<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1994
Commission file number 1-7272
KERR GROUP, INC.
----------------
(Exact name of Registrant as specified in its charter)
Delaware 95-0898810
-------- ----------
(State or other jurisdiction of (I.R.S. Employer Identi-
incorporation or organization) fication Number)
1840 Century Park East, Los Angeles, California 90067
----------------------------------------------- ---------------
(Address of principal executive office) (Zip Code)
Registrant's telephone number,
including area code: (310) 556-2200
--------------
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
Name of each exchange
Title of each class on which registered
------------------- -------------------
<S> <C>
Common Stock New York Stock Exchange
$1.70 Class B Cumulative Convertible
Preferred Stock, Series D New York Stock Exchange
</TABLE>
Securities registered pursuant to Section 12(g) of the Act: None
-Continued-
<PAGE> 2
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No. .
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [ ].
The aggregate market value of the voting stock held by non-affiliates of the
Registrant, as of March 7, 1995, was $28,645,000.
The number of shares of the Registrant's Common Stock, $.50 par value,
outstanding as of March 7, 1995, was 3,677,095.
DOCUMENTS INCORPORATED BY REFERENCE
<TABLE>
<CAPTION>
Part(s) Into
Document Which Incorporated
-------- ------------------
<S> <C>
(1) Annual Report to Stockholders Part I; Part II;
for the fiscal year ended Part IV
December 31, 1994. With the
exception of the pages of the
Annual Report to Stockholders
specifically incorporated by
reference herein, the Annual
Report to Stockholders is not
deemed to be filed as a part
of this Form 10-K.
(2) Proxy Statement to be used in Part III
connection with the Annual
Meeting of Stockholders to be
held on April 25, 1995. With the
exception of the pages of the
Proxy Statement specifically
incorporated by reference herein,
the Proxy Statement is not deemed
to be filed as a part of this
Form 10-K.
</TABLE>
(ii)
<PAGE> 3
KERR GROUP, INC.
Form 10-K Annual Report
For The Fiscal Year Ended December 31, 1994
PART I
ITEM 1. BUSINESS
1. General
Kerr Group, Inc. (the "Registrant"), a Delaware corporation
which was founded in 1903, currently operates in two business segments: the
Plastic Products segment and the Consumer Products segment.
Operations in the Plastic Products segment include the
manufacture and sale of a variety of plastic products, including
child-resistant closures, tamper-evident closures, prescription packaging
products, jars, other closures and containers and the sale of glass
prescription products (the "Plastic Products Business"). Operations in the
Consumer Products segment include the manufacture and sale of caps and lids and
the sale of glass jars and a line of pickling spice and pectin products for
home canning (the "Home Canning Supplies Business"), which together with the
sale of other related products, including iced tea tumblers and beverage mugs,
constitutes the "Consumer Products Business." The Plastic Products Business
and the Consumer Products Business are referred to herein as "Continuing
Businesses".
a. Principal Products and Markets; Sales
and Customers
The Plastic Products segment accounted for approximately 77%
of the Registrant's total net sales in 1994. Plastic closures are sold to
customers in the pharmaceutical, food, distilled spirits, toiletries and
cosmetics and household chemical industries. Plastic and glass prescription
products are sold to drug wholesalers, drug chains and independent pharmacists.
Plastic bottles and jars are sold to customers in the pharmaceutical and
toiletries and cosmetics industries. Plastic products are sold nationally,
principally by the Registrant's sales force.
The Consumer Products Business accounted for approximately 23%
of the Registrant's total net sales in 1994.
<PAGE> 4
The Home Canning Supplies Business represents substantially all of the Consumer
Products Business. The Consumer Products Business sells its products primarily
through food brokers to grocery retailers, food wholesalers and mass
merchandisers.
No customer accounted for more than 10% of the Registrant's
net sales in 1994, 1993 or 1992.
b. Competition
Competition in the markets in which the Plastic Products
Business operates is highly fragmented and the Registrant has a number of large
competitors with respect to its Plastic Products Business that compete for
sales on the basis of price, service and quality of product. The Registrant
believes that it is one of the three largest manufacturers of child-resistant
plastic closures. The Registrant has one major competitor in the prescription
products business, who has substantially larger market share than the
Registrant. The Registrant also believes it is the largest manufacturer of
plastic closures incorporating a tamper-evident feature for the liquor market
and that it is one of the leading suppliers of single and double walled jars to
the personal care and cosmetic markets.
The Registrant's one major competitor in the Home Canning
Supplies Business is Alltrista Corporation. The Registrant believes it has a
significant share of the market for home canning caps, lids and jars.
c. Backlog
The Registrant does not believe that recorded sales backlog is
a significant factor in its business.
d. Raw Materials and Supplies; Fuel and Energy Matters
The primary raw materials used by the Registrant's Plastic
Products Business are resins. The Registrant has historically been able to
obtain adequate supplies of these items from a number of sources. However,
since resins are derived from petroleum or fossil fuel, shortages of petroleum
or fossil fuel could affect the supply of resins. From time to time, the
Registrant has experienced increases in the cost of resins. To the extent that
the Registrant is unable to reflect such price
-2-
<PAGE> 5
increases in the price for products manufactured by it, increases in the cost
of resins could have a significant impact on the results of the Registrant's
operations. The Plastic Products Business, consistent with industry practice,
is generally able to pass-through resin cost increases for all product lines
except the prescription packaging product line.
The Registrant purchases glass jars for its Home Canning
Business from a single supplier under a multi-year contract. The Registrant
believes that it could obtain adequate supplies of glass jars from alternate
sources at reasonable prices if its current supply was interrupted. In
addition to glass jars, the primary raw material used by the Registrant's Home
Canning Supplies Business in the manufacture of its caps and lids is tinplate.
During 1994, the Registrant was able to obtain adequate supplies of these items
from a number of sources.
e. Product Development, Engineering, Patents and
Licensing
The Registrant carries on a product development and
engineering program with respect to its Plastic Products Business.
Expenditures for such programs during the years ended December 31, 1994, 1993
and 1992 were approximately $3,600,000, $2,000,000 and $1,400,000,
respectively.
Although the Registrant owns a number of United States
patents, including patents for its tamper-evident closures and certain of its
child-resistant closures, it is of the opinion that no one or combination of
these patents is of material importance to its business. The Registrant has
granted licenses on some of its patents, although the income from these sources
is not material.
f. Environmental Matters; Legislation
Several states have enacted recycling laws which require
consumers to recycle certain items including containers, and which require
product, container and resin manufacturers to promote recycling efforts. These
mandatory recycling laws are not expected to have an adverse effect on the
Registrant's business.
The Registrant is subject to laws and regulations governing
the protection of the environment,including, among others, laws and regulations
governing disposal of waste,
-3-
<PAGE> 6
discharges into water and emissions into the atmosphere. The Registrant's
expenditures for environmental control equipment in each of the last three
years have not been material and the standards required by such regulations
have not significantly affected the Registrant's operations.
Registrant is a party or a potentially responsible party in
several administrative proceedings and lawsuits involving liability for cleanup
of certain offsite disposal facilities under the Comprehensive Environmental
Response, Compensation and Liability Act ("CERCLA" or Superfund") and similar
state laws. See "Legal Proceedings".
g. Employees
As of December 31, 1994, the Registrant had approximately
1,100 employees, of which approximately 294 were office, supervisory and sales
personnel.
h. Seasonality
The Registrant's sales and earnings are usually higher in the
second and third calendar quarters and lower in the first and fourth calendar
quarters. Most of the sales by the Home Canning Supplies Business occur in the
second and third calendar quarters. In addition, substantially all returns of
home canning supplies occur in the fourth calendar quarter of each year.
The Registrant's Home Canning Supplies Business normally
manufactures its inventory of caps and lids in anticipation of expected orders,
and, consistent with practice followed in the industry, grants extended payment
terms to home canning customers and accepts, subject to certain limitations,
the return of unsold home canning merchandise in the fourth calendar quarter of
each year.
i. Working Capital
In general, the working capital practices followed by the
Registrant are typical of the businesses in which it operates. The seasonal
nature of the Registrant's Home Canning Supplies Business requires periodic
short-term borrowing by the Registrant.
-4-
<PAGE> 7
As of December 31, 1994, the Registrant had two unsecured
$10,000,000 lines of credit with two banks to provide for the seasonal working
capital needs of the Company. In January 1995, the Company entered into a
two-year agreement with a bank to sell its trade accounts receivable on a
nonrecourse basis. Under the facility, the maximum amount that can be advanced
to the Company pursuant to the sale of trade accounts receivable at any time is
$5,000,000 through April 30, 1995, and $10,000,000 thereafter. The Company
retains collection and service responsibility, as agent for the purchaser, over
any receivables sold. This facility reduced the committed amount of one of the
lines of credit to $5,000,000 through April 30, 1995, at which time the line of
credit terminates.
In February 1995, the commitment of the other line of credit
was extended to April 30, 1996.
The lines of credit and accounts receivable facility, together
with internally generated funds, provide the Registrant with the working
capital which the Registrant believes will be sufficient to meet its
anticipated needs.
2. The Discontinued Businesses
a. The Metal Crown Business
On December 11, 1992, the Registrant sold substantially all of
its assets (the "Sale of the Metal Crown Assets") relating to the manufacture
and sale of metal crowns for beer and beverage bottles (the "Metal Crown
Business") to Crown Cork & Seal Company, Inc. ("Crown Cork") pursuant to the
terms of an asset purchase agreement for approximately $7,200,000 in cash.
Included among the assets of the Metal Crown Business sold to Crown Cork were
essentially all of the assets of the Registrant's Arlington, Texas plant. The
Sale of the Metal Crown Assets was more fully described in the Registrant's
Current Report on Form 8-K dated December 11, 1992 filed with the Securities
and Exchange Commission.
As a result of the Sale of the Metal Crown Assets, the
Registrant no longer operates its Metal Crown Business.
b. The Commercial Glass Container Business
On February 28, 1992, the Registrant consummated the sale of
substantially all of its assets (the "Sale of the Glass
-5-
<PAGE> 8
Container Assets") relating to the manufacture and sale of glass containers
(the "Commercial Glass Container Business") to Ball Corporation pursuant to the
terms of an asset purchase agreement for approximately $68,000,000 in cash.
The Sale of the Glass Container Assets was more fully described in the
Registrant's Annual Report on Form 10-K for the fiscal year ended December 31,
1991 (the "1991 10-K").
As a result of the Sale of the Glass Container Assets, the
Registrant no longer operates its Commercial Glass Container Business.
3. Segment Information
The Registrant's 1994 Annual Report to Stockholders contains
on pages 31 and 32 additional financial information regarding each of the
Registrant's two industry segments for each of the last three fiscal years
required by Item 1 and such information is incorporated herein by reference.
The Registrant's 1994 Annual Report to Stockholders contains on pages 36
through 38 Management's Discussion and Analysis of Financial Condition and
Results of Operations and such information is incorporated herein by reference.
ITEM 2. PROPERTIES
The Registrant's manufacturing activities with respect to its
Continuing Businesses are conducted at the five facilities described in the
following table.
<TABLE>
<CAPTION>
Building Area
Location Purpose of Facility (square feet)
-------- ------------------- -------------
<S> <C> <C>
Lancaster, Pennsylvania Plastic Closure and 490,000
Container Plant;
Warehouses
Jackson, Tennessee Plastic Closure, Vial and 198,000
Bottle Plant; Warehouse
Santa Fe Springs, Plastic Jar and Closure 170,000
California Plant; Warehouse
Jackson, Tennessee Home Canning Cap and 160,000
Lid Plant; Warehouse
</TABLE>
-6-
<PAGE> 9
<TABLE>
<CAPTION>
Building Area
Location Purpose of Facility (square feet)
-------- ------------------- -------------
<S> <C> <C>
Ahoskie, North Carolina Plastic Closure Plant; 153,000
Warehouse
</TABLE>
The Registrant has entered into a lease for a 168,000 square
feet plastic closure manufacturing and warehouse facility in Bowling Green,
Kentucky to be operational in 1995.
The Lancaster, Pennsylvania and Ahoskie, North Carolina
facilities are owned by the Registrant. The two Jackson, Tennessee and the
Santa Fe Springs, California facilities are leased by the Registrant.
The Registrant's principal executive offices are located at
1840 Century Park East, Los Angeles, California 90067, in approximately 23,000
square feet of leased space. In addition, the Registrant rents three area
sales offices.
In the opinion of the Registrant's management, its
manufacturing facilities are suitable and adequate for the purposes for which
they are being used.
The Registrant owns land and buildings used in connection with
a former glass container manufacturing plant that are being held for sale.
In 1994, the Registrant's plastic products manufacturing
facilities operated at approximately 74% of capacity. During August through
December of 1994, the Company's cap and lid manufacturing facility located in
Jackson, Tennessee operated at approximately 26% of capacity. This level of
operations in the cap and lid manufacturing facility primarily resulted because
the new plant was in its start-up phase.
ITEM 3. LEGAL PROCEEDINGS
As the Registrant reported in its Quarterly Report on Form
10-Q for the quarter ended June 30, 1990, in February 1986, the Registrant was
advised by the United States Environmental Protection Agency ("EPA") that
Phoenix Closures, Inc. ("Phoenix") was one of several companies which disposed
of wastes at the American Chemical Services ("ACS") site located near Griffith,
-7-
<PAGE> 10
Indiana. The EPA indicated that the wastes were disposed of by Phoenix's
Chicago plant between 1955 and 1975. The Registrant has advised the EPA that
it did not lease the Chicago plant during the period from 1955 to 1975. The
Registrant has also advised Phoenix of its responsibilities with respect to
environmental matters, including the environmental matters at the ACS site,
under the lease relating to the Chicago plant.
As the Registrant reported in its Quarterly Report on Form
10-Q for the quarter ended June 30, 1990, in March 1986, the Registrant and
other parties were designated by the EPA as potentially responsible parties
("PRPs") responsible for the cleanup of certain hazardous wastes that have been
disposed of at the Wayne Waste Oil ("WWO") site located near Columbia City,
Indiana. In October 1986, the Registrant and other PRPs entered into a Consent
Order with the EPA which allowed the PRPs to complete a Remedial Investigation
and Feasibility Study ("RI/FS") for the WWO site. In March 1990, the EPA
issued a Record of Decision ("ROD") for the site. The ROD documents the EPA's
cleanup plan for the site, which includes capping the former municipal
landfill, groundwater extraction and treatment, and soil vapor extraction. On
July 20, 1992, a Consent Decree between the EPA and the PRPs at the site was
entered in the United States District Court for the Northern District of
Indiana, captioned United States v. Active Products Corp., No. F91-00247.
Based upon the Registrant's percentage share of the total amount of wastes
disposed of at the WWO site, the Registrant estimates its share of the costs
under the Consent Decree will be approximately $109,000. A reserve has been
established for such costs.
As the Registrant reported in its Quarterly Report on Form
10-Q for the quarter ended June 30, 1990, on April 12, 1990, the State of New
Jersey, Department of Environmental Protection and Energy ("NJDEPE"), filed a
lawsuit in the United States District Court for the District of New Jersey
against the Registrant, among others, entitled State of New Jersey, Department
of Environmental Protection v. Gloucester Environmental Management Services,
Inc., et al., No. 84-0152 (D.N.J.). The suit alleges that the Registrant was a
"generator" of hazardous wastes and other hazardous substances which were
disposed of at the Gloucester Environmental Management Services, Inc. ("GEMS")
facility in the Township of Gloucester. The suit seeks cleanup costs,
compensatory and treble damages, and a declaration that the Registrant and
others are responsible for NJDEPE's past and future response costs at the GEMS
site. On
-8-
<PAGE> 11
March 27, 1990, NJDEPE issued a Directive to the Registrant and other parties
pursuant to the New Jersey Spill Compensation and Control Act, N.J.S.A.
58:10-23.11 et seq. Pursuant to the Directive, the Registrant and other
parties have been ordered to undertake the second phase of remedial action at
the site, including the construction and operation of a groundwater treatment
system and operation of the remedial action performed in the first phase, and
to reimburse NJDEPE's alleged past and future response costs. The estimated
cost of second phase remedial action related to the GEMS site is approximately
$20 million. The amount that the NJDEPE is seeking as reimbursement for past
costs and damages is approximately $10 million. Notwithstanding the issuance
of the Directive by the NJDEPE, the Registrant believes that it has no material
liability with respect to the GEMS site because the only reason it has been
named as a defendant (there are over 550 named defendants) is that a
transporter that was used by the Registrant is known to have disposed of waste
at the site. However, there is no evidence that any waste disposed of at the
site by such transporter was waste of the Registrant and the Registrant has a
motion for summary judgment pending in which it seeks dismissal from the case
on these grounds. If such motion is granted, the Registrant would have a good
faith basis to not comply with the Directive. The Registrant does not believe
that any of its waste was disposed of at the site. One of the Registrant's
insurance carriers has agreed to defend the current lawsuit and has funded the
Registrant's participation in settlement efforts, which may result in the
Registrant's dismissal from the lawsuit for a payment of approximately
$100,000. Participation in the settlement will not be considered an admission
of liability for the disposal of waste at the site. A reserve has been
established for such costs.
On March 24, 1995, the Deputy Minister of National Revenue of
Canada ("Revenue Canada") announced that Revenue Canada had commenced a dumping
investigation into home canning supplies imported from the United States. The
investigation follows a complaint filed by Bernardin of Canada, Ltd., which
manufactures jar caps and lids, and Consumer Packaging Inc., which manufactures
jars. The initiation of an investigation is the first step of the
administrative process. First, Revenue Canada must determine whether dumping
has taken place. If Revenue Canada makes a determination of dumping, the
Canadian complainant (Bernardin or Consumers Packaging) must then prove that
the alleged dumping has been causing it "material injury". Dumping duties, if
any, would be imposed with respect to goods
-9-
<PAGE> 12
imported after the date on which the dumping determination is made by Revenue
Canada, which is expected to occur within approximately 90 days. The Company
expects that it will take approximately seven months for the Canadian
authorities to finally resolve the matter. Kerr intends to vigorously contest
the proceedings and does not expect this matter to have a material effect on
its financial condition or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
EXECUTIVE OFFICERS OF THE REGISTRANT
Set forth below are the names, ages, positions and offices
held, and a brief account of the business experience during the past five years
of each executive officer of the Registrant.
<TABLE>
<CAPTION>
Positions Held With
Registrant and Periods
Name and Age During Which Held
------------------------- -----------------------------
<S> <C>
Roger W. Norian (51) Chairman, since 1983;
President and Chief Executive
Officer, since 1980
Norman N. Broadhurst (48) Senior Vice President,
President, Consumer Products
Division, since 1992; Senior
Vice President, General
Manager, Consumer Products
Division, since 1988
Robert S. Reeves (65) Senior Vice President, Sales
and Marketing, Plastic
Products Division, since 1992;
Senior Vice President, General
Manager, Commercial Glass
Container Division, since 1985
</TABLE>
-10-
<PAGE> 13
<TABLE>
<CAPTION>
Positions Held With
Registrant and Periods
Name and Age During Which Held
-------------------------- ------------------------------
<S> <C>
D. Gordon Strickland (48) Senior Vice President, Finance
and Chief Financial Officer,
since 1986
J. Stephen Grassbaugh (41) Vice President, Controller,
since 1988
</TABLE>
Business Experience
Roger W. Norian has served in an executive capacity with the
Registrant for more than the past five years.
Norman N. Broadhurst has served in an executive capacity with
the Registrant for more than the past five years.
Robert S. Reeves has served in an executive capacity with the
Registrant for more than the past five years.
D. Gordon Strickland has served in an executive capacity with
the Registrant for more than the past five years.
J. Stephen Grassbaugh has served in an executive capacity with
the Registrant for more than the past five years.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
The Registrant's Annual Report to Stockholders for the year
ended December 31, 1994, contains on page 12 the information required by Item 5
of Form 10-K and such information is incorporated herein by this reference.
ITEM 6. SELECTED FINANCIAL DATA
The Registrant's Annual Report to Stockholders for the fiscal
year ended December 31, 1994, contains on pages 34 and 35 the information
required by Item 6 of Form 10-K and such information is incorporated herein by
this reference.
-11-
<PAGE> 14
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The Registrant's Annual Report to Stockholders for the fiscal
year ended December 31, 1994, contains on pages 36 through 38 the information
required by Item 7 of Form 10-K and such information is incorporated herein by
this reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Registrant's Annual Report to Stockholders for the fiscal
year ended December 31, 1994, contains on pages 12 through 33 the information
required by Item 8 of Form 10-K and such information is incorporated herein by
this reference.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Certain of the information required by Item 10 of Form 10-K is
included in a separate item captioned "Executive Officers of the Registrant" in
Part I of this Form 10-K.
The Registrant's Proxy Statement to be used in connection with
the Annual Meeting of Stockholders to be held on April 25, 1995 contains on
pages 2 through 6 the remaining information required by Item 10 of Form 10-K
and such information is incorporated herein by this reference.
ITEM 11. EXECUTIVE COMPENSATION
The Registrant's Proxy Statement to be used in connection with
the Annual Meeting of Stockholders to be held on April 25, 1995 contains on
pages 7 through 12 the information required by Item 11 of Form 10-K, and such
information is incorporated herein by this reference.
-12-
<PAGE> 15
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The Registrant's Proxy Statement to be used in connection with
the Annual Meeting of Stockholders to be held on April 25, 1995 contains on
pages 2 through 3 the information required by Item 12 of Form 10-K, and such
information is incorporated herein by this reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Registrant's Proxy Statement to be used in connection with
the Annual Meeting of Stockholders to be held on April 25, 1995 contains on
page 16 the information required by Item 13 of Form 10-K, and such information
is incorporated herein by this reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
a. (i) Financial Statements
The Financial Statements and related financial data contained
in the Registrant's Annual Report to Stockholders for the year ended December
31, 1994, on pages 13 through 35 thereof and the Independent Auditors' Report
on page 12 of the Registrant's Annual Report to Stockholders for the year ended
December 31, 1994, are incorporated herein by reference. With the exception of
information specifically incorporated by reference, however, the Registrant's
Annual Report to Stockholders for the year ended December 31, 1994 is not to be
deemed filed as a part of this report.
Consolidated Financial Statements:
Consolidated Statements of Earnings (Loss) for the years ended
December 31, 1994, 1993 and 1992.
Consolidated Balance Sheets as of December 31, 1994 and 1993.
Consolidated Statements of Cash Flows for the years ended
December 31, 1994, 1993 and 1992.
-13-
<PAGE> 16
Consolidated Statements of Common Stockholders' Equity for the
years ended December 31, 1994, 1993 and 1992.
Notes to Consolidated Financial Statements.
In addition to such Consolidated Financial Statements and
Independent Auditors' Report, the following are included
herein:
Independent Auditors' Report on Supporting Schedules, page 21.
Schedules for the three years ended December 31, 1994:
VIII - Valuation and Qualifying Accounts, page 22.
All other Schedules have been omitted as
inapplicable, or not required, or because the required information is
included in the Consolidated Financial Statements or the notes
thereto.
(ii) Exhibits
3.1 Restated Certificate of Incorporation of
the Registrant is incorporated by
reference to Exhibit 3.1 to Form 10-K for
the fiscal year ended December 31, 1980.
3.2 Certificate of Retirement of Capital Stock
of the Registrant is incorporated by
reference to Exhibit 3.2 to Form 10-K for
the fiscal year ended December 31, 1989.
3.3 Certificate of Amendment to the Restated
Certificate of Incorporation of the
Registrant is incorporated by reference to
Exhibit 3.3 to Form 10-K for the fiscal
year ended December 31, 1989.
3.4 By-laws of the Registrant, as amended
effective June 15, 1993, is incorporated
by reference to Exhibit 3.1 to Form 10-Q
for the quarter ended June 30, 1993.
-14-
<PAGE> 17
10.1 Amended and Restated Employment Agreement
between the Registrant and Roger W. Norian
dated as of December 1, 1994.
10.2 Employment Agreement between the
Registrant and D. Gordon Strickland dated
as of June 16, 1986 is incorporated by
reference to Exhibit 10.5 to Form 10-K for
the fiscal year ended December 31, 1986.
10.3 Employment Agreement between the
Registrant and Robert S. Reeves dated as
of February 17, 1983 is incorporated by
reference to Exhibit 10.6 to Form 10-K for
the fiscal year ended December 31, 1983.
10.4 Employment Agreement between the
Registrant and Norman N. Broadhurst dated
as of December 8, 1988 is incorporated by
reference to Exhibit 10.9 to Form 10-K for
the fiscal year ended December 31, 1988.
10.5 Employment Agreement between the
Registrant and J. Stephen Grassbaugh dated
as of February 24, 1989 is incorporated by
reference to Exhibit 10.10 to Form 10-K
for the fiscal year ended December 31,
1988.
10.6 1984 Stock Option Plan is incorporated by
reference to Exhibit 4.7 to Registration
Statement No. 2-92722.
10.7 1987 Stock Option Plan is incorporated by
reference to Exhibit 10.12 to Form 10-K
for the fiscal year ended December 31,
1986.
10.8 Amended and Restated 1993 Employee Stock
Option Plan.
10.9 1987 Stock Option Plan for Non-Employee
Directors is incorporated by reference to
Exhibit 10.17 to Form 10-K for the fiscal
year ended December 31, 1987.
-15-
<PAGE> 18
10.10 1993 Stock Option Plan for Non-Employee
Directors is incorporated by reference to
Exhibit 10.4 to Form 10-Q for the fiscal
quarter ended June 30, 1993.
10.11 Form of Stock Option Agreement used in
connection with the 1984 Stock Option Plan
is incorporated by reference to Exhibit
4.11 to Registration Statement No.
2-92722.
10.12 Form of Stock Option Agreement used in
connection with the 1987 Stock Option Plan
is incorporated by reference to Exhibit
10.17 to Form 10-K for the fiscal year
ended December 31, 1986.
10.13 Form of Stock Option Agreement used in
connection with the 1993 Employee Stock
Option Plan is incorporated by reference
to Exhibit 10.17 to Form 10-K for the
fiscal year ended December 31, 1993.
10.14 Form of Stock Option Agreement used in
connection with the 1987 Stock Option Plan
for Non- Employee Directors is
incorporated by reference to Exhibit 10.23
to Form 10-K for the fiscal year ended
December 31, 1987.
10.15 Form of Stock Option Agreement used in
connection with the 1993 Stock Option Plan
for Non- Employee Directors is
incorporated by reference to Exhibit 10.19
to Form 10-K for the fiscal year ended
December 31, 1993.
10.16 1993 Common Stock Purchase Plan for
Non-Employee Directors is incorporated by
reference to Exhibit 10.3 to Form 10-Q for
the fiscal quarter ended June 30, 1993.
10.17 Directors' Retirement Consulting Plan is
incorporated by reference to Exhibit 10.22
to Form 10- K for the fiscal year ended
December 31, 1984.
-16-
<PAGE> 19
10.18 Key Executive Bonus Plan is incorporated
by reference to Exhibit 10.2 to Form 10-Q
for the fiscal quarter ended June 30,
1993.
10.19 Pension Restoration Plan.
10.20 Asset Purchase Agreement dated as of
November 25, 1991 by and between the
Registrant and Ball Corporation is
incorporated by reference to Exhibit 1 to
Form 8-K dated November 24, 1991.
10.21 Asset Purchase Agreement, dated as of
December 11, 1992, by and between Crown
Cork & Seal Company, Inc. and Kerr Group,
Inc. is incorporated by reference to
Exhibit 1 to Form 8-K dated December 11,
1992.
10.22 Lease dated as of March 11, 1986 between
Northrop Corporation and Registrant with
respect to Registrant's principal
executive offices, including related
amendment to the Lease dated as of
September 30, 1986 is incorporated by
reference to Exhibit 10.24 to Registration
Statement No. 33-08212.
10.23 Lease dated August 1, 1988 between KCB
Development, as lessor, and SCP
Corporation, as lessee.
10.24 Lease dated October 5, 1989 between
Century 21 Associates, as lessor, and
Santa Fe Plastic Corporation, as lessee,
is incorporated by reference to Exhibit
10.3 to Form 10-Q for the fiscal quarter
ended September 30, 1994.
10.25 Lease between the Industrial Development
Board of the City of Jackson and Kerr
Group, Inc., Dated as of May 14, 1993 is
incorporated by reference to Exhibit 10.5
to Form 10-Q for the fiscal quarter ended
June 30, 1993.
-17-
<PAGE> 20
10.26 Amended and restated lease dated as of May
16, 1994 between Phoenician Properties, as
lessor, and Kerr Group, Inc., as lessee,is
incorporated by reference to Exhibit 10.4
to Form 10-Q for the fiscal quarter ended
September 30, 1994.
10.27 Amendment dated May 18, 1994 between
Century 21 Associates and Kerr Group, Inc.
related to lease dated October 5, 1989 is
incorporated by reference to Exhibit 10.5
to Form 10-Q for the fiscal quarter ended
September 30, 1994.
10.28 Lease agreement dated June 30, 1994
between Bowling Green-Warren County
Industrial Authority IV, Inc. and Kerr
Group, Inc. is incorporated by reference
to Exhibit 10.6 to Form 10-Q for the
fiscal quarter ended September 30, 1994.
10.29 Note Agreement dated as of September 15,
1993 between Kerr Group, Inc. and the
Purchasers identified therein is
incorporated by reference to Exhibit 2 to
Form 8-K dated September 21, 1993.
10.30 Line of Credit between PNC Bank and Kerr
Group, Inc. dated May 2, 1994 is
incorporated by reference to Exhibit 10.1
to Form 10-Q for the fiscal quarter ended
June 30, 1994.
10.31 Receivables Purchase Agreement dated as of
January 19, 1995 between Kerr Group, Inc.,
as the seller, and PNC Bank, N.A., as the
purchaser.
10.32 Line of Credit between the Bank of Boston
and Kerr Group, Inc. dated February 9,
1995.
-18-
<PAGE> 21
10.33 Amendment dated February 24, 1995 of the
Receivables Purchase Agreement dated as of
January 19, 1995 between Kerr Group, Inc.,
as the seller, and PNC Bank, N.A., as the
purchaser.
11.1 Statement re: Computation of Per Common
Share Earnings (Loss).
13.1 Registrant's Annual Report to Stockholders
for the fiscal year ended December 31,
1994, pages 12 through 38.
21.1 Subsidiaries
23.1 Consent of Independent Certified Public
Accountants.
99.1 Undertaking is incorporated by reference
to Exhibit 28.1 to Form 10-K for the year
ended December 31, 1982.
The Registrant has no additional long-term debt instruments in
which the total amount of securities authorized under any instrument exceeds
10% of total assets of the Registrant and its subsidiaries on a consolidated
basis. The Registrant hereby agrees to furnish a copy of any such long-term
debt instrument upon the request of the Securities and Exchange Commission.
b. Reports on Form 8-K
None
-19-
<PAGE> 22
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.
KERR GROUP, INC.
By: Roger W. Norian
-------------------------------------
Roger W. Norian, Chairman
President and Chief Executive
Officer
Dated: March 29, 1995
Los Angeles, California
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<S> <C>
Gordon C. Hurlbert March 29, 1995
-----------------------------------
Gordon C. Hurlbert, Director
Michael C. Jackson March 29, 1995
-----------------------------------
Michael C. Jackson, Director
John D. Kyle March 29, 1995
-----------------------------------
John D. Kyle, Director
James R. Mellor March 29, 1995
-----------------------------------
James R. Mellor, Director
Roger W. Norian March 29, 1995
-----------------------------------
Roger W. Norian, Principal
Executive Officer; Director
Robert M. O'Hara March 29, 1995
-----------------------------------
Robert M. O'Hara, Director
Harvey L. Sperry March 29, 1995
-----------------------------------
Harvey L. Sperry, Director
D. Gordon Strickland March 29, 1995
-----------------------------------
D. Gordon Strickland
Principal Financial Officer
J. Stephen Grassbaugh March 29, 1995
-----------------------------------
J. Stephen Grassbaugh
Principal Accounting Officer
</TABLE>
-20-
<PAGE> 23
INDEPENDENT AUDITOR'S REPORT
To the Stockholders and Board of Directors
of Kerr Group, Inc.:
Under date of February 28, 1995, we reported on the consolidated balance sheets
of Kerr Group, Inc. as of December 31, 1994 and 1993, and the related
consolidated statements of earnings (loss), common stockholders' equity, and
cash flows for each of the years in the three-year period ended December 31,
1994, as contained in the 1994 annual report to stockholders. These
consolidated financial statements and our report thereon are incorporated by
reference in the annual report on Form 10-K for the year 1994. In connection
with our audits of the aforementioned consolidated financial statements, we
also have audited the related supplementary financial statement schedule as
listed in Item 14a(i). This supplementary financial statement schedule is the
responsibility of the company's management. Our responsibility is to express
an opinion on this supplementary financial statement schedule based on our
audits.
In our opinion, such supplementary financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as
a whole, presents fairly, in all material respects, the information set forth
therein.
As discussed in Note 1 to the consolidated financial statements, the Company
changed its method of accounting for postretirement benefits other than
pensions and income taxes in 1993.
KPMG Peat Marwick LLP
Los Angeles, California
February 28, 1995
- 21 -
<PAGE> 24
SCHEDULE VIII
KERR GROUP, INC.
Valuation and Qualifying Accounts
Three years ended December 31, 1994
(in thousands)
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
-------------------------------- ------------ ------------------------- -------- --------
Additions
-------------------------
(1) (2)
Balance Charged Charged Deductions Balance
at Beginning (Credited) to Other From at End
Description of Period to Earnings Account Reserves(a) of Period
-------------------------------- ------------ ----------- -------- -------- ----------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts,
year ended:
December 31, 1992 $360 $390 $ - $105 $645
==== ==== ===== ==== ====
December 31, 1993 $645 ($ 42) $ - $ 25 $578
==== ====== ===== ==== ====
December 31, 1994 $578 $ 39 $ - $447 $170
==== ==== ===== ==== ====
</TABLE>
Note: Allowance for doubtful accounts presented in the table above is
related to continuing operations only. Allowance for doubtful
accounts associated with the Commercial Glass Container Business and
Metal Crown Business of the Registrant in 1992 has been reported as a
component of net current assets related to discontinued operations in
the Registrant's Consolidated Balance Sheets.
(a) These deductions represent uncollectible amounts charged against the
reserve.
- 22 -
<PAGE> 25
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
KERR GROUP, INC.
FORM 10-K
for year ended December 31, 1994
INDEX TO EXHIBITS FILED SEPARATELY WITH FORM 10-K
<TABLE>
<CAPTION>
Exhibit No. Document
----------- --------
<S> <C>
10.4 Amended and Restated Employment Agreement
between the Registrant and Roger W. Norian
dated as of December 1, 1994.
10.8 Amended and Restated 1993 Employee Stock
Option Plan.
10.19 Pension Restoration Plan.
10.23 Lease dated August 1, 1988 between KCB
Development, as lessor, and SCP Corporation,
as lessee.
10.31 Receivables Purchase Agreement dated as of
January 19, 1995 between Kerr Group, Inc., as
the seller, and PNC Bank, N.A., as the
purchaser.
10.32 Line of Credit between the Bank of Boston and
Kerr Group, Inc. dated February 9, 1995.
10.33 Amendment dated February 24, 1995 of the
Receivables Purchase Agreement dated as of
January 19, 1995 between Kerr Group, Inc., as
the seller, and PNC Bank, N.A., as the
purchaser.
11.1 Statement re: Computation of Per Common Share
Earnings (Loss).
13.1 Registrant's Annual Report to Stockholders
for the fiscal year ended December 31, 1994,
pages 12 through 38.
</TABLE>
<PAGE> 26
<TABLE>
<S> <C>
21.1 Subsidiaries
23.1 Consent of Independent Certified Public
Accountants.
</TABLE>
- 2 -
<PAGE> 1
Exhibit 10.4
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
AGREEMENT, originally dated as of the tenth day of October,
1985, amended as of December 12, 1989 and further amended and restated as of
December 1, 1994, between KERR GROUP, INC. a Delaware corporation ("Company"),
and ROGER W. NORIAN (the "Employee").
1. Employment. The Company hereby employs the Employee
and the Employee hereby accepted employment upon the terms and conditions
hereinafter set forth.
2. Term.
(a) The term of this Agreement shall commence on October 10,
1985 and end on the date this Agreement is terminated by either the Company or
the Employee as hereinafter provided in this paragraph 2.
(b) The Company may at its election terminate the
obligations of the Company under this Agreement as follows:
(1) Upon 30 days' prior notice in the event the Employee has
been so incapacitated that he has been unable to perform the services
required of him hereunder for a period of 180 consecutive days and such
inability is continuing at the time of such notice. From and after such
termination, Employee shall receive from the Company, or from
disability insurance purchased directly and owned by the Company, the
sum of $150,000 per annum during the period of incapacity which remains
after such termination but not after age 65. In addition, for the
initial 24 months after such termination, Employee shall receive from
the Company an amount per month equal to the difference between the
monthly Salary set forth in subparagraph 3(a)(x) hereof and $12,500 per
month. Furthermore, the Company shall continue to provide and keep in
force during the period of incapacity which remains after such
termination but not after age 65, at its sole cost and expense, life
insurance in the amount described in subparagraph 3(b) hereof and
health insurance for Employee and his dependents with coverage of the
type provided by the group benefit plan of the Company for other
executives of the Company.
(2) For just cause upon notice of such termination to the
Employee. Termination of the Employee's employment by the Company shall
constitute a termination "for just cause" only if such termination is
for one or more of the following reasons: (x) the failure of the
Employee to render services
<PAGE> 2
to the Company in accordance with his obligations under this Agreement
which failure amounts to an extended and gross neglect of his duties to
the Company; (y) the continued use of drugs by the Employee to an
extent that he is unable to fulfill his duties under this Agreement;
and (z) the commission by the Employee of an act of fraud or
embezzlement against the Company or the Employee's having been
convicted of a felony involving moral turpitude.
(3) Without cause upon notice to the Employee provided that,
immediately upon the effective date of such termination, the Company
shall pay to the Employee the sum of $1,140,000, by bank or certified
check. In addition, for a period of 24 months after such termination,
the Company shall (i) provide for the Employee the same fringe
benefits, consisting of medical, dental, life and disability insurance,
which were provided to the Employee at the date of the notice of
termination and (ii) pay to the Employee an amount each year equal to
the amount described in subparagraph 3(a)(y) hereof. The payment
required to be made to the Employee pursuant to the first sentence of
this paragraph 2(b)(3) shall not be reduced by any amounts paid to the
Employee for the performance of services by anyone other than the
Company following the date of such termination. The Company shall not
be obligated to provide any fringe benefit described in clause (i) of
the second sentence of this paragraph 2(b)(3) after the Employee shall
receive such fringe benefit at least as favorable to the Employee from
another employer. If the Company may elect, in accordance with
paragraph 2(b)(1) hereof, to terminate this Agreement then such
election shall be deemed to have been made under paragraph 2(b)(1) and
not in accordance with this paragraph 2(b)(3). The Company shall be
deemed to have elected to terminate this Agreement in accordance with
this paragraph 2(b)(3) from and after the date: (x) the Employee is
assigned duties other than that of Chief Executive Officer of the
Company, (y) the Employee is required to report other than to the Board
of Directors of the Company or (z) the Employee is required to reside
other than in the area of Los Angeles, California in order to perform
his duties for the Company; provided that the Employee within 30 days
after the occurrence of any such event shall notify the Company that
the Company is so deemed to have elected to terminate this Agreement.
(c) The Employee may terminate his obligations under
paragraphs 4 and 5 hereof upon 90 days' notice thereof to the Company and from
and after the delivery of such notice, the Company shall have no further
obligations under this Agreement unless it shall elect, by notice to the
Employee, to continue to pay the Employee as herein provided for the 90 day
period commencing with the date of delivery of the notice and in such
2
<PAGE> 3
event the Employee shall continue to perform his obligations under paragraphs
4 and 5 during such period.
(d) The obligations of the Company under this Employment
Agreement shall terminate simultaneously with the occurrence of any of the
following events and upon such termination the Company shall pay to Employee the
sum of $1,140,000 by certified or bank check:
(i) 50% or more of the shares of the Company's Common
Stock is acquired, directly or indirectly, by an individual,
partnership, corporation, trust or unincorporated organization
(collectively "Person") or by Persons acting with a common
design, either formally or informally;
(ii) The Company merges with or into another Person
and is not the survivor of such merger or the Company sells
all of its fixed assets to another Person or Persons; or
(iii) The majority of the Board of Directors of the
Company consists of directors who were not selected by or
nominated with the approval of a majority of the directors of
the Company in office on the date hereof (the "Present
Directors") or who were not selected by or nominated with the
approval of a majority selected or nominated by a majority of
the Present Directors.
The Employee shall have no further obligation under this Employment Agreement
from and after such termination except as provided in paragraphs 6, 7 and 8
hereof.
3. Compensation.
(a) The Company shall pay the Employee (x) a salary ("Salary")
during each month of the term hereof at the rate of $47,500.00 per month from
and after December 1, 1994 plus (y) an annual amount equal to the annual premium
for a Supplemental Disability Policy to be owned by Employee, which amount shall
be payable on or before July 8 of each year during the term hereof.
"Supplemental Disability Policy" shall mean a disability insurance policy, owned
by Employee, the benefits of which would pay to Employee $90,000 per annum
during the initial 5 year period of disability following termination of the
Employee under paragraph 2(b)(1) hereof and the sum of $800,000 at the end of
such 5 year period, and which amounts would not be reduced by any amounts paid
by the Company, or under a disability policy owned by the Company, pursuant to
paragraph 2(b)(1) hereof.
(b) The Company will provide to Employee life insurance which
shall pay an amount equal to $2,000,000 in
3
<PAGE> 4
addition to any amount received pursuant to travel and accident insurance
provided by the Company and the amount of life insurance which Employee
purchased under any benefit plan of the Company.
(c) If the Company elects to terminate this Agreement in
accordance with paragraph 2(b)(1) hereof and if the Supplemental Disability
Policy is in effect, then "$60,000" shall be substituted for "$150,000" in such
paragraph 2(b)(1).
(d) In addition to the foregoing, the Employee shall be
eligible for and participate in such fringe benefits as are generally available
to executives of the Company and shall be entitled to receive such increases in
Salary as the Company may from time to time deem appropriate, which increased
Salary may not thereafter be reduced without the consent of Employee.
4. Duties. The Employee is engaged as the Chief Executive Officer of
the Company and hereby promises to perform and discharge well and faithfully the
duties which may be assigned to him from time to time by the Company in
connection with the conduct of its business. The Company shall use its best
efforts to elect the Employee to the Board of Directors of the Company during
the term hereof. If the Employee is elected or appointed a director or officer
of the Company or any subsidiary thereof during the term of this Agreement, the
Employee will serve in such capacity without further compensation.
5. Extent of Services. The Employee shall devote his entire time,
attention and energies to the businesses of the Company and shall not during the
term of this Agreement be engaged in any other business activity whether or not
such business activity is pursued for gain, profit or other pecuniary advantage;
but this shall not be construed as preventing the Employee from investing his
personal assets in businesses which do not compete with the Company in such form
or manner as will not require any services on the part of the Employee in the
operation of the affairs of the companies in which such investments are made and
in which his participation is solely that of an investor and except that the
Employee may purchase securities in any corporation whose securities are
regularly traded provided that such purchases shall not result in his
collectively owning beneficially at any time 1% or more of the equity securities
of any corporation engaged in a business competitive to that of the Company.
6. Disclosure of Information. The Employee recognizes and acknowledges
that the Company's and its subsidiaries' trade secrets and proprietary processes
as they may exist from time to time are valuable, special and unique assets of
the Company's and its subsidiaries' business, access to and knowledge of which
are essential to the performance of the Employee's duties hereunder.
4
<PAGE> 5
The Employee will not, during or after the term of his employment, in whole or
in part, disclose such secrets or processes to any person, firm, corporation,
association or other entity for any reason or purpose whatsoever, nor shall the
Employee make use of any such property for his own purposes or for the benefit
of any person, firm, corporation or other entity (except the Company) under any
circumstances during or after the term of his employment, provided that after
the term of his employment these restrictions shall not apply to such secrets
and processes which are then in the public domain (provided that he was not
responsible, directly or indirectly, for such secrets or processes entering the
public domain without the Company's consent).
7. Inventions. The Employee hereby sells, transfers and assigns to the
Company or to any person or entity designated by the Company all of the entire
right, title and interest of the Employee in and to all inventions, ideas,
disclosures and improvements, whether patented or unpatented, and copyrightable
material made or conceived by the Employee, solely or jointly during the Term
hereof which relate to methods, apparatus, designs, products, processes or
devices, sold, leased, used or under consideration or development by the
Company, or which otherwise relate to or pertain to the business, functions or
operations of the Company. The Employee agrees to communicate promptly and to
disclose to the Company, in such form as the Employee may be required to do so,
all information, details and data pertaining to the aforementioned inventions,
ideas, disclosures and improvements and to execute and deliver to the Company
such formal transfers and assignments and such other papers and documents as may
be required of the Employee to permit the Company or any person or entity
designated by the Company to file and prosecute the patent applications and, as
to copyrightable material, to obtain copyright thereof. Any invention relating
to the business of the Company and disclosed by the Employee within one (1) year
following the termination of this Agreement shall be deemed to fall within the
provisions of this paragraph unless proved to have been first conceived and made
following such termination.
8. Injunctive Relief. If there is a breach or threatened breach of the
provisions of paragraph 6 or 7 of this Agreement, the Company shall be entitled
to an injunction restraining the Employee from such breach. Nothing herein shall
be construed as prohibiting the Company from pursuing any other remedies for
such breach or threatened breach.
9. Insurance. The Company may, at its election and for its
benefit, insure the Employee against accidental loss or death and the Employee
shall submit to such physical examination and supply such information as may be
required in connection therewith.
5
<PAGE> 6
10. No Right of Setoff. The Company may not set off against or
otherwise reduce any payment or benefit due the Employee under this Agreement on
account of any claim which the Company may purport to have against the Employee
at the time such payment or benefit becomes due.
11. Attorney's Fees. The Company shall reimburse the Employee for legal
fees and expenses incurred by the Employee in an action in a court of competent
jurisdiction to enforce any of his rights under this Agreement if the court, in
the form of an order for which no appeal can be taken, or with respect to which
the time limit to appeal has expired, shall decide in favor of the Employee.
Such reimbursement shall be made upon the submission by the Employee of invoices
demonstrating that such fees and expenses were incurred. The Employee shall have
no obligation to reimburse the Company for legal fees and expenses.
12. Notices. Any notice required or permitted to be given under this
Agreement shall be sufficient if in writing and if sent by registered mail to
his residence in the case of the Employee or to the Secretary of Kerr, Kerr
Group, Inc., 1840 Century Park East, Los Angeles, California 90067, in the case
of the Company.
13. Waiver of Breach. A waiver by the Company or the Employee of
a breach of any provision of this Agreement by the other party shall not operate
or be construed as a waiver of any subsequent breach by the other party.
14. Entire Agreement. This instrument contains the entire
agreement of the parties. It may be changed only by an agreement in writing
signed by the party against whom enforcement of any waiver, change,
modification, extension or discharge is sought.
6
<PAGE> 7
IN WITNESS WHEREOF, the parties have executed this amended and
restated Agreement as of December 1, 1994.
KERR GLASS MANUFACTURING
CORPORATION
By /s/ D G Strickland
--------------------------------------
Title: Senior Vice President,
Finance
/s/ Roger Norian
--------------------------------------
Roger W. Norian
7
<PAGE> 1
EXHIBIT 10.8
KERR GROUP, INC.
AMENDED AND RESTATED
1993 EMPLOYEE STOCK OPTION PLAN
***
ARTICLE I
PURPOSE
The Kerr Group, Inc. ("Company") 1993 Employee Stock Option Plan
(the "Old Plan") became effective on April 27, 1993 (the "Effective Date")
when the Old Plan was approved by a majority of the Company's stockholders.
On and effective February 28, 1995, the Board of Directors of the Company (the
"Board") amended and restated (subject to shareholder approval as set forth in
Article XIX) the Old Plan in the form of The Kerr Group, Inc. Amended and
Restated 1993 Employee Stock Option Plan (the "Plan"). The purpose of the
1995 amendment and restatement is to (i) increase the number of shares of
common stock of the Company, par value $.50 per share ("Common Stock") which
may be purchased hereunder and (ii) add provisions ensuring that Section
162(m) of the Internal Revenue Code of 1986, as amended (the "Code"), does not
limit tax
<PAGE> 2
deductions otherwise available to the Company on account of the exercise of
options granted hereunder.
The Plan is intended as an incentive and to encourage stock
ownership by key employees of the Company and of its subsidiaries in order to
increase their proprietary interest in the Company's success and to encourage
them to remain in the employ of the Company.
The word "Company" when used in the Plan with reference to
employment shall include any subsidiaries of the Company.
ARTICLE II
ADMINISTRATION
The Plan shall be administered by a Stock Option and Compensation
Committee (the "Committee") appointed by the Board from among its members and
shall consist of not less than three members thereof, each of whom must be
both a "disinterested person" within the meaning of Rule 16b-3(a)(2)(i)
promulgated under the Securities Exchange Act of 1934 (the "Exchange Act") and
an "outside director" within the meaning of Section 162(m) of the Code.
-2-
<PAGE> 3
Subject to the provisions of the Plan, the Committee shall have sole
authority, in its absolute discretion: (a) to determine which of the eligible
employees of the Company and its subsidiaries shall be granted options; (b) to
determine whether the options granted shall be "incentive stock options"
within the meaning of Section 422(b) of the Code, nonstatutory stock options
or any combination thereof; (c) to determine the times when options shall be
granted and the number of shares to be optioned; (d) to determine the purchase
price for the shares underlying the options granted ("Option Shares"); (e) to
determine the time or times when each option becomes exercisable and the
duration of the exercise period; (f) to prescribe the form or forms of the
option agreements under the Plan which forms shall be consistent with the Plan
but need not be identical to it; (g) to adopt, amend and rescind such rules
and regulations as, in its opinion, may be advisable in the administration of
the Plan; and (h) to construe and interpret the Plan, the rules and
regulations and the option agreements under the Plan and to make all other
determinations deemed necessary or advisable for the administration of the
Plan. All decisions,
-3-
<PAGE> 4
determinations and interpretations of the Committee shall be final and binding
on all optionees.
The Committee shall hold its meetings at such times and places as it
may determine, with a majority of the Committee constituting a quorum. Any
action which the Committee has the power to take at a meeting may be taken by
the Committee without a meeting if all of the members of the Committee give
their consent to such action in writing.
ARTICLE III
STOCK
The Option Shares shall be shares of authorized but unissued Common
Stock or previously issued shares of Common Stock reacquired by the Company.
Under the Plan the total number of Option Shares which may be purchased
pursuant to options granted hereunder shall not exceed in the aggregate
280,000 except as such number of shares shall be adjusted in accordance with
the provisions of ARTICLE IX hereof. No person may be granted options under
the Plan covering more than 200,000 Option Shares over the life of the Plan.
-4-
<PAGE> 5
In the event that any outstanding option under the Plan expires for
any reason or is terminated prior to the end of the period during which
options may be granted, the unexercised portion of such option may again be
granted pursuant to the Plan.
ARTICLE IV
ELIGIBILITY OF PARTICIPANTS
Officers and other key employees of the Company or of its
subsidiaries (including employees who are also Directors of the Company or the
Company's subsidiaries excluding persons who are members of the Committee)
shall be eligible to participate in the Plan.
-5-
<PAGE> 6
ARTICLE V
OPTION PRICE
Options shall be exercisable at prices (the "Option Price")
specified in the option agreements.
ARTICLE VI
EXERCISE AND TERM OF OPTIONS
The exercise of options may be limited in whole or in part for any
period or periods of time as specified in the option agreements. Except as
may be so specified, any option may be exercised in whole at any time or in
part from time to time during the option period. Notwithstanding the above,
(i) no option granted hereunder to a person subject to the restrictions of
Section 16(b) of the Exchange Act shall be exercisable before the date six
months following the date of grant of such option and (ii) this Article VI is
subject to the provisions of Article XIX.
All stock options granted hereunder shall terminate concurrently
with the termination of the optionee's employment if the Company terminates
the employment for cause or if the optionee resigns.
-6-
<PAGE> 7
Any other provision of the Plan notwithstanding, no option shall be
exercised after the date ten years from the date of grant of such option.
ARTICLE VII
PAYMENT OF SHARES
Payment for Option Shares shall be made in full upon exercise of the
option.
ARTICLE VIII
NON-TRANSFERABILITY OF OPTION
No option shall be transferable except by will or the laws of
descent and distribution. During the lifetime of the optionee, the option
shall be exercisable only by the optionee.
-7-
<PAGE> 8
ARTICLE IX
ADJUSTMENT FOR RECAPITALIZATION, MERGER, ETC.
If there is any stock dividend, split-up or combination of shares of
Common Stock or any other change in Common Stock, whether by way of exchange,
offering of subscription rights, recapitalization or otherwise, an adjustment
shall be made in the number of Option Shares in respect of which options may
be granted hereunder, the number of Option Shares to which each outstanding
option relates and the Option Price to be as the Committee, in its sole
discretion, may deem equitable.
Subject to any required action by the stockholders, if the Company
shall be the surviving corporation in any merger or consolidation, the holder
of the then unexercised portion of any option granted hereunder shall, upon
exercise in accordance with the terms hereof, receive the property, whether
Common Stock or other securities, into which the Option Shares otherwise
issuable upon exercise of the option would have been converted had they been
outstanding at the time of such event.
-8-
<PAGE> 9
The foregoing adjustments and the manner of application of the
foregoing provisions shall be determined by the Committee in its sole
discretion. Any such adjustment may provide for the elimination of any
fractional share which might otherwise become subject to an option.
-9-
<PAGE> 10
ARTICLE X
RIGHTS UPON MERGER, SALE OF ASSETS, LIQUIDATION, ETC.
If the Company shall be the surviving corporation in any merger or
consolidation, or if the Company shall merge with or into a wholly-owned
subsidiary and the Company is not the survivor, the holder of the then
unexercised portion of any option granted hereunder shall, upon exercise in
accordance with the terms hereof, receive the property, whether Common Stock or
other securities, into which the Option Shares otherwise issuable upon exercise
of such unexercised portion, would have been converted had they been
outstanding at the time of such event; provided, however, that the optionee
shall not have the right to exercise such unexercised portion as a result of
such event if the Committee makes an appropriate adjustment in the securities
covered by and/or the Option Price of such option as provided in Article IX
hereof.
If the Company is not the surviving corporation in any merger
or consolidation and substitute options are not issued, or if the Company sells
substantially all of its assets or liquidates, then during the ten (10) day
period commencing on the date of such
-10-
<PAGE> 11
event, the holder of an option granted hereunder may exercise all or any
unexercised part of the option, including any part thereof which would
otherwise not then be exercisable, and receive upon such exercise the property
into which the Option Shares otherwise issuable upon exercise of the option
would have been converted had such shares been outstanding at the time of such
event. The options shall terminate after such 10 day period.
If a single stockholder or a group of stockholders who would
be deemed to be a "person" within the meaning of Section 13(d)(3) of the
Securities Exchange Act of 1934 acquires more than 50% of the shares of the
Company's capital stock which are entitled to vote for the election of
directors, then during the sixty (60) day period commencing after such event,
the holder of an option granted hereunder may exercise the unexercised portion
of such option as to all or any part of the Optioned Shares, including shares
as to which such option would not then otherwise be exercisable. If such
option is exercised in accordance with the provisions of the immediately
preceding sentence as to less than all of the Optioned Shares, such option
shall be deemed to have
-11-
<PAGE> 12
been so exercised in inverse chronological order with respect to the vesting
thereof. Upon the expiration of such 60 day period, the unexercised portion of
any such portion shall be exercisable only to the extent it was exercisable
prior to the occurrence of such event.
-12-
<PAGE> 13
ARTICLE XI
NO OBLIGATION TO EXERCISE OPTION
The granting of an option shall impose no obligation on the
recipient to exercise such option.
ARTICLE XII
USE OF PROCEEDS
The proceeds received from the sale of Option Shares pursuant
to the Plan shall be used for general corporate purposes.
ARTICLE XIII
RIGHTS AS A STOCKHOLDER
An optionee or a transferee of an option shall have no rights
as a stockholder with respect to any Option Share
covered by his option until such person shall have become the holder of record
of such share, and such person shall not be entitled to any dividends or
distributions of other rights in respect of such share for which the record
date is prior to the date on which such person shall have become the holder of
record thereof.
-13-
<PAGE> 14
ARTICLE XIV
REGULATORY MATTERS
Every option under the Plan is granted upon the express
conditions that (i) the inability of the Company to obtain, or any delay in
obtaining, from each regulatory body having jurisdiction, all requisite
authority to issue or transfer shares of stock necessary to satisfy such option
or (ii) the inability of the Company to comply with, or any delay in complying
with, any laws, rules or regulations governing the issuance of Option Shares
necessary to satisfy such option (including but not limited to complying with
the Securities Act of 1933 and all rules and regulations promulgated
thereunder), the fulfillment of which conditions are deemed necessary by
counsel for the Company to the lawful issuance or transfer of any such shares,
shall relieve the Company of any liability for the non-issuance or
non-transfer, or any delay in the issuance or transfer of, such shares.
At the time of exercise of any option, the Company may, if it
shall deem it necessary or desirable in order to comply with the Securities Act
of 1933, as amended (the "Act"), require the
-14-
<PAGE> 15
holder of the option to represent in writing to the Company that it is then the
holder's intention to acquire the Option Shares for the account of the holder,
that the holder shall not sell, transfer or dispose of such shares except
pursuant to an effective registration statement under the Act or an exemption
therefrom, as determined by, or with approval of, counsel satisfactory to the
Company, and that the holder acknowledges that such shares are unregistered
under the Act and accordingly must be held indefinitely unless such shares are
subsequently registered or an exemption from such registration is available.
In such event a legend shall be placed on the stock certificate representing
such shares to reflect the transfer restrictions, and stop transfer
instructions shall be issued to the Company's transfer agent with respect to
such shares.
-15-
<PAGE> 16
ARTICLE XV
CANCELLATION OF OPTIONS
The Committee in its discretion may, with the consent of any
optionee, cancel any outstanding option hereunder.
ARTICLE XVI
EXPIRATION DATE OF PLAN
No option shall be granted hereunder after 10 years following
the Effective Date.
ARTICLE XVII
AMENDMENT OR DISCONTINUANCE OF PLAN
The Board may, without the consent of optionees, at any time
terminate the Plan entirely and at any time or from
time to time amend or modify the Plan, provided that no such action shall
adversely affect options theretofore granted hereunder, and provided further
that no such action by the Board, without approval of the stockholders, may (a)
increase the total number of Option Shares, except as contemplated in ARTICLE
IX; (b) change the class of officers or employees eligible to receive options
under the Plan; or (c) extend the term of the Plan.
-16-
<PAGE> 17
ARTICLE XVIII
LIMITATION ON GRANTS OF INCENTIVE STOCK OPTIONS
To the extent the aggregate fair market value (determined as
of the date of grant of such options) of the shares of Common Stock with
respect to which any incentive stock options may be exercisable for the first
time by the optionee in any calendar year (under this Plan or any other stock
option plan of the Company and any parent or subsidiary of the Company) exceeds
$100,000, such options shall be treated as nonstatutory stock options.
-17-
<PAGE> 18
ARTICLE XIX
SHAREHOLDER APPROVAL
The amendment and restatement of the Plan by the Board is
effective February 28, 1995. However, notwithstanding
anything in the Plan or in an option agreement to the contrary, no option
granted hereunder on or after February 28, 1995 may be exercised until approval
of the Plan by the stockholders of the Company on or after such date in a
manner which complies with Rule 16b-3 promulgated pursuant to the Exchange Act
and Sections 162(m) and 422(b)(1) of the Code.
-18-
<PAGE> 1
Exhibit 10.19
KERR GROUP, INC.
PENSION RESTORATION PLAN
1. Purpose of the Plan
The purpose of this Pension Restoration Plan (the "Plan") of Kerr Group, Inc.
(the "Company") is to provide to employees of the Company who participate in
the Kerr Group, Inc. Retirement Income Plan (the "Qualified Plan") retirement
benefits which are unavailable to such persons under the Qualified Plan on
account of the benefit limitations imposed under Sections 415 and 401(a)(17)
(the "Statutory Benefit Limitations") of the Internal Revenue Code of 1986, as
amended from time to time (the "Code").
2. Administration of the Plan
(a) General Powers. The committee administering the Qualified Plan (the
"Committee") also shall administer the Plan. The Committee shall have full
authority to determine all questions arising in connection with the Plan,
including its interpretation, may adopt procedural rules, and may employ and
rely on such legal counsel, actuaries, accountants and agents as it may deem
advisable to assist in the administration of the Plan. Decisions of the
Committee shall be conclusive and binding on all persons.
(b) Specific Powers. Without limiting the generality of Section 2(a), the
Administrator shall have the following powers and duties:
i. To furnish to all "Participants" (as defined in Section 3), upon
request, copies of the Plan, and to require any
<PAGE> 2
person to furnish such information as it may request for the purpose
of the proper administration of the Plan as a condition to receiving
any benefits under the Plan;
ii. To make and enforce such rules and regulations and prescribe the use
of such forms as it shall deem necessary for the efficient
administration of the Plan;
iii. To interpret the Plan, and to resolve ambiguities, inconsistencies
and omissions, which findings shall be binding, final and conclusive;
iv. To decide on questions concerning the Plan in accordance with the
provisions of the Plan;
v. To determine the amount of benefits which shall be payable to any
person in accordance with the provisions of the Plan; to instruct the
Company, or the trustee of any trust which may be established in
connection with the Plan in accordance with Section 5(d), as to
payments to be made under the Plan and to provide a full and fair
review to any Participant whose claim for benefits has been denied in
whole or in part; and
vi. To designate persons to carry out any duty or power which would
otherwise be a responsibility of the Committee.
(c) Hold Harmless. To the extent permitted by law, the Committee and any
person to whom it may delegate any duty or power in connection with
administering the Plan, the Company and the officers and directors of the
Company, shall be entitled to rely conclusively upon, and shall be fully
protected in any action taken
2
<PAGE> 3
or not taken by them in good faith in the reliance upon, any actuary, counsel,
accountant, other specialist or other person selected by the Committee, or in
reliance upon any tables, valuations, certificates, opinions or reports which
shall be furnished by any of them. Further, to the extent permitted by law, the
Committee, the Company, and the officers and directors of the Company shall not
be liable for any neglect, omission or wrongdoing of any other agent, officer
or employee of the Company. Any person claiming benefits under the Plan shall
look solely to the Company for redress.
(d) Plan Expenses. All expenses incurred that shall arise in connection
with the administration of the Plan, including, but not limited to
administrative expenses, proper charges and disbursements, compensation and
other expenses and charges of any actuary, counsel, accountant, specialist or
other person who shall be employed by the Committee in connection with the
Plan, shall be paid by the Company.
(e) Claims Procedure. A claim for benefits under the Plan must be made to
the Committee in writing. The Committee shall provide adequate notice in
writing to any Participant, joint annuitant or beneficiary whose claim for
benefits under the Plan has been denied, setting forth the specific reasons for
such denial, written in a manner calculated to be understood by the claimant.
If a claim is denied, the Participant, joint annuitant or beneficiary may
request a review of the denial, but such a request must be in writing, and must
be submitted to the Committee
3
<PAGE> 4
within 60 days after the claimant's claim has been denied. A decision upon
review shall be made by the Committee within 60 days of the receipt of the
request for review, unless the Committee determines that special circumstances
require additional time, in which case a decision shall be rendered not later
than 120 days after receipt of the request for review. The decision on the
review shall be in writing and shall include specific reasons for the decision,
written in a manner calculated to be understood by the claimant, and specific
reference to the pertinent Plan provisions on which the decision is based.
(f) Indemnification. The Company shall indemnify and hold harmless the
Committee, and the individual members thereof, against any and all claims,
loss, damage, expense or liability (including reasonable attorney's fees)
arising from any action or failure to act with respect to the Plan, except in
the case of gross negligence or willful misconduct.
3. Application of the Plan
Any individual employed by the Company, or by an affiliate of the Company
which has adopted the Plan by action of its Board of Directors with the consent
of the Board of Directors of the Company (the "Board"), whose benefits under
the Qualified Plan are limited by the application of the Statutory Benefit
Limitations shall participate in the Plan, and shall be referred to hereunder
as a "Participant". The benefits provided hereunder in respect of any
Participant shall be paid by the corporation which employed such
4
<PAGE> 5
Participant. In the case of a Participant who is employed by more than one of
the Company and any affiliated corporations, the Committee shall allocate the
cost of such benefits among the Company and such corporations in such manner as
it deems equitable.
4. Benefits Payable
(a) Subject to Section 4(b) below, the Company shall pay to each
Participant, his joint annuitant or beneficiary a benefit equal to the excess
of:
(i) The benefit that would have been paid to such person under the
Qualified Plan (as it may be in effect from time to time), if the Qualified
Plan was not subject to the Statutory Benefit Limitations, over
(ii) the benefit actually paid to such person under the Qualified Plan,
taking into account in each of (i) and (ii) above any decision made with
respect to the Qualified Plan regarding early or deferred retirement,
optional methods of benefit payment, pre-retirement death benefit coverage
and any other factors which affect the amount, timing or form of the
Participant's benefit thereunder.
(b) The aggregate annual accrued benefit under the Plan and the Qualified
Plan, when expressed as a single-life annuity on the life of the Participant in
accordance with the terms of the Qualified Plan (and using the actuarial
assumptions employed by the enrolled actuary for the Qualified Plan for the
purpose of calculating benefits thereunder) shall be limited to $200,000.
5
<PAGE> 6
(c) A Participant's joint annuitant and beneficiary hereunder shall be the
same as his joint annuitant and beneficiary under the Qualified Plan. Benefits
payable to any person hereunder shall be paid at the same time and in the same
manner as benefits payable to such person under the Qualified Plan in
accordance with all the terms and conditions applicable to such benefits under
the Qualified Plan (other than benefit limitation provisions adopted to conform
to the Statutory Benefit Limitations). In no event shall an amount be payable
under the Plan in respect of any Participant which would cause the actuarial
value of the aggregate employer-provided pension benefits provided under the
Qualified Plan and the Plan payable in respect of such Participant as of any
date to exceed the actuarial value of the employer-provided benefits that would
have been payable in respect of such Participant under the Qualified Plan in
the absence of such Statutory Benefit Limitations.
5. Miscellaneous
(a) Amendment and Termination. The Plan may be terminated at any time by
the Board, and may be amended at any time by the Board or the Committee, except
that (i) any amendment which has a material impact on the cost to the Company
of maintaining the Plan must be made by the Board, (ii) no such amendment or
termination shall reduce the dollar amount of benefit accrued under the Plan by
any Participant immediately before the effective date of the amendment or
termination (although such dollar amount may be subsequently reduced through
operation of the Plan to the extent
6
<PAGE> 7
that the benefits accrued by the Participant under the Qualified Plan
immediately before such effective date are subsequently increased solely due to
an adjustment in the Statutory Benefit Limitations) and (iii) clause (ii) and
this clause (iii) of Section 5(a) may not be amended under any circumstances
without the written consent of all Participants.
(b) Plan Not Funded. Benefits payable under the Plan shall not be funded
and shall be paid only out of the general assets of the Copmpany or any
corporation referred to in Section 3. The Plan constitutes only a mere promise
by the Company (and any participating affiliated corporation) to make benefit
payments in the future. Plan participants and their beneficiaries have only the
status of unsecured creditors of the Company (or any participating affiliated
corporation) with respect to the benefits payable under the Plan.
(c) Legal Status of Plan. It is intended that the Plan be considered a
"plan which is unfunded and is maintained by an employer primarily for the
purpose of providing deferred compensation for a select group of management or
highly compensated employees" under the Employee Retirement Income Security
Act of 1974, as amended ("ERISA"), and the Plan is intended to be unfunded for
tax purposes and for purposes of Title I of ERISA.
(d) Use of Trust or Annuity Contracts. Notwithstanding the foregoing
subsections (b) and (c), the Company may establish a trust from which payments
to persons entitled to Plan benefits may be paid; provided, however, that such
trust shall be a "grantor
7
<PAGE> 8
trust" under Section 677 of the Code, and shall conform in substance to the
model "rabbi trust" appearing in Revenue Procedure 92-64, 1992-33 I.R.B. 11.
Also, at the request of a Participant, joint annuitant or beneficiary, or on
its own accord, the Committee may, in lieu of causing the Company or any such
trust to pay from its assets a benefit to which such person is entitled, cause
the Company or such trust to purchase an annuity contract which will provide
benefits in an amount equal to that which such person in entitled under the
Plan. Any such annuity contract must be purchased from a commercial insurance
company qualified to do business in the State of California, and whose rating
from each of those of Standard & Poor, Moody's and Duff & Phelps which rates
such insurance company is one of the two highest given by such organization.
The ownership of any such annuity contract shall be retained by the Company or
such trust, whichever purchased it.
(e) No Assignment. No right to payment or any other interest under the
Plan shall be assignable or subject to attachment, execution or levy of any
kind, and any attempt to assign any such payment or interest or make it so
subject shall be void.
(f) No Effect On Employment Rights. The establishment of the Plan shall
not be construed as conferring any legal rights upon any employee or other
person for a continuation of employment, nor shall it interfere with the right
of the Company (or any contributing corporation) to discharge any employee.
8
<PAGE> 9
(g) Withholding. The Company shall have the right to deduct from each
payment to be made under the Plan any required withholding taxes.
(h) Governing Law. The Plan shall be construed, administered and enforced
according to the laws of the State of California.
(i) Invalidity of Certain Provisions. If any provision of the Plan is
held invalid or unenforceable, such invalidity or unenforceability shall not
affect any other provision hereof and the Plan shall be construed and enforced
as if such provision had not been included.
(j) Successor Organizations. The Company agrees that it will not merge or
consolidate with any other corporation or organization, or permit its business
activities to be taken over by any other organization, unless and until the
succeeding or continuing organization or corporation assumes the rights and
obligations under the Plan, or other provision for payment of benefits due
under the Plan have been made.
6. Effective Date
The effective date of the Plan is January 1, 1995.
IN WITNESS WHEREOF, the Plan has been adopted by the Board on February 25,
1995, effective as described in Section 6.
9
<PAGE> 1
EXHIBIT 10.23
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
1. PARTIES. This Lease, dated for reference purposes only, August 1, 1988, is
made by and between KCB Development, a California general partnership (herein
called "Lessor") and SCP Corporation, a California corporation (herein called
"Lessee").
2. PREMISES. Lessor hereby leases to Lessee and Lessee leases from Lessor for
the term, at the rental, and upon all of the conditions set forth herein, that
certain real property situated in the County of Los Angeles, State of California
commonly known as 9601 John Street, Santa Fe Springs, California 90670 and
described as in Exhibit A attached hereto by legal description.
Said real property including the land and all improvements therein, is herein
called "the Premises".
3. TERM.
3.1. TERM. The term of this Lease shall be for 10 years (subject to
adjustment under Paragraph 4 and extension terms under Paragraph 50) commencing
on the first day of , 1988 and ending on the last day of , 1998 unless sooner
terminated pursuant to any provision hereof (unless so adjusted or extended).
3.2. DELAY IN POSSESSION. Lessee is now in possession.
4. RENT. Lessee shall pay to Lessor as rent for the Premises, monthly payment
of $40,750, in advance, on the 1st day of each month of the term hereof. Lessee
shall pay Lessor upon the execution hereof the amount called for by Paragraph
48.
Rent for any period during the term hereof which is for less than one month
shall be a pro rata portion of the monthly installment. Rent shall be payable in
lawful money of the United States to Lessor at the address stated herein or at
such other places as Lessor may designate in writing.
5. SECURITY DEPOSIT. Lessee shall deposit with Lessor upon execution hereof
None as security for Lessee's faithful performance of Lessee's obligations
hereunder. If Lessee fails to pay rent or other charges due hereunder, or
otherwise defaults with respect to any provision of this Lease, Lessor may use,
apply or retain all or any portion of said deposit for the payment of any rent
or other charge in default or for the payment of any other sum to which Lessor
may become obligated by reason of Lessee's default, or to compensate Lessor for
any loss or damage which Lessor may suffer thereby. If Lessor so uses or applies
all or any portion of said deposit, Lessee shall within ten (10) days after
written demand therefor deposit cash with Lessor in an amount sufficient to
restore said deposit to the full amount herein above stated and Lessee's failure
to do so shall be a material breach of this Lease. If the monthly rent shall,
from time to time, increase during the term of this Lease, Lessee shall
thereupon deposit with Lessor additional security deposit so that the amount of
security deposit held by Lessor shall at all times bear the same proportion to
current rent as the original security deposit bears to the original monthly rent
set forth in paragraph 4 hereof. Lessor shall not be required to keep said
deposit separate from its general accounts. If Lessee performs all of Lessee's
obligations hereunder, said deposit, or so much thereof as has not theretofore
been applied by Lessor, shall be returned, without payment of interest or other
increment for its use, to Lessee (or at Lessor's option, to the last assignee,
if any, of Lessee's interest hereunder) at the expiration of the term hereof,
and after Lessee has vacated the Premises. No trust relationship is created
herein between Lessor and Lessee with respect to said Security Deposit.
6. USE.
6.1 USE. The Premises shall be used and occupied only for any lawful
purpose (subject to Paragraph 54 with respect to hazardous substances and
Paragraph 57 (vii) hereof with respect to
<PAGE> 2
prospective usage by a proposed assignee or subLessee) or any other use which is
reasonably comparable and for no other purpose.
6.2 COMPLIANCE WITH LAW.
(b) Lessee shall at Lessee's expense, comply promptly with all
applicable statutes, ordinances, rules, regulations, orders, covenants and
restrictions of record, and requirements in effect as of the date hereof and/or
arising during the term or any part of the term hereof, regulating the Premises.
Lessee shall not use nor permit the use of the Premises in any manner that will
tend to create waste or a nuisance or, if there shall be more than one tenant in
the building containing the Premises, shall tend to disturb such other tenants.
6.3 CONDITION OF PREMISES.
(b) Except as otherwise provided in this Lease, Lessee hereby accepts
the Premises in their condition existing as of the Lease commencement date or
the date that Lessee takes possession of the Premises, whichever is earlier,
subject to all applicable zoning, municipal, county and state laws, ordinances
and regulations governing and regulating the use of the Premises, and any
convenants or restrictions of record, and accepts this Lease subject thereto and
to all matters disclosed thereby and by any exhibits attached hereto. Lessee
acknowledges that neither Lessor nor Lessor's agent has made any representation
or warranty as to the present or future suitability of the Premises for the
conduct of Lessee's business.
7. MAINTENANCE, REPAIRS AND ALTERATIONS.
7.1 LESSEE'S OBLIGATIONS. Lessee shall keep in good order, condition and
repair the Premises and every part thereof, structural and non structural,
(whether or not such portion of the Premises requiring repair, or the means of
repairing the same are reasonably or readily accessible to Lessee, and whether
or not the need for such repairs occurs as a result of Lessee's use, any prior
use, the elements or the age of such portion of the Premises) including, without
limiting the generality of the foregoing, all plumbing, heating, air
conditioning, (Lessee shall procure and maintain, at Lessee's expense, an air
conditioning system maintenance contract) ventilating, electrical, lighting
facilities and equipment within the Premises, fixtures, walls (interior and
exterior), foundations, ceilings, roofs (interior and exterior), floors,
windows, doors, plate glass and skylights located within the Premises, and all
landscaping, driveways, parking lots, fences and signs located on the Premises
and sidewalks and parkways adjacent to the Premises.
7.2. SURRENDER. On the last day of the term hereof, or any sooner
termination, Lessee shall surrender the Premises to Lessor in the same condition
as when received, ordinary wear and tear excepted, clean and free of debris.
Lessee shall repair any damage to the Premises occasioned by the installation or
removal of Lessee's trade fixtures, furnishings and equipment. Notwithstanding
anything to the contrary otherwise stated in this Lease, Lessee shall leave the
air lines, power panels, electrical distribution systems, lighting fixtures,
space heaters, air conditioning, plumbing and fencing on the premises in good
operating condition.
7.3 LESSOR'S RIGHTS. If Lessee fails to perform Lessee's obligations
under this Paragraph 7, or under any other paragraph of this Lease, Lessor may
at its option (but shall not be required to) enter upon the Premises after ten
(10) days prior written notice to Lessee (except in the case of an emergency, in
which case no notice shall be required), perform such obligations on Lessee's
behalf and put the same in good order, condition and repair, and the cost
thereof together with interest thereon at the maximum rate then allowable by law
shall become due and payable as additional rental to Lessor together with
Lessee's next rental installment. See Paragraph 59 (ii).
7.4. LESSOR'S OBLIGATIONS. Except for the obligations of Lessor under
Paragraph 6.2 (a) and 6.3 (a) (relating to Lessor's warranty), Paragraph 9
(relating to destruction of the Premises) and under Paragraph
- 2 -
<PAGE> 3
14 (relating to condemnation of the Premises), it is intended by the
parties hereto that Lessor have no obligation, in any manner whatsoever, to
repair and maintain the Premises nor the building located thereon nor the
equipment therein, whether structural or non structural, all of which
obligations are intended to be that of the Lessee under Paragraph 7.1 hereof.
Lessee expressly waives the benefit of any statue now or hereinafter in effect
which would otherwise afford Lessee the right to make repairs at Lessor's
expense or to terminate this Lease because of Lessor's failure to keep the
premises in good order, condition and repair.
7.5 ALTERATIONS AND ADDITIONS.
(a) Lessee shall not, without Lessor's prior written consent make any
alterations, improvements, additions or Utility Installations in, on or about
the Premises, except for non structural alterations not exceeding $150,000 in
cumulative costs during the term of this Lease in any event, whether or not in
excess of $2,500 in cumulative cost. Lessee shall make no change or alteration
to the exterior of the Premises nor the exterior of the building(s) on the
Premises without Lessor's prior written consent. As used in this Paragraph 7.5
the term "Utility Installation" shall mean carpeting, window coverings, air
lines, power panels, electrical distribution systems, lighting fixtures, space
heaters, air conditioning, plumbing and fencing. Lessor may require that Lessee
remove any or all of said alterations, improvements, additions or Utility
Installations at the expiration of the term, and restore the Premises to their
prior condition. Lessor may require Lessee to provide Lessor, at Lessee's sole
cost and expense, a lien and completion bond in an amount equal to one and
one-half times the estimated cost of such improvements, to insure Lessor against
any liability for mechanic's and materialmen's liens and to insure completion of
the work. Should Lessee make any alterations, improvements, additions or Utility
Installations without the prior approval of Lessor may require that Lessee
remove any or all of the same.
(b) Any alterations, improvements, additions or Utility
Installations in, or about the Premises that Lessee shall desire to make and
which requires the consent of the Lessor shall be presented to Lessor in written
form, with proposed detailed plans. If Lessor shall give its consent the consent
shall be deemed conditioned upon Lessee acquiring a permit to do so from
appropriate governmental agencies, the furnishing of a copy thereof to Lessor
prior to the commencement of the work and the compliance by Lessee of all
conditions of said permit in a prompt and expeditious manner.
(c) Lessee shall pay, when due, all claims for labor or materials
furnished or alleged to have been furnished to or for Lessee at or for use in
the Premises, which claims are or may be secured by any mechanics' or
materialmen's lien against the Premises or any interest therein Lessee shall
give Lessor not less than ten (10) days' notice prior to the commencement of any
work in the Premises, and Lessor shall have the right to post notices of
non-responsibility in or on the Premises as provided by law. If Lessee shall, in
good faith, contest the validity of any such lien, claim or demand, then Lessee
shall, at its sole expense defend itself and Lessor against the same and shall
pay and satisfy any such adverse judgment that may be rendered thereon before
the enforcement thereof against the Lessor or the Premises, upon the condition
that if Lessor shall require, Lessee shall furnish to Lessor a surety bond
satisfactory to Lessor in an amount equal to such contested lien claim or demand
indemnifying Lessor against liability for the same and holding the Premises free
from the effect of such lien or claim. In addition, Lessor may require Lessee to
pay Lessor's attorneys fees and costs in participating in such action if Lessor
shall decide it is to its best interest to do so.
(d) Unless Lessor requires their removal, as set forth in Paragraph
7.5 (a), all alterations, improvements, additions and Utility installations
(whether or not such Utility Installations constitute trade fixtures of Lessee),
which may be made on the Premises, shall become the property of Lessor and
remain upon and be surrendered with the Premises at the expiration of the term.
Notwithstanding the provisions of the Paragraph 7.5 (d). Lessee's machinery and
equipment other than that which is affixed to the Premises so that it cannot be
removed without material damage to the Premises, shall remain the property of
Lessee and may be removed by Lessee subject to the provisions of Paragraph 7.2.
- 3 -
<PAGE> 4
8. INSURANCE INDEMNITY.
8.1. INSURANCE PARTY. As used in this Paragraph 8, the term "insuring
party" shall mean the party who has the obligation to obtain the Property
Insurance required hereunder. The insuring party shall be designated in
Paragraph 46 hereof Lessee shall, as additional rent for the Premises, pay the
cost of all insurance required hereunder, except for that portion of the cost
attributable to Lessor's liability insurance coverage in excess of $1,000,000
per occurrence.
8.2 LIABILITY INSURANCE. Lessee shall, at Lessee's expense obtain and
keep in force during the term of this Lease a policy of Combined Single Limit,
Bodily Injury and Property Damage insurance insuring Lessor and Lessee against
any liability arising out to the ownership, use, occupancy or maintenance of the
Premises and all areas appurtenant thereto. Such insurance shall be a combined
single limit policy in an amount not less than $500,000 per occurrence. The
policy shall insure performance by Lessee of the indemnity provisions of this
Paragraph 8. The limits of said insurance shall not, however, limit the
liability of Lessee hereunder.
8.3 PROPERTY INSURANCE. See Paragraph 59 (iii)
(a) The insuring party shall obtain and keep in force during the term
of this Lease a policy or policies of insurance covering loss or damage to the
Premises, in the amount of the full replacement value thereof, as the same may
exist from time to time, which replacement value is now as per existing policy,
but in no event less than the total amount required by lenders having liens on
the Premises, against all perils included within the classification of fire,
extended coverage, vandalism, malicious mischief, flood (in the event same is
required by a lender having a lien on the Premises), and special extended perils
("all risk" as such term is used in the insurance industry). Said insurance
shall provide for payment of loss thereunder to Lessor or to the holders of
mortgages or deeds of trust on the Premises. If the insuring party shall fail to
procure and maintain said insurance the other party may, but shall not be
required to, procure and maintain the same, but at the expense of Lessee. If
such insurance coverage has a deductible clause, the deductible amount shall not
exceed $1,000 per occurrence, and Lessee shall be liable for such deductible
amount.
(c) If the Lessor is the insuring party the Lessor will not insure
Lessee's fixtures, equipment or tenant improvements unless the tenant
improvements have become a part of the Premises under paragraph 7, hereof. But
if Lessee is the insuring party the Lessee shall insure its fixtures, equipment
and tenant improvements.
8.4 INSURANCE POLICIES. Insurance required hereunder shall be in
companies holding a "General Policyholders Rating" of at least B plus, or such
other rating as may be required by a lender having a lien on the Premises, as
set forth in the most current issue of "Best's Insurance Guide". The insuring
party shall deliver to the other party copies of policies of such insurance or
certificates evidencing the existence and amounts of such insurance with loss
payable clauses as required by this paragraph 8. No such policy shall be
cancelable or subject to reduction of coverage or other modification except
after thirty (30) days' prior written notice to Lessor. If Lessee is the
insuring party Lessee shall, at least thirty (30) days prior to the expiration
of such policies, furnish Lessor with renewals or "binders" thereof, or Lessor
may order such insurance and charge the cost thereof to Lessee which amount
shall be payable by Lessee upon demand. Lessee shall not do or permit to be done
anything which shall invalidate the insurance policies referred to in Paragraph
8.3. If Lessee does or permits to be done anything which shall increase the cost
of the insurance policies referred to in Paragraph 8.3 then Lessee shall
forthwith upon Lessor's demand reimburse Lessor for any additional premiums
attributable to any maintained hereunder cover other improvements in addition to
the Premises. Lessor shall deliver to Lessee written statement setting forth the
amount of any such insurance cost increase and showing in reasonable detail the
manner in which it has been computed.
- 4 -
<PAGE> 5
8.5 WAIVER OF SUBROGATION. Lessee and Lessor each hereby release and
relieve the other, and waive their entire right of recovery against the other
for loss or damage arising out of or incident to the perils insured against
under paragraph 8.3 which perils occur in, or about the Premises, whether due to
the negligence of Lessor or Lessee or their agents, employees, contractors
and/or invitees. Lessee and Lessor shall, upon obtaining the policies of
insurance required hereunder, give notice to the insurance carrier that the
foregoing mutual waiver of subrogation is contained in this Lease.
8.6 INDEMNITY. Lessee shall indemnify and hold harmless Lessor from and
against any and all claims arising from Lessee's use of the Premises, or from
the conduct of Lessee's business or from any activity, work or things done,
permitted or suffered by Lessee in or about the Premises or elsewhere and shall
further indemnify and hold harmless Lessor from and against any and all claims
arising from any breach or default in the performance of any obligation on
Lessee's part to be performed under the terms of this Lease, or arising from any
negligence of the Lessee, or any of Lessee's agents, contractors, or employees,
and from and against all costs, attorney's fees, expenses and liabilities
incurred in the defense of any such claims or any action or proceeding brought
thereon: and in case any action or proceeding be brought against Lessor by
reason of any such claims Lessee upon notice from Lessor shall defend the same
at Lessee's expense by counsel satisfactory to Lessor. Lessee, as a material
part of the consideration to Lessor, hereby assumes all risk of damage to
property or injury to persons, in, upon or about the Premises arising from any
cause and Lessee hereby waives all claims in respect thereof against Lessor. See
Paragraph 59 (iv).
8.7 EXEMPTION OF LESSOR FROM LIABILITY. Lessee hereby agrees that Lessor
shall not be liable for injury to Lessee's business or any loss of income
therefrom or for damage to the goods, wares, merchandise or other property of
Lessee. Lessee's employees, invitees, customers, or any other person in or
about the Premises, nor shall Lessor be liable for injury to the person of
Lessee, Lessee's employees, agents or contractors whether such damage or injury
is caused by or results from fire, steam, electricity, gas, water or rain, or
from the breakage, leakage, obstruction or other defects of pipes, sprinkles,
wires, appliances, plumbing, air conditioning or lighting fixtures, or from any
other cause, whether the said damage or injury results from conditions arising
upon the Premises or upon other portions of the building of which the Premises
are a part, or from other sources or places and regardless of whether the cause
of such damage or injury or the means of repairing the same is inaccessible to
Lessee Lessor shall not be liable for any damages arising from any act or
neglect of any other tenant, if any of the building in which the Premises are
located. See Paragraph 59 (i).
9. DAMAGE OR DESTRUCTION. See Paragraph 56
10. REAL PROPERTY TAXES.
10.1 PAYMENTS OF TAXES. Lessee shall pay the real property tax, as defined
in paragraph 10.2, applicable to the Premises during the term of this Lease. All
such payments shall be made at least ten (10) days prior to the delinquency date
of such payment. Lessee shall promptly furnish Lessor with satisfactory evidence
that such taxes have been paid. If any such taxes shall be equitably prorated to
cover only the period of time prior to or after the expiration of the term
hereof, Lessee's share of such taxes shall be equitably prorated to cover only
the period of time within the tax fiscal year during which this Lease shall be
in effect, and Lessor shall reimburse Lessee to the extent required. If Lessee
shall fail to pay any such taxes, Lessor shall have the right to pay the same,
in which case Lessee shall repay such amount to Lessor with Lessee's next rent
installment together with interest at the maximum rate then allowable by law.
See Paragraph 59 (v)
10.2 DEFINITION OF "REAL PROPERTY TAX". As used herein, the term "real
property tax" shall include any form of real estate tax or assessment, general,
special, ordinary or extraordinary, and any license fee,
- 5 -
<PAGE> 6
commercial rental tax, improvement bond or bonds, levy or tax (other than
inheritance, personal income or estate taxes) imposed on the Premises by any
authority having the direct or indirect power to tax, including any city, state
or federal government, or any school, agricultural, sanitary, fire, street,
drainage or other improvement district thereof, as against any legal or
equitable interest of Lessor in the Premises or in the real property of which
the Premises are a part, as against Lessor's right to rent or other income
therefrom, and as against Lessor's business of leasing the Premises. The term
"real property tax" shall also include any tax, fee, levy, assessment or charge
(i) in substitution of, partially or totally, any tax, fee, levy, assessment or
charge herein above included within the definition of "real property tax," or
(ii) the nature of which was hereinbefore included within the definition of
"real property tax," or (iii) which is imposed for a service or right not
charged prior to June 1, 1978, or, if previously charged, has been increased
since June 1, 1978, or (iv) which is imposed as a result of a transfer, either
partial or total, of Lessor's interest in the Premises or which is added to a
tax or charge hereinbefore included within the definition of real property tax
by reason of such transfer or (v) which is imposed by reason of this
transaction, any modifications or changes hereto, or any transfers hereof. See
Paragraph 59 (vi)
10.3 JOINT ASSESSMENT. If the Premises are not separately assessed,
Lessee's liability shall be an equitable proportion of the real property taxes
for all of the land and improvements included within the tax parcel assessed,
such proportion to be determined by Lessor from the respective valuations
assigned in the assessor's work sheets or such other information as may be
reasonably available. Lessor's reasonable determination thereof, in good faith,
shall be conclusive. See Paragraph 59 (vii)
10.4 PERSONAL PROPERTY TAXES.
(a) Lessee shall pay prior to delinquency all taxes assessed against
and levied upon trade fixtures, furnishings, equipment and all other personal
property of Lessee contained in the Premises or elsewhere. When possible, Lessee
shall cause said trade fixtures, furnishings, equipment and all other personal
property to be assessed and billed separately from the real property of Lessor.
(b) If any of Lessee's said personal property shall be assessed with
Lessor's real property, Lessee shall pay Lessor the taxes attributable to Lessee
within 10 days after receipt of a written statement setting forth the taxes
applicable to Lessee's property.
11. UTILITIES. Lessee shall pay for all water, gas, heat, light, power,
telephone and other utilities and services supplied to the Premises, together
with any taxes thereon. If any such services are not separately metered to
Lessee, Lessee shall pay a reasonable proportion to be determined by Lessor of
all charges jointly metered with other premises.
12. ASSIGNMENT AND SUBLETTING.
12.1 LESSOR'S CONSENT REQUIRED. Lessee shall not voluntarily or by
operation of law assign, transfer, mortgage, sublet, or otherwise transfer or
encumber all or any part of Lessee's interest in this Lease or in the Premises,
without the Lessor's prior written consent, which Lessor shall not unreasonably
withhold. Lessor shall respond to Lessee's request for consent hereunder in a
timely manner and any attempted assignment, transfer, mortgage, encumbrance, or
subletting without such consent shall be void, and shall constitute a breach of
this Lease.
12.2 LESSEE AFFILIATE. Notwithstanding the provisions of paragraph 12.1
hereof, Lessee may assign or sublet the Premises, or any portion thereof,
without Lessor's consent, to any corporation which controls, is controlled by or
is under common control with Lessee, or to any corporation resulting from the
merger or consolidation with Lessee, or to any person or entity which acquires
all the assets of Lessee as a going concern of the business that is being
conducted on the Premises, provided that said assignee assumes, in full, the
obligations of Lessee under this Lease. Any such assignment shall not, in any
way, affect or limit the liability of Lessee under the terms of this Lease even
if after such assignment or
- 6 -
<PAGE> 7
subletting the terms of this Lease are materially changed or altered without the
consent of Lessee, the consent of whom shall not be necessary.
12.3 NO RELEASE OF LESSEE. Regardless of Lessor's consent, no subletting
or assignment shall release Lessee of Lessee's obligation or alter the primary
liability of Lessee to pay the rent and to perform all other obligations to be
performed by Lessee hereunder. The acceptance of rent by Lessor form any other
personal shall not be deemed to be a waiver by Lessor of any provision hereof.
Consent to one assignment or subletting shall not be deemed consent to any
subsequent assignment or subletting. In the event of default by any assignee of
Lessee or any successor of Lessee, in the performance of any of the terms
hereof, Lessor may proceed directly against Lessee without the necessity of
exhausting remedies against said assignee. Lessor may consent to subsequent
assignment of subletting of this Lease or amendments or modifications to this
Lease with assignees of Lessee, without notifying Lessee or any successor of
Lessee and without obtaining its or their consent thereto and such action shall
not relieve Lessee liability under this Lease.
12.4 ATTORNEY'S FEES.
13. DEFAULTS; REMEDIES.
13.1 DEFAULTS. The occurrence of any one or more of the following events
shall constitute a material default and breach of this Lease by Lessee:
(a) The vacating or abandonment of the Premises by Lessee.
(b) The failure by Lessee to make any payment of rent or any other
payment required to be made by Lessee hereunder, as and when due, where such
failure shall continue for a period of 10 days after written notice thereof from
Lessor in the event that Lessor serves Lessee with a Notice to Pay Rent or Quit
pursuant to applicable Unlawful Detainer statutes such Notice to Pay Rent or
Quit shall also constitute the notice required by this subparagraph.
(c) The failure by Lessee to observe or perform any of the
convenants: conditions or provisions of this Lease to be observed or performed
by Lessee, other than described in paragraph (b) above, where such failure shall
continue for a period of 30 days after written notice thereof from Lessor to
Lessee; provided, however, that if the nature of Lessee's default is such that
more than 30 days are reasonably required for its cure, then Lessee shall not be
deemed to be in default if Lessee commenced such cure within said 30-day period
and thereafter diligently prosecutes such cure to completion.
(d) (i) The making by Lessee of any general arrangement or assignment
for the benefit of creditor: (ii) Lessee becomes a "debtor" as defined in 11
U.S.C. Paragraph 101 or any successor statute thereto (unless, in the case of a
petition filed against Lessee, the same is dismissed within 60 days); (iii) the
appointment of a trustee or receiver to take possession of substantially all of
Lessee's assets located at the Premises or of Lessee's interest in this Lease,
where possession is not restored to Lessee within 30 days; or (iv) the
attachment, execution or other judicial seizure of substantially all of Lessee's
assets located at the Premises or of Lessee's interest in this Lease, where such
seizure is not discharged within 30 days. Provided, however, in the event that
any provision of this paragraph 13.1 (d) is contrary to any applicable law, such
provision shall be of no force or effect.
(e) The discovery by Lessor that any financial statement given to
Lessor by Lessee, any assignee of Lessee, any subtenant of Lessee any successor
in interest of Lessee or any guarantor of Lessee's obligation hereunder, and any
of them, was materially false.
13.2 REMEDIES. In the event of any such material default or breach by
Lessee, Lessor may at any time thereafter, with or without notice or demand and
without limiting Lessor in the exercise of any right or remedy which Lessor may
have by reason of such default or breach:
(a) Terminate Lessee's right to possession of the Premises by any
lawful means, in which case this Lease shall terminate and Lessee shall
immediately surrender possession of the Premises to
- 7 -
<PAGE> 8
Lessor. In such event Lessor shall be entitled to recover from Lessee all
damages incurred by Lessor by reason of Lessee's default including, but not
limited to, the cost of recovering possession of the Premises: expenses of
reletting, including necessary renovation and alteration of the Premises,
reasonable attorney's fees, and any real estate commission actually paid; the
worth at the time of award by the court having jurisdiction thereof of the
amount by which the unpaid rent for the balance of the term after the time of
such award exceeds the amount of such rental loss for the same period that
Lessee proves could be reasonably avoided, that portion of the leasing
commission paid by Lessor pursuant to Paragraph 15 applicable to the unexpired
term of this Lease.
(b) Maintain Lessee's right to possession in which case this Lease
shall continue in effect whether or not Lessee shall have abandoned the
Premises. In such event Lessor shall be entitled to enforce all of Lessor's
rights and remedies under this Lease, including the right to recover the rent as
it becomes due hereunder.
(c) Pursue any other remedy now or hereafter available to Lessor
under the laws or judicial decisions of the state wherein the Premises are
located. Unpaid installments of rent and other unpaid monetary obligations of
Lessee under the terms of this Lease shall bear interest from the date due at
the maximum rate then allowable by law.
13.3 DEFAULT BY LESSOR. Lessor shall not be in default unless Lessor fails
to perform obligations required of Lessor within a reasonable time, but in no
event later than thirty (30) days after written notice by Lessee to Lessor and
to the holder of any first mortgage or deed of trust covering the Premises whose
name and address shall have theretofore been furnished to Lessee in writing,
specifying wherein Lessor has failed to perform such obligation; provided,
however, that if the nature of Lessor's obligation is such that more than thirty
(30) days are required for performance then Lessor shall not be in default if
Lessor commences performance within such 30-day period and thereafter diligently
prosecutes the same to completion.
13.4 LATE CHARGES. Lessee hereby acknowledges that late payment by Lessee
of rent and other sums due hereunder will cause Lessor to incur costs not
contemplated by this Lease, the exact amount of which will be extremely
difficult to ascertain. Such costs include, but are not limited to, processing
and accounting charges, and late charges which may be imposed on Lessor by the
terms of any mortgage or trust deed covering the Premises. Accordingly, if any
installment of rent or any other sum due from Lessee shall not be received by
Lessor or Lessor's designee within ten (10) days after such amount shall be due,
then, without any requirement for notice to Lessee, Lessee shall pay to Lessor a
late charge equal to 6% of such overdue amount not to exceed $500. The parties
hereby agree that such late charge represents a fair and reasonable estimate of
the costs Lessor will incur by reason of late payment by Lessee. Acceptance of
such late charge by Lessor shall in no event constitute a waiver of Lessee's
default with respect to such overdue amount, nor prevent Lessor from exercising
any of the other rights and remedies granted hereunder. In the event that a late
charge is payable hereunder, whether or not collected, for three (3) consecutive
installments of rent, then rent shall automatically become due and payable
quarterly in advance, rather than monthly, notwithstanding paragraph 4 or any
other provision of this Lease to the contrary.
13.5 IMPOUNDS. In the event that a late charge is payable hereunder,
whether or not collected, for three (3) installments of rent or any other
monetary obligation of Lessee under the terms of this Lease, Lessee shall pay to
Lessor, if Lessor shall so request, in addition to any other payments required
under this Lease, a monthly advance installment, payable at the same time as the
monthly rent, as estimated by Lessor, for real property tax and insurance
expenses on the Premises which are payable by Lessee under the terms of this
Lease. Such fund shall be established to insure payment when due, before
delinquency, of any or all such real property taxes and insurance premiums. If
the amounts paid to Lessor by Lessee under the provisions of this paragraph are
insufficient to discharge the obligations of Lessee to pay such real property
taxes and insurance premiums as the same become due, Lessee shall pay to Lessor,
upon Lessor's demand, such additional sums necessary to pay such obligations.
All moneys paid to Lessor
- 8 -
<PAGE> 9
under this paragraph may be intermingled with other moneys of Lessor and shall
not bear interest. In the event of a default in the obligations of Lessee to
perform under this Lease, then any balance remaining from funds paid to Lessor
under the provisions of this paragraph may, at the option of Lessor, be applied
to the payment of any monetary default of Lessee in lieu of being applied to the
payment of real property tax and insurance premiums.
14. CONDEMNATION. If the Premises or any portion thereof are taken under the
power of eminent domain, or sold under the threat of the exercise of said power
(all of which are herein called "condemnation"), this Lease shall terminate as
to the part so taken as of the date the condemning authority takes title or
possession, whichever first occurs. If more than 10% of the floor area of the
building on the Premises, or more than 25% of the land area of the Premises
which is not occupied by any building, is taken by condemnation, Lessee may, at
Lessee's option, to be exercised in writing only within ten (10) days after
Lessor shall have given Lessee written notice of such taking (or in the absence
of such notice, within ten (10) days after the condemning authority shall have
taken possession) terminate this Lease as of the date the condemning authority
takes such possession. If Lessee does not terminate this Lease in accordance
with the foregoing, this Lease shall remain in full force and effect as to the
portion of the Premises remaining, except that the rent shall be reduced in the
proportion that the floor area of the building taken bears to the total floor
area of the building situated on the Premises. No reduction of rent shall occur
if the only area taken is that which does not have a building located thereon.
Any award for the taking of all or any part of the Premises under the power of
eminent domain or any payment made under threat of the exercise of such power
shall be the property of Lessor, whether such award shall be made as
compensation for diminution in value of the leasehold or for the taking of the
fee, or as severance damages; provided, however, that Lessee shall be entitled
to any award for loss of or damage to Lessee's trade fixtures and removable
personal property, in the event that this Lease is not terminated by reason of
such condemnation. Lessor shall to the extent of severance damages received by
Lessor in connection with such condemnation, repair any damage to the Premises
caused by such condemnation except to the extent that Lessee has been reimbursed
therefor by the condemning authority. Lessee shall pay any amount in excess of
such severance damages required to complete such repair.
15. BROKER'S FEE. Deliberately Omitted.
16. ESTOPPEL CERTIFICATE.
(a) Lessee shall at any time upon not less than ten (10) days prior
written notice from Lessor execute, acknowledge and deliver to Lessor a
statement in writing (i) certifying that this Lease is unmodified and in full
force and effect (or, if modified, stating the nature of such modification and
certifying that this Lease, as so modified, is in full force and effect) and the
date to which the rent and other charges are paid in advance, if any, and to
acknowledge that there are not to Lessee's knowledge any uncured defaults on the
part of Lessor hereunder, or specifying such defaults if any are claimed. Any
such statement may be conclusively relied upon by any prospective purchaser or
encumbrancer of the Premises.
(b) At Lessor's option, Lessee's failure to deliver such statement
within such time shall be a material breach of this Lease or shall be conclusive
upon Lessee (i) that this Lease is in full force and effect, without
modification except as may be presented by Lessor (ii) that there are no uncured
defaults in Lessor's performance, and (iii) that not more than one month's rent
has been paid in advance or such failure may be considered by Lessor as a
default under this Lease.
(c) If Lessor desires to finance, refinance, or sell the Premises, or
any part thereof, Lessee hereby agrees to deliver to any lender or purchaser
designated by Lessor such financial statements of Lessee as may be reasonably
required by such lender or purchaser. Such statements shall include the past
three years financial statements of Lessee. All such financial statements shall
be received by Lessor and such lender or purchaser in confidence and shall be
sued only for the purposes herein set forth.
- 9 -
<PAGE> 10
17. LESSOR'S LIABILITY. The term "Lessor" as used herein shall mean only the
owner or owners at the time in question of the fee title or a Lessee's interest
in a ground lease of the Premises, and except as expressly provided in paragraph
15, in the event of any transfer of such title or interest, Lessor herein named
(and in case of any subsequent transfers then the grantor) shall be relieved
from and after the date of such transfer of all liability as respects Lessor's
obligations thereafter to be performed, provided that any funds in the hands of
Lessor or the then grantor at the time of such transfer, in which Lessee has an
interest, shall be delivered to the grantee. The obligations contained in this
Lease to be performed by Lessor shall, subject as aforesaid, be binding on
Lessor's successors and assigns, only during their respective periods of
ownership.
18. SEVERABILITY. The invalidity of any provision of this Lease as determined
by a court of competent jurisdiction, shall in no way affect the validity of any
other provision hereof.
19. INTEREST ON PAST-DUE OBLIGATIONS. Except as expressly herein provided, any
amount due to Lessor not paid when due shall bear interest at the maximum rate
then allowable by law from the date due. Payment of such interest shall not
excuse or cure any default by Lessee under this Lease, provided, however, that
interest shall not be payable on late charges incurred by Lessee nor on any
amounts upon which late charges are paid by Lessee. See Paragraph 59 (ii)
20. TIME OF ESSENCE. Time is of the essence.
21. ADDITIONAL RENT. Any monetary obligations of Lessee to Lessor under the
terms shall be deemed to be rent.
22. INCORPORATION OF PRIOR AGREEMENTS; AMENDMENTS. This Lease contains all
agreements of the parties with respect to any matter mentioned herein. No prior
agreement or understanding pertaining to any such matter shall be effective.
This Lease may be modified in writing only, signed by the parties in interest at
the time of the modification.
23. NOTICE. Any notice required or permitted to be given hereunder shall be in
writing and may be given by personal delivery or by certified mail, and if given
personally or by mail, shall be deemed sufficiently given if addressed to Lessee
or to Lessor at the address noted below the signature of the respective parties,
as the case may be. Either party may be notice to the other specify a different
address for notice purposes except that upon Lessee's taking possession of the
Premises, the Premises shall constitute Lessee's address for notice purposes. A
copy of all notices required or permitted to be given to Lessor hereunder shall
be concurrently transmitted to such party or parties at such addresses as Lessor
may from time to time hereafter designate by notice to Lessee.
24. WAIVERS. No waiver by Lessor or any provision hereof shall be deemed a
waiver of any other provision hereof or of any subsequent breach by Lessee of
the same or any other provision. Lessor's consent to, or approval of, any act
shall not be deemed to render unnecessary the obtaining of Lessor's consent to
or approval of any subsequent act by Lessee. The acceptance of rent hereunder by
Lessor shall not be a waiver of any preceding breach by Lessee of any provision
hereof, other than the failure of Lessee to pay the particular rent so accepted,
regardless of Lessor's knowledge of such preceding breach at the time of
acceptance of such rent.
25. RECORDING. Either Lessor or Lessee shall, upon request of the other,
execute, acknowledge and deliver to the other a "short form" memorandum of this
Lease for recording purposes.
26. HOLDING OVER. If Lessee, with Lessor's consent, remains in possession of
the Premises or any part thereof after the expiration of the term hereof, such
occupancy shall be a tenancy from month to month upon all the provisions of this
Lease pertaining to the obligations of Lessee, but all options and rights of
first refusal, if any, granted under the terms of this Lease shall be deemed
terminated and be of no further effect during said month to month tenancy.
- 10 -
<PAGE> 11
27. CUMULATIVE REMEDIES. No remedy or election hereunder shall be deemed
exclusive by shall, wherever possible, be cumulative with all other remedies at
law or in equity.
28. COVENANTS AND CONDITIONS. Each provision of this Lease performable by
Lessee shall be deemed both a convenant and a condition.
29. BINDING EFFECT; CHOICE OF LAW. Subject to any provisions hereof restricting
assignment by Lessee and subject to the provisions of Paragraph 17, this Lease
shall bind the parties, their personal representatives, successors and assigns.
This Lease shall be governed by the laws of the State wherein the Premises are
located.
30. SUBORDINATION.
(a) This Lease, at Lessor's option, shall be subordinate to any
ground lease, mortgage, deed of trust, or any other hypothecation or security
now or hereafter placed upon the real property of which the Premises are a part
and to any and all advances made on the security thereof and to all renewals,
modifications, consolidations, replacements and extensions thereof.
Notwithstanding such subordination, Lessee's right to quite possession of the
Premises shall not be disturbed if Lessee is not in default and so long as
Lessee shall pay the rent and observe and perform all of the provisions of this
Lease, unless this Lease is otherwise terminated pursuant to its terms. If any
mortgagee, trustee or ground Lessor shall elect to have this Lease prior to the
lien of its mortgage, deed of trust or ground lease, and shall give written
notice thereof to Lessee, this Lease shall be deemed prior to such mortgage,
deed of trust, or ground lease, whether this Lease is dated prior or subsequent
to the date of said mortgage, deed of trust or ground lease or the date of
recording thereof.
(b) Lessee agrees to execute any documents required to effectuate an
attornment, a subordination or to make this Lease prior to the lien of any
mortgage, deed of trust or ground lease, as the case may be. Lessee's failure to
execute such documents within 10 days after written demand shall constitute a
material default by Lessee hereunder, or, at Lessor's option, Lessor shall
execute such documents on behalf of Lessee as Lessee's attorney-in-fact. Lessee
does hereby make, constitute and irrevocably appoint Lessors as Lessee's
attorney-in-fact and in Lessee's name, place and stead, to execute such
documents in accordance with this paragraph 30 (b).
31. ATTORNEY'S FEES. If either party or the broker named herein brings an
action to enforce the terms hereof or declare rights hereunder, the prevailing
party in any such action, on trial or appeal, shall be entitled to his
reasonable attorney's fees to be paid by the losing party as fixed by the court.
The provisions of this paragraph shall inure to the benefit of the broker named
herein who seeks to enforce a right hereunder.
32. LESSOR'S ACCESS. Lessor and Lessor's agents shall have the right to enter
the Premises at reasonable times for the purpose of inspecting the same, showing
the same to prospective purchasers, lenders, or Lessees, and making such
alterations, repairs, improvements or additions to the Premises or to the
building of which they are a part as Lessor may deem necessary or desirable.
Lessor may at any time place on or about the Premises any ordinary "For Sale"
signs and Lessor may at any time during the last 120 days of the term hereof
place on or about the Premises any ordinary "For Lease" signs, all without
rebate of rent or liability to Lessee.
33. AUCTIONS. Lessee shall not conduct, nor permit to be conducted, either
voluntarily or involuntarily, any auction upon the Premises without first having
obtained Lessor's prior written consent. Notwithstanding anything to the
contrary in this Lease, Lessor shall not be obligated to exercise any standard
of reasonableness in determining whether to grant such consent.
- 11 -
<PAGE> 12
34. SIGNS. See paragraph 57
35. MERGER. The voluntary or other surrender of this Lease by Lessee, or a
mutual cancellation thereof, or a termination by Lessor, shall not work a
merger, and shall, at the option of Lessor, terminate all or any existing
subtenancies or may, at the option of Lessor, operate as an assignment to Lessor
of any or all of such subtenancies.
36. CONSENTS. Except for paragraph 33 hereof, wherever in this Lease the
consent of one party is required to an act of the other party such consent shall
not be unreasonably withheld.
37. GUARANTOR. In the event that here is a guarantor of this Lease, said
guarantor shall have the same obligations as Lessee under this Lease.
38. QUIET POSSESSION. Upon Lessee paying the rent for the Premises and
observing and performing all of the covenants, conditions and provision on
Lessee's part to be observed and performed hereunder, Lessee shall have quiet
possession of the Premises for the entire term hereof subject to all of the
provisions of this Lease. The individuals executing this Lease on behalf of
Lessor and that such execution is binding upon all parties holding an ownership
interest in the Premises.
39. Not Used.
40. MULTIPLE TENANT BUILDING. In the event that the Premises are part of a
larger building or group of buildings then Lessee agrees that it will abide by,
keep and observe all reasonable rules and regulations which Lessor may make from
time to time for the management, safety, care, and cleanliness of the building
and grounds, the parking of vehicles and the preservation of good order therein
as well as for the convenience of other occupants and tenants of the building.
The violations of any such rules and regulations shall be deemed a material
breach of this Lease by Lessee.
41. SECURITY MEASURES. Lessee hereby acknowledge that the rental payable to
Lessor hereunder does not include the cost of guard service or other security
measures, and that Lessor shall have no obligation whatsoever to provide same.
Lessee assumes all responsibility for the protection of Lessee, its agents and
invitees from acts of third parties.
42. EASEMENTS. Deliberately Omitted
43. PERFORMANCE UNDER PROTEST. If at any time a dispute shall arise as to any
amount or sum of money to be paid by one party to the other under the provisions
hereof, the party against whom the obligation to pay the money is asserted shall
have the right to make payment "under protest" and such payment shall not be
regarded as a voluntary payment, and there shall survive the right on the part
of said party to institute suit for recovery of such sum. If it shall be
adjudged that there was no legal obligation on the part of said party to pay
such sum or any part thereof, said party shall be entitled to recover such sum
or so much thereof as it was not legally required to pay under the provisions of
this Lease.
44. AUTHORITY. If Lessee is a corporation, trust, or general or limited
partnership, each individual executing this Lease on behalf of such entity
represents and warrants that he or she is duly authorized to execute and deliver
this Lease on behalf of said entity. If Lessee is a corporation, trust or
partnership, Lessee shall, within thirty (30 ) days after execution of this
Lease, deliver to Lessor evidence of such authority satisfactory to Lessor.
45. CONFLICT. Any conflict between the printed provisions of this Lease and the
typewritten or handwritten provisions shall be controlled by the typewritten or
handwritten provisions.
46. INSURING PARTY. The insuring party under this Lease shall be the Lessee.
- 12 -
<PAGE> 13
47. ADDENDUM. Attached hereto is an addendum or addenda containing paragraphs
48 through 59 which constitutes a part of this Lease and where applicable
supersede the printed provisions and shall take precedence.
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND
PROVISION CONTAINED HEREIN AND BY EXECUTION OF THIS LEASE, SHOW THEIR INFORMED
AND VOLUNTARY CONSENT THERETO THE PARTIES HEREBY AGREE THAT, AT THE TIME THIS
LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE AND
EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE
PREMISES.
IF THIS LEASE HAS BEEN FILED IN IT HAS BEEN PREPARED FOR SUBMISSION TO YOUR
ATTORNEY FOR HIS APPROVAL, NO REPRESENTATION OR RECOMMENDATION IS MADE BY
THE AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION OR BY THE REAL ESTATE
BROKER OR ITS AGENTS OR EMPLOYEES AS TO THE LEGAL SUFFICIENCY, LEGAL
EFFECT, OR TAX CONSEQUENCES OF THIS LEASE OR THE TRANSACTION RELATING
THERETO; THE PARTIES SHALL RELY SOLELY UPON THE ADVICE OF THEIR OWN LEGAL
COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF THIS LEASE.
THE PARTIES HERETO HAVE EXECUTED THIS LEASE AT THE PLACE ON THE DATES SPECIFIED
IMMEDIATELY ADJACENT TO THEIR RESPECTIVE SIGNATURES.
Executed at L.A., CA KCB Development, a California
general partnership
on 10/11/88 By: /s/ Garell
-----------------------------
Address: _______________________ By: _____________________________
"LESSOR" (Corporate Seal)
Executed at L.A., CA SCP Corporation, a California
Corporation
on 10/11/88 By: /s/ L.R. Knipple
------------------------------
Address: _________________________ By: ______________________________
"LESSEE" (Corporate Seal)
-13-
<PAGE> 14
ADDENDUM TO STANDARD INDUSTRIAL LEASE-NET
This is an Addendum to that certain Standard Industrial Lease-Net dated
August 1, 1988 (the "Lease"), by and between KGB Development, a California
general partnership as "Lessor" and SCP Corporation a California corporation as
"Lessee. The paragraphs below are a continuation of those in the printed form.
48. Term Commencement. The lease under which Lessee has previously
occupied the Premises shall automatically terminate concurrently with the
acquisition of fee title to the Premises by the Lessor herein and the
commencement of this present Lease is conditional upon such acquisition of such
fee title. If such fee title has not been acquired by October 30, 1988, this
Lease shall be of no force and effect. If such acquisition of fee title be other
than on the first day of a calendar month, then for purposes of all provisions
hereof dating from the commencement of the term, such first day shall be deemed
the commencement date (although rent and other obligations shall be
appropriately prorated) if such acquisition be prior to the 16th of the month;
and shall be deemed to be the first day of the next following calendar month if
such acquisition be on or after the 16th day of the month. In such latter event,
Lessee's occupancy of the Premises from the date of the acquisition of such fee
title by Lessor until such first day of such next calendar month shall be
pursuant to the provisions of this Lease and Lessee shall pay rent therefor at
the original rental rate under the Lease, prorated for the portion of the month
involved. In all events, the rent for any partial month commencing on such
acquisition of fee title by Lessor shall be payable immediately following such
Lessor's acquisition of such fee title. As provided in Paragraph 3.1 the initial
term ("Initial Term") of this Lease is 10 years (subject to an additional period
in the event that the Expansion Space as hereinafter defined is not completed by
the expiration of the first year but construction thereof is later commenced
within the first three years) and by reason of the provisions of this Paragraph
48, such 10 year period shall commence on the first day of the calendar month of
such acquisition of fee title or on the first day of the first calendar month
following such acquisition of fee title, as the case may be. By way of example
only, if such fee title is acquired on October 22, 1988, the 10 year Initial
Term shall commence on November 1, 1988 and rent for the portion of
<PAGE> 15
October, 1988 governed by this Lease shall be $11,830.65 consisting of 9/31sts
of the original monthly rent. Upon acquisition of such fee title by Lessor, this
Lease shall be delivered and the following blanks completed:
1. Date fee title acquired: Oct. 12, 1988.
2. First day of the month the term commencement for time expiration
purposes: First day of October, 1988.
49. Initial Term Length. As noted above, the Initial Term of this Lease
shall be for 10 years; provided, however, that if the Expansion Space provided
under Paragraph 51 hereof is not completed in time for the first incremental
rent attributable thereto to be paid by the 13th month of this Lease and the
Expansion Space is later completed pursuant to said Paragraph, then the Initial
Term of this Lease shall be extended so as to expire after there shall have been
120 months (10 years) of increased rent attributable to such Expansion Space. As
provided in said Paragraph 51, construction of such Expansion Space must
commence no later than the third anniversary of the commencement of the term of
this Lease and if not by then so commenced, there shall be no Expansion Space,
no resulting extension of the term of this Lease for failure to have said
incremental rent by the 13th month, and the Initial Term shall therefore be 10
years only.
50. Extension Options. Lessee may extend the term of this Lease for
five additional years ("First Extension Term") after the Initial Term by giving
an extension notice to Lessor not later than nine months prior to expiration of
the Initial Term; and may thereafter (if the First Extension Term option shall
have been exercised) extend the term of this Lease an additional five years
("Second Extension Term") by giving written notice to Lessor no later than nine
months before expiration of the First Extension Term. A condition of the
exercise of each Extension Option is that there then be no uncured default by
Lessee.
51. Expansion Space. Lessee has heretofore delivered to Lessor
schematic plans for proposed expansion space ("Expansion Space") to be added to
the building comprising a part of the Premises and such
- 2 -
<PAGE> 16
schematic plans are identified as being those of Architect Oldham & Erickson
dated April 22, 1988. In the event that Lessee wishes to proceed with the
construction contemplated by such schematic plans, Lessee shall proceed to have
preliminary plans prepared and thereafter shall proceed to have final plans
prepared. In each case, the plans shall be subject to the reasonable review and
approval of Lessor and in this process the Lessor shall respond promptly so that
the entire review process of each set of plans may be completed within 30 days
after the submission to the Lessor including the taking into account of such
comments as Lessor may have, and the drafting of corrective revisions. If after
obtaining approval of the final set of plans, Lessee still wishes to proceed,
Lessee shall cause the Expansion Space to be constructed in accordance with such
finally approved plans with due diligence (but subject to events of force
majeure) and upon completion of such construction and when it is legally
permissible to occupy the Expansion Space; Lessee shall do so, and with the next
following calendar month, the monthly rent hereunder shall be increased to
reflect the addition of such Expansion Space to the Premises and at the same
time Lessor shall reimburse Lessee for the Cost of Construction (as herein
defined) of such Expansion Space, all in accordance with the following terms and
provisions applicable thereto:
(i) When the Expansion Space is occupied there must be a temporary
certificate of occupancy or other comparable approval from the City of
Santa Fe Springs (if the permanent certificate of occupancy has not
been obtained, Lessee shall nevertheless occupy but shall diligently
pursue and obtain such final certificate of occupancy as expeditiously
as possible).
(ii) Unless the net worth of Lessee's parent corporation shall then be
at least $30,000,000, upon the commencement of construction of the
Expansion Space, the Lessee shall provide (or cause its contractor to
so provide) to the Lessor a completion and payment bond with respect to
the work being undertaken in form and substance reasonably acceptable
to Lessor.
- 3 -
<PAGE> 17
(iii) Upon the completion of the work and prior to receipt of payment
therefor from Lessor, Lessee shall provide to Lessor (a) an endorsement
to Lessor's title policy (or equivalent protection under a new policy)
insuring that there are no mechanics liens applicable to the Premises
arising from the construction of the Expansion Space; and (b) a
certificate from the Architect that the work has been done in
accordance with the approved plans and specifications and all
applicable governmental requirements.
(iv) Upon the completion of the Expansion Space Lessee shall cause the
architect to prepare a so-called "as built" set of plans and shall
deliver a true copy thereof to Lessor.
(v) Lessee shall cause accurate records of the cost of the Expansion
Space to be kept and upon completion shall give a full and complete
breakdown thereof to Lessor. Such Construction Costs shall consist of
all costs of actual construction, all costs of the professionals
involved, all expenses of construction casualty and liability insurance
and other so-called "soft" costs; all governmental fees, costs of
interest incurred during construction and prior to reimbursement by
Lessor (with the same to be based upon the actual cost of money to
Lessee's parent corporation) and the remodeling costs of certain office
space areas in the existing Premises which are being transferred into
the Expansion Space. Construction Costs will not include any
developer's fee or the cost of any time for the personnel of Lessee or
its parent corporation in connection with the project other than the
time of a Project Supervisor to be charged at $50 per hour for an
aggregate not in excess of $25,000.
(vi) Upon construction and installation of the Expansion Space and each
component thereof, the Expansion Space shall be deemed incorporated
into the Premises and shall become and remain the property of Lessor
(subject to Lessee's rights of occupancy and use pursuant to this
Lease). Notwithstanding the automatic application of the foregoing,
Lessee shall execute, acknowledge and deliver to Lessor, concurrently
with the payment provided in (vii) below, such deeds and/or bills of
sale as Lessor deems
- 4 -
<PAGE> 18
necessary or advisable to confirm its ownership of the Expansion Space.
(vii) Concurrently with the commencement of additional rent for the
Expansion Space, Lessor shall pay to Lessee the full Construction Costs
as set forth on said full and complete breakdown thereof, but in no
event more than $2,300,000. The additional monthly rent to be paid with
respect to the Expansion Space shall be 1/12 of the product of 8-1/2%
multiplied by the lesser of (i) $2,000,000 or (ii) the total
Construction Costs for which such payment is made. To the extent that
the Construction Costs to be reimbursed by Lessor exceed $2,000,000,
the additional monthly rent to be paid with respect to the Expansion
Space shall be further increased by 1/12 of the product of the Interest
Rate (as defined below) multiplied by such excess costs, but in no
event more than an excess of $300,000. The Interest Rate as used herein
shall mean one-half of one percent per annum over the actual annual
interest rate payable by Lessor on the permanent loan which it intends
to obtain on the Premises. Lessee agrees to use reasonable efforts to
obtain a reasonable interest rate on such loan and currently
anticipates that such rate will be approximately ten and one-half
percent per annum. Lessor may delay Construction Costs funding (and
such funding shall not be deemed due and payable by Lessor) until
Lessee has complied with items (i) exclusive of the parenthetical
expression, (iii) (iv), (v) and the second sentence of (vi) immediately
above (collectively, the "Funding Conditions"); provided, however, that
if Lessor delays such funding pending meeting of any of the above
conditions, the rental increase attributable to the Expansion Space
shall not go into effect until such funding is made. If such funding
and rental increase is not on the first day of a calendar month, the
rent for such partial month shall be appropriately prorated. Lessee
shall for the preceding three months keep Lessor informed as to the
probable funding date. Lessee shall have satisfied all of the Funding
Conditions and made demand for reimbursement of the Construction Costs
within nine months after issuance of a certificate of occupancy (or its
equivalent) for the Expansion Space; provided, however, that if
- 5 -
<PAGE> 19
Lessee has not satisfied one or more of the Funding Conditions within
such nine months, Lessee shall have an additional three months to
satisfy said Funding Conditions. If Lessee has not made demand for
reimbursement of the Construction Costs and satisfied all of the
Funding Conditions within the time set forth above, Lessor's obligation
to so reimburse Lessee shall terminate and Lessee shall, within 10 days
after written demand, reimburse Lessor for any actual loss suffered by
Lessor because of Lessee's failure to request reimbursement of the
Construction Costs; provided that Lessor may agree in writing, upon
good cause shown, to extend the time period for Lessee to satisfy any
of the unsatisfied Funding Conditions. Lessor agrees to extend such
time period if such Funding Conditions have not been satisfied due to
problems outside of Lessee's control.
(viii) Lessee shall during construction of the Expansion Space carry
customary course of construction casualty and liability coverage and
shall cause Lessor to be named as an additional insured thereunder, and
with respect to any uninsured claims or those within any deductible
limit, Lessee shall indemnify and hold Lessor harmless.
If the funding conditions have been fully and timely satisfied but Lessor does
not pay the Lessee the Construction Costs of the Expansion Space when such
payment is otherwise due and does not cure such default within 30 days after
notice so to do, Lessee shall have the following three remedies, which shall be
exclusive. Such three remedies are as follows (remedy (b) if pursued is
exclusive; remedies (a) and (c) may each be pursued alone or together unless and
until remedy (b) is elected):
(a) Lessee may cease paying rent under this Lease until the rental
obligation that it otherwise would have paid shall equal such
Construction Costs plus interest on the declining balance thereof (just
as if the rent payments not made were being used to amortize an
"interest included" mortgage note) at the interest rate of prime plus
3% per annum with prime being that defined in Paragraph 59(ii) hereof
(but in no event more than the highest
- 6 -
<PAGE> 20
rate then allowed by law). Accordingly, each rental payment not made
shall be deemed to have been made and then at once returned to be used
first to pay such interest theretofore accrued and then to reduce the
unpaid Construction Costs balance.
(b) In the alternative, Lessee may at any time while such default
continues, prematurely exercise its option of purchase under Paragraph
53 hereof (with a closing 30 days after such exercised) even though
such option has not otherwise matured, except that in the event of such
exercise, the purchase price shall be S6,050,000 rather than any price
set by appraisal.
(c) Lessee may bring action to recover the money owed.
If a bona fide dispute exists as to whether the Funding Conditions have been
fully and timely satisfied, Lessee shall not have the right to exercise the
remedies under subparagraphs (a) or (b) above until such dispute has been
resolved.
52. Cost of Living Increases. Rent under the provisions of Paragraph 4
hereof shall be subject to increase (but never reduction) based upon changes in
the Cost of Living as herein defined (subject to the maximum or minimum amounts
herein provided), all in accordance with the provisions set forth below:
(i) The percentage increase in the Cost of Living (as herein defined)
over the previous one year period shall be determined on each
anniversary of the commencement date of the term of this Lease. The
"Effective Annual Rate" for each year shall be the percentage Cost of
Living increase for such year, as determined above; provided, however,
that if such percentage Cost of Living increase for any year is less
than 3-1/2%, the Effective Annual Rate shall nevertheless be 3-1/2%,
and if such percentage Cost of Living increase for any year is more
than 7%, then the Effective Annual Rate shall nevertheless be 7% and no
more. On the third anniversary of the Lease commencement date, and
every three years thereafter, rent shall be increased by the sum of the
Effective Annual Rates for the prior three years. These three year
- 7 -
<PAGE> 21
adjustments shall occur at three year intervals without regard to the
timing of any commencement of the First Extension Term or the Second
Extension Term. For example, if the First Extension Term commences
after 13 years (meaning that the Expansion Space has been completed at
the expiration of the first three years) and the option for the Second
Extension Term is also exercised, then such three year reviews shall be
after years 3, 6, 9, 12, 15. 18 and 21.
(ii) It is recognized that the information needed to apply the above
formula may not be available for approximately two months after the
time that it is first needed. In such event, rent shall be paid at the
minimum increased amount until the information is available and there
shall then be a retroactive adjustment between the parties.
(iii) As noted in Paragraph 51, in the event that the Expansion Space
is added there shall be an increase in the monthly rent. The rent
attributable to this Expansion Space shall also be subject to the
aforementioned Cost of Living adjustment at the time of the next
regular annual review, but with respect to this initial review of such
increased rent, the parties recognize that a full year period shall not
have expired at the time of the review, and accordingly there shall be
a separate formula applied to this adjustment of the increased rent
attributable to the Expansion Space. In such special formula the
Effective Annual Rate for the year during which such Expansion Space is
added shall be calculated by determining the percentage increase in the
Cost of Living from the first month for which rent is increased because
of the Expansion Space until the end of such year, and comparing it
with annual minimum and maximum percentages which have been reduced
from 3.5% and 7%, respectively, by multiplying said amounts by a
fraction the numerator of which is the number of months for which
increased rent has been paid on the Expansion Space during the year
just expiring and the denominator of which is 12. For example, if there
have been 6 months of increased rent, 3.5% shall be reduced to 1.75%
and 7% shall be reduced to 3.5%. The initial annual review after
occupancy of the Expansion Space shall be the only review during which
separate calculations
- 8 -
<PAGE> 22
shall be made with respect to the original rent and that for the
Expansion Space.
(iv) The Cost of Living shall be determined by reference to the
Consumer Price Index for All Urban Consumers for the area within which
the Premises are located as promulgated by the Department of Labor of
the United States Government or, if at any time such Index is not
available, by an index jointly and reasonably selected by Lessor and
Lessee which shall reflect changes in the Cost of Living in a manner
comparable to that of the above named Index; and when changing from one
Index to another, appropriate conversion factors shall be used.
53. Purchase Option. If there then be no uncured default by Lessee,
Lessee shall have an option (the "Purchase Option") to purchase the Premises for
fair market value (as herein established) at the time of the expiration of the
Initial Term of the Lease upon the following terms and conditions:
(i) In the event that Lessee is considering exercising the Purchase
Option if the purchase price be acceptable, Lessee must give notice
(the "Notice") to that effect to Lessor on or before one year prior to
the expiration of the Initial Term of this Lease, but not more than 15
months prior to such expiration. Within 5 days after the giving of the
Notice, each of the parties shall designate an appraiser who has within
the preceding three year period had experience appraising industrial
properties in the Santa Fe Springs area, and such appraisers shall each
(within 45 days after the Notice shall have been given) separately
determine the probable fair market value of the Premises as of the end
of the Initial Term and in doing so such value shall be calculated
without reference to (1) the extension options set forth in Paragraph
50 of this Lease or (2) the presence of any hazardous materials, or (3)
the need for any work to correct deferred maintenance, repairs and
replacements. Such two appraisers, without consulting with each other,
shall each submit to both Lessor and Lessee a copy of their appraisal.
If the two appraisals are within 10% of the amount of the higher one,
then
- 9 -
<PAGE> 23
the average of the two shall be the fair market value. If they are not
within such 10%, both appraisers shall be so advised at once and then
such two appraisers shall select a third and the third appraiser shall,
without consulting with either of the first two, determine fair market
value and submit his report to both Lessor and Lessee within 70 days
after the aforementioned Notice. The value selected by the third
appraiser shall be averaged with whichever of the first two appraisals
is closest to that value and if they be equal distance, then the value
of the third appraiser shall be used without any averaging.
(ii) With the applicable fair market value of the property thus
determined, Lessee shall advise Lessor on or before nine months prior
to expiration of the Initial Term as to whether or not Lessee wishes to
exercise Lessee's Purchase Option. If Lessee does not, then Lessee
shall be responsible for the appraisal fees charged by all three
appraisers. If the Purchase Option be exercised, then each party shall
pay the appraiser selected by that party and they shall equally share
the cost of any third appraiser. Each retainer agreement with an
appraiser shall contractually obligate the appraiser to meet the time
schedule provided herein.
(iii) If such Purchase Option be exercised, then the parties shall
promptly enter a purchase and sale escrow at First American Title
Insurance Company which shall be timed to close on the expiration of
the Initial Term. The purchase price shall be paid all cash at the
closing and the Lessor shall deliver the Premises free and clear of any
trust deed mortgages and other encumbrances other than taxes not then
delinquent, and shall provide an owner's policy of title insurance with
exceptions that are not materially different from those affecting the
Premises at the time of its acquisition by Lessor in 1988, except for
those matters, if any, created at the express request of Lessee or
approved in writing by Lessee. As this Lease is a triple net lease
there shall be no need for the prorations at such closing of items
already being paid by Lessee pursuant to the terms of this Lease.
Lessee shall have the right to name a nominee to
- 10 -
<PAGE> 24
accept title in its place and stead. In addition to providing the
aforementioned title policy, Lessor shall pay the expense of any
transfer taxes. Lessor and Lessee shall equally share the escrow
holder's fee. Any other miscellaneous costs of closing shall be borne
in accordance with the practice of the escrow holder. Escrow
instructions shall be upon the customary form of the escrow holder,
modified to conform to the provisions hereof.
(iv) By reason of this Purchase Option and the First Extension Term
option under Paragraph 50 hereof, it is contemplated that if Lessee has
given the Notice above provided under Item (i) above, then on or before
nine months prior to expiration of the Initial Term, Lessee shall do
one of three things, to wit, exercise the Purchase Option under this
Paragraph 53 (in which event the Lease Extension options shall become
moot); exercise the First Lease Extension option; or do neither of the
foregoing, in which event this Lease shall simply terminate upon
expiration of its Initial Term.
(v) Notwithstanding any of the foregoing, if the fair market value
purchase price determined by appraisal as above provided be less than
the total ("Minimum Value") of $6,050,000, plus 4% per annum (not
compounded) on such sum from the date of Lessor's acquisition of the
Premises until the date of the expiration of the Initial Term of the
Lease, plus the Construction Costs paid by Lessor to Lessee in the
event that the Expansion Space has been built, plus 4% per annum on
such Construction Costs (not compounded) from the date Lessor pays
Lessee the Construction Costs until expiration of the Initial Term of
this Lease; then, unless Lessee is prepared to pay as its Purchase
Price such Minimum Value in lieu of that determined by appraisal, the
entire Purchase Option process shall at Lessor's request be delayed by
two years and repeated again. The mechanics for this delay shall be as
follows:
(a) If the fair market value established by appraisals be less than the
Minimum Value, then within 30 days after such establishment (i.e., 30
days after the supporting appraisals have
- 11 -
<PAGE> 25
been delivered to Lessor), Lessor shall give written notice to Lessee
as to whether or not Lessor wishes to delay the Purchase Option process
by two years. If Lessor does not elect such a delay, then the parties
shall proceed without reference to these delay mechanics.
(b) In the event that the Lessor indicates that it does wish a two year
delay, Lessee shall, when the time comes when it normally would have
exercised the Purchase Option (that is, nine months before expiration
of the Initial Term) elect by notice to the Lesser either (i) to forego
the Purchase Option altogether; or (2) exercise the Purchase Option but
with the understanding that the Minimum Value rather than the fair
market value shall prevail as the Purchase Price: or (3) go along with
the two year delay in the Purchase Option process. In such third event
the Lessee shall concurrently be required to exercise the First
Extension Term option under Paragraph 50 hereof, but if such extension
option is exercised under these circumstances and the Lessee ultimately
does not exercise the Purchase Option under the delayed mechanics,
Lessee may elect (by written notice given at least nine months prior to
the second anniversary of the commencement of the First Extension Term)
to terminate the First Extension Term upon expiration of the second
anniversary of its commencement.
(c) If, based on the foregoing, there is to be a two year delay in the
Purchase Option process, then the Lessor shall pay for the full cost of
the appraisers used in the initial appraisal process and the Lessee, if
it is still considering exercising the Purchase Option, shall at the
time of the first anniversary of the commencement of the First
Extension Term so notify the Lessor and the appraisal process shall
begin anew just as if the Initial Term were to expire in another year
at the time of the second anniversary of the commencement of the First
Extension Term (the "Hypothetical Expiration Date"). Accordingly, at
least nine months prior to such Hypothetical Expiration Date, Lessee
shall advise whether or not it is exercising its Purchase Option, in
which case the parties shall proceed accordingly (and the Lessor
- 12 -
<PAGE> 26
may not again delay the process) and the purchase escrow shall then
close on the Hypothetical Expiration Date and the purchase price shall
be based upon the second set of appraisals. If Lessee does not elect to
exercise the Purchase Option, the Lessee shall be responsible for all
costs of the second appraisal process. Further, in such event then (as
provided in Item (b) immediately above) the Lessee may exercise its
right to terminate the First Extension Term at the expiration of the
first two years thereof by giving notice to that effect at least nine
months prior to such expiration.
(vi) In the event that, prior to 21 months before the end of the
Initial Term, there be an assignment of this Lease for which Lessor's
consent be required under Paragraph 12.1, then within 150 days
thereafter Lessor may notify the assignee in writing that Lessor has
elected to accelerate the Purchase Option, in which event such assignee
in its capacity as Lessee must within 180 days after the assignment
give the "Notice" under Paragraph 53(i) above or lose the Purchase
Option forever; and if the Notice be so given, then the probable fair
market value referred to in Paragraph 53(i) shall be established as of
the first anniversary of the assignment (rather than at the end of the
Initial Term) and Lessee's advisement under Paragraph 53(ii) as to
whether it wishes to exercise the Purchase Option or not shall be given
within 30 days prior to such first anniversary and the close of escrow
under Paragraph 53(iii) shall be upon such first anniversary. If Lessor
does so accelerate the Purchase Option, Lessor shall have no "delay"
rights under Paragraph 53(v). If the Purchase Option be so accelerated
and exercised, Lessee's Lease Extension Options shall remain in full
force and effect.
54. Hazardous Waste. Lessee shall not engage in any activities on the
Premises, nor bring into or create in the Premises, any materials the
possession, the doing, use or disposal of which requires a permit from any
federal, state or local agency having jurisdiction over hazardous, toxic, or
infectious materials without (i) giving Lessor at least thirty (30) days prior
written notice of its intention to introduce any such materials into or upon the
Premises, and (ii)
- 13 -
<PAGE> 27
obtaining such a permit and observing all conditions thereof. Lessee shall not
engage in any activity on the Premises that violates any federal; state or local
laws, rules or regulations pertaining to hazardous, toxic or infectious
materials, and shall promptly, at Lessee's expense, take all investigatory
and/or remedial action required or ordered for clean up of any contamination of
the Premises or the elements surrounding same created or caused during the lease
term or caused by Lessee during its prior occupancy of the Premises. Without
limiting the foregoing, and whether or not required by law, if Lessee does not
purchase the Premises (as provided elsewhere in this Lease), Lessee shall with
respect to all matters caused during the lease term or caused by Lessee during
its prior occupancy, at or prior to the expiration of the Lease term (as the
same may have been extended), remove all hazardous, toxic or infectious
materials from the Premises, perform any necessary or advisable clean-up work or
other remedial action, and deliver the Premises to Lessor in a safe, clean and
uncontaminated condition. Lessee shall indemnify and hold Lessor, its agents,
employees, lenders, and the Premises, harmless from and against any and all
costs, loss, claims, liability and expenses, including without limitation,
penalties and attorneys fees and costs, arising out of any matter within the
scope of this Paragraph, including, but not limited to (i) the investigation,
remediation and/or abatement of any contamination to the Premises and/or the
underlying real property created or caused during the lease term or caused by
Lessee during prior occupancy of the Premises, and (ii) claims asserted by third
parties for damages resulting from the presence of any such materials in, on or
about the Premises and/or the underlying real property. The foregoing
indemnification obligations shall be unconditional and absolute, and shall apply
regardless of whether Lessee has complied with all applicable governmental
regulations, and even though Lessee may have acted in good faith in performing
or permitting the acts or events which resulted in the presence of hazardous
materials in, on or about the Premises. However, aside from indemnity with
respect to claims from Lessee's own employees, neither this provision nor any
other provision of this lease (including paragraph 6) shall impose any duty on
Lessee with respect to any matter that was neither (a) caused during the term,
or (b) caused by Lessee during its occupancy prior to the term
- 14 -
<PAGE> 28
commencement. The obligations contained in this Paragraph shall survive the
expiration or earlier termination of this Lease. If the premiums under lessors
umbrella liability policy of not in excess of $5,000,000 is increased by reason
of Lessee utilizing the Premises for any purposes other than those in which
Lessee is engaged as of the date hereof, the Lessee shall on request reimburse
Lessor for the amount of such increased amount each time Lessor pays it.
55. Earthquake Insurance. Earthquake insurance is not called for by
Paragraph 8.3 hereof. Nevertheless, Lessee has obtained an earthquake coverage
policy and submitted a copy thereof to Lessor and Lessor has expressly approved
that coverage which calls for $4,000,000 of coverage with a $250,000 deductible.
Lessee will continue that coverage or comparable coverage throughout the term,
so long as the same can be obtained for an annual premium not in excess of 125%
of that paid with respect to the initial year, provided, however, that once the
Expansion Space is completed the amount so paid in the initial year shall for
this purpose be deemed to be that which would have been paid had the coverage
been increased to include in that year the Construction Costs of the Expansion
Space. In the event that a greater premium is required then Lessee shall be
entitled to curtail coverage by increasing deductibles or providing less
insurance or both so as to keep the total premium obligation within such 125%
limitation. Provided, however, that if such steps result in there being less
than $1,500,000 ($1,500,000 plus 30% of said Expansion Space Construction Costs
after completion of the Expansion Space) of coverage with respect to such
earthquake risk on the Premises at the time of actual earthquake damage, then,
if and to the extent that such insurance provides less than such $1,500,000 (or
$1,500,000 plus said 30%, as the case may be) the shortfall (including any
deductible amount) shall be paid by Lessee as if self-insured to that extent.
Any additional risk of loss from earthquake in excess of $1,500,000 (or
$1,500,000 plus 30%, as the case may be) shall be borne by Lessor and in
addition Lessor shall bear the risk of loss from those other risks not generally
covered by an extended coverage so-called "all risk" policy, such as atomic
fission. The fact that Lessor "bears a risk of loss" does not mean that Lessor
has a duty to repair, but only that Lessee has no such duty either and Lessee
may terminate this Lease as
- 15 -
<PAGE> 29
provided in Paragraph 56(b) below unless Lessor elects to repair as therein
provided. In the event Lessee's parent corporation's net worth becomes less than
$15,000,000 then while such condition continues, the percentage "125%" in all of
the foregoing provisions of this Paragraph shall be read as "250%".
56. Damage or Destruction. In the event of partial or total destruction
of the Premises from fire or other casualty during the term of this Lease then:
(a) If the risk is covered by insurance, the insurance proceeds shall
be made available for rebuilding and the Lessor shall cause any
encumbrance upon the Premises to expressly authorize such use. Such
rebuilding shall be done by Lessee following procedures, mutatis
mutandis, comparable to those set forth in Paragraph 51 with respect to
the building of the Expansion Space, except as the contrary is provided
in this Paragraph 56.
(b) In the event the risk is not covered by insurance (or in the ease
of earthquake, in the event the insurance proceeds plus any
"self-insured" amount for which Lessee is liable under Paragraph 55
hereof, in total are inadequate to rebuild) then Lessee (i) may elect
to cancel this Lease as of the date of such loss by giving notice
within 30 days thereafter or, in the alternative, (ii) may elect, by
giving a notice within the same time period, to rebuild just as in the
ease of an insured loss under Item (a) above, in which event Lessee
shall do such rebuilding with its own funds, or in the ease of
earthquake, with its own funds to the extent that insurance proceeds do
not prove adequate. If Lessee elects to proceed under Item (i) above of
this provision, Lessor may by giving notice within 20 days thereafter
elect to provide funds for repair and establish by evidence
accompanying such notice Lessors ability so to do to Lessee's
reasonable satisfaction, in which event Lessee shall repair as in the
case of an insured loss with Lessor taking the place of the insurance
company (or in the case of earthquake loss, providing funds needed in
excess of S1,500,000).
- 16 -
<PAGE> 30
Notwithstanding any of the foregoing, if the destruction be within the last 12
months of the Initial Term or the then current Extension Term, then, unless
Lessee is prepared to then exercise the next Extension Option (if any there be)
within 30 days after the loss, this Lease shall terminate as of the date of such
loss and Lessor shall be entitled to all insurance proceeds and Lessee need not
rebuild. As used in this paragraph, references to insurance are to policies
required to be carried pursuant to the provisions of this Lease. With the
exception of earthquake insurance, such policies are to be for full replacement
value and, accordingly, in those circumstances where Lessee is obligated to
restore, any shortfall in the insurance proceeds (after all insurance proceeds
have been made available to Lessee) shall be made up by Lessee with its own
funds. Similarly, if the policies have deductible amounts, Lessee shall make up
these amounts. Subject to the requirements of the respective insurance carriers,
it is contemplated that insurance proceeds for rebuilding will be funded
incrementally during the rebuilding process to pay for the costs of construction
as they are incurred. Upon any termination of this Lease pursuant to this
Paragraph, (i) there shall be a proration of the rent and other Lessee
obligations under this Lease as of the date of such termination; and (ii} if the
loss giving rise to the termination was covered by insurance and not due to
earthquake, Lessee shall pay Lessor any deductible amount under the policy; in
the case of earthquake shall pay the amount by which insurance proceeds fail to
provide $1,500,000 due to policy limits, deductible amount or both. Lessor and
Lessee waive any provisions of law relating to termination of leases when leased
property is destroyed and agree that instead the same shall be governed by the
terms of this Lease.
57. Signs. Subject to compliance with all governmental requirements and
the coverage of liability with respect to signs under the liability policies
called for by this Lease, Lessee may keep and maintain all signs on the Premises
as of the date hereof and may remove any signs or place any additional signs on
the Premises as Lessee may reasonably determine. When the term (and any
extensions) expires, Lessor may require that Lessee take or leave sign fixtures
then in place and if removed repair any damage caused by such removal,
- 17 -
<PAGE> 31
but in all events Lessee shall take those signs elements comprising the
lettering.
58. Short Forms. Upon the request of Lessee, there shall be prepared,
executed and recorded at Lessee's expense a short form of this Lease. Upon the
request of Lessee, there shall be prepared, executed and recorded at Lessee's
expense a short form of the Purchase Option set forth in this Lease. Lessee may
elect, at its own cost and expense and if available, to obtain title insurance
with respect to the leasehold estate hereunder or with respect to said Purchase
Option or both Lessor shall reasonably cooperate in Lessee's efforts to obtain
any such coverage.
59. Miscellaneous. These Addendum items qualify specific printed
paragraphs as indicated:
(i) Lessee is already in possession of the Premises and accordingly the
provisions of Paragraphs 6.2(a) and 6.3(a) shall have no application
and have been deleted.
(ii) With respect to the provisions of this Lease in Paragraphs 7.3,
10.1 and 19 calling for payment of interest at the highest rate
permitted by law, such rate shall not exceed the prime rate in effect
from time to time plus three percentage points per annum. Such prime
rate shall be that designated as such (the so-called "reference rate")
from time to time during the term of this Lease by the Security Pacific
National Bank.
(iii) Paragraph 8.3 (a) is supplemented as follows: "Lessee may elect
to carry for the benefit of Lessor rental value insurance (and must so
elect as to any time when its parent corporation's net worth is less
than $15,000,000), in which event rent and other Lessee obligations
shall abate hereunder during the restoration of any destruction if and
to the extent that insurance proceeds pay for such rent or other tenant
obligations. In the event that Lessee elects not to carry such
insurance, then, if this Lease continues without termination, there
shall be no such abatement and such obligations shall continue, even
- 18 -
<PAGE> 32
though Lessee is deprived of the use of the Premises or a portion
thereof during the restoration period. At such time as Lessee's parent
corporation's net worth be at least $15,000,000 and Lessee has not
subleased or assigned, the number 'S1000' appearing in the last line of
8.3(a) shall read '$100,000"
(iv) None of the provisions of Sections 8.6 or 8.7 shall be construed
as relieving Lessor for its own negligent acts or omissions.
(v) Notwithstanding the provisions of Paragraph 10.1 hereof, in the
event that there be an increase in real property taxes attributable to
any transfer of the Premises (including any subsequent increases due to
applying an annual "inflation" factor to the initial increase and such
subsequent increases), then after Lessee pays such increased taxes,
Lessor shall within 30 days after a request so to do, reimburse the
Lessee for the amount thereof in excess of what such taxes would have
been had there been no such transfer(s). This provisions shall only
apply during the Initial Term and not during any Extension Term of the
Lease. In addition, in the event that Lessee shall assign or sublease
the Premises (other than to an affiliate under Paragraph 12.2), this
provision shall not apply to any taxes accruing from and after the date
of such event.
(vi) The first sentence of Paragraph 10.2 is amended by adding, in the
second line thereof, the words, "the current portion of" immediately
preceding the words improvement bond or bonds and by adding, in the
third line thereof, the words ", corporate income, franchise"
immediately after the words Personal income.
(vii) In determining reasonableness of Lessor's approval under
Paragraph 12.1, Lessor may, without limitation, treat as a reasonable
basis for disapproval: (i) any prospective use by an assignee or
sublessee of substances for which a special handling governmental
permit is required or substances the use of which increases fire or
liability insurance rates over those generally applicable to light
industrial use of property; or (ii) the fact
- 19 -
<PAGE> 33
that the net worth of the assignee or sublessee (when added to that of
any guaranteeing parent company and officer(s), but not including that
of any inactive investors that may guarantee) be less than S10,000,000
if such be the case. Any permitted assignment by Lessee shall include
assignment of the Extension Options and Purchase Option under this
Lease, subject however to the provisions of Paragraph 53(vi). If and
when Lessee commences serious negotiations with a prospective sublessee
or assignee of this Lease, Lessee shall notify Lessor in writing
thereof and identify the prospect.
- 20 -
<PAGE> 34
GUARANTEE
(Attached to Lease dated as of August 1, 1988
between KCB Development as Lessor and
SCP Corporation as Lessee
covering premises at 9601 John Street
Santa Fe Springs, California)
The undersigned ("Guarantor") is the parent corporation of Lessee under the
above Lease, and as a material inducement to the Lessor to enter into said
Lease, hereby unconditionally guarantees the full and timely payment of all sums
and performance of all obligations required to be paid or performed by such
subsidiary with the same force and effect as if Guarantor were jointly and
severally liable thereunder as a principal with such subsidiary, and Guarantor
hereby waives any laws with respect to guarantees which could lead to a contrary
result to the fullest extent that the same may be lawfully waived.
Without limiting the foregoing:
1. Guarantor waives the benefit of any statute of limitations
affecting Guarantor's liability under this Guarantee.
2. The provisions of the Lease may be changed by agreement between
Lessor and Lessee at any time, or by course of conduct, without the consent of
or without notice to Guarantor. This Guarantee shall guarantee the performance
of the Lease as changed. Assignment of the Lease (if and to the extent permitted
by the Lease) shall not affect this Guarantee.
3. This Guarantee shall not be affected by Lessor's failure or delay
to enforce any of its rights.
4. If Lessee defaults under the Lease, Lessor can demand performance of
and can proceed immediately against Guarantor or Lessee, or both, and/or Lessor
can enforce against Guarantor or Lessee, or both, any rights that it has under
the Lease, or pursuant to applicable laws. If the Lease terminates and Lessor
has any rights
- 21 -
<PAGE> 35
it can enforce against Lessee after termination, Lessor can enforce those rights
against Guarantor without giving previous notice to Lessee or Guarantor, or
without making any demand on either of them.
5. Guarantor hereby waives the right to require Lessor to (i) proceed
against Lessee; (ii) proceed against or exhaust any security that Lessor holds
from Lessee; (iii) pursue any other remedy in lessor's power. Guarantor waives
any defense by reason of any disability of Lessee, and waives any other defense
based on the termination of Lessee's liability from any cause. Guarantor waives
all presentments, demands for performance, notices of nonperformance, protests,
notices of protests, notices of dishonor, and notices of acceptance of this
Guarantee, and waives all notices of the existence, creation or incurring of new
or additional obligations.
6. If Lessor disposes of its interest in the Lease, "Lessor" as used in
this Guarantee, shall mean Lessor's successors.
7. If Lessor is required to enforce Guarantor's obligations by legal
proceedings, Guarantor shall pay to Lessor all costs incurred, including without
limitation, all attorneys fees and costs as set by the court.
8. Guarantor's obligations under this Guarantee shall be binding on
Guarantor's successors in interest and assigns.
DATED: 10/11/88 KERR GLASS MANUFACTURING CORPORATION
By: /s/ Louis Rambaud
--------------------------------
Title: VP Corp. Development
- 22 -
<PAGE> 36
EXHIBIT A
of a
Standard Industrial Lease
dated August 1, 1988
between KCB Development
and SCP Corporation
PARCEL 1:
Lot 1, and the Southwesterly 161.22 feet of Lot 2, measured at right angles from
the Southwesterly line of said Lot 2 of Tract No. 27623, in the city of Santa Fe
Springs, as shown on a map recorded in Book 706 Pages 55 to 57 inclusive of Maps
in the office of the country recorder of said county.
EXCEPT from said Lot 1, that portion thereof described as follows:
Beginning at a point in the Northwesterly line of said Lot 1, that is distant
thereon North 39" 01' 38" East 267.04 feet from the most Westerly corner of said
lot 1, thence along said Northwesterly line, South 39" 01' 35" West 267.04 feet
to said most Westerly corner; thence along the southwesterly and Southerly lines
of said Lot 1 as follows: South 50" 04' 20" East 378.84 feet and North 84" 28'
38" East 23.85 feet, thence along the Southeasterly line of said lot 1, North
39" 01' 35" East 250.04 feet, thence North 30" 04' 20" West 395.84 feet to said
point of beginning.
ALSO EXCEPT an undivided one-half of all oil, gas and minerals and of all oil,
gas and mineral rights upon and under said land with no right of entry on the
surface of said land for the purpose of extracting oil, gas and minerals thereon
and thereunder, as reserved by Security First National Bank of Los Angeles, in
deed recorded in Book 18259 Page 99, Official Records.
ALSO EXCEPT an undivided 1/4th interest in and to all oil, gas or other
hydrocarbon substances and all minerals of every kind and nature in or under or
produced from below 500 feet from the surface of said land, as reserved by
Justin J. Accarias, et al, in the deed recorded January 8, 1936 in Book 49964
Page 104, Official Records.
All interests to enter in and upon the surface or within 500 feet of the surface
of said land were quitclaimed to the record owners of the surface of said land
by a deed recorded February 16, 1961 as Instrument No. 1895, in Book 01125 Page
70, Official Records.
ALSO EXCEPT an undivided one-fourth interest in all oil, gas or other
hydrocarbon substances and all minerals of every kind and nature, in or under or
produced form below 500 feet from the surface of said land without the right of
surface entry, as reserved in the deed from Ben Weingart, as Trustee for Trust 2
under the will of Stella
<PAGE> 37
Weingart, deceased, et al., recorded February 16, 1961 as Instrument No. 1597 in
Book D1125 Page 74, Official Records.
PARCEL 1A:
A non-exclusive easement for railroad and all incidental purposes, over that
portion of Lot 3 of Tract No. 27623, in the city of Santa Fe Springs, as shown
on a map recorded in Book 706 Pages 55 to 57 inclusive of Maps, in the office of
the county recorder of said county, described as follows:
Beginning at the Southwesterly corner of Lot 3 thence North 39" 01' 35", a
distance of 851.76 feet to the Northwesterly corner of said Lot 3, thence South
78" 01' 51" East along the Northeasterly line of said Lot 3, a distance of
160.36 feet to a non-tangent curve concave Southeasterly and having a radius of
292.65 feet thence Southwesterly along said curve through a central angle of 48"
27' 11" and an arc distance of 247.48 feet to a point of tangency with a line
which is parallel with and distant Southeasterly 44.25 feet, measured at right
angles from the Northwesterly line of said Lot 3 thence South 39" 01' 35" West
along said parallel line to the Northeasterly line of Sorensen Avenue, thence
Northwesterly along last mentioned Northeasterly line to the point of beginning.
EXCEPT the portion of such property within the easement created by the deed
recorded March 4, 1947 in Book 24293, Official Records of said county.
PARCEL 1B:
A non-exclusive easement for railroad spur track and all incidental purposes,
over that portion of Lot 2 of Tract No. 27623l in the city of Santa Fe Spring,
as shown on a map recorded in Book 706 Pages 55 to 57 inclusive of Maps, in the
office of the county recorder of said county, described as follows:
Beginning at the intersection of the Southwesterly line of Sorensen Avenue and a
line which is parallel with and distant Southeasterly 52.25 feet, measure at
right angles from the Northwesterly line of Lot 2, thence south 39" 01' 38" West
along said parallel line to a point in a line parallel with and distant 412.57
feet Northeasterly, measured at right angles from the Southwesterly line of said
Lot 2, thence North 50" 56' 25" West along last mentioned parallel line 35.76
foot to the Southeasterly line of a 16.50 feet wide easement as described in a
deed recorded in Book 24293 Page 246, Official Records of said county, thence
North 39" 01' 35" East along said Southeasterly line to said Southwesterly line
of Sorensen Avenue; thence Southeasterly along said Southwesterly line of
Sorensen Avenue to the point of beginning.
EXCEPT the portion of such property within the easement created by the deed
recorded March 4, 1947 in Book 24293 Page 246, Official Records of said county.
- 2 -
<PAGE> 38
PARCEL 1C:
A non-exclusive right of way to be used only for railroad transportation
facilities and operations and uses incidental thereto, over that portion of Lot
2 of Tract No. 27623, in the city of Santa Fe Springs, as shown on a map
recorded in Book 706 Pages 55 to 57 inclusive of Maps, in the office of the
county recorder of said county, described as follows:
Beginning at a point on the Northwesterly line of Lot 2, distant thereon North
39" 01' 35" East 161.22 feet from the most Westerly corner of said Lot 2, thence
continuing North 39" 01' 35" East along the Northwesterly line of said Lot 2, a
distance of 251.35 feet; thence at right angles south 50" 58' 25" East, a
distance of 52.25 feet to a line parallel with said Northwesterly line; thence
South 39" 01' 35" West along said parallel line; a distance of 251.35 feet to a
line which is parallel with and distant Northeasterly 161.22 feet, measured at
right angles from the Southwesterly line of said Lot 2' thence North 50" 58' 25"
West, a distance of 52.25 feet to the point of beginning.
EXCEPT the portion of such property within the easement created by the deed
recorded March 4, 1947 in Book 24293 Page 246, Official Records of said county.
PARCEL 1D:
An easement to be used for a spur tract serving exclusively the land conveyed in
fee to McMaster-Carr Supply Company, an Illinois Corporation, by deed recorded
September 8, 1966, as Instrument No. 536, over that portion of Lot 2 of Tract
No. 27623, in the city of Santa Fe Springs, as shown on a map recorded in Book
706 pages 55 to 57 inclusive of Maps, in the office of the county recorder of
said county, described as follows:
Beginning at a point on a line which is parallel with and distant Northeasterly
161.22 feet, measured at right angles from the Southwesterly line of said Lot 2,
said point being 52.25 feet Southeasterly of the intersection of said parallel
line with the Northwesterly line of said lot, thence South 50" 90' 25" East, a
distance of 19.75 feet, thence North 39" 01' 35" East, a distance of 25.00 feet;
thence North 30" 04' 21" East, a distance of 126.90 feet to the intersection
with a line which is parallel with said Northwesterly line of Lot 2 and distant
therefrom 82.25 feet, said point of intersection being 180.35 feet distant from
the point of beginning thence South 39" 01' 35" feet distant from the point of
beginning; thence South 39" 01' 35" West along said parallel line to EXCEPT the
portion of such property within the easement created by the deed recorded March
4, 1947 in Book 24293 Page 246, official Records of said county.
PARCEL 2:
All that portion of Lot 2 of Tract no. 27623, in the city of Santa Fe Springs,
as per map recorded in Book 706 Pages 55 to 57 inclusive of Maps, in the office
of the county recorder of said county, lying Southwesterly of a line which is
parallel with and distant Northeasterly 412.57 feet, measured at right angles
from the Southwesterly line of said Lot 2. EXCEPT the Southwesterly 161.22 feet,
measured at right angles of said Lot 2.
- 3 -
<PAGE> 39
ALSO EXCEPT an undivided one-half of all oil, gas and minerals and of all oil,
gas and mineral rights upon and under said land, with no right of entry on the
surface of said land for the purposes of extracting oil, gas and minerals
thereon and thereunder, as reserved by Security-First national Bank of Los
Angeles, in deed recorded in Book 18259 page 99, Official Records.
ALSO EXCEPT an undivided 1/4th interest in and to all oil, gas or other
hydrocarbon substances and all minerals of every kind and nature in or under or
produced from below 500 feet from the surface of said land, as reserved by
Justin J. Accarias, et al., in the deed recorded January 8, 1986 in Book 49964
Page 184, Official Records.
ALSO EXCEPT an undivided one-fourth interest in all oil, gas or other
hydrocarbon substances and all minerals of every kind and nature, in or under or
produced from below 500 feet from the surface of said land without the right of
surface entry, as reserved in the deed form Ben Weingart, as Trustee for Trust
No. 2 under the will of Stella Weingart, deceased, et al., recorded February 16,
1961 as Instrument No. 1597, in Book 01128 Page 874, Official Records.
PARCEL 2A:
An easement over that portion of Lot 3 of Tract No. 27623, in the city of Santa
Fe Springs, as shown on a map recorded in Book 706 Pages 55 to 57 inclusive of
Maps, in the office of the county recorder of said county, described as follows:
Beginning at the Southwesterly corner of Lot 3, thence North 39" 01' 35" East, a
distance of 851.76 feet to the Northwesterly corner of said Lot 3, thence South
78" 01' 51" East along the Northeasterly line of said Lot, a distance of 160.36
feet to a non-tangent curve concave Southeasterly and having a radius of 292.65
feet; thence southwesterly along said curve through a central angle of 48" 27'
11" an arc distance of 247.48 feet to a point of tangency with a line which is
parallel with and distant Southeasterly 44.25 feet; measured at right angles
from the Northwesterly line of said Lot 3; thence South 39" 01' 35" West along
said parallel line to the Northeasterly line of Sorensen Avenue; thence
Northwesterly along last mentioned Northeasterly line to the point of beginning.
EXCEPT from the foregoing Parcel 2 the portion of such property within the
easement created by the deed recorded March 4, 1947 in Book 24293 Page 246 of
Official Records of said county.
PARCEL 2B:
An easement over that portion of Lot 2 of Tract No. 27623, in the city of Santa
Fe springs, as shown on a map recorded in Book 706 Pages 55 to 57 inclusive of
Maps, in the office of the county recorder of said county, described as follows:
- 4 -
<PAGE> 40
Beginning at the intersection of the Southwesterly line of Sorensen Avenue and a
line which is parallel with and distant Southeasterly 52.25 feet, measured at
right angles form the Northwesterly line of Lot 2, thence South 39" 01' 35" West
along said parallel line to a point in a line parallel with and distant 412.57
feet Northeasterly, measured at right angles from the Southwesterly line of said
Lot 2; thence North 50" 58' 25" West along last mentioned parallel line 35.78
feet to the southeasterly line of a 16.50 fee wide easement as described in a
deed recorded in Book 24293 Page 246, Official Records of said county; thence
North 39" 01' 35" East along said Southeasterly line to said Southwesterly line
of Sorensen Avenue; thence southeasterly along said Southwesterly line of
Sorensen Avenue to the point of beginning.
- 5 -
<PAGE> 1
EXHIBIT 10.31
RECEIVABLES PURCHASE AGREEMENT
Between
KERR GROUP, INC.
as the Seller
and
PNC BANK, NATIONAL ASSOCIATION
as the Purchaser
dated as of January 19, 1995
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
LIST OF EXHIBITS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . vi
LIST OF SCHEDULES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . vi
ARTICLE I DEFINITIONS AND CONVENTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2. Certain Definitional Conventions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
1.3. Gender and Number . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
ARTICLE II SALE AND PURCHASE OF RECEIVABLES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
2.1. Commitment to Purchase Eligible Receivables . . . . . . . . . . . . . . . . . . . . . . . . . . 22
2.2. Notice of Proposed Sale or Payment of Current Purchase Price Payments . . . . . . . . . . . . 23
2.3. Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
2.4. Rights Assigned . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
2.5. Consideration for Purchases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
(a) Description of Consideration Paid for Sold Receivables . . . . . . . . . . . . . . . . . . . . 24
(b) Determination of Maximum Current Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . 25
(c) Determination of Adjusted Deferred Purchase Price . . . . . . . . . . . . . . . . . . . . . . . 26
(d) Initial Calculations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
2.6. Allocation of Collections; Semi-Monthly Settlements; and Designated Purchase Date
Settlements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
(a) Initial Allocation Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
(b) Segregation of Collections . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
(c) Payment of Amounts Set Aside . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
(d) Semi-Monthly Settlement Statement and Delivery of Collections . . . . . . . . . . . . . . . . . 29
(e) Designated Purchase Date Settlement Statement and Delivery of Collections . . . . . . . . . . . 30
2.7. Monthly Settlement Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
(a) Monthly Settlement Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
(b) Maintenance of Reserve Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
2.8. Seller Adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
(a) Calculation of Seller Adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
(b) Excessive Seller Adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
(c) Noncomplying Sold Receivable Adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
(d) Dilution Adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
(e) Reconveyance of Certain Sold Receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
</TABLE>
-i-
<PAGE> 3
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
2.9. Limited Recourse . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
2.10. No Assumption of Obligations Relating to Sold Receivables, Related Assets, or any Contract . . 35
2.11. True Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
2.12. Payments and Computations, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
2.13. Negative Pledge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
ARTICLE III CONDITIONS OF PURCHASE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
3.1. Conditions to Initial Purchase . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
3.2. Conditions to Subsequent Purchases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
3.3. Certification as to Representations and Warranties and Closing Condition . . . . . . . . . . 39
ARTICLE IV REPRESENTATIONS AND WARRANTIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
4.1. Organization, Standing, Qualification, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . 40
4.2. Authorization of Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
4.3. Compliance with Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
4.4. Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
4.5. Seller's Chief Executive Office . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
4.6. Enforceability of Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
4.7. Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
4.8. Events of Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
4.9. Tax Returns and Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
4.10. [Unused] . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
4.11. Certain Legal Restrictions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
4.12. Bulk Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
4.13. Regulation G,T,U and X . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
4.14. Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
4.15. No Disclosure Required . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
4.16. Financing Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
4.17. Licenses for Computer Programs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
4.18. Solvency of Seller . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
4.19. Lockbox Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
4.20. Representations and Warranties Regarding Sold Receivables . . . . . . . . . . . . . . . . . . . 44
4.21. Representations and Warranties Regarding Sold Receivables Pool . . . . . . . . . . . . . . . . 47
ARTICLE V FEES, EARNED DISCOUNT, YIELD
PROTECTION AND FUNDING LOSSES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
5.1. Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
(a) Structuring Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
(b) Commitment Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
(c) Administrative Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
</TABLE>
-ii-
<PAGE> 4
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
5.2. Earned Discount, Payments of Earned Discount and Certain Related Payments Pertaining to
Purchaser's Net Investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
(a) Agreement to Pay Earned Discount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
(b) Accrual of Earned Discount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
(c) Earned Discount Upon Occurrence of Termination Event . . . . . . . . . . . . . . . . . . . . . 49
5.3. Yield Protection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
5.4. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
5.5. Earned Discount; Other Amounts Due . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
5.6. Investment Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
ARTICLE VI COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
6.1. Financial Statements and Other Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
(a) Financial Reports; Notice of Material Adverse Change and Termination Events . . . . . . . . . . 51
(b) Notice of Change in Chief Executive Office . . . . . . . . . . . . . . . . . . . . . . . . . . 53
(c) Notice of Changes to Credit and Collection Policies . . . . . . . . . . . . . . . . . . . . . . 53
(d) Notice of Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
(e) Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
6.2. Compliance with Laws, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
6.3. Further Cooperation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
6.4. Inspection Rights; Maintenance of Books and Records . . . . . . . . . . . . . . . . . . . . . . 54
6.5. Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
6.6. [Unused] . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
6.7. Sales, Liens, Etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
6.8. Negative Pledges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
6.9 Enforceability of Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
6.10 Fulfillment of Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
6.11 Statement for and Treatment of the Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
6.12 No Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
6.13. Location of Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
6.14. Lockboxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
6.15. [Unused] . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
6.16. Fiscal Year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
6.17 Incorporation of Certain Covenants; etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
6.18 Use of Software . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
ARTICLE VII SERVICING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
7.1. Designation of Seller as Initial Servicer . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
7.2. Duties of Servicer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
(a) Appointment; Duties in General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
(b) Allocation of Collections; Segregation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
(c) Modification of Receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
</TABLE>
-iii-
<PAGE> 5
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
(d) Documents and Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
(e) Certain Duties to Seller . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
(f) Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
(g) Subcontracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
(h) Certain Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
(i) Allocation of Unspecified Collections . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
7.3. Segregation of Collections . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
7.4. Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
7.5. Servicing Costs and Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
7.6. Termination of Agency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
7.7. Transfer of Servicing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
7.8. Power of Attorney . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
7.9. Servicer Deposit Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
ARTICLE VIII TERMINATION EVENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
8.1. Termination Events . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
(a) Cross Default to Agreements with Seller . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
(b) Bankruptcy and Financial Distress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
(c) Payment Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
(d) Default Under the Receivables Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
(e) Notice of Lien . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
(f) Change of Control . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
(g) Loss of Priority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
(h) Current Default Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
(i) Changes in Credit Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
(j) Violation of Maximum Purchaser's Net Investment . . . . . . . . . . . . . . . . . . . . . . . 67
(k) Delinquency Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
(l) Material Adverse Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
8.2. Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
(a) Optional Liquidation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
(b) Automatic Liquidation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
(c) Additional Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
(d) This Agreement a Financial Accommodation . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
ARTICLE IX SECURITY INTEREST; ACTIONS OF PURCHASER . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
9.1. Grant of Security Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
9.2. Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
9.3. Remedies to Enforce Security Interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
9.4. Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
9.5. Rights of Purchaser. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
ARTICLE X INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
10.1. Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
10.2. Contest of Tax Claim . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
</TABLE>
-iv-
<PAGE> 6
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
10.3. Contribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
ARTICLE XI MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
11.1. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
11.2. Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
11.3. Transfers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
11.4. Amendments, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
11.5. No Implied Waivers; Cumulative Remedies; Writing . . . . . . . . . . . . . . . . . . . . . . . 76
11.6. Costs, Expenses and Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
11.7. Funding by Branch, Subsidiary or Affiliate . . . . . . . . . . . . . . . . . . . . . . . . . . 77
(a) Notional Funding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
(b) Actual Funding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
11.8. Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
11.9. Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
11.10. GOVERNING LAW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
11.11. FORUM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
11.12. Integration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
11.13. Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
11.14. WAIVER BY JURY TRIAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
11.15. Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
11.16. Waiver of Certain Setoff Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
</TABLE>
-v-
<PAGE> 7
LIST OF EXHIBITS
<TABLE>
<S> <C>
Exhibit "A" - Form of Assignment of Tendered Receivables
Exhibit "B" - Form of Notice of Proposed Sale
Exhibit "C" - Form of Lockbox Letter Agreement
Exhibit "D" - Form of Monthly Settlement Statement
Exhibit "E" - Form of Reassignment of Sold Receivables
Exhibit "F" - Form of Opinion of Counsel of Seller
Exhibit "G" - Special Concentration Limits
Exhibit "H" - Form of UCC-1
Exhibit "I" - Form of Servicer Deposit Account Agreement
Exhibit "J" - Form of Amended and Restated Lockbox Service
Agreement
</TABLE>
LIST OF SCHEDULES
<TABLE>
<S> <C>
Schedule 1.1a - Forms of Eligible Contracts
Schedule 4.5 - Identification of Chief Executive Office
Schedule 4.19 - List of Lockbox Banks and Lockbox Information
</TABLE>
-vi-
<PAGE> 8
RECEIVABLES PURCHASE AGREEMENT
This Receivables Purchase Agreement is entered into as of
January 19, 1995, between KERR GROUP, INC. (as more fully defined hereinafter,
the "Seller") and PNC BANK, NATIONAL ASSOCIATION (as more fully defined
hereinafter, the "Purchaser").
WITNESSETH
WHEREAS, Seller has, and expects to have, Eligible Receivables
(as hereinafter defined) which Seller desires to sell; and Seller has requested
Purchaser, and Purchaser has agreed, subject to the terms and conditions
contained in this Agreement (as hereinafter defined), to purchase Tendered
Receivables (as hereinafter defined), from Seller from time to time during the
term of this Agreement.
NOW, THEREFORE, the parties hereto, in consideration of the
premises (each of which is incorporated herein by reference) and mutual
covenants herein set forth of the parties hereto and intending to be legally
bound hereby, agree as follows:
ARTICLE I
DEFINITIONS AND CONVENTIONS
1.1. Definitions.
The following terms have the meanings indicated for purposes
of this Agreement:
"Adjusted Base Rate" means the Base Rate plus twenty-five (25)
basis points (1/4 of 1%) per annum.
"Adjusted Deferred Purchase Price" shall have the meaning
ascribed to it in Section 2.5(c).
"Administrative Fee" means the fee described in Section 5.1(c).
"Adverse Claim" means, with respect to any Sold Receivable,
any Lien of, or claim of ownership interest by, any Person, other than
Purchaser, on such Sold Receivable.
"Affected Party" means each of Purchaser, any assignee or
participant of Purchaser, any corporation controlling Purchaser or any assignee
or participant of Purchaser and any successor to any of the foregoing.
<PAGE> 9
"Affiliate" means, with respect to any Person, any other
Person (i) which owns beneficially, directly or indirectly, 20% or more of the
outstanding shares of such Person, or which is otherwise in control of such
Person, (ii) of which 20% or more of the outstanding voting securities are
owned beneficially, directly or indirectly, by any entity described in clause
(i) above, or (iii) which is otherwise controlled by any entity described in
clause (i) above; provided that for purposes of this definition the terms
"control" and "controlled by" shall have the meanings assigned to them in Rule
405 under the Securities Act of 1933, as amended.
"Affiliated Obligor" in relation to any Obligor means an
Obligor which Servicer knows, or has reason to believe, to be an Affiliate of
such Obligor.
"Agreement" means this Receivables Purchase Agreement, as the
same may from time to time be amended, supplemented or otherwise modified
together with all exhibits and schedules hereto.
"Allocation Minimum" means the greater of (i) 20%, or (ii) the
Minimum Deferred Purchase Price Percentage.
"Amended and Restated Lockbox Service Agreement" means an
agreement, substantially in the form of Exhibit "J", between Seller and
Purchaser.
"Approved Obligor" means any Obligor specified in Exhibit "G",
which Exhibit "G" may be modified by Purchaser in writing at its option from
time to time.
"Assignment" means individually, an Assignment of Tendered
Receivables, substantially in the form of Exhibit "A" attached hereto; and the
term "Assignments" means collectively all such assignments.
"Base Rate" means, on any date, a fluctuating rate of interest
per annum equal to the higher of:
(a) the rate of interest most recently announced
by PNC Bank, National Association, in Pittsburgh,
Pennsylvania, as its "prime rate"; and
(b) the Federal Funds Rate (as defined below)
most recently determined by PNC Bank, National Association
plus fifty (50) basis points (1/2 of 1%) per annum.
-2-
<PAGE> 10
The Base Rate is not necessarily intended to be the lowest rate of interest
determined by PNC Bank, National Association, in connection with extensions of
credit.
"Books and Records" means all books and records (including but
not limited to credit files, billing tapes, whether processed or unprocessed,
data, computer programs, printouts, and other computer materials and records)
of the Seller evidencing or otherwise relating to the Pool Receivables, the
Related Security and Collections.
"Business Day" means a day on which commercial banks in Los
Angeles, California or Pittsburgh, Pennsylvania are not authorized or required
to be closed for business.
"Capital Stock" means any and all shares, interests,
participation or other equivalents (however designated) of capital stock of a
corporation.
"Chief Executive Office" means the place where Seller is
located, within the meaning of Section 9-103(c)(2) of the UCC or any analogous
provision of any successor statute or any analogous provision of the UCC in
effect in the jurisdiction whose Law governs the perfection of Purchaser's
ownership interest in any Sold Receivables.
"Collections" means, with respect to any Receivable, all funds
which either (a) are received by Seller or Servicer from or on behalf of the
related Obligors in payment of any amounts owed (including, without limitation,
purchase prices, finance charges, interest and all other charges) in respect of
such Receivable, or applied to such amounts owed by such Obligors (including,
without limitation, insurance payments that Seller or Servicer applies in the
ordinary course of its business to amounts owed in respect of such Receivable
and net proceeds of sale or other disposition of repossessed goods or other
collateral or property of the Obligor or any other party directly or indirectly
liable for payment of such Receivable and available to be applied thereon), or
(b) are deemed pursuant to Section 2.8 to have been received by Seller or any
other Person as a Collection; provided that, prior to such time as Seller shall
cease to be Servicer, late payment charges, collection fees and extension fees
shall not be deemed to be Collections.
"Commitment Fee" means the fee described in Section 5.1(b).
"Concentration Limit" means, at any time, in relation to the
aggregate Unpaid Balance of Sold Receivables owed by any single Obligor and its
Affiliated Obligors (if any):
-3-
<PAGE> 11
(a) in the case of any Group I Obligor, an amount
equal to the greater of 5% of the Net Pool Balance at such
time or $100,000; and
(b) in the case of any Group II Obligor, an
amount equal to the greater of 2% of the Net Pool Balance at
such time or $50,000;
(c) in the case of an Approved Obligor, any
Special Concentration Limit as listed for such Approved
Obligor in Exhibit "G" attached hereto, as designated by
Purchaser from time to time (i) for Obligors whose long- term
debt securities are rated BBB+ or better by S&P, or Baa1 or
better by Moody's, or (ii) for Obligors rated 4A1, 5A1 or 5A2
by D&B; and
(d) in the case of the United States of America
or any agency thereof, an amount equal to 2% of the Net Pool
Balance at such time.
provided, that, for purposes of any calculation of the percentage of the Net
Pool Balance represented by the Unpaid Balance of Sold Receivables of an
Obligor in the Sold Receivables Pool pursuant to this definition, the full
amount of the newly Tendered Receivables of such Obligor are assumed to be
Eligible Receivables.
"Contract" means a billing statement, a purchase order, an
invoice or other similar written instrument between Seller and any Person
pursuant to or under which such Person shall be obligated to make payments to
Seller with respect to the sale or lease of goods or services from time to
time. A "related" Contract with respect to a Receivable means the Contract
under which such Receivable in the Receivables Pool arose or which is relevant
to the collection or enforcement of such Receivable.
"Credit and Collection Policy" means those credit and
collection policies and practices of Seller relating to the Contracts described
in the materials delivered to Purchaser prior to the Initial Purchase Date, as
may be modified in accordance with Section 6.1(c) and 6.12 without violating
the terms of this Agreement.
"Current Default Ratio" means the ratio (expressed as a
percentage) computed as of a Month End Date by dividing (x) the aggregate
Unpaid Balance of all Pool Receivables that became Defaulted Receivables during
the Monthly Accounting Period ending on such Month End Date, by (y) the
aggregate Unpaid Balance of Pool Receivables on such Month End Date.
-4-
<PAGE> 12
"Current Purchase Price Payment" means the Dollar amount of
each payment requested by Seller in the Notice of Proposed Sale submitted by
Seller to Purchaser with respect to a Purchase Date and paid by Purchaser to
Seller on such Purchase Date with respect to the Unpaid Balance of the Sold
Receivables in the Sold Receivables Pool after giving effect to the assignment,
if any, of any Tendered Receivables sold to Purchaser on such Purchase Date.
"Current Purchase Price Percentage" shall have the meaning
ascribed to it in Section 2.5(b).
"D&B" means Dun and Bradstreet, Inc., its successors and
assigns.
"Dated Terms" means terms of payment under a Contract which
permits payment by the related Obligor within 240 days of the invoice date of
such Contract provided that the Receivable arising from such Contract is
related to goods sold by the Consumer Products Division of Seller.
"Defaulted Receivable" means a Pool Receivable: (a) as to
which any payment, or part thereof, remains unpaid for 90 days from the
original due date for such payment, (b) as to which an Event of Bankruptcy has
occurred and remains continuing with respect to the Obligor thereof, (c) as to
which payments have been extended, or the terms of payment thereof rewritten,
other than as permitted by Section 7.2(c) of the Agreement, or (d) which has
been, or, consistent with the Credit and Collection Policy, would be written
off Seller's books as uncollectible.
"Delinquency Ratio" means the ratio (expressed as a
percentage) computed as of a Month End Date by dividing (x) the aggregate
Unpaid Balance of Pool Receivables that are classified as Delinquent
Receivables during the Monthly Accounting Period ending on such Month End Date
by (y) the aggregate Unpaid Balance of all Pool Receivables on such Month End
Date.
"Delinquent Receivable" means a Pool Receivable that is not a
Defaulted Receivable but as to which any payment, or part thereof, remains
unpaid for sixty (60) days or more from the original due date for such payment.
"Designated Purchase Date" means any Business Day during a
Monthly Accounting Period, which is not a Semi-Monthly Reporting Date, a
Semi-Monthly Settlement Date, a Monthly Reporting Date, a Monthly Settlement
Date or the Business Day following a Semi-Monthly Reporting Date or a Monthly
Reporting Date, and which is designated by Seller on at least two (2) Business
Days prior written notice to Purchaser as a date on
-5-
<PAGE> 13
which Seller desires to sell Eligible Receivables to Purchaser; provided that
Seller may designate no more than four (4) such dates during a Monthly
Accounting Period.
"Designated Purchase Date Settlement Statement" means a
settlement statement as of the close of business on the last Business Day
preceding the Designated Purchase Notice Date in question prepared by Servicer
substantially in the form of part I of Exhibit "D" attached hereto, or in such
other form as may be agreed on among the Seller, Servicer and Purchaser.
"Designated Purchase Notice Date" shall have the meaning
ascribed to it in Section 2.6(e).
"Dilution" means the amount of any reduction or cancellation
of the Unpaid Balance of a Pool Receivable as described in Section 2.8.
"Dilution Adjustment" shall have the meaning ascribed to it in
Section 2.8(d).
"Dollar", "Dollars" and the symbol "$" shall mean the lawful
money of the United States of America.
"Earned Discount" means a fee payable by Seller to Purchaser
in consideration for Purchaser's Net Investment in the Sold Receivables and
which shall accrue as set forth in Section 5.2(b) hereof; provided, however,
that no provision of this Agreement shall require the payment of or permit the
collection of Earned Discount in excess of the maximum permitted by applicable
law; and provided further, that Earned Discount accrued with respect to the
Purchaser's Net Investment shall not be considered paid by any distribution if
at any time such distribution is rescinded or must otherwise be returned for
any reason.
"Eligible Contract" means a Contract which conforms in all
material respects to one of the forms set forth in Schedule 1.1a or otherwise
approved by Purchaser.
"Eligible Obligor" means an Obligor (a) which is a Person
domiciled in the United States of America, or any of its possessions or
territories, and if such Person is not an individual, is also organized under
the laws of the United States of America, a state of the United States of
America, the District of Columbia, or a possession or territory of the United
States of America; or (b) which is a Person organized under the laws of the
Commonwealth of Canada or a province thereof; except any Obligor (i) which is
an Affiliate of Seller or any Subsidiary of Seller, (ii) which is not a
Governmental Person other than the United
-6-
<PAGE> 14
States of America or an agency thereof, or (iii) as to which in the judgment of
Purchaser, there has been a material adverse change in its financial condition,
operations, business or business prospects and as to which Purchaser has, at
least three Business Days prior to the date of determination, given notice to
Seller that such Obligor shall not be considered an Eligible Obligor.
"Eligible Receivable" means, at any time, a Receivable:
(a) which is a Receivable arising out of the sale
of goods or the performance of services by Seller, in the
ordinary course of its business, free and clear of any Lien or
other claim or right of any Person (and, without limiting the
foregoing, not out of a sale on consignment);
(b) as to which the perfection of Purchaser's
ownership interest therein is governed by the laws of a
jurisdiction where the Uniform Commercial Code -- Secured
Transactions is in force, and which constitutes an "account"
as defined in the Uniform Commercial Code as in effect in such
jurisdiction;
(c) the Obligor of which is an Eligible Obligor;
(d) which is not a Defaulted Receivable;
(e) with regard to which the warranty of Seller
in Section 4.20(b) is true and correct;
(f) the sale of such Receivable does not
contravene or conflict with any law;
(g) which is denominated and payable only in
Dollars in the United States;
(h) which arises under an Eligible Contract that
has been duly authorized and that, together with such
Receivable, is in full force and effect and constitutes the
legal, valid and binding obligation of the Obligor of such
Receivable enforceable against such Obligor in accordance with
its terms and is not subject to any dispute, offset,
counterclaim or defense whatsoever relating to the goods or
services covered thereby;
(i) which, together with the Contract related
thereto, does not contravene in any material respect any laws,
rules or regulations applicable thereto (including, without
limitation, laws, rules and
-7-
<PAGE> 15
regulations relating to usury, truth in lending, fair credit
billing, fair credit reporting, equal credit opportunity, fair
debt collection practices and privacy) and with respect to
which no party to the Contract related thereto is in violation
of any such law, rule or regulation in any material respect if
such violation would impair the collectibility of such
Receivable;
(j) which satisfies all applicable requirements
of the Credit and Collection Policy;
(k) which, according to the Contract related
thereto, is due and payable (i) within thirty (30) days from
the invoice date of such Receivable and (ii) in a single
installment and not in multiple installments; provided that,
if the Receivable arises from a sale of goods through the
Seller's prescription packaging line of business, such
Receivable may be due and payable within forty-six (46) days
from the invoice date of such Receivable; and provided further
that, if the Receivable arises from a sale of goods through
the Seller's Consumer Products Division the related Contract
may contain Dated Terms;
(l) the terms of the related Contract have not
been modified or extended except as permitted by Section
7.2(c) of the Agreement;
(m) the Unpaid Balance of which if sold to
Purchaser, together with the Unpaid Balances of all Eligible
Receivables owed by the same Obligor or an Affiliate of such
Obligor which are Sold Receivables would not exceed the
applicable Concentration Limit for such Obligor.
(n) which has been fully earned by performance on
the part of Seller and is not subject to any contingency to be
satisfied by Seller;
(o) the Obligor of which (i) is not the Obligor
on Delinquent Receivables having an aggregate Unpaid Balance
equal to 25% or more of the aggregate Unpaid Balance of
Receivables owed by such Obligor to Seller or (ii) has failed
to pay for more than 90 days from the original due date for
payment Pool Receivables having an aggregate Unpaid Balance
equal to the lesser of (x) $30,000, or (y) 15% or more of the
aggregate Unpaid Balance of Pool Receivables owed by such
Obligor to Seller; and
-8-
<PAGE> 16
(p) which does not cause the Unpaid Balance of
Sold Receivables with Dated Terms to exceed $4,000,000;
provided, however, solely for purposes of determining if a Pool Receivable is
an Eligible Receivable, if the payment of a Pool Receivable is guaranteed by a
Person such Pool Receivable need only fulfill the eligibility requirements set
forth in the definition of an "Eligible Receivable" for either the primary
account party or the guarantor but not both.
"Engagement Letter" means that certain letter dated November
10, 1994 of Purchaser to Seller and agreed to and executed by Seller as of
November 28, 1994.
"ERISA" means the Employee Retirement Income Security Act of
1974, as the same may be amended or supplemented from time to time, and any
successor statute of similar import, and the rules and regulations thereunder,
in each case as in effect from time to time. References to sections of ERISA
shall be construed also to refer to any successor sections.
"Event of Bankruptcy" shall be deemed to have occurred with
respect to a Person if either:
(a) a case or other proceeding shall be commenced,
without the application or consent of such Person, in any
court, seeking the liquidation, reorganization, debt
arrangement, dissolution, winding up, or composition or
readjustment of debts of such Person, the appointment of a
trustee, receiver, custodian, liquidator, assignee,
sequestrator or the like for such Person or all or
substantially all of its assets, or any similar action with
respect to such Person under any law relating to bankruptcy,
insolvency, reorganization, winding up or composition of
adjustment of debts (including without limitation an action
commenced under the Federal Bankruptcy Code), and such case or
proceeding shall continue undismissed, or unstayed and in
effect, for a period of 30 consecutive days; or such Person
shall consent to the commencement of such involuntary case
under the federal bankruptcy laws or other similar laws now or
hereafter in effect; or an order for relief in respect of such
Person shall be entered in an involuntary case under the
federal bankruptcy laws or other similar laws now or hereafter
in effect; or
(b) such Person shall commence a voluntary case or
other proceeding under any applicable bankruptcy,
-9-
<PAGE> 17
insolvency, reorganization, debt arrangement, dissolution or
other similar law now or hereafter in effect (including without
limitation an action commenced under the Federal Bankruptcy
Code), or shall consent to the appointment of or taking
possession by a receiver, liquidator, assignee, trustee,
custodian, sequestrator (or other similar official) for, such
Person or for any substantial part of its property, or shall
make any general assignment for the benefit of creditors, or
shall be adjudicated insolvent, or admit in writing its
inability to, pay its debts generally as they become due, or,
if a corporation or similar entity, its board of directors
shall vote to implement any of the foregoing.
"Exchange Act" means the federal Securities Exchange Act of
1934, as amended from time to time, together with the regulations and rules
promulgated thereunder or pursuant thereto, as amended from time to time.
"Federal Bankruptcy Code" means the bankruptcy code of the
United States of America codified in Title 11 of the United States Code, as
from time to time amended or supplemented.
"Federal Funds Rate" means, for any period, a fluctuating
interest rate per annum equal (for each day during such period) to
(a) the weighted average of the rates on
overnight federal funds transactions with members of the
Federal Reserve System arranged by federal funds brokers, as
published for such day (or, if such day is not a Business Day,
for the next preceding Business Day) by the Federal Reserve
Bank of New York; or
(b) if such rate is not so published for any day
which is a Business Day, the average of the quotations for
such day on such transactions received by Purchaser from three
federal funds brokers of recognized standing selected by
Purchaser.
"Federal Reserve Board" shall mean the Board of Governors of
the United States Federal Reserve System as constituted from time to time.
"Fees" shall mean collectively the Structuring Fee, the
Commitment Fee and the Administrative Fee; and the term "Fee" shall mean any of
the Fees.
-10-
<PAGE> 18
"Final Payout Date" means the date following the Termination
Date which is the earlier of (i) the date on which Purchaser has recovered in
full Purchaser's Net Investment plus accrued and unpaid Earned Discount and all
other amounts payable by Seller under this Agreement (excluding contingent
obligations under indemnities and the like as to which no present payment
exists) shall have been paid in full, or (ii) the date on which the Sold
Receivables have been paid in full or written off in accordance with the Credit
and Collection Policy and all other amounts payable by Seller under this
Agreement (excluding contingent obligations under indemnities and the like as
to which no present payment exists) shall have been paid in full.
"GAAP" means generally accepted accounting principles set
forth in the opinions and pronouncements of the Accounting Principles Board of
the American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as may be recognized by a significant segment
of the accounting profession, which are applicable to the circumstances as of
the date of determination.
"Governmental Person" means any national, federal, state,
local or other government or political subdivision, or any agency, authority,
bureau, central bank, commission, regulatory body, department or
instrumentality of any government or political subdivision, or any court,
tribunal, grand jury or arbitrator, in each case whether foreign or domestic.
"Group I Obligor" means (i) an Obligor (other than the United
States of America or an agency thereof), the long-term debt securities of
which are rated at least BBB- by S&P or Baa3 by Moody's, or (ii) an Obligor
rated 4A1, 4A2, 5A1 or 5A2 by D&B, or (iii) at the sole discretion of
Purchaser, an Obligor with an equivalent rating from another source.
"Group II Obligor" means an Obligor other than a Group I
Obligor.
"Indemnified Losses" shall have the meaning ascribed to it in
Section 10.1.
"Indemnified Party" shall have the meaning ascribed to it in
Section 10.1.
"Indemnity Payments" shall mean any sum due and payable to
Purchaser pursuant to Sections 5.3, 5.4, 10.1, 10.3 and 11.6 hereof.
-11-
<PAGE> 19
"Initial Purchase Date" means the Purchase Date designated in
the first Assignment to be delivered hereunder, after the satisfaction of all
conditions precedent set forth in Article III hereof.
"Internal Revenue Code" shall mean the Internal Revenue Code
of 1986, as amended from time to time and any successor thereto, and the
regulations promulgated and rulings issued thereunder.
"Law" means any law (including common law), constitution,
statute, treaty, regulation, rule, ordinance, order, injunction, writ, decree
or award of any Governmental Person.
"Lien" shall mean any mortgage or deed of trust, pledge,
hypothecation, assignment, deposit arrangement, lien, security interest,
easement or encumbrance, or preference, priority or other security agreement or
preferential arrangement of any kind or nature whatsoever (including, without
limitation, any lease intended as security or any title retention agreement,
any financing lease having substantially the same economic effect as any of the
foregoing, and the filing of, or agreement to give, any financing statement
perfecting a security interest under the UCC or comparable Law of any
jurisdiction).
"Liquidation Period" means the period (i) commencing on the
Termination Date and ending on the Final Payout Date or (ii) commencing on the
date of the occurrence of a Potential Termination Event or a Termination Event
and continuing until the earlier of (A) any cure or waiver of such Potential
Termination Event or Termination Event or (B) the Final Payout Date.
"Lockbox" shall mean a post office box or other mailing
location identified on Schedule 4.19 hereto maintained by a Lockbox Bank
pursuant to the Lockbox Servicing Instructions for the purpose of receiving
payments made by the Obligors for subsequent deposit into a related Lockbox
Account, or such other post office box or mailing location as Purchaser and the
Seller may agree upon from time to time.
"Lockbox Account" shall mean the lockbox account identified on
Schedule 4.19 hereto maintained with a Lockbox Bank pursuant to the Lockbox
Servicing Instructions for the purpose of processing the payments made by the
Obligors or such other account as the Seller and Purchaser may agree upon from
time to time.
"Lockbox Agreement" means an agreement in form and substance
satisfactory to Purchaser between Seller and a Lockbox
-12-
<PAGE> 20
Bank concerning Collections of the Pool Receivables, including the Sold
Receivables.
"Lockbox Bank" shall mean a bank identified on Schedule 4.19
hereto or such other bank as the Seller and Purchaser may agree upon from time
to time.
"Lockbox Letter Agreement" means a letter agreement, in
substantially the form of Exhibit "C", between Seller and any Lockbox Bank
other than Purchaser if Purchaser is a Lockbox Bank.
"Lockbox Servicing Instructions" shall mean the instructions
relating to lockbox services in connection with a Lockbox and the related
Lockbox Account which are in compliance with Section 6.14 hereof and otherwise
in form and substance satisfactory to Purchaser, which have been executed and
delivered by the Seller to a Lockbox Bank.
"Material Adverse Effect" with respect to any event or
circumstance, a material adverse effect on:
(i) the business, assets, financial condition or
operations of Seller;
(ii) the ability of Seller or, if Seller or an
Affiliate of Seller is acting as Servicer, Servicer to perform
its respective obligations under this Agreement or an
Assignment;
(iii) the validity or enforceability of this
Agreement, an Assignment, the Sold Receivables or the related
Contract;
(iv) the collectibility of a substantial portion of
the Sold Receivables Pool; or
(v) the status, existence, perfection, priority or
enforceability of Purchaser's ownership interest in the Sold
Receivables.
"Maximum Current Purchase Price" shall have the meaning
ascribed to it in Section 2.5(b) hereof.
"Maximum Purchaser's Net Investment" means Ten Million Dollars
($10,000,000).
"Minimum Deferred Purchase Price Percentage" means, as of any
date of determination, a number, expressed as a percentage, equal to the
difference determined by subtracting the
-13-
<PAGE> 21
Current Purchase Price Percentage, as of the date of determination, from one
(1.00).
"Month End Date" means the last day of each calendar month
during the term hereof.
"Monthly Accounting Period" means each calendar month during
the term of this Agreement.
"Monthly Reporting Date" with respect to any Monthly
Accounting Period means the fourth (4th) Business Day after the Month End Date
for such Monthly Accounting Period.
"Monthly Settlement Date" means, with respect to any Monthly
Accounting Period, the second (2nd) Business Day following the Monthly
Reporting Date for such Monthly Settlement Period.
"Monthly Settlement Statement" means a settlement statement as
of the close of business on the last Business Day of a Monthly Accounting
Period just completed prepared by Servicer substantially in the form of parts
I, II and III of Exhibit "D" attached hereto, or in such other form as may be
agreed on among the Seller, Servicer and Purchaser and delivered to Purchaser
and Seller on the Monthly Reporting Date for such Monthly Period.
"Moody's" means Moody's Investors Service, Inc., a Delaware
corporation, its successors and assigns.
"Net Charge-Off Ratio" at any time during a Monthly Accounting
Period means the percentage equivalent of a fraction (a) the numerator of which
is the average of the Net Charge-Offs for the three Monthly Accounting Periods
concluding on the Relevant Month End Date and (b) the denominator of which is
the average aggregate Unpaid Balance of all Pool Receivables as of the Month
End Dates for such three Monthly Accounting Periods.
"Net Charge-Offs" for any Monthly Accounting Period means the
excess, if any, of (a) the aggregate Unpaid Balance of Pool Receivables which
during such Monthly Accounting Period have been, or, consistent with the Credit
and Collection Policy, should be, written off Seller's books as uncollectible,
over (b) the aggregate amount, if any, of Collections received by Seller or
Servicer (and not required to be returned to the Obligor or any Person on its
behalf) in respect of Pool Receivables after such Pool Receivables were written
off (or should have been written off as described in clause (a) of this
definition).
-14-
<PAGE> 22
"Net Pool Balance" at any time means an amount equal to the
aggregate Unpaid Balance of the Notional Amount of the Eligible Receivables in
the Sold Receivables Pool at such time.
"Noncomplying Sold Receivables Adjustment" shall have the
meaning ascribed to it in Section 2.8(c).
"Noncomplying Sold Receivables" shall have the meaning
ascribed to it in Section 2.8(c).
"Note Agreement" shall mean and refer to any of those certain
Note Agreements made by Kerr Group, Inc. as of September 15, 1993, with those
Persons executing such Note Agreements as purchasers, and all exhibits and
schedules thereto, in such form as such Note Agreements are in force on the
date hereof, and shall not include any amendments, modifications or supplements
thereto or thereof made after the date of this Agreement, unless such
amendment, modification or supplement is consented to in writing by the
Purchaser.
"Notice of Proposed Sale" means notice substantially in the
form of Exhibit "B" attached to the Agreement.
"Notional Amount" means, with respect to a Pool Receivable,
the original face amount of such Pool Receivable at the time such Pool
Receivable is booked by Seller, less all discounts and allowances to which the
related Obligor would be entitled if such Obligor paid such Pool Receivable on
the most expeditious basis.
"Obligor" means a Person obligated to make payments with
respect to a Contract giving rise to a Pool Receivable, including any guarantor
thereof.
"PBGC" shall mean the Pension Benefit Guaranty Corporation and
any entity succeeding to any or all of its functions under ERISA.
"Person" or "person" means an individual, partnership,
corporation (including a business trust), joint stock company, trust,
unincorporated association, joint venture, government or any agency or
political subdivision thereof or any other entity.
"PNC Note" means that certain promissory note issued by Seller
and payable to the order of Purchaser in the face principal amount of
$10,000,000 dated May 2, 1994 and due and payable on April 30, 1995.
"Pool Receivable" means a Receivable in the Receivables Pool,
including without limitation the Sold Receivables.
-15-
<PAGE> 23
"Potential Termination Event" means any event which, with the
giving of notice or lapse of time, or both, would become a Termination Event.
"Principal Office of Purchaser" means the principal corporate
banking offices of Purchaser as designated by Purchaser to Seller.
"Purchase" shall have the meaning ascribed to it in Section
2.3 hereof.
"Purchase Commitment" shall have the meaning ascribed to it in
Section 2.1.
"Purchase Date" means (i) any Semi-Monthly Settlement Date
during the term of this Agreement on which Seller delivers an executed
Assignment selling, assigning and transferring to Purchaser the Tendered
Receivables described in the Schedule 1 attached to such Assignment, and (ii)
any Designated Purchase Date.
"Purchase Price" shall have the meaning set forth in Section
2.5(a).
"Purchaser" means PNC Bank, National Association and its
successors and assigns.
"Purchaser's Net Investment" means at any time with respect to
the Sold Receivables, an amount equal to (a) the aggregate incremental Current
Purchase Price Payments theretofore paid to Seller against the Maximum Current
Purchase Price for the Sold Receivables Pool pursuant to Section 2.5(a), less
(b) the aggregate amount theretofore received by Purchaser in reduction of such
Purchaser's Net Investment, as applied to the reduction of Purchaser's Net
Investment, each in accordance with Section 2.6, Section 2.7 or Section 2.8, as
applicable.
"Purchase Termination Date" means that day on which a
Termination Event has occurred and is continuing, and
(a) Purchaser declares a Purchase Termination
Date in a notice to Seller in accordance with Section 8.2(a);
or
(b) in accordance with Section 8.2(b) becomes the
Purchase Termination Date automatically.
"Reassignment of Sold Receivable" means the assignment in the
form of Exhibit "E" attached hereto.
-16-
<PAGE> 24
"Receivable" means all accounts, contract rights, chattel
paper, general intangibles and all other rights to payments due and to become
due to Seller pursuant to the terms of a Contract and all other rights, powers
and privileges of Seller arising thereunder or related thereto (including but
not limited to all guarantees, collateral security, surety bonds, rights under
letters of credit, insurance or other direct or indirect security), assertible
against any Person whatever and all rebates, refunds, adjustments and returned,
rejected, or repossessed goods relating thereto and all proceeds of any of the
foregoing.
"Receivables Documents" shall mean this Agreement, the
Assignments, the Amended and Restated Lockbox Service Agreement, the Lockbox
Agreements, the Lockbox Letter Agreements, the Servicer Deposit Account
Agreement, financing statements and any other instruments, certificates or
documents delivered or contemplated to be delivered hereunder or thereunder or
in connection herewith or therewith, as the same may be supplemented or amended
from time to time in accordance herewith or therewith, and "Receivables
Document" shall mean any of the Receivables Documents.
"Receivables Pool" means at any time all then outstanding
Receivables, including any Sold Receivables, which have not been charged off by
Seller or Servicer, as the case may be, as uncollectible, but shall not include
any Receivables owned by any Subsidiary of Seller.
"Regulation D" means Regulation D of the Federal Reserve
Board, or any other regulation of the Federal Reserve Board that prescribes
reserve requirements applicable to nonpersonal time deposits or "Eurocurrency
Liabilities" as presently defined in Regulation D, as in effect from time to
time.
"Regulatory Change" means, relative to any affected party
(a) any change in (or the adoption,
implementation, change in phase-in or commencement of
effectiveness of) any
(i) United States federal or state law
or foreign law applicable to such affected party;
(ii) regulation, interpretation,
directive, requirement or request (whether or not
having the force of law) applicable to such affected
party of (A) any court, government authority charged
with
-17-
<PAGE> 25
the interpretation or administration of any law
referred to in clause (a)(i) of this definition or of
(B) any fiscal, monetary or other authority having
jurisdiction over such affected party; or
(iii) generally accepted accounting
principles or regulatory accounting principles
applicable to such affected party and affecting the
application to such affected party of any law,
regulation, interpretation, directive, requirement or
request referred to in clause (a)(i) or (a)(ii) above
of this definition; or
(b) any change in the application to such
affected party of any existing law, regulation,
interpretation, directive, requirement, request or accounting
principles referred to in clause (a)(i), (a)(ii) or (a)(iii)
above of this definition.
"Related Assets" shall have the meaning ascribed to it Section
2.4 hereof.
"Related Security" means, with respect to any Pool Receivable:
(a) all of Seller's right, title and interest in and to all Contracts that
relate to such Pool Receivable; (b) all of Seller's interest in the merchandise
(including returned merchandise), if any, relating to the sale which gave rise
to such Pool Receivable; (c) all other security interests or liens and property
subject thereto from time to time purporting to secure payment of such Pool
Receivable, whether pursuant to the Contract related to such Pool Receivable or
otherwise; (d) the assignment to Purchaser and any assignee, of all UCC
financing statements covering any collateral securing payment of such Pool
Receivable (but such assignment is made only to the extent of the interest of
Purchaser in the respective Pool Receivable); and (e) all guarantees and other
agreements or arrangements of whatever character from time to time supporting
or securing payment of such Pool Receivable whether pursuant to the Contract
related to such Pool Receivable or otherwise.
"Releases" means documents that are filed with the appropriate
filing offices in the relevant states of the United States for the purpose of
releasing any security interests or ownership interests in the Sold Receivables
that have been filed or perfected through the filing of one or more financing
statements.
"Relevant Month End Date" means the Month End Date for which
the most recent Monthly Settlement Statement has been delivered to Purchaser.
-18-
<PAGE> 26
"Reporting Dates" means collectively the Semi-Monthly
Reporting Dates and the Monthly Reporting Dates; and the term "Reporting Date"
means individually any of the Reporting Dates.
"Reserve Asset Percentage" means the number, expressed as a
percentage and determined as of each Business Day, which is equal to the
difference determined by subtracting a fraction, the numerator of which is
equal to the Purchaser's Net Investment, as of the date of such determination,
and the denominator of which is equal to the Net Pool Balance as of the date of
such determination, from one (1.00).
"Responsible Officer" for Seller shall mean the president, any
vice president, the treasurer, the secretary or any other officer designated by
Seller in writing to Purchaser upon execution of this Agreement.
"S&P" means Standard & Poor's Rating Group, a division of
McGraw-Hill, Inc., its successors and assigns.
"Seller" means Kerr Group Inc., a Delaware corporation, and
its successors and permitted assigns.
"Seller Adjustments" shall have the meaning ascribed to it in
Section 2.8(a).
"Semi-Monthly Period" means (i) a period of days commencing on
the first day of a month and ending on the fifteenth day of such month; and
(ii) a period of days commencing on the sixteenth day of each month and ending
on the Month End Date of such month.
"Semi-Monthly Reporting Date" means (i) with respect to any
Semi-Monthly Period commencing on the first day of a month, the third (3rd)
Business Day of the next Semi-Monthly Period in question, and (ii) with respect
to any Semi-Monthly Period commencing on the sixteenth day of each month, the
fourth (4th) Business Day of the next Semi-Monthly Period in question.
"Semi-Monthly Settlement Date" means, with respect to any
Semi-Monthly Period, the second (2nd) Business Day following the Semi-Monthly
Reporting Date for such Semi-Monthly Period in question.
"Semi-Monthly Settlement Statement" means a settlement
statement as of the close of business on the last Business Day of the
Semi-Monthly Period just completed prepared by Servicer substantially in the
form of parts I and II of Exhibit "D" attached hereto, or in such other form as
may be agreed on among the Seller, Servicer and Purchaser and delivered to
Purchaser and
-19-
<PAGE> 27
Seller on the Semi-Monthly Reporting Date for such Semi-Monthly Period.
"Servicer" means initially Seller, or such other Person that
is appointed by Purchaser in accordance with Section 7.6 of this Agreement, to
act on Purchaser's behalf in the administration, servicing and collection of
the Sold Receivables.
"Servicer Deposit Account" has the meaning set forth in
Section 7.9.
"Servicer Deposit Account Agreement" means that certain
Servicer Deposit Account Agreement, substantially in the form of Exhibit "I",
between Servicer and Purchaser, as the same may from time to time be amended,
supplemented or otherwise modified together with all exhibits and schedules
hereto.
"Servicer's Fee" means, for any day that Seller, or an
Affiliate of Seller, shall no longer be Servicer, an amount specified by
Purchaser not exceeding 110% of Servicer's reasonable cost and expenses of
performing its obligations under the Agreement during the Semi-Monthly Period
on such day.
"Servicer Reports" means collectively, the Semi-Monthly
Settlement Statement and the Monthly Settlement Statement; and the term
"Servicer Report" means individually any of the Servicer Reports.
"Sold Receivable(s)" shall have the meaning ascribed to it in
Section 2.4 hereof.
"Sold Receivables Pool" means at any time all then outstanding
Sold Receivables which have not been charged off by Servicer in conformity with
the Credit and Collection Policy.
"Solvent" shall mean, when used with respect to any Person,
that:
(a) the fair value and present fair saleable value of such
Person's assets is in excess of the total amount of such Person's
stated liabilities including identified contingent liabilities;
(b) the present fair saleable value of such Person's assets
is in excess of the amount that will be required to pay such Person's
probable liability on such Person's debts as they become absolute and
mature;
(c) such Person does not have unreasonably small capital to
carry on the business in which such Person is
-20-
<PAGE> 28
engaged and all businesses in which such Person is about to engage;
and
(d) such Person has not incurred debts beyond such
Person's ability to pay such debts as they mature.
"Special Concentration Limit" means, with respect to an
Approved Obligor, a limit, not to exceed $1,000,000, specified next to the
Approved Obligor's name in Exhibit "G" attached hereto, as designated by the
Purchaser from time to time.
"Structuring Fee" means the fee described in Section 5.1(a).
"Subsidiary" means, of any person at any time, (i) any
corporation or trust of which 50% or more (by number of shares or number of
votes) of the outstanding Capital Stock or shares of beneficial interest
normally entitled to vote for the election of one or more directors or trustees
(regardless of any contingency which does or may suspend or dilute the voting
rights) is at such time owned directly or indirectly by such person or one or
more of such person's Subsidiaries, or any partnership of which such person is
a general partner or of which 50% or more of the partnership interests is at
the time directly or indirectly owned by such person or one or more of such
person's Subsidiaries, and (ii) any corporation, trust, partnership or other
entity which is controlled or capable of being controlled by such person or one
or more of such person's Subsidiaries.
"Tendered Receivables" means the Pool Receivables described in
a Schedule 1 attached to an Assignment executed and delivered by Seller to
Purchaser on a Purchase Date; and the term "Tendered Receivable" means any of
the Tendered Receivables.
"Termination Date" means the earlier of
(a) the Purchase Termination Date; or
(b) the earlier of (i) January 18, 1997 or (ii) such date
established by thirty (30) days written notice of Seller to
Purchaser.
"Termination Event" shall have the meaning set forth in
Section 8.1.
"Uniform Commercial Code" or "UCC" means the Pennsylvania
Uniform Commercial Code and, if applicable, the Uniform Commercial Code in
effect in the state in which the place of business of Seller is located, or, if
Seller has more than one
-21-
<PAGE> 29
place of business, the state in which Seller has its Chief Executive Office.
"Unpaid Balance" of any Receivable means at any time the sum
of the unpaid amount thereof, but excluding all late payment charges,
delinquency charges, and extension or collection fees.
1.2. Certain Definitional Conventions. Any accounting term used in
this Agreement shall have, unless otherwise specifically provided herein, the
meaning customarily given such term in accordance with GAAP, and all financial
computations hereunder shall be computed, unless otherwise specifically
provided herein, in accordance with GAAP consistently applied. That certain
terms or computations are explicitly modified by the phrase "in accordance with
GAAP" shall in no way be construed to limit the foregoing. All other undefined
terms contained in this Agreement shall, unless the context indicates
otherwise, have the meanings provided for by the Uniform Commercial Code as in
effect in the Commonwealth of Pennsylvania to the extent the same are used or
defined therein.
1.3. Gender and Number. Wherever from the context it appears
appropriate, each term stated in either the singular or plural shall include
the singular and the plural, and pronouns stated in the masculine, feminine or
neuter gender shall include the masculine, the feminine and the neuter.
ARTICLE II
SALE AND PURCHASE OF RECEIVABLES
2.1. Commitment to Purchase Eligible Receivables. Subject to the
terms and conditions hereof and relying upon the representations and warranties
set forth herein, the Seller may, at its option, offer to sell to the
Purchaser, and the Purchaser agrees to purchase from the Seller (such agreement
being referred to herein as the "Purchase Commitment"), from time to time on
the Initial Purchase Date and on each Purchase Date thereafter to but not
including the Termination Date, all of Seller's right, title and interest in
and to the Tendered Receivables specified by the Seller in the Notice of
Proposed Sale delivered by the Seller to the Purchaser pursuant to the terms of
Section 2.2 hereof. No Purchase shall be made of a Tendered Receivable, the
payment due date of which would be forty-six (46) days or more after the
Termination Date determined by clause (b) of the definition of the term
"Termination Date". The Purchaser shall have no obligation to purchase any
Tendered Receivable on any Purchase Date to the extent that after giving effect
thereto the
-22-
<PAGE> 30
Purchaser's Net Investment at such time would exceed the Maximum Purchaser's
Net Investment at such time. The Purchaser shall have no obligation to
purchase any Tendered Receivable on any Purchase Date to the extent that such
Tendered Receivable fails to qualify as an Eligible Receivable. The Purchaser
shall have no obligation to purchase Tendered Receivables hereunder on or after
the Termination Date.
2.2. Notice of Proposed Sale or Payment of Current Purchase Price
Payments. Seller shall make each offer to assign Eligible Receivables to
Purchaser and/or each request for the receipt by Seller of a Current Purchase
Price Payment for the Sold Receivables Pool by delivering to the Purchaser and
the Servicer, not less than two (2) Business Days prior to the proposed
Purchase Date, and with respect to the Initial Purchase Date not less than five
(5) days prior to the Initial Purchase Date, a Notice of Proposed Sale in the
form of Exhibit "B" hereto (i) describing the Tendered Receivables that Seller
proposes to sell and the Purchase Date on which Seller proposes that such sale
occur and/or (ii) setting forth the Dollar amount of the Current Purchase Price
Payment with respect to the Sold Receivables Pool requested by Seller. Each
Purchase shall be made at 2:00 p.m. on a Purchase Date, and shall take place at
the office of the Purchaser at Fifth Avenue and Wood Street, Pittsburgh, PA
15265, or such other place as may be mutually agreed upon by Seller and
Purchaser. Any Current Purchase Price Payment which Seller has requested to be
paid by Purchaser on any Purchase Date with respect to the Sold Receivables
Pool shall be in an amount set forth by Seller in the Notice of Proposed Sale
submitted by Seller to Purchaser with respect to such Purchase Date provided
that such amount together with the Purchaser's Net Investment then outstanding
does not exceed either (i) the Maximum Current Purchase Price, or (ii) the
Maximum Purchaser's Net Investment. On each such Purchase Date, Purchaser
shall, upon satisfaction of the applicable conditions set forth in Articles II
and III make available to Seller the applicable Current Purchase Price Payment
in same day funds at the Principal Office of Purchaser by deposit into a demand
deposit account of Seller established with Purchaser.
2.3. Assignment. On each Purchase Date, Seller shall deliver to
Purchaser an Assignment, executed by Seller, dated such Purchase Date,
assigning and transferring to the Purchaser all right, title and interest of
Seller, in and to the Seller's Tendered Receivables and Related Assets offered
for assignment to the Purchaser on such Purchase Date, free and clear of all
Adverse Claims. Each Assignment shall have attached to it a schedule
describing, to the satisfaction of the Purchaser, the Tendered Receivables sold
and assigned on such Purchase Date. Each delivery of an Assignment concerning
Tendered Receivables
-23-
<PAGE> 31
and Related Assets by Purchaser on a Purchase Date is herein called a
"Purchase".
2.4. Rights Assigned. The Seller hereby grants, conveys, sells,
assigns, transfers and sets over to Purchaser the following property, whether
now or hereafter owned, existing or arising:
(a) all of Seller's right, title and interest in, to and
under the Tendered Receivables;
(b) all rights to payments under, but not the obligations
under, (i) the Tendered Receivables, (ii) all related
Contracts with respect to the Tendered Receivables
and (iii) all Related Security with respect to such
Tendered Receivables;
(c) all Books and Records evidencing or otherwise
relating to such Tendered Receivables and the
obligations owing by the Obligors thereunder to
Seller together with a non-exclusive license to use
the same in the administration and collection of the
Tendered Receivables; and
(d) all Collections in respect of, and other proceeds of,
any of the foregoing.
The items listed above in clauses (b), (c) and (d) are herein collectively
called the "Related Assets". Upon the delivery of the applicable Assignment,
the Tendered Receivables and the Related Assets described in clauses (a), (b),
(c) and (d) above are herein sometimes collectively called the "Sold
Receivables"; and the term "Sold Receivable" means any of the Sold Receivables.
2.5. Consideration for Purchases.
(a) Description of Consideration Paid for Sold
Receivables. (i) A Tendered Receivable shall be sold to Purchaser for a gross
contractual purchase price equal to the Notional Amount of such Tendered
Receivable which shall be adjusted for the allocable Earned Discount which
accrues with respect to the Purchaser's Net Investment and which shall be
further adjusted for its allocable share of the Adjusted Deferred Purchase
Price payable to Seller in accordance with Section 2.6(c)(iv); provided, that,
the purchase price for a Tendered Receivable may be paid in two or more
installments with a deferred purchase price portion determined and paid with
respect to the collection performance of the Sold Receivables Pool; and
-24-
<PAGE> 32
provided, further that, the actual sums paid by Purchaser with respect to a
Tendered Receivable shall not exceed such Tendered Receivable's allocable share
of the Purchaser's Net Investment outstanding during the time such Tendered
Receivable is part of the Sold Receivables Pool plus the Collections actually
received with respect to such Tendered Receivables and distributed to Seller
pursuant to Section 2.6(c) hereof.
(ii) At any time of determination, the aggregate
purchase price for the Pool Receivables in the Sold Receivables Pool shall
equal the sum of the incremental Current Purchase Price Payments paid to Seller
plus the Adjusted Deferred Purchase Price paid with respect to such Sold
Receivables Pool in accordance with the procedures contained in Section 2.6(c).
The initial Current Purchase Price Payment or any incremental Current Purchase
Price Payments shall be paid to Seller by Purchaser as set forth in Section
2.2; and the Adjusted Deferred Purchase Price shall be payable solely from the
proceeds of the Collections of the Sold Receivables in the Sold Receivables
Pool allocated to Seller pursuant to Section 2.6(c)(iv) after deduction of any
accrued and unpaid Earned Discount and Servicer's Fees then due and payable by
Seller to Purchaser, or Servicer, hereunder and the recovery by Purchaser from
Collections of Sold Receivables of the Purchaser's Net Investment. Any portion
of the Adjusted Deferred Purchase Price allocated to Seller pursuant to Section
2.6(c)(iv) shall be paid to Seller at the Principal Office of the Purchaser on
the Semi-Monthly Settlement Date following the Servicer's receipt in good and
collected funds of the proceeds of the Collections of such Sold Receivables.
Notwithstanding the foregoing, Purchaser shall have no obligation to make any
Current Purchase Price Payment for the Sold Receivables Pool to Seller on any
Purchase Date if (1) the sum of any such Current Purchase Price Payment plus
the Purchaser's Net Investment then outstanding shall exceed the Maximum
Purchaser's Net Investment or (2) the sum of any such Current Purchase Price
Payment plus the Purchaser's Net Investment then outstanding shall exceed the
Maximum Current Purchase Price.
(b) Determination of Maximum Current Purchase Price. The
"Maximum Current Purchase Price" which may be paid to Seller by Purchaser and
outstanding on any Purchase Date (as represented by the calculation of
Purchaser's Net Investment after giving effect to the payment of any Current
Purchase Price Payment on such date) with respect to the Sold Receivables Pool
shall be in an amount as determined in accordance with the following formula:
-25-
<PAGE> 33
MCPP = NPB x CPPP
where:
MCPP = Maximum Current Purchase Price which may be
outstanding on the applicable Purchase Date.
NPB = The Net Pool Balance on such Purchase Date
after adding to the Sold Receivables Pool the
Notional Amount of the Tendered Receivables
to be assigned to Purchaser on such Purchase
Date.
CPPP = Current Purchase Price Percentage as
determined for such Purchase Date.
where:
"Current Purchase Price Percentage" equals the lesser of (i) 80%, or
(ii) 1.00 - (12 x NCR)
and:
NCR = Net Charge-Off Ratio for Seller as determined
for such Purchase Date.
(c) Determination of Adjusted Deferred Purchase Price.
The "Adjusted Deferred Purchase Price" for the Pool Receivables in the Sold
Receivables Pool shall be the amount distributed to Seller pursuant to Section
2.6(c)(iv).
(d) Initial Calculations. Concurrently with the Initial
Purchase Date, Seller shall furnish to Purchaser an initial Monthly Settlement
Statement (which may contain such changes in the standard form of Monthly
Settlement Statement as may be satisfactory to Purchaser), containing the
required information for the three Monthly Accounting Periods before the
Initial Purchase Date. To the extent that the provisions of Section 2.5
require information pertaining to such Monthly Accounting Periods, the
information set forth in such initial report, prepared in accordance with the
provisions hereof, shall be used. Furthermore, to the extent the provisions of
Section 2.5 require information pertaining to such Monthly Accounting Periods
for the calculation of the Net Charge-Off Ratio, for the purposes of
determining the "Net Charge-Offs" the Seller may decrease by half the amount of
the aggregate Unpaid Balance of Pool Receivables which were written off
Seller's books as uncollectible during the month of December, 1994 as a result
of the revision to the Seller's Credit and Collection Policy during
-26-
<PAGE> 34
December, 1994 concerning the timing of the writing-off of bad debts.
2.6. Allocation of Collections; Semi-Monthly Settlements; and
Designated Purchase Date Settlements.
(a) Initial Allocation Procedures. At the opening of
business on each Business Day (except that solely for the purpose of this
Section 2.6(a) Good Friday and the day immediately preceding or following any
of the following holidays: Thanksgiving, Christmas, New Year's Day or the
Fourth of July, shall not be a Business Day if such day is declared a holiday
for the Chief Executive Office of Seller) during the period from the date
hereof to and including the Final Payout Date, Servicer will, out of all
Collections received from and including the preceding Business Day to and
including the day immediately preceding the Business Day in question (a
"Collection Period") from the Receivables Pool:
(i) determine the portion of such Collections
attributable for any Collection Period to the Sold Receivables;
(ii) out of the portion of such Collections allocated
to the Sold Receivables pursuant to clause (i), set aside and hold in
trust for Purchaser an amount equal to the sum of (1) the accrued and
unpaid Earned Discount in respect of the Purchaser's Net Investment and
(2) the accrued and unpaid Servicer's Fee due to Servicer hereunder (in
each case set forth in items (1) and (2), accrued through such day and
without duplication) to be applied on the next Semi-Monthly Settlement
Date in accordance the provisions of Section 2.6(c);
(iii) set aside and hold in trust for Purchaser, from
the remaining portion of such Collections allocated to Sold
Receivables pursuant to clause (i) of this Section 2.6 but not set
aside and held in trust for Purchaser pursuant to clause (ii) of this
Section 2.6 an amount, which together with the other amounts set aside
during the Semi-Monthly Period in question pursuant to this clause
(iii) of Section 2.6, is not in excess of the Purchaser's Net
Investment to be applied on the next Semi-Monthly Settlement Date in
accordance with the provisions of Section 2.6(c) or on the next
Designated Purchase Date in accordance with Section 2.6(e), as the
case may be; and
(iv) set aside and hold in trust for Seller in
payment of the Adjusted Deferred Purchase Price, the remaining portion
of such Collections allocated to the Sold
-27-
<PAGE> 35
Receivables pursuant to clause (i) above but not set aside and held in
trust for Purchaser pursuant to clause (ii) or (iii) above, to be
applied on the next Semi-Monthly Settlement Date (subject to Sections
2.6(d), 2.7 and 2.8 hereof) in accordance with the provisions of
Section 2.6(c).
(b) Segregation of Collections. Servicer shall set
aside, and hold in trust for the benefit of Purchaser, and for Seller to the
extent of the Adjusted Deferred Purchase Price due to the Seller on the next
Semi-Monthly Settlement Date, all Collections described in clauses (ii), (iii)
and (iv) of Section 2.6(a). On the Business Day of the allocation of all funds
described in clauses (ii), (iii) and (iv) of Section 2.6(a), all such funds
shall be deposited in the Servicer Deposit Account. Any sums described in
clauses (ii) and (iii) of Section 2.6(a) above shall be placed in a separate
sub-account segregated from the sums described in clause (iv) of Section 2.6(a)
above.
(c) Payment of Amounts Set Aside. (i) Servicer shall pay
to Purchaser from the amounts set aside pursuant to Section 2.6(a)(ii)(1)
during a Semi-Monthly Period, which are good and collected funds, the accrued
and unpaid Earned Discount on the Purchaser's Net Investment during such
Semi-Monthly Period on the relevant Semi-Monthly Settlement Date.
(ii) Servicer shall pay to Servicer, if Servicer is
a Person other than Seller or an Affiliate of Seller, from the amounts set
aside pursuant to Section 2.6(a)(ii)(2) during a Semi-Monthly Period, which are
good and collected funds, the accrued and unpaid Servicer's Fees due to
Servicer hereunder for such Semi-Monthly Period on the relevant Semi-Monthly
Settlement Date.
(iii) Subject to Section 2.6(e) hereof, Servicer
shall pay all amounts set-aside pursuant to Section 2.6(a)(iii) (which amounts
have not been previously applied by Purchaser to pay a Current Purchase Price
Payment due on a Designated Purchase Date in accordance with Section 2.6(e)),
which are good and collected funds, to Purchaser in repayment of the Purchaser's
Net Investment on each Semi-Monthly Settlement Date; provided that the Purchaser
may direct the Servicer to apply any such repayments to the payment of any
portion of the Current Purchase Price due from Purchaser to Seller in respect to
the Sold Receivables in this Sold Receivables Pool on such Semi-Monthly
Settlement Date.
(iv) In accordance with Section 2.6(d)(iv), Servicer
shall pay any amounts set aside pursuant to Section 2.6(a)(iv), which are good
and collected funds, to Seller as payment of the Adjusted Deferred Purchase
Price during a Semi-
-28-
<PAGE> 36
Monthly Period on the relevant Semi- Monthly Settlement Date; provided, however,
Purchaser may direct Servicer to pay to Purchaser from the sums otherwise
payable to Seller pursuant to this Section 2.6(c)(iv) the amount of any accrued
and unpaid Seller Adjustments, Fees and Indemnity Payments due to Purchaser from
Seller.
(v) Notwithstanding the foregoing provisions of
this Section 2.6(c), during any Liquidation Period, Servicer shall pay to
Purchaser all amounts set aside pursuant to Section 2.6(a)(ii) and Section
2.6(a)(iii) on the Business Day such amounts represent good and collected funds
until such time as the Purchaser's Net Investment is repaid in full.
(d) Semi-Monthly Settlement Statement and Delivery of
Collections. (i) On each Semi-Monthly Reporting Date for a Semi-Monthly
Period, Servicer shall prepare and forward to Purchaser, and if Seller is not
Servicer to Seller, a Semi-Monthly Settlement Statement, setting forth, and
showing the calculation of, the aggregate Unpaid Balance of the Sold
Receivables Pool as of the close of business on the last Business Day of the
Semi-Monthly Period just completed, the Notional Amount of Sold Receivables
assigned to Purchaser on Designated Purchase Dates occurring since the close of
business on the last Business Day of the Semi-Monthly Period just completed,
the Notional Amount of the Tendered Receivables to be assigned to Purchaser on
the Semi-Monthly Settlement Date for the Semi-Monthly Period just completed,
the Maximum Current Purchase Price for the Sold Receivables Pool taking into
account the addition to the Sold Receivables Pool of the Sold Receivables
assigned to Purchaser on Designated Purchase Dates occurring since the close of
business on the last Business Day of the Semi-Monthly Period just completed and
the Notional Amount of Tendered Receivables to be assigned on such Semi-Monthly
Settlement Date and the other information listed in the Semi-Monthly Settlement
Statement, on the basis of the most recent information available to Servicer.
(ii) Upon delivery of such report, Seller shall
recompute, and Purchaser shall confirm, the Allocation Minimum and Reserve
Asset Percentage on the basis of (1) the aggregate Unpaid Balance of Sold
Receivables Pool shown in such report (including the Notional Amount of the
Tendered Receivables to be presented to the Purchaser for Purchase on the
Semi-Monthly Settlement Date for such Semi-Monthly Period), (2) the information
contained in the most recent Monthly Settlement Statement as to the aggregate
Unpaid Balance of Sold Receivables Pool not constituting Eligible Receivables,
and the amounts and percentages used to determine the Net Charge-Off Ratio, all
as of the most recent Monthly Settlement Statement, and (3) the Purchaser's Net
Investment (adding the amount of the Current
-29-
<PAGE> 37
Purchase Price Payment due to Seller on such Semi-Monthly Settlement Date and
subtracting the sum set aside by Servicer pursuant to Section 2.6(a)(iii), but
not previously applied pursuant to Section 2.6(e) to the payment of a Current
Purchase Price Payment on a Designated Purchase Date occurring during such
Semi-Monthly Period, to reduce the Purchaser's Net Investment on the
Semi-Monthly Settlement Date for the Semi-Monthly Period just completed).
(iii) If, on the basis of such calculation, the
Allocation Minimum would exceed the Reserve Asset Percentage or the Purchaser's
Net Investment would exceed the Maximum Purchaser's Net Investment, then
either, at Seller's election, (1) the Servicer may set-aside funds in an amount
equal to such excess, out of the portion of Collections described in Section
2.6(a)(iv) and pay such amount immediately to Purchaser to reduce the
Purchaer's Net Investment, or (2) Seller may reduce its request for a Current
Purchase Price Payment on such Semi-Monthly Settlement Date such that the
Seller will be in compliance with the limitations imposed by the Reserve Asset
Percentage, the Allocation Minimum and the Maximum Purchaser's Net Investment,
or (3) Seller may execute and deliver an Assignment on such Semi-Monthly
Settlement Date concerning additional Eligible Receivables with sufficient
Notional Amount such that the Seller will be in compliance with the limitations
imposed by the Reserve Asset Percentage and the Allocation Minimum, or (4)
Seller may cause the occurrence of a combination of the events described in
clauses (1), (2) and (3) of this Section 2.6(d)(iii) such that the Seller will
be in compliance with the limitations imposed by the Reserve Asset Percentage,
the Allocation Minimum and the Maximum Purchaser's Net Investment; provided
that the failure of Seller to cause compliance with the limitations imposed by
the Reserve Asset Percentage, the Allocation Minimum and the Maximum
Purchaser's Net Investment shall create immediately a Potential Termination
Event, and with the passage of time a Termination Event, and upon the existence
of such Termination Event, Purchaser may declare a Purchase Termination Date
and pursue its remedies set forth in Section 8.2 hereof.
(iv) Provided that the Seller has complied, or
caused the compliance, with the provisions of this Section 2.6(d) hereof on the
applicable Semi-Monthly Settlement Date, Servicer shall pay to Seller the
amount described in Section 2.6(c)(iv) hereof.
(e) Designated Purchase Date Settlement Statement and
Delivery of Collections. (i) On each day that a Notice of Proposed Sale is
delivered to Purchaser in connection with any Designated Purchase Date (such
day, the "Designated Purchase Notice Date"), Servicer shall prepare and forward
to Purchaser,
-30-
<PAGE> 38
and if Seller is not Servicer to Seller, a Designated Purchase Date Settlement
Statement, setting forth, and showing the calculation of, the aggregate Unpaid
Balance of Sold Receivables Pool as of the close of business on the last
Business Day prior to such Designated Purchase Notice Date, the Notional Amount
of the Tendered Receivables to be assigned to Purchaser on such Designated
Purchase Date, the Current Purchase Price Payment requested by Seller on such
Designated Purchase Date, the Maximum Current Purchase Price for the Sold
Receivables Pool and the other information listed in the Designated Purchase
Date Settlement Statement, on the basis of the most recent information
available to Servicer.
(ii) Upon delivery of such report, Seller shall
recompute, and Purchaser shall confirm, the Allocation Minimum and Reserve
Asset Percentage on the basis of (1) the aggregate Unpaid Balance of Sold
Receivables Pool shown in such report (including the Notional Amount of the
Tendered Receivables to be presented to the Purchaser for Purchase on the
applicable Designated Purchase Date), (2) the information contained in the most
recent Monthly Settlement Statement as to the aggregate Unpaid Balance of Sold
Receivables Pool not constituting Eligible Receivables, and the amounts and
percentages used to determine the Net Charge-Off Ratio, all as of the most
recent Monthly Settlement Statement, and (3) the Purchaser's Net Investment
(adding the amount of the Current Purchase Price Payment due to Seller on such
Designated Purchase Date and subtracting the sum set aside by Servicer pursuant
to Section 2.6(a)(iii), and to be applied to the payment of all or a portion of
such Current Purchase Price Payment payable on such Designated Purchase Date
pursuant to Section 2.6(e)(iv), to reduce the Purchaser's Net Investment).
(iii) If, on the basis of such calculation, the
Allocation Minimum would exceed the Reserve Asset Percentage or the Purchaser's
Net Investment would exceed the Maximum Purchaser's Net Investment, then
either, at Seller's election, (1) the Servicer may set-aside funds in an amount
equal to such excess, out of the portion of Collections described in Section
2.6(a)(iii) or Section 2.6(a)(iv) and pay such amount immediately to Purchaser
to reduce the Purchaser's Net Investment, or (2) Seller may reduce its request
for a Current Purchase Price Payment on such Designated Purchase Date such that
the Seller will be in compliance with the limitations imposed by the Reserve
Asset Percentage, the Allocation Minimum and the Maximum Purchaser's Net
Investment, or (3) Seller may cause the occurrence of a combination of the
events described in clauses (1) and (2) of this Section 2.6(e)(iii) such that
the Seller will be in compliance with the limitations imposed by the Reserve
Asset Percentage, the Allocation Minimum and the Maximum
-31-
<PAGE> 39
Purchaser's Net Investment; provided that the failure of Seller to cause
compliance with the limitations imposed by the Reserve Asset Percentage, the
Allocation Minimum and the Maximum Purchaser's Net Investment shall create
immediately a Potential Termination Event, and with the passage of time a
Termination Event, and upon the existence of such Termination Event, Purchaser
may declare a Purchase Termination Date and pursue its remedies set forth in
Section 8.2 hereof.
(iv) If Purchaser shall so direct, Servicer shall
pay to Seller from amounts set-aside pursuant to Section 2.6(a)(iii), which are
good and collected funds, all or any portion of the Current Purchase Price
Payment, as directed by Purchaser, due from Purchaser to Seller in respect to
the Sold Receivables in the Sold Receivables Pool on such Designated Purchase
Date Settlement Date; and upon withdrawal of such amount from the Servicer
Deposit Account the Purchaser's Net Investment shall be reduced by the sum of
such withdrawal and the Purchaser's Net Investment shall be increased by the
amount of the Current Purchase Price Payment paid to Seller on such Designated
Purchase Date.
2.7. Monthly Settlement Procedures. The parties hereto will take
the following actions with respect to each Monthly Accounting Period:
(a) Monthly Settlement Statement. On the Monthly
Reporting Date for each Monthly Accounting Period, Servicer shall deliver to
the Purchaser, and if Seller is not the Servicer to Seller, a diskette and a
hard copy of the information therein contained containing the Monthly
Settlement Statement for such Monthly Accounting Period.
(b) Maintenance of Reserve Covenants. (i) On the
first (1st) Business Day after such Monthly Reporting Date for each Monthly
Accounting Period, Seller shall recompute, and Purchaser shall confirm, as of
the Relevant Month End Date and based upon the assumptions in the next
sentence, (A) the Reserve Asset Percentage, (B) Allocation Minimum, (C) the
amount of the reduction or increase (if any) in the Purchaser's Net Investment
since the next preceding Month End Date, (D) the excess (if any) of the
Allocation Minimum over the Reserve Asset Percentage, and (E) the excess (if
any) of the Purchaser's Net Investment over the Maximum Purchaser's Net
Investment. Such calculation shall be based upon the assumptions that the
information in the Monthly Settlement Statement is correct.
(ii) If according to the computations made pursuant
to clause (i) above, the Allocation Minimum exceeds the Reserve Asset
Percentage or the Purchaser's Net Investment
-32-
<PAGE> 40
exceeds the Maximum Purchaser's Net Investment, then Purchaser shall
immediately notify Servicer, and on the relevant Monthly Settlement Date,
Servicer shall pay to Purchaser the amount necessary to reduce the sum of the
Purchaser's Net Investment to the Maximum Purchaser's Net Investment or to
increase the Reserve Asset Percentage to the Allocation Minimum. Such payment
shall be made out of amounts set-aside pursuant to Section 2.6(a)(iii) or (iv)
and, to the extent such amounts are insufficient to reduce the sum of the
Purchaser's Net Investment to the Maximum Purchaser's Net Investment or
increase the Reserve Asset Percentage to the Allocation Minimum, then either,
at Seller's election, (1) the Seller may reduce the amount of its request for a
Current Purchase Price Payment on the applicable Semi-Monthly Settlement Date
such that the Seller will be in compliance with the limitations imposed by the
Reserve Asset Percentage, the Allocation Minimum and the Maximum Purchaser's
Net Investment, (2) the Seller may execute and deliver an Assignment on such
Semi-Monthly Settlement Date concerning additional Eligible Receivables with
sufficient Notional Amount such that the Seller will be in compliance with the
limitations imposed by the Reserve Asset Percentage and the Allocation Minimum,
or (3) Seller may cause the occurrence of a combination of the events described
in clauses (1) and (2) of this Section 2.7(b)(ii) such that the Seller will be
in compliance with the limitations imposed by the Reserve Asset Percentage, the
Allocation Minimum and the Maximum Purchaser's Net Investment; provided that
the failure of Seller to cause compliance with the limitations imposed by the
Reserve Asset Percentage, the Allocation Minimum and the Maximum Purchaser's
Net Investment shall create immediately a Potential Termination Event, and with
the passage of time a Termination Event, and upon the existence of such
Termination Event, Purchaser may declare a Purchase Termination Date and pursue
its remedies set forth in Section 8.2 hereof.
2.8. Seller Adjustments.
(a) Calculation of Seller Adjustments. On each Purchase
Date, Purchaser shall reduce the requested Current Purchase Price Payment
payable to Seller on such Purchase Date by an amount (the "Seller Adjustments")
equal to the difference between (i) the sum of (A) the accumulated Dilution
Adjustment (as defined in Section 2.8(d)), if any, for the Semi-Monthly Period
just completed, plus (B) the aggregate Noncomplying Sold Receivables Adjustment
(as defined in Section 2.8(c), if any, for the Semi-Monthly Period just
completed, minus (ii) the aggregate amount of any payments that Servicer shall
have received during such Semi-Monthly Period on account of Collections due
with respect to Noncomplying Sold Receivables that have been included in any
Seller Adjustment previously deducted or paid in accordance with this Section
2.8.
-33-
<PAGE> 41
(b) Excessive Seller Adjustments. If Seller Adjustments
on any Purchase Date exceed the Current Purchase Price Payments payable by
Purchaser to Seller on such Purchase Date, then Seller shall pay to Purchaser
in cash the amount of such excess Seller Adjustments together with the accrued
and unpaid Earned Discount on the Dollar amount of such excess Seller
Adjustments on the next succeeding Business Day. The payment of such excess
Seller Adjustment shall be applied to reduce Purchaser's Net Investment, but in
no event shall such excess Seller Adjustment exceed the Purchaser's Net
Investment then outstanding.
(c) Noncomplying Sold Receivable Adjustment. If, with
respect to any Sold Receivables that Purchaser purchases hereunder, (i) any of
the representations or warranties set forth in Section 4.20 is not true with
respect to any Tendered Receivable added to the Sold Receivables Pool as of its
Purchase Date or, (ii) as a result of any action or inaction of Seller or any
of its Affiliates, on any day any of the representations or warranties as set
forth in Section 4.20 is no longer true with respect to such Sold Receivable,
then, on such day, Seller shall be deemed to have received on such day a
Collection of the applicable Sold Receivable (a "Noncomplying Sold Receivable")
in an amount equal to the Unpaid Balance of such Receivable (herein the sum of
all such amounts for all Noncomplying Receivables on any day being collectively
called the "Noncomplying Sold Receivables Adjustment"), and Seller shall pay
the amount of the Noncomplying Sold Receivables Adjustment to Purchaser in the
manner provided for in this Section 2.8.
(d) Dilution Adjustment. If on any day any Sold
Receivable is (i) reduced as a result of any defective, rejected or returned
services or products, any cash discount not reflected in the concept of the
Notional Amount of such Sold Receivable, or any other adjustment by Seller,
(ii) subject to reduction on account of any offsetting account payable of
Seller to the applicable Obligor or is reduced or canceled as a result of a
set-off in respect of any claim by, or defense or credit of, such Obligor
against Seller or any Affiliate of Seller (whether such claim, defense or
credit arises out of the same or a related or an unrelated transaction), (iii)
reduced on account of the obligation of Seller to pay to such Obligor any
rebate or refund or (iv) reduced as a result of any incorrect billings,
disputed billings, allowances, chargebacks, credits or any other reductions or
cancellations that are unrelated to the ability of such Obligor to pay such
Sold Receivable and are not reflected in the concept of the Notional Amount of
such Sold Receivable or (v) becomes subject to any claim made by any Person
alleging a violation of the related Contract, with respect to any Sold
Receivable, against Seller, Purchaser or any assignee of
-34-
<PAGE> 42
Purchaser (each of the reductions and cancellations described above in clauses
(i) through (v) being herein called a "Dilution Adjustment"), then Seller shall
be deemed to have received on such day a Collection of such Sold Receivable in
the amount of such Dilution Adjustment and Seller shall pay such amount to
Purchaser in the manner provided in this Section 2.8.
(e) Reconveyance of Certain Sold Receivables . Upon the
payment of any Seller Adjustment pursuant to this Section 2.8 where a portion
of such Seller Adjustment relates to either a Noncomplying Sold Receivable
Adjustment or a Dilution Adjustment where the amount of such Dilution
Adjustment relating to any Sold Receivable is equal to the full face amount of
such Sold Receivable, Purchaser shall execute and deliver to Seller a duly
completed Reassignment of Sold Receivable concerning the applicable Sold
Receivables the subject of such Seller Adjustment.
2.9. Limited Recourse. The purchase and sale of the Sold
Receivables under this Agreement shall be without recourse to Seller; provided,
however, that Seller shall be liable to Purchaser for all representations,
warranties, covenants and indemnities made by it pursuant to the terms of this
Agreement, including without limitation the obligation to pay to Purchaser any
accrued and unpaid Earned Discount, Servicer's Fees, Fees, Seller Adjustments
and Indemnity Payments in accordance with the terms of this Agreement;
provided, however, that in no event shall Seller be liable to Purchaser
hereunder for any losses on a Sold Receivable arising from or due to a
credit-related failure to pay by an Obligor (including due to the bankruptcy or
insolvency of such Obligor) where the circumstances of such credit-related
failure arise after the assignment of such Sold Receivable to Purchaser.
2.10. No Assumption of Obligations Relating to Sold Receivables,
Related Assets, or any Contract. Neither Servicer, if Servicer is a Person
other than Seller, nor Purchaser shall have any obligation or liability with
respect to any Sold Receivable, any Related Asset or any other agreement related
to any Sold Receivable, nor shall Servicer, if Servicer is a Person other than
Seller, or Purchaser have any obligation or liability to any Obligor or other
customer or client of Seller (including any obligation to perform any of the
obligations of Seller under any such Sold Receivable, any Related Asset or any
other related agreement). No such obligation or liability is intended to be
assumed by Servicer, if Servicer is a Person other than Seller, or Purchaser and
any such assumption is expressly disclaimed.
2.11. True Sales. Seller and Purchaser intend the transactions
hereunder to constitute true sales of the Sold
-35-
<PAGE> 43
Receivables by Seller to Purchaser providing Purchaser with the full benefits
of ownership of the Sold Receivables.
2.12. Payments and Computations, Etc. All amounts to be paid by
Seller or Servicer to Purchaser hereunder shall be paid in accordance with the
terms hereof no later than 2:00 p.m. (Pittsburgh, Pennsylvania time) on the day
when due in Dollars in immediately available funds to such account as Purchaser
may from time to time specify in writing. Payments received by Purchaser after
such time on any Business Day shall be deemed to have been received on the next
Business Day. In the event that any payment becomes due on a day which is not a
Business Day, then such payment shall be made on the next succeeding Business
Day. Seller shall, to the extent permitted by Law, pay to Purchaser, on demand,
interest on all amounts not paid when due hereunder (whether owing by Seller or
by Servicer) at 1.75% per annum above the Adjusted Base Rate in effect on the
date such payment was due until such payment is made in full; provided, however,
that such interest rate shall not at any time exceed the maximum rate permitted
by applicable Law and the amount of interest payable under this Section 2.12
shall be without duplication of the increased amount of Earned Discount accruing
with respect to the Purchaser's Net Investment on an after the occurrence of a
Termination Event. To the extent that any amount of interest is paid in excess
of the maximum permissible amount, such amount shall be applied to the repayment
of the amount due on which such interest is accruing. All computations of
interest payable under this Section 2.12 shall be made on the basis of a
calendar year of 365/366 days, as the case may be, for the actual number of days
(including the first but excluding the last day) elapsed.
2.13. Negative Pledge. Until the Final Payout Date, Seller
covenants and agrees not to grant to any Person (other than Purchaser) any Lien
on any of the Receivables and Related Assets, whether now existing or hereafter
arising.
ARTICLE III
CONDITIONS OF PURCHASE
3.1. Conditions to Initial Purchase. The obligation of Purchaser
to purchase any Tendered Receivables on the Initial Purchase Date and to make
the initial Current Purchase Price Payment for the Sold Receivables Pool on the
Initial Purchase Date is subject to the condition that (i) on such date no
Termination Event or Potential Termination Event shall have occurred and be
continuing, (ii) no event or circumstance shall have occurred since September
30, 1994 that would have a Material Adverse Effect on or with respect to
Seller, and (iii) there
-36-
<PAGE> 44
shall have been delivered to Purchaser, in form and substance satisfactory to
Purchaser:
(a) A Notice of Proposed Sale duly completed and executed
by an authorized representative of Seller and dated and delivered at least five
(5) days prior to the Initial Purchase Date;
(b) An Assignment duly completed and executed by an
authorized representative of Seller and dated the Initial Purchase Date;
(c) A duly executed, counterpart original of this
Agreement;
(d) A duly executed, counterpart original of the Servicer
Deposit Account Agreement substantially in the form of Exhibit "I" hereto;
(e) A duly executed, counterpart original of each Lockbox
Letter Agreement concerning each Lockbox Bank other than the Purchaser together
with a copy of the related Lockbox Agreement;
(f) A copy of a resolution passed by the Board of
Directors of Seller, certified by the Secretary of Seller as being in full
force and effect on the Initial Purchase Date providing authorization for the
execution, delivery and performance of this Agreement, the Assignments and any
other instrument or agreement required hereunder;
(g) A certificate, signed by the Secretary of Seller and
dated the Initial Purchase Date, as to the incumbency, and containing a
specimen signature or signatures, of the person or persons authorized to
execute and deliver this Agreement, the Assignments and any other instrument or
agreement required hereunder on behalf of Seller;
(h) A certificate signed by a responsible officer of
Seller and dated the Initial Purchase Date, stating that the representations
and warranties contained in Article IV and in any instrument, agreement or
certificate executed and delivered in connection herewith are then true and
accurate in all material respects as though made on and as of the Initial
Purchase Date;
(i) Evidence satisfactory to Purchaser that Seller is
duly organized and validly existing and in good standing under the laws of the
State of Delaware, is duly qualified as a foreign corporation and in good
standing in the State of California and
-37-
<PAGE> 45
the Commonwealth of Pennsylvania, and has paid all California corporate taxes
which are due and payable;
(j) Confirmation of submission for filing in the
appropriate offices of all proper financing statements (which financing
statements shall be substantially in the form of Exhibit "H" hereto or such
other form as may be requested by Purchaser) naming Seller, as the "seller",
with respect to the Sold Receivables, and Purchaser, as "purchaser", or other
similar instruments or documents as may be necessary or, in the opinion of
Purchaser, desirable under the UCC of all appropriate jurisdictions or any
comparable law to perfect Purchaser's interest in the Sold Receivables (taking
into consideration that the sale of accounts and chattel paper is subject to
Article 9 of the UCC);
(k) Executed copies of releases of all financing
statements, in favor of any Person (other than Purchaser) filed with respect to
the Tendered Receivables sold or to be sold to Purchaser hereunder or otherwise
subject hereto;
(l) A certified copy of each search report, certified by
the appropriate filing officer (or a similar certificate of counsel admitted to
practice in the appropriate jurisdiction), listing the financing statements
filed with respect to the Receivables, and showing that no financing statements
or similar statements have been filed with respect to, and then presently
cover, any Receivables (except those filed pursuant to this Agreement in favor
of Purchaser and those (if any) as may be otherwise approved by Purchaser, in
writing);
(m) Original executed copies of one or more favorable
written opinions of counsel to Seller, substantially in the form of Exhibit "F"
hereto, upon which Purchaser may rely satisfactory to Purchaser and its
counsel, dated as of the Initial Purchase Date;
(n) The payment in full of the Structuring Fee;
(o) The payment of the reasonable fees and expenses of
counsel to the Purchaser, including without limitation the cost of any UCC lien
and tax lien searches concerning the Seller;
(p) A payoff letter from Purchaser to Seller, and
acknowledged and accepted in writing by Seller, with respect to the payment in
full of the PNC Note and termination of the related line of credit, together
with irrevocable directions from Seller to Purchaser to pay the PNC Note in
full with the proceeds of the sale of Tendered Receivables on the Initial
Purchase Date;
-38-
<PAGE> 46
(q) A duly executed, counterpart original of the Amended
and Restated Lockbox Service Agreement substantially in the form of Exhibit "J"
hereto; and
(r) Such other evidence as Purchaser may reasonably
request to establish the consummation of the transactions contemplated hereby,
the taking of all proceedings in connection herewith and compliance with the
conditions set forth in this Agreement.
3.2. Conditions to Subsequent Purchases. After the Initial
Purchase Date, the obligation of Purchaser to make any Current Purchase Price
Payment for the Sold Receivables Pool pursuant to Section 2.5 hereof on the
related Purchase Date shall be subject to the satisfaction of the following
conditions:
(a) A Notice of Proposed Sale duly completed and executed
by an authorized representative of Seller and dated and delivered at least two
(2) Business Days prior to the proposed Purchase Date;
(b) An Assignment duly completed and executed by an
authorized representative of Seller and dated the proposed Purchase Date
concerning the Tendered Receivables and Related Assets to be added to the Sold
Receivables Pool on such Purchase Date;
(c) All representations and warranties of Seller
contained herein shall be true and correct in all respects on the related
Purchase Date;
(d) All filings (including, without limitation, UCC
filings), recordings and registrations shall have been made, and there shall
have been taken all action as may be necessary or, to the extent requested by
Purchaser, advisable, in order to establish, perfect, protect and preserve the
right, title and interest, remedies, powers and privileges of Purchaser in the
Sold Receivables and Purchaser shall have received evidence satisfactory to it
of the foregoing on or prior to such Purchase Date; and
(e) No Termination Event or Potential Termination Event
shall have occurred and be continuing on such Purchase Date.
3.3. Certification as to Representations and Warranties and Closing
Condition. (a) Seller, by accepting the initial Current Purchase Price
Payment or any additional Current Purchase Price Payment for the Sold
Receivables Pool, shall be deemed to have certified that (i) its
representations and warranties contained
-39-
<PAGE> 47
in Article IV are true and correct on and as of such day, with the same effect
as though made on and as of such day, (ii) all the conditions precedent to
Purchaser's purchase of such Sold Receivables set forth in Sections 3.1 and
3.2, as applicable, and/or the payment of the Current Purchase Price for the
Sold Receivables Pool, have been performed as of such Purchase Date, (iii) no
event has occurred and is continuing, or would result from such Purchase or the
payment of the Current Purchase Price Payment then due, that constitutes a
Termination Event or Potential Termination Event, (iv) the Unpaid Balance of
the Tendered Receivables sold to Purchaser on such Purchase Date equals or
exceeds the Notional Amount of such Tendered Receivables as shown on the
Schedule 1 of the related Assignment, (v) the master computer files of Seller
have been marked with the code "P" or "Sold" concerning each Tendered
Receivable sold to Purchaser on such Purchase Date which such code designates
such Tendered Receivables as Sold Receivables, and (vi) the Termination Date
has not occurred.
(b) Seller, by accepting any Adjusted Deferred Purchase Price
paid for any Sold Receivable, shall be deemed to have certified that (i) no
event has occurred and is continuing, or would result from such payment, that
constitutes a Termination Event or Potential Termination Event, (ii) the
Purchaser's Net Investment does not exceed the Maximum Purchaser's Net
Investment and the Allocation Minimum does not exceed the Reserve Asset
Percentage, and (iii) a Liquidation Period has not occurred, and is not
continuing.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
To induce Purchaser to purchase any Tendered Receivables and
Related Assets, Seller hereby represents and warrants to Purchaser as follows.
4.1. Organization, Standing, Qualification, etc. Seller is a
corporation duly organized, validly existing and in good standing under the
laws of Delaware and has all requisite corporate power and authority to own and
operate its properties, to carry on its business as now conducted and as
proposed to be conducted, to enter into this Agreement, the Assignments and the
other Receivables Documents, to sell and service any and all Tendered
Receivables and to carry out the terms of this Agreement and the other
Receivables Documents. Seller is duly qualified and in good standing as a
foreign corporation authorized to do business in each jurisdiction (other than
the jurisdiction of its incorporation) in which the nature of its activities or
the
-40-
<PAGE> 48
character of the properties it owns or leases makes such qualification
necessary, except those in which the failure so to qualify would not reasonably
be likely to have a materially adverse effect on Seller.
4.2. Authorization of Agreement. The execution, delivery and
performance of this Agreement, each Assignment and the other Receivables
Documents, and the consummation of the transactions herein and therein
contemplated, including without limitation the sale and assignment of the Sold
Receivables on the terms and conditions herein provided, (i) are within
Seller's power, authority and legal right, (ii) have been duly authorized by
all necessary corporate action, (iii) are not in conflict with (A) the terms of
any articles or certificate of incorporation, charter, bylaw or other
organization papers of Seller, or (B) the terms of any indenture, loan
agreement, credit agreement, lease, contract, instrument or other agreement to
which Seller is a party or by which Seller is bound or affected, (iv) do not
constitute (with or without notice or lapse of time or both) a default under
the terms of any indenture, loan agreement, credit agreement, lease, contract,
instrument or other agreement to which Seller is a party or by which Seller is
bound or affected and (v) do not result in or require the creation of any Lien
upon or with respect to any of its properties, except in favor of Purchaser
pursuant to the terms hereof.
4.3. Compliance with Laws. Seller is not in violation of any term
of any applicable law, ordinance, rule or regulation of any Governmental Person
or any term of any applicable order, judgment or decree of any court,
arbitrator or Governmental Person (including without limitation Environmental
Laws, as such term is defined in the Note Agreements), the consequences of
which violation are reasonably likely to have a materially adverse effect on
the business, operations, affairs, condition (financial or otherwise),
properties or assets of Seller; and the execution, delivery and performance of
this Agreement, the Assignments and the other Receivables Documents will not
result in any violation of or be in conflict with or constitute a default under
any such term.
4.4. Approvals. Except for the filing of financing statements in
state and county filing offices in favor of Purchaser in the jurisdiction of
Seller's Chief Executive Office, no authorization, consent, approval, license,
exemption or other action by, and no registration, qualification, designation,
declaration or filing with, any Governmental Person (other than normal
reporting filings with the Securities and Exchange Commission) is or will be
necessary in connection with the execution and delivery of this Agreement, any
Assignment or the other Receivables Documents, the consummation of the
transactions
-41-
<PAGE> 49
herein or therein contemplated, or the performance of or compliance with the
terms and conditions hereof or thereof, or to ensure the legality, validity or
enforceability hereof or thereof, or to ensure that Purchaser will have an
ownership interest in and to the Sold Receivables which is prior and perfected
to all other Liens (including competing ownership interests), or to ensure that
no creditor of or purchaser from Seller or any other Person (other than
Purchaser, its successors and assigns) has or will have a claim against the
Sold Receivables.
4.5. Seller's Chief Executive Office. As of the date hereof,
Seller's Chief Executive Office is located at the address stated in Section
11.1 hereof, and the offices where Seller keeps all its books, records and
documents evidencing Pool Receivables (including any Sold Receivables), the
related Contracts and all purchase orders and other agreements related to such
Pool Receivables are located at the addresses specified in Schedule 4.5 (or at
such other locations, as to which Purchaser has been notified in accordance
with Section 6.1(b), in jurisdictions where all action required by Section 6.3
has been taken and completed). Since September 30, 1994, Seller has not
changed its name, merged or consolidated with any other corporation. Seller
has never been the subject of any proceeding under the Federal Bankruptcy Code.
4.6. Enforceability of Agreement. This Agreement is a legal, valid
and binding agreement of Seller, enforceable against Seller in accordance with
its terms, except to the extent enforceability may be limited by bankruptcy,
insolvency or other Laws or equitable principles pertaining to creditors'
rights, and each Assignment and any other Receivables Documents, when executed
and delivered, will be similarly legal, valid, binding and enforceable, subject
to the foregoing exception pertaining to Laws affecting creditors' rights.
4.7. Litigation. There are no injunctions, decrees or other
decisions issued or made by any Governmental Person that would prevent the
consummation of the transactions contemplated hereby or Seller from conducting
a material part of its business operations; and there are no proceedings or
investigations pending or, to Seller's knowledge (after due inquiry and
investigation) threatened, before any Governmental Person (i) asserting the
invalidity of this Agreement, any Assignment or any other Receivables
Documents, (ii) seeking to prevent the sale and assignment of any of the Sold
Receivables under, or the consummation of any of the other transactions
contemplated by, this Agreement or any other Receivables Document, (iii)
seeking any determination or ruling that would have a Material Adverse
-42-
<PAGE> 50
Effect or (iv) seeking to adversely affect the federal income tax attributes of
the Purchases hereunder.
4.8. Events of Termination. No event has occurred or would result
from the incurring of obligations by Seller under this Agreement, any
Assignment or the other Receivables Documents which is, or upon the lapse of
time or notice or both would become, a Termination Event.
4.9. Tax Returns and Payments. Seller has filed all tax returns
required by law to be filed by it and has paid all taxes levied upon Seller or
any of its properties, assets, income or franchises which are due and payable,
other than those presently payable without penalty or interest and those
presently being contested in good faith by appropriate proceedings diligently
conducted for which such reserves or other appropriate provision, if any, as
are required by GAAP have been made. The Federal income tax liabilities of
Seller has been finally determined by the Internal Revenue Service and
satisfied, or the time for audit has expired, for all fiscal periods through
December 31, 1990. The charges, accruals and reserves on the books of Seller
in respect of Federal, state and foreign income taxes for all fiscal periods
are adequate in the opinion of Seller and Seller knows of no unpaid assessment
for additional Federal, state or foreign income taxes for any period or any
basis for any such assessment.
4.10. [Unused].
4.11. Certain Legal Restrictions. Seller is not (i) an "investment
company" or a Person directly or indirectly "controlled" by or acting on behalf
of an "investment company" within the meaning of the Investment Company Act of
1940 as amended from time to time and the rules and regulations promulgated
thereunder, as amended from time to time, (ii) a "holding company" or a
"subsidiary company" of a "holding company" or an "affiliate" of either a
"holding company" or a "subsidiary company" within the meaning of the Public
Utility Holding Company Act of 1935, as amended, or (iii) subject to any other
Law of any Governmental Person (in each case whether United States federal,
state or local, or other) having jurisdiction over Seller, which purports to
restrict or regulate its ability to sell the Sold Receivables, borrow money, or
extend or obtain credit.
4.12. Bulk Sales. No transaction contemplated hereby requires
compliance with any bulk sales act or similar Law.
4.13. Regulation G,T,U and X. The use of all funds obtained by
Seller under this Agreement or any other Receivables Document will not conflict
with or contravene any of Regulations G, T, U
-43-
<PAGE> 51
or X promulgated by the Board of Governors of the Federal Reserve System.
4.14. Financial Statements. Seller has heretofore furnished to
Purchaser its annual audited consolidated balance sheets as of December 31,
1991, December 31, 1992 and December 31, 1993, together with their respective
related consolidated statements of income, cash flow and retained earnings for
the fiscal year, ending on such date. Such financial statements (including the
notes thereto) present fairly the consolidated financial condition of Seller and
its Subsidiaries, as of such dates and the consolidated results of their
respective operations and their respective cash flows for the fiscal periods
then ended, all in accordance with GAAP consistently applied. Since the later
of (x) December 31, 1993 or (y) the date of the most recent financial statements
delivered by Seller pursuant to Section 6.1(a)(v) hereof, no event has occurred
which would have a Material Adverse Effect.
4.15. No Disclosure Required. No information furnished by Seller to
Purchaser pursuant to or in connection with this Agreement or the other
Receivables Documents or any transaction contemplated hereby or thereby is false
or misleading in any material respect as of the date as of which such
information was stated or certified (including by omission of material
information necessary to make such information not misleading). There is no
fact known to Seller which would have a Material Adverse Effect.
4.16. Financing Statements. Excepting UCC financing statements and
filings thereof in favor of Purchaser, (i) no UCC financing statement applicable
to any of the Receivables, the Collections, the Books and Records or Related
Security is currently on file in any applicable UCC filing office in
jurisdiction of the Chief Executive Office of Seller, and (ii) Seller has not
executed as debtor any UCC financing statement applicable to any of the
Receivables, the Collections, the Books and Records or the Related Security.
4.17. Licenses for Computer Programs. No material license or
approval is required for Seller's use of any computer program or software used
by Seller in the servicing of the Sold Receivables other than those which have
been obtained and are in full force and effect.
4.18. Solvency of Seller. On the date hereof, and as of the date of
each Purchase, as the case may be, and after giving effect to such Purchase,
Seller is, and will be, Solvent.
-44-
<PAGE> 52
4.19. Lockbox Accounts. The names and addresses of all the Lockbox
Banks, together with the account numbers of the Lockbox Accounts of Seller at
such Lockbox Banks, are specified in Schedule 4.19 (or have been notified to
Purchaser in accordance with Section 6.14).
4.20. Representations and Warranties Regarding Sold Receivables.
Seller by its sale or transfer to Purchaser of any Sold Receivables pursuant to
a Purchase shall be deemed to reaffirm its representations and warranties
contained in Sections 4.1 through and including 4.19 as of the related Purchase
Date, as if such representations and warranties were made on and as of the
related Purchase Date, and shall also be deemed to represent and warrant to
Purchaser by offering such Sold Receivable to Purchaser, with respect to each
such Sold Receivable as of the related Purchase Date, as follows:
(a) each Sold Receivable that is transferred on the
Initial Purchase Date, and each Sold Receivable that is added to the Sold
Receivables Pool since the last Purchase Date and that is transferred to
Purchaser on the applicable Purchase Date, is a valid and binding obligation of
the parties thereto, enforceable in accordance with its terms except as
enforceability may be limited by bankruptcy, insolvency, reorganization, or
similar laws from time to time in effect affecting the enforcement of
creditors' rights; and each such Sold Receivable which is transferred to
Purchaser represents a Receivable and such Related Assets generated by Seller
in the ordinary course of business or financial affairs of Seller; and each
Sold Receivable which is transferred to Purchaser represents a true and correct
statement of a bona fide indebtedness incurred by an Obligor in the Dollar
amount set forth in the applicable Notice of Proposed Sale or Semi-Monthly
Settlement Statement for goods sold to, or services performed for, such
Obligor;
(b) (i) each Tendered Receivable, together with the
related Contracts, any Related Security, if any, and all purchase orders and
other agreements related to such Tendered Receivable, upon creation and prior
to the sale to Purchaser hereunder is owned by Seller free and clear of any
Adverse Claim; (ii) when Purchaser makes a Purchase, it shall have acquired and
shall at all times thereafter continuously maintain a valid and perfected
ownership interest in each such Sold Receivable, each related Contract, the
related Books and Records, the Related Security and Collections with respect
thereto, free and clear of any Adverse Claim (other than any Lien arising as
the result of any action taken by Purchaser or any assignee thereof); and (iii)
no financing statement or other instrument similar in effect covering any
Receivable, any interest therein, any Contract, any Books and Records, the
Related Security or Collections with
-45-
<PAGE> 53
respect thereto is on file in any recording office except such as may be filed
(1) in favor of Seller or Purchaser in accordance with the Contract, (2) in
favor of Purchaser in connection with this Agreement, or (3) in connection with
any Lien arising solely as the result of any Lien granted or other action taken
by Purchaser (or any assignee thereof);
(c) this Agreement and each Assignment (i) transfers to
Purchaser all of the right, title and interest in and to the Tendered
Receivables and Related Assets described in the applicable Assignment, free and
clear of any Adverse Claim, and (ii) constitutes a valid sale and assignment of
such Tendered Receivables and Related Assets enforceable against all creditors
of and purchasers from Seller;
(d) Seller has not amended or waived any of its rights
with respect to each Tendered Receivable which is transferred to Purchaser on a
Purchase Date or taken or omitted to take any action on or before such Purchase
Date which action or omission may reduce or impair the rights that Purchaser
would otherwise have with respect to such Tendered Receivable upon the sale and
assignment thereof to Purchaser pursuant to this Agreement;
(e) all filings and recordings required to evidence and
perfect the title of Purchaser to such Sold Receivables have been made and are
in full force and effect, including, without limitation, all financing
statements required under the provisions of the UCC of any applicable
jurisdiction to be filed or recorded against Seller, as debtor or assignor;
(f) [unused];
(g) each Sold Receivable has been originated and computed
pursuant to and in accordance with the Credit and Collection Policy;
(h) The information set forth (i) in the Contracts
related to the Sold Receivables on the Initial Purchase Date, (ii) in the
Contracts related to the Sold Receivables added to the Receivables Pool since
the last Purchase Date, (iii) in the Notice of Proposed Sale related to a
Purchase, and (iv) in the Semi-Monthly Settlement Statement related to a
Purchase is true, correct and complete in all respects;
(i) each Contract giving rise to a Sold Receivable
provides for one payment that will fully amortize such Sold Receivable, and
Seller has not extended or amended, modified or waived the terms of any Sold
Receivable or any Contract relating to any Sold Receivable;
-46-
<PAGE> 54
(j) Seller's right to receive payment of any Sold Receivables
is absolute and not contingent upon the fulfillment of any condition whatever;
there is no dispute or disagreement of any nature between an Obligor and Seller
with respect to such Sold Receivable concerning the payment of such Sold
Receivable; and no such Sold Receivable by its terms is subject to any right of
rescission, setoff, counterclaim or defense other than a payment term discount
which has been excluded from the Notional Amount of the Sold Receivables and
other than a setoff arising from promotional allowances and discounts offered
by Seller to its account debtors in its ordinary course of business;
(k) Seller has recorded in its computer files that such Sold
Receivables have been purchased by Purchaser and each such Sold Receivable is
marked on Seller's master computer files with the code "P" or "Sold"; and
(l) each Tendered Receivable is an Eligible Receivable on the
applicable Purchase Date.
4.21. Representations and Warranties Regarding Sold Receivables Pool.
Seller by its sale or transfer to Purchaser of any Sold Receivables pursuant to
a Purchase shall be deemed to represent and warrant to Purchaser, as of the
related Purchase Date, that after giving effect to the Purchase of Tendered
Receivables on such Purchase Date, the ratio of the Unpaid Balance of all Sold
Receivables, the Obligor of which is a Group I Obligor, to the Unpaid Balance
of the Sold Receivables Pool equals or exceeds 75%.
ARTICLE V
FEES, EARNED DISCOUNT,
YIELD PROTECTION AND FUNDING LOSSES
5.1. Fees.
(a) Structuring Fee. In consideration for the
establishment of the receivables purchase facility herein set forth, Seller
shall pay to Purchaser a structuring fee (the "Structuring Fee") on the date of
the execution and delivery by Seller to Purchaser of this Agreement equal to
the amount specified in the Engagement Letter as the fee payable by Seller to
Purchaser upon execution of this Agreement in consideration for the structuring
of this receivables purchase facility.
(b) Commitment Fee. In consideration for the liquidity
available to Seller under the receivables purchase facility herein set forth,
Seller agrees to pay to Purchaser on
-47-
<PAGE> 55
March 31, 1995 and quarterly thereafter on the last day of each June,
September, December and March to and including the Termination Date, a fee (the
"Commitment Fee") calculated at the rate of one-half of one percent (1/2%) per
annum (computed upon the basis of an assumed year of 360 days and the actual
number of days elapsed) on the daily (computed at the opening of business)
unused amount of the Maximum Purchaser's Net Investment for the most recent
quarter ending March 31, June 30, September 30, or December 31, as the case may
be; provided, however, that the first payment of the Commitment Fee shall be
for the actual number of days elapsed between the date of the Initial Purchase
Date and March 31, 1995.
(c) Administrative Fee. In consideration for the
maintenance and administration of the receivables purchase facility herein set
forth, Seller shall pay to Purchaser an annual administrative fee (the
"Administrative Fee") equal to $10,000 payable in arrears on the anniversary of
the execution and delivery by Seller to Purchase of this Agreement.
5.2. Earned Discount, Payments of Earned Discount and Certain
Related Payments Pertaining to Purchaser's Net Investment.
(a) Agreement to Pay Earned Discount. In consideration
of each Purchase of the Sold Receivables, Seller shall pay to Purchaser the
Earned Discount accruing daily with respect to Purchaser's Net Investment from
time to time outstanding, from the date of the Initial Purchase Date until
repayment in full of Purchaser's Net Investment. Seller shall pay the accrued
Earned Discount on Purchaser's Net Investment in arrears (A) on the
Semi-Monthly Settlement Date for each Semi-Monthly Period during the term of
this Agreement prior to the declaration of a Termination Event and (B) after
the declaration of a Termination Event, on demand until paid in full. If on
any day that the Earned Discount is due and payable to Purchaser under the
terms of this Agreement, there shall be insufficient Collections held by
Servicer available to pay, or if Collections are being delivered directly to
Purchaser, insufficient funds have been delivered to Purchaser in good and
collected funds for the payment in full of, the Earned Discount to be paid on
such day on Purchaser's Net Investment, then Seller shall be personally
obligated to pay, and hereby agrees that it shall pay, to Purchaser on such day
the amount of such insufficiency; provided, however, that Seller shall have no
obligation under this sentence with respect to any Earned Discount accruing
after the earlier of (i) two hundred forty-first (241st) day after the
Termination Date, or (ii) the Final Payout Date.
-48-
<PAGE> 56
(b) Accrual of Earned Discount. Purchaser's Net
Investment shall accrue an investment fee payable by Seller to Purchaser in
consideration for Purchaser's Net Investment (the "Earned Discount" as more
fully defined in Section 1.1 hereof), for each day until Purchaser's Net
Investment is repaid in full, at rate per annum (computed upon the basis of a
calendar year of 365/366 days, as the case may be, and the actual number of
days elapsed) equal to the Base Rate plus twenty-five (25) basis points (1/4 of
1%)(the "Adjusted Base Rate"); provided, however, that such Earned Discount
shall not at any time exceed the maximum rate permitted by applicable Law. To
the extent that any amount of Earned Discount is paid in excess of the maximum
permissible amount, such amount shall be applied to the repayment of the
Purchaser's Net Investment. The Adjusted Base Rate shall be adjusted
automatically from time to time upon each change in the Base Rate and in
accordance with the provisions of Section 5.2(c).
(c) Earned Discount Upon Occurrence of Termination Event.
Upon the occurrence of a Termination Event and during any period in which a
Termination Event exists (i) the Purchaser's Net Investment shall accrue Earned
Discount at a rate per annum which shall be one hundred seventy-five basis
points (1.75%) per annum above the rate otherwise in effect under the Adjusted
Base Rate, such rate to change automatically from time to time, effective as of
the effective date of each change in the Base Rate.
5.3. Yield Protection. If, after the date hereof, any Law,
guideline or interpretation or any change in any Law, guideline or
interpretation of application thereof by any Governmental Person charged with
the interpretation or administration thereof or compliance with any request or
directive (whether or not having the force of law) of any central bank or other
Governmental Person:
(i) subjects Purchaser to any tax or changes the basis of
taxation with respect to this Agreement, or the
Purchaser's Net Investment or payments by Seller of
Earned Discount, or other amounts due from Seller
hereunder (except for income taxes, branch profits
taxes, franchise taxes or similar taxes imposed on,
or measured by, the income or profits of Purchaser),
(ii) imposes, modifies or deems applicable any reserve,
special deposit or similar requirement against
credits or commitments to extend credit extended by,
or assets (funded or contingent) of, deposits with or
for the account of, or other acquisitions
-49-
<PAGE> 57
of funds by, Purchaser (in any capacity hereunder), or
(iii) imposes, modifies or deems applicable any capital
adequacy or similar requirement (A) against assets
(funded or contingent) of, other credits or
commitments to extend credit extended by, Purchaser
(in any capacity hereunder), or (B) otherwise
applicable to the obligations of Purchaser under this
Agreement,
and the result of any of the foregoing is to increase the cost to, reduce the
income receivable by, or impose any expense (including loss of margin) upon
Purchaser with respect to this Agreement or the acquisition, maintenance or
funding of any part of the Purchaser's Net Investment (or, in the case of any
capital adequacy or similar requirement, to have the effect of reducing the
rate of return on Purchaser's capital, taking into consideration Purchaser's
customary policies with respect to capital adequacy) by an amount which
Purchaser shall from time to time notify Seller as determined in good faith
(using any averaging and attribution methods employed in good faith) by
Purchaser (which determination shall be conclusive absent manifest error) to be
necessary to compensate Purchaser for such increase in cost, reduction of
income or additional expense, then such amount shall be due and payable by
Seller to Purchaser ten (10) Business Days after such notice is given. Such
notice shall set forth in reasonable detail the basis for such determination.
Notwithstanding anything to the contrary in this Section 5.3, Seller shall be
responsible to Purchaser only for costs hereunder which accrued as the result
of an event described in this Section 5.3 within 180 calendar days prior to the
date upon which Seller is notified of the same hereunder.
5.4. Taxes. Seller agrees that all payments with respect to the
Sold Receivables, any Earned Discount, any Seller Adjustments, any Indemnity
Payment and any other fee, cost or expense payable under this Agreement shall
be free and clear of any deduction for any present or future taxes and agrees
to pay any present or future taxes or charges with respect to such payments
which may be imposed by any jurisdiction, except income taxes, branch profits
taxes, franchise taxes or similar taxes imposed on, or measured by, the income
or profits of Purchaser. At Purchaser's request, Seller shall confirm that all
taxes have been paid by delivery of official tax receipts or notarized copies
thereof to Purchaser within thirty (30) days after the due date for each tax
payment.
5.5. Earned Discount; Other Amounts Due. On the Business Day
preceding each Semi-Monthly Settlement Date, Purchaser shall notify Servicer of
(i) the amount of Earned Discount accrued
-50-
<PAGE> 58
during such Semi-Monthly Period, and (ii) all Fees and Indemnity Payments
accrued during such Semi-Monthly Period and payable by Seller under this
Agreement. Servicer shall pay to Purchaser the amount of such Earned Discount
(not previously paid to Purchaser pursuant to Section 2.6) on the Semi-Monthly
Settlement Date for such Semi-Monthly Period; and shall pay to Purchaser, or at
the direction of Purchaser shall retain, the Servicing Fee, if any, (not
previously paid pursuant to Section 2.6) on the Semi-Monthly Settlement Date
for such Semi-Monthly Period. Such payment shall be made (A) out of amounts
set aside pursuant to items (1) and (2) of Section 2.6(a)(ii) for such payment,
(B) in the case of amounts other than Earned Discount to the extent that
amounts were not set aside pursuant to item (2) of Section 2.6(a)(ii) for such
payment, out of funds paid by Seller to Servicer (which amounts Seller hereby
agrees to pay to Servicer), and (C) in the case of Earned Discount, to the
extent that funds were not set aside pursuant to clause (1) of Section
2.6(a)(ii) for such payment, out of funds paid by Seller to Servicer (which
amounts Seller hereby agrees to pay to Servicer).
5.6. Investment Account. Purchaser shall open and maintain on its
books an investment account with respect to the Purchases made, the Sold
Receivables acquired, the repayments of Purchaser's Net Investment, the
computation and payment of Earned Discount, the Seller Adjustments, the
Servicer's Fees, the Fees, the Indemnity Payments and other amounts due and
sums paid to Purchaser hereunder. Such investment account shall be conclusive
and binding on Seller as to the amount at any time due to Purchaser from Seller
or in repayment of Purchaser's Net Investment, except in the case of manifest
error in computation.
ARTICLE VI
COVENANTS
Until the Final Payout Date, Seller shall perform, or cause
the performance of, the covenants and agreements set forth below.
6.1. Financial Statements and Other Reports. Seller shall maintain
a system of accounting established and administered in accordance with sound
business practices to permit preparation of financial statements in conformity
with GAAP. Seller will deliver to Purchaser reports and information as
follows:
(a) Financial Reports; Notice of Material Adverse Change
and Termination Events. Seller shall deliver, or cause to be delivered:
-51-
<PAGE> 59
(i) on the Semi-Monthly Reporting Date for the
Semi-Monthly Period most recently completed, a duly completed
Semi-Monthly Settlement Statement for the relevant Semi-Monthly
Period;
(ii) on the Monthly Reporting Date for the Monthly
Accounting Period most recently completed, a duly completed Monthly
Settlement Statement for the relevant Monthly Accounting Period;
(iii) within five Business Days after Seller becomes
aware thereof, notice of any event or circumstance which has any
Material Adverse Effect on or with respect to Seller, Servicer or this
Agreement;
(iv) as soon as possible after the occurrence of (and
in any event within three Business Days after having received actual
knowledge of) any Termination Event or any Potential Termination
Event, the statement of the chief financial officer or chief
accounting officer of Seller setting forth details of such Termination
Event or Potential Termination Event and what action Seller has taken
or proposes to take with respect thereto;
(v) The covenants and agreements of Seller set
forth in section 7 (individually, an "Incorporated Reporting
Requirements"; and collectively, the "Incorporated Reporting
Requirements") of the Note Agreement, shall be incorporated herein
mutatis mutandis by this reference thereto, and shall be deemed to have
been made by Seller in favor of, and for the benefit of, Purchaser; and
for all purposes herein references to the terms "holder of any Notes"
and "you" shall be deemed to be references to the Purchaser and
references to the term "Company" shall be deemed to be references to
the Seller; and for all purposes herein the second sentence of such
section 7 is amended such that the words beginning with "The Company
... of Notes:" at the beginning of the second sentence is deleted and
there is substituted therefor the phrase "Seller will deliver (in
duplicate) to Purchaser, so long as Purchase Commitment shall remain in
effect and so long as the Purchaser's Net Investment remains
outstanding:"; and notwithstanding the foregoing, (a) all capitalized
terms set forth in the Incorporated Reporting Requirements and defined
in the Note Agreement, as well as other capitalized terms set forth in
any such definitions therein, shall also be deemed to be incorporated
herein mutatis mutandis and shall have the meanings given to such terms
in the Note Agreement for the purposes hereof, and (b) to the extent
any of the Incorporated Reporting Requirements, or any incorporated
-52-
<PAGE> 60
definition contains any cross-reference to, or incorporates by
reference any terms of, any provision, section, schedule or exhibit of
the Note Agreement, such cross-reference or incorporation shall be
incorporated herein mutatis mutandis for the purposes hereof; and
furthermore, for the purposes of this Section 6.1(a)(v), in the event
that any amendment, modification or supplement to the Note Agreement
is consented to in writing by the Purchaser, then any affected
Incorporated Reporting Requirement shall, upon such consent becoming
effective, be deemed to be revised for the purposes of this Section
6.1(a)(v) ; and the Purchaser shall have the right in its sole but
reasonable discretion (a) to make a determination of any failure of
Seller to deliver any information or report in compliance with an
Incorporated Reporting Requirement and (b) to exercise any remedies
for such violation as provided hereunder, in each case without regard
to any interpretation, waiver, action or inaction with respect to the
Note Agreement in connection therewith; and the incorporation of the
Incorporated Reporting Requirements herein in favor of the Purchaser
shall not be affected in any way by the termination or expiration of
the Note Agreement; and in the event of a conflict between the express
terms of this Agreement and any Incorporated Reporting Requirement,
the express terms of this Agreement shall control; and
(vi) such other reports and information as the
Purchaser may from time to time reasonably request including without
limitation, reports in the format of the Monthly Settlement Statement,
but for such shorter interim accounting periods as the Purchaser may
reasonably request (to the extent necessary to make the information
contained therein meaningful, the defined terms used to create the
information contained therein shall be automatically modified to
account for the shorter accounting periods required by such interim
reports in such manner as required by the Purchaser consistent with
the shorter accounting period).
(b) Notice of Change in Chief Executive Office. Seller
shall deliver notice as soon as Seller plans to change its name or any name
under which it does business, or plans to relocate its Chief Executive Offices,
or plans to relocate the books, records and other documentation evidencing
Purchaser's interest in the Receivables, Contracts, Collections or Related
Security, but in no such event shall such notice be delivered less than sixty
(60) days prior to such change or relocation.
(c) Notice of Changes to Credit and Collection Policies.
If Seller plans to implement any material change in
-53-
<PAGE> 61
any of Seller's Credit and Collection Policy, Seller shall deliver to Purchaser
a written description of such proposed change at least sixty (60) days in
advance of such change.
(d) Notice of Litigation. As soon as possible, and in
any event within ten (10) Business Days of the Seller's knowledge thereof, the
Seller shall give Purchaser notice of (i) any litigation, investigation or
proceeding against the Seller which may exist at any time which, in the
reasonable judgment of the Seller, could have a material adverse effect on the
financial condition or results of operations of the Seller or impair the
ability of the Seller or the applicable Servicer to perform their respective
obligations under this Agreement and (ii) any material adverse development in
any such previously disclosed litigation.
(e) Other Information. Seller shall deliver, with
reasonable promptness, such other information, reports or documents concerning
the Receivables, the Related Security, the Books and Records and the
Collections and Seller's collection policies, practices and procedures as
Purchaser may from time to time reasonably request, including without
limitation, a copy of any Contract and such records and invoices pertaining
thereto and evidence thereof as Purchaser may deem necessary to enable it to
enforce its rights thereunder; provided that the Seller shall not be required
to furnish any portion of a Contract that, pursuant to confidentiality
provisions contained in such Contract, would prohibit the delivery or
disclosure of such portion of such Contract to Purchaser.
6.2. Compliance with Laws, etc. Seller shall comply with the
requirements of all applicable Laws of any Governmental Person, the
noncompliance with which would have a Material Adverse Effect.
6.3. Further Cooperation. (a) Seller shall perform, at Seller's
expense, from time to time, or at the request of Purchaser, such acts as may be
necessary or advisable to carry out the intent of this Agreement. Without
limiting the generality of the preceding sentence, Seller shall take all steps
reasonably necessary or, in the reasonable opinion of Purchaser, advisable to
validate or protect the ownership interest of Purchaser in, or to defeat the
assertion by any third party of any Adverse Claim with respect to, any Sold
Receivables. Without limiting the generality of the foregoing, from time to
time, or at the request of Purchaser, Seller will execute and file such
financing statements, continuation statements, amendments thereto and
assignments thereof, and such other instruments and notices, to perfect,
protect or more fully evidence the Purchases hereunder and the resulting sale
of the Sold Receivables, or to enable Purchaser or its designee to exercise or
enforce any of
-54-
<PAGE> 62
their respective rights hereunder or under any Receivable Documents.
(b) Seller hereby authorizes Purchaser or any of its
designees to file one or more financing statements, continuation statements,
amendments thereto and/or assignments thereof, relative to all or any of the
Sold Receivables, in each case whether now existing or hereafter generated. If
Seller fails to perform any of its agreements or obligations under this
Agreement, Purchaser or its designee may (but shall not be required to) itself
perform, or cause performance of, such agreement or obligation, and the
reasonable expenses of Purchaser or its designee or assignee incurred in
connection therewith shall be payable by Seller as provided in Section 11.6.
6.4. Inspection Rights; Maintenance of Books and Records. (a)
Seller shall permit Purchaser, at any reasonable time and from time to time
during normal business hours, (i) to inspect, audit, check and make abstracts
from any Person's books, accounts, documents, papers or other records
(including, without limitation, computer tapes and disks) in the possession or
under the control of Seller pertaining to the Pool Receivables, the Related
Securities and the Collections, (ii) to visit the offices and properties of
Seller for the purpose of examining such materials described in clause (i) next
above, and to discuss matters relating to Pool Receivables, the Related
Securities and the Collections or Seller's performance hereunder with any of
the officers of Seller having knowledge of such matters and, upon notice to a
Responsible Officer of Seller, with employees of Seller having knowledge of
such matters; (ii) to meet with the independent auditors of the Seller, to
review such auditors' work papers (including, without limitation, work papers
relating to any audit report or audit opinion), and otherwise to review with
such auditors the books and records of the Seller with respect to the Pool
Receivables, the Related Securities and the Collections; and (iii) without
limiting the provisions of clause (i) next above, at any time when a
Termination Event or a Potential Termination Event shall have occurred and be
continuing on request of Purchaser, permit certified public accountants or
other auditors acceptable to Purchaser to conduct, at Seller's expense, a
review of Seller's books and records with respect to the Pool Receivables, the
Related Securities and the Collections.
(b) Seller shall (i) identify and hold as agent for
Purchaser at the offices of Seller at 1840 Century Park East, Los Angeles,
California, and 508 New Holland Avenue, Lancaster, Pennsylvania, all books,
records and documents evidencing or relating to the Sold Receivables, including
the Contracts and the Related Security, and maintain a current record of the
Sold Receivables, in such reasonable detail and in form and substance
-55-
<PAGE> 63
satisfactory to Purchaser; (ii) make such notations on such books, records and
documents, including any computer records, as may be requested by Purchaser to
evidence Purchaser's interest in the Sold Receivables and, if so requested, to
store the same in separate filing cabinets so marked, or deliver the same to
Purchaser; and/or (iii) maintain and implement administrative and operating
procedures (including without limitation an ability to recreate records
evidencing Purchaser's ownership interests in Sold Receivables in the event of
the destruction of the original records), and keep and maintain all documents,
books, records and other information reasonably necessary or advisable for the
collection of the Sold Receivables (including, without limitation, records
adequate to permit the daily identification of outstanding unpaid balances by
Obligor and related debit and credit details of the Sold Receivables).
(c) Seller (i) shall mark a legend on Seller's books,
records and other documentation (whether maintained by Seller or Seller's
agent) concerning the existence of the Pool Receivables that identifies the
Pool Receivables which are Sold Receivables and that such Sold Receivables are
owned by Purchaser, as purchaser, under a Receivables Purchase Agreement dated
as of January 19, 1995, and (ii) shall mark, or cause to be marked, on the
master computer files concerning the Pool Receivables the code "P" or "Sold"
for each Sold Receivable.
6.5. Amendments. Seller shall not extend, amend or otherwise
modify, or permit the extension, amendment or modification of, the terms of any
Sold Receivable, or amend, modify or waive any right with respect to any
Contract related thereto except as permitted by Section 7.2(c) hereof.
6.6. [Unused]
6.7. Sales, Liens, Etc. Seller shall not cause any of the Pool
Receivables originated by the Seller or any related Contracts, or any inventory
or goods the sale of which may give rise to any such Pool Receivables, 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 any Adverse Claim, other than the sale and assignment of the
Sold Receivables to Purchaser and the Liens created in connection with the
transactions contemplated by this Agreement.
6.8. Negative Pledges. Seller shall not enter into or assume any
agreement (other than this Agreement) prohibiting the creation or assumption of
any Lien upon any Pool Receivables, any Related Security or the Collections,
whether now owned or hereafter created or acquired, as contemplated by this
Agreement,
-56-
<PAGE> 64
or otherwise prohibiting or restricting any transaction contemplated hereby.
6.9 Enforceability of Obligations. The Seller shall take such
actions as are reasonable and within its power to ensure that the obligation of
any related Obligor to pay the unpaid balance of any Sold Receivable in
accordance with the terms of the related Contract remains legal, valid, binding
and enforceable against such Obligor except as otherwise permitted by Section
7.2(c) hereof.
6.10 Fulfillment of Obligations. The Seller 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 Sold Receivables, including its obligations as initial Servicer, will
duly observe and perform all material provisions, covenants and other promises
required to be observed by it under the Contracts related to the Sold
Receivables, will do nothing to impair the rights, title and interest of
Purchaser in and to the Sold Receivables 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 such Sold Receivables and their creation and
satisfaction.
6.11 Statement for and Treatment of the Sales. Seller shall not
prepare any financial statements for financial accounting or external reporting
purposes which shall account for the transactions contemplated hereby in any
manner other than as a sale of the Sold Receivables to Purchaser.
6.12 No Changes. Seller shall not (i) make any change in the
character of its business or in the Seller's Credit and Collection Policy,
which change would, in either case, impair the collectibility of any material
amount of the Sold Receivables originated by the Seller, or otherwise adversely
affect the interests or remedies of Purchaser under this Agreement or any other
Receivables Document, (ii) make any material change in, or fail to comply with,
the Seller's Credit and Collection Policy without the prior written
notification to Purchaser as required by Section 6.1(c) hereof, or (iii) 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 Purchaser prior written notice
thereof as required by Section 6.1(b) hereof, 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
-57-
<PAGE> 65
such that such financing statement or continuation statement would not be
seriously misleading as required by Section 6.3.
6.13. Location of Records. Seller will keep its Chief Executive
Office, and the offices where it keeps its records concerning the Pool
Receivables (including the Sold Receivables), all related Contracts and all
purchase orders and other agreements related to such Pool Receivables (including
the Sold Receivables) (and all original documents relating thereto), at the
address(es) of Seller referred to in Section 6.4(b) or, upon sixty (60) days'
prior written notice to Purchaser, at such other locations in jurisdictions
where all action required by Section 6.3 shall have been taken and completed.
6.14. Lockboxes. (a) Seller hereby agrees (i) to instruct all
Obligors to cause all Collections on account of Pool Receivables (including Sold
Receivables) to be mailed directly to a Lockbox; (ii) not to suffer or permit
any funds other than such Collections to be mailed to Lockboxes or deposited
into related Lockbox Accounts; (iii) to make or cause the Servicer to make the
necessary bookkeeping entries to reflect such Collections on the Books and
Records pertaining to such Pool Receivables; (iv) to apply or cause the
applicable Servicer to apply all such Collections as provided in this Agreement;
(v) not to amend or modify any term of any Lockbox Servicing Instructions
without the prior written consent of Purchaser to such amendment or
modification; (vi) not to amend or modify any term, with respect to the
disposition of such Collections or any other amounts received by Seller or the
Servicer (if the Servicer is a person other than the Seller) or any Lockbox
Bank, of this Agreement or any other agreement (other than Lockbox Servicing
Instructions) without the prior written consent of Purchaser to such amendment
or modification, (vii) add or terminate any Person as a Lockbox Bank from those
Persons listed on Schedule 4.19 hereto, or (viii) make any change in the
instructions to its Obligors regarding payments to be made to the Seller or
payments to be made to any Lockbox.
(b) The Seller further represents and warrants and
covenants and agrees as follows: (i) each Lockbox Account shall be maintained
with a Lockbox Bank; (ii) each Lockbox Account shall be a segregated account
and the funds deposited in such Lockbox Account from time to time shall not be
commingled with any other funds of the Seller or the Servicer (if the Servicer
is a person other than the Seller); (iii) each Lockbox Account shall be in the
name of Seller or Servicer in trust for the benefit of Purchaser and Seller as
their interests arise; (iv) the location of each Lockbox and each related
Lockbox Account may not be changed without the written consent of Purchaser;
(v) funds deposited in each Lockbox Account shall be transferred to the
-58-
<PAGE> 66
Servicer (if the Servicer is a Person other than the Seller) not later than the
next Business Day after such funds are deposited in each such Lockbox Account;
(vi) each Lockbox Account shall be insured by the Federal Deposit Insurance
Corporation to the full extent permitted by law; (vii) Purchaser shall have the
right to obtain control over each Lockbox and each related Lockbox Account, or
appoint a successor servicer, and, in either case, direct the Lockbox Bank not
to transfer funds in such Lockbox Account to the Seller or the Servicer, and
direct the Lockbox Bank to transfer the funds in such Lockbox Account to an
account designated by Purchaser, if an event or circumstance arises which would
constitute a Termination Event under this Agreement by dating and delivering
the Lockbox Letter Agreement with respect to such Lockbox, and the Seller
hereby irrevocably authorizes Purchaser to date and deliver a Lockbox Letter
Agreement to each Lockbox Bank; (viii) the Seller has not given and shall not
give any instructions to any Lockbox Bank inconsistent with the Lockbox Letter
Agreement; and (ix) the Seller shall cooperate fully with Purchaser in
effecting any such transfer of control.
(c) The Seller shall not enter into any Lockbox Servicing
Instructions or other lockbox servicing agreement which does not contain the
foregoing provisions and terms, unless such deviation is consented to by
Purchaser.
6.15. [Unused].
6.16. Fiscal Year. Neither Seller nor any Subsidiary of Seller
shall change its fiscal year from the calendar year basis utilized as of the
date hereof with the 1995 fiscal year beginning January 1, 1995 and ending
December 31, 1995 without giving sixty (60) days written notice to Purchaser.
Seller further agrees to review the definitions of Semi-Monthly Period and
Monthly Accounting Period with Purchaser and make such adjustment to these
definitions and any related definitions to conform with the new fiscal year
selected by Seller.
6.17 Incorporation of Certain Covenants; etc. The covenants and
agreements of Seller set forth in Sections 10.1 through 10.14 and Section 10.16
(individually, an "Incorporated Covenant"; and collectively, the "Incorporated
Covenants") of the Note Agreement, shall be incorporated herein mutatis
mutandis by this reference thereto, and shall be deemed to have been made by
Seller in favor of, and for the benefit of, Purchaser, and for all purposes
herein references to the terms "holder of any Notes" and "you" shall be deemed
to be references to the Purchaser and references to the term "Company" shall be
deemed to be references to the Seller; provided, however, that in the case of
Section 10.5 of the Note Agreement, the sale of Sold Receivables by Seller to
Purchaser pursuant to this Agreement is excepted
-59-
<PAGE> 67
therefrom. Notwithstanding the foregoing, (a) all capitalized terms set forth
in the Incorporated Covenants and defined in the Note Agreement, as well as
other capitalized terms set forth in any such definitions therein, shall also
be deemed to be incorporated herein mutatis mutandis and shall have the
meanings given to such terms in the Note Agreement for the purposes hereof, and
(b) to the extent any of the Incorporated Covenants, or any incorporated
definition contains any cross-reference to, or incorporates by reference any
terms of, any provision, section, schedule or exhibit of the Note Agreement,
such cross-reference or incorporation shall be incorporated herein mutatis
mutandis for the purposes hereof. Furthermore, for the purposes of this
Section 6.17, in the event that any amendment, modification or supplement to
the Note Agreement is consented to in writing by the Purchaser, then any
affected Incorporated Covenant shall, upon such consent becoming effective, be
deemed to be revised for the purposes of this Section 6.17. The Purchaser
shall have the right in its sole but reasonable discretion (a) to make a
determination of the existence of any violation of an Incorporated Covenant and
(b) to exercise any remedies for such violation as provided hereunder, in each
case without regard to any interpretation, waiver, action or inaction with
respect to the Note Agreement in connection therewith. The incorporation of
the Incorporated Covenants herein in favor of the Purchaser shall not be
affected in any way by the termination or expiration of the Note Agreement. In
the event of a conflict between the express terms of this Agreement and any
Incorporated Covenant, the express terms of this Agreement shall control.
6.18 Use of Software. In the event that Seller is replaced as the
Servicer of the Sold Receivables, Seller agrees to use its best efforts to
obtain all necessary approvals, at the cost and expense of Seller, for
Purchaser's use, or a successor Servicer's use, of the computer software
licensed by Seller to service the Sold Receivables. If such approval is not
obtained, Seller will pay all reasonable charges to convert detailed accounting
records related to the Sold Receivables for use on Purchaser's software.
ARTICLE VII
SERVICING
7.1. Designation of Seller as Initial Servicer. Seller hereby
grants to Purchaser an irrevocable power of attorney (coupled with an interest)
to designate a Person for the purpose of servicing, administering and
collecting the Sold Receivables. Purchaser hereby designates and appoints
Seller as the agent of Purchaser and Seller (Seller in such capacity herein
referred to
-60-
<PAGE> 68
as the "Servicer") as the initial Servicer for the purpose of servicing,
administering and collecting the Sold Receivables.
7.2. Duties of Servicer.
(a) Appointment; Duties in General. Each of Seller and
Purchaser hereby appoints as its agent the Servicer, as from time to time
designated pursuant to Section 7.1 or Section 7.6, to enforce its respective
rights and interests in and under the Sold Receivables. Servicer shall take or
cause to be taken all such actions as may be necessary or advisable to collect
each Sold Receivable from time to time, all in accordance with applicable laws,
rules and regulations, with reasonable care and diligence, and in accordance
with the Credit and Collection Policy.
(b) Allocation of Collections; Segregation. Servicer
shall set aside for the account of Seller and Purchaser their respective
allocable shares of the Collections of Pool Receivables in accordance with
Section 2.6(a). Servicer shall segregate and deposit in the Servicer Deposit
Account, and the appropriate subaccount, the Collections of Sold Receivables on
the first Business Day following receipt by Servicer of such Collections in
immediately available funds. In the event Servicer has advanced to the
Servicer Deposit Account in immediately available funds the dollar amount of
Collections for a day processed through a Lockbox Account established at a
Lockbox Bank other than Purchaser and such Lockbox Bank debits the Lockbox
Account for the amount of a returned item at a later date, the Servicer may net
the amount of such returned item against the dollar amount of Collections due
to be transferred to the Servicer Deposit Account on such later date.
(c) Modification of Receivables. So long as no Potential
Termination Event or Termination Event of the type described in Subsection (b)
of Section 8.1 shall have occurred and be continuing, Seller, while it is
Servicer, may, in accordance with the Credit and Collection Policy, (i) adjust
the original maturity of any Sold Receivable, not more than once, to reflect
the actual terms of the Contract under which such Sold Receivable arose, (ii)
extend the maturity or adjust the Unpaid Balance of any Defaulted Receivable
which is a Sold Receivable as Seller may determine to be appropriate to
maximize Collections thereof, and (iii) adjust the Unpaid Balance of any Sold
Receivable to reflect the reductions or cancellations described in Section 2.8.
(d) Documents and Records. Seller shall deliver to
Servicer, and Servicer shall hold in trust for Seller and Purchaser in
accordance with their respective interests, all
-61-
<PAGE> 69
documents, instruments and records (including, without limitation, computer
tapes or disks) that evidence or relate to Sold Receivables. Seller and
Servicer shall maintain and keep proper books of record and account, including
without limitation computer files, which (i) identify and segregate the Sold
Receivables from other accounts receivable and other rights to the payment of
money due Seller, and (ii) enable Servicer and/or Purchaser or its designee to
calculate Purchaser's Net Investment, the Net Pool Balance, the Receivables
Pool, the Sold Receivables Pool and otherwise monitor the performance of the
Pool Receivables.
(e) Certain Duties to Seller. Servicer shall in no event
later than one (1) Business Day following the applicable Semi-Monthly
Settlement Date turn over to Seller that portion of Collections of Sold
Receivables representing the Adjusted Deferred Purchase Price payable to Seller
in accordance with Section 2.6(c), less, in the event that neither Seller nor
any Affiliate of Seller is Servicer, all reasonable and appropriate
out-of-pocket costs and expenses of Servicer of servicing, collecting and
administering the Sold Receivables to the extent not covered by the Servicer's
Fee received by it. As soon as practicable following receipt, Servicer shall
turn over to Seller the Collections of any Pool Receivable which is not a Sold
Receivable. Servicer, if other than Seller or any Affiliate thereof, shall, as
soon as practicable upon demand, deliver to Seller all documents, instruments
and records in possession of Servicer that evidence or relate to Pool
Receivables of Seller other than Sold Receivables.
(f) Termination. Servicer's authorization under this
Agreement shall terminate upon the Final Payout Date.
(g) Subcontracts. Servicer may, with the prior written
consent of Purchaser, subcontract with any other person for servicing,
administering or collecting the Sold Receivables, provided that Servicer shall
remain liable for the performance of the duties and obligations of Servicer
pursuant to the terms hereof.
(h) Certain Reports. In addition to the other reports
and information required by Sections 2.6(d) and 2.7(a), Servicer shall prepare
and deliver to Purchaser concurrently with the delivery of each Monthly
Settlement Statement (and to the extent not included in the Monthly Settlement
Statement) a list of the Obligors any Sold Receivables of which are included in
the Net Pool Balance under clause (a), (b), (c) or (d) of the definition of
"Concentration Limit", setting forth where applicable the ratings currently
assigned to the long-term debt of such Obligors by Moody's, S&P or D&B.
-62-
<PAGE> 70
(i) Allocation of Unspecified Collections. If Servicer
receives from an Obligor any Collections with respect to Pool Receivables and
such Obligor is the Obligor with respect to both Pool Receivables which are
Sold Receivables and Pool Receivables which are not Sold Receivables, the
Servicer shall apply all Collections to the Pool Receivable specifically
identified by the Obligor with such payment and if no specification is made by
the Obligor such Collections shall be applied to the oldest outstanding Pool
Receivable.
7.3. Segregation of Collections. Servicer shall be able to
determine, and at the request of Purchaser will determine, the amount of
Collections received on any Business Day from Sold Receivables. In accordance
with the provisions of Section 2.6, Servicer shall segregate all collections
and proceeds of any Sold Receivable so that each is capable of identification
and, if, following an Event of Termination, deemed reasonably necessary or
appropriate by Purchaser, shall notify the Obligors to make payments on the
Sold Receivables directly to Purchaser.
7.4. Payments. On any day that payments of Collections of Sold
Receivables are to be made to Purchaser pursuant to Section 2.6 hereof,
Servicer shall withdraw such payment from the funds on deposit in Servicer
Deposit Account which are good and collected funds as of the opening of
business on such day and shall forward such payment by wire transfer to
Purchaser on or before 2:00 P.M. Eastern time on such day. If on any day that
a payment of the Earned Discount, Servicer's Fees, Fees, Seller Adjustments or
Indemnity Payments due hereunder is to be paid by Seller and Servicer receives
on or before 2:00 P.M. Eastern time such payment, Servicer shall forward such
payment by wire transfer to Purchaser on or before 4:00 P.M. Eastern time on
the same day. Any such payment described in the preceding sentence received by
Servicer after 2:00 P.M. Eastern time shall be paid to Purchaser by noon
Eastern time the next Business Day.
7.5. Servicing Costs and Fees. At any time Seller is Servicer
under this Agreement, Seller shall pay and be responsible for all costs,
expenses and attorneys' fees incurred by Servicer in connection with the
performance of its obligations under this Article VII. So long as Seller is
Servicer, Seller hereby acknowledges that the purchase of the Sold Receivables
and the incurrence by Purchaser of the risk of collection with respect to the
Sold Receivables together with any investment earnings on the Servicer Deposit
Account payable under the terms of Section 7.9 hereof to Servicer constitutes
adequate consideration for the services of Servicer hereunder. So long as
Seller is Servicer, Servicer shall not be entitled to any fees for the
performance of its obligations under this Article VII. Any successor Servicer,
which is not an Affiliate of Seller,
-63-
<PAGE> 71
shall be entitled to such reasonable compensation consistent with the
definition of the term "Servicer's Fee" as Purchaser shall consent to.
7.6. Termination of Agency. Purchaser may discharge Servicer from
its duties under this Article VII upon a Termination Event. Seller may not
resign as Servicer hereunder without the prior written consent of Purchaser.
7.7. Transfer of Servicing. (a) Upon the resignation or
termination of Seller as Servicer pursuant to Section 7.6, all rights and
powers of Seller, as Servicer under this Agreement (and the rights and powers
with respect to the Sold Receivables specified in such notice) shall vest in
Purchaser or its designee. Notwithstanding the foregoing, Purchaser may, if it
is unwilling so to act, or shall, if it is unable so to act, take such actions
as are necessary to cause the appointment of a successor Servicer. Purchaser
is hereby authorized and empowered, on behalf of Seller, as attorney-in-fact or
otherwise, to execute and deliver all documents and instruments and to do all
other acts and things as are necessary or appropriate to transfer the rights
and obligations of Seller, as Servicer to Purchaser or its designee as
successor Servicer.
(b) Upon the resignation or termination of Seller as Servicer
pursuant to Section 7.6, Seller shall: (i) deliver to Purchaser or upon the
direction of Purchaser to such other Person (A) the books, documentation,
records and computer files and software with respect to the Sold Receivables,
and (B) all other documentation, books, records and other data necessary for
the servicing of the Sold Receivables; and (ii) provide Purchaser (and any
successor Servicer) with access to, and copies of, all books, documentation,
records and computer files and software relating to the Sold Receivables.
(c) Any successor Servicer appointed pursuant hereto shall
expressly assume and agree to be bound by the provisions of this Agreement.
7.8. Power of Attorney. Seller hereby grants to each of Purchaser
and Servicer (if a Person other than Seller is Servicer) an irrevocable power
of attorney, with full power of substitution and coupled with an interest, to
take in the name of Seller or in the name of Purchaser or Servicer (if a Person
other than Seller is Servicer) or both, as the case may be, all steps necessary
or advisable (i) to endorse, negotiate or otherwise realize on any check,
draft, writing or other right of any kind held or owned by Seller or
transmitted to or received by Purchaser or Servicer (if a Person other than
Seller is Servicer) as payment on account or otherwise in respect of any Sold
-64-
<PAGE> 72
Receivable and (ii) if any sale arising hereunder is found to be a financing,
to collect any Sold Receivables if not paid to Purchaser when due, and (iii) if
the rights, titles and interest of Seller under any Contract are not
assignable, in whole or in part, to Purchaser, to enforce all rights, titles
and interests thereunder of Seller if any Sold Receivable related thereto is
not paid to Purchaser when due, or (iv) if Seller fails to do so on request, to
execute and deliver, in Seller's name and on Seller's behalf, such instruments
and documents (including bills of sale and assignments) reasonably necessary or
desirable to evidence or protect Purchaser's ownership interest in the Sold
Receivables and to execute and file, in Seller's name, financing statements
(including amendments and continuation statements) under the UCC (or similar
Law where the UCC is not enacted) in all jurisdictions where it may be
necessary or, in the opinion of Purchaser, advisable to validate or protect the
ownership interest of the Purchaser in the Sold Receivables.
7.9. Servicer Deposit Account. On the date hereof Servicer shall
cause to be established, and at all times prior to the Final Payout Date,
Servicer shall cause to be maintained, one or more segregated trust accounts at
Purchaser in the name of Servicer, as trustee for Purchaser (collectively, the
"Servicer Deposit Account"). The Servicer Deposit Account shall be used for
the deposit of funds set aside pursuant to clauses (ii), (iii) and (iv) of
Section 2.6(a) and no other funds. No deposit of funds in the Servicer Deposit
Account shall be deemed to reduce the Purchaser's Net Investment, unless and
until such funds are actually paid to Purchaser in accordance with Section 2.6
or 2.7. Except during any Liquidation Period, funds on deposit in the Servicer
Deposit Account shall be invested in overnight deposits, selected by Seller but
acceptable to Purchaser, and the income from such investments shall be added to
the balance in such account. During any Liquidation Period, any moneys
credited to the Servicer Deposit Account will remain uninvested. Except upon
the commencement of, and during the continuance of, any Liquidation Period, all
income on the overnight investments of the funds on deposit in the Servicer
Deposit Account shall be paid to Servicer, if Seller or an Affiliate of Seller
is the Servicer, on the Semi-Monthly Settlement Date following any credit of
such income to the Servicer Deposit Account as consideration for servicing the
Sold Receivables. Upon the commencement of any Liquidation Period, all accrued
and unpaid income on the overnight investments of the funds on deposit in the
Servicer Deposit Account shall be paid to Purchaser on the Semi-Monthly
Settlement Date following any credit of such accrued income to the Servicer
Deposit Account and shall be applied to reduce the Purchaser's Net Investment.
Any losses on the investment of sums deposited in the Servicer Deposit Account
shall be for the account of Seller. On the Final
-65-
<PAGE> 73
Payout Date, after payment of all sums due and owing to Purchaser any remaining
balance in the Servicer Deposit Account shall be released to Seller.
ARTICLE VIII
TERMINATION EVENTS
8.1. Termination Events. The following events shall be
"Termination Events" hereunder:
(a) Cross Default to Agreements with Seller. (i) Any
breach or default occurs under any other agreement involving the
borrowing of money, the extension of credit or any capitalized or
operating lease by and between Seller or any Affiliate thereof, and
Purchaser or any Affiliate of Purchaser, under which Seller may be
obligated as a borrower, installment purchaser, lessee or guarantor,
if such breach or default consists of the failure to pay any
indebtedness or rental payments in excess of $100,000 when due or if
such breach or default permits or causes (with or without the passage
of time or the giving of notice or both) the acceleration of any
indebtedness or rental payments in excess of $100,000 due or the
termination of any commitment to lend; or (ii) a default shall have
occurred and be continuing under the Note Agreement, which default if
unremedied, uncured, or unwaived (with or without the passage of time
or the giving of notice or both) would permit acceleration of the
maturity of such indebtedness or any notice of default required to
permit acceleration shall have been given; or (iii) a default shall
have occurred and be continuing under any other instrument or
agreement evidencing, securing or providing for the issuance of
indebtedness for borrowed money in excess of $1,000,000 of, or
guaranteed by, Seller, which default if unremedied, uncured, or
unwaived (with or without the passage of time or the giving of notice
or both) would permit acceleration of the maturity of such
indebtedness or any notice of default required to permit acceleration
shall have been given; or
(b) Bankruptcy and Financial Distress. (i) an Event of
Bankruptcy shall occur with respect to Seller, or (ii) Seller shall
voluntarily suspend the transaction of usual business, or (iii) a writ
or warrant of attachment or any similar process shall be issued
against a substantial part of the property of Seller, or (iv) an order
shall be entered enjoining or preventing Seller from conducting all or
any part of its business as it is usually conducted, or (v)
garnishment proceedings shall be instituted by attachment,
-66-
<PAGE> 74
levy or otherwise, against any Lockbox Account or the Servicer Deposit
Account;
(c) Payment Default. Seller fails to pay to Purchaser any
sum due by Seller, whether in its capacity as Servicer or as the
Seller hereunder, to Purchaser hereunder, including without limitation
any Earned Discount, Seller Adjustment, Servicer's Fees, Fees or
Indemnity Payment due hereunder by Seller to Purchaser;
(d) Default Under the Receivables Documents. (i) The
existence of a violation of any covenant set forth in Sections 6.5 or
6.7 hereof or any of the following Incorporated Covenants under
Section 6.17: Sections 10.1, 10.4, 10.5, 10.7, 10.8, 10.9, 10.11 and
10.16 of the Note Agreement, or (ii) Seller, whether in its capacity
as Seller or Servicer hereunder, breaches, or defaults under, any
other term, condition, representation, warranty, provision or covenant
contained in this Agreement or in any of the other Receivables
Documents other than a covenant set forth in Sections 6.5 or 6.7
hereof or any of the following Incorporated Covenants under Section
6.17: Sections 10.1, 10.4, 10.5, 10.7, 10.8, 10.9, 10.11 and 10.16 of
the Note Agreement, which breach continues uncured for three (3)
Business Days after Seller's receipt of written notice of the breach;
(e) Notice of Lien. A notice of Lien, levy or assessment
in excess of $50,000 is filed of record against Seller with respect to
all or any part of Pool Receivables, including any Sold Receivables,
by the United States, or any department, agency or instrumentality
thereof (including, without limitation, the PBGC) and such notice,
levy or assessment shall not have been released within five Business
Days of such filing;
(f) Change of Control. Any person or group of persons
(within the meaning of Sections 13(a) or 14(a) of the Exchange Act),
other than the current officers or directors of Seller and any person
who as of the date hereof holds 20% or more of the voting capital
stock of Seller, shall have acquired beneficial ownership of (within
the meaning of Rule 13d-3 promulgated by the Securities and Exchange
Commission under said Exchange Act) 20% or more of the voting capital
stock of Seller; or
(g) Loss of Priority. This Agreement and the Assignments
shall for any reason cease to vest in Purchaser a valid and perfected
first priority interest under Article 9
-67-
<PAGE> 75
of the Uniform Commercial Code in the Sold Receivables (subject to
Section 9-306 of the Uniform Commercial Code).
(h) Current Default Ratio and Net Charge-Off Ratio. The
Current Default Ratio as of any Relevant Month End Date exceeds 10.0%;
(ii) the average of the Current Default Ratios as of any three
consecutive Month End Dates exceeds 8.0%; or (iii) the Net Charge-Off
Ratio exceeds 2.25%; or
(i) Changes in Credit Policies. Seller or Servicer (if
Seller or Affiliate thereof is Servicer) shall make any material
change in the policies as to origination of Receivables or in the
Credit and Collection Policy without the prior written consent of
Purchaser; or
(j) Violation of Maximum Purchaser's Net Investment or
Allocation Minimum. The Allocation Minimum is in excess of the
Reserve Asset Percentage or the Purchaser's Net Investment exceeds the
Maximum Purchaser's Net Investment and such event continues uncured
more than two Business Days following written notice thereof to Seller
from Purchaser or Servicer; or
(k) Delinquency Ratio. Either (A) the Delinquency Ratio
at any Relevant Month End Date is greater than 4.5%; or (B) the
average of the Delinquency Ratios at any three consecutive Month End
Dates is greater than 3.0%;
(l) Material Adverse Change. There shall exist any event
or occurrence that has caused a Material Adverse Effect; or
(m) Cumulative Dilution. As of any Month End Date, the
aggregate dollar amount of Dilutions accruing in the twelve-month
period ending on such Month End Date equals or exceeds $22,000,000.
8.2. Remedies. (a) Optional Liquidation. Upon the occurrence of
a Termination Event (other than a Termination Event described in subsection (b)
or (c) of Section 8.1), Purchaser, by notice to Seller, shall have the option
to reduce the Maximum Purchaser's Net Investment to zero (0), to terminate the
Purchase Commitment and to declare the Purchase Termination Date to have
occurred and the Liquidation Period to have commenced.
(b) Automatic Liquidation. Upon the occurrence of a
Termination Event described in subsection (b) or (c) of Section 8.1, the
Maximum Purchaser's Net Investment shall automatically reduce to zero (0), the
Purchase Commitment shall terminate, the
-68-
<PAGE> 76
Purchase Termination Date shall occur and the Liquidation Period shall commence
automatically.
(c) Additional Remedies. Upon any Purchase Termination
Date pursuant to this Section 8.2, no Purchases thereafter will be made.
Purchaser shall have (i) the right to notify the Obligors of the Sold
Receivables, or any of them, of the interest of Purchaser in the Sold
Receivables, (ii) the right to direct Obligors of the Sold Receivables, or any
of them, to make payment directly to Purchaser, and (iii) the right to deliver
the Lockbox Letter Agreements to the Lockbox Banks. Purchaser shall also have,
in addition to all other rights and remedies under this Agreement or otherwise,
all other rights and remedies provided under the UCC of each applicable
jurisdiction and other applicable laws, which rights shall be cumulative.
(d) This Agreement a Financial Accommodation. The parties
hereto acknowledge that this Agreement is, and is intended to be, a contract to
extend financial accommodations to the Sellers within the meaning of Section
365(e)(2)(B) of the Federal Bankruptcy Code.
ARTICLE IX
SECURITY INTEREST; ACTIONS OF PURCHASER
9.1. Grant of Security Interest. The Seller hereby grants and
assigns to Purchaser a "security interest" (as defined in the UCC) in all of
Seller's right, title and interest (including specifically any right of Seller
to receive the payment of any Adjusted Deferred Purchase Price hereunder) now
or hereafter existing in, to and under (i) all the Sold Receivables (including
specifically any right of the Seller to receive the payment of any Adjusted
Deferred Purchase Price hereunder), and (ii) all proceeds of any of the
foregoing, and the parties hereby agree that this Agreement shall constitute a
security agreement under the UCC, to secure all of the obligations of Seller,
including any obligations of Seller as Servicer hereunder, arising in
connection with this Agreement and each other Receivables Document, whether now
or hereafter existing, due or to become due, direct or indirect, or absolute or
contingent, including, without limitation, the payment to Purchaser of the sum
of Purchaser's Net Investment, the payment to Purchaser of the aggregate unpaid
Earned Discount calculated hereunder, the payment to Purchaser of any
Servicer's Fees, Seller Adjustments or Indemnity Payment due hereunder and the
payment of any other Fees, expenses and costs due and payable to Purchaser
hereunder.
-69-
<PAGE> 77
9.2. Further Assurances. The provisions of Section 6.3 shall apply
to the security interest granted under Section 9.1 as well as to the Purchases
of the Sold Receivables hereunder.
9.3. Remedies to Enforce Security Interests. Upon the occurrence
of a Termination Event, Purchaser shall have, with respect to the collateral
granted pursuant to Section 9.1, and in addition to all other rights and
remedies available to Purchaser under this Agreement and the other Receivables
Documents and under other applicable law, all the rights and remedies of a
secured party upon default under the UCC, which remedies shall be cumulative.
9.4. Disclosure. Purchaser may at any time disclose Purchaser's
interest in the Sold Receivables to Purchaser's officers, directors, employees,
attorneys, accountants and other advisers who need to know such information in
connection with the administration and enforcement of this Agreement or as
requested by any regulatory authority or as otherwise required by Law or by
subpoena or other legal process. Except for the filing of UCC financing
statements or to enforce its rights hereunder after demand has been made upon
Seller, Purchaser shall not, however, at any time, disclose to an Obligor its
interest in the Sold Receivables unless in connection with the collection of a
Sold Receivable or required to do so by Law or by subpoena or other legal
process or as otherwise permitted by the terms of this Agreement and the other
Receivables Documents.
9.5. Rights of Purchaser. (a) Seller hereby authorizes Purchaser,
Servicer and/or their respective designees to take any and all steps, in
Seller's name and on behalf of Seller, that Purchaser, Servicer and/or their
respective designees determine are necessary or desirable to collect all
amounts due under any and all Sold Receivables, including, without limitation,
endorsing the name of Seller on checks and other instruments representing
collections and enforcing all Sold Receivables.
(b) Purchaser shall have no obligation to account for, to
replace, to substitute or to return any Sold Receivable to Seller.
(c) Purchaser shall have the unrestricted right to
further assign, transfer, deliver, hypothecate, subdivide or otherwise deal
with the Sold Receivables, and all of Purchaser's right, title and interest in,
to and under this Agreement, on whatever terms Purchaser shall determine.
(d) Purchaser shall have the sole right to retain any
gains or profits created by buying, selling or holding the Sold
-70-
<PAGE> 78
Receivables and shall have the sole risk of and responsibility for losses or
damages created by such buying, selling or holding.
ARTICLE X
INDEMNIFICATION
10.1. Indemnification. (a) Seller shall hold Purchaser harmless from and
indemnify Purchaser against any and all liabilities, obligations, losses,
damages, penalties, claims, actions, judgments, suits, costs, expenses and
disbursements of any kind or nature whatsoever (including attorneys' fees and
allocated costs for in-house legal services) which arise out of or are incurred
in connection with Purchaser's enforcement of this Agreement and any instrument
or agreement required hereunder.
(b) Without limiting any other rights which any Indemnified
Party (as defined below) may have hereunder or under applicable Law, Seller
hereby agrees to indemnify Purchaser, each of its successors, permitted
transferees and assigns, and all officers, directors, shareholders, controlling
Persons, employees and agents of any of the foregoing (each of the foregoing
Persons being individually called an "Indemnified Party"), forthwith on demand,
from and against any and all damages, losses, claims (whether on account of
settlements or otherwise, and whether or not the relevant Indemnified Party is
a party to any action or proceeding that gives rise to any Indemnified Losses
(as defined below)), judgments, liabilities and related costs and expenses
(including reasonable attorneys' fees and disbursements) awarded against or
incurred by any of them arising out of or as a result of any of the following
(all of the foregoing being collectively called "Indemnified Losses"):
(i) any transfer by Seller of any interest in any
Sold Receivable other than the transfer of the Sold
Receivables by Seller to Purchaser pursuant to this Agreement;
(ii) any representation or warranty made or deemed
made by Seller (or any of its officers) under or in connection
with this Agreement, any Assignment or any Servicer Report, or
any other information or report delivered by or on behalf of
Seller pursuant hereto or thereto, shall have been false,
incorrect or misleading in any material respect when made or
deemed made or delivered, as the case may be;
-71-
<PAGE> 79
(iii) the failure by Seller to comply with any
applicable Law with respect to any Sold Receivable, or the
nonconformity of any Sold Receivable with any such applicable
Law.
(iv) the failure to vest in Purchaser an ownership
interest equal to the Sold Receivables free and clear of all
Adverse Claims, other than a Lien arising solely as a result
of any action of Purchaser or any assignee of any thereof,
whether existing at the time of any purchase or at any time
thereafter;
(v) the failure to maintain the appropriate filings
of financing statements or other similar instruments or
documents under the UCC of any applicable jurisdiction or
other applicable Laws with respect to any Sold Receivables,
whether at the time of any purchase or at any time thereafter,
to establish Purchaser's first priority interest in any Sold
Receivable;
(vi) any dispute, claim, offset, other non-cash
reduction or defense (other than discharge in bankruptcy or
other credit-related issue) of an Obligor to the payment of
any Sold Receivable (including, without limitation, any
defense that such Sold Receivable or the related Contract is
not a legal, valid and binding obligation of the applicable
Obligor enforceable against it in accordance with its terms),
or any other claim resulting from the sale of the merchandise
or services related to such Sold Receivable or the related
Contract or the furnishing or failure to furnish such
merchandise or services;
(vii) any failure of Seller, as Servicer or
otherwise, to perform any of its duties or obligations in
accordance with the provisions of Article VI or Article VII;
(viii) any liability claim (including, but not
limited to product liability or tort claims) arising out of or
in connection with the Contract;
(ix) any breach of the Contract by Seller;
(x) any tax or governmental fee or charge (but not
including income taxes, branch profit taxes, franchise taxes
or similar taxes imposed on, or measured by, the income or
profits of Purchaser), all interest and penalties thereon or
with respect thereto, and all
-72-
<PAGE> 80
out-of-pocket costs and expenses, including the reasonable
fees and expenses of counsel in defending against the same,
which may arise by reason of the purchase or ownership of any
Sold Receivable;
(xi) any investigation, litigation or proceeding
related to this Agreement or the use of proceeds of a Sold
Receivable, except to the extent any such investigation,
litigation or proceeding relates to a possible matter
involving an Indemnified Party for which neither Seller nor
any of its Affiliates is at fault;
(xii) any claim with respect to the Sold Receivables
based upon or relating to any Laws relating to truth in
lending, fair credit billing, fair credit reporting, equal
credit opportunity, fair debt collection practices and privacy
or any other claim relating to collection activities except to
the extent such claim arises out of an act or an omission of a
Servicer other than Seller or an affiliate of Seller;
(xiii) any commingling of collections of Sold
Receivables at any time with any other funds, unless such
commingling was caused solely by a Servicer other than Seller
or an affiliate of Seller;
(xiv) the replacement of Seller as Servicer,
including, without limitation, any servicing fees payable to
such replacement servicer; or
(xv) any loss incurred by Purchaser in the event
(1) that any transfer of Sold Receivables to Purchaser is
voided, or such transfer is reconveyed to Seller by Purchaser,
in compliance with an order of a court having jurisdiction
over any bankruptcy, insolvency or conservancy proceedings
relating to Seller, or (2) that any repayments of Purchaser's
Net Investment to Purchaser, or the payment to Purchaser of
any Earned Discount, Servicer's Fees, Seller Adjustments, Fees
or Indemnity Payments made by, or on behalf of Seller, is at
any time repaid by Purchaser to Seller in compliance with an
order of a court having jurisdiction over any bankruptcy,
insolvency or conservancy proceedings relating to Seller.
Notwithstanding the foregoing (and with respect to clause (B) below, without
prejudice to the rights that Purchaser may have pursuant to the other
provisions of this Agreement), in no event shall any Indemnified Party be
indemnified for any Indemnified
-73-
<PAGE> 81
Losses (A) resulting from gross negligence or willful misconduct on the part of
such Indemnified Party, or any Person of which such Indemnified Party is an
officer, director, shareholder, controlling Person, employee or agent, or (B)
to the extent the same includes losses in respect of Sold Receivables and
reimbursement therefor that would constitute credit recourse to Seller or
Servicer for the amount of any Sold Receivable not paid by the applicable
Obligor.
(c) Any claim by Purchaser or any other Indemnified Party for
indemnification pursuant to this Section 10.1 shall be set forth in writing and
such notice shall set forth in reasonable detail the basis for such
determination; provided, however, if the Indemnified Loss qualifies as a Seller
Adjustment such loss shall be governed by the provisions of Section 2.8,
including without limitation the timing of the payment of such Seller
Adjustment to Purchaser. Such amount shall be due and payable by Seller to
Purchaser or such other Indemnified Party ten (10) Business Days after such
notice is given. In the event that the nature of the Indemnified Loss gives
rise to an Indemnity Payment that includes a repayment of the Current Purchase
Price Payment allocable to a Sold Receivable such Indemnified Loss shall also
include the payment by Seller of the accrued and unpaid Earned Discount through
the day of such payment. Upon the payment of any Indemnity Payment described
in the preceding sentence Purchaser shall execute and deliver to Seller a duly
completed Reassignment of Sold Receivable concerning the applicable Sold
Receivables.
10.2. Contest of Tax Claim. If any Indemnified Party shall have notice of
any attempt to impose or collect any tax or governmental fee or charge for
which indemnification will be sought from Seller under Section 10.1(b)(x), such
Indemnified Party shall give prompt and timely notice of such attempt to Seller
and Seller shall have the right, at its expense, to participate in any
proceedings related to such attempt for the purpose of resisting or objecting
to the imposition or collection of any such tax, governmental fee or charge.
10.3. Contribution. If for any reason the indemnification provided in
Section 10.1 (and subject to the exceptions set forth therein) is unavailable
(other than by reason of a final adjudication by a court of competent
jurisdiction that a claim is not within the scope of such indemnification) to
an Indemnified Party or is insufficient to hold an Indemnified Party harmless,
then Seller shall contribute to the maximum amount payable or paid to such
Indemnified Party under Section 10.1 as a result of such loss, claim, damage or
liability in such proportion as is appropriate to reflect not only the relative
benefits received by such Indemnified Party on the one hand and Seller on the
other
-74-
<PAGE> 82
hand, but also the relative fault of such Indemnified Party (if any) and Seller
and any other relevant equitable considerations.
ARTICLE XI
MISCELLANEOUS
11.1. Notices. Any communications between the parties hereto to be given in
writing shall be given by mailing the same, postage prepaid, or by facsimile or
personal delivery to each party at its address set forth below, or to such
other addresses as either party may in writing hereafter indicate. Any
communications between the parties hereto to be given by telephone shall be
confirmed immediately in writing by the party initiating the telephone call.
Address for notices to Seller: Address for notices to Purchaser:
Kerr Group, Inc. PNC Bank, National Association
1840 Century Park East 300 Sixth Avenue PNC Plaza
Los Angelas, CA 90067 9th Floor
Pittsburgh, PA 15226
Attn: Geoffrey A. Whynot, Attn: Secured Credit
Treasurer Administration
Telecopier No. (310) 201-5934 Telecopier No. (412) 762-4069
Telephone No. (310) 556-2200 Telephone No. (412) 762-4924
with copy to:
PNC Bank, National Association
55 South Lake Avenue
Suite 650
Pasadena, CA 91101
Attn: Anthony Trunzo,
Vice President
Telecopier No. (818) 568-0653
Telephone No. (818) 568-9423
-75-
<PAGE> 83
Deposit instructions for Wire instructions for
Payments to Seller: payment to Purchaser:
Bank of America, N.A. PNC Bank, National Association
(ABA 121000358) (ABA 043000096)
San Francisco, California One PNC Plaza
Pittsburgh, PA 15265
Further credit to: Attn: Loan & Collateral
Account #1257600128 Reference Customer No. _______
Reference: Kerr Group, Inc.
11.2. Successors and Assigns. This Agreement shall bind and inure to the
benefit of the parties hereto and their respective successors and assigns;
provided, however that Seller shall not assign this Agreement or any of the
rights of Seller hereunder without the prior written consent of Purchaser.
11.3. Transfers. Purchaser may at any time, without the prior written
consent of Seller, sell, assign, grant participations in, or otherwise transfer
any of the Sold Receivables to any other person.
11.4. Amendments, Etc. No amendment or waiver of any provision of this
Agreement nor consent to any departure by Seller therefrom shall in any event
be effective unless the same shall be in writing and signed by (a) Seller and
Purchaser, and Servicer if Seller is not Servicer, (with respect to an
amendment), or (b) Purchaser (with respect to a waiver or consent) or Seller
(with respect to a waiver or consent by it), as the case may be, and then such
waiver or consent shall be effective only in the specific instance and for the
specific purpose for which given.
11.5. No Implied Waivers; Cumulative Remedies; Writing. No delay or
omission by Purchaser to exercise any right under this Agreement shall impair
any such right, nor shall it be construed to be a waiver thereof. No waiver of
any single breach or default under this Agreement shall be deemed a waiver of
any other breach or default. Any waiver, consent or approval under this
Agreement must be in writing to be effective. No course of dealing and no
delay or failure of Purchaser in exercising any right, power, remedy or
privilege under this Agreement or any other Receivables Document shall affect
any other or future exercise thereof or operate as a waiver thereof; nor shall
any single or partial exercise thereof or any abandonment or discontinuance of
steps to enforce such a right, power, remedy or privilege preclude any further
exercise thereof or of any other right, power, remedy or privilege. The rights
and remedies of Purchaser under this Agreement and any other Receivables
Documents, or by Law or otherwise, are cumulative and not
-76-
<PAGE> 84
exclusive of any rights or remedies which it would otherwise have. Any waiver,
permit, consent or approval of any kind or character on the part of Purchaser
of any breach or default under this Agreement or any such waiver of any
provision or condition of this Agreement must be in writing and shall be
effective only to the extent specifically set forth in such writing and
executed by Purchaser.
11.6. Costs, Expenses and Taxes. In addition to its obligations under
Article X hereof, Seller agrees to pay on demand:
(a) all reasonable costs and expenses incurred by
Purchaser in connection with the negotiation, preparation, execution and
delivery of this Agreement, the Assignments and the other Receivables
Documents, any amendment of or consent or waiver under any of this Agreement or
of the Assignments which is requested or proposed by Seller (whether or not
consummated), the administration (including periodic auditing) or the
enforcement of, or any actual or claim breach of, this Agreement and,
including, without limitation (i) the reasonable fees and expenses of counsel
to any of such Persons incurred in connection with any of the foregoing or in
advising such Persons as to their respective rights and remedies under this
Agreement or the Assignments in connection with any of the foregoing, and (ii)
all reasonable out-of-pocket expenses (including reasonable fees and expenses
of independent accountants), incurred in connection with any review of Seller's
books, records and other documentation either prior to the execution and
delivery hereof or pursuant to Section 6.4 hereof; provided, however, that
Seller shall not be obligated to pay any costs or expenses incurred by
Purchaser in connection with more than two audits of Seller's books, records
and other documentation during any twelve (12) month period so long as no
Termination Event or Potential Termination Event shall have occurred and be
continuing; and
(b) all stamp and other taxes and fees payable or
determined to be payable in connection with the execution, delivery, filing and
recording of this Agreement, of any Assignment or of any other Receivables
Documents, and agrees to indemnify each Indemnified Party against any
liabilities with respect to or resulting from any delay in paying or omission
to pay such taxes and fees.
(c) Seller agrees to reimburse Purchaser for the cost of
two (2) tax lien searches per calendar year during the term of this Agreement
conducted by Purchaser to verify the existence or non-existence of Liens
against Receivables of Seller for non-payment of federal or state taxes in such
jurisdictions as Purchaser in the reasonable exercise of its discretion may
-77-
<PAGE> 85
request; provided that upon the occurrence of a Termination Event Seller shall
reimburse Purchaser for the cost of all tax lien searches conducted by
Purchaser to verify the existence or non-existence of Liens against Receivables
of Seller for non-payment of federal or state taxes in such jurisdictions as
Purchaser in the reasonable exercise of its discretion may request.
11.7. Funding by Branch, Subsidiary or Affiliate.
(a) Notional Funding. Purchaser shall have the right from time to
time, without notice to the Seller, to deem any branch, subsidiary or affiliate
(which for the purposes of this Section 11.7 shall mean any corporation or
association which is directly or indirectly controlled by or is under direct or
indirect common control with any corporation or association which directly or
indirectly controls Purchaser) of Purchaser to have made, maintained or funded
the Purchaser's Net Investment, provided that immediately following (on the
assumption that a payment were then due from the Seller to such other office)
and as a result of such change the Seller would not be under any greater
financial obligation pursuant to Section 5.3 or 5.4 hereof than it would have
been in the absence of such change. Notional funding offices may be selected
by Purchaser without regard to Purchaser's actual methods of making,
maintaining or funding the Purchaser's Net Investment or any sources of funding
actually used by or available to Purchaser.
(b) Actual Funding. Purchaser shall have the right from time to
time to make or maintain the Purchaser's Net Investment by arranging for a
branch, subsidiary or affiliate of Purchaser to make or maintain the
Purchaser's Net Investment subject to the last sentence of this Section 11.7.
If Purchaser causes a branch, subsidiary or affiliate to make or maintain any
part of the Purchaser's Net Investment hereunder, all terms and conditions of
this Agreement shall, except where the context clearly requires otherwise, be
applicable to such part of the Purchaser's Net Investment to the same extent as
if the Purchaser's Net Investment were made or maintained by Purchaser but in
no event shall Purchaser's use of such a branch, subsidiary or affiliate to
make or maintain any part of the Purchaser's Net Investment hereunder cause
Purchaser or such branch, subsidiary or affiliate to incur any cost or expenses
payable by the Seller hereunder or require the Seller to pay any other
compensation to any (including, without limitation, any expenses incurred or
payable pursuant to Section 5.3 or 5.4) which would otherwise not be incurred.
11.8. Severability. Any provision of this Agreement which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or
-78-
<PAGE> 86
enforceability without invalidating the remaining portions hereof or affecting
the validity or enforceability of such provision in any other jurisdiction.
11.9. Survival. All representations, warranties, covenants and agreements
of Seller contained herein or in the other Receivables Documents or made in
writing in connection herewith shall survive the Initial Purchase Date and
shall continue in full force and effect so long as Seller may sell and assign
any Sold Receivables hereunder and so long thereafter until the repayment in
full of the Purchaser's Net Investment and the payment of the other sums due to
Purchaser hereunder. The obligations of the Seller under Sections 2.8, 5.3,
5.4 and 11.6 and Article X shall survive the termination of this Agreement and
the discharge of the other obligations of Seller hereunder, and any other
Receivables Documents, and shall also survive the payment in full of the
Purchaser's Net Investment and the reduction of the Maximum Purchaser's Net
Investment to zero (0) in accordance with the provisions of this Agreement.
11.10. GOVERNING LAW. THIS AGREEMENT AND THE OTHER RECEIVABLES DOCUMENTS
SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
COMMONWEALTH OF PENNSYLVANIA (INCLUDING WITHOUT LIMITATION, AS TO THE STATUTE
OF LIMITATIONS), WITHOUT REGARD TO THE PRINCIPLES THEREOF REGARDING CONFLICT OF
LAWS, EXCEPTING APPLICABLE FEDERAL LAW AND EXCEPT ONLY TO THE EXTENT PRECLUDED
BY THE MANDATORY APPLICATION OF THE LAW OF ANOTHER JURISDICTION.
11.11. FORUM. THE PARTIES HERETO AGREE THAT ANY ACTION OR PROCEEDING ARISING
OUT OF OR RELATING TO THIS AGREEMENT OR THE OTHER RECEIVABLES DOCUMENTS TO
WHICH THE SELLER IS A PARTY MAY BE COMMENCED IN THE COURT OF COMMON PLEAS OF
ALLEGHENY COUNTY, PENNSYLVANIA OR IN THE DISTRICT COURT OF THE UNITED STATES
FOR THE WESTERN DISTRICT OF PENNSYLVANIA, AND THE PARTIES HERETO AGREE THAT A
SUMMONS AND COMPLAINT COMMENCING AN ACTION OR PROCEEDING IN EITHER OF SUCH
COURTS SHALL BE PROPERLY SERVED AND SHALL CONFER PERSONAL JURISDICTION IF
SERVED PERSONALLY OR BY CERTIFIED MAIL TO THE PARTIES AT THEIR RESPECTIVE
ADDRESSES SET FORTH IN SECTION 11.1, OR AS OTHERWISE PROVIDED UNDER THE LAWS OF
THE COMMONWEALTH OF PENNSYLVANIA. FURTHER, SELLER HEREBY SPECIFICALLY CONSENTS
TO THE PERSONAL JURISDICTION OF THE COURT OF COMMON PLEAS OF ALLEGHENY COUNTY,
PENNSYLVANIA AND THE DISTRICT COURT OF THE UNITED STATES FOR THE WESTERN
DISTRICT OF PENNSYLVANIA AND WAIVES AND HEREBY ACKNOWLEDGES THAT IT IS ESTOPPED
FROM RAISING ANY OBJECTION BASED ON FORUM NON CONVENIENS, ANY CLAIM THAT EITHER
SUCH COURT LACKS PROPER VENUE OR ANY OBJECTION THAT EITHER SUCH COURT LACKS
PERSONAL JURISDICTION OVER SELLER SO AS TO PROHIBIT EITHER SUCH COURT FROM
ADJUDICATING ANY ISSUES RAISED IN A COMPLAINT FILED WITH EITHER
-79-
<PAGE> 87
SUCH COURT AGAINST SELLER BY PURCHASER CONCERNING THIS AGREEMENT OR THE OTHER
RECEIVABLES DOCUMENTS OR PAYMENT TO PURCHASER. SELLER HEREBY ACKNOWLEDGES AND
AGREES THAT THE CHOICE OF FORUM CONTAINED IN THIS SECTION 11.11 SHALL NOT BE
DEEMED TO PRECLUDE THE ENFORCEMENT OF ANY JUDGMENT OBTAINED IN ANY FORUM OR THE
TAKING OF ANY ACTION UNDER THE RECEIVABLES DOCUMENTS TO ENFORCE THE SAME IN ANY
APPROPRIATE JURISDICTION.
11.12. Integration. This Agreement and the other Receivables Documents
constitute the entire agreement between the parties relating to this financing
transaction and they supersede all prior understandings and agreements, whether
written or oral, between the parties hereto relating to the transactions
provided for herein.
11.13. Headings. Article, Section and other headings used in this Agreement
are intended for convenience only and shall not affect the meaning or
construction of this Agreement.
11.14. WAIVER BY JURY TRIAL. IN ORDER TO EXPEDITE THE RESOLUTION OF ANY
DISPUTES WHICH MAY ARISE UNDER THIS AGREEMENT OR UNDER ANY OTHER RECEIVABLES
DOCUMENT TO WHICH SELLER IS A PARTY, AND IN LIGHT OF THE COMPLEXITY OF THE
TRANSACTIONS CONTEMPLATED UNDER THIS AGREEMENT, THE PARTIES HERETO WAIVE THE
RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING OF ANY KIND OR NATURE IN ANY
COURT TO WHICH THEY MAY BOTH BE PARTIES, WHETHER ARISING OUT OF, UNDER, OR BY
REASON OF THIS AGREEMENT OR ANY OF THE OTHER RECEIVABLES DOCUMENTS OR ANY
ASSIGNMENT OR OTHER TRANSACTION THEREUNDER OR BY REASON OF ANY CAUSE OR DISPUTE
WHATSOEVER BETWEEN THEM OF ANY KIND OR NATURE. THE PARTIES HERETO ACKNOWLEDGE
THAT THIS WAIVER OF JURY TRIAL HAS BEEN SPECIFICALLY NEGOTIATED AS A PART OF
THIS AGREEMENT.
-80-
<PAGE> 88
11.15. Counterparts. This Agreement may be executed in as many counterparts
as shall be convenient and by the different parties hereto on separate
counterparts, each of which when executed by Purchaser, Seller and Servicer
shall be regarded as an original.
11.16. Waiver of Certain Setoff Rights. Without affecting or diminishing any
rights of Purchaser with respect to any checks, drafts, or other orders for the
payment of money, any deposit funds or any electronic funds transfer which
represent Collections or the proceeds of Collections of Sold Receivables, or
the right of Purchaser to recover the Purchaser's Net Investment plus Earned
Discount and Servicer's Fees from Collections of Sold Receivables, Purchaser
shall not have the right to set off any of the funds of Seller on deposit in
any account with Purchaser against any debts or other obligations of Seller to
the Purchaser.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
-81-
<PAGE> 89
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement by their duly authorized officers as of the day and year first above
written.
ATTEST: (Seal) SELLER:
KERR GROUP, INC.
By: /s/ L.R. Knipple By: /s/ Geoffrey A. Whynot
-------------------------- --------------------------
Name: Larry R. Knipple Name: Geoffrey A. Whynot
Title: V.P., Secretary Title: Treasurer
Purchaser:
PNC BANK, NATIONAL ASSOCIATION
By: /s/ Anthony L. Trunzo
--------------------------
Name: Anthony L. Trunzo
Title: Vice President
-82-
<PAGE> 1
EXHIBIT 10.32
February 9, 1995
Mr. Geoffrey A. Whynot
Treasurer
Kerr Group, Inc.
1840 Century Park East
Los Angeles, CA 90067
Dear Geoff:
This letter will confirm that we hold available for Kerr Group, Inc. a
$10,000,000 line of credit with a $2MM sublimit for standby letters of credit,
to extend through April 30, 1996. Borrowings shall be evidenced by a promissory
note in the form attached hereto. Interest on any borrowings under this
facility will be at our Base Rate, which is the higher of our announced Base
Rate or overnight Federal Funds rate plus 1/2%, and shall be payable in
accordance with the terms of the promissory note. Letters of credit will be 2%
per annum, invoiced quarterly in arrears with a minimum flat fee of $250.00.
You will execute the banks customary documents with respect to letters of
credit, as well as pay all standard fees and other charges as is customary with
respect to the issuance and maintenance of each letter of credit. Letters of
credit shall have such maturity as the bank and company mutually agree upon.
A fee equal to 3/4% per annum, on the total amount of the line will be invoiced
quarterly.
The availability of borrowings and standby letters of credit under this
facility is subject to our usual reservation that we continue to be satisfied
with the affairs of Kerr Group, Inc. and to any changes in government
regulations or monetary policy. As well, that no event of default shall have
occurred with respect to any term or condition of this line or to the $50MM
senior note agreement between Kerr Group, Inc. and its holders dated September
15, 1993.
If the foregoing satisfactorily sets forth the terms and conditions of this
line of credit, please execute and return the enclosed copy of this letter.
If you have any questions concerning this letter, please do not hesitate to
call.
Accepted: Sincerely yours,
Kerr Group, Inc. /s/ S. Karen Langstaff
--------------------------
By: /s/ Geoffrey A. Whynot S. Karen Langstaff
---------------------------- Director
Title:
Date: 2/9/95
cc: Mr. D. Gordon Strickland
<PAGE> 2
COMMERCIAL PROMISSORY NOTE
$10,000,000.00 Boston, Massachusetts
February 1, 1995
FOR VALUE RECEIVED, the undersigned promises to pay to the order of THE
FIRST NATIONAL BANK OF BOSTON (together with any successors or assigns, the
"Bank"), a national banking association with its Head Office at 100 Federal
Street, Boston, Massachusetts 02110, the principal amount of ten million
Dollars ($10,000,000.00), on April 30, 1996 or, if less, the aggregate
principal amount advanced to the undersigned by the Bank under this Note and
unpaid on such date, with interest thereon at a floating rate equal to the Base
Rate plus 0%. As used herein, "Base Rate" means the rate per annum equal to the
greater of (i) the rate of interest announced from time to time by the Bank at
its Head Office as its Base Rate, and (ii) the rate equal to the weighted
average of the published rates on overnight Federal Funds transactions with
members of the Federal Reserve System plus 1/2%. The rate shall change as and
when the Base Rate changes and changes in the Base Rate shall take effect on
the day announced, unless otherwise specified in the announcement. Interest
shall be payable in arrears on July 31, 1994 and on the end of each quarter
thereafter. Interest shall be calculated on the basis of a 360-day year for
the actual number of days elapsed including holidays and days on which the Bank
is not open for the conduct of banking business.
SECTION 1. PAYMENT TERMS.
1.1 PAYMENTS; PREPAYMENTS. All payments hereunder shall be made by
the undersigned to the Bank in United States currency at the Bank's address
specified above (or at such other address as the Bank may specify), in
immediately available funds, on or before 2:00 p.m. (Boston, Massachusetts
time) on the due date thereof. Payments received by the Bank prior to the
occurrence of an Event of Default (as defined in Section 2) will be applied
first to fees, expenses and other amounts due hereunder (excluding principal
and interest); second, to accrued interest; and third to outstanding principal;
after the occurrence and during the continuance of an Event of Default,
payments will be applied to the Obligations under this Note as the Bank
determines in its sole discretion. Subject to Section 1.2, the undersigned may
pay all or a portion of the amount owed earlier than it is due without premium
or other charge.
1.2 DEFAULT RATE. To the extent permitted by applicable law, upon and
after the occurrence and during the continuance of an Event of Default (whether
or not the Bank has accelerated payment of this Note), interest on principal
and overdue interest shall, at the option of the Bank, be payable on demand at
a rate per annum equal to 2% above the greater of the rate of interest
otherwise payable hereunder or the Base Rate.
1.3 LATE PAYMENT CHARGE. If a payment of principal or interest
hereunder is not made within five business days of its due date, the
undersigned will pay on demand a late payment charge equal to the Base Rate
plus 2% of the amount of such payment. Nothing in the preceding sentence shall
affect the Bank's right to accelerate the maturity of this Note in the event of
any default in the payment of this Note.
SECTION 2. DEFAULTS AND REMEDIES.
2.1 DEFAULT. The occurrence of any of the following events or
conditions shall constitute an "EVENT OF DEFAULT" hereunder:
(a) (i) default in the payment when due of the principal of or
interest on this Note or (ii) any other default in the payment or
performance of this Note or of any other Obligation or (iii) default in
the payment or performance of any obligation of any Obligor to others for
borrowed money or in respect of any extension of credit or accommodation
or under any lease greater than $1,000,000.00 dollars; including, without
limitation, the occurrence of any event of default under a senior note
agreement dated September 15, 1993 by and between the undersigned and the
holders of its, 9.45% series A senior note and 8.99% Series B senior
note, collectively the "Senior Debt," holders.
<PAGE> 3
(b) failure of any representation or warranty herein or in any
agreement, instrument, document or financial statement delivered to the
Bank in connection herewith to be true and correct in any material
respect;
(c) default or breach of any condition under any mortgage,
security agreement, assignment of lease, or other agreement securing,
constituting or otherwise relating to any collateral for the Obligations;
(d) failure to furnish the Bank promptly on request with
financial information about, or to permit inspection by the Bank of any
books, records and properties of, any Obligor;
(e) merger, consolidation, sale of all or substantially all of
the assets or change in control of any Obligor; or
(f) any Obligor generally not paying its debts as they become
due; the death, dissolution, termination of existence or insolvency of
any Obligor; the appointment of a trustee, receiver, custodian,
liquidator or other similar official for such Obligor or any substantial
part of its property or the assignment for the benefit of creditors by
any Obligor; or the commencement of any proceedings under any bankruptcy
or insolvency laws by or against any Obligor.
(g) the failure of the undersigned to comply with any of the
terms, conditions and covenants set forth in the instruments, documents
and agreements evidenced by the Senior Debt, as if each of such terms,
conditions and covenants were set forth herein at length. For purposes of
this paragraph, the terms, conditions and covenants in effect as of the
date hereof shall be applicable to the within Note, notwithstanding any
future amendment, modification or termination of the Senior Debt.
As used herein, "OBLIGATION" means any obligation hereunder or otherwise
of any Obligor to the Bank or to any of its affiliates, whether direct or
indirect, absolute or contingent, due or to become due, now existing or
hereafter arising; and "OBLIGOR" means the undersigned, any guarantor or any
other person primarily or secondarily liable hereunder or in respect hereof,
including any person or entity who has pledged or granted to the Bank a
security interest in, or other lien on, property on behalf of the undersigned
as collateral for the Obligations.
2.2 REMEDIES. Upon an Event of Default described in Section 2.1(f)
immediately and automatically, and upon or after the occurrence of any other
Event of Default at the option of the Bank, all Obligations of the undersigned
shall become immediately due and payable without notice or demand. All rights
and remedies of the Bank are cumulative and are exclusive of any rights or
remedies provided by law or in equity or any other agreement, and may be
exercised separately or concurrently.
<PAGE> 4
SECTION 3. MISCELLANEOUS.
3.1 WAIVER; AMENDMENT. No delay or omission on the part of the Bank
in exercising any right hereunder shall operate as a waiver of such right or of
any other right under this Note. No waiver of any right or any amendment
hereto shall be effective unless in writing and signed by the Bank, nor shall a
waiver on one occasion bar or waive the exercise of any such right on any
future occasion. Without limiting the generality of the foregoing, the
acceptance by the Bank of any late payment shall not be deemed to be a waiver
of the Event of Default arising as a consequence thereof. Each Obligor waives
presentment, demand, notice, protest, and all other demands and notices in
connection with the delivery, acceptance, performance, default or enforcement
of this Note or of any collateral for the Obligations, and assents to any
extensions or postponements of the time of payment and to any other indulgences
under this Note or with respect to any such collateral, to any substitutions,
exchanges or releases of any such collateral, and to any additions or releases
of any other parties or persons primarily or secondarily liable hereunder, that
from time to time may be granted by the Bank in connection herewith.
3.2 SECURITY; SET-OFF. The undersigned grants to the Bank, as
security for the full and punctual payment and performance of the Obligations,
a continuing lien on and security interest in all securities or other property
belonging to the undersigned now or hereafter held by the Bank and in all
deposits (general or special, time or demand, provisional or final) and other
sums credited by or due from the Bank to the undersigned or subject to
withdrawal by the undersigned; and regardless of the adequacy of any collateral
or other means of obtaining repayment of the Obligations, the Bank is hereby
authorized at any time and from time to time, without notice to the undersigned
(any such notice being expressly waived by the undersigned) and to the fullest
extent permitted by law, to set off and apply such deposits and other sums
against the Obligations of the undersigned, although such Obligations may be
contingent or unmatured; provided however that the bank by accepting this Note
waives any security interest in and right of set off against the deposits of
the undersigned, with respect to funding A/C #54170704, any controlled
disbursement account or any master trust account established in connection with
the defined contribution plan of the undersigned.
3.3 TAXES. The undersigned agrees to indemnify the Bank and hold it
harmless from and against any transfer taxes, documentary taxes, assessments or
charges made by any governmental authority by reason of the execution,
delivery, and performance of this Note or any collateral for the Obligations.
3.4 EXPENSES. The undersigned will pay on demand all expenses of the
Bank in connection with the preparation, administration, default, collection,
waiver or amendment of the Obligations or in connection with the Bank's
exercise, preservation or enforcement of any of its rights, remedies or options
thereunder, including, without limitation, fees of outside legal counsel or the
allocation costs of in-house legal counsel, accounting, consulting, brokerage
or other similar professional fees or expenses, and any fees or expenses
associated with any travel or other costs relating to any appraisals or
examinations conducted in connection with the Obligations and the amount of all
such expenses shall, until paid, bear interest at the rate applicable to
principal hereunder (including any default rate) and be an Obligation secured
by any such collateral.
3.5 BANK RECORDS. The entries on the records of the Bank (including
any appearing on this Note) shall be prima facie evidence of the aggregate
principal amount outstanding under this Note and interest accrued thereon.
3.6 INFORMATION. The undersigned shall furnish the Bank from time to
time with such financial statements and other information relating to any
Obligor or any collateral securing this Note as the Bank may require. All such
information shall be true and correct and fairly represent the financial
condition and the operating results of such Obligor as of the date and for the
periods for which the same are furnished. The undersigned shall permit
representatives of the Bank to inspect its properties and its books and
records, and to make copies or abstracts thereof. Each Obligor authorizes the
Bank to release and disclose to its affiliates, agents and contractors any
financial statements and other information relating to said Obligor provided to
or prepared by or for the Bank in connection with any Obligation. The
undersigned will notify the Bank promptly of the existence or upon the
occurrence of any Event of Default or event which, with the giving of notice or
the passage of time or both, would become an Event of Default.
<PAGE> 5
3.7 GOVERNING LAW; CONSENT TO JURISDICTION. This Note is intended to
take effect as a sealed instrument and shall be governed by, and construed in
accordance with, the laws of The Commonwealth of Massachusetts, without regard
to its conflicts of law rules. The undersigned agrees that any suit for the
enforcement of this Note may be brought in the courts of such state or any
Federal Court sitting in such state and consents to the non-exclusive
jurisdiction of each such court and to service of process in any such suit
being made upon the undersigned by mail at the address specified below. The
undersigned hereby waives any objection that it may now or hereafter have to
the venue of any such suit or any such court or that such suit was brought in
an inconvenient court.
3.8 SEVERABILITY; AUTHORIZATION TO COMPLETE; PARAGRAPH HEADINGS. If
any provision of this Note shall be invalid, illegal or unenforceable, such
provisions shall be severable from the remainder of this Note and the validity,
legality and enforceability of the remaining provisions shall not in any way be
affected or impaired thereby. The Bank is hereby authorized, without further
notice, to fill in any blank spaces on this Note, and to date this Note as of
the date funds are first advanced hereunder. Paragraph headings are for the
convenience of reference only and are not a part of this Note and shall not
affect its interpretation.
3.9 JURY WAIVER. THE BANK (BY ITS ACCEPTANCE OF THIS NOTE) AND THE
UNDERSIGNED AGREE THAT NEITHER OF THEM NOR ANY ASSIGNEE OR SUCCESSOR SHALL (A)
SEEK A JURY TRIAL IN ANY LAWSUIT, PROCEEDING, COUNTERCLAIM, OR ANY OTHER ACTION
BASED UPON, OR ARISING OUT OF, THIS NOTE, ANY RELATED INSTRUMENTS, ANY
COLLATERAL OR THE DEALINGS OR THE RELATIONSHIP BETWEEN OR AMONG ANY OF THEM, OR
(B) SEEK TO CONSOLIDATE ANY SUCH ACTION WITH ANY OTHER ACTION IN WHICH A JURY
TRIAL CANNOT BE OR HAS NOT BEEN WAIVED. THE PROVISIONS OF THIS PARAGRAPH SHALL
BE SUBJECT TO NO EXCEPTIONS. NEITHER THE BANK NOR THE UNDERSIGNED HAS AGREED
WITH OR REPRESENTED TO THE OTHER THAT THE PROVISIONS OF THIS PARAGRAPH WILL NOT
BE FULLY ENFORCED IN ALL INSTANCES.
Address:
1840 Century Park East Kerr Group, Inc.
------------------------------------ By: /s/ Geoffrey A. Whynot
(Type Name) Geoffrey A. Whynot
Los Angeles, CA 90067 Title: Vice President, Treasurer
------------------------------------ ---------------------------------------
<PAGE> 1
EXHIBIT 10.33
February 24, 1995
Mr. Geoffrey A. Whynot
Treasurer
Kerr Group, Inc.
1840 Century Park East
Los Angeles, CA 90067
Re: Amendment of certain provisions of the Receivables Purchase
Agreement dated as of January 19, 1995, by and between Kerr
Group, Inc. and PNC Bank, National Association.
Dear Mr. Whynot:
Reference is hereby made to that certain Receivables Purchase
Agreement dated as of January 19, 1995 (the "Purchase Agreement") by and
between Kerr Group, Inc. (the "Seller") and PNC Bank, National Association (the
"Purchaser"). All capitalized terms used herein but not defined herein shall
have the meanings ascribed thereto in the Purchase Agreement.
The Seller has requested that Purchaser agree to amend certain
provisions of the Purchase Agreement to, among other things, modify the
conditions precedent to the initial purchase thereunder, as more particularly
set forth below. Subject to the terms and conditions of this letter agreement
(the "Letter Agreement"), the Purchaser is willing to amend the Purchase
Agreement as set forth below.
I. Amendment. Subject to the conditions set forth herein, the
Purchase Agreement is hereby amended as follows:
A. Section 1.1 of the Purchase Agreement is hereby
amended to amend and restate the definition of the term "Maximum Purchaser's
Net Investment" to read as follows:
"Maximum Purchaser's Net Investment" means: (i) for the period
from January 19, 1995 up to and including April
<PAGE> 2
Mr. Geoffrey A. Whynot
Treasurer
February 24, 1995
Page 2
30, 1995, Five Million Dollars ($5,000,000); and (ii)
thereafter, Ten Million Dollars ($10,000,000).
B. Section 3.1 of the Purchase Agreement is hereby
amended to delete clause (p) thereof and to substitute therefore the following:
(p) A letter from Seller to Purchaser, and acknowledged and
accepted in writing by Purchaser, permanently reducing the
line of credit under the PNC Note, together with (i) a
repayment by Seller of the principal amount of the PNC Note
such that the principal balance outstanding under PNC Note is
equal to or less than $5,000,000, or (ii) irrevocable
directions from Seller to Purchaser to pay the PNC Note in an
amount necessary to reduce the outstanding amounts thereunder
to Five Million Dollars ($5,000,000), out of the proceeds of
the sale of Tendered Receivables on the Initial Purchase Date,
or (iii) a combination of the events set forth in clauses (i)
or (ii) above so long as the principal balance outstanding
under the PNC Note is reduced to an amount equal to or less
than $5,000,000;
C. Section 8.1 of the Purchase Agreement is hereby
amended to add a new clause (n) thereto which reads as follows:
(n) The Purchaser shall not have received on or before May 1,
1995, each of the following: (i) a payoff letter from the
Purchaser to Seller, and acknowledged and accepted in writing
by Seller, with respect to the payment in full of the PNC Note
and termination of the related line of credit, and (ii)
evidence of the payment in full of the PNC Note.
II. Miscellaneous.
The amendments and modifications to the Purchase Agreement set
forth in this Letter Agreement above do not and shall not, now or in the
future, either implicitly or explicitly (a) alter, waive or amend, except as
expressly provided in this Letter Agreement, any provision of the Purchase
Agreement, or (b) impair any right or remedy of the Purchaser under the
Purchase
<PAGE> 3
Mr. Geoffrey A. Whynot
Treasurer
February 24, 1995
Page 3
Agreement with respect to any violation of any provision of the Purchase
Agreement. The provisions hereof do not waive, now or in the future,
compliance with any covenant, term or condition to be performed or complied
with nor do they impair any rights or remedies of the Purchaser under the
Purchase Agreement, as amended hereby, with respect to any such violation.
As an inducement to the Purchaser to enter into this Letter
Agreement, the Seller hereby incorporates herein by reference and repeat herein
for the benefit of the Purchaser, each of the representations and warranties
made by the Seller in Article IV of the Purchase Agreement, except that for
purposes hereof such representations and warranties shall be deemed to extend
to and cover this Letter Agreement.
This Letter Agreement shall be governed by the laws of the
Commonwealth of Pennsylvania, without regard or giving effect to principles of
conflict of laws. This Letter Agreement may be executed in any number of
counterparts which, when taken together, shall be one and the same instrument.
The delivery of an executed counterpart signature page to this Letter Agreement
by telecopier shall be as effective as a delivery of an executed original
counterpart hereto.
This Letter Agreement shall be construed in connection with
and as part of the Purchase Agreement, and the Purchase Agreement is hereby
amended, modified and supplemented to include this Letter Agreement. Except as
expressly amended hereby, the Purchase Agreement and each and every
representation, warranty, agreement, covenant, term and condition contained
therein or in any other Receivables Document is specifically ratified and
confirmed. The Seller hereby ratifies and confirms in all respects any grant
of a security interest in property of the Seller pursuant to the Receivables
Documents, and further acknowledges that any such grant of a security interest
shall secure the obligations of the Seller under the Purchase Agreement, as
amended hereby. Nothing in this Letter Agreement shall be deemed or construed
to be a waiver or release of, or a limitation upon, Purchaser's exercise of any
of its rights and remedies under the Purchase Agreement and the other
Receivables Documents, whether arising as a consequence of any Termination
Event which may now exist or otherwise, and all such rights and remedies are
hereby expressly reserved.
<PAGE> 4
Mr. Geoffrey A. Whynot
Treasurer
February 24, 1995
Page 4
All notices, communications, agreements, certificates,
documents or other instruments executed and delivered after the execution and
delivery of this Letter Agreement may refer to the Purchase Agreement without
making specific reference to this Letter Agreement, but nevertheless all such
references shall include this Letter Agreement unless the context requires
otherwise.
From and after the execution of this Letter Agreement by the
Purchaser, all references in the Purchase Agreement and each of the other
Receivables Documents to the Purchase Agreement shall be deemed to be
references to the Purchase Agreement as amended hereby.
This Letter Agreement shall be binding upon the Seller and the
Purchaser and their respective successors and assigns, and shall inure to the
benefit of the Seller and the Purchaser and their respective successors and
assigns (except that Seller shall have no right to assign, voluntarily or by
operation of law, any of their rights hereunder without the prior written
consent, of the Purchaser and provided further that nothing herein is intended
by any party hereto to confer any rights upon any third party as a beneficiary
hereof).
Seller shall pay any costs and expenses of Purchaser incurred
in connection with this Letter Agreement and any other documents or agreements
executed in connection therewith, including attorney's fees and costs.
This Letter Agreement shall become effective on the date on
which (i) the Seller and Purchaser have each executed and delivered to the
other party hereto a counterpart of this letter agreement; and (ii) Purchaser
shall have received the following: (a) a certification from the Seller that its
articles or certificates of incorporation, as certified by the Secretary of
State of the State of Delaware, its by-laws, and its corporate resolutions
relative to the Purchase Agreement, the Other Receivables Documents and the
transactions contemplated thereby, delivered to the Purchaser on or about
January 19, 1995, continue to remain complete and correct and in full force and
effect and have not been amended, supplemented or otherwise modified rescinded
on or after such date, (b) certificates of the
<PAGE> 5
Mr. Geoffrey A. Whynot
Treasurer
February 24, 1995
Page 5
secretaries or assistant secretaries of the Seller certifying the names of the
Persons authorized to sign this Letter Agreement and all other documents,
instruments and certificates delivered hereunder, together with the true
signatures of such Persons; and (c) such other instruments and documents as the
Lender shall reasonably require, all of which shall be satisfactory in form and
content to the Lender and its counsel, Tucker Arensberg, P.C., and (iii) The
following statements are true and correct and the Purchaser shall have received
certificates signed by an authorized officer of the Seller, dated the date
hereof, stating that: (a) no petition by or against the Seller or any
Subsidiary has been filed under the United States Bankruptcy Code or under any
similar act; (b) no material adverse change in the properties, business,
operations, financial condition or prospects of the Seller has occurred which
has not been disclosed to the Purchaser; (c) the Seller has in all material
respects performed all agreements, covenants and conditions required to be
performed on or prior to the date hereof under the Purchaser Agreement and the
other Receivables Documents; and (d) no Potential Termination Event or
Termination Event has occurred and is continuing or exists under the terms of
the Purchase Agreement.
If you agree to the terms and conditions set forth herein, please sign
each of the enclosed letters and return one original to PNC Bank, National
Association, c/o Anthony Trunzo, Vice President, 55 South Lake Avenue, Suite
650, Pasadena, CA 91101.
Very truly yours,
PNC BANK, NATIONAL ASSOCIATION
By: /s/ Anthony L. Trunzo
------------------------------
Name: Anthony Trunzo
Title: Vice President
Agreed to and accepted this
24th day of February, 1995,
with the intent to be
legally bound hereby.
<PAGE> 6
Mr. Geoffrey A. Whynot
Treasurer
February 24, 1995
Page 6
KERR GROUP, INC.
By: /s/ Geoffrey A. Whynot
---------------------------
Name: Geoffrey Whynot
Title: Treasurer
<PAGE> 1
EXHIBIT 11.1
KERR GROUP, INC.
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS (LOSS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------------------
1994 1993 1992 1991 1990
------- -------- -------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
------------------------------------
<S> <C> <C> <C> <C> <C>
PRIMARY NET EARNINGS (LOSS) PER
-------------------------------
COMMON SHARE
------------
NET EARNINGS (LOSS) $3,404 ($1,633) ($2,697) ($2,579) ($1,252)
LESS PREFERRED STOCK DIVIDENDS (829) (829) (829) (829) (829)
------- -------- -------- -------- --------
NET EARNINGS (LOSS) APPLICABLE TO PRIMARY
EARNINGS (LOSS) PER COMMON SHARE $2,575 ($2,462) ($3,526) ($3,408) ($2,081)
======= ======== ======== ======== ========
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 3,674 3,669 3,675 3,675 3,675
======= ======== ======== ======== ========
PRIMARY NET EARNINGS (LOSS) PER
COMMON SHARE $0.70 ($0.67) ($0.96) ($0.93) ($0.57)
======= ======== ======== ======== ========
FULLY DILUTED NET EARNINGS (LOSS) PER
-------------------------------------
COMMON SHARE
------------
NET EARNINGS (LOSS) APPLICABLE TO PRIMARY
EARNINGS (LOSS) PER COMMON SHARE $2,575 ($2,462) ($3,526) ($3,408) ($2,081)
ADD PREFERRED STOCK DIVIDENDS 829 829 829 829 829
------- -------- -------- -------- --------
NET EARNINGS (LOSS) APPLICABLE TO
FULLY DILUTED EARNINGS (LOSS)
PER COMMON SHARE $3,404 ($1,633) ($2,697) ($2,579) ($1,252)
======= ======== ======== ======== ========
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 3,674 3,669 3,675 3,675 3,675
COMMON SHARES ISSUABLE FROM ASSUMED
CONVERSION OF PREFERRED STOCK 709 709 709 709 709
INCREMENTAL COMMON SHARES
ISSUABLE UPON ASSUMED EXERCISE
OF OUTSTANDING STOCK OPTIONS 22 6 3 - 1
------- -------- -------- -------- --------
ADJUSTED WEIGHTED AVERAGE NUMBER
OF COMMON SHARES OUTSTANDING 4,405 4,384 4,387 4,384 4,385
======= ======== ======== ======== ========
FULLY DILUTED NET EARNINGS (LOSS)
COMMON SHARE:
AS COMPUTED $0.77 ($0.37) ($0.61) ($0.59) ($0.29)
======= ======== ======== ======== ========
AS REPORTED (A) $0.70 ($0.67) ($0.96) ($0.93) ($0.57)
======= ======== ======== ======== ========
</TABLE>
(a) Fully diluted net earnings (loss) per common share are anti-dilutive for
all years.
<PAGE> 1
EXHIBIT 13.1
PRICE RANGE AND DIVIDENDS OF COMMON STOCK
AND PREFERRED STOCK
The Company's Common Stock and Preferred Stock are both listed on the New York
Stock Exchange. As of February 21, 1995, there were approximately 1,139 and 173
holders of record of the Company's Common Stock and Preferred Stock,
respectively. The following table summarizes the prices of the Common Stock and
Preferred Stock on the New York Stock Exchange Composite Tape and quarterly
cash dividends:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------
Common Stock Preferred Stock
------------------------------------------------------------------------------------------------------------------------
Cash Cash
Calendar Year High Low Dividends High Low Dividends
------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1994
First Quarter $10 $8 1/8 $-- $21 $19 1/4 $.425
Second Quarter 10 5/8 8 -- 22 19 3/4 .425
Third Quarter 9 1/2 8 1/8 -- 20 3/4 19 7/8 .425
Forth Quarter 9 1/2 8 1/8 -- 20 1/2 19 1/8 .425
--------------------------------------------------------------------------
1993
First Quarter $ 8 7/8 $6 1/2 $-- $21 1/4 $18 3/4 $.425
Second Quarter 9 1/4 6 3/4 -- 21 1/2 19 7/8 .425
Third Quarter 8 3/4 6 3/8 -- 22 3/8 20 .425
Fourth Quarter 9 1/4 7 7/8 -- 22 3/8 20 1/4 .425
==========================================================================
</TABLE>
The annual cumulative Preferred Stock dividend requirement as of December 31,
1994, was $829,000. The payment of Common Stock dividends is restricted by the
Company's Senior Note agreement. Under the most restrictive covenant of such
agreement, $500,000 was available for the payment of dividends on Common Stock
as of December 31, 1994.
INDEPENDENT AUDITORS' REPORT
To the Stockholders and Board of Directors of Kerr Group, Inc.:
We have audited the accompanying consolidated balance sheets of Kerr Group, Inc.
(Kerr) as of December 31, 1994 and 1993, and the related consolidated statements
of earnings (loss), common stockholders' equity and cash flows for each of the
years in the three-year period ended December 31, 1994. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Kerr at December 31,
1994 and 1993, and the results of its operations and its cash flows for each of
the years in the three-year period ended December 31, 1994, in conformity with
generally accepted accounting principles.
As discussed in Note 1 to the consolidated financial statements, the Company
changed its method of accounting for postretirement benefits other than pensions
and income taxes in 1993.
[SIG]
Los Angeles, California
February 28, 1995
12
<PAGE> 2
FINANCIAL REVIEW
CONSOLIDATED STATEMENTS OF EARNINGS (LOSS)
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------
Years Ended December 31, 1994 1993 1992
-------------------------------------------------------------------------------------------------------------
(in thousands, except per share amounts)
<S> <C> <C> <C>
Net sales $ 139,156 $ 127,372 $ 126,610
Cost of sales 96,356 88,922 88,730
---------------------------------------
Gross profit 42,800 38,450 37,880
Selling, warehouse, general and administrative expenses 32,435 30,095 28,945
Loss on plant relocation -- 4,500 --
Interest expense 4,985 5,680 5,815
Interest and other income (369) (858) (1,293)
---------------------------------------
Earnings (loss) from continuing operations before income taxes 5,749 (967) 4,413
Provision (benefit) for income taxes 2,345 (634) 1,826
---------------------------------------
Earnings (loss) from continuing operations 3,404 (333) 2,587
Loss from discontinued operations, after applicable income
tax benefit of $2,104 -- -- (5,284)
Extraordinary loss on retirement of debt, after
applicable income tax benefit of $632 -- (1,300) --
---------------------------------------
Net earnings (loss) 3,404 (1,633) (2,697)
Preferred stock dividends 829 829 829
---------------------------------------
Net earnings (loss) applicable to common stockholders $ 2,575 $ (2,462) $ (3,526)
=======================================
Earnings (loss) per common share:
Earnings (loss) per common share from continuing operations $ 0.70 $ (0.32) $ 0.48
Loss per common share from discontinued operations -- -- (1.44)
Extraordinary loss per common share on retirement of debt -- (0.35) --
---------------------------------------
Net earnings (loss) per common share $ 0.70 $ (0.67) $ (0.96)
=======================================
</TABLE>
See accompanying notes to consolidated financial statements.
13
<PAGE> 3
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------
Years Ended December 31, 1994 1993
--------------------------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 2,261 $ 11,329
Receivables - primarily trade accounts, less allowance for doubtful accounts
of $170 in 1994 and $578 in 1993 16,312 13,533
Inventories
Raw materials and work in process 11,156 8,906
Finished goods 23,134 19,126
-------------------------
Total inventories 34,290 28,032
Prepaid expenses and other current assets 4,526 4,409
-------------------------
Total current assets 57,389 57,303
-------------------------
Property, plant and equipment, at cost
Land 427 427
Buildings and improvements 12,577 12,476
Machinery and equipment 84,462 74,748
Furniture and office equipment 5,381 3,001
-------------------------
102,847 90,652
Accumulated depreciation and amortization (54,506) (50,228)
-------------------------
Net property, plant and equipment 48,341 40,424
Deferred income taxes 2,192 4,747
Goodwill and other intangibles, net of amortization of $1,812 in 1994 and
$2,122 in 1993 6,622 6,645
Other assets 9,156 8,230
-------------------------
$ 123,700 $117,349
=========================
</TABLE>
See accompanying notes to consolidated financial statements.
14
<PAGE> 4
CONSOLIDATED BALANCE SHEETS (continued)
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------
Years Ended December 31, 1994 1993
--------------------------------------------------------------------------------------------------------------------
(in thousands, except per share amounts)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Short-term debt $ 5,500 $ --
Accounts payable 13,445 9,573
Accrued expenses 3,862 9,089
-------------------------
Total current liabilities 22,807 18,662
-------------------------
Pension liability 15,230 18,321
Other long-term liabilities 2,610 2,302
Senior long-term debt 50,000 50,000
Stockholders' equity
Preferred Stock, 487 shares authorized and issued,
at liquidation value of $20 per share 9,748 9,748
Common Stock, $.50 par value per share, 20,000 shares authorized,
4,220 shares issued in 1994 and 4,210 shares issued in 1993 2,110 2,105
Additional paid-in capital 27,210 27,145
Retained earnings 11,995 9,420
Treasury Stock, at cost, 543 shares (12,803) (12,803)
Excess of additional pension liability over unrecognized
prior service cost, net of tax benefits (5,207) (6,835)
Notes receivable from ESOP Trusts -- (716)
-------------------------
Total stockholders' equity 33,053 28,064
-------------------------
$ 123,700 $117,349
=========================
</TABLE>
See accompanying notes to consolidated financial statements.
15
<PAGE> 5
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------
Years Ended December 31, 1994 1993 1992
---------------------------------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C>
CASH FLOW PROVIDED (USED) BY OPERATIONS
Continuing operations:
Earnings (loss) from continuing operations $ 3,404 $ (333) $ 2,587
Add (deduct) noncash items included in earnings (loss)
from continuing operations
Depreciation and amortization 7,731 7,364 6,651
Reserve for loss on plant relocation, net of tax -- 2,754 --
Change in deferred income taxes 1,705 159 (225)
Reduction in accrued long-term pension liability, net (266) (1,116) (2,413)
Other, net 62 (624) (355)
Changes in other operating working capital
Receivables (2,779) (2,186) (555)
Inventories (6,258) (5,712) 1,422
Prepaid expenses (133) (885) (1,279)
Accounts payable 3,872 729 1,384
Accrued expenses (913) (541) (508)
------------------------------------------
Cash flow provided (used) by continuing operations 6,425 (391) 6,709
Cash flow used by discontinued operations -- -- (3,121)
------------------------------------------
Total cash flow provided (used) by operations 6,425 (391) 3,588
------------------------------------------
CASH FLOW PROVIDED (USED) BY INVESTING ACTIVITIES
Continuing operations:
Capital expenditures (15,648) (11,256) (8,359)
Payments associated with relocation of home canning cap and lid operations (3,005) -- --
Proceeds from liquidation of long-term certificate of deposits 1,000 -- 5,000
Other, net (699) (1,338) 256
Discontinued operations:
Proceeds from the sale of the Commercial Glass Container Business -- -- 67,719
Proceeds from the sale of the Metal Crown Business -- -- 7,208
Collection of accounts receivable, and payment of accounts payable
and accrued and other expenses (2,598) (2,500) (7,974)
Capital expenditures and other -- -- (2,553)
------------------------------------------
Cash flow provided (used) by investing activities (20,950) (15,094) 61,297
------------------------------------------
CASH FLOW PROVIDED (USED) BY FINANCING ACTIVITIES
Net borrowings under lines of credit 5,500 -- --
Issuance of senior debt -- 50,000 --
Extinguishment of subordinated debt -- (41,131) --
Borrowings (repayments) under Bank Credit Agreements, net -- -- (53,000)
Other long-term debt retirements -- (1,000) (3,207)
Dividends paid (829) (829) (829)
Other, net 786 523 843
------------------------------------------
Cash flow provided (used) by financing activities 5,457 7,563 (56,193)
------------------------------------------
CASH AND CASH EQUIVALENTS
Increase (decrease) during the year (9,068) (7,922) 8,692
Balance at beginning of the year 11,329 19,251 10,559
------------------------------------------
Balance at end of the year $ 2,261 $ 11,329 $ 19,251
==========================================
</TABLE>
See accompanying notes to consolidated financial statements.
16
<PAGE> 6
CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------------------
Years Ended December 31, 1994, 1993 and 1992
-------------------------------------------------------------------------------------------------------------------------------
Number Of Excess Of
Shares Of Additional Pension Notes
Common Additional Liability Over Receivable
Stock Common Paid-In Retained Treasury Unrecognized From ESOP
Outstanding Stock Capital Earnings Stock Prior Service Cost Trusts
-------------------------------------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1991 3,675 $ 2,105 $ 27,021 $ 15,408 $ (12,737) $ -- $(3,207)
Net loss -- -- -- (2,697) -- -- --
Dividends on Preferred Stock -- -- -- (829) -- -- --
Repayments on ESOP Trusts
notes receivable -- -- -- -- -- -- 1,560
Restricted Stock Plan -- -- 92 -- -- -- --
--------------------------------------------------------------------------------------
Balance, December 31, 1992 3,675 2,105 27,113 11,882 (12,737) -- (1,647)
--------------------------------------------------------------------------------------
Net loss -- -- -- (1,633) -- -- --
Dividends on Preferred Stock -- -- -- (829) -- -- --
Pension adjustment -- -- -- -- -- (6,835) --
Repayments on ESOP Trusts
notes receivable -- -- -- -- -- -- 931
Purchase of common stock (8) -- -- -- (66) -- --
Restricted Stock Plan -- -- 32 -- -- -- --
--------------------------------------------------------------------------------------
Balance, December 31, 1993 3,667 2,105 27,145 9,420 (12,803) (6,835) (716)
--------------------------------------------------------------------------------------
Net earnings -- -- -- 3,404 -- -- --
Dividends on Preferred Stock -- -- -- (829) -- -- --
Pension adjustment -- -- -- -- -- 1,628 --
Repayments on ESOP Trusts
notes receivable -- -- -- -- -- -- 716
Issuance of Common Stock under
stock option plans 10 5 65 -- -- -- --
--------------------------------------------------------------------------------------
Balance, December 31, 1994 3,677 $ 2,110 $ 27,210 $ 11,995 $ (12,803) $(5,207) $ --
======================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
17
<PAGE> 7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis Of Presentation
The consolidated financial statements include the accounts of Kerr Group, Inc.,
formerly Kerr Glass Manufacturing Corporation, and its wholly owned subsidiary,
collectively referred to as the Company. All material intercompany balances and
transactions are eliminated in consolidation.
Cash Equivalents
Cash equivalents consist only of investments that have an original maturity of
three months or less, are readily convertible to known amounts of cash and have
insignificant risk of changes in value because of changes in interest rates.
Inventories
Inventories are valued at the lower of cost or market, determined by the use of
the first-in, first-out method.
Depreciation, Maintenance And Repairs
Depreciation of property, plant and equipment is provided by the use of the
straight-line method over the estimated useful lives of the assets. The
principal estimated useful lives used in computing the depreciation provisions
are as follows:
<TABLE>
<S> <C>
Buildings and improvements 5 to 30 years
Machinery and equipment 3 to 15 years
Furniture and equipment 5 to 10 years
</TABLE>
The policy of the Company is to charge amounts expended for maintenance and
repairs to expense and to capitalize expenditures for major replacements and
betterments.
Goodwill And Other Intangibles
The excess of cost over net tangible assets of the business acquired during 1987
is amortized on a straight-line basis over 40 years. Other intangible assets are
being amortized by the use of the straight-line method over their respective
initial estimated lives ranging from 5 to 17 years.
The Company periodically evaluates goodwill to assess recoverability based upon
expectations of future nondiscounted operating earnings related to the acquired
business. Based upon the most recent analysis, the Company believes that no
impairment of goodwill exists at December 31, 1994.
Revenue Recognition
The Company recognizes revenue as product is shipped. A reserve is provided for
estimated end-of-season returns of home canning supplies as sales are recorded.
Pensions And Other Postretirement Benefits
Financial Accounting Standards Board Statement No. 87 (FASB No. 87) requires
that a company record an additional minimum pension liability to the extent that
a company's accumulated pension benefit obligation exceeds the fair value of
pension plan assets and accrued pension liabilities. This additional minimum
pension liability is offset by an intangible asset, not to exceed prior service
costs of the pension plan. Amounts in excess of prior service costs are
reflected as a reduction in stockholders' equity, net of related tax benefits.
Prior to 1993, the Company accounted for retiree health care and life insurance
benefits on a pay-as-you-go basis. Effective January 1, 1993, the Company
adopted Financial Accounting Standards Board Statement No. 106, Employers'
Accounting for Postretirement Benefits Other Than Pensions (FASB No. 106). As
more fully described in Note 5, the Company has elected to amortize the impact
of FASB No. 106 ratably over 20 years.
Income Taxes
In February 1992, the Financial Accounting Standards Board issued Statement No.
109, Accounting for Income Taxes (FASB No. 109). Under the asset and liability
method of FASB No. 109, deferred tax assets and liabilities are recognized for
the future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be 20 NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (continued) recovered or settled. Under FASB No. 109, the
effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date.
Effective January 1, 1993, the Company adopted FASB No. 109. The cumulative and
pro forma effect of the change in accounting was not material. The Company
previously used the asset and liability method for accounting for income taxes
under FASB No. 96.
18
<PAGE> 8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Earnings (Loss) Per Common Share
Primary net earnings (loss) per common share are based on the weighted average
number of common shares outstanding and are after Preferred Stock dividends.
Fully diluted net earnings (loss) per common share reflect when dilutive 1) the
incremental common shares issuable upon the assumed exercise of outstanding
stock options and 2) the assumed conversion of the Preferred Stock and the
elimination of the related Preferred Stock dividends. Antidilution occurred in
1994, 1993 and 1992.
Financial Statement Reclassification And Presentation
Certain reclassifications have been made to prior years' financial statements to
conform to the 1994 presentation.
NOTE 2 - LOSS ON PLANT RELOCATION
During the fourth quarter of 1993, the Company recorded a pre-tax loss of
approximately $4,500,000 ($2,754,000 after-tax or $0.75 per common share)
associated with the relocation of its home canning cap and lid manufacturing
operations from Chicago, Illinois to a new manufacturing facility in Jackson,
Tennessee. The pre-tax loss consisted primarily of accruals for i) the early
recognition of retiree health care and pension expense, severance, workers'
compensation costs and insurance continuation costs of approximately $2,500,000,
ii) asset retirement and related facility closing costs of approximately
$1,000,000, and iii) moving and relocation costs of approximately $700,000. In
1994, the Company made cash payments related to such accruals for i) the early
recognition of retiree health care and pension expense, severance, workers'
compensation costs and insurance continuation costs of approximately $1,500,000,
ii) asset retirement and related facility closing costs of approximately
$600,000, iii) moving and relocation costs of approximately $600,000 and iv)
other costs of approximately $300,000. In addition, during 1994, approximately
$300,000 was charged against such accruals related to the book value of fixed
assets retired. The remaining accruals primarily relate to retiree health costs
and pensions which will be paid over a number of years.
NOTE 3 - INCOME TAXES
As discussed in Note 1, the Company adopted FASB No. 109, Accounting for Income
Taxes, effective January 1, 1993. The cumulative effect of such change in the
method of accounting for income taxes was not material.
Total income tax provision (benefit) for the years ended December 31, 1994 and
1993 was allocated as follows:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------
1994 1993
-----------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C>
Earnings (loss) from continuing operations $ 2,345 $ (634)
Extraordinary item -- (632)
Stockholders' equity, related to excess of pension liability
over unrecognized prior service costs 878 (4,340)
-----------------------
$ 3,223 $(5,606)
=======================
</TABLE>
19
<PAGE> 9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 3 - INCOME TAXES (continued)
The provision (benefit) for income taxes related to continuing operations for
the years ended December 31, 1994, 1993 and 1992 consists of the following:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------
1994 1993 1992
-----------------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C>
Current
U.S. Federal $ 81 $ 119 $ 1,426
State -- -- 493
---------------------------------------
Total current 81 119 1,919
---------------------------------------
Deferred
U.S. Federal 1,814 (637) 88
State 450 (116) (181)
---------------------------------------
Total deferred 2,264 (753) (93)
---------------------------------------
Total provision (benefit) for income taxes $ 2,345 $ (634) $ 1,826
=======================================
</TABLE>
The significant components of deferred income taxes (benefits) related to
continuing operations for the years ended December 31, 1994, 1993 and 1992 are
as follows:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------
1994 1993 1992
-----------------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C>
Reinstatement (reduction) of deferred income taxes
attributable to recognition of alternative minimum tax
credits and tax net operating loss carryforwards $ (541) $ 52 $ 3,653
Timing differences associated with the sales of
discontinued operations 1,531 1,051 (3,483)
Timing differences associated with the loss on plant relocation 1,429 (1,368) --
Additional costs inventoried for tax purposes 64 (245) (175)
Excess (deficit) of pension contributions paid over pension expense 46 448 (312)
Excess (deficit) of tax over book depreciation,
including assets retired or sold (19) (327) 228
Other, net (246) (364) (4)
------------------------------------
Total $ 2,264 $ (753) $ (93)
====================================
</TABLE>
Total provision (benefit) for income taxes related to continuing operations for
the years ended December 31, 1994, 1993 and 1992 differed from the amounts
computed by applying the U.S. Federal income tax rate of 34% to earnings (loss)
from continuing operations before income taxes as a result of the following:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------
1994 1993 1992
-----------------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C>
Computed "expected" tax provision (benefit) $ 1,954 $ (329) $ 1,500
Increase (reduction) in provision resulting from:
State income tax provision (benefit),
net of Federal income tax effect 231 (47) 213
Change in the valuation allowance for deferred
income tax assets -- (369) --
Other, net 160 111 113
---------------------------------------
Actual tax provision (benefit) $ 2,345 $ (634) $ 1,826
=======================================
</TABLE>
20
<PAGE> 10
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 3 - INCOME TAXES (continued)
The tax effects of temporary differences that give rise to significant portions
of the deferred income tax assets and liabilities at December 31, 1994 and 1993
are as follows:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------
1994 1993
-------------------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C>
Deferred income tax assets:
Pension liabilities --
Excess of additional pension liability over unrecognized prior service cost $ 3,462 $ 4,340
Accrued pension liability 1,490 1,495
Accrued retiree health liability 630 436
Accrued reserves associated with discontinued operations 350 1,830
Accrued reserves associated with plant relocation -- 1,368
Inventory 722 595
Accrued vacation pay 383 444
Tax credit carryforwards 1,830 1,975
Net operating loss carryforwards 1,962 978
Other 1,120 502
------------------------
Total gross deferred income tax assets 11,949 13,963
Less valuation allowance -- --
------------------------
Deferred income tax assets, net of valuation allowance 11,949 13,963
Deferred income tax liabilities:
Property, plant and equipment, principally due to differences in depreciation (5,146) (5,110)
Excess of book basis over tax basis of land and buildings formerly
used as a glass container manufacturing plant (1,795) (1,746)
Other (962) (478)
------------------------
Total gross deferred income tax liabilities (7,903) (7,334)
------------------------
Net deferred income tax assets $ 4,046 $ 6,629
========================
</TABLE>
The valuation allowance for deferred income tax assets as of January 1, 1993,
was $369,000. The net change in the valuation allowance during the year ended
December 31, 1993, was a reduction of $369,000, or $0.10 per common share.
In order to fully realize the deferred income tax asset, the Company will need
to generate future taxable income of at least $24,000,000 prior to expiration of
net operating loss carryforwards which will begin to expire in 2006. Based upon
the Company's recent pre-tax earnings, adjusted for significant nonrecurring
items, and projections of future taxable income over the period in which the
deferred income tax assets are deductible, management believes it is more likely
than not that the Company will realize the benefit of the deferred income tax
asset. There can be no assurance, however, that the Company will generate any
specific level of continuing earnings.
At December 31, 1994, the Company had net operating loss carryforwards for
Federal income tax purposes of $4,524,000 which are available to offset future
Federal taxable income, expiring in the years 2006 through 2009.
The Company also has an alternative minimum tax credit carryforward of
$1,522,000 and other tax credit carryforwards (primarily investment tax credits)
of $308,000, expiring in the years 1999 through 2009, which are available to
reduce future Federal income taxes, if any.
The total net cash payments related to income taxes, which primarily represent
Federal alternative minimum taxes and state taxes, were $761,000, $470,000 and
$347,000 for 1994, 1993 and 1992, respectively.
21
<PAGE> 11
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 4 - ACCRUED EXPENSES
At December 31, 1994 and 1993, accrued expenses from continuing operations were
as follows:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------
1994 1993
-------------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C>
Accrued wages and vacation pay $ 1,879 $1,951
Accrued expenses associated with plant relocation 215 3,523
Accrued expenses associated with the sales of discontinued operations -- 990
Other accrued expenses 1,768 2,625
-----------------------
Total accrued expenses $ 3,862 $9,089
=======================
</TABLE>
NOTE 5 - RETIREMENT BENEFITS
Pensions
The Company has a defined benefit pension plan and defined contribution pension
plan, which cover substantially all employees. The defined benefit plan
generally provides benefits based on years of service and average final pay. The
defined contribution plan provides benefits based on a fixed percent of pay for
each year of service. The Company's policy is to fund amounts sufficient to
satisfy the funding requirements of the Employee Retirement Income Security Act
of 1974. During 1994 and 1993, the Company funded $800,000 more than the accrued
pension expense for the 1993 plan year. During 1993 and 1992, the Company funded
$1,721,000 more than the accrued pension expense for the 1992 plan year.
Net pension expense related to continuing operations for the years ended
December 31, 1994, 1993 and 1992 included the following components:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------
1994 1993 1992
-----------------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C>
Defined Benefit Plan:
Service cost (benefit earned during period) $ 564 $ 472 $ 471
Interest cost on projected benefit obligation 7,018 6,941 6,884
Actual loss (return) on assets 597 (7,843) (5,383)
Net amortization and deferral (6,552) 1,619 (427)
---------------------------------------
Defined Benefit Plan expense $ 1,627 $ 1,189 $ 1,545
=======================================
Defined Contribution Plan expense $ 17 $ 21 $ 30
=======================================
</TABLE>
22
<PAGE> 12
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 5 - RETIREMENT BENEFITS (continued)
The funded status of the defined benefit plans at December 31, 1994 and 1993 was
as follows:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------
1994 1993
-----------------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C>
Actuarial present value
Vested benefit obligation $ 81,605 $89,848
Nonvested benefit obligation 2,445 2,985
------------------------
Accumulated benefit obligation 84,050 92,833
Effect of future salary increases 1,842 3,171
------------------------
Projected benefit obligation 85,892 96,004
Plan assets at fair value (a) 68,750 74,492
------------------------
Projected benefit obligation in excess of plan assets 17,142 21,512
Unrecognized net transition obligation (553) (632)
Unrecognized prior service costs (663) (903)
Unrecognized net loss (10,511) (14,346)
------------------------
Accrued pension liability before adjustment 5,415 5,631
Adjustment required to recognize additional minimum pension liability 9,885 12,710
------------------------
Accrued pension liability related to the defined benefit plan $ 15,300 $18,341
------------------------
Accrued pension liability related to the defined contribution plan $ 17 $ 26
========================
</TABLE>
(a)Plan assets include 118,200 shares of Company Common Stock at a value of
$990,000 at December 31, 1994 and 1993.
In connection with recording the additional minimum pension liability pursuant
to the provisions of FASB No. 87, the Company recorded a reduction in
stockholders' equity of $5,207,000 at December 31, 1994, and $6,835,000 at
December 31, 1993, and an intangible pension asset of $1,216,000 at December 31,
1994, and $1,535,000 at December 31, 1993.
The majority of all pension plan assets are held by a master trust created for
the collective investment of the plan's funds, as well as in private placement
insurance contracts. At December 31, 1994, assets held by the master trust
consisted primarily of cash, U.S. government obligations, corporate bonds and
common stocks.
The defined benefit plan assumptions as of December 31, 1994, 1993 and 1992 were
as follows:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------
1994 1993 1992
------------------------------------------------------------------------------
<S> <C> <C> <C>
Discount rate 8.75% 7.5% 9%
Increase in compensation rate 5% 5% 5%
Long-term rate of return on assets 9.5% 9.5% 9.5%
=============================
</TABLE>
The Company retained the pension benefit obligations for service prior to the
date of the sale and the pension assets related to both the Metal Crown Business
and the Commercial Glass Container Business. In connection with the sale of the
two businesses, the Company's pension plans had a combined curtailment loss of
$4,664,000 pursuant to FASB Statement No. 88, Employers' Accounting for
Settlements and Curtailments of Defined Benefit Pension Plans and for
Termination Benefits. During 1993, the Company recorded a curtailment loss of
$232,000 related to the relocation of the Company's home canning cap and lid
manufacturing operations. Such curtailment losses are included as a component of
the respective losses on the sale of the businesses and plant relocation.
23
<PAGE> 13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 5 - RETIREMENT BENEFITS (continued)
Retiree Health Care And Life Insurance
The Company provides certain health care and life insurance benefits for retired
employees and their spouses. The costs of such benefits are shared by retirees
through one or more of the following: a) deductibles, b) copayments and c)
retiree contributions. Salaried employees hired prior to September 1, 1992, and
certain hourly employees may become eligible for those benefits if they reach
retirement age while working for the Company. The Company will not provide
retiree health care and life insurance benefits for salaried employees hired
after September 1, 1992. Health care and life insurance benefits provided by the
Company are not funded in advance, but rather are paid by the Company as the
costs are actually incurred by the retirees.
As discussed in Note 1, effective January 1, 1993, the Company adopted FASB No.
106, Employers' Accounting for Postretirement Benefits Other Than Pensions. FASB
No. 106 requires a company to use an accrual method for recording retiree health
care and life insurance benefits instead of the previously used pay-as-you-go
method. The effect of this accounting change on 1993 results of operations was
to increase retiree health care and life insurance expense by $640,000 from the
amount that would have been recorded in 1993 under the previously used
pay-as-you-go method. The adoption of FASB No. 106 at January 1, 1993, created a
previously unrecognized accumulated postretirement benefit obligation of
$13,195,000. As permitted under FASB No. 106, the Company has elected to
amortize the $13,195,000 accumulated postretirement benefit obligation ratably
over 20 years.
Prior to 1993, the Company recognized the expense for the cost of retiree health
care and life insurance benefits as paid. During 1992, the cost of retiree
health care and life insurance benefits with respect to both i) the retirees of
continuing operations and ii) the retirees of discontinued operations, liability
for which was retained by the Company, totalled $1,230,000. All such retiree
costs were charged against continuing operations.
Retiree health care and life insurance expense related to continuing operations
for the years ended December 31, 1994 and 1993 included the following
components:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------
1994 1993
-----------------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C>
Retiree health care and life insurance plans:
Service cost (benefit earned during period) $ 54 $ 83
Interest cost on accumulated benefit obligation 1,082 1,187
Actual return on assets -- --
Net amortization and deferral 624 660
-------------------------
Retiree health care and life insurance expense $ 1,760 $ 1,930
=========================
</TABLE>
The funded status of the retiree health care and life insurance plans at
December 31, 1994 and 1993 was as follows:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------
1994 1993
-----------------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C>
Actuarial present value of accumulated postretirement benefit obligation:
Retirees $ 9,083 $11,400
Fully eligible active participants 1,428 1,400
Other active participants 739 700
-------------------------
Accumulated benefit obligation 11,250 13,500
Plan assets at fair value -- --
-------------------------
Accumulated benefit obligation in excess of plan assets 11,250 13,500
Unrecognized net transition obligation (11,237) (11,790)
Unrecognized prior service costs -- --
Unrecognized net gain (loss) 1,563 (325)
-------------------------
Accrued postretirement benefit liability $ 1,576 $ 1,385
=========================
</TABLE>
24
<PAGE> 14
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 5 - RETIREMENT BENEFITS (continued)
The retiree health care and life insurance plans assumptions are as follows:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------
December 31, December 31, January 1,
1994 1993 1993
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Discount rate 8.75% 7.5% 9.0%
Health care cost trend rates--
Indemnity plans 8.75% trending down to 6% 9% trending down to 6% 15% trending down to 7%
Managed care plans 6.75% trending down to 4% 7% trending down to 4% 13% trending down to 5%
=============================================================================
</TABLE>
The effect of a one percentage point annual increase in these assumed cost trend
rates at December 31, 1994, would increase the postretirement benefit obligation
by approximately $450,000 and would increase the service and interest cost
components of the annual expense by approximately $40,000.
NOTE 6 - DEBT
At December 31, 1994 and 1993, the Company's long-term debt consisted of
$50,000,000 principal amount of Senior Notes payable to a group of insurance
companies consisting of John Hancock Mutual Life Insurance Company, New York
Life Insurance Company and Massachusetts Mutual Life Insurance Company. The
Senior Notes were issued on September 21, 1993, and consist of $41,000,000 of
10-year notes with an interest rate of 9.45% and $9,000,000 of 6-year notes with
an interest rate of 8.99%. Sinking fund payments begin under the 10-year notes
in 1998 and under the 6-year notes in 1997. The Senior Notes are unsecured.
The Senior Notes contain various covenants including covenants relating to
coverage of fixed charges, minimum level of tangible net worth, limitation on
leverage and limitation on restricted payments, for which payments are defined
to include Common Stock dividends. Under these covenants, at December 31, 1994,
$500,000 was available for the payment of Common Stock dividends.
A portion of the proceeds from the sale of the Senior Notes was used to redeem
all of the $40,000,000 principal amount of 13% Subordinated Notes on December
15, 1993, at par.
During the third quarter of 1993, the Company incurred an after-tax loss of
$1,300,000, or $0.35 per common share, in connection with the refinancing on
September 21, 1993, of its 13% Subordinated Notes and the termination of its
revolving credit facility. The extraordinary loss included interest expense on
the 13% Subordinated Notes from September 21, 1993 through December 15, 1993
(the date on which the Subordinated Notes were redeemed at par) and the
write-off of unamortized debt fees and related costs.
The mandatory principal payments for the next five years on the outstanding
long-term debt at December 31, 1994, are as follows:
<TABLE>
<CAPTION>
---------------------------------------------------------------------------
Years Ended December 31,
---------------------------------------------------------------------------
(in thousands)
<S> <C>
1995 $ --
1996 --
1997 3,000
1998 9,833
1999 9,833
2000 and thereafter 27,334
=======
</TABLE>
25
<PAGE> 15
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 6 - DEBT (continued)
At December 31, 1994, the Company had two unsecured $10,000,000 short-term lines
of credit to provide for the seasonal working capital needs of the Company. Both
$10,000,000 lines of credit are committed through April 30, 1995. One of the
$10,000,000 lines of credit provides for borrowings to bear interest at either
the prime rate of the lender or, alternatively, the Eurodollar rate plus 1.5%
and charges a facility fee of 0.5% per annum on the commitment (the Eurodollar
Line of Credit). The other $10,000,000 line of credit provides for borrowings to
bear interest at the prime rate of the lender and charges a facility fee of
0.75% per annum on the commitment (the Prime Line of Credit). The lines of
credit contain covenants identical to the Senior Notes.
During 1994, the Company had maximum borrowings outstanding under its lines of
credit of $5,500,000. During 1994, the weighted average interest rate under its
lines of credit was 7.3% and the weighted average borrowings outstanding under
its lines of credit was $1,544,000. During 1993, the Company had no borrowings
under either its lines of credit or its revolving credit facility which was
terminated on September 21, 1993.
In January 1995, the Company entered into a two-year agreement with a bank to
sell its trade accounts receivable on a nonrecourse basis. Under the facility,
the maximum amount that can be advanced to the Company pursuant to the sale of
trade accounts receivable at any time is $5,000,000 through April 30, 1995, and
$10,000,000 thereafter. The Company retains collection and service
responsibility, as agent for the purchaser, over any receivables sold. This
facility reduced the committed amount of the Eurodollar Line of Credit to
$5,000,000 through April 30, 1995, at which time the line of credit is
terminated.
In February 1995, the commitment of the Prime Line of Credit was extended to
April 30, 1996.
Total cash payments of interest (including duplicative interest related to the
refinancing of the Subordinated Notes and interest allocated to discontinued
operations) during 1994, 1993 and 1992 were $4,743,000, $6,501,000 and
$6,358,000, respectively.
NOTE 7 - PREFERRED STOCK
Class B Preferred Stock
At December 31, 1994 and 1993, the Company was authorized to issue 1,302,300
shares of Class B Preferred Stock, par value $.50 per share, which may be issued
in series from time to time at the discretion of the Board of Directors. Holders
of all series of Class B Preferred Stock share ratably as to rights to payment
of dividends and to amounts payable in event of liquidation, dissolution or
winding up of the Company. No dividends or payments in liquidation may be made
with respect to Common Stock or any other stock ranking junior as to dividends
or assets to the Class B Preferred Stock unless all accumulated dividends and
sinking fund payments on the Class B Preferred Stock have been paid in full and,
in the event of liquidation, unless the accumulated dividends and the
liquidation preference of the Class B Preferred Stock have been paid.
Series D
At December 31, 1994 and 1993, the Company had 487,400 shares of Class B
Cumulative Convertible Preferred Stock, Series D (Preferred Stock), issued and
outstanding. Holders of the Preferred Stock are entitled to a cumulative
dividend, payable quarterly, at the annual rate of 8.5% ($1.70 per share). The
Preferred Stock is redeemable at the option of the Company at any time, in whole
or in part, at a price of $20.00 per share. No purchases or redemptions of or
dividends on Common Stock may occur unless all accumulated dividends have been
paid on the Preferred Stock.
26
<PAGE> 16
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 7 - PREFERRED STOCK (continued)
Each share of Preferred Stock has a liquidating value of $20.00 per share and is
convertible into Common Stock at the rate of 1.4545 shares of Common Stock for
each share of Preferred Stock (equivalent to a conversion price of $13.75 per
common share), subject to adjustment under certain conditions. At December 31,
1994, a total of 708,923 shares of Common Stock was reserved for issuance upon
conversion of the Preferred Stock.
If six quarterly dividends on the Preferred Stock are unpaid, the holders of
Preferred Stock shall have the right, voting as a class, to elect two additional
persons to the Board of Directors of the Company until all such dividends have
been paid.
NOTE 8 - COMMON STOCK
Employee Stock Ownership Plans
The Company has two employee stock ownership plans, the Kerr Group, Inc.
Employee Incentive Stock Ownership Plan Trust formed in 1985 (ESOP I) and the
Kerr Group, Inc. 1987 Employee Incentive Stock Ownership Plan Trust formed in
1987 (ESOP II). Both plans are for the benefit of employees of the Company. The
Company borrowed funds from a group of banks, which in turn were loaned to the
plans for the purpose of purchasing shares of the Company's Common Stock. The
bank loans were repaid on February 28, 1992. The related Company loan to ESOP I
was repaid during 1993 and the loan to ESOP II was repaid during 1994.
ESOP I and ESOP II obtained the funds to repay loans primarily through the
receipt of tax deductible contributions made by the Company. The Company funded
such contributions primarily through the reduction of compensation and benefits,
and deferral of salary increases which it would otherwise have provided to its
employees. Total contribution expense for these plans related to continuing
operations was $472,000, $633,000 and $955,000 in 1994, 1993 and 1992,
respectively. For financial statement purposes, the bank loans were reflected as
a liability and the Company's loans to ESOP I and ESOP II were reflected as a
reduction in stockholders' equity.
Stock Options
Under the Company's Stock Option Plans for employees, options may be granted at
a price determined by the Stock Option Committee of the Board of Directors,
which may be less than market value. Options may be exercised during periods
established by such Committee; however, in no event may any option be exercised
more than ten years after the date of grant. All of the Company's currently
outstanding options generally vest in cumulative installments of 20% per year
commencing on the date of grant. Such options become exercisable in full upon
the occurrence of certain enumerated events, including certain changes in
control of the Company.
The options granted beginning in 1992 provide that the Company's stock price
must equal or exceed a triggering price per Common Share, which is higher than
the exercise price of the option, for ten consecutive trading days for the
options to be exercisable. The options granted during 1994 had triggering prices
ranging from $14.16 to $15.56 per Common Share and the options granted during
1993 had triggering prices of $12.50 per Common Share. The options granted
during 1992 had triggering prices of $10 per Common Share, which requirement was
met during 1994, and the options issued during 1992 are now exercisable.
27
<PAGE> 17
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 8 - COMMON STOCK (continued)
The following tabulation summarizes changes under the Company's Stock Option
Plans for employees during the years ended December 31, 1994, 1993 and 1992.
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------
1994 1993 1992
------------------------------------------------------------------------------------------
Number Of Number Of Number Of
Options Price Range Options Price Range Options Price Range
------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Options Outstanding:
Beginning of year 274,000 $5 3/8 - 8 5/16 198,850 $5 3/8 - 11 7/16 127,750 $ 7 1/8 - 11 7/16
Granted 6,500 9 7/16 - 10 3/8 157,500 8 - 8 5/16 90,000 5 3/8
Exercised (10,400) 5 3/8 - 7 1/8 -- --
Cancelled (18,000) 5 3/8 - 8 5/16 (36,000) 5 3/8 - 10 3/4 (8,900) 5 3/8 - 11 7/16
Expired -- (46,350) 5 3/8 - 11 7/16 (10,000) 10 1/16
------------------------------------------------------------------------------------------
End of year 252,100 5 3/8 - 10 3/8 274,000 5 3/8 - 8 5/16 198,850 5 3/8 - 11 7/16
------------------------------------------------------------------------------------------
Exercisable at end of year:
Currently exercisable 70,900 56,200 95,451
Exercisable if Common
Stock trades at
triggering prices of
between $12.50 and
$15.56, or above 57,501 31,500 --
------------------------------------------------------------------------------------------
Total 128,401 87,700 95,451
------------------------------------------------------------------------------------------
Available for grant at
end of year 22,497 20,100 13,250
==========================================================================================
</TABLE>
In addition, the 1988 Stock Option Plan for Non-Employee Directors (the 1988
Plan), consisting of 80,000 shares, and 1993 Stock Option Plan for Non-Employee
Directors (the 1993 Plan), consisting of 60,000 shares, provide for the grant of
options to purchase Common Stock to members of the Board of Directors of the
Company who are not employees of the Company or any of its subsidiaries or
affiliates. The option price of each option granted under these plans is the
fair market value of Common Stock on the date of grant. Options under the 1988
Plan are immediately exercisable upon grant and will expire five years from the
date of grant. Future grants of options under the 1988 Plan can only be made to
Directors other than the Company's current Directors. Options under the 1993
Plan are exercisable six months after date of grant, provided that the Company's
stock price equals or exceeds $12.50 per Common Share for ten consecutive
trading days. Options under the 1993 Plan expire ten years from the date of
grant.
28
<PAGE> 18
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 8 - COMMON STOCK (continued)
The following tabulation summarizes changes under the Company's Stock Option
Plans for Non-Employee Directors during the years ended December 31, 1994, 1993
and 1992.
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------
1994 1993 1992
--------------------------------------------------------------------------------
Number Of Number Of Number Of
Options Price Range Options Price Range Options Price Range
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Options Outstanding:
Beginning of year 60,000 $8 3/16 60,000 $11 5/16 60,000 $11 5/16
Granted -- 60,000 8 3/16 --
Exercised -- -- --
Expired -- (60,000) 11 5/16 --
--------------------------------------------------------------------------------
End of year 60,000 8 3/16 60,000 8 3/16 60,000 11 5/16
--------------------------------------------------------------------------------
Exercisable at end of year:
Currently exercisable -- -- 60,000
Exercisable if Common
Stock trades at $12.50
per share or above 60,000 60,000 --
--------------------------------------------------------------------------------
Total 60,000 60,000 60,000
--------------------------------------------------------------------------------
Available for grant at
end of year 80,000 80,000 20,000
================================================================================
</TABLE>
The aggregate option price for all outstanding options at December 31, 1994,
1993 and 1992 was $2,359,000, $2,508,000 and $2,129,000, respectively. At the
time options are exercised, the common stock account is credited with the par
value of the shares issued and additional paid-in capital is credited with the
cash proceeds in excess of par value. The Company's Stock Option Plans permit
the grant of both incentive stock options and nonstatutory stock options.
Restricted Stock Plan
In 1985 and 1984, the Company sold 65,000 shares and 75,000 shares,
respectively, of Treasury Stock to an officer of the Company at a price of $1.00
per share. The shares were sold subject to forfeiture and restrictions on
disposition under conditions as defined in the Restricted Stock Purchase
Agreements between the Company and the officer. As of December 31, 1994, the
restrictions on all 140,000 shares have been released. Compensation expense was
recorded in the periods benefitted as the difference between the fair market
value on the date of sale and the sale price. During 1993 and 1992, total shares
of 15,000 and 16,000, respectively, were released from restriction.
29
<PAGE> 19
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 9 - DISCONTINUED OPERATIONS
On December 11, 1992, the Company sold its Metal Crown Business for a cash
payment of approximately $7,200,000. The sale of the Metal Crown Business
resulted in a pre-tax loss in 1992 of $3,000,000 ($2,600,000 after-tax or $0.71
per common share).
On February 28, 1992, the Company sold its Commercial Glass Container Business
for a cash payment of approximately $68,000,000. The sale of the Commercial
Glass Container Business resulted in a pre-tax loss in 1991 of $4,859,000
($2,982,000 after-tax or $0.81 per common share).
The results of the discontinued operations have been reported separately in the
Consolidated Statements of Earnings (Loss). Summarized results of the
discontinued operations for the year ended December 31, 1992, are as follows:
<TABLE>
<CAPTION>
----------------------------------------------------------------------
1992
----------------------------------------------------------------------
(in thousands)
<S> <C>
Net sales $ 37,690
Costs and expenses 41,352
Allocated interest expense 726
--------
Loss before income taxes (4,388)
Benefit for income taxes (1,704)
--------
Loss from discontinued operations (2,684)
Loss on sale of Metal Crown Business (2,600)
--------
Total loss related to discontinued operations $ (5,284)
========
</TABLE>
Interest expense was allocated to the Commercial Glass Container Business based
upon the ratio of the Commercial Glass Container Business net assets to total
Company net assets.
NOTE 10 - RENTAL EXPENSE AND LEASE COMMITMENTS
The Company occupies certain manufacturing facilities, warehouse facilities and
office space and uses certain automobiles, machinery and equipment under
noncancelable lease arrangements. Rent expense related to continuing operations
under these agreements was $3,085,000, $3,008,000 and $2,864,000 in 1994, 1993
and 1992, respectively.
30
<PAGE> 20
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 10 - RENTAL EXPENSE AND LEASE COMMITMENTS (continued)
At December 31, 1994, the Company was obligated under various noncancelable
leases. Calendar year minimum rental commitments under the Company's leases are
as follows:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------
Total Real Personal
Years Ended December 31, Commitment Property Property
----------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C>
1995 $ 3,363 $ 2,682 $681
1996 3,409 3,082 327
1997 3,276 3,082 194
1998 3,175 3,062 113
1999 3,142 3,077 65
2000 through 2008 22,866 22,866 --
</TABLE>
Real estate taxes, insurance and maintenance expenses are obligations of the
Company. Generally, in the normal course of business, leases that expire will be
renewed or replaced by leases on other properties.
NOTE 11 - COMMITMENTS AND CONTINGENCIES
In connection with the Company's Workers' Compensation insurance programs, the
Company has pledged a certificate of deposit in the amount of $900,000 to secure
surety bonds. The Company's estimate of its ultimate liability relating to these
programs has been reflected on the Company's consolidated balance sheet as a
liability.
The Company has been designated by the Environmental Protection Agency as a
potentially responsible party to share in the remediation costs of several
waste disposal sites. Pursuant to the sale of the Metal Crown Business, the
Company has indemnified the buyer for certain environmental remediation costs.
In addition, pursuant to the sale of the Commercial Glass Container Business,
the Company has indemnified the buyer for certain environmental remediation
costs and has retained ownership of certain real property used in the
Commercial Glass Container Business which may require environmental
remediation. During 1994, the Company made cash payments related to
environmental remediation of $974,000. As of December 31, 1994, the Company
has accrued a reserve of approximately $1,100,000 for the expected remaining
costs associated with environmental remediation described above and in
connection with its current manufacturing plants. The amount of the reserve
was based in part on an environmental study performed by an independent
environmental engineering firm. The Company believes that this reserve is
adequate.
NOTE 12 - INDUSTRY SEGMENT INFORMATION
The Company operates in two industry segments, Plastic Products and Consumer
Products. Operations in the Plastic Products segment involve: 1) the manufacture
and sale of a variety of plastic products including child-resistant closures,
tamper-evident closures, prescription packaging products, jars and other plastic
closures and containers; and 2) the sale of glass prescription products.
Operations in the Consumer Products segment involve: 1) the manufacture and sale
of caps and lids for home canning, and 2) the sale of glass jars and a line of
pickling spice and pectin products for home canning, iced tea tumblers and
beverage mugs. Intersegment sales are not material. No customer accounted for
more than 10% of net sales from continuing operations in 1994, 1993 or 1992.
Segment earnings is income from continuing operations before general corporate
expenses, interest expense, interest and other income and provision (benefit)
for income taxes.
Identifiable assets by industry segment are those assets that are used in the
Company's operations in each industry segment. Corporate assets are principally
cash and cash equivalents, the deferred income tax asset, land and buildings
formerly used as a glass container manufacturing plant that is being held for
sale, certificates of deposit and certain intangible assets.
31
<PAGE> 21
NOTE 12 - INDUSTRY SEGMENT INFORMATION (continued) A summary of the Company's
operations by industry segment follows:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------
Years Ended December 31, 1994 1993 1992
-----------------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C>
Net sales:
Plastic Products $ 106,792 $ 98,533 $ 92,557
Consumer Products 32,364 28,839 34,053
-----------------------------------------
Total $ 139,156 $127,372 $126,610
=========================================
Segment earnings (loss):
Plastic Products $ 12,055 $ 11,428 $ 9,165
Consumer Products (a) 3,213 (2,707) 4,982
-----------------------------------------
Total 15,268 8,721 14,147
General corporate expenses 4,903 4,866 5,212
-----------------------------------------
Earnings from continuing operations before
interest and income taxes 10,365 3,855 8,935
Interest expense 4,985 5,680 5,815
Interest and other income (369) (858) (1,293)
-----------------------------------------
Earnings (loss) from continuing operations before income taxes $ 5,749 $ (967) $ 4,413
=========================================
</TABLE>
(a)The 1993 segment loss for Consumer Products includes a $4,500,000 pre-tax
loss associated with the relocation of the Company's home canning cap and lid
manufacturing operations. See Note 2 of notes to consolidated financial
statements for further information.
Identifiable assets, depreciation and amortization and capital expenditures for
each segment are as follows:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------
Years Ended December 31, 1994 1993 1992
-----------------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C>
Identifiable Assets:
Plastic Products $ 84,283 $ 69,834 $ 64,306
Consumer Products 22,782 20,403 12,370
Corporate 16,635 27,112 28,556
-----------------------------------------
Total $ 123,700 $117,349 $105,232
=========================================
Depreciation and amortization:
Plastic Products $ 6,946 $ 6,600 $ 5,839
Consumer Products 236 197 204
Corporate 549 567 608
-----------------------------------------
Total $ 7,731 $ 7,364 $ 6,651
=========================================
Capital expenditures:
Plastic Products $ 13,906 $ 8,587 $ 6,853
Consumer Products 1,472 1,920 601
Corporate 270 749 905
-----------------------------------------
Total $ 15,648 $ 11,256 $ 8,359
=========================================
</TABLE>
32
<PAGE> 22
NOTE 13 - CONDENSED QUARTERLY DATA FOR 1994 AND 1993 (UNAUDITED)
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------
Three Months Ended March 31 June 30 Sept. 30 Dec. 31
-----------------------------------------------------------------------------------------------------------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C>
1994
Net sales $29,380 $41,004 $40,624 $28,148
Gross profit 9,961 12,291 12,007 8,541
Net earnings 263 1,599 1,310 232
Preferred stock dividends 207 207 207 208
-------------------------------------------------------
Net earnings applicable to
common stockholders $ 56 $ 1,392 $ 1,103 $ 24
=======================================================
Net earnings per common share:
Primary $ 0.02 $ 0.38 $ 0.30 $ 0.01
Fully diluted $ 0.02 $ 0.36 $ 0.30 $ 0.01
=======================================================
1993
Net sales $26,674 $38,113 $34,448 $28,137
Gross profit 8,358 11,371 9,832 8,889
Earnings (loss) from continuing operations (a) (295) 1,398 552 (1,988)
Extraordinary loss on retirement of debt (b) -- -- (1,300) --
-------------------------------------------------------
Net earnings (loss) (295) 1,398 (748) (1,988)
Preferred stock dividends 207 207 207 208
-------------------------------------------------------
Net earnings (loss) applicable to
common stockholders $ (502) $ 1,191 $ (955) $(2,196)
=======================================================
Earnings (loss) per common share:
Earnings (loss) per common share from
continuing operations (a) $ (0.14) $ 0.32 $ 0.09 $ (0.60)
Extraordinary loss per common share
on retirement of debt (b) -- -- (0.35) --
-------------------------------------------------------
Net earnings (loss) per common share $ (0.14) $ 0.32 $ (0.26) $ (0.60)
=======================================================
</TABLE>
(a)The loss from continuing operations for the fourth quarter of 1993 includes
a $4,500,000 pre-tax loss ($2,754,000 after-tax or $0.75 per common share)
associated with the relocation of the Company's home canning cap and lid
manufacturing operations and a tax benefit of $369,000 ($0.10 per common
share) related to a reduction in the income tax valuation reserve. See Notes
2 and 3 of notes to consolidated financial statements for further
information.
(b)See Note 6 of notes to consolidated financial statements for information
regarding the extraordinary loss on retirement of debt.
33
<PAGE> 23
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------
Years Ended December 31, 1994 1993 1992 1991 1990
--------------------------------------------------------------------------------------------------------------------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Net sales $ 139,156 $ 127,372 $ 126,610 $ 125,598 $122,168
==========================================================================
Segment earnings (loss):
Plastic Products $ 12,055 $ 11,428 $ 9,165 $ 9,077 $ 8,121
Consumer Products (a) 3,213 (2,707) 4,982 1,804 (294)
--------------------------------------------------------------------------
Total 15,268 8,721 14,147 10,881 7,827
General corporate expenses 4,903 4,866 5,212 5,568 6,484
--------------------------------------------------------------------------
Earnings from continuing operations
before interest and income taxes $ 10,365 $ 3,855 $ 8,935 $ 5,313 $ 1,343
==========================================================================
Earnings (loss) from continuing
operations before income taxes (a) $ 5,749 $ (967) $ 4,413 $ 1,094 $ (2,873)
Provision (benefit) for income taxes (b) 2,345 (634) 1,826 700 (1,132)
--------------------------------------------------------------------------
Earnings (loss) from continuing
operations 3,404 (333) 2,587 394 (1,741)
Earnings (loss) from
discontinued operations (c) -- -- (5,284) (2,973) 489
Extraordinary loss on retirement
of debt (d) -- (1,300) -- -- --
--------------------------------------------------------------------------
Net earnings (loss) 3,404 (1,633) (2,697) (2,579) (1,252)
Preferred stock dividends 829 829 829 829 829
Net earnings (loss) applicable to
common stockholders $ 2,575 $ (2,462) $ (3,526) $ (3,408) $ (2,081)
==========================================================================
Earnings (loss) per common share:
Earnings (loss) per common share
from continuing operations (a) (b) $ 0.70 $ (0.32) $ 0.48 $ (0.12) $ (0.70)
Earnings (loss) per common share
from discontinued operations (c) -- -- (1.44) (0.81) 0.13
Extraordinary loss per common share
on retirement of debt (d) -- (0.35) -- -- --
--------------------------------------------------------------------------
Net earnings (loss) per common share $ 0.70 $ (0.67) $ (0.96) $ (0.93) $ (0.57)
==========================================================================
Cash dividends per common share $ -- $ -- $ -- $ -- $ .33
==========================================================================
</TABLE>
(a)The 1993 segment loss for Consumer Products includes a $4,500,000 pre-tax
loss ($2,754,000 after-tax or $0.75 per common share) associated with the
relocation of the Company's home canning cap and lid manufacturing
operations. See Note 2 of notes to consolidated financial statements for
further information.
(b)The benefit for income taxes for 1993 includes a tax benefit of $369,000
($0.10 per common share) related to a reduction in the income tax valuation
reserve. See Note 3 of notes to consolidated financial statements for further
information.
(c)See Note 9 of notes to consolidated financial statements for information
regarding discontinued operations.
(d)See Note 6 of notes to consolidated financial statements for information
regarding the extraordinary loss on retirement of debt.
34
<PAGE> 24
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------
Years Ended December 31, 1994 1993 1992 1991 1990
--------------------------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C> <C> <C>
Net property, plant and equipment $ 48,341 $ 40,424 $ 36,383 $ 34,395 $ 36,240
Depreciation and amortization 7,731 7,364 6,651 6,209 6,208
Capital expenditures (e) 15,648 11,256 8,359 4,391 6,980
Total assets 123,700 117,349 105,232 165,883 165,614
Senior long-term debt 50,000 50,000 -- 55,647 52,607
Subordinated long-term debt -- -- 40,000 40,000 40,000
=========================================================================
Stockholders' equity before
pension adjustment $ 38,260 $ 34,899 $ 36,464 $ 38,338 $ 40,091
Excess of additional pension liability over
unrecognized prior service cost,
net of tax benefits (5,207) (6,835) -- -- --
-------------------------------------------------------------------------
Stockholders' equity $ 33,053 $ 28,064 $ 36,464 $ 38,338 $ 40,091
=========================================================================
Weighted average number of
common shares outstanding 3,674 3,669 3,675 3,675 3,675
=========================================================================
</TABLE>
(e)During 1991 and 1990, in addition to the capital expenditures shown above,
the Company entered into long-term operating leases for manufacturing
equipment costing $1,623,000 and $1,331,000, respectively.
35
<PAGE> 25
RESULTS OF OPERATIONS -- 1994 COMPARED TO 1993
Net sales of the Company increased to $139,156,000 in 1994 from $127,372,000 in
1993.
Net sales of the Plastic Products Business increased 8.4% to $106,792,000 in
1994 from 1993. The Company's plastic products manufacturing facilities operated
at approximately 74% of capacity during 1994.
The Plastic Products Business manufactures a variety of plastic closures,
prescription packaging products, bottles and jars. Although unit sales of these
products have generally increased in recent years, sales and profitability of
these products could be affected in the future by the availability and pricing
of resin. During 1994, the average cost per pound of polypropylene, the primary
resin used by the Plastic Products Business, increased 31%. The impact of this
increase was largely mitigated by the ability of the Plastic Products Business,
consistent with industry practice, to pass-through resin cost increases for all
product lines except the prescription packaging product line. The higher resin
costs did reduce 1994 results in the prescription packaging product line.
Net sales of the Consumer Products Business increased 12.2% to $32,364,000 in
1994 compared to 1993 due primarily to higher unit sales as a result of
favorable growing conditions as compared to the adverse growing conditions
experienced during 1993.
During August 1994, the Company completed the relocation of its home canning cap
and lid manufacturing operations to Jackson, Tennessee from Chicago, Illinois.
The new facility is expected to result in improved efficiencies and cost
reductions of approximately $3,000,000 pre-tax per year ($1,836,000 after-tax,
or 50 cents per common share per year). In anticipation of the relocation, the
Company produced home canning caps and lids in excess of normal requirements. As
a result, the Company will not realize significant earnings improvement from the
relocation until 1996, when inventories and production volume approach normal
levels.
During August through December of 1994, the Company's cap and lid manufacturing
facility located in Jackson, Tennessee operated at approximately 26% of
capacity. This level of operations primarily resulted because the new plant was
in its start-up phase.
Home canning supplies sales of the Consumer Products Business are dependent upon
favorable growing conditions. In addition, the Company believes that the demand
for home canning supplies has declined in recent years. If this decline were to
increase materially, it could have an adverse effect on the Company.
Cost of sales of the Company increased to $96,356,000 in 1994 compared to
$88,922,000 in 1993 primarily due to higher unit sales and higher resin costs.
Gross profit as a percent of net sales increased to 30.8% for 1994 as compared
to 30.2% for 1993.
Selling, warehouse, general and administrative expenses increased $2,340,000 or
7.8% during 1994, as compared to 1993, primarily due to higher selling expenses,
additional employees and salary and wage increases.
The Company recorded a pre-tax reserve of $4,500,000 in 1993 for the expected
costs associated with the relocation of the home canning cap and lid
manufacturing operations. The pre-tax loss consisted primarily of accruals for
i) the early recognition of retiree health care and pension expense, severance,
workers' compensation costs and insurance continuation costs of approximately
$2,500,000, ii) asset retirement and related facility closing costs of
approximately $1,000,000 and iii) moving and relocation costs of approximately
$700,000. In 1994, the Company made cash payments related to such accruals for
i) the early recognition of retiree health care and pension expense, severance,
workers' compensation costs and insurance continuation costs of approximately
$1,500,000, ii) asset retirement and related facility closing costs of
approximately $600,000, iii) moving and relocation costs of approximately
$600,000 and iv) other costs of approximately $300,000. In addition, during
1994, approximately $300,000 was charged against such accruals related to the
book value of fixed assets retired. The remaining accruals primarily relate to
retiree health costs and pensions which will be paid over a number of years.
Segment earnings of the Plastic Products Business, the larger of the Company's
two businesses, increased $627,000 to $12,055,000 in 1994 compared to
$11,428,000 in 1993 primarily due to higher sales. Segment earnings of the
Consumer Products Business increased to $3,213,000 in 1994 compared to
$1,793,000 in 1993, excluding the loss on plant relocation in 1993, due
primarily to higher sales as a result of favorable growing conditions.
36
<PAGE> 26
Earnings before interest and income taxes increased $2,010,000 to $10,365,000 in
1994 compared to $8,355,000 in 1993, excluding the loss on plant relocation in
1993, due primarily to higher earnings in both the Consumer Products and Plastic
Products Businesses.
Net interest expense decreased $206,000 during 1994, as compared to 1993, as a
result of a refinancing in 1993.
The increase in the income tax provision in 1994 compared to 1993 is due to
higher pre-tax earnings and the recognition in 1993 of an income tax benefit of
$369,000 related to a reduction in the income tax valuation reserve.
During 1993, the Company incurred an after-tax loss of $1,300,000 in connection
with the refinancing on September 21, 1993 of its 13% Subordinated Notes and the
termination of its revolving credit facility. The extraordinary loss included
interest expense on the 13% Subordinated Notes from September 21, 1993 through
December 15, 1993 (the date on which the Subordinated Notes were redeemed at
par) and the write-off of unamortized debt fees and related costs.
Due to competitive pressures, there are occasions when the Company is unable to
pass-through to customers the full extent of cost increases. Other than the
inability on all occasions to pass on cost increases, inflation and changes in
prices did not have a material effect on the Company's results of operations.
RESULTS OF CONTINUING OPERATIONS -- 1993 COMPARED TO 1992
Net sales of the Company increased to $127,372,000 in 1993 from $126,610,000 in
1992.
Net sales of the Plastic Products Business increased 6.5% to $98,533,000 in 1993
from 1992. The Company's plastic products manufacturing facilities operated at
approximately 83% of capacity during 1993.
Net sales of the Consumer Products Business decreased 15.3% to $28,839,000 in
1993 compared to 1992 due primarily to lower unit sales as a result of adverse
growing conditions in many areas of the country where the Company markets home
canning supplies. The cap and lid manufacturing facility of the Consumer
Products Business operated at approximately 76% of capacity in 1993.
Cost of sales of the Company increased slightly to $88,922,000 in 1993 compared
to $88,730,000 in 1992.
Selling, warehouse, general and administrative expenses increased 4.0% to
$30,095,000 in 1993 compared to $28,945,000 in 1992.
Earnings from continuing operations before interest, income taxes and the loss
on plant relocation decreased $580,000 to $8,355,000 in 1993 from $8,935,000 in
1992, due primarily to lower earnings in the Consumer Products Business.
Segment earnings of the Plastic Products Business, the larger of the Company's
two businesses, increased 25% to $11,428,000 in 1993, compared to $9,165,000 in
1992, primarily due to higher sales. Segment earnings of the Consumer Products
Business, excluding the loss on plant relocation, declined to $1,793,000 in
1993, compared to $4,982,000 in 1992, due primarily to lower sales as a result
of adverse growing conditions.
The decrease in the income tax provision in 1993 compared to 1992 is due to
lower pre-tax earnings and the recognition of an income tax benefit of $369,000
related to a reduction in the income tax valuation reserve.
LIQUIDITY AND CAPITAL RESOURCES
During 1994, the principal use of cash flow was to fund investing activities,
primarily capital expenditures of $15,649,000, payments associated with the
relocation of the home canning operations of $3,005,000 and other payments
related to discontinued operations of $2,598,000. Cash flow was provided through
the reduction of the Company's cash balances of $9,068,000, cash from operations
of $6,425,000 and cash from financing activities of $5,457,000.
During 1993, the principal use of cash flow was to fund investing activities,
primarily capital expenditures of $11,256,000 and payments associated with
discontinued operations of $2,500,000. Cash flow was provided through the
reduction of the Company's cash balances of $7,922,000 and cash from financing
activities of $7,563,000. During 1993, the Company sold $50,000,000 principal
amount of unsecured Senior Notes to a group of insurance companies and used a
portion of the proceeds from that sale to redeem all of the $40,000,000
principal amount of 13% Subordinated Notes.
37
<PAGE> 27
During 1992, the Company used primarily all of the $67,719,000 received from the
sale of its Commercial Glass Container Business to repay all amounts outstanding
under the Company's then-existing bank credit agreements and ESOP bank loan
agreements, and such agreements were terminated. Other sources of cash flow
during 1992 were $7,208,000 from the sale of the Metal Crown Business,
$6,709,000 from the Company's continuing operations and $5,000,000 from the
liquidation of a long-term certificate of deposit which had been used as
collateral under a letter of credit. Other uses of cash flow during 1992 were
$13,648,000 related to the Company's discontinued operations and $8,359,000 to
fund capital expenditures for its continuing operations.
During 1994 and 1993, inventories increased by $6,258,000 and $5,712,000,
respectively, due primarily to a) increases in inventories of home canning caps
and lids in anticipation of the relocation of the home canning cap and lid plant
and as a result of low sales levels in 1993, and b) increases in inventories of
the Plastic Products Business due to higher quantities and costs of resin, and
higher quantities of finished goods. It is anticipated that total inventories
will decline in 1995.
Capital expenditures of approximately $16,000,000 are planned for 1995.
Since the third quarter of 1990, the Company has not declared any dividends on
its Common Stock.
The Company's Senior Note Agreement limits the payment of dividends on Common
Stock. Under the most restrictive covenant of such agreement, $500,000 was
available for the payment of dividends on Common Stock as of December 31, 1994.
At December 31, 1994, the Company had two unsecured $10,000,000 short-term lines
of credit to provide for the seasonal working capital needs of the Company. At
December 31, 1994, the Company had $5,500,000 borrowed under the lines of
credit. The Company had no borrowings outstanding under its working capital
credit facilities as of December 31, 1993 or 1992.
In January 1995, the Company entered into a two-year agreement with a bank to
sell its trade accounts receivable on a nonrecourse basis. Under the facility,
the maximum amount that can be advanced to the Company pursuant to the sale of
trade accounts receivable at any time is $5,000,000 through April 30, 1995, and
$10,000,000 thereafter. The Company retains collection and service
responsibility, as agent for the purchaser, over any receivables sold. This
facility reduced the committed amount of one of the lines of credit to
$5,000,000 through April 30, 1995, at which time the line of credit is
terminated.
In February 1995, the commitment of the other line of credit was extended to
April 30, 1996.
The ratio of current assets to current liabilities at December 31, 1994 and 1993
was 2.5 and 3.1, respectively. The decline in the ratio of current assets to
current liabilities at December 31, 1994, compared to December 31, 1993, is due
to the $5,500,000 of short-term borrowings outstanding at December 31, 1994. At
December 31, 1994 and 1993, the ratio of total debt to total capitalization was
62.7% and 64.1%, respectively.
The Company has recorded deferred income tax assets of $4,046,000 on its
Consolidated Balance Sheet as of December 31, 1994. In order to fully realize
this deferred income tax asset, the Company will need to generate future taxable
income of at least $24,000,000 prior to expiration of net operating loss
carryforwards which will begin to expire in 2006. Based upon the Company's
recent pre-tax earnings, adjusted for significant nonrecurring items, and
projections of future taxable income over the period in which the deferred
income tax assets are deductible, management believes it is more likely than not
that the Company will realize the benefit of the deferred income tax asset.
There can be no assurance, however, that the Company will generate any specific
level of continuing earnings.
At December 31, 1994, the Company had unused sources of liquidity consisting of
cash and cash equivalents of $2,261,000, unused committed credit under the bank
lines of credit of $14,500,000 of which $10,404,000 could be borrowed under the
terms of the Company's Senior Note Agreement, a tax net operating loss
carryforward of $4,524,000, a minimum tax credit carryforward of $1,522,000 and
other tax credit carryforwards of $308,000. The Company believes that its
financial resources, including internally generated funds and amounts available
under its receivables facility and line of credit, are adequate to meet its
foreseeable needs.
38
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES
<TABLE>
<CAPTION>
NAME STATE OF INCORPORATION
---- ----------------------
<S> <C>
SANTA FE PLASTIC CORPORATION CALIFORNIA
</TABLE>
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors
of Kerr Group, Inc.:
We consent to the incorporation by reference in the Registration Statement No.
2-92721 on Form S-3, Registration Statement No. 33- 3517 on Form S-3,
Registration Statement No. 33-18463 on Form S-8 and Registration Statement No.
33-31347 on Forms S-3 and S-8 of Kerr Group, Inc. (Kerr) of our report dated
February 28, 1995 relating to the consolidated balance sheets of Kerr and
subsidiaries as of December 31, 1994 and 1993 and the related consolidated
statements of earnings (loss), common stockholders' equity and cash flow and
related schedule for each of the years in the three-year period ended December
31, 1994, which is incorporated by reference in the December 31, 1994 annual
report on Form 10-K of Kerr.
Our report refers to a change in Kerr's method of accounting for postretirement
benefits other than pensions and income taxes in 1993.
KPMG Peat Marwick LLP
Los Angeles, California
March 29, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONSOLIDATED STATEMENTS OF EARNINGS (LOSS) AND CONSOLIDATED BALANCE
SHEETS 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-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> DEC-31-1994
<CASH> 2,261
<SECURITIES> 0
<RECEIVABLES> 16,482
<ALLOWANCES> 170
<INVENTORY> 34,290
<CURRENT-ASSETS> 57,389
<PP&E> 102,847
<DEPRECIATION> 54,506
<TOTAL-ASSETS> 123,700
<CURRENT-LIABILITIES> 22,807
<BONDS> 50,000
<COMMON> 2,110
0
9,748
<OTHER-SE> 21,195
<TOTAL-LIABILITY-AND-EQUITY> 123,700
<SALES> 139,156
<TOTAL-REVENUES> 139,525
<CGS> 96,356
<TOTAL-COSTS> 96,356
<OTHER-EXPENSES> 32,435
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,985
<INCOME-PRETAX> 5,749
<INCOME-TAX> 2,345
<INCOME-CONTINUING> 3,404
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,404
<EPS-PRIMARY> 0.70
<EPS-DILUTED> 0.70
</TABLE>
