polymer filtration products.
Specialty insulations and filtration products are manufactured at eleven
of Schuller's U.S. facilities.
MARKETS AND DISTRIBUTION. Demand for Schuller's specialty insulations
and filtration products is driven primarily by commercial construction (HVAC and
other insulations), commercial building occupancy (air filter media), the
construction of clean rooms requiring dust-free environments which are primarily
used by the pharmaceutical and semiconductor industries (ultra fine fibers), and
the production of aircraft and automobiles (specialty insulations). The growing
public attention to indoor environmental quality also stimulates filtration
media demand.
Specialty insulations are typically sold to distributors and fabricators
who, in turn, sell to original equipment manufacturers. Air filtration media
products are sold to producers of air filtration systems for use in commercial
buildings. Ultra fine fibers are sold to specialty filtration paper
manufacturers.
COMPETITION. Schuller's specialty insulations and filtration businesses
compete with a variety of large and small companies in its various niche
markets. Schuller competes in the specialty insulations and filtration business
primarily on the basis of quality and product customization.
MATS AND FIBERS
PRODUCTS. Schuller's mats and fibers business manufactures continuous
filament fiber glass-based products (chopped fiber and fiber glass mat) used for
reinforcing roofing, flooring, wall covering and plastics. Schuller is a
worldwide supplier of nonwoven fiber glass mat products, which are used as
substrates in roofing and flooring. Schuller focuses on roofing and flooring
substrates rather than plastics reinforcements and electrical-grade yarn.
The business operates four manufacturing plants and one support facility
in the United States. Schuller GmbH, Schuller's German subsidiary, operates
three plants in Germany and one plant in Poland. Schuller GmbH was the pioneer
in wet fiber glass mat technology and also developed the unique sliver fiber
glass process, which created the market for fiber glass wall coverings in
Europe.
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Effective January 1, 1996, Schuller formed a joint venture with China
National New Building Materials Corporation and Tianma Corporation to
manufacture fiber glass mat in China. The joint venture, in which Schuller has
a 60 percent interest, will operate and expand an existing fiber glass mat
facility in the City of Changzhou, Jiansu Province.
MARKETS AND DISTRIBUTION. Demand for Schuller's mats and fibers
products is driven primarily by the worldwide commercial construction and
retrofit markets, as well as by U.S. residential construction and reroofing.
These products are sold directly to roofing and flooring manufacturers as well
as to European textile weavers. Schuller's U.S. mats and fibers business
provides fiber glass mat to Schuller's commercial roofing systems business for
its fiber glass-based roofing products.
COMPETITION. Schuller's primary competitors in the worldwide mats and
fibers business are OCF and CSG. Schuller competes in the mats and fibers
business primarily on the basis of price and service.
MATERIALS
Fiber glass is the basic material in most of Schuller's products.
Schuller also provides nonfiber glass materials to satisfy the broader needs of
its customers. For example, calcium silicate pipe products and plastic
accessories complement Schuller's product offerings to commercial/industrial
insulation distributors. Polyimide foam is manufactured for marine insulation
and is used by the United States Navy in shipbuilding. Commercial roofing
systems use perlite insulation board, rubber membranes and polyester substrates
in addition to fiber glass substrates. In order to further broaden its product
lines, Schuller is pursuing expansion into certain polymer fiber applications
for filtration, substrates, and equipment and apparel insulation, as evidenced
by the recent acquisition of Web Dynamics Corporation.
The principal raw materials used to manufacture fiber glass products
include sand, soda ash, lime, borate minerals and aluminous materials.
Phenolic-formaldehyde, urea-formaldehyde and other resins are also used to bind
glass fibers into useful shapes. All of these materials are readily available
in sufficient quantities from various sources for Schuller to maintain and
expand its current production levels.
MANUFACTURING
Schuller manufactures two different types of fiber glass: (i) wool used
for insulation and filtration and (ii) continuous filament fiber glass and
sliver (string-like textile fibers) used in mats and fibers.
Schuller manufactures fiber glass wool using two different technologies.
Building insulation and certain duct insulation products are produced using a
patented rotary process. The rotary process, common in the fiber glass
industry, is the most cost-effective method of producing fiber glass building
and other insulations. In addition, for its pipe insulation, specialty
insulations and filtration products, Schuller primarily uses the pot and marble
process, which, while older and inherently higher in cost than the rotary
process, produces glass fibers with the superior qualities (high tensile
strength and fine diameter) required in specialty applications. In the last
several years, Schuller has upgraded and modernized its pot and marble equipment
and intends to continue this program in order to serve the higher value niche
markets in which Schuller participates.
As a result of economic conditions, new product introductions and
market share gains in certain of its businesses, Schuller is currently
operating certain of its fiber glass production facilities at or near
capacity. Accordingly, Schuller plans several capacity expansions which will
be completed incrementally over the next several years in order to provide
additional capacity for building insulation, mechanical and specialty
insulations, and continuous filament roofing fiber. As a part of this
capacity expansion, in November 1995, Schuller announced the construction of
new equipment to increase capacity by 100 million pounds by mid-1997.
Schuller periodically reevaluates its capacity expansion plans based on
current economic conditions and overall industry capacity.
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RESEARCH AND DEVELOPMENT
The Company carries out research and development activities at its
facilities in Littleton, Colorado; Waterville, Ohio; Richmond, Indiana and
Wertheim, Germany. Research, development and engineering expenses for the years
ended December 31, 1995, 1994 and 1993 were $30.0 million, $29.7 million and
$28.0 million, respectively.
PATENTS
The Company presently owns, controls or holds licenses to approximately
600 U.S. and foreign patents and patent applications. While the Company regards
its patents and licenses as valuable, it does not consider any of its businesses
to be materially dependent upon any single patent or license.
LABOR RELATIONS
At March 31, 1996, the Company employed approximately 7,500 persons
worldwide, of whom approximately 3,700 were covered by collective bargaining
agreements. The Company has experienced a long history of good working
relationships with its employees and labor unions.
SEASONALITY
The Company's quarterly results of operations are moderately seasonal
due to increases in construction activity that typically occur in the second and
third quarters of the calendar year, thereby increasing sales and gross profits
in those periods.
ENVIRONMENTAL REGULATIONS
All of the Company's domestic operations are subject to a variety of
federal, state and local environmental laws and regulations. These laws and
regulations regulate the discharge of materials into the air, land and water and
govern the use and disposal of hazardous substances. The most significant of
the federal laws are the Clean Air Act, the Clean Water Act, the Toxic
Substances Control Act, the Resource Conservation and Recovery Act ("RCRA") and
the Comprehensive Environmental Response, Compensation and Liability Act of 1980
("CERCLA"). These environmental regulatory programs are administered by the
federal Environmental Protection Agency ("EPA"). In addition, states and local
jurisdictions have adopted equivalent or more stringent environmental laws and
regulations, or have enacted their own parallel environmental programs, which
are enforced through various state and local administrative agencies. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources" and Note 13 to the Company's
Consolidated Financial Statements, each incorporated by reference herein.
See, also "Legal Proceedings--Environmental Proceedings."
OCCUPATIONAL HEALTH AND SAFETY ASPECTS OF THE COMPANY'S PRODUCTS
The Company has an ongoing product stewardship program to facilitate
compliance with existing laws, and to protect the health and safety of the
Company's employees, customers and the general public. This program is
implemented, in important part, through extensive research, a continuing process
of workplace and product evaluation and an extensive communications program.
National and international scientific authorities are involved on an ongoing
basis in the assessment of potential human health hazards. The results of these
evaluations are reported regularly to employees and customers as part of the
Company's communications program.
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The Company manufactures, processes and sells products, and has in the
past manufactured, processed and sold products, that contain certain chemicals
or substances, including man-made vitreous fibers ("MMVF") such as fiber glass,
refractory ceramic fiber ("RCF") and mineral wools classified by the
International Agency for Research on Cancer ("IARC") as possible human
carcinogens. In 1987, the IARC evaluated the carcinogenicity of MMVF. Fiber
glass wool, RCF and mineral wool were classified as "possibly carcinogenic to
humans." The IARC concluded that continuous glass filament (chopped strand) was
"not classifiable as to human carcinogenicity." Crystalline silica exists in
trace amounts in the Company's calcium silicate insulation products and is a
major constituent of the diatomaceous earth products produced by a former
subsidiary. In 1988, the IARC classified crystalline silica as "probably
carcinogenic to humans." Asphalt used by the Company's roofing operations
presently is being evaluated by the National Institute of Occupational Safety
and Health to determine its carcinogenic potential.
Although crystalline silica is a contaminant in one of the raw materials
used in Schuller's calcium silicate insulation products, the silica content
constitutes less than one percent of the finished product. Crystalline silica
exposures have been measured under conditions of foreseeable use and found to be
nondetectable. The IARC classification of crystalline silica was based upon
animal studies and "limited" evidence of cancer in human studies. Hazard
communication materials reflecting the potential cancer risk have been developed
and are used by the Company to address the proper handling of these products by
employees and customers.
The Company sold most of its RCF operations in 1990 and agreed to
indemnify the purchaser for pre-closing liabilities, including claims by
transferred employees arising out of pre-closing occupational exposures incurred
in the course of their employment with the Company or its predecessors. RCF
products have been labeled as a possible cause of cancer since 1985.
Subsequently, RCF product labels were revised to warn of the additional
potential hazard associated with exposure to crystalline silica, which can be
formed after use of RCF products at high temperatures.
For purposes of occupational exposure, the Occupational Safety and
Health Administration regulates all MMVF as nuisance dusts. The Company
believes that it is in substantial compliance with all applicable workplace
exposure regulations and product "right-to-know" labeling requirements with
respect to MMVF. The language on these labels not only advises of the possible
health hazards, but includes proper handling and protective measures to be
followed.
In 1987, the IARC reviewed epidemiological studies involving
occupational exposure to fiber glass wool, including a large U.S. and a large
European study of fiber glass manufacturing workers that had reported modest but
statistically significant increases of lung cancer deaths compared to national
mortality rates. The IARC concluded that evidence of cancer in humans from such
epidemiological studies was "inadequate" to permit a conclusion regarding the
presence or absence of a causal relationship with fiber glass exposure. The
IARC also concluded, however, that the evidence from animal studies was
"sufficient" to establish a causal relationship. That finding was based
entirely on positive laboratory results achieved through implantation or other
artificial techniques of exposing animals to fibrous materials. The relevance
of such implantation studies to the evaluation of risk to humans has been
questioned by many scientists, who believe that animal inhalation studies are
more appropriate than animal implantation studies to assess the potential risk
to humans.
In 1990, the authors of the large U.S. epidemiological study reviewed by
the IARC in 1987 noted a small, but statistically significant, excess in
respiratory cancer deaths of fiber glass manufacturing workers compared with
local mortality rates. However, as in the IARC assessment, the authors, after
looking at the cumulative evidence from the relevant factors that might support
a causal relationship, concluded that the evidence of an association between
exposure to fiber glass wool and respiratory cancer was actually "somewhat
weaker" than that at the time of the IARC assessment. The U.S. investigation is
continuing to determine if the small excess in lung cancer was associated with
lifestyle factors such as smoking or other workplace exposures. The next update
is expected in 1996. Data contained in a recent draft report of an update of
the large European epidemiological study show mortality findings for fiber glass
wool similar to those from the large U.S. study.
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On June 24, 1994, the U.S. Department of Health and Human Services
("HHS") announced its decision to act on the recommendation of the National
Toxicology Program ("NTP") and list fiber glass wool and RCF in the Seventh
Annual Report on Carcinogens ("ARC") as substances which "may be reasonably
anticipated" to be a carcinogen. The NTP listing criteria provide that a
substance must be listed if there are two or more animal studies showing
carcinogenic effect, regardless of route of exposure and notwithstanding any
other evidence. As a result, the NTP concluded that the results of the
experimental animal implantation studies provided sufficient evidence to support
the listing. HHS explained that the NTP "reasonably anticipated" category for
fiber glass essentially corresponds to the IARC 1987 "possibly carcinogenic"
classification.
Labels and other hazard communication materials reflecting the potential
cancer risk have been developed and are used by the Company to address the
proper handling of fiber glass wool products by employees and customers. In
addition, the Company has agreed to indemnify certain purchasers, under certain
circumstances, for personal injury claims arising out of exposure to the
Company's fiber glass wool products.
Since 1988, the Company has funded, in conjunction with other companies
in the industry, several epidemiological and chronic animal inhalation studies
to assess the cancer-causing potential of MMVF. In August 1995, the industry
expanded the animal research it had begun in 1988 to include exposure of
hamsters to a building insulation/wool fiber and a special purpose glass fiber
used in some filtration and a few thermal high performance applications. As
with previous research involving exposure of rats to glass fibers, this study
also is a two year chronic inhalation study which is now in its ninth month.
Preliminary findings indicate that some of the hamsters exposed to special
purpose fibers have developed fibrosis of the lung, and one animal also exposed
to special purpose fibers has developed mesothelioma. The building insulation
fibers have not, consistent with the previous inhalation study of this fiber,
produced any adverse respiratory results. These preliminary findings has
been reported to the United States Environmental Protection Agency ("EPA")
under the Toxic Substances Control Act, and the Company has notified its
employees and customers.
While there is some disagreement within the scientific and medical
community regarding the interpretation of the studies, based upon its analysis
to date, the Company does not believe that the IARC classification, the listing
in the ARC, or any action taken by federal and state regulatory agencies will
have a material adverse effect on the Company. However, domestic and
international regulatory and scientific authorities are involved on an ongoing
basis in the assessment of potential human health hazards, and there can be no
assurance that future actions taken by such authorities or other developments
relating to the Company's liability for its products will not have an adverse
effect on the Company.
8
<PAGE>
ITEM 2. PROPERTIES
HEADQUARTERS
The Company and Schuller are headquartered and lease approximately
150,000 square feet of office space at Manville Plaza, a downtown Denver,
Colorado office building.
MANUFACTURING AND DEVELOPMENT FACILITIES
The following table sets forth certain information with respect to
the Company's major manufacturing and development plants and buildings. All
of the buildings are adequate and suitable for the business of the Company,
have been well maintained and are in sound operating condition and regular
use. The Lakewood, Colorado; Kansas City, Kansas; Edison, New Jersey; and
Ennis, Texas facilities are leased.
Location Business Segment
-------- ----------------
UNITED STATES AND CANADA
Innisfail, Alberta, Canada. . . . . . . . . . . Building Products
Tucson, Arizona . . . . . . . . . . . . . . . . Engineered and Building
Products
Corona, California. . . . . . . . . . . . . . . Engineered Products
Pittsburg, California . . . . . . . . . . . . . Building Products
Willows, California . . . . . . . . . . . . . . Building Products
Lakewood, Colorado. . . . . . . . . . . . . . . Building Products
Littleton, Colorado . . . . . . . . . . . . . . Engineered and Building
Products
Macon, Georgia. . . . . . . . . . . . . . . . . Building Products
Winder, Georgia . . . . . . . . . . . . . . . . Building Products
Rockdale, Illinois. . . . . . . . . . . . . . . Building Products
Waukegan, Illinois. . . . . . . . . . . . . . . Building Products
Bluffton, Indiana . . . . . . . . . . . . . . . Engineered Products
Greenfield, Indiana . . . . . . . . . . . . . . Engineered Products
Richmond, Indiana . . . . . . . . . . . . . . . Building Products
Kansas City, Kansas . . . . . . . . . . . . . . Building Products
McPherson, Kansas . . . . . . . . . . . . . . . Building Products
Lewiston, Maine . . . . . . . . . . . . . . . . Building Products
Natchez, Mississippi. . . . . . . . . . . . . . Building Products
Edison, New Jersey. . . . . . . . . . . . . . . Building Products
Penbryn, New Jersey . . . . . . . . . . . . . . Building Products
Plattsburg, New York. . . . . . . . . . . . . . Building Products
Defiance, Ohio. . . . . . . . . . . . . . . . . Engineered and Building
Products
Waterville, Ohio. . . . . . . . . . . . . . . . Engineered Products
Oklahoma City, Oklahoma . . . . . . . . . . . . Building Products
East Stroudsburg, Pennsylvania. . . . . . . . . Engineered Products
Etowah, Tennessee . . . . . . . . . . . . . . . Engineered Products
Baytown, Texas. . . . . . . . . . . . . . . . . Building Products
Cleburne, Texas . . . . . . . . . . . . . . . . Engineered and Building
Products
Ennis, Texas. . . . . . . . . . . . . . . . . . Engineered Products
Ft. Worth, Texas. . . . . . . . . . . . . . . . Building Products
Edinburg, Virginia. . . . . . . . . . . . . . . Building Products
Richmond, Virginia. . . . . . . . . . . . . . . Building Products
Parkersburg, West Virginia. . . . . . . . . . . Engineered Products
9
<PAGE>
Location Business Segment
-------- ----------------
INTERNATIONAL
Changzhou, Jiangsu, China . . . . . . . . . . . Engineered Products
Karlstein, Bavaria, Germany . . . . . . . . . . Engineered Products
Steinach, Thuringen, Germany. . . . . . . . . . Engineered Products
Wertheim, Baden-Wuerttemberg, Germany . . . . . Engineered Products
Verona, Italy . . . . . . . . . . . . . . . . . Building Products
Altamira, Mexico. . . . . . . . . . . . . . . . Building Products
Leibliniec, Poland. . . . . . . . . . . . . . . Engineered Products
ITEM 3. LEGAL PROCEEDINGS
RELATIONSHIP WITH TRUST
The Trust presently owns approximately 79 percent of the Common
Stock, assuming the exercise of all outstanding warrants to purchase Common
Stock. On October 25, 1995, the Company and the Trust entered into a Profit
Sharing Exchange Agreement pursuant to which the Trust agreed to exchange its
right to receive annually 20 percent of the Company's adjusted net earnings
for newly issued shares of Common Stock representing 20 percent of the
outstanding Common Stock on a fully diluted basis as of the date of issuance
(assuming exercise of all outstanding options, warrants and other rights to
acquire Common Stock, and after giving effect to such issuance). On April 5,
1996, the Company issued 32,527,110 shares of Common Stock to the Trust in
exchange for its profit sharing right.
The Trust is an irrevocable trust formed under the laws of the State of
New York pursuant to a trust agreement dated as of November 28, 1988, as
amended, to implement certain portions of the Manville Second Amended and
Restated Plan of Reorganization (the "Plan"), as modified, in particular those
relating to the settlement of asbestos health claims against the Company and
certain of its affiliates. The Trust, in its present capacity as a holder of
more than 50 percent of the Common Stock, has the power to nominate and elect
the Company's directors as the trustees of the Trust determine. Three trustees
of the Trust currently serve as members of the Company's Board of Directors.
PLAN OF REORGANIZATION AND RELATED INJUNCTION
In 1982, the Company and its principal U.S. and Canadian subsidiaries
(collectively, the "Schuller Group") filed petitions for reorganization under
Chapter 11 of the United States Bankruptcy Code (the "Bankruptcy Code"). The
filings were precipitated by contingent tort liabilities arising out of the
Schuller Group's previous asbestos-related business operations. The Company has
provided detailed disclosures with respect to such matters in its earlier
reports filed with the Securities and Exchange Commission. Parties interested
in obtaining the earlier reports may contact the Company in care of Investor
Relations, P.O. Box 5108, Denver, Colorado 80217-5108, specifying the
information desired. In addition, the description below of the Plan, which was
re-filed with the Securities and Exchange Commission as an exhibit to the
Company's Form 10-K for the fiscal year ended December 31, 1992, is qualified in
its entirety by reference to the Plan. Copies of the Plan are also available
from the Company upon request.
The Plan relieves the Company and the Schuller Group of the burden of
defending thousands of asbestos lawsuits. This is accomplished through
independent trusts created to assume, administer, settle and pay claims. In lieu
of bringing actions against the Company and the Schuller Group, asbestos
claimants may assert their claims only against the Trust or the Manville
Property Damage Settlement Trust, which are funded by the Company pursuant to
the Plan. The Plan, the injunction issued by the United State Bankruptcy Court
for the Southern District of New York (the "Bankruptcy Court") in connection
with the Plan (the "Injunction"), the Bankruptcy Code and the Act (as defined
below) together operate to prohibit any lawsuits against the Company or the
Schuller Group with respect to any past, present or future asbestos-related
liabilities related to their discontinued mining, manufacturing and selling
activities.
10
<PAGE>
The Injunction is a unique feature of the Schuller Group's Chapter 11
proceedings and could be challenged in future legal proceedings. The Bankruptcy
Court found that the Injunction was "essential to the viability of the business
operations of [the Schuller Group] and to the successful implementation of the
Plan" and held that it had the authority to issue the Injunction. Should any
asbestos claimant attempt to vacate or to modify the Injunction or to have the
Injunction held inapplicable to such claimant, the Company believes, based on
decisions and results of various legal proceedings, that the Injunction would be
upheld and enforced against any such claimant.
On October 22, 1994, President Clinton signed into law the Bankruptcy
Reform Act of 1994 (the "Act"), which contains a new provision that is
intended to give the Injunction and similar permanent injunctions issued in
asbestos-related reorganization proceedings direct statutory protection from
challenges and modifications. The new provision (a) grants bankruptcy courts
express statutory authority, if certain conditions are met in
asbestos-related Chapter 11 proceedings under the Bankruptcy Code, to issue
injunctions prohibiting "present" and "future" asbestos claimants from suing
the reorganized debtor, and (b) provides that such injunctions, when they
become final and nonappealable, are permanent and not subject to modification
by a court. By Amended Memorandum, Orders and Final Judgment entered on
January 19, 1996, the United States District Courts for the Southern and
Eastern Districts of New York and the United States Bankruptcy Court for the
Southern District of New York jointly approved a settlement of the Trust's
class action litigation brought to restructure how the Trust settles and pays
claims, and concluded that the statutory requirements of the Act would be met
when the Trust began to pay claims. The Trust has begun to pay claims
pursuant to the settlement. Accordingly, the Injunction qualifies as an
injunction which the Act declares to be permanent and not subject to
modification by a court. The order approving the settlement was affirmed in
all respects (except with respect to one issue among certain beneficiaries,
the resolution of which does not affect the obligations of the Trust) by the
United States Court of Appeals for the Second Circuit by an opinion and
orders issued on February 21, 1996. If, however, regardless of the decisions,
proceedings and legislation discussed above, the Injunction were to be vacated,
modified or restricted in applicability in a way that permits a substantial
number of claims to be asserted against the Company, the successful assertion
of such claims could render the Company insolvent.
ENVIRONMENTAL PROCEEDINGS
Certain sites historically used by the Company have been reported to
be contaminated. Most of these were common industrial disposal sites, and
were neither owned nor operated by the Company. In 1991, a lawsuit was
instituted against the U.S. government in which a judgment was sought
declaring that all environmental liability for such disposals prior to
confirmation of the Plan was discharged as a part of the Plan. In 1994, a
settlement of that litigation was entered into with the United States. The
settlement agreement resolved the Company's liability at eight such
historical sites where response costs and natural resource damages under both
CERCLA and RCRA were known and quantifiable. Also, the settlement agreement
resolved the Company's liability for remediation liability at an additional
four sites where natural resources liability, if any, was not known and
quantifiable. In satisfaction of its liabilities for such known and
quantifiable costs and damages, the Company paid $1.7 million. Under this
Global CERCLA agreement (which has no termination date), future liability at
non-Company owned or operated sites where the total response costs and
natural resource damages are not yet known and quantifiable will be based on
a formula which discounts the Company's maximum CERCLA and RCRA liability at
each site by 45 percent, i.e., the Company will pay only 55 percent of its
fair share at each site. Additionally, the settlement agreement provides
that the amount the Company will be obligated to pay, in the aggregate, for
such sites shall never exceed $850,000 during any given year, with any excess
plus interest being carried forward to subsequent years, subject to the
yearly limitation. The settlement agreement also provides that all such
obligations are limited to cash payments.
Schuller's landfill at its Waukegan, Illinois facility continues to be
included on the EPA's National Priorities List pursuant to CERCLA. Remedial
action began during the fourth quarter of 1988 and was completed during the
third quarter of 1991. During the first quarter of 1993, the EPA issued a
supplemental CERCLA decision document, i.e., an Explanation of Significant
Differences ("ESD"), to reflect that, inter alia, remedial action was taken on
site which was in addition to that described in the Record of Decision and the
Consent Decree. The EPA is now seeking both a modification to the Consent
Decree to incorporate the additional remedial action described in the ESD, as
well as appropriate deed restrictions for the site.
11
<PAGE>
In 1989, Schuller disclosed to the State of West Virginia potential
noncompliance with respect to the emission of particulate matter from four of
the nine production lines (those involved in the manufacture of filtration
products) at Schuller's Parkersburg, West Virginia, plant. The particulate
matter emissions which are the subject of the potential noncompliance derive
primarily from the resin used by Schuller to bind glass fibers together. In
connection with these emissions, the Company in 1995 paid $100,000 to the West
Virginia Air Pollution Education and Environment Fund in lieu of a penalty
payment. Schuller is not aware of any penalties being considered by other
regulatory agencies.
In connection with the Riverwood Disposition, the Company agreed to
indemnify the purchaser of Riverwood and certain affiliated parties against
losses resulting from certain environmental matters. See Note 7 to the
Company's Consolidated Financial Statements, incorporated by reference herein.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS
During the fourth quarter of 1995, there were no matters submitted to a
vote of securityholders.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company had approximately 161,491,620 common stockholders of record
at April 5, 1996. The Common Stock is listed and traded on the New York
Stock Exchange, Inc. (symbol GLS). The Company has scheduled the 1996 Annual
Meeting of Stockholders for June 7, 1996 in Denver, Colorado.
A two-year history of high and low sale prices for the Common Stock
based on the sales transactions reported by the New York Stock Exchange, Inc.
is provided below. The Company paid no cash dividends on the Common Stock
for 1994 and 1995. On March 27, 1996, the Company's Board of Directors declared
a dividend of $6.00 per share on the Common Stock to be paid on April 12, 1996
to stockholders of record at the close of business on April 8, 1996.
<TABLE>
<CAPTION>
MARKET PRICES PER COMMON SHARE
1994 1995
---- ----
Common Stock Common Stock
------------ ------------
For the Quarters Ended HIGH LOW HIGH LOW
- ---------------------- ---- --- ---- ---
<S> <C> <C> <C> <C>
March 31 10 7/8 7 7/8 9 3/8 8 1/4
June 30 8 5/8 7 13 3/4 9 7/8
September 30 9 7 1/4 15 1/4 12 1/2
December 31 9 5/8 8 1/8 13 3/8 11
</TABLE>
ITEM 6. SELECTED FINANCIAL DATA
Information with respect to this item is incorporated by reference to
Selected Five-Year Financial Data in the Company's 1995 Annual Report to
securityholders.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Information with respect to this item is incorporated by reference to
Management's Discussion and Analysis of Financial Condition and Results of
Operations in the Company's 1995 Annual Report to securityholders.
12
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Information with respect to this item is incorporated by reference to the
Financial Statements and Selected Quarterly Financial Data in the Company's 1995
Annual Report to securityholders.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There were no changes in the Company's accountants during the two most
recent fiscal years. There were also no disagreements with accountants on
accounting or financial disclosures during such period.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
DIRECTORS OF THE COMPANY
The names, ages and business experience of the Directors of the Company are
listed below.
John C. Burton Mr. Burton is the Ernst & Young
Ernst & Young Professor of Professor of Accounting and Finance at
Accounting and Finance, the Columbia University Graduate School
Columbia University Graduate of Business, where he previously served
School of Business as Dean from 1982 to 1988. Before
Director since 1989 returning to Columbia University in
Age: 63 1978, he served as Deputy Mayor for
Finance of the City of New York from
1976 to 1977 and as Chief Accountant of
the Securities and Exchange Commission
in Washington, D.C. from 1972 to 1976.
Mr. Burton received his B.A. degree from
Haverford College and his M.B.A. and
Ph.D. degrees from Columbia University.
Mr. Burton is a Director of Commerce
Clearing House, Inc., CPAC, Inc.,
Scholastic Inc. and Salomon Swapco, Inc.
(a wholly owned subsidiary of Salomon
Brothers Inc.). From 1991 to 1994, he
was a public governor of the National
Association of Securities Dealers. He
is also the author of numerous books and
articles on accounting and financial
subjects. Mr. Burton was a member of
both the Consultants' Panel of the
Comptroller General of the United
States and the Board of Trustees of
Millbrook School. Mr. Burton is a
member of the Audit and Health, Safety
and Environment Committee.
13
<PAGE>
Robert A. Falise Mr. Falise was elected a Trustee of the
Chairman and Managing Trustee, Manville Personal Injury Settlement
Manville Personal Injury Trust in December 1991, and became its
Settlement Trust Chairman and Managing Trustee in
Director since 1992 January 1992. From 1989 through in
Age: 63 December 1991, Mr. Falise was engaged
the private practice of law specializing
in corporate restructuring and the
enhancement of shareholder value. From
1987 to 1989, he served as Executive
Vice President and Group Executive of
Irving Bank Corporation and Irving Trust
Company of New York. From 1980 to 1987,
he was Vice President and General
Attorney of RCA Corporation. From 1966
to 1980, he was Vice President, General
Counsel and Secretary of Dictaphone
Corporation. Prior to that, Mr. Falise
was in the private practice of corporate
law in New York City. In 1960-61, he
served as Assistant Director of the
U.S. Commission on Civil Rights in
Washington, D.C., and, earlier, as an
Army Judge Advocate Officer specializing
in international law in the Pentagon. A
graduate of Columbia College, Mr. Falise
received his J.D. degree from Columbia
University School of Law. Mr. Falise is
also a Director of the Caramoor Museum
and Center for the Performing Arts,
Westchester County, New York. Mr. Falise
is Chairman of the Committee on Board
Organization and Operation and is a
member of the Audit, Compensation and
Executive Committees.
Robert E. Fowler, Jr. Mr. Fowler is President, Chief
President and Executive Officer and a Director of
Chief Executive Officer, The Vigoro Corporation, a leading
The Vigoro Corporation North American producer and distributor
Director since 1989 of potash, nitrogen-based fertilizers
Age: 60 and related products. From July 1993
until July 1994, Mr. Fowler served as
President and Chief Operating Officer of
The Vigoro Corporation. He previously
served from 1990 to 1993 as President
and Chief Executive Officer of BCC
Industrial Services, Inc., located in
New York City. He was the Chairman,
Chief Executive Officer and President of
Josephson Office Products, Inc. from
1987 to 1990. Prior to that time he
served as President and Chief Operating
Officer of Rubbermaid Inc. from 1981 to
1987. His career prior to joining
Rubbermaid Inc. included 24 years with
General Electric Company, where he
became a corporate Vice President in
1978. Mr. Fowler has a bachelor's degree
in Chemical Engineering from Vanderbilt
University. He serves as a Director of
Alltrisa Corporation and Itel
Corporation. Mr. Fowler is Chairman of
the Health, Safety and Environment
Committee and is a member of the
Committee on Board Organization and
Operation and Executive Committee.
Todd Goodwin Mr. Goodwin is a General Partner of the
General Partner, New York investment banking firm
Gibbons, Goodwin, Gibbons, Goodwin, van Amerongen
van Amerongen ("GGvA"). Prior to joining GGvA in
Director since 1991 1984, he was a managing director of
Age: 64 Merrill Lynch and a partner of White
Weld. Mr. Goodwin is a Director of
Rival Company, Schult Homes and Wells
Aluminum. He received his A.B. degree
from Harvard College in 1954. Mr.
Goodwin is Chairman of the Compensation
Committee and is a member of the
Committee on Board Organization and
Operation and Executive Committee.
14
<PAGE>
Michael N. Hammes Mr. Hammes is Chairman of the Board
Chairman and Chief and Chief Executive Officer of The
Executive Officer, Coleman Company, Inc., a global
The Coleman Company, Inc. marketer and manufacturer of products
Director since 1993 used in the outdoor recreation and
Age: 54 hardware industries. Mr. Hammes was
Vice Chairman of The Black & Decker
Corporation, and prior to that was Vice
President-International Operations for
Chrysler Corporation, as well as serving
in a number of positions at Ford Motor
Corporation, with which he was
affiliated for 20 years. He was a
financial analyst with Equitable
Investments Company before joining Ford
Motor Corporation. He holds a
bachelor's degree from Georgetown
University School of Foreign Service in
International Economics/Foreign Trade
and an M.B.A. degree in Finance from New
York University. Mr. Hammes is a
Director of International Technology
Corporation, is a member of the
Development Board of the College of
Business of Eastern Michigan University,
and is a member of the Board of
Trustees of Center Stage Associates, a
professional regional theater based in
Baltimore. Mr. Hammes is a member of
the Audit and Compensation Committees.
John Nils Hanson Mr. Hanson has been Executive Vice
Executive Vice President and President and Chief Operating Officer of
Chief Operating Officer, Harnischfeger Industries, Inc.
Harnischfeger Industries, Inc. ("Harnischfeger") since July, 1995.
Director since 1993 He was President and Chief Executive
Age: 54 Officer of the Joy Mining Machinery unit
of Harnischfeger following the 1994
merger of Joy Technologies, Inc. ("Joy")
and Harnischfeger. Prior to the merger,
he was Chief Operating Officer,
President and a Director of Joy.
Harnischfeger is a manufacturer of
underground and surface mining
machinery, paper machinery and material
handling equipment. From 1990 until he
was elected President and a member of
the Board of Joy, he ran its Mining
Machinery Group. Prior to 1990, he
served as Vice President for
Caterpillar, Inc., and President of
Solar Turbines Incorporated. From 1973
to 1980, Mr. Hanson held various
positions with Gould Inc. He began his
career with Westinghouse Electric
Corporation in 1965 and held various
positions with Westinghouse until 1973.
From 1970 to 1971, he was a White House
Fellow and served as Executive
Assistant to the United States
Secretary of Labor. He received his
bachelor's degree in Chemical
Engineering from Massachusetts Institute
of Technology in 1964. In 1965, he also
earned a master's degree in Nuclear
Engineering from M.I.T. His doctorate
degree was obtained from Carnegie
Mellon University in Nuclear Science in
1969. Mr. Hanson is a member of the
Audit and the Health, Safety and
Environment Committees.
15
<PAGE>
Kathryn Rudie Harrigan Ms. Harrigan is the Henry R. Kravis
Henry R. Kravis Professor of Professor of Business Leadership at the
Business Leadership, Columbia University Graduate School of
Columbia University Graduate Business, where she has been a professor
School of Business in the Management and Organizations
Director since 1995 Division since 1981. Ms. Harrigan is
Age: 45 also serving as the Faculty Chair:
Chazen International Institute and the
Core Course Coordinator for Strategic
Management of the Enterprise. Ms.
Harrigan regularly performs consulting
projects on strategic alliances and
other strategic management issues, and
has authored several books and numerous
publications on these subjects. Ms.
Harrigan received her B.A. degree from
Macalester College, her M.B.A. degree
from University of Texas at Austin
and her D.B.A. degree from Harvard
Business School. Ms. Harrigan is a
Director of Cambrex Corporation and is a
member of the Advisory Board of Ronin
Development and the Editorial Boards of
several business and technical journals.
She served as External Member, Strategic
Planning Committee of the Panasonic
Industrial Controls Division, Matsushita
Corporation from 1989 to 1992 and is a
member of the Board of Governors,
Academy of Management from 1986 to 1988.
She was inducted into the Fellows of the
Academy of Management in 1989. Ms.
Harrigan is a member of the Audit and
Health, Safety and Environment
Committees.
Louis Klein, Jr. Mr. Klein, a financial consultant in
Trustee, New York City, was elected a Trustee
Manville Personal Injury of the Manville Personal Injury
Settlement Trust Settlement Trust in December 1991.
Director since 1992 Previous positions included Chairman
Age: 60 and Chief Executive Officer of Stendig
Inc., an importer and national marketer
of prestige contract and residential
furniture and textiles; Chairman and
Chief Executive Officer of Victoreen
Inc., a manufacturer and international
marketer of radiation detection and
measurement equipment; Managing
Director-Corporate Finance of Neuberger
& Berman; and Managing Director of
Ardshiel Associates Inc.. Mr. Klein
also has been a court-appointed trustee
in the divestiture of several
businesses pursuant to consent decrees
or final orders involving the U.S.
Department of Justice and the Federal
Trade Commission. Mr. Klein received
his A.B. degree from Harvard College and
J.D. degree from Columbia Law School.
Mr. Klein serves on the Board of
Directors of CliniCorp., Inc. and The
CRM Funds. Mr. Klein is a member of the
Audit and Compensation Committees.
16
<PAGE>
Stanley J. Levy Mr. Levy is a senior partner in the
Senior Partner, law firm of Levy Phillips & Konigsberg
Levy Phillips & Konigsberg and has specialized in environmental,
Director since 1988 toxic tort, product liability and
Age: 61 securities litigation for the past
thirty years. He is a graduate of
Harvard University and Columbia Law
School, and served as Chairman of the
official committee representing
current asbestos-health claimants in
Manville's reorganization proceedings.
Mr. Levy's firm represents various
personal injury claimants and owners of
real property who either filed or will
file claims against the Manville
Personal Injury Settlement Trust or the
Manville Property Damage Settlement
Trust. Under Manville's Plan of
Reorganization, these claims cannot be
asserted against Manville. He is a
member of the American Bar Association,
the Bar Association of the City of New
York and the Association of Trial
Lawyers of America, and has served as
an Assistant Attorney General of the
State of New York and as a member of the
Town of North Hempstead Public
Employees' Relations Board. Mr. Levy is
a member of the Committee on Board
Organization and Operation and the
Health, Safety and Environment
Committee.
Christian E. Markey, Jr. A graduate of U.C.L.A. School of Law
Trustee, and a veteran of the United States
Manville Personal Injury Marine Corps, Judge Markey served as
Settlement Trust Vice President and General Counsel of
Director since 1992 the University of Southern California
Age: 66 from 1988 until his retirement in 1993.
A Trustee of the Manville Personal
Injury Settlement Trust since its
inception, Judge Markey served as a
Superior Court judge from 1974 to 1988,
following his appointment by Ronald
Reagan, then governor of California.
Prior to 1974, he was engaged in the
private practice of law in California.
For the past 20 years, Judge Markey has
lectured and taught at the Whittier
College School of Law, the University of
Southern California Law Center and at
various national and international
institutes. He is a former member of
the Board of Regents of the University
of California. In addition, Judge
Markey has been appointed to the
Commission on Judicial Performance by
the California Supreme Court. Judge
Markey was founding Chairman of the
Board of the Southern California Center
for Law in the Public Interest. He
received the Chief Justice Roger Traynor
Award from the Los Angeles Trial Lawyers
for his extraordinary devotion to
justice. Judge Markey is a member of
the Committee on Board Organization and
Operation, the Compensation and the
Health, Safety and Environment
Committee.
W. Thomas Stephens Mr. Stephens was appointed Chief
Chairman of the Board, Executive Officer and President of
Chief Executive Officer Manville in 1986 and appointed
and President Chairman of the Board of Directors of
Schuller Corporation Manville on June 1, 1990. Prior to
Director since 1986 that time, he held the position of
Age: 53 Executive Vice President and Chief
Financial Officer of Manville from 1984
to 1986. Mr. Stephens earned his B.S.
and M.S. degrees in Industrial
Engineering from the University of
Arkansas in 1965 and 1966, respectively.
Mr. Stephens joined Olinkraft, Inc., the
predecessor to Riverwood's primary
operating subsidiary in 1963. Mr.
Stephens also is a Director of Ball
Corp., Public Service Company of
Colorado Inc. and Stillwater Mining
Company. Mr. Stephens is Chairman of
the Executive Committee and is a member
of the Committee on Board Organization
and Operation.
17
<PAGE>
Will M. Storey Mr. Storey retired in 1995. From
Retired March 1991 until 1995, Mr. Storey
Director since 1988 served as Executive Vice President,
Age: 64 Chief Financial Officer and Director of
American President Companies, Ltd., a
multi-modal transportation corporation
with headquarters located in Oakland,
California. From May 1989 to February
1991, Mr. Storey served as Vice Chairman
of Manville. From 1982 to 1988, Mr.
Storey was Vice Chairman and Chief
Financial Officer of Federated
Department Stores, Inc., and prior to
that time was Executive Vice President
of Boise Cascade Corporation. He has a
B.S. degree from Oregon State University
and is a Certified Public Accountant.
He is a Director of Albertson's Inc. and
T.I.S. Mortgage Investment Company. Mr.
Storey is Chairman of the Audit
Committee and is a member of the
Compensation and Executive Committees.
Raymond S. Troubh Mr. Troubh has been a financial
Financial Consultant consultant in New York City since
Director since 1988 1974 and is also a former governor of
Age: 69 the American Stock Exchange. He is a
graduate of Bowdoin College and Yale Law
School, and was a general partner of
Lazard Freres & Co., an investment
banking firm, from 1968 to 1974. Mr.
Troubh is a Director of ADT Limited,
America West Airlines, Inc., Applied
Power Inc., ARIAD Pharmaceuticals, Inc.,
Becton, Dickinson and Company, Benson
Eyecare Corporation, Diamond Offshore
Drilling, Inc., Foundation Health
Corporation, General American Investors
Company, Olsten Corporation, Petrie
Stores Corporation, Time Warner, Inc.,
Triarc Companies, Inc. and WHX. Mr.
Troubh is a member of the Audit,
Compensation and Health, Safety and
Environment Committees.
EXECUTIVE OFFICERS OF THE COMPANY
The names, ages and offices of the executive officers of the Company
are listed below. The executive officers are elected annually by the Board of
Directors and serve at the discretion of the Board. Each of the named executive
officers has for five years or more served in a managerial or executive capacity
with the Company or its subsidiaries.
OFFICER AGE OFFICE
Robert E. Cole 46 Senior Vice President and Chief
Financial Officer
W. Thomas Stephens 53 Chairman of the Board, Chief
Executive Officer and President
Richard B. Von Wald 53 Senior Vice President,
General Counsel and Secretary
18
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
COMPENSATION SUMMARY
The following Summary Compensation Table sets forth the salary, bonus
and other compensation earned during 1993 through 1995 by W. Thomas Stephens,
the Company's Chief Executive Officer, and by each of the other executive
officers of the Company (the "Named Executive Officers") at the end of 1995.
Mr. Kashnow resigned from Schuller effective September 29, 1995. Bonuses are
shown for the year earned, although these are generally paid at the beginning of
the subsequent year.
SCHULLER CORPORATION
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
------------------------------------- --------------------------------------------
Awards Payouts
---------------------------------- -------
Other Restricted Securities LTCIP
Annual Stock Underlying Payouts All Other
Name and ------- Comp.
Principal Position Year Salary ($) Bonus ($) Comp. ($)(1) Award(s) ($)(2) Options/SARS (#) ($) ($) (4)
- --------------------- ---- ---------- --------- ------------ --------------- ---------------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
W. Thomas Stephens 1995 600,000 680,000 26,991 -0- 100,000 -0- 9,000
Chairman of the Board, 1994 600,000 650,000 2,506 (3) -0- -0- 9,000
CEO and President 1993 500,000 300,000 3,419 -0- -0- -0- 83,994
Richard A. Kashnow 1995 281,250 -0- 8,594 -0- -0- -0- 9,000
(Resigned effective 1994 300,000 408,000 2,324 -0- -0- -0- 9,000
September 29, 1995) 1993 265,000 320,114 3,259 -0- -0- -0- 8,994
Richard B. Von Wald 1995 275,000 300,000 4,809 -0- 75,000 -0- 9,000
Senior Vice President, 1994 245,833 275,000 4,625 (3) -0- -0- 9,000
General Counsel & 1993 225,000 150,000 930 -0- -0- -0- 8,994
Secretary
Robert E. Cole 1995 275,000 230,259 4,080 -0- 75,000 -0- 9,000
Senior Vice President 1994 225,000 275,000 4,625 -0- -0- -0- 9,000
and Chief Financial 1993 200,000 150,000 -0- -0- -0- -0- 8,994
Officer
</TABLE>
(1) Other Annual Compensation represents tax reimbursed by the Company to
the Named Executive Officers in respect of the taxable value of
perquisites provided to such officers.
(2) The number and value of aggregate restricted Common Stock holdings for
each of the Named Executive Officers at the end of 1995, based on the
net fair market value of the Common Stock on December 29, 1995, are as
follows: Mr. Stephens - 305,034 shares with a value of $3,965,442 and
Mr. Von Wald - 120,000 shares with a value of $1,560,000. Upon the
termination of his employment with the Company, Mr. Kashnow forfeited
the 20,000 shares of restricted stock which he owned but which had not
yet vested. The restricted shares of Common Stock held by Mr. Stephens
and Mr. Von Wald were awarded in 1994 and related to certain retirement
benefits. See note 3 below.
As a result of the Riverwood Disposition (which constituted a Change
in Control for purposes of the Manville Corporation Long-Term Incentive
Stock Plan (the "Stock Plan")), all unvested outstanding shares of
restricted stock held by Messrs. Stephens and Von Wald became vested on
March 27, 1996.
(3) Messrs. Stephens and Von Wald received restricted stock awards, as well
as cash payments, in 1994 as a partial offset to certain supplemental
retirement benefits. See "Employment Agreements and Other
Arrangements."
(4) Amounts in this column for 1995 represent the Company's contribution to
the Named Executive Officers' accounts in the Schuller Corporation
Thrift Plan.
19
<PAGE>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
The following table provides information concerning options granted to
the Named Executive Officers during 1995. The hypothetical present value on
date of grant shown in the last column below for stock options granted in 1995
are presented pursuant to the rules of the Securities and Exchange Commission
and are calculated under the modified Black-Scholes model for pricing options.
The Company is not aware of any model or formula which will determine with
reasonable accuracy a present value for stock options. The actual before-tax
amount, if any, realized upon the exercise of stock options will depend upon the
excess, if any, of the market price of the Company's common stock over the
exercise price of the stock option at the time the stock option is exercised.
There is no assurance that the hypothetical present values of the stock
options reflected in the following table will be realized.
- --------------------------------------------------------------------------------
SCHULLER CORPORATION
OPTION/SAR GRANTS IN LAST FISCAL YEAR
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Individual Grants
- ----------------------------------------------------------------------------------------------------------------------
(a) (b) (c) (d) (e) (f) (g)
- ----------------------------------------------------------------------------------------------------------------------
Number of % of Total
Securities Options/SARs
Underlying Granted to Exercise or
Options/SARs Employee in Base Price Expiration Grant Date Present
NAME Granted (1) Fiscal Year (2) Date Value(3) ($)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
W. Thomas Stephens 100,000 30.77% $10/share April 6, 2005 368,000
- ----------------------------------------------------------------------------------------------------------------------
Richard A. Kashnow (4) -0- -- -- -- --
- ----------------------------------------------------------------------------------------------------------------------
Richard B. Von Wald 75,000 23.08% $10/share April 6, 2005 276,000
- ----------------------------------------------------------------------------------------------------------------------
Robert E. Cole 75,000 23.08% $10/share April 6, 2005 276,000
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The options granted in 1995 to the Named Executive Officers (the "1995
Options") vest and become exercisable in three equal installments on
each of the first, second and third anniversaries of the grant date.
(2) The exercise price of the 1995 Options was established at $10 per share,
the market price of the Common Stock on the date of grant. Pursuant to
the terms of the 1995 Options, the exercise price is expected to be
reduced to $4.00 per share to reflect the $6.00 per share dividend
declared on March 27, 1996 and payable on April 12, 1996.
(3) The hypothetical present values on grant date are calculated under the
modified Black-Scholes model, which is a mathematical formula used to
value options traded on stock exchanges. This formula considers a
number of factors in hypothesizing an option's present value. Factors
used to value options granted which expire April 6, 2005 include the
stock's expected volatility rate (31%), risk free rate of return (7%),
dividend yield (0%), projected time of exercise (5 years) and projected
risk of forfeiture rate for vesting period (5% per annum).
(4) Mr. Kashnow resigned from Schuller effective September 29, 1995.
20
<PAGE>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND YEAR-END OPTION/SAR
VALUES
The following table provides information concerning the exercise of
stock options and SARs by the Named Executive Officers during 1995 and the value
of unexercised options and SARs.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SCHULLER CORPORATION
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND YEAR-END OPTION/SAR VALUES
YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
(a) (b) (c) (d)(1) (e)(2)
- ---------------------------------------------------------------------------------------------------------------------------
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AND SARS AT IN-THE-MONEY OPTIONS/SARS AT
SHARES FY-END (#) FY-END ($)
ACQUIRED ON VALUE
NAME EXERCISE (#) REALIZED ($) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
W. Thomas Stephens None None 208,000/100,000 1,118,000/300,000
- ---------------------------------------------------------------------------------------------------------------------------
Richard A. Kashnow (3) 42,400 217,125(4) 0/0 0/0
- ---------------------------------------------------------------------------------------------------------------------------
Richard B. Von Wald None None 42,400/75,000 227,900/225,000
- ---------------------------------------------------------------------------------------------------------------------------
Robert E. Cole None None 56,400/75,000 303,150/225,000
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Messrs. Stephens and Cole each hold Options and freestanding SARs
related to the Common Stock, which are currently exercisable, in the
aggregate amounts set forth above equally divided between Options and
SARs. Mr. Von Wald holds 42,400 Options, which are currently
exercisable. Messrs. Stephens, Von Wald and Cole each hold Options (but
no SARs) which are currently unexercisable.
(2) Based upon the closing price of the Common Stock of $13.00 on December
29, 1995, less (i) an exercise price of $7.625 per share for all
exercisable Options and SARs, and (ii) an exercise price of $10.00 per
share for all unexercisable Options.
(3) Mr. Kashnow resigned from Schuller effective September 29, 1995.
(4) In December 1995, Mr. Kashnow exercised 42,400 Options with a weighted
exercise price of $7.29 per share at a weighted sales price of $12.92
per share.
21
<PAGE>
LONG-TERM INCENTIVE PLANS - AWARDS IN LAST FISCAL YEAR
- --------------------------------------------------------------------------------
LONG-TERM INCENTIVE PLANS - AWARDS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
ESTIMATED FUTURE PAYOUTS UNDER NON-
STOCK PRICE-BASED PLANS
---------------------------------------------
NUMBER OF SHARES, PERFORMANCE OR OTHER
UNITS OR OTHER PERIOD UNTIL MATURATION
RIGHTS (#) OR PAYOUT THRESHOLD TARGET MAXIMUM
NAME (a) (b) (1) (c) (2) ($) (3) ($) (4) ($) (5)
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
W. Thomas Stephens -0- N/A N/A N/A N/A
- ------------------------------------------------------------------------------------------------------------------------
Richard A. Kashnow 674 (6) (6) (6) (6)
- ------------------------------------------------------------------------------------------------------------------------
Richard B. Von Wald -0- N/A N/A N/A N/A
- ------------------------------------------------------------------------------------------------------------------------
Robert E. Cole -0- N/A N/A N/A N/A
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Units were granted under the Long-Term Cash Incentive Compensation Plan,
which was adopted in 1994 by Schuller (the "Schuller Plan"). The
Schuller Plan provides for units to be granted to participants which
entitle participants to receive cash payments. The cash payments are
determined based upon Schuller's EBITDA (as defined in the Schuller Plan)
over a three-year determination period.
(2) Cash payments under the Schuller Plan are made at the end of the
three-year determination period for each grant. Upon certain events
that constitute a "change of control" (as defined in the Schuller Plan),
the value of outstanding units (determined as if the target level of
cumulative EBITDA for the applicable determination period was met) is
payable in cash to the participants.
(3) No payments would have been made on Mr. Kashnow's units unless
Schuller's EBITDA over the three year determination period were $600
million, at which point Mr. Kashnow would have been entitled to receive
$500 per unit.
(4) The target payment of $1,000 per unit would have been made to Mr.
Kashnow if Schuller's EBITDA over the three-year determination period
were $800 million.
(5) The maximum payment of $3,000 per unit would have been made to Mr.
Kashnow if Schuller's EBITDA over the three-year determination period
were more than $1 billion.
(6) Mr. Kashnow resigned from Schuller effective September 29, 1995, thereby
forfeiting all rights to cash payments under the Schuller Plan.
22
<PAGE>
PENSION PLAN
Salaried employees and employees at designated non-union locations of
Schuller and its subsidiaries are participants in the Schuller International
Employees Retirement Plan (the "Retirement Plan"). Pension benefits under the
Retirement Plan are limited to the amounts allowed by the provisions of the
Code. The Company has adopted a Supplemental Pension Plan ("Supplemental Plan")
that provides for payment of the difference between the benefits earned pursuant
to the Retirement Plan, without regard to Code limits, and the amounts actually
available from the Retirement Plan. Former and current executive officers
(other than Messrs. Stephens and Von Wald), and other employees, are eligible to
participate in the Supplemental Plan. Messrs. Stephens and Von Wald are parties
to individual supplemental retirement arrangements adopted in 1994 in connection
with which they received restricted stock awards and cash payments in 1994 as a
partial offset to certain supplemental retirement benefits. See "Employment
Agreements and Other Arrangements." The Supplemental Plan may be funded by
contributions to an irrevocable Supplemental Pension Plan Trust ("Pension
Trust") for the accounts of participants. No contributions were made to the
Pension Trust in 1995. Contributions, if any, to the Pension Trust to fund the
Supplemental Plan and earnings thereon are fully taxable to the individual,
deductible by the Company and are reduced by applicable withholding taxes.
The following Pension Plan Table sets forth the estimated annual
benefits payable upon retirement, including amounts attributable to the
Supplemental Pension Plan, for specified remuneration levels and years of
service.
<TABLE>
<CAPTION>
Years of Service
---------------------------------------------------------
Remuneration 15 20 25 30 35
------------ -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
$ 125,000 $ 24,955 $ 33,274 $ 41,592 $ 49,910 $ 58,229
150,000 30,206 40,274 50,343 60,412 70,480
175,000 35,455 47,273 59,091 70,909 82,727
200,000 40,705 54,274 67,842 81,410 94,979
250,000 51,205 68,273 85,341 102,409 119,477
300,000 61,706 82,274 102,843 123,412 143,980
400,000 82,705 110,273 137,841 165,409 192,977
500,000 103,705 138,274 172,842 207,410 241,979
600,000 124,706 166,274 207,843 249,412 290,980
700,000 145,705 194,273 242,841 291,409 339,977
800,000 166,705 222,274 277,842 333,410 388,979
900,000 187,706 250,274 312,843 375,412 437,980
1,000,000 208,705 278,273 347,841 417,409 486,977
</TABLE>
- --------------------
NOTES:
A. Had the Named Executive Officers retired as of December 31, 1995, their
respective five-year average salaries plus bonus, for purposes of the
table set forth above, would have been as follows: Mr. Stephens,
$904,681; Mr. Kashnow, $496,540; Mr. Von Wald, $392,667; and Mr. Cole,
$361,000.
B. On December 31, 1995, the individuals named in the Summary Compensation
Table had the following years of credited service under the Retirement
Plan: Mr. Stephens - 30; Mr. Kashnow - 8; Mr. Von Wald - 22; and Mr.
Cole - 22.
C. The Retirement Plan provides for payment of a retirement allowance based
on 1.02% of the participant's five-year average final salary up to
Covered Compensation (as defined in the Retirement Plan) plus 1.4% of
the participant's average final salary over Covered Compensation
multiplied by the participant's years of benefit service up to a maximum
of 35 years plus 1.33% of the participant's average final salary
multiplied by the participant's years of service over 35 plus 2.5% of
the value of the participant's refunded contributions and interest
compounded at 5.0% until normal retirement age. Covered Compensation in
1995 was $24,312 and will be $25,920 in 1996. Salary, as defined in the
Retirement Plan, includes payments under the Annual Incentive
Compensation Plan, but excludes payments under the Company's Long-Term
Cash Incentive Plan. The benefits are determined by using straight life
annuity amounts and are not subject to reduction for Social Security
benefits.
23
<PAGE>
COMPENSATION OF DIRECTORS
W. T. Stephens is the only Director who is employed by the Company. He
receives no fees for serving as a Director in addition to his regular
compensation.
Except for Messrs. Falise, Klein and Markey, all non-employee Directors
receive an annual retainer of $25,000, $1,000 for each Board meeting attended,
$1,000 for each Committee of the Board meeting attended, and reimbursement for
travel expenses related to attendance of Board and Committee meetings. Each
Director (other than Messrs. Falise and Stephens) who serves as a Committee
Chairman is paid an additional $2,500 per year. Director's fees earned by the
Company's Directors who are Trustees of the Trust were paid directly to the
Trust pursuant to the Manville Personal Injury Settlement Trust Agreement, as
amended (the "Trust Agreement").
In 1988, the Company adopted a retirement program for non-employee
Directors of the Company which provides for continued payment of the annual
retainer in effect at the time of the Director's retirement. If the retiring
Director has served as a Director of the Company for five or more years and has
attained age 70, continued payment of the retainer is for life. If the retiring
Director has served as a Director for five or more years but has not attained
age 70, the retainer continues for a period of years equal to the number of
years of service or for life, whichever is less. No retirement benefits are
paid to any Director retiring with less than five years service.
In November 1992, the Company entered into an irrevocable trust
arrangement with an independent financial institution to fund the retirement
benefits expected to be paid to retiring Directors. The irrevocable trust was
funded with $1,500,000, an amount determined by an independent actuary to be
sufficient as of October 27, 1992 to fund the anticipated retirement benefits
payable to retired or retiring Directors. In August, 1993 an aggregate of
$275,000 of supplemental funding was contributed to the irrevocable trust based
on the calculations of an independent actuary.
EMPLOYMENT AGREEMENTS AND OTHER ARRANGEMENTS
Each of the Named Executive Officers and certain other salaried
executives of the Company have entered into three-year employment agreements
which provide for lump sum separation payments upon any termination of
employment other than termination for cause, voluntary resignation without "good
reason" as defined in the employment agreements, or termination as a result of
death, disability or retirement. For the Named Executive Officers, prior to a
Change in Control, as defined below, separation payments under such contracts
generally would have equaled a total of two times the annual salary, the full
year bonus at target levels of performance under the Annual Incentive
Compensation Plan and certain other benefits. Following a Change in Control,
which occurred for the Named Executive Officers (other than Mr. Kashnow) as
a result of the Riverwood Disposition, the definitions of "cause" and "good
reason" are liberalized and benefits payable enhanced. Following a Change in
Control, upon a termination of employment other than (i) for cause, (ii) a
voluntary resignation without "good reason" or (iii) as a result of death,
disability or retirement, benefits include two years' annual salary, two years'
target annual bonus, two years' additional credit in certain cases under the
Supplemental Plan, a pro-rata portion of the target annual bonus for the year of
termination, the cash value of any unpaid performance units, a payment equal to
the cost of 36 months welfare benefits and 24 months of continued perquisites.
Change in Control is defined in the employment agreements to include a variety
of events, including significant changes in the Company's stock ownership or
board of directors, its dissolution, sales of significant assets by the Company,
sale of an employee's business unit and significant reductions in the Company's
work force. In the case of Mr. Cole, such benefits are subject to a cap to
limit any loss of tax deductions by the Company as a result of the "golden
parachute" tax rules. The Riverwood Disposition and the resulting changes to
the responsibilities of Messrs. Stephens and VonWald constituted "good reason"
under their Employment Agreements.
24
<PAGE>
The Company has entered into supplemental retirement agreements with
Messrs. Stephens and Von Wald in replacement of prior supplemental retirement
arrangements. The supplemental retirement agreement for each of them
provides for the Company to pay each upon his termination of employment a
lump sum benefit (the "Supplemental Benefit") equal to the present value of a
single life annuity commencing at the time of such termination ranging from
30 percent to 60 percent of his highest average base salary plus cash bonus
for three consecutive years during the preceding ten years ("Average Pay"),
offset by amounts payable under the Retirement Plan plus certain other
amounts, including the 1994 restricted stock awards of 340,000 shares and
150,000 shares, respectively, and cash payments made during 1994 of
$1,300,000 and $500,000, respectively, and other payments previously made and
to be made in connection with the executives' retirement arrangements. The
1994 restricted stock awards have a five-year vesting schedule and had a fair
market value on the date of grant of $3,099,100 and $1,367,250, respectively.
The vesting of the restricted stock and payment of dividends thereon are
subject to a cap related to the supplemental retirement arrangements. If
termination occurs (i) after attaining age 62, (ii) without cause, (iii) for
"good reason," (iv) for death or "disability" or (v) after the occurrence of
a Change in Control, the Supplemental Benefit will be 60 percent of Average
Pay, and will be increased to compensate for the impact of the timing of
taxation of the Supplemental Benefit (and the offsets thereto) as compared
with the tax treatment of a single life annuity. The Riverwood Disposition
constituted a Change in Control and resulted in "good reason" for the
foregoing purposes. In addition, all 1994 restricted stock awards vested upon
the Riverwood Disposition.
The Company is also a party to a key man supplemental retirement
agreement with Mr. Cole providing for a benefit in the event of termination of
employment or death prior to age 55 and prior to the completion of 25 years of
employment with the Company. The single life annual annuity for Mr. Cole under
such key man agreement will increase from $52,789 (payable at age 50) if he
terminates employment in 1995 to $79,305 if he terminates employment in 2004
before he attains age 55. In partial prepayment of such benefits, the Company
paid Mr. Cole $180,000 in 1992. The payment is refundable only in the event of
the termination of Mr. Cole's employment for cause. The amount paid by the
Company will reduce benefits to be paid to Mr. Cole under the key man agreement.
If retirement, termination of employment or death occurs after age 55, and after
completion of 25 years of service, Mr. Cole will not receive benefits under the
key man agreement, but instead will receive his retirement benefits solely under
the Retirement Plan and the Supplemental Plan.
The Company's 1991 Long-Term Cash Incentive Plan (the "Cash Plan")
provided rights to participants to receive cash payments equal to certain
dividends paid by the Company. The Cash Plan was scheduled to terminate on
December 31, 1995. In connection with the Riverwood Disposition, it was
contemplated that a dividend of the disposition proceeds could be made prior
to the end of 1995, and the treatment under the Cash Plan of cash dividends
paid from the disposition proceeds (the "Disposition Dividend") was
uncertain. On October 3, 1995, the Company entered into a Payment and
Termination Agreement (the "Termination Agreement") with all participants in
the Cash Plan, including Messrs. Stephens, Cole and Von Wald. Pursuant to
the Termination Agreement, the holders of performance units ("Units") awarded
under the Cash Plan agreed to forfeit their Units in exchange for receiving a
cash payment of up to $0.84 per Unit upon payment to stockholders of the
Disposition Dividend. Such cash payment will become payable on April 12,
1996 upon the payment of the $6.00 per share Disposition Dividend declared by
the Company's Board of Directors on March 27, 1996.
COMPENSATION COMMITTEE INTERLOCKS
The Compensation Committee is currently comprised of Messrs. Falise,
Goodwin (Chairman), Hammes, Klein, Markey, Storey and Troubh. No interlocks
existed during 1995 between the Compensation Committee and the officers or
employees of the Company.
25
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth the identity of beneficial owners
believed by the Company to own more than five percent of the outstanding shares
of Common Stock as of April 5, 1996.
<TABLE>
AMOUNT OF BENEFICIAL PERCENT OF
TITLE OF CLASS NAME AND ADDRESS OF BENEFICIAL OWNER OWNERSHIP CLASS
-------------- ------------------------------------ -------------------- ----------
<S> <C> <C> <C>
Common Stock Manville Personal Injury Settlement Trust(1) 128,527,110 shares 79.6%
8260 Willow Oaks Corporate Drive
Sixth Floor
P. O. Box 10415
Fairfax, Virginia 22031
</TABLE>
- ---------------------------
(1) At April 5, 1996, the Trustees of the Trust were: Robert A. Falise,
Chairman and Managing Trustee, Louis Klein, Jr., Frank J. Macchiarola
and Christian E. Markey, Jr. Messrs. Falise, Klein and Markey serve on
the Company's Board of Directors.
26
<PAGE>
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth the number of shares of Common Stock
beneficially owned by all Directors and executive officers individually and
as a group as of April 5, 1996. With respect to executive officers of the
Company, the number of shares beneficially owned includes shares owned as of
April 5, 1996 pursuant to the Schuller Employees Thrift Plan. As of April 5,
1996, the percentage of Common Stock beneficially owned by any Director, or
by all Directors and executive officers as a group, does not exceed more than
1.0 percent of the outstanding shares of the Common Stock, excluding the
128,527,110 shares of Common Stock owned by the Trust and attributed to
certain directors who disclaim beneficial ownership of such shares.
<TABLE>
<CAPTION>
COMMON STOCK
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED
------------------------ ------------------
<S> <C>
John C. Burton. . . . . . . . . . . . . . . . . 1,000
Robert E. Cole. . . . . . . . . . . . . . . . . 115,291(1)
Robert A. Falise. . . . . . . . . . . . . . . . 128,527,110(2)
Robert E. Fowler, Jr. . . . . . . . . . . . . . 4,000
Todd Goodwin. . . . . . . . . . . . . . . . . . 19,100
Michael N. Hammes . . . . . . . . . . . . . . . 0
John N. Hanson. . . . . . . . . . . . . . . . . 1,000
Kathryn R. Harrigan . . . . . . . . . . . . . . 0
Louis Klein, Jr.. . . . . . . . . . . . . . . . 128,527,110(2)
Stanley J. Levy . . . . . . . . . . . . . . . . 1,000
Christian E. Markey, Jr.. . . . . . . . . . . . 128,527,110(2)
W. Thomas Stephens. . . . . . . . . . . . . . . 599,299(3)
Will M. Storey. . . . . . . . . . . . . . . . . 2,000
Raymond S. Troubh . . . . . . . . . . . . . . . 5,000
Richard B. Von Wald . . . . . . . . . . . . . . 207,070(4)
All Directors and executive officers as
a group (15 persons). . . . . . . . . . . . . . 129,481,870(2)(5)
</TABLE>
(1) Includes options to purchase 25,500 shares of Common Stock.
(2) All of these 128,527,110 shares are owned by the Trust, of which Mr.
Falise is the Chairman and Managing Trustee, and Messrs. Klein and
Markey are Trustees. Voting power with respect to such shares is shared
by all four Trustees of the Trust, and none of Messrs. Falise, Klein or
Markey can vote the shares alone. Each of Messrs. Falise, Klein and
Markey disclaims beneficial ownership of any shares of Common Stock.
Pursuant to the Trust Agreement, no Trustee may individually own any
securities of the Company or its affiliates or have any other direct or
indirect financial interest in the Company or its affiliates.
(3) Includes options to purchase 138,000 shares of Common Stock.
(4) Includes options to purchase 67,900 shares of Common Stock.
(5) Includes options to purchase 231,400 shares of Common Stock.
27
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Trust owns approximately 79 percent of the Common Stock assuming
the exercise of outstanding warrant to purchase Common Stock and by
virtue of such stock ownership is able to elect Directors of the
Company as the Trust determines. Three of the Company's fourteen Directors,
Messrs. Falise, Klein and Markey, are Trustees of the Trust. Under the Plan,
the Trust was funded with assets, including (i) 50 percent of the Common
Stock and convertible preferred stock entitling the Trust to increase its
Common Stock holdings to approximately 80 percent (which increase took place
in December 1992), (ii) bonds, and (iii) the right to receive up to 20
percent of the Company's annual profits (as defined). The Company completed
prepayment of substantially all of the bonds in 1994. On October 25, 1995,
the Company and the Trust entered into a Profit Sharing Exchange Agreement
pursuant to which the Trust agreed to exchange its right to receive annually
20 percent of the Company's adjusted net earnings for newly issued shares of
Common Stock representing 20 percent of outstanding Common Stock on a fully
diluted basis as of the date of issuance (assuming exercise of all
outstanding options, warrants and other rights to acquire Common Stock, and
after giving effect to such issuance). Pursuant to the Profit Sharing
Exchange Agreement, on April 5, 1996, the Company issued 32,527,110 shares of
Common Stock to the Trust in exchange for its profit sharing right.
In 1995, following their retirement as Directors of the Company, the
Company made lump-sum payments to Bette B. Anderson and Ernest H. Drew of
$115,521 and $121,726, respectively, representing payment in full for the
present value of the amounts to be paid to such retired Directors under the
Company's retirement plan for non-employee Directors.
From time to time, the Company repurchases up to 45 percent of the
Common Stock that certain key executives receive under the Stock Plan upon
the vesting of such stock in order to provide such executives with funds for
related income tax obligations. Pursuant to a repurchase program approved by
the Company's Board of Directors in September 1995, in connection with the
Riverwood Disposition and the related transactions, the Company may repurchase
all or a portion of the remaining stock held by certain key executives. Such
repurchases are made at prices equal to recent average closing sales prices
for the Common Stock on the New York Stock Exchange.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
a. Financial statements, financial statement schedules and exhibits
filed in this report:
1. Information with respect to financial statements is
incorporated by reference to the Financial Statements
and Selected Quarterly Financial Data in the Company's
1995 Annual Report to securityholders.
2. The Company is filing herewith Schedule II - Valuation
and Qualifying Accounts.
3. The Company is filing herewith the Financial Statements
of Igaras Papeis e Embalagens S.A.
b. On November 1, 1995, the Company filed with the Securities and
Exchange Commission a current report on Form 8-K dated October
25, 1995, regarding the Agreement and Plan of Merger among
Riverwood International Corporation, CDRO Holding Corporation
and CDRO Acquisition Corporation, and the Profit Sharing
Exchange Agreement between the Company and the Trust.
c. Exhibit Index to Schuller Corporation Annual Report on Form 10-K
for Fiscal Year Ended December 31, 1995.
28
<PAGE>
<TABLE>
<CAPTION>
DESCRIPTION CROSS REFERENCE OR PAGE NUMBER
----------- ------------------------------
<S> <C>
2. (a) Second Amended and Restated Plan of Refiled as an exhibit to the Company's 1992
Reorganization confirmed by the United States Annual Report on Form 10-K filed
Bankruptcy Court for the Southern District of March 30, 1993, and incorporated herein by
New York on December 22, 1986. reference.
(b) Agreement and Plan of Merger, dated as of Filed as an exhibit to the Company's Form
October 25, 1995, among Riverwood International 8-K, dated October 25, 1995, and
Corporation, CDRO Holding Corporation and CDRO incorporated herein by reference.
Acquisition Corporation.
3. (a) Restated Certificate of Incorporation. Filed as an exhibit hereto.
(b) Certificate of Amendment to Restated Certificate Filed as an exhibit hereto.
of Incorporation.
(c) Amended and Restated Bylaws. Filed as an exhibit to the Company's Form
10-Q for the quarter ended June 30, 1995,
and incorporated herein by reference.
10. (a) Schuller International Employees Retirement Plan.* Filed as an exhibit to the Company's 1994
Annual Report on Form 10-K filed
March 31, 1995, and incorporated herein by
reference.
(b) Supplemental Pension Plan.* Refiled as an exhibit to the Company's 1992
Annual Report on Form 10-K filed
March 30, 1993, and incorporated herein by
reference.
(c) Key Man Supplemental Retirement Agreement.* Refiled as an exhibit to the Company's 1992
Annual Report on Form 10-K filed
March 30, 1993, and incorporated herein by
reference.
(d) Annual Executive Incentive Compensation Plan.* Refiled as an exhibit to the Company's 1992
Annual Report on Form 10-K filed
March 30, 1993, and incorporated herein by
reference.
(e) Executive Long-Term Disability Plan.* Refiled as an exhibit to the Company's 1992
Annual Report on Form 10-K filed
March 30, 1993, and incorporated herein by
reference.
(f) Form of Employment Agreements with the Refiled as an exhibit to the Company's 1992
Executive Officers of the Company.* Annual Report on Form 10-K filed
March 30, 1993, and incorporated herein by
reference.
(g) Long Term Incentive Stock Plan.* Refiled as an exhibit to the Company's 1992
Annual Report on Form 10-K filed
March 30, 1993, and incorporated herein by
reference.
</TABLE>
29
<PAGE>
<TABLE>
<CAPTION>
DESCRIPTION CROSS REFERENCE OR PAGE NUMBER
----------- ------------------------------
<S> <C>
(h) Amendment to Long-Term Incentive Stock Plan.* Refiled as an exhibit to the Company's 1992
Annual Report on Form 10-K filed
March 30, 1993, and incorporated herein by
reference.
(i) Amendment No. 2 to Long-Term Incentive Stock Filed as an exhibit to the Company's
Plan.* Form 10-Q for the quarter ended June 30,
1995, and incorporated herein by reference.
(j) Intercompany Agreement between the Company Filed as an exhibit to the Company's Form
and Schuller, dated as of September 22, 10-Q for the quarter ended September 30,
1994. 1994, filed on November 14, 1994, and
incorporated herein by reference.
(k) Treasury Management Agreement between the Filed as an exhibit to the Company's Form
Company and Schuller, dated as of September 22, 10-Q for the quarter ended September 30,
1994. 1994, filed on November 14, 1994, and
incorporated herein by reference.
(l) Tax Sharing Agreement between the Company and Filed as an exhibit to the Company's Form
Schuller, dated as of January 1, 1994. 10-Q for the quarter ended September 30,
1994, filed on November 14, 1994, and
incorporated herein by reference.
(m) Corporate Agreement between the Company and Filed as an exhibit to the Company's Form
Schuller, dated as of September 22, 1994. 10-Q for the quarter ended September 30,
1994, filed on November 14, 1994, and
incorporated herein by reference.
(n) Selling Securityholders' Agreement, between the Filed as an exhibit to the Company's 1994
Company and the Trust, dated as of September 22, Annual Report on Form 10-K filed
1994. March 31, 1995, and incorporated herein by
reference.
(o) Second Amended and Restated Supplemental Filed as an exhibit hereto.
Agreement between the Company and the Trust,
dated as of April 5, 1996.
(p) Final Property Damage Settlement Agreement Filed as an exhibit hereto.
between the Company and Manville Property
Damage Settlement Trust dated as of March 22,
1996.
(q) Form of Payment and Termination Agreement with Filed as an exhibit hereto.
the Executive Officers of the Company*
(r) Supplemental Retirement Agreement between W. Filed as an exhibit to the Company's 1994
Thomas Stephens and the Company, effective as of Annual Report on Form 10-K filed on
November 4, 1994, with related agreements.* March 31, 1995, and incorporated herein by
reference.
</TABLE>
30
<PAGE>
<TABLE>
<CAPTION>
DESCRIPTION CROSS REFERENCE OR PAGE NUMBER
----------- ------------------------------
<S> <C>
(s) Supplemental Retirement Agreement between Filed as an exhibit to the Company's 1994
Richard B. Von Wald and the Company, effective Annual Report on Form 10-K filed on
as of November 4, 1994, with related agreements.* March 31, 1995, and incorporated herein by
reference.
(t) Schuller 1994 Long-Term Cash Incentive Filed as an exhibit to the Company's 1994
Compensation Plan.* Annual Report on Form 10-K filed on
March 31, 1995, and incorporated herein by
reference.
(u) Amended and Restated Indenture between Schuller Filed as an exhibit to the Company's 1994
and The Bank of New York, as Trustee, dated Annual Report on Form 10-K filed on
December 15, 1994. March 31, 1995, and incorporated herein by
reference.
(v) Amended and Restated Receivables Purchase Filed as an exhibit hereto.
Agreement dated as of August 15, 1994, between
Schuller and the banks and others named therein.
(w) Voting and Indemnification Agreement, dated as of Filed as an exhibit to Company's Form 8-K,
October 25, 1995, by and among the Company, dated October 31, 1995, and incorporated
CDRO Holding Corporation and CDRO Acquisition herein by reference.
Corporation.
(x) Tax Matters Agreement, dated as of October 25, Filed as an exhibit to Company's Form 8-K,
1995 by and among the Company, CDRO Holding dated October 31, 1995, and incorporated
Corporation and CDRO Acquisition Corporation. herein by reference.
(y) Profit Sharing Exchange Agreement, dated Filed as an exhibit to Company's Form 8-K,
October 25, 1995, between the Company and the dated October 31, 1995, and incorporated
Trust. herein by reference.
13. 1995 Annual Report. Pages 21 through 83 of the Company's
1995 Annual Report to securityholders are
filed as an exhibit hereto.
14. Financial Statements of Significant Pages F-42 through F-55 of Riverwood
Unconsolidated Subsidiaries International Corporation's Proxy Statement
dated February 26, 1996 are filed
as an exhibit hereto.
21. List of subsidiaries. Page 35.
23. Consent of Coopers & Lybrand L.L.P. Filed as an exhibit hereto.
24. Power of Attorney. Page 36.
</TABLE>
* Management contract or compensatory plan or arrangements.
Pursuant to Item 601(b)(4)(iii) of Regulation S-K, the Company hereby
agrees to furnish to the Securities and Exchange Commission, upon
request, a copy of the Class 6 Interest Indenture between the Company and
The Bank of New York, formerly known as Irving Trust Company, Trustee,
dated November 28, 1988.
31
<PAGE>
<PAGE>
Report of Independent Accountants
To the Stockholders and Directors of Schuller Corporation:
Our report on the consolidated financial statements of Schuller Corporation
has been incorporated by reference in this Form 10-K from page 81 of the 1995
Annual Report to Stockholders of Schuller Corporation. In connection with our
audits of such financial statements, we have also audited the related financial
statement schedule listed in the Index to Financial Statement Schedule on page
33 of this Form 10-K.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included therein.
/s/ COOPERS & LYBRAND L.L.P.
- ----------------------------
COOPERS & LYBRAND L.L.P.
Denver, Colorado
April 5, 1996
32
<PAGE>
Schuller Corporation
Index to Financial Statement Schedule
to Form 10-K for the Year Ended December 31, 1995
Schedule Page
- -------- ----
II - Valuation and qualifying accounts, for each of the three
years in the period ended December 31, 1995. . . . . . . . . . . 34
33
<PAGE>
Schuller Corporation
Schedule II - Valuation and Qualifying Accounts
for the Years Ended December 31
(Thousands of dollars)
<TABLE>
<CAPTION>
Additions
---------------------------
Balance at Charged to Charged Balance
Beginning of Costs and to Other Deductions at End
Classification Year Expenses Accounts (a) (b) of Year
-------------- ------------ ---------- ------------ ---------- -------
<S> <C> <C> <C> <C> <C>
1995
----
Allowances Reducing the
Assets in the Balance Sheet:
Doubtful accounts receivable $ 6,422 $ 776 $ 701 $ 6,497
Cash discounts 1,537 $19,963 19,533 1,967
Other allowances 15,765 30,977 28,096 18,646
Deferred tax assets 96,449 314 14,251 82,512
-------- ------ ------- ------- --------
Total $120,173 $1,090 $50,940 $62,581 $109,622
-------- ------ ------- ------- --------
-------- ------ ------- ------- --------
1994
----
Allowances Reducing the
Assets in the Balance Sheet:
Doubtful accounts receivable $ 5,860 $1,600 $ 1,038 $ 6,422
Cash discounts 1,489 $14,590 14,542 1,537
Other allowances 14,634 27,818 26,687 15,765
Deferred tax assets 94,795 1,654 96,449
-------- ------ ------- ------- --------
Total $116,778 $3,254 $42,408 $42,267 $120,173
-------- ------ ------- ------- --------
-------- ------ ------- ------- --------
1993
----
Allowances Reducing the
Assets in the Balance Sheet:
Doubtful accounts receivable $ 5,768 $2,454 $ 2,362 $ 5,860
Cash discounts 1,457 $15,119 15,087 1,489
Other allowances 13,755 26,324 25,445 14,634
Deferred tax assets 87,795 7,000 94,795
-------- ------ ------- ------- --------
Total $108,775 $9,454 $41,443 $42,894 $116,778
-------- ------ ------- ------- --------
-------- ------ ------- ------- --------
</TABLE>
- -------------------------------
Notes:
(a) Charged against sales.
(b) Principally charges for which reserves were provided, net of recoveries.
34
<PAGE>
EXHIBIT 22.
SUBSIDIARIES OF THE REGISTRANT
Direct and indirect subsidiaries of the Company and the jurisdiction in
which each company was incorporated are listed below. Certain companies not
important to an understanding of the Company's businesses have been omitted and
which, if aggregated, would not constitute a significant subsidiary.
<TABLE>
<CAPTION>
JURISDICTION OF
SUBSIDIARY INCORPORATION
- ---------- ---------------
<S> <C>
EUROPEAN OVERSEAS CORPORATION --Delaware
GFE IMPORT-EXPORT G.m.b.H. --Germany
IACP, INC. --Delaware
JOHNS-MANVILLE INDIA LIMITED --Delaware
MANVILLE JAPAN K.K. --Japan
MANVILLE MEXICANA S.A. DE C.V. --Mexico
MANVILLE MINING COMPANY --Delaware
NEW MATERIALS LTD. --United Kingdom
NORD BITUMI SpA --Italy
NORD BITUMI U.S., INC. --New York
ROCKY MOUNTAIN INTERNATIONAL INSURANCE LTD. --Bermuda
SCHULLER DE FRANCE S.a.r.l. --France
SCHULLER FUNDING CORPORATION --Delaware
SCHULLER G.m.b.H. --Germany
SCHULLER INTERNATIONAL B.V. --Netherlands
SCHULLER INTERNATIONAL CANADA INC. --Canada
SCHULLER INTERNATIONAL CHANGZOU, B. V. --Netherlands
SCHULLER INTERNATIONAL GROUP, INC. --Delaware
SCHULLER INTERNATIONAL, INC. --Delaware
SCHULLER INTERNATIONAL JAPAN Y.K. --Japan
SCHULLER POLSKA Sp. Z.O.O. --Poland
SCHULLER U.K. LIMITED --United Kingdom
SEVENTEENTH STREET REALTY, INC. --Colorado
TERMOACUSTICOS S.A. DE C.V. --Mexico
WEB DYNAMICS CORPORATION --New Jersey
</TABLE>
35
<PAGE>
POWER OF ATTORNEY
Know all men by these presents that each person whose signature appears
below does hereby constitute and appoint W. Thomas Stephens, Robert E. Cole and
Richard B. Von Wald, and each of them, with full power to act without the other,
his true and lawful attorney-in-fact and agent, with full power of substitution
and resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign all amendments to this report, and to file the same with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission granting unto said attorney-in-fact and
agent, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorney-in-fact and
agents or any of them, or his substitute or substitutes, lawfully do or cause to
be done by virtue hereof.
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 as of the 11th day
of April, 1996.
SCHULLER CORPORATION
(Registrant)
By: /s/ W. Thomas Stephens
-------------------------------------
W. Thomas Stephens
CHAIRMAN OF THE BOARD, CHIEF EXECUTIVE
OFFICER AND PRESIDENT
36
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant in the capacities indicated as of April 11, 1996.
SIGNATURE TITLE
--------- -----
/s/ W. Thomas Stephens Chairman of the Board, Chief Executive
- ------------------------------ Officer and President
(W. Thomas Stephens) (Principal Executive Officer)
/s/ Robert E. Cole Senior Vice President and Chief
- ------------------------------ Financial Officer
(Robert E. Cole) (Principal Accounting and Financial
Officer)
/s/ John C. Burton Director
- ------------------------------
(John C. Burton)
/s/ Robert A. Falise Director
- ------------------------------
(Robert A. Falise)
/s/ Robert E. Fowler, Jr. Director
- ------------------------------
(Robert E. Fowler, Jr.)
/s/ Todd Goodwin Director
- ------------------------------
(Todd Goodwin)
/s/ Michael N. Hammes Director
- ------------------------------
(Michael N. Hammes)
/s/ John Nils Hanson Director
- ------------------------------
(John Nils Hanson)
/s/ Kathryn R. Harrigan Director
- ------------------------------
(Kathryn R. Harrigan)
/s/ Louis Klein, Jr. Director
- ------------------------------
(Louis Klein, Jr.)
/s/ Stanley J. Levy Director
- ------------------------------
(Stanley J. Levy)
/s/ Christian E. Markey, Jr. Director
- ------------------------------
(Christian E. Markey, Jr.)
/s/ Will M. Storey Director
- ------------------------------
(Will M. Storey)
/s/ Raymond S. Troubh Director
- ------------------------------
(Raymond S. Troubh)
37
<PAGE>
ADDITIONAL INFORMATION
Individuals interested in receiving additional information may contact the
following:
FOR COMPANY INFORMATION FOR PRODUCT INFORMATION
Call (303)978-2000 Call (303)978-4900 or (800)654-3103
or write to: or write to:
Schuller Corporation Schuller Corporation
Investor Relations Product Information
P. O. Box 5108 P. O. Box 5108
Denver, CO 80217-5108 Denver, CO 80217-5108
TRANSFER AGENT AND REGISTRAR INDEPENDENT ACCOUNTANTS
First Chicago Trust Company of New York Coopers & Lybrand L.L.P.
P. O. Box 2532, Suite 2532 370 Seventeenth Street, Suite 3300
Jersey City, NJ 07303-2532 Denver, CO 80202-5633
(send stockholder address
changes to the above address)
38
<PAGE>
RESTATED
CERTIFICATE OF INCORPORATION
OF
MANVILLE CORPORATION
1. The name of the corporation is Manville Corporation.
2. The original Certificate of Incorporation of the corporation was filed
in the Office of the Secretary of State of Delaware on August 21, 1981.
3. Provision for the making of this Restated Certificate of Incorporation
is contained in an order dated October 28, 1988 of the United States
Bankruptcy Court for the Southern District of New York (the "Court") in IN RE
JOHNS-MANVILLE CORP., ET AL., Case Nos. 82 B 11656, 82 B 11657, 82 B 11660,
82 B 11661, 82 B 11665 through 82 B 11673 Inclusive, 82 B 11675, 82 B 11676
(BRL).
4. This Restated Certificate of Incorporation has been duly executed and
acknowledged by the officers of the corporation so designated in such order
of the Court in accordance with Section 282, 285 and 303 of the General
Corporation Law of the State of Delaware.
5. The text of the Certificate of Incorporation of the corporation is
hereby restated to read in its entirety as follows:
FIRST: The name of the Corporation is Manville Corporation (herein
referred to as the "Company").
SECOND: The address of the Company's registered office in the State of
Delaware is 1209 Orange Street, in the City of Wilmington, County of New
Castle. The name of the Company's registered agent at such address is The
Corporation Trust Company.
THIRD: The purpose of the Company shall be to engage in any lawful act or
activity for which corporations may be organized under the General
Corporation Law of the State of Delaware.
<PAGE>
FOURTH: The total number of shares of all classes of capital stock which
the Company shall have authority to issue is one hundred and ninety three
million, three hundred and nine thousand one hundred and seventy
(193,309,170) shares, of which one hundred and seventy five million
(175,000,000) shares shall be Common Stock with a par value of $.01 per
share, seven million two hundred thousand (7,200,000) shares shall be
Convertible Preferred Stock, Series A with a par value of $1.00 per share,
and eleven million one hundred and nine thousand one hundred and seventy
(11,109,170) shares shall be Cumulative Preference Stock, Series B with a par
value of $1.00 per share. One hundred and fifteen million shares of Common
Stock are hereby reserved for issuance upon conversion of the Convertible
Preferred Stock, Series A and the exercise of Warrants (the "Warrants")
issued in accordance with the Plan of Reorganization (as defined below) and
pursuant to a Warrant Agreement dated as of November 28, 1988 (the
"Consummation Date") between the Company and Morgan Shareholder Services
Trust Company, as Warrant Agent. The Company shall at all times reserve and
keep available, free from preemptive rights, all of its authorized but
unissued Common Stock, the full number of shares of Common Stock then
deliverable upon the conversion of all shares of Convertible Preferred Stock,
Series A and the exercise of all Warrants then outstanding.
No nonvoting equity securities of the Company shall be issued; this
provision is included in this Restated Certificate of Incorporation in
compliance with Section 1123 of the United States Federal Bankruptcy Code 11
U.S.C. 1123, and shall have no further force and effect beyond that required
by such Section and for so long as such Section is in effect and applicable
to the Company.
A description of the different classes of stock of the Company and a
statement of the designations and the powers, preferences and special rights,
and the qualifications, limitations or restrictions thereof, of the various
classes of stock are as follows.
2
<PAGE>
B. PROVISIONS RELATING TO CONVERTIBLE PREFERRED STOCK, SERIES A
1. Seven million two hundred thousand (7,200,000) shares of the capital
stock of the Company shall have a par value of $1.00 per share and shall
constitute and be designated the "Convertible Preferred Stock, Series A",
hereinafter referred to as "Convertible Preferred Stock." All shares of the
Convertible Preferred Stock shall be issued to the Manville Personal Injury
Settlement Trust (the "Trust") created pursuant to the Manville Personal
Injury Settlement Trust Agreement (as amended from time to time, the "Trust
Agreement") dated as of the Consummation Date between the Trustors (as
defined in Exhibit A to the Second Amended and Restated Plan of
Reorganization of Johns-Manville Corporation, et al. confirmed by final order
of the United States Bankruptcy Court for the Southern District of New York
(the "Plan of Reorganization")) as trustors and Donald M. Blinken, Daniel
Fogel, Frances H. Hare, Jr., Christina E. Markey, Jr. and John C. Sawhill as
trustees; such shares shall not be transferable except (a) to any successor
of all of the rights and obligations of the Trust, (b) pursuant to Section
6.02(b) of the Trust Agreement, or (c) pursuant to Section 6.02(b) of the
Manville Property Damage Settlement Trust Agreement (as amended from time to
time, the "PD Trust Agreement") dated as of the Consummation Date between the
Trustors as trustors and the Honorable Thomas E. Eagleton, Robert B. McKay,
and Daniel Reid Weedon as trustees, creating the Manville Property Damage
Settlement Trust (the "PD Trust"). (The Trust and the PD Trust are referred
to herein collectively as the "Trusts".) The foregoing restriction on
transferability shall not apply to any Common Stock into which Convertible
Preferred Stock has been converted pursuant to the provisions hereof. Upon
any transfer of the Convertible Preferred Stock to the Company, such shares
of Convertible Preferred Stock shall be retired.
2. All shares of Convertible Preferred Stock shall be identical with each
other in all respects.
3. In the event of any voluntary or involuntary liquidation, dissolution or
winding up of the Company (including a liquidation, dissolution or winding
up following a sale of substantially all the assets of the
3
<PAGE>
Company), before any payment or distribution of the assets of the Company
(whether capital or surplus) shall be made to or set apart for the holders of
any class or classes of stock of the Company ranking junior to the
Convertible Preferred Stock upon liquidation, the holder of the shares of the
Convertible Preferred Stock shall be entitled to receive an amount per share
equal to the Preferential Amount, and shall be entitled to no further payment
in respect of such shares. If, upon any liquidation, dissolution or winding
up of the Company, the assets of the Company, or the proceeds thereof,
distributable to the holder of the shares of the Convertible Preferred Stock
are insufficient to pay in full the Preferential Amount with respect to all
such shares then owned by such holder, then all such assets, or the proceeds
thereof, shall be distributed to such holder. For purposes of this Paragraph
3, the voluntary sale, lease, exchange or transfer (for cash, shares of
stock, securities or other consideration) of all or substantially all of the
property or assets of the Company to, or a consolidation or merger of the
Company with, one or more corporations shall not be deemed to be a
liquidation, dissolution or winding up, voluntary or involuntary. For
purposes of this Paragraph 3, "Preferential Amount" shall mean the dividend
obtained by dividing (a) 7,200,000 into (b) eighty percent (80%) of the total
shareholders' equity of the Company (gross book assets of the Company less
gross book liabilities of the Company, in each case calculated in accordance
with generally accepted accounting principles) as at the Consummation Date
("CD Equity"), PROVIDED THAT if 80% of the shareholders' equity of the
Company (so computed) as at the end of the Company's fiscal quarter in which
the Consummation Date occurs ("QE Equity") as shown on the consolidated
balance sheet of the Company as at the end of such quarter and filed with the
Securities and Exchange Commission on Form 10-Q or 10-K is greater than CD
Equity then the Preferential Amount shall mean that dividend obtained by
dividing (a) 7,200,000 into (b) QE Equity.
4. Each share of Convertible Preferred Stock is convertible, at the option
of the holder thereof, into ten shares (subject to the provisions for
adjustment hereinafter set forth) of fully paid and nonassessable Common
Stock of the Company:
4
<PAGE>
(a) at any time or from time to time, PROVIDED that (i) the
total number of shares of Common Stock of the Company held by the
Trusts at such time constitutes 20% or less of all of the then
issued and outstanding shares of Common Stock of the Company, (ii)
if either of the Trusts has received any proceeds of the sale of
shares of Common Stock of the Company (such proceeds being held in
the Stock Proceeds Fund of the Trust or the PD Trust, as the case
may be, as defined in the Trust Agreement or the PD Trust
Agreement, respectively) and has not paid such proceeds out to
claimants in accordance with its respective trust agreement, such
proceeds shall be allocated to the shares most recently sold, based
on the sales price received therefor (net of commissions and other
expenses relating to the sale), and, based on such allocation, such
shares shall, for purposes hereof, be treated as if then held by
such Trust solely for purposes of clause (i) above; and (iii)
during the period from the date which falls 15 years after the date
of issuance of the Convertible Preferred Stock to and including the
date which falls 20 years after the date of issuance of the
Convertible Preferred Stock, not more than 4,800,000 shares of the
Convertible Preferred Stock can be converted pursuant to this
clause (a) at any one time (subject, in each case, to clause (i) of
this PROVISO), and after the date which falls 20 years after the
date of issuance of the Convertible Preferred Stock, not more than
2,400,000 shares of the Convertible Preferred Stock can be
converted pursuant to this clause (a) at any one time (subject, in
each case, to clause (i) of this PROVISO);
(b) at any time or from time to time after the Board of
Directors of the Company by resolution has determined that the
Convertible Preferred Stock may thereafter be converted at any time
any such resolution to be irrevocable; or
(c) at any time or from time to time after the Board of
Directors of the Company by resolution has determined to take any
of the actions specified in subparagraph (j)(i) of Section 5 hereof.
5. (a) In order to exercise its conversion privilege, the holder of shares
of Convertible Preferred Stock to be converted shall present and surrender
the certificate representing such shares during the usual
5
<PAGE>
business hours at any office or agency of the Company maintained for the
transfer of Common Stock of the Company and shall deliver a written notice
of the election of the holder to convert the shares of Convertible Preferred
Stock represented by such certificate or any portion thereof specified in
such notice. Such notice shall also state the name or names (with address)
in which the certificate or certificates for shares of Common Stock which
shall be issuable on such conversion shall be issued. If so required by the
Company, any certificate for shares of Convertible Preferred Stock
surrendered for conversion shall be accompanied by instruments of transfer,
in form satisfactory to the Company, duly executed by the holder of such
shares or the duly authorized representative of such holder. Each conversion
of shares of Convertible Preferred Stock shall be deemed to have been
effective on the date (the "conversion date") on which the certificate or
certificates representing such shares shall have been surrendered and such
notice and any required instruments of transfer shall have been received as
aforesaid, and the person or persons in whose name or names any certificate
or certificates for shares of Common Stock shall be issuable on such
conversion shall be deemed to have become immediately prior to the close of
business on the conversion date the holder or holders of record of the shares
of Common Stock represented thereby.
(b) As promptly as practicable after the presentation and
surrender for conversion, as herein provided, of any certificate
for shares of Convertible Preferred Stock, the Company shall issue
and deliver at such office or agency, to or upon the written order
of the holder thereof, a certificate or certificates for the number
of shares of Common Stock issuable upon such conversion. In case
any certificate for shares of Convertible Preferred Stock shall be
surrendered for conversion of a part only of the shares
represented thereby, the Company shall deliver at such office or
agency, to or upon the written order of the holder thereof, a
certificate or certificates for the number of shares of
Convertible Preferred Stock represented by such surrendered
certificate which are not being converted. The issuance of
certificates for shares of Common Stock issuable upon the
conversion of shares of Convertible Preferred Stock shall be made
without charge to the converting holder for any tax imposed on the
Company in respect of the issue
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<PAGE>
thereof. The Company shall not, however, be required to pay any
tax which may be payable with respect to any transfer involved in
the issue and delivery of any certificate in a name other than
that of the holder of the shares of Convertible Preferred Stock
being converted, and the Company shall not be required to issue or
deliver any such certificate unless and until the person
requesting the issue thereof shall have paid to the Company the
amount of such tax or has established to the satisfaction of the
Company that such tax has been paid.
(c) Upon any conversion of shares of Convertible Preferred
Stock into shares of Common Stock pursuant hereto, no adjustment
with respect to dividends on the Common Stock shall be made; only
those dividends shall be payable on shares of Common Stock issued
upon such conversion as may be declared and may be payable to
holders of record of shares of Common Stock on or after such
conversion date.
(d) All shares of Convertible Preferred Stock which shall
have been surrendered for conversion as herein provided shall no
longer be deemed to be outstanding and all rights with respect to
such shares, including the rights, if any, to receive notices and
to vote, shall forthwith cease and terminate, except only the right
of the holder thereof, subject to the provisions of subparagraph
(b) of this paragraph 5, to receive shares in exchange therefor.
(e) The number of shares of Common Stock into which each
share of Convertible Preferred Stock is convertible shall be
subject to adjustment from time to time as follows:
(i) In case the Company shall (x) subdivide or split
the outstanding shares of its Common Stock into a larger
number of shares, (y) combine the outstanding shares of
its Common Stock into a smaller number of shares, or (z)
reclassify the outstanding shares of its Common Stock,
the holder of each outstanding share of Convertible
Preferred Stock shall thereafter be entitled to receive
upon the conversion of such share (subject to such
further adjustments as may be required pursuant to
clauses (ii), (iii) and (iv) of this sub-paragraph (e) or
any of said clauses) the number
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<PAGE>
of shares of the Common Stock of the Company which at the
date of such conversion it would have owned and been
entitled to receive had such share of Convertible
Preferred Stock been converted immediately prior to the
happening of the first of such events to occur after the
issue of shares of Convertible Preferred Stock and prior
to such conversion. An adjustment made pursuant to this
clause (i) shall become effective immediately upon the
effectiveness of a subdivision, split, combination or
reclassification.
(ii) In case the Company shall issue to all holders of
its Common Stock as a class any rights or warrants
enabling them to subscribe for or purchase shares of
Common Stock at a price per share less than the average
market price per share of Common Stock (as hereinafter
defined) at such record date, the number of shares of
Common Stock into which each outstanding share of
Convertible Preferred Stock shall thereafter be
convertible shall be determined by multiplying the number
of shares of Common Stock into which such share of
Convertible Preferred Stock was convertible immediately
prior to such record date by a fraction, of which the
numerator shall be the sum of the number of shares of
Common Stock outstanding at such record date and the
number of additional shares of Common Stock so offered
for subscription or purchase, and of which the
denominator shall be the sum of the number of shares of
Common Stock outstanding at such record date and the
number of shares of Common Stock which the aggregate
offering price of the total number of shares so offered
for subscription or purchase would purchase at such
average market price per share. An adjustment made
pursuant to this class (ii) shall become effective
immediately after the record date for determination of
stockholders entitled to receive such rights or warrants.
(iii) In case the Company shall distribute to all
holders of its Common Stock as a class evidences of its
indebtedness, securities (other than Common Stock),
assets (other than cash dividends) or rights or warrants
(other than those referred to in clause (ii) of this
subparagraph (e)) entitling them to subscribe for or
purchase any of
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<PAGE>
its securities, then in each such case the number of
shares of Common Stock into which each outstanding share
of Convertible Preferred Stock shall thereafter be
convertible shall be determined by multiplying the
number of shares of Common Stock into which such share of
Convertible Preferred Stock was convertible immediately
prior to the record date for determination of
stockholders entitled to such distribution by a fraction,
of which the numerator shall be the average market price
per share of Common Stock at such record date and of
which the denominator shall be such average market price
per share less the fair value (as determined by the Board
of Directors, whose determination shall be conclusive and
shall be described in a statement filed with each
transfer agent for the Convertible Preferred Stock and
for the Common Stock) of the portion of the evidences of
indebtedness, securities (other than Common Stock),
assets (other than cash dividends) or rights or warrants
(other than those referred to in clause (ii) of this
subparagraph (e)) so distributed applicable to one share
of Common Stock. An adjustment made pursuant to this
clause (iii) shall become effective immediately after
such record date.
(iv) In case the Company shall pay or make a dividend
or other distribution on any class of capital stock of
the Company (other than the Convertible Preferred Stock)
in shares of Common Stock, then the number of shares of
Common Stock into which each outstanding share of
Convertible Preferred Stock shall thereafter be
convertible shall be determined by multiplying the number
of shares of Common Stock into which such share of
Convertible Preferred Stock was convertible immediately
prior to the record date for determination of
stockholders entitled to such dividend or other
distribution by a fraction, of which the numerator shall
be the sum of the number of shares of Common Stock
outstanding at such record date and the total number of
shares of Common Stock constituting such dividend or
other distribution, and of which the denominator shall be
the number of shares of Common Stock outstanding at such
record date. An adjustment pursuant to this clause (iv)
shall become effective immediately after such record date.
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<PAGE>
(v) In case the Company shall issue any additional
shares of Common Stock as a result of the exercise of any
of the Warrants, then the number of shares of Common
Stock into which each outstanding share of Convertible
Preferred Stock shall thereafter be convertible shall be
determined by multiplying the number of shares of Common
Stock into which such share of Convertible Preferred
Stock was convertible immediately prior to such exercise
by a fraction, of which the numerator shall be 48,000,000
plus the number of Warrants so exercised plus the number
of Warrants previously exercised as to which an
adjustment pursuant to this clause (v) has already been
made and of which the denominator shall be 48,000,000
plus the number of Warrants previously exercised as to
which an adjustment pursuant to this clause (v) has
already been made. An adjustment pursuant to this clause
(v) shall become effective immediately after the issuance
of such additional shares of Common Stock.
(f) The "average market price" per share of Common Stock on
any date will be deemed to be the average of the daily closing
prices for the twenty consecutive business days ending on the
business day before the day in question. The closing price for
each day shall be the last reported sales price on the composite
tape or, in case no such reported sale takes place on such day, the
average of the reported closing bid and asked prices, in either
case on the principal national securities exchange on which the
Common Stock is listed or admitted to trading or, if not issued or
admitted to trading on any national securities exchange, the
average of the closing bid and asked prices on the National
Association of Securities Dealers Automated Quotation System or, if
the Common Stock is not then so quoted, by any New York Stock
Exchange member firm selected from time to time by the Company for
that purpose. For the purpose of this paragraph 5, the term
"business day" means each Monday, Tuesday, Wednesday, Thursday and
Friday, other than any day on which securities are not traded on
such exchange or in such market.
(g) Notwithstanding the foregoing provisions of this
paragraph 5, no adjustment in the number of shares of Common Stock
into which any outstanding share of Convertible Preferred Stock is
convertible shall be
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<PAGE>
required unless such adjustment would require an increase or
decrease in such number of shares of at least 1%; provided,
however, that any adjustments which by reason of this subparagraph
(g) are not required to be made shall be carried forward and taken
into account in any subsequent adjustment. All calculations under
this paragraph 5 shall be made to the nearest cent or to the
nearest 1/100th of a share, as the case may be.
(h) Whenever any adjustment is required in the shares into
which any share of Convertible Preferred Stock is convertible, the
Company shall forthwith (i) file with each office or agency
maintained by the Company for the transfer of Common Stock a
statement describing in reasonable detail the adjustment and the
method of calculation used and (ii) cause a notice of such
adjustment, setting forth the adjusted conversion ratio, to be
mailed to the holder of record of shares of Convertible Preferred
Stock at its address as shown on the books of the Company.
(i) In case of any consolidation or merger of the Company as
a result of which the holders of Common Stock shall be entitled to
receive stock, other securities or other assets with respect to or
in exchange for Common Stock, proper provisions shall be made as a
part of the terms of such consolidation or merger, whereby the
holder of a share of the Convertible Preferred Stock shall have the
right thereafter, when and so long as the conversion right
hereunder shall exist, to convert such share into the kind and
amount of shares of stock and other securities and properties
receivable upon such consolidation or merger by a holder of the
number of shares of Common Stock into which such share of the
Convertible Preferred Stock might have been converted immediately
prior to such consolidation or merger and shall have no other
conversion rights with regard to such share. In case securities or
properties other than Common Stock shall be issuable or deliverable
upon conversion as aforesaid, then all references in this
paragraph 5 shall be deemed to apply, so far as appropriate and as
nearly as may be, to such other securities or properties. The
provisions of this subparagraph (i) shall similarly apply to
successive consolidations or mergers.
(j) In the event that:
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<PAGE>
(i) the Company shall take action to make any
distribution (other than cash dividends and dividends or
distributions payable in shares of its Common Stock) to
the holders of its Common Stock;
(ii) the Company shall take action to offer for
subscription PRO RATA to the holders of its Common Stock
any securities of any kind;
(iii) the Company shall take action to accomplish any
capital reorganization, or reclassification of the
capital stock of the Company (other than a subdivision,
split or combination of its Common Stock), or
consolidation or merger to which the Company is a party
and for which approval of any stockholders of the Company
is required, or the sale or transfer of all or
substantially all of the assets of the Company; or
(iv) the Company shall take action looking to a
voluntary or involuntary dissolution, liquidation or
winding up of the Company;
then the Company shall (x) in case of any such distribution or
subscription rights, at least 15 days prior to the date or expected
date on which the books of the Company shall close or a record
shall be taken for the determination of holders entitled to such
distribution or subscription rights and (y) in the case of any such
reorganization, reclassification, consolidation, merger, sale,
transfer, dissolution, liquidation or winding up, at least 15 days
prior to the date or expected date when the same shall take place,
cause written notice thereof to be mailed to the holder of shares
of Convertible Preferred Stock as its address as shown on the books
of the Company. Such notice in accordance with the foregoing
clause (x) shall also specify, in the case of any such distribution
or subscription rights, the date or expected date on which the
holders of Common Stock shall be entitled thereto, and such notice
in accordance with the foregoing clause (y) shall also specify the
date or expected date on which the holders of Common Stock shall be
entitled to exchange their Common Stock for securities or other
property deliverable upon such reorganization, reclassification,
consolidation, merger, sale, transfer, dissolution, liquidation or
winding up, as the case may be.
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<PAGE>
(k) For the purposes of this paragraph 5, the term "Common
Stock" shall mean (i) the class of stock designated as the Common
Stock of the Company on the date of this Restated Certificate of
Incorporation, or (ii) any other class of stock resulting from
successive changes or reclassifications of such Common Stock
consisting solely of changes in par value or from no par value, or
from par value to no par value. In the event that at any time, as
a result of an adjustment made pursuant to the provisions of
subparagraph (e) of this paragraph 5, the holder of any share of
Convertible Preferred Stock thereafter surrendered for conversion
shall become entitled to receive any shares of the Company other
than shares of Common Stock, thereafter the number of such other
shares so receivable upon conversion of any share of Convertible
Preferred Stock shall be subject to adjustment from time to time in
a manner and on terms as nearly equivalent as practicable to the
provisions with respect to the Common Stock contained in
Subparagraph (e) of this paragraph 5, and the other provisions of
this paragraph 5 with respect to the Common Stock shall apply on
like terms to any such other shares.
(l) No fractional share of Common Stock, or scrip
representing a fractional share, shall be issued upon the
conversion of any Convertible Preferred Stock. If more than one
share of Convertible Preferred Stock shall be surrendered for
conversion at one time, the number of whole shares of Common Stock
issuable upon conversion thereof shall be computed on the basis of
the aggregate number of shares so surrendered. If any fractional
interest in a share of Common Stock would be deliverable upon the
conversion of any shares of Convertible Preferred Stock, such
fractional interest shall be carried forward until such time, if
any, the aggregate of all such fractional interest carried forward
constitute a whole share of Common Stock.
6. The holder of Convertible Preferred Stock shall not be entitled to vote
except that:
(a) in any election in which a holder of Common Stock may
vote, the holder of Convertible Preferred Stock shall be entitled
to cast, in respect of the shares of Convertible Preferred Stock
held by such holder, the number of votes which such holder would
be entitled to cast with respect to the whole number of shares
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<PAGE>
of Common Stock issuable upon conversion of the shares of
Convertible Preferred Stock (whether or not such shares are then
convertible) held by such holder.
(i) at any time after any shares of Convertible
Preferred Stock have become convertible pursuant to
paragraph 4 above;
(ii) at any time during the continuance of any Event
of Default under the Manville Personal Injury Settlement
Trust Bond dated as of the Consummation Date and issued
by the Company to the Trust (the "Bond"), the Manville
Settlement Trusts Second Bond dated as of the
Consummation Date (the "Second Bond") or the Manville
Property Damage Settlement Trust Bond (the "PD Bond")
which may be issued by the Company to the PD Trust
pursuant to Section 2.01 of the Property Damage
Supplemental Agreement dated as of the Consummation Date
among the Company, the Trust and the PD Trust (the "PD
Supplemental Agreement") or the continuance of any
event(s) which would constitute an Event of Default under
the Bond, the Second Bond or the PD Bond, if the Bond,
the Second Bond or the PD Bond were at the time
outstanding, or at any time that there has been a default
in any payment of any amount due under the note (the
"Note") attached as Annex E as the PD Trust Agreement and
continuance of such default for a period of two business
days; or
(iii) at any time that any of the conditions referred
to in Clauses (v), (vi) or (vii) of Section 3.01(e) of
the Supplemental Agreement dated as of the Consummation
Date between the Trust and the Company (the "Supplemental
Agreement") or in Clauses (v), (vi) or (vii) of Section
3.01(e) of the PD Supplemental Agreement exist.
(b) so long as any of the Convertible Preferred Stock is
outstanding, the Company will not without the affirmative vote or
consent of the holder of all of the Convertible Preferred Stock at
the time outstanding, given in person or by proxy either in
writing or by resolution adopted at an annual or special meeting
called for the purpose at which the holder of the Convertible
Preferred Stock shall vote separately as a class,
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<PAGE>
(i) amend this Article Fourth;
(ii) provide for the merger or consolidation
of the Company with any other corporation in which the
Company is not the surviving entity, or any sale or other
transfer of all or substantially all of the assets of the
Company to another person or entity; or
(iii) take action looking to a dissolution,
liquidation or winding-up of the Company.
7. The holder of Convertible Preferred Stock as such shall not have any
preemptive right to subscribe to stock, obligations, warrants, rights to
subscribe to stock or other securities of the Company of any class, whether
now or hereafter authorized.
8. Except as may be required under the applicable statutory laws, and
except for the special voting powers provided with respect to Convertible
Preferred Stock set forth above, the holder of Convertible Preferred Stock
as such shall not have any voting powers on any matters upon which
stockholders of the Company shall have the right to vote.
9. For purposes hereof, the term "outstanding", when used in reference to
shares of stock, shall mean issued shares, excluding shares held by the
Company.
10. The shares of Convertible Preferred Stock are not redeemable.
B. PROVISIONS RELATING TO CUMULATIVE PREFERENCE STOCK
1. Eleven million one hundred nine thousand one hundred and seventy
(11,109,170) shares of the capital stock of the Company shall have a par
value of $1.00 and shall constitute and be designated the "Cumulative
Preference Stock, Series B", hereinafter referred to as "Cumulative
Preference Stock."
2. All shares of Cumulative Preference Stock shall be identical with each
other in all respects.
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<PAGE>
3. The holders of Cumulative Preference Stock shall be entitled to receive
cash dividends, when and as declared by the Board of Directors from funds
legally available therefor, for each dividend period, commencing with the
dividend period which starts on January 1, 1994, at an annual rate of $2.70
per share and no more, payable on each of the first days of March, June,
September and December in each year. Such dividends shall be cumulative
from January 1, 1994. Except for the initial dividend period, which
commences on January 1, 1994 and ends on March 1, 1994, each quarterly
dividend period shall begin on the day following each dividend payment date
set forth above and end on the next succeeding dividend payment date. No
payment of dividends on the Cumulative Preference Stock shall be made unless
the Company has made all payments then due and payable to the Trust or the PD
Trust pursuant to the Bond, the PD Bond, the Second Bond, the Note, the Trust
Note attached as Exhibit F to the Plan of Reorganization, the Supplemental
Agreement and the PD Supplemental Agreement. No payment of dividends on the
Cumulative Preference Stock shall be made to the extent that such payment
would result in a net reduction of more than four fiscal quarters of accrued
and unpaid dividends on the Cumulative Preference Stock in any twelve month
period commencing on any March 1 unless at the time scheduled for the payment
of the dividend, the aggregate of (a) that component of the Annual Contingent
Amount (as defined in Exhibit A to the Plan of Reorganization) for the most
recent fiscal year ending prior to such March 1 which is carried forward to
such year from prior years (the "Carryforward") and (b) that component of the
Annual PD Contingent Amount (as defined in Exhibit A to the Plan of
Reorganization) for the most recent fiscal year ending prior to such March 1
which is carried forward to such year from prior years (the "PD
Carryforward"), is either (a) equal to zero or (b) at least 10% less than the
aggregate of the Carryforward and the PD Carryforward for the second prior
fiscal year. Any dividends, the payment of which is prohibited by either of
the preceding two sentences, shall accumulate.
4. Before any dividend or distribution in cash or other property (other
than dividends payable in stock ranking junior to the Cumulative Preference
Stock as to dividends or upon liquidation) on any class or classes of stock
of the Company ranking junior to the
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<PAGE>
Cumulative Preference Stock as to dividends or on liquidation shall be
declared or paid or set apart for payment, the holders of shares of
Cumulative Preference Stock shall be entitled to receive full cumulative cash
dividends in accordance with paragraph 3. Accruals of dividends shall not
bear interest.
5. In the event of any voluntary or involuntary liquidation, dissolution
or winding up of the Company, before any payment or distribution of the
assets of the Company (whether capital or surplus) shall be made to or set
apart for the holders of any class or classes of stock of the Company ranking
junior to the Cumulative Preference Stock upon liquidation, the holders of
the Shares of the Cumulative Preference Stock shall be entitled to receive
payment of $25.00 per share, plus accrued dividends (whether or not earned or
declared) to the date of final distribution to such holders (and they shall
be entitled to no further payment with respect to such shares), PROVIDED that
prior to any payment to the holders of the shares of Cumulative Preference
Stock pursuant to this paragraph 5, the aggregate preferential amount payable
on liquidation, dissolution or winding up in respect of all shares then
outstanding of Convertible Preference Stock shall have been paid in full.
If, upon any liquidation, dissolution or winding up of the Company, the
assets of the Company, or proceeds thereof, distributable among the holders
of the Cumulative Preference Stock shall be insufficient to pay in full the
preferential amount aforesaid, then such assets, or the proceeds thereof,
shall be distributed among such holders ratably in accordance with the
respective amounts which would be payable on such shares if all amounts
payable thereon were paid in full. For the purpose of this paragraph 5, the
voluntary sale, lease, exchange or transfer (for cash, shares of stock,
securities or other consideration) of all or substantially all of the
property or assets of the Company to, or a consolidation or merger of the
Company with, one or more corporations shall not be deemed to be a
liquidation, dissolution or winding up, voluntary or involuntary.
6. The Company at the option of the Board of Directors may redeem all or
from time to time part of the shares of Cumulative Preference Stock at a
price of $25.00 per share plus any accrued and unpaid dividends thereon to
the redemption date (the total sum, including
17
<PAGE>
accrued dividends, so payable on any such redemption being herein referred to
as the "redemption price"). No shares of Cumulative Preference Stock shall
be redeemed or otherwise purchased by the Company unless (i) the aggregate of
the Carryforward and the PD Carryforward from the most recent fiscal year for
which such amounts have been computed is zero or (ii) the aggregate of the
Carryforward and the PD Carryforward from each of the three most recent
fiscal years for which such amounts have been computed was at least 25% less
than such aggregate of the Carryforward and the PD Carryforward from the
year before. Notice of every redemption hereunder shall be mailed to the
holders of record of the shares of Cumulative Preference Stock so to be
redeemed at their respective addresses as the same shall appear on the books
of the Company. Such notice shall be mailed at least 30 but not more than 90
days in advance of the date designated for such redemption to the holders of
record of shares so to be redeemed. In case of the redemption of a part only
of the Cumulative Preference Stock at the time outstanding, the shares so to
be redeemed shall be selected by lot or in such other manner as the Board of
Directors may determine. Shares of Cumulative Preference Stock which are
redeemed shall be retired upon redemption.
7. If, on the redemption date specified in such notice, the funds
necessary for such redemption shall have been set aside by the Company,
separate and apart from its other funds, in trust for the pro rata benefit of
the holders of the shares so called for redemption, then, notwithstanding
that any certificate for shares of Cumulative Preference Stock so called for
redemption shall not have been surrendered for cancellation, the shares
represented thereby shall no longer be deemed outstanding, the right to
receive dividends thereon shall cease to accrue from and after the date of
redemption so designated and all rights of holders of the shares of
Cumulative Preference Stock so called for redemption shall forthwith, after
such redemption date, cease and terminate, excepting only the right of the
holders thereof to receive the redemption price therefor but without
interest. Any moneys so set aside by the Company and unclaimed at the end of
six years from the date designated for such redemption shall revert to the
general funds of the Company, after which reversion the holders of such
shares so called for redemption shall
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<PAGE>
look only to the Company for payment of the redemption price. Any interest
accrued on funds so deposited shall be paid to the Company from time to time.
8. If, after the giving of such notice but before the redemption date
specified therein, the Company shall deposit with a bank or trust company in
the Borough of Manhattan, The City of New York, having a capital and surplus
of at least $50,000,000, in trust to be applied to the redemption of the
shares of Cumulative Preference Stock so called for redemption the funds
necessary for such redemption (as determined in accordance with paragraph
6), then the shares of Cumulative Preference Stock so called for redemption
shall be redeemed as of the date of such deposit; from and after the date of
such deposit all right of the holders of the shares of Cumulative Preference
Stock so called for redemption shall cease and terminate, excepting only the
right to receive the redemption price therefor, but without interest, and
such shares shall not be deemed to be outstanding. In case the holders of
shares of Cumulative Preference Stock which shall have been called for
redemption shall not, within six years after the date fixed for redemption,
claim the amount deposited with respect to the redemption thereof, any such
bank or trust company shall, upon demand, pay over to the Company such
unclaimed amounts and thereupon such bank or trust company shall be relieved
of all responsibility in respect thereof to such holder and such holder shall
look only to the Company for the payment thereof. Any interest accrued on
funds so deposited shall be paid to the Company from time to time.
9. Notwithstanding any other provision hereof, if the Company shall have
failed at any time to pay dividends in full on the Cumulative Preference
Stock, thereafter and until dividends in full, including all accrued and
unpaid dividends on the Cumulative Preference Stock outstanding, shall have
been declared and set apart for payment or paid, (a) the Company, without the
affirmative vote or consent of the holders of at least 66 2/3% of the
Cumulative Preference Stock at the time outstanding, given in person or by
proxy, either in writing or by resolution adopted at any annual or special
meeting called for the purpose, at which the holders of the Cumulative
Preference Stock shall vote separately as a class, shall not redeem less than
all of the Cumulative Preference Stock at such time outstanding and (b)
neither
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<PAGE>
the Company nor any subsidiary shall purchase any Cumulative
Preference Stock except in accordance with a purchase offer made in writing
or by publication (as determined by the Board of Directors) to all holders
of Cumulative Preference Stock upon such terms as the Board of Directors, in
their sole discretion, shall determine (which determination shall be final
and conclusive) will result in fair and equitable treatment among the holders
of Cumulative Preference Stock, PROVIDED that nothing shall prevent the
Company from completing the purchase or redemption of shares of Cumulative
Preference Stock for which the notice of redemption was initially published
prior to such default.
10. So long as any of the Cumulative Preference Stock is outstanding, the
Company will not:
(a) Declare, or pay, or set apart for payment, any
dividends (other than dividends payable in stock ranking
junior to the Cumulative Preference Stock as to
dividends or upon liquidation) or make any distribution,
on any other class or classes of stock of the Company
ranking junior to the Cumulative Preference Stock either
as to dividends or upon liquidation and will not redeem,
purchase or otherwise acquire, or permit any subsidiary
to purchase or otherwise acquire, any shares of any such
junior class if at the time of making such declaration,
payment, distribution, redemption, purchase or
acquisition, the Company shall be in default with respect
to any dividend payable on, or obligation to pay the
redemption price of, shares of Cumulative Preference
Stock, provided that, notwithstanding the foregoing, the
Company may at any time redeem, purchase or otherwise
acquire shares of stock of any such junior class in
exchange for, or out of the net cash proceeds from the
sale of, other shares of stock of any class junior as to
dividends or upon liquidation;
(b) Without the affirmative vote or consent of the
holders of at least 64 2/3% of all the Cumulative Preference
Stock at the time outstanding, given in person or by
proxy either in writing or by resolution adopted in an
annual
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<PAGE>
or special meeting called for the purpose, at
which the holders of the Cumulative Preference Stock
shall vote separately as a class, (i) create any other
class or classes of stock (in addition to the Convertible
Preferred Stock) ranking prior to the Cumulative
Preference Stock, either as to dividends or upon
liquidation, or increase the authorized number of shares
of any such other class of stock, (ii) amend, alter or
repeal any of the provisions hereof so as adversely to
affect the preferences, rights of powers of the
Cumulative Preference Stock or (iii) provide for the
merger or consolidation of the Company with any other
corporation in which the Company is not the surviving
entity if the effect of such merger or consolidation
would be substantially similar to that described in
clause (i) or (ii) above; or
(c) Without the affirmative vote or consent of the
holders of at least a majority of all the Cumulative
Preference Stock at the time outstanding given in person
or by proxy, either in writing or by resolution adopted
at an annual or special meeting called for the purpose,
at which the holders of the Cumulative Preference Stock
shall vote separately as a class, (i) increase the
authorized amount of the Cumulative Preference Stock,
(ii) create any other class or classes of stock ranking
on a parity with the Cumulative Preference Stock either
as to dividends or upon liquidation, or increase the
authorized number of shares of any such other class of
stock or (iii) provide for the merger or consolidation
of the Company with any other corporation in which the
Company is not the surviving entity if the effect of such
merger or consolidation would be substantially similar to
the described in clause (i) or (ii) above;
PROVIDED that any vote or consent required by clause (ii) of subparagraph (b)
above may be given and made effective by the filing of an appropriate
amendment of the Company's Certificate of Incorporation without obtaining the
vote or consent of the holders of the Common Stock of
21
<PAGE>
the Company, the right to give such vote or consent being expressly waived
by all holders of such Common Stock unless the action to be taken would
substantially adversely affect the rights or powers of the Common Stock; and
PROVIDED, FURTHER, that the holders of Cumulative Preference Stock will not
be entitled to participate in any vote pursuant to subparagraph (b) above if,
at or prior to the time until a quorum shall be present, when any such
alteration or change is to take effect, provision is made for the redemption
of all shares of Cumulative Preference Stock at the time outstanding in
accordance with Section 6 and Section 7 or Section 8.
11. Whenever dividends payable on the Cumulative Preference Stock shall
be in default in an aggregate amount equivalent to six full quarterly
dividends, the number of directors constituting the Board of Directors of the
Company shall be increased by two, and the holders of the Cumulative
Preference Stock shall have, in addition to any other voting rights, the
exclusive and special right, voting separately as a class, to elect two
directors of the Company to fill such newly created directorships. Whenever
such right of the holders of the Cumulative Preference Stock shall have
vested, such right may be exercised initially either at a special meeting of
such holders of the Cumulative Preference Stock called as provided in
paragraph 12, or at any annual meeting of stockholders, and thereafter at
annual meetings of stockholders. The right of the holders of the Cumulative
Preference Stock voting separately as a class to elect members of the Board
of Directors of the Company as aforesaid shall continue until such time as
all dividends accumulated in the Cumulative Preference Stock shall have been
paid in full, at which time the special right of the holders of the
Cumulative Preference Stock so to vote separately as a class for the election
of directors shall terminate, subject to reverting in the event of each and
eery subsequent default in any aggregate amount equivalent to six full
quarterly dividends.
12. At any time when such special voting power shall have vested in the
holders of the Cumulative Preference Stock as provided in paragraph 11, a
proper officer of the Company shall, upon the written request of the holders
of record of at least 10% of the Cumulative Preference Stock at the time
outstanding addressed to the Secretary of the Company, call a special meeting
of the
22
<PAGE>
holders of the Cumulative Preference Stock and of any other class or
classes of stock having voting power, for the purpose of electing directors.
Such meeting shall be held at the earliest practicable date at such place as
may be specified in the notice of meeting. If such meeting shall not be
called by the proper officers of the Company within twenty days after
personal service of said written request upon the Secretary of the Company,
or within twenty days after mailing the same within the United States of
America, by registered or certified mail addressed to the Secretary of the
Company at its principal office, then the holders of record of at least 10%
of the Cumulative Preference Stock at the time outstanding may designate in
writing one of their number to call such meeting at the expense of the
Company, and such meeting may be called by such person so designated upon the
notice required for annual meetings of stockholders and shall be held at the
place for the holding of annual meetings of stockholders of the Company. Any
holder of Cumulative Preference Stock so designated shall have access to the
stock books of the Company for the purpose of causing meetings of
stockholders to be called pursuant to these provisions. Notwithstanding the
provisions of this paragraph 12, no such special meeting shall be called
during the period within ninety days immediately preceding the date fixed for
the next annual meeting of stockholders.
13. At any meeting held for the purpose of electing directors at which
the holders of the Cumulative Preference Stock shall have the special right,
voting separately as a class, to elect directors as provided in paragraph 11,
the presence, in person or by proxy, of the holders of 33 1/3% of the
Cumulative Preference Stock at the time outstanding shall be required to
constitute a quorum of such class for the election of any director by the
holders of the Cumulative Preference stock as a class. At any such meeting
or adjournment thereof, (a) the absence of a quorum of the Cumulative
Preference Stock shall not prevent the election of directors other than those
to be elected by the Cumulative Preference Stock voting as a class and the
absence of a quorum for the election of such other directors shall not
prevent the election of the directors to be elected by the Cumulative
Preference Stock voting as a class, and (b) in the absence of either or both
such quorums, a majority of the holders present in person or by proxy of the
stock or
23
<PAGE>
stocks which lack a quorum shall have the power to adjourn the meeting for
the election of directors which they are entitled to elect from time to time
until a quorum shall be present, without notice other than announcement at
the meeting.
14. During any period when the holders of the Cumulative Preference
Stock have the right to vote as a class for directors as provided in
paragraph 11, (a) the directors so elected by the holders of the Cumulative
Preference Stock shall continue in office until the next annual meeting or
until their successors shall have been elected by such holders of until
termination of the right of the holders of the Cumulative Preference Stock to
vote as a class for directors, and (b) any vacancies in the Board of
Directors shall be filled only by vote of a majority (even if that be only a
single director) of the remaining directors theretofore elected by the
holders of the class or classes of stock which elected the director whose
office shall have become vacant. To the extent permitted by applicable law,
immediately upon any termination of the right of the holders of the
Cumulative Preference Stock to vote as a class for directors as provided in
paragraph 11, (a) the term of office of the directors then in office so
elected by the holders of the Cumulative Preference Stock shall terminate,
and (b) the number of directors shall be such number as may be provided for
in the bylaws, irrespective of any increase made pursuant to the provisions
of paragraph 11.
15. No holder of Cumulative Preference Stock as such shall have any
preemptive right to subscribe to stock, obligations, warrants, rights; to
subscribe to stock or other securities of the Company of any class, whether
now or hereafter authorized.
16. Except as may be required under the applicable statutory laws and
except for the special voting powers provided with respect to all shares of
the Cumulative Preference Stock set forth above, no holder of Cumulative
Preference Stock as such shall have any voting powers on any matters upon
which stockholders of the Company have the right to vote.
17. For the purposes hereof:
24
<PAGE>
(a) The term "outstanding", when used in reference to shares of
stock, shall mean issued shares, excluding shares held by the Company or its
affiliates and shares called for redemption, funds for the redemption of
which shall have been deposited in trust;
(b) The amount of dividends "accrued" or any share of Cumulative
Preference Stock as at any dividend date shall be deemed to be the amount of
any unpaid dividends accumulated thereon to and including such dividend date,
whether or not earned or declared, and the amount of dividends "accrued" on
any share of Cumulative Preference Stock as at any date other than a dividend
date shall be calculated as the amount of any unpaid dividends accumulated
thereon to and including the last preceding dividend date, whether or not
earned or declared;
(c) Any class or classes of stock of the Company shall be deemed
to rank:
(i) prior to the Cumulative Preference Stock either as
to dividends or upon liquidation, if the holders of such
class or classes shall be entitled to the receipt of
dividends or of amounts distributable upon liquidation,
dissolution or winding up, as the case may be, in
preference or priority to the holders of the Cumulative
Preference Stock;
(ii) on a parity with the Cumulative Preference Stock
either as to dividends or upon liquidation, whether or
not the dividend rates, dividend payment dates, or
redemption or liquidation prices per share thereof be
different from those of the Cumulative Preference Stock,
if the holders of such class or classes of stock shall be
entitled to the receipt of dividends or of amounts
distributable upon liquidation, dissolution or winding
up, as the case may be, in proportion to their respective
dividend rates or liquidation prices, without preference
or priority one over the other with respect to the
holders of the Cumulative Preference Stock;
(iii) junior to the Cumulative Preference Stock either
as to dividends or upon liquidation if the rights of the
holders of such
25
<PAGE>
class or classes shall be subject or subordinate to the
rights of the holders of the Cumulative Preference Stock
in respect of the receipt of dividends or of amounts
distributable upon liquidation, dissolution or winding
up, as the case may be.
C. PROVISIONS RELATING TO COMMON STOCK
No holder of Common Stock of the Company shall be entitled as of right to
purchase or subscribe for any part of the unissued stock of the Company or of
any stock of the Company to be issued by reason of any increase of the
authorized capital stock of the Company or of the number of its shares, or of
bonds, certificates of indebtedness, debentures, or other securities
convertible into stock of the Corporation or of any stock of the Company
purchased by it or its nominee or nominees.
The holders of Common Stock shall have the right to one vote per share on
all questions to the exclusion of all other classes of stock, except as by
law expressly provided or as otherwise herein expressly provided with respect
to the holders of any other class or classes of stock.
FIFTH: The number of directors of the Company shall be as fixed from time
to time by, or in the manner provided in, the by laws of the Company.
Election of directors need not be by ballot.
SIXTH: In furtherance and not in limitation of the powers conferred by
law, (a) the Board of Directors is expressly authorized to adopt, amend or
repeal the by-laws of the Company in any manner no inconsistent with the laws
of the State of Delaware or the Certificate of Incorporation of the Company,
subject to the power of the stockholders to adopt, amend or repeal the
by-laws or to limit or restrict the power of the Board of Directors to adopt,
amend or repeal the bylaws and (b) the Company may in its bylaws confer
powers and authorities upon its Board of Directors in addition to those
conferred upon it by statute.
SEVENTH: The Company reserves the right to increase or decrease its
authorized capital stock, or any class or series thereof, or to reclassify
the same, and to amend, alter, change or repeal any provision contained
26
<PAGE>
in the Certificate of Incorporation under which the Company is organized or
in any amendment thereto, in the manner now or hereafter prescribed in this
Certificate of Incorporation and by law, and all rights conferred upon
stockholders in said Certificate of Incorporation or any amendment thereto
are granted subject to this reservation.
EIGHTH: The Company shall indemnify any person who is or was a party to
any threatened, pending or completed action, suit or proceeding (regardless
of whether commenced before or after the Consummation Date as defined in the
Plan) whether civil, criminal, administrative or investigative (including,
without limitation, any action, suit or proceeding by or in the right of the
Company or any partnership, corporation, joint venture, trust (other than the
Trust (as defined in the Plan) or the PD Trust (as defined in the Plan)) or
other enterprise with respect to which such person serves or has served as a
director, officer, fiduciary, employee or agent) by reason of the fact that
such person is or was at any time a director, officer, fiduciary, employee or
agent of the Company, including any predecessor thereto or constituent
thereof, as a director, officer, fiduciary, employee or agent of another
corporation, partnership, joint venture, trust (other than the Trust (as
defined in the Plan) or the PD Trust (as defined in the Plan)) or other
enterprise and irrespective of when the acts or omissions involved in such
action, suit or proceeding occurred or allegedly occurred against all
expenses (including attorneys' fees and expenses), judgments, fines and
amounts paid in settlement, whenever paid or payable, to the fullest extent
and in the manner, (including by way of advancement of costs and expenses)
that a corporation organized under Delaware law is from time to time
permitted to indemnify its directors, officers, fiduciaries, employees and
agents, but only to the extent that such expenses, judgments, fines and
amounts would not constitute Trust Claims, as defined in Exhibit A to the
Plan of Reorganization.
NINTH: Except as provided below, no director of the Company shall be
liable to the Company or its stockholders for monetary damages arising from a
breach of any duty. Nothing in this Article Ninth shall eliminate or limit
the liability of any director for any act, omission or transaction or under
any statutory provision
27
<PAGE>
if and to the extent that the General Corporation Law of the State of
Delaware does not permit such elimination or limitation.
TENTH: No action which is required by the General Corporation Law of the
State of Delaware to be taken at any annual or special meeting of the
stockholders of the Company may be taken without such annual or special
meeting.
IN WITNESS WHEREOF, the undersigned, comprising the officers of Manville
Corporation designated by order of the Court to execute and acknowledge this
Restated Certificate of Incorporation do hereby execute this Restated
Certificate of Incorporation and do hereby acknowledge that the facts stated
herein are true, this 28th day of November, 1988.
/s/ W.T. Stephens
-------------------------------
W.T Stephens, PRESIDENT AND
CHIEF EXECUTIVE OFFICER
STATE OF COLORADO) /s/ Robert A. Boardman
--------------------------------
) ss.: Robert A. Boardman, VICE
COUNTY OF DENVER ) PRESIDENT AND SECRETARY
SWORN TO AND SUBSCRIBED before me
this 28th day of November, 1988
[SEAL] /s/ Shirley A. Levy
---------------------------------
NOTARY PUBLIC
My commission expires 1/22/90
28
<PAGE>
CERTIFICATE OF AMENDMENT
OF
RESTATED CERTIFICATE OF INCORPORATION
OF
MANVILLE CORPORATION
----------------------
PURSUANT TO SECTION 103 AND SECTION 242
OF THE GENERAL CORPORATION LAW OF
THE STATE OF DELAWARE
----------------------
The undersigned, W. Thomas Stephens and Richard B. Von Wald, certify that
they are the President and Secretary, respectively, of Manville Corporation,
a corporation organized and existing under the laws of the State of Delaware
(the "Company"), and do hereby further certify as follows:
1. The name of the Company is Manville Corporation.
2. This Certificate of Amendment was unanimously approved by the Board
of Directors of the Company and thereafter duly adopted by the stockholders
thereof, in accordance with the provisions of Section 242 of the General
Corporation Law of the State of Delaware.
3. Article FIRST of the Restated Certificate of Incorporation of the
Company is hereby amended to read in its entirety as follows:
FIRST: The name of the corporation is Schuller Corporation (hereinafter
the "Company").
IN WITNESS WHEREOF, Manville Corporation has caused this Certificate of
Amendment to be signed by W. Thomas Stephens, its President, and attested by
Richard B. Von Wald, its Secretary, this 29th day of March, 1996.
MANVILLE CORPORATION
By: /s/ W. Thomas Stephens
--------------------------
W. Thomas Stephens
Attest:
- ------------------------------
Richard B. Von Wald
29
<PAGE>
SECOND AMENDED AND RESTATED SUPPLEMENTAL AGREEMENT
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
MANVILLE PERSONAL INJURY
SETTLEMENT TRUST
SECOND AMENDED AND RESTATED
SUPPLEMENTAL AGREEMENT
----------
DATED AS OF APRIL 5, 1996
----------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
SECOND AMENDED AND RESTATED
SUPPLEMENTAL AGREEMENT
TABLE OF CONTENTS
PAGE
----
ARTICLE I
DEFINITIONS
ARTICLE II
PAYMENTS
2.01. [Reserved] . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2.02. [Reserved] . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.03. CERTAIN PAYMENT OBLIGATIONS. . . . . . . . . . . . . . . . . . . 2
2.04. REIMBURSEMENT OBLIGATIONS. . . . . . . . . . . . . . . . . . . . 2
2.05. [Reserved] . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
ARTICLE III
STOCK
3.01. [Reserved] . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
3.02. [Reserved] . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
3.03. RIGHT OF FIRST REFUSAL . . . . . . . . . . . . . . . . . . . . . 3
3.04. REGISTRATION RIGHTS. . . . . . . . . . . . . . . . . . . . . . . 8
ARTICLE IV
GENERAL COVENANTS
4.01. COVENANTS OF THE TRUST . . . . . . . . . . . . . . . . . . . . . 17
4.02. COVENANTS OF THE COMPANY . . . . . . . . . . . . . . . . . . . . 18
4.03. COMPUTATION DISPUTE RESOLUTION . . . . . . . . . . . . . . . . . 22
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
5.01. ORGANIZATION, ETC. . . . . . . . . . . . . . . . . . . . . . . . 23
5.02. AUTHORIZATION. . . . . . . . . . . . . . . . . . . . . . . . . . 23
ARTICLE VI
MISCELLANEOUS
6.01. TERMINATION. . . . . . . . . . . . . . . . . . . . . . . . . . . 23
6.02. AMENDMENTS; WAIVER . . . . . . . . . . . . . . . . . . . . . . . 24
i
<PAGE>
SECOND AMENDED AND RESTATED SUPPLEMENTAL AGREEMENT
PAGE
----
6.03. SEVERABILITY . . . . . . . . . . . . . . . . . . . . . . . . . . 24
6.04. NOTICES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
6.05. COUNTERPARTS . . . . . . . . . . . . . . . . . . . . . . . . . . 26
6.06. SUCCESSORS AND ASSIGNS . . . . . . . . . . . . . . . . . . . . . 26
6.07. ENTIRE AGREEMENT; NO WAIVER. . . . . . . . . . . . . . . . . . . 26
6.08. HEADINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
6.09. GOVERNING LAW. . . . . . . . . . . . . . . . . . . . . . . . . . 26
6.10. THIRD PARTIES. . . . . . . . . . . . . . . . . . . . . . . . . . 26
6.11. SURVIVAL OF REPRESENTATIONS, WARRANTIES, COVENANTS AND
AGREEMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . 27
6.12. [Reserved] . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
6.13. AGREEMENTS OF THE COMPANY AND THE TRUST WITH RESPECT TO
CERTAIN LIENS . . . . . . . . . . . . . . . . . . . . . . . . 27
6.14. AUTOMATIC WAIVERS UNDER THE PD SUPPLEMENTAL AGREEMENT . . . . . 27
6.15. EFFECTIVE DATE . . . . . . . . . . . . . . . . . . . . . . . . . 28
ii
<PAGE>
SECOND AMENDED AND RESTATED SUPPLEMENTAL AGREEMENT
SECOND AMENDED AND RESTATED
SUPPLEMENTAL AGREEMENT
Agreement dated as of April 5, 1996 between Manville Personal Injury
Settlement Trust (the "Trust") and Schuller Corporation (formerly known as
Manville Corporation) (the "Company").
WHEREAS, the Company and the Trust have heretofore entered into the
Supplemental Agreement dated November 28, 1988, which was amended and restated
as of November 15, 1990 and further amended on August 25, 1993 and September 22,
1994 (as so amended and restated, the "Supplemental Agreement");
WHEREAS, the Company and the Trust are parties to a Profit Sharing
Exchange Agreement dated October 25, 1995, which, INTER ALIA, contemplates the
execution of this Second Amended and Restated Supplemental Agreement; and
WHEREAS, pursuant to Section 6.02 of the Supplemental Agreement the
Company and the Trust are empowered to modify, supplement or amend the
Supplemental Agreement (other than Section 6.13 thereof).
NOW, THEREFORE, the parties hereto agree to amend and restate the
Supplemental Agreement in its entirety as follows:
ARTICLE I
DEFINITIONS
Unless the context requires otherwise, all capitalized terms not
otherwise defined herein have the meanings assigned to them in Exhibit A hereto.
Terms defined in Exhibit A hereto are not intended to change any of the
definitions used in the Plan. All references to the Supplemental Agreement
hereinafter made or made in any other document or instrument shall refer to the
Supplemental Agreement as amended and restated hereby.
ARTICLE II
PAYMENTS
2.01. [Reserved]
1
<PAGE>
SECOND AMENDED AND RESTATED SUPPLEMENTAL AGREEMENT
2.02. [Reserved]
2.03. CERTAIN PAYMENT OBLIGATIONS.
(a) [Reserved]
(b) The Company shall pay to the Trust for each Fiscal Year from and
including the Fiscal Year in which this Agreement enters into effect so long as
the Trust exists, on or before April 30 of the next Fiscal Year, an amount equal
to the Insurance Indemnification Amount for such Fiscal Year, PROVIDED that the
payment under this Section 2.03 with respect to any Fiscal Year shall not exceed
an amount equal to 30% of Profits for such Fiscal Year.
2.04. REIMBURSEMENT OBLIGATIONS. (a) The Trust shall indemnify the
Company in respect of all costs, expenses, losses and damages (including, except
as limited by Paragraph (c) below, fees and expenses of counsel and other
litigation and settlement costs) when and as incurred by the Company in
connection with any Trust Claim or Indemnification Liability asserted against
the Company, PROVIDED that the Company shall use its best efforts to cause such
Trust Claim or Indemnification Liability to be redirected against the Trust, as
contemplated by and in accordance with the Plan and the Trust Agreement.
(b) The Company shall indemnify the Trust in respect of all costs,
expenses, losses and damages (including, except as limited by Paragraph (c)
below, fees and expenses of counsel and other litigation and settlement costs)
when and as incurred by the Trust in connection with any obligations or
liabilities of the Debtors not assumed by the Trust pursuant to the Trust
Agreement, any obligations or liabilities imposed upon the Company by the terms
of the Plan, any income taxes imposed upon the Trust at any time, or any
challenge to the Plan.
(c) Each party indemnified under the provisions of this Section 2.04,
upon receipt of written notice of any claim or the service of summons or other
initial legal process upon it in any action instituted against it, in respect of
which indemnity may be sought on account of any indemnity agreement contained in
this Section 2.04, shall promptly give written notice of such claim, or the
commencement of such action, or threat thereof, to the party from whom indemnity
shall be sought hereunder. Such indemnifying party shall be entitled at its own
expense to
2
<PAGE>
SECOND AMENDED AND RESTATED SUPPLEMENTAL AGREEMENT
participate in the defense of such claim or action, or, if it shall elect, to
assume such defense, in which event (i) such defense shall be conducted by
counsel chosen by such indemnifying party, which counsel shall be satisfactory
to the indemnified party against whom such claim is asserted or who is the
defendant in such action, and (ii) such indemnified party may retain additional
counsel PROVIDED that such indemnified party shall bear the fees and expenses of
any additional counsel retained by it. If the indemnifying party shall elect
not to assume the defense of such claim or action, such indemnifying party will
reimburse such indemnified party for the reasonable fees and expenses of any
counsel retained by it, and shall be bound by the results obtained by the
indemnified party; PROVIDED that no such claim or action shall be settled
without the written consent of the indemnifying party.
2.05. [Reserved]
ARTICLE III
STOCK
3.01. [Reserved]
3.02. [Reserved]
3.03. RIGHT OF FIRST REFUSAL.
(a) SALES OTHER THAN BY TENDER OFFER. Prior to any sale by the Trust
(other than pursuant to a Tender Offer or pursuant to an underwritten public
offering) of any shares of Company Common Stock to a Person or "group" (as
defined in Rule 13d-5(b) under the Exchange Act) which, to the knowledge of the
Trust, owns, or will own as a result of such purchase, of record or
beneficially, more than 15% of the shares of Company Common Stock then
outstanding, the Trust shall give the Company (or its designee(s)) the
opportunity to purchase such shares in the following manner:
(i) The Trust shall give written notice (the "Offering Notice")
to the Company of such proposed sale, specifying the number of shares
proposed to be sold, the price per share, the identity of the purchaser and
the form of the transaction.
3
<PAGE>
SECOND AMENDED AND RESTATED SUPPLEMENTAL AGREEMENT
(ii) The Company shall have the right, exercisable by written
notice (the "Offering Exercise Notice") to the Trust given within 30
Business Days after the date the Offering Notice is given, to purchase (or
to cause its designee(s) to purchase) all, but not less than all, of the
shares specified in such Offering Notice for cash at the price set forth
therein.
(iii) The price per share to be paid by the Company (or its
designee(s)) (the "Purchase Price") in a purchase pursuant to an Offering
Exercise Notice shall be the third party buyer's price, or shall be
determined in the manner the third party buyer's price was to be
determined.
(iv) Upon delivery of the Offering Exercise Notice (and
notwithstanding any designation by the Company of a third person as
purchaser), the Company shall be legally obligated to consummate the
purchase contemplated thereby, and shall be liable in damages to the Trust
if the purchase is not consummated for any reason other than the fault of
the Trust. The closing of the purchase of the shares of Company Common
Stock pursuant to an Offering Exercise Notice shall take place on a date
designated by the Company, which date shall not be later than seven
Business Days after the date the Offering Exercise Notice is given. At
such closing, an aggregate amount equal to the Purchase Price times the
number of shares proposed to be sold shall be paid by the Company to the
Trust and the certificate or certificates representing such shares,
accompanied by stock powers duly executed in blank or duly executed
instruments of transfer and any other documents that are necessary to
transfer good and marketable title to such shares, shall be delivered by
the Trust to the Company (or its designee(s)).
(v) If the Company does not timely give the Offering Exercise
Notice hereunder, the shares as to which the Offering Notice was given may
be sold in the transaction described in such Offering Notice within 30 days
after the expiration of the Company's right to give the Offering Exercise
Notice.
(b) TENDER OFFERS. The Trust may tender shares of Company Common
Stock into any Tender Offer PROVIDED that the Trust shall not tender shares of
Company Common Stock prior to the date by which the Company is required to take
a position with
4
<PAGE>
SECOND AMENDED AND RESTATED SUPPLEMENTAL AGREEMENT
respect to the Tender Offer pursuant to Rule 14e-2 under the Exchange Act (or
any successor provision), and PROVIDED, FURTHER, that prior to any tender of
shares by the Trust pursuant to any Tender Offer which the Company has opposed
in a Schedule 14D-9 filed with the Commission and in which, to the knowledge of
the Trust, the offeror, together with any "group" (as defined in Rule 13d-5(b)
under the Exchange Act) of which such offeror is a member, owns, or would own if
the offeror purchased the maximum number of shares sought pursuant to the Tender
Offer, of record or beneficially, more than 15% of the shares of Company Common
Stock then outstanding, the Trust shall give the Company (or its designee(s))
the opportunity to purchase such shares in the following manner:
(i) Prior to tendering any shares of Company Common Stock
pursuant to any such Tender Offer, the Trust shall give written notice (the
"Tender Notice") to the Company of its intention to tender, specifying the
number of shares proposed to be tendered (the "Tendered Shares"). A Tender
Notice shall be deemed to relate to any Tender Offer outstanding at the
time such Tender Notice is given, PROVIDED that a Tender Notice shall not
be deemed to relate to a Tender Offer outstanding at the time the Tender
Notice is given if (x) the Tender Notice was given less than five Business
Days prior to the then scheduled expiration of such Tender Offer and (y)
such scheduled expiration was not subsequently changed to a time more than
five Business Days after the time when the Tender Notice was given. A
Tender Notice shall also be deemed to relate to any Tender Offer not
outstanding at the time such Tender Notice is given if such Tender Offer is
outstanding at any time prior to the Cutoff Time (as hereinafter defined)
of any other Tender Offer to which the Tender Notice relates. The "Cutoff
Time" for any Tender Offer shall mean the earlier of (x) two Business Days
prior to the earliest expiration of such Tender Offer (the term
"expiration" as used herein shall not be deemed to include termination by
the offeror prior to the scheduled expiration) and (y) two Business Days
prior to the end of any proration period relating to such Tender Offer
(PROVIDED that this Clause (y) shall only apply if the Tender Notice was
given at least five Business Days prior to the end of such proration
period). If, after giving a Tender Notice, the Trust determines not to
tender into any Tender Offer to which the Tender Notice relates (which the
Trust may do at any time prior to receipt of a Tender Exer-
5
<PAGE>
SECOND AMENDED AND RESTATED SUPPLEMENTAL AGREEMENT
cise Notice, as hereinafter contemplated), the Trust shall promptly advise
the Company thereof by giving written notice rescinding such Tender Notice.
(ii) The Company shall have the right, exercisable by written
notice to the Trust (the "Tender Exercise Notice") actually received by the
Trust prior to the earliest Cutoff Time of any Tender Offer to which the
Tender Notice relates (the "Tender Exercise Deadline"), to purchase (or to
cause its designee(s) to purchase) all, but not less than all, of the
Tendered Shares specified in such Tender Notice, for cash, at the Purchase
Price (as hereinafter defined with respect to this Section 3.03(b)). No
extension of the expiration date or proration period under any Tender
Offer, which extension occurs subsequent to the Tender Exercise Deadline,
shall be deemed to reinstate or extend beyond the Tender Exercise Deadline
the Company's right to give a valid Tender Exercise Notice under this
Section 3.03(b). The "Purchase Price" as used in this Section 3.03(b)
shall mean the highest price per share of Company Common Stock paid or
payable (or if no price was paid or payable, the highest price per share
offered) at any time by any offeror pursuant to any Tender Offer to which
the Tender Notice relates.
(iii) Upon delivery of the Tender Exercise Notice (and
notwithstanding any designation by the Company of a third party as
purchaser), the Company shall be legally obligated to consummate the
purchase contemplated thereby and shall be liable in damages to the Trust
if for any reason the purchase is not consummated. An aggregate amount
equal to the Purchase Price times the number of Tendered Shares shall be
paid by the Company to the Trust not more than ten Business Days after the
earlier of the date on which (x) all Tender Offers to which the Tender
Notice relates have expired or been terminated without any shares of
Company Common Stock being purchased thereunder and (y) shares of Company
Common Stock are first purchased by any offeror pursuant to a Tender Offer
to which the Tender Notice relates. The certificate or certificates
representing the Tendered Shares, accompanied by stock powers duly executed
in blank or duly executed instruments of transfer and any other documents
that are necessary to transfer good and marketable title to such Tendered
Shares, shall promptly be delivered by the Trust to the Company (or its de-
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SECOND AMENDED AND RESTATED SUPPLEMENTAL AGREEMENT
signee(s)) upon the Trust's receipt of such payment. If any Tender Offer
to which the Tender Notice relates remains outstanding at the date such
payment is to be made by the Company to the Trust, the amount of such
payment shall be calculated as though each such outstanding Tender Offer
would expire without any increase in the price being offered thereunder.
If at any time shares of Company Common Stock are purchased by any offeror
pursuant to any Tender Offer to which the Tender Notice relates at a price
per share which exceeds the per share amount previously paid by the Company
to the Trust with respect to Tendered Shares, the Company shall pay to the
Trust within three Business Days after such higher price is paid or becomes
payable an amount in cash equal to the product of the number of Tendered
Shares times such excess.
(iv) If the Company does not give a Tender Exercise Notice prior
to the Tender Exercise Deadline, the Tendered Shares may be sold to any
offeror pursuant to any Tender Offer to which the Tender Notice relates,
PROVIDED that if such Tendered Shares are not tendered pursuant to any such
Tender Offer, the Company shall again have a right of first refusal under
the terms of this Section 3.03(b) with respect to any shares of Company
Common Stock subsequently proposed to be tendered by the Trust pursuant to
any other Tender Offer.
(c) PURCHASE PRICE. For purposes of this Section 3.03, if the
consideration paid or offered by any third party consists of all cash, the price
paid or offered for purposes of determining the Purchase Price shall be the
amount of the cash paid or offered. If the consideration paid or offered by any
third party consists in whole or in part of property (including debt
instruments) other than cash, the price paid or offered for purposes of
determining the Purchase Price shall be the amount of cash paid or offered, if
any, plus the value of the property other than cash. If the Trust has a choice
between cash and property other than cash, the price paid or offered for
purposes of determining the Purchase Price shall be the higher of the cash or
the value of such property. The value of any property other than cash will be
determined as promptly as practicable by agreement between a nationally
recognized investment banker selected by the Company and a nationally recognized
investment banker selected by the Trust (or if such investment bankers have not
agreed upon a value for such property within three Business
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SECOND AMENDED AND RESTATED SUPPLEMENTAL AGREEMENT
Days after appointment, by a third nationally recognized investment banker
selected by the investment bankers for the Trust and the Company, or if such
investment bankers cannot agree on a third investment banker, by an investment
banker selected by the President of the Securities Industry Association). If
either the Trust or the Company fails to appoint an investment banker within two
Business Days after the other's request, the investment banker appointed by the
other shall make the determinations contemplated by this Section 3.03(c) in its
sole professional judgment. The value of any securities shall be the fair
market value of such securities determined on a fully distributed basis, and the
value of any property other than cash that does not consist of securities shall
be the fair market value of such property. In the event a determination of the
value of property other than cash under this Section 3.03(c), is required, the
payment provided for in Section 3.03(a) or (b) shall initially be made with
respect to any cash that had been offered to the Trust and any property to the
extent to which its value has been agreed upon. Any additional payment due to
the Trust on account of property other than cash for which a value determination
is required hereunder shall be made immediately following, and in accordance
with, such value determination.
3.04. REGISTRATION RIGHTS.
(a) SHELF REGISTRATION. Whenever, from time to time, the Trust shall
so request in writing and to the extent permitted by law, the Company shall use
its best efforts to register all shares of Company Common Stock held by the
Trust (or a portion of such shares, if so requested by the Trust) under Rule 415
under the Securities Act (or an equivalent or successor provision) (a "Shelf
Registration") and shall keep such registration in effect at all times that the
Trust holds any shares of Company Common Stock or until the Trust notifies the
Company in writing that the registration no longer need remain effective. If
either the Trust or the Company deems it necessary to obtain a determination
from the appropriate regulatory authorities that a Shelf Registration is
permitted by law, the Company shall use its best efforts, in cooperation with
the Trust, to obtain such a determination.
(b) REGISTRATION UPON REQUEST. If at any time a Shelf Registration
is not in effect with respect to all shares of Company Common Stock issued
directly to the Trust by the Company and held at such time by the Trust, and the
Trust shall request in writing that the Company effect the registration under
the
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SECOND AMENDED AND RESTATED SUPPLEMENTAL AGREEMENT
Securities Act of any shares of Company Common Stock held by it (which request
shall specify the aggregate number of shares intended to be offered and sold by
the Trust, shall describe the nature or method of the proposed offer and sale
thereof and shall contain an undertaking by the Trust to cooperate with the
Company in order to permit the Company to comply with all applicable
requirements of the Securities Act and the rules and regulations thereunder and
to obtain acceleration of the effective date of the registration statement), the
Company shall, as expeditiously as possible, use its best efforts to effect the
registration of the shares which the Trust has requested it to register on an
appropriate form under the Securities Act and to keep such registration in
effect for a period of nine months or for such lesser period as shall be
required to complete the distribution of all the shares covered thereby. The
registration rights contemplated by this Section 3.04(b) may be exercised from
time to time in the discretion of the Trust with respect to all or any part of
the shares of Company Common Stock that the Trust is permitted under this
Agreement to sell at any such time, PROVIDED that the Company shall have no
obligation to file a registration statement in any January or earlier than two
months after the date on which any other registration statement filed pursuant
to Sections 3.04(a) or (b) of this Agreement ceases to be in effect.
(c) REGISTRATION PROCEDURES. At any time that the Company is
obligated to use its best efforts to effect the registration under the
Securities Act of any shares of Company Common Stock held by the Trust pursuant
to Sections 3.04(a) or (b), the Company shall, as expeditiously as possible:
(i) prepare and file with the Commission a registration
statement on the appropriate form with respect to such shares and use its
best efforts to cause such registration statement to become effective;
(ii) before filing a registration statement or prospectus or any
amendments or supplements thereto, furnish to the Trust and its counsel
(and to any Person designated by the Trust or such counsel) copies of all
documents proposed to be filed with the Commission, which documents will be
subject to the review and comment of the Trust and such counsel, and, if
requested by such counsel, to the insertion of material that, in the
judgment of such counsel, should be included (subject, however, to the
reasonable approval of counsel to the Company);
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SECOND AMENDED AND RESTATED SUPPLEMENTAL AGREEMENT
(iii) take such action (including filing with the Commission
amendments and supplements to the registration statement and the prospectus
used in connection therewith) as may be necessary to keep such registration
statement effective for the period of time required under Section 3.04(a)
or (b);
(iv) furnish to the Trust and each underwriter of the shares
being sold such number of copies of (w) such registration statement
(including all exhibits thereto), (x) each amendment and supplement thereto
(in each case including all exhibits thereto), (y) the prospectus included
in such registration statement (including each preliminary prospectus) and
(z) such other documents, as the Trust and each such underwriter may
reasonably request in order to facilitate the distribution of such shares;
(v) promptly deliver to the Trust, each managing underwriter of
the shares, and their respective counsel copies of all correspondence
between the Commission and the Company, its counsel or auditors and all
memoranda relating to discussions with the Commission with respect to any
such registration statement;
(vi) furnish, at the request of the Trust, on each date that
such shares are delivered to underwriters for sale pursuant to such
registration statement or, if such shares are not being sold through
underwriters, on each date the registration statement with respect to such
shares becomes effective (or, if the shares are registered pursuant to a
Shelf Registration, on the date such Shelf Registration becomes effective
and on each date a post-effective amendment of such Shelf Registration
becomes effective) (x) an opinion, dated such date, of counsel representing
the Company for the purposes of such registration, addressed to the
underwriters, if any, and to the Trust, substantially to the effect that
(A) the registration statement, related prospectus, and each amendment or
supplement thereto (including documents incorporated by reference therein),
complied, when declared effective with respect to registration statements
and otherwise when filed, as to form in all material respects with the
requirements of the Securities Act or the Exchange Act, as the case may
be, and the applicable rules and regulations of the Commission thereunder
(except that such counsel need express no opinion as to the financial
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SECOND AMENDED AND RESTATED SUPPLEMENTAL AGREEMENT
statements and other financial data contained therein), (B) such counsel
believes that the registration statement (and any amendment thereto or
document incorporated by reference therein), at the time such registration
statement became effective (or in the case of an amendment or document
incorporated by reference, at the time it was filed), did not contain any
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein
not misleading and that the prospectus as amended or supplemented, if
applicable (including documents incorporated by reference therein), on the
date of such opinion, does not contain any untrue statement of a material
fact or omit to state a material fact necessary in order to make the
statements, in the light of the circumstances under which they were made,
not misleading (except that such counsel need express no belief as to the
financial statements and other financial data contained in the registration
statement or the prospectus), (C) all of the shares of Company Common Stock
then outstanding have been duly authorized, validly issued and are fully
paid and nonassessable, and (D) such other legal matters with respect to
the registration statement and the Company as the underwriters, if any, or
the Trust may reasonably request and (y) a letter, dated such date, from
the Independent certified public accountants of the Company, addressed to
the underwriters, if any, and to the Trust, stating that they are
"independent" certified public accountants within the meaning of the
Securities Act and that the financial statements and other financial data
of the Company included in the registration statement or the prospectus, or
any amendment or supplement thereto (including, in each case, documents
incorporated by reference therein), comply as to form in all material
respects with the applicable accounting requirements of the Securities Act;
such letter from the accountants shall additionally cover such other
financial matters (including information as to the period ending not more
than five Business Days prior to the date of such letter) with respect to
the registration statement that is of the type ordinarily included in
accountants' "comfort letters" to underwriters as the underwriters, if any,
or the Trust may reasonably request;
(vii) use its best efforts to register or qualify the shares
covered by such registration statement under the securities or blue sky
laws of such jurisdictions in the
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SECOND AMENDED AND RESTATED SUPPLEMENTAL AGREEMENT
United States as the Trust shall reasonably request, considering the nature
and size of the offering, and do any and all other acts and things which
may be necessary or desirable to enable the Trust and any underwriter of
such shares to consummate the public sale or other disposition in each such
jurisdiction of such shares, PROVIDED that in connection therewith the
Company shall not be required to file a general consent to service of
process in any jurisdiction or to qualify to do business in any
jurisdiction where it is not then qualified;
(viii) notify the Trust and any underwriter of such shares, at
any time when a prospectus relating to such shares is required to be
delivered under the Securities Act, of the happening of any event as a
result of which the prospectus included in such registration statement
contains an untrue statement of a material fact or omits to state any
material fact required to be stated therein or necessary to make the
statements therein not misleading, and promptly prepare a supplement or
amendment to such prospectus so that, as thereafter delivered to the
purchasers of such shares, such prospectus will not contain an untrue
statement of a material fact or omit to state any material fact required to
be stated therein or necessary to make the statements therein not
misleading;
(ix) enter into such customary agreements (including an
underwriting agreement in customary form) and take all such other customary
actions as the Trust or the underwriters of such shares reasonably request
in order to expedite or facilitate the disposition of the shares;
(x) make available, upon reasonable notice and during business
hours, for inspection by the Trust, any underwriter participating in any
distribution pursuant to such registration statement and any attorney,
accountant or other agent retained by the Trust or any such underwriter
(collectively, the "Inspectors"), all financial and other records,
pertinent corporate documents and properties of the Company (collectively,
the "Records") as shall be reasonably necessary to enable them to exercise
their due diligence responsibility, and cause the Company and its officers,
directors and employees to supply all information reasonably requested by
any such Inspector, in connection with such registration statement;
PROVIDED that none of such Records
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SECOND AMENDED AND RESTATED SUPPLEMENTAL AGREEMENT
shall be photocopied by the Inspectors and any such inspection shall be
conducted in a manner that does not unreasonably interfere with the normal
business operations of the Company. Records which the Company determines,
in good faith, to be confidential and which it notifies the Inspectors in
writing are confidential shall not be disclosed to the Inspectors and only
may be reviewed by counsel for the Trust and for any underwriter;
(xi) notify the Trust of any stop order issued or, to the
knowledge of the Company, threatened by the Commission and take all
reasonable actions required to prevent the entry of such stop order or to
remove it if entered;
(xii) otherwise use its best efforts to comply with all
applicable rules and regulations of the Commission; and
(xiii) if the Trust has requested registration of shares pursuant
to Section 3.04(b), notify the PD Trust that the Trust has requested a
registration of shares of Company Common Stock pursuant to this Agreement
and give the PD Trust an opportunity to participate in such registration.
The Company may request that the Trust furnish to the Company
information regarding the Trust and the disposition of the Trust's shares, and
the Trust agrees to furnish such information to the Company and any other
information as the Company may reasonably request.
The Trust agrees that, upon receipt of any notice from the Company of
any event of the kind described in Paragraph (viii) of this Section 3.04(c), the
Trust will forthwith discontinue distribution of shares of Company Common Stock
pursuant to the registration statement covering such shares until the Trust's
receipt of the copies of the supplemented or amended prospectus contemplated by
such Paragraph. If the Company shall give any such notice, the period stated in
Section 3.04(b) during which the Company must keep a registration statement in
effect, if applicable, shall be extended by the number of days during the period
from and including the date of the giving of such notice pursuant to Paragraph
(viii) of this Section 3.04(c) to and including the date when the Trust shall
have received the copies of
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SECOND AMENDED AND RESTATED SUPPLEMENTAL AGREEMENT
the supplemented or amended prospectus contemplated by Paragraph (viii) of this
Section 3.04(c).
If any such registration statement refers to the Trust by name or
otherwise as the holder of any shares of Company Common Stock, then the Trust
shall have the right to require the insertion therein of language, in form and
substance satisfactory to the Trust and the Company, to the effect that the
holding by the Trust of such shares is not to be construed as a recommendation
by the Trust or any of the Trustees of the investment quality of the shares
covered thereby and that such holding does not imply that the Trust will assist
in meeting any future financial requirements of the Company.
(d) REGISTRATION EXPENSES. The Company agrees to pay all costs and
expenses in connection with any registration pursuant to this Section 3.04
(whether or not any such registration shall become effective), including,
without limitation, all registration and filing fees, fees and expenses of
compliance with securities or blue sky laws (including reasonable fees and
disbursements of counsel for the underwriters in connection with blue sky
qualifications of the shares), printing and duplicating expenses, messenger and
delivery expenses, fees and disbursements of counsel for the Company and all
independent certified public accountants (including the expenses of any annual
audit, special audit or "cold comfort" letters required by or incident to such
performance), securities acts liability insurance (if the Company elects to
obtain such insurance), the reasonable fees and expenses of any special experts
retained for the Company in connection with such registration and fees and
expenses of other Persons retained by the Company; PROVIDED that costs and
expenses to be paid by the Company shall not include fees and expenses of
counsel retained by the Trust and other out-of-pocket expenses of the Trust (and
any persons retained by the Trust to act as Inspectors) incurred in connection
with any registration and any underwriting discounts or commissions attributable
to the sale of the Trust's shares of Company Common Stock.
(e) INDEMNIFICATION.
(i) In each case of a registration of shares of Company Common
Stock under the Securities Act pursuant to this Section 3.04, the Company
will indemnify and hold harmless the Trust, each Trustee, each officer of
the Trust, each underwriter for the Trust (as defined in the Securities
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SECOND AMENDED AND RESTATED SUPPLEMENTAL AGREEMENT
Act) and each other Person, if any, who controls the Trust or any such
underwriter within the meaning of the Securities Act or the Exchange Act
from and against any and all losses, claims, damages and liabilities
(including the fees and expenses of counsel in connection with any
governmental or regulatory investigation or proceeding), caused by an
untrue statement or alleged untrue statement of a material fact contained
in any registration statement under which such shares of Company Common
Stock were registered under the Securities Act and/or under the securities
or blue sky laws of any jurisdictions in the United States, any prospectus
or preliminary prospectus contained therein or any amendment or supplement
thereto (including, in each case, documents incorporated by reference
therein), or caused by any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading, except that the Company shall not be
liable to indemnify a party seeking indemnification insofar as such losses,
claims, damages or liabilities are caused by any such untrue statement or
omission or alleged untrue statement or omission based upon information
relating to the party seeking indemnification and furnished to the Company
in writing by such party expressly for use therein; PROVIDED that the
foregoing indemnification with respect to a preliminary prospectus as then
amended or supplemented shall not inure to the benefit of any underwriter
(or to the benefit of any Person controlling such underwriter) from whom
the Person asserting any such losses, claims, damages or liabilities
purchased shares of Company Common Stock if a copy of the final prospectus
as then amended or supplemented had not been sent or given to such Person
at or prior to written confirmation of the sale of such shares to such
Person and the untrue statement or omission of a material fact contained in
such preliminary prospectus was corrected in the final prospectus as then
amended or supplemented.
(ii) In each case of a registration of shares of Company Common
Stock under the Securities Act pursuant to this Section 3.04, the Trust
will indemnify and hold harmless the Company, its directors, its officers
who sign the registration statement and each Person, if any, who controls
the Company within the meaning of the Securities Act or the Exchange Act,
to the same extent as the foregoing indemnity from the Company to the
Trust, but only with reference to
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SECOND AMENDED AND RESTATED SUPPLEMENTAL AGREEMENT
information relating to the Trust and furnished to the Company in writing
by the Trust expressly for use in the registration statement, any
prospectus or preliminary prospectus contained therein or any amendment or
supplement thereto. The Trust will use best efforts to cause any
underwriters of shares of Company Common Stock to be sold by the Trust to
indemnify the Company on the same terms as the Trust agrees to indemnify
the Company, but only with reference to information relating to such
underwriters.
(iii) In case any proceeding (including any governmental
investigation) shall be instituted involving any Person in respect of which
indemnity may be sought pursuant to this Section 3.04, such Person (the
"Indemnified Party") shall promptly notify the Person against whom such
indemnity may be sought (the "Indemnifying Party") in writing and the
Indemnifying Party, upon request of the Indemnified Party, shall retain
counsel reasonably satisfactory to the Indemnified Party to represent the
Indemnified Party and any others the Indemnifying Party may designate in
such proceeding and shall pay the fees and disbursements of such counsel
related to such proceeding. In any such proceeding, any Indemnified Party
shall have the right to retain its own counsel, but the fees and expenses
of such counsel shall be at the expense of such Indemnified Party unless
(x) the Indemnifying Party has agreed to the retention of such counsel at
its expense or (y) the named parties to any such proceeding (including any
impleaded parties) include both the Indemnifying Party and the Indemnified
Party and representation of both parties by the same counsel would be
inappropriate due to actual or potential differing interests between them.
It is understood that the Indemnifying Party shall not, in connection with
any proceeding or related proceedings in the same jurisdiction, be liable
for the fees and expenses of more than one separate firm qualified in such
jurisdiction to act as counsel for all such Indemnified Parties, except
that, if the Company is the Indemnifying Party, it shall be responsible for
up to two such firms, one for the Trust (and all of its affiliated
Indemnified Parties) and one for all of the underwriters as a group (and
all of their affiliated Indemnified Parties). Such firm shall be approved
as satisfactory in writing by the Trust in the case of parties indemnified
pursuant to Paragraph (i) of Section 3.04(e) and by the Company in the case
of parties indemnified pursuant to Paragraph (ii) of Section 3.04(e).
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SECOND AMENDED AND RESTATED SUPPLEMENTAL AGREEMENT
The Indemnifying Party shall not be liable for any settlement of any
proceeding effected without its written consent but if settled with such
consent or if there be a final, nonappealable judgment for the plaintiff,
the Indemnifying Party agrees to indemnify the Indemnified Party from and
against any loss or liability by reason of such settlement or judgment.
(iv) The indemnification of any underwriter pursuant to
Paragraphs (i) and (ii) of Section 3.04(e) shall be on such other terms and
conditions as are at the time customary and reasonably required by
underwriters in public offerings, including providing for contribution in
the event indemnification provided in this Section 3.04 is unavailable or
insufficient.
ARTICLE IV
GENERAL COVENANTS
4.01. COVENANTS OF THE TRUST.
(a) [Reserved]
(b) The Trust shall provide to the Company, as and when available,
the reports prepared pursuant to Section 3.02(d) of the Trust Agreement and the
budgets and projections prepared pursuant to Section 3.02(e) of the Trust
Agreement.
(c) The Trust shall provide all information to, and otherwise fully
cooperate with, the Company, to the extent necessary to permit the Company to
timely file such income tax and other returns or statements as required to
comply with applicable provisions of the Internal Revenue Code and of any state
law and the regulations promulgated thereunder and shall provide to the Company
all other information reasonably requested by the Company to enable it to
prepare and file any reports or other documents required by any governmental
agency.
(d) The Company has the right to inspect the accounts of the Trust
and to discuss the affairs, finances and accounts of the Trust with, and to be
advised as to the same by, the Trustees and the officers of the Trust, all at
such reasonable times and
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SECOND AMENDED AND RESTATED SUPPLEMENTAL AGREEMENT
intervals as the Company may desire and at the expense of the Company.
4.02. COVENANTS OF THE COMPANY.
(a) [Reserved]
(b) [Reserved]
(c) MAINTENANCE OF CORPORATE EXISTENCE. The Company will do or cause
to be done all things necessary to preserve and keep in full force and effect
the corporate existence, rights (charter and statutory) and franchises of the
Company and its Subsidiaries; PROVIDED that the Company shall not be required to
preserve any right or franchise if its board of directors shall determine that
the preservation thereof is no longer desirable in the conduct of the business
of the Company and its Subsidiaries and that the loss thereof is not
disadvantageous in any material respect to the Trust.
(d) [Reserved]
(e) TO KEEP BOOKS; REPORTS TO THE TRUST. The Company and its
Subsidiaries at all times will keep on a consolidated basis true and complete
books of record and account, in accordance with generally accepted accounting
principles, and will furnish to the Trust:
(i) [Reserved]
(ii) [Reserved]
(iii) [Reserved]
(iv) [Reserved]
(v) within 100 days after the end of each Fiscal Year and within
55 days after the end of the first, second and third quarterly periods of each
Fiscal Year, a certificate of any two responsible officers (for purposes of this
Agreement, a "responsible officer" shall mean any of the chief executive
officer, the chief financial officer, the general counsel, the Treasurer, the
Controller and the Vice-President Corporate Finance of the Company who is
knowledgeable as to the matters subject to certification) and (x) stating, to
the best of such
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SECOND AMENDED AND RESTATED SUPPLEMENTAL AGREEMENT
officers' knowledge after reasonable inquiry, that the Company has observed or
performed all its covenants and other agreements under Sections 2.03, 2.04 and
4.02, and that the representations and warranties contained in Article V are
true in all material respects, or if in their opinion the Company has failed in
any such respect and the Company has not previously disclosed such failure in
writing to the Trust, specifying the nature and status of all such failures and
(y) stating that, to the best of such officers' knowledge after reasonable
inquiry, no Default or Event of Default exists under the Second Bond or the
Other Agreements or if in their opinion a Default or Event of Default exists,
specifying the nature and status thereof; and
(vi) [Reserved]
(vii) promptly, such other information as the Trust may, from
time to time, reasonably request.
(f) INSPECTION. The Trust has the right, except as to trade secrets
and similar confidential information, to visit and inspect any of the properties
of the Company and its Subsidiaries and to discuss the affairs, finances and
accounts of the Company and its Subsidiaries with, and to be advised as to the
same by, its and their officers, all at such reasonable times and intervals as
the Trust may desire, and the Company will use its best efforts to make such
right available to the Trust with respect to any Affiliate of the Company. All
out-of-pocket expenses of the Trust incurred in connection with the foregoing
shall be borne by the Trust.
(g) [Reserved]
(h) [Reserved]
(i) [Reserved]
(j) TRUST DIRECTORS. Management's nominees for any election of the
directors of the Company will include two nominees approved by the Trust and the
Company shall use its best efforts, consistent with its efforts on behalf of its
other nominees, to have such nominees elected.
(k) [Reserved]
(l) [Reserved]
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SECOND AMENDED AND RESTATED SUPPLEMENTAL AGREEMENT
(m) [Reserved]
(n) CONFIDENTIALITY. The Company shall retain in strict confidence
all information supplied to it by the Trust pursuant to Section 4.01, except to
the extent that (i) the Company is compelled to disclose such information as a
result of court order, subpoena or similar legal duress or, in the opinion of
counsel to the Company, is otherwise required to disclose such information to
any governmental department, agency, authority, commission or other body, it
being understood that the Company shall consult with the Trust upon receiving
such an order or subpoena or in connection with obtaining such an opinion as
part of its good faith determination as to whether disclosure is required, (ii)
any such information is or becomes generally available to the public other than
as a result of a disclosure by the Company or its Subsidiaries or any of their
employees, representatives or agents or (iii) any such information is obtained
or developed by the employees, representatives or agents of the Company or any
of its Subsidiaries independently of, and without reference to or use of,
information supplied by the Trust pursuant to Section 4.01.
(o) [Reserved]
(p) [Reserved]
(q) AMENDMENT OF CLASS 6 INDENTURE. The Company shall not enter into
any amendments to the Class 6 Indenture or the Class 6 Interest Indenture or any
supplemental Class 6 Indentures or Class 6 Interest Indentures if such amendment
or supplemental indenture would impair any of the rights of the Trust under this
Agreement, the Second Bond or the Other Agreements.
(r) CERTAIN TRANSACTIONS RESTRICTED. So long as the Trust shall own
more than 20% of the then issued and outstanding shares of Company Common Stock,
the Company shall not, without the prior written consent of the Trust:
(i) enter into any joint venture or similar arrangement,
(ii) sell, issue or otherwise dispose of less than all of the stock
or of any other securities of any Subsidiary, or
20
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SECOND AMENDED AND RESTATED SUPPLEMENTAL AGREEMENT
(iii) amend the articles of incorporation or by-laws of any
Subsidiary,
if any such action, arrangement or any document relating to any of the above,
contains provisions which would (A) impair or otherwise limit the right of the
Trust or any transferee of the Trust to vote its shares of Company Common Stock
or (B) impose any penalty on the Company or, as a stockholder of the Company, on
the Trust or any transferee of the Trust, upon a change in control of the
Company.
(s) LIMITATION ON LIENS. Until the date on which the Second Bond is
paid, prepaid or repurchased in full, at which time the provisions of this
Section 4.02(s) shall automatically cease to have any force or effect, the
Company shall not secure, and shall not permit any of its Subsidiaries to
secure, the Class 6 Interest Debentures by any mortgage, pledge, charge, lien,
security interest or other encumbrance upon any of the present or future
revenues or assets of the Company or its Subsidiaries without at the same time
equally and ratably securing the Second Bond so as to rank PARI PASSU with the
Class 6 Interest Debentures.
(t) ADJUSTED CONSOLIDATED TANGIBLE NET WORTH. Until the date on
which the Second Bond is paid, prepaid or repurchased in full, the Company's
Adjusted Consolidated Tangible Net Worth (as defined below) at the end of each
quarterly fiscal period of each Fiscal Year shall not be less than $150,000,000.
"Adjusted Consolidated Tangible Net Worth" of the Company, at the end of a
quarterly fiscal period of a Fiscal Year, means total stockholders' equity of
the Company and its consolidated Subsidiaries as of such date determined on a
consolidated basis in accordance with generally accepted accounting principles,
less amounts (net of applicable deferred taxes relating to such amounts)
attributable to unamortized deferred charges, unamortized debt discount and
expense, goodwill, patents, trademarks, service marks, trade names, copyrights,
franchises, licenses and similar rights, organization, reorganization or
developmental expenses, increases in the book value of any assets of the Company
and its consolidated Subsidiaries as a result of any revaluation of such assets
(other than any such increases resulting from regular periodic revaluations
required under generally accepted accounting principles) and other intangible
items; it being understood that (x) deferred net tax assets to the extent
determined in accordance with generally accepted accounting
21
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SECOND AMENDED AND RESTATED SUPPLEMENTAL AGREEMENT
principles and included in the Company's consolidated financial statements for
such quarterly fiscal period, shall not be deducted in determining Adjusted
Consolidated Tangible Net Worth and (y) assets relating to the Company's pension
plans shall be deducted, net of applicable deferred taxes relating to such
assets, in determining Adjusted Consolidated Tangible Net Worth.
4.03. COMPUTATION DISPUTE RESOLUTION. The Company's computations of
Adjusted Consolidated Tangible Net Worth made pursuant to Section 4.02(t) shall
be deemed to be accepted by the Trust and shall be conclusive for the purposes
of this Agreement and the Second Bond unless the Trust, within 20 Business Days
after the date on which the computation in question was delivered to the Trust
and the work sheets and other documents prepared in connection therewith made
available for inspection by or delivered to the Trust, shall have delivered a
written notice to the Company stating each and every item to which it takes
exception as not being computed in accordance herewith or as having computation
errors, specifying in detail the nature and extent of any such exception. In
the event that the Trust gives written notice within such period of any such
exception to a computation made pursuant to Section 4.02(t), then the Company
and the Trust, or the Company's accountants and the Trust's accountants,
respectively, shall attempt to resolve all differences on a mutually acceptable
basis. To the extent that such differences are not so resolved within ten
Business Days after the delivery of the written exceptions to the disputed
computation, the questions giving rise to such differences shall be submitted as
soon as practicable (and, in any event, not later than 20 Business Days
thereafter) to any nationally recognized firm of Independent certified public
accountants acceptable to both the Company and the Trust (the "Accountants") for
final determination. The Company and the Trust each shall pay one-half of any
fees charged by the Accountants in connection with any such determination. Any
agreement by the Company and the Trust or by the Company's accountants and the
Trust's accountants, or any determination by the Accountants as to the proper
resolution of any item shall be conclusive and binding upon the Company and the
Trust for the purposes hereof; and the computation of Adjusted Consolidated
Tangible Net Worth referred to in Section 4.02(t) as so reconciled shall be
deemed to be the computation made pursuant to Section 4.02(t) for all purposes
of this Agreement, the Second Bond, the Plan and any Schedule, Annex or Exhibit
to any of the foregoing. Payments due under this Agreement, the Second Bond and
the Other Agreements shall be made on the dates required
22
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SECOND AMENDED AND RESTATED SUPPLEMENTAL AGREEMENT
herein and therein to the extent mandated by those portions of the computations
which are undisputed on such payment dates. Additional payments which are
mandated by the binding computations reached after dispute resolution pursuant
to this Section 4.03 shall be made promptly following such dispute resolution,
with interest on such additional payments from the required payment date to the
actual payment date at a rate of 10% per annum.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
5.01. ORGANIZATION, ETC. The Company represents and warrants that it
and each of its Subsidiaries (a) is a corporation duly organized, validly
existing and in good standing under the laws of its jurisdiction of
incorporation; and (b) has all requisite corporate power and authority,
licenses, permits and franchises to own or lease and operate its properties and
carry on its business as presently being conducted. The Company further
represents and warrants that it has all requisite corporate power and authority
to execute and deliver, and perform its obligations under, this Agreement.
5.02. AUTHORIZATION. The Company represents and warrants that (a) it
has taken all necessary corporate action to authorize the execution and delivery
of, and performance of its obligations under, this Agreement and (b) this
Agreement has been duly and validly authorized, executed and delivered by the
Company and constitutes the valid and binding obligation of the Company in
accordance with its terms.
ARTICLE VI
MISCELLANEOUS
6.01. TERMINATION. This Agreement shall terminate and the provisions
hereof be of no further force and effect as of the Termination Date; PROVIDED
that this Agreement may be terminated at any time, and the provisions hereof be
thereupon of no further force and effect, if the Company and the Trust so agree
in writing.
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SECOND AMENDED AND RESTATED SUPPLEMENTAL AGREEMENT
6.02. AMENDMENTS; WAIVER. This Agreement, other than Section 6.13,
may be modified, supplemented or amended, or the provisions hereof waived, at
any time and from time to time in writing signed by each party hereto. If
either party hereto shall request an amendment of the definition of "Fiscal
Year" as it applies to such party, the other party hereto shall agree thereto,
PROVIDED that if the definition of "Fiscal Year" is so amended, corresponding
amendments shall be made to this Agreement, the Second Bond and any other
agreements between the Trust and the Company so that payments from the Company
to the Trust hereunder and under the Second Bond and such other agreements (as
so amended) shall be substantially the same as those provided for in this
Agreement, the Second Bond and such other agreements as originally executed and
delivered.
6.03. SEVERABILITY. Should any provision in this Agreement be
determined to be invalid or unenforceable in any jurisdiction, such
determination shall in no way limit or affect the validity or enforceability and
operative effect of any other provisions of this Agreement or affect the
validity or enforceability of any of the provisions of this Agreement in any
other jurisdiction.
6.04. NOTICES. Any notices or other communications required or
permitted in connection with this Agreement shall be in writing and delivered at
the addresses designated below, or sent by telex or telecopy pursuant to the
instructions listed below, or mailed by registered or certified mail, return
receipt requested, postage prepaid, addressed as follows, or to such other
address or addresses as may hereafter be furnished by one party to the other in
compliance with the terms hereof.
24
<PAGE>
SECOND AMENDED AND RESTATED SUPPLEMENTAL AGREEMENT
To the Trust: with a copy to:
Manville Personal Injury Donovan Leisure Newton &
Settlement Trust Irvine
8260 Willow Oaks Corporate Drive 30 Rockefeller Plaza
Suite 600 New York, New York 10112
P.O. Box 10415 Fax: (212) 632-3315
Fairfax, VA 22031 Attention: ANDREW J. TRUBIN
Fax: (703) 205-6249
Attention: DAVID T. AUSTERN
To the Company: with a copy to:
Schuller Corporation Davis Polk & Wardwell
717 17th Street 450 Lexington Avenue
Denver, Colorado 80202 New York, New York 10017
Fax: (303) 978-4842 Fax: (212) 450-4800
Attention: RICHARD B. VON WALD Attention: STEPHEN H. CASE
and and
Kaye, Scholer, Fierman, Skadden, Arps, Slate,
Hays & Handler Meagher & Flom
425 Park Avenue 919 Third Avenue
New York, New York 10022 New York, New York 10022
Fax: (212) 836-8689 Fax: (212) 735-2001
Attention: HERBERT S. EDELMAN Attention: FRANKLIN M. GITTES
and
Sullivan & Cromwell
125 Broad Street
New York, New York 10004
Fax: (212) 558-3588
Attention: WILLIAM E. WILLIS
in each case, with a copy to:
Fried, Frank, Harris,
Shriver & Jacobson
1 New York Plaza
New York, New York 10004
Fax: (212) 747-1526
Attention: LEON SILVERMAN
25
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SECOND AMENDED AND RESTATED SUPPLEMENTAL AGREEMENT
All such notices and communications shall be effective when delivered
at the designated addresses or when the telex or telecopy communication is
received at the designated addresses and confirmed by the recipient by return
telex or telecopy in conformity with the provisions hereof.
6.05. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall constitute an original, but such counterparts
shall together constitute but one and the same instrument.
6.06. SUCCESSORS AND ASSIGNS. The provisions of this Agreement shall
be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns, except that neither the Trust nor the Company
may assign or otherwise transfer any of its rights or obligations under this
Agreement except, in the case of the Trust, as contemplated by Section 6.02 of
the Trust Agreement.
6.07. ENTIRE AGREEMENT; NO WAIVER. The entire agreement of the
parties relating to the subject matter of this Agreement, the Second Bond, and
the Other Agreements is contained herein and therein, and this Agreement, the
Second Bond, and the Other Agreements supersede any other prior oral or written
agreements concerning the subject matter hereof and thereof. No failure or
delay to exercise any right, power or privilege hereunder or thereunder shall
operate as a waiver thereof, nor shall any single or partial exercise of any
right, power or privilege hereunder or thereunder preclude any further exercise
thereof or of any other right, power or privilege. The rights and remedies
herein and therein provided are cumulative and not exclusive of rights under law
or in equity.
6.08. HEADINGS. The headings used in this Agreement are inserted for
convenience only and neither constitute a portion of this Agreement nor in any
manner affect the construction of the provisions of this Agreement.
6.09. GOVERNING LAW. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of New York.
6.10. THIRD PARTIES. This Agreement constitutes an agreement solely
between the parties hereto, and, except as
26
<PAGE>
SECOND AMENDED AND RESTATED SUPPLEMENTAL AGREEMENT
provided in Section 3.04(e) and Section 6.13. is not intended to and shall not
confer any rights, remedies, obligations or liabilities, legal or equitable, on
any person other than the parties hereto and their respective successors or
assigns, or otherwise constitute any Person a third party beneficiary under or
by reason of this Agreement.
6.11. SURVIVAL OF REPRESENTATIONS, WARRANTIES, COVENANTS AND
AGREEMENTS. All representations, warranties, covenants and agreements made in
this Agreement or in certificates delivered pursuant hereto shall be deemed to
have been relied upon by the party to whom made, notwithstanding any
investigations heretofore or hereafter made by such party or on such party's
behalf. Unless clearly worded otherwise, all such representations, warranties,
covenants and agreements shall continue in full force and effect so long as this
Agreement is in effect.
6.12. [Reserved]
6.13. AGREEMENTS OF THE COMPANY AND THE TRUST WITH RESPECT TO CERTAIN
LIENS. For the express benefit of the holders of the Class 6 Notes, the
indenture trustee for the Class 6 Notes, the Class 6 Interest Debentures, the
indenture trustee for the Class 6 Interest Debentures and the Designated Debt,
the Company agrees that it will not grant, and the Trust agrees that it will not
accept, receive or hold any mortgage, pledge, charge, lien, security interest or
other encumbrance securing the Designated Debt to be received by the Trust under
the Plan if any instrument governing or relating to any of the Designated Debt,
the Class 6 Notes or the Class 6 Interest Debentures (i) prohibits the granting
of the same to secure such Designated Debt or (ii)(A) requires the same to
equally and ratably secure any of the Designated Debt, the Class 6 Notes or the
Class 6 Interest Debentures and (B) such requirements for equal and ratable
securing are not complied with. The Company and the Trust hereby acknowledge
that the indenture trustee for the Class 6 Notes, the indenture trustee for the
Class 6 Interest Debentures, any holder of any Class 6 Notes, Class 6 Interest
Debenture or any Designated Debt shall have standing and power to enforce this
Section 6.13.
6.14. AUTOMATIC WAIVERS UNDER THE PD SUPPLEMENTAL AGREEMENT. To the
extent the Trust has the exclusive right under Section 6.02 of the PD
Supplemental Agreement to waive compliance by the Company and its Subsidiaries
with any of the covenants set forth in Article IV of the PD Supplemental
Agreement, the Trust hereby irrevocably waives such compliance to the extent the
27
<PAGE>
SECOND AMENDED AND RESTATED SUPPLEMENTAL AGREEMENT
Company's covenants thereunder are different than the Company's covenants under
Article IV hereof.
6.15. EFFECTIVE DATE. The amendment and restatement of the
Supplemental Agreement pursuant to this Agreement shall be effective as of the
date first above written, and from and after said date the Supplemental
Agreement shall continue in full force and effect as amended and restated
hereby.
28
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SECOND AMENDED AND RESTATED SUPPLEMENTAL AGREEMENT
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their respective duly authorized officers as of the day and year
first above written.
SCHULLER CORPORATION
By: /s/Richard B. Von Wald
---------------------------
Name: Richard B. Von Wald
Title: Senior Vice President, General
Counsel and Secretary
MANVILLE PERSONAL INJURY
SETTLEMENT TRUST
By: /s/David T. Austern
------------------------
Name: David T. Austern
Title: General Counsel
29
<PAGE>
GLOSSARY
EXHIBIT A TO
SECOND AMENDED AND RESTATED
SUPPLEMENTAL AGREEMENT
GLOSSARY OF DEFINED TERMS (1)
ADJUSTED CONSOLIDATED NET EARNINGS for any Fiscal Year means Consolidated
Net Earnings of the Company computed without giving effect to any accretion of,
or dividend payment on, the Series B Preference Stock and before giving effect
to any payments made pursuant to Section 2.03 of the Supplemental Agreement, in
each case whether or not in accordance with generally accepted accounting
principles.
AFFILIATE of a Person means (i) a Subsidiary of such Person, (ii) a Person
which owns, either alone or with or through one or more Affiliates, directly or
indirectly, securities or other ownership interests having ordinary voting power
to elect a majority of the board of directors or other persons performing
similar functions of such Person and (iii) a Subsidiary of any Affiliate of such
Person; PROVIDED that neither the Trust nor the PD Trust shall be deemed an
Affiliate of any of the Debtors.
AGGREGATE VALUE OF THE PD TRUST ESTATE as of any date, shall be equal to
the sum, on such date, of (i) all cash then held in the PD Trust Estate, (ii)
all Cash Settlement Proceeds payable to the PD Trust with respect to all
Settlement Agreements then in effect, (iii) the amount specified in clause
(iv)(y) of the definition of Aggregate Value of the Trust Estate, (iv) the
excess of (x) the aggregate value of the PD Insurance Coverage equal to the
maximum amount of Non-Cash Settlement Proceeds available with respect thereto
(less any portion thereof already utilized) to pay Property Claims and PD Trust
Expenses as determined by a Settlement Agreement or by Final Order, or, if there
is no Settlement Agreement or Final Order with respect to such PD Insurance
Cover-
- ----------------------------------
(1)
Unless the context requires
otherwise, all capitalized terms
used within these definitions have
the meanings assigned to them
elsewhere in this Glossary.
1
<PAGE>
GLOSSARY
age, to the amount of Non-Cash Settlement Proceeds estimated by agreement of the
PD Trustees and the Chief Financial Officer of the Company to be collectible
from the insurer with respect to such PD Insurance Coverage to pay Property
Claims under such Policy in respect of Property Claims and PD Trust Expenses,
over (y) any amount, which would be payable to the Trust pursuant to Section
2.06(e) of the PD Supplemental Agreement with respect to such PD Insurance
Coverage, as so valued, (v) the aggregate Market Value of any securities then
held by the PD Trust and (vi) the fair market value, as determined by the PD
Trustees on any reasonable basis, of all other assets then held by the PD Trust
(which assets shall not be deemed to include the Second Bond or amounts payable
under the PD Supplemental Agreement). In valuing Cash Settlement Proceeds and
Non-Cash Settlement Proceeds under Clauses (ii) and (iv) above, no value shall
be assigned to any amount that is or may be payable by an insurance company
whose rating at the time of valuation by Best's Insurance Reports is lower that
"A" for any reason, unless such payment is secured by an irrevocable letter of
credit or comparable security arrangement acceptable to the PD Trust.
AGGREGATE VALUE OF THE TRUST ESTATE as of any date shall be equal to the
sum, on such date, of (i) all cash then held in the Trust Estate, (ii) all Cash
Settlement Proceeds payable to the Trust with respect to all Settlement
Agreements then in effect, (iii) the amount specified in clause (iv)(y) of the
definition of Aggregate Value of the PD Trust Estate, (iv) the excess of (x) the
aggregate value of Insurance Coverage equal to the maximum amount of Non-Cash
Settlement Proceeds available with respect thereto (less any portion thereof
already utilized) to pay Trust Claims and Trust Expenses, as determined by a
Settlement Agreement or by Final Order, or if there is no Settlement Agreement
or Final Order with respect to such Insurance Coverage, to the amount of Non-
Cash Settlement Proceeds estimated by agreement of the Trustees and the Chief
Financial Officer of the Company to be collectible from the insurer with respect
to such Insurance Coverage to pay Trust Claims and Trust Expenses, over (y) any
amount which would be payable to the PD Trust pursuant to Section 2.06(d) of the
PD Supplemental Agreement with respect to such Insurance Coverage, as so valued,
(v) the aggregate Market Value of any securities then held by the Trust and (vi)
the fair market value, as determined by the Trustees on any reasonable basis, of
all other assets then held by the Trust (which assets shall not be deemed to
include the Second Bond or amounts payable under the Supplemental Agreement).
In valuing Cash Settlement Proceeds and Non-Cash Settlement Proceeds under
Clauses (ii) and (iv) above, no value shall be assigned to any amount that
2
<PAGE>
GLOSSARY
is or may be payable by an insurance company whose rating at time of valuation
by Best's Insurance Reports is lower than "A" for any reason, unless such
payment is secured by an irrevocable letter of credit or comparable security
arrangement acceptable to the Trust. The Aggregate Value of the Trust Estate
shall include the value of any assets held in escrow pursuant to Section 3.05 of
the PD Supplemental Agreement.
AH CLAIMS means (a) all Claims (under any theory of law, equity or
admiralty) for death, personal injuries or personal damages (whether physical,
emotional or otherwise) to the extent caused or allegedly caused, directly or
indirectly, by exposure to asbestos (alone or as contained in asbestos-
containing products) and arising or allegedly arising, directly or indirectly,
from acts or omissions prior to the Confirmation Date of one or more of the
Debtors or the Canadian Companies including, without limitation, all Claims for
compensatory damages (such as loss of consortium, wrongful death, survivorship,
proximate, consequential, general and special damages) and punitive damages and
(b) all warranty, guarantee, indemnification or contribution liabilities or
obligations of any of the Debtors or Canadian Companies to any other Person to
the extent that such warranties, guarantees, indemnifications or contribution
responsibilities cover claims against such other Person that would, if such
claims had been made directly against any of the Debtors or Canadian Companies,
constitute AH Claims under Clause (a) above.
With respect to Claims for compensatory damages only, the substantive law
applicable to the settlement or trial of AH Claims against the Claims Resolution
Facility shall be the law which would have been applicable but for the pendency
of the Cases. In determining the applicable law, it will be assumed that the
action against the Claims Resolution Facility was (1) filed or commenced (if not
actually filed or commenced against any of the Debtors) at the same time as an
action by the Beneficiary asserting a claim that would have been an AH Claim if
asserted against any of the Debtors was filed against any other Person and (2)
tried or settled at the same time as the Beneficiary's action was tried or
settled (if actually tried or settled) with substantially all defendants
thereto, so that the law applicable will be the same as the law applicable to
the action against such other defendants. If the claim is against any of the
Debtors (or the Claims Resolution Facility) alone, it will be assumed that the
action against the Claims Resolution Facility was filed or commenced (if not
actually filed or commenced against any of the Debtors) at the earliest time
3
<PAGE>
GLOSSARY
when the cause of action accrued and would have been reached for trial when a
similar action in the same venue on the same calendar would have been reached
for trial. All claims actually filed or commenced against any of the Debtors
shall be deemed to have been filed or commenced on such actual date of filing or
commencement. Notwithstanding and supplementing the foregoing, the Beneficiary
shall have the benefit of any revival statute enacted in any jurisdiction where
venue is proper which has the effect of removing or tolling the bar or
extending the period of the statute of limitations, irrespective of whether the
statute is deemed substantive or procedural.
ALLOWED means:
6.1. With respect to a Claim or that portion of a Claim that is liquidated
as to amount on the Consummation Date, a Claim or such a portion of a Claim (1)
that has been timely filed with the Clerk of the Court or such other party as
the Court may direct (or may have directed) and which has not been objected to
or which is listed by the Debtors as not contingent, unliquidated or disputed in
the Schedules, in each case within such time as may be prescribed by the
Bankruptcy Rules promulgated by the Supreme Court of the United States which
became effective on August 1, 1983, as heretofore or hereafter amended, or by a
Final Order of the Court or (2) that has been allowed by a Final Order of the
Court;
6.2. With respect to a Claim or that portion of a Claim (other than a Claim
for contribution or indemnity which constitutes an AH Claim or Property Claim)
that is disputed, unliquidated as to amount or contingent on the Consummation
Date, a Claim or such portion of a Claim (1) that has been timely filed with the
Clerk of the Court or such other party as the Court may direct (or may have
directed) pursuant to a Final Order of the Court and (2)(a) has been liquidated
and fixed as to amount in accordance with the terms of the Trust Agreement or
the PD Trust Agreement, as the case may be, or (b) with respect to Claims or
portions of Claims other than AH Claims and Property Claims, has been allowed by
a Final Order of the Court; or
6.3. With respect to a Claim for contribution or indemnity which
constitutes an AH Claim or Property Claim and that is disputed, unliquidated as
to amount or contingent on the Consummation Date, a Claim which has been allowed
and the amount of which has been determined (1) if a Contribution Claim or an
Indemnity Claim, in accordance with the Co-Defendants Procedures, (2) if a
4
<PAGE>
GLOSSARY
Property Claim, in accordance with the terms of the PD Trust Agreement and (3)
otherwise, by a Final Order of the Court or by a binding settlement agreement.
AMENDED AND RESTATED PD SUPPLEMENTAL AGREEMENT means the agreement dated as
of November 15, 1990, among the Company, the Trust and the PD Trust, as the same
may be amended from time to time in accordance with Section 6.02 thereof.
ANNUAL BOND CONTINGENT AMOUNT with respect to any Fiscal Year commencing
with Fiscal Year 2000 means (a) the aggregate dollar amount of Trust Claims
which became Liquidated during such Fiscal Year (whether or not actually paid
during such Fiscal Year) and all Trust Expenses other than Insurance
Indemnification Expenses paid by the Trust during such Fiscal Year plus (b) the
Bond Carryforward, if any, from the Prior Fiscal Year.
ANNUAL CONTINGENT AMOUNT means, for each Fiscal Year commencing with Fiscal
Year 1991 (i) the aggregate amount of Trust Claims which became Liquidated
during such Fiscal Year (whether or not actually paid during such Fiscal Year)
and all Trust Expenses, other than Insurance Indemnification Expenses, paid by
the Trust during such Fiscal Year plus (ii) the Carryforward, if any, from the
prior Fiscal Year minus (iii) (x) the amount, if any, required to be paid in
such Fiscal Year under the Second Bond and (y) with respect to Fiscal Year 1991
through Fiscal Year 2014 the Aggregate Value of the Trust Estate as of the end
of such Fiscal Year, divided by the number of Fiscal Years, if any, remaining
from the beginning of such Fiscal Year until the end of Fiscal Year 2014 (E.G.,
24 with respect to Fiscal Year 1991; one with respect to the Fiscal Year 2014).
ANNUAL PD BOND CONTINGENT AMOUNT with respect to any Fiscal Year commencing
with the later of 2000 or the Fiscal Year immediately prior to the First PD
Fiscal Year means (a) the aggregate dollar amount of Property Claims which
became Liquidated during such Fiscal Year (whether or not actually paid during
such Fiscal Year) and all PD Trust Expenses paid by the PD Trust during such
Fiscal Year plus (b) the PD Bond Carryforward, if any, from the prior Fiscal
Year.
ANNUAL PD CONTINGENT AMOUNT means, for each Fiscal Year commencing with
Fiscal Year 1991, (i) the aggregate amount of Property Claims which became
Liquidated during such Fiscal Year (whether or not actually paid during such
Fiscal Year) and all PD
5
<PAGE>
GLOSSARY
Trust Expenses paid by the PD Trust during such Fiscal Year (less the amount of
any payments to the PD Trust pursuant to Section 2.07 of the PD Supplemental
Agreement) plus (ii) the PD Carryforward, if any, from the prior Fiscal Year
minus (iii) (x) the amount, if any, required to be paid to the PD Trust in such
Fiscal Year under the Second Bond and (y) with respect to Fiscal Year 1991
through Fiscal Year 2014, the Aggregate Value of the PD Trust Estate as of the
end of such Fiscal Year, divided by the number of Fiscal Years, if any,
remaining from the beginning of such Fiscal Year until the end of Fiscal Year
2014 (E.G., 24 with respect to Fiscal Year 1991; one with respect to the Fiscal
Year 2014).
ASBESTOS COMMITTEE means the "Official Committee of Asbestos-Health Related
Litigants and/or Creditors" appointed in the Cases by the Acting United States
Trustee for the Southern District of New York pursuant to an Order of the Court
dated October 8, 1982, as amended.
BASIC PD TRUST FUND has the meaning assigned to it in Section 4.01 of the
PD Trust Agreement.
BASIC TRUST FUND has the meaning assigned to it in Section 4.01 of the
Trust Agreement.
BENEFICIARY means any Person holding a Trust Claim.
BOND CARRYFORWARD from any Fiscal Year commencing with Fiscal Year 2000
means the excess, if any, of the Annual Bond Contingent Amount for such Fiscal
Year (including the component thereof representing the Bond Carryforward from
the prior Fiscal Year) over the aggregate amount actually paid by the Company in
such Fiscal Year pursuant to Subsection 2.03(a) of the Supplemental Agreement as
in effect prior to April 5, 1996, and the Second Bond, as the case may be.
BONDS REPURCHASE AGREEMENT means the Bonds Repurchase Agreement dated
September 22, 1994 between the Company and the Trust, as amended from time to
time in accordance with the terms thereof.
BUSINESS DAY means any day except a Saturday, Sunday or other day on which
commercial banks in New York, New York are authorized or required by law to
close.
6
<PAGE>
GLOSSARY
BYLAWS means the Bylaws of the Trust, substantially in the form of Annex A
to the Trust Agreement, as they may be amended from time to time.
CANADIAN COMPANIES means Johns-Manville Canada, Inc. and Johns-Manville
Amiante Canada, Inc.
CARRYFORWARD from any Fiscal Year commencing with Fiscal Year 1991 means
the excess, if any, of the Annual Contingent Amount for such Fiscal Year
(including the component thereof representing the Carryforward from the prior
Fiscal Year) over the amount actually paid by the Company with respect to such
Fiscal Year pursuant to Subsection 2.03(a) of the Supplemental Agreement as in
effect prior to April 5, 1996.
CASES means the reorganization cases under Chapter 11 of the Code of the
Debtors, collectively, jointly administered pursuant to order of the Court dated
August 26, 1982 and presently captioned "In re Johns-Manville Corporation, ET
AL., Debtors" (Case Nos. 82 B 11656 through 82 B 11658, inclusive, 82 B 11660
through 82 B 11662, inclusive, and 82 B 11665 through 11676, inclusive).
CASH SETTLEMENT PROCEEDS means any and all amounts payable by the Settling
Insurance Company under any Settlement Agreement, other than amounts payable
pursuant to coverage in place provisions contained in such Settlement Agreement,
I.E. on the claims as made or expenses as incurred basis, and includes cash,
cash proceeds pursuant to a letter of credit or other security device or other
cash equivalent.
CHARTER means the Company's Restated Certificate of Incorporation as the
same may be amended from time to time in accordance with the provisions thereof
and the General Corporation Law of the State of Delaware.
CLAIM means a claim against one or more of the Debtors within the meaning
of Section 101(4) of the Code that arose prior to the Confirmation Date,
excluding current commercial payables incurred in the ordinary course of
business existing on the Confirmation Date.
CLAIMS RESOLUTION FACILITY means the Claims Resolution Facility set forth
in Annex B to the Trust Agreement.
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GLOSSARY
CLASS ACTION LAWSUIT means an action to be commenced in United States
District Court, on behalf of all present and future beneficiaries of the Trust,
against each of the Trustees of the Trust, in their capacity as Trustees,
seeking an equitable distribution of the assets of the Trust among all the
beneficiaries of the Trust and seeking entry of an order determining that the
present and anticipated liabilities of the Trust to its beneficiaries exceed the
present and expected future assets of the Trust, and declaring the
beneficiaries' rights and priorities with respect to those assets, and in which
certification as a class action on behalf of all beneficiaries of the Trust (who
shall be deemed members of the class with no right to opt out of the class) will
be sought pursuant to Rule 23(b)(1)(B) of the Federal Rules of Civil Procedure
and in respect of which, the Limited Fund Proceeding, the Trust is seeking a
determination, INTER ALIA, as to whether the Trust constitutes a limited fund
for purposes of Rule 23(b)(1)(B) of the Federal Rules of Civil Procedure.
CLASS 6 INDENTURE means the indenture dated as of the Consummation Date
between the Company and the trustee thereunder, substantially in the form of
Exhibit E to the Plan (subject to reasonable modifications requested by the
trustee thereunder that do not adversely affect any other party thereto, the
holders of the Class 6 Notes, the Trust or the PD Trust), as it may be modified
or amended from time to time.
CLASS 6 INTEREST DEBENTURES means the debentures evidencing indebtedness of
the Debtors to the holders of Class 6 Claims issued from time to time on or
after the Consummation Date in accordance with the Provisions of Subparagraph
3.6.B of the Plan, which are more fully described in the Class 6 Interest
Indenture.
CLASS 6 INTEREST INDENTURE means the indenture dated as of the Consummation
Date between the Company and the trustee thereunder, substantially in the form
of Exhibit G to the Plan (subject to reasonable modifications requested by the
trustee thereunder that do not adversely affect any other party thereto, the
holders of the Class 6 Interest Debentures, the Trust or the PD Trust), as it
may be modified or amended from time to time.
CLASS 6 NOTES means the notes evidencing indebtedness of the Debtors to the
holders of Class 6 Claims issued from time to time on or after the Consummation
Date in accordance with the provisions of Paragraph 3.6.B of the Plan, which are
more fully described in the Class 6 Indenture.
8
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GLOSSARY
CODE means the Bankruptcy Code, 11 U.S.C. Sections 101 et seq., as in
effect on the Filing Date, as it has been or may be amended from time to time to
the extent such amendments are applicable to the Cases.
CO-DEFENDANT means the holder of an Indemnity Claim or a Contribution
Claim.
CO-DEFENDANTS' COMMITTEE means the "Official Committee of Asbestos
Litigation Co-Defendants" appointed in the Cases by the Acting United States
Trustee for the Southern District of New York pursuant to an order of the Court
dated March 19, 1984, as amended.
CO-DEFENDANTS' PROCEDURES means the procedures set forth in Annex F to the
Trust Agreement, as the same may be amended from time to time.
COMMISSION means the Securities and Exchange Commission.
COMPANY means Schuller Corporation (formerly known as Manville
Corporation), a Delaware corporation.
COMPANY COMMON STOCK means the Common Stock, $.01 par value per share, of
the Company issued under the Charter and outstanding from time to time on or
after the Consummation Date.
COMPARABLE INDUSTRIES INDEX for any Fiscal Year means the sum, determined
as of April 15 of the following Fiscal Year, of (a) the average Return on Equity
for the most recently completed fiscal year for which audited financial
statements are publicly available of the five largest companies (based on net
sales) included in Standard & Poor's Index of Building Materials Companies
multiplied by a fraction, the numerator of which is the net sales of the Company
and its Subsidiaries or such Fiscal Year attributable to its building materials
businesses and the denominator of which is the aggregate net sales of the
Company and its Subsidiaries for such Fiscal Year attributable to its building
materials businesses and its forest products businesses and (b) the average
Return on Equity for the most recently completed fiscal year for which audited
financial statements are publicly available of the five largest companies (based
on net sales) included in Standard & Poor's Index of Forest Products Companies
multiplied by a fraction the numerator of which is the net sales of the Company
for such Fiscal Year attributable to its forest products businesses and the
denominator of which is the aggregate net sales of the Company and
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<PAGE>
GLOSSARY
its Subsidiaries for such Fiscal Year attributable to its forest products
businesses and its building materials businesses.
CONFIRMATION DATE means the date on which the Confirmation Order becomes a
Final Order, unless, under mandatory provisions of law and as determined by a
Final Order of the Court, the Confirmation Date is required to be the date of
issuance of the Confirmation Order, in which case CONFIRMATION DATE means such
date of issuance.
CONFIRMATION ORDER means the order or orders of the Court confirming the
Plan.
CONSOLIDATED NET EARNINGS for any Fiscal Year means the Company's
consolidated net earnings (on an after tax basis) for such Fiscal Year as shown
on the audited consolidated statement of operations of the Company included in
the Form 10-K with respect to such Fiscal Year filed by the Company with the
Commission (or, if the Company is not required to file a Form 10-K with respect
to such Fiscal Year with the Commission, then as shown on the consolidated
statement of operations of the Company for such Fiscal Year prepared in
accordance with generally accepted accounting principles and examined in
accordance with generally accepted auditing standards by the Company's
independent auditors, which auditors shall be approved by the Trust and the PD
Trust (whose approval shall not be unreasonably withheld), so long as each of
them is in existence).
CONSOLIDATED NET WORTH of the Company, as of any date, means the total
stockholders' equity of the Company as of such date determined on a consolidated
basis in accordance with generally accepted accounting principles, less any
items of the following types that are included in the assets of the Company and
its consolidated Subsidiaries: (a) goodwill, (b) unamortized organization or
reorganization expense, (c) unamortized debt discount and expense, (d) patents,
trademarks, trade names, copyrights, franchises and similar rights, and (e)
increases in the book value of any assets of the Company and its consolidated
Subsidiaries above the book value thereof as of the Consummation Date as a
result of any revaluation of such assets (other than any such increases
resulting from regular periodic revaluations required under generally accepted
accounting principles).
CONSUMMATION DATE means November 28, 1988.
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GLOSSARY
CONSUMMATION DATE VALUE means:
(1) with respect to the Cash Settlement Proceeds payable under the
Travelers Agreement, the stated amount thereof exclusive of any interest or
other income payable thereon;
(2) with respect to any other Cash Settlement Proceeds payable, and
Non-Cash Settlement Proceeds received other than pursuant to a Settlement
Agreement, on or before the date six months after the Consummation Date,
the stated amount thereof inclusive of any interest or other income payable
thereon under the terms of the applicable Settlement Agreement up to the
Consummation Date;
(3) with respect to any Cash Settlement Proceeds payable, and
Non-Cash Settlement Proceeds received other than pursuant to a Settlement
Agreement, more than six months following the Consummation Date, the
present value calculated by discounting the stated amount thereof from the
scheduled payment date (or date of receipt in the case of such Non-Cash
Settlement Proceeds) to the date six months after the Consummation Date
using an interest rate of 8.2% per annum; and
(4) with respect to any amount payable pursuant to coverage in place
provisions contained in a Settlement Agreement, the present value
calculated by discounting the stated amount thereof from the date 18 months
after the Consummation Date to the Consummation Date using an interest rate
of 8.2% per annum;
PROVIDED, HOWEVER, that no Consummation Date Value shall be assigned to any Cash
Settlement Proceeds or amount payable pursuant to coverage in place provisions
which is payable by a Settling Insurance Company whose rating by Best's
Insurance Reports shall be lower than "A" for any reason, unless such payment is
secured by an irrevocable letter of credit or comparable security arrangement
acceptable to the trust and the PD Trust, PROVIDED FURTHER that, notwithstanding
the foregoing, the Consummation Date Value ascribed to the Midland Coverage at
any date shall be equal to the amount, if any, of Insurance Proceeds and/or PD
Insurance Proceeds paid under the Midland Coverage on or before such date
discounted in the same manner as provided in (c) if paid more than six months
following the Consummation Date, unless the Company, the Asbestos Committee,
certain representatives of the PD Beneficiaries and the Legal Representative
agree on another Consummation Date Value to be
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<PAGE>
GLOSSARY
ascribed thereto solely for the purpose of meeting the condition set forth in
Paragraph 9.2.D of the Plan and PROVIDED FURTHER that if the condition set forth
in Paragraph 9.2.D of the Plan will not otherwise be met, the Company may elect
to pay an amount in cash equal to the shortfall to the Trust on the Consummation
Date, the amount of which payment will be deemed to be Consummation Date Value
for the purpose of meeting such condition.
CONTRIBUTION CLAIM means an AH Claim or Other Asbestos Obligation for
contribution, as that term is defined by the non-bankruptcy law of the relevant
jurisdiction, that is (i) held by (A) any Person (other than a past or present
officer, director or employee of any of the Debtors) who has been, is or may be
a defendant in an action seeking damages for asbestos-related personal injury,
or (B) any assignee or transferee of such Person and (ii) is asserted against
any of the Debtors or the Trust for reimbursement of a portion of any damages
such Person has paid or may pay to the plaintiff in such action.
COURT means the United States Bankruptcy Court for the Southern District of
New York (or such other court as may be administering the Cases) and, with
respect to any particular proceeding within a Case, any other court which may
be exercising jurisdiction over such proceeding.
DEBT means (a) all indebtedness for the repayment of money borrowed,
whether or not represented by bonds, debentures, notes or other securities, (b)
all other indebtedness represented by bonds, debentures, notes or other
securities (including the Schuller Notes transferred to the Trust in payment of
certain bond obligations (whether or not still held by the Trust) and the Second
Bond), (c) all deferred indebtedness for the payment of the purchase price of
property or assets purchased, (d) all Guarantees, endorsements, assumptions and
other contingent obligations in respect of, or to purchase or otherwise to
acquire, indebtedness of another Person (other than Guarantees of the Company's
or any of its Subsidiaries' indebtedness to a third party), (e) all indebtedness
secured by an encumbrance existing on property owned by the Person whose
indebtedness is being determined, whether or not the indebtedness secured
thereby shall have been assumed by such Person and (f) all obligations under
capital leases required to be recorded on the Company's consolidated financial
statements in accordance with generally accepted accounting principles.
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GLOSSARY
DEBTORS means the following corporations, each of which filed a petition
for reorganization under Chapter 11 of the Code with the Court on the Filing
Date and includes such corporations as reorganized after Consummation as well as
prior thereto:
Johns-Manville Corporation
Manville Corporation
Manville International Corporation
Manville Export Corporation
Johns-Manville International Corporation
Manville Sales Corporation (f/k/a Johns-Manville Sales
Corporation, successor by merger to Manville Building
Materials Corporation, Manville Products Corporation
and Manville Service Corporation)
Manville International Canada, Inc.
Manville Canada, Inc.
Manville Investment Corporation
Manville Properties Corporation
Allan-Deane Corporation
Ken-Caryl Ranch Corporation
Johns-Manville Idaho, Inc.
Manville Canada Service, Inc.
Sunbelt Contractors Inc.
DEFAULT, as used with respect to the Second Bond, means the occurrence and
continuance of an Event of Default or an event that, after notice or lapse of
time or both, would become an Event of Default.
DEFERRED AMOUNT, during 2014, shall mean the excess, if any, of $75,000,000
over the aggregate amount paid to the Trust and the PD Trust during 2013
pursuant to Section 2.1 of the Second Bond.
DESIGNATED DEBT means the Second Bond.
DISPUTED CLASS 6 CLAIM means a Class 6 Claim or any portion thereof which,
as of the Consummation Date or any date subsequent thereto, is not Allowed.
DISTRIBUTION RECORD DATE means the tenth Business Day preceding the
Consummation Date.
ENCUMBRANCE means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset.
13
<PAGE>
GLOSSARY
EQUITY COMMITTEE means the "Official Committee of Equity Security Holders"
appointed in the Cases by the Acting United States Trustee for the Southern
District of New York pursuant to an order of the Court dated February 14, 1983,
as amended, which was disbanded pursuant to an order of the Court dated July 31,
1986.
EQUITY SUBSIDIARY means any Subsidiary of the Company or any other entity
for which the Company is entitled to account under principles of equity
accounting and with respect to which the Company has previously delivered to the
Trust and the PD Trust a certificate of the Company's chief financial officer
stating that the Company is entitled to use such accounting treatment.
EVENT OF DEFAULT, as used with respect to the Second Bond, has the meaning
assigned to it in Section 3.1 of the Second Bond.
EXCHANGE ACT means the Securities Exchange Act of 1934, as amended.
FILING DATE means August 26, 1982, the date on which each of the Debtors
filed a petition under Chapter 11 of the Code.
FINAL ORDER means (a) a judgment, order or other decree issued and entered
by the Court or by any state or other federal court or other tribunal located in
one of the states, territories or possessions of the United States or the
District of Columbia, which judgment, order or decree (x) has not been reversed
or stayed and as to which the time to appeal has expired and as to which no
appeal or petition for review, rehearing or certiorari is pending or (y) with
respect to which any appeal has been finally decided and no further appeal or
petition for certiorari can be taken or granted; or (b) stipulation or other
agreement entered into which has the effect of any such judgment, order or other
decree.
FIRST AMENDED AND RESTATED SUPPLEMENTAL AGREEMENT means the Manville
Personal Injury Settlement Trust Amended and Restated Supplemental Agreement
dated as of November 15, 1990 between the Trust and the Company.
FIRST AMENDMENT TO THE TRUST AGREEMENT means the amendment to the Trust
Agreement dated as of February 14, 1989, between the Company, as successor to
the Trustors, and the Trustees.
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GLOSSARY
FISCAL YEAR means the fiscal year of the Trust or the PD Trust or the
Company, as the case may be, which shall in each case be the calendar year.
GOVERNMENT PROCEEDS for any Fiscal Year means the net proceeds, if any,
received in such Fiscal Year by the Company or any of its Subsidiaries (or that
the Company or any such Subsidiary would have received but for any assignment or
other transfer of the proceeds thereof to another Person or any set-off by the
United States in respect of claims by the United States against the Company or
any such Subsidiary) with respect to claims made by the Company or any of its
Subsidiaries against the United States relating to claims against, or debts,
obligations or liabilities of, any of the Debtors (a) for death, personal
injuries or personal damages caused or allegedly caused, directly or indirectly,
by exposure to asbestos (alone or as contained in asbestos-containing products)
and arising or allegedly arising, directly or indirectly, from acts or omissions
prior to the Confirmation Date of one or more of the Debtors or (b) for other
damages arising or allegedly arising from the presence in buildings or other
structures of asbestos (alone or as contained in asbestos-containing products),
which was sold, supplied or produced, or allegedly sold, supplied or produced,
by one or more of the Debtors prior to the Confirmation Date, or for which one
or more of the Debtors is otherwise liable or allegedly liable due to the acts
or omissions of one or more of the Debtors prior to the Confirmation Date.
GOVERNMENTAL UNIT means any government or political subdivision or any
agency or instrumentality thereof.
GUARANTEE means any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing any Debt of any other Person or in any
manner providing for the payment of any Debt of any other Person or otherwise
protecting the holder of such Debt against loss (by virtue of partnership
arrangements, by agreement to keep-well, to purchase assets, goods, securities
or services, or to take or pay otherwise), PROVIDED that the term Guarantee
shall not include endorsements for collection or deposit in the ordinary course
of business. The word GUARANTEE when used as a verb shall have a correlative
meaning.
INDEMNIFICATION LIABILITIES means (a) all liabilities of the "JM
Responsible Entity" to the "Settling Insurer" as defined in and pursuant to the
Travelers Agreement and (b) the obligation to indemnify any person who is or was
a party to any pending or
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<PAGE>
GLOSSARY
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (including, without limitation, any action, suit or proceeding by
or in the right of the Trust, any of the Debtors, any of the Debtors'
Subsidiaries or any of the Canadian Companies) by reason of the fact that he is
or was a director, officer, employee or agent of any of the Debtors, any of the
Debtors' Subsidiaries or any of the Canadian Companies against all expenses
(including attorneys' fees and expenses), judgment, fines and amounts paid with
the Trust's consent to the fullest extent and in the manner that a corporation
organized under Delaware law is from time to time permitted to indemnify its
directors, officers, employees and agents if the Claim against such person in
such action, suit or proceeding would, if such Claim had been made and timely
filed against the Debtors or the Canadian Companies, have constituted an AH
Claim or an Other Asbestos Obligation under clause (a) of the definition of
either of such terms.
INDEMNITY CLAIM means an AH Claim or Other Asbestos Obligation, whether
based in contract or tort, that is (i) held by (A) any Person (other than a past
or present officer, director or employee of any of the Debtors) who has been, is
or may be a defendant in an action seeking damages for asbestos-related personal
injury, or (B) any assignee or transferee of such Person and (ii) is asserted
against any of the Debtors or the Trust for indemnification of all damages and
costs such Person has or may suffer as a result of such action. INDEMNITY CLAIM
shall not include any Claim for Transferee Indemnification Liability.
INDEPENDENT means, when used with respect to any specified Person, a Person
who (a) is in fact independent, (b) does not have any direct financial interest
or any material indirect financial interest in the Trust, the PD Trust, the
Company or any Affiliate of the Company, and (c) is not connected with the
Company, any Affiliate of the Company, the Trust or the PD Trust as an officer,
employee, promoter, underwriter or person performing similar functions.
INDUSTRY-WIDE CLAIMS HANDLING FACILITY means an industry-wide arrangement
among subscribing insurers and subscribing past or current producers and
manufacturers of asbestos or asbestos-containing products established for the
purposes of resolving and discontinuing disputes concerning insurance coverage
for asbestos-related personal injury claims and establishing a method for the
liquidation and resolution of asbestos-related personal injury
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<PAGE>
GLOSSARY
claims and the insurance arrangements pertaining thereto. By way of example
an arrangement implementing the "Agreement Concerning Asbestos-Related
Claims" dated May, 1985 known as the "Wellington Agreement" would constitute
an Industry-Wide Claims Handling Facility.
INSURANCE CARRYFORWARD from any Fiscal Year means the difference between
the Insurance Indemnification Amount for such Fiscal Year (including the
component thereof representing the Insurance Carryforward from the prior Fiscal
Year) and the amount actually paid by the Company with respect to such Fiscal
Year pursuant to Subsection 2.03(b) of the Supplemental Agreement.
INSURANCE COVERAGE means the insurance coverage, not reduced to Cash
Settlement Proceeds, available in respect of Trust Claims and/or Trust Expenses
(i) pursuant to any Settlement Agreement or (ii) under any Policy.
INSURANCE INDEMNIFICATION AMOUNT means for any Fiscal Year, (i) the
aggregate amount of all Insurance Indemnification Expenses paid by the Trust
during such Fiscal Year plus (ii) the Insurance Carryforward from the prior
Fiscal Year.
INSURANCE INDEMNIFICATION EXPENSES means those amounts paid by the Trust in
respect of liabilities of the "JM Responsible Entity" to the "Settling Insurer"
as defined in and pursuant to the Travelers Agreement.
INSURANCE PROCEEDS means (i) all Cash Settlement Proceeds paid or payable
to the Trust pursuant to Settlement Agreements and (ii) all Non-Cash Settlement
Proceeds of Insurance Coverage. Insurance Proceeds shall be deemed received by
the Trust when actually received by the Trust or when paid to another Person in
respect of a Liquidated Trust Claim or Trust Expense.
INTEREST means the rights of the owners and holders of issued and
outstanding shares of Old Preferred Stock or Old Common Stock.
INTERNAL REVENUE CODE means the Internal Revenue Code of 1986, as it may be
amended from time to time, and the regulations promulgated from time to time
thereunder.
LEGAL REPRESENTATIVE means the "Legal Representative for Future Asbestos
Health Claimants" or his successor appointed pursuant to an order of the Court
dated August 14, 1984.
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GLOSSARY
LIMITED FUND PROCEEDING means the proceeding commenced by the Trust
captioned IN RE JOINT EASTERN AND SOUTHERN DISTRICT ASBESTOS LITIGATION, Index
No. 4000 (E.D.N.Y. and S.D.N.Y.), and IN RE JOHNS-MANVILLE CORPORATION, ET AL.,
Case Nos. 82B-11656 through 82B-11676 (BRL) (Bankr. S.D.N.Y.), seeking a
determination, INTER ALIA, as to whether the Trust constitutes a limited fund
for purposes of Rule 23(b)(1)(B)of the Federal Rules of Civil Procedure.
LIQUIDATED AH CLAIMS means those AH Claims which, prior to the Filing Date,
were settled as to validity and amount (a) by one or more of the Trustors in
writing (by stipulation, settlement agreement or otherwise) or (b) by the order
of any court having jurisdiction with respect thereto to the extent such order
was a Final Order on the Filing Date or became a Final Order at any time
following the Filing Date, whether or not prior to the Consummation Date (to the
extent any such order is subsequently reversed by any appellate court or is
vacated by the court issuing it, the related AH Claim shall not be a LIQUIDATED
AH CLAIM).
LIQUIDATION occurs (i) with respect to any Property Claim or Trust Claim
which, as of the Consummation Date, the validity and amount thereof have been
acknowledged by one or more of the Trustors in writing (by stipulation or
settlement agreement approved by Final Order of the Court or by inclusion
thereof on schedules filed with the Court pursuant to Bankruptcy Rule 1007(b)),
on the date of such acknowledgment, (ii) with respect to any other Property
Claim or Trust Claim (other than as set forth in (iii) or (iv)), on the date on
which the validity and amount thereof is finally determined pursuant to the PD
Claims Resolution Facility or the Claims Resolution Facility, respectively,
(iii) with respect to a Claim for contribution which constitutes an AH Claim
(other than as set forth in (i) or (iv)), on the date on which the amount of
such Claim has been determined by a Final Order of the Court, (iv) with respect
to a Contribution Claim or an Indemnity Claim, on the date on which the
liability of the Co-Defendant to the plaintiff on the underlying asbestos-
related personal injury claim from which such Claim arises is finally determined
and (v) with respect to a Claim for contribution which constitutes a Property
Claim (other than as set forth in (i)), on the date on which the amount of such
Claim has been determined pursuant to the PD Trust Agreement. For purposes of
this definition, a Co-Defendant's liability to a plaintiff in an underlying
asbestos-related personal injury action is finally determined on the date
payment is made by the Co-Defendant pursuant to (a) an
18
<PAGE>
GLOSSARY
order of judgment of a court of competent jurisdiction fixing the amount of
damages to be paid by such Co-Defendant to such plaintiff or (b) an
acknowledgment in writing (whether by stipulation, settlement agreement or
otherwise) by such Co-Defendant and such plaintiff of the amount of damages to
be paid by such Co-Defendant to such plaintiff in settlement of such action.
The words LIQUIDATE and LIQUIDATED shall have correlative meanings, except when
used in the term LIQUIDATED AH CLAIMS.
MARKET VALUE of any security on any date means the average of the daily
closing prices for the 20 consecutive Business Days ending on the Business Day
before the date in question. The closing price for each day shall be the last
reported sales price on the composite tape or, in case no such reported sale
takes place on such day, the average of the reported closing bid and asked
prices, in either case on the principal national securities exchange on which
such security is listed or admitted to trading or, if such security is not then
listed or admitted to trading on any national securities exchange, the average
of the closing bid and asked prices on the National Association of Securities
Dealers Automated Quotation System or, if such security is not then so quoted,
the market value of such security as determined by a nationally recognized
investment banking firm selected by the Trust or the PD Trust, as the case may
be, and reasonably acceptable to the Company.
MIDLAND COVERAGE means the Insurance Coverage and/or PD Insurance Coverage
to be provided by Midland Insurance Company under the terms of the Settlement
Agreement dated January 29, 1985 with Insurance Company of North America,
Midland Insurance Company, and Allstate Insurance Company.
MODIFICATION has the meaning assigned to it in Section 6.03 of the PD Trust
Agreement.
NON-CASH SETTLEMENT PROCEEDS means any amounts payable under any Settlement
Agreement pursuant to coverage in place provisions contained in such Settlement
Agreement with respect to Trust Claims, Trust Expenses, Property Claims or PD
Trust Expenses, I.E. on a claims as made or expenses incurred basis, and any
other proceeds of Insurance Coverage or PD Insurance Coverage, as the case may
be, payable other than pursuant to a Settlement Agreement (E.G., pursuant to the
Policy itself or pursuant to a court order or decree in respect of the Policy).
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GLOSSARY
OFFICIAL COMMITTEES means the Asbestos Committee, the Unsecured Creditors'
Committee and the Co-Defendants Committee, collectively.
OTHER AGREEMENTS means the Supplemental Agreement, the Bonds Repurchase
Agreement and the Trust Agreement.
OTHER ASBESTOS OBLIGATIONS means (a) all debts, obligations or liabilities
(under any theory of law, equity or admiralty), other than AH Claims, for death,
personal injuries or personal damages (whether physical, emotional or otherwise)
to the extent caused or allegedly caused, directly or indirectly, by exposure to
asbestos (alone or as contained in asbestos-containing products) and arising or
allegedly arising, directly or indirectly, from acts or omissions prior to the
Confirmation Date of one or more of the Debtors including, without limitation,
all obligations or liabilities for compensatory damages (such as loss of
consortium, wrongful death, survivorship, proximate, consequential, general and
special damages) and punitive damages and (b) all warranty, guarantee,
indemnification or contribution liabilities or obligations, if any, of any of
the Debtors to any other Person to the extent that such warranties, guarantees,
indemnifications or contribution responsibilities cover claims against such
other Person that would, if such claims had been made directly against any of
the Debtors, constitute Other Asbestos Obligations under Clause (a) above.
OUTSTANDING AMOUNT of any Debt at any time means the principal amount
outstanding of such Debt at such time, unless such Debt was issued at a
discount, in which case the OUTSTANDING AMOUNT of such Debt means the original
issue price of such Debt plus the accretion to such time of the original issue
discount and less all payments of principal on the Debt to such time, or unless
such Debt is represented by any debt instrument issued at a discount under the
Plan, the Supplemental Agreement or the PD Supplemental Agreement in which case
the OUTSTANDING AMOUNT of such Debt means the carrying amount of the Debt at
issuance (the difference between the principal amount and the original issue
discount reflected on the audited financial statements of the Company) plus the
accretion to such time of the original issue discount and less all payments of
principal on the Debt to such time.
PAYMENT DATE means August 31 and November 30 in each year.
PD BENEFICIARY means any Person holding a Property Claim.
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GLOSSARY
PD BOND CARRYFORWARD from any Fiscal Year commencing with 2000 means the
excess, if any, of the Annual PD Bond Contingent Amount for such Fiscal Year
(including the component thereof representing the PD Bond Carryforward from the
prior Fiscal Year) over the aggregate amount actually paid by the Company with
respect to such Fiscal Year pursuant to Sections 2.02 and 2.07 of the PD
Supplemental Agreement or Section 2 of the Second Bond.
PD BYLAWS means the Bylaws of the PD Trust, substantially in the form of
Annex A to the PD Trust Agreement, as the same may be amended from time to time.
PD CARRYFORWARD from any Fiscal Year commencing with Fiscal Year 1991 means
the excess, if any, of the Annual PD Contingent Amount for such Fiscal Year
(including the component thereof representing the PD Carryforward from the prior
Fiscal Year) over the amount actually paid by the Company with respect to such
Fiscal Year pursuant to Section 2.02 of the PD Supplemental Agreement.
PD CLAIMS RESOLUTION FACILITY means the PD Claims Resolution Facility set
forth in Annex B to the PD Trust Agreement; it being understood that the PD
Trustees, by a majority vote after consultation with the Company, representative
counsel for the PD Beneficiaries selected by the PD Trustees and any other
interested parties whom the PD Trustees desire to consult, may amend, delete or
add to any of the procedural provisions with respect to the operation of the PD
Claims Resolution Facility except for Modifications, PROVIDED that no such
amendment, deletion or addition may affect any of the substantive provisions set
forth in such Annex B, including, without limitation, the provisions relating to
the standards and methods of asbestos hazard abatement and the percentage of
abatement costs to be borne by the PD Trust, and PD CLAIMS RESOLUTION FACILITY
shall thereafter mean the PD Claims Resolution Facility as so amended deleted
from or added to.
PD DEFERRED AMOUNT at any time means the Deferred Amount at the Termination
Date, if earlier than the maturity of the Second Bond PROVIDED that, if the
Trust terminates on or prior to December 31, 2013, the PD Deferred Amount during
2014 shall mean the excess, if any, of $75,000,000 over the amount paid to the
Trust and the PD Trust during 2013 pursuant to Section 2.1 of the Second Bond.
PD INSURANCE COVERAGE means insurance coverage, not reduced to Cash
Settlement Proceeds, available in respect of Property Claims
21
<PAGE>
GLOSSARY
and/or PD Trust Expenses (i) pursuant to any Settlement Agreement or (ii) under
any Policy.
PD INSURANCE PROCEEDS means (i) all Cash Settlement Proceeds paid or
payable to the PD Trust pursuant to Settlement Agreements and (ii) all Non-Cash
Settlement Proceeds of PD Insurance Coverage. PD Insurance Proceeds shall be
deemed received by the PD Trust when actually received by the PD Trust or when
paid to another Person in respect of a Liquidated Property Claim or a PD Trust
Expense.
PD STOCK PROCEEDS FUND has the meaning assigned to it in Section 4.01 of
the PD Trust Agreement.
PD SUPPLEMENTAL AGREEMENT means the agreement dated as at the Consummation
Date between the Company, the PD Trust and the Trust substantially in the form
of Annex C to the PD Trust Agreement, as the same may be amended from time to
time in accordance with Section 6.02 thereof.
PD TERMINATION DATE has the meaning assigned to it in Section 6.02 of the
PD Trust Agreement.
PD TRANSFER AMOUNT and PD TRANSFER DISTRIBUTION have the meanings assigned
to them in Subsection 4.02(n) of the PD Supplemental Agreement.
PD TRUST means the Manville Property Damage Settlement Trust established
pursuant to Article II of the PD Trust Agreement.
PD TRUST AGREEMENT means the trust agreement between the Debtors and the PD
Trustees dated as at the Consummation Date substantially in the form of Exhibit
D to the Plan, as it may be amended or modified from time to time in accordance
with Section 6.03 thereof.
PD TRUST ASSETS means the assets of the PD Trust as more fully described in
Article II of the PD Trust Agreement.
PD TRUST ESTATE at any time means all assets of the PD Trust at such time.
PD TRUST EXPENSES means all expenses of the PD Trust determined on a cash
basis (including, without limitation, compensation, legal, accounting and other
professional fees, expenses relating to the operation of the PD Claims
Resolution Facility, disbursements
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<PAGE>
GLOSSARY
and related expenses, corporate overhead and reimbursement and indemnification
payments) other than payments in respect of Property Claims.
PD TRUSTEES means the Persons approved by the Court to act as trustees
under the PD Trust Agreement and their successors pursuant to Article V thereof.
PERSON, except when used in the Plan, means any individual, corporation,
partnership, joint venture, association, trust, unincorporated organization or
government or any agency or political subdivision thereof.
PLAN means the Debtors' "Second Amended and Restated Plan of
Reorganization," as it may be amended or modified from time to time, which
shall be deemed to amend, modify and supersede in all respects the Debtors'
"Joint Plan of Reorganization" dated October 17, 1983 and filed with the
Clerk of the Court on November 21, 1983 and the Debtors' "First Amended and
Restated Plan of Reorganization" dated February 14, 1986 and filed with the
Clerk of the Court on February 14, 1986.
POLICY means any insurance policy covering any of the Debtors or any
predecessor thereto in effect at or prior to the Consummation Date under which
any claim may be made in respect of any AH Claim, Other Asbestos Obligation or
Property Claim, including, without limitation, any insurance policy listed in
Schedule II to the Plan and any other insurance policy which is at the
Consummation Date the subject of a Settlement Agreement listed on Schedule III
to the Plan if such Settlement Agreement subsequently terminates.
POSTPETITION INTEREST RATE means with respect to an Allowed Class 6 Claim
and at any time (i) the pre-default contractual interest rate applicable at the
Filing Date as provided for under the instrument or agreement giving rise to
such Allowed Class 6 Claim, or (ii) in the absence of any such contractual
interest rate, the rate of 9% per annum.
POSTPETITION INTEREST RATIO means with respect to an Allowed Class 6 Claim
the ratio obtained by dividing (i) the amount of interest on the amount of such
Allowed Class 6 Claim from the Filing Date to the Consummation Date, by (ii) the
aggregate amount of interest from the Filing Date to the Consummation Date on
all Allowed Class 6 Claims (other than Allowed Class 6 Claims paid in
23
<PAGE>
GLOSSARY
accordance with Paragraph 3.6.A of the Plan), such amounts and aggregate amounts
of interest calculated in each case using the applicable Postpetition Interest
Rate; PROVIDED, that (w) if such Allowed Class 6 Claim (or any Allowed portion
thereof) was contingent or unliquidated as of the Filing Date and became fixed
or liquidated, as the case may be, after the Filing Date but before the
Consummation Date, the amount of interest shall be calculated on such claim (or
Allowed portion thereof) from the date such claim (or portion thereof) became
fixed or liquidated to the Consummation Date, (x) if such Allowed Class 6 Claim
(or any Allowed portion thereof) was contingent or unliquidated as of the Filing
Date and did not become fixed or liquidated, as the case may be, before the
Consummation Date, the amount of interest with respect to such Claim (or Allowed
portion thereof) shall be zero (y) any Allowed Class 6 Claim (or any Allowed
portion thereof) which is solely a Claim for damages shall be deemed to be
unliquidated for purposes of Clauses (w) and (x) hereof, and (z) with respect to
any Class 6 Claim (or any portion thereof) which is a Disputed Class 6 Claim as
of the Consummation Date, the amount of interest with respect to such Claim
shall be zero.
PROFITS for any Fiscal Year means the Company's Adjusted Consolidated Net
Earnings for such Fiscal Year (less dividends declared (unless not thereafter
paid) on Financing Preferred Stock in such Fiscal Year, PROVIDED that for
purposes only of the Supplemental Agreement, dividends on Financing Preferred
Stock shall only be deducted to the extent that the sum of such dividends plus
dividends declared (unless not thereafter paid) on Series B Preference Stock
exceeds $25 million in such Fiscal Year) adjusted (without double counting) by
not giving effect to (a) any profit or loss on any sales or other dispositions
of assets of the Company or any of its consolidated Subsidiaries (including
securities of any Subsidiary of the Company but not including any other
securities) not in the ordinary course of business or writedowns for
discontinuance of operations of any portion of the Company or any of its
consolidated Subsidiaries, (b) any accruals or payments required in connection
with the Company's obligations to the PD Trust under the PD Supplemental
Agreement, or the Second Bond or to the Trust under the Supplemental Agreement,
the Bonds Repurchase Agreement, the Second Bond, except to the extent that
accruals under the Bonds Repurchase Agreement or payments of principal under
the Second Bond are treated as interest expense when determining net earnings
under generally accepted accounting principles, (c) any reserves or other
contingencies with respect to asbestos related personal injury or property
damage claims other than reserves or contingencies
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<PAGE>
GLOSSARY
resulting from annual accruals with respect to workers' compensation performed
on a basis consistent with the Company's past practice, (d) any amortization of
goodwill, (e) Government Proceeds and (f) any payments, accruals or accretions
with respect to the Class 6 Interest Debentures.
PROPERTY CLAIMS means (a) all Claims timely filed in accordance with the
order of the Court issued on October 17, 1984, as amended and clarified by the
Court, against one or more of the Debtors (under any theory of law, equity or
admiralty), other than AH Claims and other Claims for death, personal injuries
or personal damages, for damages arising or allegedly arising from the presence
in buildings or other structures of asbestos (alone or as contained in asbestos-
containing products), which was sold, supplied or produced, or allegedly sold,
supplied or produced, by one or more of the Debtors prior to the Confirmation
Date, or for which one or more of the Debtors is otherwise liable or allegedly
liable due to the acts or omissions of one or more of the Debtors prior to the
Confirmation Date, including, without limitation, all Claims for compensatory
damages (such as proximate, consequential, general and special damages) and
punitive damages, (b) all Claims timely filed in accordance with the order of
the Court issued on October 17, 1984, as amended and clarified by the Court, or
in accordance with any subsequent applicable order of the Court, against one or
more of the Debtors in respect of warranty, guarantee, indemnification or
contribution liabilities or obligations of any of the Debtors to any other
Person to the extent that such warranties, guarantees, indemnifications or
contribution responsibilities cover claims against such other Person that would,
if such claims had been made directly against any of the Debtors, constitute
Property Claims under Clause (a) above and (c) all Claims timely filed against
one or more of the Canadian Companies where such Claims, if made and timely
filed against one or more of the Debtors instead, would constitute Property
Claims under Clause (a) or (b) above. Where the context requires, PROPERTY
CLAIMS shall also mean claims in respect of Property Claims filed with the PD
Claims Resolution Facility in accordance with the provisions thereof.
REAFFIRMATION ORDER means an order of the Court (a) reaffirming the
injunctive provisions (PARA 29) of the Confirmation Order and (b) declaring that
those injunctive provisions are not subject to revocation or modification
thereafter.
RELATED PARTY of any attorney means any other attorney who is or was a
partner of such attorney, or is or was a shareholder in a
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<PAGE>
GLOSSARY
professional corporation in which such attorney is or was also a shareholder.
RETURN ON EQUITY means, for any company for any year, the percentage
determined by dividing (a) the consolidated net income of such company for such
year, before extraordinary items and discontinued operations and after taxes and
less the amount of any preferred dividends paid during such year, by (b) the
average of the common stockholders' equity of such company at the end of such
year and at the end of the preceding year.
SCHEDULES means the schedules heretofore filed by the Debtors with the
Clerk of the Court pursuant to Bankruptcy Rule 1007, as they have been or may be
amended from time to time.
SCHULLER NOTES means the Senior Notes due 2004 of Schuller International
Group, Inc. (or any successor obligor under such notes) transferred by the
Company to the Trust pursuant to the Bonds Repurchase Agreement.
SECOND AMENDED AND RESTATED SUPPLEMENTAL AGREEMENT means the Second Amended
and Restated Supplemental Agreement dated as of April 5, 1996, between the
Company and the Trust, as the same may be amended from time to time in
accordance with Section 6.02 thereof.
SECOND AMENDMENT TO THE TRUST AGREEMENT means the amendment to the Trust
Agreement dated as of November 15, 1990, between the Company, as successor to
the Trustors, and the Trustees.
SECOND BOND means the Manville Settlement Trusts Second Bond Due March 31,
2015, issued by the Company to the Trust and the PD Trust pursuant to Paragraph
4.1 of the Plan and substantially in the form of Annex E to the Trust Agreement,
as it may be amended from time to time.
SECURITIES ACT means the Securities Act of 1933, as amended.
SELECTED COUNSEL FOR THE BENEFICIARIES means three lawyers to be designated
from time to time in a writing addressed to the Trustees with a copy to the
Company by the Board of Trustees of the Asbestos Litigation Group.
SELECTED REPRESENTATIVES FOR THE PD BENEFICIARIES means five (5)
individuals to be designated from time to time (in a writing
26
<PAGE>
GLOSSARY
addressed to the Company and to the PD Trustees) as follows: one (1) Person
selected by each of the National Association of Attorneys General, National
Association of School Boards, American Hospital Association, National
Association of College and University Business Officers and National Institute
of Municipal Law Officers, or their respective successor organizations.
SERIES B PREFERENCE STOCK means the Cumulative Preference Stock, Series B,
par value $1.00 per share, of the Company.
SETTLEMENT AGREEMENT means (i) each settlement agreement listed in Schedule
III to the Plan and (ii) any other settlement agreement with respect to any
Policy or relating to claims against any insurance broker.
SETTLEMENT ORDER means an order of settlement that the class
representatives and the Trustees in the Class Action Lawsuit will propose and
request the entry of (after notice to all class members and a hearing) by the
Court, which order will (i) approve the actions of the Trustees in causing the
Trust to commence the Limited Fund Proceeding, (ii) approve the settlement of
the Class Action Lawsuit on terms and conditions satisfactory to the class
representatives and the Trustees, (iii) authorize and approve the execution,
delivery and performance by the Trustees and the Trust of a master agreement in
the form agreed to between the Company and the Trust and the agreements and
actions contemplated therein and of all documents and agreements necessary to
effectuate the settlement of the Class Action Lawsuit, (iv) direct the class
representatives to execute on behalf of themselves and all class members and to
deliver to the Trustees and the Company unconditional releases of the Company
and its former, present and future affiliates and successors and cognate
covenants not to sue in form and substance reasonably satisfactory to the
Company, (v) enjoin all class members from commencing or maintaining any action
or proceeding based on asbestos claims against the Trust, except as provided in
the Settlement Order, or against the Company or its former, present or future
affiliates or successors and (vi) reaffirm the injunctive provisions (PARA 29)
of the Confirmation Order.
SETTLING INSURANCE COMPANY means any insurance company or insurance broker
which has entered into, or subsequently enters into, a Settlement Agreement.
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<PAGE>
GLOSSARY
SPECIAL FUND TRUST means the trust established pursuant to the Asbestos
Victims Special Fund Trust Agreement dated as of February 6, 1986 among Stanley
J. Levy, Frederick M. Baron, Thomas W. Henderson, Gene Locks and Ronald L.
Motley as trustors and as trustees, a copy of which is attached to the Plan as
Exhibit I. It is understood that the Trustees will be added as additional
trustees of the Special Fund Trust to serve effective as of the Consummation
Date.
STOCK PROCEEDS FUND has the meaning assigned to it in Section 4.01 of the
Trust Agreement.
SUPPLEMENTAL AGREEMENT means the Manville Personal Injury Settlement Trust
Supplemental Agreement dated as of November 28, 1988 between the Company and the
Trust, with respects to the period from November 28, 1988 to November 14, 1990
(inclusive); the First Amended and Restated Supplemental Agreement, with respect
to the period from November 15, 1990 to April 5, 1996, and from and after April
5, 1996, the Second Amended and Restated Supplemental Agreement, as the same may
thereafter be amended, modified, or amended and restated by the parties in
accordance with the terms thereof.
SUBSIDIARY means with respect to any Person any corporation or other entity
of which securities or other ownership interest having ordinary voting power to
elect a majority of the board of directors or other Persons performing similar
functions are at the time directly or indirectly owned by such Person.
TENDER OFFER means an offer to acquire shares of Company Common Stock with
respect to which a Schedule 14D-1 is required to be filed with the Commission
pursuant to Rule 14d-3 under the Exchange Act.
TERMINATION DATE has the meaning assigned to it in Section 6.02 of the
Trust Agreement.
TRANSFER means, with respect to any share of Company Common Stock, any
sale, transfer, assignment or exchange of, or pledge or other hypothecation of
or imposition of an Encumbrance on, or granting of an option to purchase with
respect to, or any donation or gifting of, or any other disposition of any type
whatsoever of any record or beneficial interest in such shares of Company Common
Stock. The words TRANSFER when used as a verb and TRANSFEREE shall have
correlative meanings.
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GLOSSARY
TRANSFEREE INDEMNIFICATION LIABILITY means a Claim arising from the sale
following the Filing Date of any of the Debtors' businesses that is asserted by
the purchaser of any of such businesses.
TRAVELERS AGREEMENT means the settlement agreement dated July 18, 1984,
with Travelers Insurance Co., Home Insurance Co. and the Lloyd's Syndicates and
British Companies named therein, providing for $314,415,000 in cash, plus
accrued interest thereon.
TRUST means the Manville Personal Injury Settlement Trust established
pursuant to Article II of the Trust Agreement.
TRUST AGREEMENT means the Manville Personal Injury Settlement Trust
Agreement between the Debtors and the Trustees dated as at the Consummation
Date, as it may be amended or modified from time to time in accordance with
Section 6.03 thereof.
TRUST ASSETS means the assets of the Trust as more fully described in
Article II of the Trust Agreement.
TRUST CLAIM means any claim asserting Trust Liabilities to a Beneficiary.
TRUST ESTATE at any time means all assets of the Trust at such time.
TRUST EXPENSES means all expenses of the Trust determined on a cash basis
(including, without limitation, compensation, legal, accounting and other
professional fees, expenses relating to the operation of the Claims Resolution
Facility, disbursements and related expenses, corporate overhead and
reimbursement and indemnification payments) other than payments in respect of
Trust Claims.
TRUST LIABILITIES means all Other Asbestos Obligations and Allowed AH
Claims.
TRUSTEES means the Persons approved by the Court to act as trustees under
the Trust Agreement and their successors pursuant to Article V thereof.
TRUSTORS means the Debtors and the Canadian Companies.
29
<PAGE>
GLOSSARY
UNLIQUIDATED means, with respect to any Trust Claim or Property Claim, a
Trust Claim or Property Claim as to which Liquidation has not yet occurred.
UNSECURED CREDITORS' COMMITTEE means the "Official Committee of Unsecured
Creditors" consisting of those heretofore or hereafter appointed in the Cases by
the Acting United States Trustee for the Southern District of New York.
WARRANT AGREEMENT means the agreement, dated as of the Consummation Date,
between the Company and the Warrant Agent thereunder, substantially in the form
of Exhibit C to the Plan, as it may be modified or amended from time to time.
WARRANTS mean the warrants to purchase shares of Company Common Stock
issued pursuant to the Warrant Agreement.
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<PAGE>
FINAL PROPERTY DAMAGE SETTLEMENT AGREEMENT
Agreement (the "Agreement") dated as of March 22, 1996 among Manville
Corporation (the "Company"), Manville Property Damage Settlement Trust (the "PD
Trust") and Manville Personal Injury Settlement Trust (the "PI Trust").
WHEREAS, the Company, as successor to the Trustors for such purpose,
and the PD Trustees wish to, subject to the conditions set forth herein, amend
the Manville Property Damage Settlement Trust Agreement dated as of November 28,
1988 as provided in the form of Amended and Restated Manville Property Damage
Settlement Trust Agreement attached hereto as Exhibit A (the "Revised PD Trust
Agreement");
WHEREAS, the Company, the PD Trust and the PI Trust wish to, subject
to the conditions set forth herein, amend the Amended and Restated Property
Damage Supplemental Agreement dated as of November 15, 1990 as provided in the
form of Second Amended and Restated Property Damage Supplemental Agreement
attached hereto as Exhibit B (the "Revised PD Supplemental Agreement");
WHEREAS, the parties hereto wish to provide for the other matters set
forth herein; and
WHEREAS, the Selected Representatives for the PD Beneficiaries have
been consulted and have given their consent with respect to this Agreement and
the transactions contemplated hereby;
NOW THEREFORE, for good and valuable consideration, the adequacy and
receipt of which are hereby acknowledged, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
Unless the context requires otherwise, all capitalized terms not
otherwise defined herein have the meanings assigned to them in Exhibit A to the
Manville Personal Injury Settlement Trust Amended and Restated Supplemental
Agreement dated as of November 15, 1990.
<PAGE>
ARTICLE II
FINAL PAYMENT
2.01. FINAL PAYMENT OBLIGATIONS. In consideration of the agreements
contained herein and execution of the Revised PD Trust Agreement and the Revised
PD Supplemental Agreement each dated as of the date hereof, the Company shall
pay $14,250,000 to the PD Trust as provided in Section 2.02(a) and shall pay the
Tax Reserve (as defined below) to the PD Trust as provided in Section 4.05.
2.02. CLOSING. (a) The delivery of the items set forth in Section
2.02(b) (the "Closing") shall take place at the offices of Davis Polk &
Wardwell, 450 Lexington Avenue, New York, New York, at 10:00 a.m. on the fifth
Business Day following the satisfaction of the conditions set forth in Section
2.03 (the "Closing Date"). At the Closing the Company shall deliver to the PD
Trust the following:
(i) $4,000,000 in immediately available funds by wire transfer to an
account of the PD Trust with a bank designated by the PD Trust, by notice
to the Company not later than two Business Days prior to the Closing Date
(or if not so designated, then by certified or official bank check payable
in immediately available funds to the order of the PD Trust), and
(ii) a non-interest-bearing installment note, substantially in the
form attached hereto as Exhibit C, in the principal amount of $10,250,000
payable in two installments: the first installment in the amount of
$4,000,000 payable on the first anniversary of the Closing Date and the
second installment in the amount of $6,250,000 payable on the second
anniversary of the Closing Date (the "Installment Note").
(b) On the Closing Date:
(i) the Company shall execute and deliver to the PD Trust (A) the
Revised PD Trust Agreement, (B) the Revised PD Supplemental Agreement, (C)
the Installment Note and (D) a General Release in the form attached hereto
as Exhibit D;
(ii) the Company shall execute and deliver to the PI Trust the Revised
PD Supplemental Agreement;
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(iii) the PD Trust shall execute and deliver to the Company (A) the
Revised PD Trust Agreement, (B) the Revised PD Supplemental Agreement, and
(C) a General Release in the form attached hereto as Exhibit D;
(iv) the PD Trust shall execute and deliver to the PI Trust (A) the
Revised PD Supplemental Agreement and (B) a General Release in the form
attached hereto as Exhibit D;
(v) the PI Trust shall execute and deliver to each of the PD Trust
and the Company the Revised PD Supplemental Agreement; and
(vi) the PI Trust shall execute and deliver to the PD Trust a General
Release in the form attached hereto as Exhibit D.
The transactions and events described in this Section 2.02 shall be deemed to
have occurred simultaneously with one another.
2.03. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE COMPANY AND THE
PI TRUST. The respective obligations of the Company and the PI Trust on the
Closing Date are subject to the satisfaction (or waiver in writing by the
Company or the PI Trust, as the case may be) of each of the following conditions
precedent:
(a) receipt by the Company and the PI Trust of written evidence, in
form and substance satisfactory to each of the Company and the PI Trust, of the
consent of the Selected Representatives of the PD Beneficiaries and any other
consents required to be obtained by the PD Trust with respect to the execution,
delivery and performance by the PD Trust of this Agreement and the agreements
and instruments set forth as Exhibits hereto; and
(b) the entry by the Court of an unstayed order approving this
Agreement, the Revised PD Trust Agreement and the Revised PD Supplemental
Agreement, which order shall be a Final Order; PROVIDED HOWEVER, that if no
objection, motion for reconsideration, motion of the type referred to in Federal
Rule of Bankruptcy Procedure 8002(b) or (c) (an "8002 Motion") or appeal or like
application to the Court's granting of such order is duly made by a third party
before the tenth day following the entry by the Court of such order, such order
shall be deemed to be a Final Order upon the expiration of such ten-day period;
PROVIDED FURTHER, that if an objection, motion for reconsideration, 8002 Motion
or appeal or like application is made prior to the
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<PAGE>
expiration of such period, such order by the Court shall nevertheless be deemed
to be a Final Order unless either the Company or the PI Trust, after
consultation with the other parties hereto, reasonably and in good faith
determines, after review of such objection, motion for reconsideration, 8002
Motion or appeal or like application, that the Closing should not proceed until
such agreements are approved by a Final Order and the party that has made such
determination shall have given the other parties written notice of such
determination within 35 days after the granting of such order, in which case the
condition set forth in this paragraph (b) shall not be deemed satisfied until
such time as the agreements are approved by a Final Order or such objection,
motion for reconsideration, 8002 Motion or appeal or like application is earlier
resolved, withdrawn or abandoned; and
(c) the delivery by the PD Trust to the Company or the PI Trust (as
the case may be) of an opinion of counsel substantially in the form attached
hereto as Exhibit E.
2.04. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE PD TRUST. The
obligations of the PD Trust on the Closing Date are subject to the satisfaction
(or waiver in writing by the PD Trust) of each of the following conditions
precedent:
(a) written evidence, in form and substance satisfactory to the PD
Trust, of the consent of the Selected Representatives of the PD Beneficiaries
and any other consents required to be obtained by the PD Trust with respect to
the execution, delivery and performance by the PD Trust of this Agreement and
the agreements and instruments set forth as Exhibits hereto;
(b) the entry by the Court of an unstayed order approving this
Agreement, the Revised PD Trust Agreement and the Revised PD Supplemental
Agreement, which order shall be a Final Order; PROVIDED HOWEVER, that if no
objection, motion for reconsideration, 8002 Motion or appeal or like application
to the Court's granting of such order is duly made by a third party on or before
the tenth day following the entry by the Court of such order, such order shall
be deemed to be a Final Order upon the expiration of such ten-day period;
PROVIDED FURTHER, that if an objection, motion for reconsideration, 8002 Motion
or appeal or like application is made prior to the expiration of such period,
such order by the Court shall nevertheless be deemed to be a Final Order unless
the PD Trust, after consultation with the other parties hereto, reasonably and
in good faith
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<PAGE>
determines, after review of such objection, motion for reconsideration, 8002
Motion or appeal or like application, that the Closing should not proceed until
such agreements are approved by a Final Order and the PD Trust shall have given
the other parties written notice of such determination within 35 days after the
granting of such order, in which case the condition set forth in this paragraph
(b) shall not be deemed satisfied until such time as the agreements are approved
by a Final Order or such objection, motion for reconsideration, 8002 Motion or
appeal or like application is earlier resolved, withdrawn or abandoned; and
(c) the delivery by each of the Company and the PI Trust to the PD
Trust of opinions of counsel substantially in the forms attached hereto as
Exhibits E and F, respectively.
ARTICLE III
CONSENTS AND WAIVERS
3.01. CONSENT OF THE PD TRUST. (a) The PD Trust hereby irrevocably
and unconditionally consents to the following:
(i) the redemption at any time of the Class 6 Interest Debentures, in
accordance with Section 3.01 thereof; and
(ii) the prepayment, repurchase, exchange of, or other discharge of
the Company's obligations under the Second Bond for the sole benefit of the
PI Trust, and the amendment or replacement of the Second Bond, on such
terms as may be agreed by the Company and the PI Trust.
(b) The PD Trust hereby irrevocably and unconditionally consents to
and waives any rights of appeal from and shall, within two Business Days after
the date hereof, irrevocably withdraw with prejudice any notice of appeal filed
with respect to the order of the Court dated November 28, 1995 approving, among
other things, the Profit Sharing Exchange Agreement entered into by the Company
and the PI Trust (the "Exchange Agreement") and further irrevocably and
unconditionally consents to, and agrees not to take any action to challenge,
oppose, object to or seek to prevent, delay or affect in any manner, any of the
transactions contemplated by the Exchange Agreement including, without
limitation, any Disposition (as defined therein).
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(c) The parties hereto hereby agree that Section 4.01(a) of the PD
Supplemental Agreement is hereby amended by adding a new second sentence to read
as follows:
In consideration of the final payment obligations of the Company to the PD
Trust contained in the Final Property Damage Settlement Agreement, dated as
of March 22, 1996, among the Company, the PD Trust and the PI Trust, the
Annual PD Contingent Amount shall be computed to be zero for each Fiscal
Year commencing with 1993 and such calculation shall be conclusive for the
purposes of this Agreement, the Second Bond, the Other Agreements, the Plan
and any Schedule, Annex or Exhibit to any of the foregoing.
3.02. RELEASE OF LIABILITY OF THE COMPANY, THE TRUSTORS AND THE PI
TRUST GENERALLY. (a) Upon the Closing Date, none of the Company, the Trustors
or the PI Trust shall have any further obligation to or liability in respect of
the PD Trust, the PD Trustees or the PD Beneficiaries other than as follows:
(i) the Company's liability for the payments expressly required
hereunder;
(ii) the Company's obligation to cooperate with the PD Trust with
respect to certain insurance matters as set forth in Section 2.05 of the
Revised PD Supplemental Agreement; and
(iii) the PI Trust's obligation to cooperate with the PD Trust with
respect to certain insurance matters as set forth in Section 2.05 of the
Revised PD Supplemental Agreement.
(b) The provisions of Section 3.02(a) shall be implemented by the
execution and delivery at the Closing of the releases described in Section
2.02(b).
ARTICLE IV
CERTAIN TAX MATTERS
4.01. TAX DEFINITIONS. The following terms, as used herein, have the
following meanings:
"Code" means the Internal Revenue Code of 1986, as amended.
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"Federal Income Tax" means any tax imposed under Subtitle A of the
Code, together with any interest, penalty, addition to tax or additional amount
imposed with respect thereto.
"Company Tax Payment" means any Federal Income Tax of the PD Trust
paid or payable by the Company in accordance with the provisions of Section
1807(a)(7)(C)(ii) of the Tax Reform Act of 1986.
"Post-Closing Tax Period" means any tax period or portion thereof
beginning after the Closing Date.
"Pre-Closing Tax Period" means any tax period or portion thereof
ending on or before the Closing Date.
"Qualified Settlement Fund" means a fund, account, or trust (A) that
satisfies the requirements of Treas. Reg. Section 1.468B-1(c), or any successor
provisions thereto, and (B) to which the provisions of Section 1807(a)(7)(C) of
the Tax Reform Act of 1986 do not apply.
"Tax Reserve" means $750,000 reduced by (A) the excess of (x) the
aggregate amount of Company Tax Payments (exclusive of interest, penalties,
additions to tax and additional amounts attributable to the first $600,000 in
tax liability) in respect of any Post-Closing Tax Period ending on or before
December 31, 1998, over (y) $600,000, and (B) the aggregate amount of Company
Tax Payments in respect of any Post-Closing Tax Period beginning on or after
January 1, 1999, and increased by an amount equal to 6% per annum of the balance
after taking into account any reductions described in (A) or (B).
"PD Trust Indemnifiable Taxes" means the sum of (A) the excess of (x)
the aggregate amount of Company Tax Payments (exclusive of interest, penalties,
additions to tax and additional amounts attributable to the first $600,000 in
tax liability) in respect of any Post-Closing Tax Period ending on or before
December 31, 1998 over (y) the sum of $600,000 and any amount applied to reduce
the amount of the Tax Reserve pursuant to clause (A) of the definition of Tax
Reserve and (B) the amount of any Company Tax Payments in respect of any Post-
Closing Tax Period beginning on or after January 1, 1999, to the extent that
such Company Tax Payments are not applied to reduce the amount of the Tax
Reserve pursuant to clause (B) of the definition of Tax Reserve.
4.02. TAX INDEMNITIES.
7
<PAGE>
(a) Pre-Closing Taxes. The Company shall indemnify the PD Trust
against and hold the PD Trust harmless from any income taxes, together with any
interest, penalty, addition to tax or additional amount imposed with respect
thereto, related to any Pre-Closing Tax Period.
(b) Certain Post-Closing Taxes. The PD Trust shall indemnify the
Company against and hold the Company harmless from any PD Trust Indemnifiable
Taxes.
(c) For purposes of this Article IV, in the case of any income taxes
that are payable for a tax period that includes (but does not end on) the
Closing Date, the portion of such tax related to the portion of such tax period
ending on and including the Closing Date shall be deemed equal to the amount
that would be payable if the relevant tax period ended on and included the
Closing Date.
4.03. TAX STATUS OF PD TRUST.
(a) The PD Trust agrees that, on or before the Status Change Date (as
defined below) the PD Trust shall either (i) terminate, (ii) take such actions
(including obtaining an order of the Court approving such actions) as may be
required and as are reasonably acceptable to the parties hereto to reconstitute
the PD Trust, as a Qualified Settlement Fund or otherwise, so that the Company
shall have no liability for any Company Tax Payments for any Post-Closing Tax
Period beginning on the day after the Status Change Date, or (iii) cause all
income earning assets of the PD Trust that the PD Trust may hold at that time
and at any time thereafter to consist solely of assets the income from which is
exempt from Federal Income Tax.
(b) The PD Trust shall not be deemed to have complied with the
provisions of Section 4.03(a)(ii) of this agreement unless the Company and the
PD Trust shall have jointly received a ruling from the Internal Revenue Service
reasonably acceptable to the parties hereto, or an opinion of counsel reasonably
acceptable to the parties hereto in form and substance reasonably acceptable to
the parties hereto, to the effect that the actions taken to reconstitute the PD
Trust are effective to relieve Company of any liability for Company Tax Payments
for any Post-Closing Tax Period beginning on the day after the Status Change
Date.
(c) For purposes of this Section 4.03, "Status Change Date" shall mean
a date no later than December 31, 1998; PROVIDED, HOWEVER, that if, within 30
days of December 31, 1997 the Company and the PI Trust shall each have
8
<PAGE>
received written notice from the PD Trust to the effect that, as of December 31,
1997, the PD Trust does not reasonably expect to terminate prior to December 31,
1998, the parties agree to negotiate in good faith to amend this Agreement and
the Installment Note, if necessary, to extend the Status Change Date to a date
up to but no later than December 31, 2000, upon terms mutually acceptable to the
parties hereto, which terms shall include (i) the Company's retention of a tax
reserve equal to 200% of the parties' mutually agreed estimate of the aggregate
unpaid Company Tax Payments that are (1) payable out of the Tax Reserve or
required to be indemnified by the PD Trust and (2) payable for Post Closing Tax
Periods ending on or prior to such extended date, which retention, as the case
may be, may require either (A) accelerating payment to the PD Trust of the
portion of the balance of the Tax Reserve, if any, that exceeds such amount, or
(B) decreasing the balance of the amount due under the Installment Note by the
amount, if any, by which the balance of the Tax Reserve at that time is less
than such amount and increasing the amount of the Tax Reserve by a like amount,
and (ii) agreement by the PD Trust to take such actions, if any, as the Company
and the PI Trust jointly may reasonably request from time to time to eliminate
the Company's liability for the PD Trust's federal income taxes to the extent
that such elimination of liability of the Company will neither (x) cause a
decrease in the PD Trust income nor (y) cause the federal income tax rate
applicable to the PD Trust to increase to a rate higher than 15% per annum;
PROVIDED HOWEVER, that nothing in this Section 4.03(c) shall require any party
hereto to agree to an extension of the Status Change Date if such party in good
faith determines that such extension would result in a material adverse effect
to such party.
4.04. RETURNS FILED AFTER THE CLOSING DATE. The PD Trust shall
furnish to the Company for its review a copy of each Federal Income Tax return,
including any amended return or estimated tax return, to be filed after the
Closing Date for any Post-Closing Tax Period ending on or before the date the PD
Trust shall be deemed to have complied with the provisions of Section
4.03(a)(ii) of this Agreement, no later than 60 days prior to the due date for
filing any such return, including applicable extensions. If the Company objects
to any item on any such return, it shall, within 15 days after receipt of such
return, notify the PD Trust in writing that it so objects, specifying with
particularity the item in question and the basis for such objection. If the
Company and the PD Trust are unable to resolve such items by mutual agreement
within 15 days after receipt by the PD Trust of such notice, the disputed items
shall be resolved by a nationally recognized accounting firm
9
<PAGE>
(the "Accounting Referee"), chosen by and mutually acceptable to the Company and
the PD Trust. The Accounting Referee shall resolve any disputed item within 30
days of having the item referred to it, and its decision shall be final and
binding upon the parties. The tax return which is subject to any such dispute
shall not be filed until such dispute is resolved as provided above. The costs,
fees and expenses of the Accounting Referee shall be borne equally by the
Company and the PD Trust.
4.05. PAYMENT OF TAX RESERVE. The Company agrees to pay the balance,
if any, of the Tax Reserve to the PD Trust by wire transfer to an account of the
PD Trust with a bank designated by the PD Trust, by notice to the Company, not
later than 10 days following the receipt by the Company of the Federal Income
Tax return of the PD Trust actually filed by the PD Trust for the taxable period
during which the PD Trust shall have complied with the provisions of Section
4.03 of this Agreement, PROVIDED the PD Trust has complied with the terms of
Section 4.04 of this Agreement with respect to such Federal Income Tax return.
ARTICLE V
REPRESENTATIONS, WARRANTIES AND COVENANTS
5.01. AUTHORIZATION. Each of the parties hereto represents and
warrants that (a) it has taken all necessary corporate or trust, as applicable,
action to authorize its execution and delivery of, and performance of its
obligations under, this Agreement and (b) this Agreement has been duly and
validly authorized, executed and delivered by such party and, subject to
approval of this Agreement by the Court, constitutes the valid and binding
obligation of such party in accordance with its terms.
5.02. BEST EFFORTS; FURTHER ASSURANCES. Each of the Company, the PD
Trust and the PI Trust agrees to use its reasonable efforts to take, or cause to
be taken, all actions and to do, or cause to be done, all things necessary or
desirable to fulfill the conditions set forth in Section 2.03 and 2.04. Each
party hereby agrees to execute, deliver and (as appropriate) file such further
instruments and documents, and to take such further actions as may, in each
case, be reasonably requested by another party hereto and as shall be necessary
or appropriate to carry out, give effect
10
<PAGE>
to or evidence the transactions contemplated hereby and the consents and waivers
granted and the other actions to be taken pursuant to the terms hereof.
5.03. APPLICATION FOR COURT APPROVAL. The PD Trust shall, within 15
days after the date hereof, file an application (which shall have been approved
by the Company and the PI Trust, which approval shall not be unreasonably
withheld) with the Court seeking approval of this Agreement, the Revised PD
Trust Agreement and the Revised PD Supplemental Agreement and shall thereafter
diligently prosecute, support and defend such application. The PD Trust shall,
where appropriate, state its support of such application and the transactions
contemplated hereby and thereby in any communications to the PD Beneficiaries or
representatives thereof with respect to such application and transactions.
ARTICLE VI
MISCELLANEOUS
6.01. AMENDMENTS; WAIVER. This Agreement may be modified,
supplemented or amended, or the provisions hereof waived only in writing, at any
time and from time to time in writing signed by each party hereto.
6.02. NOTICES. Any notices or other communications required or
permitted in connection with this Agreement shall be in writing and delivered at
the addresses designated below, or sent by telex or telecopy pursuant to the
instructions listed below, or mailed by registered or certified mail, return
receipt requested, postage prepaid, addressed as follows, or to such other
address or addresses as may hereafter be furnished by one party to another in
compliance with the terms hereof:
To the PD Trust: with a copy to (which shall not
constitute notice):
Manville Property Damage Hughes Hubbard & Reed
Settlement Trust One Battery Park Plaza
525 North Broadway New York, New York 10004
White Plains, New York 10603 Fax: (212) 422-4726
Attention: KURT SCHAFFIR Attention: THEODORE V.H. MAYER
11
<PAGE>
To the Company: with copies to (which shall not
constitute notice):
Manville Corporation Davis Polk & Wardwell
717 17th Street 450 Lexington Avenue
Denver, Colorado 80202 New York, New York 10017
Fax: (303) 978-4842 Fax: (212) 450-4800
Attention: RICHARD B. VON WALD Attention: L. GORDON HARRISS
and
Skadden, Arps, Slate
Meagher & Flom
919 Third Avenue
New York, New York 10022
Fax: (212) 735-2001
Attention: FRANKLIN M. GITTES
To the PI Trust: with a copy to (which shall not
constitute notice):
Manville Personal Injury Donovan Leisure Newton
Settlement Trust & Irvine
P.O. Box 10415 30 Rockefeller Plaza
8260 Willow Oaks Corporate New York, New York 10112
Drive -- Suite 600 Fax: (212) 632-3315
Fairfax, VA 22031 Attention: ANDREW J. TRUBIN
Fax: (703) 205-6249
Attention: DAVID T. AUSTERN
All such notices and communications shall be effective when delivered
at the designated addresses or when the telecopy communication is received at
the designated addresses.
6.03. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall constitute an original, but such counterparts
shall together constitute but one and the same instrument.
6.04. SUCCESSORS AND ASSIGNS. The provisions of this Agreement shall
be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns.
6.05. HEADINGS. The headings used in this Agreement are inserted for
convenience only and neither constitute a portion of this Agreement nor in any
manner affect the construction of the provisions of this Agreement.
12
<PAGE>
6.06. GOVERNING LAW. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of New York.
6.07. SURVIVAL OF COVENANTS AND AGREEMENTS. All covenants and
agreements made in this Agreement or in certificates delivered pursuant hereto
shall be deemed to have been relied upon by the party to whom made,
notwithstanding any investigations heretofore or hereafter made by such party or
on such party's behalf. Unless clearly worded otherwise all such covenants and
agreements shall continue in full force and effect so long as this Agreement is
in effect.
6.08. ENTIRE AGREEMENT. The entire agreement of the parties relating
to the subject matter of this Agreement is contained herein and in the Revised
PD Supplemental Agreement and the Revised PD Trust Agreement, and supersedes any
prior oral or written agreements concerning the subject matter hereof.
13
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective duly authorized officers as of the day and year
first above written.
MANVILLE CORPORATION
By:
---------------------
Name:
Title:
MANVILLE PROPERTY DAMAGE
SETTLEMENT TRUST
By: , as Trustee
---------------------
Name:
By: , as Trustee
---------------------
Name:
By: , as Trustee
---------------------
Name:
MANVILLE PERSONAL INJURY
SETTLEMENT TRUST
By:
---------------------
Name:
Title:
14
<PAGE>
PAYMENT AND TERMINATION AGREEMENT
This PAYMENT AND TERMINATION AGREEMENT, dated as of October 3, 1995, is
entered into between Manville Corporation, a Delaware corporation (the
"Company"), (and Name) (the "Participant").
WHEREAS, the Company established the 1991 Long-Term Cash Incentive
Compensation Plan (the "Cash Plan") and Participant was awarded (Units)
Performance Units pursuant to such Cash Plan (all capitalized terms used and not
defined herein shall have the meanings set forth in the Cash Plan);
WHEREAS, in consideration of the Company's agreement to make the Payments
(as defined below), the Company and the Participant desire to cancel, effective
as of the date hereof, all Performance Units issued to Participant under the
Cash Plan; and
WHEREAS, upon cancellation or forfeiture of all Performance Units, the Cash
Plan shall be terminated and of no further force and effect and, except as
provided herein, Participant shall have no further rights, and the Company shall
have no further liabilities, with respect to the Performance Units or the Cash
Plan.
NOW, THEREFORE, in consideration of the foregoing and for other good and
valuable consideration, the receipt and adequacy of which is hereby
acknowledged, the Company and the Participant agree as follows:
1. PAYMENT. Subject to Section 2, the Company agrees to pay Participant,
in one or more payments as provided below, $0.84 per Performance Unit held by
Participant (each, a "Payment"). Each such Payment shall be made in cash to the
Participant at the time of payment by the Company of any dividend with respect
to its shares of Common Stock. The amount of any such Payment shall be equal to
the product of (i) the per share amount of the dividend multiplied by (ii)
(Units) (the "Unit Number"); PROVIDED, HOWEVER, that, for purposes of the above
calculation, the per share amount of any Payment, when added to the aggregate
per share amounts of all prior Payments made after the date hereof, shall not
exceed $0.84.
2. TERMINATION, DEATH OR DISABILITY. Payments hereunder shall be made
regardless of whether the Participant is actually employed by the Company or any
entity controlled by or under common control with the Company (an "Affiliate")
on the payment date of the dividend to which the Payment relates, except that
(i) in the case of any Payment in respect of a dividend paid prior to December
31, 1995, such Payment shall not be paid unless the Participant was actually
employed by the Company or an Affiliate on the payment date of such dividend and
(ii) no Payment shall be made in respect of a dividend paid after December 31,
1995 to the Participant unless the Participant was actually employed by the
Company or an Affiliate on the last business day of 1995.
<PAGE>
3. FORFEITURE. Effective as of the date hereof, the Participant shall
forfeit all of (Gender) Performance Units and all such Performance Units shall
be canceled and, except as provided herein, the Participant shall have no
rights, and the Company shall have no liabilities, with respect thereto or to
the Cash Plan or any Award Letter issued to the Participant pursuant to the Cash
Plan.
4. WITHHOLDING PAYMENTS. All Payments shall be subject to, and reduced
by, such payroll taxes and withholding requirements as may be in effect at the
time of the Payment.
5. ADJUSTMENTS. In the event of any change in the Common Stock of the
Company by reason of any stock dividend, stock split, recapitalization,
reorganization, merger, consolidation, split-up, combination or exchange of
shares, or of any similar change affecting the Common Stock, then in such event
the Unit Number shall be appropriately adjusted consistent with such change in
such manner as the Committee may deem equitable to prevent dilution or
enlargement of the rights granted to the Participant hereunder; provided that in
no event shall the aggregate Payments to Participant exceed the product of (x)
$0.84 multiplied by (y) the number of Units held on the date hereof. Any
adjustments so made shall be final and binding upon the Participant.
6. GOVERNING LAW. This Agreement and any claim related directly or
indirectly thereto shall be governed by and construed in accordance with the
laws of the State of Delaware, without regard to its conflicts of law
principles.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as
of the day and year first written above.
MANVILLE CORPORATION
By:
---------------------------------
W. Thomas Stephens
Chairman of the Board, President and
Chief Executive Officer
-----------------------------------
(Name)
ATTEST:
------------------------
General Counsel
2
<PAGE>
AMENDED AND RESTATED RECEIVABLES PURCHASE AGREEMENT
dated as of August 15, 1994
among
SCHULLER FUNDING CORPORATION,
SCHULLER INTERNATIONAL, INC.,
THE FINANCIAL INSTITUTIONS LISTED HEREIN,
as Buyers,
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK,
as Administrative Agent
and
J.P. MORGAN DELAWARE,
as Structuring and Collateral Agent
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE I
DEFINITIONS
1.01. Certain Definitions . . . . . . . . . . . . . . . . . . . . . . 1
1.02. UCC Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
ARTICLE II
PURCHASES, COLLECTIONS AND PAYMENTS
2.01. Sale and Assignment . . . . . . . . . . . . . . . . . . . . . . 24
2.02. Incremental Purchases . . . . . . . . . . . . . . . . . . . . . 26
2.03. Tranches; Yield Accrual Periods; Yield Rates. . . . . . . . . . 27
2.04. Accounts and Collections. . . . . . . . . . . . . . . . . . . . 28
2.05. Pre-Termination Procedures; Reinvestment. . . . . . . . . . . . 31
2.06. Post-Termination Procedures . . . . . . . . . . . . . . . . . . 33
2.07. Fees; Servicer's Compensation . . . . . . . . . . . . . . . . . 35
2.08. Optional Reduction of Commitments . . . . . . . . . . . . . . . 36
2.09. Payments Under Certain Circumstances. . . . . . . . . . . . . . 36
2.10. Payments and Computations . . . . . . . . . . . . . . . . . . . 37
2.11. Change in Circumstances-Unavailability. . . . . . . . . . . . . 38
2.12. Change in Circumstances-Illegality. . . . . . . . . . . . . . . 38
2.13. Funding Losses. . . . . . . . . . . . . . . . . . . . . . . . . 39
2.14. Extension of Expiration Date. . . . . . . . . . . . . . . . . . 40
2.15. Information Regarding the Receivables . . . . . . . . . . . . . 40
ARTICLE III
CONDITIONS TO EFFECTIVENESS AND PURCHASES
3.01. Conditions to Effectiveness . . . . . . . . . . . . . . . . . . 42
3.02. Conditions to Incremental Purchases and
Reinvestment . . . . . . . . . . . . . . . . . . . . . . . . 46
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
4.01. General Representations and Warranties of SFC . . . . . . . . . 46
4.02. Representations and Warranties of SFC With
Respect to Each Sale of Interests in Receivables . . . . . . 49
4.03. General Representations and Warranties of the
Servicer . . . . . . . . . . . . . . . . . . . . . . . . . . 51
<PAGE>
Page
----
ARTICLE V
COVENANTS
5.01. Affirmative Covenants of SFC. . . . . . . . . . . . . . . . . . 54
5.02. Negative Covenants of SFC . . . . . . . . . . . . . . . . . . . 58
5.03. Covenants of the Servicer . . . . . . . . . . . . . . . . . . . 61
5.04. Administration of Purchased Receivables. . . . . . . . . . . 66
5.05. Protection of Purchased Interest. . . . . . . . . . . . . . . . 67
ARTICLE VI
TERMINATION AND SERVICING TRANSFER
6.01. Termination Events. . . . . . . . . . . . . . . . . . . . . . . 68
6.02. Consequences of a Termination Event . . . . . . . . . . . . . . 71
6.03. Servicing Transfer. . . . . . . . . . . . . . . . . . . . . . . 72
ARTICLE VII
THE AGENTS
7.01. Appointment and Authorization . . . . . . . . . . . . . . . . . 72
7.02. Agent and Affiliates. . . . . . . . . . . . . . . . . . . . . . 72
7.03. Action by Agents. . . . . . . . . . . . . . . . . . . . . . . . 73
7.04. Consultation with Experts . . . . . . . . . . . . . . . . . . . 73
7.05. Liability of Agents . . . . . . . . . . . . . . . . . . . . . . 73
7.06. Indemnification . . . . . . . . . . . . . . . . . . . . . . . . 73
7.07. Purchase Decision . . . . . . . . . . . . . . . . . . . . . . . 73
7.08. Successor Agent . . . . . . . . . . . . . . . . . . . . . . . . 74
7.09. Direction by Required Buyers. . . . . . . . . . . . . . . . . . 74
ARTICLE VIII
MISCELLANEOUS
8.01. Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
8.02. Indemnity for Taxes, Reserves and Expenses. . . . . . . . . . . 75
8.03. Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
8.04. Holidays. . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
8.05. Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
8.06. Amendments and Waivers. . . . . . . . . . . . . . . . . . . . . 79
8.07. Term of Agreement . . . . . . . . . . . . . . . . . . . . . . . 79
8.08. No Implied Waiver; Cumulative Remedies. . . . . . . . . . . . . 79
8.09. No Discharge. . . . . . . . . . . . . . . . . . . . . . . . . . 80
8.10. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
8.11. Severability. . . . . . . . . . . . . . . . . . . . . . . . . . 80
8.12. Governing Law; Submission to Jurisdiction . . . . . . . . . . . 80
8.13. Waiver of Jury Trial. . . . . . . . . . . . . . . . . . . . . . 81
8.14. Prior Understandings. . . . . . . . . . . . . . . . . . . . . . 81
8.15. Survival. . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
8.16. Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . . 81
8.17. Sharing of Set-offs . . . . . . . . . . . . . . . . . . . . . . 81
<PAGE>
Page
----
8.18. Successors and Assigns. . . . . . . . . . . . . . . . . . . . . 82
8.19. Payments Set Aside. . . . . . . . . . . . . . . . . . . . . . . 82
8.20. Financial Accommodation . . . . . . . . . . . . . . . . . . . . 83
8.21. No Bankruptcy Petition Against SFC. . . . . . . . . . . . . . . 83
8.22. Tax Forms . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
8.23. Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . 83
8.24. Amounts Available for Expenses, Taxes, Reserves
and Indemnity. . . . . . . . . . . . . . . . . . . . . . . . 84
8.25. Notices to Standard & Poor's. . . . . . . . . . . . . . . . . . 85
Schedules and Exhibits
Schedule 1 Qualified Banks; Collection Account and
Lockbox Information
Exhibit A Form of Buyer's Certificate
Exhibit B Form of Purchase Notice for Incremental Purchase
Exhibit C Form of Yield Accrual Period Selection Notice
Exhibit D Form of Daily Report
Exhibit E Form of Monthly Report
Exhibit F Form of Lockbox/Collection Account Transfer Letters
Exhibits G-1 Form of Opinions of Counsel to SFC
G-2, G-3 and Schuller
and G-4
Exhibit H Credit and Collection Policy
Exhibit I Form of Purchase and Sale Agreement
Exhibit J Form of Parent Note
Exhibit K Form of Parent Resolutions
Exhibit L Form of officer's Certificate
Exhibit M Information regarding Chief Executive Office,
Etc. pursuant to Section 4.01(f)
Exhibit N Information regarding Litigation
Exhibit 0 Lockbox Servicing Instructions
<PAGE>
AMENDED AND RESTATED RECEIVABLES PURCHASE AGREEMENT
AMENDED AND RESTATED RECEIVABLES PURCHASE AGREEMENT, dated as of
August 15, 1994, among SCHULLER FUNDING CORPORATION ("SFC"), a Delaware
corporation, the financial institutions listed on the signature pages hereof, as
Buyers, SCHULLER INTERNATIONAL, INC. ("SCHULLER"), a Delaware corporation,
MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Administrative Agent and J.P.
MORGAN DELAWARE, a Delaware banking corporation, as Structuring and Collateral
Agent.
RECITALS
WHEREAS, SFC, certain of the Buyers, Morgan Guaranty Trust Company of
New York, as Letter of Credit Issuing Bank and Agent Bank and J.P. Morgan
Delaware, as Collateral Agent, are parties to a Receivables Purchase Agreement
dated as of April 15, 1992 (the "EXISTING RECEIVABLES PURCHASE AGREEMENT");
WHEREAS, in order to make certain amendments and modifications to the
Existing Receivables Purchase Agreement, SFC, the Buyers, the Administrative
Agent (as defined below) and the Collateral Agent (as defined below) wish to
amend and restate the Existing Receivables Purchase Agreement on the terms and
conditions set forth herein;
NOW, THEREFORE, the parties hereto agree that, effective upon the
satisfaction of the conditions precedent specified in Article III hereof (the
date upon which such conditions are satisfied being herein called the "CLOSING
DATE"), the Existing Receivables Purchase Agreement is hereby amended and
restated to read in its entirety as set forth herein:
ARTICLE I
DEFINITIONS
1.01. CERTAIN DEFINITIONS. As used in this Agreement, the following
terms shall, unless the context otherwise requires, have the following meanings:
"A-RATED OBLIGOR" means, during any Report Month, an Obligor whose
outstanding senior unsecured short-term debt securities were rated A-1 or
higher by S&P as of the end of the immediately preceding Report Month.
"ADJUSTED AGGREGATE NET INVESTMENT" means, at any time, Aggregate Net
Investment at such time less the Allocated ANI at such time.
<PAGE>
"ADJUSTED BUYERS' INTEREST" means, at any time, a percentage equal to
the following:
(AANI + YR) x (1 + ARP)
-----------------------
NPB
where:
AANI = Adjusted Aggregate Net Investment
YR = Yield Reserve
ARP = Adjusted Reserve Percentage
NPB = Net Pool Balance.
"ADJUSTED CD RATE" applicable to any Yield Accrual Period means a rate
per annum equal to the following:
[] CDR ]* + AR
-----------
(1.00 - DRP)
where:
CDR = the CD Rate
DRP = the Domestic Reserve Percentage
AR = the Assessment Rate
------------------
* The amount in brackets being rounded upwards, if necessary, to the
next higher 1/100 of 1%.
"ADJUSTED LONDON INTERBANK OFFERED RATE" applicable to any Yield
Accrual Period means a rate per annum equal to the quotient obtained
(rounded upward, if necessary, to the next higher 1/100 of 1%) by dividing
(i) the applicable London Interbank offered Rate by (ii) 1.00 minus the
Euro-Dollar Reserve Percentage.
"ADJUSTED RESERVE PERCENTAGE" means the greater of (i) (x) 23% divided
by (y) 1.00 minus 23% and (ii) (x) Total Reserve Percentage divided by (y)
1.00 minus the Total Reserve Percentage.
"ADMINISTRATIVE AGENT" means Morgan Guaranty as administrative agent
for the Buyers, and its successors and assigns in such capacity.
"ADVERSE INTEREST", as to any assets owned by any Person, means any
Lien on, or any other claim or interest of any other Person in, such asset.
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"AFFILIATE" means, with respect to a Person, any other Person which
directly or indirectly controls, is controlled by or is under common
control with, such Person. The term "control" means the possession,
directly or indirectly, of the power to direct or cause the direction of
the management and policies of a Person, whether through the ownership of
voting securities, by contract or otherwise.
"AGENT" means the Administrative Agent or the Collateral Agent.
"AGGREGATE NET INVESTMENT" means, at any time, (i) the sum of the
Purchase Price theretofore paid to SFC by advances of Dollars by the Buyers
less (ii) the aggregate amount received (and not rescinded or otherwise
returned or restored) by the Buyers to reduce such Aggregate Net Investment
pursuant to Sections 2.05 and 2.06.
"AGGREGATE UNPAIDS" means, at any time, an amount equal to the sum of
(i) the aggregate accrued and unpaid Yield at such time, (ii) the Aggregate
Net Investment at such time, (iii) all Commitment Fees accrued and unpaid
hereunder at such time and (iv) all Other Expenses owed (whether then due
or only accrued) hereunder at such time.
"AGREEMENT" means this Receivables Purchase Agreement, as amended and
supplemented from time to time.
"ALLOCATED ANI" means, at any time, the amount on deposit in the Cash
Collateral Account in respect of Aggregate Net Investment at such time.
"ASSESSMENT RATE" means for any day the annual assessment rate in
effect on such day that is payable by a member of the Bank Insurance Fund
classified as adequately capitalized and within supervisory subgroup "A"
(or a comparable successor assessment risk classification) within the
meaning of 12 C.F.R. Section 327.3(d) (or any successor provision) to the
Federal Deposit Insurance Corporation (or any successor) for such
Corporation's (or such successor's) insuring time deposits at offices of
such institution in the United States. The Adjusted CD Rate shall be
adjusted automatically on and as of the effective date of any change in the
Assessment Rate.
"AVAILABLE COLLECTIONS" means, on any Business Day, (i) the amount of
the Remainder calculated on such Business Day plus (ii) Allocated ANI at
the opening of business on such Business Day.
"AVAILABLE COMMITMENT" means, at any time, the total Commitments of
the Buyers at such time MINUS the Aggregate Net Investment at such time.
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"BASE RATE" means (subject to the definition of "Yield Rate"), for
any day, the sum of (i) the higher of (x) the Prime Rate in effect for such
day and (y) the rate per annum (rounded upwards, if necessary, to the
nearest 1/100 of 1%) equal to the weighted average of the rates on
overnight Federal funds transactions with members of the Federal Reserve
System arranged by Federal funds brokers on such day, as published by the
Federal Reserve Bank of New York on the New York Business Day next
succeeding such day, (or if such day is not a New York Business Day, the
rate on such transactions on the next preceding New York Business Day as so
published on the next succeeding New York Business Day or, if no such rate
is published on such next succeeding New York Business Day, the average
rate quoted to Morgan Guaranty on such day for such transactions as
determined by the Administrative Agent) plus one-half of one percent (1/2%)
and (ii) for any day from and including the Closing Date to but not
including the date on which (A) a Termination Event of the type specified
in Section 6.01(a) or 6.01(b) shall occur, or (B) the Administrative Agent
delivers a notice of termination of the Commitments pursuant to Section
6.02, or (C) an Event of Bankruptcy occurs with respect to SFC, Schuller or
the Servicer, 0% per annum and, thereafter, 2.0% per annum; "New York
Business Day" means any day other than a Saturday, Sunday or any other day
on which banking institutions are authorized or required to close in New
York City.
"BUSINESS DAY" means any day other than a Saturday, Sunday, public
holiday under the Laws of the State of New York, the State of Colorado, the
State of Illinois, the State of Delaware or the Commonwealth of
Pennsylvania or any other day on which banking institutions are authorized
or required to close in New York City.
"BUYERS" means the financial institutions listed on the signature
pages hereof as Buyers and any assignees thereof pursuant to Section 8.18.
"BUYER'S CERTIFICATE" means each certificate issued to a Buyer
substantially in the form of Exhibit A.
"BUYERS' INTEREST" means, at any time, a percentage equal to the
following:
(ANI + YR) x (1 + ARP)
----------------------
NPB
where:
ANI = Aggregate Net Investment
YR = Yield Reserve
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ARP = Adjusted Reserve Percentage
NPB = Net Pool Balance
; PROVIDED that at any time on and after the Termination Date until (and
including) the Final Payment Date, the Buyers' Interest shall be equal to,
at any time of determination, the greater of (i) the Buyers' Interest
calculated as provided above at the close of business on the Business Day
preceding the Termination Date, and (ii) the Buyers' Interest calculated as
provided above. Notwithstanding the foregoing computation, the Buyers'
Interest shall not exceed 100%.
"CAPITALIZED LEASE" of a Person shall mean any lease of property by
such Person as lessee which would be capitalized on a balance sheet of such
Person prepared in accordance with GAAP.
"CASH COLLATERAL ACCOUNT" has the meaning given to such term in
Section 2.04 hereof.
"CASH COLLATERAL ACCOUNT INVESTMENTS" means certificates of deposit or
time deposits, in each case in the name of the Collateral Agent as
Collateral Agent hereunder, of any bank or trust company organized under
the laws of the United States of America or any state thereof or any branch
or trust company organized under the laws of a foreign jurisdiction that is
subject to supervision and examination by United States Federal or state
banking authorities, the certificates of deposit of which bank are rated
A-1+ by S&P.
"CD RATE" applicable to any Yield Accrual Period means the rate of
interest determined by the Administrative Agent to be the average (rounded
upward, if necessary, to the next higher of 1/100 of 1%) of the prevailing
rates per annum bid at 10:00 A.M. (New York City time) (or as soon
thereafter as practicable) on the first day of such Yield Accrual Period by
two or more New York certificate of deposit dealers of recognized standing
for the purchase at face value from each CD Reference Bank of its
certificates of deposit in an amount approximately equal to such CD
Reference Banks' PRO RATA share of the Tranche to which such Yield Accrual
Period is to apply and for a period of time comparable to such Yield
Accrual Period.
"CD REFERENCE BANKS" means Mellon Bank, N.A. and Morgan Guaranty.
"CHIEF EXECUTIVE OFFICE" means, with respect to SFC, the place where
SFC is located, within the meaning of Section 9-103(3)(d), or any analogous
provision, of the UCC, in effect in the jurisdiction whose Law governs the
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perfection of the Buyers' ownership interests in any Receivables.
"CLOSING DATE" has the meaning ascribed thereto in the recitals
hereto.
"COLLATERAL AGENT" means J.P. Morgan Delaware as Structuring and
Collateral Agent for the Buyers, and its successors and assigns in such
capacity.
"COLLECTION ACCOUNT" has the meaning ascribed thereto in Section 2.04
hereof; PROVIDED that if the Collection Account Bank's certificates of
deposit are not at the time rated at least A-1+ by S&P, "Collection
Account" shall mean a corporate trust account at the Collection Account
Bank. Notwithstanding the foregoing, if the Collection Account Bank is
Mellon Bank, N.A., all Lockbox Accounts shall be swept daily and as
otherwise provided in Section 2.04 hereof into account number 1089537 as
provided in the related Lockbox Servicing Instructions, which account shall
be swept daily in accordance with Section 2.04 hereof into a corporate
trust account of the Collection Account Bank, as provided in the corporate
trust account agreement with respect to such trust account and all deposits
into account number 1089537 shall be deemed for the purposes of this
Agreement to be deposited into the Collection Account; PROVIDED that if
Mellon Bank, N.A.'s certificates of deposit are at any time rated at least
A-1+ by S&P, account number 1089537 shall, upon notice by SFC to the
Collateral Agent, be deemed to be the Collection Account at such time.
"COLLECTION ACCOUNT BANK" means the bank at which the Collection
Account is maintained, which bank shall (i) be Mellon Bank, N.A., as of the
Closing Date, (ii) be (A) any bank which is a Buyer under this Agreement
selected by SFC upon ten Business Days' prior notice to the Agents to serve
as Collection Account Bank hereunder or (B) any other Qualified Bank
selected by SFC upon ten Business Days' prior notice to the Agents to serve
as Collection Account Bank hereunder and (iii) maintains the Collection
Account pursuant to a Lockbox Transfer Letter (appropriately modified for
the Collection Account) and Lockbox Servicing Instructions.
"COLLECTIONS" means, for any Receivable as of any date, (i) all
amounts, whether in the form of cash, checks, drafts, or other instruments,
received by Schuller, SFC or the Servicer or in a Lockbox in payment of, or
applied to, any amount owed by the Obligor on account of such Receivable
(including but not limited to all amounts received on account of any
Defaulted Receivable) on or before such date, including, without
limitation, all amounts received on account of finance charges and fees
with respect to such Receivable, (ii) cash proceeds of the Related Security
with
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respect to such Receivable, (iii) all amounts paid to the Collection
Account with respect to such Receivable as a Collection pursuant to Section
2.09 hereof and (iv) any amounts paid or credited by Schuller to SFC in
respect of Receivables pursuant to Section 2.02 of the Purchase and Sale
Agreement.
"COMMITMENT" means, with respect to each Buyer, the amount set forth
opposite the name of such Buyer on the signature pages hereof, as such
amount may be reduced pursuant to Section 2.08.
"COMMITMENT FEE" means a fee of .25% per annum (calculated on the
basis of a year of 360 days and actual days elapsed) on the daily average
Available Commitment payable to each Buyer based on its pro rata share of
such Available Commitment.
"COMPUTATION DATE" means, for any day, the Business Day immediately
preceding such day.
"CONCENTRATION LIMIT" means, (i) for each A-Rated Obligor
individually, and for each such A-Rated Obligor and such Obligor's
Affiliates considered as a whole, 10% and (ii) for each Obligor which is
not an A-Rated Obligor (even if it is an Affiliate of an A-Rated Obligor),
and for each such Obligor and its Affiliates (other than an Affiliate that
is an A-Rated Obligor) considered as a whole, 3%.
"CONSOLIDATED SUBSIDIARY" means, as to any Person at any date, any
Subsidiary or other entity the accounts of which would be consolidated with
those of such Person in such Person's consolidated financial statements
prepared in accordance with GAAP as of such date.
"CONTRACT" as it relates to any Receivable means the agreement between
Schuller and the Obligor giving rise thereto (including as evidenced by an
invoice on an open account).
"CREDIT AND COLLECTION POLICY" means the credit, collection,
enforcement and other policies and practices relating to receivables and
contracts related thereto, existing on the date hereof and as set forth in
Exhibit H hereto, as the same may be modified from time to time in
compliance with Section 5.02(e) hereof.
"DAILY REPORT" has the meaning given to such term in Section 2.15(a).
"DAYS' SALES OUTSTANDING" means, at any time, the "Days' Sales
Outstanding" as set forth on the Monthly Report delivered on the
immediately preceding Settlement Date.
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"DEBT" of any Person means, at any date, without duplication, (i) all
obligations of such Person for borrowed money, (ii) all obligations of such
Person evidenced by bonds, debentures, notes or other similar instruments,
(iii) all obligations of such Person in respect of letters of credit or
similar instruments, (iv) all obligations of such Person to pay the
deferred purchase price of property (and not services), except trade
accounts payable arising in the ordinary course of business and deferred
compensation, (v) all obligations of such Person as lessee under
Capitalized Leases, and (vi) all Debt of others secured by a Lien on any
asset of such Person, whether or not such Debt is assumed by such Person;
provided that "Debt" shall include at any date only such obligations and
such Debt of others to the extent such obligations and such Debt of others
is reflected as a liability in the consolidated balance sheet of such
Person and its Consolidated Subsidiaries as of such date prepared in
accordance with GAAP (or would be so reflected if such a balance sheet were
prepared as of such date).
"DEFAULT RATIO" means the ratio (expressed as a percentage) calculated
on any Settlement Date by dividing (i) the aggregate balance of all
Receivables that were not Defaulted Receivables at the beginning of the
Report Month ending on the Month-end Date for such Settlement Date but that
were either (x) written off during such Report Month or (y) Defaulted
Receivables on the Month-end Date for such Settlement Date by (ii) the
aggregate amount of Receivables that were generated during the fifth Report
Month preceding such Settlement Date.
"DEFAULTED RECEIVABLE" means a Receivable (i) in respect of which
collection in full has become doubtful, a reserve has been allocated, or an
estimated or actual loss has been recognized as determined by the Servicer
in accordance with the Credit and Collection Policy, (ii) which has become
uncollectible by reason of such obligor's inability to pay, as determined
by the Servicer in accordance with the Credit and Collection Policy, (iii)
in respect of which an Event of Bankruptcy has occurred with respect to the
related Obligor, or (iv) in respect of which payment is more than 60 days
past due.
"DELINQUENCY RATIO" means the ratio (expressed as a percentage)
calculated on any Settlement Date by dividing (i) the aggregate Outstanding
Balance of all Receivables which are greater than 30 days but fewer than 61
days past due on the Month-end Date for such Settlement Date by (ii) the
Outstanding Balance of all Receivables on the Month-end Date for such
Settlement Date.
"DILUTION ADJUSTMENTS" means all credits, allowances, deductions,
cancellations, rebates, discounts, adjustments (for warranty claims,
Disputes, counterclaims, setoffs,
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<PAGE>
returned or repossessed goods or otherwise) or any other reduction in the
Outstanding Balance of a Receivable that is given to an Obligor in
accordance with the Credit and Collection Policy (other than by payment
thereof by or on behalf of the Obligor and other than due to the credit of
the Obligor).
"DILUTION HORIZON" shall mean (i) the period equal to the number of
days between (x) the date on which a Receivable is generated following the
rendering of an invoice with respect to such Receivable and (y) the date on
which Schuller, SFC or the Servicer first becomes aware of a Dilution
Adjustment with respect to such Receivable (which period for the purposes
of this Agreement shall be deemed to be 39 days), divided by (ii) 30.
"DILUTION RATIO" means the ratio (expressed as a percentage)
calculated on any Settlement Date by dividing (i) the aggregate reduction
in the original balance of all Receivables which have been reduced by any
Dilution Adjustment during the Report Month ending on the Month-end Date
for such Settlement Date by (ii) the aggregate amount of Receivables that
were generated during the Report Month ending on the Month-end Date for the
immediately preceding Settlement Date.
"DILUTION RESERVE PERCENTAGE" means, with respect to any date of
determination, the percentage derived by multiplying (i) the highest of the
Dilution Ratios as calculated as of the Month-end Dates for the twelve most
recent Settlement Dates, (ii) (x) the aggregate amount of Eligible
Receivables that were generated during the Report Month ending on the
Month-end Date for the immediately preceding Settlement Date, divided by
(y) the aggregate Outstanding Balance of Eligible Receivables on such
Month-end Date and (iii) (x) 2.50 times (y) the Dilution Horizon.
"DISPUTE" means any dispute, deduction, claim, offset, defense,
counterclaim or set-off of any kind, relating to a Receivable, including,
without limitation, any dispute relating to goods or services already paid
for.
"DOLLAR" and "$" means lawful currency of the United States of
America.
"DOMESTIC RESERVE PERCENTAGE" means for any day that percentage
(expressed as a decimal) which is in effect on such day, as prescribed by
the Board of Governors of the Federal Reserve System (or any successor) for
determining the maximum reserve requirement (including without limitation
any basic, supplemental or emergency reserves) for a member bank of the
Federal Reserve System in New York City with deposits exceeding five
billion dollars in respect of new non-personal time deposits in dollars in
New York
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<PAGE>
City having a maturity comparable to the related Yield Accrual Period and
in an amount of $100,000 or more. The Adjusted CD Rate shall be adjusted
automatically on and as of the effective date of any change in the Domestic
Reserve Percentage.
"ELIGIBLE RECEIVABLE" means, at any time, any Purchased Receivable:
(a) which, at such time, meets the "Eligibility Criteria" as
defined in the Purchase and Sale Agreement;
(b) which is not subject to Dispute (or, if applicable, such
portion of such Purchased Receivable which is not subject to Dispute);
(c) which has not been modified or extended, except in
conformity with the Credit and Collection Policy;
(d) which has not been classified as counterfeit, fraudulent or
charged-off (or, if applicable, such portion of such Purchased
Receivable which has not been charged-off); which is not an obligation
of an Obligor, or an Affiliate of an Obligor, a Receivable of which
has been classified as counterfeit or fraudulent; and which is not a
Defaulted Receivable, or the obligation of an Obligor, or an Affiliate
of an Obligor, on a Defaulted Receivable; and
(e) (i) which SFC has not sold, assigned, or otherwise
encumbered except pursuant to this Agreement; (ii) as to which all
consents, licenses, approvals or authorizations required to be
obtained in connection with the sale of the Purchased Interest to the
Buyers have been duly obtained and as to which the sale of such
Purchased Interest complies with all material applicable requirements
of law; (iii) as to which, immediately prior to the sale of the
Purchased Interest to the Buyers, SFC was the sole owner of all right,
title and interest in and to such Receivable, any Related Security,
any Collections and any proceeds of the foregoing, and had good and
marketable title thereto free and clear of all Adverse Interests; (iv)
as to which the transfer of the Purchased Interest under this
Agreement constitutes a valid sale to the Buyers of all right, title
and interest of SFC in and to the Purchased Interest, enforceable
against all creditors of and purchasers from SFC; and (v) as to which
the Collateral Agent has, for the benefit of the Buyers and the
Collateral Agent, a first priority perfected security interest in the
Purchased Interest
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and as to which the Buyers own the Purchased Interest free of any
Adverse Interest.
"ENVIRONMENTAL LAWS" means any and all Federal, state, local and
foreign statutes, laws, regulations, ordinances, rules, judgments, orders,
decrees, permits, concessions, grants, franchises, licenses, agreements or
other governmental restrictions relating to the environment or to
emissions, discharges or releases of pollutants, contaminants, petroleum or
petroleum products, chemicals or industrial, toxic or hazardous substances
or wastes into the environment including, without limitation, ambient air,
surface water, ground water, or land, or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport, or handling of pollutants, contaminants, petroleum or petroleum
products, chemicals or industrial, toxic or hazardous substances or wastes
or the clean-up or other remediation thereof.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and any successor statutes and the regulations
promulgated and rulings issued thereunder.
"EURO-DOLLAR BUSINESS DAY" means any Business Day on which commercial
banks are open for international business (including dealings in Dollar
deposits) in London.
"EURO-DOLLAR RATE" means (subject to the definition of "Yield Rate"),
for any Yield Accrual Period, the sum of (i) the Adjusted London Interbank
Offered Rate applicable to such Yield Accrual Period and (ii) for any day
from and including the Closing Date to but not including the date on which
(A) a Termination Event of the type specified in Section 6.01(a) or 6.01(b)
shall occur, or (B) the Administrative Agent delivers a notice of
termination of the Commitments pursuant to Section 6.02 hereof, or (C) an
Event of Bankruptcy occurs with respect to SFC, Schuller or the Servicer,
.50% per annum and, thereafter, 2.50% per annum.
"EURO-DOLLAR REFERENCE BANKS" means the principal London offices of
Mellon Bank, N.A. and Morgan Guaranty.
"EURO-DOLLAR RESERVE PERCENTAGE" means, for any day, that percentage
(expressed as a decimal) which is in effect on such day, as prescribed by
the Board of Governors of the Federal Reserve System (or any successor) for
determining the maximum reserve requirement for a member bank of the
Federal Reserve System in New York City with deposits exceeding five
billion dollars in respect of "Eurocurrency liabilities" (or in respect of
any other category of liabilities which includes deposits by reference to
which the interest rate on euro-dollar loans is determined or any category
of extensions of credit or other assets which
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includes loans by a non-United States office of any Bank to United States
residents). The Adjusted London Interbank Offered Rate shall be adjusted
automatically on and as of the effective date of any change in the Euro-
Dollar Reserve Percentage.
"EVENT OF BANKRUPTCY" means, with respect to any Person:
(a) that such Person shall fail generally to, or admit in
writing its inability to, pay its debts as they become due; or
(b) a proceeding shall have been instituted in a court having
jurisdiction in the premises seeking a decree or order for relief in
respect of such Person in an involuntary case under any applicable
bankruptcy, insolvency or other similar Law now or hereafter in
effect, or for the appointment of a receiver, liquidator, assignee,
trustee, custodian, sequestrator, conservator (under the Bank
Conservation Act, as amended from time to time, or otherwise) or other
similar official of such Person or for any substantial part of its
property, or for the winding-up or liquidation of its affairs and, if
instituted against the Servicer, Schuller or SFC, any such proceeding
shall not be stayed or dismissed within 60 days or any of the actions
sought in such proceeding shall occur or an order for relief in
connection with such proceeding has been entered; or
(c) the commencement by such Person of a voluntary case under
any applicable bankruptcy, insolvency or other similar Law now or
hereafter in effect, or such Person's consent to the entry of an order
for relief in an involuntary case under any such Law, or consent to
the appointment of or taking possession by a receiver, liquidator,
assignee, trustee, custodian, sequestrator, conservator (under the
Bank Conservation Act, as amended from time to time, or otherwise) or
other similar official of such Person or for any substantial part of
its property, or any general assignment for the benefit of creditors;
or
(d) if such Person is a corporation, such Person shall take any
corporate action in furtherance of any of the actions set forth in the
preceding clause (a), (b) or (c).
"EXCESS AMOUNTS" has the meaning given to such term in Section 2.13
hereof.
"EXISTING RECEIVABLES PURCHASE AGREEMENT" has the meaning set forth in
the recitals hereto.
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"EXPIRATION DATE" means August 29, 1997 or if said day is not a
Business Day, the Business Day next succeeding said day, as the same may be
extended pursuant to Section 2.14(b) hereof.
"FINAL PAYMENT DATE" means the date following the Termination Date
when the Aggregate Unpaids have been paid in full and the Servicer (if not
Schuller or any of its Affiliates) has received all accrued Servicer's
Compensation.
"FIXED CD RATE" means (subject to the definition of "Yield Rate"), for
any Yield Accrual Period, the sum of (i) the Adjusted CD Rate applicable to
such Yield Accrual Period and (ii) for any date from and including the
Closing Date to but not including the date on which (A) a Termination Event
of the type specified in Section 6.01(a) or 6.01(b) shall occur, or (B) the
Administrative Agent delivers a notice of termination of the Commitments
pursuant to Section 6.02 hereof, or (C) an Event of Bankruptcy occurs with
respect to SFC, Schuller or the Servicer, .625% per annum and, thereafter,
2.625% per annum.
"GAAP" means generally accepted accounting principles in the United
States of America as in effect from time to time applied on a consistent
basis and applied to both classification of items and amounts, and shall
include, without limitation, the official interpretations thereof by the
Financial Accounting Standards Board, its predecessors and successors.
"GUARANTEE" by any Person means any obligation, contingent or
otherwise, of such Person directly or indirectly guaranteeing any Debt or
other obligation of any other Person and, without limiting the generality
of the foregoing, any obligation, direct or indirect, contingent or
otherwise, of such Person (i) to purchase or pay (or advance or supply
funds for the purchase or payment of) such Debt or other obligation
(whether arising by virtue of partnership arrangements, by agreement to
keep-well, to purchase assets, goods, securities or services, to take-or-
pay, or to maintain financial statement conditions or otherwise) or (ii)
entered into for the purpose of assuring in any other manner the obligee of
such Debt or other obligation of the payment thereof or to protect such
obligee against loss in respect thereof (in whole or in part), PROVIDED
that the term Guarantee shall not include endorsements for collection or
deposit in the ordinary course of business. The term "Guarantee" used as a
verb has a corresponding meaning.
"INCREMENTAL PURCHASE" has the meaning given to such term in Section
2.02.
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"INDEMNIFIED PARTIES" has the meaning ascribed to such term in Section
8.02(a) hereof.
"INFORMATION" has the meaning ascribed to such term in Section 8.23
hereof.
"INTERNAL REVENUE CODE" means the Internal Revenue Code of 1986, as
amended from time to time and any successor thereto, and the regulations
promulgated and rulings issued thereunder.
"J.P. MORGAN DELAWARE" means J.P. Morgan Delaware, a Delaware banking
corporation.
"LAW" shall mean any law (including common law), constitution,
statute, treaty, regulation, rule, ordinance, order, injunction, writ,
decree or award of any Official Body.
"LIEN", in respect of the property of any Person, means, any ownership
interest of any other Person, any mortgage, deed of trust, hypothecation,
pledge, lien, security interest, grant of a power to confess judgment,
filing of any financing statement, charge or other encumbrance or security
arrangement of any nature whatsoever, including, without limitation, any
conditional sale or title retention arrangement, and any assignment,
deposit arrangement, consignment or lease intended as, or having the effect
of, security.
"LIQUIDATION YIELD" means on any date an amount equal to the
following:
ANI x YR x DSO X 2
-------
360
where:
ANI = Aggregate Net Investment on such date
YR = the rate determined under clause (i) of the definition of "Base
Rate" plus 2%
DSO = Days' Sales Outstanding
"LOCKBOX" means a lockbox for deposit of Collections of Receivables.
"LOCKBOX ACCOUNT" means the bank account maintained with a Lockbox
Bank, pursuant to a Lockbox Transfer Letter and Lockbox Servicing
Instructions, for the purpose of depositing payments made by Obligors.
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"LOCKBOX BANK" means, at any time, a bank administering a Lockbox and
the related bank account pursuant to a Lockbox Transfer Letter and Lockbox
Servicing Instructions.
"LOCKBOX SERVICING INSTRUCTIONS" means the instructions relating to
lockbox services in connection with a Lockbox and related Lockbox Account
which contain the provisions specified in Exhibit 0 hereto and which are in
compliance with Section 2.04 hereof, which have been delivered by SFC to a
Lockbox Bank.
"LOCKBOX TRANSFER LETTER" has the meaning given to such term in
Section 3.01(n).
"LONDON INTERBANK OFFERED RATE" means, with respect to any Yield
Accrual Period, the average (rounded upward, if necessary, to the next
higher 1/16 of 1%) of the respective rates per annum at which deposits in
Dollars are offered to each of the Euro-Dollar Reference Banks in the
London interbank market at approximately 11:00 a.m. (London time) two Euro-
Dollar Business Days prior to the first day of such Yield Accrual Period in
an amount approximately equal to such Euro-Dollar Reference Bank's PRO RATA
share of the Tranche to which such Yield Accrual Period is to apply and for
a period of time comparable to such Yield Accrual Period.
"LOSS RESERVE PERCENTAGE" means, with respect to any date of
determination, (i) 2.50 times (ii) the highest average of the Default
Ratios as calculated as of the Month-end Dates for any three consecutive of
the most recent twelve Settlement Dates times (iii) (x) the aggregate
amount of Eligible Receivables that were generated during the three
consecutive Report Months ending on the Month-end Date for the most recent
Settlement Date, divided by (y) the aggregate Outstanding Balance of
Eligible Receivables on such Month-end Date times (iv) (A) (x) the weighted
average original days to maturity of all Receivables, divided by 30 and
rounded to the nearest .01 (upwards if .005) plus (y) 2 divided by (B) 3.
For purposes of the above calculation, "weighted average original days to
maturity" shall equal the higher of the weighted average original days to
maturity for the two most recent fiscal quarters, calculated as of each
March 31, June 30, September 30 and December 31.
"LOSS TO LIQUIDATION RATIO" means the ratio (expressed as a
percentage) calculated on any Settlement Date by dividing (i) the aggregate
balance of all Receivables written off (net of recoveries) during the three
Report Months ending on the Month-end Date for such Settlement Date by (ii)
the aggregate amount of Collections in respect of all Receivables during
such three Report Months.
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"MATERIAL SUBSIDIARY" means, at any date, as to any Person, any
Subsidiary of such Person which on such date is encompassed by the
definition of a "significant subsidiary" contained as of the date hereof in
Regulation S-X of the Securities and Exchange Commission.
"MONTH-END DATE" means the last Business Day of each calendar month;
PROVIDED that the Collateral Agent may agree from time to time that the
Month-end Date can be delayed for one or two Business Days in connection
with a systems failure or other event or situation or condition affecting
Schuller or SFC which delays the monthly closing of the books.
"MONTHLY REPORT" has the meaning given to such term in Section
2.15(b).
"MOODY'S" means Moody's Investors Service, Inc., together with its
successors.
"MORGAN GUARANTY" means Morgan Guaranty Trust Company of New York, a
New York State banking corporation.
"NET POOL BALANCE" means, at any time, the Outstanding Balance of the
Eligible Receivables at such time less the aggregate amount by which the
Outstanding Balance of all Eligible Receivables of each Obligor and its
Affiliates taken as a whole at such time exceeds (x) the aggregate
Outstanding Balance of all Eligible Receivables at such time multiplied by
(y) the Concentration Limit for such Obligor and its Affiliates.
"NET WORTH" of any Person means, at any date, the aggregate amount at
which all assets of such Person would be shown on a balance sheet at such
date, less the aggregate amount of all liabilities of such Person shown on
such balance sheet at such date, all computed substantially in accordance
with GAAP except as noted.
"NEW COLLECTIONS" has the meaning given to such term in Section 2.05.
"OBLIGOR" means, for any Receivable, each Person who is obligated to
make payments in respect of such Receivable.
"OFFICIAL BODY" means any government or political subdivision or any
agency, authority, bureau, central bank, commission, department or
instrumentality of either, or any court, tribunal, grand jury or
arbitrator, in each case whether foreign or domestic.
"OTHER EXPENSES" means all amounts payable hereunder to the Buyers or
either Agent not constituting payments in
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respect of Aggregate Net Investment, Yield or Commitment Fees.
"OUTSTANDING BALANCE" of any Receivable means, at any time, the then
outstanding amount thereof that is not subject to Dispute, including any
accrued and outstanding finance charges related thereto.
"PARENT NOTE" means the note of SFC payable to Schuller substantially
in the form of Exhibit J.
"PARTICIPATION FEEL" means a fee of .125% on each Buyer's Commitment,
payable by or on behalf of SFC on the Closing Date.
"PBGC" means the Pension Benefit Guaranty Corporation and any entity
succeeding to any or all of its functions under ERISA.
"PERSON" means an individual, corporation, partnership (general or
limited), trust, business trust, unincorporated association, joint venture,
joint stock company, Official Body or any other entity of whatever nature.
"POTENTIAL TERMINATION EVENT" means an event or condition which with
the giving of notice or passage of time or any combination of the foregoing
would constitute a Termination Event.
"PRIME RATE" means the prime rate announced from time to time by
Morgan Guaranty in New York City.
"PROCEEDS" means "proceeds" as defined in Section 9-306(1) of the UCC
as in effect in the State of New York and the jurisdiction whose Law
governs the perfection of the Buyers' ownership interest therein.
"PROGRAM DOCUMENTS" means this Agreement, the Purchase and Sale
Agreement, the Lockbox Transfer Letters, the Lockbox Servicing
Instructions, the Servicing Agreement (if any), the Parent Note, SFC's
certificate of incorporation and by-laws, and such other agreements,
documents and instruments entered into and delivered by SFC, the Seller or
the Servicer in connection with the transactions contemplated by this
Agreement and the Purchase and Sale Agreement.
"PURCHASE" means an Incremental Purchase or a Reinvestment.
"PURCHASE AND SALE AGREEMENT" means the Amended and Restated Purchase
and Sale Agreement dated as of August l5, 1994 between Schuller, as seller,
and SFC, as purchaser,
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substantially in the form of Exhibit I, as amended from time to time.
"PURCHASE NOTICE" has the meaning given to such term in Section 2.02.
"PURCHASE PRICE" has the meaning given to such term in Section 2.02.
"PURCHASE PARTIES" means the Collateral Agent, the Administrative
Agent and the Buyers.
"PURCHASED INTEREST" means at any time an undivided percentage
ownership interest equal to the Buyers' Interest at such time in (i) each
and every Purchased Receivable then outstanding, (ii) all Related Security
with respect to each such Purchased Receivable, (iii) all Collections with
respect thereto and (iv) all Proceeds of the foregoing. The Purchased
Interest in each Purchased Receivable, together with Related Security,
Collections and other Proceeds with respect thereto, shall at all times be
equal to the Purchased Interest in each other Purchased Receivable,
together with Related Security, Collections and other Proceeds with respect
thereto.
"PURCHASED RECEIVABLE" means at any time a Receivable then or
theretofore purchased by SFC from Schuller and not theretofore repurchased
by Schuller pursuant to the Purchase and Sale Agreement.
"QUALIFIED BANK" means (i) any Buyer, (ii) any bank or trust company
organized under the laws of the United States of America or any state
thereof or any branch or agency located in the United States of any bank or
trust company organized under the laws of a foreign jurisdiction that is
subject to supervision and examination by United States Federal or state
banking authorities, that (x) has capital, surplus and undivided profits of
at least $500,000,000, (y) whose long-term debt obligations are rated at
least AA- by S&P and Aa3 by Moody's and (z) whose short-term debt
obligations are rated at least A-1+ by S&P and P-1 by Moody's and (iii) any
other bank (a) listed as a Qualified Bank on Schedule 1 hereto or (b)
approved as a Qualified Bank by the Required Buyers; PROVIDED that as to
any bank listed as a Qualified Bank pursuant to this clause (iii) not
meeting the standards set forth in clause (ii), the Required Buyers may,
upon not less than 30 days' notice to SFC, specify that such bank shall no
longer be a Qualified Bank hereunder.
"RECEIVABLE" means at any time a trade receivable originated in
connection with the sale of goods or the provision of services by Schuller
in its normal course of business, other than receivables (i) owing by any
Obligor
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that is a governmental entity, (ii) owing by any Obligor not domiciled in
the United States or (iii) owing by any Obligor that is a Subsidiary or
Affiliate of Schuller.
"RECORDS" means correspondence, memoranda, computer programs, tapes,
discs, papers, books or other documents or transcribed information of any
type whether expressed in ordinary or machine readable language.
"REINVESTMENT" has the meaning given to such term in Section 2.05.
"RELATED SECURITY" means with respect to any Receivable: (a) all of
the interest, if any, of Schuller in the goods, merchandise (including
returned merchandise) or equipment the sale of which by Schuller gave rise
to such Receivable; (b) all other security interests or liens and property
subject thereto from time to time, if any, securing payment of such
Receivable whether pursuant to the Contract related to such Receivable or
otherwise, together with all financing statements signed by an Obligor
describing collateral securing such Receivable; (c) all guarantees, letters
of credit, insurance or other agreements or arrangements of any kind from
time to time supporting or securing payment of such Receivable whether
pursuant to the Contract related to such Receivable or otherwise; and (d)
all Records relating to, and all service contracts and any other contracts
associated with, such Receivable, the Contract related to such Receivable
or the related obligor.
"REMAINDER" has the meaning given to such term in Section 2.05.
"REPORT MONTH" means each period beginning on the day after a Month-
end Date and ending on the next succeeding Month-end Date.
"REQUIRED BUYERS" means, at any time prior to the Termination Date,
Buyers having at least 66 2/3% of the total Commitments, or, on or after
the Termination Date, Buyers having at least 66 2/3% of the Adjusted
Aggregate Net Investment.
"RESPONSIBLE OFFICER" means with respect to any Person the chief
executive officer, chief financial officer, principal finance officer,
principal accounting officer, treasurer or assistant treasurer of such
Person.
"S&P" means Standard & Poor's Ratings Group, together with its
successors.
"SCHULLER" means Schuller International, Inc., a Delaware corporation.
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"SCHULLER GROUP" means Schuller International Group, Inc., a Delaware
corporation.
"SELLER" means Schuller in its capacity as Seller under the Purchase
and Sale Agreement.
"SERVICER" means Schuller, or, after a Servicing Transfer, such other
Person that is the successor Servicer of the Receivables pursuant to a
Servicing Agreement.
"SERVICER TERMINATION EVENT" means any of the following:
(i) failure on the part of the Servicer to transfer or deposit
funds, or to give instructions to the Collateral Agent to apply on
behalf of the Servicer, funds, (A) in respect of reductions in the
Aggregate Net Investment on the date the Servicer is required to do so
hereunder or (B) in respect of any other amount which the Servicer is
required under the Program Documents to transfer or deposit and the
continuation of such failure for a period of five Business Days; or
failure on the part of the Servicer to remit any Monthly Report or
Daily Report when due and the continuation of such failure for a
period of five Business Days; or
(ii) failure on the part of the Servicer duly to observe or to
perform in any material respect any other covenants or agreements of
the Servicer set forth herein or in the Servicing Agreement, which
failure shall continue unremedied for a period of 10 days; or
(iii) any representation, warranty or certification made by the
Servicer herein or in the Servicing Agreement proves to have been
incorrect in any material respect when made or deemed made; or
(iv) an Event of Bankruptcy with respect to the Servicer; or
(v) a change in circumstances relating to, or actions of, the
Servicer that may materially and adversely affect the performance of
the Purchased Receivables, the ability of the Servicer to adequately
service the Purchased Receivables, or the ability of the Buyers to
realize their interest in Collections or the Purchased Receivables, as
determined by the Required Buyers, in their sole and absolute
discretion.
"SERVICER'S COMPENSATION" means the compensation payable to the
Servicer pursuant hereto or pursuant to the Servicing Agreement.
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"SERVICING AGREEMENT" means any agreement between the Collateral Agent
and any Person acting as Servicer, other than Schuller, which agreement
shall contain provisions concerning the servicing of Purchased Receivables
substantially similar to the provisions contained herein concerning the
servicing of Purchased Receivables.
"SERVICING TRANSFER" has the meaning given to such term in Section
6.03.
"SETTLEMENT DATE" means, with respect to each Month-end Date, the 20th
calendar day of the month (or, if such month is January, the 25th calendar
day of the month), immediately following such Month-end Date or if such day
is not a Business Day, the next succeeding Business Day.
"SFC FISCAL YEAR" shall mean January 1 through December 31, which is
the fiscal year of SFC for accounting purposes.
"SFC'S INTEREST" means, at any time, the amount expressed as a
percentage equal to 100% MINUS the Buyers' Interest at such time.
"SUBSIDIARY" of any Person means any corporation or other entity of
which securities or other ownership interests having ordinary voting power
to elect a majority of the board of directors or other persons performing
similar functions are at the time directly or indirectly owned by such
Person.
"TEMPORARY CASH INVESTMENTS" means book-entry securities, negotiable
instruments or securities represented by instruments in bearer or
registered form which evidence (a) direct obligations of the United States
or securities issued by agencies of the United States government; (b) time
deposits with, including certificates of deposit issued by, a Qualified
Bank; (c) commercial paper rated at least A-l+ by S&P and P-1 by Moody's;
(d) repurchase agreements with a Qualified Bank or primary dealer
collateralized by obligations described in clause (a) above; and (e) money
market funds of which assets are comprised of securities listed in (a)
through (d) and conform to Rule 2(A)7, as amended, of the Investment
Company Act of 1940 in the case of each of (a) through (d) maturing on the
earlier of (x) 30 days from the date of acquisition thereof and (y) the
date of the next expiring Yield Accrual Period subsequent to the
acquisition thereof.
"TERMINATION DATE" means the earliest of (i) the Business Day which
SFC designates as such by notice to the Agents at least 30 days prior to
such Business Day, (ii) the "Final Purchase Date" as defined in the
Purchase and Sale
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Agreement, (iii) the Expiration Date and (iv) the day on which the
Commitments terminate pursuant to Section 6.02.
"TERMINATION EVENT" has the meaning given to such term in Section 6.01
hereof.
"TOTAL RESERVE PERCENTAGE" means the sum of the Loss Reserve
Percentage and the Dilution Reserve Percentage.
"TRANCHE" has the meaning given to such term in Section 2.03.
"UCC" means the Uniform Commercial Code as in effect on the date
hereof in the State of New York; PROVIDED that if by reason of mandatory
provisions of law, the perfection or the effect of perfection or non-
perfection as to any interest in Purchased Receivables, any Related
Security, any Collections thereon or proceeds of the foregoing is governed
by the Uniform Commercial Code as in effect in a jurisdiction other than
New York, "UCC" means the Uniform Commercial Code as in effect in such
other jurisdiction for purposes of the provisions hereof relating to such
perfection or effect of perfection or non-perfection.
"YIELD" means, with respect to any Yield Accrual Period for any
Tranche on any date of determination thereof, an amount equal to the
following:
YR x T x AD
-------
Basis
where:
YR = the Yield Rate applicable to such Yield Accrual Period for
such Tranche,
T = the amount of the Tranche to which such Yield Accrual Period
applies,
AD = the actual number of days (including the first but excluding
the last day) in such Yield Accrual Period, and
Basis = 365 for any Yield Rate based on the Prime Rate and 360 for
all other Yield Rates.
PROVIDED, HOWEVER, that no provision of this Agreement shall
require the payment or permit the collection of Yield in excess of the
maximum permitted by applicable law; PROVIDED, FURTHER, that Yield shall
not be considered paid (i) when held in the Collection Account or (ii) by
any distribution to the extent that such distribution is rescinded or must
be returned or restored for any reason.
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"YIELD ACCRUAL PERIOD" means:
(a) with respect to any Tranche the Yield Rate of which is the
Euro-Dollar Rate, each period commencing on the date a portion of the
Aggregate Net Investment is allocated to such Tranche pursuant to
Section 2.03 and ending on the numerically corresponding day in the
first, second or third (as selected by SFC) calendar month thereafter,
except that (i) if such day is not a Euro-Dollar Business Day, such
Yield Accrual Period shall end on the next succeeding Euro-Dollar
Business Day (provided that if such Euro-Dollar Business Day is in a
subsequent calendar month, such Yield Accrual Period shall end on the
next preceding Euro-Dollar Business Day) and (ii) each Yield Accrual
Period that commences on the last Euro-Dollar Business Day of a
calendar month (or on any day for which there is no numerically
corresponding day in the appropriate subsequent calendar month) shall
end on the last Euro-Dollar Business Day of the appropriate subsequent
calendar month;
(b) with respect to any Tranche the Yield Rate of which is the
Fixed CD Rate, each period commencing on the date a portion of the
Aggregate Net Investment is allocated to such Tranche pursuant to
Section 2.03, and ending on the day which falls 30, 60 or 90 (as
selected by SFC) days thereafter (or, if such day is not a Euro-Dollar
Business Day, the next succeeding Euro-Dollar Business Day); and
(c) with respect to any Tranche the Yield Rate of which is the
Base Rate, each period commencing on the date a portion of the
Aggregate Net Investment is allocated to such Tranche pursuant to
Section 2.03, and ending on the earlier of (i) with respect to any
amount of prepayment of any portion of the Aggregate Net Investment
related to such Tranche, the date of such prepayment and (ii) the day
which falls 30 days thereafter (or, if such day is not a Business Day,
the next succeeding Business Day);
PROVIDED that (i) any Yield Accrual Period which commences prior to the
Expiration Date and would otherwise end after the Expiration Date shall end
on the Expiration Date, (ii) any Yield Accrual Period commencing on or
after the Termination Date shall be a period of one day, and (iii) for
purposes of Section 2.06(a) only, any Yield Accrual Period which commences
prior to the Termination Date and would otherwise end after the Termination
Date shall, if such Termination Date occurred due to an Event of Bankruptcy
with respect to SFC or Schuller, end on the Termination Date.
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"YIELD ACCRUAL PERIOD SELECTION NOTICE" has the meaning given to such
term in Section 2.03.
"YIELD RATE" means, (a) the Euro-Dollar Rate, (b) the Fixed CD Rate or
(c) the Base Rate; PROVIDED that the Yield Rate shall not, commencing on
the Termination Date (or, if a Termination Date has occurred due to the
occurrence of a Termination Event described in Section 6.01(u), commencing
on the day in respect of such Termination Event on which the Adjusted
Buyers' Interest first exceeded 100%), exceed a per annum rate equal to the
sum of the rate specified in clause (i) of the definition of "Base Rate",
as in effect for the Business Day preceding the Termination Date (or such
day on which the Adjusted Buyers' Interest first exceeded 100%), plus 2%.
"YIELD RESERVE" means, for any date of determination, the sum of (i)
the accrued and unpaid Yield on such date, (ii) the Liquidation Yield on
such date, (iii) the accrued and unpaid Commitment Fees on such date, (iv)
the accrued and unpaid Servicer's Compensation on such date and (v) an
amount equal to (x) the aggregate Outstanding Balance of Purchased
Receivables times (y) 2.0% times (z) 2 times Days Sales Outstanding divided
by 360; PROVIDED that if the Aggregate Net Investment is zero, the "YIELD
RESERVE" shall be zero; PROVIDED that amounts held in the Collection
Account shall not be considered paid.
"YIELD RESERVE REQUIREMENT" means an amount equal at any time to the
product of (x) Aggregate Net Investment at such time times (y) the rate
determined under clause (i) of the definition of "Base Rate" at such time,
plus 2% times (z) 5 divided by 360.
1.02. UCC TERMS. Terms not otherwise defined herein which are
defined in the UCC shall, unless the context otherwise requires, have the
meanings set forth therein.
ARTICLE II
PURCHASES, COLLECTIONS AND PAYMENTS
2.01. SALE AND ASSIGNMENT. (a) At the time of each Purchase, SFC
hereby sells, assigns and grants to the Buyers and the Buyers hereby purchase
from SFC, the Purchased Interest. Each such sale, subject only to the
provisions of Section 2.09 hereof, shall be without recourse. Notwithstanding
such sale, no obligation or liability of SFC, the Seller or the Servicer to any
Obligor or any third party under any Purchased Receivables or any related
Contracts shall be assumed by the Agents or the Buyers, and any such assumption
is hereby expressly disclaimed.
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(b) The parties hereto acknowledge that this Agreement also
constitutes a security agreement under the UCC of the State of New York. In
order to secure its obligations under this Agreement and to further assure the
transfer of the Purchased Interest, SFC hereby assigns to the Collateral Agent
for the benefit of the Buyers and the Agents (i) the Cash Collateral Account and
all funds and Cash Collateral Account Investments therein and (ii) to the extent
of its interests therein, the Lockbox Accounts and the Collection Account and
all funds and investments therein.
(c) (i) In order to secure its obligations under this Agreement,
SFC hereby grants, pledges, assigns, transfers and conveys to the Collateral
Agent for the benefit of the Buyers and the Agents all rights and remedies of
SFC under the Purchase and Sale Agreement, the Lockbox Transfer Letters, the
Servicing Agreement, if any, such other agreements, documents and instruments
entered into and delivered by SFC, the Seller and the Servicer in connection
with the transactions contemplated by this Agreement and the Purchase and Sale
Agreement and, to the extent of its interest therein, all of the Purchased
Receivables, and the Related Security and Collections related thereto and
Proceeds of all of the foregoing. Notwithstanding such assignment, no
obligation or liability of SFC under the Purchase and Sale Agreement shall be
assumed by the Agents or the Buyers, and any such assumption is hereby expressly
disclaimed.
(ii) Notwithstanding the assignment and security interest so
granted to the Collateral Agent, SFC shall nevertheless be permitted, subject to
the provisions of Sections 2.01(d) and 5.02(n) hereof, to give all consents,
requests, notices, directions, approvals, extensions or waivers, if any, which
are required to be given pursuant to the Program Documents with the consent of
the Required Buyers where specified, including, without limitation, to the
Seller by SFC by the specific terms of the Purchase and Sale Agreement, and the
assignment and security interest so granted to the Collateral Agent shall not
relieve SFC from the performance of any term, covenant, condition or agreement
on SFC's part to be performed or observed under or in connection with the
Purchase and Sale Agreement, or from any liability to the Seller or impose any
obligation on the Collateral Agent, the Administrative Agent or the Buyers to
perform or observe any such term, covenant, condition or agreement on SFC's part
to be so performed or observed or impose any liability on any Purchase Party for
any act or omission on the part of SFC relative thereto or from any breach of
any representation or warranty on the part of SFC contained in the Purchase and
Sale Agreement. SFC shall not agree to any amendment of, or waive any of its
rights under, the Purchase and Sale Agreement without the prior written consent
of the Required Buyers.
(d) SFC hereby agrees, at its own expense, to duly and punctually
perform and observe each of its obligations under each
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of the Program Documents, including, without limitation, to the Seller under
the Purchase and Sale Agreement in accordance with the terms thereof. In
addition, promptly following a request from the Collateral Agent or the Required
Buyers to do so and at SFC's own expense, SFC agrees to take all such lawful
action as the Collateral Agent or the Required Buyers may reasonably request to
compel or secure the performance and observance by the Seller of its obligations
to SFC under or in connection with the Purchase and Sale Agreement in accordance
with the terms thereof, and to exercise any and all rights, remedies, powers and
privileges lawfully available to SFC under or in connection with the Purchase
and Sale Agreement to the extent and in the manner directed by the Collateral
Agent or the Required Buyers, including, without limitation, the transmission of
notices of default on the part of the Seller thereunder and the institution of
legal or administrative actions or proceedings to compel or secure performance
by the Seller of its obligations thereunder. SFC further agrees that it will
not, without the prior written consent of the Required Buyers, which consent
shall not be unreasonably withheld, exercise any right, remedy, power or
privilege available to it with respect to the Seller under the Purchase and Sale
Agreement, take any action to compel or secure performance or observance by the
Seller of its obligations to SFC thereunder, or give any consent, request,
notice, direction, approval, extension or waiver to the Seller not expressly
contemplated to be exercised, taken, observed or given by SFC pursuant to the
terms thereof.
2.02. INCREMENTAL PURCHASES. (a) Subject to the terms and
conditions hereof, SFC may from time to time on and after the Closing Date to
but excluding the Termination Date at its option sell to the Buyers, and the
Buyers agree to purchase (an "INCREMENTAL PURCHASE") from SFC for the purchase
price (the "PURCHASE PRICE") set forth in a notice in substantially the form of
Exhibit B hereto (a "PURCHASE NOTICE") for such Incremental Purchase, undivided
percentage ownership interests in each and every Receivable (including any
additional Receivables thereafter purchased by SFC through the close of business
on the Final Purchase Date under the Purchase and Sale Agreement), together with
the Related Security, Collections and other Proceeds with respect thereto;
PROVIDED that (i) the Buyers shall have no obligation to make an Incremental
Purchase for a Purchase Price in excess of the Available Commitment and (ii) no
Buyer shall have an obligation to make an Incremental Purchase if such
Incremental Purchase would cause such Buyer's Aggregate Net Investment to exceed
its Commitment. The Purchase Price for an Incremental Purchase shall be paid in
the form of Dollars. Each Incremental Purchase shall be in an amount of
$5,000,000 or any integral multiple of $1,000,000 in excess thereof; PROVIDED
that if at the time of any Incremental Purchase the then Available Commitment is
less than $5,000,000, SFC may request an Incremental Purchase for a Purchase
Price equal to the Available Commitment. Each Buyer's obligation to make
purchases hereunder is ratable in the proportion its Commitment bears to the
total
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Commitments and is several and not joint, and the failure of any Buyer to
perform any of its obligations hereunder shall not require the performance of
such obligations by either Agent or any other Buyer.
(b) SFC shall provide the Administrative Agent with a Purchase Notice
prior to each Incremental Purchase at the time specified in Section 2.03 for
delivery of the appropriate Yield Accrual Period Selection Notice. Upon receipt
of such Purchase Notice, the Administrative Agent shall promptly provide each
Buyer with a copy of such Purchase Notice, and advise it of its ratable share of
the Purchase Price for such Incremental Purchase. Not later than 1:00 p.m. (or
2:00 p.m. in the case where the Yield Rate is the Base Rate) (New York City
time) on the day of any Incremental Purchase, each Buyer shall make available
its PRO RATA share of the Purchase Price for such Incremental Purchase to the
Administrative Agent. The amount so received by the Administrative Agent shall
be deposited to SFC's account as directed by SFC in immediately available funds.
Each Purchase Notice shall be irrevocable and binding on SFC when delivered to
the Buyers and SFC shall indemnify the Buyers pursuant to Section 2.13 hereof
against any reasonable loss or expense incurred by the Buyers as a result of any
failure by SFC to complete such Incremental Purchase.
2.03. TRANCHES; YIELD ACCRUAL PERIODS; YIELD RATES. (a) SFC shall
for each Incremental Purchase and thereafter prior to the expiry of each Yield
Accrual Period allocate portions of the Aggregate Net Investment (any such
portion so allocated being herein referred to as a "TRANCHE") to carry a Yield
at a Yield Rate to be selected by SFC for a Yield Accrual Period to be selected
by SFC, to commence on the date of such Incremental Purchase or on the last day
of the Yield Accrual Period then expiring; PROVIDED that SFC shall not select a
Yield Accrual Period that expires on a day after the then scheduled Expiration
Date. The amount of each Tranche selected by SFC shall be in an amount of
$5,000,000 or any integral multiple of $1,000,000 in excess thereof.
Notwithstanding the foregoing, no minimums shall apply to Tranches with Yield
Accrual Periods commencing after the Termination Date.
(b) SFC shall give the Administrative Agent (who shall give such
notice to the Buyers) notice of the amount, Yield Rate and Yield Accrual Period
(a "YIELD ACCRUAL PERIOD SELECTION NOTICE") for each Tranche, such notice to be
substantially in the form of Exhibit C hereto and to be received by the Agent
not later than 1:00 P.M. (New York City time) on the number of days
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prior to (or on) the first date of the requested Yield Accrual Period set forth
below:
Notice Number Of Days Prior
------ --------------------
Yield Accrual Period with an 3 Euro-Dollar
Euro-Dollar Rate Yield Rate Business Days
Yield Accrual Period with 2 Business Days
a Fixed CD Rate Yield Rate
Yield Accrual Period with a First day of
Base Rate Yield Rate requested Yield
Accrual Period
Each Yield Accrual Period Selection Notice shall be irrevocable once given to
the Buyers. If (x) SFC fails to provide a Yield Accrual Period Selection Notice
on a timely basis prior to the expiry of a Yield Accrual Period, or (y) the
Administrative Agent determines that the Yield Rate and Yield Accrual Period
requested by SFC is unavailable pursuant to Section 2.11 or 2.12 hereof, or (z)
such Yield Accrual Period commences after the Termination Date, the Yield Rate
shall be the Base Rate and the related Yield Accrual Period shall be as provided
therefor in the definition of "Yield Accrual Period".
2.04. ACCOUNTS AND COLLECTIONS. (a) All Obligors shall be
instructed to cause all Collections on account of Purchased Receivables to be
mailed directly to a Lockbox with a Qualified Bank that maintains a Lockbox
Account (which shall be a separate and segregated account). If SFC or the
Servicer receives any Collections on Purchased Receivables, it shall hold such
Collections in trust for the Buyers in respect of the Purchased Interest. All
Lockbox Accounts shall be swept daily into (and as soon as possible, but in any
event not later than one Business Day after receipt of any Collections on
Purchased Receivables by SFC or the Servicer other than through a Lockbox
Account, such Collections shall be deposited into) a single collection account
(the "COLLECTION ACCOUNT") to be at all times maintained with the Collection
Account Bank. Any funds in a Lockbox Account or the Collection Account which
are not held as a deposit in such account but are invested shall be invested in
Temporary Cash Investments by SFC, and SFC shall receive all income and interest
from such Investments. The location of each Lockbox and the number and location
of each Lockbox Account and the Collection Account on the Closing Date is set
forth on Schedule 1 hereto.
(b) SFC has delivered Lockbox Servicing Instructions to each of the
Lockbox Banks. SFC agrees (i) to make or cause the Servicer to make the
necessary bookkeeping entries to reflect such Collections on the Records
pertaining to such Receivables; (ii) to apply or cause the Servicer to apply all
such Collections as provided in this Agreement; (iii) not to amend or modify any
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term, with respect to the disposition of such Collections or any other amounts
received by SFC or the Servicer or any Lockbox Bank, of this Agreement or any
other agreement without the prior written consent of the Collateral Agent and
the Required Buyers to such amendment or modification; and (iv) not to otherwise
amend or modify any term of any Lockbox Servicing Instructions without the prior
written consent of the Collateral Agent and not to otherwise materially amend or
modify any term of any Lockbox Servicing Instructions without the prior written
consent of the Collateral Agent and the Required Buyers to such amendment or
modification. SFC further represents, warrants and covenants as follows: (i)
each Lockbox Account shall be maintained with a Lockbox Bank; (ii) each Lockbox
Account shall be a segregated account and only Collections shall be deposited in
each Lockbox Account and such Collections shall not be commingled with any other
funds of SFC, the Servicer or any other Person; (iii) each Lockbox Account shall
be in the name of SFC; (iv) the location and account number of each Lockbox and
each related Lockbox Account shall not be changed without 30 days' prior
notification to the Collateral Agent, and if required pursuant to the definition
of "Qualified Bank", the prior written consent of the Required Buyers; (v) each
Lockbox Account shall be insured by the Federal Deposit Insurance Corporation to
the full extent permitted by law; (vi) the Collateral Agent shall have the right
to obtain control over each Lockbox and each related Lockbox Account and to
direct the Lockbox Bank not to transfer funds in such Lockbox Account to SFC or
the Servicer, and direct the Lockbox Bank to transfer the funds in such Lockbox
Account to an account designated by the Collateral Agent, by dating and
delivering the Lockbox Transfer Letter with respect to such Lockbox, and SFC
hereby irrevocably authorizes the Collateral Agent to date and deliver a Lockbox
Transfer Letter to each Lockbox Bank; (vii) SFC has not given and shall not give
any instructions to any Lockbox Bank inconsistent with the Lockbox Transfer
Letter; and (viii) SFC shall cooperate fully with the Collateral Agent in
effecting any such transfer of control; PROVIDED that in all events Collections
will be transferred to the Collection Account for allocation in accordance with
Sections 2.05 and 2.06 hereof. Neither SFC nor the Servicer shall enter into
any Lockbox Servicing Instructions or other lockbox servicing agreement which
does not comply with the foregoing provisions and terms, unless otherwise
consented to by the Collateral Agent and the Required Buyers.
(c) SFC agrees (i) to apply or cause the Servicer to apply all
Collections deposited in the Collection Account as provided in this Agreement
and (ii) not to instruct the Collection Account Bank to disburse or otherwise
dispose of any Collections or any other amounts received by the Collection
Account Bank otherwise than in accordance with this Agreement without the prior
written consent of the Collateral Agent and the Required Buyers. SFC further
represents, warrants and covenants as follows: (i) the Collection Account shall
be maintained with a Collection Account Bank; (ii) the Collection Account shall
be a segregated account and only Collections shall be deposited in the
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Collection Account and such Collections shall not be commingled with any other
funds of SFC, the Servicer or any other Person; (iii) the Collection Account
shall be in the name of SFC; (iv) the location and account number of the
Collection Account shall not be changed without 30 days' prior notification to
the Collateral Agent; (v) the Collection Account shall be insured by the Federal
Deposit Insurance Corporation to the full extent permitted by law; (vi) the
Collateral Agent shall have the right to obtain control over the Collection
Account and to direct the Collection Account Bank not to follow any instructions
of SFC or the Servicer as to the transfer of funds in the Collection Account to
SFC or the Servicer by dating and delivering the Lockbox Transfer Letter with
respect to the Collection Account, and SFC hereby irrevocably authorizes the
Collateral Agent to date and deliver the Lockbox Transfer Letter to the
Collection Account Bank; (vii) SFC has not given and shall not give any
instructions to the Collection Account Bank inconsistent with the Lockbox
Transfer Letter; and (viii) SFC shall cooperate fully with the Collateral Agent
in effecting any such transfer of control; PROVIDED that no such transfer of
control shall affect the allocations of Collections as contemplated by and
pursuant to Sections 2.05 and 2.06 hereof.
(d) At all times during the term of this Agreement the Collateral
Agent shall maintain an account at the Collateral Agent in its name, on behalf
of the Buyers, and under its control (the "CASH COLLATERAL ACCOUNT") for the
deposit of all amounts to be deposited in such account hereunder; PROVIDED that
if the Collateral Agent's certificates of deposit are not at the time rated at
least A-l+ by S&P the Cash Collateral Account shall be a corporate trust account
at the Collateral Agent. The Collateral Agent shall allocate amounts in the
Cash Collateral Account to the Yield Reserve Requirement, Yield, Commitment Fees
and Aggregate Net Investment for purposes of Sections 2.05 and 2.06.
(e) Amounts on deposit in the Cash Collateral Account shall be
invested from time to time in Cash Collateral Account Investments selected by
SFC or, after the occurrence of a Termination Event, the Collateral Agent, which
mature no later than the termination date of the Yield Accrual Period that has
the shortest period to maturity at the time of the selection of such Cash
Collateral Account Investments. Interest or other earnings on Cash Collateral
Account Investments in the Cash Collateral Account shall be credited to such
account and, on each Settlement Date prior to the Termination Date shall
(provided no Termination Event and no Potential Termination Event has occurred
and is then continuing) be paid to SFC and shall, commencing on the Termination
Date, be applied in accordance with Section 2.06. The Collateral Agent shall
have no liability in respect of the Cash Collateral Account Investments or any
returns or losses thereon.
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2.05. PRE-TERMINATION PROCEDURES; REINVESTMENT. (a) On each
Business Day after the Closing Date but prior to the Termination Date, the
Servicer shall allocate to the Buyers an amount equal to the product of (x) the
Buyers' Interest (as set forth on the Daily Report prepared on the Computation
Date for such Business Day) multiplied by (y) the sum of (i) Collections
theretofore received in Lockbox Accounts (or otherwise) and to be deposited to
the Collection Account on such Business Day and (ii) amounts already on deposit
in the Collection Account and not previously applied and accounted for pursuant
to this Section 2.05 and Section 2.06 hereof (the amount described in this
clause(y) referred to as "NEW COLLECTIONS"). Such Buyers' share of New
Collections shall be held or applied on such Business Day in the following order
of priority:
(i) if the amount on deposit in the Collection Account with respect
to the Yield Reserve Requirement does not equal the then Yield Reserve
Requirement, to be held in the Collection Account in respect thereof, an
amount equal to the excess of (x) the then current Yield Reserve
Requirement over (y) the amount then on deposit with respect to the Yield
Reserve Requirement;
(ii) to be held in the Collection Account until application pursuant
to (1) below, with respect to each Tranche, an amount equal to the excess
of (x) all Yield accrued and unpaid for such Tranche to such day over (y)
the amount theretofore held, and then on deposit, with respect to Yield on
such Tranche pursuant to this clause (ii);
(iii) to be held in the Collection Account until application pursuant
to (2) below, an amount equal to the excess of (x) all accrued and unpaid
Commitment Fees to such day over (y) the amount theretofore held, and then
on deposit, with respect to such Commitment Fees pursuant to this clause
(iii) or clause (b)(i) below;
(iv) to be paid to the Servicer on such day, an amount which will
equal, for each day (to and including such Business Day) as to which there
is accrued and unpaid Servicer's Compensation (an "accrual day") an amount
equal to (x) the Buyers' Interest as of the close of business on the
Computation Date for such accrual day TIMES (y) the Servicer's Compensation
accrued on such accrual day; and
(v) the remainder of such Buyers' share of New Collections (the
"REMAINDER") shall be applied in accordance with Section 2.05(c) hereof.
Payments of amounts so allocated and held in the
Collection Account shall be made as follows:
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(1) On the last day of each Yield Accrual Period for a Tranche (or to
the extent funds are insufficient therefor, as funds become available on
each of the succeeding five Business Days), the Servicer on behalf of the
Collateral Agent shall withdraw from the Collection Account and pay to the
Administrative Agent for distribution to the Buyers the Yield accrued with
respect to such Yield Accrual Period which was retained in the Collection
Account with respect thereto pursuant to clause (ii) above and, if
necessary to pay all Yield accrued, shall apply moneys to pay such Yield
from amounts in the Collection Account in respect of the Yield Reserve
Requirement.
(2) On each Settlement Date, the Servicer on behalf of the Collateral
Agent shall withdraw from the Collection Account and pay to the
Administrative Agent for distribution to the Buyers the Commitment Fees
accrued since the last Settlement Date and retained in the Collection
Account with respect thereto pursuant to clause (iii) above or clause
(b)(i) below.
(b) On each Business Day after the Closing Date but prior to the
Termination Date, the Servicer shall allocate to SFC, as its share (if any) of
New Collections, an amount equal to the product of (x) SFC's Interest (as set
forth on the Daily Report prepared on the Computation Date for such Business
Day) multiplied by (y) New Collections. SFC's share of New Collections shall be
held or applied on such Business Day in the following order of priority:
(i) to be deposited to the Collection Account and there held until
application pursuant to (a)(2) above, an amount equal to the excess of (x)
all accrued and unpaid Commitment Fees to such day over (y) the sum of (A)
the amount theretofore held, and then on deposit, pursuant to this clause
(i) and (B) the amount theretofore held, and then on deposit, or allocated
on such Business Day, pursuant to clause (a)(iii) above;
(ii) to be paid to the Servicer on such day, an amount which will
equal, for each accrual day, an amount equal to (x) SFC's Interest as of
the close of business on the Computation Date for such accrual day TIMES
(y) the Servicer's Compensation accrued on such accrual day;
(iii) to be paid to the Agents and the Buyers on such day, an amount
equal to all Other Expenses due to the Agents and the Buyers under the
Program Documents; and
(iv) any remaining amount of SFC's share of New Collections shall be
paid to SFC.
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(c) On each Business Day after the Closing Date but prior to the
Termination Date, (A) Available Collections, up to the amount of the Aggregate
Net Investment, shall be allocated to one or more of the following applications,
as SFC shall specify in a notice to the Servicer:
(i) all or any portion of the Remainder may be deposited into the
Cash Collateral Account to be held in respect of Aggregate Net Investment,
to reduce Adjusted Aggregate Net Investment; or
(ii) all or any portion of the Available Collections may be paid to
the Administrative Agent for distribution to the Buyers to reduce Aggregate
Net Investment (and, in such event, SFC shall give notice to the
Administrative Agent as to which Tranches shall be reduced); or
(iii) all or any portion of the Available Collections may be
automatically reinvested (each such reinvestment, a "REINVESTMENT") on
behalf of the Buyers, and thus paid to SFC, subject to the provisions of
Section 3.02 hereof;
PROVIDED, that a Tranche bearing interest at the Euro-Dollar Rate or the Fixed
CD Rate may only be reduced at the end of the Yield Accrual Period for such
Tranche and no partial reduction of a Tranche shall be in an amount less than
$5,000,000 or leave less than $1,000,000 of such Tranche outstanding; and (B)
Available Collections in excess of the Aggregate Net Investment shall be paid to
SFC.
2.06. POST-TERMINATION PROCEDURES. (a) On each Business Day on or
after the Termination Date to and including the Final Payment Date, the Servicer
shall allocate to the Buyers an amount equal to the product of (x) the Buyers'
Interest (as set forth on the Daily Report prepared on the Computation Date for
such Business Day) multiplied by (y) New Collections. Such Buyers' share of New
Collections shall be immediately paid over to the Cash Collateral Account and,
together with all other monies then on deposit in the Cash Collateral Account,
held or distributed on such Business Day in the following order of priority:
(i) to pay to the Administrative Agent for distribution to the
Buyers an amount equal to accrued and unpaid Yield with respect to each
Tranche having a Yield Accrual Period ending on or before such Business
Day;
(ii) if there is any Yield Accrual Period for a Tranche which is
not ending on such Business Day, then, to be held in the Cash Collateral
Account until application pursuant to clause (i), with respect to each such
Tranche, an amount equal to the Yield accrued and unpaid for such Tranche
to such day;
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(iii) to pay to the Administrative Agent for distribution to the
Buyers accrued and unpaid Commitment Fees;
(iv) to pay to the Servicer, for each accrual day for which the
Servicer is not an Affiliate of SFC, an amount equal to (x) the Buyers'
Interest as of the close of business on the Computation Date for such
accrual day TIMES (y) the Servicer's Compensation accrued on such accrual
day;
(v) to be held in the Cash Collateral Account until the Final
Payment Date, an amount equal to 1% of Aggregate Net Investment;
(vi) to pay to the Administrative Agent for distribution to the
Buyers an amount in reduction of the Aggregate Net Investment, applying
such amount only to Tranches whose Yield Accrual Period ends on such
Business Day and Tranches whose Yield Rate is the Base Rate;
(vii) to be held in the Cash Collateral Account until applied
pursuant to clause (vi), an amount equal to the sum of the Tranches whose
Yield Accrual Periods do not end on such Business Day and whose Yield Rate
is not the Base Rate;
(viii)to pay to the Agents and Buyers any Other Expenses (whether
or not then due) owing to the Agents and Buyers not paid pursuant to clause
(b)(iii) below;
(ix) to pay to the Servicer, for each accrual day for which the
Servicer is an Affiliate of SFC, an amount equal to (x) the Buyers'
Interest as of the close of business on the Computation Date for such
accrual day TIMES (y) the Servicer's Compensation accrued on such accrual
day; and
(x) the balance shall be held in the Cash Collateral Account for
future application as aforesaid.
(b) On the Termination Date and on each Business Day thereafter
to and including the Final Payment Date, the Servicer shall allocate to SFC, as
its share of New Collections, an amount equal to the product of (x) SFC's
Interest (as set forth on the Daily Report prepared on the Computation Date for
such Business Day) multiplied by (y) New Collections. SFC's share of New
Collections shall be applied on such Business Day in the following order of
priority:
(i) to pay to the Servicer, for each accrual day for which the
Servicer is not an Affiliate of SFC, an amount equal to (x) SFC's Interest
as at the close of business on the Computation Date for such accrual day
TIMES (y) the accrued Servicer's Compensation accrued on such accrual day;
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(ii) for deposit into the Cash Collateral Account accrued and
unpaid Commitment Fees owing to the Buyers and not paid or provided for
pursuant to subsection (a) above;
(iii) to be paid to the Agent and the Buyers on such day, all
Other Expenses owing to the Agents and the Buyers;
(iv) to pay the Servicer, for each accrual day for which the
Servicer is an Affiliate of SFC, an amount equal to (x) SFC's Interest as
at the close of business on the Computation Date for such accrual day times
(y) the accrued Servicer's Compensation accrued on such accrual day; and
(v) the balance shall be paid to SFC.
(c) On the Business Day after the Final Payment Date, (i) the
Servicer shall recompute the Buyers' Interest as 0%, (ii) the Buyers shall be
deemed to have reconveyed to SFC, without representation or warranty, any
interest in the Receivables and all Related Security with respect thereto
(including the Purchased Interest), (iii) the Collateral Agent shall pay to
SFC any amounts held in the Collection Account and the Cash Collateral Account
and (iv) the Agents and the Buyers shall promptly execute and deliver to SFC,
at SFC's expense, such documents or instruments as are reasonably necessary to
terminate their interest in the Receivables, all Related Security, all
Collections with respect thereto and all proceeds of the foregoing.
2.07. FEES; SERVICER'S COMPENSATION. (a) Notwithstanding anything
to the contrary contained in this Agreement, SFC shall pay, until the Final
Payment Date, the following non-refundable fees:
(i) on the Closing Date to the Collateral Agent, for the account of
the Agents, such fees as agreed to by SFC and the Agents pursuant to the
letter agreement dated June 21, 1994 between J.P. Morgan Delaware and
Schuller;
(ii) on the Closing Date to the Administrative Agent, for the account
of each Buyer, the Participation Fee;
(iii) if the Servicer is not an Affiliate of SFC, to the Agents such
other fees in such amounts and at such times as agreed to in writing by SFC
and the Agents; and
(iv) as provided in Section 2.10, the Commitment Fees.
(b) If the Servicer is an Affiliate of SFC, Schuller shall pay on
behalf of SFC, until the Final Payment Date, to the
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Agents such other non-refundable fees in such amounts and at such times as
agreed to in writing by SFC and the Agents.
(c) The Servicer's Compensation shall be paid to the Servicer in
accordance with Sections 2.05 and 2.06 hereof. Servicer's Compensation payable
to Schuller as Servicer shall accrue on each day until the earlier of the Final
Payment Date and the date of a Servicing Transfer, in an amount equal to the
product of (1) 2% per annum (calculated on a 360-day basis) and (2) the
aggregate Outstanding Balance (exclusive of any write-offs) of Purchased
Receivables on such day. Servicer's Compensation payable to any Servicer that
is not an Affiliate of Schuller shall accrue on each day until the earlier of
the Final Payment Date and the date of a Servicing Transfer in such reasonable
amount as agreed upon by such Servicer, the Collateral Agent and the Required
Buyers.
Any of the fees described in this Section 2.07 which are accrued but
unpaid on the date following the Termination Date when the Aggregate Net
Investment has been reduced to zero shall be paid in full by SFC on such date.
2.08. OPTIONAL REDUCTION OF COMMITMENTS. SFC may reduce in
whole or in part the total Commitments (but not below the Aggregate Net
Investment) by giving the Collateral Agent notice thereof at least three
Business Days before such reduction is to take place; PROVIDED, HOWEVER, that
any partial reduction shall be in an amount of $5,000,000 or any integral
multiple of $1,000,000 in excess thereof. Any reduction in the total
Commitments shall cause a pro rata reduction in the Commitment of each Buyer.
The Administrative Agent shall give S&P prompt notice of any reduction in the
Commitments.
2.09. PAYMENTS UNDER CERTAIN CIRCUMSTANCES. (a) (i) If, as to any
Receivable, a representation or warranty deemed made pursuant to Section 3.02 on
the date of any Purchase of a Purchased Interest therein was not true when
deemed made, SFC shall, within two Business Days of discovery by or notice to
SFC of such fact, deposit in the Collection Account, as a Collection with
respect thereto, the Outstanding Balance of such Receivable;
(ii) if at any time the Buyers shall cease to have a
perfected undivided ownership interest, or a first priority perfected security
interest, in a Purchased Receivable, free and clear of any Adverse Interest,
which cessation was not caused solely by the Buyers, SFC shall, within two
Business Days of discovery by or notice to SFC of such fact, deposit in the
Collection Account, as a Collection with respect thereto, the Outstanding
Balance of such Receivable; or
(iii) if on any day the Outstanding Balance of a Purchased
Receivable (or the amount thereof treated as an Eligible Receivable) is reduced
or canceled as a result of any Dilution Adjustment or Dispute, defense,
counterclaim or setoff
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with respect to such Receivable, SFC shall deposit in the Collection Account on
such day (or, if such day was not a Business Day, the next succeeding Business
Day), as a Collection with respect thereto, the amount of such reduction or
cancellation in the Collection Account;
PROVIDED that, so long as no Termination Event or Potential Termination Event
shall have occurred and be continuing, no such deposit shall be required except
to the extent that if such deposit were not made, the Adjusted Buyers' Interest
would exceed 100% (calculated, prior to the Termination Date, after applying
Available Collections in accordance with Section 2.05 hereof); PROVIDED FURTHER
that if the circumstances described in clause (ii) applies to all Purchased
Receivables, SFC shall instead repurchase the Purchased Interest at a price
equal to the Aggregate Unpaids by paying such amount to the Administrative Agent
for the account of the Buyers.
(b) SFC may at any time at its option reduce the Aggregate Net
Investment by directly paying monies from its funds to the Administrative Agent
for distribution to the Buyers for application to such Tranche or Tranches as
SFC shall direct; PROVIDED that
(i) no such reduction may be made in respect of any Tranche accruing
Yield at the Euro-Dollar Rate or the Fixed CD Rate except at the end of the
Yield Accrual Period therefor;
(ii) no such reduction may be made in respect of any Tranche accruing
Yield at the Base Rate unless it is in an amount equal to the lesser of
(x) $1,000,000 and (y) the amount of such Tranche and, if it was a partial
reduction of a Tranche, the amount of the remaining portion of such Tranche
shall not be less than $1,000,000; and
(iii) no such reduction shall be made unless SFC shall have
determined, based on consultation with its accounting officer, that the
amount of such reduction will have no effect on the treatment of the sales
of interests in the Receivables to the Buyers hereunder as sales for
accounting purposes.
2.10. PAYMENTS AND COMPUTATIONS. (a) All amounts to be paid to the
Agents or the Buyers hereunder shall be paid in accordance with the terms hereof
no later than 2:00 p.m. (New York City time) on the day when due in immediately
available funds to the account of the Administrative Agent indicated on the
signature pages hereof or otherwise notified by the Administrative Agent. No
such amount shall, except as provided in the FURTHER PROVISO in Section 2.09(a),
be deemed paid by virtue of its deposit in the Collection Account or the Cash
Collateral Account. Except as provided in the FURTHER PROVISO in Section
2.09(a) and in Section 2.09(b), payment in respect of
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Aggregate Net Investment, Yield, Servicer's Compensation and interest thereon
shall be paid (and shall be due and payable) only out of Collections pursuant to
Section 2.05 and 2.06; Commitment Fees and Other Expenses shall be paid pursuant
to Section 2.05 and 2.06, or if not so paid, shall in any event be payable by
SFC in arrears on each Settlement Date (in the case of Commitment Fees) or when
due (in the case of Other Expenses). Amounts payable to the Agents, or the
Buyers under any provision of Section 2.05 or 2.06 shall be paid ratably to the
extent of funds available. SFC shall, to the extent permitted by law, pay to
the Agents or the Buyers upon demand, interest on all amounts not paid when due
and payable hereunder at a rate equal to 2% per annum plus the Base
Rate (calculated on the basis of a year of 365 days and actual days elapsed).
All computations by the Agents of amounts payable hereunder shall be binding and
conclusive absent manifest error.
(b) The Buyers' Interest shall be calculated by the Servicer for
purposes of each Purchase Notice and each Daily Report. If the Servicer shall
fail to promptly calculate the Buyers' Interest as required herein, the
Collateral Agent may calculate the Buyers' Interest. All calculations of the
Buyers' Interest shall be rounded to the nearest 1/100 of 1% (with any
calculation that yields 5/1000 of 1% as a last digit being rounded upward). The
Buyers acknowledge that all calculations hereunder made by SFC or the Servicer
are being made on a best efforts basis to the extent of information available at
the time such calculations are being made.
2.11. CHANGE IN CIRCUMSTANCES-UNAVAILABILITY. If with respect to
any Yield Accrual Period (a) deposits in Dollars (in the applicable amounts) are
not being offered to the relevant Euro-Dollar Reference Banks in the London
interbank market for such Yield Accrual Period or (b) Buyers having 50% or more
of the aggregate amount of the Commitments advise the Collateral Agent that the
Adjusted CD Rate or the Adjusted London Interbank Offered Rate, as determined by
the Collateral Agent, will not adequately and fairly reflect the cost to such
Buyers of maintaining or funding Tranches the Yield Rate of which is based on
the Fixed CD Rate or the Euro-Dollar Rate, as the case may be, the Collateral
Agent shall forthwith give notice thereof to SFC and the Buyers, whereupon until
the Collateral Agent notifies SFC that such circumstances no longer exist, the
obligation of the Buyers to allocate any portion of the Aggregate Net Investment
to any Tranche the Yield Rate of which is based on the Fixed CD Rate or the
Euro-Dollar Rate, as the case may be, shall be suspended. Upon the occurrence
of a suspension of the availability of Tranches the Yield Rate of which is
based on the Fixed CD Rate or the Euro-Dollar Rate, as the case may be, as
provided for by the immediately preceding sentence, the Yield Rate that shall
apply to the Aggregate Net Investment shall be based on the Base Rate.
2.12. CHANGE IN CIRCUMSTANCES-ILLEGALITY. If, after the date of
this Agreement, the adoption of any applicable law,
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rule or regulation, or any change therein, or any change in the interpretation
or administration thereof by any governmental authority, central bank or
comparable agency charged with the interpretation or administration thereof, or
compliance by any Buyer with any request or directive (whether or not having the
force of law) made or issued after the date hereof by any such authority,
central bank or comparable agency shall make it unlawful or impossible for such
Buyer to allocate its PRO RATA share of the Aggregate Net Investment to any
Tranche the Yield Rate of which was based on the Euro-Dollar Rate and such Buyer
shall so notify the Collateral Agent, then the Collateral Agent shall forthwith
give notice thereof to the other Buyers, and SFC, whereupon until such Buyer
notifies the Collateral Agent and SFC that such circumstances no longer exist,
the obligation of such Buyer to allocate its PRO RATA share of the Aggregate Net
Investment to any Tranche the Yield Rate of which is based on the Euro-Dollar
Rate shall be suspended. If such Buyer shall determine that it may not lawfully
continue to allocate its PRO RATA share of the Aggregate Net Investment to any
outstanding Tranche the Yield Rate of which is based on the Euro-Dollar Rate,
then such Buyer's PRO RATA share of such Tranche shall be deemed to be a
separate Tranche with a Yield Rate based on the Base Rate and with a Yield
Accrual Period ending on the last Business Day of the calendar month.
2.13. FUNDING LOSSES. Notwithstanding anything in this Agreement
to the contrary, if for any reason a reduction of any Tranche was effected, the
Yield Rate of which was determined by reference to the Euro-Dollar Rate or the
Fixed CD Rate on any day other than the last day of the Yield Accrual Period
applicable thereto, or a Yield Accrual Period ends on any day earlier than the
originally scheduled last day of such Yield Accrual Period, whether by operation
of the proviso in the definition of Yield Accrual Period or otherwise, or if SFC
fails to complete any Incremental Purchase after notice has been given to the
Collateral Agent in accordance with Section 2.02 hereof, SFC shall reimburse
each Buyer within 10 days after demand for any resulting loss or expense
incurred by it (or by an existing or prospective participant in the related
Tranche), including (without limitation) any loss incurred in obtaining,
liquidating or employing deposits from third parties, subject to the last
sentence of this Section 2.13. Any such Buyer making such demand for
reimbursement shall deliver to SFC a certificate setting forth in reasonable
detail the amount of such loss or expense, which certificate shall be conclusive
in the absence of manifest error. Any payments made by SFC pursuant to this
Section 2.13 shall only be made from amounts available pursuant to Sections
2.05(b)(iii) and (iv) or 2.06(a)(viii), (b)(iii) and (b)(v), as the case may be
(such amounts being referred to herein as "EXCESS AMOUNTS"), and any debt of SFC
arising under this Section 2.13 shall not constitute a claim against SFC to the
extent that Excess Amounts are insufficient to pay such debt.
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2.14. EXTENSION OF EXPIRATION DATE.
(a) Subject to subpart (b) of this Section 2.14 and other provisions
of this Agreement permitting earlier termination, this Agreement and each
Buyer's Commitment shall terminate on August 29, 1997 (or if such day is not a
Business Day, the next succeeding Business Day).
(b) If SFC desires to extend the Expiration Date, then SFC shall
notify the Agent not later than November 29, 1996 of its desire to extend the
Expiration Date for a period of 12 additional months, whereupon the Agent shall
notify each Buyer of the desire of SFC. Each Buyer shall notify the Agent of
its decision with respect to such extension not later than February 29, 1997,
which decision was in the absolute discretion of each Buyer. Failure by any
Buyer to notify the Agent of its decision with respect to such extension shall
be deemed to be notification of non-extension by such Buyer. The Agent shall
notify SFC of the decisions of the Buyers not later than March 29, 1997 or, if
such day is not a Business Day, the next succeeding Business Day. If Buyers
having at least 75% of the aggregate of the Commitments agree to such extension,
the Expiration Date shall be August 29, 1998, or if such day is not a Business
Day, the next succeeding Business Day.
Notwithstanding the foregoing, the Expiration Date shall not be
extended pursuant to this subsection unless, on August 29, 1997 (or if such day
is not a Business Day, the next succeeding Business Day), the Aggregate Net
Investment does not exceed the total Commitments of the extending Buyers and the
accrued Commitment Fees and all other Aggregate Unpaids (other than such Buyer's
portion of the Aggregate Net Investment and accrued Yield) payable to the non-
extending Buyers have been paid in full. Upon such date, if such condition is
met, the extending Buyers shall make such payments to the non-extending Buyers
in respect of the portion of Aggregate Net Investment represented by Tranches
payable to such non-extending Buyers, on a ratable basis, so as to effect a
purchase by the extending Buyers of the exposures of the non-extending Buyers in
respect of such Tranches. Any such purchase from the non-extending Buyers shall
be without any representation or warranty from the non-extending Buyers;
PROVIDED that the non-extending Buyers shall represent and warrant that they
have not transferred or otherwise encumbered any portion of such Buyer's portion
of the Purchased Interest. The Administrative Agent shall give S&P prompt
notice of any extension of the Expiration Date pursuant to this Section 2.14(b).
2.15. INFORMATION REGARDING THE RECEIVABLES. (a) SFC shall cause
the Servicer to, and the Servicer shall, prepare and deliver to the Collateral
Agent on each Business Day on which the Aggregate Net Investment is greater
than zero a report substantially in the form of Exhibit D (the "DAILY REPORT");
PROVIDED that delivery of a Daily Report may be delayed for up to
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two Business Days if such delay is attributable to a systems failure or other
circumstance outside the control of SFC and the Servicer. Delivery of each
Daily Report to the Collateral Agent shall be deemed a representation by SFC
that such Daily Report is, to the best knowledge of SFC and the Servicer,
accurate in all material respects. The Collateral Agent shall provide the Daily
Reports to Buyers upon request.
(b) On or prior to the Settlement Date in each month, SFC shall cause
the Servicer to, and the Servicer shall, prepare and forward to the Agents, the
Buyers and S&P (i) a monthly report, substantially in the form of Exhibit E (the
"MONTHLY REPORT"), as of the close of business on the Month-end Date therefor
and certified by SFC's chief executive officer, chief financial officer or chief
accounting officer and (ii) if requested by the Collateral Agent, a listing
(which may be in writing or in personal computer readable form) by Obligor of
all Purchased Receivables. If there has been any delay in delivery of a Daily
Report during the Report Month then ended, the Monthly Report shall contain an
explanation of the reasons for such delay.
(c) On or before April 30 of each calendar year, beginning with April
30, 1995, SFC will, or will cause the Servicer to (in which event the Servicer
shall), cause a firm of nationally recognized independent public accountants
(who may also render other services to Schuller, the Servicer or SFC) to furnish
a report to SFC, the Agents and the Buyers to the effect that:
(i) such firm has audited SFC's and Schuller's Receivables,
(ii) in conjunction with planning and performing those audits the
internal control structure of Schuller and the Servicer and their internal
accounting controls over the processing of Receivables was considered, and
(iii) based on procedures whereby the Servicer's internal accounting
records are compared on a random sampling basis to the information
contained in the Daily Reports and Monthly Reports prepared during the
period covered by such report, the information contained in the Daily
Reports and Monthly Reports reviewed reconciles with the information
contained in the Servicer's records relating to the Receivables.
(d) Not more than two times per year at the Collateral Agent's
request, or at any time and from time to time at the Collateral Agent's request
during the continuance of a Termination Event, each of SFC and the Servicer
shall permit the Collateral Agent (or its designee) to conduct audits of the
Receivables and compliance with the provisions of Section 2.04, 2.05 and 2.06,
to visit and inspect any of its properties, to
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examine its records (and take copies and extracts therefrom), internal controls
and procedures relating to the Receivables and the Obligors and its ability to
perform its obligations under any of the Program Documents and to discuss such
matters with its officers, employees and independent accountants. Each of SFC
and the Servicer hereby authorizes such officers, employees and independent
accountants to discuss such matters with the Collateral Agent (or such
designee).
(e) SFC will, or will cause the Servicer to (in which event the
Servicer shall), furnish to the Collateral Agent and the Buyers such additional
information with respect to the Receivables as the Collateral Agent may from
time to time reasonably request.
ARTICLE III
CONDITIONS TO EFFECTIVENESS AND PURCHASES
3.01. CONDITIONS TO EFFECTIVENESS. This Agreement shall become
effective on the date (the "CLOSING DATE") on which SFC or the Servicer shall
deliver or cause to be delivered to the Agents the following documents and
instruments, all of which shall be in form and substance acceptable to the
Agents:
(a) A copy of the resolutions of the Board of Directors of SFC
certified as of the date hereof by its secretary or an assistant secretary
authorizing the execution, delivery and performance of this Agreement and
the other documents to be delivered by SFC hereunder and approving the
transactions contemplated hereby and thereby;
(b) The certificate of incorporation of SFC certified as of a date
reasonably near the Closing Date by the Secretary of State of the State of
Delaware;
(c) A good standing certificate for SFC issued by the Secretary of
State of the State of Delaware, a certificate of qualification as a foreign
corporation issued by the Secretary of State of the State of Colorado and
certificates of the appropriate state official in the States of Delaware
and Colorado as to the payment of franchise taxes by SFC under the Laws of
such jurisdiction, each such certificate to be dated a date reasonably near
the Closing Date;
(d) A certificate of the secretary or an assistant secretary of SFC
dated the Closing Date and certifying (i) the names and signatures of the
Responsible Officers authorized on its behalf to execute this Agreement and
any other documents to be delivered by SFC hereunder and the names and
signatures of three additional officers authorized on its behalf to execute
Purchase Notices (on which certificate the Administrative Agent and the
Collateral
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Agent may conclusively rely until such time as the Administrative Agent and
the Collateral Agent shall receive from SFC a revised certificate meeting
the requirements of this clause (d)(i), and if such certificate includes
the names and signatures of officers of SFC other than Responsible
Officers, such inclusion shall be approved by the Agents), (ii) that there
have been no amendments or modifications to the certificate of
incorporation of SFC subsequent to the date of the certificate in clause
(b) above, (iii) a copy of SFC's by-laws and (iv) the name of SFC's outside
directors;
(e) A copy of the resolutions of the Board of Directors of Schuller
certified as of the date hereof by its secretary or an assistant secretary
authorizing the execution, delivery and performance of this Agreement and
the other documents to be delivered by Schuller hereunder and the Purchase
and Sale Agreement and the other documents to be delivered by Schuller
thereunder and approving the transactions contemplated thereby;
(f) The certificate of incorporation of Schuller certified as of a
date reasonably near the Closing Date by the Secretary of State or other
similar official of Schuller's jurisdiction of incorporation;
(g) A good standing certificate for Schuller issued by the Secretary
of State of the State of Delaware, a certificate of qualification as a
foreign corporation issued by the Secretary of State of the State of
Colorado and certificates of the appropriate state official in the States
of Delaware and Colorado as to the payment of franchise taxes by Schuller
under the Laws of such jurisdiction, each such certificate to be dated a
date reasonably near the Closing Date;
(h) A certificate of the secretary or an assistant secretary of
Schuller dated the Closing Date and certifying (i) the names and signatures
of the officers authorized on its behalf to execute this Agreement and the
Purchase and Sale Agreement and any other documents to be delivered by
Schuller hereunder or thereunder (on which certificate the Administrative
Agent and the Collateral Agent may conclusively rely until such time as the
Administrative Agent or the Collateral Agent shall receive from Schuller a
revised certificate meeting the requirements of this clause (i)) and (ii)
a copy of Schuller's by-laws;
(i) Acknowledgment copies of proper financing statements (Form UCC-3)
dated a date reasonably near to the Closing Date naming SFC as the seller
of Receivables and the Buyers as purchasers or other similar instruments or
documents as may be necessary or, in the opinion of the Collateral Agent or
its counsel, desirable under the UCC of
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all appropriate jurisdictions to evidence or perfect the Buyers' ownership
interest in all Receivables;
(j) Acknowledgment copies of proper financing statements (Form UCC-3)
dated a date reasonably near the Closing Date naming the Seller as the
seller of Receivables and SFC as purchaser or other similar instruments or
documents as may be necessary or, in the opinion of the Collateral Agent or
its counsel, desirable under the UCC of all appropriate jurisdictions to
evidence or perfect SFC's ownership interest in all Receivables;
(k) Acknowledgment copies of proper financing statements (Form UCC-3),
if any, necessary to release all security interests and other rights of
any Person in Receivables previously granted by the Seller or SFC;
(1) (i) Certified copies of requests for information or copies (Form
UCC-11) (or a similar search report certified by parties acceptable to
Collateral Agent or its counsel) dated a date reasonably near the Closing
Date listing all effective financing statements which name the Seller or
SFC (under its present name and any previous name) as debtor and which are
filed in jurisdictions in which the filings were made pursuant to items (i)
or (j) above, together with copies of such financing statements (none of
which shall cover any Receivables or Contracts or inventory or goods the
sale of which may give rise to a Receivable) and (ii) certified copies of
requests for information dated a date reasonably near the Closing Date
listing all tax Liens against the Seller or SFC in the States of Delaware
and Colorado;
(m) Copies of all Lockbox Servicing Instructions and all other
agreements previously given or entered into with each of the Lockbox Banks
and the Collection Account Bank;
(n) Undated duly executed letters (a "LOCKBOX TRANSFER LETTER") from
SFC addressed to each Lockbox Bank and the Collection Account Bank
substantially in the form of Exhibit F hereto;
(o) A favorable opinion of Davis Polk & Wardwell, special counsel
for SFC, dated the Closing Date, in substantially the form of Exhibit G-1
hereto, a favorable opinion of Davis Polk & Wardwell, special counsel for
Schuller, in substantially the form of Exhibit G-2 hereto, and a favorable
opinion of Davis Polk & Wardwell, special counsel to SFC and Schuller, in
substantially the form of Exhibit G-3 hereto and, in each case, as to such
other matters as the Collateral Agent may reasonably request;
(p) A favorable opinion of Dion Persson, counsel for SFC and
Schuller, dated the Closing Date, in substantially
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the form of Exhibit G-4 hereto except with respect to matters governed by
Colorado Law, and as to such other matters as the Collateral Agent may
reasonably request;
(q) A favorable opinion of Otten, Johnson, Robinson, Neff and
Ragonetti, counsel for SFC and Schuller, dated the Closing Date, in
substantially the form of Exhibit G-4 hereto with respect to matters
governed by Colorado law, and as to such other matters as the Collateral
Agent may reasonably request;
(r) An officer's certificate, dated the Closing Date, in the form of
Exhibit L hereto, executed by a Responsible Officer of SFC and Schuller;
(s) The fees described in Section 2.07 (a)(i) and (ii) hereof;
(t) Evidence satisfactory to the Collateral Agent of the
establishment of the Collection Account and the Cash Collateral Account and
copies of all agreements with respect thereto;
(u) A Monthly Report for the immediately preceding month, calculated
as provided in the form of Monthly Report attached hereto as Exhibit E;
(v) A letter from the Seller's independent auditor confirming the
characterization of the transfer of the Receivables from the Seller to SFC
as a sale under GAAP and a letter from SFC's independent auditor confirming
the characterization of the transfer of an interest in the Receivables from
SFC to the Buyers as a sale under GAAP;
(w) A Buyer's Certificate for each of the Buyers duly executed by
SFC;
(x) Evidence satisfactory to the Collateral Agent that the Buyer's
Certificates shall have received a credit assessment of at least "AAA" by
S&P;
(y) Executed copies of all Program Documents that are required by the
Agents to be signed on or prior to the Closing Date, in form and substance
satisfactory to the Buyers; and
(z) Such other documents as the Collateral Agent or its counsel
shall reasonably request.
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3.02. CONDITIONS TO INCREMENTAL PURCHASES AND REINVESTMENT.
(a) The following shall be conditions precedent to the obligation of
any Buyer to make any Incremental Purchase: (a) the truth and correctness of the
representations and warranties in Article IV hereof and in Article IV of the
Purchase and Sale Agreement as of the date of the Incremental Purchase referred
to below as though made on and as of such date, (b) compliance in all material
respects with the covenants and agreements in Articles II and V hereof and in
the Purchase and Sale Agreement and (c) the requirement that no Termination
Event or Potential Termination Event shall have occurred or be continuing or
occur as a result of such Incremental Purchase.
(b) The following shall be conditions precedent to the obligation of
any Buyer to make any Reinvestment under Section 2.05 hereof: (a) the truth and
correctness of the representations and warranties contained in Section 4.02 as
to such Purchase; and (b) the fact that after giving effect to such Purchase,
the Adjusted Buyers' Interest shall not exceed 100%.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
4.01. GENERAL REPRESENTATIONS AND WARRANTIES OF SFC. SFC, in
addition to its other representations and warranties contained herein, hereby
represents and warrants to the Purchase Parties on and as of the Closing Date
and on and as of the date of each Incremental Purchase that:
(a) ORGANIZATION AND QUALIFICATION. SFC is a corporation duly
organized, validly existing and in good standing under the Laws of its
jurisdiction of incorporation. SFC is duly qualified to do business as a
foreign corporation in good standing in each jurisdiction in which the
ownership of its properties or the nature of its activities (including
transactions giving rise to Receivables), or both, requires it to be so
qualified or, if not so qualified, the failure to so qualify would not have
a material adverse effect on the collectibility of the Receivables or the
ability of SFC to perform its obligations under the Program Documents.
(b) CORPORATE POWER. SFC has the corporate power and authority to
execute and deliver the Program Documents, to make the sales provided for
herein and to perform its obligations hereunder and thereunder.
(c) EXECUTION AND BINDING EFFECT. Each of the Program Documents to
which SFC is a party has been duly and validly authorized, executed and
delivered by SFC and (assuming the due and valid execution and delivery
thereof by the other
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parties to each of the Program Documents), constitutes a legal, valid and
binding obligation of SFC enforceable in accordance with its terms, except
as the enforceability thereof may be limited by bankruptcy, insolvency,
reorganization or other similar Laws of general application relating to or
affecting the enforcement of creditors' rights or by general principles of
equity, and will vest absolutely and unconditionally in the Buyers a valid
undivided ownership interest in the Receivables purported to be assigned
thereby, subject to no Liens whatsoever. Upon the filing of UCC financing
statements with the Secretary of State of the State of Colorado, the
Buyers' ownership interest in the Receivables will be perfected under
Article Nine of such UCC, prior to and enforceable against all creditors of
and purchasers from SFC and all other Persons whatsoever (other than the
Buyers and their successors and assigns).
(d) AUTHORIZATIONS AND FILINGS. No authorization, consent, approval,
license, exemption or other action by, and no registration, qualification,
designation, declaration or filing with, any Official Body is or will be
necessary or, in the opinion of SFC, advisable in connection with the
execution and delivery by SFC of the Program Documents, the consummation by
SFC of the transactions herein or therein contemplated or the performance
by SFC of or the compliance by SFC with the terms and conditions hereof or
thereof, to ensure the legality, validity or enforceability hereof or
thereof, or to ensure that the Buyers will have an undivided ownership
interest in and to the Receivables which is perfected and prior to all
other Liens (including competing ownership interests), other than the
filing of UCC financing statements with the Secretary of State of the State
of Colorado.
(e) ABSENCE OF CONFLICTS. The execution and delivery by SFC of the
Program Documents, the consummation by SFC of the transactions herein or
therein contemplated and the performance by SFC of or the compliance by SFC
with the terms and conditions hereof or thereof, do not and will not (i)
violate any Law or (ii) conflict with or result in a breach of or a default
under (A) the certificate of incorporation or by-laws of SFC or (B) any
agreement or instrument, including, without limitation, any and all
indentures, debentures, loans or other agreements to which SFC is a party
or by which SFC or any of its properties (now owned or hereafter acquired)
may be subject or bound, which would have a material adverse effect on the
collectibility of the Receivables or the ability of SFC to perform its
obligations under the Program Documents, or result in rendering any Debt
evidenced thereby due and payable prior to its maturity or result in the
creation or imposition of any Lien pursuant to the terms of any such
instrument or agreement upon any property (now owned or hereafter
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acquired) of SFC. SFC has not entered into any agreement with any Obligor
prohibiting, restricting or conditioning the assignment of any portion of
the Receivables.
(f) LOCATION OF CHIEF EXECUTIVE OFFICE, ETC. As of the Closing Date:
(i) SFC's Chief Executive Office is located at the address for notices for
SFC set forth on the signature pages hereof; (ii) SFC has no Subsidiaries;
(iii) the offices where SFC keeps all of its Records evidencing Receivables
and related Contracts are listed on Exhibit M hereto; (iv) SFC has not
signed any form UCC-1 financing statements or similar documents as "debtor"
under a name other than Schuller Funding Corporation in connection with the
Receivables; and (v) since its incorporation, has not changed its name,
merged or consolidated with any other corporation or been the subject of
any proceeding under Title 11, United States Code (Bankruptcy).
(g) NO TERMINATION EVENT. No event has occurred and is continuing
and no condition exists which constitutes a Termination Event or a
Potential Termination Event.
(h) ACCURATE AND COMPLETE DISCLOSURE. No information furnished in
writing by SFC to any Purchase Party pursuant to or in connection with this
Agreement or any transaction contemplated hereby is false or misleading in
any material respect as of the date as of which such information was
furnished (including by omission of material information necessary to make
such information not misleading).
(i) NO PROCEEDINGS. There are no proceedings or investigations
pending, or to the knowledge of SFC, threatened, before any official Body
(A) asserting the invalidity of the Program Documents, (B) seeking to
prevent the consummation of any of the transactions contemplated by the
Program Documents, or (C) seeking any determination or ruling that might
materially and adversely affect (i) the performance by SFC or the Servicer
of its obligations under the Program Documents or (ii) the validity or
enforceability of the Program Documents, the Contracts or an material
amount of the Receivables.
(j) BULK SALES ACT. No transaction contemplated hereby requires
compliance with any bulk sales act or similar law.
(k) FINANCIAL CONDITION. Since June 30, 1994, there has been no
material adverse change in the financial condition or results of operations
of SFC or in its ability to perform its obligations under the Program
Documents.
(l) LITIGATION. No injunction, decree or other decision has been
issued or made by any Official Body and, to the knowledge of SFC, no threat
by any Person has been
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made to attempt to obtain any such decision, with respect to this Agreement
or the transactions contemplated hereby or that, individually or in the
aggregate, could have a material adverse impact on the collectibility of a
material amount of the Receivables, the ability of SFC to perform its
obligations under the Program Documents or the performance of any other
terms of the Program Documents, and no litigation, investigation or
proceeding of the type referred to in Section 5.01(j) exists except as set
forth on Exhibit N.
(m) MARGIN REGULATIONS. The use of all funds acquired by SFC under
this Agreement will not conflict with or contravene any of Regulations G,
T, U and X of the Board of Governors of the Federal Reserve System, as the
same may from time to time be amended, supplemented or otherwise modified.
(n) ERISA. SFC is in compliance in all material respects with ERISA
and no lien exists in favor of the PBGC on any of the Receivables.
(o) ENVIRONMENTAL MATTERS. Environmental Laws will not have a
material adverse effect on the business, financial condition or results of
operations of SFC.
(p) INVESTMENT COMPANY ACT. SFC is not an "investment company" or a
company controlled by an "investment company" within the meaning of the
Investment Company Act of 1940, as amended.
(q) ASSIGNMENT OF PROGRAM DOCUMENTS. This Agreement vests in the
Buyers all rights, remedies, powers, privileges and claims of SFC under and
with respect to the Program Documents.
4.02. REPRESENTATIONS AND WARRANTIES OF SFC WITH RESPECT TO EACH SALE
OF INTERESTS IN RECEIVABLES. By selling undivided ownership interests in
Receivables to the Buyers either by an Incremental Purchase or a Reinvestment,
SFC represents and warrants to the Purchase Parties as of the Closing Date and
as of such sale pursuant to an Incremental Purchase or Reinvestment that:
(a) PURCHASE NOTICE. If such sale is pursuant to an Incremental
Purchase, all information set forth on the related Purchase Notice was true
and correct as of the date of such Incremental Purchase.
(b) ASSIGNMENT. This Agreement vests in the Buyers all the right,
title and interest of SFC in and to the Purchased Interest, and constitutes
a valid sale of the Purchased Interest, enforceable against all creditors
of and purchasers from SFC or a first priority perfected security
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interest in, to and under all of SFC's right, title and interest in, to and
under each Receivable.
(c) NO LIENS. Each Receivable, together with the related Contract
and all purchase orders and other agreements related to such Receivable,
was owned by SFC free and clear of any Lien, and when the Buyers make a
purchase of a Purchased Interest in such Receivable they shall have
acquired and shall continue to have maintained an undivided percentage
ownership interest to the extent of the Buyers' Interest in such Receivable
and in the Related Security, Collections and other Proceeds with respect
thereto free and clear of any Lien other than any Liens created by the
Buyers. SFC has not and will not have sold, pledged, assigned, transferred
or subjected to a Lien any of the Receivables, other than the assignment of
a Purchased Interest therein to the Buyers in accordance with the terms of
this Agreement.
(d) FILINGS. On or prior to each Purchase and each recomputation of
the Purchased Interest, all financing statements and other documents
required to be recorded or filed in order to perfect and protect the
Purchased Interest against all creditors of and purchasers from SFC and all
other Persons whatsoever will have been duly filed in each filing office
necessary for such purpose and all filing fees and taxes, if any, payable
in connection with such filings shall have been paid in full.
(e) CREDIT AND COLLECTION POLICY. SFC has complied in all material
respects with the Credit and Collection Policy in regard to each Receivable
and related Contract.
(f) LOCKBOX BANKS AND LOCKBOX ACCOUNTS. The names and addresses of
all Lockbox Banks, together with the numbers of all Lockbox Accounts at
such Lockbox Banks and the addresses of all related Lockboxes, are
specified in Schedule 1 (or have been notified by SFC to the Agents, and if
required pursuant to the definition of "Qualified Bank", have been
consented to by the Required Buyers).
(g) ELIGIBLE RECEIVABLES. Each Receivable included in determination
of the Net Pool Balance was an Eligible Receivable.
(h) RECEIVABLES AS DEFINED. Each receivable purchased from the
Seller conforms to the definition of "Receivables" set forth in Section
1.01 hereof.
(i) NO FINAL PURCHASE DATE. The Final Purchase Date has not occurred
under the Purchase and Sale Agreement and that, if on the date of such
Purchase, there are new Receivables to be purchased under the Purchase and
Sale
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Agreement, such Receivables are in fact purchased on such day pursuant to
the Purchase and Sale Agreement.
(j) ACCURATE AND COMPLETE DISCLOSURES CONCERNING RECEIVABLES. No
information furnished in writing by SFC, the Servicer or the Seller to any
Purchase Party concerning any Receivable is false or misleading in any
material respect as of the date on which such information was furnished
(including by omission of material information necessary to make such
information not misleading).
(k) STOCKHOLDER'S EQUITY. No event has occurred and is continuing
and no condition exists which constitutes a Termination Event or a
Potential Termination Event of the type set forth in Section 6.01(u).
4.03. GENERAL REPRESENTATIONS AND WARRANTIES OF THE SERVICER. The
Servicer in addition to its other representations and warranties contained
herein, hereby represents and warrants to the Purchase Parties on and as of the
Closing Date and on and as of the date of each Incremental Purchase (provided
that if the Servicer is not Schuller, it does not make the representations set
forth in Sections 4.03(i), (k) and (l) hereof):
(a) ORGANIZATION AND QUALIFICATION. The Servicer is a corporation
duly organized, validly existing and in good standing under the Laws of its
jurisdiction of incorporation. The Servicer is duly qualified to do
business as a foreign corporation in good standing in each jurisdiction in
which the ownership of its properties or the nature of its activities, or
both, requires it to be so qualified or, if not so qualified, the failure
to so qualify would not have a material adverse effect on the ability of
the Servicer to perform its obligations under the Program Documents. The
Servicer's chief executive office is, as of the Closing Date, located at
the address for notices for the Servicer set forth on the signature pages
hereof, and at any time after the Closing Date, at such other address as
set forth in a notice from the Servicer to the Agent prior to the date of
such change of address.
(b) CORPORATE POWER. The Servicer has the corporate power and
authority to execute and deliver this Agreement and the Program Documents,
and to perform its obligations thereunder.
(c) EXECUTION AND BINDING EFFECT. This Agreement has been duly and
validly authorized, executed and delivered by the Servicer and (assuming
the due and valid execution and delivery thereof by the other parties
hereto), constitutes a legal, valid and binding obligation of the Servicer
enforceable in accordance with its terms, except as the enforceability
thereof may be limited by bankruptcy, insolvency, reorganization or other
similar Laws of general
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application relating to or affecting the enforcement of creditors' rights
or by general principles of equity.
(d) AUTHORIZATIONS AND FILINGS. No authorization, consent, approval,
license, exemption or other action by, and no registration, qualification,
designation, declaration or filing with, any Official Body is or will be
necessary or, in the opinion of the Servicer, advisable in connection with
the execution and delivery by the Servicer of this Agreement or the Program
Documents, the consummation by the Servicer of the transactions therein
contemplated or the performance by the Servicer of or the compliance by the
Servicer with the terms and conditions thereof, to ensure the legality,
validity or enforceability thereof.
(e) ABSENCE OF CONFLICTS. The execution and delivery by the Servicer
of this Agreement and any other documents to be executed by the Servicer,
in such capacity, pursuant to this Agreement, the consummation by the
Servicer of the transactions herein contemplated, and the performance by
the Servicer of or the compliance by the Servicer with the terms and
conditions hereof and thereof, do not and will not (i) violate any Law or
(ii) conflict with or result in a breach of or a default under (A) the
certificate of incorporation or by-laws of the Servicer or (B) any
agreement or instrument, including, without limitation, any and all
indentures, debentures, loans or other agreements to which the Servicer is
a party or by which the Servicer or any of its respective properties (now
owned or hereafter acquired) may be subject or bound, which would have a
material adverse effect on the ability of the Servicer to perform its
obligations under this Agreement, or result in rendering any Debt evidenced
thereby due and payable prior to its maturity or result in the creation or
imposition of any Lien pursuant to the terms of any such instrument or
agreement upon any property (now owned or hereafter acquired) of the
Servicer.
(f) NO TERMINATION EVENT. No event has occurred and is continuing
and no condition exists which constitutes a Termination Event or a
Potential Termination Event; PROVIDED that if Schuller is not the
Servicer, such representation shall be to the best of the Servicer's
knowledge.
(g) ACCURATE AND COMPLETE DISCLOSURE. No information furnished in
writing by the Servicer to any Purchase Party pursuant to or in connection
with this Agreement, any Receivable or any transaction contemplated hereby
is false or misleading in any material respect as of the date as of which
such information was furnished (including by omission of material
information necessary to make such information not misleading).
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(h) NO PROCEEDINGS. There are no proceedings or investigations
pending, or to the knowledge of the Servicer, threatened, before any
Official Body (A) asserting the invalidity of the Program Documents, (B)
seeking to prevent the consummation of any of the transactions contemplated
by the Program Documents, or (C) seeking any determination or ruling that
might materially and adversely affect (i) the performance by SFC or the
Servicer of its obligations under the Program Documents or (ii) the
validity or enforceability of the Program Documents, the Contracts or any
material amount of the Receivables.
(i) FINANCIAL CONDITION. (i) The statement of assets and liabilities
of Schuller Group as at June 30, 1994 and the related statement of income
of Schuller Group for the period then ended, copies of which have been
furnished to the Purchase Parties, fairly present the consolidated
financial position of Schuller Group as at such date and the assets and
liabilities of and the results of the operations of Schuller Group and its
Consolidated Subsidiaries for the period ended on such date, prepared in
accordance with GAAP, consistently applied, (ii) since June 30, 1994, there
has been no material adverse change in any such financial condition or
results of operations of Schuller Group and its Consolidated Subsidiaries
taken as a whole and (iii) since June 30, 1994 there has been no material
adverse change in the Servicer's ability to perform its obligations under
this Agreement or the other Program Documents.
(j) LITIGATION. No injunction, decree or other decision has been
issued or made by any Official Body, and to the knowledge of the Servicer,
no threat by any Person has been made to attempt to obtain any such
decision, with respect to this Agreement or the transactions contemplated
hereby or that, individually or in the aggregate, could have a material
adverse impact on the collectibility of a material amount of the
Receivables, the ability of the Servicer to perform its obligations under
the Program Documents or the performance of any of the other terms of the
Program Documents and no litigation, investigation or proceeding of the type
referred to in Section 5.03(g) hereof exists except as set forth on Exhibit
N.
(k) ERISA. The Servicer is in compliance in all material respects
with ERISA and no lien exists in favor of the PBGC on any of the
Receivables.
(l) ENVIRONMENTAL MATTERS. In the ordinary course of its business,
the Servicer conducts a periodic review of the effect of Environmental Laws
on the business, operations and properties of the Servicer and its
Subsidiaries, in the course of which it identifies and evaluates material
associated liabilities and costs (including, without limitation, capital or
operating expenditures required for
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clean-up or closure of properties presently or previously owned, capital or
operating expenditures required to achieve or maintain compliance with
environmental protection standards imposed by law or as a condition of any
license, permit or contract, related constraints on operating activities,
including, if applicable, any periodic or permanent shutdown of any
facility or reduction in the level of or change in the nature of operations
conducted thereat and any actual or potential liabilities to third parties,
including employees, and related costs and expenses). On the basis of this
review, the Servicer has reasonably concluded that Environmental Laws are
not likely to have a material adverse effect on the business, financial
condition or results of operations of the Servicer and its Consolidated
Subsidiaries, considered as a whole.
(m) INVESTMENT COMPANY ACT. The Servicer is not an "investment
company" or a company controlled by an "investment company" within the
meaning of the Investment Company Act of 1940, as amended.
ARTICLE V
COVENANTS
5.01. AFFIRMATIVE COVENANTS OF SFC. In addition to its other
covenants contained herein or made pursuant hereto, SFC covenants to the
Purchase Parties for the period through the Final Payment Date as follows:
(a) NOTICE OF TERMINATION EVENT AND FINAL PURCHASE DATE. (i) Promptly
upon becoming aware of any Termination Event or Potential Termination
Event, SFC shall give the Agents notice thereof, together with a written
statement of a Responsible Officer setting forth the details thereof and
any action with respect thereto taken or contemplated to be taken by SFC.
(ii) Promptly upon giving or receiving such notice, SFC shall
notify the Agents of the giving or receipt of notice of a Final Purchase
Date (as defined in the Purchase and Sale Agreement).
(b) NOTICE OF CERTAIN EVENTS. Promptly upon becoming aware thereof,
SFC shall give the Buyers' Agents notice of any event or condition which
could reasonably be expected to have a material adverse effect on the
collectibility of a material amount of the Receivables or the ability of the
Servicer to service such Receivables or the ability of SFC to perform its
obligations under the Program Documents. In order to verify compliance
with this Section 5.01(b) and otherwise verify compliance with this
Agreement, SFC shall furnish the following to the Purchase Parties:
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(i) as soon as practicable and in any event within 55 days
following the close of each fiscal quarter, excluding the last fiscal
quarter, of each SFC Fiscal Year during the term of this Agreement, an
unaudited balance sheet of SFC as at the end of such quarter and
unaudited statements of income of SFC for such quarter and for the
fiscal year through such quarter, substantially in accordance with
GAAP (except as noted), all in reasonable detail and certified by a
Responsible Officer of SFC;
(ii) as soon as practicable and in any event within 100 days
after the close of each SFC Fiscal Year during the term of this
Agreement, an unaudited balance sheet of SFC as at the close of such
fiscal year and an unaudited statement of income of SFC for such
fiscal year, substantially in accordance with GAAP (except as noted),
all in reasonable detail and certified by a Responsible Officer of SFC
all in reasonable detail; and
(iii) together with the financial statements required in clauses
(i) and (ii) above, a certificate of a Responsible Officer of SFC
stating that, as of the date of the relevant financial statements, (A)
the representations and warranties set forth in Section 4.01 hereof
are true and correct on and as of such date (provided that SFC shall
not be required to make the representations set forth in Sections
4.01(g), (k), (n) and (o) hereof) and (B) no Termination Event or
Potential Termination Event exists, or if any Termination Event or
Potential Termination Event exists, stating the nature and status
thereof.
(c) PRESERVATION OF CORPORATE EXISTENCE. Except as permitted
pursuant to Section 5.02(d) hereof, SFC shall preserve and maintain its
corporate existence, rights, franchises and privileges in the jurisdiction
of its incorporation, and qualify and remain qualified in good standing as
a foreign corporation in each jurisdiction where the failure to preserve
and maintain such existence, rights, franchises, privileges and
qualification would materially adversely affect (i) the interests of the
Buyers hereunder or (ii) the ability of SFC or the Servicer to perform
their respective obligations under the Program Documents.
(d) COMPLIANCE WITH LAWS, CERTIFICATE OF INCORPORATION AND BYLAWS.
SFC shall comply in all material respects with all Laws applicable to SFC,
its business and properties, and all Receivables where the failure to so
comply would materially adversely affect (i) the interests of the Buyers
hereunder or (ii) the ability of SFC or the Servicer to perform their
respective obligations under the Program
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Documents. SFC shall comply with all of the provisions of its certificate
of incorporation and by-laws.
(e) ENFORCEABILITY OF OBLIGATIONS. SFC shall take such actions as are
reasonable and within its power to ensure that, with respect to each
Receivable, the obligation of any related Obligor to pay the unpaid balance
of such Receivable in accordance with the terms of the related Contract
remains legal, valid, binding and enforceable against such Obligor.
(f) BOOKS AND RECORDS. SFC shall, to the extent practicable,
maintain and implement administrative and operating procedures (including,
without limitation, the ability to recreate Records evidencing the
Receivables in the event of the destruction of the originals thereof), and
keep and maintain all documents, books, Records and other information
reasonably necessary or advisable for the collection of all Receivables
(including, without limitation, Records adequate to permit the
identification of all Related Security and Collections and adjustments to
each existing Receivable).
(g) FULFILLMENT OF OBLIGATIONS. SFC will duly observe and perform, or
cause to be observed or performed, all material obligations and
undertakings on its part to be observed and performed under or in
connection with the Receivables, will duly observe and perform all material
provisions, covenants and other promises required to be observed by it
under the Contracts related to the Receivables, will do nothing to impair
the rights, title and interest of the Buyers in and to the Purchased
Interests and will pay when due any taxes, including without limitation any
sales tax, excise tax or other similar tax or charge, payable in connection
with the Receivables and their creation and satisfaction (except for any
tax imposed on the overall net income of such Buyer by the jurisdiction in
which such Buyer's principal office or booking office for this Agreement
was located).
(h) CUSTOMER LIST. SFC shall at all times maintain (or cause the
Servicer to maintain) a current list (which may be stored on magnetic tapes
or disks) of all Obligors under Contracts related to Receivables, including
the name, address, telephone number and account number of each such
Obligor. SFC shall deliver or cause to be delivered a copy of such list to
the Collateral Agent as soon as practicable following the Collateral
Agent's request.
(i) COPIES OF REPORTS, FILINGS, OPINIONS, ETC. SFC shall furnish to
the Purchase Parties, as soon as practicable after the filing thereof,
copies of all regular, periodic and special reports, if any, which Schuller
Group files with the Securities and Exchange Commission or with
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any securities exchange on Forms 10-K, 10-Q, 8-K or any successor forms
thereto. SFC shall cause the Servicer to furnish to the Purchase Parties
the financial statements and certificates required pursuant to Section
5.03(b) hereof.
(j) LITIGATION. As soon as possible, and in any event within ten
Business Days of SFC's knowledge thereof, SFC shall give the Agents and S&P
notice of (i) any litigation, investigation or proceeding against SFC which
may exist at any time which, in the reasonable judgment of SFC, could have
a material adverse effect on the collectibility of a material amount of the
Receivables or the ability of SFC or the Servicer to perform their
respective obligations under Program Documents or under the Servicing
Agreement and (ii) any material adverse development in any such previously
disclosed litigation.
(k) NOTICE OF RELOCATION. SFC shall give the Collateral Agent and
S&P 30 days' prior notice of any relocation of its Chief Executive Office.
SFC will at all times maintain its Chief Executive Office within a
jurisdiction in the United States in which Article Nine of the UCC (1972 or
later revision) is in effect.
(l) FURTHER INFORMATION. SFC shall furnish or cause to be furnished
to the Purchase Parties such other information concerning the Receivables,
the Related Security, the Collections and SFC's ability to perform its
obligations under any of the Program Documents as promptly as practicable,
and in such form and detail as the Collateral Agent or the Required Buyers
may reasonably request, and SFC shall furnish the Collateral Agent with all
notices and other information delivered by the Seller to SFC pursuant to
the Purchase and Sale Agreement.
(m) TREATMENT OF PURCHASE. For accounting purposes, SFC shall treat
each Purchase made hereunder as a sale of a Purchased Interest in the
underlying Receivables. SFC shall also maintain its accounting records in
a manner which clearly reflects that each such Purchased Interest sold to
the Buyers is treated as a sale.
(n) FEES, TAXES AND EXPENSES. SFC shall pay all filing fees, stamp
and documentary taxes and other taxes (not including income, franchise or
withholding taxes) which may be incurred on account of or arise out of the
execution, filing or recordation of this Agreement and the documents and
instruments entered into, filed or recorded pursuant to or in connection
with this Agreement.
(o) ADMINISTRATIVE AND OPERATING PROCEDURES. SFC shall maintain (or
cause the Servicer to maintain) administrative and operating procedures
that are no less adequate than those in effect on the date hereof to permit
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the identification of the Receivables and all collections and adjustments
attributable thereto and shall comply in all material respects with the
Credit and Collection Policy in regard to each Receivable and related
Contract.
(p) COLLECTIONS. SFC shall instruct all Obligors to cause all
Collections on account of Receivables to be mailed directly to a Lockbox.
(q) INSURANCE. SFC shall keep insured by financially sound and
reputable insurers, or through self-insurance, all property of a character
usually insured by corporations engaged in the same or similar business
similarly situated against loss or damage of the kinds and in the amounts
customarily insured against by such corporations and carry such other
insurance as is usually carried by such corporations.
(r) FUNDS HELD IN TRUST. SFC shall hold in trust for the benefit of
the Purchase Parties any Collections received directly by SFC and shall
deposit such collections in the Collection Account within two Business Days
of the receipt thereof.
5.02. NEGATIVE COVENANTS OF SFC. SFC covenants that it will not,
without the prior written consent of the Required Buyers for the period through
the Final Payment Date:
(a) STATEMENT FOR AND TREATMENT OF THE SALES. Prepare any financial
statements for financial accounting or reporting purposes which shall
account for the transactions described herein in any manner other than as a
sale of the Purchased Interest to the Buyers.
(b) NO RESCISSIONS OR MODIFICATIONS. Rescind or cancel any
Receivable or related Contract or modify any terms or provisions thereof or
grant any Dilution Adjustments to an obligor.
(c) NO LIENS ON RECEIVABLES. Cause any of the Receivables or related
Contracts, or any inventory or goods the sale of which have given rise to a
Receivable, or any Lockbox or Lockbox Account or any right to receive any
payments received therein or deposited thereto, to be sold, pledged,
assigned or transferred or to be subject to a Lien (including, without
limitation, a Lien in favor of the PBGC), other than the sale and
assignment of the Purchased Interest therein to the Buyers and the Liens
created in connection with the transactions contemplated by this Agreement
and other than in connection with such inventory or goods in a manner which
is consistent with the terms of the related Contract.
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(d) CONSOLIDATIONS, MERGERS. Consolidate or merge with or into any
other Person; PROVIDED, that SFC may merge with a corporation if (i) 100%
of the capital stock of such corporation is owned directly or indirectly by
Schuller, (ii) immediately after giving effect to such merger, no
Termination Event or Potential Termination Event shall have occurred and be
continuing and (iii) the then current rating (or credit assessment) on the
Buyer's Certificates shall have been affirmed by S&P after giving effect to
such merger; PROVIDED, FURTHER that SFC shall not merge with Schuller.
(e) NO CHANGES. Make any change in the character of its business or
in the Credit and Collection Policy, which change would, in either case,
impair the collectibility of any outstanding Receivable owned by SFC, or
make any material change in the Credit and Collection Policy, or change its
name, identity or corporate structure in any manner which would make any
financing statement or continuation statement filed in connection with this
Agreement or the transactions contemplated hereby seriously misleading
within the meaning of Section 9-402(7) of the UCC of any applicable
jurisdiction or other applicable Laws unless it shall have given the
Collateral Agent at least 30 days' prior notice thereof and unless prior
thereto it shall have caused such financing statement or continuation
statement to be amended or a new financing statement to be filed such that
such financing statement or continuation statement would not be seriously
misleading.
(f) CHANGE IN PAYMENTS OR DEPOSITS OF PAYMENTS. Add or terminate any
Person as a Lockbox Bank from those Persons listed in Schedule 1 hereto,
make or permit any change in the location of any Lockbox or the location or
account number of any Lockbox Account, or make any change in the
instructions to its Obligors regarding payments to be made to SFC or
payments to be made to any Lockbox, in each case other than as permitted by
Section 2.04 hereof and the definition of "Qualified Bank".
(g) NO LIENS ON PROPERTY. Contract for, create, incur, assume or
suffer to exist any Lien, security interest, charge or other encumbrance of
any nature upon any of its property or assets (other than Liens on office
premises, furniture or equipment provided that such Liens are granted to
Schuller or an Affiliate or the provider of such furniture or equipment),
whether now owned or hereafter acquired except as provided for herein.
(h) OTHER DEBT; RECEIVABLES. Create, incur, assume or suffer to
exist any Debt, whether contingent or funded, or any other liability except
(i) Debt under this Agreement, (ii) Debt of SFC representing any management
fees or directors' fees, (iii) other Debt of SFC to any Purchase
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Party arising hereunder, (iv) Debt of SFC representing fees, expenses or
other amounts, including the Servicer's Compensation, payable to Servicer,
(v) Debt of SFC to Schuller, its successors or assigns pursuant to the
Parent Note, (vi) Debt of SFC to the Seller pursuant to the Purchase and
Sale Agreement, (vii) Debt representing taxes and fees incidental to the
operation of its business, (viii) Debt of SFC representing rent incidental
to the operation of its business and (ix) indebtedness for services
supplied or furnished to SFC; PROVIDED that the aggregate amount of the
indebtedness or liabilities described in this subpart (ix) shall not exceed
$4,750.
(i) GUARANTEES, LOANS, ADVANCES, INVESTMENTS AND OTHER LIABILITIES.
Except as contemplated by this Agreement (including, without limitation, in
connection with Temporary Cash Investments), make any loan or advance or
credit to, or guarantee (directly or indirectly or by an instrument having
the effect of assuring another's payment or performance on any obligation
or capability of so doing or otherwise), endorse or otherwise become
contingently liable, directly or indirectly, in connection with the
obligations, stocks or dividends of, or own, purchase, repurchase or
acquire (or agree contingently to do so) any assets, stock, obligations or
securities of, or any other interest or investment in, or make any capital
contribution to, any other Person.
(j) OTHER AGREEMENTS. Enter into or be a party to any agreement or
instrument other than the Program Documents or documents and agreements
incidental thereto or incidental to its operations and business as
contemplated thereby.
(k) CAPITAL EXPENDITURES. Make any expenditure (by long-term or
operating lease or otherwise) for capital assets (both realty and
personalty) other than expenditures incidental to its operations and
business.
(l) OTHER BUSINESS. Engage in any business or enterprise or enter
into any material transaction other than as contemplated by the Program
Documents.
(m) AMENDMENT OF CERTIFICATE OF INCORPORATION OR BY-LAWS. Amend its
certificate of incorporation or by-laws if such amendment would have a
material adverse effect on the Buyers, the collectibility of the
Receivables or SFC's ability to perform its obligations under the Program
Documents; PROVIDED that SFC shall not materially change its certificate of
incorporation or by-laws unless the then current rating (or credit
assessment) on the Buyer's Certificates shall have been affirmed by S&P
after giving effect to such material change.
(n) COMPLIANCE WITH PROGRAM DOCUMENTS. Fail to comply with or to
perform any of its obligations in the Program
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Documents the consequences of which would have an adverse effect on the
Purchase Parties; or fail to comply in any respect with the provisions of
its certificate of incorporation or by-laws relating to corporate
separateness or its special purpose; or amend, supplement or otherwise
modify any provision of any of the Program Documents, whether permitted to
be granted specifically by any of the terms of the Program Documents or
otherwise, except for any consent pursuant to Section 6.19 of the Purchase
and Sale Agreement; PROVIDED that SFC shall not materially amend,
supplement or otherwise modify any provision of any of the Program
Documents unless the then current rating (or credit assessment) on the
Buyer's Certificates shall have been affirmed by S&P after giving effect to
such material amendment, supplement or modification.
(o) SALE OF ASSETS. Sell, lease or transfer or otherwise dispose of
any of its assets or purchase any asset other than as provided in (or, as
to assets other than Receivables, permitted by) the Program Documents.
(p) ENFORCEMENT OF OBLIGATIONS. Take or fail to take any action
which would permit the Servicer or the Seller to have the right to refuse
to perform any of their respective obligations under the Program Documents.
(q) TRANSACTIONS WITH AFFILIATES. Except as expressly permitted by
the Program Documents, directly or indirectly: (a) make any investment in
an Affiliate; (b) transfer, sell, lease, assign or otherwise dispose of any
property to an Affiliate; (c) merge into or consolidate with or purchase or
acquire property from an Affiliate; (d) enter into any other transaction
directly or indirectly with or for the benefit of an Affiliate (including,
without limitation, guarantees and assumptions of obligations of an
Affiliate); PROVIDED that any Affiliate who is an individual may serve as a
director, officer or employee of SFC and receive reasonable compensation
for his or her services in such capacity.
(r) DIVIDENDS. Declare or pay any dividend or other amounts payable
in respect of its capital stock (including by way of redemption or
acquisition of its capital stock or rights to acquire such capital stock)
or make any payment in respect of the Parent Note except to the extent of
funds available therefor distributed to SFC pursuant to Sections 2.05 and
2.06 and not required for the purchase of Receivables under the Purchase
and Sale Agreement and only if no Event of Termination or Potential Event
of Termination has occurred and is continuing or would be existing after
giving effect thereto.
5.03. COVENANTS OF THE SERVICER. In addition to its other covenants
contained herein or made pursuant hereto, the Servicer covenants to the Purchase
Parties for the period through
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the Final Payment Date as follows (provided that if the Servicer is not
Schuller, it shall not be bound by the covenants set forth in Sections
5.03(b)(iii), (k), (l) and (s) hereof):
(a) NOTICE OF TERMINATION DATE. Promptly upon becoming aware of any
Termination Event or Potential Termination Event, the Servicer shall give
the Agents notice thereof, together with a written statement of a
Responsible Officer setting forth the details thereof and any action with
respect thereto taken or contemplated to be taken by the Servicer.
(b) NOTICE OF CERTAIN EVENTS. Promptly upon becoming aware thereof,
the Servicer shall give the Agents notice of any event or condition which
reasonably could have a material adverse effect on the ability of the
Servicer to service such Receivables. In order to verify compliance with
this Section 5.03(b) and otherwise verify compliance with this Agreement,
the Servicer shall furnish the following to the Purchase Parties:
(i) as soon as practicable and in any event within 55 days
following the close of each fiscal quarter, excluding the last fiscal
quarter, of each fiscal year of the Servicer during the term of this
Agreement, an unaudited statement of assets and liabilities of the
Servicer as at the end of such quarter and an unaudited statement of
income of the Servicer for such quarter, prepared in accordance with
GAAP, consistently applied, all in reasonable detail and certified by
a Responsible Officer of the Servicer;
(ii) as soon as practicable and in any event within 100 days
after the close of each fiscal year of the Servicer during the term of
this Agreement, an unaudited statement of assets and liabilities of
the Servicer as at the close of such fiscal year and an unaudited
statement of income of the Servicer for such fiscal year, prepared in
accordance with GAAP, consistently applied all in reasonable detail
and certified by a Responsible Officer of the Servicer; and
(iii) together with the financial statements required in clauses
(i) and (ii) above, a certificate of a Responsible Officer of the
Servicer stating that, as of the date of the relevant financial
statements, (A) the representations and warranties set forth in
Section 4.03 hereof are true and correct on and as of such date
(provided that the Servicer shall not be required to make the
representations set forth in Sections 4.03(f), 4.03(i)(ii), 4.03(k)
and 4.03(l) hereof) and (B) no Termination Event or Potential
Termination Event exists, or if any Termination Event
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or Potential Termination Event exists, stating the nature and status
thereof.
Notwithstanding the foregoing, in the event the Servicer is Schuller
or any other Affiliate of Schuller Group, the financial statements required to
be delivered pursuant to clauses (i) and (ii) above shall be those of Schuller
Group, and such financial statements of Schuller Group shall be delivered within
the applicable time periods following the end of the fiscal quarter or fiscal
year, as the case may be, of Schuller Group.
(c) PRESERVATION OF CORPORATE EXISTENCE. Except as permitted
pursuant to Section 5.03(o) hereof, the Servicer shall preserve and
maintain its corporate existence, rights, franchises and privileges in the
jurisdiction of its incorporation, and qualify and remain qualified in good
standing as a foreign corporation in each jurisdiction where the failure to
preserve and maintain such existence, rights, franchises, privileges and
qualification would materially adversely affect (i) the interests of the
Buyers hereunder or (ii) the ability of the Servicer to perform its
obligations under this Agreement or the other Program Documents.
(d) COMPLIANCE WITH LAWS. The Servicer shall comply in all material
respects with all Laws applicable to the Servicer, its business and
properties, where the failure to so comply would materially adversely
affect (i) the interests of the Buyers hereunder or (ii) the ability of the
Servicer to perform its obligations under this Agreement or the other
Program Documents.
(e) BOOKS AND RECORDS. The Servicer shall, to the extent
practicable, maintain and implement administrative and operating procedures
(including, without limitation, the ability to recreate Records evidencing
the Receivables in the event of the destruction of the originals thereof),
and keep and maintain all documents, books, Records, customer lists (in the
manner described in Section 5.01(h) hereof) and other information
reasonably necessary or advisable for the collection of all Receivables
(including, without limitation, Records adequate to permit the
identification of all Related Security and Collections and adjustments to
each existing Receivable).
(f) FULFILLMENT OF OBLIGATIONS. The Servicer will duly observe and
perform, or cause to be observed or performed, all material obligations and
undertakings on its part to be observed and performed under or in
connection with this Agreement and the other Program Documents and will do
nothing to impair the rights, title and interest of the Buyers in and to
the Purchased Interest.
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(g) LITIGATION. As soon as possible, and in any event within ten
Business Days of the Servicer's knowledge thereof, the Servicer shall give
the Agents notice of (i) any litigation, investigation or proceeding
against the Servicer which may exist at any time which, in the reasonable
judgment of the Servicer, could have a material adverse effect on the
ability of the Servicer to perform its obligations under this Agreement and
any other Program Documents and (ii) any material adverse development in
any such previously disclosed litigation.
(h) TOTAL SYSTEMS FAILURE. In the event that at any time a total
systems failure (as defined below) occurs, the Servicer shall promptly
notify the Collateral Agent of such total systems failure and shall advise
the Collateral Agent of the estimated time required to remedy such total
systems failure and of the estimated date on which a Monthly Report can be
delivered. If the Servicer is required to provide notice of a total
systems failure to the Collateral Agent in accordance with the immediately
preceding sentence, until such total systems failure is remedied, the
Servicer (i) will furnish to the Collateral Agent such periodic status
reports and other information relating to such total systems failure as the
Collateral Agent may reasonably request and (ii) will promptly notify the
Collateral Agent if the Servicer believes that such total systems failure
cannot be remedied by the estimated date and a revised estimate of the date
on which a Monthly Report can be delivered. The Servicer shall promptly
notify the Collateral Agent when a total systems failure, notice of the
occurrence of which was given to the Collateral Agent in accordance with
the first sentence of this Section 5.03(h), has been remedied. For
purposes of this Section 5.03(h), "TOTAL SYSTEMS FAILURE" shall mean a
failure of any computer systems of the Servicer or SFC that contribute to
the daily processing of information required by the Program Documents which
provide the Servicer with information concerning the Receivables, the
Buyers' Purchased Interest therein or the Monthly Reports with respect
thereto.
(i) FURTHER INFORMATION. The Servicer shall furnish or cause to be
furnished to the Purchase Parties such other information concerning the
Receivables, the Related Security and the Collections as promptly as
practicable, and in such form and detail as the Collateral Agent or the
Required Buyers may reasonably request.
(j) ADMINISTRATIVE AND OPERATING PROCEDURES. The Servicer shall
maintain administrative and operating procedures that are no less adequate
than those in effect on the date hereof to permit the identification of the
Receivables and all collections and adjustments attributable thereto and
shall comply in all material respects with the
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Credit and Collection Policy in regard to each Receivable and related
Contract.
(k) INSURANCE. The Servicer shall, and shall cause each of its
Material Subsidiaries to, keep insured by financially sound and reputable
insurers, or through self-insurance, all property of a character usually
insured by corporations engaged in the same or similar business similarly
situated against loss or damage of the kinds and in the amounts customarily
insured against by such corporations and carry such other insurance as is
usually carried by such corporations.
(l) NO RESCISSIONS OR MODIFICATIONS. The Servicer shall not rescind
or cancel any Receivable or related Contract or modify any terms or
provisions thereof or grant any Dilution Adjustment to an Obligor, except
in accordance with the Credit and Collection Policy or otherwise with the
prior written consent of the Required Buyers or as otherwise permitted
under Section 5.04(c) hereof.
(m) NO LIENS. The Servicer shall not take or fail to take any action
which would cause any of the Receivables or related Contracts, or any
inventory or goods the sale of which have given rise to a Receivable, or
any Lockbox or Lockbox Account or any right to receive any payments
received therein or deposited thereto to be subject to a Lien (including,
without limitation, any Lien in favor of the PBGC), other than the Liens
created in connection with the transactions contemplated by the Program
Documents and other than in connection with any such inventory or goods in
a manner which is consistent with the terms of the related Contract.
(n) CONSOLIDATIONS, MERGERS AND SALES OF ASSETS. The Servicer shall
not (i) consolidate or merge with or into any other Person or (ii) sell,
lease or otherwise transfer all or substantially all of its assets to any
other Person; PROVIDED, that the Servicer may merge with another Person or
sell, lease or otherwise transfer all or substantially all of its assets to
another Person if (A) the surviving, resulting or transferee corporation,
as the case may be, if other than the Servicer, assumes in writing all the
obligations of the Servicer hereunder and (B) immediately after and giving
effect to such merger or transfer, as the case may be, no Termination Event
or Potential Termination Event shall have occurred and be continuing.
(o) NO CHANGES. The Servicer shall not make any change in the
character of its business or in the Credit and Collection Policy, which
change would, in either case, impair the collectibility of any outstanding
Receivable owned by SFC, or make any material change in the Credit and
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Collection Policy without prior written consent of the Required Buyers.
(p) MAINTENANCE OF SECURITY INTERESTS IN RELATED SECURITY. The
Servicer shall, in accordance with its customary servicing procedures, take
such steps as are necessary to maintain perfection of the security interest
created by each Receivable in the Related Security.
(q) PAYMENTS TO LOCKBOXES. The Servicer shall instruct all Obligors
to cause all Collections on account of Receivables to be mailed directly to
a Lockbox.
(r) COMPLIANCE WITH PROGRAM DOCUMENTS. The Servicer will not amend
any Program Document without the prior written consent of the Required
Buyers.
5.04. ADMINISTRATION OF PURCHASED RECEIVABLES.
(a) SFC shall, or shall cause the Servicer to (in which event the
Servicer shall), maintain all records relating to the Purchased Receivables as
may be necessary or advisable for the administration, servicing and collection
of the Purchased Receivables (including, without limitation, duplicate records
and/or system redundancy so as to enable the reconstruction of essential records
in the event of any reasonably foreseeable casualty) and all other information
necessary to establish or evidence the Buyers' right, title and interest in and
to the Purchased Interest, such records and information to be prepared and
maintained in a manner and utilizing procedures no less adequate than the manner
and procedures in effect on the date hereof. All Purchased Receivables will be
identified under one or more computer codes not used for any other accounts
receivables or any other accounting items of SFC or any other Person and will be
readily identifiable and otherwise segregated from all other accounts receivable
and other accounting items of SFC, the Servicer, Schuller and any other Person.
Any printout listing the Purchased Receivables will indicate that SFC owns the
Purchased Receivables and that the Buyers own the Purchased Interest in the
Purchased Receivables.
(b) The administration, servicing and collection of the Purchased
Receivables shall be the responsibility of the Servicer. Until a Servicing
Transfer shall have occurred, Schuller will act as Servicer. The Servicer
shall, to the fullest extent permitted by law, have the power and authority, on
behalf of SFC, to take such actions in respect of any such Receivable as the
Servicer may deem advisable and are consistent with the terms of this Agreement.
The Servicer agrees to exercise the same degree of skill and care and apply the
same standards, policies, procedures and diligence that it applies to the
performance of the same functions with respect to its own accounts receivable.
The Servicer shall comply with all
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applicable legal requirements in the performance of its administrative,
servicing and collection functions hereunder.
(c) SFC will at all times observe and perform, or cause to be
observed and performed, all obligations and undertakings to the Obligors arising
in connection with each Receivable and the related Contract. The Servicer shall
endeavor to collect or cause to be collected from the Obligor under each
Receivable, as and when due, all amounts payable thereunder in accordance with
the Credit and Collection Policy. Neither SFC nor the Servicer shall do
anything to modify the terms of any Receivable, except in accordance with the
Credit and Collection Policy, if such modification would adversely affect SFC or
cause a Termination Event, or otherwise impair the rights of the Buyers in and
to the Purchased Interest; PROVIDED that (i) SFC or the Servicer may grant, or
permit to be granted, to the Obligor under any Purchased Receivable, any
Dilution Adjustment which the Servicer in good faith believes is justified,
subject to the provisions of Section 2.09, and (ii) the Servicer may take or
permit to be taken such action which is in accordance with the Credit and
Collections Policy to collect Purchased Receivables as it may deem advisable,
including resale of any repossessed, returned or rejected goods and rescheduling
through extension or otherwise of payments due under any Receivable if
reasonable business judgment indicates that such rescheduling would enhance
collection results. Neither SFC nor the Servicer shall change its business or
the Credit and Collection Policy in a manner that would adversely affect SFC or
materially impair the collectibility of any Receivables or cause a Termination
Event. In the event of a default under any Purchased Receivable, the Servicer
shall be entitled to sue thereon in the name of SFC and, if and only if the
Collateral Agent, acting upon the instructions of the Required Buyers, consent
in writing, as agent of the Buyers. Payments from Obligors shall be applied to
Purchased Receivables or portions thereof as specified by the related Obligor,
or, in the absence of such specification, in the chronological order in which
the Purchased Receivables of such Obligor arose.
5.05. PROTECTION OF PURCHASED INTEREST.
(a) SFC and the Servicer shall, from time to time, do and perform any
and all acts and execute any and all documents (including, without limitation
any amendment, supplement or continuation of any financing statements under the
UCC, the execution of any instrument of transfer, the giving of notice of the
Purchased Interest to any Obligor and the making of notations in the records) as
may be necessary, or as may be requested by the Collateral Agent, in order to
effect the purposes of this Agreement and to protect the Purchased Interest
against all Persons whomsoever. To the fullest extent permitted by applicable
law, the Collateral Agent shall be permitted to sign and file financing and
continuation statements with respect to
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the Purchased Interest and amendments thereto without SFC's execution thereof.
(b) SFC and the Servicer agree that, subject to applicable laws, the
Collateral Agent shall have the right, prior to the occurrence of a Termination
Event if SFC or the Servicer fails to do so within five Business Days following
notice from the Collateral Agent, or at any time after the occurrence of a
Termination Event, to do all such acts and things as it may deem necessary to
protect the interests of the Buyers, including, without limitation, confirmation
and verification of the existence, amount and status of the Purchased
Receivables and collection, enforcement or resale of the Purchased Receivables,
and that SFC and the Servicer shall cooperate fully to give effect to the
foregoing.
ARTICLE VI
TERMINATION AND SERVICING TRANSFER
6.01. TERMINATION EVENTS. A "TERMINATION EVENT" shall mean the
occurrence and continuance of one or more of the following events or conditions:
(a) SFC shall fail to remit or fail to cause to be remitted to the
Collateral Agent on any day in accordance with the terms hereof any amounts
in respect of reductions in the Aggregate Net Investment owing to the
Buyers on such day; or
(b) SFC shall fail to deposit or pay or fail to cause to be deposited
or paid in accordance with the terms hereof when due any other amount due
(including, without limitation, Yield) hereunder or under any other Program
Document and such failure shall remain unremedied for five days; or
(c) any representation, warranty, certification or statement made or
deemed made by SFC, the Servicer or the Seller under this Agreement or any
of the other Program Documents or in any agreement, certificate, report,
appendix, schedule or document furnished by SFC, the Servicer or the Seller
to any Purchase Party pursuant to or in connection with this Agreement or
any of the other Program Documents shall prove to have been false or
misleading in any respect material to this Agreement or the transactions
contemplated hereby as of the time made or deemed made (including by
omission of material information necessary to make such representation,
warranty, certification or statement not misleading), other than a false or
misleading statement or warranty or omission relating to a Receivable as to
which payment has been made (or is not required to be made) pursuant to
Section 2.09(a)
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hereof or which Receivable has been repurchased pursuant to Section 2.02 of
the Purchase and Sale Agreement; or
(d) SFC shall fail to obtain the prior consent of the Required Buyers
to any action or provision as to which such consent is required by the
terms of this Agreement and such failure shall continue for five Business
Days after either (i) any Responsible Officer of SFC or the Servicer
becomes aware thereof or (ii) notice thereof to SFC by the Agent Bank or
the Collateral Agent; or
(e) SFC, the Servicer or the Seller shall default or fail in the
performance or observance of any other covenant, agreement or duty
applicable to it contained herein or in any of the other Program Documents
and such default or failure shall continue for ten Business Days after
either (i) any Responsible Officer of SFC, the Servicer or the Seller, as
the case may be, becomes aware thereof or (ii) notice thereof to such
Person by the Administrative Agent or the Collateral Agent; or
(f) the occurrence of a Servicer Termination Event; or
(g) a Lockbox Bank shall default or fail in the performance or
observance of any agreement or duty applicable to it in respect of the
Lockbox or the Lockbox Account and such default or failure shall continue
for five Business Days after notice thereof to such Lockbox Bank unless
within such period a substitute Lockbox with another Lockbox Bank is
established by SFC, which effectively intercepts and receives all
Collections directed to the defaulting Lockbox Bank; or
(h) there shall be pending any litigation, investigation or
proceeding, or any material adverse development in any such litigation
shall have occurred, which SFC is required to disclose pursuant to Section
5.01(j) hereof, which in the opinion of the Required Buyers is reasonably
likely to materially adversely affect the ability of SFC, the Servicer or
the Seller to perform its respective obligations under this Agreement or
under any of the other Program Documents; or
(i) there shall have occurred any event which materially adversely
affects the collectibility of a material amount of the Receivables; or
(j) an Event of Bankruptcy shall occur with respect to SFC; or
(k) an Event of Bankruptcy shall occur with respect to the Seller; or
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(l) the average Loss to Liquidation Ratio shall exceed 0.75% for any
three consecutive Settlement Dates; or
(m) the Delinquency Ratio shall exceed 3.0% on any Settlement Date or
the average of the Delinquency Ratios for any three consecutive Settlement
Dates shall exceed 2.75%; or
(n) the Dilution Ratio shall exceed 12.0% on any Settlement Date or
the average of the Dilution Ratios for any three consecutive Settlement
Dates shall exceed 11.0%; or
(o) the Default Ratio shall exceed 3.0% on any Settlement Date or the
average of the Default Ratios for any three consecutive Settlement Dates
shall exceed 2.0%; or
(p) SFC shall be required to register under the Investment Company
Act of 1940, as amended, as an "investment company" (as defined in such
Act); or
(q) (i) SFC or the Seller or any other Material Subsidiary of
Schuller shall fail to make any payment of principal or interest on any
Debt (other than pursuant to the Program Documents) when due, or the
maturity of such Debt of SFC or the Seller or any other Material Subsidiary
of Schuller shall be accelerated or any prepayment in respect thereof shall
be required (not including any prepayment required due to a reduction in
borrowing base, sale of assets, an issuance of debt or equity or change of
control or otherwise, in each case, not in the nature of a default), or any
event or condition shall occur which enables, or which, with the giving of
notice or the passage of time or both, would enable, the holder of any such
Debt of SFC or the Seller or any other Material Subsidiary of Schuller, or
any Person acting on any such holder's behalf, to accelerate the maturity
or require the prepayment of any such Debt (not including any prepayment
required due to a reduction in borrowing base, sale of assets, an issuance
of debt or equity or change of control or otherwise, in each case, not in
the nature of a default), and (ii) such Debt, either singly or when
aggregated with all other such Debt in respect of which SFC or the Seller
or any other Material Subsidiary of Schuller shall have failed to make
payment, or in respect of which such acceleration or prepayment requirement
shall have occurred, or in respect of which such event or condition shall
have occurred, exceeds $50,000,000; or
(r) Collections during any five Business Day period shall be
insufficient to permit SFC to pay or set aside the accrued and unpaid Yield
for such period; or
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(s) Schuller shall cease to own directly or indirectly 100% of the
capital stock of SFC or the survivor of a permitted merger pursuant to
Section 6.02(d) hereof; or
(t) the Adjusted Buyers' Interest shall at any time exceed 100% for
more than two consecutive Business Days; or
(u) the stockholder's equity of SFC shall be less than $14,000,000
(or if 13% of the aggregate Outstanding Balance of the Purchased
Receivables is greater, such greater amount) and such deficiency shall
continue for two Business Days.
6.02. CONSEQUENCES OF A TERMINATION EVENT.
(a) If a Termination Event shall occur and be continuing, Buyers
having more than 50% of the Commitments may, by directing the Administrative
Agent to deliver notice to such effect to SFC and Schuller, terminate the
Commitments; PROVIDED that (i) in the case of an Event of Bankruptcy with
respect to SFC or Schuller or in the case of a Termination Event under Section
6.01(p) or (ii) if a Termination Event occurs under Section 6.01(t) and such
Termination Event under Section 6.01(t) is not both cured, such that Adjusted
Buyers' Interest no longer exceeds 100%, and expressly waived in writing by the
Required Buyers within 15 days of (and including) the Business Day on which
Adjusted Buyers' Interest first exceeded 100%, the Commitments hereunder shall
be automatically terminated without any action on the part of the Agents or the
Buyers. The Administrative Agent shall give S&P prompt notice of the occurrence
of any Termination Event of which it has knowledge; PROVIDED, HOWEVER, that
failure to give such notice shall not affect the rights of the Agents or the
Buyers with respect to such Termination Event.
(b) If a Termination Event shall have occurred and be continuing,
(i) the Collateral Agent shall be entitled to notify the Obligors of Purchased
Receivables to make payments directly to the Collateral Agent of amounts due
thereunder; (ii) the Collateral Agent (or its designee) shall be permitted to
open and inspect mail received by SFC or the Servicer or Schuller which the
Collateral Agent reasonably believes may relate to the Purchased Receivables,
and to remove therefrom any and all Collections and correspondence from Obligors
in respect of Purchased Receivables (and SFC shall cause Schuller to agree to
the foregoing); and (iii) the Collateral Agent may deliver the Lockbox Transfer
Letters to any of the Lockbox Banks or the Collection Account Bank and SFC shall
fully cooperate with the Collateral Agent so as to give effect to such Lockbox
Transfer Letters; PROVIDED that, notwithstanding the foregoing, Collections
shall in any event be allocated in accordance with Sections 2.05 and 2.06.
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Notwithstanding any provision of this Agreement to the contrary, the
Collateral Agent shall not sell any Purchased Receivables or instruct the
Servicer to sell any Purchased Receivables at less than the Purchase Price
thereof (minus any Collections with respect to such Purchased Receivables
previously received pursuant to Section 2.04 hereof) without the prior consent
of each of the Buyers.
6.03. SERVICING TRANSFER. The Required Buyers and the Collateral
Agent may, at any time following the occurrence and continuance of a Termination
Event, by directing the Administrative Agent to deliver notice to such effect to
SFC and the Servicer, terminate the services of the then Servicer under the
Program Documents and transfer (a "SERVICING TRANSFER") the servicing of the
Purchased Receivables to the Collateral Agent or affiliated or unaffiliated
contractors engaged by the Collateral Agent to act as Servicer. The Collateral
Agent agrees that if no other Servicer is engaged it will immediately assume the
duties as Servicer hereunder. Such Servicing Transfer shall be effective
immediately if a Termination Event is then in existence but shall otherwise be
effective 30 days after delivery of the notice thereof. Notwithstanding the
Servicing Transfer, pending the commencement of the servicing of the Purchased
Receivables by the successor Servicer, the terminated Servicer shall continue to
be obligated to service the Receivables pursuant hereto. The terminated
Servicer, after receiving a notice of a Servicing Transfer shall, at its
expense, deliver to the Collateral Agent or the successor Servicer, as and when
directed by the Collateral Agent, (i) a schedule of the Purchased Receivables
indicating, as to each Purchased Receivable, information as to the related
Obligor and the Outstanding Balance and (ii) all records relating to such
Purchased Receivables.
ARTICLE VII
THE AGENTS
7.01. APPOINTMENT AND AUTHORIZATION. Each Buyer irrevocably appoints
and authorizes each Agent to take such action as agent on its behalf and to
exercise such powers under this Agreement as are delegated to each Agent by the
terms hereof, together with all such powers as are reasonably incidental
thereto. Each Buyer hereby irrevocably grants each Agent or its designated
agent, if any, an irrevocable power of attorney, with full power of
substitution, coupled with an interest, at any time and from time to time, to
take in the name of such Buyer all actions with respect to any Purchased
Receivable which such Agent may deem necessary or advisable to realize upon the
Purchased Interest in any Receivable.
7.02. AGENT AND AFFILIATES. Each of Morgan Guaranty and J.P. Morgan
Delaware shall have the same rights and powers under this Agreement as any other
Buyer and may exercise or
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refrain from exercising the same as though they were not the Agents, and each of
Morgan Guaranty and J.P. Morgan Delaware and their respective affiliates may
accept deposits from, lend money to, and generally engage in any kind of
business with SFC or any Affiliate of SFC as if they were not Agents hereunder.
7.03. ACTION BY AGENTS. The respective obligations of the Agents
hereunder are only those expressly set forth herein. Without limiting the
generality of the foregoing, the Agents shall not be required to take any action
with respect to any Termination Event, except as expressly provided in
Article VI.
7.04. CONSULTATION WITH EXPERTS. The Agents may consult with legal
counsel (who may be counsel for SFC or any Affiliates thereof), independent
public accountants and other experts selected by the Agents, and the Agents
shall not be liable for any action taken or omitted to be taken by the Agents in
good faith in accordance with the advice of such counsel, accountants or
experts.
7.05. LIABILITY OF AGENTS. Neither Agent nor any of its respective
directors, officers, agents, affiliates or employees shall be liable for any
action taken nor not taken by it in connection herewith (i) with the consent or
at the request of the Required Buyers or (ii) in the absence of its own gross
negligence or willful misconduct. Neither Agent nor any of its respective
directors, officers, agents, affiliates or employees shall be responsible for or
have any duty to ascertain, inquire into or verify (i) any statement, warranty
or representation made in connection with the Program Documents or any Purchase
hereunder; (ii) the performance or observance of any of the covenants or
agreements of SFC or the Servicer or Schuller; (iii) the satisfaction of any
condition specified in Article III, except receipt of items required to be
delivered to such Agent; or (iv) the validity, effectiveness or genuineness of
the Program Documents or any other instrument or writing furnished in connection
therewith. Neither Agent shall incur any liability by acting in reliance upon
any notice, consent, certificate, statement, or other writing (which may be a
bank wire, telex, telecopy or similar writing) believed by it to be genuine or
to be signed by the proper party or parties.
7.06. INDEMNIFICATION. Each Buyer shall, ratably in accordance with
its Commitment, indemnify each Agent (to the extent not reimbursed by SFC)
against any cost, expense (including counsel fees and disbursements),
claim, demand, action, loss or liability (except such as result from such
Agent's gross negligence or willful misconduct) that such Agent may suffer or
incur in connection with the Program Documents or any action taken or omitted by
such Agent thereunder.
7.07. PURCHASE DECISION. Each Buyer acknowledges that it has,
independently and without reliance upon the Agents or any other Buyer, and based
on such documents and information as it
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has deemed appropriate, made its own analysis and decision to enter into this
Agreement. Each Buyer also acknowledges that it will independently and without
reliance upon the Agents or any other Buyer, and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
credit decisions in taking or not taking any action under this Agreement.
7.08. SUCCESSOR AGENT. Each Agent may resign at any time by giving
notice thereof to the Buyers, SFC and the Servicer. Upon any such resignation,
the Required Buyers shall have the right to appoint a successor Agent. If no
successor Agent shall have been so appointed by the Required Buyers, and shall
have accepted such appointment, within 30 days after the retiring Agent gives
notice of resignation, then the retiring Agent may, on behalf of the Buyers,
appoint a successor Agent, which shall be a commercial bank organized or
licensed under the laws of the United States of America or of any State thereof
and having a combined capital and surplus of at least $250,000,000. Upon the
acceptance of its appointment as the Agent hereunder by a successor Agent (and
not before), such successor Agent shall thereupon succeed to and become vested
with all the rights and duties of such retiring Agent and the retiring Agent
shall be discharged from its duties and obligations hereunder. After the
retiring Agent's resignation hereunder, the provisions of this Article shall
inure to the retiring Agent's benefit as to any actions taken or omitted to be
taken by it while it was an Agent. Notwithstanding any provision of this
Section 7.08 to the contrary, no Agent shall resign until a successor Agent has
accepted its appointment as Agent hereunder.
7.09. DIRECTION BY REQUIRED BUYERS. As to remedies hereunder with
respect to the Receivables or the Purchase and Sale Agreement or other specific
rights hereunder that the Collateral Agent has with respect to the Receivables
or the Purchase and Sale Agreement, the Collateral Agent shall exercise such
remedies and rights if and as requested by the Required Buyers; PROVIDED that it
shall not be so required to act (x) if upon advice of counsel it concludes that
any such action creates potential liability on its part or constitutes a
violation of law or (y) it shall not be indemnified to its satisfaction by the
Buyers in advance in respect of its costs and expenses in connection therewith.
ARTICLE VIII
MISCELLANEOUS
8.01. EXPENSES. As among SFC, the Administrative Agent, the
Collateral Agent and the Buyers, SFC's duties and agreements hereunder shall be
performed by it at its sole cost and expense. SFC shall pay (i) the reasonable
fees, expenses and disbursements of special counsel to the Purchase Parties in
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connection with the negotiation, preparation, execution and administration of
this Agreement, the other Program Documents and the making of Purchases
hereunder, and any amendments and waivers hereto or thereto; (ii) all reasonable
internal or external costs and expenses of every type and nature (including,
without limitation, the fees, expenses and disbursements of attorneys, legal
assistants, auditors, accountants and agents) incurred by the Administrative
Agent and the Collateral Agent (including allocated costs of internal counsel)
in connection with its investigation of SFC and Schuller and the negotiation,
preparation and execution of this Agreement, the other Program Documents and the
making of Purchases hereunder and the creation, perfection, protection or
satisfaction of the Lien created by this Agreement and the search for other
liens (including, without limitation, fees and expenses for lien searches, local
counsel in various jurisdictions, insurance fees, filing and recording fees,
taxes, duplication costs and corporate search fees); and (iii) if an actual or
alleged Termination Event or Potential Termination Event occurs, all reasonable
out-of-pocket expenses incurred by the Administrative Agent, the Collateral
Agent and the Buyers, including reasonable fees and disbursements of counsel
(including allocated costs of internal counsel) (A) in connection with such
actual or alleged Termination Event or Potential Termination Event and
collection and other enforcement proceedings resulting therefrom, (B) in
connection with any restructuring of the arrangements provided under this
Agreement in the nature of a "work-out" or in connection with any insolvency or
bankruptcy proceeding with respect to SFC, Schuller or the Servicer, (C) in
commencing, defending or intervening in any litigation or in filing a petition,
complaint, answer, motion or other pleadings in any legal proceeding related to
the Program Documents, any Receivable or the purchase by the Buyers of the
Receivables pursuant to the Program Documents; (D) in taking any other action in
or with respect to any suit or proceeding (in bankruptcy or otherwise), or (E)
in protecting, preserving, collecting, leasing, selling, taking possession of,
or liquidating any of the Receivables, the Collections, the Contracts or the
Related Security.
8.02. INDEMNITY FOR TAXES, RESERVES AND EXPENSES.
(a) If after the date hereof, the adoption of any Law or bank
regulatory guideline or any amendment or change in the interpretation of any
existing or future Law or bank regulatory guideline by any Official Body charged
with the administration, interpretation or application thereof, or the
compliance with any directive of any Official Body issued after the date hereof
(in the case of any bank regulatory guideline, whether or not having the force
of Law):
(i) shall subject any Purchase Party or any permitted assigns
(collectively, the "INDEMNIFIED PARTIES") to any tax, duty or other charge
with respect to the Program Documents, the Purchased Interest, the
Receivables or
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payments of amounts due thereunder, or shall change the basis of taxation
of payments to any Indemnified Party of amounts payable in respect of the
Program Documents, the Purchased Interest, the Receivables or payments of
amounts due thereunder or its obligation to advance funds in respect of the
Program Documents, the Purchased Interest or the Receivables (except for
any tax imposed on the overall net income of such Indemnified Party by the
jurisdiction in which such Indemnified Party's principal office or booking
office for this Agreement is located); or
(ii) shall impose, modify or deem applicable any reserve, special
deposit or similar requirement (including, without limitation, any such
requirement imposed by the Board of Governors of the Federal Reserve
System, but excluding (A) with respect to any Fixed CD Rate Yield Accrual
Period any amount reflecting such requirement included in the applicable
Domestic Reserve Percentage and (B) with respect to any Euro-Dollar Rate
Yield Accrual Period, any amount reflecting such requirement included in
the applicable Euro-Dollar Reserve Percentage) against assets of, deposits
with or for the account of, or credit extended by, any Indemnified Party or
shall impose on any Indemnified Party or on the United States market for
certificates of deposit or the London interbank market any other condition
affecting the Program Documents, the Purchased Interest, the Receivables or
payments of amounts due thereunder or its obligation to advance funds in
respect of the Program Documents, the Purchased Interest or the
Receivables; or
(iii) imposes upon any Indemnified Party any other expense (including,
without limitation, reasonable attorneys' fees and expenses, and expenses
of litigation or preparation therefor in contesting any of the foregoing)
with respect to the Program Documents, the Purchased Interest, the
Receivables or payments of amounts due thereunder or its obligation to
advance funds in respect of the Program Documents, the Purchased Interest
or the Receivables;
and the result of any of the foregoing is to increase the cost to such
Indemnified Party with respect to the Program Documents, the Purchased Interest,
the Receivables, the obligations thereunder or the funding of any Purchases
thereunder, by an amount reasonably deemed by such Indemnified Party to be
material, then, within 15 days after demand by a Purchase Party (with a copy to
the Collateral Agent), SFC shall pay to such Purchase Party such additional
amount or amounts as will compensate such Indemnified Party for such increased
cost.
(b) If any Indemnified Party shall have determined that, after the
date hereof, the adoption of any applicable Law or bank regulatory guideline
regarding capital adequacy, or any
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change therein, or any change in the interpretation thereof by any Official
Body, or any directive regarding capital adequacy (in the case of any bank
regulatory guideline, whether or not having the force of law) of any such
Official Body, has or would have the effect of reducing the rate of return on
capital of such Indemnified Party (or its parent) as a consequence of such
Indemnified Party's obligations hereunder or with respect hereto to a level
below that which such Indemnified Party (or its parent) could have achieved but
for such adoption, change or directive (taking into consideration its policies
with respect to capital adequacy) by an amount deemed by such Indemnified Party
to be material, then from time to time, within 15 days after demand by a
Purchase Party (with a copy to the Collateral Agent), SFC shall pay to such
Indemnified Party such additional amount or amounts as will compensate such
Indemnified Party (or its parent) for such reduction.
(c) Each Purchase Party will promptly notify SFC of any event of
which it has knowledge, occurring after the Closing Date, which will entitle it
to compensation pursuant to this Section 8.02. A notice by any Purchase Party
claiming compensation under this Section 8.02 and setting forth in reasonable
detail the additional amount or amounts to be paid to it hereunder, the
computation of such amount or amounts and a description of the circumstances
giving rise to such claim for compensation shall be conclusive in the absence of
manifest error. In determining such amount, such Purchase Party may use any
reasonable averaging and attributing methods.
8.03. INDEMNITY.
(a) SFC agrees to indemnify, defend and save harmless each Purchase
Party and each of their respective directors, officers, affiliates,
shareholders, employees, agents and each legal entity, if any, who controls any
such Person, other than for the indemnitee's own gross negligence or willful
misconduct, forthwith on demand, from and against any and all losses, claims,
damages, liabilities, costs and expenses (including, without limitation, all
reasonable attorneys' fees and expenses, expenses incurred by their respective
credit recovery groups (or any successors thereto) and expenses of settlement,
litigation or preparation therefor) which any Purchase Party may incur or which
may be asserted against any Purchase Party by any Person (including, without
limitation, any Obligor or any other Person whether on its own behalf or
derivatively on behalf of SFC) arising from or incurred in connection with (i)
any breach of a representation, warranty or covenant by SFC or the Servicer made
or deemed made hereunder or in connection herewith or the transactions
contemplated herewith, (ii) any action taken or, if SFC or the Servicer is
otherwise obligated to take action, failed to be taken, by SFC or the Servicer,
as the case may be, with respect to the Purchased Interest or any of their
respective obligations hereunder, including, without limitation, SFC's or
Servicer's failure to comply with an applicable Law or
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regulation, (iii) any failure to vest and maintain vested in the Buyers an
undivided ownership interest in the Receivables included in the Purchased
Interest, free and clear of any Lien or other adverse claim, whether existing at
the time of Purchase of such Receivables or at any time thereafter, (iv) any
products liability claim arising out of or relating to the Purchased Interest in
the Receivables or the related Contracts, (v) any failure to pay when due any
taxes required to be paid by SFC hereunder, including without limitation any
sales tax, excise tax or other similar tax or charge payable in connection with
the Receivables and their creation or satisfaction, or (vi) any dispute, suit,
action, claim, proceeding or governmental investigation, pending or threatened,
whether based on statute, regulation or order (including any such suit, action,
claim or proceeding alleging a violation of any Federal or state securities
laws, on tort, on contract or otherwise), before any Official Body which arises
out of or relates to the Program Documents, the Purchased Interest in the
Receivables or related Contracts, or the use of the proceeds of the sale of the
Purchased Interest in the Receivables pursuant hereto. To the extent
practicable, each Purchase Party shall give SFC prior notice of the incurrence
of any costs or expenses described in this Section 8.03; PROVIDED, HOWEVER, that
the failure to give such notice shall not affect the obligation of SFC to pay to
such Purchase Party the amount or amounts due pursuant to this Section 8.03 with
respect to such costs or expenses.
(b) Promptly upon receipt by any indemnified party under this Section
8.03 of notice of the commencement of any suit, action, claim, proceeding or
governmental investigation against such indemnified party, such indemnified
party shall, if a claim in respect thereof is to be made against SFC hereunder,
notify SFC in writing of the commencement thereof. SFC may participate in and
assume the defense of any such suit, action, claim, proceeding or investigation
at its expense, and no settlement thereof shall be made without the approval of
SFC and the indemnified party. The approval of SFC or any indemnified party, as
the case may be, will not be unreasonably withheld or delayed. After notice
from SFC to the indemnified party of its intention to assume the defense thereof
with counsel reasonably satisfactory to such indemnified party, and so long as
SFC so assumes the defense thereof in a manner reasonably satisfactory to such
indemnified party, SFC shall not be liable for any legal expenses of counsel for
the indemnified party unless there shall be a conflict between the interests of
SFC and the indemnified party.
8.04. HOLIDAYS. Except as may be provided in this Agreement to the
contrary, if any payment due hereunder shall be due on a day which is not a
Business Day, such payment shall instead be due the next succeeding Business
Day.
8.05. RECORDS. All amounts calculated or due hereunder shall be
determined from the records of the
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Administrative Agent or the Collateral Agent, as appropriate, which
determinations shall be conclusive absent manifest error.
8.06. AMENDMENTS AND WAIVERS. Any provision of this Agreement may be
amended or waived if, but only if, such amendment or waiver is in writing and is
signed by SFC, the Servicer and the Required Buyers (and, if the rights or
duties of the Administrative Agent or the Collateral Agent are affected thereby,
by the Administrative Agent or the Collateral Agent, as the case may be);
PROVIDED that no such amendment or waiver shall, unless signed by each affected
Buyer, (i) increase the Commitment of any Buyer or subject any Buyer to any
additional obligation (other than as provided in Section 2.14 hereof), (ii)
reduce the Aggregate Net Investment or the Yield Rate applicable to any Tranche
or any Commitment Fees, (iii) extend the Expiration Date other than as provided
in Section 2.14 hereof, (iv) reduce the Reserves or the ratios for determining
Reserves, (including the definitions used therein), (v) change the percentage of
the Commitments, or the number of Buyers, which shall be required for the Buyers
or any of them to take any action under this Section or any other provision of
this Agreement, (vi) consent to or permit the assignment or transfer of any
rights in the Program Documents or in the security interest or ownership
interest in the Receivables (together with Related Security, Collections and
other Proceeds with respect thereto) granted to the Collateral Agent for the
benefit of the Buyers in any manner other than in accordance with the Program
Documents or (vii) change the provisions of Sections 2.05 or 2.06 hereof.
8.07. TERM OF AGREEMENT. This Agreement shall terminate on the Final
Payment Date; PROVIDED, HOWEVER, that (i) the rights and remedies of the
Purchase Parties with respect to any representation and warranty made or deemed
to be made by SFC pursuant to this Agreement, (ii) the indemnification and
payment provisions set forth in Sections 7.06, 8.01, 8.02 and 8.03 hereof, (iii)
the agreement set forth in Section 8.19 hereof and (iv) the provisions set forth
in Section 8.23 hereof shall be continuing and shall survive any termination of
this Agreement.
8.08. NO IMPLIED WAIVER CUMULATIVE REMEDIES. No course of dealing
and no delay or failure of the Buyers in exercising any right, power or
privilege under the Program Documents shall affect any other or future exercise
thereof or the exercise of any other right, power or privilege; nor shall any
single or partial exercise of any such right, power or privilege or any
abandonment or discontinuance of steps to enforce such a right, power or
privilege preclude any further exercise thereof or of any other right, power or
privilege. The rights and remedies of the Buyers under the Program Documents
are cumulative and not exclusive of any rights or remedies which the Buyers
would otherwise have.
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8.09. NO DISCHARGE. The obligations of SFC under the Program
Documents shall be absolute and unconditional and shall remain in full force and
effect without regard to, and shall not be released, discharged or in any way
affected by (a) any exercise or nonexercise of any right, remedy, power or
privilege under or in respect of the Program Documents or applicable Law,
including, without limitation, any failure to set-off or release in whole or in
part by any Purchase Party of any balance of any deposit account or credit on
its books in favor of SFC or any waiver, consent, extension, indulgence or other
action or inaction in respect of any thereof, or (b) any other act or thing or
omission or delay to do any other act or thing which would operate as a
discharge of SFC as a matter of Law.
8.10. NOTICES. All notices under Section 6.02 hereof shall be given
to SFC by telephone or facsimile, confirmed by first-class mail, first-class
express mail or courier, in all cases with charges prepaid. All other notices,
requests, demands, directions and other communications (collectively "NOTICES")
under the provisions of this Agreement shall be in writing (including telexed or
facsimile communication) unless otherwise expressly permitted hereunder and
shall be sent by first-class mail, first-class express mail, or by telex or
facsimile with confirmation in writing mailed first-class mail, in all cases
with charges prepaid. Any such properly given notice shall be effective when
received. All notices shall be sent to the applicable party at the office
stated on the signature page hereof or in accordance with the last unrevoked
written direction from such party to the other parties hereto and all notices to
S&P shall be sent to Standard & Poor's Corporation, 26 Broadway, 15th Floor, New
York, New York 10004, Attention: Asset-Backed Surveillance Group; Fax: (212)
412-0225 or in accordance with the most recent address delivered by S&P to the
Agents and SFC.
8.11. SEVERABILITY. The provisions of this Agreement are intended to
be severable. If any provision of this Agreement shall be held invalid or
unenforceable in whole or in part in any jurisdiction, such provision shall, as
to such jurisdiction, be ineffective to the extent of such invalidity or
unenforceability without in any manner affecting the validity or enforceability
of such provision in any other jurisdiction or the remaining provisions hereof
in any jurisdiction.
8.12. GOVERNING LAW; SUBMISSION TO JURISDICTION. THIS AGREEMENT
SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
NEW YORK. SFC hereby submits to the nonexclusive jurisdiction of the courts of
the State of New York and the courts of the United States located in the State
of New York for the purpose of adjudicating any claim or controversy arising in
connection with any of the Program Documents or any of the transactions
contemplated thereby, and for such purpose, to the extent it may lawfully do so,
waives any objection which it may now or hereafter have to such jurisdiction or
to venue
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therein and any claim of inconvenient forum with respect thereto. Nothing in
this Section 8.12 shall affect the right of any Purchase Party to bring any
action or proceeding against SFC or its property in the courts of other
jurisdictions.
8.13. WAIVER OF JURY TRIAL. Each of the parties hereto irrevocably
waives any and all right to trial by jury in any legal proceeding arising out of
or relating to this agreement or the transactions contemplated hereby.
8.14. PRIOR UNDERSTANDINGS. This Agreement and the other Program
Documents set forth the entire understanding of the parties relating to the
subject matter hereof, and supersedes all prior understandings and agreements,
whether written or oral.
8.15. SURVIVAL. All representations and warranties of SFC contained
herein or made in connection herewith shall survive the making thereof, and
shall not be waived by the execution and delivery of this Agreement, any
investigation by any Purchase Party, the purchase, repurchase or payment of any
Purchased Interest in any Receivable, or any other event or condition whatsoever
(other than a written waiver complying with Section 8.06 hereof). The covenants
and agreements contained in or given pursuant to this Agreement (including,
without limitation, those contained in Article V hereof) shall continue in full
force and effect until the Final Payment Date.
8.16. COUNTERPARTS. This Agreement may be executed in any number of
counterparts and by the different parties hereto on separate counterparts each
of which, when so executed, shall be deemed an original, but all such
counterparts shall constitute but one and the same instrument.
8.17. SHARING OF SET-OFFS. Each Buyer agrees that if it shall, by
exercising any right of set-off or counterclaim or otherwise, receive payment of
a proportion of any amounts owing by SFC hereunder which is greater than the
proportion received by any other Buyer in respect of the aggregate amount due to
it pursuant to this Agreement, the Buyer receiving such proportionately greater
payment shall purchase such participations in the Purchased Interest held by the
other Buyers, and such other adjustments shall be made, as may be required so
that all such payments by SFC hereunder, shall be shared by all of the Buyers
pro rata; PROVIDED that nothing in this Section shall impair the right of any
Buyers to exercise any right of set-off or counterclaim it may have and to apply
the amount subject to such exercise to the payment of indebtedness of SFC other
than its indebtedness under this Agreement. SFC agrees, to the fullest extent
it may effectively do so under Law, that any holder of a participation in the
Purchased Interest, whether or not acquired pursuant to the foregoing
arrangements, may exercise rights of set-off and counterclaim and other rights
with respect to such participation as fully as if such holder of
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a participation were a direct creditor of SFC in the amount of such
participation.
8.18. SUCCESSORS AND ASSIGNS.
(a) The provisions of this Agreement shall be binding upon and inure
to the benefit of the parties hereto and their respective successors and
assigns, except that SFC may not assign or otherwise transfer any of its rights
under this Agreement.
(b) No assignee, participant or other transferee of any Buyer's
rights shall be entitled to receive any greater payment under Section 8.02
hereof than such Buyer would have been entitled to receive with respect to the
rights transferred, unless such transfer is made (i) with SFC's prior written
consent, or (ii) at a time when the circumstances giving rise to such greater
payment did not exist.
(c) It is expressly agreed that, in connection with any assignment,
participation or other transfer of a Buyer's rights and/or obligations
hereunder, such Buyer may provide information pertaining to SFC or Schuller to
the potential assignee, participant or other transferee as such Buyer deems
appropriate subject to the provisions of Section 8.23 with the prior consent of
SFC or Schuller (which consent shall not be unreasonably withheld).
(d) Any Buyer may assign any part of its Commitment hereunder in an
amount equal to or greater than $5,000,000 with the prior written consent of SFC
(which consent of SFC will not be unreasonably withheld); PROVIDED, HOWEVER,
that nothing contained herein shall prohibit any Buyer from selling
participations in its portion of any Tranche hereunder.
(e) In no event shall a Buyer that sells a participation hereunder
agree with the purchaser of such participation to take or refrain from taking
any action hereunder or under any of the other Program Documents, except that
such Buyer may agree with the purchaser of a participation that it will not,
without the consent of such purchaser, agree to (i) reduce the Aggregate Net
Investment or Yield Rate applicable to a Tranche in which such purchaser has an
interest or any Commitment Fees), (ii) extend the Expiration Date other than as
provided in Section 2.14 hereof or (iii) consent to or permit the assignment or
transfer of any rights in the Program Documents or in the security interest or
ownership interest in the Receivables (together with Related Security,
Collections and other Proceeds with respect thereto) granted to the Collateral
Agent for the benefit of the Buyers in any manner other than in accordance with
the Program Documents.
8.19. PAYMENTS SET ASIDE. To the extent that SFC or any Obligor
makes a payment to any Buyer or any Buyer exercises its rights of set-off and
such payment or set-off or any part
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thereof is subsequently invalidated, declared to be fraudulent or preferential,
set aside, recovered from, disgorged by, or is required to be refunded,
rescinded, returned, repaid or otherwise restored to SFC, such Obligor, a
trustee, a receiver or any other Person under any Law, including, without
limitation, any bankruptcy law, any state or federal law, common law or
equitable cause, the obligation or part thereof originally intended to be
satisfied shall, to the extent of any such restoration, be reinstated, revived
and continued in full force and effect as if such payment had not been made or
such set-off had not occurred. The provisions of this Section 8.19 shall
survive the termination of this Agreement.
8.20. FINANCIAL ACCOMMODATION. The parties hereto acknowledge that
this Agreement is, and is intended to be, a contract to extend financial
accommodations to SFC within the meaning of Section 365(e)(2)(B) of the Federal
Bankruptcy Code (11 U.S.C. Section 362(e)(2)(B)) (or any amended or successor
provision thereof or any amended or successor code).
8.21. NO BANKRUPTCY PETITION AGAINST SFC. Each Purchase Party,
including without limitation each assignee of any Purchase Party, severally and
not jointly, hereby covenants and agrees that, prior to the date which is one
year and one day after the payment in full of all obligations owing by SFC to
any Purchase Party pursuant to the Program Documents, it will not institute
against, or join any other Person in instituting against, SFC any bankruptcy,
reorganization, arrangement, insolvency or liquidation proceeding or other
similar proceeding under the laws of the United States or any state of the
United States.
8.22. TAX FORMS. Each Buyer (other than Buyers organized under the
laws of the United States or any state thereof) agrees to promptly provide SFC
and the Collateral Agent with (A) appropriate executed copies of Internal
Revenue Service Form 4224 (or alternatively, Internal Revenue Service Form 1001,
but only if the applicable treaty described in such Form provides for a complete
exemption from federal income tax withholdings), or any successor forms, (i) on
or promptly after the date hereof (or, if later, the date on which it becomes a
Buyer hereunder pursuant to Section 8.18(d) hereof), and (ii) upon the
occurrence of any event that would require the amendment or resubmission of any
such Form previously provided hereunder and (B) such other forms or information
in connection therewith reasonably requested by SFC or the Collateral Agent.
8.23. CONFIDENTIALITY.
(a) Each Purchase Party agrees to keep confidential and not to
disclose (and to cause its officers, directors, employees, agents and
representatives to keep confidential and not to disclose any Information (as
defined below)), except that such Purchase Party shall be permitted to disclose
Information (i) to
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such of its officers, directors, employees, agents, representatives, counsel and
auditors as need to know such Information in connection with the servicing and
protection of its interests in respect of its portion of the Purchased Interest,
the Program Documents and the transactions contemplated thereby; (ii) to the
extent required by applicable laws and regulations or by any subpoena or similar
legal process or requested by any bank regulatory authority, provided that such
Purchase Party shall use reasonable efforts to promptly notify SFC of such
disclosure; (iii) to the extent such Information (A) becomes publicly available
other than as a result of a breach of this Agreement, (B) becomes available to
such Purchase Party on a non-confidential basis from a source other than SFC or
its Affiliates or the Buyers' Agents or (C) was available to such Purchase Party
on a non-confidential basis prior to its disclosure to such Purchase Party by
SFC or its Affiliates or the Buyers' Agents; (iv) to any other Purchase Party;
or (v) to the extent SFC shall have consented to such disclosure in writing;
PROVIDED that any Purchase Party may provide Information to a potential assignee
or participant of any of such Purchase Party's rights or obligations hereunder
if such potential assignee or participant executes an agreement containing the
provisions of this Section 8.23. As used in this Section 8.23, "Information"
shall mean any materials, documents and information which SFC or any of its
Affiliates may have furnished or may hereafter furnish to the Buyers' Agents or
any Purchase Party in connection with this Agreement which is identified as
being confidential at the time such material, documents or information is
delivered to the Buyers' Agent or any Purchase Party.
(b) Each Purchase Party agrees that, except (i) to the extent the
conditions referred to in subclauses (A), (B) or (C) of clause (iii) of
paragraph (a) above have been met, it will use the Information only in
connection with the servicing and protection of its interests in respect of its
portion of the Purchased Interest and Commitment, the Program Documents and the
transactions contemplated thereby; and (ii) it will not use the Information in
connection with any other matter or in a manner prohibited by any law,
including, without limitation, the securities laws of the United States.
(c) Each transferee, assignee or participant of a Purchase Party
shall be deemed by accepting any assignment or participation hereunder, to have
agreed to be bound by this Section 8.23.
(d) The obligations of each of the Purchase Parties under this
Section 8.23 shall terminate one year after the Final Payment Date.
8.24. AMOUNTS AVAILABLE FOR EXPENSES, TAXES, RESERVES AND INDEMNITY.
Notwithstanding any provision of Section 8.01, 8.02 or 8.03 to the contrary, and
except as provided in Section 7.01(a)(vii) of the Purchase and Sale Agreement,
any payments
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made by SFC pursuant to such Sections shall only be made from Excess Amounts,
and any debt of SFC arising under such Sections shall not constitute a claim
against SFC to the extent that Excess Amounts are insufficient to pay such debt.
8.25. NOTICES TO STANDARD & POOR'S. Notices of all amendments to the
Program Documents shall be provided by SFC to S&P.
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IN WITNESS WHEREOF, the parties hereto, by their duly authorized
signatories, have executed and delivered this Agreement as of the date first
above written.
SCHULLER FUNDING CORPORATION
By: /s/ C.V. Draper
----------------------------
Name: C.V. Draper
Title: President
Address for Notices: Mail Stop 5-07
717 17th Street - 80202
P.O. Box 5108
Denver, CO 80217-5108
Telephone: (303) 978-2662
Fax: (303) 978-3103
Attention: Treasurer
Address for Funds Transfer: Mellon Bank, N.A.
Pittsburgh, PA
Account No.: 1895985
ABA No.: 043000261
Account Title: Schuller Funding
Corporation Master Account
SCHULLER INTERNATIONAL, INC.
By: /s/ C.V. Draper
----------------------------
Name: C.V. Draper
Title: VP: Treasurer
Address for Notices: Mail Stop 5-07
717 17th Street - 80202
P.O. Box 5108
Denver, CO 80217-5108
Telephone: (303) 978-2114
Fax: (303) 978-3103
Attention: Treasurer
Address for Funds Transfer: Mellon Bank, N.A.
Pittsburgh, PA
Account No.: 1990472
ABA No.: 043000261
Account Title: Schuller
International, Inc.
Master Account
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BUYERS:
Commitment: $10,000,000 MORGAN GUARANTY TRUST COMPANY
OF NEW YORK
By:/s/ John M. Mikolay
-----------------------------
Name: JOHN M. MIKOLAY
Title: VICE PRESIDENT
Addresses for Notices: 60 Wall Street
New York, NY 10260-0060
Telex Number: 177615 MGT UT or
620106 MGT UW
Telephone: (212) 648-7638
Fax: (212) 648-5014
Attention: David T. Ellis
Vice President
Address for Funds Transfer: Morgan Guaranty Trust Company of
New York
Account No.: 999-99-090
ABA No.: 021-000-238
Morgan Guaranty Trust Company of
New York
60 Wall Street
New York, New York 10260-0060
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Commitment: $10,000,000 J.P. MORGAN DELAWARE
By:/s/ Robert J. Henchey
-----------------------------
Name: Robert J. Henchey
Title: Vice President
Address for Notices: 902 Market Street
Wilmington, Delaware 19801
Telephone: (302) 651-2402
Fax: (302) 652-7416
Attention: Robert J. Henchey
Vice President
Address for Funds Transfer: Morgan Guaranty Trust Company of
New York
Account No.: 00139968
ABA No.: 021-000-238
60 Wall Street
New York, New York 10260-00600
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Commitment: $20,000,000 THE BOATMEN'S NATIONAL BANK OF
ST. LOUIS
By:/s/ Joseph L. Sooter, Jr.
-----------------------------
Name: Joseph L. Sooter, Jr.
Title: Vice President
Address for Notices: P.O. Box 0236
St. Louis, MO 63166-0236
Telephone: (314) 466-6112
Fax: (314) 466-6499
Attention: Joseph L. Sooter, Jr.
Address for Funds Transfer: Account No. 101409997409
ABA No.: 081000032
One Boatmen's Plaza
800 Market Street
St. Louis, MO 63166-0236
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Commitment: $20,000,000 CONTINENTAL BANK
By:/s/ Deborah L. Chiuminte
-----------------------------
Name: Deborah L. Chiuminte
Title: Managing Director
Address for Notices: 231 South LaSalle Street
Chicago, IL 60697
Telephone: (312) 828-7631
Fax: (312) 828-7855
Attention: Allisen Wolever
Address for Funds Transfer: 231 South LaSalle Street
Chicago, IL 60697
Account No.: 6560737
ABA No.: 071000037
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Commitment: $20,000,000 MELLON BANK, N.A.
By:/s/ Blake A. McKim
-----------------------------
Name: Blake A. McKim
Title: Vice President
Address for Notices: 3 Mellon Bank Center
Workroom 2303
Pittsburgh, PA 15239
Telephone: (412) 234-3699
Fax: (412) 234-5049
Attention: Florence Lindsay
Address for Funds Transfer: Credit Loan Administration
3 Mellon Bank Center
Workroom 2303
Pittsburgh, PA 15239
Account No.: 990873800
ABA No.: 043000261
Reference: Schuller Funding
Corporation
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Commitment: $20,000,000 NBD BANK, N.A.
By:/s/ Curtis A. Price
-----------------------------
Name: Curtis A. Price
Title: Vice President
Address for Notices: National Banking Division - West
611 Woodward Avenue
Detroit, Michigan 48226
Telephone: (313) 225-1465
Fax: (313) 225-1586
Attention: J. Greg Mickens
Address for Funds Transfer: National Banking Division - West
611 Woodward Avenue
Detroit, Michigan 48226
Account No.: 1804517
ABA No.: 072000326
Reference: Schuller International,
Inc.
TOTAL COMMITMENTS: $100,000,000
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Schedule I
QUALIFIED BANKS
J.P. Morgan Delaware
Morgan Guaranty Trust Company of New York
The Boatmen's National Bank of St. Louis
Continental Bank
Mellon Bank, N.A.
NBD Bank, N.A.
COLLECTION ACCOUNT INFORMATION
Collection Account Bank Account Number
- ----------------------- --------------
Mellon Bank, N.A. Concentration Account #108-9537
Three Mellon Bank Center
Pittsburgh, PA 15259
Mellon Bank, N.A. Trust Account #102-68A
Three Mellon Bank Center
Pittsburgh, PA 15259
LOCKBOX ACCOUNT INFORMATION
Lockbox Account
Lockbox Bank Number Lockbox Address
------------ --------------- ---------------
Bank of America 12339-13242 File No. 52530
555 California Street Los Angeles, CA 90074-2530
San Francisco, CA 94104
Boatmen's National Bank 0101209340 P.O. Box 500567
One Boatmen's Plaza St. Louis, MO 63150-0597
800 Market Street, Box 236
St. Louis, MO 63101
Continental Bank 75-69572 P.O. Box 91513
231 S. LaSalle Street Chicago, IL 60693
Chicago, IL 60697
Mellon Bank, N.A. 156-3921 P.O. Box 360881-M
Three Mellon Bank Center Pittsburgh, PA 15251
Pittsburgh, PA 15259
<PAGE>
EXHIBIT A
BUYER'S CERTIFICATE
$[ ]
New York, New York August , 1994
---
This certificate represents the rights of [each Buyer], as a Buyer
("Buyer") under the Amended and Restated Receivables Purchase Agreement dated as
of August 15, 1994, among Schuller Funding Corporation, Schuller International,
Inc., the financial institutions party thereto, as Buyers, Morgan Guaranty Trust
Company of New York, as Administrative Agent, and J.P. Morgan Delaware, as
Structuring and Collateral Agent (as amended from time to time, the "Receivables
Purchase Agreement") to receive timely payment of Yield and ultimate payment of
amounts in respect of Aggregate Net Investment pursuant to Sections 2.05(a)(1)
and 2.06(a)(i) and (vi) of the Receivables Purchase Agreement. The rights of
the Buyer hereunder are not transferable except in accordance with the
provisions of the Receivables Purchase Agreement.
SCHULLER FUNDING CORPORATION
By:
----------------------------
Name:
Title:
<PAGE>
Item 6. Schuller Corporation 1995 Annual Report
--------------------------------------------------
SELECTED FIVE-YEAR FINANCIAL DATA
<TABLE>
<CAPTION>
In thousands of dollars, except per share amounts
- ------------------------------------------------------------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31, 1995 1994 1993 1992 1991
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INCOME (LOSS)
- ------------------------------------------------------------------------------------------------------------------------------------
Net Sales (Note A) $1,391,522 $1,277,818 $1,165,810 $1,095,353 $1,018,066
Income (Loss) from Operations (Note A) 201,283 142,299 52,451 56,124 (56,813)
Income (Loss) from Continuing Operations (Note A) 122,006 55,606 57,837 6,792 (77,286)
Income (Loss) before Extraordinary Item
and Cumulative Effect of Accounting Changes 115,995 65,416 60,772 47,465 (12,697)
Net Income (Notes C, D, and E) 115,995 36,996 47,782 35,949 34,700
- ------------------------------------------------------------------------------------------------------------------------------------
FINANCIAL POSITION (AS OF DECEMBER 31)
- ------------------------------------------------------------------------------------------------------------------------------------
Total Assets (Note B) $2,474,059 $2,317,498 $2,163,079 $2,414,031 $2,496,198
Long-Term Debt, less current portion 447,007 441,798 354,205 422,485 600,803
Stockholders' Equity 1,180,466 1,080,346 882,451 847,075 775,982
- ------------------------------------------------------------------------------------------------------------------------------------
ADDITIONAL DATA
- ------------------------------------------------------------------------------------------------------------------------------------
Additions to Property, Plant and Equipment (Note A) $ 111,329 $ 82,833 $ 62,643 $ 32,495 $ 55,783
Research, Development and Engineering (Note A) 29,988 29,738 27,972 28,100 31,227
- ------------------------------------------------------------------------------------------------------------------------------------
PRIMARY AND FULLY DILUTED EARNINGS (LOSS)
PER COMMON SHARE (NOTE F)
- ------------------------------------------------------------------------------------------------------------------------------------
Income (Loss) from Continuing Operations (Note A) $.78 $.25 $.29 $(.11) $(.78)
Income (Loss) before Extraordinary Item
and Cumulative Effect of Accounting Changes .73 .33 .31 .22 (.24)
Net Income (Notes C, D, and E) .73 .10 .21 .13 .15
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTES:
(A) In October 1995, the Company's Board of Directors adopted a formal plan
with respect to the disposition of its 81.3 percent interest in Riverwood (see
Note 7 of the Notes to the Consolidated Financial Statements). In addition,
Celite Corporation was sold in 1991. Accordingly, these operations have been
reflected as discontinued operations and their operating results have been
excluded from the determination of income from continuing operations for all
periods presented. Income (loss) from continuing operations includes gains on
sales of equity investments, interest income, interest expense, profit sharing
expense and related income taxes.
(B) Includes the net assets and liabilities of the discontinued operations
of Riverwood and related parent company deferred taxes, goodwill and minority
interest which have been classified as net assets held for sale for all periods
presented. At December 31, 1995, 1994, 1993, 1992 and 1991, net assets held for
sale totaled $375.6 million, $409.6 million, $435.4 million, $402.9 million and
$725.7 million, respectively.
(C) In the third and fourth quarters of 1994, the Company completed two
debt refinancings that resulted in an aggregate extraordinary loss on early
extinguishments of debt of $28.4 million, net of related income taxes of $13
million.
During the third quarter of 1993, the Company made a prepayment on its
outstanding bond obligations to Manville Personal Injury Settlement Trust. An
extraordinary gain of $0.9 million, net of related income taxes of $0.5 million,
was recorded in August 1993 to adjust the estimated extraordinary loss recorded
in 1992. In 1992, the Company recorded an estimated extraordinary loss of $11.5
million, net of related income taxes of $5.9 million, in anticipation of this
prepayment.
twenty one
<PAGE>
Schuller Corporation 1995 Annual Report
- --------------------------------------------------
SELECTED FIVE-YEAR FINANCIAL DATA
(D) Effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 112, "Employers' Accounting for Postemployment
Benefits." As a result, the Company recorded a charge in the first quarter of
1993 of $13.9 million, net of taxes of $8.6 million, or $0.11 per common share,
against net income to reflect the accumulated postemployment benefit obligation.
(E) Effective January 1, 1991, the Company changed its method of accounting
for employee postretirement benefits other than pensions to comply with the
provisions of Statement of Financial Accounting Standards No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions." As a result, the
Company recorded a charge against net income in 1991 of $173.4 million, net of
tax of $91.4 million, or $1.44 per common share, to reflect the cumulative
effect on prior years of the accounting change. In accordance with the
provisions of that statement, postretirement benefit information for prior
periods has not been restated. Previously, retiree medical and life insurance
benefits were expensed as incurred. Also, effective January 1, 1991, the Company
changed its method of accounting for income taxes to comply with the provisions
of Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes." As a result, the Company recorded a credit in 1991 of $220.8 million, or
$1.83 per common share, to net income to reflect the cumulative effect on prior
years of the accounting change.
(F) Primary and fully diluted earnings (loss) per common share amounts are
based on the weighted average number of common and common equivalent shares
outstanding during each year assuming the conversion of the Series A Convertible
Preferred Stock, which occurred in 1992. All earnings (loss) per share amounts
presented in the above table were calculated after the deduction for preference
stock dividends/accretion. Refer to Note 16 in Notes to the Consolidated
Financial Statements for a discussion of the earnings (loss) per common share
computation.
The Company declared and paid common stock dividends of $1.04 per share in
both 1993 and 1992.
twenty two
<PAGE>
Item 7. Schuller Corporation 1995 Annual Report
--------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
In late March 1996, Schuller Corporation changed its name from Manville
Corporation. Schuller Corporation is a holding company consisting of Schuller
International Group, Inc. ("Schuller International") as its principal
subsidiary, and as of December 31, 1995, an investment in Riverwood
International Corporation ("Riverwood"), collectively referred to as "Schuller"
or the "Company". Schuller Corporation owns 100 percent of Schuller
International and, at December 31, 1995, approximately 81.3 percent of
Riverwood.
In October 1995, the Company's Board of Directors adopted a formal plan
with respect to the disposition of its 81.3 percent interest in Riverwood.
Accordingly, the assets and liabilities of Riverwood and related parent company
deferred taxes, goodwill and minority interest have been classified as net
assets held for sale and Riverwood's results of operations have been shown as
discontinued operations for all periods presented (see Note 7 of the Notes to
the Consolidated Financial Statements).
Manville Personal Injury Settlement Trust (the "PI Trust") owns
approximately 79 percent of the Company's Common Stock after the Exchange
(defined under Profit Sharing Obligation), assuming exercise of all outstanding
warrants. In addition, the Company has a debt obligation to the PI Trust
(present value of $15.5 million at December 31, 1995).
CONTINUING OPERATIONS
Schuller manufactures and markets insulation for buildings and equipment,
commercial roofing systems, high-efficiency air filtration media, and fibers and
nonwoven mats used as reinforcements in building and industrial applications.
The Company operates 43 manufacturing facilities in North America, Europe and
China, and is comprised of two principal business segments: Building Products
and Engineered Products.
The Building Products segment consists of the Company's building insulation
business, which manufactures fiber glass wool insulation for walls and attics in
residential and commercial buildings; commercial and industrial roofing systems
business, which supplies roofing membranes, insulations, accessories and related
guarantees; and mechanical insulations business, which manufactures pipe and
duct insulation for use in commercial buildings, factories, refineries and other
industrial applications.
The Engineered Products segment consists of the Company's specialty
insulations and filtration business, which manufactures thermal and acoustic
insulation for aircraft, automobiles and heating, ventilating and air
conditioning ("HVAC") and other equipment; air filtration media for commercial
and industrial buildings; and ultra-fine fibers for clean room air filters. The
Engineered Products segment also includes the Company's mats and fibers
business, which manufactures continuous filament fiber glass-based products used
for reinforcing roofing, flooring, wall covering and plastic products. The mats
and fibers business includes the Company's German subsidiary, Schuller GmbH.
Financial results for the Company's oil and gas property which was sold in
1993, and its equity investment in Stillwater Mining Company ("Stillwater")
which was sold during 1995 and 1994, are included in Corporate and Eliminations
for business segment reporting purposes.
twenty three
<PAGE>
Schuller Corporation 1995 Annual Report
- --------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- ------------------------------------------------------------
- ------------------------------------------------------------
1995 vs 1994
RESULTS OF OPERATIONS
The following table sets forth, for each of the years ended December 31, 1995
and 1994, certain income and expense items, exclusive of discontinued
operations, and the percentage that such items changed.
<TABLE>
<CAPTION>
In thousands of dollars
- --------------------------------------------------------------------------------------------
% Increase
1995 1994 (Decrease)
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Sales
Building Products $ 805,615 $ 743,967 8.3
Engineered Products 612,526 558,244 9.7
Corporate and Eliminations (26,619) (24,393)
- --------------------------------------------------------------------------------------------
TOTAL NET SALES 1,391,522 1,277,818 8.9
Cost of Sales 993,111 935,951 6.1
- --------------------------------------------------------------------------------------------
Gross Profit 398,411 341,867 16.5
Other Operating Expenses 180,123 178,535 .9
Other Income (Expense), net (17,005) (21,033) (19.2)
- --------------------------------------------------------------------------------------------
Income from Operations
Building Products 133,025 109,933 21.0
Engineered Products 108,219 76,503 41.5
Corporate and Eliminations (39,961) (44,137)
- --------------------------------------------------------------------------------------------
TOTAL INCOME FROM OPERATIONS $ 201,283 $ 142,299 41.5
- --------------------------------------------------------------------------------------------
</TABLE>
Net sales increased $113.7 million, or 8.9 percent, to $1,391.5 million in
1995 from $1,277.8 million in 1994.
The Building Products segment's net sales for 1995 increased $61.6 million,
or 8.3 percent, compared with 1994. This segment's businesses benefited from
increases in commercial construction and favorable energy conservation trends
experienced during 1995. This strong demand resulted in higher selling volumes
for all of the Building Products' businesses, along with a net increase in
selling prices for building insulations despite a decline in pricing in the
second half of 1995 due to new capacity added by a competitor. In addition, the
mechanical insulations business benefited from share gains due to new product
introductions and the exit of a competitor from this market. The Company's
commercial roofing business benefited from volume gains, offset in part by price
declines resulting from a highly competitive marketplace.
The Engineered Products segment's net sales increased $54.3 million, or 9.7
percent, compared with 1994. This increase was primarily attributable to the
Company's mats and fibers business, which experienced increased sales volumes
and prices as a result of strong worldwide demand for
twenty four
<PAGE>
Schuller Corporation 1995 Annual Report
--------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
continuous filament fiber glass. The Company's filtration business also
experienced increased sales during 1995 due to continued strong demand for the
Company's ultra-fine fibers. These improvements in net sales were partially
offset by the effect of continued weakness in the automotive market.
Gross profit for 1995 increased $56.5 million, or 16.5 percent, compared
with 1994. Gross profit margins were 28.6 percent for 1995 and 26.8 percent for
1994. The increase in gross profit was primarily attributable to the increased
selling prices and sales volumes described above, in addition to reduced fixed
costs and improved manufacturing efficiencies. Combined, these factors more than
offset raw material cost increases and equipment start-up costs experienced
during 1995.
Other operating expenses, which include selling, general, administrative,
research, development and engineering expenses, increased by $1.6 million in
1995. As a percentage of net sales, these expenses decreased to 13 percent in
1995 compared with 14 percent in 1994.
During 1995 and 1994, the Company did not record any additional
restructuring charges, it completed the separation portion of the restructuring
program and continued the voluntary phenolic inspection and remediation program
initiated in 1993. See the discussion of restructuring under the 1994 versus
1993 Results of Operations. Cash spending in connection with the Company's
restructuring programs totaled $8.3 million during 1995. At December 31, 1995,
the remaining restructuring reserves totaled $7.6 million.
Other expense, net, decreased $4 million to $17 million in 1995 from $21
million in 1994. The decrease is primarily attributable to an $8.9 million
charge during 1994, compared with $2.9 million in 1995, for legal costs related
to the Company's former phenolic roofing insulation business.
The Company's income from operations increased $59 million, or 41 percent,
to $201.3 million in 1995 from $142.3 million in 1994.
In 1995, the Company sold its remaining equity investment in Stillwater for
net cash proceeds of $110.5 million resulting in a pretax gain on the sale of
equity investment of $74.9 million. The Company retains a five percent net
smelter royalty on certain Stillwater claims.
During 1994, the Company sold a portion of its equity investment in
Stillwater for net cash proceeds of approximately $25.5 million, resulting in a
pretax gain on the sale of equity investment of $13.5 million.
twenty five
<PAGE>
Schuller Corporation 1995 Annual Report
- --------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Compared with 1994, interest income in 1995 increased by $17 million, due
primarily to higher average cash and marketable securities balances and an
additional $5.2 million of interest received from the Internal Revenue Service
on the 1993 income tax refund discussed in the 1994 versus 1993 results.
Interest expense in 1995 increased $0.5 million, or one percent, over 1994.
In 1995, the Company recorded $27.7 million of profit sharing expense to be
paid in 1996 to the PI Trust, as required in the Second Amended and Restated
Plan of Reorganization and related agreements ("the Plan"). Profit sharing
expense for 1994 totaled $18.3 million and was paid in 1995.
INCOME TAXES
The Company's effective tax rate on income from continuing operations was 46
percent and 43 percent for the years ended December 31, 1995 and 1994,
respectively. These rates are higher than the U.S. federal statutory tax rate
principally due to higher foreign effective tax rates and state taxes.
The cash taxes paid by the Company in the U.S. were substantially lower
than statutory rates due to the Company's PI Trust related deductions and net
operating loss carryforwards. At December 31, 1995, the Company will need a
cumulative total of approximately $1.2 billion of U.S. federal taxable income to
realize its net U.S. deferred tax asset of $445.5 million. Based on the
Company's historical earnings levels, projected future earnings, and the
expected timing of the taxable deductions principally related to amounts paid by
the PI Trust or transferred to a specific settlement fund within the PI Trust,
the Company believes it will realize its net deferred tax asset. In accordance
with Financial Accounting Standards No. 109, "Accounting for Income Taxes"
("SFAS No. 109"), the Company's valuation allowance on all deferred tax assets
is subject to change as forecasts of future years' earnings and the estimated
timing of the utilization of the Company's tax benefits are revised. See Note 22
of the Notes to the Consolidated Financial Statements for further discussion of
income taxes.
DISCONTINUED OPERATIONS
Income from discontinued operations, net of tax and minority interest, reflects
the operating results of Riverwood through October 1995, the date of adoption of
a formal plan to sell the Company's 81.3 percent interest in Riverwood.
Riverwood's income from operating activities was higher in 1995 than 1994
generally due to higher selling prices and volume. Additionally, Riverwood's
1994 results reflect a $27.5 million income tax charge related to its sale of a
portion of its Brazilian operations.
twenty six
<PAGE>
Schuller Corporation 1995 Annual Report
--------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Company's portion of Riverwood's net income for November and December
1995 totaling $0.5 million is included in the loss on disposal of discontinued
operations in accordance with Accounting Principles Board Opinion No. 30,
"Reporting the Results of Operations-Reporting the Effects of Disposal of a
Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions."
Although the Company expects to record a net gain for financial reporting
purposes on the sale of its interest in Riverwood, the Company recorded an
estimated loss on disposal of discontinued operations of $42.5 million in the
fourth quarter of 1995. This loss primarily relates to deferred taxes on the
Company's investment in Riverwood that had not been recognized previously. In
accordance with SFAS No. 109, the Company recorded these taxes when it became
apparent the taxes would be incurred due to the planned sale of Riverwood.
EXTRAORDINARY GAIN (LOSS) ON EARLY EXTINGUISHMENTS OF DEBT
In the third and fourth quarters of 1994, the Company completed two debt
refinancings, described below, that resulted in an aggregate extraordinary loss
on early extinguishments of debt of $28.4 million, net of related income taxes
of $13 million.
Riverwood completed a refinancing program in the third quarter of 1994 and
prepaid approximately $179 million principal of notes. The extraordinary charge
for this early retirement of debt was $7.9 million, net of income taxes of
approximately $5 million.
In conjunction with the 1994 prepayment of substantially all of its
remaining outstanding bond obligations ("Trust Bonds") to the PI Trust, the
Company recorded an extraordinary loss of $26.8 million, net of related income
taxes of $11.4 million, in the third quarter of 1994. In the fourth quarter of
1994 the extraordinary loss on the Trust Bonds was reduced by $6.3 million, net
of related income taxes of $3.4 million, due to an agreed upon adjustment
contained in the prepayment agreement. This resulted in a total extraordinary
loss on the Trust Bonds prepayment in 1994 of $20.5 million, net of related
income taxes of $8 million.
EARNINGS PER COMMON SHARE
Primary and fully diluted earnings per common share for 1995 were $0.73 each as
compared with the primary and fully diluted earnings per common share of $0.10
each for 1994. The extraordinary net loss from the early extinguishments of debt
described above decreased primary and fully diluted earnings per common share by
$0.23 each in 1994.
Earnings per common share amounts are calculated after deducting preference
stock dividends on the Cumulative Preference Stock, Series B.
twenty seven
<PAGE>
SCHULLER CORPORATION 1995 ANNUAL REPORT
- ---------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------------------
1994 vs 1993
RESULTS OF OPERATIONS
The following table sets forth, for each of the years ended December 31,
1994 and 1993, certain income and expense items, exclusive of discontinued
operations, and the percentage that such items changed.
<TABLE>
<CAPTION>
In thousands of dollars
- -----------------------------------------------------------------------------------------------
% Increase
1994 1993 (Decrease)
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Sales
Building Products $ 743,967 $ 666,903 11.6
Engineered Products 558,244 527,066 5.9
Corporate and Eliminations (24,393) (28,159)
- -----------------------------------------------------------------------------------------------
TOTAL NET SALES 1,277,818 1,165,810 9.6
Cost of Sales 935,951 908,529 3.0
- -----------------------------------------------------------------------------------------------
Gross Profit 341,867 257,281 32.9
Other Operating Expenses 178,535 162,372 10.0
Restructuring of Operations Loss, net (32,014)
Other Income (Expense), net (21,033) (10,444) 101.4
- -----------------------------------------------------------------------------------------------
Income from Operations
Building Products 109,933 47,343 132.2
Engineered Products 76,503 52,242 46.4
Corporate and Eliminations (44,137) (47,134)
- -----------------------------------------------------------------------------------------------
TOTAL INCOME FROM OPERATIONS $ 142,299 $ 52,451 171.3
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
Supplemental Information:
Income from Operations Before Restructuring
Building Products $ 109,933 $ 67,707 62.4
Engineered Products 76,503 58,369 31.1
Corporate and Eliminations (44,137) (41,611)
- -----------------------------------------------------------------------------------------------
TOTAL INCOME FROM OPERATIONS BEFORE RESTRUCTURING $ 142,299 $ 84,465 68.5
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
</TABLE>
Net sales for 1994 increased $112 million, or 9.6 percent, to $1,277.8
million in 1994 from $1,165.8 million in 1993.
The Building Products segment's net sales for 1994 increased $77.1 million,
or 11.6 percent, compared with 1993. This increase was primarily attributable to
the building insulation business, which benefited from increased selling prices,
as well as higher sales volume, as the building insulation industry operated at
full capacity due to strong residential housing markets. Net sales of the
roofing systems business also increased in 1994 primarily due to higher sales
volume. In addition, sales increased in the mechanical insulations business due
to higher levels of commercial construction, as well as the introduction of new
products responding to market demand for products addressing indoor
environmental quality concerns.
The Engineered Products segment's net sales increased $31.2 million, or 5.9
percent, in 1994 compared with 1993. The majority of this increase was
attributable to the
twenty eight
<PAGE>
SCHULLER CORPORATION 1995 ANNUAL REPORT
---------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Company's mats and fibers business, which experienced increased sales volume and
higher selling prices, reflecting higher levels of U.S. and European
construction activity, as well as the high utilization of continuous filament
glass capacity throughout the industry. The Company's specialty insulations and
filtration business' sales increased moderately as sales volume reflected
stronger construction markets, growth in electronics and pharmaceutical markets
and an expanding market for battery separators, partially offset by a decline in
the sales of the Company's molded automotive products and aerospace insulation.
Gross profit for 1994 increased $84.6 million, or 32.9 percent, compared
with 1993.
Gross profit in 1993 was increased by the effect of a $6.4 million reversal
of costs accrued for the rebuild of the Company's glass furnaces. Excluding the
effect of the $6.4 million reversal of rebuild costs, cost of sales increased
two percent over 1993 on a 9.6 percent increase in net sales, resulting in a 5.3
percentage point improvement in gross profit margin to 26.8 percent in 1994 from
21.5 percent in 1993. The gross profit improvement was due primarily to higher
1994 sales volume, including higher volume of commercial roofing products
resulting from the acquisition of a commercial roofing business and related
manufacturing efficiencies in most of the Company's businesses resulting from
increasing U.S. and European construction activity. In addition, gross profit
improved as a result of higher selling prices in building insulation and mats
and fibers.
During 1993, a furnace that was no longer needed to meet production demands
was dismantled and, accordingly, the $2.4 million rebuild allowance for this
furnace was reversed. In addition, 1993 gross profit increased due to a $4
million reversal of a special reconstruction allowance for an unscheduled
rebuild of the channel of a glass furnace. The special reconstruction allowance
was initially established in 1991, after it was determined that the channel did
not meet performance specifications. Modifications and repairs made to the
channel during 1992 to stabilize its performance were successful in delaying the
need for a special reconstruction. In 1993, the Company's engineers determined
that due to the success of the repairs, the channel could continue to operate
until the next scheduled rebuild for the entire furnace. Therefore, $4 million
of the special allowance for the channel reconstruction was reversed in 1993.
Operating expenses increased $16.2 million, or 10 percent, in 1994 compared
with the same period of 1993 due to higher product development, environmental
compliance and information systems development expenses. These operating
expenses as a percentage of net sales remained flat at 14 percent in both 1994
and 1993.
During 1993, the Company initiated restructuring programs resulting in
charges totaling $32 million, which consisted of $3.2 million for the settlement
of litigation related to a former business; $6.7 million for the exit of the
residential roofing business, which included $1.6 million for the separation of
approximately 75 employees, $2.4 million for the writedown of assets and $2.7
million for other related costs; and $7.5 million primarily for the separation
of approximately 125 salaried employees, principally in its mats and fibers
business in the Engineered Products segment, precipitated by U.S. competitive
pressures and weak European construction markets. Other restructuring charges in
1993 totaled approximately $1.9 million and primarily related to cash expenses
associated with former business operations and a loss on the sale of an oil and
gas property.
twenty nine
<PAGE>
SCHULLER CORPORATION 1995 ANNUAL REPORT
- ---------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Restructuring of operations in 1993 also included a $12.7 million charge
related to the Company's former phenolic roofing insulation business which
consisted of $15.6 million for estimated sampling, inspection and remediation
expenses; $2.5 million for estimated legal costs; $1 million for administration
of the sampling and inspection program; and $0.6 million for the write-off of
equipment, offset by $7 million of expected insurance recoveries. The accrual
for sampling, inspection, remediation and administration costs reflected the
Company's decision to continue this voluntary program and was based on
information available at that time, including the Company's previous experience
in sampling, inspecting and remediating roofs with phenolic insulation. The
accrual for legal costs reflected the Company's decision to commence litigation,
after initial attempts to negotiate settlements with the former owner of the
business and the Company's insurance carrier failed. For additional information,
see Note 13 of the Notes to the Consolidated Financial Statements.
During 1993, the Company reduced its salaried workforce by approximately
130 employees, reducing annual payroll and benefit costs by approximately $7
million. In addition, the Company estimates that the exit of the residential
roofing business, combined with the purchase of a commercial and industrial
roofing business, reduced annual fixed costs in the Building Products segment by
approximately $4 million.
During 1994, the Company did not record any additional restructuring
charges and continued the voluntary phenolic inspection and remediation program.
In addition during 1994, the Company's salaried workforce was reduced by an
additional 60 individuals as a result of the continuation of the Company's
rationalization program and its exit from the residential roofing business,
further reducing annual payroll and benefit costs by approximately $3.2 million.
The Company has not incurred any material incremental costs for increased
subcontracting, replacement or outsourcing services as a result of the
restructuring activities described above.
Cash spending in connection with these separations, the rationalization of
the mats and fibers business and the exit from the residential roofing business
totaled $9.1 million and $17.2 million during 1994 and 1993, respectively. Cash
paid in connection with the voluntary phenolic inspection and remediation
program totaled $9.8 million and $6.3 million during 1994 and 1993,
respectively. At December 31, 1994 and 1993, the remaining restructuring
reserves totaled $16.4 million and $36 million, respectively.
Other expense, net, increased $10.6 million to $21 million in 1994 from
$10.4 million in 1993. The increase is primarily attributable to an $8.9 million
charge for additional legal costs associated with the Company's litigation with
its insurance carrier and the former owner of the phenolic insulation business.
Beginning in the fourth quarter of 1994, the Company recorded expenses,
that would previously have been reported as restructuring of operations,
pursuant to the consensus of the Emerging Issues Task Force reached in the
fourth quarter of 1994 on Issue No. 94-3, "Liability
thirty
<PAGE>
SCHULLER CORPORATION 1995 ANNUAL REPORT
-----------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Recognition for Costs to Exit an Activity (including Certain Costs Incurred in a
Restructuring)" ("EITF No. 94-3"). Accordingly, adjustments to the Company's
accruals since that time related to its former phenolic roofing insulation
business have been reported as a component of other income (expense), net.
Income from operations for 1994 increased $89.8 million to $142.3 million
in 1994 from $52.5 million in 1993. Income from operations in 1993 included
restructuring charges of $32 million. Excluding the 1993 restructuring charges,
1994 income from operations increased $57.8 million, or 68.5 percent, from $84.5
million in 1993. This increase is due primarily to increased sales volumes,
improved manufacturing efficiencies and increased selling prices experienced by
certain of the Company's businesses during 1994.
During 1994, the Company sold a portion of its equity investment in
Stillwater for net cash proceeds of approximately $25.5 million, resulting in a
pretax gain on the sale of equity investment of $13.5 million.
Compared with 1993, interest income in 1994 decreased by $15.4 million, due
primarily to $13 million of interest income received in 1993 on the income tax
refund described below, as well as lower interest rates and lower average cash
balances.
Interest expense in 1994 decreased by $9.2 million, or 16.1 percent,
primarily due to the Trust Bonds prepayment discussed below.
In 1994, the Company recorded $18.3 million of profit sharing expense which
was paid in 1995 to the PI Trust, as required in connection with the Plan.
Profit sharing expense for 1993 totaled $13 million and was paid in 1994.
INCOME TAXES
The 1994 effective tax rate on income from operations was 43 percent. This is
higher than the U.S. federal statutory tax rate principally due to higher
foreign effective tax rates and state taxes. The 1993 income tax benefit of
$52.7 million includes the effect of a number of unusual items that are
described more fully below. Exclusive of the unusual items, the 1993 tax rate on
income from operations was 330 percent. This rate is substantially higher than
the U.S. federal statutory tax rate principally due to taxes on earnings derived
from foreign operations and taxes on expected repatriations of undistributed
foreign earnings, neither of which was totally offset by tax benefits from
losses in the United States.
For income tax purposes, the Company is entitled to a tax benefit on the
amount of certain payments made to the PI Trust, including common stock
dividends, in the years in which amounts from such payments are transferred to a
specific settlement fund within the PI Trust or paid to claimants. For financial
reporting purposes, the Company records a tax benefit on the amount of common
stock dividends paid to the PI Trust at the time the dividends are paid.
thirty one
<PAGE>
SCHULLER CORPORATION 1995 ANNUAL REPORT
- ---------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Accordingly, the Company recognized a $34 million tax benefit in 1993 on
the portion of the $1.04 Common Stock dividend that was paid to the PI Trust,
partially offset by an additional deferred tax asset valuation allowance of $7
million. In accordance with SFAS No. 109, the Company's valuation allowance on
all deferred tax assets is subject to change as forecasts of future years'
earnings and the estimated timing of the utilization of the Company's tax
benefits are revised.
In addition, during the first half of 1993, the Company received a U.S.
income tax refund of $32.1 million due to a retroactive change in U.S. income
tax regulations, which was recorded in 1993 as a reduction to income tax expense
of $18.7 million and an increase to interest income of $13.4 million. U.S. and
foreign tax rate changes also provided the Company a $24.1 million tax benefit
in 1993.
DISCONTINUED OPERATIONS
Income from discontinued operations, net of tax and minority interest, reflects
the operating results of Riverwood. Higher income from operations in 1994 over
1993 was partially offset by income taxes related to Riverwood's sale of a
portion of its Brazilian operations.
EXTRAORDINARY GAIN (LOSS) ON EARLY EXTINGUISHMENTS OF DEBT
In the third and fourth quarters of 1994, the Company completed two debt
refinancings, described below, that resulted in an aggregate extraordinary loss
on early extinguishments of debt of $28.4 million, net of related income taxes
of $13 million.
Riverwood completed a refinancing program in the third quarter of 1994 and
prepaid approximately $179 million principal of notes. The extraordinary charge
for this early retirement of debt was $7.9 million, net of income taxes of
approximately $5 million.
In conjunction with the 1994 prepayment of substantially all of the Trust
Bonds, the Company recorded an extraordinary loss of $26.8 million, net of
related income taxes of $11.4 million, in the third quarter of 1994. In the
fourth quarter of 1994 the extraordinary loss on the Trust Bonds was reduced by
$6.3 million, net of related income taxes of $3.4 million, due to an agreed upon
adjustment contained in the prepayment agreement. This resulted in a total
extraordinary loss on the Trust Bonds prepayment in 1994 of $20.5 million, net
of related income taxes of $8 million.
In the third quarter of 1993 the Company recorded an extraordinary gain of
$0.9 million, net of related income taxes of $0.5 million, to adjust an
estimated extraordinary loss previously recorded in 1992 on a partial prepayment
of the Trust Bonds.
CUMULATIVE EFFECT OF ACCOUNTING CHANGE
Effective January 1, 1993, the Company adopted Statement of Financial Accounting
Standards No. 112, "Employers' Accounting for Postemployment Benefits" ("SFAS
No. 112"). As a result, the Company recognized an accumulated postemployment
benefit obligation of $13.9 million, net of income taxes of $8.6 million, of
which $2.2 million, net of income taxes, related to the discontinued operations
of Riverwood. See Note 24 of the Notes to the Consolidated Financial Statements.
EARNINGS PER COMMON SHARE
Primary and fully diluted earnings per common share for 1994 were $0.10 each as
compared with the primary and fully diluted earnings per common share of $0.21
each for
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<PAGE>
SCHULLER CORPORATION 1995 ANNUAL REPORT
---------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
1993. The extraordinary net gain (loss) from the early extinguishments of debt
described above decreased primary and fully diluted earnings per common share by
$0.23 each in 1994 and increased primary and fully diluted earnings per common
share by $0.01 each in 1993. In addition, the net charge to recognize the
cumulative effect of the adoption of SFAS No. 112 in 1993 reduced primary and
fully diluted earnings per common share by $0.11 each.
Earnings per common share amounts are calculated after deducting preference
stock dividends/accretion on the Cumulative Preference Stock, Series B.
- ---------------------------------------------------------
FACTORS THAT MAY AFFECT FUTURE OPERATING RESULTS
AND FINANCIAL CONDITION
CYCLICALITY OF DEMAND
Demand for the Company's products has historically been cyclical due to
macroeconomic factors affecting commercial and residential construction markets.
Due to their specific market niches, the Company's filtration and specialty
products are less sensitive to business cycles. The Company estimates that
approximately half of its annual sales are to commercial and industrial
construction markets, one-third are to residential markets and the remainder are
to original equipment manufacturers.
During 1995, U.S. commercial and European construction activity increased
over 1994 levels. However, U.S. housing starts declined from 1994 levels and the
Company's building insulation business experienced price declines in the second
half of 1995 due to new capacity added by a competitor.
During 1996, capacity is expected to remain constrained in markets served
by the Company's filtration and U.S. mats and fibers businesses. In addition,
the Company expects softness in European construction markets, and little change
in new domestic residential, commercial and industrial construction. However,
the effects of energy conservation trends, repair and remodel activity, the
introduction of new product lines and geographic expansion are expected to
mitigate the effects of static construction activity and downward pricing
pressures for building insulation.
RECENT ACQUISITIONS
Effective January 1, 1996, the Company formed a joint venture with China
National New Building Materials Corporation ("CNNBMC") and Tianma Corporation to
manufacture fiber glass mat in China. The Company has a 60 percent interest in
the joint venture while CNNBMC and Tianma Corporation each hold a 20 percent
interest. The new joint venture will operate and expand an existing fiber glass
mat facility in the City of Changzhou, Jiansu Province, near Shanghai. In
addition, during the first quarter of 1996, the Company acquired Web Dynamics, a
U.S. manufacturer of synthetic filtration products which will be accounted for
under the purchase method. These transactions relate to businesses of the
Engineered Products segment.
During the first quarter of 1996, the Company acquired the commercial and
industrial roofing businesses of Nord Bitumi SpA, headquartered in Verona,
Italy, and Nord Bitumi U.S., Inc. (collectively "Nord"). Nord operates four
manufacturing facilities in the United States and one each in Mexico and Italy.
The Nord acquisition will complement and expand the Company's existing
commercial and industrial roofing product lines of the Building Products
segment. This acquisition will be accounted for under the purchase method.
thirty three
<PAGE>
SCHULLER CORPORATION 1995 ANNUAL REPORT
- ---------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The combined purchase price for the Company's interest in the joint venture
and the acquisitions described above totaled approximately $71 million, which
will be financed primarily from existing cash balances.
CAPITAL SPENDING AND CAPACITY EXPANSION
The Company's capacity expansion programs are periodically revised to reflect
changes in demand, industry capacity and the results of productivity
improvements and technological innovations. In order to meet strong worldwide
demand for its mats and fibers products, the Company announced plans during 1995
to increase its U.S. production capacity of continuous filament fiber glass. The
Company also plans to continue the expansion of its filtration business' ultra-
fine fibers production capacity during 1996. The Company estimates capital
spending in 1996 of approximately $100 million to $110 million, excluding
acquisitions, of which approximately $40 million to $50 million will be used
primarily in the capacity expansion programs described above. As of December 31,
1995, outstanding purchase commitments relating to capital spending and capacity
expansion projects totaled $20.4 million. The Company plans to fund these
projects from existing cash balances and cash flows generated by operations.
In response to the implementation of the 1990 Amendments to the federal
Clean Air Act and requirements of various state air emissions regulations, the
Company will be obligated to monitor and reduce air emissions at its
manufacturing sites. Because many of the anticipated regulations have not yet
been proposed, neither the costs nor timing of compliance can be reasonably
anticipated at this time. Provisions of Titles III and VII of the 1990
Amendments and the related regulations will likely require capital expenditures
in the years 1996-2001, with most of the expenditures occurring in the latter
part of that time frame.
CONTINGENT PRODUCT LIABILITY
Between 1988 and 1992, the Company manufactured phenolic roofing insulation
which may, under certain circumstances, contribute to the corrosion of metal
decks on which it is installed. Subsequently, the Company began a voluntary
program to inspect such metal decks and remediate where appropriate. The Company
has also accrued for costs relating to future inspections, remediation and
anticipated claims. These accruals are based on the Company's historical
experience regarding the incidence of corrosion and the cost of remediation and
include a number of assumptions related to the types of roofs on which phenolic
insulation has been installed as well as the assumption that the Company's past
remediation experience will continue over the remaining lives of roofs insulated
with the Company's phenolic roofing insulation.
During the first quarter of 1995, the Company and its liability insurance
carriers reached a settlement with respect to the extent of coverage to be
provided by such carriers. In addition, during the third quarter of 1995, the
Company and the former owner of the phenolic roofing insulation
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<PAGE>
SCHULLER CORPORATION 1995 ANNUAL REPORT
---------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
business reached an agreement with respect to the costs to be reimbursed by the
former owner. Pursuant to these agreements, the Company has been reimbursed for
a portion of historical costs incurred and is entitled to receive reimbursement
for a substantial portion of future costs to be incurred by the Company for
inspection and remediation.
In 1996, the Company and a third party were named as defendants in two
class action cases filed in U.S. District Court in Boston, Massachusetts. The
plaintiffs purport to represent all building owners in the United States with
phenolic insulation installed on their roof decks and seek damages and
injunctive relief, including an order requiring the removal and replacement of
the phenolic insulation and remediation of any deck corrosion. The Company
intends to defend these allegations vigorously.
The Company has reviewed its historical inspection and remediation
experience and the terms and collectibility of amounts payable under the
reimbursement agreements in light of the contingencies described above. Based on
the information available to date and subject to the assumptions described
above, if additional costs are incurred in excess of the accrued amounts, such
costs are not expected to have a material adverse effect on the Company's
financial condition, liquidity or results of operations.
RESTRUCTURING ACTIVITIES
During 1993, the Company recorded restructuring charges for the reorganization
of its business activities. These restructuring charges were accrued pursuant to
the adoption of a formal plan and included costs associated with the adoption
and implementation of the plan, including certain costs for ongoing activities
associated with former business operations. Beginning in the fourth quarter of
1994, the Company recorded expenses that would previously have been reported as
restructuring of operations pursuant to the consensus of EITF No. 94-3.
Accordingly, adjustments to the Company's accruals related to its former
phenolic roofing insulation business have been reported as a component of other
income (expense), net.
The outstanding restructuring liabilities resulting from the implementation
of previously initiated plans totaled $7.6 million and $16.4 million at December
31, 1995 and 1994, respectively. The liabilities at December 31, 1995, related
primarily to inspection, sampling and remediation costs associated with the
former phenolic roofing insulation business, product warranties for previously
discontinued product lines and the Company's exit of the residential roofing
business. Programs for separations of employees initiated in 1993 related to the
rationalization of the mats and fibers business and the exit of the residential
roofing business were completed during 1995. Cash paid in connection with
restructuring activities totaled $8.3 million and $18.9 million during 1995 and
1994, respectively.
The Company expects to pay the majority of its remaining restructuring
liabilities in cash during 1996. Liabilities related to product warranties for
previously discontinued product lines will be paid out in cash over the
remaining warranty period, generally 15 years.
thirty five
<PAGE>
SCHULLER CORPORATION 1995 ANNUAL REPORT
- ---------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Management believes that its restructuring programs over the past several
years have successfully eliminated non-essential functions and excess costs,
and, based on current short and long-term forecasts of required manufacturing
and administrative support, that such cost reductions will benefit future
operations and enable the Company to compete effectively throughout the full
business cycle. However, there can be no assurance that the Company will be able
to maintain its current cost structure or competitive position in the future.
The Company does not foresee significant restructuring charges in the near
future.
USE OF ESTIMATES
The preparation of the Company's consolidated financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in these financial
statements. Actual results may differ from those estimates.
NEW ACCOUNTING PRONOUNCEMENTS
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to Be Disposed Of" ("SFAS No. 121"). The
standard requires the recognition of an impairment loss on certain identifiable
intangible assets and long-lived assets in use or held for disposal when events
or circumstances indicate the carrying value of these assets may not be
recoverable or exceeds their fair value. Companies generally will have until
1996 to adopt this new standard, though early application is encouraged. At this
time, the Company does not expect the adoption of SFAS No. 121 to have a
material impact on the Company's financial position or results of operations.
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS No. 123"). The standard encourages, but does not require,
companies to recognize compensation expense for grants of stock, stock options
and other equity instruments to employees based on fair value accounting rules.
The standard requires companies that choose not to adopt the new fair value
accounting rules to disclose pro forma net income and earnings per share under
the new method. The standard is effective for fiscal years beginning after
December 15, 1995. The Company has not yet determined if it will adopt the
accounting provisions or only the disclosure provisions of SFAS No. 123.
- ---------------------------------------------------------
LIQUIDITY AND CAPITAL RESOURCES
The Company broadly defines liquidity as the ability to generate sufficient cash
flow to satisfy operating requirements, fund capital expenditures and meet
existing obligations and commitments. In addition, liquidity also includes the
ability to obtain appropriate financing and
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<PAGE>
SCHULLER CORPORATION 1995 ANNUAL REPORT
---------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
convert into cash those assets that are no longer required to meet the Company's
strategic objectives. Therefore, liquidity should not be considered separately
from capital resources, which consist of currently or potentially available
funds for use in achieving long-range business objectives and meeting debt
service commitments. Additionally, the Company's relationship with the PI Trust
should be considered in evaluating liquidity.
The Company's agreements with its lenders and other agreements with the PI
Trust and Manville Property Damage Settlement Trust (the "PD Trust"), contain a
number of financial and general covenants. These include, among other things,
restrictions on borrowings, investments, stock issuances and repurchases,
dividends and other distributions by Schuller International, and restrictions on
intercompany transactions, including transfers of cash. As of December 31, 1995
and 1994, the maximum amount available for dividends to be paid by Schuller
International under their most restrictive debt covenants was approximately $172
million and $115 million, respectively. Noncompliance with these or other
covenants, or the occurrence of any other event of default, could result in the
termination of existing credit agreements and the acceleration of debt owed by
the Company and its subsidiaries. At December 31, 1995, the Company was in
compliance with these covenants.
Tax sharing agreements between Schuller Corporation and its two primary
subsidiaries provide that their U.S. federal and consolidated state income taxes
be calculated as if they were independent entities and that such tax amounts be
remitted to Schuller Corporation. The Company is able to apply its tax benefits
to reduce the consolidated domestic tax obligations, allowing Schuller
Corporation to retain a large portion of the cash paid by the subsidiaries. Cash
payments made to Schuller Corporation for its subsidiaries' U.S. federal taxes
in 1995 and 1994 totaled approximately $74 million and $37 million,
respectively. In connection with the disposition of Riverwood the tax sharing
agreement between Schuller Corporation and Riverwood is no longer effective as
of March 27, 1996.
The Company's cash and marketable securities balances increased $205.8
million during 1995 to $427.8 million at December 31, 1995, from $222 million at
December 31, 1994. At December 31, 1995, $383.5 million of the cash and
marketable securities balances was available for domestic operating purposes.
Cash provided by operations increased $30.7 million during 1995 to $217.6
million at December 31, 1995, from $186.9 million at December 31, 1994. The
improvement in the Company's cash flow from operations from 1994 to 1995 is
primarily attributable to improved operating results, driven by increased sales.
During 1995, most of the Company's businesses reported increased sales volume,
while the building insulation and mats and fibers businesses also benefited from
higher selling prices.
Cash used in investing activities totaled $88.3 million and $44.5 million
for the years ended December 31, 1995 and 1994, respectively. Investing
activities relate primarily to the purchase of property, plant and equipment and
net purchases of marketable securities, offset in part by proceeds from sales of
assets, primarily Stillwater.
thirty seven
<PAGE>
SCHULLER CORPORATION 1995 ANNUAL REPORT
- ---------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Capital expenditures during 1995 totaled $111.3 million, of which
approximately $60 million related to capacity expansion projects. Capital
expenditures for the year ended December 31, 1994, totaled $73.9 million, of
which approximately $30 million related to capacity expansion projects. Capital
expenditures to limit and monitor hazardous substances or pollutants totaled
approximately $4.2 million and $7 million during the years ended December 31,
1995 and 1994, respectively.
Cash used in financing activities primarily related to preference stock
dividend payments. Dividends on the Company's Cumulative Preference Stock,
Series B, began being paid quarterly in 1994 at an annual rate of $2.70 per
share, but are payable only at the discretion of the Company's Board of
Directors after other funding requirements under the Plan have been met. The
Company paid cash dividends totaling $24.9 million and $22.8 million during 1995
and 1994, respectively, to Cumulative Preference Stock, Series B, stockholders.
In February 1996, the Company declared a dividend on its Cumulative Preference
Stock, Series B, totaling $6.2 million, or $0.675 per share, payable March 1,
1996, to stockholders of record on February 20, 1996. As discussed under
Subsequent Events, the Company has called its Cumulative Preference Stock,
Series B, for redemption, effective April 30,1996.
In addition, financing activities during 1995 resulted in a net increase in
the Company's total outstanding debt to $449 million at December 31, 1995 from
$444 million at December 31, 1994. This increase was primarily attributable to
the issuance of industrial revenue bonds in connection with the expansion of an
existing plant facility.
At December 31, 1995, the Company had $93 million available under a
receivables sale facility ("the Receivables Facility") for its domestic short-
term working capital requirements. Amounts available for borrowing under the
Receivables Facility, up to a maximum of $100 million, are based on the daily
balance of certain outstanding trade accounts receivable adjusted for various
factors as defined under the terms of the Receivables Facility. There were no
borrowings under the Receivables Facility through December 31, 1995. In
addition, the Company's foreign subsidiaries had working capital facilities
totaling $70 million available for borrowing at December 31, 1995.
The Company believes that its current cash position, cash generated from
operations, the Receivables Facility and foreign working capital facilities will
enable it to satisfy its debt service requirements, its ongoing capital spending
and capacity expansion program and its other ongoing operating costs. However,
the Company may need to access capital markets to pay the principal of the
Schuller International Senior Notes due in 2004 or in connection with possible
future acquisitions.
PROFIT SHARING OBLIGATION
Beginning in 1992, the Company became obligated under the Plan to pay annually
to the PI Trust 20 percent of net earnings (adjusted as specified in the
definition of "Profits" in the Amended and Restated Supplemental Agreement
between the PI Trust and Schuller). Payments were due each year based on the
prior year's net earnings. The profit sharing right of the PI Trust was a right
to annual payments if
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<PAGE>
SCHULLER CORPORATION 1995 ANNUAL REPORT
---------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
and when the Company had income and was not a right or lien against the assets
of the Company. The amount of the profit sharing became probable and reasonably
estimable only when the Company had earnings. The profit sharing obligation was
a period cost based on actual results of the period in which earned. During
1995, the Company recorded $27.7 million of profit sharing expense to be paid in
1996, as required in connection with the Plan.
In October 1995, the Company and the PI Trust signed a profit sharing
exchange agreement (the "Agreement"), and in April 1996 the PI Trust exchanged
(the "Exchange") its profit sharing right to 20 percent of the Company's net
earnings (as adjusted) for approximately 32.5 million shares of common stock of
Schuller Corporation, which represented 20 percent of the common stock of
Schuller on a fully diluted basis, as defined in the Agreement, and after giving
effect to the Exchange. In accordance with the Agreement, Schuller declared a
pro rata dividend to all common stockholders in late March 1996, payable in
April 1996, totaling approximately $974 million, or $6.00 per share, which
represented a substantial portion of the proceeds from the disposition of
Riverwood.
The Company will pay a partial-year profit sharing payment to the PI Trust
for that portion of 1996 through the closing date of the Exchange. The payment
will be 20 percent of net earnings (as adjusted) for the partial-year period.
The Company will record an extraordinary loss in the first quarter of
1996 for the fair market value of the common stock exchanged. See Note 26 of
the Notes to the Consolidated Financial Statements.
RELATIONSHIP OF SCHULLER TO THE PERSONAL INJURY TRUST
The PI Trust owns approximately 79 percent of Schuller's Common Stock after the
Exchange, assuming exercise of all outstanding warrants. The PI Trust is an
irrevocable trust formed under the laws of the State of New York, pursuant to a
trust agreement dated as of November 28, 1988, as amended (the "Trust
Agreement"), to implement certain portions of the Plan, in particular, those
relating to the settlement of asbestos health claims against Schuller and
certain of its affiliates. As the owner of approximately 79 percent of
Schuller's Common Stock after the Exchange, the PI Trust has effective voting
control over the Company, including the power to elect Schuller directors as the
trustees of the PI Trust determine. Three trustees of the PI Trust currently
serve as members of Schuller's Board of Directors.
In furtherance of its purposes under the Trust Agreement of enhancing and
preserving its trust estate and providing compensation to bona fide asbestos
health claimants, the PI Trust has an interest in maximizing the value of, and
at times increasing the liquidity of, its investment in the Company. The PI
Trust may from time to time consider and discuss with management various means
by which the Company might seek to maximize stockholder value and enhance
stockholder liquidity. The Company conducts all negotiations with the PI Trust
on an arm's-length basis, with both parties being represented by their own legal
and financial advisors. Significant transactions with the PI Trust are reviewed
by the Board of Directors, after consultation with appropriate external advisors
and experts, to determine that the transactions are fair. In addition, the Audit
Committee of the Board of Directors reviews the accounting treatment for such
transactions.
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<PAGE>
SCHULLER CORPORATION 1995 ANNUAL REPORT
- ---------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SUBSEQUENT EVENTS
In late March 1996, the Company disposed of its 81.3 percent interest in
Riverwood and received gross cash proceeds of $1.08 billion. Based on the
December 31, 1995, unaudited pro forma balance sheet included in the Company's
consolidated financial statements, the Company would have an estimated net gain
of approximately $112 million, after tax, on the disposition of Riverwood.
The Company has agreed to indemnify the purchaser of Riverwood and certain
affiliated parties against losses resulting from a breach of representations or
warranties with respect to (i) certain Riverwood filings with the Securities and
Exchange Commission, (ii) the absence of undisclosed Riverwood liabilities and
(iii) certain Riverwood environmental matters.
The Company will not be required to indemnify the purchaser for losses
until the aggregate amount of all losses exceeds $20 million. In addition, the
Company's obligation to indemnify is limited to 80 percent of the amount of
losses in excess of $20 million. The aggregate liability of the Company will not
exceed $100 million. The Company's obligation to indemnify is limited to claims
made on or prior to May 31, 1997.
In this regard, the Louisiana Department of Environmental Quality notified
Riverwood, by letter dated December 19, 1995, that Riverwood may be liable
for the remediation of the release or threat of release of hazardous substances
at two sites that Riverwood or its predecessor previously operated in
Shreveport, Louisiana and Caddo Parish, Louisiana. Schuller has consented to be
responsible, subject to the provisions of the preceding paragraph, for losses
incurred in connection with these matters to the extent such losses exceed $1
million. Schuller is currently evaluating these claims.
In addition, the Company is responsible for certain Riverwood U.S. federal,
state and local income tax liabilities to the extent they are attributable to
audit adjustments for tax periods ending prior to the disposition of Riverwood.
The Company also expects to redeem its $24.7 million of 9 percent Sinking
Fund Debentures and its Preference Stock, Series B (aggregate liquidation value
of $230.8 million) in 1996. In late March 1996, the Company declared a dividend
of $6.00 per common share, payable in April 1996. As a result of the Exchange,
the PI Trust will receive a total dividend of approximately $771 million. See
Note 26 of the Notes to the Consolidated Financial Statements.
Dividend payments to the PI Trust represent a tax benefit to the Company
that will become a current deduction when and to the extent the PI Trust pays
such amounts to claimants or transfers such amounts to a specific settlement
fund. See Note 22 of the Notes to the Consolidated Financial Statements. The
Company expects the PI Trust to transfer its entire dividend proceeds to the
settlement fund in 1996, which will result in a current tax deduction for the
Company. This current tax deduction will be utilized to shelter a substantial
portion of the tax gain on the disposition of Riverwood, which will result in
cash tax payments to be made in conjunction with the disposition at rates
significantly lower than normal statutory rates.
For financial reporting purposes, the tax benefit on the dividend will be
realized at less than normal statutory rates since a portion of the dividend is
considered to have previously been recorded in the Company's deferred tax asset.
forty
<PAGE>
Item 8. Financial Statements and Supplementary Data
SCHULLER CORPORATION 1995 ANNUAL REPORT
---------------------------------------------
INDEX TO FINANCIAL STATEMENTS
AND SUPPLEMENTARY DATA
Consolidated Balance Sheet, December 31, 1995 and 1994________________________42
Consolidated Statement of Income, for each of the three
years in the period ended December 31, 1995___________________________________44
Consolidated Statement of Cash Flows, for each of the three
years in the period ended December 31, 1995___________________________________45
Consolidated Statement of Stockholders' Equity, for each
of the three years in the period ended December 31, 1995______________________46
Notes to Consolidated Financial Statements____________________________________48
Management's Report___________________________________________________________80
Report of Independent Accountants_____________________________________________81
Supplementary Data:
Selected Quarterly Financial Data, for each of the two years
in the period ended December 31, 1995 (Unaudited)_____________________________82
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<PAGE>
Schuller Corporation 1995 Annual Report
- ---------------------------------------------------------
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
Unaudited
In thousands of dollars Pro forma
December 31, 1995 1994 1995 (Note 26)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
Current Assets
Cash and equivalents $ 310,809 $ 204,291 $ 159,556
Marketable securities, at cost, which approximates market 116,958 17,681 116,958
Receivables 195,780 198,014 195,780
Inventories 77,121 56,594 77,121
Prepaid expenses 5,807 7,439 5,807
Deferred tax assets 31,233 34,165 31,233
- -------------------------------------------------------------------------------------------------------------------------
Total Current Assets 737,708 518,184 586,455
- -------------------------------------------------------------------------------------------------------------------------
Property, Plant and Equipment, at cost
Land and improvements 43,442 41,712 43,442
Buildings 218,750 198,791 218,750
Machinery and equipment 1,035,240 982,352 1,035,240
- -------------------------------------------------------------------------------------------------------------------------
1,297,432 1,222,855 1,297,432
Less accumulated depreciation and depletion 580,022 555,061 580,022
- -------------------------------------------------------------------------------------------------------------------------
Property, Plant and Equipment, net 717,410 667,794 717,410
- -------------------------------------------------------------------------------------------------------------------------
Deferred Tax Assets 414,711 462,728 208,756
Other Assets 228,629 259,235 210,549
Net Assets Held for Sale (Note 7) 375,601 409,557
- -------------------------------------------------------------------------------------------------------------------------
Total Assets $2,474,059 $2,317,498 $1,723,170
- -------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
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<PAGE>
Schuller Corporation 1995 Annual Report
---------------------------------------------------
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
Unaudited
In thousands of dollars Pro forma
December 31, 1995 1994 1995 (Note 26)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
LIABILITIES
Current Liabilities
Short-term debt $ 2,042 $ 2,233 $ 111
Accounts payable 93,240 91,377 93,240
Compensation and employee benefits 104,550 104,253 104,550
Income taxes 28,768 22,204 20,433
Other accrued liabilities 103,005 83,385 100,928
- ----------------------------------------------------------------------------------------------------------------------
Total Current Liabilities 331,605 303,452 319,262
Long-Term Debt, less current portion 447,007 441,798 424,261
Deferred Income Taxes 47,362 35,688 47,362
Postretirement Benefits Other Than Pensions 204,445 209,603 204,445
Other Noncurrent Liabilities 263,174 246,611 263,174
- ----------------------------------------------------------------------------------------------------------------------
Total Liabilities 1,293,593 1,237,152 1,258,504
- ----------------------------------------------------------------------------------------------------------------------
Profit Sharing Obligation (Note 3)
Commitments and Contingencies (Notes 2, 5 and 13)
- ----------------------------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY
Cumulative Preference Stock, Series B, $1.00 par
value, authorized 11,109,170 shares, issued and
outstanding 9,230,583 shares in 1995 and
1994 (aggregate liquidation value - $230,765) 178,638 178,638
Common Stock, $.01 par value, authorized
175,000,000 shares; issued and outstanding
122,966,974 shares and 122,785,753 shares,
respectively, in 1995, and issued and
outstanding 122,874,624 shares and 122,827,761 shares,
respectively, in 1994 1,228 1,228 1,624
Treasury Stock, at cost (1,999) (407) (1,999)
Capital in Excess of Par Value 1,013,505 1,011,310 508,548
Unearned Restricted Stock Compensation (3,427) (6,013) (3,427)
Accumulated Deficit (39,322) (130,394) (71,923)
Pension Liability Adjustment (841) (435) (841)
Cumulative Currency Translation Adjustment 32,684 26,419 32,684
- ----------------------------------------------------------------------------------------------------------------------
Total Stockholders' Equity 1,180,466 1,080,346 464,666
- ----------------------------------------------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity $2,474,059 $2,317,498 $1,723,170
- ----------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
forty three
<PAGE>
Schuller Corporation 1995 Annual Report
- ---------------------------------------------------
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
In thousands of dollars, except per share amounts
For the Years Ended December 31, 1995 1994 1993
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Sales $1,391,522 $1,277,818 $1,165,810
Cost of Sales 993,111 935,951 908,529
Selling, General and Administrative 150,135 148,797 134,400
Research, Development and Engineering 29,988 29,738 27,972
Restructuring of Operations Loss, net (32,014)
Other Income (Expense), net (17,005) (21,033) (10,444)
- ------------------------------------------------------------------------------------------------------------------
Income from Operations 201,283 142,299 52,451
Gain on Sale of Equity Investment 74,889 13,455
Interest Income 24,177 7,214 22,591
Interest Expense 48,265 47,741 56,893
Profit Sharing Expense (Note 3) 27,661 18,259 12,993
- ------------------------------------------------------------------------------------------------------------------
Income from Continuing Operations before Income Taxes 224,423 96,968 5,156
Income Tax Expense (Benefit) 102,417 41,362 (52,681)
- ------------------------------------------------------------------------------------------------------------------
Income from Continuing Operations 122,006 55,606 57,837
Income from Discontinued Operations,
net of tax and Minority Interest (Note 7) 36,491 9,810 2,935
Gain (Loss) on Disposal of Discontinued Operations, net of tax (Note 7) (42,502)
- ------------------------------------------------------------------------------------------------------------------
Income before Extraordinary Item and
Cumulative Effect of Accounting Change 115,995 65,416 60,772
Extraordinary Gain (Loss) on Early
Extinguishments of Debt, net of tax (28,420) 891
Cumulative Effect of a Change in Accounting for
Postemployment Benefits, net of tax (13,881)
- ------------------------------------------------------------------------------------------------------------------
Net Income 115,995 36,996 47,782
Preference Stock Dividends/Accretion (24,923) (24,923) (22,545)
- ------------------------------------------------------------------------------------------------------------------
Net Income Applicable to Common Stock $ 91,072 $ 12,073 $ 25,237
- ------------------------------------------------------------------------------------------------------------------
Earnings (Loss) Per Common Share
(After Preference Stock Dividends/Accretion)
- ------------------------------------------------------------------------------------------------------------------
Primary and Fully Diluted:
Income from Continuing Operations $ .78 $ .25 $ .29
Income from Discontinued Operations,
net of tax and Minority Interest (Note 7) .29 .08 .02
Gain (Loss) on Disposal of Discontinued Operations, net of tax (Note 7) (.34)
- ------------------------------------------------------------------------------------------------------------------
Income before Extraordinary Item and
Cumulative Effect of Accounting Change .73 .33 .31
Extraordinary Gain (Loss) on Early
Extinguishments of Debt, net of tax (.23) .01
Cumulative Effect of a Change in Accounting for
Postemployment Benefits, net of tax (.11)
- ------------------------------------------------------------------------------------------------------------------
Net Income Applicable to Common Stock $ .73 $ .10 $ .21
- ------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
forty four
<PAGE>
Schuller Corporation 1995 Annual Report
----------------------------------------------
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
In thousands of dollars
For the Years Ended December 31, 1995 1994 1993
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (before Preference Stock Dividends/Accretion) $ 115,995 $ 36,996 $ 47,782
Noncash items included in net income:
Depreciation and amortization 63,833 59,342 63,141
Deferred taxes 82,123 26,675 (64,908)
Roofing guarantee income 9,352 7,857 5,685
Provision for furnace rebuilds 8,349 8,657 884
Pension and postretirement benefits expense 22,645 22,294 27,501
Restructuring of operations loss 28,389
Net gain on sale of assets (74,889) (15,573)
Interest expense 1,808 30,812 3,237
Profit sharing expense 27,661 18,259 12,993
Income from discontinued operations (36,491) (9,810) (2,935)
Loss on disposal of discontinued operations 42,502
Extraordinary (gain) loss on early extinguishments of debt 20,548 (891)
Cumulative effect of accounting change 11,719
Other, net 12,450 10,344 8,610
Profit sharing paid (18,259) (12,933) (12,123)
Interest accretion paid (110,953)
Premium paid on retirement of debt (9,566)
(Increase) decrease in current assets:
Receivables 4,798 (24,554) (544)
Inventories (19,327) 6,099 (1,414)
Prepaid expenses 1,237 223 156
Increase (decrease) in current liabilities:
Accounts payable (45) 37,528 5,382
Compensation and employee benefits (12,247) (2,495) 4,235
Income taxes (22,556) (13,110) 28,101
Other accrued liabilities 6,737 (1,302) (384)
Decrease in postretirement benefits other than pensions (19,742) (24,895) (22,239)
Decrease in other noncurrent liabilities (7,697) (29,773) (19,398)
Net cash provided by discontinued operations 29,339 35,667 9,429
- -----------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 217,576 186,856 11,889
- -----------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property, plant and equipment (111,329) (73,895) (52,432)
Proceeds from sales of assets 112,672 33,286 18,596
Acquisitions (6,496)
Purchases of available-for-sale marketable securities (68,691)
Purchases of held-to-maturity marketable securities (164,406) (143,749) (35,057)
Proceeds from sale of available-for-sale marketable securities 10,000 2,077
Proceeds from maturities of held-to-maturity marketable securities 135,966 120,221 43,307
(Increase) decrease in other assets (2,561) 17,581 (13,483)
- -----------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (88,349) (44,479) (45,565)
- -----------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of debt 6,622 30,806 14,792
Payments on debt (3,464) (12,950) (56,205)
Dividends on preference stock (24,923) (22,845)
Dividends on common stock (117,430)
Other stock transactions (882) 132 481
- -----------------------------------------------------------------------------------------------------------------------------
Net cash used in financing activities (22,647) (4,857) (158,362)
- -----------------------------------------------------------------------------------------------------------------------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (62) (320) (4,301)
- -----------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS 106,518 137,200 (196,339)
- -----------------------------------------------------------------------------------------------------------------------------
CASH AND EQUIVALENTS AT BEGINNING OF YEAR 204,291 67,091 263,430
- -----------------------------------------------------------------------------------------------------------------------------
CASH AND EQUIVALENTS AT END OF YEAR $ 310,809 $ 204,291 $ 67,091
- -----------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
forty five
<PAGE>
Schuller Corporation 1995 Annual Report
- ----------------------------------------------
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Cumulative
Preference
Stock, Common Treasury
Series B Stock Stock
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BALANCES AT DECEMBER 31, 1992 $ 92,684 $1,229
Net income for the year
Currency translation
Incentive Stock Plan transactions (5)
Accrual of and adjustment to dividends on Common Stock
Accretion on Preference Stock dividend accrual
Preference Stock accretion 13,263
Pension liability adjustment
- ----------------------------------------------------------------------------------------------------------------------
BALANCES AT DECEMBER 31, 1993 105,947 1,224
Net income for the year
Currency translation
Initial public offering of Stillwater common shares
Incentive Stock Plan transactions 4
Reversal of Dividends Accrued Not Declared 72,691
Preference Stock dividends
Pension liability adjustment
Purchase of Treasury Stock $(407)
- ----------------------------------------------------------------------------------------------------------------------
BALANCES AT DECEMBER 31, 1994 178,638 1,228 (407)
Net income for the year
Currency translation
Exercise of warrants for Common Stock
Incentive Stock Plan transactions
Preference Stock dividends
Pension liability adjustment
Purchase of Treasury Stock (1,592)
- ----------------------------------------------------------------------------------------------------------------------
BALANCES AT DECEMBER 31, 1995 $178,638 $1,228 $(1,999)
- ----------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial statements.
forty six
<PAGE>
<CAPTION>
In thousands of dollars
Unearned Cumulative
Capital in Restricted Pension Currency Total
Excess of Stock Accumulated Liability Translation Stockholders'
Par Value Compensation Deficit Adjustment Adjustment Equity
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCES AT DECEMBER 31, 1992 $ 902,188 $(6,788) $(167,704) $(156) $ 25,622 $847,075
Net income for the year 47,782 47,782
Currency translation (5,111) (5,111)
Incentive Stock Plan transactions (2,314) 4,125 1,806
Accrual of and adjustment to dividends on Common Stock 688 688
Accretion on Preference Stock dividend accrual (9,282) (9,282)
Preference Stock accretion (13,263)
Pension liability adjustment (507) (507)
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCES AT DECEMBER 31, 1993 900,562 (2,663) (142,467) (663) 20,511 882,451
Net income for the year 36,996 36,996
Currency translation 5,908 5,908
Initial public offering of Stillwater common shares 3,144 3,144
Incentive Stock Plan transactions 4,842 (3,350) 1,496
Reversal of Dividends Accrued Not Declared 102,762 175,453
Preference Stock dividends (24,923) (24,923)
Pension liability adjustment 228 228
Purchase of Treasury Stock (407)
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCES AT DECEMBER 31, 1994 1,011,310 (6,013) (130,394) (435) 26,419 1,080,346
Net income for the year 115,995 115,995
Currency translation 6,265 6,265
Exercise of warrants for Common Stock 324 324
Incentive Stock Plan transactions 1,871 2,586 4,457
Preference Stock dividends (24,923) (24,923)
Pension liability adjustment (406) (406)
Purchase of Treasury Stock (1,592)
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCES AT DECEMBER 31, 1995 $1,013,505 $(3,427) $(39,322) $(841) $ 32,684 $1,180,466
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
forty seven
<PAGE>
SCHULLER CORPORATION 1995 ANNUAL REPORT
- --------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
In late March 1996, Schuller Corporation changed its name from Manville
Corporation. Schuller Corporation is a holding company consisting of Schuller
International Group, Inc. ("Schuller International") as its principal
subsidiary, and as of December 31, 1995, an investment in Riverwood
International Corporation ("Riverwood"), collectively referred to as "Schuller"
or the "Company". Schuller Corporation owns 100 percent of Schuller
International and, at December 31, 1995, approximately 81.3 percent of
Riverwood.
In October 1995, the Company's Board of Directors adopted a formal plan with
respect to the disposition of its 81.3 percent interest in Riverwood.
Accordingly, the assets and liabilities of Riverwood and related parent company
deferred taxes, goodwill and minority interest have been classified as net
assets held for sale and Riverwood's results of operations have been shown as
discontinued operations for all periods presented (see Note 7).
Manville Personal Injury Settlement Trust (the "PI Trust") owns approximately
79 percent of the Company's Common Stock after the Exchange (defined in Note 3),
assuming exercise of all outstanding warrants. In addition, the Company has a
debt obligation to the PI Trust (present value of $15.5 million at December 31,
1995).
The Company manufactures insulations for buildings and equipment, nonwoven
mats used as reinforcements in building and industrial applications, commercial
roofing systems and high-efficiency air filtration media and fibers. The Company
estimates that approximately half of its annual sales are to commercial and
industrial construction markets, while approximately one-third are to
residential markets, and the remainder are to original equipment manufacturers.
The Company's products are sold to contractors, mass merchants, wholesale
distributors and fabricators throughout North America, Europe and Asia.
(A) PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Schuller
Corporation and its majority-owned subsidiaries. The Company accounts for
investments in which it has a 20 percent to 50 percent ownership interest and
corporate joint ventures using the equity method. All significant intercompany
transactions have been eliminated.
(B) USE OF ESTIMATES
The preparation of the Company's consolidated financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in these financial
statements, including disclosures of contingent liabilities. Actual results may
differ from those estimates.
(C) CASH AND EQUIVALENTS
Cash and equivalents include time deposits, certificates of deposit and other
marketable securities with original maturities of three months or less.
forty eight
<PAGE>
SCHULLER CORPORATION 1995 ANNUAL REPORT
-------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(D) FINANCIAL INSTRUMENTS
The Company uses the amortized cost method of accounting for investments in
held-to-maturity debt securities for which it has the positive intent and
ability to hold to maturity. Fair value accounting is used for debt securities
that are classified as available-for-sale securities. Realized gains and losses
are computed on the specific identification method.
The Company does not obtain collateral or other security to support financial
instruments subject to credit risk, but monitors the credit standing of
counterparties.
(E) INVENTORIES
Inventories are stated at the lower of cost or market. Cost is determined
principally on the last-in, first-out basis (LIFO) for all domestic
subsidiaries. The first-in, first-out (FIFO) basis is used to determine the
cost of inventories for all foreign subsidiaries.
(F) PROPERTY, PLANT AND EQUIPMENT
Expenditures for replacements and betterments are capitalized, while maintenance
and repairs are charged against operations as incurred. Gains and losses arising
from abnormal dispositions are included in operations currently. The carrying
value of normal retirements of property, plant and equipment is charged to
accumulated depreciation, less any amounts realized from disposition, and
continues to be depreciated over the remaining book life. Depreciation expense
is computed using the straight-line method, based upon the estimated useful
lives of the assets. Buildings are depreciated principally over 20 to 40 years,
and machinery and equipment are depreciated principally over 20 years.
(G) PROVISION FOR REBUILDING FURNACES
The Company's glass furnaces have an estimated useful life of approximately 30
years. During that time, the refractory components of the glass furnaces are
periodically rebuilt, typically every six to seven years. The timing of the
periodic rebuilds is dependent upon a number of variables including production
volumes, product mix, and the extent and timing of interim repair and
maintenance work performed.
The estimated cost to rebuild the refractory components of the Company's
glass furnaces is credited to an allowance and charged to operations on a
straight-line basis over the estimated period to the next rebuild date. Unusual,
nonrecurring adjustments to previously established allowances, if required, are
included in operating results.
(H) ISSUANCE OF SUBSIDIARY'S STOCK
Gains or losses arising from issuances by a subsidiary of its own stock are
recorded directly to stockholders' equity.
(I) REVENUE RECOGNITION
The Company recognizes revenue from product sales upon shipment. The Company
estimates and records provisions for cash discounts, quantity rebates, sales
returns, allowances and original warranties in the period the sale is reported,
based on its experience.
forty nine
<PAGE>
SCHULLER CORPORATION 1995 ANNUAL REPORT
- --------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company also sells extended roofing product guarantees for periods of 5
to 20 years. These extended guarantees cover the water tightness of roofing
systems resulting from defects in materials or deficiencies in workmanship.
Revenue on these product guarantees for other than single-ply roofing products
is recognized on a straight-line basis over the lives of the guarantees, which
approximates the timing of the costs incurred to fulfill such contractual
obligations. Single-ply roofing guarantee income is deferred and recognized over
the contract period in proportion to costs incurred.
(J) FOREIGN CURRENCY TRANSLATION
The functional currency for foreign subsidiaries is the local currency for the
country in which the subsidiaries own their primary assets. In accordance with
Statement of Financial Accounting Standards No. 52, "Foreign Currency
Translation," the translation of the applicable foreign currencies into U.S.
dollars is performed for balance sheet accounts using current exchange rates in
effect at the balance sheet date, and for revenue and expense accounts using a
weighted average exchange rate during the period. Any related translation
adjustments are recorded directly in stockholders' equity. Gains (losses) on
foreign currency transactions and forward exchange contracts are included in
other income (expense), net, for the period in which the exchange rate changes.
The discount or premium on forward contracts is accounted for separately from
the gain or loss on the contracts and is amortized to other income (expense),
net, over the life of the contract.
(K) RESTRUCTURING OF OPERATIONS
During 1993, the Company recorded restructuring charges for the reorganization
of its business activities. These restructuring charges were accrued pursuant to
the adoption of a formal plan and included costs associated with the adoption
and implementation of the plan, including certain costs for ongoing activities
associated with former business operations. Pursuant to the consensus of the
Emerging Issues Task Force reached in the fourth quarter of 1994 on Issue No.
94-3, "Liability Recognition for Costs to Exit an Activity (including Certain
Costs Incurred in a Restructuring)" ("EITF No. 94-3"), future restructuring
charges, if any, will not include costs associated with ongoing activities
related to former business operations.
(L) ENVIRONMENTAL CONTINGENCIES
The Company accrues for future costs associated with environmental remediation,
including ongoing compliance, maintenance and monitoring costs, when it becomes
probable that a liability has been incurred and such liability can be reasonably
estimated. Pollution control costs which extend asset life, increase capacity,
improve safety or efficiency, or mitigate or prevent contamination are
capitalized. The Company expenses on a current basis recurring costs associated
with managing hazardous substances and pollution resulting from the Company's
ongoing operations.
(M) WORKERS' COMPENSATION
The Company accrues a liability for workers' compensation claims at present
value, due to the fixed and determinable nature of the claim payments, based
upon an evaluation of historical claims data and expected future claims. In
addition, the Company records a receivable at present value for the portion of
outstanding claims covered by third-party insurers.
fifty
<PAGE>
SCHULLER CORPORATION 1995 ANNUAL REPORT
--------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(N) INCOME TAXES
Investment tax credits granted by various countries are accounted for as
reductions of income tax expense in the year in which the related expenditures
become eligible for investment benefit under applicable tax regulations.
(O) RECLASSIFICATIONS
Certain prior year information has been reclassified to conform with the current
year presentation.
- ----------------------------------------
NOTE 2: PLAN OF REORGANIZATION, RELATED
INJUNCTION AND PERSONAL INJURY TRUST
In 1982, the Company and its principal U.S. and Canadian subsidiaries filed
petitions for reorganization under Chapter 11 of the United States Bankruptcy
Code. The filings were precipitated by contingent tort liabilities resulting
from litigation arising out of the Company's previous asbestos-related business
operations. In 1988, the Company's Second Amended and Restated Plan of
Reorganization (the "Plan") was consummated and the Company emerged from
bankruptcy.
The Plan relieves the Company of the burden of defending thousands of
asbestos lawsuits. This is accomplished through independent trusts created to
assume, administer, settle and pay claims. In lieu of bringing actions against
the Company, asbestos claimants may assert their claims only against the PI
Trust or Manville Property Damage Settlement Trust (the "PD Trust"), which are
funded by the Company pursuant to the Plan. The Plan, the injunction issued by
the Bankruptcy Court in connection with the Plan (the "Injunction"), the
Bankruptcy Reform Act of 1994 (the "Act") and the United States Bankruptcy Code
together operate to prohibit any lawsuits against the Company with respect to
any past, present or future asbestos-related liabilities arising from its
discontinued mining, manufacturing and selling activities.
The Injunction is a unique feature of the Company's Chapter 11 proceedings
and could be challenged in future legal proceedings. The Bankruptcy Court found
that the Injunction was "essential to the viability of the business operations
of [the Company] and to the successful implementation of the Plan" and held that
it had the authority to issue the Injunction. The Company also believes that the
Injunction is essential to its ability to continue to operate its business.
Since the issuance of the Injunction in 1988, no proceeding has been brought,
and none is currently pending or threatened, to vacate or modify the Injunction.
While it is not possible for the Company to know the basis for any such
proceeding that might be brought in the future, the Company believes that it is
remote that any proceeding to modify or vacate the Injunction, if brought, would
be successful. This belief is based on, among other things, decisions and
results of various legal proceedings, including orders of the United States
District Courts for the Southern and Eastern Districts of New York reaffirming
the Injunction in July 1991 and January 1995, the Act, and the absence of any
such proceeding since 1988, even though the PI Trust's ability to pay claims has
been limited during such time.
fifty one
<PAGE>
SCHULLER CORPORATION 1995 ANNUAL REPORT
- --------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ----------------------------------------
NOTE 3: PROFIT SHARING OBLIGATION
Beginning in 1992, the Company became obligated under the Plan to pay annually
to the PI Trust 20 percent of net earnings (adjusted as specified in the
definition of "Profits" in the Amended and Restated Supplemental Agreement
between the PI Trust and Schuller). Payments were due each year based on the
prior year's net earnings. The profit sharing right of the PI Trust was a right
to annual payments if and when the Company had income and was not a right or
lien against the assets of the Company. The amount of the profit sharing became
probable and reasonably estimable only when the Company had earnings. The profit
sharing obligation was a period cost based on actual results of the period in
which earned.
During 1995, the Company recorded $27.7 million of profit sharing expense to
be paid in 1996, as required in connection with the Plan. The corresponding
liability is included in other accrued liabilities at December 31, 1995.
In October 1995, the Company and the PI Trust signed a profit sharing
exchange agreement (the "Agreement"), and in April 1996 the PI Trust exchanged
(the "Exchange") its profit sharing right to 20 percent of the Company's net
earnings (as adjusted) for approximately 32.5 million shares of common stock of
Schuller Corporation, which represented 20 percent of the common stock of
Schuller on a fully diluted basis, as defined in the Agreement, and after giving
effect to the Exchange. In accordance with the Agreement, Schuller declared a
pro rata dividend to all common stockholders in late March 1996, payable in
April 1996, of $6.00 per share, which represents a substantial portion of the
proceeds from the disposition of Riverwood.
The Company will pay a partial-year profit sharing payment to the PI Trust
for that portion of 1996 through the closing date of the Agreement. The payment
will be 20 percent of net earnings (as adjusted) for the partial-year period.
The Company will record an extraordinary loss in the first quarter of 1996
for the fair market value of the common stock exchanged (see Note 26).
- ----------------------------------------
NOTE 4: RECEIVABLES
The components of receivables are as follows:
<TABLE>
<CAPTION>
In thousands of dollars
- --------------------------------------------------------------------------------
1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
Trade $194,484 $194,422
Less allowances 27,110 23,724
- --------------------------------------------------------------------------------
167,374 170,698
Other 28,406 27,316
- --------------------------------------------------------------------------------
$195,780 $198,014
- --------------------------------------------------------------------------------
</TABLE>
Included in allowances are doubtful accounts of $6.5 million and $6.4 million
at December 31, 1995 and 1994, respectively. The Company generally requires no
collateral on receivables. The provision for doubtful accounts charged to costs
and expenses related to continuing operations was $0.8 million for 1995, $1.4
million for 1994, and $2.5 million for 1993.
fifty two
<PAGE>
SCHULLER CORPORATION 1995 ANNUAL REPORT
--------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5: FINANCIAL INSTRUMENTS
The Company has only limited involvement with derivative financial instruments
and does not use them for trading purposes. The Company enters into foreign
exchange forward contracts to hedge against currency fluctuations on certain
material foreign currency exposures and records a receivable/payable which is
classified consistently with the related outstanding foreign currency exposure.
At December 31, 1995, the Company had forward contracts maturing through July
1996 to sell deutsche marks in exchange for $10.8 million. At December 31, 1994,
the Company had forward contracts maturing through February 1995 to sell
deutsche marks in exchange for $6.6 million. The carrying value of these
contracts approximated their fair value at December 31, 1995 and 1994.
The Company had outstanding letters of credit totaling $10.8 million and $3.3
million as of December 31, 1995 and 1994, respectively. All letters of credit
are collateralized by cash.
The Company maintains cash and cash equivalents and certain other financial
instruments with various financial institutions throughout the world. The
Company invests excess cash in a diversified portfolio of high-quality money
market instruments consistent with the preservation of capital and the
maintenance of liquidity. The Company's investment policies require
diversification of investments and include restrictions on maturity and credit
quality. The Company monitors compliance with these restrictions on an ongoing
basis. The Company has not experienced any material losses related to these
investments.
The Company is exposed to credit losses in the event of nonperformance by the
counterparties to its financial instruments but has no off-balance-sheet credit
risk of accounting loss. The Company anticipates, however, that counterparties
will be able to fully satisfy their obligations under the contracts.
The Company adopted Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities" ("SFAS No.
115") during 1994. There was no impact on the Company's income or equity from
the adoption of SFAS No. 115.
At December 31, 1995, the Company held investments in debt securities that
were classified as held-to-maturity with an amortized cost basis of $319.8
million, which approximated fair value. The Company's investments in held-to-
maturity debt securities at December 31, 1995, were classified on the balance
sheet as cash equivalents of $251.4 million, marketable securities of $59.4
million and other assets of $9 million, depending upon the nature and maturity
of the investments. Of these securities, $310.8 million had contractual
maturities within one year; the remainder mature in one to five years.
Additionally, at December 31, 1995, the Company had investments in available-
for-sale debt securities that were classified on the balance sheet as marketable
securities of $57.6 million and other assets of $6.1 million. The amortized cost
basis of these securities approximated fair value. Of these securities, $63.6
million have contractual maturities of one to five years; the remainder mature
in less than one year.
fifty three
<PAGE>
SCHULLER CORPORATION 1995 ANNUAL REPORT
- --------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
At December 31, 1994, the Company held investments in debt securities that
were classified as held-to-maturity with an amortized cost basis of $222.2
million, which approximated fair value. The Company's investments in debt
securities at December 31, 1994, were classified on the balance sheet as cash
equivalents of $177.3 million, marketable securities of $17.7 million and other
assets of $27.2 million, depending upon the nature and maturity of the
investments. Of these securities, $218.7 million had contractual maturities
within one year; the remainder had maturities of one to five years.
During 1995 and 1994, the Company sold securities that had been classified as
available-for-sale, resulting in proceeds of $10 million and $2.1 million,
respectively, which approximated carrying value each year.
The fair value of the Company's financial instruments other than investments
in debt securities approximated its carrying value at December 31, 1995 and
1994, except for the Company's long-term debt, which is discussed in Note 11.
- ----------------------------------------
NOTE 6: INVENTORIES
The major classes of inventories are as follows:
<TABLE>
<CAPTION>
In thousands of dollars
- --------------------------------------------------------------------------------
1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
Finished goods $46,432 $32,599
Work-in-process 7,345 5,906
Raw materials 15,569 11,763
Supplies 7,775 6,326
- --------------------------------------------------------------------------------
$77,121 $56,594
- --------------------------------------------------------------------------------
</TABLE>
Inventories in the amounts of $18.3 million and $12.2 million at December 31,
1995 and 1994, respectively, were valued using FIFO. The balance of the
inventories was valued using LIFO. The excess of current values over amounts for
financial reporting purposes was $54.4 million and $53.6 million at December 31,
1995 and 1994, respectively.
- ----------------------------------------
NOTE 7: DISCONTINUED OPERATIONS
In October 1995, the Company's Board of Directors adopted a formal plan with
respect to the disposition of its 81.3 percent interest in Riverwood.
Accordingly, the assets and liabilities related to Riverwood have been
classified as net assets held for sale and Riverwood's results of operations
have been shown as discontinued operations for all periods presented. The
components of Riverwood's net assets held for sale at December 31 are as
follows:
<TABLE>
<CAPTION>
In thousands of dollars
- --------------------------------------------------------------------------------
1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
Current assets $ 460,552 $ 456,336
Property, plant and equipment, net 1,466,090 1,395,763
Other noncurrent assets 278,195 254,071
- --------------------------------------------------------------------------------
Total assets 2,204,837 2,106,170
- --------------------------------------------------------------------------------
Current liabilities 294,552 323,377
Long-term debt, less current portion 1,053,794 994,770
Other noncurrent liabilities 385,960 299,731
- --------------------------------------------------------------------------------
Total liabilities 1,734,306 1,617,878
- --------------------------------------------------------------------------------
Minority interest 105,263 95,610
Cumulative currency translation adjustment 10,333 16,875
- --------------------------------------------------------------------------------
Net assets held for sale $ 375,601 $ 409,557
- --------------------------------------------------------------------------------
</TABLE>
fifty four
<PAGE>
SCHULLER CORPORATION 1995 ANNUAL REPORT
--------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Summarized information on the discontinued operations of Riverwood is as
follows:
<TABLE>
<CAPTION>
In thousands of dollars
- -------------------------------------------------------------------------------------
1995 1994 1993
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Sales $1,342,304 $1,282,788 $1,120,366
- -------------------------------------------------------------------------------------
Income Before Income Taxes $25,485 $64,437 $1,197
Income Tax Expense (Benefit) 11,214 54,188 (2,037)
- -------------------------------------------------------------------------------------
Income Before Equity in Earnings
of Affiliate, Minority Interest,
Extraordinary Item and Cumulative
Effect of Accounting Change 14,271 10,249 3,234
Equity in Earnings of Affiliate,
net of taxes 30,609
Minority Interest in Riverwood (8,389) (439) (299)
- -------------------------------------------------------------------------------------
Income from Discontinued Operations,
net of tax and Minority Interest 36,491 9,810 2,935
Extraordinary Loss on Early
Extinguishment of Debt, net of tax (7,872)
Cumulative Effect of a Change in
Accounting for Postemployment
Benefits, net of tax (2,163)
- -------------------------------------------------------------------------------------
Net Income from Discontinued
Operations $36,491 $1,938 $772
- -------------------------------------------------------------------------------------
</TABLE>
Riverwood's 1995 results reflect its activity from January 1995 through
October 1995, the date of adoption of a formal plan with respect to the
disposition of Riverwood. The Company's portion of Riverwood's net income for
November and December 1995, totaling $0.5 million, is included in the loss on
disposition in accordance with Accounting Principles Board Opinion No. 30,
"Reporting the Results of Operations-Reporting the Effects of Disposal of a
Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions."
Although the Company expects to record a net gain for financial reporting
purposes on the disposition of its interest in Riverwood, the Company recorded
an estimated loss on disposal of discontinued operations of $42.5 million in the
fourth quarter of 1995. This loss primarily relates to deferred taxes on the
Company's investment in Riverwood that had not been recognized previously. In
accordance with Financial Accounting Standards No. 109, "Accounting for Income
Taxes" ("SFAS No. 109"), the Company recorded these taxes when it became
apparent the taxes would be incurred due to the planned disposition of
Riverwood.
The disposition of Riverwood closed in late March 1996. The Company received
cash proceeds on the disposition of its interest in Riverwood of $1.08 billion
and expects to record a net gain on the disposition of Riverwood in the first
quarter of 1996. The Company will be responsible for federal income taxes
resulting from the election under Section 338(h)(10) of the U.S. Internal
Revenue Code to treat the disposition of Riverwood as an asset sale for tax
purposes. This and other tax consequences on the disposition of Riverwood are
expected to result in an effective tax rate on the disposition that is higher
than statutory tax rates. However, the cash taxes on the disposition should be
substantially lower than statutory rates due to the Company's net operating loss
carryforwards and PI Trust related tax deductions.
The Company has agreed to indemnify the purchaser of Riverwood and certain
affiliated parties against losses resulting from a breach of representations or
warranties with respect to (i) certain Riverwood filings with the Securities and
Exchange Commission, (ii) the absence of undisclosed Riverwood liabilities and
(iii) certain Riverwood environmental matters.
The Company will not be required to indemnify the purchaser for losses until
the aggregate amount of all losses exceeds $20 million. In addition, the
Company's obligation to indemnify is limited to 80 percent of the amount of
fifty five
<PAGE>
SCHULLER CORPORATION 1995 ANNUAL REPORT
- --------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
losses in excess of $20 million. The aggregate liability of the Company will not
exceed $100 million. The Company's obligation to indemnify is limited to claims
made on or prior to May 31, 1997.
In this regard, the Louisiana Department of Environmental Quality notified
Riverwood, by letter dated December 19, 1995, that Riverwood may be liable for
the remediation of the release or threat of release of hazardous substances at
two sites that Riverwood or its predecessor previously operated in Shreveport,
Louisiana and Caddo Parish, Louisiana. Schuller has consented to be responsible,
subject to the provisions of the preceding paragraph, for losses incurred in
connection with these matters to the extent such losses exceed $1 million.
Schuller is currently evaluating these claims.
In addition, the Company is responsible for certain Riverwood U.S. federal,
state and local income tax liabilities to the extent they are attributable to
audit adjustments for tax periods ending prior to the disposition of Riverwood.
- ----------------------------------------
NOTE 8: INVESTMENTS IN AFFILIATES
At December 31, 1995, the Company has investments which are accounted for under
the equity method. The most significant of these investments is Riverwood's
Brazilian operations, Igaras Papeis e Embalagens S.A. ("Igaras"). Riverwood's
carrying value of Igaras was approximately $118.2 million and $99.4 million at
December 31, 1995 and 1994, respectively, which is included in net assets held
for sale.
On December 29, 1994, Riverwood sold just under 50 percent of its investment
in Igaras after first spinning off a wholly owned subsidiary to operate
Riverwood's packaging machinery operations in Brazil. Riverwood received cash
proceeds of approximately $100 million on the sale and recorded a pretax loss of
$0.6 million. Prior to that date, Riverwood owned 100 percent of Igaras.
The following represents the summarized balance sheet and income statement
information for Igaras as of and for the year ended December 31, 1995:
<TABLE>
<CAPTION>
In thousands of dollars
- --------------------------------------------------------------------------------
<S> <C>
Current Assets $109,985
Noncurrent Assets $243,369
Current Liabilities $ 90,278
Noncurrent Liabilities $ 26,465
Shareholders' Equity $236,611
- --------------------------------------------------------------------------------
Net Sales $275,551
Cost of Sales $139,011
- --------------------------------------------------------------------------------
Gross Profit $136,540
- --------------------------------------------------------------------------------
Income from Operations $108,532
Net Income $ 70,010
- --------------------------------------------------------------------------------
</TABLE>
In August 1995, the Company sold its remaining equity investment in
Stillwater Mining Company ("Stillwater") for net cash proceeds of $110.5
million, resulting in a pretax gain on the sale of equity investment of $74.9
million. The Company retains a five percent net smelter royalty on certain
Stillwater claims.
During 1994, the Company sold a portion of its investment in Stillwater for
net cash proceeds of approximately $25.5 million, resulting in a pretax gain on
the sale of equity investment of $13.5 million. In addition, Stillwater
completed an initial public offering of 4.5 million shares of its common stock
at $13 per share, which resulted in the Company recording an increase to Capital
in Excess of Par Value of $3.1 million, net of income taxes of $1.7 million.
The Company's equity in net income (loss) of Stillwater was nil in 1995, $0.4
million in 1994 and $(3.7) million in 1993.
fifty six
<PAGE>
SCHULLER CORPORATION 1995 ANNUAL REPORT
--------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ----------------------------------------
NOTE 9: SHORT-TERM DEBT AND CREDIT FACILITIES
Short-term debt consists of the following:
<TABLE>
<CAPTION>
In thousands of dollars
- --------------------------------------------------------------------------------
1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
Short-term borrowings $ 70 $ 18
Current portion of long-term debt 1,972 2,215
- --------------------------------------------------------------------------------
$2,042 $2,233
- --------------------------------------------------------------------------------
</TABLE>
At December 31, 1995, the Company had $93 million available under a
receivables sale facility ("the Receivables Facility") for its domestic short-
term working capital requirements. Amounts available for borrowing under the
Receivables Facility, up to a maximum of $100 million, are based on the daily
balance of certain outstanding trade accounts receivable, adjusted for various
factors as defined under the terms of the Receivables Facility. There were no
borrowings under this facility through December 31, 1995. In addition, the
Company's foreign subsidiaries had working capital facilities totaling $70
million available for borrowing at December 31, 1995.
- ----------------------------------------
NOTE 10: COMPENSATION AND EMPLOYEE BENEFITS
Compensation and employee benefits consists of the following:
<TABLE>
<CAPTION>
In thousands of dollars
- --------------------------------------------------------------------------------
1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
Vacation, compensation and
payroll deductions $ 50,353 $ 52,485
Self insured medical and
group life coverage 36,634 38,116
Other 17,563 13,652
- --------------------------------------------------------------------------------
$104,550 $104,253
- --------------------------------------------------------------------------------
</TABLE>
- ----------------------------------------
NOTE 11: LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
In thousands of dollars
- --------------------------------------------------------------------------------
1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
UNSECURED
10.875 percent Schuller International Senior
Notes, payable 2004 $400,000 $400,000
9 percent Sinking Fund Debentures, due 1994-2003 24,677 26,385
Bonds payable to the PI Trust 15,454 13,646
COLLATERALIZED
Industrial revenue bonds with interest at
floating rates, payable through 1998,
collateralized by a letter of credit 5,339
Industrial revenue bonds with interest at
5.625 percent and 8.625 percent, payable
through 2005, collateralized by real property
and equipment 3,300 3,650
Notes payable with interest from 5.98 percent to
7 percent, payable through 1999 209 332
- --------------------------------------------------------------------------------
448,979 444,013
Less current portion 1,972 2,215
- --------------------------------------------------------------------------------
$447,007 $441,798
- --------------------------------------------------------------------------------
</TABLE>
fifty seven
<PAGE>
SCHULLER CORPORATION 1995 ANNUAL REPORT
- -------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Long-term debt maturities at December 31, 1995 are as follows:
In thousands of dollars
<S> <C>
1996 $ 1,972
1997 2,264
1998 7,853
1999 2,831
2000 3,154
Thereafter 542,174
- ----------------------------------------------------------
Total 560,248
Less interest accruing to principal (111,269)
- ----------------------------------------------------------
$448,979
- ----------------------------------------------------------
</TABLE>
10.875 PERCENT SCHULLER INTERNATIONAL SENIOR NOTES
On December 12, 1994, Schuller International issued $400 million of 10.875
percent Senior Notes, due 2004. Interest on these notes is payable semiannually,
which began December 15, 1995. These notes may be redeemed on or after December
15, 1999 at prices ranging from 100 percent to 105 percent of the principal
amount, plus accrued interest. In addition, at any time prior to December 12,
1997, the Company may, at its option, under certain circumstances, redeem up to
$132 million principal amount of these notes at 110 percent of the principal
amount plus accrued interest. These notes were issued by Schuller International
in the form of a dividend to Schuller Corporation. Schuller Corporation then
exchanged $379 million of these notes to the PI Trust in satisfaction of
substantially all of the remaining Trust Bonds (defined below).
The PI Trust subsequently sold its Schuller International Senior Notes in the
public markets. In conjunction with the PI Trust's public offering, Schuller
Corporation also sold its Schuller International Senior Notes in the public
markets, resulting in a total sale of $400 million of Schuller International
Senior Notes.
9 PERCENT SINKING FUND DEBENTURES
For financial reporting purposes, these debentures have an effective interest
rate of 12.6 percent. The interest debentures did not accumulate or pay interest
from 1988 to 1993. Beginning on January 1, 1994, the interest debentures bear
interest at a stated rate of nine percent and are paid semiannually in principal
and interest through December 31, 2003.
BONDS PAYABLE TO THE PI TRUST
At consummation of the Plan, the PI Trust received noninterest-bearing bonds
(the "Trust Bonds") totaling $1.8 billion. The Trust Bonds consisted of a series
of fixed payments twice a year for 24 years, which began August 31, 1991. The
Company made a prepayment of a portion of the Trust Bonds in 1993. In addition,
during 1994, all but $13.6 million of the remaining Trust Bonds were prepaid by
exchanging $379 million of the 10.875 percent Schuller International Senior
Notes for Trust Bonds (see Note 23). At December 31, 1995 the remaining Trust
Bonds obligation of $15.5 million consists of a series of fixed payments
totaling $75 million per year in 2013 and 2014, discounted at 13 percent.
The Company's agreements with its lenders and other agreements with the
trusts contain a number of financial and general covenants. These include, among
other things, restrictions on borrowings, investments, stock issuances and
repurchases, dividends and other distributions by Schuller International, and
restrictions on intercompany transactions,
fifty eight
<PAGE>
including transfers of cash. As of December 31, 1995 and 1994, the maximum
amount available for dividends to be paid by Schuller International under their
most restrictive debt covenants was approximately $172 million and $115 million,
respectively. Noncompliance with these or other covenants, or the occurrence of
any other event of default, could result in the termination of existing credit
agreements and the acceleration of debt owed by the Company and its
subsidiaries. At December 31, 1995, the Company was in compliance with these
covenants.
At December 31, 1995, the Company's long-term debt totaled $449 million and
had an estimated fair value of $510 million. At December 31, 1994, the Company's
long-term debt totaled $444 million and had an estimated fair value of $454
million. Generally, the fair value of the Company's long-term debt is an
estimate based on quoted market prices, when available, or the discounted cash
flow method.
NOTE 12: ALLOWANCE FOR FURNACE REBUILDS
The activity in the allowance for furnace rebuilds, included in other noncurrent
liabilities, for the years ended December 31, 1995 and 1994, was as follows:
<TABLE>
<CAPTION>
In thousands of dollars
1995 1994
-------------------------------------------------------------
<S> <C> <C>
Balance at beginning of year $26,356 $21,333
Provisions for estimated costs 8,349 8,657
Rebuild expenditures (12,300) (3,634)
-------------------------------------------------------------
22,405 26,356
Less current portion 10,763 9,121
-------------------------------------------------------------
$11,642 $17,235
-------------------------------------------------------------
</TABLE>
NOTE 13: COMMITMENTS AND CONTINGENCIES
Total rental expense related to continuing operations was $14.6 million in 1995,
$16.8 million in 1994 and $18 million in 1993.
At December 31, 1995, minimum rental commitments of the Company under long-
term, noncancelable operating leases are as follows:
<TABLE>
<CAPTION>
In thousands of dollars
<S> <C>
1996 $ 7,387
1997 4,791
1998 4,086
1999 266
2000 79
--------------------------------------------
$16,609
--------------------------------------------
</TABLE>
Minimum rental commitments of the Company have not been reduced by
anticipated sublease income of approximately $3.8 million.
During 1995, the Company entered into two three-year noncancelable
contracts to purchase a portion of its natural gas requirements. Expenses under
these contracts totaled $2.3 million during 1995. The Company's annual
obligations under these agreements are $5.8 million, $5.8 million and $2.9
million for 1996, 1997 and 1998, respectively. These purchase commitments are
not expected to exceed usage requirements in any of these years.
fifty nine
<PAGE>
SCHULLER CORPORATION 1995 ANNUAL REPORT
- --------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONTINGENT PRODUCT LIABILITY
Between 1988 and 1992, the Company manufactured phenolic roofing insulation
which may, under certain circumstances, contribute to the corrosion of metal
decks on which it is installed. Subsequently, the Company began a voluntary
program to inspect such metal decks and remediate where appropriate. The Company
has also accrued for costs relating to future inspections, remediation and
anticipated claims. These accruals are based on the Company's historical
experience regarding the incidence of corrosion and the cost of remediation and
include a number of assumptions related to the types of roofs on which phenolic
insulation has been installed as well as the assumption that the Company's past
remediation experience will continue over the remaining lives of roofs insulated
with the Company's phenolic roofing insulation.
During the first quarter of 1995, the Company and its liability insurance
carriers reached a settlement with respect to the extent of coverage to be
provided by such carriers. In addition, during the third quarter of 1995, the
Company and the former owner of the phenolic roofing insulation business reached
an agreement with respect to the costs to be reimbursed by the former owner.
Pursuant to these agreements, the Company has been reimbursed for a portion of
historical costs incurred and is entitled to receive reimbursement for a
substantial portion of future costs to be incurred by the Company for inspection
and remediation.
In 1996, the Company and a third party were named as defendants in two
class action cases filed in U.S. District Court in Boston, Massachusetts. The
plaintiffs purport to represent all building owners in the United States with
phenolic insulation installed on their roof decks and seek damages and
injunctive relief, including an order requiring the removal and replacement of
the phenolic insulation and remediation of any deck corrosion. The Company
intends to defend these allegations vigorously.
The Company has reviewed its historical inspection and remediation
experience and the terms and collectibility of amounts payable under the
reimbursement agreements in light of the contingencies described above. Based on
the information available to date and subject to the assumptions described
above, if additional costs are incurred in excess of the accrued amounts, such
costs are not expected to have a material adverse effect on the Company's
financial condition, liquidity or results of operations.
ENVIRONMENTAL CONTINGENCIES
At December 31, 1995, the Company had remediation activities in progress at 14
sites, out of a total of 24 such sites for which the Company has identified
environmental conditions requiring remediation. In addition, the Company has
been identified as a potentially responsible party at 15 non-Company owned or
operated sites under the federal Comprehensive Environmental Response,
Compensation and Liability Act or similar state legislation, and as such could
be jointly and severally liable for costs of remediating these sites.
sixty
<PAGE>
SCHULLER CORPORATION 1995 ANNUAL REPORT
--------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
At December 31, 1995 and 1994, the Company's balance sheet included
undiscounted accruals for environmental remediation costs, including ongoing
compliance, maintenance and monitoring costs, of $30.3 million and $31.5
million, respectively. During 1995 and 1994, the Company paid $1.8 million and
$3.9 million, respectively, for environmental cleanup. The Company believes that
amounts paid in 1995 and 1994 are representative of the Company's future annual
environmental cleanup costs and anticipates expenditures relating to costs
currently accrued to be made over the next 15 years.
As a result of factors such as changes in federal and state regulations,
the application and effectiveness of remedial actions, the difficulty in
assessing the extent of environmental contamination, and the allocation of costs
among potentially responsible parties, actual costs to be incurred for
environmental cleanup may vary from previous estimates. Subject to the
uncertainties inherent in evaluating environmental exposures, and based on
information presently available, including the Company's historical remediation
experience, currently enacted environmental laws and regulations, and existing
remediation technology, the Company believes that if additional costs are
incurred in excess of the accrued amounts, such costs are not expected to have a
material adverse effect on the Company's financial condition, liquidity or
results of operations.
NOTE 14: STOCKHOLDERS' EQUITY
WARRANTS TO PURCHASE COMMON STOCK, $0.01 PAR VALUE
Warrants to purchase approximately seven million shares of the $0.01 par value
Common Stock are exercisable until June 6, 1996, at an exercise price of $9.40
per share.
CUMULATIVE PREFERENCE STOCK, SERIES B, $1.00 PAR VALUE
Dividends on the Company's Cumulative Preference Stock, Series B, began being
paid quarterly in 1994 at an annual rate of $2.70 per share, but are payable
only as and when declared by Schuller's Board of Directors after other funding
requirements under the Plan have been met. Dividends have been declared and paid
in 1995 and 1994 totaling $24.9 million and $22.8 million, respectively. At
December 31, 1995, there are no dividends in arrears. The Company has called its
Cumulative Preference Stock, Series B, for redemption, effective April 30, 1996.
See Note 26.
Through December 31, 1993, the carrying value of the Preference Stock was
increased periodically to reflect accretion based on the interest method, in
accordance with APB Opinion No. 21. Such accretion, which was deducted from net
income to arrive at net income applicable to common stockholders, amounted to
$22.5 million in 1993.
sixty one
<PAGE>
SCHULLER CORPORATION 1995 ANNUAL REPORT
- --------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following is a summary of shares outstanding:
<TABLE>
<CAPTION>
Cumulative
Preference
Stock, Common
Series B Stock
- --------------------------------------------------------------------------------------------
<S> <C> <C>
BALANCE AT DECEMBER 31, 1992 9,159,365 122,600,827
Conversion of old common and preferred stock to new Common
Stock and Cumulative Preference Stock, Series B 71,218 226,077
Issuance of Common Stock in connection with the Stock
Incentive Plan 121,581
Forfeiture of Common Stock issued in connection with
the Stock Incentive Plan (58,796)
Forfeiture of Common Stock in conjunction with the formation
of the Riverwood Stock Incentive Plan (553,967)
- --------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1993 9,230,583 122,335,722
Issuance of Common Stock in connection with the Stock
Incentive Plan and other employee plans 627,902
Forfeiture of Common Stock issued in connection with
the Stock Incentive Plan (89,000)
Treasury Stock acquired (46,863)
- --------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1994 9,230,583 122,827,761
Issuance of Common Stock in connection with the Stock
Incentive Plan and other employee plans 89,300
Forfeiture of Common Stock issued in connection with
the Stock Incentive Plan (31,500)
Issuance of Common Stock upon exercise of warrants 34,550
Treasury Stock acquired (134,358)
- --------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1995 9,230,583 122,785,753
- --------------------------------------------------------------------------------------------
</TABLE>
sixty two
<PAGE>
NOTE 15: STOCK INCENTIVE PLAN
The Company has registered and reserved 4.8 million shares of $0.01 par value
Common Stock for issuance under the Schuller Corporation Stock Incentive Plan.
<TABLE>
<CAPTION>
A summary of the stock incentive transactions for the three years ended
December 31, 1995 is as follows:
Restricted Shares Stock
Common Stock Available Appreciation
Stock Options for Grant Rights
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1992 2,301,171 583,900 1,904,929 512,700
Granted 49,581 (49,581)
Exercised (72,000) (101,000)
Forfeited (612,763) (109,100) 721,863 (132,500)
- ------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1993 1,737,989 402,800 2,577,211 279,200
Granted 522,386 (522,386)
Exercised (84,400) (91,800)
Forfeited (89,000) 89,000
- ------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1994 2,171,375 318,400 2,143,825 187,400
Granted 4,500 325,000 (329,500)
Exercised (84,800) (17,700)
Forfeited (31,500) (9,700) 41,200 (9,300)
- ------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1995 2,144,375 548,900 1,855,525 160,400
- ------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Included in the 1993 forfeitures are 553,967 shares of restricted Common
Stock held by Riverwood employees under the Schuller Corporation Stock Incentive
Plan that were canceled upon receipt of awards by the Riverwood employees under
a Riverwood plan.
In 1993, approximately 50,000 shares of restricted Common Stock were issued
to Company employees at grant prices ranging from $4.50 to $9.63 per share.
During 1994, approximately 522,000 shares of restricted Common Stock were issued
to Company employees at grant prices ranging from $8.13 to $9.63 per share. In
1995, 4,500 shares of restricted Common Stock were issued to Company employees
at a grant price of $9.25 per share. The Company's compensation expense on
restricted stock is based on the fair market value of the Company's Common Stock
at the date of grant, which is expensed over the vesting period.
The stock options were awarded at exercise prices, which equaled fair
market value at the date of issuance, ranging from $5.75 per share to $10.50 per
share. Options were exercised at prices ranging from $6.88 to $7.63 per share in
1995, from $8.25 to $9.63 per share in 1994 and from $6.88 to $7.63 per share in
1993. Options granted in 1995 are exercisable for one share of the Company's
Common Stock over a three year vesting period. Each option outstanding at
December 31, 1994 and 1993, is exercisable for one share of the Company's Common
Stock.
sixty three
<PAGE>
SCHULLER CORPORATION 1995 ANNUAL REPORT
- --------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Stock appreciation rights have been awarded at prices ranging from $5.75 to
$10.50 per share. The stock appreciation rights were exercised at prices ranging
from $6.00 to $7.63 per share in 1995 and from $6.88 to $7.63 per share in 1994
and 1993. Compensation expense for the stock appreciation rights is based on the
difference between the fair market value of the Company's Common Stock at the
date of exercise and the fair market value at the date of grant.
NOTE 16: EARNINGS (LOSS) PER COMMON SHARE
The Company has issued stock options and stock appreciation rights. In addition,
warrants issued upon consummation of the Plan became exercisable during 1989.
These common stock equivalents were considered in determining primary and fully
diluted shares. Primary and fully diluted earnings (loss) per common share
amounts are based on the weighted average number of common and common equivalent
shares outstanding during the year. The fully diluted earnings (loss) per common
share computation further assumes that the common stock equivalents were
outstanding at the beginning of the year and assumes the conversion of
Riverwood's 6.75 percent Convertible Subordinated Notes. The 1995, 1994 and 1993
primary and fully diluted earnings (loss) per common share amounts are
determined using the following common equivalent shares:
<TABLE>
<CAPTION>
1995 1994 1993
- --------------------------------------------------------------------------------------------------------------------------
Fully Fully Fully
Primary Diluted Primary Diluted Primary Diluted
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Common Stock outstanding 122,886,000 122,886,000 122,424,000 122,424,000 122,422,000 122,422,000
Warrants, stock options
and stock appreciation rights 1,662,000 2,179,000 68,000 87,000 58,000 82,000
Treasury Stock (105,000) (105,000) (46,000) (46,000)
- --------------------------------------------------------------------------------------------------------------------------
124,443,000 124,960,000 122,446,000 122,465,000 122,480,000 122,504,000
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
Earnings (loss) per common share amounts are calculated after the deduction
for preference stock dividends/accretion.
NOTE 17: PENSIONS
The Company maintains noncontributory defined benefit pension plans for its U.S.
and German employees. Pension expense (income) and projected benefit obligations
under each of these plans are determined using assumptions regarding discount
rates, rates of increase in future compensation levels and expected long-term
rates of return on assets. These assumptions are subject to prevailing economic
conditions and, accordingly, the Company believes it is reasonably possible that
a change in these assumptions may occur in the near term.
U.S. PENSION PLANS
Substantially all of the Company's U.S. employees are covered by noncontributory
defined benefit pension plans. Pension benefits are based primarily on years of
service and the employee's compensation or pension rate near retirement. The
Company's funding policy is to contribute funds to a trust as necessary to at
least meet the minimum funding requirements of the Internal Revenue Code. Plan
assets are invested primarily in fixed income and equity securities.
sixty four
<PAGE>
SCHULLER CORPORATION 1995 ANNUAL REPORT
-------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(A) PENSION EXPENSE (INCOME)
The Company's pension expense (income) related to the U.S. defined benefit
pension plans, exclusive of amounts related to discontinued operations, for the
years ended December 31 consists of the following:
<TABLE>
<CAPTION>
In thousands of dollars
- --------------------------------------------------------------------------------
1995 1994 1993
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost - benefits
earned during the year $ 6,866 $ 9,311 $ 8,162
Interest cost on projected
benefit obligation 46,248 42,851 44,209
Estimated return on assets
- actual (gain) loss (146,437) 27,837 (90,049)
- deferred gain (loss) 101,651 (78,349) 37,286
Net amortization (4,028) (2,520) (8)
- --------------------------------------------------------------------------------
Total pension expense
(income) $ 4,300 $ (870) $ (400)
- --------------------------------------------------------------------------------
</TABLE>
Assumptions used in determining the pension expense (income) for the years
ended December 31 are as follows:
<TABLE>
<CAPTION>
1995 1994 1993
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Discount rates 9.00% 7.00% 7.50%
Rates of increase in future
compensation levels 6.50% 5.50% 5.75%
Expected long-term rates
of return on assets 8.00% 8.00% 9.00%
- --------------------------------------------------------------------------------
</TABLE>
(B) FUNDED STATUS
The funded status of the Company's defined benefit plans covering U.S. employees
in which assets exceed accumulated benefits as of December 31 is as follows:
<TABLE>
<CAPTION>
In thousands of dollars
- ----------------------------------------------------------------------------
1995 1994
- ----------------------------------------------------------------------------
ACTUARIAL PRESENT VALUE OF:
<S> <C> <C>
Vested benefit obligation $601,223 $497,398
- ----------------------------------------------------------------------------
Accumulated benefit obligation $621,838 $512,917
- ----------------------------------------------------------------------------
Projected benefit obligation $652,040 $536,013
Plan assets at fair value 684,594 582,324
- ----------------------------------------------------------------------------
Plan assets in excess of projected
benefit obligation 32,554 46,311
Unrecognized net loss 89,128 79,059
Unrecognized prior service costs 12,199 13,083
Unrecognized transition adjustment (28,409) (36,585)
- ----------------------------------------------------------------------------
Prepaid pension asset $105,472 $101,868
- ----------------------------------------------------------------------------
</TABLE>
In addition, the status of the Company's unfunded defined benefit plans
covering U.S. employees as of December 31 is as follows:
<TABLE>
<CAPTION>
In thousands of dollars
- ----------------------------------------------------------------------------
1995 1994
- ----------------------------------------------------------------------------
<S> <C> <C>
ACTUARIAL PRESENT VALUE OF:
Vested benefit obligation $ 2,292 $ 2,139
- ----------------------------------------------------------------------------
Accumulated benefit obligation $ 2,490 $ 2,232
- ----------------------------------------------------------------------------
Projected benefit obligation $ 3,137 $ 2,645
Unrecognized net gain (loss) (705) 8
Unrecognized prior service costs (336) (389)
Unrecognized transition adjustment (836) (1,041)
Additional minimum liability 1,729 1,538
- ----------------------------------------------------------------------------
Pension liability $ 2,989 $ 2,761
---------------------------------------------------------------------------
</TABLE>
sixty five
<PAGE>
SCHULLER CORPORATION 1995 ANNUAL REPORT
- ------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The projected benefit obligations for the U.S. plans were
determined in 1995 and 1994 using discount rates of seven
percent and nine percent, respectively, and rates of increase in
future compensation levels for
salary-related plans of 5.5 percent and 6.5 percent,
respectively. The Company utilizes a discount rate based on
available high-quality corporate bonds. The vested U.S. benefit
obligation is calculated on the benefits the employees are
entitled to receive if they were to separate immediately.
As of December 31, 1995 and 1994, accrued U.S. retirement
contributions included in compensation and employee benefits on
the balance sheet were $12.3 million and $7 million,
respectively.
GERMAN PENSION PLAN
The German subsidiary of the Company provides a defined benefit
plan. This plan is noncontributory and is unfunded. The pension
or termination benefits are based primarily on years of service
and the employee's compensation.
(A) PENSION EXPENSE
The pension expense related to the German plan, on continuing
operations, for the years ended December 31 consists of the
following:
<TABLE>
<CAPTION>
In thousands of dollars
-------------------------------------------------------------------
1995 1994 1993
-------------------------------------------------------------------
<S> <C> <C> <C>
Service cost - benefits
earned during the year $ 909 $ 751 $1,150
Interest cost on projected
benefit obligation 1,869 1,580 1,474
Net amortization 111 117 115
-------------------------------------------------------------------
Total pension expense $2,889 $2,448 $2,739
-------------------------------------------------------------------
</TABLE>
Certain assumptions used in determining the pension expense
for the years ended December 31 are as follows:
<TABLE>
<CAPTION>
------------------------------------------------------------------
1995 1994 1993
------------------------------------------------------------------
<S> <C> <C> <C>
Discount rates 7.0% 7.0% 7.0%
Rates of increase in future
compensation levels 5.0% 5.0% 5.0%
------------------------------------------------------------------
</TABLE>
(B) FUNDED STATUS
<TABLE>
<CAPTION>
The status of the Company's unfunded German plan as of December
31 is as follows:
In thousands of dollars
------------------------------------------------------------------
1995 1994
------------------------------------------------------------------
<S> <C> <C>
Actuarial present value of:
Vested benefit obligation $24,910 $22,011
Accumulated benefit obligation $26,272 $23,274
------------------------------------------------------------------
Projected benefit obligation $28,676 $25,517
Unrecognized net gain 3,052 2,379
Unrecognized transition adjustment (1,057) (1,103)
------------------------------------------------------------------
Pension liability $30,671 $26,793
------------------------------------------------------------------
</TABLE>
Projected benefit obligations were determined using a
discount rate of seven percent for both 1995 and 1994. The rate
of increase in future compensation levels for salary-related
plans was five percent for both 1995 and 1994. The vested
benefit obligation is calculated on the benefits the employees
are entitled to receive if the employees were to separate
immediately.
VOLUNTARY SAVINGS PLANS
The Company provides voluntary savings plans in which eligible
U.S. employees of the Company may participate. Employees may
make contributions of up to 16 percent of their compensation.
The Company matches up to six percent of certain contributions
at rates ranging from 15 percent to 100 percent, depending on
the Company's performance. Company contributions to the savings
plans were $7.6 million in 1995, $6.8 million in 1994 and $3.3
million in 1993.
sixty six
<PAGE>
SCHULLER CORPORATION 1995 ANNUAL REPORT
------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CANADIAN PENSION PLAN
Canadian employees are covered by a defined contribution plan.
Contributions to this plan are based on each participant's
monthly earnings. Contributions to the defined contribution plan
were $0.6 million in 1995, $0.6 million in 1994 and $0.5 million
in 1993.
Canadian employees previously participated in defined benefit
plans. During 1988 and 1990, annuities were purchased by the
defined benefit plans to settle obligations to current
pensioners. In addition, the defined benefit plans were
converted to defined contribution plans and active participants'
benefit balances were transferred to an existing Canadian
defined contribution plan. After settlement of the accumulated
benefit obligations, the defined benefit plans held surplus
assets of approximately $39 million as of December 31, 1995. The
Company has recognized prepaid pension costs related to the
discontinued defined benefit plans of $14.4 million as of
December 31, 1995 and 1994.
----------------------------------------------------------------
NOTE 18: OTHER POSTRETIREMENT BENEFITS
Medical and life insurance coverage is provided to eligible U.S.
and Canadian retirees of the Company and their dependents under
defined benefit plans. The postretirement benefit expense for
the years ended December 31 consists of the following:
<TABLE>
<CAPTION>
In thousands of dollars
----------------------------------------------------------------
1995 1994 1993
----------------------------------------------------------------
<S> <C> <C> <C>
Service cost - benefits
earned during the year $ 1,560 $ 3,349 $ 3,526
Interest cost on accumu-
lated postretirement
benefit obligation 15,434 17,797 19,514
Net amortization (2,478) 34 636
----------------------------------------------------------------
Total postretirement
benefit expense $14,516 $21,180 $23,676
----------------------------------------------------------------
</TABLE>
The postretirement benefit expense was calculated using a
discount rate of 9 percent in 1995, 7 percent in 1994 and 7.5
percent in 1993.
The Company's unfunded postretirement benefit obligation
reconciled with the amounts shown in the Company's consolidated
balance sheet as of December 31 is as follows:
<TABLE>
<CAPTION>
In thousands of dollars
----------------------------------------------------------------
1995 1994
----------------------------------------------------------------
<S> <C> <C>
Actuarial present value of the accumulated
postretirement benefit obligation:
Retirees $160,807 $142,801
Fully eligible plan participants 8,015 7,070
Other active plan participants 35,199 29,170
----------------------------------------------------------------
204,021 179,041
Unrecognized net gain 4,480 24,917
Unrecognized prior service costs 17,858 29,306
----------------------------------------------------------------
Postretirement benefit obligation $226,359 $233,264
----------------------------------------------------------------
</TABLE>
The current portions of $21.9 million and $23.7 million of
the postretirement benefit obligation were recorded in
compensation and employee benefits as of December 31, 1995 and
1994, respectively.
The accumulated postretirement benefit obligations were
determined in 1995 and 1994 using discount rates of seven and
nine percent, respectively. The Company utilizes a discount rate
based on available high-quality corporate bonds. For measurement
purposes, a seven percent annual rate of increase in the per
capita cost of covered medical benefits was assumed for 1996;
the rate was assumed to decrease gradually to 5.5 percent in
2002 and remain at that level thereafter.
sixty seven
<PAGE>
SCHULLER CORPORATION 1995 ANNUAL REPORT
- ------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company's assumptions regarding the discount rate and
annual rate of increase in the per capita cost of covered
medical benefits are subject to prevailing economic conditions.
Accordingly, the Company believes it is reasonably possible that
a change in these assumptions may occur in the near term. To
illustrate, increasing the assumed health care cost trend rates
by one percentage point in each year would increase the
accumulated benefit obligation as of December 31, 1995, by $12.9
million, and the aggregate of the service and interest cost
components of the periodic cost for the year then ended by $1.2
million.
----------------------------------------------------------------
NOTE 19: WORKERS' COMPENSATION
The workers' compensation liability and related receivable at
gross and present value at December 31 are:
<TABLE>
<CAPTION>
In thousands of dollars
----------------------------------------------------------------
1995 1994
----------------------------------------------------------------
<S> <C> <C>
Workers' Compensation Liability:
Gross $130,724 $136,788
Present Value 69,484 70,839
Insurance Receivable:
Gross $ 7,245 $ 7,863
Present Value 4,460 5,055
----------------------------------------------------------------
</TABLE>
Although the Company is exposed to credit losses in the event
of nonperformance by its insurers, the Company anticipates
claims for insurance coverage will be fully satisfied.
In accordance with the adoption of Statement of Financial
Accounting Standards No. 112, "Employers' Accounting for
Postemployment Benefits," risk-free discount rates of 6.2
percent and 8.2 percent were used at December 31, 1995 and 1994,
respectively, which reflect rates of return on available U.S.
Treasury securities with maturities similar to the timing of
expected claim payments.
Discount rates of 8.2 percent, 7 percent and 7.5 percent were
used to measure expense for the years ended December 31, 1995,
1994 and 1993, respectively. See Note 24.
The Company expects to pay the following amounts for its
workers' compensation obligations:
<TABLE>
<CAPTION>
In thousands of dollars
----------------------------------------------------------------
<S> <C>
1996 $ 8,500
1997 8,200
1998 7,600
1999 7,300
2000 6,900
Thereafter 92,224
----------------------------------------------------------------
$130,724
----------------------------------------------------------------
</TABLE>
----------------------------------------------------------------
NOTE 20: RESTRUCTURING OF OPERATIONS LOSS
During 1993, the Company initiated restructuring programs
resulting in charges totaling $32 million, which consisted of
$3.2 million principally for the settlement of litigation
related to a former business; $6.7 million for the exit of the
residential roofing business, which included $1.6 million for
the separation of approximately 75 employees, $2.4 million for
the writedown of assets and $2.7 million for other related
costs; and $7.5 million primarily for the separation of
approximately 125 salaried employees, principally in its mats
and fibers business in the Engineered Products segment,
precipitated by U.S. competitive pressures and weak European
construction markets.
sixty eight
<PAGE>
SCHULLER CORPORATION 1995 ANNUAL REPORT
------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Restructuring of operations in 1993 also included a $12.7
million charge related to the Company's former phenolic roofing
insulation business which consisted of $15.6 million for
estimated sampling, inspection and remediation expenses; $2.5
million for estimated legal costs; $1 million for administration
of the sampling and inspection program; and $0.6 million for the
write-off of equipment, offset by $7 million of expected
insurance recoveries. The accrual for sampling, inspection,
remediation and administration costs reflected the Company's
decision to continue this voluntary program and was based on
information available at that time, including the Company's
previous experience in sampling, inspecting and remediating
roofs with phenolic insulation. The accrual for legal costs
reflected the Company's decision to commence litigation, after
initial attempts to negotiate settlements with the former owner
of the business and the Company's insurance carrier failed.
Other restructuring charges in 1993 totaled approximately
$1.9 million and primarily related to cash expenses associated
with former business operations and a loss on the sale of an oil
and gas property.
During 1994, the separation component of the restructuring
programs initiated in 1993 were substantially completed,
resulting in a reduction of the Company's salaried workforce of
approximately 60 employees and 130 employees during the years
ended December 31, 1994 and 1993, respectively. Cash spending in
connection with these separations, the rationalization of the
mats and fibers business and the exit from the residential
roofing business totaled $9.1 million during 1994.
During 1995 and 1994, the Company did not record any
additional restructuring charges and continued the voluntary
phenolic inspection and remediation program. Cash paid in
connection with the voluntary inspection and remediation program
totaled $6.3 million and $9.8 million for the years ended
December 31, 1995 and 1994, respectively.
Beginning in the fourth quarter of 1994, the Company recorded
expenses that would previously have been reported as
restructuring of operations in accordance with EITF No. 94-3.
Accordingly, adjustments to the Company's accruals related to
the phenolic inspection and remediation program since that time
have been reported as a component of other income (expense),
net. See Notes 1 and 21.
At December 31, 1995, the remaining restructuring reserves
totaled $7.6 million, which related to the phenolic inspection
and remediation program, product warranties for previously
discontinued product lines and the Company's exit of the
residential roofing business. The Company expects to pay the
remainder of the restructuring reserves related to the phenolic
inspection and remediation program during 1996. Other
restructuring liabilities, primarily related to product
warranties for previously discontinued product lines, are to be
paid out in cash over the remaining warranty periods, generally
15 years.
sixty nine
<PAGE>
SCHULLER CORPORATION 1995 ANNUAL REPORT
- ------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------------------
NOTE 21: OTHER INCOME (EXPENSE), NET
Other income (expense), net, for the years ended December 31, consists of the
following:
<TABLE>
<CAPTION>
In thousands of dollars
----------------------------------------------------------------
1995 1994 1993
----------------------------------------------------------------
<S> <C> <C> <C>
Postretirement benefits
other than pensions $ (5,468) $ (7,547) $ (8,181)
Interest accretion on
workers' compensation
liabilities (3,910) (4,400) (3,990)
Phenolic legal expenses (2,921) (8,898)
Write-off of non-
productive assets (7,803) (2,158)
Gain on the sale of
fixed assets 1,080 1,500 121
Loss on leased surplus
property (2,900)
Other 2,017 3,370 1,606
----------------------------------------------------------------
$(17,005) $(21,033) $(10,444)
----------------------------------------------------------------
</TABLE>
During 1995 and 1994, the Company recorded asset write-offs
of $7.8 million and $2.2 million, respectively, related
primarily to nonproductive assets previously used in the
manufacture of molded automotive parts.
Postretirement benefit expenses are benefits other than
pensions attributable to retirees of the Company's former
Schuller International business operations. Interest accretion
on workers' compensation liabilities primarily relates to
previous asbestos operations.
During 1995 and 1994, the Company recorded charges of $2.9
million and $8.9 million, respectively, primarily for legal
costs incurred and anticipated in connection with the Company's
litigation with its insurance carrier and the former owner of
the phenolic insulation business.
----------------------------------------------------------------
NOTE 22: INCOME TAXES
Income taxes payable consists of the following:
<TABLE>
<CAPTION>
In thousands of dollars
----------------------------------------------------------------
1995 1994
----------------------------------------------------------------
<S> <C> <C>
U.S. federal and foreign income taxes $12,994 $10,969
Deferred income taxes 15,136 9,832
State and local taxes 638 1,403
----------------------------------------------------------------
$28,768 $22,204
----------------------------------------------------------------
</TABLE>
The approximate tax effect of the temporary differences and
carryforwards giving rise to the net deferred tax asset is as
follows:
<TABLE>
<CAPTION>
In thousands of dollars
----------------------------------------------------------------
1995 1994
----------------------------------------------------------------
<S> <C> <C>
U.S. DEFERRED TAX ASSETS:
PI Trust deductions $318,691 $359,242
Net operating loss carryforward 120,854 135,912
Postretirement benefits other
than pensions 80,209 82,675
Workers' compensation and
postemployment benefits 24,933 25,718
Warranty reserves 24,713 17,653
Credit for prior year minimum
tax carryforward 18,637 16,405
General business credit carryforward 18,241 17,927
Foreign tax credit carryforward 12,272 26,521
Environmental reserves 10,055 11,028
Provision for furnace rebuilds 7,842 9,224
Deferred state and local taxes 6,146 6,544
Vacation and holiday wages
and salaries 5,709 5,396
Other 24,034 22,490
----------------------------------------------------------------
672,336 736,735
----------------------------------------------------------------
FOREIGN DEFERRED TAX ASSETS 444 284
----------------------------------------------------------------
Total Deferred Tax Assets 672,780 737,019
----------------------------------------------------------------
U.S. DEFERRED TAX LIABILITIES:
Property, plant and equipment 97,628 95,195
Prepaid pension cost 40,791 37,550
Other 5,905 10,932
----------------------------------------------------------------
Total Deferred Tax Liabilities 144,324 143,677
----------------------------------------------------------------
Net Deferred Tax Asset, before
valuation allowances 528,456 593,342
Valuation Allowances (82,512) (96,449)
----------------------------------------------------------------
Net Deferred Tax Asset $445,944 $496,893
----------------------------------------------------------------
</TABLE>
seventy
<PAGE>
Schuller Corporation 1995 Annual Report
--------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The current portion of the net deferred tax asset as of December 31, 1995 and
1994, was $31.2 million and $34.2 million, respectively.
The PI Trust deductions deferred tax asset primarily represents consummation
charges related to stock and Trust Bonds issued to the PI Trust, recorded in
1988 for financial reporting purposes, and subsequent dividend and profit
sharing payments made to the PI Trust that are not yet deductible for income tax
purposes. The charge related to the Trust Bonds becomes deductible as principal
and interest payments are made to the PI Trust, or when the Trust Bonds are sold
by the PI Trust, and funds are distributed to claimants or deposited in a
specific settlement fund within the PI Trust. The PI Trust deductions deferred
tax asset includes $207.1 million generated from the issuance at consummation of
stock to the PI Trust and is based on the market-
related value of the stock at consummation. If the PI Trust were to sell the
stock at a price greater than the value recorded at consummation, the Company
may receive a tax benefit in excess of the deferred tax asset reflected for
financial reporting purposes. Likewise, if the PI Trust were to sell the stock
at a price lower than the value recorded at consummation, the Company would
receive a tax benefit less than the deferred tax asset. At December 31, 1995,
the trading price of the Company's Common Stock exceeded the market-related
value used to record the stock issued at consummation. The charge related to the
issuance of stock will become deductible when the PI Trust converts its shares
to cash and distributes the proceeds to asbestos claimants or transfers the
proceeds to the settlement fund. The dividend and profit sharing payments to the
PI Trust also represent a future tax benefit to the Company (subject to the
valuation allowance discussed below) that will become a current deduction when
paid to claimants or transferred to the settlement fund.
The PI Trust transferred approximately $165 million and $234 million in 1995
and 1994, respectively, to the specific settlement fund within the PI Trust or
to claimants generating corresponding current tax deductions for the Company. In
addition, the monies transferred were adequate to eliminate substantially all
alternative minimum tax liability in those years.
The Company estimates, based upon its past earnings, forecasts of future
earnings and potential tax planning strategies, that as of December 31, 1995,
$82.5 million of the deferred tax asset will not be realized. This amount
primarily relates to foreign tax credits, general business credits and future
deductible amounts that the Company believes will expire unused. Accordingly, a
valuation allowance has been provided for these amounts. The $13.9 million
decrease in the valuation allowance in 1995 primarily relates to the expiration
of foreign tax credit carryforwards and general business credit carryforwards
which were fully reserved in prior years. The Company recorded a $2 million
increase in valuation allowance due to additional deferred tax asset generated
from the Company's prepayment of a substantial amount of the Trust Bonds in
1994. The $7 million increase in the valuation allowance in 1993 primarily
relates to the additional tax benefit recognized on the common dividends paid to
the PI Trust in 1993. The increases to the valuation allowance in 1994 and 1993
resulted from the Company's expectation that the aforementioned assets will not
be realized due to the significant tax deductions generated from the payments to
the PI Trust.
seventy one
<PAGE>
Schuller Corporation 1995 Annual Report
- --------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In accordance with SFAS No. 109, the Company's valuation allowance on all
deferred tax assets is subject to change as forecasts of future years' earnings
and the estimated timing of the utilization of the Company's tax benefits are
revised. Tax planning strategies include the acceleration of taxable amounts to
utilize expiring carryforwards, such as the potential sale of assets, and
changes in the timing of taxable deductions principally related to amounts paid
by the PI Trust or transferred to a specific settlement fund within the PI
Trust.
The approximate tax effect of the temporary differences giving rise to a
significant portion of the net deferred tax liability is as follows:
<TABLE>
<CAPTION>
In thousands of dollars
---------------------------
1995 1994
---------------------------
<S> <C> <C>
FOREIGN DEFERRED TAX ASSETS $ 2,526 $ 1,592
- --------------------------------------------------------------------------------
FOREIGN DEFERRED TAX LIABILITIES:
Property, plant and equipment 44,637 31,920
Undistributed earnings of
foreign subsidiaries 15,136 9,832
Pensions 5,251 5,360
- --------------------------------------------------------------------------------
Total Deferred Tax Liabilities 65,024 47,112
- --------------------------------------------------------------------------------
Net Deferred Tax Liability $62,498 $45,520
- --------------------------------------------------------------------------------
</TABLE>
The current portion of the net deferred tax liability as of December 31, 1995
and 1994, was $15.1 million and $9.8 million, respectively.
The U.S. and foreign components of income (loss) from continuing operations
before income taxes consist of the following:
<TABLE>
<CAPTION>
In thousands of dollars
------------------------------------------
1995 1994 1993
------------------------------------------
<S> <C> <C> <C>
U.S. $182,056 $57,723 $(17,966)
Foreign 42,367 39,245 23,122
- --------------------------------------------------------------------------------
$224,423 $96,968 $5,156
- --------------------------------------------------------------------------------
</TABLE>
The provision for income tax expense (benefit) on continuing operations
consists of the following:
<TABLE>
<CAPTION>
In thousands of dollars
-------------------------------------------
1995 1994 1993
-------------------------------------------
<S> <C> <C> <C>
CURRENT:
U.S. federal $ 2,049
U.S. state and local 1,642 $ 1,924 $ 1,252
Foreign 16,603 12,763 10,975
- --------------------------------------------------------------------------------
20,294 14,687 12,227
- --------------------------------------------------------------------------------
DEFERRED:
U.S. 72,526 23,321 (62,827)
Foreign 9,597 3,354 (2,081)
- --------------------------------------------------------------------------------
82,123 26,675 (64,908)
- --------------------------------------------------------------------------------
$102,417 $41,362 $(52,681)
- --------------------------------------------------------------------------------
</TABLE>
As a result of a retroactive change in U.S. income tax regulations regarding
the payment of add-on minimum tax and the treatment of certain tax preference
items for the years 1977 through 1986, the Company was entitled to a federal
income tax refund plus accrued interest. During 1993, the Company received a
total of $32 million, which was recorded as a reduction to current income tax
expense of $19 million and an increase to interest income of $13 million. During
1995, the Company received an additional $5.2 million of interest income related
to this refund.
The reported amount of income tax expense on consolidated pretax income from
continuing operations differs from the amount of income tax expense that would
result from applying domestic federal statutory tax rates to consolidated pretax
income from continuing operations for the following reasons:
seventy two
<PAGE>
Schuller Corporation 1995 Annual Report
--------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
In thousands of dollars
-------------------------------------------
1995 1994 1993
-------------------------------------------
<S> <C> <C> <C>
U.S. federal statutory expense $78,543 $33,938 $ 1,804
INCREASE (DECREASE) RESULTING FROM:
Foreign income taxed at higher rates 17,978 5,310 18,226
Adjustment of estimated income tax (benefit) expense
for prior years 3,312 (1,440) 5,280
U.S. state and local taxes, net of federal benefit 1,466 4,760 814
Change in income tax rates 1,789 (24,053)
Deduction for the special dividend paid to the PI Trust (33,946)
Tax refund (18,699)
Recognition of U.S. state and local deferred tax assets (7,591)
Increase in the deferred tax asset valuation allowance 7,000
Other, net 1,118 (2,995) (1,516)
- -----------------------------------------------------------------------------------------------------------
$102,417 $41,362 $(52,681)
- -----------------------------------------------------------------------------------------------------------
</TABLE>
As of December 31, 1995, the Company had $345.3 million of U.S. federal
regular operating loss carryforwards. The operating loss carryforwards expire
beginning in 2007. However, the Company believes a significant portion of the
operating loss carryforwards may be used in 1996 to shelter a portion of the tax
gain on the disposition of Riverwood. The Company also had $12.3 million, $18.2
million and $18.6 million of foreign tax credit carryforwards, general business
credit carryforwards and a U.S. federal credit for prior year minimum tax,
respectively. Both the general business credits and foreign tax credits expire
at various dates beginning in 1996. There is no expiration date on the prior
year minimum tax credit; however, it can only be applied against regular tax.
Undistributed earnings intended to be reinvested indefinitely by the foreign
subsidiaries totaled $135 million at December 31, 1995. The determination of the
deferred tax liability related to these undistributed earnings is not
practicable. Accordingly, no U.S. deferred income tax has been recorded.
- --------------------------------------------------------------------------------
NOTE 23: EARLY EXTINGUISHMENTS OF DEBT
In the third and fourth quarters of 1994, the Company completed two debt
refinancings that resulted in an aggregate extraordinary loss on early
extinguishments of debt of $28.4 million, net of related income taxes of $13
million.
Riverwood completed a refinancing program in the third quarter of 1994 and
used the proceeds of the new borrowings to prepay approximately $179 million
of principal of notes payable and to pay related accrued interest and expenses
of the refinancing. The extraordinary charge for this early retirement of debt
was $7.9 million, net of income taxes of $5 million.
In September 1994, the Company prepaid $343 million of the Trust Bonds,
including accrued interest, to the PI Trust, with the exchange of an aggregate
principal amount of $379 million of 10.375 percent Senior Notes due 2004 of the
Company's wholly owned subsidiary, Schuller International. The transaction
resulted in an extraordinary loss on the early extinguishment of debt of $26.8
million, net of related income taxes of $11.4 million. In the fourth quarter of
1994 the extraordinary loss on the Trust Bonds was reduced by $6.3 million, net
of related income taxes of $3.4 million. This reduction was due to an adjustment
in the interest rate on the Senior Notes to 10.875 percent finalized in the
fourth quarter in accordance with the prepayment agreement. This resulted in a
total extraordinary loss in 1994 on the Trust Bonds prepayment of $20.5 million,
net of related income taxes of $8 million.
seventy three
<PAGE>
Schuller Corporation 1995 Annual Report
- --------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On August 25, 1993, the Company and the PI Trust entered into a bond
prepayment agreement. Pursuant to the agreement, on August 25, 1993, the Company
made a partial prepayment on the Trust Bonds. The prepayment consisted of $150
million of cash, net of certain costs, and the assignment to the PI Trust of
$100 million, plus accrued interest, of Riverwood intercompany notes
("Intercompany Notes"). The assignment of the Intercompany Notes was pursuant to
an option in the agreement that the PI Trust exercised on August 25, 1993.
In conjunction with the bond prepayment, the Company recorded an
extraordinary gain of $0.9 million, net of related income taxes of $0.5 million,
in August 1993, to adjust the estimated extraordinary loss previously recorded
in 1992. In 1992, the Company recorded an estimated extraordinary loss of $11.5
million, net of related income tax benefit of $5.9 million, in anticipation of
the prepayment of a portion of the bonds payable to the PI Trust.
- --------------------------------------------------------------------------------
NOTE 24: CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING FOR
POSTEMPLOYMENT BENEFITS
Effective January 1, 1993, the Company adopted Statement of Financial Accounting
Standards No. 112, "Employers' Accounting for Postemployment Benefits" ("SFAS
No. 112"). SFAS No. 112 generally requires that certain postemployment benefit
costs and obligations be recognized over the active service lives of employees.
These obligations include, but are not limited to, benefits provided to former
(but not yet retired) or inactive employees and their dependents contingent upon
disability, death, layoff or other
termination. During 1993, the Company recognized an accumulated postemployment
benefit obligation of $13.9
million, net of taxes, of $8.6 million, of which $2.2 million, net of taxes,
related to the discontinued operations of
Riverwood. This cumulative adjustment is primarily attributable to the accrual
of certain accumulated disability-related benefits, recognition of additional
workers' compensation expenses and the reduction of the discount rate used to
measure the present value of the Company's workers' compensation liabilities to
7.5 percent from approximately 10 percent.
The Company will continue to recognize certain postemployment benefit
expenses at the time an employee is terminated or becomes inactive, as such
amounts cannot be reasonably estimated before that time. Income before
cumulative effect of accounting changes after adopting SFAS No. 112 is not
significantly different from the amount the Company previously recognized.
- --------------------------------------------------------------------------------
NOTE 25: SUPPLEMENTAL CASH FLOW INFORMATION
In connection with the Consolidated Statement of Cash Flows, cash paid for
interest related to continuing operations during 1995, 1994 and 1993 was $47.8
million, $6.9 million and $51.5 million, respectively. Cash paid for income
taxes related to continuing operations during 1995 and 1994 was $18.9 and $12.8
million, respectively. Cash refunded for income taxes during 1993 was $19.3
million.
As discussed in Note 23, the Company made a prepayment on the Trust Bonds in
1994 that included the exchange of $379 million of Schuller International Senior
Notes held by the Company in satisfaction of a portion of the Trust Bonds.
As discussed in Note 23, the Company made a partial prepayment on the Trust
Bonds in 1993 to the PI Trust that included the assignment of $100 million of
Riverwood notes held by the Company.
seventy four
<PAGE>
Schuller Corporation 1995 Annual Report
--------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 26: PRO FORMA BALANCE SHEET RELATED TO SUBSEQUENT EVENTS (UNAUDITED)
The pro forma balance sheet gives retroactive effect to the disposition of
Riverwood (Note 7), the Exchange (Note 3) and certain other transactions
described more fully below, as if they had occurred December 31, 1995.
The disposition of Riverwood is based on gross proceeds of $20.25 per share
of Riverwood common stock, or $1.08 billion for the Company's 81.3 percent
interest in Riverwood and an estimated net gain of approximately $112 million,
after tax.
The Exchange reflects the issuance of approximately 32.5 million shares of
Schuller Common Stock at an assumed fair market value of $14.00 per share, which
was based on the New York Stock Exchange closing sales price for Schuller Common
Stock on March 29, 1996. Based on these assumptions the Exchange would result in
an extraordinary loss of approximately $298 million, net of taxes of $160
million. However, this loss will be subject to adjustment based on the actual
trading price of Schuller Common Stock on the date of the Exchange.
The Exchange permits the Company to redeem its Cumulative Preference Stock,
Series B, and its outstanding 9 percent Sinking Fund Debentures out of the
proceeds of the disposition. The Company expects to redeem its Preference Stock
with cash of $231 million, plus accrued and unpaid dividends. The excess of the
redemption price over the carrying value of the Preference Stock of
approximately $52 million will be charged directly to capital in excess of par
value. This $52 million charge to capital in excess of par value will be
deducted from net income at the time this transaction occurs to compute earnings
per share applicable to common stockholders. The redemption of the 9 percent
Sinking Fund Debentures with cash of approximately $29 million would result in
an extraordinary loss on the extinguishment of debt of approximately $3 million,
net of taxes of $2 million.
The Exchange requires the Company to declare and pay a common dividend out of
the proceeds from the disposition of Riverwood, which, after permitted
redemptions, would be a minimum of $4.62 per share. Schuller declared a pro rata
dividend to all common stockholders in late March 1996 of $6.00 per share. The
pro forma balance sheet reflects a total common dividend of approximately $974
million, and a corresponding tax benefit of approximately $113 million on the
portion of the dividend paid to the PI Trust. The tax benefit for financial
reporting purposes on the portion of the dividend paid to the PI Trust will be
realized at less than normal statutory rates. Due to the size of the dividend in
relation to the Company's equity, the Company will make a corresponding pro rata
reduction in the carrying value of its deferred tax asset related to Common
Stock held by the PI Trust. The pro rata reduction in the deferred tax asset
related to Common Stock held by the PI Trust will partially offset the tax
benefit on the dividend, resulting in an effective tax rate on the portion of
the dividend paid to the PI Trust of approximately 15 percent.
The pro forma balance sheet has also assumed the exercise of all of the
Company's outstanding Warrants at December 31, 1995. The exercise of the
Warrants is at the Warrant holders' option, and not a specific requirement of
the transactions contemplated in this pro forma balance sheet. However, the
Company has assumed that before the dividend is paid all Warrant holders would
exercise their Warrants allowing them to receive the dividend. The outstanding
Warrants would be exercised for the purchase of approximately seven million
shares of Common Stock, par value $0.01, at an exercise price of $9.40 per
share.
seventy five
<PAGE>
Schuller Corporation 1995 Annual Report
- --------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The above transactions will eliminate certain expenses from the Company's
income statement in the future, including the profit sharing expense, which
totaled $27.7 million, interest expense on the 9 percent Sinking Fund
Debentures, which totaled $3.3 million, and Preference Stock dividends, which
totaled $24.9 million, in 1995.
- --------------------------------------------------------------------------------
NOTE 27: ACQUISITIONS
Effective January 1, 1996, the Company formed a joint venture with China
National New Building Materials Corporation ("CNNBMC") and Tianma Corporation to
manufacture fiber glass mat in China. The Company has a 60 percent interest in
the joint venture while CNNBMC and Tianma Corporation each hold a 20 percent
interest. The new joint venture will operate and expand an existing fiber glass
mat facility in the City of Changzhou, Jiansu Province, near Shanghai. In
addition, during the first quarter of 1996, the Company acquired Web Dynamics, a
U.S. manufacturer of synthetic filtration products which will be accounted for
under the purchase method. These transactions relate to businesses of the
Engineered Products segment.
During the first quarter of 1996, the Company acquired the commercial and
industrial roofing businesses of Nord Bitumi SpA, headquartered in Verona,
Italy, and Nord Bitumi U.S., Inc. (collectively "Nord"). Nord operates four
manufacturing facilities in the United States and one each in Mexico and Italy.
The Nord acquisition will complement and expand
the Company's existing commercial and industrial roofing product lines of the
Building Products segment. This acquisition will be accounted for under the
purchase method.
The combined purchase price for the Company's interest in the joint venture
and the acquisitions described above totaled approximately $71 million, which
will be financed primarily from existing cash balances.
- --------------------------------------------------------------------------------
NOTE 28: NEW ACCOUNTING PRONOUNCEMENTS
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to Be Disposed Of" ("SFAS No. 121"). The
standard requires the recognition of an impairment loss on certain identifiable
intangible assets and long-lived assets in use or held for disposal when events
or circumstances indicate the carrying value of these assets may not be
recoverable or exceeds their fair value. Companies generally will have until
1996 to adopt this new standard, though early application is encouraged. At this
time, the Company does not expect the adoption of SFAS No. 121 to have a
material impact on the Company's financial position or results of operations.
In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS No. 123"). The standard encourages, but does not require,
companies to recognize compensation expense for grants of stock, stock options
and other equity instruments to employees based on fair value accounting rules.
The standard requires companies that choose not to adopt the new fair value
accounting rules to disclose pro forma net income and earnings per share under
the new method. The standard is effective for fiscal years beginning after
December 15, 1995. The Company has not yet determined if it will adopt the
accounting provisions or only the disclosure provisions of SFAS No. 123.
seventy six
<PAGE>
SCHULLER CORPORATION 1995 ANNUAL REPORT
--------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------
NOTE 29: BUSINESS SEGMENTS AND GEOGRAPHIC AREA INFORMATION
The Company reports separately the results of the Building Products and
Engineered Products segments. The Building Products segment consists of the
Company's building insulation business, which manufactures fiber glass wool
insulation for walls and attics in residential and commercial buildings;
commercial and industrial roofing systems business, which supplies roofing
membranes, insulations, accessories and related guarantees; and mechanical
insulation business, which manufactures pipe and duct insulation for use in
commercial buildings, factories, refineries and other industrial applications.
The Engineered Products segment consists of the Company's specialty
insulations and filtration business, which manufactures thermal and acoustic
insulation for aircraft, automobiles and heating, ventilating and air
conditioning ("HVAC") and other equipment; air filtration media for commercial
and industrial buildings; and ultra-fine fibers for clean room air filters. The
Engineered Products segment also includes the Company's mats and fibers
business, which manufactures continuous filament fiber glass-based products used
for reinforcing roofing, flooring, wall covering and plastic products. The mats
and fibers business includes the Company's German subsidiary, Schuller GmbH.
Financial results for the Company's oil and gas property (which was sold in
1993) and its equity investment in Stillwater (which was sold during 1995 and
1994) are included in Corporate and Eliminations for business segment reporting
purposes.
<TABLE>
<CAPTION>
In thousands of dollars
- ---------------------------------------------------------------------------------------------------------------
DECEMBER 31, 1995 1994 1993
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
Building Products $ 556,172 $ 514,873 $ 466,044
Engineered Products 573,739 532,159 539,295
Corporate (Note A) 1,397,051 1,320,666 1,215,470
Eliminations and Adjustments (Note C) (52,903) (50,200) (57,730)
- ---------------------------------------------------------------------------------------------------------------
Total $2,474,059 $2,317,498 $2,163,079
- ---------------------------------------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31,
- ---------------------------------------------------------------------------------------------------------------
DEPRECIATION AND AMORTIZATION (NOTE D)
Building Products $ 28,765 $ 24,751 $ 23,712
Engineered Products 31,507 28,642 29,540
Corporate 3,561 5,949 9,889
- ---------------------------------------------------------------------------------------------------------------
Total $ 63,833 $ 59,342 $ 63,141
- ---------------------------------------------------------------------------------------------------------------
ADDITIONS TO PROPERTY, PLANT AND EQUIPMENT (NOTE D)
Building Products $ 48,428 $ 53,621 $ 20,520
Engineered Products 60,787 26,991 38,794
Corporate 2,114 2,221 3,329
- ---------------------------------------------------------------------------------------------------------------
Total $ 111,329 $ 82,833 $ 62,643
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
See notes on page 79.
seventy seven
<PAGE>
SCHULLER CORPORATION 1995 ANNUAL REPORT
- --------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
In thousands of dollars
- ---------------------------------------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31, 1995 1994 1993
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BUILDING PRODUCTS
Net Sales (Note B) $ 805,615 $ 743,967 $ 666,903
Costs and Expenses 669,732 625,977 599,950
Restructuring of Operations Loss (20,364)
Other Income (Expense), net (Note F) (2,858) (8,057) 754
- ---------------------------------------------------------------------------------------------------------------
Income from Operations (Note D) $ 133,025 $ 109,933 $ 47,343
- ---------------------------------------------------------------------------------------------------------------
ENGINEERED PRODUCTS
Net Sales (Note B) $ 612,526 $ 558,244 $ 527,066
Costs and Expenses 498,729 481,868 469,564
Restructuring of Operations Loss (6,127)
Other Income (Expense), net (Note F) (5,578) 127 867
- ---------------------------------------------------------------------------------------------------------------
Income from Operations (Note D) $ 108,219 $ 76,503 $ 52,242
- ---------------------------------------------------------------------------------------------------------------
CORPORATE AND ELIMINATIONS
Net Sales (Note B) $ (26,619) $ (24,393) $ (28,159)
Costs and Expenses 4,773 6,641 1,387
Restructuring of Operations Loss (5,523)
Other Income (Expense), net (Note F) (8,569) (13,103) (12,065)
- ---------------------------------------------------------------------------------------------------------------
Income from Operations (Note D) $ (39,961) $ (44,137) $ (47,134)
- ---------------------------------------------------------------------------------------------------------------
CONSOLIDATED TOTAL COMPANY
Net Sales (Note B) $1,391,522 $1,277,818 $1,165,810
Costs and Expenses 1,173,234 1,114,486 1,070,901
Restructuring of Operations Loss (32,014)
Other Income (Expense), net (17,005) (21,033) (10,444)
- ---------------------------------------------------------------------------------------------------------------
Income from Operations (Note D) $ 201,283 $ 142,299 $ 52,451
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
See notes on page 79.
seventy eight
<PAGE>
SCHULLER CORPORATION 1995 ANNUAL REPORT
--------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
In thousands of dollars
- ---------------------------------------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31, 1995 1994 1993
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
UNITED STATES
Net Sales (Note B) $1,200,371 $1,109,682 $1,017,600
Costs and Expenses 993,192 945,844 918,073
Restructuring of Operations Loss (25,164)
Other Income (Expense), net (6,129) (5,984) 28,588
- ---------------------------------------------------------------------------------------------------------------
Income from Operations (Note D) $ 201,050 $ 157,854 $ 102,951
- ---------------------------------------------------------------------------------------------------------------
FOREIGN
Net Sales (Note B) $ 199,356 $ 170,681 $ 165,021
Costs and Expenses 158,444 138,530 141,853
Restructuring of Operations Loss (1,327)
Other Income (Expense), net (363) (32) 793
- ---------------------------------------------------------------------------------------------------------------
Income from Operations (Note D) $ 40,549 $ 32,119 $ 22,634
- ---------------------------------------------------------------------------------------------------------------
CORPORATE AND ELIMINATIONS
Net Sales (Note B) $ (8,205) $ (2,545) $ (16,811)
Costs and Expenses 21,598 30,112 10,975
Restructuring of Operations Loss (5,523)
Other Income (Expense), net (Note E) (10,513) (15,017) (39,825)
- ---------------------------------------------------------------------------------------------------------------
Income from Operations (Note D) $ (40,316) $ (47,674) $ (73,134)
- ---------------------------------------------------------------------------------------------------------------
CONSOLIDATED TOTAL COMPANY
Net Sales (Note B) $1,391,522 $1,277,818 $1,165,810
Costs and Expenses 1,173,234 1,114,486 1,070,901
Restructuring of Operations Loss (32,014)
Other Income (Expense), net (17,005) (21,033) (10,444)
- ---------------------------------------------------------------------------------------------------------------
Income from Operations (Note D) $ 201,283 $ 142,299 $ 52,451
- ---------------------------------------------------------------------------------------------------------------
DECEMBER 31,
- ---------------------------------------------------------------------------------------------------------------
ASSETS
United States $ 936,453 $ 890,433 $ 843,298
Foreign 193,458 156,789 162,473
Corporate (Note A) 1,397,051 1,320,666 1,215,470
Eliminations and Adjustments (Note C) (52,903) (50,390) (58,162)
- ---------------------------------------------------------------------------------------------------------------
Total $2,474,059 $2,317,498 $2,163,079
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
NOTES TO BUSINESS SEGMENTS AND GEOGRAPHIC AREA INFORMATION:
(A) Corporate assets are principally cash and equivalents and marketable
securities, prepaid income taxes, certain investments (including the Company's
equity investment in Stillwater), the net assets held for sale related to
Riverwood, certain long-term receivables, a portion of deferred tax assets, a
portion of prepaid pension assets and a portion of property, plant and
equipment.
(B) Net sales included in Corporate and Eliminations relate principally to
the elimination of intersegment and intergeographic sales (at prices
approximating market). Intersegment sales principally relate to sales from the
Engineered Products segment to the Building Products segment.
(C) Includes the elimination of intersegment and intergeographic inventory
profits and the adjustment of business segment and geographic inventories, which
are carried at standard costs, to the historical inventory bases used in
consolidation.
(D) Excludes amounts related to the discontinued operations of Riverwood.
(E) Includes the elimination of intergeographic dividends between the
Company's foreign segment and its U.S. segment.
(F) Other income (expense), net, as reported in each of the business
segments, represents specific operating income and expense items recognized by
the individual business units. Other expense, net, included in Corporate and
Eliminations consists of amounts primarily attributable to previous business
operations.
seventy nine
<PAGE>
SCHULLER CORPORATION 1995 ANNUAL REPORT
- --------------------------------------------------
MANAGEMENT'S REPORT
The accompanying consolidated financial statements have been prepared by
Management in conformity with generally accepted accounting principles
appropriate under the circumstances. The representations in the financial
statements and the fairness and integrity of such statements are the
responsibility of Management. All of the other financial information in the
Annual Report and Form 10-K is consistent with that in the financial statements.
The financial statements necessarily include some amounts that are based on
Management's best estimates and judgments. Management believes that the
financial statements reflect, in all material respects, the substance of
transactions that should be included and appropriately account for or disclose
all material uncertainties.
The consolidated financial statements prepared by Management have been
audited in accordance with generally accepted auditing standards by Coopers &
Lybrand L.L.P., Independent Accountants, whose report is also presented.
Schuller maintains internal accounting control systems to provide reliable
financial information for the preparation of financial statements, to safeguard
assets against loss or unauthorized use and to ensure proper authorization and
accounting for all transactions. Management is responsible for maintenance of
these systems, which is accomplished through communication of established
written codes of conduct, systems, policies and procedures; employee training;
and appropriate delegation of authority and segregation of responsibilities. To
further ensure compliance with established standards and procedures, the Company
maintains a substantial program of internal audits.
In establishing and maintaining its internal accounting control systems,
Management considers the inherent limitations of the various control procedures
and weighs their cost against the benefits derived. Management believes that
existing internal accounting control systems are achieving their objectives and
that they provide reasonable assurance concerning the accuracy of the financial
statements.
Oversight of Management's financial reporting and internal accounting
control responsibilities is exercised by the Board of Directors, through an
Audit Committee that consists solely of outside directors. The Audit Committee
meets periodically with financial management, internal auditors and the
independent accountants to review how each is carrying out its responsibilities
and to discuss matters concerning auditing, internal accounting control and
financial reporting. The independent accountants and the Company's internal
audit department have free access to meet with the Audit Committee without
Management's presence.
/s/ W. T. Stephens /s/ Robert E. Cole
W. T. Stephens R. E. Cole
President, CEO, and Senior Vice President and
Chairman of the Board Chief Financial Officer
eighty
<PAGE>
SCHULLER CORPORATION 1995 ANNUAL REPORT
--------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Directors of Schuller Corporation:
We have audited the accompanying consolidated balance sheet of Schuller
Corporation as of December 31, 1995 and 1994 and the related consolidated
statements of income, cash flows and stockholders' equity for each of the three
years in the period ended December 31, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits 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 financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Schuller
Corporation as of December 31, 1995 and 1994, and the consolidated results of
its operations and its cash flows for each of the three years in the period
ended December 31, 1995 in conformity with generally accepted accounting
principles.
In accordance with a statement issued by the Financial Accounting Standards
Board, as discussed in Note 24 to the consolidated financial statements, the
Company changed its method of accounting for postemployment benefits in 1993.
/s/ Coopers & Lybrand L.L.P.
Denver, Colorado
April 5, 1996
eighty one
<PAGE>
SCHULLER CORPORATION 1995 ANNUAL REPORT
- --------------------------------------------------
SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
In thousands of dollars, except per share amounts
- ------------------------------------------------------------------------------------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter Total
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1995
Net Sales (Note A) $328,401 $354,051 $363,094 $345,976 $1,391,522
Gross Profit (Note A) 99,735 102,269 98,025 98,382 398,411
Income from Operations (Notes A and B) 52,848 52,991 54,678 40,766 201,283
Income (Loss) before Extraordinary Item 29,331 33,491 83,618 (30,445) 115,995
Net Income (Loss) 29,331 33,491 83,618 (30,445) 115,995
- ------------------------------------------------------------------------------------------------------------------------------
PRIMARY AND FULLY DILUTED EARNINGS (LOSS)
PER COMMON SHARE (NOTE E)
Income (Loss) before Extraordinary Item $.19 $.22 $.62 $(.29) $.73
Net Income (Loss) .19 .22 .62 (.29) .73
- ------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1994
Net Sales (Note A) $267,030 $323,171 $354,129 $333,488 $1,277,818
Gross Profit (Note A) 61,494 85,484 101,230 93,659 341,867
Income from Operations (Notes A and C) 22,449 36,574 52,892 30,384 142,299
Income (Loss) before Extraordinary Item 7,386 20,661 28,982 8,387 65,416
Net Income (Loss) (Note D) 7,386 20,661 (5,725) 14,674 36,996
- ------------------------------------------------------------------------------------------------------------------------------
PRIMARY AND FULLY DILUTED EARNINGS (LOSS)
PER COMMON SHARE (NOTE E)
Income (Loss) before Extraordinary Item $.01 $.12 $.18 $.02 $.33
Net Income (Loss) (Note D) .01 .12 (.10) .07 .10
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTES:
(A) Excludes the operating results of Riverwood, which have been reported as
discontinued operations for all periods presented.
Amounts excluded from net sales, gross profit and income from operations
related to discontinued operations were as follows:
<TABLE>
<CAPTION>
In thousands of dollars
- ------------------------------------------------------------------------------------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter Total
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1995
Net Sales $313,176 $366,265 $342,219 $320,644 $1,342,304
Gross Profit 69,393 85,577 76,195 61,058 292,223
Income from Operations 30,902 36,650 38,316 27,269 133,137
- ------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1994
Net Sales $264,908 $313,995 $327,947 $375,938 $1,282,788
Gross Profit 58,433 73,843 67,268 88,006 287,550
Income from Operations 22,498 40,779 34,474 56,436 154,187
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
eighty two
<PAGE>
SCHULLER CORPORATION 1995 ANNUAL REPORT
--------------------------------------------------
SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
Although the Company expects to record a gain on the sale of its 81.3
percent interest in Riverwood, which closed in the first quarter of 1996, the
Company recorded an estimated loss on disposal of discontinued operations of
$42.5 million in the fourth quarter of 1995. This loss primarily relates to
deferred taxes on the Company's investment in Riverwood that had not been
recognized previously. In accordance with Financial Accounting Standards No.
109, "Accounting for Income Taxes," the Company recorded these taxes when it
became apparent the taxes would be incurred due to the planned sale of
Riverwood.
(B) During the fourth quarter of 1995, the Company recorded asset write-
offs of $7.8 million related primarily to nonproductive assets previously used
in the manufacture of molded automotive parts.
(C) During the fourth quarter of 1994, the Company recorded a charge of
$8.9 million for legal costs in connection with the Company's litigation with
its insurance carrier and the former owner of the phenolic insulation business.
See Note 13 of the Notes to the Consolidated Financial Statements.
(D) In the third and fourth quarters of 1994, the Company completed two
debt refinancings that resulted in an aggregate extraordinary loss on early
extinguishments of debt of $28.4 million, net of income taxes of $13 million.
This extraordinary loss includes $7.9 million, net of income taxes of $5
million, related to the discontinued operations of Riverwood
(E) Earnings (loss) per share amounts were computed on a weighted average
number of shares outstanding basis and were calculated after the deduction for
preference stock dividends. Refer to Note 16 of the Notes to the Consolidated
Financial Statements for discussion of the earnings (loss) per common share
computation.
eighty three
<PAGE>
EXHIBIT 14
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREHOLDERS AND DIRECTORS
OF IGARAS PAPEIS E EMBALAGENS S.A.:
We have audited the accompanying consolidated balance sheets of Igaras
Papeis e Embalagens S.A. (formerly named Igaras Papeis e Embalagens Ltda.) as of
December 31, 1995 and 1994, and the related consolidated statements of
operations, shareholders' equity, and cash flows for each of the years ended
December 31, 1995, December 31, 1994 and November 30, 1993 and for the one-month
period ended December 31, 1993. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards in the United States of America. 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 financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Igaras Papeis e
Embalagens S.A. as of December 31, 1995 and 1994, and the consolidated results
of its operations and its cash flows for each of the years ended December 31,
1995, December 31, 1994 and November 30, 1993, and for the one-month period
ended December 31, 1993 in conformity with generally accepted accounting
principles in the United States of America.
COOPERS & LYBRAND BIEDERMANN, BORDASCH
Sao Paulo, Brazil
January 19, 1996
F-42
<PAGE>
IGARAS PAPEIS E EMBALAGENS S.A.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1995 1994
--------- --------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C>
ASSETS
Current Assets:
Cash and equivalents . . . . . . . . . . . . . . $ 50,229 $ 3,246
Receivables. . . . . . . . . . . . . . . . . . . 21,897 18,111
Inventories. . . . . . . . . . . . . . . . . . . 33,178 20,241
Other assets . . . . . . . . . . . . . . . . . . 4,681 1,706
--------- --------
Total Current Assets . . . . . . . . . . . . . 109,985 43,304
Property, Plant and Equipment, net 231,562 205,459
Deferred Tax Assets. . . . . . . . . . . . . . . 6,779 9,442
Other Noncurrent Assets. . . . . . . . . . . . . 5,028 5,975
--------- --------
Total Assets . . . . . . . . . . . . . . . . . $ 353,354 $ 264,180
--------- --------
--------- --------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-43
<PAGE>
IGARAS PAPEIS E EMBALAGENS S.A.
CONSOLIDATED BALANCE SHEETS (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1995 1994
------- -------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C>
LIABILITIES
Current Liabilities:
Short-term debt . . . . . . . . . . . . . . . . . . . . $ 19,372 $ 7,171
Current portion of long-term debt . . . . . . . . . . . 9,427 7,546
Accounts payable . . . . . . . . . . . . . . . . . . . 13,106 11,041
Income taxes . . . . . . . . . . . . . . . . . . . . . 34,564 526
Deferred income taxes . . . . . . . . . . . . . . . . . 100 57
Other accrued liabilities . . . . . . . . . . . . . . . 13,709 10,456
-------- --------
Total Current Liabilities . . . . . . . . . . . . . . 90,278 36,797
Long-Term Debt, less current portion . . . . . . . . . . 11,424 15,315
Pension Fund. . . . . . . . . . . . . . . . . . . . . . . 1,922 1,898
Deferred Income Taxes . . . . . . . . . . . . . . . . . . 12,188 11,336
Other Noncurrent Liabilities . . . . . . . . . . . . . . 931 --
-------- --------
Total Liabilities 116,743 65,346
-------- --------
Contingencies and Commitments (Note 10)
SHAREHOLDERS' EQUITY
Preferred Stock
Class A (No par value; 16 shares authorized,
issued and outstanding in 1995 and 1994) . . . . . . -- --
Class B (No par value; 1 share authorized, issued
and outstanding in 1995 and 1994). . . . . . . . . . -- --
Common Stock (No par value; 116,999,983 shares
authorized, issued and outstanding in 1995 and 1994) . . 170,984 170,984
Retained Earnings . . . . . . . . . . . . . . . . . . . . 65,627 27,850
-------- --------
Total Shareholders' Equity. . . . . . . . . . . . . . 236,611 198,834
-------- --------
Total Liabilities and Shareholders' Equity. . . . . . $353,354 $264,180
-------- --------
-------- --------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-44
<PAGE>
IGARAS PAPEIS E EMBALAGENS S.A.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
---------------------------------------- ONE MONTH ENDED
DECEMBER 31, NOVEMBER 30, DECEMBER 31,
----------------------- ------------ ---------------
1995 1994 1993 1993
-------- -------- ------------ ---------------
<S> <C> <C> <C> <C>
Net Sales. . . . . . . . . . . . . . . . . . . . . $275,551 $160,526 $131,135 $9,703
Cost of Sales. . . . . . . . . . . . . . . . . . . 139,011 105,869 94,187 7,514
Selling, General and Administrative Expenses . . . 19,049 15,622 12,158 1,232
Translation Losses, net. . . . . . . . . . . . . . 2,457 6,628 13,050 981
Other (Expense) Income, net. . . . . . . . . . . . (6,502) 747 (1,091) 53
-------- -------- -------- ------
Income from Operations . . . . . . . . . . . . . . 108,532 33,154 10,649 29
Interest Income. . . . . . . . . . . . . . . . . . 16,171 889 563 54
Interest Expense . . . . . . . . . . . . . . . . . 5,909 7,976 1,852 448
-------- -------- -------- ------
Income (Loss) before Income Taxes. . . . . . . . . 118,794 26,067 9,360 (365)
Current Income Tax Expense . . . . . . . . . . . . 45,226 4,079 2,724 --
Deferred Income Tax Expense (Benefit). . . . . . . 3,558 3,769 (4,106) --
-------- -------- -------- ------
Net Income (Loss). . . . . . . . . . . . . . . . . $ 70,010 $ 18,219 $ 10,742 $ (365)
-------- -------- -------- ------
-------- -------- -------- ------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-45
<PAGE>
IGARAS PAPEIS E EMBALAGENS S.A.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
---------------------------------------- ONE MONTH ENDED
DECEMBER 31, NOVEMBER 30, DECEMBER 31,
---------------------------------------- ---------------
1995 1994 1993 1993
-------- -------- -------- ---------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss). . . . . . . . . . . . . . . . $ 70,010 $ 18,219 $ 10,742 $ (365)
Noncash Items Included in Net Income (Loss):
Depreciation, amortization and cost of
timber harvested. . . . . . . . . . . . . . . 14,847 15,231 15,036 1,409
Deferred income tax expense (benefit). . . . . 3,558 3,769 (4,106) --
Pension expense. . . . . . . . . . . . . . . . 168 325 405 38
Other, net . . . . . . . . . . . . . . . . . . (313) (132) (221) (189)
(Increase) Decrease in Current Assets:
Receivables. . . . . . . . . . . . . . . . . . (3,786) (9,098) 250 1,556
Inventories. . . . . . . . . . . . . . . . . . (12,937) (1,854) (2,207) (2)
Other assets . . . . . . . . . . . . . . . . . (2,975) 49 298 100
Increase (Decrease) in Current Liabilities:
Accounts payable . . . . . . . . . . . . . . . 2,065 2,838 1,482 (444)
Income taxes . . . . . . . . . . . . . . . . . 34,038 526 (3,052) (35)
Other current liabilities. . . . . . . . . . . 3,253 4,410 1,773 (2,930)
Increase (Decrease) in Other Noncurrent
Liabilities . . . . . . . . . . . . . . . . . . 931 -- (912) --
-------- -------- -------- ------
Net Cash Provided by (Used in) Operating
Activities. . . . . . . . . . . . . . . . . . . 108,859 34,283 19,488 (862)
-------- -------- -------- ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of Property, Plant and Equipment . . . (41,343) (19,997) (32,303) (1,325)
Proceeds from Sales of Fixed Assets. . . . . . . 457 147 740 1
Decrease in Other Noncurrent Assets. . . . . . . 947 57 1,444 231
-------- -------- -------- ------
Net Cash Used in Investing Activities. . . . . . (39,939) (19,793) (30,119) (1,093)
-------- -------- -------- ------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Long-Term Debt . . . . . . . . . . 2,051 2,540 2,018 --
Proceeds from Short-Term Debt. . . . . . . . . . 92,889 88,040 98,210 9,272
Payments on Debt . . . . . . . . . . . . . . . . (84,644) (97,909) (83,354) (6,677)
Dividends. . . . . . . . . . . . . . . . . . . . (32,233) (6,029) (5,845) --
-------- -------- -------- ------
Net Cash (Used in) Provided by Financing
Activities. . . . . . . . . . . . . . . . . . . (21,937) (13,358) 11,029 2,595
-------- -------- -------- ------
Net Increase in Cash and Equivalents . . . . . . 46,983 1,132 398 640
Cash and Equivalents at Beginning of Period. . . 3,246 2,114 1,076 1,474
-------- -------- -------- ------
CASH AND EQUIVALENTS AT END OF PERIOD. . . . . . $ 50,229 $ 3,246 $ 1,474 $2,114
-------- -------- -------- ------
Supplemental Disclosure of Cash Flow
Information
Cash Paid during the Year for:
Income Taxes . . . . . . . . . . . . . . . . . $ 8,583 $ 3,582 $ 6,622 $ 35
Interest . . . . . . . . . . . . . . . . . . . $ 6,982 $ 7,993 $ 1,183 $ 612
-------- -------- -------- ------
-------- -------- -------- ------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-46
<PAGE>
IGARAS PAPEIS E EMBALAGENS S.A.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
CLASS A CLASS B TOTAL
PREFERRED PREFERRED COMMON RETAINED SHAREHOLDERS'
STOCK STOCK STOCK EARNINGS EQUITY
--------- --------- -------- -------- --------------
<S> <C> <C> <C> <C> <C>
BALANCES AT NOVEMBER 30, 1992 $-- $-- $176,351 $11,128 $187,479
Net Income. . . . . . . . . . . . . . . . . . -- -- -- 10,742 10,742
Dividends of $0.005 per share on Common Stock -- -- -- (5,845) (5,845)
--------- --------- -------- ------- --------
BALANCES AT NOVEMBER 30, 1993 -- -- 176,351 16,025 192,376
Net Loss -- -- -- (365) (365)
--------- --------- -------- ------- --------
BALANCES AT DECEMBER 31, 1993 -- -- 176,351 15,660 192,011
Net Income -- -- -- 18,219 18,219
Dividends of $0.052 per share on Common Stock -- -- -- (6,029) (6,029)
Capital Increase -- -- 264 -- 264
Partial Spin-off -- -- (5,631) -- (5,631)
Conversion of Common Stock to Preferred Stock -- -- -- -- --
--------- --------- -------- ------- --------
BALANCES AT DECEMBER 31, 1994 -- -- 170,984 27,850 198,834
Net Income -- -- -- 70,010 70,010
Dividends of $0.275 per share on Common Stock -- -- -- (32,233) (32,233)
--------- --------- -------- ------- --------
BALANCES AT DECEMBER 31, 1995 $-- $-- $170,984 $65,627 $236,611
--------- --------- -------- ------- --------
--------- --------- -------- ------- --------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-47
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts of
Igaras Papeis e Embalagens S.A. (formerly named Igaras Papeis e Embalagens
Ltda.) and its wholly-owned subsidiaries, Igaras Agro-Florestal Ltda. and Agrok
Agro-Florestal Ltda. (herein referred to as "the Company"). All significant
transactions and balances between the consolidated operations have been
eliminated.
(B) PRINCIPLES OF TRANSLATION
The accounting records of the Company are maintained in local currency. The
Company's financial statements, including the adjustments made outside the local
books of account, have been translated into U.S. dollars in accordance with
Statement of Financial Accounting Standards No. 52, "Foreign Currency
Translation" ("SFAS No. 52"), as follows:
<TABLE>
<CAPTION>
<S> <C>
BALANCE SHEETS:
Inventories; prepaid expenses; property, plant and
equipment and related depreciation and cost of
timber harvested; advances for energy supply and
shareholders' equity. . . . . . . . . . . . . . . . . . at historical
exchange rates
All other assets and liabilities . . . . . . . . . . . . at the year end
exchange rates of:
1995 1994
-------- --------
R$0.9725 R$ 0.85
US$ 1.00 US$ 1.00
STATEMENTS OF OPERATIONS:
Cost of sales; depreciation; cost of timber
harvested and amortization of other assets . . . . . . . at historical
exchange rates
All other income and expense items . . . . . . . . . . . . at the average
exchange rate for
the period
</TABLE>
All gains and losses on translation are included in income from operations.
(C) CASH AND EQUIVALENTS
Cash and equivalents include time deposits, certificates and receipts of
deposits and other marketable securities with original maturities of three
months or less.
(D) INVENTORIES
Inventories are stated at average cost which is lower than market.
(E) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. Cost includes capitalized
interest incurred during the construction phase. In 1995, 1994 and 1993,
$736,000, $468,000 and $1,933,000 of interest expense was capitalized,
respectively.
Expenditures for significant improvements, or for replacement parts, which
extend the useful life of an asset for more than one year, are capitalized,
while maintenance and repair costs are charged against operations as incurred.
F-48
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Gains and losses from normal retirement or replacement of property, plant and
equipment are reflected in accumulated depreciation with no effect on current
period earnings. The amount of related accumulated deferred losses, net of
accumulated depreciation, was $460,000 and $522,000 as of December 31, 1995 and
1994, respectively. Gains and losses arising from abnormal disposals are
included in income from operations.
(F) DEPRECIATION AND COST OF TIMBER HARVESTED
Depreciation of cost is provided over the estimated useful lives of the
related assets using the straight-line method.
The estimated useful lives used in computing depreciation were as follows:
<TABLE>
<S> <C>
Land Improvements. . . . . . . . . . . . . . . . . . . . . 35 years
Buildings and Building Equipment . . . . . . . . . . . . . 35 years
Machinery, Equipment and Vehicles. . . . . . . . . . . . . 5 to 20 years
Furniture and Fixtures . . . . . . . . . . . . . . . . . . 16 years
Computer Hardware. . . . . . . . . . . . . . . . . . . . . 4 to 5 years
</TABLE>
Timber and timberlands are stated at cost. Cost of timber harvested is based
on unit cost rates calculated using the total estimated yield of timber to be
harvested and the unamortized timber costs.
(G) INCOME TAXES
Deferred income taxes are recognized in accordance with SFAS No. 109,
"Accounting for Income Taxes." The Standard requires, among other things, the
use of the liability method of computing deferred income taxes. Under the
liability method, the effect of changes in corporate tax rates on deferred
income taxes is recognized currently as an adjustment to income tax expense. The
liability method also requires that deferred tax assets or liabilities be
recorded based on the difference between the tax bases of assets and liabilities
and their carrying amounts for financial reporting purposes.
(H) REVENUE RECOGNITION
The Company recognizes revenue primarily when goods are shipped to customers.
(I) USE OF ESTIMATES
The preparation of the consolidated financial statements in conformity with
generally accepted accounting principles in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the dates of the financial statements and the reported amounts of
revenues and expenses during the reporting periods. Actual results could differ
from those estimates.
NOTE 2 -- EFFECTS OF INFLATION
Brazilian corporate law and tax regulations require monetary correction
(price-level restatement) of permanent assets (fixed assets, deferred charges
and permanent investments) and shareholders' equity accounts using the Ufir
index published by the Brazilian Government.
The computed monetary correction amounts are recorded in the respective
Brazilian balance sheet accounts with the net amount recorded as a gain or loss
in the Brazilian statement of operations. Net monetary correction gains are
taxable, although to the extent that such gains exceed foreign exchange losses
and monetary correction adjustments on local currency indebtedness, the payment
of income tax thereon is deferred. Net monetary correction losses are deductible
for income tax purposes.
F-49
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 3 -- RECEIVABLES
The components of receivables were as follows at December 31:
<TABLE>
<CAPTION>
1995 1994
-------- --------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C>
Trade $ 38,743 $ 27,499
Less:
Export Drafts Discounted with Recourse (16,841) (9,383)
Allowance for Bad Debts (5) (5)
-------- --------
$ 21,897 $ 18,111
-------- --------
-------- --------
</TABLE>
Export sales by geographic area were as follows:
<TABLE>
<CAPTION>
ONE MONTH
YEARS ENDED ENDED
----------------------------- ---------
1995 1994 1993 12/31/93
-------- -------- -------- --------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C>
Europe . . . . . . . . . . . . . $28,348 $19,167 $16,036 $1,189
Asia-Pacific . . . . . . . . . . 28,395 18,620 13,418 1,019
Latin America, other than Brazil 27,454 19,103 9,524 703
------- ------- ------- -------
Total export sales . . . . . . . $84,197 $56,890 $38,978 $2,911
------- ------- ------- -------
------- ------- ------- -------
</TABLE>
The remaining net sales for each of the periods presented were to customers
which were not concentrated in any specific region, but were concentrated
primarily in the consumer products industry. No single customer accounted for
more than 10 percent of the Company's net sales, and there were no significant
accounts receivable from a single customer. The Company reviews a customer's
credit history before extending credit. The Company establishes an allowance for
doubtful accounts based upon factors surrounding the credit risk of specific
customers, historical trends and other information.
NOTE 4 -- INVENTORIES
The major classes of inventories were as follows at December 31:
<TABLE>
<CAPTION>
1995 1994
------ ------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C>
Finished Goods . . . . . . . . . . . . . . . . . . . . $3,336 $1,598
Work-in-process. . . . . . . . . . . . . . . . . . . . 786 504
Raw Materials. . . . . . . . . . . . . . . . . . . . . 17,013 8,082
Maintenance Materials and Other Supplies . . . . . . . 13,638 11,369
Less: Reserve for Obsolete and Slow-moving Inventory . (1,595) (1,312)
------- -------
$33,178 $20,241
------- -------
------- -------
</TABLE>
F-50
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 5 -- PROPERTY, PLANT AND EQUIPMENT
The components of property, plant and equipment were as follows at
December 31:
<TABLE>
<CAPTION>
1995 1994
-------- --------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C>
Land and Land Improvements . . . . . . . . . . . . . . $ 7,038 $ 6,963
Buildings and Building Equipment . . . . . . . . . . . 32,318 31,564
Machinery, Equipment and Vehicles. . . . . . . . . . . 225,171 215,793
Furniture and Fixtures . . . . . . . . . . . . . . . . 4,179 3,976
Computer Hardware. . . . . . . . . . . . . . . . . . . 1,308 1,064
Construction in Progress . . . . . . . . . . . . . . . 27,629 8,031
-------- --------
297,643 267,391
Less: Accumulated Depreciation . . . . . . . . . . . . 124,927 118,084
-------- --------
172,716 149,307
Timber and Timberlands, less cost of timber harvested. 58,846 56,152
-------- --------
$231,562 $205,459
-------- --------
-------- --------
</TABLE>
NOTE 6 -- LONG-TERM DEBT
Long-term debt consisted of the following at December 31:
<TABLE>
<CAPTION>
ANNUAL
PRINCIPLE PERIOD INTEREST
DUE OUTSTANDING RATE 1995 1994
--------- ----------- --------------------------------------------- ------ ------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C>
Credibanco. . . . . . . . Annually 1993 - 1997 9.7% $1,679 $3,811
ING Bank. . . . . . . . . Annually 1996 Libor + 2.5% (8.06% at December 31, 1995) 12 1,477
Frances e Brasileiro . . Monthly 1995 - 1999 5.5% 1,269 1,632
ING Bank. . . . . . . . . Annually 1996 Libor + 2.5% (8.06% at December 31, 1995) 4,033 --
Finame. . . . . . . . . . Monthly 1993 - 1996 12.0% 119 234
Finame. . . . . . . . . . Monthly 1993 - 1998 12.0% 9,171 12,110
BNDES . . . . . . . . . . Monthly 1994 - 1999 10.8% 2,156 2,388
BNDES . . . . . . . . . . Monthly 1997 - 1999 12.0% 574 --
BNDES . . . . . . . . . . Monthly 1997 - 2000 12.5% 877 --
BNDES . . . . . . . . . . Monthly 1997 - 2000 10.5% 430 --
Others. . . . . . . . . . 531 1,209
-------- -------
20,851 22,861
Less Current Portion. . . 9,427 7,546
-------- -------
$11,424 $15,315
-------- -------
-------- -------
</TABLE>
Long-term debt maturities and expirations of funded long-term working capital
commitments at December 31, 1995 were as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS OF DOLLARS)
<S> <C>
1996. . . . . . . . . . . . . . . . . . $9,427
1997. . . . . . . . . . . . . . . . . . 5,701
1998. . . . . . . . . . . . . . . . . . 4,357
1999. . . . . . . . . . . . . . . . . . 1,196
2000. . . . . . . . . . . . . . . . . . 170
-------
$20,851
-------
-------
</TABLE>
No restrictions, guarantees or covenants are associated with long-term debt.
The weighted average interest rate on short-term debt approximated six
percent for 1995.
F-51
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7 -- OTHER ACCRUED LIABILITIES
The components of other accrued liabilities were as follows at December 31:
<TABLE>
<CAPTION>
1995 1994
------- -------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C>
Wages and Compensation . . . . . . . . . . . . . . . . . $ 6,654 $ 5,780
Value-Added and Other Taxes Payable. . . . . . . . . . . 4,731 2,061
Amount Due to Affiliates . . . . . . . . . . . . . . . . 624 1,262
Other. . . . . . . . . . . . . . . . . . . . . . . . . . 1,700 1,353
------- -------
$13,709 $10,456
------- -------
------- -------
</TABLE>
NOTE 8 -- PENSION FUND
The Company maintains a noncontributory defined benefit plan to supplement
the pension benefit provided by the Government pension system. The plan covers
all employees meeting minimum eligibility requirements. Pension benefits are
based primarily on years of service and the employee's compensation near
retirement. The Company's funding policy is to contribute funds to trusts as
necessary to maintain the plan on an actuarially sound basis. Plan assets are
primarily invested in listed stocks and Brazilian government bonds.
The components of the periodic pension expense were as follows for the
following years and one-month period:
<TABLE>
<CAPTION>
YEARS ENDED ONE MONTH
---------------------- ENDED
1995 1994 1993 12/31/93
---------------------- ----------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C>
Service cost -- benefits earned
during the year . . . . . . . . . . . . . .$ 721 $ 503 $ 506 $ 42
Interest cost on projected benefit
obligation . . . . . . . . . . . . . . . . 469 311 300 25
Accrued return on plan assets gain . . . . . (162) (168) (148) (14)
Amortization of prior service cost . . . . . 112 112 112 9
------ ----- ----- ----
TOTAL PENSION EXPENSE . . . . . . . . .$1,140 $ 758 $ 770 $ 62
------ ----- ----- ----
------ ----- ----- ----
</TABLE>
Certain assumptions used in determining the pension expense and net pension
liability for 1995, 1994 and 1993 were as follows:
<TABLE>
<S> <C>
Discount rates . . . . . . . . . . . . . . . . . . 5% per year above
inflation in Brazil
Rates of increase in future compensation levels. . 3% per year above
inflation in Brazil
Expected long-term rates of return on assets . . . 5% per year above
inflation in Brazil
</TABLE>
F-52
<PAGE>
NOTE 8 -- PENSION FUND (CONTINUED)
The following table sets forth the funded status of the plan as of December
31:
<TABLE>
<CAPTION>
1995 1994
-------- --------
(IN THOUSANDS OF
DOLLARS)
<S> <C> <C>
Actuarial present value of:
Vested benefit obligation. . . . . . . . . . . . . $ 5,181 $ 4,516
-------- --------
Accumulated benefit obligation . . . . . . . . . . $ 7,284 $ 6,350
-------- --------
Projected benefit obligation . . . . . . . . . . . $(10,848) $ (9,856)
Plan assets at fair value. . . . . . . . . . . . . . 6,806 4,647
-------- --------
Plan assets less projected benefit obligation. . . . $ (4,042) $ (5,209)
Unrecognized net gain. . . . . . . . . . . . . . . . 269 1,330
Unrecognized prior service cost. . . . . . . . . . . 1,795 1,907
-------- --------
Pension liability -- current . . . . . . . . . . . . $ (56) $ (74)
Pension liability -- long-term . . . . . . . . . . . (1,922) (1,898)
-------- --------
NET PENSION LIABILITY. . . . . . . . . . . . . . . . $ (1,978) $ (1,972)
-------- --------
-------- --------
</TABLE>
The unrecognized prior service cost is amortized on a straight-line basis
over the average remaining service of employees, which approximates 23 years.
NOTE 9 -- INCOME TAXES
During 1995, 1994 and 1993, the statutory income tax rates including the
social contribution tax on ordinary profits were approximately 48 percent, 41
percent and 41 percent, respectively. The statutory income tax rate on
agricultural profits including the social contribution tax was 32 percent for
these years.
On December 30, 1995, the government enacted Law No. 9249/95 changing the
statutory income tax rate from 48 percent to 32 percent (including social
contribution), effective January 1, 1996. The statutory income tax rate on
agricultural profits continues to be 32 percent. This rate change caused a
decrease of $1,848,000 in deferred income taxes which was recognized during
1995.
F-53
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 9 -- INCOME TAXES (Continued)
Approximate tax effects of temporary differences giving rise to the net
deferred tax assets and liabilities were as follows at December 31:
<TABLE>
<CAPTION>
1995 1994
------ ------
(IN THOUSANDS OF
DOLLARS)
<S> <C> <C>
Deferred Tax Assets:
Provision for loss on Electrobras bonds . . . . . . . $1,043 $1,480
Inflationary losses . . . . . . . . . . . . . . . . . 2,953 5,976
Pensions. . . . . . . . . . . . . . . . . . . . . . . 612 --
Miscellaneous . . . . . . . . . . . . . . . . . . . . 2,171 1,986
------ ------
TOTAL DEFERRED TAX ASSETS . . . . . . . . . . . . $6,779 $9,442
------ ------
------ ------
<CAPTION>
1995 1994
------- -------
(IN THOUSANDS OF
DOLLARS)
<S> <C> <C>
Deferred Tax Liabilities:
Inflationary profit . . . . . . . . . . . . . . . . . $10,937 $10,296
Property, plant and equipment . . . . . . . . . . . . 1,054 391
Miscellaneous . . . . . . . . . . . . . . . . . . . . 297 706
------- -------
TOTAL DEFERRED TAX LIABILITIES. . . . . . . . . . $12,288 $11,393
------- -------
------- -------
</TABLE>
The current and long-term portions of the net deferred tax liability were
$100,000 and $12,188,000, respectively, in 1995, and $57,000 and $11,336,000,
respectively, in 1994.
The reported amount of income tax expense (benefit) on income (loss) before
income taxes differs from the amount of income tax expense that would result
from applying the Brazilian statutory income tax rate to income (loss) before
income taxes for the following reasons:
<TABLE>
<CAPTION>
Years
Ended
1995 1994 1993
------- ------- -------
(In thousands of dollars)
<S> <C> <C> <C>
Brazilian statutory expense. . . . . . . . . $57,235 $10,515 $ 3,837
Accelerated depreciation . . . . . . . . . . (8,069) (3,372) --
Tax benefit for anticipated tax payment. . . -- -- (4,793)
Other, net . . . . . . . . . . . . . . . . . (382) 705 (426)
------- ------- -------
INCOME TAX EXPENSE (BENEFIT) . . . . . . . . $48,784 $ 7,848 $(1,382)
------- ------- -------
------- ------- -------
</TABLE>
NOTE 10 -- CONTINGENCIES AND COMMITMENTS
As of December 31, 1995, outstanding purchase commitments relating to
capital projects totaled approximately $7 million.
NOTE 11 -- SHAREHOLDERS' EQUITY
During December 1994, the Company changed from a limited liability company
(Ltd.) to a public Company (S.A.). In addition, Riverwood sold just under 50
percent of its shares to Saragy S.A.
The capital shares consist of 116,999,983 common shares, of which
58,499,992 common shares are owned by Riverwood and 58,499,991 common shares are
owned by Saragy S.A. In addition, the Company authorized and issued 16 shares of
Class A preferred stock and one share of Class B preferred stock. These
preferred shares have preference in the event of a liquidation of the Company.
F-54
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 11-- SHAREHOLDERS' EQUITY (CONTINUED)
These preferred shares also have rights to dividends equal to those of the
common shares. The Class A preferred shares do not have the right to vote and
are not convertible into common shares. The one Class B preferred share does not
have the right to vote, but can be converted into one common share of the
Company on June 30, 2002 or sooner if such conversion is approved by a vote of
at least 95% of the common shareholders.
Earnings may be distributed only out of Reais retained earnings reflected
in the books of Igaras Papeis e Embalagens S.A. As of December 31, 1995, the
U.S. dollar equivalent of this amount available for distribution was
approximately $24,500,000. Dividends remitted abroad were subject to a 15
percent withholding income tax.
NOTE 12 -- PARTIAL SPIN-OFF
In November 1994, the Board of Directors approved the partial spin-off of
assets of Igaras Papeis e Embalagens Ltda., creating Riverwood do Brasil Ltda.
This newly formed company was created to manage the Riverwood's packaging
machinery business. All shares issued were distributed to Riverwood. At
November 30, 1994, the net assets of Riverwood do Brasil Ltda. were as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS
OF DOLLARS)
<S> <C>
Assets
Current. . . . . . . . . . . . . . . . . . . . $ 553
Property, plant and equipment. . . . . . . . . 5,078
------
NET ASSETS. . . . . . . . . . . . . . . . . . . $5,631
------
------
</TABLE>
The impact of this spin-off on the Company's statements of operations is
not material.
NOTE 13 -- RELATED PARTY TRANSACTIONS
During the years ended December 31, 1995, 1994 and 1993, the Company
purchased approximately $5.7 million, $4.0 million and $2.2 million,
respectively, from related parties. Intercompany profits in ending inventory are
not material at December 31, 1995 and 1994.
NOTE 14 -- OTHER (EXPENSE) INCOME, NET
Other (Expense) Income, net in 1995 included approximately $3.6 million of
expenses related to the settlement of certain sales tax matters and
approximately $2.3 million of bonus compensation expenses.
F-55
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statements of
Schuller Corporation on Form S-8 (File No. 33-29389) and Form S-3 (File No.
33-43912) of our report dated April 5, 1996 on our audits of the consolidated
financial statements and financial statement schedules of Schuller Corporation
as of December 31, 1995 and 1994, and for the years ended December 31, 1995,
1994, and 1993, which report is included in this Annual Report on Form 10-K.
/s/COOPERS & LYBRAND L.L.P.
- ----------------------------
COOPERS & LYBRAND L.L.P.
Denver, Colorado
April 5, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE DECEMBER
31, 1995 FORM 10K OF SCHULLER CORPORATION AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 310,809
<SECURITIES> 116,958
<RECEIVABLES> 194,484
<ALLOWANCES> 6,497
<INVENTORY> 77,121
<CURRENT-ASSETS> 737,708
<PP&E> 1,297,432
<DEPRECIATION> 580,022
<TOTAL-ASSETS> 2,474,059
<CURRENT-LIABILITIES> 331,605
<BONDS> 447,007
0
178,638
<COMMON> 1,228
<OTHER-SE> 1,000,600
<TOTAL-LIABILITY-AND-EQUITY> 2,474,059
<SALES> 1,391,522
<TOTAL-REVENUES> 1,391,522
<CGS> 993,111
<TOTAL-COSTS> 993,111
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 770
<INTEREST-EXPENSE> 48,265
<INCOME-PRETAX> 224,423
<INCOME-TAX> 102,417
<INCOME-CONTINUING> 122,006
<DISCONTINUED> (6,011)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 115,995
<EPS-PRIMARY> .73
<EPS-DILUTED> .73
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE DECEMBER
31, 1995 FORM 10K OF SCHULLER CORPORATION AND IS QUALIFIED IN ITS ENTRIETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> DEC-31-1994
<CASH> 204,291
<SECURITIES> 17,681
<RECEIVABLES> 194,422
<ALLOWANCES> 6,422
<INVENTORY> 56,594
<CURRENT-ASSETS> 518,184
<PP&E> 1,222,855
<DEPRECIATION> 555,061
<TOTAL-ASSETS> 2,317,498
<CURRENT-LIABILITIES> 303,452
<BONDS> 441,798
0
178,638
<COMMON> 1,228
<OTHER-SE> 900,480
<TOTAL-LIABILITY-AND-EQUITY> 2,317,498
<SALES> 1,277,818
<TOTAL-REVENUES> 1,277,818
<CGS> 935,951
<TOTAL-COSTS> 935,951
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,440
<INTEREST-EXPENSE> 47,741
<INCOME-PRETAX> 96,968
<INCOME-TAX> 41,362
<INCOME-CONTINUING> 55,606
<DISCONTINUED> 9,810
<EXTRAORDINARY> (28,420)
<CHANGES> 0
<NET-INCOME> 36,996
<EPS-PRIMARY> .10
<EPS-DILUTED> .10
</TABLE>
